Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. REED. Mr. President, today I am reintroducing legislation that extends the time period the Securities and Exchange Commission, SEC, would have to seek civil monetary penalties for securities law violations.

This legislation continues to be necessary in light of the Supreme Court's decision in Gabelli v. SEC in which the Court held that the 5 year clock to take action aginst wrongdoing starts when the fraud occurs, not when it is discovered. Unfortunately, Gabelli has made it more difficult for the SEC to protect investors by shortening the amount of time that the SEC has to investigate and pursue securities law violations.

Financial fraud has evolved considerably over the years and now often consists of multiple parties, complex financial products, and elaborate transactions that are executed in a variety of securities markets, both domestic and foreign. As a result, the evidence of wrongdoing needed to initiate an action may go undetected for years. Securities law violators may simply run out the clock, now with greater ease in the aftermath of Gabelli.

Couple this with the reality that while we have given the SEC even greater responsibilities, Congress, despite my ongoing efforts to urge otherwise, has not provided the agency with all the resources necessary to carry out its duties.

To give an example of the impact of this resource shortfall, SEC Chair White on May 5, 2015, before the Senate Financial Services and General Government Appropriations Subcommittee testified that ``even with the SEC's efficient use of limited resources to improve its risk assessment capabilities and focus its examination staff on areas posing the greatest risk to investors--efforts that helped to increase the number of investment adviser examinations approximately 20 percent from fiscal year 2013--the SEC was only able to examine 10 percent of registered investment advisers in fiscal year 2014. A rate of adviser examination coverage at that level presents a high risk to the investing public.''

This legislation would address some of these challenges by giving the SEC the breathing room it needs to better protect our markets and investors. Specifically, this bill extends the time period the SEC has to seek civil monetary penalties from five years to ten years, thereby strengthening the integrity of our markets, better protecting investors, and empowering the SEC to investigate and pursue more securities law violators, particularly those most sophisticated at evading detection.

In addition, the bill would align the SEC's statute of limitations with the limitations period applicable to complex civil financial fraud actions initiated pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, FIRREA. For more than 20 years, the Department of Justice, DOJ, has benefited from FIRREA, which allows the DOJ to seek civil penalties within a 10-year time period against persons who have committed fraud against financial institutions. The SEC, which pursues similarly complex financial fraud cases, should have the same time necessary to bring wrongdoers that violate the securities laws to justice.

I thank Public Citizen, U.S. PIRG, Consumer Action, the Consumer Federation of America, and Americans for Financial Reform for their support, and I urge my colleagues to join Senator SHAHEEN and me in supporting this legislation.

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