Press Releases

WASHINGTON – Today U.S. Sens. Mark R. Warner (D-VA) and John Kennedy (R-LA), members of the Senate Banking Committee, introduced the Securities Fraud Enforcement and Investor Compensation Act, bipartisan legislation that would give the Securities and Exchange Commission (SEC) power to seek restitution for Main Street investors harmed by securities fraud.

The bill would give the SEC a broader range of tools to seek compensation for investors who’ve lost money to Ponzi schemes and other investment scams. It also extends the window of time for which the SEC can pursue a claim on an investor’s behalf from five years to ten.

“As Bernie Madoff demonstrated, financial fraudsters can sometimes go on for years, even decades, before they finally get caught. They shouldn’t be able to rip off investors just because some arbitrary five-year window has expired,” said Sen. Warner. “This bill will give the Securities and Exchange Commission more time and additional tools to seek restitution for everyday Americans who fall victim to investment scams.”

 “Investors who are scammed by con artists like Bernie Madoff and Allen Stanford lose their life savings. All too often, the victims of financial fraud aren’t wealthy people,” Sen. Kennedy said. “They’re middle class Americans who lose every penny they set aside for their retirements. Because of a narrow window of time for recouping stolen investment dollars, fraudsters are actually incentivized to keep the shell game going for decades. This bill addresses that problem.”



On June 5, 2017, the Supreme Court in Kokesh v. Securities Exchange Commission ruled that the SEC only has five years to bring disgorgement claims against bad actors to try to compensate harmed Main Street investors. Although the SEC strives to bring cases as soon as possible, sometimes well-concealed frauds are not discovered for many years. (As an example, Bernie Madoff was able to defraud investors for decades before his investment fund was revealed as Ponzi scheme in 2009.) Under the Kokeshprecedent, clever fraudsters can manage to retain any ill-gotten gains from outside the five-year window.  

The implications of the Kokesh ruling limiting the SEC’s enforcement window to five years have been significant. The SEC’s 2018 enforcement report noted that “the court’s ruling in Kokesh may cause the Commission to forgo up to approximately $900 million in disgorgement, of which a substantial amount likely could have been returned to retail investors.” The Securities Fraud Enforcement and Investor Compensation Act addresses this problem by expanding the range of tools available to the SEC to pursue compensation for scammed investors, subject to a 10-year statute of limitations.

Today, the SEC typically compensates harmed investors by bringing disgorgement claims, which allow the SEC to recoup any ill-gotten profits from the perpetrator and turn them over to the investor. Sometimes, the profits are small, and the compensation can represent just a small fraction of the overall loss to the investor as a result of the fraud. Under the terms of the bill, the SEC would retain the power to bring disgorgement claims for up to five years, but would also gain the authority to file claims of restitution, which would increase the amount of compensation available to make whole harmed investors. Rather than limiting the compensation to just the profit margin of the perpetrator, as with a disgorgement claim, restitution would allow the SEC to recover from fraudsters and refund investors the full amount of their losses, up to ten years after the fact.

Bill text is available here.