Senators Seek Stronger SEC Clawbacks In Financial Crimes

Senators Lobby For Financial Crime Victims

Legislation is bowing in Congress from a pair of U.S. senators that would broaden the ability of the Securities and Exchange Commission (SEC) to recover (or claw back) money on behalf of investors victimized in financial crimes.

Specifically, the legislation from Senators John Kennedy, Republican from Louisiana and Mark Warner, Democrat from Virginia, would extend the statute of limitations tied to those crimes from five years to 10 years.

As reported in The Wall Street Journal and elsewhere, the five-year statute of limitations on fraud or financial misconduct had been put in place by the Supreme Court in 2017.

The new legislation would give the SEC a decade to pursue restitution, where funds recovered would go to the victims. The proposed decade-limitation would give the Commission a chance to spot and pursue hard to detect financial crimes, according to the lawmakers. The Supreme Court had said that in establishing the five-year limit, the agency had a narrower ability to use what is known as “disgorgement,” where illegally gotten gains are taken by fraudsters – and the Journal noted the SEC has had to forgo disgorgement, cumulatively (which can go to victims or to the government), of about $900 million since the 2017 decision.

The new legislation would keep the five-year disgorgement limit, but would extend the restitution limit to 10 years. The newswire cited research from Georgetown University Professor of Law Urska Velikonja, which found that roughly 28 percent of the $13 billion in disgorgement that marked the period of 2010 to 2018 went to investors.

“Financial fraudsters can sometimes go on for years, even decades, before they finally get caught,” a statement from Senator Warner said. “They shouldn’t be able to rip off investors just because some arbitrary five-year window has expired.”

The Journal noted, too, that the Thursday legislation comes in the wake of commentary last year via SEC Chairman Jay Clayton, who testified before the House Financial Services Committee that “the most well-concealed frauds may fall outside of that limitations period,” adding that “the SEC should be in the business of getting money back for investors who are subject to that kind of fraud, a Ponzi scheme, whatnot.”


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.