SEC Overstepped Authority in Retroactive Civil Fine Hike: Lawyers

The catch-up adjustments allow agencies to increase their penalty amounts by as much as 150% of their Nov. 2, 2015, values, the WilmerHale attorney explains, and agencies must make annual adjustments to their civil money penalties for inflation going forward.

The SEC’s inflation-adjustment hike retroactively affects “unpaid penalties prior to 2015,” the WilmerHale attorneys said, with the SEC being only one of four agencies (out of 22) “to take such a drastic step.”

The WilmerHale attorneys cite an SEC press release announcing the hike, which states: “The adjustments set forth in the amendment apply to all penalties imposed after the effective date of this interim final rule, including to penalties imposed for violations that occur before the effective date of the amendment.”

Said the attorneys: “To the extent the SEC intends by this language to apply the penalty increases to violations that occur before Nov. 2, 2015, we respectfully submit that such retroactive application of the penalty increases is beyond the agency’s authority,” as the statute “says nothing about whether the penalties apply to violations predating the Nov. 2, 2015, passage of the statute directing those increases.”

The Supreme Court “has observed that it has never ‘read a statute substantially increasing the monetary liability of a private party to apply to conduct occurring before the statute’s enactment,’” the WilmerHale attorneys noted, and urged the SEC “to revise its position and restrict the application of its penalty increases to violations that occur after Nov. 2, 2015.”