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Legislation

Senate proposal would give SEC more tools to seek restitution for investors

The Securities and Exchange Commission would have more tools and time to seek restitution for investors harmed by securities fraud under bipartisan legislation introduced Thursday by Sens. Mark R. Warner, D -Va., and John Kennedy, R-La.

Both senators sit on the Senate Banking Committee.

The bill comes in response to a June 2017 Supreme Court ruling that put new limits on a common SEC strategy to recoup illegal profits from those found to have violated federal laws, known as disgorgement.

In Kokesh vs. SEC, the justices unanimously said that because those are penalties, the SEC is bound by a five-year statute of limitations when seeking them. The SEC extracted almost $3 billion in disgorgement payments in 2016 — more than double what it collected in other types of penalties.

The SEC's 2018 enforcement report projected that the ruling may cause the SEC to forego $900 million in disgorgement payments.

The proposed Securities Fraud Enforcement and Investor Compensation Act would give the SEC 10 years to pursue fraud claims, including five years for disgorgement. It would also allow it to file claims of restitution to increase the amount of compensation available for harmed investors. While disgorgement claims are limited to profits made by perpetrators, restitution would allow the SEC to recover the full amount of their losses, up to 10 years after the fact.

"As Bernie Madoff demonstrated, financial fraudsters can sometimes go on for years, even decades, before they finally get caught," Mr. Warner said in a statement. "They shouldn't be able to rip off investors just because some arbitrary five-year window has expired."

Mr. Kennedy said "fraudsters are actually incentivized to keep the shell game going for decades" because of the narrow window of time available to recoup stolen funds. "This bill addresses that problem," he said.