If a bill recently introduced in Congress passes, the Securities and Exchange Commission (SEC) will have more ammunition to go after those who commit securities fraud. The proposed law, dubbed the Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2012, would raise the top limit on the penalties that the SEC can impose on security-law violators.
Now, in most cases, the SEC can only impose a maximum $150,000 fine per offense on individuals and a maximum $725,000 on institutions. The SEC Penalties Act would raise that upper limit to $1 million on individuals and $10 million on institutions. The maximum penalty would be tripled for repeat violators.
The proposed law is necessary, according to its sponsors, because the existing fines are too low to be effective deterrents. Institutions can simply absorb the fines as part of the cost of doing business. To Wall Street firms, the fines are just “decimal dust,” said Chuck Grassley, a co-sponsor of the bill. “A penalty should mean something,” he said, “and it should get the recidivists’ attention. I especially like the increased penalties for repeat offenders in this bill.”
The bill is a bipartisan effort. Grassley is a Republican Senator from Iowa, and his co-sponsor, Jack Reed, is a Democrat from Rhode Island who heads a Senate subcommittee overseeing the SEC.
Under the bill, the top penalties would be reserved for the most serious securities-law violations — those where the violators used fraud, deceit, manipulation, or deliberate or reckless disregard of the law to cause substantial loss to the victims or substantial gain to the violators.
Source: Businessweek, “Two U.S. Senators Propose Letting SEC Impose Bigger Penalties,” Joshua Gallu, July 23, 2012