To address Securities and Exchange Commission authority to impose civil money penalties in administrative proceedings for violations of securities laws, and for other purposes.

January 16, 2003

Mr. LEVIN (for himself, Mr. NELSON of Florida, Mr. CORZINE, and Mr. BIDEN) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

To address Securities and Exchange Commission authority to impose civil money penalties in administrative proceedings for violations of securities laws, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `SEC Civil Enforcement Act'.

SEC. 2. SECURITIES CIVIL ENFORCEMENT PROVISIONS.

(a) AUTHORITY TO ASSESS CIVIL MONEY PENALTIES-

(1) SECURITIES ACT OF 1933- Section 8A of the Securities Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end the following new subsection:

`(g) AUTHORITY OF THE COMMISSION TO ASSESS MONEY PENALTY-

`(1) IN GENERAL- In any cease-and-desist proceeding under subsection (a), the Commission may impose a civil monetary penalty if it finds, on the record after notice and opportunity for hearing, that a person is violating, has violated, or is or was a cause of the violation of, any provision of this title or any rule or regulation thereunder, and that such penalty is in the public interest.

`(2) MAXIMUM AMOUNT OF PENALTY-

`(A) FIRST TIER- The maximum amount of penalty for each act or omission described in paragraph (1) shall be $100,000 for a natural person or $250,000 for any other person.

`(B) SECOND TIER- Notwithstanding subparagraph (A), the maximum amount of penalty for such act or omission described in paragraph (1) shall be $500,000 for a natural person or $1,000,000 for any other person, if the act or omission involved fraud, deceit, manipulation, or deliberate or reckless disregard of a statutory or regulatory requirement.

`(C) THIRD TIER- Notwithstanding subparagraphs (A) and (B), the maximum amount of penalty for each act or omission described in paragraph (1) shall be $1,000,000 for a natural person or $2,000,000 for any other person, if--

`(i) the act or omission involved fraud, deceit, manipulation, or deliberate or reckless disregard of a statutory or regulatory requirement; and

`(ii) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission.

`(3) EVIDENCE CONCERNING ABILITY TO PAY- In any proceeding in which the Commission or the appropriate regulatory agency may impose a penalty under this section, a respondent may present evidence of the ability of the respondent to pay such penalty. The Commission or the appropriate regulatory agency may, in its discretion, consider such evidence in determining whether the penalty is in the public interest. Such evidence may relate to the extent of the person's ability to continue in business and the collectability of a penalty, taking into account any other claims of the United States or third parties upon the assets of that person and the amount of the assets of that person.'.

(2) SECURITIES EXCHANGE ACT OF 1934- Section 21B(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-2(a)) is amended--

(A) in paragraph (4), by striking `supervision;' and all that follows through the end of the subsection and inserting `supervision.';

(B) by redesignating paragraphs (1) through (4) as subparagraphs (A) through (D), respectively, and moving the margins 2 ems to the right;

(C) by inserting `that such penalty is in the public interest and' after `hearing,';

(D) by striking `In any proceeding' and inserting the following:

`(1) IN GENERAL- In any proceeding'; and

(E) by adding at the end the following:

`(2) OTHER MONEY PENALTIES- In any proceeding under section 21C against any person, the Commission may impose a civil monetary penalty if it finds, on the record after notice and opportunity for hearing, that such person is violating, has violated, or is or was a cause of the violation of, any provision of this title or any rule or regulation thereunder, and that such penalty is in the public interest.'.

(3) INVESTMENT COMPANY ACT OF 1940- Section 9(d)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(1)) is amended--

(A) in subparagraph (C), by striking `therein;' and all that follows through the end of the paragraph and inserting `supervision.';

(B) by redesignating subparagraphs (A) through (C) as clauses (i) through (iii), respectively, and moving the margins 2 ems to the right;

(C) by inserting `that such penalty is in the public interest and' after `hearing,';

(D) by striking `In any proceeding' and inserting the following:

`(A) IN GENERAL- In any proceeding'; and

(E) by adding at the end the following:

`(B) OTHER MONEY PENALTIES- In any proceeding under subsection (f) against any person, the Commission may impose a civil

monetary penalty if it finds, on the record after notice and opportunity for hearing, that such person is violating, has violated, or is or was a cause of the violation of, any provision of this title or any rule or regulation thereunder, and that such penalty is in the public interest.'.

(4) INVESTMENT ADVISERS ACT OF 1940- Section 203(i)(1) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(1)) is amended--

(A) in subparagraph (D), by striking `supervision;' and all that follows through the end of the paragraph and inserting `supervision.';

(B) by redesignating subparagraphs (A) through (D) as clauses (i) through (iv), respectively, and moving the margins 2 ems to the right;

(C) by inserting `that such penalty is in the public interest and' after `hearing,';

(D) by striking `In any proceeding' and inserting the following:

`(A) IN GENERAL- In any proceeding'; and

(E) by adding at the end the following:

`(B) OTHER MONEY PENALTIES- In any proceeding under subsection (k) against any person, the Commission may impose a civil monetary penalty if it finds, on the record after notice and opportunity for hearing, that such person is violating, has violated, or is or was a cause of the violation of, any provision of this title or any rule or regulation thereunder, and that such penalty is in the public interest.'.

(b) INCREASED MAXIMUM CIVIL MONEY PENALTIES-

(1) SECURITIES ACT OF 1933- Section 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--

(A) in subparagraph (A)(i)--

(i) by striking `$5,000' and inserting `$100,000'; and

(ii) by striking `$50,000' and inserting `$250,000';

(B) in subparagraph (B)(i)--

(i) by striking `$50,000' and inserting `$500,000'; and

(ii) by striking `$250,000' and inserting `$1,000,000'; and

(C) in subparagraph (C)(i)--

(i) by striking `$100,000' and inserting `$1,000,000'; and

(ii) by striking `$500,000' and inserting `$2,000,000'.

(2) SECURITIES EXCHANGE ACT OF 1934-

(A) PENALTIES- Section 32 of the Securities Exchange Act of 1934 (15 U.S.C. 78ff) is amended--

(i) in subsection (b), by striking `$100' and inserting `$10,000'; and

(ii) in subsection (c)--

(I) in paragraph (1)(B), by striking `$10,000' and inserting `$500,000'; and

(II) in paragraph (2)(B), by striking `$10,000' and inserting `$500,000'.

(B) INSIDER TRADING- Section 21A(a)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-1(a)(3)) is amended by striking `$1,000,000' and inserting `$2,000,000'.

(C) ADMINISTRATIVE PROCEEDINGS- Section 21B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-2(b)) is amended--

(i) in paragraph (1)--

(I) by striking `$5,000' and inserting `$100,000'; and

(II) by striking `$50,000' and inserting `$250,000';

(ii) in paragraph (2)--

(I) by striking `$50,000' and inserting `$500,000'; and

(II) by striking `$250,000' and inserting `$1,000,000'; and

(iii) in paragraph (3)--

(I) by striking `$100,000' and inserting `$1,000,000'; and

(II) by striking `$500,000' and inserting `$2,000,000'.

(D) CIVIL ACTIONS- Section 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended--

(i) in clause (i)--

(I) by striking `$5,000' and inserting `$100,000'; and

(II) by striking `$50,000' and inserting `$250,000';

(ii) in clause (ii)--

(I) by striking `$50,000' and inserting `$500,000'; and

(II) by striking `$250,000' and inserting `$1,000,000'; and

(iii) in clause (iii)--

(I) by striking `$100,000' and inserting `$1,000,000'; and

(II) by striking `$500,000' and inserting `$2,000,000'.

(3) INVESTMENT COMPANY ACT OF 1940-

(A) INELIGIBILITY- Section 9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended--

(i) in subparagraph (A)--

(I) by striking `$5,000' and inserting `$100,000'; and

(II) by striking `$50,000' and inserting `$250,000';

(ii) in subparagraph (B)--

(I) by striking `$50,000' and inserting `$500,000'; and

(II) by striking `$250,000' and inserting `$1,000,000'; and

(iii) in subparagraph (C)--

(I) by striking `$100,000' and inserting `$1,000,000'; and

(II) by striking `$500,000' and inserting `$2,000,000'.

(B) ENFORCEMENT OF INVESTMENT COMPANY ACT- Section 42(e)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-41(e)(2)) is amended--

(i) in subparagraph (A)--

(I) by striking `$5,000' and inserting `$100,000'; and

(II) by striking `$50,000' and inserting `$250,000';

(ii) in subparagraph (B)--

(I) by striking `$50,000' and inserting `$500,000'; and

(II) by striking `$250,000' and inserting `$1,000,000'; and

(iii) in subparagraph (C)--

(I) by striking `$100,000' and inserting `$1,000,000'; and

(II) by striking `$500,000' and inserting `$2,000,000'.

(4) INVESTMENT ADVISERS ACT OF 1940-

(A) REGISTRATION- Section 203(i)(2) of the Investment advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended--

(i) in subparagraph (A)--

(I) by striking `$5,000' and inserting `$100,000'; and

(II) by striking `$50,000' and inserting `$250,000';

(ii) in subparagraph (B)--

(I) by striking `$50,000' and inserting `$500,000'; and

(II) by striking `$250,000' and inserting `$1,000,000'; and

(iii) in subparagraph (C)--

(I) by striking `$100,000' and inserting `$1,000,000'; and

(II) by striking `$500,000' and inserting `$2,000,000'.

(B) ENFORCEMENT OF INVESTMENT ADVISERS ACT- Section 209(e)(2) of the Investment advisers Act of 1940 (15 U.S.C. 80b-9(e)(2)) is amended--

(i) in subparagraph (A)--

(I) by striking `$5,000' and inserting `$100,000'; and

(II) by striking `$50,000' and inserting `$250,000';

(ii) in subparagraph (B)--

(I) by striking `$50,000' and inserting `$500,000'; and

(II) by striking `$250,000' and inserting `$1,000,000'; and

(iii) in subparagraph (C)--

(I) by striking `$100,000' and inserting `$1,000,000'; and

(II) by striking `$500,000' and inserting `$2,000,000'.

(c) AUTHORITY TO OBTAIN FINANCIAL RECORDS- Section 21(h) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(h)) is amended--

(1) by striking paragraphs (2) through (8);

(2) in paragraph (9), by striking `(9)(A)' and all that follows through `(B) The' and inserting `(3) The';

(3) by inserting after paragraph (1), the following:

`(2) ACCESS TO FINANCIAL RECORDS-

`(A) IN GENERAL- Notwithstanding section 1105 or 1107 of the Right to Financial Privacy Act of 1978, the Commission may obtain access to and copies of, or the information contained in, financial records of any person held by a financial institution, including the financial records of a customer, without notice to that person, when it acts pursuant to a subpoena authorized by a formal order of investigation of the Commission and issued under the securities laws or pursuant to an administrative or judicial subpoena issued in a proceeding or action to enforce the securities laws.

`(B) NONDISCLOSURE OF REQUESTS- If the Commission so directs in its subpoena, no financial institution, or officer, director, partner, employee, shareholder, representative or agent of such financial institution, shall, directly or indirectly, disclose that records have been requested or provided in accordance with subparagraph (A), if the Commission finds reason to believe that such disclosure may--

`(i) result in the transfer of assets or records outside the territorial limits of the United States;

`(ii) result in improper conversion of investor assets;

`(iii) impede the ability of the Commission to identify, trace, or freeze funds involved in any securities transaction;

`(iv) endanger the life or physical safety of an individual;

`(v) result in flight from prosecution;

`(vi) result in destruction of or tampering with evidence;

`(vii) result in intimidation of potential witnesses; or

`(viii) otherwise seriously jeopardize an investigation or unduly delay a trial.

`(C) TRANSFER OF RECORDS TO GOVERNMENT AUTHORITIES- The Commission may transfer financial records or the information contained therein to any government authority, if the Commission proceeds as a transferring agency in accordance with section 1112 of the Right to Financial Privacy Act of 1978 (12 U.S.C. 3412), except that a customer notice shall not be required under subsection (b) or (c) of that section 1112, if the Commission determines that there is reason to believe that such notification may result in or lead to any of the factors identified under clauses (i) through (viii) of subparagraph (B) of this paragraph.';

(4) by striking paragraph (10); and

(5) by redesignating paragraphs (11), (12), and (13) as paragraphs (4), (5), and (6), respectively.

END