SEC's Schapiro asks for tougher penalty powers

Reuters News
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Posted: Nov 29, 2011 7:58 PM
SEC's Schapiro asks for tougher penalty powers

By Sarah N. Lynch and Aruna Viswanatha

WASHINGTON (Reuters) - U.S. Securities and Exchange Commission Chairman Mary Schapiro is asking Congress to expand its powers so it can impose tougher financial penalties against wrongdoers on Wall Street.

Schapiro's request, in a November 28 letter to two U.S. senators, comes as the agency is under fire for entering settlements that a federal judge criticized as too lenient.

On the same day that Schapiro spelled out her legislative wish-list to Congress, a federal judge in New York threw out the agency's proposed $285 million settlement with Citigroup Inc over the sale of toxic mortgage debt during the financial crisis.

U.S. District Judge Jed Rakoff called the monetary fine component of the settlement "pocket change" and said investors were being "short-changed."

The SEC had alleged investors lost $700 million from the bad bets, while Citigroup had planned to give up $160 million in ill-gotten profit.

In her letter to Senators Jack Reed and Mike Crapo, Schapiro expressed frustration the law limits the agency to calculating fines based on two methods.

The first method limits the SEC's financial penalty to an amount equal to the defendant's ill-gotten profits.

Schapiro requested two changes to that method. She said the SEC should have the ability to impose a penalty that is three times the amount of ill-gotten gains.

She also said the SEC should have the flexibility to base the fines on losses suffered by investors.

The second method under which the SEC is currently allowed to calculate fines says the agency can penalize individuals up to $150,000 per violation and up to $725,000 per entity. Under Schapiro's proposed changes, those numbers would go up to $1 million and $10 million, respectively.

"Together, these changes would provide the commission with greater flexibility with regard to monetary penalties in cases where the misconduct is very serious, repeated or involves substantial investor losses," she wrote.

The SEC has been on the defensive about the size and content of its settlements. In 2009, Rakoff also rejected a proposed settlement with Bank of America Corp until the two parties agreed to raise the figure.

Schapiro said in her letter she also wants the ability to enhance penalties for repeat offenders. She added that her staff will be preparing draft legislative language for lawmakers to consider.

(Reporting by Sarah N. Lynch and Aruna Viswanatha; editing by Andre Grenon)