Stronger Enforcement of Civil Penalties Act of 2019

II 116TH CONGRESS 1ST SESSION S. 1854 To enhance civil penalties under the Federal securities laws, and for other purposes. IN THE SENATE OF THE UNITED STATES JUNE 13, 2019 Mr. REED (for himself, Mr. GRASSLEY, and Mr. LEAHY) introduced the fol- lowing bill; which was read twice and referred to the Committee on Bank- ing, Housing, and Urban Affairs A BILL To enhance civil penalties under the Federal securities laws, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Stronger Enforcement 4 of Civil Penalties Act of 2019’’. 5 SEC. 2. UPDATED CIVIL MONEY PENALTIES FOR SECURI- 6 TIES LAWS VIOLATIONS. 7 (a) SECURITIES ACT OF 1933.— 8 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 2 •S 1854 IS (1) MONEY PENALTIES IN ADMINISTRATIVE AC- 1 TIONS.—Section 8A(g)(2) of the Securities Act of 2 1933 (15 U.S.C. 77h–1(g)(2)) is amended— 3 (A) in subparagraph (A)— 4 (i) by striking ‘‘$7,500’’ and inserting 5 ‘‘$10,000’’; and 6 (ii) by striking ‘‘$75,000’’ and insert- 7 ing ‘‘$100,000’’; 8 (B) in subparagraph (B)— 9 (i) by striking ‘‘$75,000’’ and insert- 10 ing ‘‘$100,000’’; and 11 (ii) by striking ‘‘$375,000’’ and in- 12 serting ‘‘$500,000’’; and 13 (C) by striking subparagraph (C) and in- 14 serting the following: 15 ‘‘(C) THIRD TIER.— 16 ‘‘(i) IN GENERAL.—Notwithstanding 17 subparagraphs (A) and (B), for a third 18 tier act or omission, the amount of penalty 19 for each such act or omission shall not ex- 20 ceed the greater of— 21 ‘‘(I) $1,000,000 for a natural 22 person or $10,000,000 for any other 23 person; 24 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 3 •S 1854 IS ‘‘(II) 3 times the gross amount of 1 pecuniary gain to the person who 2 committed the act or omission; or 3 ‘‘(III) the amount of losses in- 4 curred by victims as a result of the 5 act or omission. 6 ‘‘(ii) THIRD TIER ACT OR OMISSION.— 7 For the purposes of this subparagraph, the 8 term ‘third tier act or omission’ means an 9 act or omission described in paragraph (1) 10 that— 11 ‘‘(I) involved fraud, deceit, ma- 12 nipulation, or deliberate or reckless 13 disregard of a regulatory requirement; 14 and 15 ‘‘(II) directly or indirectly— 16 ‘‘(aa) resulted in substantial 17 losses to other persons; 18 ‘‘(bb) created a significant 19 risk of substantial losses to other 20 persons; or 21 ‘‘(cc) resulted in substantial 22 pecuniary gain to the person who 23 committed the act or omission.’’. 24 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 4 •S 1854 IS (2) MONEY PENALTIES IN CIVIL ACTIONS.— 1 Section 20(d)(2) of the Securities Act of 1933 (15 2 U.S.C. 77t(d)(2)) is amended— 3 (A) in subparagraph (A)— 4 (i) by striking ‘‘$5,000’’ and inserting 5 ‘‘$10,000’’; and 6 (ii) by striking ‘‘$50,000’’ and insert- 7 ing ‘‘$100,000’’; 8 (B) in subparagraph (B)— 9 (i) by striking ‘‘$50,000’’ and insert- 10 ing ‘‘$100,000’’; and 11 (ii) by striking ‘‘$250,000’’ and in- 12 serting ‘‘$500,000’’; and 13 (C) by striking subparagraph (C) and in- 14 serting the following: 15 ‘‘(C) THIRD TIER.— 16 ‘‘(i) IN GENERAL.—Notwithstanding 17 subparagraphs (A) and (B), for a third 18 tier violation, the amount of penalty for 19 each violation shall not exceed the greater 20 of— 21 ‘‘(I) $1,000,000 for a natural 22 person or $10,000,000 for any other 23 person; 24 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 5 •S 1854 IS ‘‘(II) 3 times the gross amount of 1 pecuniary gain to the person who 2 committed the violation; or 3 ‘‘(III) the amount of losses in- 4 curred by victims as a result of the 5 violation. 6 ‘‘(ii) THIRD TIER VIOLATION.—For 7 the purposes of this subparagraph, the 8 term ‘third tier violation’ means a violation 9 described in paragraph (1) that— 10 ‘‘(I) involved fraud, deceit, ma- 11 nipulation, or deliberate or reckless 12 disregard of a regulatory requirement; 13 and 14 ‘‘(II) directly or indirectly— 15 ‘‘(aa) resulted in substantial 16 losses to other persons; 17 ‘‘(bb) created a significant 18 risk of substantial losses to other 19 persons; or 20 ‘‘(cc) resulted in substantial 21 pecuniary gain to the person who 22 committed the violation.’’. 23 (b) SECURITIES EXCHANGE ACT OF 1934.— 24 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 6 •S 1854 IS (1) MONEY PENALTIES IN CIVIL ACTIONS.— 1 Section 21(d)(3)(B) of the Securities Exchange Act 2 of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended— 3 (A) in clause (i)— 4 (i) by striking ‘‘$5,000’’ and inserting 5 ‘‘$10,000’’; and 6 (ii) by striking ‘‘$50,000’’ and insert- 7 ing ‘‘$100,000’’; 8 (B) in clause (ii)— 9 (i) by striking ‘‘$50,000’’ and insert- 10 ing ‘‘$100,000’’; and 11 (ii) by striking ‘‘$250,000’’ and in- 12 serting ‘‘$500,000’’; and 13 (C) by striking clause (iii) and inserting 14 the following: 15 ‘‘(iii) THIRD TIER.— 16 ‘‘(I) IN GENERAL.—Notwith- 17 standing clauses (i) and (ii), for a 18 third tier violation, the amount of 19 penalty for each such violation shall 20 not exceed the greater of— 21 ‘‘(aa) $1,000,000 for a nat- 22 ural person or $10,000,000 for 23 any other person; 24 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 7 •S 1854 IS ‘‘(bb) 3 times the gross 1 amount of pecuniary gain to the 2 person who committed the viola- 3 tion; or 4 ‘‘(cc) the amount of losses 5 incurred by victims as a result of 6 the violation. 7 ‘‘(II) THIRD TIER VIOLATION.— 8 For the purposes of this clause, the 9 term ‘third tier violation’ means a vio- 10 lation described in subparagraph (A) 11 that— 12 ‘‘(aa) involved fraud, deceit, 13 manipulation, or deliberate or 14 reckless disregard of a regulatory 15 requirement; and 16 ‘‘(bb) directly or indirectly— 17 ‘‘(AA) resulted in sub- 18 stantial losses to other per- 19 sons; 20 ‘‘(BB) created a signifi- 21 cant risk of substantial 22 losses to other persons; or 23 ‘‘(CC) resulted in sub- 24 stantial pecuniary gain to 25 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 8 •S 1854 IS the person who committed 1 the violation.’’. 2 (2) MONEY PENALTIES IN ADMINISTRATIVE AC- 3 TIONS.—Section 21B(b) of the Securities Exchange 4 Act of 1934 (15 U.S.C. 78u–2(b)) is amended— 5 (A) in paragraph (1)— 6 (i) by striking ‘‘$5,000’’ and inserting 7 ‘‘$10,000’’; and 8 (ii) by striking ‘‘$50,000’’ and insert- 9 ing ‘‘$100,000’’; 10 (B) in paragraph (2)— 11 (i) by striking ‘‘$50,000’’ and insert- 12 ing ‘‘$100,000’’; and 13 (ii) by striking ‘‘$250,000’’ and in- 14 serting ‘‘$500,000’’; and 15 (C) by striking paragraph (3) and insert- 16 ing the following: 17 ‘‘(3) THIRD TIER.— 18 ‘‘(A) IN GENERAL.—Notwithstanding 19 paragraphs (1) and (2), for a third tier act or 20 omission, the amount of penalty for each such 21 act or omission shall not exceed the greater 22 of— 23 ‘‘(i) $1,000,000 for a natural person 24 or $10,000,000 for any other person; 25 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 9 •S 1854 IS ‘‘(ii) 3 times the gross amount of pe- 1 cuniary gain to the person who committed 2 the act or omission; or 3 ‘‘(iii) the amount of losses incurred by 4 victims as a result of the act or omission. 5 ‘‘(B) THIRD TIER ACT OR OMISSION.—For 6 the purposes of this paragraph, the term ‘third 7 tier act or omission’ means an act or omission 8 described in paragraph (1) that— 9 ‘‘(i) involved fraud, deceit, manipula- 10 tion, or deliberate or reckless disregard of 11 a regulatory requirement; and 12 ‘‘(ii) directly or indirectly— 13 ‘‘(I) resulted in substantial losses 14 to other persons; 15 ‘‘(II) created a significant risk of 16 substantial losses to other persons; or 17 ‘‘(III) resulted in substantial pe- 18 cuniary gain to the person who com- 19 mitted the act or omission.’’. 20 (c) INVESTMENT COMPANY ACT OF 1940.— 21 (1) MONEY PENALTIES IN ADMINISTRATIVE AC- 22 TIONS.—Section 9(d)(2) of the Investment Company 23 Act of 1940 (15 U.S.C. 80a–9(d)(2)) is amended— 24 (A) in subparagraph (A)— 25 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 10 •S 1854 IS (i) by striking ‘‘$5,000’’ and inserting 1 ‘‘$10,000’’; and 2 (ii) by striking ‘‘$50,000’’ and insert- 3 ing ‘‘$100,000’’; 4 (B) in subparagraph (B)— 5 (i) by striking ‘‘$50,000’’ and insert- 6 ing ‘‘$100,000’’; and 7 (ii) by striking ‘‘$250,000’’ and in- 8 serting ‘‘$500,000’’; and 9 (C) by striking subparagraph (C) and in- 10 serting the following: 11 ‘‘(C) THIRD TIER.— 12 ‘‘(i) IN GENERAL.—Notwithstanding 13 subparagraphs (A) and (B), for a third 14 tier act or omission, the amount of penalty 15 for each such act or omission shall not ex- 16 ceed the greater of— 17 ‘‘(I) $1,000,000 for a natural 18 person or $10,000,000 for any other 19 person; 20 ‘‘(II) 3 times the gross amount of 21 pecuniary gain to the person who 22 committed the act or omission; or 23 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 11 •S 1854 IS ‘‘(III) the amount of losses in- 1 curred by victims as a result of the 2 act or omission. 3 ‘‘(ii) THIRD TIER ACT OR OMISSION.— 4 For the purposes of this subparagraph, the 5 term ‘third tier act or omission’ means an 6 act or omission described in paragraph (1) 7 that— 8 ‘‘(I) involved fraud, deceit, ma- 9 nipulation, or deliberate or reckless 10 disregard of a regulatory requirement; 11 and 12 ‘‘(II) directly or indirectly— 13 ‘‘(aa) resulted in substantial 14 losses to other persons; 15 ‘‘(bb) created a significant 16 risk of substantial losses to other 17 persons; or 18 ‘‘(cc) resulted in substantial 19 pecuniary gain to the person who 20 committed the act or omission.’’. 21 (2) MONEY PENALTIES IN CIVIL ACTIONS.— 22 Section 42(e)(2) of the Investment Company Act of 23 1940 (15 U.S.C. 80a–41(e)(2)) is amended— 24 (A) in subparagraph (A)— 25 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 12 •S 1854 IS (i) by striking ‘‘$5,000’’ and inserting 1 ‘‘$10,000’’; and 2 (ii) by striking ‘‘$50,000’’ and insert- 3 ing ‘‘$100,000’’; 4 (B) in subparagraph (B)— 5 (i) by striking ‘‘$50,000’’ and insert- 6 ing ‘‘$100,000’’; and 7 (ii) by striking ‘‘$250,000’’ and in- 8 serting ‘‘$500,000’’; and 9 (C) by striking subparagraph (C) and in- 10 serting the following: 11 ‘‘(C) THIRD TIER.— 12 ‘‘(i) IN GENERAL.—Notwithstanding 13 subparagraphs (A) and (B), for a third 14 tier violation, the amount of penalty for 15 each such violation shall not exceed the 16 greater of— 17 ‘‘(I) $1,000,000 for a natural 18 person or $10,000,000 for any other 19 person; 20 ‘‘(II) 3 times the gross amount of 21 pecuniary gain to the person who 22 committed the violation; or 23 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 13 •S 1854 IS ‘‘(III) the amount of losses in- 1 curred by victims as a result of the 2 violation. 3 ‘‘(ii) THIRD TIER VIOLATION.—For 4 the purposes of this subparagraph, the 5 term ‘third tier violation’ means a violation 6 described in paragraph (1) that— 7 ‘‘(I) involved fraud, deceit, ma- 8 nipulation, or deliberate or reckless 9 disregard of a regulatory requirement; 10 and 11 ‘‘(II) directly or indirectly— 12 ‘‘(aa) resulted in substantial 13 losses to other persons; 14 ‘‘(bb) created a significant 15 risk of substantial losses to other 16 persons; or 17 ‘‘(cc) resulted in substantial 18 pecuniary gain to the person who 19 committed the violation.’’. 20 (d) INVESTMENT ADVISERS ACT OF 1940.— 21 (1) MONEY PENALTIES IN ADMINISTRATIVE AC- 22 TIONS.—Section 203(i)(2) of the Investment Advis- 23 ers Act of 1940 (15 U.S.C. 80b–3(i)(2)) is amend- 24 ed— 25 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 14 •S 1854 IS (A) in subparagraph (A)— 1 (i) by striking ‘‘$5,000’’ and inserting 2 ‘‘$10,000’’; and 3 (ii) by striking ‘‘$50,000’’ and insert- 4 ing ‘‘$100,000’’; 5 (B) in subparagraph (B)— 6 (i) by striking ‘‘$50,000’’ and insert- 7 ing ‘‘$100,000’’; and 8 (ii) by striking ‘‘$250,000’’ and in- 9 serting ‘‘$500,000’’; and 10 (C) by striking subparagraph (C) and in- 11 serting the following: 12 ‘‘(C) THIRD TIER.— 13 ‘‘(i) IN GENERAL.—Notwithstanding 14 subparagraphs (A) and (B), for a third 15 tier act or omission, the amount of penalty 16 for each such act or omission shall not ex- 17 ceed the greater of— 18 ‘‘(I) $1,000,000 for a natural 19 person or $10,000,000 for any other 20 person; 21 ‘‘(II) 3 times the gross amount of 22 pecuniary gain to the person who 23 committed the act or omission; or 24 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\S1854.IS S1854 pamtmann on DSKBFK8HB2PROD with BILLS 15 •S 1854 IS ‘‘(III) the amount of losses in- 1 curred by victims as a result of the 2 act or omission. 3 ‘‘(ii) THIRD TIER ACT OR OMISSION.— 4 For the purposes of this subparagraph, the 5 term ‘third tier act or omission’ means an 6 act or omission described in paragraph (1) 7 that— 8 ‘‘(I) involved fraud, deceit, ma- 9 nipulation, or deliberate or reckless 10 disregard of a regulatory requirement; 11 and 12 ‘‘(II) directly or indirectly— 13 ‘‘(aa) resulted in substantial 14 losses to other persons; 15 ‘‘(bb) created a significant 16 risk of substantial losses to other 17 persons; or 18 ‘‘(cc) resulted in substantial 19 pecuniary gain to the person who 20 committed the act or omission.’’. 21 (2) MONEY PENALTIES IN CIVIL ACTIONS.— 22 Section 209(e)(2) of the Investment Advisers Act of 23 1940 (15 U.S.C. 80b–9(e)(2)) is amended— 24 (A) in subparagraph (A)— 25 VerDate Sep 11 2014 18:36 Jun 17, 2019 Jkt 089200 PO 00000 Frm 00015 Fmt 6652 Sfmt 620 [Text truncated for display. 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