HR-216-119
Referred to the House Committee on Financial Services.
Sponsored by Pete Sessions (R-TX)
What it does
This bill would amend four major federal securities laws — the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940 — to restrict how the Securities and Exchange Commission (SEC) counts the number of violations when calculating civil and criminal penalties. Specifically, it would require that multiple separate acts of noncompliance be treated as a single violation when they share a common originating cause, involve the same misstatement or omission, or constitute a continuing failure to comply.
Who benefits
Registered broker-dealers, investment advisers, investment companies, and publicly traded corporations facing SEC enforcement actions — particularly those where a single root cause (e.g., a flawed compliance system or a single erroneous disclosure) produced many downstream violations. Smaller financial firms with limited compliance infrastructure that may be more likely to have systemic, cause-linked failures. Defense attorneys and compliance consultants who advise regulated entities. Shareholders of penalized companies, who indirectly bear the cost of large fines.
Who is hurt
Retail investors and the general public who rely on robust SEC enforcement as a deterrent against securities fraud and disclosure failures. Whistleblowers whose tips lead to enforcement actions that may result in smaller total penalties. Competing firms that maintain full compliance at higher cost and may face a less level playing field if penalties for noncompliance are reduced. The SEC's enforcement budget, which is partly funded through penalties collected.
Supporters argue
Supporters argue that the SEC has increasingly used per-violation penalty stacking to impose fines that are disproportionate to the underlying misconduct, particularly when a single compliance failure — such as a flawed recordkeeping system — generates hundreds of technically separate violations. They contend that this practice creates unpredictable, potentially ruinous liability for firms acting in good faith, and that codifying a "single originating cause" standard would bring consistency and fairness to enforcement without shielding intentional wrongdoers, who would still face penalties for each distinct act.
Opponents argue
Opponents argue that treating cascading violations as a single infraction would significantly reduce the SEC's deterrent power, particularly in cases involving widespread harm to investors — such as a misstatement that affects thousands of transactions over an extended period. They contend that the bill's broad language, especially terms like "substantially overlapping originating cause" and "continuing failure to comply," is vague enough that sophisticated actors could structure misconduct to exploit the single-violation rule, and that Congress should not limit the SEC's discretion to calibrate penalties to the full scope of investor harm caused.
Constitutional context
No clear constitutional issue is raised by this bill. Congress has broad authority under the Commerce Clause (Art. I, §8, cl. 3) to regulate securities markets, as securities transactions are quintessentially interstate commercial activity. This bill modifies existing statutory penalty structures rather than creating new agency authority, so the major questions doctrine (West Virginia v. EPA, 2022) and post-Chevron independent review (Loper Bright v. Raimondo, 2024) are not directly implicated.
Checks and balances
Congress would gain authority by constraining SEC discretion in penalty calculation; the SEC loses flexibility to count violations, but retains enforcement authority and courts retain review of whether the new statutory standard is met in individual cases.
Historical precedent
Congress has previously clarified penalty calculation standards in other regulatory contexts, such as the Clean Air Act's per-day violation caps, but no directly analogous legislation has standardized violation-counting rules across multiple securities laws simultaneously.