15 USC 78ff Penalties: Criminal Fines, FCPA, and Jarkesy

A willful violation of the Securities Exchange Act of 1934 carries penalties under 15 U.S.C. 78ff of up to 20 years in federal prison and fines as high as $5 million for individuals or $25 million for entities. The statute is the criminal penalty provision of the Exchange Act: it does not define offenses itself but supplies the punishment when someone breaks the Act’s rules, files false statements with the SEC, or violates the Foreign Corrupt Practices Act. A narrow defense inside the statute can shield a defendant from prison in limited circumstances, and the actual fine imposed can climb far above the statutory cap when profits or investor losses are large.

Maximum Criminal Fines and Prison Terms

The headline numbers today reflect two rounds of increases. A 1988 amendment raised the individual fine ceiling from $100,000 to $1 million and doubled the maximum prison term from five to ten years. The Sarbanes-Oxley Act of 2002, passed after the Enron and WorldCom collapses, raised the ceilings again to their current levels: up to $5 million in fines and 20 years in prison for individuals, and up to $25 million for organizations.¹

Those ceilings are not always the ceiling. Under the Alternative Fines Act, a court can impose a fine of up to twice the gross gain the defendant earned from the offense, or twice the gross loss suffered by victims, whichever is greater.² In large fraud cases, the real fine can dwarf the $5 million statutory maximum. The Supreme Court has held that when the government uses this provision, a jury must find the relevant gain or loss beyond a reasonable doubt.

Criminal fines are separate from disgorgement and restitution, and they stack. The Raj Rajaratnam insider trading prosecution ended with 11 years in prison, over $53.8 million in forfeiture, a $10 million criminal fine, and a record $92.8 million SEC civil penalty. Total monetary sanctions exceeded $156 million.³

What Triggers a Charge Under 78ff

Section 78ff attaches when someone willfully violates the Exchange Act, an SEC rule adopted under it, or knowingly files a false or misleading statement in a required document. Common targets include annual reports under Rule 13a-1, quarterly reports under Rule 13a-13, registration statements, and self-regulatory organization membership applications.¹ Corporate officers, directors, brokers, investment advisors, and accountants carry the most exposure, along with the companies themselves.

Willfulness

Prosecutors must prove the defendant acted “willfully.” Courts read that as intentional misconduct, not negligence or an honest mistake. In an insider trading case, the Supreme Court emphasized that Section 10(b) liability requires deception, such as a fiduciary secretly trading on confidential information while pretending loyalty to its source.⁴

The Ninth Circuit has held that a defendant can act willfully without knowing the specific conduct was illegal, and that intentionally acting with reckless disregard for the truth of material statements satisfies the standard.⁵ Other circuits set the recklessness bar differently. Some demand an extreme departure from ordinary care; others require something closer to actual intent. Venue matters.

Materiality

A false or misleading statement supports a charge only if it concerns a “material fact.” The Supreme Court defined materiality as whether a reasonable investor would consider the omitted or misstated fact important when making an investment decision, and whether it would have significantly changed the total mix of information available to shareholders.⁶ Minor filing errors usually will not sustain a case. Concealing executive compensation, inflating revenue, or hiding major liabilities almost always will.

Aiding and Abetting

People who help carry out securities fraud without being the primary wrongdoer can also be charged. The Supreme Court barred private plaintiffs from suing aiders and abettors under Section 10(b), but the government kept that authority.⁷ Congress later codified the SEC’s aiding-and-abetting authority through the Private Securities Litigation Reform Act of 1995. Accountants who sign off on fraudulent statements, lawyers who structure transactions to hide misconduct, and executives who look away all face exposure.

The No-Knowledge Defense Against Prison

Subsection (a) contains a provision most defendants overlook: you cannot be imprisoned for violating an SEC rule or regulation if you prove you had no knowledge that the rule or regulation existed.¹ The defense is narrow. It applies only to rules and regulations adopted under the Act, not to violations of the Act’s own statutory provisions. If your conduct violates a specific SEC rule you genuinely did not know about, you might avoid prison, though fines still apply. If you are charged under Section 10(b) itself, the defense is unavailable.

The defendant carries the burden of proving the lack of knowledge. That is a steep climb for anyone in the securities industry, and courts are skeptical of ignorance claims from licensed professionals whose work depends on knowing SEC rules.

FCPA Penalties Under Subsection (c)

Subsection (c) sets a separate penalty schedule for violations of the Foreign Corrupt Practices Act by publicly traded companies (“issuers”) and the people who work for them.

Companies face criminal fines up to $2 million per violation, plus civil penalties up to $10,000 per violation in SEC enforcement actions.
Individuals face criminal fines up to $100,000 and up to five years in prison, plus civil penalties up to $10,000 per violation.¹

One detail catches people off guard. The company cannot pay the individual’s criminal fine, directly or indirectly. An executive convicted of FCPA violations pays personally.

Daily Forfeiture for Failure to File

Subsection (b) creates a lighter penalty for issuers that simply fail to file required documents. The issuer forfeits $100 to the U.S. Treasury for each day the failure continues. The daily forfeiture replaces criminal penalties for the missed filing itself, but it does not shield the issuer from criminal charges for any underlying fraud that led to the failure.¹

Civil Penalties That Run Alongside

Criminal prosecution is one track. The SEC has independent authority to pursue civil remedies in federal court, including disgorgement, injunctions, and industry bars.⁸ The two tracks often run in parallel, with the SEC pursuing civil remedies while the DOJ handles the criminal case.

Disgorgement

Disgorgement forces defendants to surrender profits earned through misconduct. The Supreme Court placed two limits on it: the amount cannot exceed net profits after legitimate expenses, and the money must go toward compensating harmed investors rather than serving as a government windfall.⁹ Before that decision, the SEC sometimes sought disgorgement figures that exceeded actual profits.

Injunctions and Industry Bars

Courts can issue injunctions against future violations. In serious cases, the SEC obtains officer-and-director bars that permanently prevent an executive from serving in a leadership role at any public company. Former Tyco CEO Dennis Kozlowski received a permanent bar after concealing hundreds of millions of dollars in executive loans and compensation from shareholders.¹⁰ Penny stock bars under Section 15(b)(6) prevent participation in penny stock offerings.

The Five-Year Clock on Penalties

The SEC cannot sit on cases indefinitely. Under 28 U.S.C. 2462, any action seeking a civil fine, penalty, or forfeiture must be brought within five years. Two Supreme Court decisions define how the clock runs.

In a case involving a mutual fund advisor accused of concealing his fee arrangement, the Court held that the five-year period starts when the fraud occurs, not when the SEC discovers it. The government gets no extra time because a scheme was well hidden.¹¹ Later, the Court confirmed that disgorgement counts as a “penalty” under the statute, so disgorgement claims fall under the same five-year deadline.¹² Injunctions are equitable relief and may not be subject to the same bar.

Where Penalties Get Imposed After Jarkesy

For decades, the SEC could bring enforcement cases either in federal court or before its own administrative law judges. ALJ proceedings were faster, used relaxed evidentiary rules, and had no jury. That changed in 2024. The Supreme Court held that when the SEC seeks civil penalties for securities fraud, the Seventh Amendment guarantees the defendant a jury trial in federal court.¹³ The Court rejected the SEC’s argument that fraud claims fell within the “public rights” exception allowing agency adjudication.

The SEC can no longer use in-house proceedings to impose civil money penalties in fraud cases. It retains administrative authority for non-penalty remedies like industry bars and registration revocations. For anyone facing a 78ff-related civil penalty action today, that means the venue is federal court and the fact-finder is a jury.

1
Office of the Law Revision Counsel. 15 U.S. Code 78ff – Penalties
2
Office of the Law Revision Counsel. 18 U.S. Code 3571 – Sentence of Fine
3
U.S. Securities and Exchange Commission. SEC Obtains Record $92.8 Million Penalty Against Raj Rajaratnam
4
Justia. United States v. O’Hagan, 521 U.S. 642 (1997)
5
FindLaw. United States v. Tarallo, 380 F.3d 1174
6
Legal Information Institute. TSC Industries Inc. v. Northway Inc., 426 U.S. 438 (1976)
7
Legal Information Institute. Central Bank of Denver NA v. First Interstate Bank of Denver NA, 511 U.S. 164 (1994)
8
Office of the Law Revision Counsel. 15 U.S. Code 78u – Investigations and Actions
9
Supreme Court of the United States. Liu v. Securities and Exchange Commission, 591 U.S. 71 (2020)
10
U.S. Securities and Exchange Commission. L. Dennis Kozlowski, Mark H. Swartz, and Mark A. Belnick
11
Justia. Gabelli v. Securities and Exchange Commission, 568 U.S. 442 (2013)
12
Supreme Court of the United States. Kokesh v. Securities and Exchange Commission, 581 U.S. 455 (2017)
13
Justia. Securities and Exchange Commission v. Jarkesy, 603 U.S. ___ (2024)