Civil Money Penalty (CMP)

What Is a Civil Money Penalty (CMP)?

The term civil money penalty (CMP) refers to a fine imposed on entities that violate certain laws and regulations. In finance, anyone who commits violations against securities laws and regulations, including illegal activities, must pay CMPs. These fines are imposed and collected by the Securities and Exchange Commission (SEC).

CMPs are also imposed by other organizations, including medical agencies, courts, and legal agencies. Penalties are normally equivalent to the amount of money the violator earns as profit from their activities. As such, these fines can range between tens of thousands to millions of dollars.

Key Takeaways

  • A civil money penalty is a fine imposed on entities that violate certain laws and regulations.
  • In finance, anyone who commits violations against securities laws and regulations must pay CMPs.
  • Fines for financial violations are typically enforced by the Securities and Exchange Commission.
  • Penalties are normally equivalent to the amount of money the violator earns as profit from their activities.
  • CMPs are also imposed by other agencies, including medical organizations, courts, and legal agencies.

How Civil Money Penalties (CMPs) Work

Laws and regulations are in place in order to protect individuals from unscrupulous professionals and corporations. In the financial arena, there are a number of agencies that oversee and enforce these regulations, including the SEC and Financial Industry Regulatory Authority (FINRA). They ensure that investors have access to the information they need to make sound decisions, that financial advisors and other professionals maintain their fiduciary responsibilities, and that the market is fair and transparent.

Those who don't abide by the regulations and violate these laws are subject to a number of punitive damages. This applies to people who:

  • Execute insider trading
  • Commit fraud
  • Manipulate regulatory requirements
  • Knowingly increase the risk of loss to others
  • Violate regulations in order to earn profits

Financial regulators have a number of ways to penalize those who disregard the law, including taking them to court. But that isn't the only action they have at their disposal. In addition to seeking criminal charges, the SEC can also impose monetary fines, which are called civil money penalties. These fines are based on the extent of the violation, so someone who conducts insider trading that results in $1 million in profit is generally responsible for paying $1 million in CMPs.

The maximum civil monetary penalties in SEC enforcement actions are $181,071 per violation for individuals and $905,353 per violation for entities. If a bill introduced by a bipartisan group of U.S. senators, which is called the Stronger Enforcement of Civil Penalties Act of 2019, becomes law, then these penalties could increase to $1 million per violation for individuals and $10 million per violation for corporate entities.

Any money collected by the SEC through CMPs goes right back to the investors or other victims directly affected by the violation.

Special Considerations

Civil money penalties are not just limited to securities-law violations. They are also imposed by other government agencies on those who commit various types of fraud. For example, the Office of Inspector General may slap CMPs on individuals and organizations guilty of:

  • Filing fraudulent claims for medical benefits
  • Taking kickbacks
  • Fraud related to government agreements, contracts, and grants
  • Violating state and federal guidelines

Article Sources

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  1. Harvard Law School Forum on Corporate Governance. "Calculating SEC Civil Money Penalties." Accessed June 2, 2021.

  2. The Free Dictionary. "Civil Money Penalty." Accessed June 2, 2021.

  3. U.S. Congress. "H. Rept. 116-410 - Stronger Enforcement of Civil Penalties Act of 2019." Accessed Mar. 23, 2021.

  4. U.S. Securities and Exchange Commission. "About the Division of Enforcement." Accessed June 2, 2021.

  5. U.S. Department of Health and Human Services Office of the Inspector General. "Types of Civil Monetary Penalties and Affirmative Exclusions." Accessed June 2, 2021.