Welcome to Financial Advisor IQ

Bernie Madoff-Type Fraudsters May Find it Harder to Hide if This Law Passes

March 15, 2019

A bipartisan bill introduced by members of the Senate Banking Committee would double the time the SEC is currently allowed to recoup funds lost due to fraud, according to news reports.

The Securities Fraud Enforcement and Investor Compensation Act, introduced by Sens. Mark Warner, D-Va., and John Kennedy, R-La., would give the regulator 10 years to seek restitution for victims of fraud, according to Law360.com.

The bill aims to expand the SEC’s ability to protect investors in light of the 2017 U.S. Supreme Court decision in Kokesh v. SEC, which effectively cut the recovery period to five years, the legal news website writes.

That ruling, according to the SEC’s 2018 enforcement report, “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 senators said in a statement cited by Law360.com.

“As Bernie Madoff demonstrated, financial fraudsters can sometimes go on for years, even decades, before they finally get caught,” Warner says in a statement cited by the website. “They shouldn't be able to rip off investors just because some arbitrary five-year window has expired. 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.”

The proposed bill would keep the current five-year limit on disgorgement, however, according to Law360.com. The 2017 Supreme Court’s decision deemed disgorgement a civil penalty, which has a five-year cap, the website writes.

Bernie Madoff (Getty)

Prior to the decision, there was no statute of limitations on disgorgement, according to Law360.com.

A spokesman for Warner declined further comment to Law360.com and a representative for Kennedy didn’t respond to its request for comment.

By Alex Padalka
  • To read the Law360 article cited in this story, click here.