SEC efforts to beef up financial penalties got a boost from bipartisan legislation introduced Monday in the Senate that would allow for penalties up to $10 million on money managers and other financial institutions subject to securities law.
The proposed changes, backed by Sens. Charles Grassley, R-Iowa and Jack Reed, D-R.I. — chairman of the Senate subcommittee on securities, insurance and investments — also would tie dollar amounts of penalties to the degree of harm to investors, and would allow for higher penalties for repeat offenders.
Currently, the SEC is limited by statute to a maximum penalty of $150,000 per person and $725,000 per financial institution. SEC officials would like to increase the per-violation cap to $1 million per individual and $10 million for entities, which the legislation would allow. They also want authority to base penalties on the amount of investor losses and the ability to charge penalties triple the amount of the gains.
In fiscal year 2011, the SEC filed a record 735 enforcement actions and ordered $2.8 billion in penalties and disgorgement.
In a letter last November to Mr. Reed offering suggestions for the penalty changes, SEC Chairman Mary Schapiro wrote that “the appropriate deterrent effect is limited in many circumstances,” while higher penalties would “substantially raise the financial stakes for securities law recidivists.”
The legislation has not been scheduled for further action, and investment industry groups declined to comment until they reviewed the proposal.
