In a letter to certain senators, SEC Chairman Mary Schapiro has requested new statutory power to enhance the SEC’s Enforcement program’s effectiveness. In particular, the SEC is seeking statutory upgrades in five areas.

The first new power would be to increase the SEC’s ability to impose fines on individuals and entities up to $1 million per violation for individuals and $10 million per violation for entities.  Similarly, the SEC also seeks to increase the maximum Tier 3 penalty, authorizing penalties equal to three times the gross amount of pecuniary gain from a charged individual or entity.  The SEC believes this new enhancement would eliminate the current disparity between the penalty relief available in federal district court actions and SEC administrative proceedings. The third proposed change would authorize a Tier 3 penalty based upon the amount of investor losses in both civil and administrative actions, allowing the SEC to consider more directly investor harm.  Seemingly, such a change may result in uncertainty as to actual investor losses, and bring the SEC squarely down as the investors’ recovery mechanism as opposed to a regulator interested in fair, transparent and orderly markets.

The SEC also seeks a penalty enhancement whereby the penalty would be increased threefold if the defendant were to have been criminally convicted or had an order imposed against it in any SEC action alleging fraud.  Finally, the SEC requested a legislative change to authorize a civil penalty for violations of a federal injunction obtained by the SEC, in place of the SEC filing a civil contempt proceeding.

In short, the SEC believes that, by increasing penalties, it will prevent future securities violations.  However, there does not appear to be any evidence that increasing said penalties  would provide the deterrent effect the SEC seeks.