The SEC Penalties Act of 2012 Would Create Tough Financial Punishments for Securities Fraud

The Stronger Enforcement of Civil Penalties Act of 2012, is bipartisan legislation that seeks to enhance the Commission’s power to clamp down on violations of securities law while raising the statutory ceilings on civil monetary penalties by tying a penalty’s size to the degree of harm wrought and amount of investor losses sustained. This bill is S. 3416 and is also known as the SEC Penalties Act. It was introduced by Senators Chuck Grassley (R-Iowa) and Jack Reed (D-RI).

Currently, the SEC is only allowed to fine individuals that violate securities laws no more than $150,000/offense. Institutions can be penalized up to $725,000 maximum. If a case goes to federal court, the Commission has sometimes been able to determine a penalty according to the gross amount of gains that were ill-gotten.

The bill raises the cap per securities law violation offense to $10 million for entities and $1 million for individuals. If how much was made because of the misconduct and the penalty are linked, the Commission could up the penalty times three. Penalties could also be tripled for a recidivist that has had a securities fraud conviction or was the target of administrative relief by the SEC in the last 5 years. The Commission could assess in-house penalties for even cases not heard in federal court.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities lawyers have long been outspoken critics about any failures to hold financial firms and representatives liable for the misconduct not just civilly-whether via arbitration or in court-but also through he criminal justice system. We have taken great offense by regulators’ failure to not just catch offenders but also hold them substantially liable for the harm that they have caused. There are just too many individuals and entities on Wall Street paying too little a price for what they’ve done while the investors are the ones that suffer.

With the SEC Penalties Act, for the less serious securities law violations of manipulation, deceit, fraud, or reckless/intentional disregard of a regulatory requirement the maximum penalty for each violation for an entity would be up to $500,000 (or the gross pecuniary gain) and $100,000 or the gross pecuniary gain for an offending individual. For violations not involving these wrongdoings, the maximum penalty for an individual would be gross pecuniary gain or $10,000. For entities, it would be gross pecuniary gain or $100,000.

Senator Reed, who is the Banking Subcommittee on Securities, Insurance, and Investment chairman, said the bill provides the SEC with additional tools to truly hold Wall Street accountable for wrongdoing. He also said that stricter oversight and better anti-fraud laws are necessary to protect investors and taxpayers. Senator Grassley spoke about how a fine imposed against a Wall Street company has to be an actual “deterrent” and not merely “decimal dust.”

Stronger Enforcement of Civil Penalties Act

Reed, Grassley Seek Tougher Penalties for Wall Street Fraud, Senator Jack Reed, July 23, 2012

More Blog Posts:
Trading in Securities of 379 Microcap Companies Suspended in SEC’s Fraud Crackdown, Stockbroker Fraud Blog, May 14, 2012

SEC Chairman Mary Schapiro Stands By Agency’s 2011 Enforcement Record,
Stockbroker Fraud Blog, March 15, 2012

Several Claims in Securities Fraud Lawsuit Against Ex-IndyMac Bancorp Executives Are Dismissed by Federal Judge, Institutional Investor Securities Blog, May 30, 2012