House Republicans of the House Committee on Financial Services have proposed several bills to limit the enforcement authority of the Securities and Exchange Commission. The Subcommittee on Capital Markets hosted a hearing on Tuesday to discuss the bills and SEC enforcement practices.
One bill, currently unnamed, would modify the definition of “violation” in the securities laws such that SEC fines are reduced—targeting what is often billions of dollars worth of fines for any given year. The bill does this by effectively consolidating many individual violations into groups that arise from “a common or a substantially overlapping originating cause;” “the same misstatement or omission;” or “a continuing failure to comply.”
By reducing the number of violations, the punitive fines imposed by the SEC would thereby also be reduced. Andrew Vollmer, a senior affiliated scholar at the Mercatus Center and former SEC deputy general counsel, testified at the hearing that “excessive penalties are a problem because of ambiguous statutory language.”
Vollmer also recommended to the subcommittee that defendants in SEC proceedings have an “unqualified” right to have their case heard before a federal judge. H.R. 6695 would allow for precisely that, and there is another bill pending before the Committee. The bill, if passed, would enable someone charged by the SEC to decide whether they want to be tried before a court or the SEC’s administrative law judges, whose constitutionality is currently being considered before the Supreme Court in the case SEC v. Jarkesy.
A third bill would require the SEC to limit disgorgement to “net profit” only, as opposed to all ill-gotten gains, without subtracting related business expenses.
Though none of the bills have been brought to or scheduled for a vote, they appear to have very little support from the Democrats on the subcommittee. Many Democratic members praised the SEC during the hearing, especially for its enforcement actions against crypto securities and other digital assets.
Representative Bradley Sherman, D-California, argued that a “disproportionate amount of the SEC’s enforcement actions are against the crypto industry—that’s not a coincidence.” Sherman said further that “crypto is a garden of snakes,” and the SEC should lead on crypto enforcement because it is “best at regulating assets that are intangible.”
Tags: SEC