Senators Jack Reed and Charles Grassley have introduced a bill to significantly increase the monetary penalties that can be assessed in civil lawsuits and administrative proceedings brought by the SEC. Enforcement actions in the form of civil lawsuits have lately stirred up some controversy. See “SEC Enforcement Evolves” and “Judges Refuse to Rubber Stamp SEC Settlements” in Expect Focus, Vol. I Winter, 2012. The SEC would probably bring more enforcement actions as administrative proceedings, if the penalties are increased, given the potential procedural advantages of such proceedings to the SEC.
The most dramatic increase in penalties would occur for so-called “Third Tier” offenses, i.e., those involving fraud, deceit, manipulation or deliberate or reckless disregard of a regulatory requirement. The limits on penalties for such offenses would be increased to the greater of (i) $1 million for each violation by a natural person or $10 million for each violation by a company, (ii) three times the amount of any pecuniary gain, or (iii) the amount of losses incurred by victims. Additionally, the new law would add a “Fourth Tier,” which multiplies the potential penalties for repeat offenders. It would also harmonize the penalties available to the SEC in administrative proceedings and in civil lawsuits.
Commentators predict that the bill will become law, as it has broad bipartisan support in Congress and from the SEC.