September 14, 2016

Civil Penalties: SEC Increases Max Payable for Securities Law Violations

Here’s something that Alan Dye blogged last night on his “ Blog“:

The SEC has adopted an interim final rule to adjust for inflation the maximum civil money penalties payable for violations of the federal securities laws. The adjustments were mandated by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

The adjustments most pertinent to Section 16(a) compliance are those made to the monetary penalties the SEC may impose in cease and desist proceedings brought under Section 20C of the Exchange Act, since most enforcement actions that are based solely on Section 16(a) violations are brought under Section 20C. Section 21B(a) of the Exchange Act permits the SEC to impose a civil money penalty in a cease and desist proceeding brought under Section 20C if the SEC finds that the respondent is violating or has violated a provision of the Exchange Act (including Section 16(a)) or is or was a cause of such a violation. Section 21B(b) prescribes three tiers of penalties, depending on the nature of the violation, and establishes a maximum penalty for each tier. Each maximum penalty is subject to adjustment upward for inflation.

Here are the three tiers and the new maximum penalty amounts. The maximum penalties prior to the recent adjustments are set forth in parentheses:

– First tier is available for any type of violation, and permits a fine of up to$8,908 ($7,500) per violation for a natural person and $89,078 ($80,000) per violation for any other person.
– Second tier is available only for violations involving fraud, deceit, manipulation, or deliberate disregard of a regulatory requirement, and permits a fine of up to $89,078 ($80,000) per violation for a natural person and $445,390 ($400,000) per violation for any other person.
– Third tier is available only if the requirements for the second tier are met and the violation resulted in substantial losses or a significant risk of substantial losses to other persons. Fines for third tier violations can range up to $178,156 ($160,000) per violation for a natural person and $890,780 ($775,000) per violation for any other person.

More on “Armageddon for ADRs”

Last month, I blogged about the SEC’s Enforcement Division having issued wide-ranging subpoenas to the four largest ADR banks. I don’t know if its directly related – but yesterday, the SEC announced that a Portuguese-based telecommunications company has agreed to pay a $1.25 million penalty for its failure to properly disclose the nature & extent of credit risk involved in an ADR offering (technically it was an ADS offering – “American Depository Shares”)…

FYI: Conference Hotel Nearly Sold Out

As always happens this time of year, our Conference Hotel – the Hilton Americas – Houston – is nearly sold out. Our block of rooms is indeed sold out – but there are still rooms outside our block available at essentially the same rate. Reserve your room online or by calling 713.739.8000. If you have any difficulty securing a room, please contact us at 925.685.9271.

And if you haven’t registered for the October 24-25th conference, register now. If you really want to go, but you’re having budget issues – drop me a line…

Broc Romanek