SEC Act of 2025: New Bill Could Let Companies Off Easy for Repeated Violations

The "Securities Enforcement Clarity Act of 2025," or SEC Act of 2025, is a new bill that changes how violations of key securities laws are counted. Instead of each violation racking up individually, the bill groups them together if they come from the same root cause.

Stacking Violations

The core of the SEC Act of 2025 revolves around a significant shift in how violations are counted under major securities laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. The bill states that multiple instances of non-compliance will be treated as a single violation if they arise from "the same underlying issue, the same error or untruth, or a continuous failure to adhere to regulations" (SEC. 2).

• Real-World Example: Imagine a company repeatedly files inaccurate financial reports due to a faulty accounting system. Under current law, each inaccurate filing could be a separate violation. Under this new bill, all those filings might be lumped together as one single violation, potentially leading to significantly lower penalties.

The Bottom Line

While this might sound like a technicality, it has real-world implications. For instance, a trader repeatedly making unauthorized trades due to a known system glitch might now face a single penalty instead of multiple penalties for each infraction. This could mean smaller fines and less severe consequences for companies that break the rules.

• The Challenge: The bill's language is pretty broad. Terms like "same underlying issue" and "continuous failure" could be open to interpretation, potentially creating loopholes that companies could exploit to minimize penalties.

Ripple Effects

This change could affect how companies approach compliance. If the penalties are lower, there might be less incentive to fix problems quickly. This could also impact the Securities and Exchange Commission's (SEC) ability to enforce the rules effectively. It's like having a referee who can only give out one yellow card for multiple fouls. The bill essentially bundles violations, which might make sense in some cases, but it could also let serious, repeated misconduct slide with lighter consequences.