SIFMA expressed concern regarding several bills intended to strengthen enforcement against securities law violators.

In written testimony to the U.S. House Financial Services Committee (see related coverage), SIFMA stated that it opposes the Bad Actor Disqualification Act, which would amend the current waiver process for "bad actor" disqualifications. According to SIFMA, the legislation would have "dramatic, unintended consequences" for the SEC, its enforcement program, and large and small financial institutions. Specifically, SIFMA stated that:

  • the temporary waiver provision for disqualifications is "unnecessary," given the conditional waivers the SEC is now granting;
  • temporary and general waiver procedures would "unduly burden" the SEC's current process;
  • disqualifying events under the automatic disqualification provisions are "exceptionally broad," and the bill would hamper the SEC's ability to calibrate their effect;
  • removal of the "waiver" from the SEC's "toolbox" would make it more difficult to settle enforcement actions in a timely and cost-effective manner; and
  • the public comment requirement would (i) slow down the entire process and (ii) prejudice waiver applicants.

In addition, the bill generally:

  • blocks the SEC from considering the direct costs of a waiver denial;
  • prohibits SEC staff from advising a waiver applicant on staff recommendations or the likelihood of the waiver being granted or denied; and
  • does not clarify the waiver application process between the expiration of the 180-day temporary waiver and the SEC vote for a general waiver.

SIFMA also expressed concerns about a bill that would extend the five-year statute of limitations for the SEC to seek a civil penalty, which the Supreme Court held is also applicable to claims for disgorgement in Gabelli v. SEC, to 10 years. According to SIFMA, the longer limitations period would (i) undermine the "health and stability of our capital markets and the financial services industry," (ii) "breed disrespect for the legal process" and (iii) "detract from the agency's effectiveness." SIFMA stated that shorter limitation periods encourage the SEC to pursue newer cases that might prevent continuing investor losses.

Additionally, SIFMA opposes a bill that would overturn Kokesh v. SEC and allow the "[SEC] to seek and Federal courts to grant restitution to investors and disgorgement of unjust enrichment" without being subject to a statute of limitations. Specifically, SIFMA opposes allowing the SEC statutory authority to seek restitution in SEC enforcement cases. Since restitution is already available to private litigants, SIFMA argued, that also authorizing the SEC would lead to "uncertainty, confusion, inconsistent verdicts and a (potential) duplication of defense costs for registrants."

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