[Pages H8929-H8932]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

INVESTOR PROTECTION AND CAPITAL MARKETS FAIRNESS ACT

Mr. GREEN of Texas. Mr. Speaker, I move to suspend the rules and pass
the bill (H.R. 4344) to amend the Securities Exchange Act of 1934 to
allow the Securities and Exchange Commission to seek and Federal courts
to grant disgorgement of unjust enrichment, and for other purposes, as
amended.
The Clerk read the title of the bill.
The text of the bill is as follows:

H.R. 4344

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Investor Protection and
Capital Markets Fairness Act''.

SEC. 2. ADDITIONAL RELIEF.

(a) In General.--Section 21(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u(d)) is amended by adding at the
end the following:
``(7) Additional relief.--
``(A) In general.--In any action or proceeding brought or
instituted by the Commission under any provision of the
securities laws, the Commission may seek, and any Federal
court may grant the following additional relief:
``(i) Disgorgement in the amount of any unjust enrichment
obtained as a result of the act or practice with respect to
which the Commission is bringing such an action or
proceeding.
``(ii) Injunctions, including officer and director bars.
``(B) Rule of construction.--Additional relief sought under
this paragraph may not be construed to be a civil fine,
penalty, or forfeiture subject to chapter 163 of part VI of
title 28, United States Code.
``(C) Statute of limitations.--A Federal court may not
issue relief under this paragraph if the action or proceeding
brought or instituted by the Commission was commenced more
than 14 years after the alleged violation.''.
(b) Effective Date.--The amendment made by this section
shall apply with respect to any actions or proceedings
pending or commenced on or after the date of the enactment of
this section.
(c) Report.--
(1) In general.--Not later than 10 years after the date of
the enactment of this Act, the Securities Exchange Commission
shall submit to Congress data about each enforcement action
brought by the Commission in the 10 years following the date
of the enactment of this Act.
(2) Contents.--In submitting data pursuant to paragraph
(1), the Commission shall--
(A) with regard to each enforcement action--
(i) categorize the type of enforcement action;
(ii) categorize the type of issuer involved in the
enforcement action;
(iii) identify the approximate duration of the misconduct
that gave rise to the enforcement action; and
(iv) identify the approximate duration of the
investigation; and
(B) identify the 10 enforcement actions with the longest
durations of misconduct that gave rise to enforcement
actions.

SEC. 3. DETERMINATION OF BUDGETARY EFFECTS.

The budgetary effects of this Act, for the purpose of
complying with the Statutory Pay-As-You-Go Act of 2010, shall
be determined by reference to the latest statement titled
``Budgetary Effects of PAYGO Legislation'' for this Act,
submitted for printing in the Congressional Record by the
Chairman of the House Budget Committee, provided that such
statement has been submitted prior to the vote on passage.

[[Page H8930]]

The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Texas (Mr. Green) and the gentlewoman from Missouri (Mrs. Wagner) each
will control 20 minutes.
The Chair recognizes the gentleman from Texas.

General Leave

Mr. GREEN of Texas. Mr. Speaker, I ask unanimous consent that all
Members may have 5 legislative days within which to revise and extend
their remarks on this legislation and to insert extraneous material
thereon.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. GREEN of Texas. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise in strong support of H.R. 4344.
I would like to start by commending my colleagues, Representatives
McAdams and Huizenga, for crafting this bipartisan solution to a
problem that, in just 2 years, has cost investors approximately $1.1
billion.
In 2017, the Supreme Court, in Kokesh v. SEC, held that the authority
of the Securities and Exchange Commission, SEC, to recover for
investors the wrongful gains of securities law violators, known as
disgorgement, is effectively a penalty. As a result, the SEC's
authority to obtain disgorgement is time limited by the general Federal
statute of limitations for penalties so that the SEC must bring its
case within 5 years of the violation.
This ruling was a boon to white-collar criminals like Bernie Madoff
and Allen Stanford, who are now able to defraud investors for a decade
and keep their profits.
Even worse, the SEC is currently in litigation before the Supreme
Court over whether it even has the authority to obtain disgorgement for
investors.
I am pleased that H.R. 4344 would ensure that the SEC has the tools
it needs to hold bad actors accountable and to return funds to harmed
investors by clarifying that the SEC does indeed have disgorgement
authority, and its authority reasonably extends to 14 years following
the date of violation. This longer time limit would ensure that the SEC
has enough time to detect and sue the Bernie Madoffs of the world.
Mr. Speaker, I reserve the balance of my time.
Mrs. WAGNER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I would like to recognize the gentleman from Utah (Mr.
McAdams) and the ranking member of the Investor Protection,
Entrepreneurship, and Capital Markets Subcommittee, Mr. Huizenga, for
their diligent efforts on this bipartisan bill.
This bill is the result of the Supreme Court's Kokesh decision, which
restricted the SEC's disgorgement authority to 5 years.
SEC Chairman Jay Clayton almost never advocates for Congress to
legislate on a particular issue; however, the issue before us today is
the exception, as Chairman Clayton has expressed concern that a 5-year
statute of limitations allows bad actors to hold on to their ill-gotten
gains obtained outside of that 5-year window.
As Chairman Clayton has pointed out: Many long-running frauds go
longer and, in some cases, well longer than 5 years; and it is just
plain wrong to allow a fraudster to keep money made from their fraud
simply because he or she was good at concealing the wrongful behavior.
Today's bill is responsive to Chairman Clayton's concerns in a
thoughtful and balanced way. Statutes of limitations are important
procedural protections intended to strike the balance between ensuring
wrongdoers are not rewarded for bad behavior and protecting
shareholders, who are ultimately responsible for paying large penalties
for violations they did not commit in the event of an SEC judgment.
I know there is concern that the 14-year statute of limitations in
the bill is too long. I share concerns that the SEC could be slow to
bring a case when certainty and swiftness should be the priority when
pursuing enforcement actions. However, the reality is this: A 14-year
statute of limitations is a reasonable first attempt to strike the
appropriate balance in the disgorgement context.
I say ``first attempt'' because the bill also requires the SEC to
report to Congress with data on cases where the SEC has sought
disgorgement. These reports will be useful in allowing Congress to
evaluate the effectiveness of the statute of limitations and fine-tune
it, if appropriate.
This bipartisan bill carefully balances the benefits of statutes of
limitations with the downside of fraudsters potentially holding on to
significant amounts of their gains.
Again, I thank the gentlemen from Utah and Michigan for their
thoughtful draft bipartisan legislation, which I support, and I urge
all my colleagues to join me in supporting this commonsense bill.
Mr. Speaker, I reserve the balance of my time.
Mr. GREEN of Texas. Mr. Speaker, I yield 5 minutes to the gentleman
from Utah (Mr. McAdams), the sponsor of the legislation.
Mr. McADAMS. Mr. Speaker, I rise in support of H.R. 4344, the
Investor Protection and Capital Markets Fairness Act, bipartisan
legislation that I introduced with my friend from Michigan, Congressman
Huizenga, the ranking member of the Investor Protection,
Entrepreneurship, and Capital Markets Subcommittee.
I also want to recognize my friend Representative Carolyn Maloney for
her work on this bill as well.
Utah is frequently discussed as one of the top States for fraud and
Ponzi schemes. A Deseret News article earlier this year noted that Utah
ranked sixth in most number of Ponzi schemes from 2008-2018, despite
being only 31st in population.
In that decade alone, Utah investors lost over $1.5 billion to Ponzi
schemes, or $502 per person, plus an additional $500 million in other
types of fraud: $2 billion, overall, taken from hardworking Utahns; $2
billion that won't be there for retirement, that won't be there to pass
along to our children and to our grandchildren.
As a result of a couple of recent court cases, that problem may
become much worse, leaving Utahns less protected, and leaving
fraudsters empowered.

Mr. Speaker, Charles Kokesh opened a firm that provided investment
advice to business development companies. Over the course of roughly 14
years, Charles Kokesh misappropriated tens of millions of dollars from
these companies, funding a lavish lifestyle for himself and, in the
process, defrauding the investors out of millions of dollars.
Mr. Kokesh was found guilty of misappropriating these investors'
funds, and the district court ordered Mr. Kokesh to pay a civil
penalty, as well as disgorgement, totaling roughly $35 million.
The facts of this case are not in dispute, but what comes next has
upset the delicate balance that keeps our markets fair and keeps our
investors protected.
In 2017, the Supreme Court ruled that the SEC's disgorgement
authority, the ability of the SEC to seek repayment of a defendant's
ill-gotten gains, that that authority is subject to a 5-year statute of
limitations. The Supreme Court further hinted, in an obscure footnote,
that the SEC may not be able to seek disgorgement of ill-gotten gains
at all.
What did this Supreme Court ruling mean for Charles Kokesh? In the
end, he was only ordered to pay $5 million in disgorged profits,
keeping roughly $30 million for himself: $30 million that he was able
to keep that he attained through nefarious means, $30 million in
profits from illegal activity, but, most importantly, $30 million that
won't find its way back to the investor victims.
He keeps $30 million and he loses $5 million--not a bad decade's work
for a fraudster.
And what did the Supreme Court decision mean for the SEC? The SEC
estimates that, in the 2 years since the Kokesh decision, they have had
to forgo over $1.1 billion in disgorged funds. That is over $1 billion
of ill-gotten gains that bad actors can now keep that don't get
returned to investors.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. GREEN of Texas. Mr. Speaker, I yield the gentleman from Utah an
additional 1 minute.
Mr. McADAMS. In addition to the over $1.1 billion in forgone funds,
the SEC is increasingly spending time and

[[Page H8931]]

staff resources fighting new legal challenges from bad actors claiming
that the SEC shouldn't be able to seek disgorgement at all.
SEC Chairman Jay Clayton, nominated for that position by President
Donald Trump, has lamented the impact of the Kokesh decision on the
SEC's ability to appropriately protect harmed investors and the amount
of losses they aren't able to recover for these investors. As he told
me at a recent hearing: ``You shouldn't reward somebody for concealing
a fraud for a long time.''
In a letter to the House, he also said that the SEC's disgorgement
authority is ``particularly important in circumstances where retail
investors have been the victims of long-running, well-conceived frauds,
including Ponzi schemes. For these victims, an action by the SEC
seeking disgorgement may be the only practical means of recourse.''
And now to pivot back to that footnote in the Kokesh decision, that
footnote said that the SEC may not have the authority to seek
disgorgement at all--within or outside that 5-year statute of
limitations. And just this past month, the Supreme Court granted cert
on a challenge to that very question. So, within the next year, the
Supreme Court will hear arguments and possibly decide to remove any
disgorgement action from the SEC, absent further action from Congress.
The SPEAKER pro tempore. The time of the gentleman has again expired.
Mr. GREEN of Texas. Mr. Speaker, I yield the gentleman from Utah an
additional 30 seconds.
Mr. McADAMS. That would be catastrophic for the ability to protect
investors and to keep our capital markets fair, which is where this
legislation kicks in and why I think it is so necessary.
This legislation would reverse the Kokesh decision, specifically
authorize disgorgement as a remedy that the SEC can seek, and give the
SEC up to 14 years to seek disgorgement of ill-gotten gains. So, in
essence, this legislation seeks to fix the Kokesh decision and would
address the recent case the Supreme Court agreed to hear about whether
the SEC has disgorgement authority at all.
Chairman Clayton says: ``H.R. 4344 will ensure that sophisticated
fraudsters who carry out some of the most harmful frauds, including
Ponzi schemes that can defraud investors for long periods of time
before being uncovered, cannot keep their victims' money.''
Further, he says: ``H.R. 4344 is an important response to real harm
suffered by innocent victims.''
The SPEAKER pro tempore. The time of the gentleman has again expired.
Mr. GREEN of Texas. Mr. Speaker, I yield the gentleman from Utah an
additional 10 seconds.
Mr. McADAMS. Our capital markets are the envy of the world, but they
don't work to the extent that investors have faith that bad actors
can't profit off wrongdoing.
I urge support for H.R. 4344.
Mrs. WAGNER. Mr. Speaker, I yield such time as he may consume to the
gentleman from Michigan (Mr. Huizenga), the ranking member of the
Investor Protection, Entrepreneurship, and Capital Markets
Subcommittee.
Mr. HUIZENGA. Mr. Speaker, I rise today in support of H.R. 4344, the
Investor Protection and Capital Markets Fairness Act.
In June of 2017, as has been discussed, the Supreme Court ruled
unanimously in the Kokesh v. Securities and Exchange Commission that
the SEC's disgorgement remedy constitutes a penalty, and, as a result,
the Supreme Court found that the SEC's disgorgement authority--in other
words, their ability to go collect those dollars--was subject to a 5-
year statute of limitations.
That may be how the law is currently reads. That is why we are here
today to try to change that.
As a result of the Kokesh case, the Supreme Court decision has
significantly limited the SEC's ability to obtain disgorgement in
certain long-running frauds.

{time} 1745

According to the most recent SEC enforcement division's annual
report, it is estimated that due to this Kokesh ruling, the SEC is
forced to forgo more than $1.1 billion in ill-gotten gains from
wrongdoers at the expense of Main Street investors.
H.R. 4344 would grant the SEC the authority to seek and for Federal
courts to grant disgorgement within 14 years. Additionally, the bill
would further clarify that disgorgement may not be construed as a civil
fine, penalty, or forfeiture. Lastly, the bill requires the SEC to
submit a report to Congress on the length of certain fraud actions that
they have encountered, including the 10 longest-running frauds that led
to Commission action.
So ideally, I would like to see a shorter statute of limitations.
There was discussion about matching it with some other Federal
statutes, but I also recognize that many securities frauds are complex
and take significant time to uncover and investigate. For example, in
this particular case, Charles Kokesh, over the course of nearly 14
years, quietly committed well concealed and elaborate fraud by
misappropriating nearly $35 million. And to add insult to injury,
because of the Supreme Court decision, Kokesh was allowed, the
fraudster was allowed to keep nearly $30 million of what he stole from
small-dollar Main Street investors. I don't think any of us can look at
that and feel good about that current situation.
This bipartisan bill attempts to strike a delicate balance by
ensuring that the SEC has the necessary resources and tools to go after
bad actors and to make sure that these sophisticated fraudsters may not
keep any of the money that they have stolen from everyday investors
like teachers and military service personnel, the elderly, and
religious-affiliated groups.
SEC Chairman, Jay Clayton stated, ``H.R. 4344 is an important
response to real harms suffered by innocent victims of the worst types
of securities frauds. These are frauds that undermine the public
confidence in our markets that the 4,400 women and men of the SEC
strive to preserve every day.''
I would like to thank my colleague, the gentleman from Utah (Mr.
McAdams), for closely working with me on this important issue to help
protect millions of Main Street investors. H.R. 4344 provides the SEC
with the necessary tools to ensure sophisticated criminals who defraud
everyday investors for long periods of time that they are prevented
from keeping their victims' money.
So I urge all of my colleagues to vote in favor of this
overwhelmingly bipartisan investor protection legislation.
Mrs. WAGNER. Mr. Speaker, I reserve the balance of my time.
Mr. GREEN of Texas. Mr. Speaker, I submit for the Record a letter on
this legislation from the Chair of the SEC, Mr. Clayton.

United States Securities and

Exchange Commission,

Washington, DC, November 17, 2019.
Re H.R. 4344, the Investor Protection and Capital Markets
Fairness Act.

Hon. Nancy Pelosi,
Speaker, House of Representatives,
Washington, DC.
Hon. Kevin McCarthy,
Republican Leader, House of Representatives,
Washington, DC.
Dear Speaker Pelosi and Leader McCarthy, I write concerning
the importance to our investors and our markets of the
Securities and Exchange Commission's (SEC or Commission)
authority to seek disgorgement of unjust enrichment from
those who have violated the federal securities laws. This
authority is particularly important in circumstances where
retail investors have been the victims of long-running, well-
concealed frauds, including Ponzi schemes. For these victims,
an action by the SEC seeking disgorgement may be the only
practical means of recourse.
The recent Supreme Court decision in Kokesh v. SEC, 137 S.
Ct. 1635 (2017), significantly limited the SEC's authority to
seek disgorgement. In Kokesh, the Supreme Court found our use
of the disgorgement remedy operated as a penalty, which
subjected that remedy to a five-year statute of limitations
from the date of the misconduct. As a result, our ability to
address well-concealed frauds has been significantly
restricted, including in situations where our Main Street
investors need us most. More recently, the SEC's ability to
seek disgorgement in any district court action has been
questioned.
With deference to your judgment regarding the appropriate
length for the statute of limitations and other terms, I
respectively request that you act to ensure that we are able
to seek disgorgement to the extent appropriate to protect our
investors and our markets. Prompt congressional action also
would remove the uncertainty regarding our

[[Page H8932]]

general authority to seek disgorgement in district court.
Fortunately, the U.S. House of Representative is
considering H.R. 4344, the Investor Protection and Capital
Markets Fairness Act, which would amend the Securities
Exchange Act of 1934 to explicitly provide the Commission
with authority to seek disgorgement of unjust enrichment in
district courts. I greatly appreciate this bipartisan,
bicameral work underway to address this important issue and
welcome the opportunity to continue to work with Congress to
ensure defrauded retail investors can get their investment
dollars back while being true to the principles embedded in
statutes of limitations.

Importance of Disgorgement as a Remedy

The SEC's longstanding ability to obtain disgorgement of
ill-gotten gains in federal district court is an important
tool for our enforcement program and has allowed the agency
to return billions of dollars to innocent investors
victimized by perpetrators of fraud. For many--if not most--
of these victims, disgorgement awards in SEC cases are the
only practical way to recoup what was stolen from them. The
Commission is committed to returning money to harmed
investors promptly and has worked hard to improve the
effectiveness of our distribution program over recent years.
Since the beginning of Fiscal Year 2017, the hard work of the
women and men of the SEC has led to the return of over $3
billion to harmed investors.

Impact of Kokesh on Main Street Investors

Notwithstanding these successes, the Supreme Court's
decision in Kokesh has impacted the SEC's ability to return
funds fraudulently taken from Main Street investors. In
Kokesh, the Supreme Court found our use of the disgorgement
remedy operated as a penalty, which subjected the
Commission's ability to seek disgorgement of ill-gotten gains
to a five-year statute of limitations.
The Kokesh case itself highlights this problem in stark
terms. Of the $34.9 million that Charles Kokesh
misappropriated, $29.9 million fell outside of the 5-year
statute of limitations. The SEC was unable to collect that
$29.9 million from him for distribution to his victims, who
largely consisted of small-dollar Main Street investors.
Overall, since Kokesh was decided, at least $1.1 billion in
ill-gotten gains has been unavailable for possible
distribution to harmed investors. Much of this is tied to
losses by investors.

Importance of Statutes of Limitations

The SEC's authority to seek disgorgement should not be
unbounded. I agree that statutes of limitations serve
important functions in our legal system, and as a general
matter, our remedial authority should be subject to
reasonable limitations periods. However, as I look across the
scope of misconduct we encounter, including most notably
Ponzi schemes and affinity frauds, I believe a period longer
than five years from the date of the misconduct is
appropriate in various circumstances. This is especially the
case in our private, retail markets where there are fewer
causes of action and safeguards available compared to the
public capital markets. Further, we often see fraudsters
target certain categories of investors. These investors--
notably teachers, military service personnel, the elderly,
and religious-affiliated groups--need and deserve legal
protection and the SEC's attention, particularly in the case
of private, targeted frauds.

H.R. 4344, the Investor Protection and Capital Markets Fairness Act

H.R. 4344 would address two important issues. First, the
bill addresses the result of the Supreme Court's ruling in
Kokesh that SEC disgorgement claims are subject to a five-
year statute of limitations. The Court's holding has had the
anomalous effect of allowing the most ``successful''
perpetrators of fraud--those who prevent the discovery of
their schemes for longer than the limitations period--to keep
their ill-gotten gains. H.R. 4344 will ensure that
sophisticated fraudsters who carry out some of the most
harmful frauds, including Ponzi schemes that can defraud
investors for long periods of time before being uncovered,
cannot keep their victims' money.
Second, some perpetrators of fraud have tried to keep their
ill-gotten gains arguing that district courts lack the power
to order disgorgement in any Commission action. The primary
objective of disgorgement is to return circumstances to the
pre-fraud status quo. The Supreme Court recently granted
certiorari to address this question in Liu v. SEC, No. 18-
1501. H.R. 4344 would confirm and ratify district courts'
authority to do what they have been doing for decades--order
violators to surrender the money they obtained by breaking
the securities laws so that victims have a chance to be
compensated.
H.R. 4344 is an important response to real harms suffered
by innocent victims of the worst types of securities frauds.
These are frauds that undermine the public confidence in our
markets that the 4,400 women and men of the SEC strive to
preserve every day.
Thank you for your continuing commitment to America's
investors and our markets.
Very truly yours,
Jay Clayton,
Chairman.

Mr. GREEN of Texas. Mr. Speaker, I yield 2 minutes to the gentlewoman
from New York (Mrs. Carolyn B. Maloney), who happens to be the
chairperson of the Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets.
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I thank the
gentleman for yielding and for his leadership on this issue and so many
others.
I want to thank Mr. McAdams for all of his work on this crucial
issue. I also want to thank Ranking Member Huizenga, who has been a
leader on this issue for a long time. And I want to thank the
chairwoman and the ranking member for getting this bipartisan deal
done.
Proper enforcement of the securities laws helps maintain investor
confidence in our markets. Investors need to know that if a bad actor
is caught, and the SEC proves that the bad actor committed fraud, then
the investors will get their money back.
Unfortunately, the 2017 Supreme Court decision in Kokesh versus SEC
significantly damaged the SEC's ability to return funds to harmed
investors, by holding that SEC claims for disgorgement of ill-gotten
profits are subject to a 5-year statute of limitations. This means that
for long-running frauds like Bernie Madoff's Ponzi scheme, the SEC
would not be able to claw back all of the bad actor's profits.
The Kokesh decision has already cost investors about $900 million in
disgorgement of illegal profits according to the SEC.
Mr. McAdams' bill would fix this issue and would lengthen the statute
of limitations from 5 years to 14 years. This is only fair. So I
strongly urge a ``yes'' vote on this bill that my colleagues on both
sides of the aisle support, which will claw back bad actor's money and
put money back in investors' pockets.
Mr. GREEN of Texas. I reserve the balance of my time.
Mrs. WAGNER. Mr. Speaker, I urge support of this bill, and I yield
back the balance of my time.
Mr. GREEN of Texas. Mr. Speaker, I yield myself the balance of my
time.
I, too, urge support of this bill, specifically because it would
protect the SEC's longstanding authority to recover for investors the
unjust enrichment from defendants and set a reasonable time limit to do
so. I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Texas (Mr. Green) that the House suspend the rules and
pass the bill, H.R. 4344, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. DAVIDSON of Ohio. Mr. Speaker, on that I demand the yeas and
nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this motion will be postponed.

____________________