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US Securities and Exchange Commission

House Passes to Set up Joint SEC-CFPB Fraud Group

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

The House on September 21, 2020, passed legislation that would set up a joint working group between the SEC and Consumer Financial Protection Bureau (CFPB) to target investor and consumer fraud during the COVID-19 crisis.

H.R. 6735, the COVID-19 Fraud Prevention Act, is sponsored by Rep. Cynthia Axne, a Democrat from Iowa. The measure passed by voice vote.

The bill comes as both federal and state securities regulators are looking to protect investors from investment scams seeking to exploit the novel coronavirus pandemic.

The measure would establish the Consumer and Investor Fraud Working Group between the two agencies, which would last until the end of 2021, according to the text of the bill. The panel would facilitate collaboration between the SEC and CFPB on providing resources to consumers and investors to avoid fraud during the pandemic and to help connect victims of fraud with legal aid, and any other topics deemed appropriate for the working groups. The panel would, under the bill, issue a quarterly report on the resources it has made publicly available and any enforcement actions taken either by the group or its two member agencies, among other information.

“With this legislation, we can protect Americans and guard our families and communities from deception or financial ruin,” Axne said in a statement following the bill’s passage. “I’m pleased to see unanimous support for this measure today, and will be pushing my Senate colleagues to advance it as soon as possible.”

Financial reform and consumer protection groups, including the Consumer Federation of America, are supporting the bill.

The SEC has, since the beginning of the pandemic, ramped up its work to combat COVID-19 securities fraud. Most recently, on June 11, the SEC said it froze the assets of five individuals and six offshore entities over a $25 million microcap fraud scheme that involved pumping up companies’ share price through “false and misleading information designed to fraudulently capitalize on the COVID-19 pandemic.”

And in late April, the SEC announced charges against Praxsyn Corp. and its chief executive for allegedly issuing “false and misleading press releases” that it had acquired a large number of N95 masks to sell. The company later retracted its announcements.

The SEC has also halted trading in dozens of stocks in connection with the novel coronavirus, including Praxsyn Corp.

The bill’s introduction came as the North American Securities Administrators Association (NASAA) launched a COVID-19 enforcement task force aimed at combating securities fraud during the pandemic. The task force, which is made up of state and provincial securities regulators, is placing a heavy focus on investment scams promoted on social media and other websites. That task force in August announced its members had taken more than 200 actions to halt coronavirus scams, including administrative actions, cease-and-desist orders, and investor alerts.

 

This article originally appeared in the September 23, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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