Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. REED. Madam President, today I am introducing the Stronger Enforcement of Civil Penalties Act along with Senator Grassley. This bill will help securities regulators better protect investors and demand greater accountability from market players. Even in the midst of an unprecedented public health and economic emergency, we continue to see calculated wrongdoing by some on Wall Street, and without the consequence of meaningful penalties to serve as an effective deterrent, I worry this disturbing culture of misconduct will persist.

The amount of penalties the Securities and Exchange Commission, SEC, can fine an institution or individual is restricted by statute. During hearings I held in 2011 as chairman of the Banking Committee's Securities, Insurance, and Investment Subcommittee, I learned how this limitation significantly interferes with the SEC's ability to execute its enforcement duties. At that time, a Federal judge had criticized the SEC for not obtaining a larger settlement against Citigroup, a major actor in the financial crisis that settled with the Agency in an amount that was far below the cost the bank had inflicted on investors. The SEC indicated that a statutory prohibition against levying a larger penalty led to the low settlement amount. Indeed, in the immediate aftermath of the financial crisis, then-SEC Chairman Mary Schapiro explained that ``the Commission's statutory authority to obtain civil monetary penalties with appropriate deterrent effect is limited in many circumstances.'' Unfortunately, the SEC's statutory authority remains unchanged and the Agency's deterrent effect remains limited--even though securities fraud has not abated.

The bipartisan bill we are introducing aims to update the SEC's outdated civil penalties statutes. This bill strives to make potential and current offenders think twice before engaging in misconduct by raising the maximum statutory civil monetary penalties, directly linking the size of the penalties to the amount of losses suffered by victims of a violation, and substantially increasing the financial stakes for serial offenders of our Nation's securities laws.

Specifically, our bill would broaden the SEC's options to tailor penalties to the particular circumstances of a given violation. In addition to raising the per violation caps for severe, or ``third tier,'' violations to $1 million per offense for individuals and $10 million per offense for entities, the legislation would also give the SEC more options to collect greater penalties based on the ill-gotten gains of the violator or on the financial harm to investors.

Our bill also seeks to deter repeat offenders on Wall Street through two provisions. The first would authorize the SEC to triple the penalty cap applicable to recidivists who have been held either criminally or civilly liable for securities fraud within the previous 5 years. The second would allow the SEC to seek a civil penalty against those who violate existing Federal court or SEC orders, an approach that would be more efficient, effective, and flexible to the current civil contempt remedy. These updates would greatly enhance the SEC's ability to levy tough penalties against repeat offenders.

The SEC's current Director of Enforcement said several months ago that ``a centerpiece'' of the Agency's efforts to ``hold wrongdoers accountable and deter future misconduct . . . is ensuring that we are using every tool in our toolkit, including penalties that have a deterrent effect and are viewed as more than the cost of doing business.'' Our bill will strengthen the SEC's existing tools, which will further increase deterrence and substantially ratchet up the costs of committing fraud.

All of our constituents deserve a strong regulator that has the necessary tools to go after fraudsters and pursue the difficult cases arising from our increasingly complex financial markets. The Stronger Enforcement of Civil Penalties Act will enhance the SEC's ability to demand meaningful accountability from Wall Street, which in turn will increase transparency and confidence in our financial system. I urge our colleagues to support this important bipartisan legislation. ______

By Mr. THUNE (for himself and Mr. Lankford):

S. 839. A bill to require agencies to complete a regulatory impact analysis before issuing a significant rule, and for other purposes; to the Committee on Homeland Security and Governmental Affairs.

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Mr. REED. Madam President, the Public Company Accounting Oversight Board, PCAOB, Enforcement Transparency Act, which I am reintroducing today with Senator Grassley, will bring needed transparency to the disciplinary proceedings the PCAOB has brought against auditors and audit firms earlier in the process.

Nearly two decades ago, in response to a series of massive financial reporting frauds, including those involving Enron and WorldCom, the Senate Banking Committee held multiple hearings, which produced consensus on various underlying causes, including weak corporate governance, a lack of accountability, and inadequate oversight of accountants charged with auditing public companies' financial statements. Later, in a 99-to-0 vote, the Senate passed the Sarbanes- Oxley Act of 2002 to address the structural weaknesses revealed by the hearings. Among its many provisions, this law called for the creation of an independent board, the PCAOB, responsible for overseeing auditors of public companies in order to protect investors who rely on independent audit reports on the financial statements of public companies.

Today, the PCAOB, under the oversight of the U.S. Securities and Exchange Commissions, SEC, oversees nearly 1,700 registered accounting firms, as well as the audit partners and staff who contribute to a firm's work on each audit. The Board's ability to begin proceedings that can determine whether there have been violations of its auditing standards or rules of professional practice is a crucial component of its oversight. However, unlike other oversight bodies, the Board's disciplinary proceedings cannot be made public without consent from the parties involved. Of course, parties subject to disciplinary proceedings have no incentive to consent to publicizing their alleged wrongdoing, and these proceedings typically remain cloaked behind a veil of secrecy. In addition, the Board cannot publicize the results of its disciplinary proceedings until after the appeals process has been completely exhausted, which can often take several years.

This lack of transparency invites abuse and undermines the congressional intent behind the PCAOB, which was to shine a bright light on auditing firms and practices, deter misconduct, and bolster the accountability of auditors of public companies to the investing public.

Our bill will restore transparency by making hearings by the PCAOB and all related notices, orders, and notices, orders and motions transparent and available to the public unless otherwise ordered by the Board. This would more closely align the PCAOB's procedures with those of the SEC for analogous matters.

Increasing transparency and accountability of audit firms subject to PCAOB disciplinary proceedings bolsters investor confidence in our financial markets and better protects companies from problematic auditors. I hope our colleagues will join Senator Grassley and me in supporting this legislation to enhance transparency in the PCAOB's enforcement process.

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