Over a Million Reasons Not to Violate the Securities Laws
We had occasion to review the civil and criminal penalties for violating SEC regulations and the Sarbanes-Oxley Act of 2002 and thought a quick post may serve to remind our readers of the severity of securities law violations.
Civil Penalties
We have summarized the civil penalties and maximum penalty amounts in the following chart:
|
U.S. Code Citation |
Civil Penalty Description |
Maximum Penalty Amount |
|
15 U.S.C. 77t(d) – Securities Act of 1933 |
For natural person |
$7,500 |
|
|
For any other person |
$75,000 |
|
|
For natural person / fraud |
$75,000 |
|
|
For any other person / fraud |
$375,000 |
|
|
For natural person / substantial losses or risk of losses to others |
$150,000 |
|
|
For any other person / substantial losses or risk of losses to others |
$725,000 |
|
15 U.S.C. 78ff(b) – Securities Exchange Act of 1934 |
Exchange Act / failure to file information documents, reports |
$110 |
|
15 U.S.C. 78ff(c)(1)(B) – Securities Exchange Act of 1934 |
Foreign Corrupt Practices – any issuer |
$16,000 |
|
15 U.S.C. 78ff(c)(2)(C) – Securities Exchange Act of 1934 |
Foreign Corrupt Practices – any agent or stockholder acting on behalf of issuer |
$16,000 |
|
15 U.S.C. 78u-1(a)(3) – Securities Exchange Act of 1934 |
Insider Trading – controlling person |
$1,425,000 |
|
15 U.S.C. 78u-1 – Securities Exchange Act of 1934 |
Insider Trading |
FN 1 |
|
15 U.S.C. 78u-2 –Securities Exchange Act of 1934 |
For natural person |
$7,500 |
|
|
For any other person |
$75,000 |
|
|
For natural person / fraud |
$75,000 |
|
|
For any other person / fraud |
$375,000 |
|
|
For natural person / substantial losses to others / gains to self |
$150,000 |
|
|
For any other person / substantial losses to others /gain to self |
$750,000 |
|
15 U.S.C. 78u(d)(3) – Securities Exchange Act of 1934 |
For natural person |
$7,500 |
|
|
For any other person |
$75,000 |
|
|
For natural person / fraud |
$75,000 |
|
|
For any other person / fraud |
$375,000 |
|
|
For natural person / substantial losses or risk of losses to others |
$150,000 |
|
|
For any other person / substantial losses or risk of losses to others |
$725,000 |
|
15 U.S.C. 7215(c)(4)(D)(i) – SOX |
For natural person |
$120,000 |
|
|
For any other person |
$2,375,000 |
|
15 U.S.C. 7215(c)(4)(D)(ii) – SOX |
For natural person |
$900,000 |
|
|
For any other person |
$17,800,000 |
FN 1: Anyone found liable for trading on inside information must also pay the federal government an amount equal to any profit made or loss avoided, and under Section 21A of the Securities Exchange Act of 1934, he or she may also face a penalty of up to three times that amount. You can be barred from serving as an officer or a director of a public company. In addition, you also face a greater likelihood of criminal penalties for insider trading and the possibility of shareholder lawsuits for securities fraud.
Criminal Penalties
It is the Justice Department and local United States attorneys’ offices, not the SEC, that have the authority to bring criminal prosecutions. Under Section 32(a) of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, individuals face up to 20 years in prison for criminal securities fraud and/or a fine of up to $5 million for each “willful” violation of the Act and the regulations under it. Only fines, not imprisonment, apply if the defendant can demonstrate “no knowledge” of the rule or regulation that is violated. Corporations face penalties of up to $25 million.
In addition, violators can be (and sometimes are) charged with mail and wire fraud (which can lead to a sentence of up to 20 years in prison), more general “securities fraud” (up to 25 years in prison) and possibly even racketeering, tax evasion and/or obstruction of justice. You can also expect civil penalties to result from the SEC’s enforcement action.
Prison terms for insider-trading convictions have lengthened in recent years. According to The Wall Street Journal, from 2009 to 2011, the median jail sentence was 30 months, up from a median term of 18 months during the 2000s. From 1993 through 1999, the median length of prison terms was only just under a year.
OUR TAKE: The SEC does not take violations of the law and its rules lightly, and companies and individuals should understand the consequences and ramifications for such violations.
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