Overview
Title
To enhance civil penalties under the Federal securities laws, and for other purposes.
ELI5 AI
H.R. 9451 is like a rulebook that says people who break money and investment rules have to pay bigger fines, especially if they've done it before. This might be tough for smaller companies because it makes them pay a lot if they mess up.
Summary AI
H. R. 9451 seeks to increase civil penalties for violations of Federal securities laws. This includes amending penalties under several acts, such as the Securities Act of 1933 and the Securities Exchange Act of 1934, by raising maximum fines for offenses involving fraud or deceit. The bill introduces higher penalty tiers for repeat offenders who have been convicted of securities fraud or subjected to specific legal actions in the past five years. Additionally, it enforces stricter measures for violations of court orders related to securities regulations.
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AnalysisAI
Congress recently introduced a bill titled the "Stronger Enforcement of Civil Penalties Act of 2024," aimed at increasing the severity of civil penalties under federal securities laws. The legislation proposes enhancements across a range of financial acts, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. Key provisions in the bill raise monetary penalties for violations, impose stricter penalties on repeat offenders, and clarify the consequences for violating injunctions and bars.
General Summary
The bill's primary objective is to deter misconduct in the securities industry by increasing financial penalties for violations. The proposed changes elevate the penalties for various tiers of offenses, particularly for fraud-related activities. The highest penalties could reach up to $10 million, or even more if calculated based on pecuniary gains or victim losses. Additionally, the bill introduces a "FOURTH TIER" penalty category for individuals and entities with prior convictions or penalties related to securities fraud within the past five years, tripling the usual fines.
Summary of Significant Issues
Increased Penalties: The bill proposes significant increases in penalties for violations of securities laws. The rationale behind the specific amounts remains unclear, potentially raising issues of fairness and proportionality, especially for smaller entities.
Penalties for Recidivists: Introducing tripling penalties for repeat offenders might impose severe financial burdens, potentially raising fairness and due process concerns. Individuals and businesses with previous penalties could face crippling fines.
Complex Language: The bill's legal language is dense and repetitive, which could make compliance challenging, particularly for those not familiar with legal jargon. This complexity may affect understanding and adherence to the law.
Enforcement of Penalties: The requirement for penalties for each day of ongoing non-compliance could result in substantial cumulative fines. Moreover, lack of detailed enforcement mechanisms might lead to inconsistent application.
Potential Impacts on the General Public
Broadly, this bill could lead to greater accountability in the securities industry, thereby possibly reducing fraudulent activity. By increasing penalties, it aims to deter potential violators, which might foster a more stable financial market.
However, less scrupulous application of these penalties could disproportionately impact smaller businesses that may not have resources comparable to larger corporations. Such firms might face significant challenges in absorbing increased financial penalties, potentially threatening their viability.
Impact on Specific Stakeholders
Regulators and Legal Professionals: The bill could provide tools to more effectively enforce securities laws. Legal professionals would need to help firms navigate the complexities of compliance, potentially increasing demand for their services.
Businesses and Financial Entities: Entities involved in securities markets may need to allocate more resources toward ensuring compliance to avoid hefty fines. This could be a positive outcome if it leads to improved practices but could also strain smaller firms financially.
Investors: For investors, the bill could enhance market integrity. By deterring misconduct through stronger penalties, investors might feel more secure, potentially encouraging more investment.
Overall, while the bill presents a robust step toward strengthening enforcement of securities laws, its implications need careful consideration to prevent unintended consequences on smaller market participants and ensure clarity in compliance requirements.
Financial Assessment
The bill, H.R. 9451, titled the “Stronger Enforcement of Civil Penalties Act of 2024," seeks to revise and enhance civil penalties under various federal securities laws. The financial aspects of the bill significantly increase the penalties for violations, aiming to create a tougher stance on securities law infractions.
Financial Penalties for Violations
Section 2 details the updated civil money penalties for infractions of the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, and Investment Advisers Act of 1940. Key financial figures include:
For administrative actions under the Securities Act of 1933, penalties are increased from $7,500 to $10,000 for lesser violations and from $75,000 to $100,000 for more serious violations. Substantial penalties for third-tier acts reach as high as $1,000,000 for natural persons and $10,000,000 for corporations.
For civil actions under the same Act, penalties are raised from $5,000 to $10,000 for lesser violations and from $50,000 to $100,000 for more severe infractions, with potential third-tier penalties mirroring those in administrative actions.
A similar pattern is observed throughout other referenced financial legislation, with consistent increases in penalty amounts, aiming to align them with modern regulatory standards. Notably, all amendments emphasize penalizing third-tier violations, where penalties can be set as the greater of a monetary sum predefined (e.g., $1,000,000 for individuals, $10,000,000 for others) or a percentage of the unfair pecuniary gains or victim losses.
Impact on Entities and Concerns
This financial overhaul in penalties has generated several issues:
Disproportional Impact on Smaller Entities: Raising the fines significantly increases the financial burdens on violators. Smaller firms could find such penalties crippling, raising questions about the proportional fairness of these penalties. Without clear justification or tier-based scalable penalties according to entity size, there is potential for a disproportionate impact.
Recidivist Penalties: In Section 3, the introduction of a "FOURTH TIER" triples the already increased amounts for recidivists, further exacerbating the financial stress on entities with past violations. This could lead to debates on fairness and whether past offenders, who may have since reformed, are being punished excessively.
Complexity and Interpretation: The repetitive and legally complex language used throughout sections dealing with repeated penalties might result in interpretation difficulties. For smaller entities or those less versed in securities law, the financial implications could become unclear, impacting compliance and financial planning.
Daily Fines for Non-Compliance: Section 4 states that each day of failing to comply with orders results in additional offenses. The lack of clarity in the calculation and enforcement of these ongoing penalties could lead to perceived unfair applications, as daily cumulative fines could rapidly escalate to financially unmanageable levels without clear, consistent enforcement mechanisms.
Overall, while the bill's intent is to streamline and strengthen enforcement of securities laws via hefty penalties, the broad increases without scaled applications or clarity in enforcement could raise substantial concerns about fairness and feasibility, particularly for smaller entities.
Issues
The increased penalties for securities law violations laid out in Section 2 significantly raise the financial burden on violators, particularly smaller entities, without providing clear justification for the chosen amounts or consideration of proportional impact. This could lead to concerns about fairness and disproportionate impacts on smaller firms.
Section 3 introduces a new 'FOURTH TIER' of penalties for recidivists, tripling penalties for repeated offenders. This may raise fairness and due process concerns as it imposes severe penalties on individuals or entities with past violations, potentially leading to financially crippling consequences.
The repetitive and complex legal language used throughout Sections 3 and 4, which deals with penalties for recidivists and violations of injunctions and bars, could lead to difficulties in interpretation and compliance, especially for those not well-versed in legal jargon.
Section 4's phrasing regarding 'each separate violation of an injunction or order' being a separate offense might generate concerns regarding enforcement consistency and could be perceived as excessively punitive, especially in cases of ongoing compliance failures.
The lack of clarity and explicit detail in the text regarding enforcement mechanisms, particularly how penalty determinations are calculated for 'each day of failure to comply' with orders and injunctions, might lead to inconsistencies or perceived unfairness in application.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the bill provides its short title, stating that it may be called the "Stronger Enforcement of Civil Penalties Act of 2024."
2. Updated civil money penalties for securities laws violations Read Opens in new tab
Summary AI
The section outlines updates to the penalties for violating securities laws, increasing the fines for various tiers of offenses. The increases apply to multiple acts, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940, with penalties reaching up to $10,000,000 based on factors like fraud or pecuniary gain.
Money References
- (a) Securities Act of 1933.— (1) MONEY PENALTIES IN ADMINISTRATIVE ACTIONS.—Section 8A(g)(2) of the Securities Act of 1933 (15 U.S.C. 77h–1(g)(2)) is amended— (A) in subparagraph (A)— (i) by striking “$7,500” and inserting “$10,000”; and (ii) by striking “$75,000” and inserting “$100,000”; (B) in subparagraph (B)— (i) by striking “$75,000” and inserting “$100,000”; and (ii) by striking “$375,000” and inserting “$500,000”; and (C) by striking subparagraph (C) and inserting the following: “(C) THIRD TIER.— “(i) IN GENERAL.—Notwithstanding subparagraphs (A) and (B), for a third tier act or omission, the amount of penalty for each such act or omission shall not exceed the greater of— “(I) $1,000,000 for a natural person or $10,000,000 for any other person; “(II) 3 times the gross amount of pecuniary gain to the person who committed the act or omission; or “(III) the amount of losses incurred by victims as a result of the act or omission. “(ii) THIRD TIER ACT OR OMISSION.—For the purposes of this subparagraph, the term ‘third tier act or omission’ means an act or omission described in paragraph (1) that— “(I) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and “(II) directly or indirectly— “(aa) resulted in substantial losses to other persons; “(bb) created a significant risk of substantial losses to other persons; or “(cc) resulted in substantial pecuniary gain to the person who committed the act or omission.”
- (2) MONEY PENALTIES IN CIVIL ACTIONS.—Section 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended— (A) in subparagraph (A)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in subparagraph (B)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking subparagraph (C) and inserting the following: “(C) THIRD TIER.
- “(i) IN GENERAL.—Notwithstanding subparagraphs (A) and (B), for a third tier violation, the amount of penalty for each violation shall not exceed the greater of— “(I) $1,000,000 for a natural person or $10,000,000 for any other person; “(II) 3 times the gross amount of pecuniary gain to the person who committed the violation; or “(III) the amount of losses incurred by victims as a result of the violation.
- — (1) MONEY PENALTIES IN CIVIL ACTIONS.—Section 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended— (A) in clause (i)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in clause (ii)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking clause (iii) and inserting the following: “(iii) THIRD TIER.
- “(I) IN GENERAL.—Notwithstanding clauses (i) and (ii), for a third tier violation, the amount of penalty for each such violation shall not exceed the greater of— “(aa) $1,000,000 for a natural person or $10,000,000 for any other person; “(bb) 3 times the gross amount of pecuniary gain to the person who committed the violation; or “(cc) the amount of losses incurred by victims as a result of the violation.
- (2) MONEY PENALTIES IN ADMINISTRATIVE ACTIONS.—Section 21B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78u–2(b)) is amended— (A) in paragraph (1)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in paragraph (2)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking paragraph (3) and inserting the following: “(3) THIRD TIER.— “(A) IN GENERAL.—Notwithstanding paragraphs (1) and (2), for a third tier act or omission, the amount of penalty for each such act or omission shall not exceed the greater of— “(i) $1,000,000 for a natural person or $10,000,000 for any other person; “(ii) 3 times the gross amount of pecuniary gain to the person who committed the act or omission; or “(iii) the amount of losses incurred by victims as a result of the act or omission.
- — (1) MONEY PENALTIES IN ADMINISTRATIVE ACTIONS.—Section 9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–9(d)(2)) is amended— (A) in subparagraph (A)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in subparagraph (B)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking subparagraph (C) and inserting the following: “(C) THIRD TIER.— “(i) IN GENERAL.—Notwithstanding subparagraphs (A) and (B), for a third tier act or omission, the amount of penalty for each such act or omission shall not exceed the greater of— “(I) $1,000,000 for a natural person or $10,000,000 for any other person; “(II) 3 times the gross amount of pecuniary gain to the person who committed the act or omission; or “(III) the amount of losses incurred by victims as a result of the act or omission. “(ii) THIRD TIER ACT OR OMISSION.—For the purposes of this subparagraph, the term ‘third tier act or omission’ means an act or omission described in paragraph (1) that— “(I) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and “(II) directly or indirectly— “(aa) resulted in substantial losses to other persons; “(bb) created a significant risk of substantial losses to other persons; or “(cc) resulted in substantial pecuniary gain to the person who committed the act or omission.”
- (2) MONEY PENALTIES IN CIVIL ACTIONS.—Section 42(e)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–41(e)(2)) is amended— (A) in subparagraph (A)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in subparagraph (B)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking subparagraph (C) and inserting the following: “(C) THIRD TIER.— “(i) IN GENERAL.—Notwithstanding subparagraphs (A) and (B), for a third tier violation, the amount of penalty for each such violation shall not exceed the greater of— “(I) $1,000,000 for a natural person or $10,000,000 for any other person; “(II) 3 times the gross amount of pecuniary gain to the person who committed the violation; or “(III) the amount of losses incurred by victims as a result of the violation. “
- — (1) MONEY PENALTIES IN ADMINISTRATIVE ACTIONS.—Section 203(i)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3(i)(2)) is amended— (A) in subparagraph (A)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in subparagraph (B)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking subparagraph (C) and inserting the following: “(C) THIRD TIER.— “(i) IN GENERAL.—Notwithstanding subparagraphs (A) and (B), for a third tier act or omission, the amount of penalty for each such act or omission shall not exceed the greater of— “(I) $1,000,000 for a natural person or $10,000,000 for any other person; “(II) 3 times the gross amount of pecuniary gain to the person who committed the act or omission; or “(III) the amount of losses incurred by victims as a result of the act or omission.
- . (2) MONEY PENALTIES IN CIVIL ACTIONS.—Section 209(e)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–9(e)(2)) is amended— (A) in subparagraph (A)— (i) by striking “$5,000” and inserting “$10,000”; and (ii) by striking “$50,000” and inserting “$100,000”; (B) in subparagraph (B)— (i) by striking “$50,000” and inserting “$100,000”; and (ii) by striking “$250,000” and inserting “$500,000”; and (C) by striking subparagraph (C) and inserting the following: “(C) THIRD TIER.— “(i) IN GENERAL.—Notwithstanding
- , for a third tier violation, the amount of penalty for each such violation shall not exceed the greater of— “(I) $1,000,000 for a natural person or $10,000,000 for any other person; “(II) 3 times the gross amount of pecuniary gain to the person who committed the violation; or “(III) the amount of losses incurred by victims as a result of the violation. “(ii) THIRD TIER VIOLATION.—For the purposes of this subparagraph, the term ‘third tier violation’ means a violation described in paragraph (1) that— “(I) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and “(II) directly or indirectly— “(aa) resulted in substantial losses to other persons; “(bb) created a significant risk of substantial losses to other persons; or “(cc) resulted in substantial pecuniary gain to the person who committed the violation.”.
3. Penalties for recidivists Read Opens in new tab
Summary AI
This section of the bill increases the penalties for people who repeatedly commit securities fraud. If someone has been convicted of securities fraud or penalized for it in the past five years, they may face penalties three times higher than usual under several laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.
4. Violations of injunctions and bars Read Opens in new tab
Summary AI
The section amends various securities-related laws to clarify that each violation of a Federal court injunction or an order issued by the Commission is treated as a separate offense, and if the violation continues over multiple days, each day counts as a separate offense. These amendments apply to the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.