Under a Senate bill, the SEC would be able to administratively impose a maximum $1 million per violation penalty on individuals and a maximum $10 million per violation penalty on financial firms for the most serious (e.g., fraud, deceit) violations. The current levels are substantially lower — at $181,071 for individuals and $905,353 for firms — though the SEC is empowered to go to federal court to get the equivalent of the ill-gotten gains in a given case.
Under the proposed measure, the SEC would not have to go to federal court to get large remedies, though the total remedy per violation would be capped – the maximum penalty for an individual could not exceed, for each violation, the greater of (i) $1 million, (ii) three times the gross pecuniary gain, or (iii) the losses incurred by victims as a result of the violation. The maximum amount that could be obtained from entities could not exceed, for each violation, the greater of (i) $10 million, (ii) three times the gross pecuniary gain, or (iii) the losses incurred by victims as a result of the violation.
In addition, individuals and firms that were found civilly or criminally liable for securities law violations in the 5 years leading up to a new violation could face up to three times the new caps, e.g., penalties of $3 million/$30 million.
It is important to note that SEC administrative or “in-house” courts have faced substantial constitutional challenges recently and are often considered subject to agency bias. At a minimum, it is clear that the SEC courts lack some of the procedural safeguards provided in federal court. If the Senate bill becomes law, the SEC will have significantly increased leverage in negotiations with respondents not only because of the amounts involved but because the Enforcement staff would not need to go to federal court to get such amounts.
The Securities Litigator 