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Civil Monetary Penalties Increased for SEC and PCAOB

The SEC has adopted a final rule to implement the provisions of the Debt Collection Improvement Act which requires that federal agencies adjust for inflation the maximum amount of their civil monetary penalties every four years (Rel. No. 33-8530, February 4, 2005). The adjustment also covers the civil monetary penalties that may be imposed by the PCAOB in its disciplinary proceedings. The SEC may by order affirm, modify, remand or set aside the sanctions, including the civil monetary penalties imposed by the PCAOB, so the PCAOB's penalties are considered to be enforced by the SEC for purposes of the Act.

The cost of living adjustment is defined as the percentage by which the U.S. Department of Labor's Consumer Price Index for all urban consumers in June of the year preceding the adjustment exceeds the amount at which the penalty was last set or adjusted. Agencies do not have discretion as to whether to adjust a maximum civil monetary penalty or the method used to determine the adjustment. The SEC last adjusted its penalty amounts by rules that were effective February 2, 2001.

For the PCAOB, the penalties under 15 U.S.C. 7215 (c)(4)(D)(i), for violations committed in the preparation and issuance of audit reports, increased from $100,000 to $110,000 for natural persons and from $2 million to $2.1 million for any other person. Penalties under 15 U.S.C. 7215 (c)(4)(D)(ii), for intentional or knowing conduct, including reckless conduct, or repeated instances of negligent conduct, increased from $750,000 to $800,000 for natural persons and from $15 million to $15.825 million for any other person.

Since the increases are mandated by Congress and do not involve the exercise of the SEC's discretion or any policy judgments, the SEC is not required to provide public notice and a comment period. The rule is effective February 14, 2005.