The House Financial Services Committee voted to send to the full House of Representatives a bill that would increase the potential civil monetary penalty amounts that the SEC is authorized to obtain in certain enforcement actions.

Introduced in July by Representative Katie Porter (D-CA), H.R. 3641 ("Stronger Enforcement of Civil Penalties Act of 2019") would:

  • expand the penalties for individuals who violate SEC orders or federal court injunctions; and

  • include a fourth tier of monetary penalties for individuals who were, in the last five years, either (i) criminally convicted for securities fraud or (ii) ordered by the SEC to provide monetary, equitable or administrative relief charges relating to securities fraud.

The Stronger Enforcement of Civil Penalties Act of 2019 is a straightforward bill that provides a significant increase in the amount of civil penalties available to the SEC in enforcement actions for violations of the federal securities laws. The most interesting aspect of the bill is the creation of a fourth tier of penalties for recidivists that increases the maximum penalty allowed in certain cases to three times the otherwise applicable amount. The need for this additional tier is questionable. While three x penalties for recidivists lead to larger penalties in certain cases, it seems unlikely that the threat of an increased penalty — on top of the significant penalty amounts already available to the SEC — would do much to change the behavior of someone who otherwise is inclined to violate federal securities laws. It also would give the SEC more leverage in settlement negotiations and increase the stakes for those wrongly accused.

Commentary

The Stronger Enforcement of Civil Penalties Act of 2019 is a straightforward bill that provides a significant increase in the amount of civil penalties available to the SEC in enforcement actions for violations of the federal securities laws. The most interesting aspect of the bill is the creation of a fourth tier of penalties for recidivists that increases the maximum penalty allowed in certain cases to three times the otherwise applicable amount. The need for this additional tier is questionable. While three x penalties for recidivists lead to larger penalties in certain cases, it seems unlikely that the threat of an increased penalty — on top of the significant penalty amounts already available to the SEC — would do much to change the behavior of someone who otherwise is inclined to violate federal securities laws. It also would give the SEC more leverage in settlement negotiations and increase the stakes for those wrongly accused.