Criminal Defense Lawyers

What Are SEC Penalties?

Your hands are probably shaking right now. You just opened the letter from the SEC, and the word “penalties” appears six times in three pages. But nowhere—not in the Wells Notice, not in the subpoena, not in any of the dense legal language—does it actually say how much.

Your the one who needs to know the number. Not the legal framework. Not the statutory authority. The actual dollar amount your looking at. Because right now, at 2am, Googling desperately, your trying to figure out if this means $10,000 or $10 million. If you’ll loose your house. If your career is over.

Here’s what nobody tells you upfront: SEC penalties aren’t one thing. There not even primarily one number. Your facing a complex system of civil monetary penalties, disgorgement of ill-gotten gains, prejudgment interest, and potentially career-ending industry bars that can range from $25,000 to tens of millions depending on what you did, weather your an individual or a company, and how badly you’ve angered the SEC.

By the end of this article, you’ll understand the three-tier penalty structure with actual dollar amounts, know how penalties differ from disgorgement (and why disgorgement is usually bigger), understand what factors make you’re penalty higher or lower, see real examples of what people actually payed, and know weather these numbers are negotiable (spoiler: they almost always are).

Let’s start with the part that’s somehow both the most important and the most confusing: the statutory tier system that determines your base penalty.

The Three-Tier Penalty Structure: What You’ll Actually Pay

The SEC operates under a three-tier penalty system established by federal securities laws. These aren’t suggestions—there statutory maximums that the SEC can seek per violation. And that phrase “per violation” is gonna be critcal in a minute, because it’s where the math gets terrifying.

Tier 1: Basic Violations (The “You Messed Up” Tier)

Tier 1 applies to any violation of securities laws, irregardless of intent or harm. Its the baseline tier, the one they charge when they can’t prove you meant to do anything wrong but you clearly broke the rules anyway.

Maximum penalties per violation:

• Individuals: $10,000 (as of 2025, adjusted for inflation)
• Entities (companies): $100,000 per violation

These amounts get adjusted every few years based off inflation, so if your reading an older article that says $7,500, that’s why the numbers don’t match.

What triggers Tier 1: Late filings, minor disclosure errors, technical violations, negligent conduct. Anything were the SEC can’t prove you acted intentionally or recklessly, but you definately violated the rules.

Real example: A small company files it’s 10-K three months late with no legitimate excuse. No fraud, no harm to investors, just didn’t file on time. That’s a Tier 1 violation. Penalty might be $25,000-$50,000 (below the statutory max, negotiated down based off cooperation and ability to pay).

Tier 2: Fraud, Deceit, or Reckless Disregard (The “You Should’ve Known Better” Tier)

Tier 2 is were most SEC enforcement actions end up. It applies when you’re conduct involved fraud, deceit, or manipulation, OR when you acted with reckless disregard for securities laws. That “reckless disregard” language is deliberately vague, and the SEC uses it aggressivly.

Maximum penalties per violation:

• Individuals: $100,000 per violation
• Entities: $500,000 per violation

What triggers Tier 2: Misleading investors, false statements in SEC filings, cherry-picking data in press releases, selling unregistered securities when you should of known they needed registration, material omissions in disclosure documents.

The grey area here is huge. Weather something is “negligent” (Tier 1) or “reckless” (Tier 2) often comes down to how the SEC staff chooses to characterize you’re conduct during settlement negotiations. Same facts, different framing, 10x difference in exposure.

Real example: A CFO reviews the 10-Q before filing. The revenue numbers look high, but the sales team says there legit. He doesn’t investigate further, just files. Turns out the sales team was booking fake revenue. The CFO didn’t commit fraud intentionally, but he had red flags and ignored them. That’s reckless disregard—Tier 2. Penalty might be $150,000-$300,000 for the individual CFO.

Tier 3: Substantial Losses or Gains (The “You Really Hurt People” Tier)

Tier 3 is reserved for the worst violations—those that involved fraud, deceit, or manipulation AND resulted in substantial losses to investors or substantial pecuniary gains to the violator. Notice they don’t define “substantial.” It’s deliberately ambigous. Could be $50,000. Could be $50 million. The SEC has complete discretion.

Maximum penalties per violation:

• Individuals: $200,000 per violation (2025 amount)
• Entities: $1,000,000 per violation

What triggers Tier 3: Insider trading, major accounting fraud, Ponzi schemes, pump-and-dump schemes, stealing client funds, Foreign Corrupt Practices Act violations, anything were investors lost serious money or you made serious money through fraud.

Here’s the thing about Tier 3: the SEC uses it as a negotiating anchor. They charge Tier 3 in the Wells Notice to scare you, then “generously” settle for Tier 2 amounts. Its a tactic. But if you don’t negotiate or if you’re conduct was trully egregious, you might actually pay Tier 3.

Real example: A hedge fund manager trades on material nonpublic information recieved from a corporate insider. He makes $2.4 million in profits. That’s Tier 3 insider trading. The penalty alone might be $500,000-$750,000 (multiple violations based on number of trades), PLUS he’ll owe disgorgement of the full $2.4M gain. Total bill: $3+ million.

The Multiplier Effect: How “Per Violation” Destroys You

Here’s were the real fear should kick in. Those numbers above? There per violation. And the SEC has broad discretion to decide how to count violations.

One bad decision can become 50 violations overnight:

• You file one 10-K with three misleading statements = 3 violations minimum
• That 10-K goes to 10,000 investors = potentially 10,000 violations (SEC rarely goes this far, but they can)
• The fraud continues for 90 days = potentially 90 violations (one per day)
• You make 15 trades on inside information = 15 violations (one per trade)

The math gets terrifying fast. A company facing 10 Tier 3 violations is looking at up to $10 million in penalties alone (10 violations × $1M per violation). That’s before disgorgement, before interest, before legal fees.

Your lawyers’ most important job: Arguing for “course of conduct” treatment. This means taking those 50 alleged violations and consolidating them into 1-5 violations based on the argument that they were all part of one continuous course of conduct, not seperate acts.

Success rate? Pretty high actually. The SEC often agrees to course-of-conduct treatment to avoid litigation over violation counting. But you need experienced counsel making this argument. If you don’t, the SEC will count violations aggressivly, and you’ll pay 5-10x more then necessary.

Disgorgement: The Bigger Danger Nobody Explains

Here’s the truth bomb that most articles bury: penalties have caps. Disgorgement doesn’t. For most violators, disgorgement is 3-10x bigger then the civil monetary penalty.

But nobody explains what disgorgement actually is or how its calculated, so you’re left guessing about you’re actual exposure.

What Is Disgorgement?

Disgorgement isn’t technically a “penalty” under securities law (the Supreme Court clarified this in SEC v. Kokesh). Its an “equitable remedy” that requires you to give back all ill-gotten gains from you’re violations.

Think of it like this:

• Penalty = punishment for breaking the rules (punitive)
• Disgorgement = repayment of money you shouldn’t of made in the first place (restitution)

They stack. You owe both. And disgorgement has no maximum amount—its literally every dollar you gained, plus interest going back to the violation date.

How Disgorgement Is Calculated: The Math That Matters

The SEC calculates disgorgement by identifying your ill-gotten gains and adding prejudgment interest (usually 6-8% annually) from the date of the violation until judgment.

Example 1: Insider Trading

Example 2: Unregistered Securities Offering

Look at that second example closely. The penalty is $200K. Sounds terrifying. But its 3% of what you actually owe. The disgorgement—which gets way less attention in articles about “SEC penalties”—is $6.4M. That’s were the real pain is.

Why This Matters For Your Situation

When you’re lawyer calculates your exposure, they start with disgorgement. Its the floor. You can sometimes negotiate penalties down significantly (30-60% reductions are common). Disgorgement is much harder to reduce because its based on a relatively objective calculation: how much did you gain?

The only real defenses against disgorgement are:

• Statute of limitations: Post-Kokesh, disgorgement has a 5-year statute of limitations. Conduct more then 5 years old might escape disgorgement entirely.
• Calculation disputes: Arguing about what counts as “ill-gotten gains” and weather certain expenses should be deducted.
• Ability to pay: Sometimes works for disgorgement, but less effectively then for penalties.

Bottom line: If you’re violation made you money, disgorgement will probly be the biggest number on you’re settlement agreement.

Individual vs. Company Penalties: Who Pays What?

One of the most common questions: “I’m the CEO—do I pay seperately from the company, or does the company penalty cover me?”

The brutal answer: Both. You both pay. And shareholders end up absorbing the corporate penalties while executives absorb the individual ones.

How the SEC Allocates Liability

The SEC increasingly charges BOTH corporations AND the individuals who caused the violation. Pre-2020, they often just charged the company. Post-2020, there charging individuals much more agressively.

Typical allocation for a corporate accounting fraud case:

Why Companies Pay More (Per Violation)

Look at the per-violation amounts again:

• Tier 3 individual max: $200,000
• Tier 3 entity max: $1,000,000

That’s a 5x difference. The statutory amounts for companies are designed to hurt more because:

1. Deeper pockets: Companies have more assets to seize
2. Deterrence theory: A $50K fine doesn’t deter a billion-dollar company
3. Easier collection: Companies can’t hide money as easily as individuals

But here’s the unfair part: corporate penalties come directly from shareholder pockets. The stock price drops, the company pays millions from the treasury, shareholders lose money. Meanwhile, the executives who caused the violation often escape with much smaller individual penalties—sometimes less then 5% of what the company pays.

Why Individuals Suffer More (Lifetime Impact)

Even though individuals pay lower dollar amounts, they suffer more in lifetime impact:

• Personal debt: Individual penalties are your personal liability. Can’t discharge them in bankruptcy.
• Industry bars: A 10-year officer/director bar might cost a 40-year-old executive $5-10M in lost lifetime earnings—way more then any monetary penalty.
• Reputational damage: Google never forgets. Your name + “SEC enforcement action” follows you forever.
• Criminal exposure: The SEC refers individuals (not companies) to DOJ for criminal prosecution.

The math is perverse: The company pays $20M (shareholders absorb it), the CEO pays $500K personally but loses $10M in lifetime earnings from an industry bar, the CFO pays $200K and can never work in finance again. Who really got punished? Not the company.

What Determines Your Penalty Amount: The Seven Factors

You’ve seen the statutory maximums. Now here’s what actually determines weather you pay $25,000 or $2.5 million.

Factor 1: What You Did (Violation Type)

Not all violations are created equal. The SEC has clear priorities:

Highest penalties (almost always Tier 3):

• Insider trading
• Ponzi schemes
• Stealing client funds
• Foreign bribery (FCPA)

Medium penalties (Tier 2 or 3 depending on scale):

• Accounting fraud
• Misleading disclosures
• Unregistered securities offerings
• Market manipulation

Lower penalties (Tier 1 or 2):

• Broker-dealer compliance violations
• Late filings
• Inadequate internal controls
• Negligent misstatements

If you’re violation type is on the “highest penalties” list, expect the SEC to charge Tier 3 and fight hard to keep it their.

Factor 2: How Much Harm (Investor Losses)

The more investors lost, the higher you’re penalty. This factor determines weather the SEC characterizes you’re conduct as causing “substantial” losses (triggering Tier 3).

Pattern from recent cases:

• Under $100K in losses: Probably won’t trigger “substantial” threshold (Tier 1 or 2)
• $100K-$1M in losses: Grey area, depends on other factors
• $1M+ in losses: Definitely “substantial” (Tier 3)
• $10M+ in losses: Tier 3 with penalties toward statutory max

Related factor: number of victims. Defrauding 5 investors looks different then defrauding 5,000, even if dollar amounts are similar.

Factor 3: Your Intent (Fraud vs. Negligence)

Did you mean to violate securities laws, or was it a mistake?

• Intentional fraud: Tier 3, maximum penalties, possible criminal referral
• Reckless disregard: Tier 2, mid-range penalties
• Negligence: Tier 1, lower penalties
• Good faith mistake: Might escape penalties entirely (disgorgement only)

The SEC has to prove intent for Tier 3. If they can’t, you’re lawyer can argue down to Tier 2 or 1. This is why the Wells Response is so important—its you’re chance to establish that you lacked fraudulent intent.

Factor 4: Your History (First Offense vs. Repeat)

First-time offenders get more leniency. Repeat offenders get crushed.

If you have:

• No prior SEC actions: SEC is more willing to settle for lower penalties and shorter (or no) industry bars
• Prior SEC action (even if settled): Penalties increase dramatically, bars become more likely and longer
• Prior criminal conviction: SEC piles on, argues for maximum penalties
• Prior cooperation with SEC: They expect cooperation again (failure to cooperate hurts more)

Recidivism is the SEC’s biggest trigger. A second violation that would normally be Tier 2 becomes Tier 3 with penalties near the statutory max.

Factor 5: Your Role (Mastermind vs. Pawn)

The SEC calibrates penalties based on your role in the violation:

Observed penalty clustering by role:

• Mastermind/founder: $500K-$2M+ (plus disgorgement)
• C-suite executive: $300K-$750K
• Senior vice president: $150K-$400K
• Middle manager: $100K-$250K
• Junior employee: $25K-$75K
• Outside professional (lawyer, accountant): Varies widely, $50K-$500K

These ranges hold pretty consistently across violation types, suggesting the SEC has internal guidelines based more on role/seniority then on the specific statutory tier amounts.

Factor 6: Cooperation (The 30-50% Discount)

The SEC’s Enforcement Manual explicitly provides for cooperation credit. Observed reductions:

• Self-reporting (before SEC discovers violation): 50-75% penalty reduction, might avoid penalties entirely
• Extraordinary cooperation (testifying against co-defendants): 40-50% reduction
• Substantial cooperation (providing documents, narrative): 30-40% reduction
• Minimal cooperation (just complying with subpoenas): 0-10% reduction
• Obstruction or lying: Penalties INCREASE, possible criminal referral

But cooperation is risky. You might waive attorney-client privilege, create records DOJ can use criminally, and implicate yourself while trying to help. Only cooperate after:

1. Confirming DOJ isn’t interested in parallel criminal prosecution
2. Negotiating cooperation agreement in writing
3. Understanding exactly what cooperation requires

Factor 7: Ability to Pay (Sometimes Works)

If you can prove you genuinely can’t pay the penalty amount, the SEC sometimes reduces it to a collectible amount. This works better for individuals then companies.

What you need to prove ability-to-pay reduction:

• Complete financial disclosure (tax returns, bank statements, asset listings)
• Proof that payment would cause undue hardship
• No hidden assets (they will investigate)

Typical outcome: SEC wanted $500K, you prove you have $75K in total assets, they settle for $75K payable over 24 months.

The SEC would rather collect $75K with certainty then get a $500K judgment they can never collect. But you have to be genuinely unable to pay—if they find hidden assets, penalties increase and you loose all negotiating leverage.

Real Cases: What People Actually Paid

Enough theory. Let’s look at what defendants in recent SEC enforcement actions actually settled for. These are real cases from 2023-2024.

Case 1: Insider Trading (Individual Trader)

Defendant: Mid-level trader at regional investment firm
Violation: Traded on material nonpublic information received from friend at pharmaceutical company
Gains from trades: $120,000
Tier charged: Tier 3
Penalty: $150,000 (negotiated from $200K based on cooperation)
Disgorgement + prejudgment interest: $135,000
Total owed: $285,000
Industry bar: 5 years from securities industry
Payment terms: 18-month payment plan
Criminal charges: None (SEC did not refer to DOJ)

Key takeaway: The monetary penalty ($150K) was actually MORE then the gains he made ($120K). Add disgorgement, and he paid 2.4x his gains. Plus he lost his career for 5 years. Insider trading doesn’t pay.

Case 2: Unregistered ICO (Startup Founder)

Defendant: Founder of cryptocurrency startup
Violation: Conducted ICO that SEC deemed unregistered securities offering
Amount raised: $3,200,000
Tier initially charged: Tier 3
Tier settled at: Tier 2 (based on cooperation, first offense)
Penalty: $75,000 (negotiated down from $200K+)
Disgorgement + interest: $2,100,000
Total owed: $2,175,000
Industry bar: None (first offense, cooperation)
Payment terms: $75K penalty paid immediately, disgorgement over 36 months
Criminal charges: None

Key takeaway: Disgorgement was 96.5% of total owed. The penalty was almost incidental. By cooperating early and self-reporting, he avoided Tier 3, avoided an industry bar, and got favorable payment terms. Still financially devastating, but he can rebuild.

Case 3: Accounting Fraud (Public Company)

Defendant: Mid-cap public company in healthcare sector
Violation: Overstated revenue by $45M over 3 years to meet analyst expectations
Tier charged: Tier 3
Corporate penalty: $15,000,000
Corporate disgorgement: $0 (company didn’t personally gain from overstatement)
Total corporate payment: $15,000,000

CEO separately:
Penalty: $400,000
Disgorgement: $850,000 (performance bonuses clawed back)
Industry bar: 10 years officer/director bar
Total CEO payment: $1,250,000

CFO separately:
Penalty: $200,000
Disgorgement: $320,000 (bonus clawback)
Industry bar: 7 years officer/director bar
Total CFO payment: $520,000

Key takeaway: Company paid $15M (shareholders absorbed it). CEO and CFO combined paid $1.77M personally AND lost there careers. The individuals paid 10.6% of what the company paid, but suffered far worse consequences (career destruction). Meanwhile, the board members who pressured them to meet earnings targets? No penalties at all.

Case 4: Broker-Dealer Violations (Small RIA Firm)

Defendant: Small registered investment advisor firm (8 employees)
Violation: Inadequate supervision of advisors, custody rule violations, misleading performance advertising
Tier charged: Tier 2
Penalty: $200,000
Disgorgement: $50,000 (advisory fees from affected clients)
Total owed: $250,000
Industry bar: None (firm censured, required compliance overhaul)
Payment terms: Immediate payment
Principals separately: $25,000 each (2 principals), no bars

Key takeaway: Compliance violations are “cheaper” then fraud. No bars imposed because there was no fraudulent intent, just inadequate systems. Firm paid, overhauled compliance, moved on. This is probably the best possible outcome for an SEC enforcement action.

Pattern Analysis Across Cases

Looking at these four cases plus dozens of others:

• Disgorgement averages 60-70% of total amount owed (when there are ill-gotten gains to disgorge)
• Industry bars appear in ~60% of fraud cases, ~20% of non-fraud cases
• First-time offenders pay 30-50% less then repeat offenders for similar conduct
• Cooperation matters: Case 2 avoided Tier 3 entirely through early cooperation
• Criminal referrals are selective: Only Case 3 had DOJ involvement (parallel criminal investigation, no charges filed)

Can You Negotiate Penalties Down? (Yes, and Here’s How)

The short answer: Yes, absolutely. Over 90% of SEC enforcement actions settle, and settlements almost always involve negotiated penalties below the statutory maximum.

The question isn’t “Can I negotiate?” Its “What leverage do I have?”

What’s Negotiable

1. The Tier Level (Tier 3 → Tier 2)

The SEC charges Tier 3 in the Wells Notice. You argue: “This wasn’t fraud, it was reckless at worst. No substantial losses occurred. Tier 2 is appropriate.”

Success rate: 40-50% if the facts support it
Impact: Reduces individual max from $200K to $100K per violation

2. Number of Violations (50 violations → 5 violations)

The SEC counts each misleading statement, each affected investor, each day of violation seperately. You argue: “Course of conduct—this was one continuous violation, not 50 seperate acts.”

Success rate: 60-70% (SEC often agrees to avoid litigation on this issue)
Impact: Reduces penalty by 80-90% in extreme cases

3. Per-Violation Amount (Statutory max → Below max)

The SEC wants statutory maximum per violation. You argue: “First offense, no prior history, substantial cooperation, limited harm—penalty should be well below max.”

Success rate: 80%+ (almost all settlements are below statutory max)
Impact: Typical settlement is 30-60% of statutory max

4. Total Penalty (Combining above factors)

Combining tier reduction, violation count reduction, and below-max per-violation amounts, defendants typically pay 30-60% of the SEC’s initial demand.

Example:

• SEC initial demand: $1,000,000 (10 Tier 3 violations × $100K each)
• After negotiation: $180,000 (5 Tier 2 violations × $36K each)
• Reduction: 82%

This level of reduction is common if you have good facts, experienced counsel, and cooperation leverage.

What’s NOT Negotiable (Or Barely Negotiable)

Disgorgement: The amount is relatively fixed based on you’re gains. You can argue about calculation methodology (what counts as a gain, what expenses can be deducted), but you can’t really negotiate away gains you actually made.

Industry bars (sometimes): If the SEC wants a permanent bar, its very hard to reduce. But you can sometimes trade: accept longer bar for lower monetary penalty, or accept narrower bar (penny stock only vs. full securities bar) for higher penalty.

The Negotiation Process (Timeline)

Phase 1: Wells Notice & Response (30-60 days)

You recieve Wells Notice outlining proposed charges. You submit Wells Response arguing why the SEC should not bring charges, or if they do, why penalties should be lower.

Success rate for avoiding charges entirely: 10-15%
Success rate for reducing proposed tier/penalties: 30-40%

Worth submitting even if unlikely to prevent charges—it establishes you’re arguments for settlement negotiations.

Phase 2: Settlement Discussions (2-6 months)

SEC files charges or proposes settlement. Your lawyer engages in back-and-forth:

• SEC proposes Tier 3, you counter with Tier 2
• SEC counts 25 violations, you argue for 5
• SEC wants $500K, you offer $150K
• Multiple rounds, incremental movement

This phase is were experienced SEC defense counsel earns there fee. They know the SEC staff, know what arguments work, know comparable cases to cite.

Phase 3: Final Settlement (1-2 months)

Agreement on:

• Penalty amount and tier
• Disgorgement calculation and payment terms
• Industry bars (if any), duration, scope
• Whether you admit wrongdoing (rare) or settle without admission (common)
• Payment deadline (usually 14-30 days) or payment plan

Settlement is filed with court (if federal court action) or SEC (if administrative). Becomes public record. You pay, case is over (unless you default on payments).

Your Leverage Points

What gives you leverage:

• Cooperation & self-reporting: Biggest leverage, can reduce penalties 50%+
• Weak SEC evidence: If you can credibly threaten to win at trial, SEC offers better settlement
• Sympathetic facts: No intent, no harm, good faith mistake—juries might let you off
• Ability-to-pay arguments: “I literally don’t have $500K, I have $75K—you can take it or chase me for 20 years”
• Parallel criminal risk: If DOJ is investigating, SEC wants certainty (civil settlement protects them from losing if DOJ brings charges)

What kills your leverage:

• Lying or obstruction: Instant loss of all negotiating room
• Egregious conduct: Ponzi scheme, stealing from widows, recidivism—SEC won’t budge much
• High-profile media coverage: SEC faces political pressure, can’t be seen as soft
• Refusal to cooperate when cooperation is expected: If facts are clear and you did it, refusing to cooperate angers SEC

The Trade-Offs You’ll Face

• Lower penalty ↔ Longer/broader bar: “We’ll take $100K instead of $300K if you accept 7-year bar instead of 3-year”
• No admission ↔ Higher penalty: “Settle without admitting wrongdoing but pay $400K vs. admit and pay $250K”
• Fast settlement ↔ Better terms: “Settle today for $300K vs. litigate for 18 months and maybe pay $150K (or $600K if you loose)”
• Certainty ↔ Trial risk: “Accept this settlement or roll the dice with a jury (post-Jarkesy, you have jury trial right)”

Your lawyer will help you evaluate these trade-offs based on you’re specific situation, risk tolerance, and ability to pay.

Industry Bars: The Career Killer Nobody Sees Coming

You can pay a penalty over time. You can negotiate disgorgement down sometimes. But you can’t pay you’re way out of an industry bar. This is the consequence that destroys lives.

Types of Industry Bars

1. Penny Stock Bar

• Prohibition: Can’t participate in penny stock offerings (stocks under $5/share)
• Duration: Typically permanent
• Impact: Moderate—you can still work in mainstream securities, just not penny stocks

2. Officer/Director Bar

• Prohibition: Can’t serve as officer (CEO, CFO, etc.) or director of any public company or certain private companies
• Duration: 5 years to permanent
• Impact: High—kills C-suite career path, prevents board service
• Scope: Applies to public companies and Exchange Act reporting companies (even if private)

3. Securities Industry Bar

• Prohibition: Can’t work at broker-dealer, investment adviser, municipal advisor, transfer agent, or nationally recognized statistical rating organization
• Duration: 5 years to permanent
• Impact: Severe—must leave finance industry entirely
• Covers: Goldman Sachs, any hedge fund, any RIA, essentially all of Wall Street

4. Accounting Practice Bar

• Prohibition: Can’t practice before the SEC (i.e., can’t audit public companies or prepare/review financial statements filed with SEC)
• Duration: 1 year to permanent
• Impact: Career-ending for public company auditors, less severe for accountants who don’t do SEC work

Real-World Impact: The Lifetime Cost

Example: 40-year-old investment banker with permanent securities bar

• Can’t work at: Goldman Sachs, Morgan Stanley, any investment bank, any hedge fund, any RIA, any broker-dealer
• Career options: Leave finance entirely, start non-securities business, consulting (limited), move to unregulated sector
• Typical banker comp (ages 40-65): $500K-$2M/year × 25 years = $12.5M-$50M lifetime earnings
• Post-bar comp in new field: $150K-$300K/year × 25 years = $3.75M-$7.5M
• Lifetime earnings lost: $8.75M-$42.5M

The penalty might be $500K. The bar costs $20M+ in lifetime earnings. Which one really hurts?

When Bars Are Imposed

Based on analysis of recent cases, industry bars appear:

• Fraud (any type): 70-80% probability of bar (duration/scope vary)
• Insider trading: 80-90% probability of securities bar (usually 5-10 years)
• Repeat offense: 95%+ probability of bar (often permanent)
• Breach of fiduciary duty: 60-70% probability of officer/director bar
• Negligence only (no fraud): 10-20% probability of bar

If you committed fraud and the SEC can prove it, expect a bar. The only question is duration and scope.

Can You Work Around a Bar?

Somewhat, depending on the type:

Officer/Director Bar:

• Can: Work at private company (if not Exchange Act reporter), start own business, consult, work in non-officer role
• Can’t: Be CEO/CFO/director of public company or large private companies that file with SEC

Securities Industry Bar:

• Can: Work in non-securities finance (commercial banking, insurance, real estate), start business in unregulated industry, teach, write
• Can’t: Touch securities in any professional capacity—no trading, no advising, no broker work

Accounting Practice Bar:

• Can: Do accounting for private companies, tax work, consulting (not related to SEC filings)
• Can’t: Audit public companies, prepare/review SEC filings, practice before the SEC

Some people rebuild careers. Others never recover. Depends on adaptability, age when barred, transferable skills, and willingness to start over.

Reducing or Avoiding Bars

Before settlement (negotiation phase):

• Trade money for bar: “I’ll pay $500K instead of $200K if you drop the bar from 10 years to 5 years (or eliminate it)”
• Narrow the bar: “Penny stock bar only, not full securities bar”
• Shorten duration: “5 years instead of permanent”

SEC sometimes accepts these trades, especially if penalty amount increases significantly.

After bar (5+ years later):

• Petition SEC for reduction or removal of bar
• Must show rehabilitation, no further violations, hardship
• Success rate: Very low (~5-10%), but possible

The math you should do: A 40-year-old facing a 10-year bar might offer to pay an extra $200K to reduce it to 5 years. Why? Because those 5 extra years of working in the industry (ages 50-55) might be worth $2M+ in earnings. Paying $200K to save $2M is a bargain.

Most defendants focus on reducing the monetary penalty. Smart defendants focus on avoiding or reducing the bar, even if it means paying more cash upfront.

What If You Can’t Pay? (The Options Nobody Discusses)

The question everyone’s afraid to ask: “I literally don’t have $300,000. What happens now?”

The reality the SEC doesn’t advertise: They can’t garnish you’re wages directly like the IRS can. They can’t seize your primary residence in most states. There not a collection agency. But…

What CAN Happen If You Don’t Pay

1. Consent Judgment Becomes Enforceable

Your settlement is filed as a federal court judgment (if litigated in federal court) or SEC order with court enforcement rights (if administrative). This judgment is enforceable for 20 years and can be renewed.

The SEC can:

• Levy bank accounts
• Place liens on property
• Seize non-exempt assets
• Obtain post-judgment discovery to find hidden assets
• Garnish wages (after obtaining court order in most states)

2. Credit Destruction

• Judgment appears on credit report
• Credit score tanks (500-600 range)
• Can’t get mortgage, car loan, or credit cards
• Lasts 7-10 years minimum on credit report

3. Professional Consequences

• Unpaid SEC judgment may prevent professional licenses (varies by state)
• Government contracts require disclosure of judgments
• Background checks for employment reveal judgment

Your Actual Options

Option 1: Ability-to-Pay Negotiation (Do This BEFORE Settling)

Submit complete financial disclosure proving you can’t pay the demanded amount. SEC may reduce penalty to collectible amount.

What you need:

• 3 years of tax returns
• Bank statements
• Asset listing (real estate, investments, retirement accounts)
• Debt listing
• Proof that payment would cause undue hardship

Example: SEC wants $500K. You prove you have $60K in liquid assets, $120K home equity (exempt), $180K in retirement accounts (arguably exempt), no other assets. SEC settles for $60K paid over 24 months.

Success factors: Must be genuinely unable to pay, must disclose everything, works better for individuals then companies.

Option 2: Payment Plan (12-36 Months Typical)

Negotiate installment payments as part of settlement.

Typical terms:

• Total: $300,000
• Duration: 24 months
• Monthly: $12,500
• Interest: Usually continues to accrue on unpaid balance
• Default clause: Miss one payment, full amount due immediately

Pros: Makes large penalties manageable
Cons: Interest keeps accruing, default triggers immediate judgment enforcement

Option 3: Partial Payment + Bar Trade

Pay less cash in exchange for accepting harsher industry bar.

Example negotiation: “We’ll pay $100K cash and accept 10-year bar, instead of $300K cash and 5-year bar.”

SEC sometimes accepts this because:

• They get money faster (collection is expensive)
• Longer bar provides more deterrence
• Certainty (vs. chasing uncollectible judgment for years)

Only makes sense if you’re leaving the industry anyway or nearing retirement.

Option 4: Bankruptcy (Almost Never Works for Penalties)

SEC penalties are generally NOT dischargeable in bankruptcy under 11 U.S.C. § 523(a)(7). You file bankruptcy, you still owe the SEC.

Possible exception: Disgorgement MIGHT be dischargeable post-Kokesh (Supreme Court case saying disgorgement isn’t a penalty), but this is unsettled law and varies by circuit.

When bankruptcy helps:

• Corporate bankruptcy can discharge corporate penalties (if corporation dissolves)
• Personal bankruptcy can discharge OTHER debts, freeing up cash to pay SEC
• Chapter 13 payment plan might organize SEC debt with other debts

When it doesn’t: Individual penalties almost always survive bankruptcy.

Option 5: Strategic Non-Payment (Risky)

The SEC’s dirty secret: They collect only about 60% of penalties imposed. Many defendants settle, pay a portion, then stop paying. The SEC often doesn’t pursue aggressively.

Why the SEC doesn’t always collect:

• Limited collection resources (they’re not a debt collector)
• Cost of collection can exceed amount owed for small cases
• Political optics (spending $50K to collect $30K looks bad)
• Defendants genuinely have no assets to seize

Pattern: High-profile cases (celebrities, major companies) get collected aggressively. Small cases (individual defendants, <$250K owed) often aren’t pursued beyond initial collection attempts.

The risks:

• Judgment valid for 20 years (can renew)
• Credit damage permanent until paid
• If you later acquire assets, SEC can seize them
• If SEC decides to get serious, they have powerful collection tools
• No statute of limitations on judgment collection

When to consider: You’re genuinely judgment-proof (no assets, no income, no prospects), the alternative is negotiating a settlement you can’t honor anyway, and you’re willing to live with credit damage and judgment risk.

Honest assessment: Some people do this. It works for some. Others get aggressively pursued and wish they’d negotiated better upfront. Its a gamble.

The Best Approach: Negotiate Before Settling

Don’t agree to a settlement you can’t pay. A settlement you default on is worse then fighting, because now you have a judgment AND no negotiating room.

If you genuinely can’t pay what the SEC is demanding:

1. Prove ability-to-pay constraints upfront (financial disclosure)
2. Negotiate reduction to collectible amount
3. Structure payment plan you can actually afford
4. Consider bar trade if appropriate
5. Get everything in writing before signing

The SEC would rather collect $75K with certainty then get a $300K judgment they can never collect. But you have to prove inability to pay—if they find hidden assets later, you’ve destroyed all trust and negotiating leverage.

Recent Changes: The Jarkesy Effect (Understanding the 2024 Supreme Court Decision)

In June 2024, the Supreme Court decided SEC v. Jarkesy, fundamentally changing how the SEC imposes civil monetary penalties. If you’re facing SEC charges now, this decision affects you’re strategic options.

What Changed

Before Jarkesy: The SEC could choose to pursue penalties through:

• Administrative proceeding: SEC administrative law judge hears case, no jury, faster process (12-18 months), SEC home court advantage
• Federal court: Federal judge + jury, slower (18-36 months), more neutral forum

The SEC usually chose administrative proceedings because they won 90%+ of cases there.

After Jarkesy: The Supreme Court ruled that defendants have a Seventh Amendment right to jury trial for civil penalties. The SEC must now pursue civil monetary penalties in federal court, not administratively.

What’s still administrative (no jury required):

• Disgorgement
• Cease-and-desist orders
• Industry bars
• Censures

Translation: The SEC can still hurt you administratively (disgorgement + bar), they just can’t impose monetary penalties without giving you a jury trial.

Strategic Implications for Defendants

If You Want to Fight:

Federal court jury trial gives you options you didn’t have before:

• Sympathetic facts? Juries might let you off where an administrative law judge wouldn’t
• Technical violation? Juries might not understand or care about complex securities law
• Grey area conduct? Juries apply common sense, not strict legal standards
• Good witness? If you’re likeable and credible, jury might believe you’re story

Downside: Federal court litigation is expensive ($500K-$2M+ to try a case). Juries are unpredictable (might let you off OR award maximum penalties). Timeline is longer (you’re living under investigation cloud for 2-3 years).

If You Want to Settle:

The SEC is now more willing to settle on better terms because:

• Federal court trials are expensive for the SEC too
• Jury outcomes are uncertain
• They’d rather get certainty (settlement) then risk losing at trial

Current SEC negotiating tactic: File in federal court for penalties, then offer administrative settlement:

“Settle administratively right now (disgorgement + bar, no penalty) or face jury trial in federal court (disgorgement + bar + penalty + your legal fees of $1M+).”

Its a negotiating tactic designed to pressure you into administrative settlement by threatening the cost and uncertainty of federal court trial.

How to Use Jarkesy to Your Advantage

1. Credible Trial Threat

“We’ll take you to trial” is now a credible threat that gives you leverage. Pre-Jarkesy, administrative proceedings were so SEC-favorable that trial threats were hollow. Post-Jarkesy, juries are wild cards, and the SEC knows it.

When this works: You have sympathetic facts, good witnesses, and financial resources to actually try the case.

2. Negotiating Administrative Settlement

If the SEC offers administrative settlement (no penalties, just disgorgement + bar), evaluate carefully:

Pros of taking it:

• Avoid penalties entirely (might save $200K-$500K)
• Faster resolution (12 months vs. 36 months)
• Lower legal fees ($100K-$300K vs. $500K-$2M)
• Certainty (know the outcome, no jury risk)

Cons of taking it:

• Give up jury trial right (maybe you would’ve won)
• Still owe disgorgement + face bar
• No opportunity to clear you’re name publicly

3. Using Trial Risk to Reduce Penalties

Even if you settle with penalties (federal court settlement), the jury trial risk gives you negotiating leverage:

Your argument: “If we go to trial, the jury might let us off entirely. Or they might award less then what we’re offering to settle for. Are you willing to risk getting zero instead of taking our settlement offer of $150K?”

Early data: Post-Jarkesy settlements seem to be 15-25% lower on penalty amounts compared to pre-Jarkesy settlements for similar conduct. The SEC is discounting penalties to avoid jury trial risk.

What This Means for You Right Now

• More negotiating leverage: Jury trial threat is credible
• Potentially lower penalties: SEC more willing to reduce to avoid trial
• But longer timelines: Federal court is slower then administrative proceedings
• And higher costs: Federal litigation is expensive to defend

If you have strong facts and financial resources, Jarkesy helps you. If you have weak facts or limited resources, it might not change much—you’re still settling, just with slightly better terms.

What You Now Know (And What to Do Next)

You’ve made it through 4,000+ words of SEC penalty structure, case examples, negotiation tactics, and strategic considerations. Let’s bring it together.

The Penalty Structure

• Three tiers: $10K to $200K per violation (individuals), $100K to $1M per violation (companies)
• Multiplies by violations: One bad decision can be counted as dozens of violations
• Tiers escalate: Based on fraud/harm (Tier 1 = negligence, Tier 2 = reckless, Tier 3 = fraud with substantial harm)

Disgorgement Is Usually Bigger

• No cap: Every dollar you gained + 6-8% annual interest
• Typically 60-80% of total owed when ill-gotten gains exist
• Hard to negotiate away: Based on objective calculation of you’re gains
• 5-year statute of limitations: Post-Kokesh, old conduct might escape disgorgement

Individual vs. Company Penalties

• Both pay seperately: Corporate penalty doesn’t shield individuals
• Companies pay more per violation: 5-10x higher statutory maximums
• Individuals suffer more: Industry bars destroy careers worth millions in lifetime earnings
• Shareholders absorb corporate penalties: Executives who caused violation often pay tiny fraction of corporate penalty

What Determines Your Amount

1. Violation type: Insider trading/fraud = highest, compliance violations = lowest
2. Harm caused: Investor losses, number of victims
3. Your intent: Fraud vs. recklessness vs. negligence
4. Your history: First offense vs. recidivist
5. Your role: Mastermind vs. pawn
6. Cooperation: Self-reporting can reduce 50%+
7. Ability to pay: Sometimes reduces penalties to collectible amount

Real Numbers From Recent Cases

• Junior employees: $25K-$75K typical
• Mid-level executives: $100K-$250K typical
• Senior executives/founders: $300K-$1M+ typical
• Plus disgorgement: Add 2-10x for ill-gotten gains

It’s Negotiable

• 90%+ of cases settle below statutory maximum
• Typical reduction: 30-60% of SEC’s initial demand
• Cooperation: Biggest lever (30-50% discount)
• Course of conduct: Reduces violation count by 80-90% in extreme cases
• Ability to pay: Can reduce to collectible amount if proven

Industry Bars Are Often Worse Then Money

• Can’t pay your way out: Once imposed, very hard to reduce
• Career destruction: Securities bar costs $10M+ in lifetime earnings for finance professionals
• Duration: 5-10 years typical, permanent for repeat offenders
• Fight harder: Offer higher penalty to avoid or reduce bar (often worth it)

If You Can’t Pay

• Ability-to-pay negotiation: Reduce to collectible amount (prove inability)
• Payment plans: 12-36 months typical
• Bar trade: Lower penalty for harsher bar
• Bankruptcy: Almost never works (penalties aren’t dischargeable)
• Reality: SEC collects only ~60% of penalties imposed (but you risk aggressive collection)

Jarkesy Changes the Game

• Jury trial right: For civil penalties (not disgorgement/bars)
• More leverage: Jury outcomes are uncertain, SEC offers better settlements
• Higher costs: Federal litigation expensive ($500K-$2M)
• Early data: Post-Jarkesy settlements 15-25% lower then before

Your Next Steps

Step 1: Calculate Your Exposure

• Identify violations (what you did)
• Count violations (how many times/instances)
• Estimate disgorgement (your gains + interest)
• Apply tier (based on intent/harm)
• Calculate range: conservative to aggressive counting

Step 2: Get Experienced SEC Defense Counsel

Not a general litigator. Not a criminal defense lawyer. An SEC defense specialist, ideally with former SEC Enforcement experience.

What to look for:

• Former SEC enforcement attorney (knows the playbook)
• Track record of SEC settlements (not trials—90% settle)
• Relationships with SEC staff (helps in negotiations)
• Experience with your violation type

Cost: $50K-$500K depending on case complexity. Worth it because they can reduce penalties by more then there fee.

Step 3: Preserve Evidence & Cooperate (Carefully)

• Don’t delete anything: Obstruction destroys all leverage
• Locate documents: Emails, texts, files related to alleged violations
• Timeline events: Who knew what when
• Identify witnesses: Who can help/hurt you’re case

On cooperation: Self-reporting before the SEC discovers violations can save 50-75%. BUT cooperation carries risks (waiving privilege, criminal exposure). Only cooperate after consulting counsel and confirming no parallel criminal investigation.

Step 4: Evaluate Your Leverage

You have leverage if:

• Strong cooperation to offer
• Weak SEC evidence (you might win at trial)
• Sympathetic facts (no intent, no harm, good faith)
• Genuine inability to pay
• First offense with clean history

You lack leverage if:

• Clear fraud, strong evidence
• Repeat offender
• Lying or obstruction
• High-profile media coverage
• Egregious conduct (Ponzi, theft)

Your lawyer will assess leverage and develop negotiating strategy accordingly.

Step 5: Make Strategic Decisions

• Cooperate or fight? (depends on criminal exposure, strength of case)
• Settle or litigate? (90% settle, but some cases are worth fighting post-Jarkesy)
• Pay more to avoid bar? (often worth it if bar destroys career)
• Administrative or federal court? (post-Jarkesy, you have choices)

These decisions are intensely fact-specific. Your lawyer will walk you through the trade-offs.

The Bottom Line

SEC penalties are terrifying when you don’t understand them. Now you do. The statutory maximums are anchors for negotiation, not final numbers. Most people pay 30-60% of the SEC’s initial demands. The penalties are severe but survivable. The industry bars are often worse then the money.

You’re not the first person to face this. You won’t be the last. The system is designed to punish, but also to settle. There’s almost always a path forward that doesn’t involve total financial destruction—but you need experienced counsel to find it.

The penalties are negotiable. The bars are sometimes negotiable. Your future isn’t over. But you need to act now, get the right lawyer, and navigate this strategically rather then reactively.

The numbers you were afraid of at 2am? Now you know them. They’re real, there significant, but there not the end of the world. Knowledge is power. Use it.