Congressman Ben McAdams’ bill to improve the likelihood that investors who are defrauded by white-collar criminals recover their hard-earned money, passed the House today with strong bipartisan support. The legislation gives more tools to federal securities investigators who work on some of the most notorious and complicated investment fraud cases, such as the Bernie Madoff and Allen Stanford schemes.
McAdams introduced the bill—the Investor Protection and Capital Markets Fairness Act (H.R. 4344)—together with Congressman Bill Huizenga (R-MI). Both are members of the House Financial Services Committee.
“U.S. capital markets are the envy of the world, promoting job growth and economic opportunity. But they only work to the extent that investors have faith that fraudsters cannot profit off wrongdoing. This legislation extends the time for the Securities and Exchange Commission to get back money from white collar criminals who prey on innocent investors and steal millions to enrich themselves. Those who commit fraud should not profit from their crimes and this bill helps ensure that victims recover what was stolen from them,” said McAdams.
McAdams says the bill is a response to a 2017 Supreme Court decision, which ruled that the SEC’s authority to get convicted fraud perpetrators to return their ill-gotten gains was subject to a five-year statute of limitations. The case stems from the federal prosecution of Charles Kokesh, who owned a firm that provided investment advice to business development companies. Over more than a decade, Kokesh misappropriated tens of millions of dollars from these companies, funding a lavish lifestyle for himself while defrauding investors out of hard-earned funds. Kokesh was convicted and ordered to pay a civil penalty but due to time limitations imposed by the courts, he only had to repay $5 million of the $35 million in stolen funds. In the two years since the Kokesh ruling, the SEC estimates that it has had to forgo approximately $1.1 billion dollars in ill-gotten gains in prosecuted cases as a result of the decision.
“Utah, sadly, has seen more than its share of Ponzi schemes. A recent analysis showed that Utah has 1.35 Ponzi schemes per 100,000 people. The next closest state is 0.51 per 100,000. And that doesn’t include other types of fraud we are all familiar with, including other types of investment scams or other types of affinity frauds. In those ten years alone, Utah investors lost over $1.5 billion – plus an additional $500 million in other types of fraud. That’s $2 billion that won’t be there for Utahns’ retirement, or for them to pass along to children and grandchildren. That’s wrong,” said McAdams.
The Chairman of the SEC and other expert witnesses have testified that a solution to the Kokesh ruling is needed to give the government a longer timeline, since certain securities violations, such as Ponzi-type schemes, are hard to detect and require extensive legal leg-work. McAdams’ bill would restore the longer period of time allowed for investigation and recovery that was available prior to the 2017 Supreme Court ruling. It would ensure the SEC has up to 14 years to bring cases against bad actors and recoup funds for cheated investors.