[Congressional Record Volume 159, Number 22 (Tuesday, February 12, 2013)]
[Senate]
[Page S660]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself, Mr. Grassley, and Mr. Leahy):
  S. 286. A bill to enhance civil penalties under the Federal 
securities laws, and for other purposes; to the Committee on Banking, 
Housing, and Urban Affairs.
  Mr. REED. Mr. President, today I am reintroducing the Strengthening 
Enforcement of Civil Penalties Act or the SEC Penalties Act with my 
colleague, Senator Grassley. I am pleased that Senator Leahy has joined 
us in introducing the bill this year.
  The SEC Penalties Act will enhance the ability of securities 
regulators to protect investors and demand greater accountability from 
market players. Unfortunately, even after the financial crisis that 
crippled the economy, some on Wall Street continue to pursue profits at 
all costs, making the calculated decision to do wrong and move on. 
Without the consequence of meaningful penalties to impact decision-
making, I fear we will continue to witness a disturbing culture of 
misconduct by some on Wall Street.
  The current regime for securities law violations limits by statute 
the amount of penalties the Securities and Exchange Commission, SEC, 
can fine an institution or individual. During hearings I held in 2011 
in the Securities, Insurance, and Investment Banking Subcommittee, I 
found out how this limitation significantly ties the hands of the SEC 
in performing its enforcement duties. At that time, the agency had been 
criticized by a Federal judge for not obtaining a larger settlement 
against Citigroup, a major player in the financial crisis that ended up 
settling with the SEC in an amount that was a fraction of the cost the 
bank had inflicted on investors and the profits the bank had ultimately 
pocketed. The SEC explained that the low settlement amount was because 
it was statutorily prohibited from levying a larger penalty.
  The bill we are introducing seeks to substantially update and 
strengthen the SEC's civil penalties statute. This legislation should 
cause potential and current offenders to think twice before engaging in 
misconduct by increasing the statutory limits on civil monetary 
penalties, directly linking the size of these penalties to the scope of 
harm and associated investor losses, and substantially raising the 
financial stakes for repeat offenders of our nation's securities laws.
  Specifically, our bill would increase the per violation cap for the 
most egregious securities laws violations to $1 million per offense for 
individuals and $10 million per offense for entities. This will help 
ensure that the SEC's most severe, or ``tier three,'' penalties will 
help deter people from engaging in the most serious offenses, rather 
than have such wrongdoing be viewed as just the cost of doing business. 
Under existing law, the SEC can only penalize individual securities law 
violators a maximum of $150,000 per offense and institutions $725,000 
per offense.
  Our bill also would allow penalties equal to three times the economic 
gain of the violator. It provides a new calculation method that 
includes the amount of associated investor losses as part of the 
penalty determination. This should allow the SEC to address situations 
where the actual economic gain to the violator is relatively small 
compared to the extent of the wrongdoing or the harm caused to 
investors.
  The SEC Penalties Act also addresses the disconcerting trend of 
repeat offenders on Wall Street. Our bill includes two statutory 
changes to substantially improve the ability of the SEC's enforcement 
program to ratchet up penalties for recidivists.
  One provision would allow the SEC to triple the applicable penalty 
cap for recidivists who, within the preceding five years, have been 
criminally convicted of securities fraud or been the subject of a 
judgment or order imposing monetary, equitable, or administrative 
relief in any action alleging SEC fraud.
  The other provision would allow the SEC to seek a civil penalty if an 
individual or entity has violated an existing federal court injunction 
or bar imposed by the SEC. Many believe this approach would be more 
efficient, effective, and flexible than the current civil contempt 
remedy.
  Finally, under the SEC Penalties Act, the penalty relief available in 
administrative proceedings would be the same as it is in district 
court.
  The nearly one-half of all U.S. households that own securities 
deserve a strong cop on the beat that has the tools it needs to go 
after fraudsters and the difficult cases arising from our increasingly 
complex financial markets. The SEC Penalties Act will help by giving 
the SEC more tools to demand meaningful accountability from Wall Street 
and protect investors, which in turn will improve transparency and 
increase confidence in our financial system. I urge my colleagues to 
support this important bipartisan legislation.
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