Congress To Increase Fines SEC Won’t Be Able To Levy

Jeb Hensarling's making sure that his buddy Jay Clayton won't have much to do.
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Put it up for sale! By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Put it up for sale! By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons

In June of 2009, President Barack Obama unveiled the first draft of what would become the Dodd-Frank Act, rewriting the U.S. financial regulatory regime in an effort to prevent the near-financial collapse permitted by the previous financial regulatory regime from happening again. Since then, Rep. Jeb Hensarling, Republican of the Dallas suburbs, has made it his personal, often quixotic, mission to destroy it. For many years, it looked like this would remain merely a dream, because even after he ascended to the top of the House Financial Services Committee, Hensarling still had to deal with the fact that the guy who proposed Dodd-Frank was still president. This, of course, all changed on Nov. 8, 2016, when another guy who really, really hates Dodd-Frank was elected 45th President of the United States.

At last, Jeb Hensarling—who decided to forego a stint as Treasury Secretary to get the job done—would get his wish to kill Dodd-Frank. During Trump’s first 100 days in office, this had to take a back seat to more pressing issues, like not killing Obamacare, not passing tax reform and golfing. Last week, he revealed how he was going to do it.

To address the theme of being tough on Wall Street, a favorite rhetorical target of both parties, the legislation would increase the maximum penalties the S.E.C. can impose for violations, including a top corporate fine of $10 million per violation. It also adds a fourth tier of penalties that triples the fine for recidivists.

Wait, what? This is not what Government Sachs was supposed to be bringing us. This sounds nothing like the Galt’s Gulch, the land free of pesky rules and regulations, that we were not promised but which we have since been told is what we’ll get.

Luckily, leading with increased fines is just another bit of clever G.O.P. marketing. As it happens, none of them will ever be imposed, because the Financial Choice Act 2.0

  • effectively kills off the SEC’s in-house courts, not by just killing them off, but by allowing defendants to opt out of them and by increasing the SEC’s burden of proof within them to something like mortal-lock certainty;
  • prevents the SEC from barring bad actors while
  • barring SEC lawsuits against bad actors if said bad actors didn’t have “adequate notice” that he or she was doing something the SEC might disapprove of;
  • inserts an ombudsman within the SEC enforcement staff to make said bad actor’s cases for them;
  • requires the SEC to consider whether a fine would harm shareholders, which of course it would, as shareholders are the owners of the business being fined;
  • forces the SEC to study the enforcement policies and practices it just gutted anyway, to see if there’s any meat left on the bones that could yet be removed.

Looks like Jay Clayton won’t have to do much to live up to his promise to do his job as SEC chair even after taking his first year off.

A Whack at Dodd-Frank Could Hamstring the S.E.C. [DealBook]

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