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house Bill H.R. 4344

Should the SEC Have 14 Years (Rather than 5) to Recover Funds From Securities Law Violators & Return Them to Defrauded Investors?

Argument in favor

The Supreme Court’s 2017 ruling in Kokesh v. SEC severely hampered the SEC’s ability to force bad actors in the financial services industry to pay injured parties. To date, the Kokesh ruling has allowed criminals to keep $1 billion or more in ill-gotten gains; this is unconscionable, and needs to be fixed. Extending the statute of limitations for disgorgement is reasonable given that certain financial crimes, such as Ponzi-type schemes, are difficult to detect and legally intensive to investigate and prosecute (all of which increases the length of time needed to prosecute them).

jimK's Opinion
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11/18/2019
I don't particularly care how it's done, but those who are caught defrauding others cannot reap the gains of their illegal acts by waiting for some 'statue of limitations' to time out. It seems to be a realistic rule change to allow the SEC to recover illegal obtained assets over a longer, more realistic time period. I say YAY on principle and YAY to enforcing this now, even if it may be addressed in the future, it is the right and moral thing to do- just so those who are promising changes actually remember their promises when the time comes. I also strongly support criminal charges and not just fines for institutions knowingly involved with supporting or not reporting fraudulent actions which they should have been aware of.
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burrkitty's Opinion
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11/18/2019
5 years is to short a statute of limitations for this kind of crime.
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Maureen 's Opinion
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11/18/2019
Although SEC seeks to Punish Perpetrators and not make VICTIMS WHOLE AGAIN, it would be Nice to see victims receive some of their money back for a change! Conviction of these crooks, while serving justice, doesn’t pay the bills retirement funds would have.
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Argument opposed

The Supreme Court’s 2017 ruling in Kokesh vs. SEC was appropriate given the finding that the SEC has historically used disgorgement to punish securities fraud perpetrators, rather than to make defrauded investors whole — and punishment isn’t part of the SEC’s mission. Additionally, given that the Supreme Court will take up a case concerning disgorgement itself in Spring 2020, this bill could become a moot point in a matter of months; so it’d be better to wait until SEC v. Liu is decided next year before considering this bill.

Tony's Opinion
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11/19/2019
The SEC, while it prosecutes those who have stolen or defrauded investors, does NOTHING to recoup the losses the investors suffered. That's all left up to the courts. The ENRON case and so many others, NEVER recouped the losses suffered by the investors. Yes, the SEC has a useful purpose. But it's the courts that ultimately decide how the remaining assets (if any) left in the corporation or individual fraud perpetrator's accounts or property, gets divided and WHO gets the money. Often enough, it's the court appointed LAWYERS representing the victims that get the BULK of the cash. The remaining cash or assets are put in accounts controlled by the courts. The lawyers get PAID from those accounts BEFORE any of money or assets left are distributed to the victims. So in reality, what truly needs to be done is that the COURT, without even BOTHERING with lawyers, should just divvy up the remaining cash and order a sale of the assets at pubic auction. Then distribute the proceeds DIRECTLY to the victims. Once the SEC has gotten a conviction for investment fraud and the courts order the assets ceased for repayment to the victims.
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Matthew's Opinion
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11/18/2019
There is no constitutional authority for the federal government to regulate securities. This is a hold over from the unconstitutional New Deal and FDR’s unconstitutional alphabet government agencies during the Great Depression,
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Jann's Opinion
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11/19/2019
Absolutely NOT. THOSE CROOKS DEFRAUDED THE PEOPLE FOR BILLIONS AND THEN GOT MONEY FROM THE GOVERNMENT THEY DO NOT DESERVE MORE TIME.
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
  • The house Passed November 18th, 2019
    Roll Call Vote 314 Yea / 95 Nay
      house Committees
      Committee on Financial Services
    IntroducedSeptember 17th, 2019

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What is House Bill H.R. 4344?

This bill would give the SEC up to 14 years to bring cases against securities law violators and recoup funds for defrauded investors in a process called “disgorgement.” Currently, the statute of limitations for disgorgement is five years, as determined by the Supreme Court in Kokesh v. SEC in 2017.

Impact

Securities law violators; defrauded investors; disgorgement; statute of limitations for disgorgement; the SEC; and the Supreme Court’s ruling in Kokesh v. SEC.

Cost of House Bill H.R. 4344

A CBO cost estimate is unavailable.

More Information

In-DepthSponsoring Rep. Ben McAdams (D-UT) introduced this bill to restore the SEC’s disgorgement power and thereby give federal securities officials more time to recover ill-gotten gains from white collar criminals who defraud investors. After this bill passed the House Financial Services Committee, Rep. McAdams said: 

“U.S. capital markets are the envy of the world. They promote job growth and economic opportunity.  But they only work to the extent that investors have faith that bad actors cannot profit off wrongdoing.  This legislation extends the time for the Securities and Exchange Commission to get back money from white collar criminals who prey on innocent investors and steal millions to enrich themselves. Those who commit fraud should not profit from their crimes and this bill helps ensure that victims recover what was stolen from them.”

An original draft of this bill had no restriction on disgorgement — the 14-year statute of limitations is a compromise. Explaining the reasoning for the imposition of the 14-year limit, Rep. McAdams says

“This bill is a compromise, as some have argued against the statute of limitations and others have argued for a shorter time period. I believe that the 14-year statute of limitations provided in this bill gives the SEC sufficient time to prosecute wrongdoers and would cover almost all major securities violations.”

After this bill passed the House Financial Services Committee, original cosponsor Rep. Bill Huizenga (R-MI) added:

“The latest report from the SEC found that more than $900 million in money swindled from investors through fraudulent activity is unable to be recovered because of a 2017 Supreme Court decision. White collar criminals must be held accountable for their behavior and the SEC must have the necessary tools to recover the losses suffered by Main Street investors. H.R. 4344 helps solve this problem by striking a delicate balance that allows the SEC more time to recover the money that was scammed from hardworking Americans. I am glad to see this bipartisan bill pass committee with strong support.”

The SEC Chairman and other expert witnesses have testified that because certain securities violations, such as Ponzi-type schemes, are difficult to detect and require extensive legal legwork, a solution to the Kokesh ruling is needed to give the government a longer timeline to make defrauded investors whole after such crimes are detected. At an SEC conference earlier in 2019, SEC Chairman Jay Clayton — who has expressed support for the Senate version of this bill (which imposes a 10, rather than 14 year statute of limitations on disgorgement) and called on Congress to give the SEC more power to get money back from Ponzi schemers or other bad actors after the Kokesh decision — said

“Protecting retail investors is a multifaceted effort and includes putting money back in their pockets when they are harmed by violations of the federal securities laws. The impact of Kokesh was immediate.”

Clayton also said he was “troubled by the substantial amount of losses that we may not be able to recover for retail investors as a result of Ponzi schemes and similar long-running, well-concealed frauds that are perpetrated by smooth talking ‘investment professionals.’”

SIFMA opposes this bill on the grounds that it: 1) exceeds the SEC’s enforcement mission (which is remedial, not punitive, in nature); 2) authorizes the SEC to pursue “old and stale claims”; 3) doesn’t improve monetary recovery for harmed investors; and 4) is redundant, since the Dept. of Justice pursues claims up to 10 years old. In a statement, SIFMA says: 

“SIFMA strongly opposes increasing the statute of limitations period on disgorgement from five years to 14 years, particularly given the SEC has historically used disgorgement to punish respondents, rather than recover monies for investors, as the Supreme Court found in an unanimous opinion written by Justice Sotomayor in the 2017 Kokesh case. The Court appropriately curtailed the SEC’s use of disgorgement to a 5-year limitations period in recognition of its historical overreach in wielding it against respondents and Congress should not upend the reasoned and sound judgment of the Court. The proposed bill is unnecessary for the SEC to accomplish its securities enforcement goals. It fails to better remediate harmed investors, runs contrary to the interests of fair and equitable justice and promotes harmful uncertainty throughout the market.”

This legislation passed the House Financial Services Committee by a 49-5 vote with the support of one cosponsor, Rep. Bill Huizenga (R-MI).


Of NoteThis bill was introduced in response to a 2017 Supreme Court decision Kokesh v. SEC. In this case, the Court ruled that disgorgement is a penalty, and therefore the SEC’s authority to get convicted fraud perpetrators to return their ill-gotten gains is subject to a five-year statute of limitations. The case stemmed from the federal prosecution of Charles Kokesh, who owned a firm that provided investment advice to business development companies. For more than a decade, Charles Kokesh misappropriated tens of millions from his company’s clients to fund a lavish lifestyle for himself while defrauding investors out of their funds. He was ultimately convicted and ordered to pay a civil penalty, but due to time limitations imposed by the courts, he only had to repay $5 million out of a total of $35 million in stolen funds. 

In the two years since the 2017 ruling, the SEC estimates that the five-year statute of limitations has allowed those who have committed securities fraud to keep over $1 billion of their ill-gotten gains. According to the SEC’s 2018 annual report, the Kokesh ruling may have caused the SEC to forgo up to $900 million in disgorgement in 2018 alone.

The Supreme Court has recently agreed to hear a case challenging the SEC’s ability to seek disgorgement. This case, SEC v. Liu, is expected to be heard in Spring 2020.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / designer491)

AKA

Investor Protection and Capital Markets Fairness Act

Official Title

To amend the Securities Exchange Act of 1934 to allow the Securities and Exchange Commission to seek and Federal courts to grant disgorgement of unjust enrichment, and for other purposes.

    I don't particularly care how it's done, but those who are caught defrauding others cannot reap the gains of their illegal acts by waiting for some 'statue of limitations' to time out. It seems to be a realistic rule change to allow the SEC to recover illegal obtained assets over a longer, more realistic time period. I say YAY on principle and YAY to enforcing this now, even if it may be addressed in the future, it is the right and moral thing to do- just so those who are promising changes actually remember their promises when the time comes. I also strongly support criminal charges and not just fines for institutions knowingly involved with supporting or not reporting fraudulent actions which they should have been aware of.
    Like (51)
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    The SEC, while it prosecutes those who have stolen or defrauded investors, does NOTHING to recoup the losses the investors suffered. That's all left up to the courts. The ENRON case and so many others, NEVER recouped the losses suffered by the investors. Yes, the SEC has a useful purpose. But it's the courts that ultimately decide how the remaining assets (if any) left in the corporation or individual fraud perpetrator's accounts or property, gets divided and WHO gets the money. Often enough, it's the court appointed LAWYERS representing the victims that get the BULK of the cash. The remaining cash or assets are put in accounts controlled by the courts. The lawyers get PAID from those accounts BEFORE any of money or assets left are distributed to the victims. So in reality, what truly needs to be done is that the COURT, without even BOTHERING with lawyers, should just divvy up the remaining cash and order a sale of the assets at pubic auction. Then distribute the proceeds DIRECTLY to the victims. Once the SEC has gotten a conviction for investment fraud and the courts order the assets ceased for repayment to the victims.
    Like (5)
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    5 years is to short a statute of limitations for this kind of crime.
    Like (14)
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    Although SEC seeks to Punish Perpetrators and not make VICTIMS WHOLE AGAIN, it would be Nice to see victims receive some of their money back for a change! Conviction of these crooks, while serving justice, doesn’t pay the bills retirement funds would have.
    Like (12)
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    Certainly. Why let Wall Street simply run out the clock? Why to they get bailed out for 12.8 TRILLION while the little investor gets cheated? Level the playing field!
    Like (6)
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    There is no constitutional authority for the federal government to regulate securities. This is a hold over from the unconstitutional New Deal and FDR’s unconstitutional alphabet government agencies during the Great Depression,
    Like (5)
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    Absolutely! Some crimes should have NO statute of limitations and fraud is one of them. However any proposal of this nature is only valid If the SEC has some real teeth and isn’t afraid or otherwise directed no to bite too hard on the hand that feeds them. Up to now this hasn’t been the case. If all for extending or eliminating the statute of limitations on fraud and financial crimes and their collection, and I’m all for eliminating the ability to pay a fine without admitting guilt.
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    People who defraud other people have to make it right. The law now states that if they only have to pat 5 years of fraud and not anything earlier than this. We are talking about people’s retirement money. It should be longer than 14 years.
    Like (4)
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    Accountability for egregious conduct is a public good and a government responsibility!
    Like (4)
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    Make our economy work
    Like (4)
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    The SEC needs better funding and more comprehensive regulatory authority, while you're at it.
    Like (3)
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    I'm in support to do what we need to do to rectify a wrong/injustice.
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    Too often we don’t even know within 5 years.
    Like (3)
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    Absolutely.
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    Absolutely NOT. THOSE CROOKS DEFRAUDED THE PEOPLE FOR BILLIONS AND THEN GOT MONEY FROM THE GOVERNMENT THEY DO NOT DESERVE MORE TIME.
    Like (3)
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    The federal government's purpose should be to set federal guidelines, and take care of federal issues. Business is not a federal issue.
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    Absolutely. There should be no statute of limitations on financiers ruining people's lives and living off their ill-gotten capital gains (pun intended). Theft is one thing, but people can have their entire lives ruined from these things. Hard to pull yourself up by your bootstraps when they've taken your laces, shoes, and everything else right out from under you.
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    It should be indefinite period till it is recovered
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    Your vote is no surprise Randy. Mine shouldn’t be either
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    Make it longer. They have to be forced into honesty some how.
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