Stronger Enforcement of Civil Penalties Act of 2019

IB Union Calendar No. 331 116TH CONGRESS 2D SESSION H. R. 3641 [Report No. 116–410] To enhance civil penalties under the Federal securities laws, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JULY 9, 2019 Ms. PORTER introduced the following bill; which was referred to the Committee on Financial Services FEBRUARY 27, 2020 Reported with an amendment; committed to the Committee of the Whole House on the State of the Union and ordered to be printed [Strike out all after the enacting clause and insert the part printed in italic] [For text of introduced bill, see copy of bill as introduced on July 9, 2019] VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6652 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 3641 RH A BILL To enhance civil penalties under the Federal securities laws, and for other purposes. VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6652 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 3641 RH 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 (1) MONEY PENALTIES IN ADMINISTRATIVE AC- 9 TIONS.—Section 8A(g)(2) of the Securities Act of 10 1933 (15 U.S.C. 77h–1(g)(2)) is amended— 11 (A) in subparagraph (A)— 12 (i) by striking ‘‘$7,500’’ and inserting 13 ‘‘$10,000’’; and 14 (ii) by striking ‘‘$75,000’’ and insert- 15 ing ‘‘$100,000’’; 16 (B) in subparagraph (B)— 17 (i) by striking ‘‘$75,000’’ and inserting 18 ‘‘$100,000’’; and 19 (ii) by striking ‘‘$375,000’’ and insert- 20 ing ‘‘$500,000’’; and 21 (C) by striking subparagraph (C) and in- 22 serting the following: 23 ‘‘(C) THIRD TIER.— 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 3641 RH ‘‘(i) IN GENERAL.—Notwithstanding 1 subparagraphs (A) and (B), for a third tier 2 act or omission, the amount of penalty for 3 each such act or omission shall not exceed 4 the greater of— 5 ‘‘(I) $1,000,000 for a natural per- 6 son or $10,000,000 for any other per- 7 son; 8 ‘‘(II) 3 times the gross amount of 9 pecuniary gain to the person who com- 10 mitted the act or omission; or 11 ‘‘(III) the amount of losses in- 12 curred by victims as a result of the act 13 or omission. 14 ‘‘(ii) THIRD TIER ACT OR OMISSION.— 15 For the purposes of this subparagraph, the 16 term ‘third tier act or omission’ means an 17 act or omission described in paragraph (1) 18 that— 19 ‘‘(I) involved fraud, deceit, ma- 20 nipulation, or deliberate or reckless 21 disregard of a regulatory requirement; 22 and 23 ‘‘(II) directly or indirectly— 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 3641 RH ‘‘(aa) resulted in substantial 1 losses to other persons; 2 ‘‘(bb) created a significant 3 risk of substantial losses to other 4 persons; or 5 ‘‘(cc) resulted in substantial 6 pecuniary gain to the person who 7 committed the act or omission.’’. 8 (2) MONEY PENALTIES IN CIVIL ACTIONS.—Sec- 9 tion 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 10 77t(d)(2)) is amended— 11 (A) in subparagraph (A)— 12 (i) by striking ‘‘$5,000’’ and inserting 13 ‘‘$10,000’’; and 14 (ii) by striking ‘‘$50,000’’ and insert- 15 ing ‘‘$100,000’’; 16 (B) in subparagraph (B)— 17 (i) by striking ‘‘$50,000’’ and inserting 18 ‘‘$100,000’’; and 19 (ii) by striking ‘‘$250,000’’ and insert- 20 ing ‘‘$500,000’’; and 21 (C) by striking subparagraph (C) and in- 22 serting the following: 23 ‘‘(C) THIRD TIER.— 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 3641 RH ‘‘(i) IN GENERAL.—Notwithstanding 1 subparagraphs (A) and (B), for a third tier 2 violation, the amount of penalty for each 3 violation shall not exceed the greater of— 4 ‘‘(I) $1,000,000 for a natural per- 5 son or $10,000,000 for any other per- 6 son; 7 ‘‘(II) 3 times the gross amount of 8 pecuniary gain to the person who com- 9 mitted the violation; or 10 ‘‘(III) the amount of losses in- 11 curred by victims as a result of the vio- 12 lation. 13 ‘‘(ii) THIRD TIER VIOLATION.—For the 14 purposes of this subparagraph, the term 15 ‘third tier violation’ means a violation de- 16 scribed in paragraph (1) that— 17 ‘‘(I) involved fraud, deceit, ma- 18 nipulation, or deliberate or reckless 19 disregard of a regulatory requirement; 20 and 21 ‘‘(II) directly or indirectly— 22 ‘‘(aa) resulted in substantial 23 losses to other persons; 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 3641 RH ‘‘(bb) created a significant 1 risk of substantial losses to other 2 persons; or 3 ‘‘(cc) resulted in substantial 4 pecuniary gain to the person who 5 committed the violation.’’. 6 (b) SECURITIES EXCHANGE ACT OF 1934.— 7 (1) MONEY PENALTIES IN CIVIL ACTIONS.—Sec- 8 tion 21(d)(3)(B) of the Securities Exchange Act of 9 1934 (15 U.S.C. 78u(d)(3)(B)) is amended— 10 (A) in clause (i)— 11 (i) by striking ‘‘$5,000’’ and inserting 12 ‘‘$10,000’’; and 13 (ii) by striking ‘‘$50,000’’ and insert- 14 ing ‘‘$100,000’’; 15 (B) in clause (ii)— 16 (i) by striking ‘‘$50,000’’ and inserting 17 ‘‘$100,000’’; and 18 (ii) by striking ‘‘$250,000’’ and insert- 19 ing ‘‘$500,000’’; and 20 (C) by striking clause (iii) and inserting 21 the following: 22 ‘‘(iii) THIRD TIER.— 23 ‘‘(I) IN GENERAL.—Notwith- 24 standing clauses (i) and (ii), for a 25 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 3641 RH third tier violation, the amount of pen- 1 alty for each such violation shall not 2 exceed the greater of— 3 ‘‘(aa) $1,000,000 for a nat- 4 ural person or $10,000,000 for 5 any other person; 6 ‘‘(bb) 3 times the gross 7 amount of pecuniary gain to the 8 person who committed the viola- 9 tion; or 10 ‘‘(cc) the amount of losses in- 11 curred by victims as a result of 12 the violation. 13 ‘‘(II) THIRD TIER VIOLATION.— 14 For the purposes of this clause, the 15 term ‘third tier violation’ means a vio- 16 lation described in subparagraph (A) 17 that— 18 ‘‘(aa) involved fraud, deceit, 19 manipulation, or deliberate or 20 reckless disregard of a regulatory 21 requirement; and 22 ‘‘(bb) directly or indirectly— 23 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 3641 RH ‘‘(AA) resulted in sub- 1 stantial losses to other per- 2 sons; 3 ‘‘(BB) created a signifi- 4 cant risk of substantial losses 5 to other persons; or 6 ‘‘(CC) resulted in sub- 7 stantial pecuniary gain to 8 the person who committed the 9 violation.’’. 10 (2) MONEY PENALTIES IN ADMINISTRATIVE AC- 11 TIONS.—Section 21B(b) of the Securities Exchange 12 Act of 1934 (15 U.S.C. 78u–2(b)) is amended— 13 (A) in paragraph (1)— 14 (i) by striking ‘‘$5,000’’ and inserting 15 ‘‘$10,000’’; and 16 (ii) by striking ‘‘$50,000’’ and insert- 17 ing ‘‘$100,000’’; 18 (B) in paragraph (2)— 19 (i) by striking ‘‘$50,000’’ and inserting 20 ‘‘$100,000’’; and 21 (ii) by striking ‘‘$250,000’’ and insert- 22 ing ‘‘$500,000’’; and 23 (C) by striking paragraph (3) and inserting 24 the following: 25 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 3641 RH ‘‘(3) THIRD TIER.— 1 ‘‘(A) IN GENERAL.—Notwithstanding para- 2 graphs (1) and (2), for a third tier act or omis- 3 sion, the amount of penalty for each such act or 4 omission shall not exceed the greater of— 5 ‘‘(i) $1,000,000 for a natural person or 6 $10,000,000 for any other person; 7 ‘‘(ii) 3 times the gross amount of pecu- 8 niary gain to the person who committed the 9 act or omission; or 10 ‘‘(iii) the amount of losses incurred by 11 victims as a result of the act or omission. 12 ‘‘(B) THIRD TIER ACT OR OMISSION.—For 13 the purposes of this paragraph, the term ‘third 14 tier act or omission’ means an act or omission 15 described in paragraph (1) that— 16 ‘‘(i) involved fraud, deceit, manipula- 17 tion, or deliberate or reckless disregard of a 18 regulatory requirement; and 19 ‘‘(ii) directly or indirectly— 20 ‘‘(I) resulted in substantial losses 21 to other persons; 22 ‘‘(II) created a significant risk of 23 substantial losses to other persons; or 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 3641 RH ‘‘(III) resulted in substantial pe- 1 cuniary gain to the person who com- 2 mitted the act or omission.’’. 3 (c) INVESTMENT COMPANY ACT OF 1940.— 4 (1) MONEY PENALTIES IN ADMINISTRATIVE AC- 5 TIONS.—Section 9(d)(2) of the Investment Company 6 Act of 1940 (15 U.S.C. 80a–9(d)(2)) is amended— 7 (A) in subparagraph (A)— 8 (i) by striking ‘‘$5,000’’ and inserting 9 ‘‘$10,000’’; and 10 (ii) by striking ‘‘$50,000’’ and insert- 11 ing ‘‘$100,000’’; 12 (B) in subparagraph (B)— 13 (i) by striking ‘‘$50,000’’ and inserting 14 ‘‘$100,000’’; and 15 (ii) by striking ‘‘$250,000’’ and insert- 16 ing ‘‘$500,000’’; and 17 (C) by striking subparagraph (C) and in- 18 serting the following: 19 ‘‘(C) THIRD TIER.— 20 ‘‘(i) IN GENERAL.—Notwithstanding 21 subparagraphs (A) and (B), for a third tier 22 act or omission, the amount of penalty for 23 each such act or omission shall not exceed 24 the greater of— 25 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 3641 RH ‘‘(I) $1,000,000 for a natural per- 1 son or $10,000,000 for any other per- 2 son; 3 ‘‘(II) 3 times the gross amount of 4 pecuniary gain to the person who com- 5 mitted the act or omission; or 6 ‘‘(III) the amount of losses in- 7 curred by victims as a result of the act 8 or omission. 9 ‘‘(ii) THIRD TIER ACT OR OMISSION.— 10 For the purposes of this subparagraph, the 11 term ‘third tier act or omission’ means an 12 act or omission described in paragraph (1) 13 that— 14 ‘‘(I) involved fraud, deceit, ma- 15 nipulation, or deliberate or reckless 16 disregard of a regulatory requirement; 17 and 18 ‘‘(II) directly or indirectly— 19 ‘‘(aa) resulted in substantial 20 losses to other persons; 21 ‘‘(bb) created a significant 22 risk of substantial losses to other 23 persons; or 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 3641 RH ‘‘(cc) resulted in substantial 1 pecuniary gain to the person who 2 committed the act or omission.’’. 3 (2) MONEY PENALTIES IN CIVIL ACTIONS.—Sec- 4 tion 42(e)(2) of the Investment Company Act of 1940 5 (15 U.S.C. 80a–41(e)(2)) is amended— 6 (A) in subparagraph (A)— 7 (i) by striking ‘‘$5,000’’ and inserting 8 ‘‘$10,000’’; and 9 (ii) by striking ‘‘$50,000’’ and insert- 10 ing ‘‘$100,000’’; 11 (B) in subparagraph (B)— 12 (i) by striking ‘‘$50,000’’ and inserting 13 ‘‘$100,000’’; and 14 (ii) by striking ‘‘$250,000’’ and insert- 15 ing ‘‘$500,000’’; and 16 (C) by striking subparagraph (C) and in- 17 serting the following: 18 ‘‘(C) THIRD TIER.— 19 ‘‘(i) IN GENERAL.—Notwithstanding 20 subparagraphs (A) and (B), for a third tier 21 violation, the amount of penalty for each 22 such violation shall not exceed the greater 23 of— 24 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 14 •HR 3641 RH ‘‘(I) $1,000,000 for a natural per- 1 son or $10,000,000 for any other per- 2 son; 3 ‘‘(II) 3 times the gross amount of 4 pecuniary gain to the person who com- 5 mitted the violation; or 6 ‘‘(III) the amount of losses in- 7 curred by victims as a result of the vio- 8 lation. 9 ‘‘(ii) THIRD TIER VIOLATION.—For the 10 purposes of this subparagraph, the term 11 ‘third tier violation’ means a violation de- 12 scribed in paragraph (1) that— 13 ‘‘(I) involved fraud, deceit, ma- 14 nipulation, or deliberate or reckless 15 disregard of a regulatory requirement; 16 and 17 ‘‘(II) directly or indirectly— 18 ‘‘(aa) resulted in substantial 19 losses to other persons; 20 ‘‘(bb) created a significant 21 risk of substantial losses to other 22 persons; or 23 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 15 •HR 3641 RH ‘‘(cc) resulted in substantial 1 pecuniary gain to the person who 2 committed the violation.’’. 3 (d) INVESTMENT ADVISERS ACT OF 1940.— 4 (1) MONEY PENALTIES IN ADMINISTRATIVE AC- 5 TIONS.—Section 203(i)(2) of the Investment Advisers 6 Act of 1940 (15 U.S.C. 80b–3(i)(2)) is amended— 7 (A) in subparagraph (A)— 8 (i) by striking ‘‘$5,000’’ and inserting 9 ‘‘$10,000’’; and 10 (ii) by striking ‘‘$50,000’’ and insert- 11 ing ‘‘$100,000’’; 12 (B) in subparagraph (B)— 13 (i) by striking ‘‘$50,000’’ and inserting 14 ‘‘$100,000’’; and 15 (ii) by striking ‘‘$250,000’’ and insert- 16 ing ‘‘$500,000’’; and 17 (C) by striking subparagraph (C) and in- 18 serting the following: 19 ‘‘(C) THIRD TIER.— 20 ‘‘(i) IN GENERAL.—Notwithstanding 21 subparagraphs (A) and (B), for a third tier 22 act or omission, the amount of penalty for 23 each such act or omission shall not exceed 24 the greater of— 25 VerDate Sep 11 2014 21:56 Feb 27, 2020 Jkt 099200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6203 E:\BILLS\H3641.RH H3641 kjohnson on DSK79L0C42PROD with BILLS 16 •HR 3641 RH ‘‘(I) $1,000,000 for a natural per- 1 son or $10,000,000 for any other per- 2 son; 3 ‘‘(II) 3 times the gross amount of 4 pecuniary gain to the person who com- 5 mitted the act or omission; or 6 ‘‘(III) the amount of losses in- 7 curred by victims as a result of the act 8 or omission. 9 ‘‘(ii) THIRD TIER ACT OR OMISSION.— 10 For the purposes of this subparagraph, the 11 term ‘third tier act or omission’ means an 12 act or omission described in paragraph (1) 13 that— 14 ‘‘(I) involved fraud, deceit, ma- 15 nipulation, or deliberate or reckless 16 disregard of a regulatory requirement; 17 and 18 ‘‘(II) directly or indirectly— 19 ‘‘(aa) resulted in substantial 20 losses to other persons; [Text truncated for display. Full text available on Congress.gov.]