Testimony of Urska Velikonja Before the U.S. House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets on Proposals to Strengthen Enforcement Against Securities Law Violators

The Committee is considering two different kinds of legislative proposals. The first kind are improvements to the existing regime: rewarding PCAOB whistleblowers to encourage early reporting, improving the process for granting waivers from bad actor disqualifications, and increasing the civil fines that the SEC can impose. The second kind of legislative proposals codify an existing practice in SEC enforcement, now decades-old, such as disgorgement in civil actions. These practices are threatened by recent Supreme Court decisions in Kokesh v. SEC, 137 S. Ct. 1635 (2017) and Gabelli v. SEC, 133 S Ct. 1216 (2013). These cases threaten not only SEC disgorgement but also similar remedies sought by the SEC and its sister enforcement agencies. Failure to act and adopt the proposed amendments does not preserve the status quo. Rather, inaction would significantly hamper SEC enforcement since lower courts applying these new decisions are blocking long-standing agency practices. The testimony is divided in three parts. In Part I, I discuss the Discussion Drafts that propose increasing civil fines and codifying equitable relief in civil actions. In Part II, I supply empirical evidence on the impact of short limitations periods on SEC enforcement, and suggest that an increase in the limitations period is necessary. Finally, in Part III, I provide data on SEC’s bad actor disqualification and waiver practices. Specifically, my comments suggest that the proposed amendments are necessary to bring transparency and accountability to the waiver process.