[Federal Register Volume 60, Number 121 (Friday, June 23, 1995)]
[Rules and Regulations]
[Pages 32738-32834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14750]
[[Page 32737]]
_______________________________________________________________________
Part II
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Part 200, et al.
Rules of Practice; Final Rule
Federal Register / Vol. 60, No. 121 / Friday, June 23, 1995 / Rules
and Regulations
[[Page 32738]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 201, 202, 203, 209, 228, 229, 230, 232, 240, 250,
260, 270 and 275
[Release No. 34-35833; File No. S7-40-92]
RIN 3235-AF91
Rules of Practice
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
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SUMMARY: The Securities and Exchange Commission today announces the
adoption of comprehensive revisions to its Rules of Practice
(``Rules''), the procedural rules that govern Commission administrative
proceedings. Enforcement proceedings initiated by the Commission and
review of disciplinary proceedings brought by self-regulatory
organizations are among the most frequently occurring and significant
proceedings governed by the Rules. Adoption of the Rules and the other
actions taken today implement recommendations made by the Commission's
Task Force on Administrative Proceedings in its final Report, entitled
Fair and Efficient Administrative Proceedings.
The Rules contain procedures implementing authority granted to the
Commission by the Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 to issue administrative temporary cease-and-desist
and disgorgement orders. The Rules also implement revised procedures
for the conduct of hearings, including simplified service of orders
instituting proceeding, expanded use of prehearing conferences,
codification of policies on the availability of certain investigation
files to respondents in enforcement and disciplinary proceedings,
issuance of subpoenas returnable prior to hearing and the consideration
by administrative law judges of dispositive motions prior to hearing.
In addition, the Rules contain revised procedures governing appeals to
the Commission including various procedural requirements governing
Commission review of self-regulatory determinations that were
previously contained in part in Rules 19d-2 and 19d-3 under the
Securities Exchange Act of 1934.
The revised Rules better facilitate full, fair and efficient
proceedings by setting forth applicable procedural requirements more
completely and in an easier to use format; by streamlining procedures
that had become burdened with archaic requirements; and by the addition
of provisions that address changes in statutory requirements, judicial
and administrative case law developments, Commission policies, and
litigation practices since the Rules were last revised.
The Commission also announces the issuance of a statement of
Informal Procedures and Supplementary Information Concerning
Adjudicatory Proceedings. This statement establishes guidelines for the
completion of key phases of contested adjudications; requires periodic
case status reports that will formally apprise the Commission if an
adjudicatory matter is pending for longer than specified periods of
time, so that the Commission can determine whether additional steps are
necessary to reach a fair and timely resolution of the matter; and
provides for increased and more timely disclosure concerning the
Commission's adjudicatory docket through the periodic publication in
the SEC Docket of summary statistical information concerning changes in
the Commission's case load.
EFFECTIVE DATE: These rules are effective July 24, 1995.
TRANSITION PROVISION: Any administrative proceeding that has been
docketed by the Commission--i.e., in which an administrative
proceedings file number has been assigned by the Secretary--prior to
the date of this Federal Register publication, June 23, 1995, shall be
completed pursuant to the former Rules of Practice. Any proceeding
docketed by the Commission after the date of this Federal Register
publication but prior to the effective date shall be conducted under
the former Rules of Practice unless, within 30 days of the effective
date, each respondent in the proceeding submits a request in writing to
the Secretary that the proceedings be conducted under the Rules of
Practice adopted today.
ADDRESSES: Printed copies of the revised Rules of Practice including
the comments will be available from the Commission's Publications
Branch, U.S. Securities and Exchange Commission, 450 Fifth Street, NW.;
Stop C-11; Washington, D.C. 20549.
FOR FURTHER INFORMATION CONTACT: Andrew Z. Glickman or Daniel O.
Hirsch, Office of the General Counsel at (202) 942-0870; U.S.
Securities and Exchange Commission; 450 Fifth Street, N.W.; Stop 6-6;
Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Discussion of the Revised Rules
A. New Organizational Structure of the Rules
B. Comments Accompanying the Rules
C. Summary of Major Changes to the Rules from the Former Rules
D. Technical Changes and Appendices
III. Discussion of the Statement of Informal Procedures and
Supplemental Information Concerning Adjudicatory Proceedings
A. Guidelines for the Timely Completion of Proceedings
B. Reports to the Commission on Pending Cases
C. Increased Public Disclosure Concerning the Pending Case
Docket
IV. Rules of Practice: Table of Contents
100 Series--General Rules
200 Series--Initiation of Proceedings and Prehearing Rules
300 Series--Rules Regarding Hearings
400 Series--Appeal to the Commission and Commission Review
500 Series--Rules Relating to Temporary Orders and Suspensions
600 Series--Rules Regarding Disgorgement and Penalty Payments
Form D-A Disclosure of Assets and Financial Information
V. Regulatory Flexibility Analysis
VI. Statutory Basis for Rules
TEXT OF ADOPTED RULES
I. Background
Today's adoption of comprehensive revisions to the Rules of
Practice (``Rules'') of the Securities and Exchange Commission
(``Commission'') and issuance of a statement of informal procedures
with respect to Commission adjudications culminate an extensive review
of the Commission's adjudication procedures and process. In July 1990,
then-Commissioner Mary L. Schapiro was appointed chairman of the Task
Force on Administrative Proceedings (``Task Force'' or ``Schapiro Task
Force''). The mission of the Task Force was to review the rules and
procedures relating to Commission administrative proceedings, to
identify sources of delay in those proceedings and to recommend steps
to make the adjudicatory process more efficient and effective.1
Following passage of the Securities Enforcement Remedies and Penny
Stock Reform Act (``Remedies Act''),2 the Task Force greatly
expanded its work to include preparing procedures to implement the
authority granted to the Commission by the Remedies Act. The Task Force
ultimately determined that it would be [[Page 32739]] necessary and
appropriate to revise completely the entire Rules of Practice.
\1\ SEC Creates Task Force on Administrative Proceedings, News
Release 90-39 (July 19, 1990).
\2\ Pub. L. 101-429, 104 Stat. 931 (1990).
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In January 1991 and December 1991, the Schapiro Task Force
presented to the Chairman interim findings and recommendations
concerning the need to reduce the pending case backlog. Implementation
of these recommendations included, among other things, a reorganization
of the Adjudications Group within the Office of the General Counsel,
significant increases in staff resources assigned to adjudicatory
proceedings, and more frequent Commission meetings to consider proposed
adjudicatory opinions.
In August 1992, the Secretary published approximately 400 orders
issued by the Commission and administrative law judges between 1964 and
1992.3 The previously unpublished orders, which were assembled and
organized by the Task Force, concerned interpretations of the Rules of
Practice or other procedural issues. The orders provide litigants with
additional information about applicable procedure and thereby reduce
the likelihood that previously decided issues will need to be
relitigated. Also, as recommended by the Task Force, the Commission
began regular publication in the SEC Docket of initial decisions of the
administrative law judges as well as significant procedural orders.
\3\ 52 SEC Docket 3, 3-792 (Aug. 18, 1992).
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In March 1993, the Schapiro Task Force issued its final report,
Fair and Efficient Administrative Proceedings (``the Task Force
Report'').4 The Task Force concluded that the fundamental
structure of the Commission's administrative process is sound. The Task
Force found, however, that there was unnecessary delay in deciding
litigated adjudicatory proceedings.5 The Task Force recommended a
comprehensive revision of the Rules of Practice and included proposed
new Rules in its Report. In addition, the Task Force made various other
recommendations designed to improve the efficiency and fairness of the
Commission's administrative proceedings.6 These included steps
that were intended to make structural changes that would reduce the
likelihood of a recurrence of the conditions that led to unnecessary
delay and a backlog of pending cases.
\4\ Task Force on Administrative Proceedings, Securities and
Exchange Commission, Fair and Efficient Administrative Proceedings:
Report of the Task Force (Feb. 1993) [hereinafter Task Force
Report].
\5\ Id. at 13. See also id. at 19-22 (summary of statistical
data concerning proceedings adjudicated from 1982 through 1992).
\6\ Id. 12-19.
In November 1993, the Commission published in the Federal Register
a release proposing to adopt the Task Force's proposals pertaining to
the Rules and asking interested persons for comment.7
\7\ Proposed Rules of Practice, Exchange Act Release No. 33163,
58 FR 61732 (Nov. 22, 1993). Most of the rules in the Rules of
Practice deal with agency procedure and practice and are exempt from
the Administrative Procedure Act's notice and comment requirement
for rulemaking, 5 U.S.C. 553(b)(3). Consistent with the
recommendation of the Task Force, though, all the Rules were
published for comment. See Task Force Report, supra note 4, at 12.
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II. Discussion of the Revised Rules
The Commission received seven comment letters from various
interested persons.8 Although not numerous, the comment letters as
a group contained very extensive commentary on the proposed Rules.
Commenters generally greeted the Commission's proposals favorably. All
commenters praised the Commission's initiating a review of its Rules
with the goal of further promoting fair and efficient administrative
proceedings. All commenters submitted proposals to make various
modifications to the Rules including many suggestions in response to
the specific requests for comment contained in the proposing release. A
number of comments also addressed matters not directly within the scope
of the Rules. These included internal Commission management issues,
such as the organizational structure of the Commission's divisions and
offices, or enforcement policy issues, such as the frequency with which
the Commission will initiate administrative proceedings. Significant
changes to the Rules are discussed below.
\8\ The comment letters may be inspected and copied at the
Commission's Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, File No. S7-40-92.
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A. New Organizational Structure of the Rules
The former Rules, which had not been comprehensively revised since
1960, contained requirements which were out-of-date or inconsistent
with current practices and, in a few cases, inconsistent with other
rules. In revising the Rules, emphasis was placed on maintaining
consistency with applicable statutory language while improving
intelligibility, ensuring that the Rules accurately reflected current
Commission practice, and providing internal consistency in the use of
terms between individual rules.
The Commission has adopted a new organizational structure and
numbering system for the Rules of Practice based on model
administrative rules prepared by the Administrative Conference of the
United States (``ACUS''). As originally proposed, the Commission's
Rules had been arranged in roughly the order in which an administrative
proceeding progresses and numbered consecutively. The new format groups
rules together in six broad categories based on which phase or type of
proceeding they govern. The first four groups--general rules;
institution of proceedings and prehearing rules; hearing rules; and
rules regarding appeals to the Commission and Commission review--are
predicated upon the four classifications suggested by ACUS. The two
additional groups are related to specific Commission proceedings and
administrative remedies and sanctions--rules regarding temporary
orders, suspension of a registration and summary suspensions of
trading; and rules governing disgorgement and penalty payments.
Within each group, related rules are placed together. Rules which,
as proposed, covered multiple topics have been divided into shorter
rules each limited to fewer topics. The new structure increases the use
of rule headings and subheadings to guide a user to the appropriate
rule. To the extent possible, related provisions cross-reference each
other. Each of the six major groups of rules is numbered in a separate
series, from 100 through 600. In addition to improving the ease of use
of the rules, the new numbering system will provide the Commission with
greater flexibility when future amendments and additions to the Rules
occur.
B. Comments Accompanying the Rules
The Commission has prepared explanatory comments for the Rules of
Practice; these comments appear with the Rules in this ``Supplementary
Information'' section. The complete text of the Rules without comments
appears below in Section VII. Each explanatory remark is identified as
either a ``comment'' or a ``revision comment.'' ``Comments'' are
statements explaining the basis for a rule, describing the rule's
rationale, referencing related rules, or providing information
concerning pertinent Commission practice. Comments are not a part of
the rules, and are not included in the Code of Federal Regulations. The
Commission believes, however, that information in the comment section
will assist persons consulting the Rules in a more thorough
understanding of the Rules. Printed copies of the revised Rules of
Practice including the comments will be [[Page 32740]] available from
the Commission's Publications Branch, U.S. Securities and Exchange
Commission; 450 Fifth Street, N.W.; Stop C-11; Washington, D.C. 20549.
A copy of this publication will be provided to each respondent by the
Secretary at the commencement of proceedings.
``Revision comments'' are statements explaining changes from the
proposed Rules to the adopted Rules. In addition, revision comments
include, where appropriate, a brief discussion of responses to the
requests for comment in the proposing release.
C. Summary of Major Changes to the Rules From the Former Rules
This section contains a capsule summary of major changes from the
former Rules.
1. Temporary cease-and-desist orders. The Rules include procedures
for the issuance of a temporary cease-and-desist order
(``TCDO'').9-10 Rules 510, 511 and 512 contain the application
procedures, notice requirements, hearing procedures and issuance
requirements for TCDO's. Rule 513 contains additional requirements for
ex parte issuance of a TCDO. Rule 514 sets forth the availability of
judicial review and the duration of a TCDO. Rule 530 governs special
procedures relating to issuance of an initial decision whether to enter
a permanent order if a temporary order is pending. Rules 531 and 540
govern Commission review of that initial decision, and duration of the
temporary order pending that review.
\9-10\ Rules 510-514, 530, 531 and 540.
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The Division of Enforcement may file an application for a TCDO
simultaneously with or after the commencement of proceedings seeking a
permanent cease-and-desist order with respect to a registered entity or
associated person.11 The application must be accompanied by a
declaration of facts signed by a person with knowledge of the facts
contained therein; a memorandum of points and authorities; a proposed
order imposing the temporary relief sought; and, unless relief is
sought ex parte, a proposed notice of hearing and order to show cause
whether the temporary relief should be imposed. If a proceeding for a
permanent cease-and-desist order has not already been commenced, the
Division must also file a proposed order instituting proceedings to
determine whether a permanent cease-and-desist order should be imposed.
\11\ Prior to filing an application for temporary relief, the
staff would, in all cases, have to obtain authority to seek a
temporary order from the Commission. As with any other decision to
initiate enforcement action prior to the institution of proceedings,
Commission deliberations and discussions with the staff concerning
the decision whether to authorize an application for temporary
relief would be nonpublic, privileged, and not ordinarily reviewable
by a court.
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Unless the conditions warranting issuance of an ex parte order are
met, a respondent shall be served with the application and additional
papers and a hearing on the application shall be scheduled.
If a respondent has been served with a temporary cease-and-desist
order entered without a prior Commission hearing, the respondent may
apply to the Commission to have the order set aside, limited, or
suspended, and if the application is made within 10 days after the date
on which the order was served, may request a hearing on such
application. The Commission shall hold a hearing and render a decision
on such an application at the earliest possible time. The hearing shall
begin within two days of the filing of the application unless the
applicant consents to a longer period or the Commission, by order, for
good cause shown, sets a later date. If the Commission does not render
its decision within 10 days of the application or such longer time as
consented to by the applicant, the temporary order shall be suspended
until a decision is rendered.
A temporary cease-and-desist order may be appealed to a federal
district court within 10 days of service of an order entered with prior
notice, or within 10 days after the Commission's issuance of its
decision upon a respondent's application to set aside, limit or suspend
an ex parte order.
After issuance of a temporary cease-and-desist order, the
proceeding to determine whether to enter a permanent order shall go
forward with a hearing before a hearing officer and the issuance of an
initial decision. The Rules establish procedures with respect to
expedited consideration of any appeal of the initial decision. The
Rules also set forth limitations on the duration and scope of the
temporary cease-and-desist order pending issuance of the Commission's
opinion on review of the initial decision.
2. Suspension of Registered Entity. Rules 520, 521, 522 and 524
include extensive revisions to the provisions of former Rule 19
relating to the suspension of a registered broker or dealer pending a
final determination whether the registration shall be revoked.
Consistent with amendments to the Securities Exchange Act, the new
rules apply to a municipal securities dealer, government securities
broker, government securities dealer, or transfer agent as well as a
broker or dealer. Where possible, the new procedures for suspensions
pending a final determination whether to revoke a registration parallel
the procedures relating to temporary cease-and-desist orders.
3. Disgorgement. The 600 series of the revised Rules contains new
provisions governing payment of disgorgement, interest and penalties.
Rule 600 requires prejudgment interest to be assessed on any sum
required to be paid pursuant to an order of disgorgement. The rate of
interest is set at the IRS underpayment rate and compounded quarterly
unless the Commission specifies a lower rate with respect to funds
placed in an approved escrow. Under Rule 601 unless otherwise provided,
funds due pursuant to an order by the Commission requiring the payment
of disgorgement, interest or penalties must be paid no later than 21
days after service of the order. After disgorgement has been paid, a
proposed plan of disgorgement will be submitted pursuant to Rule 610.
Rule 611 lists the required elements of such disgorgement plan. A
plan may provide for distribution of funds to investors or to a court
registry or court-appointed receiver for injured investors. Where
return of disgorged funds to investors is not justified, funds may be
paid to the U.S. Treasury. Rule 612 requires that notice of a proposed
plan be published in the SEC News Digest and the SEC Docket and other
publications as required. A plan may be approved, approved with
modifications, republished for additional comments or disapproved
pursuant to Rule 613. Rule 614 contains provisions governing the
administration of an approved plan.
Rule 620 addresses conditions under which a non-party will be
granted leave to intervene or to participate in a proceeding for the
purpose of challenging a disgorgement order or plan of disgorgement.
The Rule provides that no person shall be granted leave to intervene or
to participate for such a purpose based solely upon that person's
eligibility or potential eligibility to participate in a disgorgement
fund or based upon any private right of action such person may have
against any person who is also a respondent in an enforcement
proceeding.
Persons claiming an inability to pay disgorgement, interest or a
penalty must do so in accordance with Rule 630. A respondent who
asserts inability to pay may be required to file a sworn financial
statement and to keep the statement current. Failure to file a required
statement may be deemed a waiver of the claim of inability to pay.
4. Expanded Role for Prehearing Conferences. The Rules
significantly expand the role of prehearing [[Page 32741]] conferences
and encourage more active prehearing case management by administrative
law judges. Under the proposed rule, no initial prehearing conference
was required. In accordance with suggestions by commenters, revised
Rule 221 requires that except where the emergency nature of a
proceeding would make a prehearing conference clearly inappropriate,
both an initial and a final prehearing conference shall be held. The
initial conference is to be held within 14 days of service of an
answer, or if no answer is required, within 14 days of the issuance of
an order instituting proceedings. The final conference is to be held as
close to the beginning of the hearing as is reasonable.
The Rules make an initial prehearing conference mandatory in most
cases because such a conference can eliminate unnecessary delay and
improve the quality of adjudicative decisionmaking by sharpening the
preparation of cases and presentation of issues. The increased role for
prehearing conferences will facilitate the new procedures that provide
for access to certain categories of investigation file documents in
enforcement and disciplinary proceedings and for the prehearing
production of documents pursuant to subpoena.
5. Prehearing Access to Certain Investigative Documents. Pursuant
to new Rule 230, in an enforcement or disciplinary proceeding, the
Division of Enforcement will provide any party with an opportunity for
inspection and copying of certain categories of documents obtained by
the Division in connection with the investigation leading to the
Division's recommendation to institute proceedings. The rule codifies
the prevailing practice of the Division of Enforcement staff in the
Headquarters Office and various regional offices. A respondent's right
to inspect and copy documents under this Rule is automatic; the
respondent does not need to make a formal request for access through
the hearing officer.
Documents to which access must be provided include: (1) Each
subpoena issued; (2) every other written request to persons not
employed by the Commission to provide documents or to be interviewed;
(3) the documents turned over in response to any such subpoenas or
other written requests; (4) all transcripts and transcript exhibits;
(5) any other documents obtained from persons not employed by the
Commission; and (6) any final examination or inspection reports
prepared by the Division of Market Regulation or the Division of
Investment Management. The Division of Enforcement's obligation under
this rule relates only to documents obtained by the Division of
Enforcement. Documents located only in the files of other divisions or
offices are beyond the scope of the rule.
The Division of Enforcement may withhold a document if: (1) The
document is privileged; (2) the document is an internal memorandum,
note or writing prepared by a Commission employee, other than certain
examination or inspection reports prepared by the Divisions of Market
Regulation or Investment Management, or is otherwise attorney work-
product and will not be offered in evidence; (3) the document would
disclose the identity of a confidential source; or (4) the hearing
officer grants leave to withhold a document or category of documents as
not relevant to the subject matter of the proceeding or otherwise, for
good cause shown.
Rule 230 is not the exclusive means by which a respondent may
obtain access to documents. Production of documents prepared by the
staff may be required under the doctrine of Brady v. Maryland, 373 U.S.
83 (1963), or pursuant to Jencks Act requirements made applicable to
the Commission pursuant to rule, or may be sought by subpoena or
through other procedures. See, e.g., the Freedom of Information Act, 5
U.S.C. 552.
The document access policy in Rule 230 has been revised
significantly from the proposed rule. Under the proposed rule, the
staff was required to make a relevancy determination before a document
would be produced. The Commission decided to change this rule, based in
part upon comments received that contended that a relevancy
determination by the staff was problematic.12
\12\ Specifically, it was suggested that the proposed standard
might deny respondents access to documents that ``while possibly not
directly relevant to any of the Commission's allegations, may bear
directly on the lines of defense the respondent is developing.'' ABA
comment letter dated Feb. 28, 1994, at 59. It was also suggested
that asking the staff to make such a determination was inappropriate
because of the staff's ``outlook and allegiance.'' Id.
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6. Prehearing Document Production Pursuant to Subpoena. Rule 232(a)
allows for production of documents pursuant to subpoena prior to the
start of a hearing. The Rule states that a party may request
``subpoenas requiring the production of documentary or other tangible
evidence returnable at any designated time or place.'' Under former
Rule 14(b)(1), such documents were only to be turned over at the
hearing. As adopted, the rule will reduce delay and eliminate the need
for postponements by allowing for documents to be reviewed and copied,
and for proposed exhibits to be selected, all prior to a final
prehearing conference.
7. Summary Disposition. Under former Rule 11(e), a motion that
would dispose of a proceeding in whole or in part could not be made, or
considered by a hearing officer, prior to the completion of the
interested division's case or the conclusion of the hearing. See 17 CFR
201.11(e) (1994). Rule 250 makes substantial changes to these
procedures. The Rule provides for a motion for summary disposition by
any party after each party required to file an answer has done so and,
in an enforcement or disciplinary proceeding, after documents have been
made available to the respondent for inspection and copying. If the
interested division has not completed presentation of its case in chief
at the hearing, a summary decision motion may be made only with leave
of the hearing officer. The facts of the pleadings of the party against
whom the motion is made shall be taken as true, except as modified by
stipulations or admissions made by that party, by uncontested
affidavits, or by facts officially noted. In accordance with
suggestions of a commenter, the Rule now provides that if a party
cannot, for good cause, present facts essential to justify opposition
to the motion by affidavit prior to hearing, the hearing officer shall
deny the motion.
A motion for summary disposition is subject to a 35-page limit.
8. Protective Orders. The revised Rules contain provisions allowing
certain persons involved in an evidentiary hearing to obtain a
protective order for confidential information. Documents and testimony
introduced in a public hearing are presumed to be public. Rule 322
allows any party intending to introduce material as evidence during a
hearing, any person who is the subject or creator of such material, or
any witness who testifies at a hearing to file a motion requesting a
protective order for such material or testimony. A protective order
shall be granted only upon a finding that the harm resulting from
disclosure would outweigh the benefits of disclosure.
The former Rules of Practice contained a confidential treatment
provision that related solely to applications for materials filed in
connection with registration statements and other statutorily required
filings; it required that confidential treatment be sought at the time
of filing. See 17 CFR 201.25 (1994). Proposed Rule 33 would have
responded to this situation by [[Page 32742]] allowing a party to seek
confidential treatment under any ``applicable statute or rule,''
without limiting the scope of materials sought to be protected or the
timing of the application.
The Commission has decided that a separate rule for protective
orders would be more efficient and easier for adjudicatory litigants to
use than a rule that encompassed not only protective orders, but also
requests for confidential treatment under the federal securities laws
13 or the Freedom of Information Act.14
\13\ See Clause 30 of Schedule A of the Securities Act of 1933,
15 U.S.C. 77aa(30), and Rule 406 thereunder, 17 CFR 230.406; Section
24(b)(2) of the Securities Exchange Act of 1934, 15 U.S.C.
78x(b)(2), and Rule 24b-2 thereunder, 17 CFR 240.24b-2; Section
22(b) of the Public Utility Holding Company Act of 1935, 15 U.S.C.
79v(b), and Rule 104 thereunder, 17 CFR 250.104; Section 45(a) of
the Investment Company Act of 1940, 15 U.S.C. 80a-44(a), and Rule
45a-1 thereunder, 17 CFR 270.45a-1; and Section 210(a) of the
Investment Advisers Act of 1940, 15 U.S.C. 80b-10(a). See also Rule
of Practice 190, 17 CFR 201.190 (specifying procedures by which
registrants may request confidential treatment of certain
information contained in regulatory filings).
\14\ See 17 CFR 200.83 (providing for procedures by which
persons submitting information to the Commission can request that
the information not be disclosed pursuant to a request under the
Freedom of Information Act, 5 U.S.C. Sec. 552).
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9. Service. The rule for service of orders by the Commission, Rule
141, and the rule for service of papers by parties, Rule 150, contain a
number of revisions. Rule 141 contains new provisions specifically
addressing service upon persons in a foreign country and upon persons
currently registered with the Commission. Rule 141 also contains a new
provision allowing a waiver of formal service to permit a party to
accept service by facsimile transmission. For parties wishing to use
facsimile transmission to serve one another, Rule 150 allows delivery
of papers by fax when two conditions are met: (i) there must be a
written agreement between the persons intending to serve each other by
fax specifying such terms as they deem necessary with respect to
telephone numbers, hours of facsimile operation, provision of paper
original or other matters; and (ii) receipt of each document served by
fax must be confirmed by a manually signed receipt delivered by fax or
other means agreed to by the parties. These conditions are intended to
ensure that service by fax will be both an efficient and an effective
means of service.
D. Technical Changes and Appendices
A number of technical changes have been made and appendices created
in order to implement the Rules. First, former Rule 24 concerning
incorporation by reference, which related to the making of disclosure
or regulatory filings has been moved from the Rules of Practice to
Regulation S-K section 10, paragraph (d) (17 CFR 229.10(d); a
comparable provision has been added to Regulation S-B section 10,
paragraph (f) (17 CFR 228.10(f)). Second, Commission procedures for
summary suspensions pursuant to Section 12(k) of the Exchange Act, 15
U.S.C. 78l(k), have been moved from Part 202 of 17 CFR into new Rule
550. Third, new cross-reference tables showing the location of the
former rules in the revised rules and vice versa have been included in
an appendix to appear in the Code of Federal Regulations. Finally, all
references to the Rules of Practice in the Commission's other rules and
forms have been updated.
III. Discussion of the Statement of Informal Procedures and
Supplemental Information Concerning Adjudicatory Proceedings
In 1990, at the time the Schapiro Task Force was created, there was
significant delay in the disposition of administrative proceedings. For
example, in fiscal years 1991 and 1992, the Commission issued a total
of 10 opinions in Commission-initiated administrative proceedings.
These 10 cases took an average of four years from institution of
proceedings to conclusion.15
\15\ See Task Force Report, supra note 4, at 20-22.
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Interim recommendations made by the Task Force to eliminate
unnecessary delay and reduce the backlog were implemented in 1991 and
1992. The Commission reorganized the Adjudications Group within the
Office of the General Counsel and appointed new senior staff to
supervise the adjudicatory work assigned to the Office of the General
Counsel. On a Commission-wide basis, the total number of staff assigned
to adjudicatory matters was increased over three fold. For
approximately one year attorneys throughout the General Counsel's
Office assisted the Adjudications Group in preparing opinions for the
Commission. Further, the Commission gave greater priority to
adjudicatory matters, held oral arguments on a more timely basis, and
met to consider proposed opinions more frequently.16
\16\ Also pursuant to a recommendation of the Task Force, the
Office of the General Counsel organized a conference with self-
regulatory organizations, held in June 1994, to address problems of
mutual concern. Changes in adjudicatory procedures or practices by
the self-regulatory organizations resulting from the conference may
eliminate or simplify certain issues that would otherwise be
appealed to the Commission.
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In fiscal year 1994, the number of new appeals to the Commission
declined and the number of cases resolved increased compared with the
prior year. As a result, in fiscal year 1994 the pending appellate
caseload declined for the first time in over a decade. In addition, the
number of cases pending on appeal for more than one year has declined
significantly from the level of four years ago.
Despite these strides, the Commission's past experience strongly
suggests that additional steps should be taken, especially given the
increase in proceedings assigned to the administrative law judges
17 and the likelihood that the number and complexity of new
appeals may increase again in coming years. Backlogs in the
Commission's disposition of adjudicatory proceedings have recurred
periodically over at least the past 30 years.18 The Task Force
examined prior efforts to address delay in the administrative
proceedings process, and considered why earlier ``solutions'' gave way
to new backlogs.
\17\ There were 56 cases pending before the administrative law
judges as of October 1, 1994, up from 32 cases on October 1, 1993
and 25 cases on October 1, 1992.
\18\ See Task Force Report, supra note 4, at 33 n.46.
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The Task Force considered various alternatives aimed at eliminating
systemic causes of the recurring backlog problems. In its Report, the
Task Force recommended: (1) That the Commission establish guidelines
for the timely completion of adjudicatory proceedings; (2) that the
Commission be specifically apprised of matters not completed within
designated periods, so that the Commission has a specific opportunity
to determine what, if any, steps to take to advance the fair and timely
resolution of those particular matters; and (3) that the Commission
make increased public disclosure of the status of the pending case
docket and changes in its case load.
The Statement of Informal Procedures and Supplementary Information
Concerning Adjudicatory Proceedings (``Statement of Informal
Procedures'') adopts, with modifications, these three recommendations.
Implementation of these recommendations will increase accountability
for the timely and efficient completion of adjudicatory proceedings and
consolidate on a more permanent basis the improvements in the
adjudications process made since the creation of the Task Force.
A. Guidelines for the Timely Completion of Proceedings
The Guidelines For the Timely Completion of Proceedings provide
that an administrative law judge's initial [[Page 32743]] decision
should be filed within 10 months of issuance of the order for
proceedings and that a decision by the Commission on appeal of an
initial decision, review of a self-regulatory organization
determination or remand of a prior decision by a court of appeals
should be issued within 11 months of the filing of a petition for
review or application for review or the issuance of a mandate of the
court.19
\19\ The guidelines also set 45 days for a Commission decision
on interlocutory matters, and up to 45 days to decide a motion for
stay, depending upon whether the action to be stayed has already
taken effect.
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The primary purposes of the guidelines are to provide a basis to
gauge the Commission's and administrative law judges' productivity in
issuing opinions, and to permit the allocation of appropriate
Commission, management and staff resources for the timely completion of
proceedings. Establishment of guidelines by the Commission indicates
the priority of adjudicatory matters for the Commission, as well as for
persons delegated authority or assigned responsibility for adjudicatory
matters. Among other benefits, the guidelines can lend important
authority to the deadlines set by the administrative law judges for
hearing dates and pre- and post-hearing submissions, and by the General
Counsel and the Secretary for oral argument dates and the filing of
briefs.
The Schapiro Task Force had recommended that ``normative
guidelines'' for the completion of adjudicatory proceedings be included
in the Rules of Practice themselves. The existing Rules of Practice use
this approach in some instances,20 and other federal agencies and
departments also have used similar approaches.21 The Commission
believes, however, that since the guidelines are not themselves rules,
it is preferable to publish them in a supplemental statement, and
thereby eliminate a potential source of confusion or collateral
litigation concerning their status as non-binding criteria for
monitoring the age of pending cases rather than a legal standard. This
approach is consistent with the publication in the Code of Federal
Regulation of other non-binding, informal procedures.22
\20\ See, e.g., former Rule 16(e), 17 CFR 201.16(e) (1994)
(period prescribed for filing of proposed findings and conclusions
``normally should be no more than 30 days after the close of the
hearing, and if the hearing officer directs that the first filing be
made at a date later than 30 days after the close of the hearing,
the reasons for so doing shall be stated in his order'').
\21\ See, e.g., 37 CFR 10.139(c) (ALJ in Patent and Trademark
Office, Dept. of Commerce, shall normally issue initial decisions in
disciplinary cases within six months of the date a complaint is
filed).
\22\ See, e.g., 17 CFR 202.
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The guidelines do not create a requirement that each portion of a
proceeding or the entire proceeding be completed within the periods
described. Proceedings at either the hearing stage or on review by the
Commission may require additional time because they are unusually
complex or because the record is exceptionally long or for other
reasons. In addition, fairness to all parties requires that the
Commission's deliberative process not be constrained by an inflexible
schedule. In some proceedings, deliberation may be delayed by the need
to consider more urgent matters, to permit the preparation of
dissenting opinions or for other good cause. The guidelines will be
used by the Commission as one of several criteria in monitoring and
evaluating its adjudicatory program.
As noted in the supplemental statement, the guidelines adopted
today will need to be examined periodically and may need to be
readjusted in light of changes in the Commission's case load and the
availability of Commission resources.
One alternative approach, considered by the Task Force, was to set
fixed deadlines for the issuance of initial decisions and Commission
opinions, and to provide for a remedy, such as dismissal, if cases were
not completed within the deadline. Applying this approach to
adjudicatory proceedings, including enforcement actions and review of
self-regulatory organization determinations, places too great a premium
on the benefits of achieving resolution of a proceeding, without due
consideration to the resolution reached. In light of its broad
responsibilities, the Commission should retain the flexibility to delay
the resolution of proceedings in order to address higher priority
matters, without abandoning the opportunity to adjudicate issues
properly before it, particularly those relating to whether the
protection of the public or investors requires that a securities law
violator be subject to remedial sanctions.
B. Reports to the Commission on Pending Cases
Prior reviews of the administrative process concluded that
delegation of certain functions to the staff is desirable, as it frees
the Commission from having to deal with routine matters and can
expedite Commission action.23 Unmonitored delegation, however, can
also create a source of delay. The Schapiro Task Force observed that,
once a case is assigned to an administrative law judge or to the staff,
``there is no procedure to return cases to the Commission for a status
conference if significant milestones are not reached or no opinion is
prepared within specified periods.'' 24 The Task Force recommended
that if a case does not proceed through each major phase on a timely
basis, it should automatically be returned to the Commission to
determine whether any additional steps should be taken to advance the
resolution of the case. The Task Force stated that ``[b]y establishing
this procedure, the Commission will require the staff to identify non-
routine matters, shortages in staff or other impediments that are
preventing the timely completion of delegated decisionmaking.'' 25
\23\ Task Force Report, supra note , at 32-33.
\24\ Id. at 33.
\25\ Id. at 42.
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In response to this recommendation, one commenter advocated that
the Commission should ``encourage more ALJ autonomy and thereby avoid
SEC involvement between the times when cases are authorized and
appealed.'' 26 Accordingly, this commenter suggested, unless
absolutely necessary, interim Commission review of cases assigned to an
administrative law judge should not occur, even on a case management
basis such as for status conferences. The commenter suggested, as an
alternative to status conferences, that the administrative law judges
have a periodic requirement to report any case backlog to the
Commission and the public. The Commission has modified the
recommendation of the Schapiro Task Force to address the concerns
raised by this commenter.
\26\ ABA comment letter to Commissioner Mary Schapiro on the
Report of the Task Force on Administrative Proceedings dated Nov.
10, 1993, at 8.
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Under the informal procedures adopted today, a requirement formally
to apprise the Commission of proceedings beyond a specified age is
being integrated into a case status reporting system overseen by the
Secretary. Use of written status reports as a tool to improve docket
control is a widely accepted practice. For example, federal court
judges are required to report periodically to the Office of United
States Courts on the status of certain matters pending beyond specified
periods. Face-to-face status conferences between the Commission and an
administrative law judge, or discussion of the merits of a proceeding,
will not be a part of the more formal case status reporting system.
Periodically, confidential status reports with respect to all filed
[[Page 32744]] adjudicatory proceedings shall be made to the
Commission. The Chief Administrative Law Judge shall report on
proceedings assigned to an administrative law judge. The General
Counsel shall report on proceedings assigned to the Office of the
General Counsel, as well as any other pending proceedings. These status
reports shall be made through the Secretary, with a minimum frequency
established by the Commission. In connection with these reports, the
Chief Administrative Law Judge and the General Counsel shall
specifically apprise the Commission of any proceeding that exceeds the
guidelines established for the timely completion of proceedings by more
than 30 days. The report shall describe the procedural posture of any
such proceeding, estimate a date for conclusion of the proceeding, and
provide such other information as is necessary to enable the Commission
to determine whether additional steps are necessary to reach a fair and
timely resolution of the matter.
In some cases, additional resources may be necessary to free an
administrative law judge or staff to address a matter of unusually
large size or exceptional complexity.27 In some instances,
consultation with the Commission by the General Counsel may speed the
completion of a particular case. In others, the length of the hearing,
the number or respondents, the complexity of a case or the urgency of
other matters may justify delay in reaching a decision at a delegated
level, in which case no action in response to the status report would
be needed. Coupled with the guidelines for the timely completion of
proceedings, however, the use of a comprehensive and formalized case
status reporting system will provide greater assurance that the
resolution of a proceeding that has been delayed will be treated as a
priority matter.
\27\ For example, additional administrative law judges might be
necessary on a temporary basis, see, e.g., 5 U.S.C. 3344, to allow
the judge assigned responsibility for a proceeding to complete that
proceeding without the burden of new cases, or additional law
clerks, paralegals or other staff might be needed on temporary
assignment.
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As noted by the Schapiro Task Force, an increasing number of status
reports concerning cases that are not completed within the guidelines
may provide an ``early warning signal'' that additional resources are
necessary. Had a more detailed and more formal case status reporting
requirement been in effect in the mid-1980's, the Commission might have
been in a better position to address the developing case backlog before
it gained the magnitude it had reached by 1990 when the Task Force was
created.
The Commission believes that the case status reporting requirements
announced today will fulfill the purpose of the Schapiro Task Force
recommendation discussed above by establishing a mechanism that will
automatically address cases that are not timely resolved and by
increasing accountability by and to the Commission for management of
the docket.
The Task Force recommended that the requirement to formally apprise
the Commission if a proceeding is not completed within specified
periods should be implemented through changes in the Commission's
formal delegations to the administrative law judges, the Secretary, and
the General Counsel. See 17 CFR 200.30-1 et. seq. The Commission
believes that publication of these case status reporting procedures in
the Statement of Informal Procedures will be equally effective in
implementing this recommendation.
C. Increased Public Disclosure Concerning the Pending Case Docket
The Task Force recommended publishing more information concerning
the status of the Commission's adjudicatory docket.28 Ongoing
disclosure of information about the adjudication program caseload
increases awareness of the importance of the program, facilitates
oversight of the program, and promotes public confidence in the
efficiency and fairness of the program. Under the procedures adopted
today, the Secretary will publish each October and April in the SEC
Docket summary statistical information about the status of the pending
adjudicatory docket and changes in the Commission's caseload over the
prior six months.29
\28\ See Recommendation 4, Task Force Report, supra note , at
43-44.
\29\ The report shall include the number of cases pending before
the administrative law judges and the Commission at the beginning
and end of the six-month period. The report shall also show
increases in the caseload arising from new cases being instituted,
appealed or remanded to the Commission, and decreases in the
caseload arising from the disposition of proceedings by issuance of
initial decisions, issuance of final decisions issued on appeal of
initial decisions, other dispositions of appeals of initial
decisions, final decisions on review of self-regulatory organization
determinations, other dispositions on review of self-regulatory
organization determinations, and decisions with respect to stays or
interlocutory motions. For each category of decision, the report
shall also show the median age of the cases at the time of the
decision and the number of cases decided within the guidelines for
the timely completion of adjudicatory proceedings.
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The Commission will also continue to follow the Task Force
recommendation that it adopt the practice of several federal courts of
appeals by publishing with each opinion the date the appeal or review
was commenced and the date of oral argument, if any.
The Task Force suggested publication of information about the
Commission's caseload in the Annual Report. Although a useful adjunct
to publication in the SEC Docket, publication in the Annual Report
alone is not sufficient. The Docket is more widely available (both on
commercial database services and in other places such as libraries)
than the Annual Report. In addition, publication in the Docket allows
more frequent and more timely disclosure.
IV. Rules of Practice: Table of Contents
General Rules
Rule 100. Scope of the Rules of Practice.
Rule 101. Definitions.
Rule 102. Appearance and Practice Before the Commission.
Rule 103. Construction of Rules.
Rule 104. Business Hours.
Rule 110. Presiding Officer.
Rule 111. Hearing Officer: Authority.
Rule 112. Hearing Officer: Disqualification and Withdrawal.
Rule 120. Ex Parte Communications.
Rule 121. Separation of Functions.
Rule 140. Commission Orders and Decisions: Signature and
Availability.
Rule 141. Orders and Decisions: Service of Orders Instituting
Proceeding and Other Orders and Decisions.
Rule 150. Service of Papers by Parties.
Rule 151. Filing of Papers With the Commission: Procedure.
Rule 152. Filing of Papers: Form.
Rule 153. Filing of Papers: Signature Requirement and Effect.
Rule 154. Motions.
Rule 155. Default; Motion to Set Aside Default.
Rule 160. Time Computation.
Rule 161. Extensions of Time, Postponements and Adjournments.
Rule 180. Sanctions.
Rule 190. Confidential Treatment of Information in Certain Filings.
Rule 191. Adjudications Not Required to Be Determined on the Record
After Notice and Opportunity for Hearing.
Rule 192. Rulemaking: Issuance, Amendment and Repeal of Rules of
General Application.
Rule 193. Applications by Barred Individuals for Consent to
Associate.
Initiation of Proceedings and Prehearing Rules
Rule 200. Initiation of Proceedings.
Rule 201. Consolidation of Proceedings.
Rule 202. Specification of Procedures by Parties in Certain
Proceedings.
Rule 210. Parties, Limited Participants and Amici Curiae.
Rule 220. Answer to Allegations.
Rule 221. Prehearing Conferences.
Rule 222. Prehearing Submissions. [[Page 32745]]
Rule 230. Enforcement and Disciplinary Proceedings: Availability of
Documents for Inspection and Copying
Rule 231. Enforcement and Disciplinary Proceedings: Production of
Witness Statements.
Rule 232. Subpoenas.
Rule 233. Depositions Upon Oral Examination.
Rule 234. Depositions Upon Written Questions.
Rule 235. Introducing Prior Sworn Statements of Witnesses into the
Record.
Rule 240. Settlement.
Rule 250. Motion for Summary Disposition.
Rules Regarding Hearings
Rule 300. Hearings.
Rule 301. Hearings to Be Public.
Rule 302. Record of Hearings.
Rule 310. Failure to Appear at Hearings: Default
Rule 320. Evidence: Admissibility.
Rule 321. Evidence: Objections and Offers of Proof.
Rule 322. Evidence: Confidential Information, Protective Orders.
Rule 323. Evidence: Official Notice.
Rule 324. Evidence: Stipulations.
Rule 325. Evidence: Presentation Under Oath or Affirmation.
Rule 326. Evidence: Presentation, Rebuttal and Cross-examination.
Rule 340. Proposed Findings, Conclusions and Supporting Briefs.
Rule 350. Record in Proceedings Before Hearing Officer; Retention of
Documents; Copies.
Rule 351. Transmittal of Documents to Secretary; Record Index;
Certification.
Rule 360. Initial Decision of Hearing Officer.
Appeal to the Commission and Commission Review
Rule 400. Interlocutory Review.
Rule 401. Issuance of Stays.
Rule 410. Appeal of Initial Decisions by Hearing Officers.
Rule 411. Commission Consideration of Initial Decisions by Hearing
Officers.
Rule 420. Appeal of Determinations by Self-Regulatory Organizations.
Rule 421. Commission Consideration of Determinations by Self-
Regulatory Organizations.
Rule 430. Appeal of Actions Made Pursuant to Delegated Authority.
Rule 431. Commission Consideration of Actions Made Pursuant to
Delegated Authority.
Rule 450. Briefs Filed with the Commission.
Rule 451. Oral Argument Before the Commission.
Rule 452. Additional Evidence.
Rule 460. Record Before the Commission.
Rule 470. Reconsideration.
Rule 490. Receipt of Petitions for Judicial Review Pursuant to 28
U.S.C. 2112(a)(1).
Rules Relating to Temporary Orders and Suspensions
Rule 500. Expedited Consideration of Proceedings.
Rule 510. Temporary Cease-and-Desist Orders: Application Process.
Rule 511. Temporary Cease-and-Desist Orders: Notice; Procedures for
Hearing.
Rule 512. Temporary Cease-and-Desist Orders: Issuance After Notice
and Opportunity for Hearing.
Rule 513. Temporary Cease-and-Desist Orders: Issuance Without Prior
Notice and Opportunity For Hearing.
Rule 514. Temporary Cease-and-Desist Orders: Judicial Review;
Duration.
Rule 520. Suspension of Registration of Brokers, Dealers, or other
Exchange Act-Registered Entities: Application.
Rule 521. Suspension of Registration of Brokers, Dealers, or other
Exchange Act-Registered Entities: Notice and Opportunity for Hearing
on Application.
Rule 522. Suspension of Registration of Brokers, Dealers, or other
Exchange Act-Registered Entities: Issuance and Review of Order.
Rule 523. [Reserved].
Rule 524. Suspension of Registrations: Duration.
Rule 530. Initial Decision on Permanent Order: Timing for Submitting
Proposed Findings and Preparation of Decision.
Rule 531. Initial Decision on Permanent Order: Effect on Temporary
Order.
Rule 540. Appeal and Commission Review of Initial Decision Making a
Temporary Order Permanent.
Rule 550. Summary Suspensions Pursuant to Exchange Act Section
12(k)(1)(A).
Rules Regarding Disgorgement and Penalty Payments
Rule 600. Interest on Sums Disgorged.
Rule 601. Prompt Payment of Disgorgement, Interest and Penalties.
Rule 610. Submission of Proposed Plan of Disgorgement.
Rule 611. Contents of Plan of Disgorgement; Provisions for Payment.
Rule 612. Notice of Proposed Plan of Disgorgement and Opportunity
for Comment by Non-Parties.
Rule 613. Order Approving, Modifying or Disapproving Proposed Plan
of Disgorgement.
Rule 614. Administration of Plan of Disgorgement.
Rule 620. Right to Challenge Order of Disgorgement.
Rule 630. Inability to Pay Disgorgement, Interest or Penalties.
Form
209.1. Form D-A: Disclosure of Assets and Financial Information.
General Rules
Rule 100. Scope of the Rules of Practice
(a)Unless provided otherwise, these Rules of Practice govern
proceedings before the Commission under the statutes that it
administers.
(b) These rules do not apply to:
(1) investigations, except where made specifically applicable by
the Rules Relating to Investigations, part 203 of this chapter; or
(2) actions taken by the duty officer pursuant to delegated
authority under 17 CFR 200.43.
Comment: The Rules of Practice govern a wide range of Commission
processes, including Commission-initiated enforcement and disciplinary
proceedings, proceedings to review disciplinary actions initiated by
self-regulatory organizations and certain other self-regulatory
decisions, proceedings to review Commission staff decisions made
pursuant to delegated authority, and proceedings in which an exemptive
application is contested and a hearing ordered. Certain agency
processes are specifically excluded from the scope of the Rules. First,
Commission investigations are not governed by the Rules unless a rule
explicitly provides otherwise. See, e.g., Rule 240 (concerning offers
of settlement); see also 17 CFR 203.8 (service of subpoenas in formal
investigations is governed by Rule 232). Second, these Rules do not
cover an appeal from a decision of the duty officer. Rules governing
appeals of such decisions are contained in 17 CFR 200.43(c).
Each rule indicates whether that rule applies generally to all
proceedings, or only to a particular category of proceedings, such as
ones in which an order instituting proceedings has been entered. A
majority of the Rules address procedures in those matters where the
Commission has ordered an evidentiary hearing pursuant to an order
instituting proceedings. When an order instituting proceedings has been
entered, it may specify particular procedures to be used in the
proceeding to which it applies.
The Administrative Procedure Act (``APA''), 5 U.S.C. 551 et seq.,
is the source of various provisions of the Rules. In addition, in any
particular proceeding the APA may govern the Rules or the specific
procedures that the Commission is required to employ. Which
requirements of the Administrative Procedure Act are applicable to a
particular Commission proceeding depends on the language of the statute
authorizing the proceeding. An adjudication is subject to the
requirements of 5 U.S.C. 554, 556 and 557 if the Commission is
authorized by statute to make its determination ``on the record, after
notice and opportunity for an agency hearing.'' Such adjudications are
often referred to as ``on the record'' or formal adjudications. Other
adjudications, including those where the Commission is authorized by
statute to make its determination ``after opportunity for hearing,''
are often referred to as informal adjudications. See Rules 191 and 326
and associated comments. [[Page 32746]]
Rule 101. Definitions
(a) For purposes of these Rules of Practice, unless explicitly
stated to the contrary:
(1) Commission means the United States Securities and Exchange
Commission, or a panel of Commissioners constituting a quorum of the
Commission, or a single Commissioner acting as duty officer pursuant to
17 CFR 200.43;
(2) counsel means any attorney representing a party or any other
person representing a party pursuant to Rule 102(b);
(3) disciplinary proceeding means an action pursuant to Rule
102(e);
(4) enforcement proceeding means an action, initiated by an order
instituting proceedings, held for the purpose of determining whether or
not a person is about to violate, has violated, has caused a violation
of, or has aided or abetted a violation of any statute or rule
administered by the Commission, or whether to impose a sanction as
defined in section 551(10) of the Administrative Procedure Act, 5
U.S.C. 551(10);
(5) hearing officer means an administrative law judge, a panel of
Commissioners constituting less than a quorum of the Commission, an
individual Commissioner, or any other person duly authorized to preside
at a hearing;
(6) interested division means a division or an office assigned
primary responsibility by the Commission to participate in a particular
proceeding;
(7) order instituting proceedings means an order issued by the
Commission commencing a proceeding or an order issued by the Commission
to hold a hearing;
(8) party means the interested division, any person named as a
respondent in an order instituting proceedings, any applicant named in
the caption of any order, persons entitled to notice in a stop order
proceeding as set forth in Rule 200(a)(2) or any person seeking
Commission review of a decision;
(9) proceeding means any agency process initiated by an order
instituting proceedings; or by the filing, pursuant to Rule 410, of a
petition for review of an initial decision by a hearing officer; or by
the filing, pursuant to Rule 420, of an application for review of a
self-regulatory organization determination; or by the filing, pursuant
to Rule 430, of a notice of intention to file a petition for review of
a determination made pursuant to delegated authority;
(10) Secretary means the Secretary of the Commission; and
(11) temporary sanction means a temporary cease-and-desist order or
a temporary suspension of the registration of a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, or transfer agent pending final determination
whether the registration shall be revoked.
(b) [Reserved]
Rule 102. Appearance and Practice Before the Commission
A person shall not be represented before the Commission or a
hearing officer except as stated in paragraphs (a) and (b) of this rule
or as otherwise permitted by the Commission or a hearing officer.
(a) Representing Oneself. In any proceeding, an individual may
appear on his or her own behalf.
(b) Representing Others. In any proceeding, a person may be
represented by an attorney at law admitted to practice before the
Supreme Court of the United States or the highest court of any State
(as defined in Section 3(a)(16) of the Exchange Act, 15 U.S.C.
78c(a)(16)); a member of a partnership may represent the partnership; a
bona fide officer of a corporation, trust or association may represent
the corporation, trust or association; and an officer or employee of a
state commission or of a department or political subdivision of a state
may represent the state commission or the department or political
subdivision of the state.
(c) Former Commission Employees. Former employees of the Commission
must comply with the restrictions on practice contained in the
Commission's Conduct Regulation, Subpart M, 17 CFR 200.735.
(d) Designation of Address for Service; Notice of Appearance; Power
of Attorney; Withdrawal.
(1) Representing Oneself. When an individual first makes any filing
or otherwise appears on his or her own behalf before the Commission or
a hearing officer in a proceeding as defined in Rule 101(a), he or she
shall file with the Commission, or otherwise state on the record, and
keep current, an address at which any notice or other written
communication required to be served upon him or her or furnished to him
or her may be sent and a telephone number where he or she may be
reached during business hours.
(2) Representing Others. When a person first makes any filing or
otherwise appears in a representative capacity before the Commission or
a hearing officer in a proceeding as defined in Rule 101(a), that
person shall file with the Commission, and keep current, a written
notice stating the name of the proceeding; the representative's name,
business address and telephone number; and the name and address of the
person or persons represented.
(3) Power of Attorney. Any individual appearing or practicing
before the Commission in a representative capacity may be required to
file a power of attorney with the Commission showing his or her
authority to act in such capacity.
(4) Withdrawal. Withdrawal by any individual appearing in a
representative capacity shall be permitted only by order of the
Commission or the hearing officer. A motion seeking leave to withdraw
shall state with specificity the reasons for such withdrawal.
(e) Suspension and Disbarment.
(1) Generally. The Commission may censure a person or deny,
temporarily or permanently, the privilege of appearing or practicing
before it in any way to any person who is found by the Commission after
notice and opportunity for hearing in the matter:
(i) not to possess the requisite qualifications to represent
others; or
(ii) to be lacking in character or integrity or to have engaged in
unethical or improper professional conduct; or
(iii) to have willfully violated, or willfully aided and abetted
the violation of any provision of the Federal securities laws or the
rules and regulations thereunder.
(2) Certain Professionals and Convicted Persons. Any attorney who
has been suspended or disbarred by a court of the United States or of
any State; or any person whose license to practice as an accountant,
engineer, or other professional or expert has been revoked or suspended
in any State; or any person who has been convicted of a felony or a
misdemeanor involving moral turpitude shall be forthwith suspended from
appearing or practicing before the Commission. A disbarment,
suspension, revocation or conviction within the meaning of this rule
shall be deemed to have occurred when the disbarring, suspending,
revoking or convicting agency or tribunal enters its judgment or order,
including a judgment or order on a plea of nolo contendere, regardless
of whether an appeal of such judgment or order is pending or could be
taken.
(3) Temporary Suspensions. An order of temporary suspension shall
become effective upon service on the respondent. No order of temporary
suspension shall be entered by the Commission pursuant to paragraph
(e)(3)(i) of this rule more than 90 days after the date on which the
final judgment or order entered in a judicial [[Page 32747]] or
administrative proceeding described in paragraph (e)(3)(i)(A) or
(e)(3)(i)(B) has become effective, whether upon completion of review or
appeal procedures or because further review or appeal procedures are no
longer available.
(i) The Commission, with due regard to the public interest and
without preliminary hearing, may, by order, temporarily suspend from
appearing or practicing before it any attorney, accountant, engineer,
or other professional or expert who has been by name:
(A) permanently enjoined by any court of competent jurisdiction, by
reason of his or her misconduct in an action brought by the Commission,
from violating or aiding and abetting the violation of any provision of
the Federal securities laws or of the rules and regulations thereunder;
or
(B) found by any court of competent jurisdiction in an action
brought by the Commission to which he or she is a party or found by the
Commission in any administrative proceeding to which he or she is a
party to have violated (unless the violation was found not to have been
willful) or aided and abetted the violation of any provision of the
Federal securities laws or of the rules and regulations thereunder.
(ii) Any person temporarily suspended from appearing and practicing
before the Commission in accordance with paragraph (e)(3)(i) of this
rule may, within 30 days after service upon him or her of the order of
temporary suspension, petition the Commission to lift the temporary
suspension. If no petition has been received by the Commission within
30 days after service of the order, the suspension shall become
permanent.
(iii) Within 30 days after the filing of a petition in accordance
with paragraph (e)(3)(ii) of this rule, the Commission shall either
lift the temporary suspension, or set the matter down for hearing at a
time and place designated by the Commission, or both, and, after
opportunity for hearing, may censure the petitioner or disqualify the
petitioner from appearing or practicing before the Commission for a
period of time or permanently. In every case in which the temporary
suspension has not been lifted, every hearing held and other action
taken pursuant to this paragraph (e)(3) shall be expedited in
accordance with Rule 500. If the hearing is held before a hearing
officer, the time limits set forth in Rule 531 will govern review of
the hearing officer's initial decision.
(iv) In any hearing held on a petition filed in accordance with
paragraph (e)(3)(ii) of this rule, the staff of the Commission shall
show either that the petitioner has been enjoined as described in
paragraph (e)(3)(i)(A) of this rule or that the petitioner has been
found to have committed or aided and abetted violations as described in
paragraph (e)(3)(i)(B) of this rule and that showing, without more, may
be the basis for censure or disqualification. Once that showing has
been made, the burden shall be upon the petitioner to show cause why he
or she should not be censured or temporarily or permanently
disqualified from appearing and practicing before the Commission. In
any such hearing, the petitioner may not contest any finding made
against him or her or fact admitted by him or her in the judicial or
administrative proceeding upon which the proceeding under this
paragraph (e)(3) is predicated. A person who has consented to the entry
of a permanent injunction as described in paragraph (e)(3)(i)(A) of
this rule without admitting the facts set forth in the complaint shall
be presumed for all purposes under this paragraph (e)(3) to have been
enjoined by reason of the misconduct alleged in the complaint.
(4) Filing of Prior Orders. Any person appearing or practicing
before the Commission who has been the subject of an order, judgment,
decree, or finding as set forth in paragraph (e)(3) of this rule shall
promptly file with the Secretary a copy thereof (together with any
related opinion or statement of the agency or tribunal involved).
Failure to file any such paper, order, judgment, decree or finding
shall not impair the operation of any other provision of this rule.
(5) Reinstatement. (i) An application for reinstatement of a person
permanently suspended or disqualified under paragraph (e)(1) or (e)(3)
of this rule may be made at any time, and the applicant may, in the
Commission's discretion, be afforded a hearing; however, the suspension
or disqualification shall continue unless and until the applicant has
been reinstated by the Commission for good cause shown.
(ii) Any person suspended under paragraph (e)(2) of this rule shall
be reinstated by the Commission, upon appropriate application, if all
the grounds for application of the provisions of that paragraph are
subsequently removed by a reversal of the conviction or termination of
the suspension, disbarment, or revocation. An application for
reinstatement on any other grounds by any person suspended under
paragraph (e)(2) of this rule may be filed at any time and the
applicant shall be accorded an opportunity for a hearing in the matter;
however, such suspension shall continue unless and until the applicant
has been reinstated by order of the Commission for good cause shown.
(6) Other Proceedings Not Precluded. A proceeding brought under
paragraph (e)(1), (e)(2) or (e)(3) of this rule shall not preclude
another proceeding brought under these same paragraphs.
(7) Public Hearings. All hearings held under this paragraph (e)
shall be public unless otherwise ordered by the Commission on its own
motion or after considering the motion of a party.
(f) Practice Defined. For the purposes of these Rules of Practice,
practicing before the Commission shall include, but shall not be
limited to:
(1) transacting any business with the Commission; and
(2) the preparation of any statement, opinion or other paper by any
attorney, accountant, engineer or other professional or expert, filed
with the Commission in any registration statement, notification,
application, report or other document with the consent of such
attorney, accountant, engineer or other professional or expert.
Revision Comment: Rule 102, which governs appearance and practice
before the Commission, contains two changes from former Rule 2. First,
as suggested by one commenter, the rule now explicitly requires that
individuals and other persons filing a notice of appearance keep the
information contained in the notice, such as address and telephone
number, up-to-date. Current information is necessary to permit the
expeditious service of orders as well as other efforts to contact a
party.
The same commenter suggested that the Commission consider adopting
a provision that would require an attorney to file a written notice of
withdrawal when the attorney seeks to withdraw from a matter before the
Commission. New paragraph (d)(4) accomplishes this by requiring that, a
person appearing in a representative capacity who wishes to withdraw
from a proceeding, must file a motion seeking leave to withdraw and
obtain such leave from the Commission or the hearing officer.
In addition, language has been added to paragraph (d) (1) and (2)
to clarify the longstanding policy of the Commission that a person who
makes a filing with the Commission thereby makes an appearance before
the Commission.
Rule 103. Construction of Rules
(a) The Rules of Practice shall be construed and administered to
secure the just, speedy, and inexpensive determination of every
proceeding. [[Page 32748]]
(b) In any particular proceeding, to the extent that there is a
conflict between these rules and a procedural requirement contained in
any statute, or any rule or form adopted thereunder, the latter shall
control.
(c) For purposes of these rules:
(1) any term in the singular includes the plural, and any term in
the plural includes the singular, if such use would be appropriate;
(2) any use of a masculine, feminine, or neuter gender encompasses
such other genders as would be appropriate; and
(3) unless the context requires otherwise, counsel for a party may
take any action required or permitted to be taken by such party.
Comment (a): Paragraph (a) is based on Rule 1 of the Federal Rules
of Civil Procedure. See Fed. R. Civ. P. 1.
Rule 104. Business Hours
The Headquarters office of the Commission, at 450 Fifth Street,
NW., Washington, DC 20549, is open each day, except Saturdays, Sundays,
and Federal legal holidays, from 9 a.m. to 5:30 p.m., Eastern Standard
Time or Eastern Daylight Saving Time, whichever is currently in effect
in Washington, DC Federal legal holidays consist of New Year's Day;
Birthday of Martin Luther King, Jr.; Presidents Day; Memorial Day;
Independence Day; Labor Day; Columbus Day; Veterans Day; Thanksgiving
Day; Christmas Day; and any other day appointed as a holiday in
Washington, D.C. by the President or the Congress of the United States.
Rule 110. Presiding Officer
All proceedings shall be presided over by the Commission or, if the
Commission so orders, by a hearing officer. When the Commission
designates that the hearing officer shall be an administrative law
judge, the Chief Administrative Law Judge shall select, pursuant to 17
CFR 200.30-10, the administrative law judge to preside.
Comment: Ordinarily the assignment to a hearing officer is part of
the order instituting proceedings. The Rules use the term ``hearing
officer,'' defined in Rule 101(a), to refer to a person who presides at
a hearing. While an administrative law judge presides at most hearings
at which the Commission itself does not preside, other persons may
preside. See Securities Exchange Act Sec. 4A, 15 U.S.C. 78d-1;
Administrative Procedure Act Sec. 556(b), 5 U.S.C. 556(b).
Revision Comment: Rule 110 has been revised to specify the process
by which administrative law judges are assigned by referencing the
authority the Commission has previously delegated to the Chief
Administrative Law Judge to assign matters to any of the administrative
law judges.
Rule 111. Hearing Officer: Authority
The hearing officer shall have the authority to do all things
necessary and appropriate to discharge his or her duties. No provision
of these Rules of Practice shall be construed to limit the powers of
the hearing officer provided by the Administrative Procedure Act, 5
U.S.C. 556, 557. The powers of the hearing officer include, but are not
limited to, the following:
(a) administering oaths and affirmations;
(b) issuing subpoenas authorized by law and revoking, quashing, or
modifying any such subpoena;
(c) receiving relevant evidence and ruling upon the admission of
evidence and offers of proof;
(d) regulating the course of a proceeding and the conduct of the
parties and their counsel;
(e) holding prehearing and other conferences as set forth in Rule
221 and requiring the attendance at any such conference of at least one
representative of each party who has authority to negotiate concerning
the resolution of issues in controversy;
(f) recusing himself or herself upon motion made by a party or upon
his or her own motion;
(g) ordering, in his or her discretion, in a proceeding involving
more than one respondent, that the interested division indicate, on the
record, at least one day prior to the presentation of any evidence,
each respondent against whom that evidence will be offered;
(h) subject to any limitations set forth elsewhere in these rules,
considering and ruling upon all procedural and other motions;
(i) preparing an initial decision as provided in Rule 360;
(j) upon notice to all parties, reopening any hearing prior to the
filing of an initial decision therein, or, if no initial decision is to
be filed, prior to the time fixed for the filing of final briefs with
the Commission; and
(k) informing the parties as to the availability of one or more
alternative means of dispute resolution, and encouraging the use of
such methods.
Comment: This rule is based upon Section 556(c) of the
Administrative Procedure Act, 5 U.S.C. 556(c). By its terms, the list
of powers is illustrative, not exhaustive. The hearing officer is
permitted to take any action necessary and appropriate to discharge his
or her duties.
Revision Comment: One commenter suggested that the Commission
include in Rule 111 two powers recently added to Section 556(c) of the
Administrative Procedure Act by the Administrative Dispute Resolution
Act: the power to require attendance at a prehearing conference by a
representative of each party who has the authority to negotiate
concerning the resolution of issues in controversy and the power to
inform parties as to the availability of alternate means of dispute
resolution (ADR) and to encourage the use of such methods.
The Commission has decided to modify this rule to address these
concerns.
Rule 112. Hearing Officer: Disqualification and Withdrawal
(a) Notice of Disqualification. At any time a hearing officer
believes himself or herself to be disqualified from considering a
matter, the hearing officer shall issue a notice stating that he or she
is withdrawing from the matter and setting forth the reasons therefor.
(b) Motion for Withdrawal. Any party who has a reasonable, good
faith basis to believe that a hearing officer has a personal bias, or
is otherwise disqualified from hearing a case, may make a motion to the
hearing officer that the hearing officer withdraw. The motion shall be
accompanied by an affidavit setting forth in detail the facts alleged
to constitute grounds for disqualification. If the hearing officer
finds himself or herself not disqualified, he or she shall so rule and
shall continue to preside over the proceeding.
Comment: Section 556(b) of the Administrative Procedure Act, 5
U.S.C. 556(b), provides that a hearing officer may disqualify himself
or herself at any time. The standard for making a motion to disqualify
requires that the movant have a reasonable good-faith basis. This
standard is intended to emphasize that there must be objective reasons
to seek a disqualification, not just a subjective, though sincerely
held, belief. A party seeking disqualification must do so promptly upon
learning of the relevant information. A party may not await the outcome
of the hearing officer's decision to determine if the alleged grounds
for disqualification affected the decision.
Rule 120. Ex Parte Communications
(a) Except to the extent required for the disposition of ex parte
matters as authorized by law, the person presiding over an evidentiary
hearing may not:
(1) consult a person or party on a fact in issue, unless on notice
and opportunity for all parties to participate; or [[Page 32749]]
(2) be responsible to or subject to the supervision or direction of
an employee or agent engaged in the performance of investigative or
prosecuting functions for the Commission.
(b) The Commission's code of behavior regarding ex parte
communications between persons outside the Commission and decisional
employees, 17 CFR 200.110-200.114, governs other prohibited
communications during a proceeding conducted under the Rules of
Practice.
Comment: Paragraph (a) is based on Section 554(d)(1) of the
Administrative Procedure Act (APA), 5 U.S.C. 554(d)(1). Paragraph (b)
references the Commission's rules applying to communications between
Commission members or decisional employees and persons outside the
agency, which incorporate the requirements of Section 557(d)(1) of the
APA, 5 U.S.C. 557(d)(1). See also 17 CFR 200.62 (ethical canon for
Commission members regarding ex parte communications); Securities Act
Release No. 5815 (Mar. 10, 1977), 11 SEC Docket 1933 (Mar. 22, 1977)
(amending Commission's code of behavior governing ex parte
communications between persons outside the Commission and decisional
employees to conform to requirements of Section 4 of the Government in
the Sunshine Act, 5 U.S.C. Sec. 552b).
Revision Comment: Although the Commission's administrative
proceedings were previously subject to the requirements of the
Administrative Procedure Act governing ex parte communications, 5
U.S.C. 554(d)(1) and 557(d)(1), the prior rules did not mention them.
Rule 120 makes no substantive changes to these requirements--it simply
restates the APA's directive with regard to ex parte contacts. The Rule
was added so that these requirements were more readily available to
persons subject to proceedings under the Rules of Practice. See, Model
Adjudication Rule 120(A), Administrative Conference of the United
States (Dec. 1993).
Rule 121. Separation of Functions
Any Commission officer, employee or agent engaged in the
performance of investigative or prosecutorial functions for the
Commission in a proceeding as defined in Rule 101(a) may not, in that
proceeding or one that is factually related, participate or advise in
the decision, or in Commission review of the decision pursuant to
Section 557 of the Administrative Procedure Act, 5 U.S.C. 557, except
as a witness or counsel in the proceeding.
Comment: Rule 121 is based on Section 554(d) of the Administrative
Procedure Act (APA), 5 U.S.C. 554(d), which governs the separation of
personnel involved in prosecutorial and investigative functions in
certain cases from decisionmaking in those cases.
Revision Comment: Although the Commission's administrative
proceedings were previously subject to the requirements of Section
554(d) of the APA governing separation of functions, 5 U.S.C. 554(d),
the prior rules did not mention them. Rule 121 makes no substantive
changes to these requirements--it simply restates the APA's position on
separation of functions. The Rule was added so that these requirements
were more readily available to persons subject to proceedings under the
Rules of Practice. See Model Adjudication Rule 121, Administrative
Conference of the United States (Dec. 1993).
Rule 140. Commission Orders and Decisions: Signature and Availability
(a) Signature Required. All orders and decisions of the Commission
shall be signed by the Secretary or any other person duly authorized by
the Commission.
(b) Availability for Inspection. Each order and decision shall be
available for inspection by the public from the date of entry, unless
the order or decision is nonpublic. A nonpublic order or decision shall
be available for inspection by any person entitled to inspect it from
the date of entry.
(c) Date of Entry of Orders. The date of entry of a Commission
order shall be the date the order is signed. Such date shall be
reflected in the caption of the order, or if there is no caption, in
the order itself.
Revision Comment (b): Changes to the text of the Commission's rule
regarding availability of orders are technical. The Office of the
Secretary has for many years maintained a practice of holding
Commission orders for five days before release to the public. Under
Rule 140(b), unless an order or decision is nonpublic, it will be
available to the public from the date of entry.
Revision comment (c): This paragraph has been simplified. No
substantive change is intended.
Rule 141. Orders and Decisions: Service of Orders Instituting
Proceeding and Other Orders and Decisions
(a) Service of an Order Instituting Proceedings.
(1) By Whom Made. The Secretary, or another duly authorized officer
of the Commission, shall serve a copy of an order instituting
proceedings on each person named in the order as a party. The Secretary
may direct an interested division to assist in making service.
(2) How made.
(i) To Individuals. Notice of a proceeding shall be made to an
individual by delivering a copy of the order instituting proceedings to
the individual or to an agent authorized by appointment or by law to
receive such notice. Delivery means--handing a copy of the order to the
individual; or leaving a copy at the individual's office with a clerk
or other person in charge thereof; or leaving a copy at the
individual's dwelling house or usual place of abode with some person of
suitable age and discretion then residing therein; or sending a copy of
the order addressed to the individual by U.S. Postal Service certified,
registered or Express Mail and obtaining a confirmation of receipt; or
giving confirmed telegraphic notice.
(ii) To Corporations or Entities. Notice of a proceeding shall be
made to a person other than a natural person by delivering a copy of
the order instituting proceedings to an officer, managing or general
agent, or any other agent authorized by appointment or by law to
receive such notice, by any method specified in paragraph (a)(2)(i) of
this rule.
(iii) Upon Persons Registered with the Commission. In addition to
any other method of service specified in paragraph (a)(2) of this rule,
notice may be made to a person currently registered with the Commission
as a broker, dealer, municipal securities dealer, government securities
broker, government securities dealer, investment adviser, investment
company or transfer agent by sending a copy of the order addressed to
the most recent business address shown on the person's registration
form by U.S. Postal Service certified, registered or Express Mail and
obtaining a confirmation of attempted delivery.
(iv) Upon Persons in a Foreign Country. Notice of a proceeding to a
person in a foreign country may be made by any method specified in
paragraph (a)(2) of this rule, or by any other method reasonably
calculated to give notice, provided that the method of service used is
not prohibited by the law of the foreign country.
(v) In Stop Order Proceedings. Notwithstanding any other provision
of paragraph (a)(2) of this rule, in proceedings pursuant to Sections 8
or 10 of the Securities Act of 1933, 15 U.S.C. 77h or 77j, or Sections
305 or 307 of the Trust Indenture Act of 1939, 15 U.S.C. 77eee or
77ggg, notice of the institution of proceedings shall be made by
personal service or confirmed [[Page 32750]] telegraphic notice, or a
waiver obtain pursuant to paragraph (a)(4) of this rule.
(3) Certificate of Service. The Secretary shall place in the record
of the proceeding a certificate of service identifying the party given
notice, the method of service, the date of service, the address to
which service was made and the person who made service. If service is
made in person, the certificate shall state, if available, the name of
the individual to whom the order was given. If service is made by U.S.
Postal Service certified, registered or Express Mail, the certificate
shall be accompanied by a confirmation of receipt or of attempted
delivery, as required. If service is made to an agent authorized by
appointment to receive service, the certificate shall be accompanied by
evidence of the appointment.
(4) Waiver of Service. In lieu of service as set forth in paragraph
(a)(2) of this rule, the party may be provided a copy of the order
instituting proceedings by first-class mail or other reliable means if
a waiver of service is obtained from the party and placed in the
record.
(b) Service of Orders or Decisions Other Than an Order Instituting
Proceedings. Written orders or decisions issued by the Commission or by
a hearing officer shall be served promptly on each party pursuant to
any method of service authorized under paragraph (a) of this rule or
Rule 150(c). Service of orders or decisions by the Commission,
including those entered pursuant to delegated authority, shall be made
by the Secretary or, as authorized by the Secretary, by a member of an
interested division. Service of orders or decisions issued by a hearing
officer shall be made by the Secretary or the hearing officer.
Comment (a): The Rule is derived, in part, from Rules 4 and 5(b) of
the Federal Rules of Civil Procedure. The Rule is also based, in part,
on Section 40(a) of the Investment Company Act, 15 U.S.C. 80a-39(a),
and Section 211(c) of the Investment Advisers Act, 15 U.S.C. 80b-11(c),
which set forth acceptable methods for service of orders instituting
proceedings under those Acts, and on Sections 8 and 10 of the
Securities Act of 1933, 15 U.S.C. 77h and 77j, and Sections 305 and 307
of the Trust Indenture Act of 1939, 15 U.S.C. 77eee and 77ggg, which
set forth acceptable methods of service for orders instituting stop
order proceedings pursuant to those statutory sections.
The Commission commences proceedings to enforce the Federal
securities laws by issuing an ``order instituting proceedings.'' The
Commission is required to give each party appropriate notice of an
order instituting proceedings. See Rule 200 (setting forth requirements
in connection with the issuance of such orders). While service of the
order instituting proceedings satisfies notice requirements, it is not
the exclusive means of providing notice sufficient to meet the
requirements of due process. In some circumstances--for example, where
emergency or expedited relief is sought--actual notice of the
institution of a proceeding may be made by telephone. See, e.g., Rule
511. Although formal service of the order is still required in such
circumstances, action on an application for emergency or expedited
relief may precede service of the order.
Rule 141(a)(2) allows service by those means specifically mentioned
by statute. Rule 141 also allows service to be made by U.S. Postal
Service Express Mail which, like certified or registered mail, both
traditionally relied upon under the former rule, is a U.S. Post Office
service that provides each letter a unique identification number, is
traceable, and allows for a receipt upon delivery. Under Rule 141,
alternative methods of service to persons located in the United States,
such as service by publication, are not permitted. A party may,
however, waive service and receive notice by accepting a copy of an
order instituting proceedings by facsimile transmission, U.S. Mail,
private overnight courier, or other means. Whatever method of service
is used, Rule 141 requires a certificate of service establishing how
notice was given, or a written waiver of service.
The Rule establishes specific criteria for service of orders upon
persons registered with the Commission and upon persons in a foreign
country. A person who is currently registered with the Commission to
engage in the securities business with the public may reasonably be
expected to receive mail sent to the address shown on their
registration form or to make appropriate arrangements for such mail to
be forwarded or delivered. Rule 141 provides that a person currently
registered with the Commission as a broker, dealer, municipal
securities dealer, government securities broker, government securities
dealer, investment adviser, investment company or transfer agent may be
served by sending a copy of the order to the last business address
shown on their registration form by U.S. Postal Service certified,
registered or Express Mail and that confirmation of attempted delivery
to that address is sufficient for valid service if no confirmation of
receipt can be obtained.
A person in a foreign country may be served by any method of
service, reasonably calculated to give notice, that is not prohibited
by the law of the foreign country.
Comment (b): Service of an order instituting proceedings places a
party on notice that there will be subsequent filings or other papers.
Unless a party defaults, a party's response to receipt of an order
instituting proceedings must include the filing of a notice of
appearance. Cf. Rule 155 (governing defaults). The notice will provide
an address of record where the party can be served with subsequent
orders. Therefore, a return receipt or other confirmation of delivery
is not required for subsequent orders.
Subject to statutory limitations governing particular types of
orders, orders other than an order instituting proceedings may be
served pursuant to any method provided for in Rule 141(a) or in Rule
150(c), which governs service of papers filed by parties. The
Commission may serve an order on a party, as well as on the party's
counsel. It is the Commission's practice to send orders instituting
proceedings and final orders to each party in addition to serving
counsel, if any. Cf. Rule 150(b) (if a party is represented by counsel,
counsel shall be served with papers filed by other parties with the
Commission).
Revision Comment (a): The Rule has been revised to permit a waiver
of formal service and thereby allow the use of methods of service, such
as private courier service or facsimile transmission, in circumstances
where such methods might otherwise be inconsistent with statutory
requirements.
The Rule has been revised to include a provision specifically
addressing service by the Commission on a person in a foreign country.
The Hague Convention on the Service Abroad of Judicial and
Extrajudicial Documents does not apply to the service of Commission
orders.
The rule has also been revised to include a specific provision for
service on persons registered with the Commission as a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, investment adviser, investment company or transfer
agent.
Rule 150. Service of Papers by Parties
(a) When Required. In every proceeding as defined in Rule 101(a),
each paper, including each notice of appearance, written motion, brief,
or other written communication, shall be served upon each party in the
[[Page 32751]] proceeding in accordance with the provisions of this
rule; provided, however, that absent an order to the contrary, no
service shall be required for motions which may be heard ex parte.
(b) Upon a Person Represented by Counsel. Whenever service is
required to be made upon a person represented by counsel who has filed
a notice of appearance pursuant to Rule 102, service shall be made
pursuant to paragraph (c) of this rule upon counsel, unless service
upon the person represented is ordered by the Commission or the hearing
officer.
(c) How Made. Service shall be made by delivering a copy of the
filing. Delivery means:
(1) personal service--handing a copy to the person required to be
served; or leaving a copy at the person's office with a clerk or other
person in charge thereof; or leaving a copy at the person's dwelling
house or usual place of abode with some person of suitable age and
discretion then residing therein;
(2) mailing the papers through the U.S. Postal Service by first
class, certified, registered, or Express Mail delivery addressed to the
person;
(3) sending the papers through a commercial courier service or
express delivery service addressed to the person; or
(4) transmitting the papers by facsimile machine where the
following conditions are met:
(i) the persons serving each other by facsimile transmission have
agreed to do so in a writing, signed by each party, which specifies
such terms as they deem necessary with respect to facsimile machine
telephone numbers to be used, hours of facsimile machine operation, the
provision of non-facsimile original or copy, and any other such
matters; and
(ii) receipt of each document served by facsimile is confirmed by a
manually signed receipt delivered by facsimile machine or other means
agreed to by the parties.
(d) When Service Is Complete. Personal service, service by U.S.
Postal Service Express Mail or service by a commercial courier or
express delivery service is complete upon delivery. Service by mail is
complete upon mailing. Service by facsimile is complete upon
confirmation of transmission by delivery of a manually signed receipt.
Comment (a): Each document a party files in connection with a
proceeding, as defined in Rule 101(a), must be served on all other
parties admitted to the proceeding. In general, the party serving a
paper should use the same method of service on all other parties and
for filing with the Commission. Where a party uses different methods of
service, the reason for doing so must be stated. Where a party is
represented by counsel who has filed a notice of appearance, service
ordinarily shall be made on counsel.
Revision Comment: The rule now contains a provision, paragraph
(c)(4), allowing the use of facsimile transmission (``fax'') for the
delivery of papers. The Commission received a large number of comments
on this subject. Commenters had a number of suggestions for how to
implement service by fax, including: that service should not be deemed
complete unless a manually signed receipt acknowledges that the
transmission was readable and was received in full within the time
permitted for filing; that the hearing officer be given discretion to
determine whether, and under what circumstances, fax service should be
allowed; that an initial agreement to allow service by fax should
include an undertaking to serve documents leaving sufficient time
before the filing deadline and to notify the sender promptly of any fax
transmission errors; that simultaneous service of an original copy
should also be made through other means; and that a written agreement
of terms should be required when the parties agree to the use of fax
service. Commenters disagreed whether the Commission should limit the
use of facsimile transmission to cases in which all parties agree on
the terms for service.
In federal court, filing by fax is permitted where authorized by
local rule subject to standards approved by the Judicial Conference.
See Fed. R. Civ. P. 5(e); Fed. R. App. P. 25(a). The Commission has
decided to allow service by facsimile transmission where two conditions
have been met. First, persons serving each other by fax must agree to
do so in writing. The written agreement shall contain such terms as are
necessary with respect to telephone numbers, hours of operation, and
provision of paper original and any other matters. Second, receipt of a
document served by fax must be confirmed by a manually signed receipt.
These conditions are intended to ensure that service by fax will be
both an efficient and an effective means of service.
One commenter objected to the provision in the proposed rule that
would have allowed service directly upon a party where the party was
represented by counsel. In response, Rule 150(b) has been amended to
clarify that service upon counsel by another party is required unless
service upon the person represented is specifically ordered by the
Commission or the hearing officer.
Rule 151. Filing of Papers With the Commission: Procedure
(a) When to File. All papers required to be served by a party upon
any person shall be filed with the Commission at the time of service or
promptly thereafter. Papers required to be filed with the Commission
must be received within the time limit, if any, for such filing.
(b) Where to File. Filing of papers with the Commission shall be
made by filing them with the Secretary. When a proceeding is assigned
to a hearing officer, a person making a filing with the Secretary shall
promptly provide to the hearing officer a copy of any such filing;
provided, however, that the hearing officer may direct or permit
filings to be made with him or her, in which event the hearing officer
shall note thereon the filing date and promptly provide the Secretary
with either the original or a copy of any such filings.
(c) To Whom to Direct the Filing. Unless otherwise provided, where
the Commission has assigned a case to a hearing officer, all motions,
objections, applications or other filings made during a proceeding
prior to the filing of an initial decision therein, or, if no initial
decision is to be filed, prior to the time fixed for the filing of
briefs with the Commission, shall be directed to and decided by the
hearing officer.
(d) Certificate of Service. Papers filed with the Commission or a
hearing officer shall be accompanied by a certificate stating the name
of the person or persons served, the date of service, the method of
service and the mailing address or facsimile telephone number to which
service was made, if not made in person. If the method of service to
any party is different from the method of service to any other party or
the method for filing with the Commission, the certificate shall state
why a different means of service was used.
Comment: Since hearing officers frequently preside at locations
away from the Commission's Headquarters in Washington, D.C., persons
are permitted to make filings with the hearing officer, who then can
forward the filings to the Secretary. Rule 351 contains additional
procedures for the transmittal of the record of a proceeding before a
hearing officer (and the index of the record) from the hearing officer
to the Secretary.
Rule 151 requires that where the Commission has assigned a hearing
officer to preside at a proceeding, the person making a motion direct
his or her requests and arguments to the hearing officer, not the
Commission. If [[Page 32752]] a motion is directed to the Commission in
a case in which a hearing officer is assigned, the Secretary must refer
the motion to the hearing officer unless a motion directly to the
Commission is authorized. In those unusual circumstances where a motion
is properly directed to the Commission, the proceeding before the
hearing officer should continue, unless otherwise ordered.
Revision Comment (d): The requirements for the certificate of
service have been modified to require that the certificate list the
name of the person served and the method of service used if other than
personal service is made. Additionally, if the method of service to any
party is different from the method of service to any other party or the
method for filing with the Commission, the certificate must state why a
different method was used.
Rule 152. Filing of Papers: Form
(a) Specifications. Papers filed in connection with any proceeding
as defined in Rule 101(a) shall:
(1) be on one grade of unglazed white paper measuring 8\1/2\ x 11
inches, except that, to the extent that the reduction of larger
documents would render them illegible, such documents may be filed on
larger paper;
(2) be typewritten or printed in either 10- or 12-point typeface or
otherwise reproduced by a process that produces permanent and plainly
legible copies;
(3) include at the head of the paper, or on a title page, the name
of the Commission, the title of the proceeding, the names of the
parties, the subject of the particular paper or pleading, and the file
number assigned to the proceeding;
(4) be paginated with left hand margins at least 1 inch wide, and
other margins of at least 1 inch;
(5) be double-spaced, with single-spaced footnotes and single-
spaced indented quotations; and
(6) be stapled, clipped or otherwise fastened in the upper left
corner.
(b) Signature Required. All papers must be dated and signed as
provided in Rule 153.
(c) Suitability for Recordkeeping. Documents which, in the opinion
of the Commission, are not suitable for computer scanning or
microfilming may be rejected.
(d) Number of Copies. An original and three copies of all papers
shall be filed.
(e) Form of Briefs. All briefs containing more than 10 pages shall
include a table of contents, an alphabetized table of cases, a table of
statutes, and a table of other authorities cited, with references to
the pages of the brief wherein they are cited.
(f) Scandalous or Impertinent Matter. Any scandalous or impertinent
matter contained in any brief or pleading or in connection with any
oral presentation in a proceeding may be stricken on order of the
Commission or the hearing officer.
Rule 153. Filing of Papers: Signature Requirement and Effect
(a) General Requirements. Following the issuance of an order
instituting proceedings, every filing of a party represented by counsel
shall be signed by at least one counsel of record in his or her name
and shall state that counsel's business address and telephone number. A
party who acts as his or her own counsel shall sign his or her
individual name and state his or her address and telephone number on
every filing.
(b) Effect of Signature.
(1) The signature of a counsel or party shall constitute a
certification that:
(i) the person signing the filing has read the filing;
(ii) to the best of his or her knowledge, information, and belief,
formed after reasonable inquiry, the filing is well grounded in fact
and is warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law; and
(iii) the filing is not made for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the cost
of adjudication.
(2) If a filing is not signed, the hearing officer or the
Commission shall strike the filing, unless it is signed promptly after
the omission is called to the attention of the person making the
filing.
Comment: Rule 153(b) is based upon Rule 11 of the Federal Rules of
Civil Procedure. Persons signing a filing bear personal responsibility
for the contents of the filing. If a filing is contrary to the
provisions of this rule, the person or persons signing the filing may
be subject to sanctions under Rule 180.
Rule 154. Motions
(a) Generally. Unless made during a hearing or conference, a motion
shall be in writing, shall state with particularity the grounds
therefor, shall set forth the relief or order sought, and shall be
accompanied by a written brief of the points and authorities relied
upon. All written motions shall be served in accordance with Rule 150,
be filed in accordance with Rule 151, meet the requirements of Rule
152, and be signed in accordance with Rule 153. The Commission or the
hearing officer may order that an oral motion be submitted in writing.
Unless otherwise ordered by the Commission or the hearing officer, if a
motion is properly made to the Commission concerning a proceeding to
which a hearing officer is assigned, the proceeding before the hearing
officer shall continue pending the determination of the motion by the
Commission. No oral argument shall be heard on any motion unless the
Commission or the hearing officer otherwise directs.
(b) Opposing and Reply Briefs. Except as provided in Rule 401,
briefs in opposition to a motion shall be filed within five days after
service of the motion. Reply briefs shall be filed within three days
after service of the opposition.
(c) Length Limitation. A brief in support of or opposition to a
motion shall not exceed 10 pages, exclusive of pages containing any
table of contents, table of authorities, and/or addendum. Requests for
leave to file briefs in excess of 10 pages are disfavored.
Rule 155. Default; Motion to Set Aside Default
(a) A party to a proceeding may be deemed to be in default and the
Commission or the hearing officer may determine the proceeding against
that party upon consideration of the record, including the order
instituting proceedings, the allegations of which may be deemed to be
true, if that party fails:
(1) to appear, in person or through a representative, at a hearing
or conference of which that party has been notified;
(2) to answer, to respond to a dispositive motion within the time
provided, or otherwise to defend the proceeding; or
(3) to cure a deficient filing within the time specified by the
Commission or the hearing officer pursuant to Rule 180(b).
(b) A motion to set aside a default shall be made within a
reasonable time, state the reasons for the failure to appear or defend,
and specify the nature of the proposed defense in the proceeding. In
order to prevent injustice and on such conditions as may be
appropriate, the hearing officer, at any time prior to the filing of
the initial decision, or the Commission, at any time, may for good
cause shown set aside a default.
Comment: Pursuant to Rule 155 the Commission or the hearing officer
may enter a default against any party who fails to appear in person or,
if appropriate, through a representative, at a hearing or conference of
which the party has notice. Thus, for example, failure to appear at a
prehearing conference may be a grounds for default. [[Page 32753]] In
addition, for example, this rule permits the entry of default against
any party who fails to answer, to respond to a dispositive motion, or
otherwise to defend the proceeding, or to file a required brief either
before the hearing officer or on appeal before the Commission. This
provision retains the existing standards for setting aside a default
contained in former Rule of Practice 12(d), 17 CFR 201.12(d) (1994).
Revision Comment: Failure to file a notice of appearance has been
eliminated as a basis for a default. Failure to file a notice of
appearance, like the failure to make any other required filing, is
subject to sanctions under Rule 180(c).
Rule 160. Time Computation
(a) Computation. In computing any period of time prescribed in or
allowed by these Rules of Practice or by order of the Commission, the
day of the act, event, or default from which the designated period of
time begins to run shall not be included. The last day of the period so
computed shall be included unless it is a Saturday, Sunday, or Federal
legal holiday (as defined in Rule 104), in which event the period runs
until the end of the next day that is not a Saturday, Sunday, or
Federal legal holiday. Intermediate Saturdays, Sundays, and Federal
legal holidays shall be excluded from the computation when the period
of time prescribed or allowed is seven days or less, not including any
additional time allowed for service by mail in paragraph (b) of this
rule. If on the day a filing is to be made, weather or other conditions
have caused the Secretary's office or other designated filing location
to close, the filing deadline shall be extended to the end of the next
day that is neither a Saturday, a Sunday, nor a Federal legal holiday.
(b) Additional Time For Service by Mail. If service is made by
mail, three days shall be added to the prescribed period for response.
Revision Comment (b): This paragraph has been simplified. No
substantive change is intended. One commenter requested that the amount
of time for service by mail be increased. Rule 6(e) of the Federal
Rules of Civil Procedure, which allows only three days to be added to a
prescribed period when service is by mail, establishes a widely used
and familiar standard for the computation of additional time when
service is by mail. No change in the additional time period for service
by mail was deemed warranted.
Rule 161. Extensions of Time, Postponements and Adjournments
(a) Availability. Except as otherwise provided by law, the
Commission, at any time, or the hearing officer, at any time prior to
the filing of his or her initial decision or, if no initial decision is
to be filed, at any time prior to the closing of the record, may, for
good cause shown, extend or shorten any time limits prescribed by these
Rules of Practice for the filing of any papers and may, consistent with
paragraph (b) of this rule, postpone or adjourn any hearing.
(b) Limitations on Postponements, Adjournments and Extensions. A
hearing shall begin at the time and place ordered, provided that,
within the limits provided by statute, the Commission or the hearing
officer may for good cause shown postpone the commencement of the
hearing or adjourn a convened hearing for a reasonable period of time
or change the place of hearing.
(1) Additional Considerations. In considering a motion for
postponement of the start of a hearing, adjournment once a hearing has
begun, or extensions of time for filing papers, the hearing officer or
the Commission shall consider, in addition to any other factors:
(i) the length of the proceeding to date;
(ii) the number of postponements, adjournments or extensions
already granted;
(iii) the stage of the proceedings at the time of the request; and
(iv) any other such matters as justice may require.
(2) Time Limit. Postponements, adjournments or extensions of time
for filing papers shall not exceed 21 days unless the Commission or the
hearing officer states on the record or sets forth in a written order
the reasons why a longer period of time is necessary.
Comment: The rule requires the hearing officer to consider
explicitly the efficient and timely administration of justice when
determining whether to grant a postponement, adjournment or extension
of time for filing of papers. The need for delay must be balanced
against the need to bring each case to a timely conclusion, consistent
with the public interest. The factors listed in the rule build on
existing standards applied by the administrative law judges.
Rule 180. Sanctions
(a) Contemptuous Conduct.
(1) Subject to Exclusion or Suspension. Contemptuous conduct by any
person before the Commission or a hearing officer during any
proceeding, including any conference, shall be grounds for the
Commission or the hearing officer to:
(i) exclude that person from such hearing or conference, or any
portion thereof; and/or
(ii) summarily suspend that person from representing others in the
proceeding in which such conduct occurred for the duration, or any
portion, of the proceeding.
(2) Review Procedure. A person excluded from a hearing or
conference, or a counsel summarily suspended from practice for the
duration or any portion of a proceeding, may seek review of the
exclusion or suspension by filing with the Commission, within three
days of the exclusion or suspension order, a motion to vacate the
order. The Commission shall consider such motion on an expedited basis
as provided in Rule 500.
(3) Adjournment. Upon motion by a party represented by counsel
subject to an order of exclusion or suspension, an adjournment shall be
granted to allow the retention of new counsel. In determining the
length of an adjournment, the Commission or hearing officer shall
consider, in addition to the factors set forth in Rule 161, the
availability of co-counsel for the party or of other members of a
suspended counsel's firm.
(b) Deficient Filings; Leave to Cure Deficiencies. The Commission
or the hearing officer may reject, in whole or in part, any filing that
fails to comply with any requirements of these Rules of Practice or of
any order issued in the proceeding in which the filing was made. Any
such filings shall not be part of the record. The Commission or the
hearing officer may direct a party to cure any deficiencies and to
resubmit the filing within a fixed time period.
(c) Failure to Make Required Filing or to Cure Deficient Filing.
The Commission or the hearing officer may enter a default pursuant to
Rule 155, dismiss the case, decide the particular matter at issue
against that person, or prohibit the introduction of evidence or
exclude testimony concerning that matter if a person fails:
(1) to make a filing required under these Rules of Practice; or
(2) to cure a deficient filing within the time specified by the
Commission or the hearing officer pursuant to paragraph (b) of this
rule.
Comment (a): Paragraph (a) is based on former Rule 2(f), which
provided that contemptuous conduct was grounds for exclusion and
summary suspension for the duration of a hearing. Contemptuous conduct
during the course of a proceeding that would warrant
[[Page 32754]] sanctions has been rare. Under Rule 180(a), any person
found to have engaged in contemptuous conduct can be excluded from all
or a portion of a particular hearing or conference.
In the event that a hearing officer or the Commission excludes or
suspends a party's counsel, the party may make a motion for an
adjournment to obtain new counsel. See 5 U.S.C. 555(b) (right in
administrative proceedings to be accompanied by retained counsel); cf.
Feeney v. SEC, 564 F.2d 260, 262 (8th Cir. 1977), cert. denied, 435
U.S. 969 (1978) (no right to appointed counsel in administrative
proceedings where respondent assumed to be indigent (citing Boruski v.
SEC, 340 F.2d 991, 992 (2d Cir.), cert. denied, 381 U.S. 943 (1965)).
Whether or not an exclusion or summary suspension order is issued,
conduct during a hearing may be the basis for further disciplinary
action, e.g., pursuant to Rule 102(e), or, as to a staff member, under
the Commission's personnel regulations.
Comment (b): A filing may be rejected if it fails to meet the
requirements of any rule or order. See In the Matter of Fischbach,
Admin. Proc. File No. 3-7384 (June 18, 1991). For example, filings that
are not served as required by Rule 150, that fail to cite to the record
as required by Rule 450, that are longer than permitted by Rule 450, or
that fail to comply with a prehearing order pursuant to Rule 221, could
be found to be deficient.
The rule permits the hearing officer or the Commission to fix a
period of time during which a deficiency must be cured and a new filing
made. The authority to reject a filing or to permit an opportunity to
cure a deficiency is discretionary. Whether a particular filing should
be rejected or whether leave to cure a deficient filing should be
granted requires a case-by-case determination. Parties, including those
appearing pro se, are obligated to familiarize themselves with the
Rules of Practice. The fact that a person may represent himself or
herself or be represented by counsel who has not previously practiced
before the Commission may be a factor in considering how to address a
deficient filing, but should not, standing alone, be determinative.
Deficiencies that are technical, de minimis, or non-prejudicial,
however, may not warrant any action pursuant to this rule.
Comment (c): This provision permits the entry of sanctions for the
failure to file a document required under the Commission's Rules of
Practice or for failure to cure a deficient filing within the time
ordered. In response to such failures, the Commission or the hearing
officer may determine the particular matter at issue against the person
who has failed to perform or may preclude that person from introducing
evidence or testimony on that matter. It is intended that the provision
will be invoked for failures that do not warrant the entry of a default
under Rule 155.
Revision Comment (b): The rule now states explicitly that a
rejected filing is not part of the record. If a filing is rejected, the
entry of that filing on the docket may be stricken.
Revision Comment (c): The revised rule allows for a sanction less
severe than a default for a deficient filing.
Rule 190. Confidential Treatment of Information in Certain Filings
(a) Application. An application for confidential treatment pursuant
to the provisions of Clause 30 of Schedule A of the Securities Act of
1933, 15 U.S.C. 77aa(30), and Rule 406 thereunder, 17 CFR 230.406;
Section 24(b)(2) of the Securities Exchange Act of 1934, 15 U.S.C.
78x(b)(2), and Rule 24b-2 thereunder, 17 CFR 240.24b-2; Section 22(b)
of the Public Utility Holding Company Act of 1935, 15 U.S.C. 79v(b),
and Rule 104 thereunder, 17 CFR 250.104; Section 45(a) of the
Investment Company Act of 1940, 15 U.S.C. 80a-44(a), and Rule 45a-1
thereunder, 17 CFR 270.45a-1; or Section 210(a) of the Investment
Advisers Act of 1940, 15 U.S.C. 80b-10(a), shall be filed with the
Secretary. The application shall be accompanied by a sealed copy of the
materials as to which confidential treatment is sought.
(b) Procedure For Supplying Additional Information. The applicant
may be required to furnish in writing additional information with
respect to the grounds for objection to public disclosure. Failure to
supply the information so requested within 14 days from the date of
receipt by the applicant of a notice of the information required shall
be deemed a waiver of the objection to public disclosure of that
portion of the information to which the additional information relates,
unless the Commission or the hearing officer shall otherwise order for
good cause shown at or before the expiration of such 14-day period.
(c) Confidentiality of Materials Pending Final Decision. Pending
the determination of the application for confidential treatment,
transcripts, non-final orders including an initial decision, if any,
and other materials in connection with the application shall be placed
under seal; shall be for the confidential use only of the hearing
officer, the Commission, the applicant, and any other parties and
counsel; and shall be made available to the public only in accordance
with orders of the Commission.
(d) Public Availability of Orders. Any final order of the
Commission denying or sustaining an application for confidential
treatment shall be made public. Any prior findings or opinions relating
to an application for confidential treatment under this rule shall be
made public at such time as the material as to which confidentiality
was requested is made public.
Comment: Pursuant to the statutory provisions and rules set forth
in paragraph (a), persons who file a registration statement, report,
application or other such materials may file an application for
confidential treatment of required information included in such
filings. Securities Act Rule 406, 17 CFR 230.406, Exchange Act Rule
24b-2, 17 CFR 240.24b-2, and Pubic Utility Holding Company Act Rule
104, 15 CFR 250.104, set forth certain procedures governing application
for confidential treatment for materials filed under the Securities
Act, Exchange Act and Public Utility Holding Company Act respectively.
There are no corresponding rules governing applications for
confidential treatment under the Investment Company Act or Investment
Advisers Act, although Investment Company Act Rule 45a-1, 17 CFR
270.45a-1, sets forth certain procedures governing applications for
confidential treatment of the names and addresses of dealers of
registered investment companies.
Rule 190 is based in part on former Rule 25. The Rule governs
applications for confidential treatment with respect to information
required to be filed with the Commission in connection with a
registration statement, report, application or other such materials.
Rule 322 applies to requests for a protective order for materials
introduced at hearings conducted pursuant to these Rules of Practice.
Thus, both rules address material that would ordinarily be placed in a
public file but is treated as confidential pending the determination of
the request for confidentiality. The Commission's Freedom of
Information Act regulations, 17 CFR 200.83, apply to requests for
confidential treatment of information, such as testimony in an
enforcement investigation, that is not ordinarily placed in a public
file at the time received by the Commission but which may be made
public pursuant to a request under the Freedom of Information Act
(``FOIA''). Requests to keep materials confidential under FOIA are not
evaluated until the Commission [[Page 32755]] receives a request for
access to the information.
An application for confidential treatment may be heard by the
Commission or referred to a hearing officer. Authority to act on
applications for confidential treatment has been delegated to the
staff, see, e.g., Delegation to the Director of the Division of
Corporation Finance, 17 CFR 200.30-1(a)(3). In practice, applications
are determined by delegated authority. Review of delegated
decisionmaking may be sought pursuant to Rule 430.
Rule 191. Adjudications Not Required To Be Determined on the Record
After Notice and Opportunity for Hearing
(a) Scope of the Rule. This rule applies to every case of
adjudication, as defined in 5 U.S.C. 551, pursuant to any statute which
the Commission administers, where adjudication is not required to be
determined on the record after notice and opportunity for hearing and
which the Commission has not chosen to determine on the record after
notice and opportunity for hearing.
(b) Procedure. In every case of adjudication under paragraph (a) of
this rule, the Commission shall (1) give prompt notice of any adverse
action or final disposition to any person who has requested the
Commission to make (or not to make) any such adjudication, and (2)
furnish to any such person a written statement of reasons therefor.
Additional procedures may be specified in rules relating to specific
types of such adjudications. Where any such rule provides for the
publication of a Commission order, notice of the action or disposition
shall be deemed to be given by such publication.
(c) Contents of the Record. If the Commission provides notice and
opportunity for the submission of written comments by parties to the
adjudication or, as the case may be, by other interested persons,
written comments received on or before the closing date for comments,
unless accorded confidential treatment pursuant to statute or rule of
the Commission, become a part of the record of the adjudication. The
Commission, in its discretion, may accept and include in the record
written comments filed with the Commission after the closing date.
Comment: Section 23(c) of the Exchange Act, 15 U.S.C. 78w(c)
requires the Commission to prescribe the procedures applicable to
Exchange Act adjudications ``not required to be determined on the
record after notice and opportunity for hearing.'' Rule 191 contains
these required procedures and also applies them to adjudications
arising under all statutes administered by the Commission.
The Administrative Procedure Act recognizes a distinction between
an ``adjudication required by statute to be determined on the record
after opportunity for an agency hearing,'' See 5 U.S.C. 554(a), and
other types of adjudications. The former are often referred to as
``formal'' or ``on the record'' adjudications. The latter, such as
proceedings in which a hearing is required to be conducted after
``notice and opportunity for hearing,'' but not specifically ``on the
record,'' are often referred to as ``informal'' adjudications. Various
Administrative Procedure Act requirements, particularly with respect to
hearing procedures, apply only to an ``adjudication required by statute
to be determined on the record after opportunity for an agency hearing
***'' See, e.g., 5 U.S.C. 556(a), 557(a) (requirements of those
sections apply only to an adjudication ``on the record'' as set forth
in Section 554(a)); cf. 5 U.S.C. 555 (requirements not limited to
proceedings ``on the record'' as set forth in Section 554(a)).
Where an ``on the record'' hearing is not mandated by statute, this
rule establishes certain basic requirements for the proceedings. The
Commission, as a matter of discretion, can order a ``formal'' hearing
or provide other alternative procedures in addition to the minimum
requirements of Rule 191.
Rule 192. Rulemaking: Issuance, Amendment and Repeal of Rules of
General Application
(a) By Petition. Any person desiring the issuance, amendment or
repeal of a rule of general application may file a petition therefor
with the Secretary. Such petition shall include a statement setting
forth the text or the substance of any proposed rule or amendment
desired or specifying the rule the repeal of which is desired, and
stating the nature of his or her interest and his or her reasons for
seeking the issuance, amendment or repeal of the rule. The Secretary
shall acknowledge, in writing, receipt of the petition and refer it to
the appropriate division or office for consideration and
recommendation. Such recommendations shall be transmitted with the
petition to the Commission for such action as the Commission deems
appropriate. The Secretary shall notify the petitioner of the action
taken by the Commission.
(b) Notice of Proposed Issuance, Amendment or Repeal of Rules.
Except where the Commission finds that notice and public procedure are
impracticable, unnecessary, or contrary to the public interest,
whenever the Commission proposes to issue, amend, or repeal any rule or
regulation of general application other than an interpretive rule;
general statement of policy; or rule of agency organization, procedure,
or practice; or any matter relating to agency management or personnel
or to public property, loans, grants, benefits, or contracts, there
shall first be published in the Federal Register a notice of the
proposed action. Such notice shall include:
(1) a statement of the time, place, and nature of the rulemaking
proceeding, with particular reference to the manner in which interested
persons shall be afforded the opportunity to participate in such
proceeding;
(2) reference to the authority under which the rule is proposed;
and
(3) the terms or substance of the proposed rule or a description of
the subjects and issues involved.
Rule 193. Applications by Barred Individuals for Consent to Associate
Preliminary Note
This rule governs applications to the Commission by certain
persons, barred by Commission order from association with brokers,
dealers, municipal securities dealers, government securities brokers,
government securities dealers, investment advisers, investment
companies or transfer agents, for consent to become so associated.
Applications made pursuant to this rule must show that the proposed
association would be consistent with the public interest. In addition
to the information specifically required by the rule, applications
should be supplemented, where appropriate, by written statements of
individuals (other than the applicant) who are competent to attest to
the applicant's character, employment performance, and other relevant
information. Intentional misstatements or omissions of fact may
constitute criminal violations of 18 U.S.C. 1001 et seq. and other
provisions of law.
The nature of the supervision that an applicant will receive or
exercise as an associated person with a registered entity is an
important matter bearing upon the public interest. In meeting the
burden of showing that the proposed association is consistent with the
public interest, the application and supporting documentation must
demonstrate that the proposed supervision, procedures, or terms and
conditions of employment are reasonably designed to prevent a
recurrence of the conduct that led to imposition of the bar. As an
associated person, the applicant will be limited to association in a
specified capacity with [[Page 32756]] a particular registered entity
and may also be subject to specific terms and conditions.
Normally, the applicant's burden of demonstrating that the proposed
association is consistent with the public interest will be difficult to
meet where the applicant is to be supervised by, or is to supervise,
another barred individual. In addition, where an applicant wishes to
become the sole proprietor of a registered entity and thus is seeking
Commission consent notwithstanding an absence of supervision, the
applicant's burden will be difficult to meet.
In addition to the factors set forth in paragraph (d) of this rule,
the Commission will consider the nature of the findings that resulted
in the bar when making its determination as to whether the proposed
association is consistent with the public interest. In this regard,
attention is directed to Rule 5(e) of the Commission's Rules on
Informal and Other Procedures, 17 CFR 202.5(e). Among other things,
Rule 5(e) sets forth the Commission's policy ``not to permit a ***
respondent [in an administrative proceeding] to consent to *** [an]
order that imposes a sanction while denying the allegations in the ***
order for proceedings.'' Consistent with the rationale underlying that
policy, and in order to avoid the appearance that an application made
pursuant to this rule was granted on the basis of such denial, the
Commission will not consider any application that attempts to reargue
or collaterally attack the findings that resulted in the Commission's
bar order.
(a) Scope of Rule. Applications for Commission consent to
associate, or to change the terms and conditions of association, with a
registered broker, dealer, municipal securities dealer, government
securities broker, government securities dealer, investment adviser,
investment company or transfer agent may be made pursuant to this rule
where a Commission order bars the individual from association with a
registered entity and:
(1) such barred individual seeks to become associated with an
entity that is not a member of a self-regulatory organization; or
(2) the order contains a proviso that application may be made to
the Commission after a specified period of time.
(b) Form of Application. Each application shall be supported by an
affidavit, manually signed by the applicant, that addresses the factors
set forth in paragraph (d) of this rule. One original and three copies
of the application shall be filed pursuant to Rules 151, 152 and 153.
Each application shall include as exhibits:
(1) a copy of the Commission order imposing the bar;
(2) an undertaking by the applicant to notify immediately the
Commission in writing if any information submitted in support of the
application becomes materially false or misleading while the
application is pending;
(3) the following forms, as appropriate:
(i) a copy of a completed Form U-4, where the applicant's proposed
association is with a broker-dealer or municipal securities dealer;
(ii) a copy of a completed Form MSD-4, where the applicant's
proposed association is with a bank municipal securities dealer;
(iii) the information required by Form ADV, 17 CFR 279.1, with
respect to the applicant, where the applicant's proposed association is
with an investment adviser;
(iv) the information required by Form TA-1, 17 CFR 249b.100, with
respect to the applicant, where the applicant's proposed association is
with a transfer agent; and
(4) a written statement by the proposed employer that describes:
(i) the terms and conditions of employment and supervision to be
exercised over such applicant and, where applicable, by such applicant;
(ii) the qualifications, experience, and disciplinary records of
the proposed supervisor(s) of the applicant;
(iii) the compliance and disciplinary history, during the two years
preceding the filing of the application, of the office in which the
applicant will be employed; and
(iv) the names of any other associated persons in the same office
who have previously been barred by the Commission, and whether they are
to be supervised by the applicant.
(c) Required Showing. The applicant shall make a showing
satisfactory to the Commission that the proposed association would be
consistent with the public interest.
(d) Factors to be Addressed. The affidavit required by paragraph
(b) of this rule shall address each of the following:
(1) the time period since the imposition of the bar;
(2) any restitution or similar action taken by the applicant to
recompense any person injured by the misconduct that resulted in the
bar;
(3) the applicant's compliance with the order imposing the bar;
(4) the applicant's employment during the period subsequent to
imposition of the bar;
(5) the capacity or position in which the applicant proposes to be
associated;
(6) the manner and extent of supervision to be exercised over such
applicant and, where applicable, by such applicant;
(7) any relevant courses, seminars, examinations or other actions
completed by the applicant subsequent to imposition of the bar to
prepare for his or her return to the securities business; and
(8) any other information material to the application.
(e) Notification to Applicant and Written Statement. In the event
an adverse recommendation is proposed by the staff with respect to an
application made pursuant to this rule, the applicant shall be so
advised and provided with a written statement of the reasons for such
recommendation. The applicant shall then have 30 days to submit a
written statement in response.
(f) Concurrent Applications. The Commission will not consider any
application submitted pursuant to this rule if any other application
for consent to associate concerning the same applicant is pending
before any self-regulatory organization.
Initiation of Proceedings and Prehearing Rules
Rule 200. Initiation of Proceedings.
(a) Order Instituting Proceedings: Notice and Opportunity For
Hearing.
(1) Generally. Whenever an order instituting proceedings is issued
by the Commission, appropriate notice thereof shall be given to each
party to the proceeding by the Secretary or another duly designated
officer of the Commission. Each party shall be given notice of any
hearing within a time reasonable in light of the circumstances, in
advance of the hearing; provided, however, no prior notice need be
given to a respondent if the Commission has authorized the Division of
Enforcement to seek a temporary sanction ex parte.
(2) Stop Order Proceedings: Additional Persons Entitled to Notice.
Any notice of a proceeding relating to the issuance of a stop order
suspending the effectiveness of a registration statement pursuant to
Section 8(d) of the Securities Act of 1933, 15 U.S.C. 77h(d), shall be
sent to or served on the issuer; or, in the case of a foreign
government or political subdivision thereof, sent to or served on the
underwriter; or, in the case of a foreign or territorial person, sent
to or served on its duly authorized representative in the United States
named in the registration statement, properly directed in the case of
telegraphic notice to the address [[Page 32757]] given in such
statement. In addition, if such proceeding is commenced within 90 days
after the registration statement has become effective, notice of the
proceeding shall be given to the agent for service named on the facing
sheet of the registration statement and to each other person designated
on the facing sheet of the registration statement as a person to whom
copies of communications to such agent are to be sent.
(b) Content of Order. The order instituting proceedings shall:
(1) state the nature of any hearing;
(2) state the legal authority and jurisdiction under which the
hearing is to be held;
(3) contain a short and plain statement of the matters of fact and
law to be considered and determined, unless the order directs an answer
pursuant to Rule 220 in which case the order shall set forth the
factual and legal basis alleged therefor in such detail as will permit
a specific response thereto; and
(4) state the nature of any relief or action sought or taken.
(c) Time and Place of Hearing. The time and place for any hearing
shall be fixed with due regard for the public interest and the
convenience and necessity of the parties, other participants, or their
representatives.
(d) Amendment to Order Instituting Proceedings.
(1) By the Commission. Upon motion by a party, the Commission may,
at any time, amend an order instituting proceedings to include new
matters of fact or law.
(2) By the Hearing Officer. Upon motion by a party, the hearing
officer may, at any time prior to the filing of an initial decision or,
if no initial decision is to be filed, prior to the time fixed for the
filing of final briefs with the Commission, amend an order instituting
proceedings to include new matters of fact or law that are within the
scope of the original order instituting proceedings.
(e) Publication of Notice of Public Hearings. Unless otherwise
ordered by the Commission, notice of any public hearing shall be given
general circulation by release to the public, by publication in the SEC
News Digest and, where directed, by publication in the Federal
Register.
Comment (a): Paragraph (a) requires that appropriate notice of an
order instituting proceedings be given. Ordinarily, notice is
accomplished through service of the order pursuant to the procedures
set forth in Rule 141. Where emergency or expedited action is sought,
however, notice of a hearing may be given prior to formal service of
the order instituting proceedings. See Rules 511(a) and 521(a). Notice
may be delayed if the Commission determines to hear a matter ex parte.
See Rule 513.
Comment (c): The provisions of this paragraph are based on Section
554(b) of the Administrative Procedure Act, 5 U.S.C. Sec. 554(b). It is
the policy of the Commission that in a proceeding under the Public
Utility Holding Company Act, the Investment Company Act (except Section
9(b)), Section 206A of the Investment Advisers Act, Section 8 of the
Securities Act, or Sections 305 and 307 of the Trust Indenture Act or
any proceeding in which a temporary sanction is sought, the hearing
should normally be held at the Commission's Headquarters.
Comment (d): The Commission has stated that amendment of orders
instituting proceeding should be freely granted, subject only to the
consideration that other parties should not be surprised, nor their
rights prejudiced. Carl L. Shipley, 45 S.E.C. 589, 595 (1974). Where
amendments to an order instituting proceedings are intended to correct
an error, to conform the order to the evidence or to take into account
subsequent developments which should be considered in disposing of the
proceeding, and the amendments are within the scope of the original
order, either a hearing officer or the Commission has authority to
amend the order. See, e.g., Don A. Long, Admin. Proc. Rulings Release
No. 233 (Mar. 31, 1980), 52 SEC Docket 497 (Aug. 18, 1992) (hearing
officer's grant of motion to conform pleading to evidence adduced at
hearing). Since, however, the Commission has not delegated its
authority to authorize orders instituting proceedings, hearing officers
do not have authority to initiate new charges or to expand the scope of
matters set down for hearing beyond the framework of the original order
instituting proceedings. See Securities Act Release No. 5309 (Sept. 27,
1972).
Revision Comment (c): Comment was requested as to the Commission's
practice with respect to holding hearings in multiple cities, in
locations outside Washington, or in locations other than those where
the Commission maintains Regional Offices. Commenters supported the
current practice. The Commission has determined not to change the
substance of the rule. The statement of policy in former Rule 6(b) that
certain specified hearings would normally be held in Washington, D.C.
has been moved into a comment to Rule 200. The policy statement
contained in the comment has been modified to reflect that the hearing
location should normally be at the Commission's Headquarters, and that
hearings as to whether a temporary sanction will be imposed are covered
by the policy.
Rule 201. Consolidation of Proceedings
By order of the Commission or a hearing officer, proceedings
involving a common question of law or fact may be consolidated for
hearing of any or all the matters at issue in such proceedings. The
Commission or the hearing officer may make such orders concerning the
conduct of such proceedings as it deems appropriate to avoid
unnecessary cost or delay. Consolidation shall not prejudice any rights
under these Rules of Practice and shall not affect the right of any
party to raise issues that could have been raised if consolidation had
not occurred. For purposes of this rule, no distinction is made between
joinder and consolidation of proceedings.
Comment: Rule 201 is modeled after Model Adjudication Rule 201,
Administrative Conference of the United States (Dec. 1993).
Revision Comment: Former Rule 10 provided that proceedings could be
``joined'' and ``consolidated.'' Rule 201 does not draw a distinction
between joinder and consolidation.
One commenter suggested that the Commission should refrain from
making decisions on whether to consolidate proceedings in order to
avoid the appearance that in deciding the consolidation issue the
Commission had reached an opinion as to the merits of a case. Just as
judges make preliminary decisions regarding joinder, consolidation,
evidentiary motions and other matters without losing either their
objectivity or the appearance of objectivity, so the Commission or a
hearing officer must decide matters preliminary to a final decision.
There is neither a loss of objectivity nor an appearance of less
objectivity from doing so. Although the Commission does not agree with
the rationale provided by the commenter, the rule as adopted permits
the decision on consolidation to be made by a hearing officer because
it may be more efficient to have a hearing officer issue a decision on
consolidation.
The commenter also suggested that consolidation should be permitted
only if consolidation tends to avoid unnecessary cost or delay as under
former Rule 10. Rule 201 as revised includes a standard substantially
similar to that of former Rule 10.
Rule 202. Specification of Procedures by Parties in Certain Proceedings
(a) Motion to Specify Procedures. In any proceeding other than an
enforcement or disciplinary proceeding [[Page 32758]] or a proceeding
to review a determination by a self-regulatory organization pursuant to
Rules 420 and 421, a party may, at any time up to 20 days prior to the
start of a hearing, make a motion to specify the procedures necessary
or appropriate for the proceeding, with particular reference to:
(1) whether there should be an initial decision by a hearing
officer;
(2) whether any interested division of the Commission may assist in
the preparation of the Commission's decision; and
(3) whether there should be a 30-day waiting period between the
issuance of the Commission's order and the date it is to become
effective.
(b) Objections; Effect of Failure to Object. Any other party may
object to the procedures so specified, and such party may specify such
additional procedures as it considers necessary or appropriate. In the
absence of such objection or such specification of additional
procedures, such other party may be deemed to have waived objection to
the specified procedures.
(c) Approval Required. Any proposal pursuant to paragraph (a) of
this rule, even if not objected to by any party, shall be subject to
the written approval of the hearing officer.
(d) Procedure Upon Agreement to Waive an Initial Decision. If an
initial decision is waived pursuant to paragraph (a) of this rule, the
hearing officer shall notify the Secretary and, unless the Commission
directs otherwise within 14 days, no initial decision shall be issued.
Comment: Allowing for the specification of procedures by the
parties under the supervision of a hearing officer has been effective
in promoting efficiency in certain proceedings involving regulatory
matters. By contrast, in an enforcement or disciplinary proceeding in
which the government is seeking to impose sanctions on particular
persons, or on review of a determination by a self-regulatory
organization, it is not in the public interest to subject basic
procedures to negotiation by the parties. Accordingly, Rule 202
excludes enforcement, disciplinary, and self-regulatory organization
review proceedings from its scope.
Consistent with the operation of Rule 221, the Rule requires
motions to specify procedures to be made at least 20 days prior to a
hearing. As a result, any such motions may be timely answered and
resolved prior to the final prehearing conference.
Rule 210. Parties, Limited Participants and Amici Curiae
(a) Parties in an Enforcement or Disciplinary Proceeding or a
Proceeding to Review a Self-Regulatory Organization Determination.
(1) Generally. No person shall be granted leave to become a party
or a non-party participant on a limited basis in an enforcement or
disciplinary proceeding or a proceeding to review a determination by a
self-regulatory organization pursuant to Rules 420 and 421.
(2) Disgorgement Proceedings. In an enforcement proceeding, a
person may state his or her views with respect to a proposed plan of
disgorgement or file a proof of claim pursuant to Rule 612.
(b) Intervention as a Party.
(1) Generally. In any proceeding, other than an enforcement
proceeding, a disciplinary proceeding or a proceeding to review a self-
regulatory organization determination, any person may seek leave to
intervene as a party by filing a motion setting forth the person's
interest in the proceeding. No person, however, shall be admitted as a
party to a proceeding by intervention unless it is determined that
leave to participate pursuant to paragraph (c) of this rule would be
inadequate for the protection of his or her interests.
(i) In a proceeding under the Public Utility Holding Company Act of
1935, any representative of interested consumers or security holders,
or any other person whose participation in the proceeding may be in the
public interest or for the protection of investors or consumers, may be
admitted as a party upon the filing of a written motion setting forth
the person's interest in the proceeding.
(ii) In a proceeding under the Investment Company Act of 1940, any
representative of interested security holders, or any other person
whose participation in the proceeding may be in the public interest or
for the protection of investors, may be admitted as a party upon the
filing of a written motion setting forth the person's interest in the
proceeding.
(2) Intervention as of Right.
(i) In proceedings under the Public Utility Holding Company Act of
1935, any interested representative, agency, authority or
instrumentality of the United States or any interested State, State
commission, municipality or other political subdivision of a state
shall be admitted as a party to any proceeding upon the filing of a
written motion requesting leave to be admitted.
(ii) In proceedings under the Investment Company Act of 1940, any
interested State or State agency shall be admitted as a party to any
proceeding upon the filing of a written motion requesting leave to be
admitted.
(c) Leave to Participate On a Limited Basis. In any proceeding,
other than an enforcement proceeding, a disciplinary proceeding or a
proceeding to review a self-regulatory organization determination, any
person may seek leave to participate on a limited basis as a non-party
participant as to any matter affecting the person's interests.
(1) Procedure. Motions for leave to participate shall be in
writing, shall set forth the nature and extent of the movant's interest
in the proceeding, and, except where good cause for late filing is
shown, shall be filed not later than 20 days prior to the date fixed
for the commencement of the hearing. Leave to participate pursuant to
this paragraph (c) may include such rights of a party as the hearing
officer may deem appropriate. Persons granted leave to participate
shall be served in accordance with Rule 150; provided, however, that a
party to the proceeding may move that the extent of notice of filings
or other papers to be provided to persons granted leave to participate
be limited, or may move that the persons granted leave to participate
bear the cost of being provided copies of any or all filings or other
papers. Persons granted leave to participate shall be bound, except as
may be otherwise determined by the hearing officer, by any stipulation
between the parties to the proceeding with respect to procedure,
including submission of evidence, substitution of exhibits, corrections
of the record, the time within which briefs or exceptions may be filed
or proposed findings and conclusions may be submitted, the filing of
initial decisions, the procedure to be followed in the preparation of
decisions and the effective date of the Commission's order in the case.
Where the filing of briefs or exceptions or the submission of proposed
findings and conclusions are waived by the parties to the proceedings,
a person granted leave to participate pursuant to this paragraph (c)
shall not be permitted to file a brief or exceptions or submit proposed
findings and conclusions except by leave of the Commission or of the
hearing officer.
(2) Certain Persons Entitled to Leave to Participate. The hearing
officer is directed to grant leave to participate under this paragraph
(c) to any person to whom it is proposed to issue any security in
exchange for one or more bona fide outstanding securities, claims or
property interests, or partly in such exchange and partly for cash,
where the Commission is authorized to approve [[Page 32759]] the terms
and conditions of such issuance and exchange after a hearing upon the
fairness of such terms and conditions.
(d) Amicus Participation.
(1) Availability. An amicus brief may be filed only if:
(i) a motion for leave to file the brief has been granted;
(ii) the brief is accompanied by written consent of all parties;
(iii) the brief is filed at the request of the Commission or the
hearing officer; or
(iv) the brief is presented by the United States or an officer or
agency thereof, or by a State, Territory or Commonwealth.
(2) Procedure. An amicus brief may be filed conditionally with the
motion for leave. The motion for leave shall identify the interest of
the movant and shall state the reasons why a brief of an amicus curiae
is desirable. Except as all parties otherwise consent, any amicus
curiae shall file its brief within the time allowed the party whose
position the amicus will support, unless the Commission or hearing
officer, for cause shown, grants leave for a later filing. In the event
that a later filing is allowed, the order granting leave to file shall
specify when an opposing party may reply to the brief. A motion of an
amicus curiae to participate in oral argument will be granted only for
extraordinary reasons.
(e) Permission to State Views. Any person may make a motion seeking
leave to file a memorandum or make an oral statement of his or her
views. Any such communication may be included in the record; provided,
however, that unless offered and admitted as evidence of the truth of
the statements therein made, any assertions of fact submitted pursuant
to the provisions of this paragraph (e) will be considered only to the
extent that the statements therein made are otherwise supported by the
record.
(f) Modification of Participation Provisions. The Commission or the
hearing officer may, by order, modify the provisions of this rule which
would otherwise be applicable, and may impose such terms and conditions
on the participation of any person in any proceeding as it may deem
necessary or appropriate in the public interest.
Comment (b): Paragraph (b) reflects requirements of Section 19 of
the Public Utility Holding Company Act of 1935, 15 U.S.C. Sec. 79s, and
Section 40(c) of the Investment Company Act of 1940, 15 U.S.C.
Sec. 80a-39(c).
Comment (c): Through leave to participate on a limited basis, this
rule provides an interested person the opportunity to express concerns
relating to any matter affecting the person's interests. Unlike the
consent to submission by an amicus, written consent of all parties is
not sufficient to obtain status as a limited participant. Approval from
the hearing officer is required.
By their terms, certain rules within the Rules of Practice apply to
the rights and responsibilities of ``parties.'' When non-party
participants are admitted, the order granting leave to participate may
specify the extent to which they are to have the obligations or rights
of a party under the Rules. Depending on the extent of the
participant's interest and the facts of each case, the degree of
participation will vary. See, e.g., In the Matter of College Retirement
Equities Fund, Admin. Proc. Rulings Release No. 288 (Feb. 11, 1988), 52
SEC Docket 448 (Aug. 18, 1992) (order scheduling prehearing conference
to discuss inter alia procedures to limit duplicative cross-examination
of witnesses without diminishing the opportunity for full cross-
examination by participants).
In an enforcement or disciplinary proceeding, or a proceeding to
review a self-regulatory organization determination, the only persons
who may be parties are those specified by the Commission in the order
instituting proceedings. Status as a limited, non-party participant
pursuant to paragraph (c) is not allowed. A person may seek to
participate in such proceedings as an amicus, pursuant to paragraph
(d), or, if that person has knowledge of specific facts relevant to the
proceeding, as a witness. In addition, pursuant to Rule 612, persons
desiring to comment on a proposed plan of disgorgement will have an
opportunity to submit their written views to the Commission and, as
appropriate under the plan, to file a claim against the disgorgement
pool.
Paragraph (c)(2) reflects the requirements of Section 3(a)(10) of
the Securities Act of 1933, 15 U.S.C. Sec. 77c(a)(10).
Comment (d): The provisions for amicus participation are based on
Rule 29 of the Federal Rules of Appellate Procedure. Amicus
participation contemplates the limited action of filing a brief setting
forth the filer's views on particular legal or policy issues in the
proceeding.
Comment (e): This paragraph allows for the submission of a
statement of views with less formality than that required for an amicus
brief or for participation on an ongoing basis as a non-party. From
time to time persons, particularly individual security holders or
members of the public, who do not otherwise wish to participate in a
proceeding on any extended basis will seek to make written statements
of their views in a letter or by appearing at a hearing. The factual
assertions in such letters or statements will be considered only to the
extent that the statements therein made are otherwise supported by the
record.
Revision Comment (d): One commenter suggested that the consent of
the Division of Enforcement should not be required for the filing of an
amicus brief on behalf of a respondent in an enforcement proceeding.
The Commission or a hearing officer can more fairly and more adequately
assess the benefits of a proposed amicus filing if the Division of
Enforcement or any other party with views on the proposal may set forth
its objections on the record. Accordingly, the Commission decided not
to make the suggested rule change.
Rule 220. Answer to Allegations
(a) When Required. In its order instituting proceedings, the
Commission may require any party to file an answer to each of the
allegations contained therein. Even if not so ordered, any party in any
proceeding may elect to file an answer. Any other person granted leave
by the Commission or the hearing officer to participate on a limited
basis in such proceedings pursuant to Rule 210(c) may be required to
file an answer.
(b) When to File. Except where a different period is provided by
rule or by order, a party required to file an answer as provided in
paragraph (a) of this rule shall do so within 20 days after service
upon the party of the order instituting proceedings. Persons granted
leave to participate on a limited basis in the proceeding pursuant to
Rule 210(c) may file an answer within a reasonable time, as determined
by the Commission or the hearing officer. If the order instituting
proceedings is amended, the Commission or the hearing officer may
require that an amended answer be filed and, if such an answer is
required, shall specify a date for the filing thereof.
(c) Contents; Effect of Failure to Deny. Unless otherwise directed
by the hearing officer or the Commission, an answer shall specifically
admit, deny, or state that the party does not have, and is unable to
obtain, sufficient information to admit or deny each allegation in the
order instituting proceedings. When a party intends in good faith to
deny only a part of an allegation, the party shall specify so much of
it as is true and shall deny only the remainder. A statement of a lack
of information shall have the effect of a denial. A defense of res
judicata, statute [[Page 32760]] of limitations or any other matter
constituting an affirmative defense shall be asserted in the answer.
Any allegation not denied shall be deemed admitted.
(d) Motion for More Definite Statement. A party may file with an
answer a motion for a more definite statement of specified matters of
fact or law to be considered or determined. Such motion shall state the
respects in which, and the reasons why, each such matter of fact or law
should be required to be made more definite. If the motion is granted,
the order granting such motion shall set the periods for filing such a
statement and any answer thereto.
(e) Amendments. A party may amend its answer at any time by written
consent of each adverse party or with leave of the Commission or the
hearing officer. Leave shall be freely granted when justice so
requires.
(f) Failure to File Answer: Default. If a party respondent fails to
file an answer required by this rule within the time provided, such
person may be deemed in default pursuant to Rule 155(a). A party may
make a motion to set aside a default pursuant to Rule 155(b).
Comment (b): The time allowed to file an answer, 20 days, conforms
to the time for answers under Rule 12 of the Federal Rules of Civil
Procedure.
Revision Comment (c): The provision relating to the filing of
affirmative defenses is based on Rule 8(c) of the Federal Rules of
Civil Procedure. The change is intended to improve efficiency and
fairness by clarifying issues at an early stage of the proceeding that
may affect the timing, duration or necessity for a hearing.
Revision Comment (e): Proposed Rule 9(b) provided for amendment of
an answer only when ordered by the Commission or a hearing officer. As
adopted, Rule 220(e) allows amendment of an answer by consent of all
parties or by leave of the Commission or hearing officer. Amendment of
an answer may increase efficiency and fairness by sharpening the issues
in dispute. Moreover, the provisions for a summary disposition prior to
hearing pursuant to Rule 250 increase the importance of the answer. The
modification to the rule is in accordance with Rule 15 of the Federal
Rules of Civil Procedure. No provision is made, however, for allowing a
period for an amendment as of right, because a meaningful period for
exercise of such a right, such as the 20-day period provided under the
Federal Rules of Civil Procedure, is inconsistent with the prompt start
of the hearing. See, e.g., Exchange Act Sec. 21C(b), 15 U.S.C. 78u-3(b)
(cease-and-desist proceedings to begin no later than 60 days after
institution, other than with consent of respondent).
Rule 221. Prehearing Conferences
(a) Purposes of Conferences. The purposes of prehearing conferences
include, but are not limited to:
(1) expediting the disposition of the proceeding;
(2) establishing early and continuing control of the proceeding by
the hearing officer; and
(3) improving the quality of the hearing through more thorough
preparation.
(b) Procedure. On his or her own motion or at the request of a
party, the hearing officer may, in his or her discretion, direct
counsel or any party to meet for an initial, final or other prehearing
conference. Such conferences may be held with or without the hearing
officer present as the hearing officer deems appropriate. Where such a
conference is held outside the presence of the hearing officer, the
hearing officer shall be advised promptly by the parties of any
agreements reached. Such conferences also may be held with one or more
persons participating by telephone or other remote means.
(c) Subjects to be Discussed. At a prehearing conference
consideration may be given and action taken with respect to any and all
of the following:
(1) simplification and clarification of the issues;
(2) exchange of witness and exhibit lists and copies of exhibits;
(3) stipulations, admissions of fact, and stipulations concerning
the contents, authenticity, or admissibility into evidence of
documents;
(4) matters of which official notice may be taken;
(5) the schedule for exchanging prehearing motions or briefs, if
any;
(6) the method of service for papers other than Commission orders;
(7) summary disposition of any or all issues;
(8) settlement of any or all issues;
(9) determination of hearing dates;
(10) amendments to the order instituting proceedings or answers
thereto;
(11) production of documents as set forth in Rule 230, and
prehearing production of documents in response to subpoenas duces tecum
as set forth in Rule 232;
(12) specification of procedures as set forth in Rule 202; and
(13) such other matters as may aid in the orderly and expeditious
disposition of the proceeding.
(d) Required Prehearing Conferences. Except where the emergency
nature of a proceeding would make a prehearing conference clearly
inappropriate, both an initial and a final prehearing conference should
be held. Unless ordered otherwise, an initial prehearing conference
shall be held within 14 days of the service of an answer, or if no
answer is required, within 14 days of service of the order instituting
proceedings. A final conference shall be held as close to the start of
the hearing as reasonable under the circumstances.
(e) Prehearing Orders. At or following the conclusion of any
conference held pursuant to this rule, the hearing officer shall enter
a ruling or order which recites the agreements reached and any
procedural determinations made by the hearing officer.
(f) Failure to Appear: Default. Any person who is named in an order
instituting proceedings as a person against whom findings may be made
or sanctions imposed and who fails to appear, in person or through a
representative, at a prehearing conference of which he or she has been
duly notified may be deemed in default pursuant to Rule 155(a). A party
may make a motion to set aside a default pursuant to Rule 155(b).
Comment (a): Rule 221 is modeled on Rule 16 of the Federal Rules of
Civil Procedure. When properly managed, prehearing conferences can
eliminate unnecessary delay and improve the quality of justice by
sharpening the preparation of cases, facilitating the prehearing
exchange of documents, and promoting settlements in appropriate cases.
Comment (d): Unless ordered otherwise, the initial prehearing
conference will be held within 14 days after a respondent files an
answer. Pursuant to Rule 230(d), the Division of Enforcement is
required to commence making documents available to a respondent for
inspection and copying in an enforcement or disciplinary proceeding no
later than 14 days after the respondent files an answer. Consequently,
the initial prehearing conference can be used to address any pending
issues related to the availability of documents for inspection and
copying, and thereafter the respondent should ordinarily have access to
such documents.
Revision Comment (c): Paragraph (c)(6) was added to bring to the
attention of the participants that they may agree among themselves to
procedures for the service of papers by facsimile. See Rule 150(c)(4).
Revision Comment (d): Under the proposed rule, no initial
prehearing [[Page 32761]] conference was required. In accordance with
comments received, the revised rule requires both an initial and a
final prehearing conference, except where the emergency nature of a
proceeding would make a prehearing conference clearly inappropriate.
Rule 222. Prehearing Submissions
(a) Submissions Generally. The hearing officer, on his or her own
motion, or at the request of a party or other participant, may order
any party, including the interested division, to furnish such
information as deemed appropriate, including any or all of the
following:
(1) an outline or narrative summary of its case or defense;
(2) the legal theories upon which it will rely;
(3) copies and a list of documents that it intends to introduce at
the hearing; and
(4) a list of witnesses who will testify on its behalf, including
the witnesses' names, occupations, addresses and a brief summary of
their expected testimony.
(b) Expert Witnesses. Each party who intends to call an expert
witness shall submit, in addition to the information required by
paragraph (a)(4) of this rule, a statement of the expert's
qualifications, a listing of other proceedings in which the expert has
given expert testimony, and a list of publications authored or co-
authored by the expert.
Rule 230. Enforcement and Disciplinary Proceedings: Availability of
Documents for Inspection and Copying
For purposes of this rule, the term documents shall include
writings, drawings, graphs, charts, photographs, recordings and other
data compilations, including data stored by computer, from which
information can be obtained.
(a) Documents to be Available for Inspection and Copying.
(1) Unless otherwise provided by this rule, or by order of the
Commission or the hearing officer, the Division of Enforcement shall
make available for inspection and copying by any party documents
obtained by the Division prior to the institution of proceedings, in
connection with the investigation leading to the Division's
recommendation to institute proceedings. Such documents shall include:
(i) each subpoena issued;
(ii) every other written request to persons not employed by the
Commission to provide documents or to be interviewed;
(iii) the documents turned over in response to any such subpoenas
or other written requests;
(iv) all transcripts and transcript exhibits;
(v) any other documents obtained from persons not employed by the
Commission; and
(vi) any final examination or inspection reports prepared by the
Division of Market Regulation or the Division of Investment Management.
(2) Nothing in this paragraph (a) shall limit the right of the
Division to make available any other document, or shall limit the right
of a respondent to seek access to or production pursuant to subpoena of
any other document, or shall limit the authority of the hearing officer
to order the production of any document pursuant to subpoena.
(b) Documents That May Be Withheld.
(1) The Division of Enforcement may withhold a document if:
(i) the document is privileged;
(ii) the document is an internal memorandum, note or writing
prepared by a Commission employee, other than an examination or
inspection report as specified in paragraph (a)(1)(vi) of this rule, or
is otherwise attorney work product and will not be offered in evidence;
(iii) the document would disclose the identity of a confidential
source; or
(iv) the hearing officer grants leave to withhold a document or
category of documents as not relevant to the subject matter of the
proceeding or otherwise, for good cause shown.
(2) Nothing in this paragraph (b) authorizes the Division of
Enforcement in connection with an enforcement or disciplinary
proceeding to withhold, contrary to the doctrine of Brady v. Maryland,
373 U.S. 83, 87 (1963), documents that contain material exculpatory
evidence.
(c) Withheld Document List. The hearing officer may require the
Division of Enforcement to submit for review a list of documents
withheld pursuant to paragraphs (b)(1)-(b)(4) of this rule or to submit
any document withheld, and may determine whether any such document
should be made available for inspection and copying.
(d) Timing of Inspection and Copying. Unless otherwise ordered by
the Commission or the hearing officer, the Division of Enforcement
shall commence making documents available to a respondent for
inspection and copying pursuant to this rule no later than 14 days
after the respondent files an answer. In a proceeding in which a
temporary cease-and-desist order is sought pursuant to Rule 510 or a
temporary suspension of registration is sought pursuant to Rule 520,
documents shall be made available no later than the day after service
of the decision as to whether to issue a temporary cease-and-desist
order or temporary suspension order.
(e) Place of Inspection and Copying. Documents subject to
inspection and copying pursuant to this rule shall be made available to
the respondent for inspection and copying at the Commission office
where they are ordinarily maintained, or at such other place as the
parties, in writing, may agree. A respondent shall not be given custody
of the documents or leave to remove the documents from the Commission's
offices pursuant to the requirements of this rule other than by written
agreement of the Division of Enforcement. Such agreement shall specify
the documents subject to the agreement, the date they shall be returned
and such other terms or conditions as are appropriate to provide for
the safekeeping of the documents.
(f) Copying Costs and Procedures. The respondent may obtain a
photocopy of any documents made available for inspection. The
respondent shall be responsible for the cost of photocopying. Unless
otherwise ordered, charges for copies made by the Division of
Enforcement at the request of the respondent will be at the rate
charged pursuant to the fee schedule at 17 CFR 200.80e for copies. The
respondent shall be given access to the documents at the Commission's
offices or such other place as the parties may agree during normal
business hours for copying of documents at the respondent's expense.
(g) Issuance of Investigatory Subpoenas After Institution of
Proceedings. The Division of Enforcement shall promptly inform the
hearing officer and each party if investigatory subpoenas are issued
under the same investigation file number or pursuant to the same order
directing private investigation (``formal order'') under which the
investigation leading to the institution of proceedings was conducted.
The hearing officer shall order such steps as necessary and appropriate
to assure that the issuance of investigatory subpoenas after the
institution of proceedings is not for the purpose of obtaining evidence
relevant to the proceedings and that any relevant documents that may be
obtained through the use of investigatory subpoenas in a continuing
investigation are made available to each respondent for inspection and
copying on a timely basis.
(h) Failure to Make Documents Available--Harmless Error. In the
event [[Page 32762]] that a document required to be made available to a
respondent pursuant to this rule is not made available by the Division
of Enforcement, no rehearing or redecision of a proceeding already
heard or decided shall be required, unless the respondent shall
establish that the failure to make the document available was not a
harmless error.
Comment (a): A respondent's right to inspect and copy documents
under this rule is automatic; the respondent does not need to make a
formal request for access through the hearing officer. Generally, the
rule requires that the Division of Enforcement make available for
inspection and copying documents obtained by the Division from persons
not employed by the Commission during the course of its investigation
prior to the institution of proceedings. Except for final inspection or
examination reports prepared by the Division of Market Regulation or
the Division of Investment Management, documents prepared by Commission
staff are treated as attorney work product, and do not have to be made
available pursuant to this rule.
Rule 230 is not the exclusive means by which a respondent may
obtain access to or production of documents. Production of documents
prepared by the staff may be required under the doctrine of Brady v.
Maryland, 373 U.S. 83 (1963), or pursuant to Jencks Act requirements
made applicable to the Commission pursuant to Rule 231, or may be
sought by subpoena pursuant to Rule 232 or through other procedures.
See, e.g., Freedom of Information Act, 5 U.S.C. 552.
The Rule states that the Division of Enforcement shall (1) make
available for inspection and copying (2) documents (3) obtained by the
Division (4) in connection with the investigation leading to the
institution of proceedings.
(1) The Division of Enforcement is required to make documents
available for inspection and copying. It is not required to produce a
copy of the documents to each respondent. The definition of documents
is based in part on Federal Rule of Civil Procedure 34.
(2) The definition of the term ``documents'' in paragraph (a) is
modeled on the definition of documents in Rule 34 of the Federal Rules
of Civil Procedure.
(3) The Division of Enforcement's obligation under this rule
relates to documents obtained by the Division of Enforcement. Documents
located only in the files of other divisions or offices are beyond the
scope of the rule.
(4) The ``investigation leading to the Division's recommendation to
institute proceedings'' ordinarily is delineated by the investigation
number or numbers under which requests for documents, testimony or
other information were made. When an investigation is initiated by the
Division of Enforcement it is assigned a number, often referred to as
the ``case'' or ``investigation'' number. Each request for documents,
testimony or other information from persons not employed by the
Commission specifies the investigation or preliminary investigation
number to which it relates. In turn, each written recommendation by the
Division of Enforcement to institute proceedings identifies on its
cover page, by investigation number, the source investigation or
investigations to which it relates. Accordingly, the identity and
content of the appropriate investigation file or files from which
documents must be made available can be based on objective criteria.
Comment (b): Under paragraph (b), the Division can withhold
documents under four exceptions. Exception (1) shields information
subject to a claim of privilege. Exception (2) protects as attorney
work product internal documents prepared by Commission employees, which
will not be offered in evidence. Work product includes any notes,
working papers, memoranda or other similar materials, prepared by an
attorney in anticipation of litigation. See Hickman v. Taylor, 329 U.S.
495 (1947); see also Fed. R. Civ. P. 26(b)(3) and (b)(5). Accountants,
paralegals and investigators who work on an investigation do so at the
direction of the director, an associate director, an associate regional
administrator or another supervisory attorney, and their work product
is therefore shielded by the rule. An examination or inspection report
prepared by the Division of Market Regulation or the Division of
Investment Management is not prepared in anticipation of litigation,
and is therefore explicitly excluded from the materials that may be
withheld. A respondent's claim that work product should be turned over
will necessarily be evaluated on a case-by-case basis.
Exception (3) protects the identity of a confidential source. See 5
U.S.C. 552(b)(7)(C) and (D). Exception (4) protects any other document
or category of documents that the hearing officer determines may be
withheld as not relevant to the subject matter of the proceeding, or
otherwise for good cause shown. This exception provides a mechanism to
address a situation where a single investigation involves a discrete
segment or segments that are related only indirectly, or not at all, to
the recommendations ultimately made to the Commission with respect to
the particular respondents in a specific proceeding. To require that
documents not relevant to the subject matter of the proceeding be made
available, simply because they were obtained as part of a broad
investigation, burdens the respondent as well as the Division of
Enforcement with unnecessary costs and delay.
For example, a single investigation may encompass inquiry into an
issuer's allegedly false accounting disclosure and an unrelated
manipulation of the issuer's securities by a third party. If the
recommendation to the Commission and resulting administrative
proceeding involve only the accounting disclosures, the Division could
seek leave to withhold trading records, transcripts and other documents
related to the manipulation investigation.
Comment (c): The hearing officer may, in his or her discretion,
override any exception claimed by the Division and order the Division
to produce withheld items.
Comment (g): In some circumstances, for example, where a temporary
cease-and-desist order is sought, or where a single formal order is
being used to investigate several distinct areas of potential
violations, proceedings may be instituted prior to the end of all
investigative activities. To allow the hearing officer to take
appropriate steps to assure that investigative subpoenas are not used
for the purpose of gathering information for use in the proceeding,
paragraph (g) requires the Division of Enforcement to notify the
hearing officer and each party if the Division is continuing to issue
investigative subpoenas under the same investigation file number or
order directing private investigation (``formal order'') used in the
investigation leading to the institution of proceedings.
Revision Comment: As stated in the proposing release, the intent of
the Rule is to codify existing staff practice with respect to
voluntarily making available documents for inspection or copying. See
Comments to proposed Rules 20 and 21, 58 FR 61750-51 (Nov. 22, 1993).
The staff practice reflected an informal policy of the Division of
Enforcement staff in the Headquarters Office and certain Regional
Offices to make available to respondents major portions of the
Division's investigation file. The policy evolved over many years and
was implemented differently by different offices. Rule 230 seeks to
respond to the criticism of commenters without establishing document
production requirements, suggested by several commenters, that are not
a part of existing practice.
Proposed Rule 20 would have required the production of ``all
[[Page 32763]] documents, including transcripts of testimony, relevant
to any allegation in the order instituting proceedings'' and excepted
from production various documents including those ``obtained during the
course of a pending nonpublic investigation, unless the documents will
be relied upon by the interested division during the course of the
hearing.'' One commenter suggested that the scope of required
production was too narrow and ill defined, thereby providing too much
discretion to the Division of Enforcement staff to determine whether a
document was relevant. For example, it was suggested that a respondent
should be entitled to information relevant to the scope of requested
relief as well as allegations of liability. Moreover, the commenter
explained, the exception for documents from pending investigations
could negate the requirement to produce if the investigation that led
to an enforcement proceeding is still continuing with respect to other
persons or activities.
With exceptions for documents that are privileged, work product, or
would reveal a confidential source, the revised rule requires that
documents obtained from persons outside the Commission as part of the
investigation leading to institution of proceedings be made available
for inspection and copying. In addition, the Division of Enforcement
may seek leave of the hearing officer to withhold other documents. The
rule no longer calls upon the Division of Enforcement staff to make
relevancy determinations.
As proposed, Rule 20 would have allowed the Division to withhold
documents ``obtained during the course of a pending nonpublic
investigation, unless the documents will be relied upon by the
interested division during the course of the hearing.'' This provision
was intended to address the possibility, particularly where a temporary
cease-and-desist order was sought, that the investigation that led to
proceedings was continuing as to other persons or events after the
institution of proceedings. As revised, Rule 230 provides that the
Division of Enforcement shall promptly inform the hearing officer and
each party if investigatory subpoenas are issued under the same
investigation file number or pursuant to the same formal order under
which the investigation leading to the recommendation to institute
proceedings was conducted. The hearing officer will then order such
steps as are necessary and appropriate with regard to documents
obtained in the ongoing investigation.
In order to provide for the safekeeping of documents subject to
inspection, and to control costs associated with implementation of the
rule, the revised rule provides that documents shall be made available
for inspection and copying at the Commission office where they are
ordinarily maintained, or at such other place as the parties may agree.
The Commission considered alternatives raised by commenters. None
appear more likely to result in prompt access to documents obtained by
the Division of Enforcement that are the basis of the Division's
allegations.
Rule 231. Enforcement and Disciplinary Proceedings: Production of
Witness Statements
(a) Availability. Any respondent in an enforcement or disciplinary
proceeding may move that the Division of Enforcement produce for
inspection and copying any statement of any person called or to be
called as a witness by the division that pertains, or is expected to
pertain, to his or her direct testimony and that would be required to
be produced pursuant to the Jencks Act, 18 U.S.C. 3500. Such production
shall be made at a time and place fixed by the hearing officer and
shall be made available to any party, provided, however, that the
production shall be made under conditions intended to preserve the
items to be inspected or copied.
(b) Failure to Produce--Harmless Error. In the event that a
statement required to be made available for inspection and copying by a
respondent is not turned over by the Division of Enforcement, no
rehearing or redecision of a proceeding already heard or decided shall
be required unless the respondent establishes that the failure to turn
over the statement was not harmless error.
Comment: Prior statements by witnesses memorialized in transcripts
during the investigation that led to a proceeding fall within the scope
of Rule 230 as well as Rule 231. Where the staff believes a witness
statement falls outside the purview of the rule, the hearing officer
may require that the documents in question be turned over for in camera
inspection. See, e.g., In the Matter of Thomas J. Fittin, Jr., Exchange
Act Release No. 29173, 48 SEC Docket 1474, 1483 (May 21, 1991); In the
Matter of Robert E. Iles, Sr., Admin. Proc. Rulings Release No. 367
(Apr. 19, 1990), 52 SEC Docket 750 (Aug. 18, 1992) (order relating to
Brady v. Maryland and Jencks Act issues).
The Jencks Act does not require production of a witness's prior
statement until the witness takes the stand. In Commission proceedings
administrative law judges often required production prior to the start
of the hearing, and the Division of Enforcement now provides such
prehearing production voluntarily in most circumstances. Submission of
a witness's prior statement, however, may provide a motive for
intimidation of that witness or improper contact by a respondent with
the witness. The rule provides, therefore, that the time for delivery
of witness statements is to be determined by the hearing officer, so
that a case-specific determination of such risks can be made if
necessary. Upon a showing that there is substantial risk of improper
use of a witness's prior statement, the hearing officer may take
appropriate steps, for example, delaying production of a prior
statement, or prohibiting parties from communicating with particular
witnesses.
Rule 232. Subpoenas
(a) Availability; Procedure. In connection with any hearing ordered
by the Commission, a party may request the issuance of subpoenas
requiring the attendance and testimony of witnesses at the designated
time and place of hearing, and subpoenas requiring the production of
documentary or other tangible evidence returnable at any designated
time or place. Unless made on the record at a hearing, requests for
issuance of a subpoena shall be made in writing and served on each
party pursuant to Rule 150. A person whose request for a subpoena has
been denied or modified may not request that any other person issue the
subpoena.
(1) Unavailability of Hearing Officer. In the event that the
hearing officer assigned to a proceeding is unavailable, the party
seeking issuance of the subpoena may seek its issuance from the first
available of the following persons: the Chief Administrative Law Judge,
the law judge most senior in service as a law judge, the duty officer,
any other member of the Commission, or any other person designated by
the Commission to issue subpoenas. Requests for issuance of a subpoena
made to the Commission, or any member thereof, must be submitted to the
Secretary, not to an individual Commissioner.
(2) Signing May be Delegated. A hearing officer may authorize
issuance of a subpoena, and may delegate the manual signing of the
subpoena to any other person authorized to issue subpoenas.
(b) Standards for Issuance. Where it appears to the person asked to
issue the subpoena that the subpoena sought may be unreasonable,
oppressive, excessive in scope, or unduly burdensome, he or she may, in
his or her discretion, as a [[Page 32764]] condition precedent to the
issuance of the subpoena, require the person seeking the subpoena to
show the general relevance and reasonable scope of the testimony or
other evidence sought. If after consideration of all the circumstances,
the person requested to issue the subpoena determines that the subpoena
or any of its terms is unreasonable, oppressive, excessive in scope, or
unduly burdensome, he or she may refuse to issue the subpoena, or issue
it only upon such conditions as fairness requires. In making the
foregoing determination, the person issuing the subpoena may inquire of
the other participants whether they will stipulate to the facts sought
to be proved.
(c) Service. Service shall be made pursuant to the provisions of
Rule 150(b)-(d). The provisions of this paragraph (c) shall apply to
the issuance of subpoenas for purposes of investigations, as required
by 17 CFR 203.8, as well as hearings.
(d) Tender of fees required. When a subpoena compelling the
attendance of a person at a hearing or deposition is issued at the
instance of anyone other than an officer or agency of the United
States, service is valid only if the subpoena is accompanied by a
tender to the subpoenaed person of the fees for one day's attendance
and mileage specified by paragraph (f) of this rule.
(e) Application to Quash or Modify. (1) Procedure. Any person to
whom a subpoena is directed or who is an owner, creator or the subject
of the documents that are to be produced pursuant to a subpoena may,
prior to the time specified therein for compliance, but in no event
more than 15 days after the date of service of such subpoena, request
that the subpoena be quashed or modified. Such request shall be made by
application filed with the Secretary and served on all parties pursuant
to Rule 150. The party on whose behalf the subpoena was issued may,
within five days of service of the application, file an opposition to
the application. If a hearing officer has been assigned to the
proceeding, the application to quash shall be directed to that hearing
officer for consideration, even if the subpoena was issued by another
person.
(2) Standards Governing Application to Quash or Modify. If
compliance with the subpoena would be unreasonable, oppressive or
unduly burdensome, the hearing officer or the Commission shall quash or
modify the subpoena, or may order return of the subpoena only upon
specified conditions. These conditions may include but are not limited
to a requirement that the party on whose behalf the subpoena was issued
shall make reasonable compensation to the person to whom the subpoena
was addressed for the cost of copying or transporting evidence to the
place for return of the subpoena.
(f) Witness Fees and Mileage. Witnesses summoned before the
Commission shall be paid the same fees and mileage that are paid to
witnesses in the courts of the United States, and witnesses whose
depositions are taken and the persons taking the same shall severally
be entitled to the same fees as are paid for like services in the
courts of the United States. Witness fees and mileage shall be paid by
the party at whose instance the witnesses appear.
Comment (a): Rule 232 requires that, unless made on the record at a
hearing, subpoena requests must be in writing. Ex parte, oral
communication with the hearing officer concerning the need for issuance
of a subpoena creates the opportunity for unintended and potentially
improper discussion of the merits of a case.
Comment (b): Rule 232(b) is based upon Section 555(d) of the
Administrative Procedure Act, 5 U.S.C. 555(d).
Revision Comment: Under the former Rule 14 of the Rules of Practice
and the proposed rules, neither the fact that a subpoena was sought nor
the identity of the person subpoenaed was disclosed. Comment was
requested as to whether the identity of the persons subpoenaed should
be disclosed to other parties, and if so, when such disclosure should
take place. One commenter suggested that the identity of persons
subpoenaed should be disclosed to all other parties and an application
to quash should be served on all parties. The Commission believes that
these suggestions are consistent with other changes made to increase
the prehearing exchange of information. Accordingly, Rule 232 has been
revised to incorporate these suggestions.
Commenters also suggested that respondents be allowed to issue
subpoenas for the purpose of compelling prehearing discovery
depositions as is allowed in actions under the Federal Rules of Civil
Procedure. See Fed. R. Civ. P. 30(a)(1). Discovery under the Federal
Rules of Civil Procedure, including deposition practice, is often a
source of delay, extensive collateral disputes and high litigation
costs. See Fair and Efficient Administrative Proceedings: Report of the
Task Force on Administrative Proceedings (1993) at 47-48. One commenter
suggested that the disadvantages of oral deposition practice under the
Federal Rules of Civil Procedure could be avoided by permitting
depositions only by order of the hearing officer; by limiting each
respondent to five depositions, unless additional depositions were
approved by the hearing officer; and by requiring all depositions to be
completed within 90 days of the close of document discovery.
The Commission has weighed the arguments advanced in favor of
expanding the scope of prehearing discovery to permit oral depositions
as suggested and has concluded that a rule authorizing discovery
depositions is not warranted.
First, the Commission's experience in federal court litigation
strongly suggests that notwithstanding the proposed restriction for the
use of discovery depositions, there remains a significant potential for
extensive collateral litigation over their use. Under the commenter's
proposal, for example, each respondent could seek leave to take more
than five depositions, and might contest, through motions for
interlocutory review and arguments on appeal, any denial of additional
depositions by the hearing officer.
Second, the suggestion to limit depositions to the 90-day period
after the close of ``document discovery'' conflicts with the statutory
timetable for cease-and-desist proceedings, the fastest growing
category of enforcement proceedings. When a cease-and-desist order is
sought, the Commission is required to set a hearing date not earlier
than 30 days nor later than 60 days after service of the order
instituting proceedings, unless an earlier or a later date is set by
the Commission with the consent of a respondent. See, e.g., Exchange
Act 21C(b), 15 U.S.C. Sec. 78u-3(b). In a proceeding with multiple
respondents, one respondent's decision not to consent to a later
hearing date, or to consent to an extension less than that sought by
other respondents, would give rise to difficult and time-consuming
collateral issues over scheduling, and could necessitate multiple
hearings. Even without such complications, a 90-day period for
depositions, in addition to a period for inspection and copying of
documents, would represent a significant departure from the statute.
Third, the rationale for permitting oral depositions in litigation
under the Federal Rules of Civil Procedure does not apply equally to a
Commission administrative proceeding. In the typical civil action,
where neither party can compel testimony prior to the filing of the
complaint, oral depositions play a critical role in permitting evidence
to be gathered prior to trial. Also, a plaintiff in the typical civil
action is not required before filing to vet a proposed
[[Page 32765]] lawsuit either with the defendant or anyone else. In
this context, discovery, including depositions, is a crucial adjunct to
motions to dismiss, summary judgment, and other procedural mechanisms
designed to allow an assessment by the judge whether the allegations of
the complaint are sufficient to warrant trial.
By contrast, in administrative proceedings brought by the
Commission, there is ordinarily a detailed pre-institution fact finding
investigation and a rigorous pre-institution review process. At the
close of the investigation, a respondent is usually told the general
conclusions reached by the Division of Enforcement and is afforded an
opportunity to submit a written ``Wells'' statement presenting
arguments against commencement of an action. See Commission's decisions
on advisory committee recommendations regarding commencement of
enforcement proceedings and termination of staff investigations,
Securities Act Release No. 5310, 38 FR 5457 (Mar. 1, 1973). No
proceedings are instituted unless a majority of the Commission votes to
authorize proceedings after reviewing both a report on the
investigation's findings from the Division of Enforcement and any Wells
statement that is submitted. If proceedings are authorized, the
documents and transcripts obtained from persons not employed by the
Commission in the investigation are shared with the respondent. The
benefits from and need for oral depositions are therefore different and
less important in the context of Commission administrative proceedings
than they may be in litigation between private parties under the
Federal Rules of Civil Procedure.
Finally, the revised Rules of Practice include two new provisions
that address in significant part a respondent's interest in obtaining
discovery prior to the start of the hearing. Rule 232 authorizes the
issuance of subpoenas duces tecum for the production of documents
returnable at any designated time or place. Rule 230 mandates that the
Division of Enforcement generally make available documents and
transcripts of testimony obtained from persons other than employees of
the Commission in the investigation leading to the proceeding.
One commenter suggested that the opportunity to review transcripts
of investigative depositions was not sufficient. The commenter noted
that knowledge gained during an investigation is cumulative. Division
of Enforcement staff are unable to question each witness as thoroughly
during the course of an investigation, particularly in the early
stages, as can be done in a post-investigation deposition. Further, an
investigator on the Division of Enforcement staff will not necessarily
ask the same questions as would a respondent. Moreover, even where
investigative testimony is complete, the transcript provided to
respondents is not a full substitute for the opportunity during live
testimony to observe a witness's demeanor as well as to hear the
content of a witness's answers.
These reasons establish support for an opportunity after the
investigation for both the respondent and the Division of Enforcement
to subpoena witnesses and question them under oath--an opportunity
available at the hearing. They do not establish the need for prehearing
depositions as well. Permitting post-investigation, prehearing
depositions would afford a respondent information that may be useful in
advance of hearing. However, given the newly established right to
subpoena documents prior to hearing, the marginal benefits of
prehearing depositions are not justified by their likely cost in time,
expense, collateral disputes and scheduling complexities.
Rule 233. Depositions Upon Oral Examination
(a) Procedure. Any party desiring to take the testimony of a
witness by deposition shall make a written motion setting forth the
reasons why such deposition should be taken including the specific
reasons why the party believes the witness will be unable to attend or
testify at the hearing; the name and address of the prospective
witness; the matters concerning which the prospective witness is
expected to be questioned; and the proposed time and place for the
taking of the deposition.
(b) Required Finding When Ordering a Deposition. In the discretion
of the Commission or the hearing officer, an order for deposition may
be issued upon a finding that the prospective witness will likely give
testimony material to the proceeding, that it is likely the prospective
witness will be unable to attend or testify at the hearing because of
age, sickness, infirmity, imprisonment or other disability, and that
the taking of a deposition will serve the interests of justice.
(c) Contents of Order. An order for deposition shall designate by
name a deposition officer. The designated officer may be the hearing
officer or any other person authorized to administer oaths by the laws
of the United States or of the place where the deposition is to be
held. An order for deposition also shall state:
(1) the name of the witness whose deposition is to be taken;
(2) the scope of the testimony to be taken;
(3) the time and place of the deposition;
(4) the manner of recording, preserving and filing the deposition;
and
(5) the number of copies, if any, of the deposition and exhibits to
be filed upon completion of the deposition.
(d) Procedure at Depositions. A witness whose testimony is taken by
deposition shall be sworn or shall affirm before any questions are put
to him or her. Examination and cross-examination of deponents may
proceed as permitted at a hearing. The witness being deposed may have
counsel present during the deposition.
(e) Objections to Questions or Evidence. Objections to questions or
evidence shall be in short form, stating the grounds of objection
relied upon. Objections to questions or evidence shall be noted by the
deposition officer upon the deposition, but a deposition officer other
than the hearing officer shall not have the power to decide on the
competency, materiality or relevance of evidence. Failure to object to
questions or evidence before the deposition officer shall not be deemed
a waiver unless the ground of the objection is one that might have been
obviated or removed if presented at that time.
(f) Filing of Depositions. The questions propounded and all answers
or objections shall be recorded or transcribed verbatim, and a
transcript prepared by the deposition officer, or under his or her
direction. The transcript shall be subscribed by the witness and
certified by the deposition officer. The original deposition and
exhibits shall be filed with the Secretary. A copy of the deposition
shall be available to the deponent and each party for purchase at
prescribed rates.
(g) Payment. The cost of the transcript shall be paid by the party
requesting the deposition.
Comment: Depositions under the Rules of Practice are used only to
preserve testimony of a witness who would be unlikely to be able to
attend the hearing. They are not allowed for purposes of discovery. See
In the Matter of Central and South West Corp., Admin. Proc. Rulings
Release No. 184 (July 14, 1976), 52 SEC Docket 375 (Aug. 18, 1992)
(citing L.M. Rosenthal & Co., Inc., Admin. Proc. File No. 3-4330 (Jan.
30, 1974)); see also In the Matter of Gail G. Griseuk, Admin. Proc.
Rulings Release 440 (Aug. 31, 1994), 57 SEC Docket 1488 (Sept. 27,
1994) (formal [[Page 32766]] discovery procedures are not available in
Commission administrative proceedings).
Comment (c): The criteria for serving as a deposition officer are
based on the criteria in Rule 28 of the Federal Rules of Civil
Procedure.
Revision Comment (b): Under Proposed Rule 22, the criteria for
whether to allow a deposition to be taken were not consistent with the
criteria for allowing the deposition to be introduced. As revised, the
criteria for permitting a deposition are consistent with the criteria
of Rule 235 for introducing a prior sworn statement of a witness.
Depositions are no longer required to be filed under seal, although
a confidentiality order may be sought. See Rule 322.
Rule 234. Depositions Upon Written Questions
(a) Availability. Depositions may be taken and submitted on written
questions upon motion of any party. The motion shall include the
information specified in Rule 233(a). A decision on the motion shall be
governed by the provisions of Rule 233(b).
(b) Procedure. Written questions shall be filed with the motion.
Within 10 days after service of the motion and written questions, any
party may file objections to such written questions and any party may
file cross-questions. When a deposition is taken pursuant to this rule
no persons other than the witness, counsel to the witness, the
deposition officer, and, if the deposition officer does not act as
reporter, a reporter, shall be present at the examination of the
witness. No party shall be present or represented unless otherwise
permitted by order. The deposition officer shall propound the questions
and cross-questions to the witness in the order submitted.
(c) Additional Requirements. The order for deposition, filing of
the deposition, form of the deposition and use of the deposition in the
record shall be governed by paragraphs (c) through (g) of Rule 233,
except that no cross-examination shall be made.
Comment: The procedures for depositions upon written questions are
based in part on Rule 31 of the Federal Rules of Civil Procedure.
Rule 235. Introducing Prior Sworn Statements of Witnesses into the
Record
(a) At a hearing, any person wishing to introduce a prior, sworn
statement of a witness, not a party, otherwise admissible in the
proceeding, may make a motion setting forth the reasons therefor. If
only part of a statement is offered in evidence, the hearing officer
may require that all relevant portions of the statement be introduced.
If all of a statement is offered in evidence, the hearing officer may
require that portions not relevant to the proceeding be excluded. A
motion to introduce a prior sworn statement may be granted if:
(1) the witness is dead;
(2) the witness is out of the United States, unless it appears that
the absence of the witness was procured by the party offering the prior
sworn statement;
(3) the witness is unable to attend or testify because of age,
sickness, infirmity, imprisonment or other disability;
(4) the party offering the prior sworn statement has been unable to
procure the attendance of the witness by subpoena; or,
(5) in the discretion of the Commission or the hearing officer, it
would be desirable, in the interests of justice, to allow the prior
sworn statement to be used. In making this determination, due regard
shall be given to the presumption that witnesses will testify orally in
an open hearing. If the parties have stipulated to accept a prior sworn
statement in lieu of live testimony, consideration shall also be given
to the convenience of the parties in avoiding unnecessary expense.
Revision Comment: Proposed Rule 22, which addressed the
introduction of a deposition as part of the record, did not state
whether it applied to any deposition, or only a deposition taken
pursuant to the Rules of Practice. Rule 235 specifies the circumstances
under which prior sworn statements by a witness are admissible. One
commenter suggested making the stipulation of the parties to accept a
deposition in lieu of live testimony a factor in determining whether a
deposition already taken should be admitted in evidence. The rule was
revised accordingly.
Rule 240. Settlement
(a) Availability. Any person who is notified that a proceeding may
or will be instituted against him or her, or any party to a proceeding
already instituted, may, at any time, propose in writing an offer of
settlement.
(b) Procedure. An offer of settlement shall state that it is made
pursuant to this rule; shall recite or incorporate as a part of the
offer the provisions of paragraphs (c)(4) and (5) of this rule; shall
be signed by the person making the offer, not by counsel; and shall be
submitted to the interested division.
(c) Consideration of Offers of Settlement. (1) Offers of settlement
shall be considered by the interested division when time, the nature of
the proceedings, and the public interest permit.
(2) Where a hearing officer is assigned to a proceeding, the
interested division and the party submitting the offer may request that
the hearing officer express his or her views regarding the
appropriateness of the offer of settlement. A request for the hearing
officer to express his or her views on an offer of settlement or
otherwise to participate in a settlement conference constitutes a
waiver by the persons making the request of any right to claim bias or
prejudgment by the hearing officer based on the views expressed.
(3) The interested division shall present the offer of settlement
to the Commission with its recommendation, except that, if the
division's recommendation is unfavorable, the offer shall not be
presented to the Commission unless the person making the offer so
requests.
(4) By submitting an offer of settlement, the person making the
offer waives, subject to acceptance of the offer:
(i) all hearings pursuant to the statutory provisions under which
the proceeding is to be or has been instituted;
(ii) the filing of proposed findings of fact and conclusions of
law;
(iii) proceedings before, and an initial decision by, a hearing
officer;
(iv) all post-hearing procedures; and
(v) judicial review by any court.
(5) By submitting an offer of settlement the person further waives:
(i) such provisions of the Rules of Practice or other requirements
of law as may be construed to prevent any member of the Commission's
staff from participating in the preparation of, or advising the
Commission as to, any order, opinion, finding of fact, or conclusion of
law to be entered pursuant to the offer; and
(ii) any right to claim bias or prejudgment by the Commission based
on the consideration of or discussions concerning settlement of all or
any part of the proceeding.
(6) If the Commission rejects the offer of settlement, the person
making the offer shall be notified of the Commission's action and the
offer of settlement shall be deemed withdrawn. The rejected offer shall
not constitute a part of the record in any proceeding against the
person making the offer, provided, however, that rejection of an offer
of settlement does not affect the continued validity of waivers
pursuant to paragraph (c)(5) of this rule with respect to any
discussions concerning the rejected offer of settlement.
[[Page 32767]]
(7) Final acceptance of any offer of settlement will occur only
upon the issuance of findings and an order by the Commission.
Comment: In proceedings required to be conducted ``on the record,''
Section 554(c) of the Administrative Procedure Act, 5 U.S.C.
Sec. 554(c), requires that administrative agencies give interested
parties the opportunity for the submission and consideration of offers
of settlement ``when time, the nature of the proceeding, and the public
interest permit.'' Cf. Table I, Subpart D, 17 CFR 201 (listing
Commission proceedings required to be conducted ``on the record''). It
is the Commission's practice to provide such an opportunity in all
proceedings, whether or not the proceeding is required to be conducted
``on the record.''
Although the staff is authorized to participate in settlement
negotiations under various circumstances, the Commission must approve
every settlement.
Rule 240 addresses offers of settlement made both prior to and
after the institution of proceedings. The Rule requires each offer of
settlement to recite or incorporate as part of the offer the provisions
of paragraphs (c)(4) and (5). Certain facts necessary for the
Commission to make a reasoned judgment as to whether settlement offer
is in the public interest are often available only to the staff that
negotiated the proposed settlement. Paragraph (c)(5)(i) requires waiver
of any provisions that may be construed to prohibit ex parte
communications regarding the settlement offer between the Commission
and staff involved in litigating the proceeding. Paragraph (c)(5)(ii)
requires waiver of any right to claim bias or prejudgment by the
Commission arising from the Commission's consideration or discussion
concerning settlement of all or any part of the proceeding.
Revision Comment: The Commission considered but declined to accept
one commenter's suggestion that the rule regarding settlements should
retain a provision of former Rule 8(a)(3) that, where the Commission
deemed it appropriate, the Commission also may give the party making an
offer an opportunity to make an oral presentation. The Commission
considers hundreds of settlement offers each year. Given the volume of
settlements, it would require significant resources to rule on oral
presentation requests, to address collateral disputes if a request was
denied, and to hear presentations if requests were granted. While the
Commission has authority to permit oral presentations at any time, see
Rule 451, based on its experience, the Commission does not believe that
oral presentations by a respondent in support of a written offer of
settlement would aid the Commission's decisional process.
Rule 250. Motion for Summary Disposition
(a) After a respondent's answer has been filed and, in an
enforcement or a disciplinary proceeding, documents have been made
available to that respondent for inspection and copying pursuant to
Rule 230, the respondent, or the interested division may make a motion
for summary disposition of any or all allegations of the order
instituting proceedings with respect to that respondent. If the
interested division has not completed presentation of its case in
chief, a motion for summary disposition shall be made only with leave
of the hearing officer. The facts of the pleadings of the party against
whom the motion is made shall be taken as true, except as modified by
stipulations or admissions made by that party, by uncontested
affidavits, or by facts officially noted pursuant to Rule 323.
(b) The hearing officer shall promptly grant or deny the motion for
summary disposition or shall defer decision on the motion. The hearing
officer may grant the motion for summary disposition if there is no
genuine issue with regard to any material fact and the party making the
motion is entitled to a summary disposition as a matter of law. If it
appears that a party, for good cause shown, cannot present by affidavit
prior to hearing facts essential to justify opposition to the motion,
the hearing officer shall deny or defer the motion. A hearing officer's
decision to deny leave to file a motion for summary disposition is not
subject to interlocutory appeal.
(c) The motion for summary disposition, supporting memorandum of
points and authorities, and any declarations, affidavits or attachments
shall not exceed 35 pages in length.
Comment: The rule applies to enforcement proceedings and
disciplinary proceedings as well as any other proceeding in which a
hearing is scheduled. Motions for disposition prior to hearing may
provide particular benefits in regulatory proceedings. Enforcement or
disciplinary proceedings in which a motion for disposition prior to
hearing would be appropriate are likely to be less common. Typically,
enforcement and disciplinary proceedings that reach litigation involve
genuine disagreement between the parties as to material facts. Where a
genuine issue as to material facts clearly exists as to an issue, it
would be inappropriate for a party to seek leave to file a motion for
summary disposition or for a hearing officer to grant the motion. While
partial disposition may be appropriate in some cases, a hearing will
still often be necessary in order to determine a respondent's state of
mind and the need for remedial sanctions if liability is found.
Summary disposition is a procedure that can resolve issues prior to
hearing, thereby reducing the costs of hearing and expediting
resolution of the proceeding. The possibility that such motions may
simplify the proceeding should not be allowed to delay the planned
start of the hearing, however. The hearing officer is authorized to set
schedules for the submission of summary disposition motions in order to
prevent the use of such motions as a tactic for delay or as a means for
needlessly increasing the costs of prehearing preparation. The hearing
officer may deny or defer a ruling on such a motion if it is not filed
timely in light of the prehearing schedule. Nothing in Rule 250 should
be construed to create a right to prehearing depositions or other
discovery not otherwise provided for by these rules in order to support
or oppose such a motion.
Revision Comment: Most major agencies in the federal system have
made available some form of summary disposition procedure. See Puerto
Rico Aqueduct & Sewer Authority v. EPA, 35 F.3d 600, 606 (1st Cir.
1994), cert. denied, 115 S. Ct. 1096 (1995) (listing agencies that
provide for summary disposition). Rule 250 expressly permits a
dispositive motion prior to hearing to be made to and decided by the
hearing officer, a reversal of practice under former Rule 11(e) which
required such decisions to be made by the Commission.
One commenter recommended that the proposed rule allowing for
dispositive motions be modified to permit a procedure similar or
identical to a motion for summary judgment under Rule 56 of the Federal
Rules of Civil Procedure. That commenter also recommended that a
summary judgment remedy be available to respondents only, unless a
staff motion for summary judgment triggered a respondent's right to
take discovery depositions to secure evidence necessary to show the
existence of a genuine factual dispute.
The Commission gave detailed consideration to both proposals. Rule
250 balances the potential efficiency gained by allowing the hearing
officer to eliminate unnecessary hearings in some [[Page 32768]] cases
against the costs of allowing additional motions, prehearing procedures
and the attendant delay in cases where a hearing in which all evidence
can be presented and witness demeanor can be observed is warranted.
As noted in the Revision Comment to Rule 232, pretrial procedures
developed under the Federal Rules of Civil Procedure, including summary
judgment under Rule 56, must be viewed in context. The Federal Rules of
Civil Procedure govern a judicial system that deals most frequently
with disputes between private parties. Unlike in Commission
proceedings, in the typical private party civil action there is no
opportunity to conduct a pre-filing investigation with the use of
subpoenas; no formal opportunity such as a Wells submission, see 17 CFR
202.5(c), for the opposing party to present reasons against the
initiation of an action; and no panel of public officials, such as the
Commission, that must authorize the filing of a complaint. In addition,
because of the priority of criminal caseloads, there is a high premium
on providing trial dates for civil matters. Thus, the rationales that
justify prehearing summary disposition procedures under the Federal
Rules of Civil Procedure do not apply equally to Commission
administrative proceedings.
Also as noted in the Revision Comment to Rule 232, the statutory
schedule for cease-and-desist proceedings provides no realistic
opportunity for summary judgment procedures comparable to those allowed
under the Federal Rules of Civil Procedure. It is the Commission's
view, therefore, that procedures to allow for the disposition of a case
prior to hearing have a potentially useful role in the administrative
process, but one that is more limited than summary judgment under the
Federal Rules of Civil Procedure.
It was also suggested that the Commission should permit the use of
affidavits in support of a motion for summary disposition. The text of
the proposed rule did not set forth any limitation on the filing of
affidavits in connection with a dispositive motion. The comment to the
proposed rule, however, stated that affidavits were not contemplated.
After further consideration, the Commission has decided that affidavits
or declarations should be allowed, subject to limitations on their
length.
Typically, Commission proceedings that reach litigation involve
basic disagreement as to material facts. Based on past experience, the
circumstances when summary disposition prior to hearing could be
appropriately sought or granted will be comparatively rare. Consistent
with the goal of various other rules to facilitate the hearing
officer's control over the prehearing scheduling, the revised rule
requires leave of the hearing officer prior to filing a motion for
summary disposition at any time prior to completion of the interested
division's case in chief. See Rules 221 and 222. Such leave shall be
granted only for good cause shown, and if consideration of the motion
will not delay the scheduled start of the hearing.
The Commission will monitor closely the use of the procedures for
disposition prior to hearing to determine whether they operate as
intended to create more streamlined proceedings and an elimination of
needless hearings, or whether the availability of such procedures
operates as a source of delay, expense or harassment.
Rules Regarding Hearings
Rule 300. Hearings
Hearings for the purpose of taking evidence shall be held only upon
order of the Commission. All hearings shall be conducted in a fair,
impartial, expeditious and orderly manner.
Rule 301. Hearings to Be Public
All hearings, except hearings on applications for confidential
treatment filed pursuant to Rule 190, hearings held to consider a
motion for a protective order pursuant to Rule 322, and hearings on ex
parte application for a temporary cease-and-desist order, shall be
public unless otherwise ordered by the Commission on its own motion or
the motion of a party. No hearing shall be nonpublic where all
respondents request that the hearing be made public.
Rule 302. Record of Hearings
(a) Recordation. Unless ordered otherwise by the hearing officer or
the Commission, all hearings shall be recorded and a written transcript
thereof shall be prepared.
(b) Availability of a Transcript. Transcripts of public hearings
shall be available for purchase at prescribed rates. Transcripts of
nonpublic proceedings, and transcripts subject to a protective order
pursuant to Rule 322, shall be available for purchase only by parties,
provided, however, that any person compelled to submit data or evidence
in a hearing may purchase a copy of his or her own testimony.
(c) Transcript Correction. Prior to the filing of post-hearing
briefs or proposed findings and conclusions, or within such earlier
time as directed by the Commission or the hearing officer, a party or
witness may make a motion to correct the transcript. Proposed
corrections of the transcript may be submitted to the hearing officer
by stipulation pursuant to Rule 324, or by motion. Upon notice to all
parties to the proceeding, the hearing officer may, by order, specify
corrections to the transcript.
Comment (b): The Administrative Procedure Act (APA) provides that
any person compelled to submit data or evidence in a non-investigatory
proceeding may purchase a copy of his or her own testimony. See 5
U.S.C. 555(c). In addition, Section 11 of the Federal Advisory
Committee Act (FACA) requires that an agency make available copies of
transcripts of agency proceedings as defined in Section 551(12) of the
APA, 5 U.S.C. Sec. 555(c). See FACA, 5 U.S.C. App. (1988), 86 Stat.
770.
Rule 310. Failure to Appear at Hearings: Default
Any person named in an order instituting proceedings as a person
against whom findings may be made or sanctions imposed who fails to
appear at a hearing of which he or she has been duly notified may be
deemed to be in default pursuant to Rule 155(a). A party may make a
motion to set aside a default pursuant to Rule 155(b).
Rule 320. Evidence: Admissibility
The Commission or the hearing officer may receive relevant evidence
and shall exclude all evidence that is irrelevant, immaterial or unduly
repetitious.
Comment: Rule 320 restates the Administrative Procedure Act (APA)
standard for the reception of evidence. 5 U.S.C. 556(c)(3) and (d).
While Section 556 of the APA applies only to proceedings which are ``on
the record'' pursuant to 5 U.S.C. 554(a), Rule 320 applies to all
proceedings, as defined in Rule 101(a), before the Commission or a
hearing officer.
Rule 321. Evidence: Objections and Offers of Proof
(a) Objections. Objections to the admission or exclusion of
evidence must be made on the record and shall be in short form, stating
the grounds relied upon. Exceptions to any ruling thereon by the
hearing officer need not be noted at the time of the ruling. Such
exceptions will be deemed waived on appeal to the Commission, however,
unless raised:
(1) pursuant to interlocutory review in accordance with Rule 400;
[[Page 32769]]
(2) in a proposed finding or conclusion filed pursuant to Rule 340;
or
(3) in a petition for Commission review of an initial decision
filed in accordance with Rule 410.
(b) Offers of Proof. Whenever evidence is excluded from the record,
the party offering such evidence may make an offer of proof, which
shall be included in the record. Excluded material shall be retained
pursuant to Rule 350(b).
Rule 322. Evidence: Confidential Information, Protective Orders
(a) Procedure. In any proceeding as defined in Rule 101(a), a
party; any person who is the owner, subject or creator of a document
subject to subpoena or which may be introduced as evidence; or any
witness who testifies at a hearing may file a motion requesting a
protective order to limit from disclosure to other parties or to the
public documents or testimony that contain confidential information.
The motion should include a general summary or extract of the documents
without revealing confidential details. If the movant seeks a
protective order against disclosure to other parties as well as the
public, copies of the documents shall not be served on other parties.
Unless the documents are unavailable, the movant shall file for in
camera inspection a sealed copy of the documents as to which the order
is sought.
(b) Basis for Issuance. Documents and testimony introduced in a
public hearing are presumed to be public. A motion for a protective
order shall be granted only upon a finding that the harm resulting from
disclosure would outweigh the benefits of disclosure.
(c) Requests for Additional Information Supporting Confidentiality.
A movant under paragraph (a) of this rule may be required to furnish in
writing additional information with respect to the grounds for
confidentiality. Failure to supply the information so requested within
five days from the date of receipt by the movant of a notice of the
information required shall be deemed a waiver of the objection to
public disclosure of that portion of the documents to which the
additional information relates, unless the Commission or the hearing
officer shall otherwise order for good cause shown at or before the
expiration of such five-day period.
(d) Confidentiality of Documents Pending Decision. Pending a
determination of a motion under this rule, the documents as to which
confidential treatment is sought and any other documents that would
reveal the confidential information in those documents shall be
maintained under seal and shall be disclosed only in accordance with
orders of the Commission or the hearing officer. Any order issued in
connection with a motion under this rule shall be public unless the
order would disclose information as to which a protective order has
been granted, in which case that portion of the order that would reveal
the protected information shall be nonpublic.
Comment: A protective order under Rule 322 is available only in
proceedings as defined in Rule 101(a). Rule 322 is distinct from other
Commission rules relating to the treatment of requests for preserving
the confidentiality of information. See 17 CFR 200.83 (providing for
procedures by which persons submitting information generally to the
Commission can request that the information not be disclosed pursuant
to a request under the Freedom of Information Act, 5 U.S.C. Sec. 552).
See also Rule 190 (specifying procedures by which registrants may
request confidential treatment of certain information contained in
regulatory filings).
Revision Comment: The former Rules of Practice did not have a
provision that specifically allowed the entry of protective orders for
documents submitted as evidence in connection with a hearing. Former
Rule 25 related solely to applications for confidential treatment of
materials filed in connection with registration statements and other
such filings and required that confidential treatment be sought at the
time of filing. Proposed Rule 33 allowed a party to seek confidential
treatment under any ``applicable statute or rule,'' without limiting
the scope of materials sought to be protected or the timing of the
application. The proposed rule was intended to allow for issuance of a
protective order in connection with a hearing. Rule 322 has been added
to clarify the availability of protective orders for documents filed or
testimony given in an adjudicative proceeding.
Comment was requested as to whether the filing of an application
for confidential treatment of evidentiary information should be
permitted ex parte. The Commission has decided that allowing such
filings will not be necessary because Rule 322 allows a party to file a
motion containing a general summary or extract of the materials without
revealing confidential details.
Rule 323. Evidence: Official Notice
Official notice may be taken of any material fact which might be
judicially noticed by a district court of the United States, any matter
in the public official records of the Commission, or any matter which
is peculiarly within the knowledge of the Commission as an expert body.
If official notice is requested or taken of a material fact not
appearing in the evidence in the record, the parties, upon timely
request, shall be afforded an opportunity to establish the contrary.
Comment: This provision is based on Section 556(e) of the
Administrative Procedure Act, 5 U.S.C. Sec. 556(e).
Rule 324. Evidence: Stipulations
The parties may, by stipulation, at any stage of the proceeding
agree upon any pertinent facts in the proceeding. A stipulation may be
received in evidence and, when received, shall be binding on the
parties to the stipulation.
Revision Comment: Stipulation as to facts not in dispute can aid in
the efficient conduct of a hearing and reduce costs for all parties.
Rule 324 has been added to clarify that stipulations may be entered
into at any stage of the proceeding, including prior to the start of
the hearing. Rule 324 is based, in part, on Rule 324 of the Model
Adjudication Rules, Administrative Conference of the United States
(Dec. 1993).
Rule 325. Evidence: Presentation Under Oath or Affirmation
A witness at a hearing for the purpose of taking evidence shall
testify under oath or affirmation.
Rule 326. Evidence: Presentation, Rebuttal and Cross-examination
In any proceeding in which a hearing is required to be conducted on
the record after opportunity for hearing in accord with 5 U.S.C.
556(a), a party is entitled to present its case or defense by oral or
documentary evidence, to submit rebuttal evidence, and to conduct such
cross-examination as, in the discretion of the Commission or the
hearing officer, may be required for a full and true disclosure of the
facts. The scope and form of evidence, rebuttal evidence, if any, and
cross-examination, if any, in any other proceeding shall be determined
by the Commission or the hearing officer in each proceeding.
Comment: The requirements of Section 556 of the Administrative
Procedure Act, including those regarding the right to present evidence,
submit rebuttal evidence and conduct cross-examination, apply only to
``formal'' adjudications: those hearings [[Page 32770]] required by
statute to be conducted ``on the record'' after opportunity for
hearing. See 5 U.S.C. Secs. 554(a), 556(a). In contrast, ``informal''
adjudications are proceedings where the statutory requirement for an
``opportunity for hearing'' does not specifically require the hearing
to be held ``on the record.'' The Commission may, but is not required
to, follow procedures mandated for ``formal'' adjudications under
Section 556 in ``informal'' adjudications. Thus, in cases of
``informal'' adjudication, such as a proceeding as to whether a
temporary cease-and-desist order should be entered, the respondent's
opportunity to put on live witnesses at the hearing may be limited. See
also Rule 191 (regarding adjudications not required to be determined on
the record after notice and opportunity for hearing); Rules 510-513
(regarding temporary cease-and-desist orders).
Rule 340. Proposed Findings, Conclusions and Supporting Briefs
(a) Opportunity to File. Before an initial decision is issued, each
party shall have an opportunity, reasonable in light of all the
circumstances, to file in writing proposed findings and conclusions
together with, or as a part of, its brief.
(b) Procedure. Proposed findings of fact must be supported by
citations to specific portions of the record. If successive filings are
directed, the proposed findings and conclusions of the party assigned
to file first shall be set forth in serially numbered paragraphs, and
any counter statement of proposed findings and conclusions must, in
addition to any other matter, indicate those paragraphs of the
proposals already filed as to which there is no dispute. A reply brief
may be filed by the party assigned to file first, or, where
simultaneous filings are directed, reply briefs may be filed by each
party, within the period prescribed therefor by the hearing officer. No
further briefs may be filed except with leave of the hearing officer.
(c) Time for Filing. In any proceeding in which an initial decision
is to be issued:
(1) At the end of each hearing, the hearing officer shall, by
order, after consultation with the parties, prescribe the period within
which proposed findings and conclusions and supporting briefs are to be
filed. The party or parties directed to file first shall make its or
their initial filing within 30 days of the end of the hearing unless
the hearing officer, for good cause shown, permits a different period
and sets forth in the order the reasons why the different period is
necessary.
(2) The total period within which all such proposed findings and
conclusions and supporting briefs and any counter statements of
proposed findings and conclusions and reply briefs are to be filed
shall be no longer than 90 days after the close of the hearing unless
the hearing officer, for good cause shown, permits a different period
and sets forth in an order the reasons why the different period is
necessary.
Comment (a): Rule 340 is based on Section 557(c) of the
Administrative Procedure Act, 5 U.S.C. Sec. 557(c). By its terms,
Section 557(c) applies only to proceedings ``on the record'' after
opportunity to be heard. See Comment to Rule 326. Consistent with
longstanding Commission practice, however, Rule 340 mandates an
opportunity for submission of findings and conclusions in any case in
which an initial decision is to be prepared, whether or not the
proceeding is ``on the record.'' The limitation in Rule 340 that the
opportunity to submit proposed findings and conclusions be ``reasonable
in light of all the circumstances'' grants the hearing officer or the
Commission discretion to restrict the time allowed for filing findings
and conclusions. For example, in emergency proceedings, an abbreviated
period might be appropriate. Rule 340 does not apply to proceedings in
which the Commission itself presides at the taking of evidence since no
initial decision is issued in such circumstances. In such a case--for
example, where a temporary cease-and-desist order is sought--the
Commission has complete discretion whether to allow for post-hearing
submissions.
The rule requires that each proposed finding must be supported by
appropriate citations to the record. Filings that fail to meet this
requirement may be subject to sanctions pursuant to Rule 180.
Rule 350. Record in Proceedings Before Hearing Officer; Retention of
Documents; Copies
(a) Contents of the Record. The record shall consist of:
(1) the order instituting proceedings, each notice of hearing and
any amendments;
(2) each application, motion, submission or other paper, and any
amendments, motions, objections, and exceptions to or regarding them;
(3) each stipulation, transcript of testimony and document or other
item admitted into evidence;
(4) each written communication accepted by the hearing officer
pursuant to Rule 210;
(5) with respect to a request to disqualify a hearing officer or to
allow the hearing officer's withdrawal under Rule 112, each affidavit
or transcript of testimony taken and the decision made in connection
with the request;
(6) all motions, briefs and other papers filed on interlocutory
appeal;
(7) all proposed findings and conclusions;
(8) each written order issued by the hearing officer or Commission;
and
(9) any other document or item accepted into the record by the
hearing officer.
(b) Retention of Documents Not Admitted. Any document offered in
evidence but excluded, and any document marked for identification but
not offered as an exhibit, shall not be considered a part of the
record. The Secretary shall retain any such documents until the later
of the date upon which a Commission order ending the proceeding becomes
final, or the conclusion of any judicial review of the Commission's
order.
(c) Substitution of Copies. A true copy of a document may be
substituted for any document in the record or any document retained
pursuant to paragraph (b) of this rule.
Rule 351. Transmittal of Documents to Secretary; Record Index;
Certification
(a) Transmittal From Hearing Officer to Secretary of Partial Record
Index. The hearing officer may, at any time, transmit to the Secretary
motions, exhibits or any other original documents filed with or
accepted into evidence by the hearing officer, together with an index
of such documents. The hearing officer, may, by order, require the
interested division or other persons to assist in promptly transporting
such documents from the hearing location to the Office of the
Secretary.
(b) Preparation, Certification of Record Index. Promptly after the
close of the hearing, the hearing officer shall transmit to the
Secretary an index of the originals of any motions, exhibits or any
other documents filed with or accepted into evidence by the hearing
officer that have not been previously transmitted to the Secretary, and
the Secretary shall prepare a record index. Prior to issuance of an
initial decision, or if no initial decision is to be prepared, within
30 days of the close of the hearing, the Secretary shall transmit the
record index to the hearing officer and serve a copy of the record
index on each party. Any person may file proposed corrections to the
record index with the hearing officer within 15 days of service of the
record index. The hearing officer shall, by order, direct whether any
[[Page 32771]] corrections to the record index shall be made. The
Secretary shall make such corrections, if any, and issue a revised
record index. If an initial decision is to be issued, the initial
decision shall include a certification that the record consists of the
items set forth in the record index or revised record index issued by
the Secretary.
(c) Final Transmittal of Record Items to the Secretary. After the
close of the hearing, the hearing officer shall transmit to the
Secretary originals of any motions, exhibits or any other documents
filed with, or accepted into evidence by, the hearing officer, or any
other portions of the record that have not already been transmitted to
the Secretary. Prior to service of the initial decision by the
Secretary, or if no initial decision is to be issued, within 60 days of
the close of the hearing, the Secretary shall inform the hearing
officer if any portions of the record are not in the Secretary's
custody.
Comment: The Office of the Secretary is responsible for custody and
safekeeping of administrative proceedings records. Hearings, however,
are often held away from the Commission's Headquarters in Washington.
Exhibits introduced at such hearings or filings made directly with the
hearing officer (see Rule 151) may be voluminous. Rule 350 establishes
procedures to facilitate and safeguard the transfer to the Secretary of
motions, exhibits or other record items filed with the hearing officer.
Parties and other persons are afforded a specific opportunity to object
if they believe that the certified record is incomplete.
Rule 360. Initial Decision of Hearing Officer
(a) When Required. Unless the Commission directs otherwise, the
hearing officer shall prepare an initial decision in any proceeding in
which the Commission directs a hearing officer to preside at a hearing,
provided, however, that an initial decision may be waived by the
parties with the consent of the hearing officer pursuant to Rule 202.
(b) Content. An initial decision shall include: findings and
conclusions, and the reasons or basis therefor, as to all the material
issues of fact, law or discretion presented on the record and the
appropriate order, sanction, relief, or denial thereof. The initial
decision shall also state the time period, not to exceed 21 days after
service of the decision, except for good cause shown, within which a
petition for review of the initial decision may be filed. The reasons
for any extension of time shall be stated in the initial decision. The
initial decision shall also include a statement that, as provided in
paragraph (d) of this rule:
(1) the initial decision shall become the final decision of the
Commission as to each party unless a party files a petition for review
of the initial decision or the Commission determines on its own
initiative to review the initial decision as to a party; and
(2) if a party timely files a petition for review or the Commission
takes action to review as to a party, the initial decision shall not
become final with respect to that party.
(c) Filing, Service and Publication. The hearing officer shall file
the initial decision with the Secretary. The Secretary shall promptly
serve the initial decision upon the parties and shall promptly publish
notice of the filing thereof in the SEC News Digest. Thereafter, the
Secretary shall publish the initial decision in the SEC Docket;
provided, however, that in nonpublic proceedings no notice shall be
published unless the Commission otherwise directs.
(d) When Final. (1) Unless a party or an aggrieved person entitled
to review files a petition for review in accordance with the time limit
specified in the initial decision, or unless the Commission on its own
initiative orders review pursuant to Rule 411, an initial decision
shall become the final decision of the Commission.
(2) If a petition for review is timely filed by a party or an
aggrieved person entitled to review, or if the Commission upon its own
initiative has ordered review of a decision with respect to a party or
a person aggrieved who would be entitled to review, the initial
decision shall not become final as to that party or person.
(e) Order of Finality. In the event that the initial decision
becomes the final decision of the Commission with respect to a party,
the Commission shall issue an order that the decision has become final
as to that party. The order of finality shall state the date on which
sanctions, if any, take effect. Notice of the order shall be published
in the SEC News Digest and the SEC Docket.
Comment (a): Paragraph (a) is based on Section 557(b) of the
Administrative Procedure Act (APA), 5 U.S.C. Sec. 557(b).
Comment (b): The first sentence of paragraph (b), is based on
Section 557(c)(3) of the APA, 5 U.S.C. Sec. 557(c)(3).
Comment (d): Paragraph (d) is based on Sections 557(b) and 704 of
the APA, 5 U.S.C. Secs. 557(b) and 704. In certain limited
circumstances, a non-party may be aggrieved by a decision and entitled
to seek review. See, e.g., Exchange Act Sec. 25(a)(1), 15 U.S.C.
Sec. 78y(a)(1).
Comment (e): The order of finality provides formal notice that the
initial decision will not be reviewed. An initial decision
automatically becomes final, however, with the passage of time even if
the order of finality is not issued. Formal notice to a respondent that
an initial decision has become final is not required for the decision
to take effect. A respondent is able to ascertain when the period for
filing a petition for review pursuant to Rule 410, or for initiation of
review on the Commission's initiative pursuant to Rule 411, has
expired. When an initial decision becomes final, any collateral
consequences from entry of a final order take effect immediately.
Sanctions pursuant to the decision may not be immediately effective,
however. Rule 601 specifies when amounts owing pursuant to a
disgorgement or penalty order become due. In addition, some period of
time may be necessary or appropriate after an initial decision becomes
final before sanctions should take effect, for example, to allow a
respondent to provide for an orderly termination of a business upon
effectiveness of a suspension or bar. Ordinarily, the initial decision
will specify when sanctions will take effect if the initial decision
becomes final. If the initial decision or applicable rule does not
specify when sanctions are to become final, the Commission will enter
an appropriate order. The Secretary has delegated authority to fix the
date when sanctions become effective. See 17 CFR 200.30-7.
Appeal to the Commission and Commission Review
Rule 400. Interlocutory Review
(a) Availability. The Commission will not review a hearing
officer's ruling prior to its consideration of the entire proceeding in
the absence of extraordinary circumstances. The Commission may decline
to consider a ruling certified by a hearing officer pursuant to
paragraph (c) of this rule if it determines that interlocutory review
is not warranted or appropriate under the circumstances. The Commission
may, at any time, on its own motion, direct that any matter be
submitted to it for review.
(b) Expedited Consideration. Interlocutory review of a hearing
officer's ruling shall be expedited in every way, consistent with the
Commission's other responsibilities.
(c) Certification Process. A ruling submitted to the Commission for
interlocutory review must be certified in writing by the hearing
officer and shall specify the material relevant to the
[[Page 32772]] ruling involved. The hearing officer shall not certify a
ruling unless:
(1) his or her ruling would compel testimony of Commission members,
officers or employees or the production of documentary evidence in
their custody; or
(2) upon application by a party, within five days of the hearing
officer's ruling, the hearing officer is of the opinion that:
(i) the ruling involves a controlling question of law as to which
there is substantial ground for difference of opinion; and
(ii) an immediate review of the order may materially advance the
completion of the proceeding.
(d) Proceedings Not Stayed. The filing of an application for review
or the grant of review shall not stay proceedings before the hearing
officer unless he or she, or the Commission, shall so order. The
Commission will not consider the motion for a stay unless the motion
shall have first been made to the hearing officer.
Comment: Rule 400 is based in part on rules governing interlocutory
review of the decisions of a United States district court by a court of
appeals. See 28 U.S.C. Sec. 1292(b). In contrast to the practice in the
federal judicial system, however, the Commission may take up a matter
on its own motion at any time, even if a hearing officer does not
certify it for interlocutory review.
The requirement in paragraph (b) that interlocutory review be
``expedited in every way, consistent with the Commission's other
responsibilities,'' conforms to the standard for review in Rules
102(e)(3) and 500. Interlocutory matters should be promptly resolved in
order to allow for the timely completion of the entire proceeding.
Revision Comment: The structure of this rule has been significantly
modified to break out each of the rule's substantive provisions and
thereby improve its readability. Other changes in the rule are
technical and are intended only to clarify its operation.
One commenter recommended that a hearing officer's decision with
respect to a motion that he or she be disqualified be subject to
interlocutory review and that the rule contain an express provision
making immediately appealable any decision not to quash a subpoena as
requested by a third-party recipient. The Commission has decided not to
incorporate these recommendations. Either is subject to interlocutory
review if the hearing officer determines that the decision meets the
standards of paragraph (c). Moreover, the decision whether to subpoena
a witness is best made by the hearing officer who is most familiar with
the details of the proceeding.
Rule 401. Issuance of Stays
(a) Procedure. A request for a stay shall be made by written
motion, filed pursuant to Rule 154, and served on all parties pursuant
to Rule 150. The motion shall state the reasons for the relief
requested and the facts relied upon, and, if the facts are subject to
dispute, the motion shall be supported by affidavits or other sworn
statements or copies thereof. Portions of the record relevant to the
relief sought, if available to the movant, shall be filed with the
motion. The Commission may issue a stay based on such motion or on its
own motion.
(b) Scope of Relief. The Commission may grant a stay in whole or in
part, and may condition relief under this rule upon such terms, or upon
the implementation of such procedures, as it deems appropriate.
(c) Stay of a Commission Order. A motion for a stay of a Commission
order may be made by any person aggrieved thereby who would be entitled
to review in a federal court of appeals. A motion seeking to stay the
effectiveness of a Commission order pending judicial review may be made
to the Commission at any time during which the Commission retains
jurisdiction over the proceeding.
(d) Stay of an Action by a Self-Regulatory Organization.
(1) Availability. A motion for a stay of an action by a self-
regulatory organization for which the Commission is the appropriate
regulatory agency, for which action review may be sought pursuant to
Rule 420, may be made by any person aggrieved thereby.
(2) Summary Entry. A stay may be entered summarily, without notice
and opportunity for hearing.
(3) Expedited Consideration. Where the action complained of has
already taken effect and the motion for stay is filed within 10 days of
the effectiveness of the action, or where the action complained of,
will, by its terms, take effect within five days of the filing of the
motion for stay, the consideration of and decision on the motion for a
stay shall be expedited in every way, consistent with the Commission's
other responsibilities. Where consideration will be expedited, persons
opposing the motion for a stay may file a statement in opposition
within two days of service of the motion unless the Commission, by
written order, shall specify a different period.
Comment: The Commission has stated that it ``generally considers
four factors'' when evaluating the appropriateness of a stay of its own
orders:
(1) whether there is a strong likelihood that a party will succeed
on the merits in a proceeding challenging the particular Commission
action (or, if the other factors strongly favor a stay, that there is a
substantial case on the merits); (2) whether, without a stay, a party
will suffer irreparable injury; (3) whether there will be substantial
harm to any person if the stay were granted; and (4) whether the
issuance of a stay would likely serve the public interest.
Order Preliminarily Considering Whether to Issue Stay Sua Sponte
and Establishing Guidelines for Seeking Stay Applications, Exchange Act
Release No. 33870 (Apr. 7, 1994), 56 SEC Docket 1189, 1190-91 (Apr. 26,
1994). The evaluation of the factors enumerated by the Commission,
according to the release, will vary with the ``equities and
circumstances'' of the case before the Commission. Id. See also In re
Hibbard, Brown & Co. et al., Admin. Proc. File No. 3-8418, SEC Press
Release No. 94-72 (Aug. 2, 1994) at 4.
The General Counsel has been delegated the authority to decide
whether a stay should be granted. 17 CFR 200.30-14(g)(5), (6). Such
decisions by the General Counsel are subject to review pursuant to Rule
430.
The Commission may condition the grant of a stay on such terms or
upon the implementation of such procedures as it deems appropriate. For
example, where a respondent seeks a stay of a disgorgement order, the
Commission may require safeguards, such as establishment of an escrow,
that would assure that funds will be available for payment at a later
date if the disgorgement order is upheld.
Comment (c): Rule 401(c) requires that a motion for a stay of a
Commission order pending review by a court be made to the Commission
while the Commission retains jurisdiction over the proceeding. Other
than a temporary cease-and-desist order, which is subject to judicial
review in the first instance in a United States District Court,
Commission orders are reviewable by a court of appeals. See, e.g.,
Exchange Act Sec. 25, 15 U.S.C. 78y (governing judicial review of final
orders of the Commission generally), Exchange Act Sec. 21C(d)(2), 15
U.S.C. Sec. 78u-3(d)(2) (governing judicial review of temporary cease-
and-desist orders). The Commission loses jurisdiction to grant a stay
of an order subject to review in a court of appeals only after the
record is filed in a court of appeals. See, e.g., Exchange Act
Secs. 25(a)(3), (c)(2), 15 U.S.C. 78y(a)(3), (c)(2), and Fed. R. App.
P. 18. [[Page 32773]]
Comment (d): This paragraph is based on Section 19(d) of the
Exchange Act, 15 U.S.C. Sec. 78s(d), and former Exchange Act Rule 19d-
2, 17 CFR 240.19d-2 (1994).
The provision for expedited consideration in paragraph (d)(3) is
based on the requirement of Section 19(d)(2) that the Commission
establish an expedited procedure for consideration and determination of
the question of a stay for ``appropriate cases.'' The Commission has
established a guideline for the timely determination of such requests.
See 17 CFR 201.900 (Informal Procedures and Supplementary Information
Concerning Adjudicatory Proceedings). A self-regulatory organization
controls the effective date of the sanctions it imposes. If it desires
additional time to address the issue of whether a stay should issue, it
may consider delaying the effective date of its order. If the
determination complained of has not taken effect, the time limits for
the filing of opposing and reply briefs would be those set forth in
Rule 154.
Revision Comment: A commenter suggested that the Commission amend
the rule to include substantive standards under which a stay shall be
granted or to identify the criteria the Commission applies in
considering a request for a stay. As noted in the comment to Rule 401,
earlier this year the Commission reiterated in a release the factors
generally considered when evaluating the appropriateness of a stay
under Section 25(c)(2) of the Exchange Act. Order Preliminarily
Considering Whether to Issue Stay Sua Sponte and Establishing
Guidelines for Seeking Stay Applications, Exchange Act Release No.
33870 (Apr. 7, 1994). The Commission believes that the long-standing
enunciation of its policy with respect to such stays provides
sufficient guidance.
A commenter suggested that the Commission reconsider its rule
allowing motions for stays of a self-regulatory organization (SRO)
determination, including a final SRO disciplinary action, to be made
``at any time.'' The commenter proposed that a person seek a stay
within 10 days of the filing of an SRO disciplinary decision pursuant
to Section 19(d)(1) of the Exchange Act, 15 U.S.C. 78s(d)(1). The
Commission does not agree that respondents should be required to
request a stay within such a limited period. Requiring a stay to be
sought within a fixed time would place respondents who may have no
reason to seek a stay immediately at a disadvantage, as they may be
entitled to a stay or other relief as the result of changed
circumstances at a later time. Cf. Rule 512(e).
Exchange Act Section 19(d)(2) requires that in ``appropriate
cases'' the Commission establish an expedited procedure for
consideration and determination of the question of a stay. Expedited
consideration is appropriate when a sanction or other action complained
of has already taken effect or will take effect prior to the time a
decision could be made without expedited consideration.
Rule 410. Appeal of Initial Decisions by Hearing Officers
(a) Petition for Review; When Available. In any proceeding in which
an initial decision is made by a hearing officer, any party, and any
other person who would have been entitled to judicial review of the
decision entered therein if the Commission itself had made the
decision, may file a petition for review of the decision with the
Commission.
(b) Procedure. The petition for review of an initial decision shall
be filed with the Commission within such time after service of the
initial decision as prescribed by the hearing officer pursuant to Rule
360(b). The petition shall set forth the specific findings and
conclusions of the initial decision as to which exception is taken,
together with supporting reasons for each exception. Supporting reasons
may be stated in summary form. Any exception to an initial decision not
stated in the petition for review, or in a previously filed proposed
finding made pursuant to Rule 340, may, at the discretion of the
Commission, be deemed to have been waived by the petitioner.
(c) Financial Disclosure Statement Requirement. Any person who
files a petition for review of an initial decision that asserts that
person's inability to pay either disgorgement, interest or a penalty
shall file with the opening brief a sworn financial disclosure
statement containing the information specified in Rule 630(b).
(d) Opposition to Review. A party may seek leave to file a brief in
opposition to a petition for review within five days of the filing of
the petition. The Commission will grant leave, or order the filing of
an opposition on its own motion, only if it determines that briefing
will significantly aid the decisional process. A brief in opposition
shall identify those issues which do not warrant consideration by the
Commission and shall state succinctly the reasons therefore.
(e) Prerequisite to Judicial Review. Pursuant to Section 704 of the
Administrative Procedure Act, 5 U.S.C. 704, a petition to the
Commission for review of an initial decision is a prerequisite to the
seeking of judicial review of a final order entered pursuant to such
decision.
Comment (a)-(b): Pursuant to Section 557(c) of the Administrative
Procedure Act, 5 U.S.C Sec. 557(c), in adjudications required to be
conducted ``on the record after opportunity for agency hearing,'' a
party is entitled to a reasonable opportunity to file exceptions to the
initial decision and supporting reasons for the exceptions or proposed
findings or conclusions. The Commission's practice, reflected in
paragraph (a), is to provide an opportunity to file exceptions in all
proceedings where an initial decision is to be made, not only those in
``on-the-record'' or ``formal'' adjudication. See Comments to Rules 100
and 191.
Except in limited cases as specified in Rule 411(b)(1) when the
right of appeal is mandatory, the Commission, after considering a
petition for review, may determine not to hear an appeal or to limit
the issues on appeal. Administrative Procedure Act Sec. 557(b), 5 U.S.C
Sec. 557(b) (``[o]n appeal from or review of the initial decision, the
agency has all the powers which it would have in making the initial
decision except as it may limit the issues on notice or by rule''). Cf.
Section 4A(b) of the Exchange Act, 15 U.S.C. Sec. 78d-1(b) (providing a
right to appeal certain decisions to the Commission).
The standards for granting a petition for review are set forth in
Rule 411. Under these standards, the Commission grants a petition for
review in virtually all cases. The product of a consensus over many
years, this result represents a Commission determination that there is
a benefit to joint deliberation by the Commission when exception is
taken to an initial decision.
Comment (c): In order to make a determination with respect to
whether disgorgement, interest or a penalty is appropriate for a
respondent who raises inability to pay as an issue, the Commission must
have access to complete and current financial information. Although
financial disclosure may have occurred during the course of a hearing,
by the time an initial decision and petition for review are filed that
information is not likely to be current. Accordingly, a current
financial disclosure statement is required if a petition for review
raises exceptions concerning inability to pay.
Comment (d): The Commission has rarely found grounds for denial of
a petition for review under its long-standing standards for determining
whether to grant review, now set forth in Rule 411(b). Therefore,
routine opposition to a petition for review [[Page 32774]] serves
little purpose. Accordingly, leave from the Commission must be sought
prior to filing an opposition to a petition for review. Where the
Commission believes briefing would significantly assist its decisional
process, it may grant leave to file an opposition or order such a
filing. The Commission has delegated authority to the General Counsel
to determine whether to grant requests for leave to file an opposition.
See 17 CFR 200.30-14.
Revision Comments: Comment was requested as to (1) whether,
notwithstanding the potential benefits of preparing a petition for
review, the requirement for a petition should be eliminated where an
appeal is provided as of right by Section 4A(b) of the Exchange Act;
and (2) whether, in light of the Commission's longstanding practice of
granting virtually all petitions for review, the requirement of filing
a petition for review should be eliminated.
One commenter supported retaining the petition for review and
suggested that the petition for review is a more appropriate mechanism
for noticing an appeal because it helps clarify issues and provides
more information than the notice of appeal used under the Federal Rules
of Appellate Procedure.
The Commission grants virtually all petitions for review. Although
Commission review in a particular case can be time consuming, it
establishes authoritative precedent applicable to other cases and
promotes accountability for, and confidence in, the Commission's
adjudicatory process. Commission review of those cases in which review
is sought has tended to encourage acceptance of hearing officers'
decisions and to promote the settlement of cases even prior to hearing
in similar cases, thereby reducing the overall adjudicatory workload.
The Commission has decided to retain the petition for review
process for all cases including those where a right to appeal is
statutorily required. The petition for review is a summary document and
requires limited resources to prepare. Requiring the petition, however,
enhances the efficiency of the appeals process for both the Commission
and parties by focusing attention from an early point on those issues
considered most significant by the petitioner. Thus, the petition for
review offers substantial benefits both to the Commission and to
petitioners.
As proposed, the rule would have allowed the filing of an
opposition to review by any person opposing review. As noted by one
commenter, given the Commission's practices with respect to the grant
of petitions for review, an opposition to review serves little benefit
to either the Commission or the parties, except in those rare cases
where there is a genuine issue as to the necessity or appropriateness
of review. As revised, the rule allows a party to seek leave to file a
brief in opposition to a petition for review. The Commission believes
this mechanism will limit the unnecessary expenditure of time or
resources in routine oppositions to petitions for review while
allowing, in appropriate cases, for other parties to be heard in
opposition. The Commission retains discretion to direct the filing of
an opposition on its motion in any case.
Comment was requested as to whether, after the filing of a petition
for review, a 10- or 15-day period would be more realistic for filing a
brief in opposition to a petition for review or a petition for summary
affirmance. As revised, the Rule provides a 10-day period for a person
to seek leave to file an opposition. If leave is granted, the
Commission will specify the time allowed for filing a brief. Provisions
related specifically to the filing of a motion for summary affirmance
have been deleted.
Rule 411. Commission Consideration of Initial Decisions by Hearing
Officers
(a) Scope of Review. The Commission may affirm, reverse, modify,
set aside or remand for further proceedings, in whole or in part, an
initial decision by a hearing officer and may make any findings or
conclusions that in its judgment are proper and on the basis of the
record.
(b) Standards for Granting Review Pursuant to a Petition for
Review.
(1) Mandatory Review. After a petition for review has been filed,
the Commission shall review any initial decision that:
(i) denies any request for action pursuant to Section 8(a) or
Section 8(c) of the Securities Act of 1933, 15 U.S.C. 77h (a), (c), or
the first sentence of Section 12(d) of the Exchange Act, 15 U.S.C.
78l(d);
(ii) suspends trading in a security pursuant to Section 12(k) of
the Exchange Act, 15 U.S.C. 78l(k); or
(iii) is in a case of adjudication (as defined in 5 U.S.C. 551) not
required to be determined on the record after notice and opportunity
for hearing (except to the extent there is involved a matter described
in 5 U.S.C. 554(a) (1) through (6)).
(2) Discretionary Review. The Commission may decline to review any
other decision. In determining whether to grant review, the Commission
shall consider whether the petition for review makes a reasonable
showing that:
(i) a prejudicial error was committed in the conduct of the
proceeding; or
(ii) the decision embodies:
(A) a finding or conclusion of material fact that is clearly
erroneous; or
(B) a conclusion of law that is erroneous; or
(C) an exercise of discretion or decision of law or policy that is
important and that the Commission should review.
(c) Commission Review Other Than Pursuant to a Petition for Review.
The Commission may, on its own initiative, order review of any initial
decision, or a portion of any initial decision, within 21 days after
the end of the period established for filing a petition for review
pursuant to Rule 410(b) or any brief in opposition to a petition for
review permitted pursuant to Rule 410(d). A party who does not intend
to file a petition for review, and who desires the Commission's
determination whether to order review on its own initiative to be made
in a shorter time, may make a motion for an expedited decision,
accompanied by a written statement that the party waives its right to
file a petition for review. The vote of one member of the Commission,
conveyed to the Secretary, shall be sufficient to bring a matter before
the Commission for review.
(d) Limitations on Matters Reviewed. Review by the Commission of an
initial decision shall be limited to the issues specified in the
petition for review or the issues, if any, specified in the briefing
schedule order issued pursuant to Rule 450(a). On notice to all
parties, however, the Commission may, at any time prior to issuance of
its decision, raise and determine any other matters that it deems
material, with opportunity for oral or written argument thereon by the
parties.
(e) Summary Affirmance. The Commission may summarily affirm an
initial decision based upon the petition for review and any response
thereto, without further briefing, if it finds that no issue raised in
the petition for review warrants further consideration by the
Commission.
(f) Failure to Obtain a Majority. In the event a majority of
participating Commissioners do not agree to a disposition on the
merits, the initial decision shall be of no effect, and an order will
be issued in accordance with this result.
Comment (a): Section 557(b) of the Administrative Procedure Act, 5
U.S.C Sec. 557(b), provides that ``[o]n appeal from or review of the
initial decision, the agency has all the powers which it
[[Page 32775]] would have in making the initial decision except as it
may limit the issues on notice or by rule.''
Comment (b): Paragraph (b) is based, in part, on the requirements
of Exchange Act Section 4A, 15 U.S.C. Sec. 78d-1.
Comment (c): Paragraph (c) is based, in part, on the requirements
of Exchange Act Section 4A.
Before the Commission determines whether to order review of an
issue on its own motion, petitions for review and cross-petitions, if
any, should be filed in accordance with Rule 410(b) and opposition
briefs, if any, should be filed in accordance with Rule 410(d). Under
Rule 411(c), there is a 21-day period after the end of the period for
the filing of a petition for review during which the Commission may
determine whether to grant review. If time is allowed for filing an
opposition, there would be a corresponding increase in the time allowed
for the Commission to order review on its own motion.
Comment (e): A provision for summary affirmance was added to the
Rules of Practice in 1964 based upon Recommendation Number 9 of the
Administrative Conference of the United States (ACUS). See also ACUS
Recommendation No. 68-6 (suggesting that an agency may accord
administrative finality to an initial decision by summarily affirming
the initial decision or denying a petition for review). Summary
affirmance may be appropriate when exception is taken to conclusions of
law, but there is no genuine dispute as to any material facts, or when
the Commission believes that deliberation by the Commission would not
be useful or appropriate. Summary affirmance has very rarely been
granted. But see In the Matter of Joseph A. Lugo, Exchange Act Release
No. 25982 (Aug. 8, 1988), 41 SEC Docket 946 (Aug 23, 1988) (petitioners
failed to file required briefs).
Revision Comment (c): The period during which the Commission can
determine whether to grant review on its own initiative has been
extended from 15 days to 21 days to conform to the 21-day period
allowed in Rule 450(a)(2) for the issuance of a briefing schedule
order.
Revision Comment (e): Comment was requested as to whether, in light
of the Commission's summarily affirming an initial decision only
rarely, the possibility of a summary affirmance should be eliminated.
One commenter objected to summary affirmance based solely upon the
petition for review and suggested that to the extent that review of an
initial decision can be denied at the Commission's discretion, summary
affirmance is unnecessary and counteracts the benefits of joint
deliberation. The commenter suggested that if summary affirmance is
retained it should be considered only after briefs have been filed, and
should not be available at all where the Commission has granted review
based upon a reasonable showing of error.
While summary affirmance has rarely been used in the past, the
Commission's adjudication workload changes over time. Summary
affirmance provides a potentially useful mechanism to resolve quickly
certain cases. The Commission has decided to retain summary affirmance
as a mechanism for disposition of appropriate cases. See In the Matter
of Joseph Lugo, Admin. Proc. File No. 3-6740 (Aug. 8, 1988), Exchange
Act Release No. 25982, 41 SEC Docket 946 (1988) (petitioners failed to
file required briefs).
Rule 420. Appeal of Determinations by Self-Regulatory Organizations
(a) Application for Review; When Available. An application for
review by the Commission may be filed by any person who is aggrieved by
a determination of a self-regulatory organization with respect to any
(i) final disciplinary sanction;
(ii) denial or conditioning of membership or participation;
(iii) prohibition or limitation in respect to access to services
offered by that self-regulatory organization or a member thereof; or
(iv) bar from association as to which a notice is required to be
filed with the Commission pursuant to Section 19(d)(1) of the Exchange
Act, 15 U.S.C. 78s(d)(1).
(b) Procedure. An application for review may be filed with the
Commission pursuant to Rule 151 within 30 days after notice of the
determination was filed with the Commission pursuant to Section
19(d)(1) of the Exchange Act, 15 U.S.C. 78s(d)(1), and received by the
aggrieved person applying for review. The application shall be served
by the applicant on the self-regulatory organization. The application
shall identify the determination complained of, set forth in summary
form a brief statement of alleged errors in the determination and
supporting reasons therefor and state an address where the applicant
can be served with the record index. The application shall be
accompanied by the notice of appearance required by Rule 102(d).
(c) Determination Not Stayed. Filing an application for review with
the Commission pursuant to paragraph (b) of this rule shall not operate
as a stay of the complained of determination made by the self-
regulatory organization unless the Commission otherwise orders either
pursuant to a motion filed in accordance with Rule 401 or on its own
motion.
(d) Certification of the Record; Service of the Index. Fourteen
days after receipt of an application for review or a Commission order
for review, the self-regulatory organization shall certify and file
with the Commission one copy of the record upon which the action
complained of was taken, and shall file with the Commission three
copies of an index to such record, and shall serve upon each party one
copy of the index.
Comment: Rule 420 (a) and (b) are based in part on Exchange Act
Section 19(d)(2), 15 U.S.C Sec. 78s(d)(2).
Comment (b): It is the responsibility of the person seeking review
to assure that the application for review is actually received by the
Commission within the time limit provided. See Rule 151. While a method
of service that provides proof of delivery is not mandatory, in the
event there is a question as to whether an application was timely
filed, it is the applicant's burden to establish when the filing was
made.
Commission review of self-regulatory organization determinations
for which an application may be filed pursuant to paragraph (a) is
required by statute. The purpose of the statement of alleged errors and
supporting reasons is to provide general notice of the basis for the
application, not to justify the need for review. Citations to the
record are not required because at the time the application is filed
the record index has not been served on the applicant.
Revision Comment (a)-(d): Rules 420 and 421 are the only rules
within the Rules of Practice limited expressly to self-regulatory
organization (SRO) determinations. The substantive provisions of former
Exchange Act Rules 19d-2 (concerning applications for stays of SRO
determinations) and 19d-3 (concerning applications for review of SRO
determinations generally) have been incorporated into Rules 420, 421
and other rules in the Rules of Practice. Rules 19d-2 and 19d-3 have
been revised to cross-reference the Rules of Practice. Their
substantive provisions have been deleted. These two rules were not
deleted entirely at this time in order to provide a transition period
for the updating of reference works, materials published by SROs and
other guides relied upon by associated persons of SROs or others who
seek information about the Commission's review of SRO determinations.
Comment was requested whether, in light of the potential benefits
of a [[Page 32776]] summary statement of the contested issues early in
the review process, respondents appealing the determination of an SRO
should be required to file a petition for review that includes a
statement of the issues on review and the alleged errors by the SRO.
The National Association of Securities Dealers (NASD) suggested that
the application for review process should require parallel levels of
specificity with the petition for review process governing appeals from
an initial decision of a hearing officer. The NASD commented that it
believes that the Commission's obligation to conduct a de novo review
of an SRO disciplinary proceeding requires that the Commission apply a
non-deferential standard of review, but does not mandate that the
Commission raise issues that the party seeking review overlooked.
The NASD suggested, therefore, that the Rules should provide that
issues not raised by the party seeking review are deemed waived. The
NASD asserted that briefs filed by the NASD with the Commission
typically address not only those issues raised by the parties seeking
review, but all issues that the NASD believes that the Commission may
wish to address. The NASD stated that in its view, ``[i]t is not
uncommon for briefs to devote more discussion to issues that are not in
dispute than those that have been raised by the parties.'' Letter from
T. Grant Callery, V.P. and General Counsel, NASD, to Jonathan G. Katz,
Secretary, SEC 25 n.63 (Jan. 31, 1994).
The Commission believes that the de novo standard requires
consideration of the entire record of a proceeding including material
issues on that record, even if the parties have themselves failed to
raise those issues. Over the 10-year period from 1983 through 1992,
review of NASD disciplinary sanctions has been sought in less than five
percent of all cases. Commission opinions on review play a critical
role in setting standards for the securities industry. While it is not
inconsistent with a de novo standard for the Commission to expect the
parties to raise material issues and to bring forward relevant portions
of the record, the Commission should not, as a matter of policy, ignore
material issues or allow errors unaddressed by the parties to stand.
Moreover, since the person seeking review would not have a record index
at the time an application for review is filed, failure to note an
exception at this preliminary stage would not constitute a waiver of
any matters.
In response to the suggestions of the NASD, Rule 420 requires the
person seeking review to make a summary statement of alleged errors in
the determination complained of, so as to give the Commission and other
parties notice of issues on review. This procedure allows the
Commission to make a more informed briefing schedule order, pursuant to
Rule 450, and to provide earlier opportunities for all parties to
consider the content of their briefs.
The NASD also suggested that the Rules of Practice should provide
that the Commission give parties notice and an opportunity to address
any additional issues that the Commission raises in an administrative
appeal. The NASD urged that adoption of a policy advising litigants
when the Commission is raising an issue sua sponte could make SRO
briefs ``more focused, more succinct, and presumably more helpful.''
Revised Rule 421(b) states that the Commission will provide an
opportunity for supplemental briefing with respect to issues not raised
by the parties when the Commission believes such briefing would
significantly aid the decisional process. Supplemental briefing is not
appropriate, however, in each case where the parties overlook an issue
deemed material by the Commission. For example, where the law on an
issue overlooked by the parties is clear, requiring briefs can inject
unnecessary delay and expense with no corresponding benefit to the
Commission or the parties.
Comment was also requested whether the requirement to include a
financial disclosure statement if a respondent makes a claim of
inability to pay should be extended to SRO proceedings. One commentator
agreed that the requirement should be added, for purposes of
consistency, to the rules governing appeals from SRO decisions. The
Commission has decided not to add a financial disclosure requirement
for appeals of SRO sanctions. The Commission, however, may require
additional evidence as to a respondent's claim of inability to pay,
including submission of a financial disclosure form, in particular
cases. See Rule 452 (regarding additional evidence). A self-regulatory
organization may choose to impose a financial disclosure requirement
when a person intends to argue an inability to pay on appeal to the
self-regulatory organization. Such a financial statement would provide
a standardized baseline for consideration of claims of inability to
pay.
Rule 421. Commission Consideration of Determinations by Self-Regulatory
Organizations
(a) Commission Review Other than Pursuant to a Petition for Review.
The Commission may, on its own initiative, order review of any
determination by a self-regulatory organization that could be subject
to an application for review pursuant to Rule 420(a) within 40 days
after notice thereof was filed with the Commission pursuant to Section
19(d)(1) of the Exchange Act, 15 U.S.C. 78s(d)(1).
(b) Supplemental Briefing. The Commission may at any time prior to
issuance of its decision raise or consider any matter that it deems
material, whether or not raised by the parties. Notice to the parties
and an opportunity for supplemental briefing with respect to issues not
briefed by the parties shall be given where the Commission believes
that such briefing would significantly aid the decisional process.
Comment: Exchange Act Section 19(e) sets forth standards regarding
the scope of the Commission's review of a self-regulatory
organizations' imposition of a final disciplinary sanction. Exchange
Act Section 19(f) sets forth standards with respect to the Commission's
review of a self-regulatory organization's denial of membership or
participation to an applicant, the barring of a person from becoming
associated with a member of a self-regulatory organization, and a self-
regulatory organization's prohibition or limitation of a person with
respect to access to services offered by the self-regulatory
organization or any member thereof. Among the many opinions in which
the Commission and the courts of appeal have explained the scope of the
Commission's review under Sections 19(e) and 19(f) are the following:
Schellenbach v. SEC, 989 F.2d 907, 909 (7th Cir. 1993) (in considering
an appeal under Section 19(e), Commission undertakes an independent
review of facts and law); Todd & Co. v. SEC, 557 F.2d 1008, 1013 (7th
Cir. 1977) (self-regulatory organization rules and actions are subject
to full review by Commission, which must base its decision on its own
findings); R.H. Johnson & Co. v. SEC, 198 F.2d 690, 695 (2d Cir.),
cert. denied, 344 U.S. 855 (1952) (noting that provisions of former 15
U.S.C. Sec. 78o-3 called for de novo findings by Commission); Paul
Edward Van Dusen, 47 S.E.C. 668, 690 (1981) (on appeal taken under
Section 19(f), in order to sustain self-regulatory organization's
action, Commission must find that grounds on which self-regulatory
organization based that action exist, that action was in
[[Page 32777]] accordance with organization's rules, and that those
rules are, and were applied in a manner, consistent with purposes of
Exchange Act); Sumner B. Cotzin, 45 S.E.C. 575, 580 (1974) (``[W]e must
make our own findings as to the conduct of applicants seeking review of
[self-regulatory organization disciplinary action], determine whether
such conduct violated the organization's rules, and, if so, determine
whether the sanctions imposed are excessive or oppressive having due
regard to the public interest.'').
Comment (a): Rule 421(a) allows the Commission 40 days to determine
whether to order review on its own initiative. The time limit for
Commission review is tied to the Commission's receipt of the notice
required by Exchange Act Section 19(d)(1), not receipt of the notice by
the respondent, since the Commission would have no practical way of
knowing when such receipt occurred.
Rule 430. Appeal of Actions Made Pursuant to Delegated Authority
(a) Scope of Rule. Any person aggrieved by an action made by
authority delegated in Secs. 200.30-1 through 200.30-17 of this chapter
may seek review of the action pursuant to paragraph (b) of this rule.
(b) Procedure. (1) Notice of Intention to Petition for Review. A
party or any person aggrieved by an action made pursuant to delegated
authority may seek Commission review of the action by filing a written
notice of intention to petition for review within five days after
actual notice to the party of the action or service of notice of the
action pursuant to Rule 141(b), whichever is earlier. The notice shall
identify the petitioner and the action complained of, and shall be
accompanied by a notice of appearance pursuant to Rule 102(d).
(2) Petition for Review. Within five days after the filing of a
notice of intention to petition for review pursuant to paragraph (b)(1)
of this rule, the person seeking review shall file a petition for
review containing a clear and concise statement of the issues to be
reviewed and the reasons why review is appropriate. The petition shall
include exceptions to any findings of fact or conclusions of law made,
together with supporting reasons for such exceptions based on
appropriate citations to such record as may exist. These reasons may be
stated in summary form.
(c) Prerequisite to Judicial Review. Pursuant to Section 704 of the
Administrative Procedure Act, 5 U.S.C. 704, a petition to the
Commission for review of an action made by authority delegated in
Secs. 200.30-1 through 200.30-17 of this chapter is a prerequisite to
the seeking of judicial review of a final order entered pursuant to
such an action.
Comment (a): Congress granted the Commission explicit authority to
delegate certain functions to an individual commissioner, division
directors and others in 1962. Pub. L. No. 87-592, 76 Stat. 394. This
authority appears in Sections 4A and 4B of the Exchange Act, 15 U.S.C.
78d-1 and 78d-2, and was amended most recently in 1987. See Pub. L. No.
100-181, Title III, Sec. 308(a), 101 Stat. 1254. The predecessor rule
to Rules 430 and 431, former Rule 26, was adopted in 1963. See
Securities Act Release No. 4588 (Mar. 8, 1963) (adopting release).
Due to the different nature of matters delegated to hearing
officers, senior staff or the duty officer, the Commission's rules
provide different mechanisms for review of such actions. See Rules 410
and 411 (procedures relating to initial decisions by a hearing
officer); 17 CFR 200.43 (procedures relating to duty officer). Rule 430
relates to certain delegations made to staff. It applies only to review
of actions taken pursuant to authority delegated in 17 CFR 200.30-1
through 200.30-17. Authority delegated by other provisions--for
example, the delegation of authority to issue subpoenas pursuant to a
private order directing investigation (``formal order'')--is not
subject to the Rule.
Comment (b): Decisions made by division directors or other senior
staff pursuant to delegated authority often relate to registration
statements, proxy statements, applications, periodic filings or other
matters which are highly time sensitive. Generally, the record in
actions made pursuant to delegated authority is not extensive. The rule
therefore requires a prompt decision by a party as to whether review
will be sought. Under Rule 430, a party or other aggrieved person must
file a notice of intent to petition for review within five days after
actual notice of the decision, or within five days after service of a
written decision pursuant to Rule 141(b), whichever is earlier. Actual
notice of a decision pursuant to delegated authority may be conveyed by
any means, including a telephone call. The required information in a
petition for review is essentially the same as that required for a
petition for review of a hearing officer's initial decision. See Rule
410(b).
Rule 431. Commission Consideration of Actions Made Pursuant to
Delegated Authority
(a) Scope of Review. The Commission may affirm, reverse, modify,
set aside or remand for further proceedings, in whole or in part, any
action made pursuant to authority delegated in Secs. 200.30-1 through
200.30-17 of this chapter.
(b) Standards for Granting Review Pursuant to a Petition for
Review.
(1) Mandatory Review. After a petition for review has been filed,
the Commission shall review any action that it would be required to
review pursuant to Rule 411(b)(1) if the action was made as the initial
decision of a hearing officer.
(2) Discretionary Review. The Commission may decline to review any
other action. In determining whether to grant review, the Commission
shall consider the factors set forth in Rule 411(b)(2).
(c) Commission Review Other Than Pursuant to a Petition for Review.
The Commission may, on its own initiative, order review of any action
made pursuant to delegated authority at any time, provided, however,
that where there are one or more parties to the matter, such review
shall not be ordered more than ten days after the action. The vote of
one member of the Commission, conveyed to the Secretary, shall be
sufficient to bring a matter before the Commission for review.
(d) Required Items in an Order for Review. In an order granting a
petition for review or directing review on the Commission's own
initiative, the Commission shall set forth the time within which any
party or other person may file a statement in support of or in
opposition to the action made by delegated authority and shall state
whether a stay shall be granted, if none is in effect, or shall be
continued, if in effect pursuant to paragraph (e) of this rule.
(e) Automatic Stay of Delegated Action. An action made pursuant to
delegated authority shall have immediate effect and be deemed the
action of the Commission. Upon filing with the Commission of a notice
of intention to petition for review, or upon notice to the Secretary of
the vote of a Commissioner that a matter be reviewed, an action made
pursuant to delegated authority shall be stayed until the Commission
orders otherwise, provided, however, there shall be no automatic stay
of an action:
(1) to grant a stay of action by the Commission or a self-
regulatory organization as authorized by 17 CFR 200.30-14(g)(5)-(6); or
(2) to commence a subpoena enforcement proceeding as authorized by
17 CFR 200.30-4(a)(10).
(f) Effectiveness of Stay or of Commission Decision to Modify or
[[Page 32778]] Reverse a Delegated Action. As against any person who
shall have acted in reliance upon any action at a delegated level, any
stay or any modification or reversal by the Commission of such action
shall be effective only from the time such person receives actual
notice of such stay, modification or reversal.
Comment: See Comment (a) to Rule 430.
Comment (b): Paragraph (b) is based, in part, on requirements of
Exchange Act Section 4A, 15 U.S.C. Sec. 78d-1.
Comment (c): Paragraph (c) is based, in part, on requirements of
Exchange Act Section 4A, 15 U.S.C. Sec. 78d-1. In practice, the
authority to review decisions on the Commission's own initiative is
used very rarely.
Revision Comment (c): Comment was requested as to whether the
period in which the Commission could order review on its own initiative
should be retained at five days or extended to 15 days. One commenter
supported the extension of the period to 10 days. The Commission has
adopted a 10-day standard.
Revision Comment (e): After publication of the proposed rules, the
delegation to the Director of the Division of Enforcement was amended
to permit the Director to authorize a subpoena enforcement proceeding
in Federal Court. See 17 CFR 200.30-4(a)(10). Under Rule 431, the
Director's decision to commence a proceeding is not automatically
stayed when notice of intention to file a petition for review is given
since a stay would unnecessarily disrupt judicial proceedings commenced
on the basis of the Director's decision. The presence of a Federal
judge overseeing the subpoena enforcement proceeding makes an automatic
stay unnecessary for the limited period before the Commission reviews
the Director's decision.
Rule 450. Briefs Filed with the Commission
(a) Briefing Schedule Order. Other than review ordered pursuant to
Rule 431, if review of a determination is mandated by statute, rule, or
judicial order or the Commission determines to grant review as a matter
of discretion, the Commission shall issue a briefing schedule order
directing the party or parties to file opening briefs and specifying
particular issues, if any, as to which briefing should be limited or
directed. Unless otherwise provided, opening briefs shall be filed
within 40 days of the date of the briefing schedule order. Opposition
briefs shall be filed within 30 days after the date opening briefs are
due. Reply briefs shall be filed within 14 days after the date
opposition briefs are due. No briefs in addition to those specified in
the briefing schedule order may be filed except with leave of the
Commission. The briefing schedule order shall be issued:
(1) at the time the Commission orders review on its own initiative
pursuant to Rules 411 or 421, or orders interlocutory review on its own
motion pursuant to Rule 400(a); or
(2) within 21 days, or such longer time as provided by the
Commission, after:
(i) the last day permitted for filing a petition for review
pursuant to Rule 410(b) or a brief in opposition to a petition for
review pursuant to Rule 410(d);
(ii) receipt by the Commission of an index to the record of a
determination of a self-regulatory organization filed pursuant to Rule
420(d);
(iii) receipt by the Commission of the mandate of a court of
appeals with respect to a judicial remand; or
(iv) certification of a ruling for interlocutory review pursuant to
Rule 400(c).
(b) Contents of Briefs. Briefs shall be confined to the particular
matters at issue. Each exception to the findings or conclusions being
reviewed shall be stated succinctly. Exceptions shall be supported by
citation to the relevant portions of the record, including references
to the specific pages relied upon, and by concise argument including
citation of such statutes, decisions and other authorities as may be
relevant. If the exception relates to the admission or exclusion of
evidence, the substance of the evidence admitted or excluded shall be
set forth in the brief, in an appendix thereto, or by citation to the
record. Reply briefs shall be confined to matters in opposition briefs
of other parties.
(c) Length Limitation. Opening and opposition briefs shall not
exceed 50 pages and reply briefs shall not exceed 25 pages, exclusive
of pages containing the table of contents, table of authorities, and
any addendum, except with leave of the Commission.
Comment (a): When the Commission reviews an action made by
delegated authority pursuant to Rules 430 and 431, briefs are generally
not submitted and no briefing schedule order is required.
Under Rule 450, the first brief on the merits would usually be due
40 days from the date of the scheduling order. The rules allot
substantial time prior to issuance of the scheduling order for filing
of a petition for review or, in the case of an appeal from a self-
regulatory organization decision, for filing of a notice pursuant to
Exchange Act Rule 19d-1, 17 CFR 240.19d-1, an application for review
and the record index. See Rule 360 (21-day maximum for filing petition
for review of initial decision); Rule 420(b) (30 days for filing
application for review of determination by self-regulatory
organization); Rule 420(d) (14 days to file record index). The time
taken by the Commission to issue the briefing schedule order--up to 21
days in the ordinary case--affords additional time for parties to
review the record and begin preparation of a merits brief. Accordingly,
requests for extensions of time to file briefs will be disfavored.
Failure to file a required brief may be grounds for dismissal. See Rule
180(c).
Comment (b): Failure to cite to the record in briefs can result in
unnecessary delay, particularly where the record is long. Under Rule
450, the obligation to support claims made in a brief lies with the
person submitting the brief. Briefs that fail to include appropriate
citations to the record, or to conform to other requirements of the
Rules of Practice relating to the form and content of briefs, may be
rejected or subject to other sanction. See Rule 180(b).
Revision Comment (a): Paragraph (a) requires that if review is
granted or ordered, the Commission shall issue a briefing schedule
order in all cases except pursuant to Rule 431 for review of an action
made pursuant to certain delegated authority. Prior to the submission
of merits briefs the Commission will make a formal determination
whether to grant petitions for review where review is not mandatory,
and in any case may choose to specify particular issues as to which
briefing should be limited or directed. Also, where there are cross-
petitions for review, there may be particular reasons to designate the
side that will file opening briefs. In proceedings arising on review of
self-regulatory organization proceedings a scheduling order is useful
in assuring that the respondent is on notice of applicable filing
deadlines. The briefing schedule order therefore provides an efficient,
uniform mechanism for the Commission to address issues raised by a
petition for review, to order review on its own initiative if it
chooses to do so, and to establish a schedule for the filing of briefs.
As revised, Rule 450 includes a requirement for issuance of a
briefing schedule order when the Commission is ordered to conduct
further proceedings on remand from a court.
Comment was requested as to whether the time ordinarily allowed for
filing of briefs under Rule 450 should be [[Page 32779]] increased to
45 days for the opening brief, 35 days for a brief in opposition and 21
days for a reply brief. One commenter supported such an increase. The
Commission has decided, however, that the presumptive filing deadlines
set forth in paragraph (a), which are identical to those under the
Federal Rules of Appellate Procedure, are reasonable and do not need to
be extended in the typical appeal. See Fed. R. App. P. 31.
Unless the Commission provides for a longer time, the Commission
will have 21 days to issue the briefing schedule order after the filing
of the last petition for review or other filing that triggers the
issuance of a briefing schedule order. In the revised rule, this period
was increased from 15 days to correspond to the 21-day period allowed
the Commission pursuant to Rule 411 to decide whether to order review
of an initial decision on its own initiative if no petition for review
is received.
Ordinarily, issuance of a briefing schedule order will be a
ministerial act, undertaken by staff in the Office of the General
Counsel, pursuant to delegated authority. See 17 CFR 200.30-14. Timely
issuance of the briefing schedule order is a crucial step in assuring
that matters on appeal to the Commission are completed promptly.
Consistent with the recommendation of the Task Force on Administrative
Proceedings that the Commission itself be involved in resolving
problems if proceedings are delayed, the delegation to issue a briefing
schedule order is limited. See, Fair and Efficient Administrative
Proceedings: Report of the Task Force on Administrative Proceedings
(1993) at 45. If an order is not issued within the 21-day time-frame
established by Rule 450, the Secretary shall submit a proposed order
for consideration by the Commission.
Rule 451. Oral Argument Before the Commission
(a) Availability. The Commission, on its own motion or the motion
of a party or any other aggrieved person entitled to Commission review,
may order oral argument with respect to any matter. Motions for oral
argument with respect to whether to affirm all or part of an initial
decision by a hearing officer shall be granted unless exceptional
circumstances make oral argument impractical or inadvisable. The
Commission will consider appeals, motions and other matters properly
before it on the basis of the papers filed by the parties without oral
argument unless the Commission determines that the presentation of
facts and legal arguments in the briefs and record and the decisional
process would be significantly aided by oral argument.
(b) Procedure. Requests for oral argument shall be made by separate
motion accompanying the initial brief on the merits. The Commission
shall issue an order as to whether oral argument is to be heard, and if
so, the time and place therefor. The grant or denial of a motion for
oral argument shall be made promptly after the filing of the last brief
called for by the briefing schedule. If oral argument is granted, the
time fixed for oral argument shall be changed only by written order of
the Commission, for good cause shown. The order shall state at whose
request the change is made and the reasons for any such change.
(c) Time Allowed. Unless the Commission orders otherwise, not more
than one half-hour per side will be allowed for oral argument. The
Commission may, in its discretion, determine that several persons have
a common interest, and that the interests represented will be
considered a single side for purposes of allotting time for oral
argument. Time will be divided equally among persons on a single side,
provided, however, that by mutual agreement they may reallocate their
time among themselves. A request for additional time must be made by
motion filed reasonably in advance of the date fixed for argument.
(d) Participation of Commissioners. A member of the Commission who
was not present at the oral argument may participate in the decision of
the proceeding, provided that the member has reviewed the transcript of
such argument prior to such participation. The decision shall state
whether the required review was made.
Comment: Rule 451 is based on former Rule of Practice 21(a) and
former Exchange Act Rule 19d-3(f).
Comment (c): The term ``side'' is used in this rule to indicate
that the time allowed is afforded to opposing interests rather than to
individual parties. See Fed. R. App. P. 34(b). If multiple appellants
or appellees have a common interest, they may constitute only a single
side.
Revision Comment (a): Comment was requested as to (1) whether the
Commission's practice with respect to granting requests for oral
argument should be changed to limit the opportunity for oral argument
on appeals from decisions of administrative law judges to the most
significant cases; and (2) whether the Commission should change its
standards for granting oral argument in self-regulatory organization
appeals to allow argument only in the most significant cases--such as
cases in which fines exceed certain dollar limits, in which a member or
associated person with no prior disciplinary record is permanently
barred from membership, or in which the decisional process as to an
important matter of law would be significantly aided by oral argument.
The Commission received a number of comments on the proposed
changes to its oral argument rule. The commenters were divided as to
whether the Commission should change its standards for granting oral
argument in self-regulatory organization appeals. Some commenters
objected to the Commission's current practice of denying oral argument
in such proceedings. The comments were also divided as to whether to
support the proposed criteria for identifying self-regulatory
organization cases that warrant oral argument. One commenter
recommended that the Commission provide for oral argument in cases
where self-regulatory organization sanctions (either by fine or
permanent membership bar) are significant, or where an important issue
of law is in question. Another suggested that certain of the proposed
criteria (specifically a large fine or bar against a person without a
disciplinary record) would not assist the Commission in identifying
those self-regulatory organization cases that warrant oral argument.
According to this commenter, the total circumstances of the case should
be considered. One commenter suggested that as an alternative to
increasing oral argument in self-regulatory organization cases, the
Commission consider adopting a policy of requesting additional briefing
on issues that are of particular interest and not raised by the parties
in their briefs. In response to this comment, the Commission has
adopted Rule 421(b) relating to supplemental briefing on review of
self-regulatory organization determinations.
One commenter supported the proposal to require that requests for
oral argument be set forth in a separate motion accompanying the
initial brief on the merits. The Commission believes that this
requirement will make oral argument requests more readily identifiable
than at present.
Where the Commission itself has instituted proceedings, a
respondent has a substantial claim for the opportunity to argue
directly to the Commission. In the context of issues presented in
appeals from self-regulatory organizations, the Commission has
determined that, in general, its decisionmaking process would not be
significantly aided by oral argument. Accordingly, after careful
consideration of the other comments and given the
[[Page 32780]] Commission's decision to adopt Rule 421(b) on
supplemental briefing, the Commission has decided to modify its oral
argument rule. The Rule continues the Commission policy of ordinarily
granting requests for oral arguments on appeals from an initial
decision of an administrative law judge, but not holding oral argument
on review of a determination by a self-regulatory organization. The
Rule makes clear, however, that oral argument will be allowed where the
Commission believes the presentation of facts and legal arguments in
the briefs and record and the decisional process would be significantly
aided by oral argument.
Rule 452. Additional Evidence
Upon its own motion or the motion of a party, the Commission may
allow the submission of additional evidence. A party may file a motion
for leave to adduce additional evidence at any time prior to issuance
of a decision by the Commission. Such motion shall show with
particularity that such additional evidence is material and that there
were reasonable grounds for failure to adduce such evidence previously.
The Commission may accept or hear additional evidence, may remand the
proceeding to a self-regulatory organization, or may remand or refer
the proceeding to a hearing officer for the taking of additional
evidence, as appropriate.
Comment: Rule 452 is based on former Rule 21(d) and former Exchange
Act Rule 19d-3(e). See In the Matter of Jonathan Scott Saluk, Exchange
Act Release No. 35371 (Feb. 14, 1995), 58 SEC Docket 2273 (Mar. 14,
1995) (Order Remanding Proceedings) (remand to a self-regulatory
organization to consider new evidence not available when decision was
reached); In the Matter of Klaus Langheinrich, Exchange Act Release No.
32603 (July 8, 1993), 54 SEC Docket 1376 (July 27, 1993) (Order
Remanding Proceedings) (remand on motion of Commission to a self-
regulatory organization to supplement record with additional evidence).
Rule 460. Record Before the Commission
The Commission shall determine each matter on the basis of the
record.
(a) Contents of the Record.
(1) In proceedings for final decision before the Commission other
than those reviewing a determination by a self-regulatory organization,
the record shall consist of:
(i) all items part of the record below in accordance with Rule 350;
(ii) any petitions for review, cross-petitions or oppositions; and
(iii) all briefs, motions, submissions and other papers filed on
appeal or review.
(2) In a proceeding for final decision before the Commission
reviewing a determination by a self-regulatory organization, the record
shall consist of:
(i) the record certified pursuant to Rule 420(d) by the self-
regulatory organization;
(ii) any application for review; and
(iii) any submissions, moving papers, and briefs filed on appeal or
review.
(b) Transmittal of Record to Commission. Within 14 days after the
last date set for filing briefs or such later date as the Commission
directs, the Secretary shall transmit the record to the Commission.
(c) Review of Documents Not Admitted. Any document offered in
evidence but excluded by the hearing officer or the Commission and any
document marked for identification but not offered as an exhibit shall
not be considered a part of the record before the Commission on appeal
but shall be transmitted to the Commission by the Secretary if so
requested by the Commission. In the event that the Commission does not
request the document, the Secretary shall retain the document not
admitted into the record until the later of
(1) the date upon which the Commission's order becomes final, or
(2) the conclusion of any judicial review of that order.
Rule 470. Reconsideration
(a) Scope of Rule. A party or any person aggrieved by a
determination in a proceeding may file a motion for reconsideration of
a final order issued by the Commission.
(b) Procedure. A motion for reconsideration shall be filed within
10 days after service of the order complained of on each party, or
within such time as the Commission may prescribe upon motion of the
person seeking reconsideration, if made within the foregoing 10-day
period. The motion for reconsideration shall briefly and specifically
state the matters of record alleged to have been erroneously decided,
the grounds relied upon, and the relief sought. Except with permission
of the Commission, a motion for reconsideration shall not exceed 15
pages. No responses to a motion for reconsideration shall be filed
unless requested by the Commission.
Comment: This rule is based in part on former Rules of Practice
21(e), Rules 35 and 40 of the Federal Rules of Appellate Procedure with
respect to petitions for rehearing, and Rule 450 of the Model
Adjudication Rules, Administrative Conference of the United States
(Dec. 1993). The page limit for motions for reconsideration is based on
the page limit for petitions for reconsideration before federal courts
of appeals. A motion for reconsideration is intended to be an
exceptional remedy. As a result, Rule 470 provides that no responses to
motions for reconsideration shall be filed unless requested by the
Commission.
Rule 490. Receipt of Petitions for Judicial Review Pursuant to 28
U.S.C. 2112(a)(1)
The Commission officer and office designated pursuant to 28 U.S.C.
2112(a)(1) to receive copies of petitions for review of Commission
orders from the persons instituting review in a court of appeals, are
the Secretary and the Office of the Secretary at the Commission's
Headquarters. Ten copies of each petition shall be submitted. Each copy
shall state on its face that it is being submitted to the Commission
pursuant to 28 U.S.C. 2112 by the person or persons who filed the
petition in the court of appeals.
Comment: Unless directed otherwise by statute, appeals of
Commission orders and decisions to a court of appeals are instituted by
the filing of a petition for review in accordance with the Federal
Rules of Appellate Procedure. See Fed. R. App. P. 15(a). Section
2112(a)(2) of Title 28 of the U.S. Code requires the Commission to
designate the officer and office who must receive copies of any
petitions for review of Commission orders filed in the federal courts
of appeals.
Persons seeking judicial review of Commission orders should be
aware that if the Commission receives, within ten days after approval
of its order, petitions for judicial review properly filed in more than
one court of appeals, the Judicial Panel on Multidistrict Litigation
will randomly select one of those courts to have jurisdiction over all
cases challenging the order. See 28 U.S.C. 2112(a). If no petition for
review is received during the 10-day period and petitions are
subsequently filed in two or more courts of appeals, the appeal will be
heard in the court of appeals where the first petition for review was
filed. Id.
Rules Relating to Temporary Orders and Suspensions
Rule 500. Expedited Consideration of Proceedings
Consistent with the Commission's or the hearing officer's other
responsibilities, every hearing shall be held and every decision shall
be [[Page 32781]] rendered at the earliest possible time in connection
with:
(a) an application for a temporary sanction, as defined in Rule
101(a), or a proceeding to determine whether a temporary sanction
should be made permanent;
(b) a motion or application to review an order suspending
temporarily the effectiveness of an exemption from registration
pursuant to Regulations A, B, E or F under the Securities Act,
Secs. 230.258, 230.336, 230.610 or 230.656 of this chapter; or,
(c) a motion to or petition to review an order suspending
temporarily the privilege of appearing before the Commission under Rule
102(e)(3), or a sanction under Rule 180(a)(1).
Comment: Rule 500's requirement that ``Consistent with the
Commission's or the hearing officer's other responsibilities, every
hearing shall be held and every decision shall be rendered at the
earliest possible time'' is derived from two sources. First, when a
temporary cease-and-desist order is entered ex parte and the respondent
timely seeks Commission review of the decision, the Commission is
required by statute to hold a hearing and render its decision ``at the
earliest possible time.'' See, e.g., Exchange Act Sec. 21C(d)(1), 15
U.S.C. Sec. 78u-3(d)(1). Second, former Rule 2(e)(3)(iii) contained the
requirement that proceedings in connection with Commission review of
temporary suspensions of persons appearing or practicing before the
Commission ``be expedited in every way consistent with the Commission's
other responsibilities.''
The rule requires expedited consideration when temporary sanctions
are sought or ordered against a respondent. Temporary sanction orders
generally arise from exigent circumstances. Expedited consideration of
the decision whether to enter or continue such an order is necessary
both to protect the public from harm, by promptly restraining improper
ongoing or threatened activities, and to protect the rights of
respondents, who may be adversely affected by an application for a
temporary sanction even if the sanction is ultimately denied. After a
temporary sanction is entered, fairness to the public--especially
persons harmed by violative conduct--and to the respondent further
dictates expediting proceedings to determine whether a permanent
sanction or other appropriate relief is warranted.
The rule also requires expedited consideration of a motion,
application or petition to review a temporary suspension of an
exemption from registration, a temporary suspension from practice
before the Commission pursuant to Rule 102(e)(3), or a sanction for
misconduct during the course of the hearing pursuant to Rule 180(a)(1).
Rule 510. Temporary Cease-and-Desist Orders: Application Process
(a) Procedure. A request for entry of a temporary cease-and-desist
order shall be made by application filed by the Division of
Enforcement. The application shall set forth the statutory provision or
rule that each respondent is alleged to have violated; the temporary
relief sought against each respondent, including whether the respondent
would be required to take action to prevent the dissipation or
conversion of assets; and whether the relief is sought ex parte.
(b) Accompanying Documents. The application shall be accompanied by
a declaration of facts signed by a person with knowledge of the facts
contained therein, a memorandum of points and authorities, a proposed
order imposing the temporary relief sought, and, unless relief is
sought ex parte, a proposed notice of hearing and order to show cause
whether the temporary relief should be imposed. If a proceeding for a
permanent cease-and-desist order has not already been commenced, a
proposed order instituting proceedings to determine whether a permanent
cease-and-desist order should be imposed shall also be filed with the
application.
(c) With Whom Filed. The application shall be filed with the
Secretary or, if the Secretary is unavailable, with the duty officer.
In no event shall an application be filed with an administrative law
judge.
(d) Record of Proceedings. Hearings, including ex parte
presentations made by the Division of Enforcement pursuant to Rule 513,
shall be recorded or transcribed pursuant to Rule 302.
Comment (a)-(c): Rule 510 requires requests for a temporary cease-
and-desist order be made by application, not motion, to make clear that
the time limitations governing the filing of an opposition to a motion
do not apply. The information required in the application and
accompanying documents is similar to the type of information required
in a request for a temporary restraining order under Rule 65(b) of the
Federal Rules of Civil Procedure.
The rule requires the Division of Enforcement to file a declaration
of facts and a memorandum of points and authorities in order to provide
the Commission with a clearly articulated record on which to base the
temporary cease-and-desist order. A declaration may be made by a staff
member or any other person.
If notice of the application is to be given to the respondent, the
rule requires the Division to file a proposed notice of hearing and
order to show cause why a temporary cease-and-desist order should not
be issued. A proposed temporary order is also required. If warranted,
and with such modifications as may be appropriate, these orders can be
entered by the Commission without the delay otherwise required while an
order is drafted and then submitted to the Commission.
A temporary cease-and-desist order may only be issued pending a
proceeding to determine whether to issue a permanent cease-and-desist
order. See, e.g., Exchange Act Sec. 21C(c)(1), 15 U.S.C. Sec. 78u-
3(c)(1). If an order instituting proceedings has not already been
issued, a proposed order is required so that proceedings can be
instituted before action is taken on the application for a temporary
cease-and-desist order.
The rule also specifies that the application and accompanying
documents are to be filed with the Secretary. The Secretary will
promptly forward such documents to each Commissioner. If the Secretary
is unavailable, the application may be filed with the duty officer.
Rule 151(b), which provides generally that a hearing officer may allow
filings to be made with the hearing officer, does not authorize the
filing of an application for a temporary cease-and-desist order with an
administrative law judge, even if the request for a temporary order
arises from an ongoing proceeding where an administrative law judge has
been assigned.
Comment (d): Rule 302 requires that except as otherwise ordered,
all hearings are to be recorded or transcribed. Paragraph (d) clarifies
that the appearance of the Division of Enforcement, ex parte, to seek
entry of a temporary cease-and-desist order after institution of
proceedings constitutes a hearing subject to Rule 302. A Commission
meeting prior to the institution of proceedings at which the Commission
considers a recommendation by the Division of Enforcement that the
Commission authorize the filing of an application for a temporary
cease-and-desist order is not a hearing, however, and a transcript of
the meeting would not be a part of the record or otherwise available to
a respondent.
Revision Comment: As proposed, Rule 510 included a provision
allowing the Commission to waive the filing of any or all of the
supporting documents that [[Page 32782]] would ordinarily accompany the
application for a temporary cease-and-desist order. The proposed rule
also provided that proceedings should be recorded or transcribed ``or
otherwise memorialized to the extent that circumstances permit.'' As
the comments to the proposed rules stated, the possible waiver of
requirements with respect to accompanying documents or the creation of
a transcript was included in the proposed rule to address limited
circumstances such as the need to hold a hearing in emergency
circumstances at night, over a weekend, or when no Commissioners were
present in Washington, and certain hearing formalities could not be
observed. However, as noted by one commenter, the proposed rule was
subject to interpretations which could have allowed the use of waivers
more frequently than intended. In addition, consideration of a request
for a waiver could raise collateral issues that would delay prompt,
effective remedial action.
The Commission has authority under these rules, see, e.g., Rule 161
(extension of time to file documents) and Rule 302 (hearings to be
recorded and transcribed except as otherwise ordered), and in its
inherent powers as an adjudicative body to respond to truly exigent or
emergency conditions. The Commission concluded that the extraordinary
circumstances justifying the proposed waivers have been so rare that
having separate provisions to account for them is unnecessary at this
time.
Rule 511. Temporary Cease-and-Desist Orders: Notice; Procedures for
Hearing
(a) Notice: How Given. Notice of an application for a temporary
cease-and-desist order shall be made by serving a notice of hearing and
order to show cause pursuant to Rule 141(b) or, where timely service of
a notice of hearing pursuant to Rule 141(b) is not practicable, by any
other means reasonably calculated to give actual notice that a hearing
will be held, including telephonic notification of the general subject
matter, time, and place of the hearing. If an application is made ex
parte, pursuant to Rule 513, no notice to a respondent need be given
prior to the Commission's consideration of the application.
(b) Hearing Before the Commission. Except as provided in paragraph
(d) of this rule, hearings on an application for a temporary cease-and-
desist order shall be held before the Commission.
(c) Presiding Officer: Designation. The Chairman shall preside or
designate a Commissioner to preside at the hearing. If the Chairman is
absent or unavailable at the time of hearing and no other Commissioner
has been designated to preside, the duty officer on the day the hearing
begins shall preside or designate another Commissioner to preside.
(d) Procedure at Hearing.
(1) The presiding officer shall have all those powers of a hearing
officer set forth in Rule 111 and shall rule on the admissibility of
evidence and other procedural matters, including, but not limited to:
whether oral testimony will be heard; the time allowed each party for
the submission of evidence or argument; and whether post-hearing
submission of briefs, proposed findings of fact and conclusions of law
will be permitted and if so, the procedures for submission; provided,
however, that the person presiding may consult with other Commissioners
participating in the hearing on these or any other question of
procedure.
(2) Each Commissioner present at the hearing shall be afforded a
reasonable opportunity to ask questions of witnesses, if any, or of
counsel.
(3) A party or witness may participate by telephone. Alternative
means of remote access, including a video link, shall be permitted in
the Commission's discretion. Factors the Commission may consider in
determining whether to permit alternative means of remote access
include, but are not limited to, whether allowing an alternative means
of access will delay the hearing, whether the alternative means is
reliable, and whether the party proposing its use has made arrangements
to pay for its cost.
(4) After a hearing has begun, the Commission may, on its own
motion, or the motion of a party, assign a hearing officer to preside
at the taking of oral testimony or other evidence and to certify the
record of such testimony or other evidence to the Commission within a
fixed period of time. No recommended or initial decision shall be made
by such a hearing officer.
Comment (a): If an order instituting proceedings has not been
issued prior to the filing of an application for a temporary cease-and-
desist order, an order instituting proceedings must be entered in
conjunction with entry of a notice of hearing and order to show cause.
See, e.g., Exchange Act Sec. 21C(c)(1), 15 U.S.C. Sec. 78u-3(c)(1).
Provided that the respondent receives actual notice of the hearing,
which may be made by telephone, formal service of the order instituting
proceedings pursuant to Rule 141 is not required prior to the
commencement of the hearing. Absent a waiver, as provided for in Rule
141(a)(4), furnishing a copy of the order by facsimile transmission
would not meet the service requirements of Rule 141. At or promptly
after the hearing, however, the Secretary must serve a copy of the
order instituting proceedings and the notice of hearing in accord with
Rule 141 and the Division of Enforcement must serve its application and
accompanying documents pursuant to Rule 150.
Comment (b): Rule 101(a) defines the term ``Commission'' to include
the duty officer as provided for by 17 CFR 200.43. Pursuant to that
section, the duty officer may preside at the taking of evidence.
Comment (d): Hearings held pursuant to the Commission's authority
to impose a temporary cease-and-desist order are not required to be
formal, ``on the record'' adjudications within the meaning of Sections
554, 556-557 of the Administrative Procedure Act, 5 U.S.C. Secs. 554,
556-57. See Chemical Waste Management, Inc. v. EPA, 873 F.2d 1477,
1481-82 (D.C. Cir. 1989) (no presumption that a statutory ``hearing''
requirement compels the agency to undertake a formal ``hearing on the
record''). A full, trial-type evidentiary hearing will not ordinarily
be held because of the exigent nature of the proceedings, the temporary
nature of any sanction, and the opportunity for immediate post-sanction
review by a federal district court. See Boddie v. Connecticut, 401 U.S.
371, 378 (1971) (``The formality and procedural requisites for the
hearing can vary, depending upon the importance of the interests
involved and the nature of the subsequent proceedings.'').
Rule 511(d) incorporates the statutory provision that the hearing
does not have to be a formal, trial-type proceeding. The amount of
process due will vary based on the facts and circumstances of each
case. See Boddie, 401 U.S. at 378. The Commission may determine the
form of evidence (for example, whether live or by affidavit), the
duration of the hearing (for example, by restricting the time for
argument) or the extent of post-hearing procedures (for example,
whether to allow submissions of post-hearing briefs). Relevant factors
in making these determinations may include, among others, the risk of
harm to investors or the public, the nature of the alleged or
threatened violations, the nature of the proposed sanction, the
potential effect of a sanction on the respondent, and the likely
duration of the sanction before opportunity for further hearings.
Ordinarily, the Commission expects that the hearing on an
application for a temporary cease-and-desist order will proceed on the
basis of affidavits and oral argument in similar fashion to a
[[Page 32783]] hearing on a Commission request under Rule 65 of the
Federal Rules of Civil Procedure for a temporary restraining order in
federal court.
Due to the exigent circumstances in cases in which a temporary
cease-and-desist order would be sought, respondents, their counsel and
the participating Commission staff may not be able to be present in
Washington, D.C., where the Commission ordinarily meets. The rule
provides that parties and witnesses may participate by telephone.
Alternative technologies that would allow remote access to the hearing
may be used in the Commission's discretion.
Revision Comment (b): The comment to proposed Rule 41 noted the
recommendation of the Task Force on Administrative Proceedings that
applications for temporary cease-and-desist orders be heard by the
Commission. The proposed rules provided, in addition, that a hearing
could be held before a hearing officer, which was defined as an
administrative law judge or duty officer. While the comment noted that
``the Commission could make such an assignment when an application for
a temporary sanction has arisen during the course of a proceeding
already assigned to a hearing officer,'' the proposed rule did not, by
its terms, limit the proceedings that would be assigned to a hearing
officer to such rare circumstances.
Referral of a temporary cease-and-desist order application to a
hearing officer for hearing and preparation of an initial decision
would likely require approximately three days at a minimum, and up to a
week or more, depending upon the time allowed for submission of
proposed findings of fact and conclusions of law and for the
preparation of the initial decision. It would be inconsistent for the
Commission to authorize a proceeding in which the Division of
Enforcement alleged that there were exigent circumstances warranting a
temporary order and to then assign the matter to a hearing officer for
preparation of a non-binding initial decision, which would be subject
to briefing and argument to the Commission before a binding order could
be entered.
After careful consideration, the Commission has decided to require
that hearings on an application for a temporary cease-and-desist order
be held before the Commission, not a hearing officer. In judicial
proceedings on an application for a temporary restraining order,
evidence is often submitted solely by affidavit. Proceedings for a
temporary cease-and-desist order also may not involve live testimony.
The Rules recognize, however, that testimony may be offered and
allowed. See Rule 510. Due to considerations of efficiency, expertise
and the demands of other Commission business, the Commission itself
does not ordinarily preside at the taking of testimony in an
enforcement or disciplinary proceeding. In recognition of this fact,
the rule permits the Commission to assign a hearing officer to preside
solely at the taking of testimony and to certify the resulting record
to the Commission, without a recommended or initial decision. There
would be no argument, briefing or submissions to the hearing officer.
Rule 512. Temporary Cease-and-Desist Orders: Issuance After Notice and
Opportunity for Hearing
(a) Basis for Issuance. A temporary cease-and-desist order shall be
issued only if the Commission determines that the alleged violation or
threatened violation specified in an order instituting proceedings
whether to enter a permanent cease-and-desist order pursuant to
Securities Act Section 8A(a), 15 U.S.C. 77h-1(a), Exchange Act Section
21C(a), 15 U.S.C. 78u-3(a), Investment Company Act Section 9(f)(1), 15
U.S.C. 80a-9(f)(1), or Investment Advisers Act Section 203(k)(1), 15
U.S.C. 80b-3(k)(1), or the continuation thereof, is likely to result in
significant dissipation or conversion of assets, significant harm to
investors, or substantial harm to the public interest, including, but
not limited to, losses to the Securities Investor Protection
Corporation, prior to the completion of proceedings on the permanent
cease-and-desist order.
(b) Content, Scope and Form of Order. Every temporary cease-and-
desist order granted shall:
(1) describe the basis for its issuance, including the alleged or
threatened violations and the harm that is likely to result without the
issuance of an order;
(2) describe in reasonable detail, and not by reference to the
order instituting proceedings or any other document, the act or acts
the respondent is to take or refrain from taking; and
(3) be indorsed with the date and hour of issuance.
(c) Effective Upon Service. A temporary cease-and-desist order is
effective upon service upon the respondent.
(d) Service: How Made. Service of a temporary cease-and-desist
order shall be made pursuant to Rule 141(a). The person who serves the
order shall promptly file a declaration of service identifying the
person served, the method of service, the date of service, the address
to which service was made and the person who made service; provided,
however, failure to file such a declaration shall have no effect on the
validity of the service.
(e) Commission Review. At any time after the respondent has been
served with a temporary cease-and-desist order, the respondent may
apply to the Commission to have the order set aside, limited or
suspended. The application shall set forth with specificity the facts
that support the request.
Comment (a): Rule 512(a) sets forth the statutory criteria for
issuance of a temporary cease-and-desist order when the order is
preceded by notice and an opportunity to be heard. See, e.g., Exchange
Act Sec. 21C(c), 15 U.S.C. Sec. 78u-3(c).
Comment (b): Rule 512(b) requires that a temporary cease-and-desist
order describe the basis for the order and the acts that the respondent
is to take or refrain from taking to comply with the order. These
requirements, which are modeled on Rule 65(d) of the Federal Rules of
Civil Procedure, are meant to ensure that a respondent will have
adequate notice of the constraints placed upon him or her by the order
and to provide the predicate notice for enforcement of the order if the
respondent fails to comply with it.
Rule 512(b) also requires that a temporary cease-and-desist order
be indorsed with the date and hour of issuance. Although a temporary
cease-and-desist order is not effective until served, requiring this
indorsement minimizes the potential for disputes over when an order was
entered. A similar provision is included in Rule 65(b) of the Federal
Rules of Civil Procedure.
Comment (c): A temporary cease-and-desist order becomes effective
upon service upon the respondent. See, e.g., Exchange Act
Sec. 21C(c)(1), 15 U.S.C. Sec. 78u-3(c)(1).
Comment (e): Paragraph (e) is based on statutory provisions
permitting respondents to seek to set aside, limit or suspend a
temporary order at any time. See, e.g., Exchange Act Sec. 21C(d)(1), 15
U.S.C. Sec. 78u-3(d)(1).
Rule 513. Temporary Cease-and-Desist Orders: Issuance Without Prior
Notice and Opportunity For Hearing
In addition to the requirements for issuance of a temporary cease-
and-desist order set forth in Rule 512, the following requirements
shall apply if a temporary cease-and-desist order is to be entered
without prior notice and opportunity for hearing:
(a) Basis for Issuance Without Prior Notice and Opportunity for
Hearing. A [[Page 32784]] temporary cease-and-desist order may be
issued without notice and opportunity for hearing only if the
Commission determines, from specific facts in the record of the
proceeding, that notice and hearing prior to entry of an order would be
impracticable or contrary to the public interest.
(b) Content of the Order. An ex parte temporary cease-and-desist
order shall state specifically why notice and hearing would have been
impracticable or contrary to the public interest.
(c) Hearing Before the Commission. If a respondent has been served
with a temporary cease-and-desist order entered without a prior
Commission hearing, the respondent may apply to the Commission to have
the order set aside, limited, or suspended, and if the application is
made within 10 days after the date on which the order was served, may
request a hearing on such application. The Commission shall hold a
hearing and render a decision on such an application at the earliest
possible time. The hearing shall begin within two days of the filing of
the application unless the applicant consents to a longer period or the
Commission, by order, for good cause shown, sets a later date. The
Commission shall render a decision on the application within five
calendar days of its filing, provided, however, that the Commission, by
order, for good cause shown, may extend the time within which a
decision may be rendered for a single period of five calendar days, or
such longer time as consented to by the applicant. If the Commission
does not render its decision within 10 days of the respondent's
application or such longer time as consented to by the applicant, the
temporary order shall be suspended until a decision is rendered.
(d) Presiding Officer, Procedure at Hearing. Procedures with
respect to the selection of a presiding officer and the conduct of the
hearing shall be in accordance with Rule 511.
Comment (a): The rule sets forth the statutory requirement for
entry of a temporary cease-and-desist order without prior notice. See,
e.g., Exchange Act Sec. 21C(c)(1), 15 U.S.C. Sec. 78u-3(c)(1). The
requirement that the Commission's determination be based on ``specific
facts'' is modeled on Rule 65(b) of the Federal Rules of Civil
Procedure.
Comment (b): The requirement that an ex parte order state why it
was issued without notice and hearing is modeled on Rule 65(b) of the
Federal Rules of Civil Procedure which requires a similar statement of
reasons if a temporary restraining order is issued without notice. A
statement of the reasons why an order was entered ex parte aids the
Commission's decisional process by ensuring that the statutory criteria
for ex parte action have been met and facilitates review of the order.
See Rule 514 (ex parte order must be appealed to the Commission before
seeking judicial review).
Comment (c): Rule 513(c) restates the statutory standards with
respect to opportunity for a hearing after service of a temporary
cease-and-desist order entered ex parte. See, e.g., Exchange Act
Sec. 21C(d)(1), 15 U.S.C. Sec. 78u-3(d)(1). The requirement that a
hearing be held and a decision rendered ``at the earliest possible
time'' is not elaborated upon in the legislative history.
The Due Process Clause of the Fifth Amendment requires that if a
person is subject to an ex parte deprivation of property, he or she
shall be provided a ``prompt'' opportunity for hearing thereafter. FDIC
v. Mallen, 486 U.S. 230, 241-42 (1988); Barry v. Barchi, 443 U.S. 55,
65-66 (1979) (hearing must be provided ``at a meaningful time'')
(citation omitted). While the hearing must be held and a decision
rendered promptly, judicial decisions should be made in a ``considered
and deliberate manner,'' and without excessive or undue haste. Mallen,
486 U.S. at 244. The Commission must allow an appropriate amount of
time for each party to prepare its case prior to hearing and must allow
time for each Commissioner to review all evidence or other submissions
and, as necessary, to engage in joint deliberation. See id. at 243-244.
What would be ``possible'' in terms of the earliest time for hearing or
resolution of a case would depend, therefore, on the specific facts of
each case and the Commission's other responsibilities.
When a temporary cease-and-desist order is entered ex parte, the
respondent must, as a prerequisite to judicial review of the order,
first apply to the Commission to have the order set aside, limited or
suspended, and the Commission must then hold a hearing, if requested,
and render a decision on the application. See, e.g., Exchange Act
Sec. 21C(d)(2), 15 U.S.C. Sec. 78u-3(d)(2). While recognizing that some
cases may demand more time than others, Rule 513(c) establishes a
maximum time limit on the continuing effectiveness of an ex parte order
pending its review by the Commission.
Under the rule, a hearing on the application to set aside a
temporary cease-and-desist order will begin within two days of the
filing of the application, unless the respondent requests a longer
period or the Commission determines, by order, for good cause shown,
that a longer time is necessary. A temporary cease-and-desist order
entered ex parte will be suspended, however, if the Commission does not
hold the hearing and render a decision on an application to set aside,
limit or suspend the order within 10 calendar days of the date of
application, or such longer time as consented to by the respondent.
While the Commission may take as long as needed to decide the
application, after the 10-day period or such longer time as consented
to by the respondent, the respondent does not remain bound by the
temporary order pending the Commission's decision. If the Commission
then upholds the temporary cease-and-desist order, the order will once
again become binding and the respondent can seek judicial review.
The time limits set forth in Rule 513 are consistent with the
statutory time limits established with respect to orders entered after
notice and hearing. If an order is entered after notice and hearing,
the respondent is allowed to seek judicial review within 10 days of
service of the order. Under Rule 513, a respondent will not be subject
to an ex parte order for any longer than 10 days prior to having the
opportunity to seek judicial review.
The provisions of Rule 513(c) are similar to the provisions of Rule
65(b) of the Federal Rules of Civil Procedure, that a party subject to
a temporary restraining order obtained without notice may, on two days
notice to the adverse party, or such shorter time as permitted by the
court, appear and move for dissolution of the temporary restraining
order. Rule 65(b) does not require that a hearing be held or a decision
on the motion be issued within the two-day period allowed for the
making of a motion to dissolve the temporary restraining order. Rather,
the rule requires the court to hear and determine the motion ``as
expeditiously as the ends of justice require.'' Such motions are
ordinarily resolved within the initial 10-day duration of a temporary
restraining order. Extension of an ex parte temporary restraining order
for an additional ten days, though permitted by rule, is uncommon.
Revision Comment (c): By statute, a respondent given notice and
opportunity to be heard prior to entry of a temporary cease-and-desist
order may seek judicial review of the order within 10 days of service
of the order. In contrast, under the proposed rules a respondent could
be subject to a temporary order entered ex parte for an indefinite
period of time without access to judicial review. Judicial review of an
ex parte order is unavailable until the Commission acts on the
respondent's [[Page 32785]] application to set aside, limit or suspend
the order. The proposed rules established no time limit for the
Commission to act or, in the alternative, for the effectiveness of the
order. As adopted, the rule includes standards for the start of the
hearing on a respondent's application for review of an ex parte order
and limits the effectiveness of an ex parte order to 10 days after the
respondent files an application for review of the order.
Rule 514. Temporary Cease-and-Desist Orders: Judicial Review; Duration
(a) Availability of Judicial Review. Judicial review of a temporary
cease-and-desist order shall be available as provided in Section
8A(d)(2) of the Securities Act, 15 U.S.C. 77h-1(d)(2), Section
21C(d)(2) of the Exchange Act, 15 U.S.C. 78u-3(d)(2), Section
9(f)(4)(B) of the Investment Company Act, 15 U.S.C. 80a-9(f)(4)(B), or
Section 203(k)(4)(B) of the Investment Advisers Act, 15 U.S.C. 80b-
3(k)(4)(B).
(b) Duration. Unless set aside, limited, or suspended, either by
order of the Commission, a court of competent jurisdiction, or a
hearing officer acting pursuant to Rule 531, or by operation of Rule
513, a temporary cease-and-desist order shall remain effective and
enforceable until the earlier of:
(1) the completion of proceedings to determine whether a permanent
order shall be entered; or
(2) 180 days, or such longer time as consented to by the
respondent, after issuance of a briefing schedule order pursuant to
Rule 540(b), if an initial decision whether a permanent order should be
entered is appealed.
Comment: Rule 514(b) sets forth provisions governing the duration
of a temporary cease-and-desist order. After entry of a temporary
cease-and-desist order, proceedings to determine whether a permanent
order is warranted will be assigned to an administrative law judge. The
case will follow the same procedural steps as any other proceeding
assigned to an administrative law judge for hearing. Depending upon the
pace of judicial review of the temporary order, the filing of the
respondent's answer, prehearing preparation or the hearing on issuance
of the permanent order may take place prior to the completion of
judicial review of the temporary order.
Unless set aside, limited, or suspended, either by order of the
Commission, a court of competent jurisdiction, or a hearing officer
acting pursuant to Rule 531, or pursuant to the operation of Rule
513(c), a temporary cease-and-desist order remains effective and
enforceable pending issuance of the administrative law judge's initial
decision as to whether a permanent order will be issued. See, e.g.,
Exchange Act Sec. 21C(c)(1), 15 U.S.C. Sec. 78u-3(c)(1).
Rule 500 requires that during the pendency of the temporary order
every hearing be held and every decision be rendered at the earliest
possible time, consistent with the Commission's or the hearing
officer's other responsibilities. The number of respondents, the
complexity of the allegations, the number and location of witnesses and
other such factors, however, will affect, to a substantial degree, the
length of the hearing before the administrative law judge. Rule 530
provides for expedited preparation of an initial decision once the
hearing is concluded. When the initial decision is issued, Rule 531
requires that if the original terms of a temporary order are not to be
made permanent, the administrative law judge shall set aside, limit or
suspend the terms of the order in accordance with their initial
decision. See 17 CFR 200.30-9 (authority delegated to the
administrative law judges to set aside, limit or suspend temporary
orders in accord with an initial decision). Hence, if the initial
decision denies a permanent cease-and-desist order, the temporary order
may be suspended pending any appeal of the initial decision.
If an initial decision would make a pending temporary order
permanent the temporary order will not be suspended. If the initial
decision is appealed, the Commission may take as long as needed to
reach a decision on the need for a permanent order. Rule 514(b)
provides, however, that the temporary order shall be suspended after
180 days from issuance of the briefing schedule order pursuant to Rule
540 in connection with the appeal, or such longer time as consented to
by the respondent, if the Commission has not issued its decision by
that time.
Rule 520. Suspension of Registration of Brokers, Dealers, or other
Exchange Act-Registered Entities: Application
(a) Procedure. A request for suspension of a registered broker,
dealer, municipal securities dealer, government securities broker,
government securities dealer, or transfer agent pending a final
determination whether the registration shall be revoked shall be made
by application filed by the Division of Enforcement. The application
shall set forth the statutory provision or rule that each respondent is
alleged to have violated and the temporary suspension sought as to each
respondent.
(b) Accompanying Documents. The application shall be accompanied by
a declaration of facts signed by a person with knowledge of the facts
contained therein, a memorandum of points and authorities, a proposed
order imposing the temporary suspension of registration sought, and a
proposed notice of hearing and order to show cause whether the
temporary suspension of registration should be imposed. If a proceeding
to determine whether to revoke the registration permanently has not
already been commenced, a proposed order instituting proceedings to
determine whether a permanent sanction should be imposed shall also be
filed with the application.
(c) With Whom Filed. The application shall be filed with the
Secretary or, if the Secretary is unavailable, with the duty officer.
In no event shall an application be filed with an administrative law
judge.
(d) Record of Hearings. All hearings shall be recorded or
transcribed pursuant to Rule 302.
Comment: The Exchange Act provides for the Commission's authority
to suspend certain entities registered under the Act. See Exchange Act
Secs. 15(b)(5), 15B(c)(3), 15C(c)(1)(B), 17A(c)(4)(A), 15 U.S.C.
Secs. 78o(b)(5), 78o-4(c)(3), 78o-5(c)(1)(B), 78q-1(c)(4)(A). The
procedures for the suspension of Exchange Act-registered entities are
based upon the applicable statutory standards and modeled upon
provisions applicable to temporary cease-and-desist order proceedings.
From 1936 through 1981, the Commission brought over 30 proceedings to
suspend temporarily the registration of a broker or dealer pending
final determination whether the registration would be permanently
revoked. In contrast to practice before 1981, the Rules provide that
the Commission, without prior assignment to a hearing officer for
initial decision, will decide applications to suspend a registration
pending final determination whether the registration should be
permanently revoked.
Rule 521. Suspension of Registration of Brokers, Dealers, or Other
Exchange Act-Registered Entities: Notice and Opportunity for Hearing on
Application
(a) How Given. Notice of an application to suspend a registration
pursuant to Rule 520 shall be made by serving a notice of hearing and
order to show cause pursuant to Rule 141(b) or, where timely service of
a notice of hearing pursuant to Rule 141(b) is not practicable, by any
other means reasonably calculated to give actual notice that a hearing
will be held, [[Page 32786]] including telephonic notification of the
general subject matter, time, and place of the hearing.
(b) Hearing: Before Whom Held. Except as provided in paragraph (d)
of this rule, hearings on an application to suspend a registration
pursuant to Rule 520 shall be held before the Commission.
(c) Presiding Officer: Designation. The Chairman shall preside or
designate a Commissioner to preside at the hearing. If the Chairman is
absent or unavailable at the time of hearing and no other Commissioner
has been designated to preside, the duty officer on the day the hearing
begins shall preside or designate another Commissioner to preside.
(d) Procedure at Hearing. (1) The presiding officer shall have all
those powers of a hearing officer set forth in Rule 111 and shall rule
on the admissibility of evidence and other procedural matters,
including, but not limited to: whether oral testimony will be heard;
the time allowed each party for the submission of evidence or argument;
and whether post-hearing submission of briefs, proposed findings of
fact and conclusions of law will be permitted and if so, the procedures
for submission; provided, however, that the person presiding may
consult with other Commissioners participating in the hearing on these
or any other question of procedure.
(2) Each Commissioner present at the hearing shall be afforded a
reasonable opportunity to ask questions of witnesses, if any, or
counsel.
(3) A party or witness may participate by telephone. Alternative
means of remote access, including a video link, shall be permitted in
the Commission's discretion. Factors the Commission may consider in
determining whether to permit alternative means of remote access
include, but are not limited to, whether allowing an alternative means
of access will delay the hearing, whether the alternative means is
reliable, and whether the party proposing its use has made arrangements
to pay for its cost.
(4) After a hearing has begun, the Commission may, on its own
motion or the motion of a party, assign a hearing officer to preside at
the taking of oral testimony or other evidence and to certify the
record of such testimony or other evidence to the Commission within a
fixed period of time. No recommended or initial decision shall be made.
Rule 522. Suspension of Registration of Brokers, Dealers, or other
Exchange Act-Registered Entities: Issuance and Review of Order
(a) Basis for Issuance. An order suspending a registration, pending
final determination as to whether the registration shall be revoked
shall be issued only if the Commission finds that the suspension is
necessary or appropriate in the public interest or for the protection
of investors.
(b) Content, Scope and Form of Order. Each order suspending a
registration shall:
(1) describe the basis for its issuance, including the alleged or
threatened violations and the harm that is likely to result without the
issuance of an order;
(2) describe in reasonable detail, and not by reference to the
order instituting proceedings or any other document, the act or acts
the respondent is to take or refrain from taking; and
(3) be indorsed with the date and hour of issuance.
(c) Effective Upon Service. An order suspending a registration is
effective upon service upon the respondent.
(d) Service: How Made. Service of an order suspending a
registration shall be made pursuant to Rule 141(a). The person who
serves the order shall promptly file a declaration of service
identifying the person served, the method of service, the date of
service, the address to which service was made and the person who made
service; provided, however, failure to file such a declaration shall
have no effect on the validity of the service.
(e) Commission Review. At any time after the respondent has been
served with an order suspending a registration, the respondent may
apply to the Commission or the hearing officer to have the order set
aside, limited, or suspended. The application shall set forth with
specificity the facts that support the request.
Comment (b): When an order suspending a registration is issued,
there may be trades in process or other commitments which the
respondent is obligated to meet as well as other ongoing activities
which would have to be addressed to permit an orderly cessation of
business. The Rule, therefore, requires a description, in reasonable
detail of the act or acts the respondent is to take or refrain from
taking. To protect investors or the public, the order may provide that
a suspension will be effective in stages, or only after a period of
time.
Rule 523. [Reserved]
Rule 524. Suspension of Registrations: Duration
Unless set aside, limited or suspended by order of the Commission,
a court of competent jurisdiction, or a hearing officer acting pursuant
to Rule 531, an order suspending a registration shall remain effective
and enforceable until the earlier of:
(a) the completion of proceedings to determine whether the
registration shall be permanently revoked; or
(b) 180 days, or such longer time as consented to by the
respondent, after issuance of a briefing schedule order pursuant to
Rule 540(b), if an initial decision whether the registration shall be
permanently revoked is appealed.
Rule 530. Initial Decision on Permanent Order: Timing for Submitting
Proposed Findings and Preparation of Decision
Unless otherwise ordered by the Commission or hearing officer, if a
temporary cease-and-desist order or suspension of registration order is
in effect, the following time limits shall apply to preparation of an
initial decision as to whether such order should be made permanent:
(a) proposed findings and conclusions and briefs in support thereof
shall be filed 30 days after the close of the hearing;
(b) the record in the proceedings shall be served by the Secretary
upon the hearing officer three days after the date for the filing of
the last brief called for by the hearing officer; and
(c) the initial decision shall be filed with the Secretary at the
earliest possible time, but in no event more than 30 days after service
of the record, unless the hearing officer, by order, shall extend the
time for good cause shown for a period not to exceed 30 days.
Rule 531. Initial Decision on Permanent Order: Effect on Temporary
Order
(a) Specification of Permanent Sanction. If, at the time an initial
decision is issued, a temporary sanction is in effect as to any
respondent, the initial decision shall specify:
(1) which terms or conditions of a temporary cease-and-desist
order, if any, shall become permanent; and
(2) whether a temporary suspension of a respondent's registration,
if any, shall be made a permanent revocation of registration.
(b) Modification of Temporary Order. If any temporary sanction
shall not become permanent under the terms of the initial decision, the
hearing officer shall issue a separate order setting aside,
[[Page 32787]] limiting or suspending the temporary sanction then in
effect in accordance with the terms of the initial decision. The
hearing officer shall decline to suspend a term or condition of a
temporary cease-and-desist order if it is found that the continued
effectiveness of such term or condition is necessary to effectuate any
term of the relief ordered in the initial decision, including the
payment of disgorgement, interest or penalties. An order modifying
temporary sanctions shall be effective 14 days after service. Within
one week of service of the order modifying temporary sanctions any
party may seek a stay or modification of the order from the Commission
pursuant to Rule 401.
Comment: If, after hearing all the evidence as to whether a
permanent cease-and-desist order or permanent suspension of
registration should be issued, a hearing officer issues an initial
decision denying a permanent order, consideration must be given to the
necessity for continuation of the temporary order.
Rule 531 requires that the hearing officer modify the temporary
sanction order in accordance with the initial decision. See 17 CFR
200.30-9 (authority delegated to the administrative law judges to set
aside, limit or suspend temporary orders in accord with an initial
decision). In order to allow time for each party to seek Commission
review of any modification to the temporary sanction, the hearing
officer's order will not become effective for 14 days.
The initial decision of the hearing officer to deny a permanent
order in whole or in part is reached after all evidence has been heard
and briefs have been submitted. By contrast, the decision to enter a
temporary sanction, and in the case of a temporary cease-and-desist
order, any judicial review, is more limited in scope. Nonetheless, the
hearing officer's judgment that continuation of a temporary order is
not necessary must be balanced against the fact that the initial
decision may be reversed. The Commission's decision whether to stay or
modify the hearing officer's order is an interim procedural ruling that
is not be subject to judicial review.
Rule 540. Appeal and Commission Review of Initial Decision Making a
Temporary Order Permanent
(a) Petition for Review. Any person who seeks Commission review of
an initial decision as to whether a temporary sanction shall be made
permanent shall file a petition for review pursuant to Rule 410,
provided, however, that the petition must be filed within 10 days after
service of the initial decision.
(b) Review Procedure. If the Commission determines to grant or
order review, it shall issue a briefing schedule order pursuant to Rule
450. Unless otherwise ordered by the Commission, opening briefs shall
be filed within 21 days of the order granting or ordering review, and
opposition briefs shall be filed within 14 days after opening briefs
are filed. Reply briefs shall be filed within seven days after
opposition briefs are filed. Oral argument, if granted by the
Commission, shall be held within 90 days of the issuance of the
briefing schedule order.
Rule 550. Summary Suspensions Pursuant to Exchange Act Section
12(k)(1)(A)
(a) Petition for Termination of Suspension. Any person adversely
affected by a suspension pursuant to Section 12(k)(1)(A) of the
Exchange Act, 15 U.S.C. 78l(k)(1)(A), who desires to show that such
suspension is not necessary in the public interest or for the
protection of investors may file a sworn petition with the Secretary,
requesting that the suspension be terminated. The petition shall set
forth the reasons why the petitioner believes that the suspension of
trading should not continue and state with particularity the facts upon
which the petitioner relies.
(b) Commission Consideration of a Petition. The Commission, in its
discretion, may schedule a hearing on the matter, request additional
written submissions, or decide the matter on the facts presented in the
petition and any other relevant facts known to the Commission. If the
petitioner fails to cooperate with, obstructs, or refuses to permit the
making of an examination by the Commission, such conduct shall be
grounds to deny the petition.
Comment: Exchange Act Section 12(k) authorizes the Commission
summarily to suspend trading in securities for 10-day periods, if in
its opinion the public interest or the protection of investors so
requires. See 15 U.S.C. 78l(k). Orders suspending trading in particular
securities pursuant to Section 12(k)(1)(A) are directed towards a
security; they do not name a person or entity as a respondent.
Accordingly, Rule 550 establishes a special mechanism to allow persons
adversely affected by a suspension to petition for relief.
The usual purpose of a suspension is to alert the investing public
that there is insufficient public information about the issuer upon
which an informed investment judgment can be made or that the market
for the securities may be reacting to manipulative forces or deceptive
practices. Consequently, the primary issues normally to be considered
by the Commission in determining whether or not a 10-day suspension
should be instituted are whether or not there is sufficient public
information upon which to base an informed investment decision or
whether the market for the security appears to reflect manipulative or
deceptive activities.
Rules Regarding Disgorgement and Penalty Payments
Rule 600. Interest on Sums Disgorged
(a) Interest Required. Prejudgment interest shall be due on any sum
required to be paid pursuant to an order of disgorgement. The
disgorgement order shall specify each violation that forms the basis
for the disgorgement ordered; the date which, for purposes of
calculating disgorgement, each such violation was deemed to have
occurred; the amount to be disgorged for each such violation; and the
total sum to be disgorged. Prejudgment interest shall be due from the
first day of the month following each such violation through the last
day of the month preceding the month in which payment of disgorgement
is made. The order shall state the amount of prejudgment interest owed
as of the date of the disgorgement order and that interest shall
continue to accrue on all funds owed until they are paid.
(b) Rate of Interest. Interest on the sum to be disgorged shall be
computed at the underpayment rate of interest established under Section
6621(a)(2) of the Internal Revenue Code, 26 U.S.C. 6621(a)(2), and
shall be compounded quarterly. The Commission or the hearing officer
may, by order, specify a lower rate of prejudgment interest as to any
funds which the respondent has placed in an escrow or otherwise
guaranteed for payment of disgorgement upon a final determination of
the respondent's liability. Escrow and other guarantee arrangements
must be approved by the Commission or the hearing officer prior to
entry of the disgorgement order.
Comment: The Commission is authorized to order disgorgement,
``including reasonable interest,'' in any administrative proceeding in
which a cease-and-desist order is sought or a civil monetary penalty
could be imposed. See, e.g., Exchange Act Sec. 21B(e), 15 U.S.C. 78u-
2(e) (monetary penalty proceedings); Exchange Act
[[Page 32788]] Sec. 21C(e), 15 U.S.C. 78u-3(e) (cease-and-desist
proceedings). The purpose of disgorgement in Commission administrative
proceedings is to deny a wrongdoer his ill-gotten gains. See The
Securities Law Enforcement Remedies and Penny Stock Reform Act of 1990,
S. Rep. No. 337, 101st Cong., 2d Sess. 16 (1990) (``[D]isgorgement
forces a defendant to give up the amount by which he was unjustly
enriched.''). Unless prejudgment interest is assessed on funds to be
disgorged, the wrongdoer benefits unjustly by having had the equivalent
of an interest free loan from the victims of his wrongdoing. In order
to effectuate fully the remedial purposes of disgorgement, Rule 600
therefore requires that prejudgment interest be assessed on all funds
to be disgorged.
Rule 600 prescribes the payment of prejudgment interest at the
underpayment rate of interest established under Section 6621(a)(2) of
the Internal Revenue Code, 26 U.S.C. 6621(a)(2). The Commission or
hearing officer, by order, may specify a lower rate of prejudgment
interest, however, as to funds which the respondent, with the approval
of the Commission or hearing officer, and prior to entry of the
disgorgement order, placed in an approved escrow or otherwise
guaranteed for payment of disgorgement upon a finding of liability. In
calculating the rate of prejudgment interest as to such funds, the
Commission or hearing officer may take into account the actual interest
obtained on the funds while in escrow, with appropriate adjustments for
expenses of the escrow or guarantee.
An adjustment to the rate of prejudgment interest may be
appropriate if a respondent makes arrangements to escrow or guarantee
payment of disputed funds prior to a formal adjudication of liability
because the respondent's continuing benefit from those funds is
significantly limited. Providing such an adjustment to the prejudgment
interest facilitates the prompt and cost-efficient return of investor
funds upon a finding of liability, and permits a respondent to limit
its liability for prejudgment interest pending resolution of a
proceeding. A person who concludes prior to the institution of
proceedings that he or she may be liable for disgorgement claims may,
in anticipation of proceedings, seek to limit potential prejudgment
interest by establishing an escrow or equivalent arrangement on terms
in accord with this rule. Such terms would include approval of the
escrow by the Commission or by the staff, pursuant to delegated
authority.
Revision Comment: A number of comments addressed criteria for
whether prejudgment interest should be assessed and what an appropriate
rate of prejudgment interest would be. A respondent who wrongfully
takes for his own use monies that belong to investors or other persons
has received the equivalent of an interest free loan from the victims
of his wrongdoing. The proper measurement of the benefit of this loan
to the respondent is the cost the respondent would otherwise have paid
for a comparable, unsecured loan. The actual use to which the
respondent put the funds, or the rate of return the respondent earned
is irrelevant. Similarly, it is irrelevant to the calculation of the
respondent's economic benefit whether he obtained use of the funds by
fraud or negligence. In order to fulfill the remedial purposes of
disgorgement, a respondent should never be allowed free use of funds
wrongfully obtained from others. Therefore, the Commission concluded
that prejudgment interest should be assessed on all funds to be
disgorged.
Seeking to determine the specific interest rate for borrowed funds
a particular respondent might have obtained in an arms length
transaction would involve an inquiry into a wide variety of factors,
including unique characteristics of the respondent's credit history and
general economic conditions at the time of the violation. Typically,
however, the interest rate charged to small entities or individuals for
unsecured credit by a lender with no prior relationship to the borrower
will be at the prime rate plus two to five points. The Internal Revenue
Code underpayment rate of interest established under Section 6621(a)(2)
of the Internal Revenue Code, 26 U.S.C. Sec. 6621(a)(2), a widely
published, floating rate based on a fixed margin above the rate for
treasury bills, is a reasonable proxy for an unsecured loan rate.
Accordingly, Rule 600 prescribes the payment of prejudgment interest at
the Internal Revenue Code underpayment rate.
Commenters suggested that a lower rate, such as the treasury bill
rate, was a more appropriate measure of prejudgment interest. The
treasury bill rate, which reflects the rate paid by the U.S. Government
to borrow money, is lower than the cost of funds rate that ordinarily
could be obtained by an unsecured, private borrower. That rate, or any
other below-market rate for the cost of funds is therefore not an
appropriate measure of prejudgment interest to charge in remedial
proceedings, where the purpose of the prejudgment interest is to deny a
wrongdoer any economic benefit from his violations. One commenter
advocated that in assessing prejudgment interest the Commission should
be guided by factors which a court would consider in awarding
prejudgment interest in a dispute between private parties. The criteria
courts use in seeking to balance competing private economic interests,
particularly in commercial settings voluntarily entered into by the
parties, should not govern assessment of prejudgment interest
authorized by statute in a remedial law enforcement action.
The Commission considered whether any other prejudgment interest
rate, or a case by case determination of a rate, would be more
appropriate than the Internal Revenue Code underpayment rate. No other
widely published, floating rate appears to offer a proxy for borrowing
costs which would better approximate a typical respondent's cost of
funds. A case-by-case approach to assessing prejudgment interest would
be unduly complicated, particularly in light of the speculative nature
of a post-hoc determination of the costs a particular respondent would
have been able to obtain in connection with activities that violated
the federal securities laws. Finally, restitution payments or other
factors that might be appropriately considered to have diminished the
duration of a respondent's use of ill-gotten gains would affect the
calculation of disgorgement principal owed at various times, and
thereby reduce prejudgment interest by a corresponding amount, but
should not alter the rate of interest. Based on all these
considerations, the Commission concluded that ordinarily, the IRS
underpayment rate is a reasonable and appropriate rate to use in
assessing prejudgment interest on disgorgement ordered as the result of
remedial administrative proceedings.
If, however, a respondent, with the approval of the Commission or
the hearing officer, sets aside allegedly ill-gotten gains in an
escrow, or makes other approved arrangements guaranteeing payment upon
a finding of liability, the rationale for assessing prejudgment
interest at a cost of funds rate is less compelling. Since the rate of
return a respondent can earn by placing potential disgorgement funds in
a conservative, risk-free investment will ordinarily be less than the
rate established under 26 U.S.C. Sec. 6621(a)(2), an adjustment to the
rate of prejudgment interest may be appropriate when an approved escrow
is established. Cases in which respondents have sought to return or
escrow funds prior to a finding of liability have been rare. Rule 600
has [[Page 32789]] been revised, however, to adopt Commission practice
which permits an adjustment to the prejudgment interest rate when an
approved escrow or equivalent arrangement is established prior to a
finding of liability.
Rule 601. Prompt Payment of Disgorgement, Interest and Penalties
(a) Timing of Payments. Unless otherwise provided, funds due
pursuant to an order by the Commission requiring the payment of
disgorgement, interest or penalties shall be paid no later than 21 days
after service of the order, and funds due pursuant to an order by a
hearing officer shall be paid on the first day after the order becomes
final pursuant to Rule 360.
(b) Stays. A stay of any order requiring the payment of
disgorgement, interest or penalties may be sought at any time pursuant
to Rule 401.
Comment (a): Prompt collection of disgorgement, interest and
penalties is essential to prevent a dissipation of assets that would
thwart the disgorgement order. Since collection of disgorgement,
interest and penalties becomes increasingly more difficult the longer
it is delayed, timely determination of whether a respondent will pay
disgorgement, interest and penalties as ordered is necessary so that
appropriate collection efforts can be initiated. Procedures for
execution of a money judgment are not available in an administrative
proceeding. If a respondent does not pay disgorgement, interest and
penalties as ordered, the Commission must determine whether to seek
enforcement of its order by bringing a judicial action or by referring
the matter to the Department of Justice for collection. Both processes
often require significant periods of time.
Rule 601 provides, therefore, that funds due pursuant to an order
by a hearing officer are to be paid on the first day after the order
becomes final. Since Rule 360 provides at least a 21-day period before
a hearing officer's order becomes final, even if no review of the order
is sought, a respondent will have at least 22 days notice before
payment is due. If a respondent seeks review of the hearing officer's
order, the Commission, by order, must deny the petition for review or
affirm the initial decision before payment would be required. Rule 601
provides that disgorgement, interest and penalties owed pursuant to an
order by the Commission are to be paid no later than 21 days after
service of the order. The one-day and 21-day time periods specified in
Rule 601(a) may be modified by order in a particular case.
Rule 610. Submission of Proposed Plan of Disgorgement
The Commission or the hearing officer may, at any time, order any
party to submit a plan for the administration and distribution of
disgorgement funds. Unless ordered otherwise, the Division of
Enforcement shall submit a proposed plan no later than 60 days after
funds or other assets have been turned over by the respondent pursuant
to a Commission disgorgement order and any appeals of the disgorgement
order have been waived or completed, or appeal is no longer available.
Comment: The rules relating to disgorgement are based on the
Commission's experience in judicial actions involving disgorgement. In
most civil actions the court orders the Commission to submit a proposed
plan for administration and distribution of disgorgement funds which,
after notice and a hearing, the court later approves, modifies or
disapproves. At the hearing, parties and other persons may present
their objections to the court. Ordinarily, the Division of Enforcement
seeks to avoid disputes over the plan and attempts, when preparing the
plan, to consult with other parties and any other persons who have
notified the staff or the court of an interest in the disposition of
disgorgement funds. Since the development of a disgorgement plan may be
a significant undertaking, it is not required in most proceedings until
the funds to be disgorged have been transferred from the control of the
respondent and, if the disgorgement order is subject to appeal, until
after the appeal is decided.
Similar procedures are established under Rules 610 through 614.
Rule 610 requires that unless ordered otherwise, the Division of
Enforcement shall submit a plan of disgorgement no later than 60 days
after funds are turned over by the respondent pursuant to a
disgorgement order and appeals of the order, if any, are concluded. In
some cases a respondent may be in a better position than the Division
of Enforcement to propose a disgorgement plan. Any party, therefore,
may be required to submit a plan of disgorgement in addition to or in
lieu of the plan of the Division of Enforcement. Also, the presumptive
60-day period set forth in the Rule may be modified by order. For
example, in a case with multiple respondents, where some respondents
settle and others choose to litigate, it may be appropriate to await
the resolution of the case against all respondents before making a
determination as to the disposition of disgorgement funds received from
those who settled.
Rule 611. Contents of Plan of Disgorgement; Provisions for Payment
(a) Required Plan Elements. Unless otherwise ordered, a plan for
the administration of a disgorgement fund shall include the following
elements:
(1) procedures for the receipt of additional funds, including the
specification of an account where funds will be held and the
instruments in which the funds may be invested;
(2) specification of categories of persons potentially eligible to
receive proceeds from the fund;
(3) procedures for providing notice to such persons of the
existence of the fund and their potential eligibility to receive
proceeds of the fund;
(4) procedures for making and approving claims, procedures for
handling disputed claims and a cut-off date for the making of claims;
(5) a proposed date for the termination of the fund, including
provision for the disposition of any funds not otherwise distributed;
(6) procedures for the administration of the fund, including
selection, compensation and, as necessary, indemnification of a fund
administrator to oversee the fund, process claims, prepare accountings,
file tax returns and, subject to the approval of the Commission, make
distributions from the fund to investors; and
(7) such other provisions as the Commission or the hearing officer
may require.
(b) Payment to Registry of the Court or Court-Appointed Receiver.
Subject to such conditions as the Commission or the hearing officer
shall deem appropriate, a plan of disgorgement may provide for payment
of disgorgement funds into a court registry or to a court-appointed
receiver in any case pending in federal or state court against a
respondent or any other person based upon a complaint alleging
violations arising from the same or substantially similar facts as
those alleged in the Commission's order instituting proceedings.
(c) Payment to the United States Treasury Under Certain
Circumstances. When, in the opinion of the Commission or the hearing
officer, the cost of administering a plan of disgorgement relative to
the value of the available disgorgement funds and the number of
potential claimants would not justify distribution of the disgorgement
funds to injured investors, the plan may provide that the funds shall
be paid directly to the general fund of the United States Treasury.
[[Page 32790]]
Comment (b): To minimize the costs of administering a plan of
disgorgement, the Commission has in certain civil injunctive
proceedings consented to the payment of disgorgement funds obtained as
the result of a Commission initiated proceeding into a fund established
for the benefit of persons in a related private civil action. See,
e.g., SEC v. Levin, No. 3-92CV-399D (N.D. Tex. Mar. 2, 1992)
(settlement directed payment into court registry); SEC v. Boesky, No.
86-CIV-2299, slip op. (S.D.N.Y. Nov. 14, 1986) (settlement directed
payment to escrow agent). Rule 611 provides for a similar disposition
of disgorgement funds obtained in an administrative proceeding.
Transfer of disgorgement funds into a fund established in a judicial
proceeding may be subject to conditions on the use of the funds. For
example, the Commission has routinely prohibited the use of any funds
obtained in a Commission initiated action to pay attorneys' fees in a
private lawsuit.
Comment (c): The Commission has the authority to provide for the
return of ill-gotten gains to investors, but there is no requirement
that it do so. See, e.g., Exchange Act Secs. 21B(e) and 21C(e), 15
U.S.C. Secs. 78u-2(e) and 78u-3(e) (``[t]he Commission is authorized to
adopt rules, regulations, and orders * * * concerning payments to
investors''). Returning funds to the United States Treasury when the
expense of locating or making distributions to injured investors is
prohibitive is consistent with treatment by the courts in similar
situations. SEC v. Marcus Schloss & Co., 714 F. Supp. 100 (S.D.N.Y.
1989); SEC v. Courtois, [1984-85 Transfer Binder] Fed. Sec. L. Rep.
(CCH) para. 92,000 (S.D.N.Y. 1985); SEC v. Lund, 570 F. Supp. 1397,
1404-1405 (C.D. Cal. 1983).
Revision Comment (b): The respondent named in a Commission action
may have settled a related civil action brought by private parties or
may not have been named in a related private party litigation. The rule
has been revised to permit the payment of disgorged funds to a fund
established in connection with a judicial proceeding against the
respondent or against any other person based upon a complaint alleging
violations arising from the same or substantially similar facts as
those alleged in the Commission's order instituting proceedings.
Rule 612. Notice of Proposed Plan of Disgorgement and Opportunity for
Comment by Non-Parties
Notice of a proposed plan of disgorgement shall be published in the
SEC News Digest, in the SEC Docket, and in such other publications as
the Commission or the hearing officer may require. The notice shall
specify how copies of the proposed plan may be obtained and shall state
that persons desiring to comment on the proposed plan may submit their
views, in writing, to the Commission.
Comment: Publication of notice that a proposed plan has been
submitted is required in order to provide potential claimants or other
persons with an opportunity to make known their views prior to adoption
of the plan.
Rule 613. Order Approving, Modifying or Disapproving Proposed Plan of
Disgorgement
At any time more than 30 days after publication of notice of a
proposed plan of disgorgement, the hearing officer or the Commission
shall, by order, approve, approve with modifications, or disapprove the
proposed plan. In the discretion of the Commission or the hearing
officer, a proposed plan of disgorgement that is substantially modified
prior to adoption may be republished for an additional comment period
pursuant to Rule 612. The order approving or disapproving the plan
should be entered within 30 days after the end of the final period
allowed for comments on the proposed plan unless the Commission or the
hearing officer, by written order, allows a longer period for good
cause shown.
Comment: After submission of comments, if any, the plan should be
promptly approved, approved as modified or disapproved. The Commission
or the hearing officer may hold a hearing on the proposed plan or may
rule on the plan based only on written submissions, if any.
Rule 614. Administration of Plan of Disgorgement
(a) Appointment and Removal of Administrator. The Commission or the
hearing officer shall have discretion to appoint any person, including
a Commission employee, as administrator of a plan of disgorgement and
to delegate to that person responsibility for administering the plan. A
respondent may be required or permitted to administer or assist in
administering a plan of disgorgement, subject to such terms and
conditions as the Commission or the hearing officer deem appropriate to
ensure the proper distribution of funds. An administrator may be
removed at any time by order of the Commission or hearing officer.
(b) Administrator to Post Bond. If the administrator is not a
Commission employee, the administrator shall be required to obtain a
bond in the manner prescribed by 11 U.S.C. 322, in an amount to be
approved by the Commission. The cost of the bond may be paid for as a
cost of administration. The Commission may waive posting of a bond for
good cause shown.
(c) Administrator's Fees. If the administrator is a Commission
employee, no fee shall be paid to the administrator for his or her
services. If the administrator is not a Commission employee, he or she
may file an application for fees for completed services, and upon
approval by the Commission or a hearing officer, may be paid a
reasonable fee for those services. Any objections thereto shall be
filed within 21 days of service of the application on the parties.
(d) Source of Funds. Unless otherwise ordered, fees and other
expenses of administering the plan of disgorgement shall be paid first
from the interest earned on disgorged funds, and if the interest is not
sufficient, then from the corpus.
(e) Accountings. During the first 10 days of each calendar quarter,
or as otherwise directed by the Commission or the hearing officer, the
administrator shall file an accounting of all monies earned or received
and all monies spent in connection with the administration of the plan
of disgorgement. A final accounting shall be submitted for approval of
the Commission or hearing officer prior to discharge of the
administrator and cancellation of the administrator's bond, if any.
(f) Amendment. A plan may be amended upon motion by any party or
the plan administrator or upon the Commission's or hearing officer's
own motion.
Comment (a): In some circumstances, for example, where the number
of potential claimants to a fund is small and the identity of the
claimants is known in advance, the plan of disgorgement may be
relatively uncomplicated and may not require extensive resources to
administer. In such a case, an administrative law judge or a staff
member may administer the plan of disgorgement most effectively.
As in court actions, however, if the amount of disgorgement is
large or there are many potential claimants, administration of a
disgorgement plan may involve extensive time and resources and may be
accomplished most effectively by selecting an administrator with
expertise in handling disgorgement-type proceedings. Such a person
would, as necessary, be able to retain an accounting firm, a law firm,
or any other entity necessary to assist in the administration of the
disgorgement plan. [[Page 32791]]
Rule 614 does not specify a method for selecting an administrator.
In court proceedings, the Commission may have an advisory role in
recommending individuals to the court as possible administrators, but
the court itself must select and appoint the administrator. In
administrative proceedings, however, the Commission itself is
responsible for appointing the administrator. Selection of an
administrator by the Commission may be subject to various statutory
provisions or regulations regarding personnel matters, procurement and
contract requirements, or other matters. In addition, the selection
process should promote public confidence that the selection was made on
an impartial basis.
In some proceedings, particularly those in which a settlement has
been reached, the respondent may be required or allowed to assist in
administering a disgorgement plan. See, e.g., In the Matter of
Donaldson, Lufkin & Jenrette Sec. Corp., Exchange Act Release No. 27889
(Apr. 11, 1990), 45 SEC Docket 1826, 1834 (Apr. 24, 1990). Especially
in such self-administered disgorgement plans, the Commission may
require affidavits, an accountant's certification, or other safeguards
to assure that funds have been distributed only in accordance with the
plan.
Comment (b): Funds or other assets paid as disgorgement will be
placed into an escrow, custodial or similar account established by the
Commission or with the Commission's approval for the purpose of holding
such funds or assets until they are disbursed. No funds will be
transferred to the Commission itself. See 31 U.S.C. Sec. 3302(b)
(requiring agencies receiving funds for the government to deposit the
money into the Treasury without deduction for any charge or claim).
Funds paid pursuant to a disgorgement order do not become the
property of the Commission and internal control and audit procedures
mandated by statute for the Commission's own funds are not applicable
to disgorgement funds. Rule 614(b) requires, therefore, that if the
administrator is not a Commission employee, the administrator must
obtain a surety bond comparable to that when a trustee is appointed in
a SIPC liquidation or bankruptcy proceeding. See 15 U.S.C.
Sec. 78eee(b)(3); 11 U.S.C. Sec. 322. See also Rule 614(e) (quarterly
accountings required).
Comment (c): If the administrator is not a Commission employee,
reasonable fees may be paid to the administrator. Payment of the
administrator's fees may be made only upon a public application filed
by the administrator and subject to the approval of the Commission or a
hearing officer. Filings by the administrator, including fee
applications, should conform to the filing requirements of Rule 151 and
be served on all parties pursuant to Rule 150.
Comment (d): The Commission has broad authority to adopt rules,
regulations and orders it deems appropriate to implement its authority
to order disgorgement. See, e.g., Exchange Act Sec. 21B(e), 15 U.S.C.
Sec. 78u-2(e). Paragraph (d) provides that fees and expenses be paid
first out of interest earned on disgorged funds, and if the interest is
insufficient, then out of the corpus of the funds. Subject to any
applicable requirements established by Congress with respect to the use
of appropriated funds, and except to the extent a Commission employee
is appointed administrator, or an administrative law judge administers
a disgorgement fund without the assistance of an administrator,
appropriated funds ordinarily will not be used to defray the direct
costs of administering a disgorgement plan. Where the value of the
available disgorgement funds relative to the expense of administrating
a plan of disgorgement from the corpus or the interest earned would not
justify distribution of funds, the disgorged funds may be turned over
to the general fund of the United States Treasury. See Rule 611(c).
Comment (f): After a plan is approved, changed circumstances may
require amendment of the plan. A plan may be amended upon motion by any
party or the plan administrator or upon the Commission's or hearing
officer's own motion. Procedures for publication of notice or hearing
on the motion will be subject to case by case determination.
Rule 620. Right to Challenge Order of Disgorgement
Other than in connection with the opportunity to submit comments as
provided in Rule 612, no person shall be granted leave to intervene or
to participate in a proceeding or otherwise to appear to challenge an
order of disgorgement; or an order approving, approving with
modifications, or disapproving a plan of disgorgement; or any
determination relating to a plan of disgorgement based solely upon that
person's eligibility or potential eligibility to participate in a
disgorgement fund or based upon any private right of action such person
may have against any person who is also a respondent in an enforcement
proceeding.
Comment: The opportunity to submit comments on a plan of
disgorgement does not give a person any right to become a party to or
intervene in an enforcement proceeding. See Rule 210 (no one may become
a party or receive leave to intervene in an enforcement proceeding).
Although return of ill-gotten gains to injured investors is often
an appropriate disposition of disgorged funds, the purpose of the
Commission's administrative disgorgement remedy is to deprive violators
of ill-gotten gains and thus serve as a deterrent to violations, rather
than to compensate injured investors. See The Securities Law
Enforcement Remedies and Penny Stock Reform Act of 1990, S. Rep. No.
337, 101st Cong., 2d Sess. 16 (1990) (``In contrast to an award of
damages in a private action, which is designed to compensate an injured
plaintiff, disgorgement forces a defendant to give up the amount by
which he was unjustly enriched.''). The statutory remedy is consistent
in this regard with the equitable remedy available in civil injunctive
actions brought by the Commission. See, e.g., SEC v. First City
Financial Corp., 890 F.2d 1215, 1230, 1232 n.24 (D.C. Cir. 1989) (the
primary purpose of disgorgement is not to compensate investors); SEC v.
Tome, 833 F.2d 1086, 1096 (2d Cir. 1987), cert. denied, 486 U.S. 1014
(1988); SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1307 (2d Cir.),
cert. denied, 404 U.S. 1005 (1971); Securities Law Enforcement Remedies
and Penny Stock Reform Act of 1990, H.R. Rep. No. 616, 101st Cong., 2d
Sess. at 22 (1990).
Where it is not practical to locate persons who have been harmed,
disgorgement in injunctive actions has been ordered paid into the
general fund of the U.S. Treasury. See SEC v. Marcus Schloss & Co., 714
F. Supp. 100, 103 (S.D.N.Y. 1989); SEC v. Courtois, [1984-85 Transfer
Binder] Fed. Sec. L. Rep. (CCH) para. 92,000, at 90,959 (S.D.N.Y.
1985); SEC v. Lund, 570 F. Supp. 1397, 1404-1405 (C.D. Cal. 1983). In
insider trading cases, courts have required that disgorgement be made
available to persons other than investors. See SEC v. Materia, [1983-84
Transfer Binder] Fed. Sec. L. Rep. (CCH) para. 99,583, at 97,284-85
(S.D.N.Y. 1983), aff'd on other grounds, 745 F.2d 197 (2d Cir. 1984),
cert. denied, 471 U.S. 1053 (1985). See generally Louis Loss,
Fundamentals of Securities Regulation 1007 (2d ed. 1988) (discussing
discretion exercised by courts in designating recipients of disgorged
funds).
Since there is not a requirement that funds obtained in an
administrative enforcement proceeding be paid to
[[Page 32792]] investors, persons who may have a private right of
action in federal court against a respondent do not thereby have
standing in the Commission's enforcement proceeding against that
respondent to challenge a plan of disgorgement solely because of
dissatisfaction with their potential eligibility to receive funds from
the Commission's disgorgement pool. See Marino v. Ortiz, 484 U.S. 301,
304 (1988) (per curiam) (explicitly disapproving of the suggestion in
SEC v. Certain Unknown Purchasers, 817 F.2d 1018, 1021 & n.1 (2d Cir.
1987), cert. denied, 484 U.S. 1060 (1988), that a person has standing
to appeal whenever he ``has an interest that is affected by the trial
court's judgment.'').
The limitations in Rule 620 on participation in the proceedings
before a hearing by a person with potential claims against the
disgorgement pool does not preclude a person who is aggrieved by a
decision concerning the disposition of disgorgement assets and entitled
to review of the decision from petition the Commission for such review.
A person aggrieved by a final decision of the Commission who is
entitled to review may also seek a stay of the Commission order or
judicial review of the order. See Rules 360, 401 and 410; Section 702
of the Administrative Procedure Act, 5 U.S.C. Sec. 702. See also SEC v.
Wozniak, 33 F.3d 13 (7th Cir. 1994) (persons not parties to the
litigation who objected to a disgorgement plan could have sought a stay
of district court's judgment and distribution of the plan in order to
have standing to appeal).
Rule 630. Inability to Pay Disgorgement, Interest or Penalties
(a) Generally. In any proceeding in which an order requiring
payment of disgorgement, interest or penalties may be entered, a
respondent may present evidence of an inability to pay disgorgement,
interest or a penalty. The Commission may, in its discretion, or the
hearing officer may, in his or her discretion, consider evidence
concerning ability to pay in determining whether disgorgement, interest
or a penalty is in the public interest.
(b) Financial Disclosure Statement. Any respondent who asserts an
inability to pay disgorgement, interest or penalties may be required to
file a sworn financial disclosure statement and to keep the statement
current. The financial statement shall show the respondent's assets,
liabilities, income or other funds received and expenses or other
payments, from the date of the first violation alleged against that
respondent in the order instituting proceedings, or such later date as
specified by the Commission or a hearing officer, to the date of the
order requiring the disclosure statement to be filed. By order, the
Commission or the hearing officer may prescribe the use of the
Disclosure of Assets and Financial Information Form (see Form D-A at
Sec. 209.1 of this chapter) or any other form, may specify other time
periods for which disclosure is required, and may require such other
information as deemed necessary to evaluate a claim of inability to
pay.
(c) Confidentiality. Any respondent submitting financial
information pursuant to this rule or Rule 410(c) may make a motion,
pursuant to Rule 322, for the issuance of a protective order against
disclosure of the information submitted to the public or to any parties
other than the Division of Enforcement. Prior to a ruling on the
motion, no party receiving information as to which a motion for a
protective order has been made may transfer or convey the information
to any other person without the prior permission of the Commission or
the hearing officer.
(d) Service Required. Notwithstanding any provision of Rule 322, a
copy of the financial disclosure statement shall be served on the
Division of Enforcement.
(e) Failure to File Required Financial Information: Sanction. Any
respondent who, after making a claim of inability to pay either
disgorgement, interest or a penalty, fails to file a financial
disclosure statement when such a filing has been ordered or is required
by rule may, in the discretion of the Commission or the hearing
officer, be deemed to have waived the claim of inability to pay. No
sanction pursuant to Rules 155 or 180 shall be imposed for a failure to
file such a statement.
Comment (a): A respondent may present evidence of ability to pay a
penalty, and the Commission may, in its discretion, consider such
evidence. See, e.g., Exchange Act Sec. 21B(d), 15 U.S.C. Sec. 78u-2(d).
A respondent's ability to pay becomes a significant issue not only in
proceedings in which a penalty is ordered, but also when disgorgement
and interest is ordered. Although no statutory requirement addresses
inability to pay disgorgement or interest, the Commission considers
evidence of ability to pay as a factor in determining whether a
respondent should be required to pay disgorgement and interest as well
as penalties. Rule 630 codifies this practice.
Comment (b): A respondent may not be entirely candid about his or
her financial position when asserting an inability to pay disgorgement,
interest or penalties. The Commission or a hearing officer may require
persons who assert an inability to pay disgorgement, interest or
penalties to file sworn, verifiable financial disclosure statements
before consideration of inability to pay as a basis for waiving
disgorgement, interest or penalties.
Rule 630 provides that the Commission or the hearing officer may
require ``such other information as deemed necessary to evaluate a
claim of inability to pay.'' Accordingly, the Division of Enforcement
may seek an order to question the respondent under oath or may seek the
issuance of subpoenas to obtain documents or testimony concerning an
asserted inability to pay. In addition, the rule provides that, by
order, the Commission or the hearing officer may prescribe a particular
financial disclosure form to be used and may specify time periods for
which disclosure is required. Form D-A, the Disclosure of Assets and
Financial Information Form, includes a waiver by the respondent that
authorizes ``The Securities and Exchange Commission and any of its
staff * * * to obtain any such information from credit bureaus,
financial institutions or any other source as may be needed to verify
the statements made on this form.'' If such a waiver is obtained, the
Division of Enforcement may rely on it as a basis to seek confirmation
of information in the financial disclosure form without further
approval from the hearing officer or Commission.
Comment (c): The public's right to review financial disclosure
statements submitted in connection with a respondent's claim of
inability to pay should be balanced against the respondent's legitimate
interest in protecting confidential or personal information from
premature or unnecessary disclosure. Each request for confidentiality
must be decided based on the procedural status of the case, the extent
to which financial information has already been disclosed, and the
individual facts and circumstances underlying the request.
While financial circumstances may change during the course of a
proceeding, a respondent who intends to assert a claim of inability to
pay may be required by the hearing officer to specify in connection
with prehearing submissions or conferences whether the issue will be
raised. Early submission of a financial disclosure form to support a
planned claim of inability to pay will allow the hearing officer and
parties to better prepare for hearing and to assess the time needed for
the hearing. Part I of Form D-A requires only summary information as to
which confidentiality [[Page 32793]] interests are limited. Part II
requires detailed back-up information that is more likely to call for
personal, confidential data, such as bank account numbers and
information about regular medical payments. The earlier in a proceeding
the respondent is required to submit financial information, however,
the more compelling the case for the confidentiality of personal
financial information such as that called for in Part II of Form D-A.
Providing for confidential treatment of personal financial information
at the early stages of a proceeding or prior to the respondent's own
introduction of evidence of inability to pay protects a respondent's
privacy interests to the maximum extent in the event that the Division
fails in its case in chief or that the case settles prior to completion
of the hearing.
Comment (d): A copy of the financial disclosure statement must be
served on the Division of Enforcement notwithstanding any motion for a
protective order. The Division of Enforcement must have the
respondent's financial information in order to determine whether to
challenge a claim of inability to pay. Notice that a disclosure
statement has been filed must also be provided to other respondents,
who may seek all or part of the information submitted unless a
protective order has been sought or granted pursuant to Rule 322.
Form
209.1. Form D-A: Disclosure of Assets and Financial Information
(a) Rules 410 and 630 of the Rules of Practice (17 CFR 201.410 and
630 of this chapter) provide that under certain circumstances a
respondent who asserts or intends to assert an inability to pay
disgorgement, interest or penalties may be required to disclose certain
financial information. Unless otherwise ordered, this form may be used
by individuals required to supply such information.
(b) The respondent filing Form D-A is required promptly to notify
the Commission of any material change in the answer to any question on
this form.
(c) Form D-A may not be withheld from the Division of Enforcement.
A respondent making financial information disclosures on this form
after the institution of proceedings may make a motion, pursuant to
Rule 322 of the Commission's Rules of Practice (17 CFR 201.322 of this
chapter), for the issuance of a protective order to limit disclosure of
the information submitted on Form D-A to the public or parties other
than the Division of Enforcement. A request for a protective order
allows the requester an opportunity to justify the need for
confidentiality. The making of a motion for a protective order does
not, however, guarantee that disclosure will be limited.
(d) No party receiving information for which a motion for a
protective order has been made may transfer or convey the information
to any other person prior to a ruling on the motion without the prior
permission of the Commission or a hearing officer.
(e) A person making financial information disclosures on Form D-A
prior to the institution of proceedings, in connection with an offer of
settlement or otherwise, may request confidential treatment of the
information pursuant to the Freedom of Information Act. See the
Commission's Freedom of Information Act (``FOIA'') regulations, 17 CFR
200.83. A request for confidential treatment allows the requester an
opportunity to substantiate the need for confidentiality. No
determination as to the validity of any request for confidential
treatment will be made until a request for disclosure of the
information under FOIA is received.
Note: Form D-A appears in the appendix to this document.
V. Regulatory Flexibility Analysis
The initial Regulatory Flexibility Analysis was prepared in
accordance with 5 U.S.C. 603 and published in the Proposing Release. No
comments were received on this analysis. The Commission has prepared a
Final Regulatory Flexibility Analysis, a copy of which may be obtained
by writing to Andrew Glickman, Esq., Office of the General Counsel,
Mail Stop 6-6, Securities and Exchange Commission, 450 5th Street,
N.W., Washington, D.C. 20549.
VI. Statutory Basis For Rules
These amendments to the Rules of Practice and related rules are
being adopted pursuant to: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s,
77u, 78c(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78s, 78u-2,
78u-3, 78v, 78w, 79c, 79s, 79t, 79z-5a, 77sss, 77ttt, 80a-8, 80a-9,
80a-37, 80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11,
and 80b-12.
List of Subjects
17 CFR Part 200
Administrative practice and procedure, Authority delegations
(Government agencies), Organization and functions (Government
agencies), Securities.
17 CFR Part 201
Accountants, Administrative practice and procedure, Brokers,
Claims, Confidential business information, Equal access to justice,
Fraud, Lawyers, Penalties, Securities.
17 CFR Part 202
Administrative practice and procedure.
17 CFR Part 203
Administrative practice and procedure, Reporting and recordkeeping
requirements, Securities.
17 CFR Part 209
Administrative practice and procedure--financial disclosure form.
17 CFR Part 228
Reporting and recordkeeping requirements, Securities.
17 CFR Part 229
Reporting and recordkeeping requirements, Securities.
17 CFR Part 230
Reporting and recordkeeping requirements, Securities.
17 CFR Part 232
Reporting and recordkeeping requirements, Securities.
17 CFR Part 240
Accountants, Administrative practice and procedure, Brokers,
Lawyers, Penalties, Reporting and recordkeeping requirements,
Securities.
17 CFR Part 250
Reporting and recordkeeping requirements, Securities.
17 CFR Part 260
Reporting and recordkeeping requirements, Securities.
17 CFR Part 270
Reporting and recordkeeping requirements, Securities.
17 CFR Part 275
Reporting and recordkeeping requirements, Securities.
Text of Adopted Rules
For the reasons set out in the preamble, Title 17, Chapter II of
the Code of Federal Regulations is amended as follows: [[Page 32794]]
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
Subpart A--Organization and Program Management
1. The authority citation for part 200, subpart A, continues to
read in part as follows:
Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 79t,
79sss, 80a-37, 80b-11, unless otherwise noted.
* * * * *
2. Section 200.1(j) is revised to read as follows:
Sec. 200.1 General statement and statutory authority.
* * * * *
(j) Administrative sanctions, injunctive remedies, civil money
penalties and criminal prosecution. There are also private rights of
action for investors injured by violations of the Acts.
Sec. 200.16 [Amended]
3. In Sec. 200.16, remove the words ``Rule 2(e) of the Commission's
Rules of Practice (Sec. 201.2(e) of this chapter)'', and, in their
place, add the words ``Rule 102(e) of the Commission's Rules of
Practice (Sec. 201.102(e) of this chapter)''.
Sec. 200.30-4 [Amended]
4. In Sec. 200.30-4(a)(5), remove the words ``Rule 29 of the
Commission's Rules of Practice (17 CFR 201.1-201.29)'', and, in their
place, add the words ``Rule 193 of the Commission's Rules of Practice,
Sec. 201.193 of this chapter''.
Sec. 200.30-7 [Amended]
5. In Sec. 200.30-7(a)(1), remove the words ``Rule 21(a) of the
Commission's rules of practice, Sec. 201.21(a)'', and, in their place,
add the words ``Rule 451 of the Commission's Rules of Practice,
Sec. 201.451''.
6. In Sec. 200.30-7(a)(2), remove the words ``Rule 21(b) of the
Commission's rules of practice, Sec. 201.21(b)'', and, in their place,
add the words ``Rule 451(c) of the Commissions Rules of Practice,
Sec. 201.451(c)''.
7. In Sec. 200.30-7 (a)(3) and (a)(4), remove the words ``Rule 13
of the Commission's rules of practice, Sec. 201.13'', and, in their
place, add the words ``Rule 161 of the Commission's Rules of Practice,
Sec. 201.161'' .
8. In Sec. 200.30-7(a)(5), remove the words ``Rule 22(d) of the
Commission's rules of practice, Sec. 201.22(d)'', and, in their place,
add the words ``Rule 450(c) of the Commission's Rules of Practice,
Sec. 201.450(c)''.
9. In Sec. 200.30-7(a)(9), remove the words ``rules 6 and 23 of the
Commission's rules of practice'', and, in their place, add the words
``Rules 141 and 150 of the Commission's Rules of Practice,
Secs. 201.141 and 201.150 of this chapter''.
10. In Sec. 200.30-7 paragraph (a)(10) is added to read as follows:
Sec. 200.30-7 Delegation of Authority to Secretary of the Commission.
(a) * * *
(10) To set the date for sanctions to take effect if an initial
decision is not appealed and becomes final pursuant to Rule 360(d) or
if an initial decision is affirmed pursuant to Rule 411.
* * * * *
11. Section 200.30-9 is revised to read as follows:
Sec. 200.30-9 Delegation of authority to hearing officers.
Pursuant to the provisions of Section 4A of the Securities Exchange
Act of 1934 (15 U.S.C. 78d-1), the Securities and Exchange Commission
hereby delegates, until the Commission orders otherwise, to each
Administrative Law Judge (``Judge'') the authority:
(a) To make an initial decision in any proceeding at which the
Judge presides in which a hearing is required to be conducted in
conformity with the Administrative Procedure Act (5 U.S.C. 557) unless
such initial decision is waived by all parties who appear at the
hearing and the Commission does not subsequently order that an initial
decision nevertheless be made by the Judge, and in any other proceeding
in which the Commission directs the Judge to make such a decision; and
(b) To issue, upon entry pursuant to Rule 531 of the Commission's
Rules of Practice, Sec. 201.531 of this chapter, of an initial decision
on a permanent order, a separate order setting aside, limiting or
suspending any temporary sanction, as that term is defined in Rule
101(a)(11) of the Commission's Rules of Practice, Sec. 201.101(a) of
this chapter, then in effect in accordance with the terms of the
initial decision.
Sec. 200.30-10 [Amended]
12. In Sec. 200.30-10(a)(1), remove the words ``Rule 6(b) of the
Commission's rules of practice, Sec. 201.6(b) of this chapter, and Rule
11(a) of the Commission's rules of practice (Sec. 201.11(a) of this
chapter)'', and, in their place, add the words ``Rule 200 of the
Commission's Rules of Practice, Sec. 201.200 of this chapter''.
13. In Sec. 200.30-10(a)(2), remove the words ``Rule 11(b) of the
Commission's rules of practice (Sec. 201.11(b) of this chapter)'', and,
in their place, add the words ``Rule 110 of the Commission's Rules of
Practice, Sec. 201.110 of this chapter''.
14. In Sec. 200.30-10(a)(3), remove the words ``Rule 13 of the
Commission's rules of practice, Sec. 201.13'', and, in their place, add
the words ``Rule 161 of the Commission's Rules of Practice,
Sec. 201.161''.
15. In Sec. 200.30-10(a)(4), remove the words ``Rule 13 of the
Commission's rules of practice (Sec. 201.13 of this chapter)'', and, in
their place, add the words ``Rule 161 of the Commission's Rules of
Practice, Sec. 201.161 of this chapter''.
16. In Sec. 200.30-10(a)(5), remove the words ``Rule 22(d) of the
Commission's rules of practice (Sec. 201.22(d) of this chapter)'', and,
in their place, add the words ``Rule 450(c) of the Commission's Rules
of Practice, Sec. 201.450(c) of this chapter''.
17. In Sec. 200.30-10 paragraph (a)(6) is removed and paragraphs
(a)(7) and (a)(8) are redesignated as paragraphs (a)(6) and (a)(7).
18. In newly redesignated Sec. 200.30-10(a)(6), remove the words
``Rule 14(b) of the Commission's rules of practice (201.14(b) of this
chapter)'', and, in their place, add the words ``Rule 232 of the
Commission's Rules of Practice, Sec. 201.232 of this chapter''.
19. Section 200.30-14 is amended by revising the introductory text
of paragraph (g)(1), adding paragraphs (g)(1)(x) through (g)(1)(xiv),
and revising paragraphs (g)(2), and (g)(4) through (g)(7) to read as
follows:
Sec. 200.30-14 Delegation of authority to the General Counsel.
* * * * *
(g)(1) With respect to proceedings conducted pursuant to the
Securities Act of 1933 (15 U.S.C. 77a, et seq.), the Securities
Exchange Act of 1934 (15 U.S.C. 78a, et seq.), the Public Utility
Holding Company Act of 1935 (15 U.S.C. 79a, et seq.), the Trust
Indenture Act of 1939 (15 U.S.C. 77aaa, et seq.), the Investment
Company Act of 1940 (15 U.S.C. 80a-1, et seq.), the Investment Advisers
Act of 1940 (15 U.S.C. 80b-1, et seq.),the Securities Investor
Protection Act of 1970 (15 U.S.C. 78aaa, et seq.) and the provisions of
Rule 102(e) of the Commission's Rules of Practice (Sec. 201.102(e) of
this chapter);
* * * * *
(x) To determine motions to consolidate proceedings pending before
the Commission.
(xi) To determine whether to permit or require that a record of
proceedings be supplemented with additional evidence. [[Page 32795]]
(xii) To determine requests for leave to file an opposition to a
petition for review filed pursuant to the provisions of Rule 411 of the
Commission's Rules of Practice, Sec. 201.411 of this chapter.
(xiii) To issue a briefing schedule order pursuant to Rule 450 of
the Commission's Rules of Practice, Sec. 201.450 of this chapter.
(xiv) To determine motions for expedited briefing schedules.
(2) With respect to proceedings conducted pursuant to the
Securities Act of 1933 (15 U.S.C. 77a, et seq.), the Securities
Exchange Act of 1934 (15 U.S.C. 78a, et seq.), the Investment Company
Act of 1940 (15 U.S.C. 80a-1, et seq.), the Investment Advisers Act of
1940 ( 15 U.S.C. 80b-1, et seq.), the Securities Investor Protection
Act of 1970 (15 U.S.C. 78aaa, et seq.) and the provisions of Rule
102(e) of the Commission's Rules of Practice (Sec. 201.102(e) of this
chapter), to issue findings and orders taking the remedial action
described in the order for proceedings where the respondents expressly
consent to such action, fail to appear or default in the filing of
answers required to be filed; or to grant a request, based upon a
showing of good cause, to vacate an order of default, so as to permit
presentation of a defense.
* * * * *
(4) With respect to proceedings under Sections 19 (d), (e) and (f)
of the Securities Exchange Act of 1934 (15 U.S.C. 78s (d), (e) and
(f)), to determine that an application for review under those sections
has been abandoned, under the provisions of Rule 420, Sec. 201.420 of
this chapter, or otherwise, and to issue an order dismissing the
application in such event.
(5) With respect to proceedings conducted or reviewed pursuant to
the Securities Exchange Act of 1934 (15 U.S.C. 78a, et seq.), the
Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq.), the
Investment Advisers Act of 1940 ( 15 U.S.C. 80b-1, et seq.) and the
provisions of Rule 102(e) of the Commission's Rules of Practice,
Sec. 201.102(e) of this chapter, to determine applications to stay
Commission orders pending appeal of those orders to the federal courts
and to determine applications to vacate such stays.
(6) With respect to review proceedings pursuant to Sections 19 (d),
(e), and (f) of the Securities Exchange Act of 1934 (15 U.S.C. 78s (d),
(e), and (f)), to determine applications for a stay of action taken by
a self-regulatory organization pending Commission review of that action
and to determine applications to vacate such stays.
(7) In connection with Commission review of actions taken by self-
regulatory organizations, pursuant to Sections 19 (d), (e) and (f) of
the Securities Exchange Act of 1934 (15 U.S.C. 78s (d), (e) and (f)),
to grant or deny requests for oral argument in accordance with the
provisions of Rule 451, Sec. 201.451 of this chapter.
* * * * *
Subpart B--Disposition of Commission Business
20. The authority citation for part 200, subpart B continues to
read as follows:
Authority: 5 U.S.C. 522b.
21. Section 200.43 is amended by adding ``, except that the duty
officer may preside at the taking of evidence with respect to the
issuance of a temporary cease-and-desist order as provided by Rule
511(c) of the Commission's Rules of Practice, Sec. 201.511(c) of this
chapter.'' before the period.
Subpart F--Code of Behavior Governing Ex Parte Communications
Between Persons Outside the Commission and Decisional Employees
22. The authority citation for part 200, subpart F is revised to
read as follows:
Authority: 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11; 5
U.S.C. 557.
Sec. 200.111 [Amended]
23. In Sec. 200.111(d)(1)(i), remove the words ``Rule 23 of the
Commission's Rules of Practice, Sec. 201.23'', and, in their place, add
the words ``Rule 150 of the Commission's Rules of Practice,
Sec. 201.150''.
24. In Sec. 200.111(d)(2), remove the words ``Rule 9(c) of the
Commission's Rules of Practice, Sec. 201.9(c)'', and, in their place,
add the words `` Rule 210(c) of the Commission's Rules of Practice,
Sec. 201.210(c)''.
Subpart H--Regulations Pertaining to the Privacy of Individuals and
Systems of Records Maintained by the Commission
25. The general authority citation for part 200, subpart H is
revised to read as follows:
Authority: 5 U.S.C. 552a(f), unless otherwise noted.
* * * * *
Sec. 200.312 [Amended]
26. In Sec. 200.312(a)(8), remove the words ``Rule 2(e)'', and, in
their place, add the words ``Rule 102(e)''.
Subpart K--Regulations Pertaining to the Protection of the
Environment
27. The authority citation for part 200, subpart K is revised to
read as follows:
Authority: 15 U.S.C. 78w(a)(2).
Sec. 200.554 [Amended]
28. In Sec. 200.554(a), remove the words ``Sec. 201.20'', and, in
their place, add the words ``Rule 460 of the Commission's Rules of
Practice, Sec. 201.460''.
Subpart M--Regulation Concerning Conduct of Members and Employees
and Former Members and Employees of the Commission
29. The authority citation for part 200, subpart M continues to
read as follows:
Authority: 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11; E. O.
11222; 3 CFR, 1964-1965 Comp.; 5 CFR 735.104 unless otherwise noted.
Sec. 200.735-13 [Amended]
30. In Sec. 200.735-13(c), remove the words ``Rule 2(e) of the
Commission's Rules of Practice, 17 CFR 201.2(e)'', and ``17 CFR 201.1''
and, in their place, add the words ``Rule 102(e) of the Commission's
Rules of Practice, Sec. 201.102(e) of this chapter'' and ``17 CFR
201.100''.
PART 201--RULES OF PRACTICE
31. The authority citation for Part 201 is removed.
Subpart A--[Removed and Reserved]
32. Subpart A is removed and reserved.
Subpart B--Regulations Pertaining to the Equal Access to Justice Act
33. The authority citation for Subpart B of Part 201 is revised to
read as follows:
Authority: 15 U.S.C. 77s, 78w, 78x, 79t, 77sss, 80a-37 and 80b-
11; 5 U.S.C. 504(c)(1).
34. In Sec. 201.42: the reference to ``201.25'' in paragraph (b) is
corrected to read ``201.190''.
35. In Sec. 201.54: the reference to ``201.8'' is corrected to read
``201.240''.
36. In Sec. 201.57: the reference to ``201.17'' is corrected to
read ``201.410 and 201.411''.
37. Section 201.60 is removed and reserved.
Subpart C--Procedures Pertaining to the Payment of Bounties
Pursuant to Subsection 21A(e) of the Securities Exchange Act of
1934
38. The authority citation for Subpart C of Part 201 is revised to
read as follows:
Authority: 15 U.S.C. 78u-1 and 78w.
[[Page 32796]] 39. Subpart D is added to read as follows:
Subpart D--Rules of Practice
General Rules
Sec.
201.100 Scope of the rules of practice.
201.101 Definitions.
201.102 Appearance and practice before the Commission.
201.103 Construction of rules.
201.104 Business hours.
201.110 Presiding officer.
201.111 Hearing officer: authority.
201.112 Hearing officer: disqualification and withdrawal.
201.120 Ex parte communications.
201.121 Separation of functions.
201.140 Commission orders and decisions: signature and
availability.
201.141 Orders and decisions: service of orders instituting
proceeding and other orders and decisions.
201.150 Service of papers by parties.
201.151 Filing of papers with the Commission: procedure.
201.152 Filing of papers: form.
201.153 Filing of papers: signature requirement and effect.
201.154 Motions.
201.155 Default; motion to set aside default.
201.160 Time computation.
201.161 Extensions of time, postponements and adjournments.
201.180 Sanctions.
201.190 Confidential treatment of information in certain filings.
201.191 Adjudications not required to be determined on the record
after notice and opportunity for hearing.
201.192 Rulemaking: issuance, amendment and repeal of rules of
general application.
201.193 Applications by barred individuals for consent to
associate.
Initiation Of Proceedings And Prehearing Rules
201.200 Initiation of proceedings.
201.201 Consolidation of proceedings.
201.202 Specification of procedures by parties in certain
proceedings.
201.210 Parties, limited participants and amici curiae.
201.220 Answer to allegations.
201.221 Prehearing conferences.
201.222 Prehearing submissions.
201.230 Enforcement and disciplinary proceedings: availability of
documents for inspection and copying.
201.231 Enforcement and disciplinary proceedings: production of
witness statements.
201.232 Subpoenas.
201.233 Depositions upon oral examination.
201.234 Depositions upon written questions.
201.235 Introducing prior sworn statements of witnesses into the
record.
201.240 Settlement.
201.250 Motion for summary disposition.
Rules Regarding Hearings
201.300 Hearings.
201.301 Hearings to be public.
201.302 Record of hearings.
201.310 Failure to appear at hearings: default.
201.320 Evidence: admissibility.
201.321 Evidence: objections and offers of proof.
201.322 Evidence: confidential information, protective orders.
201.323 Evidence: official notice.
201.324 Evidence: stipulations.
201.325 Evidence: presentation under oath or affirmation.
201.326 Evidence: presentation, rebuttal and cross-examination.
201.340 Proposed findings, conclusions and supporting briefs.
201.350 Record in proceedings before hearing officer; retention of
documents; copies.
201.351 Transmittal of documents to Secretary; record index;
certification.
201.360 Initial decision of hearing officer.
Appeal To The Commission And Commission Review
201.400 Interlocutory review.
201.401 Issuance of stays.
201.410 Appeal of initial decisions by hearing officers.
201.411 Commission consideration of initial decisions by hearing
officers.
201.420 Appeal of determinations by self-regulatory organizations.
201.421 Commission consideration of determinations by self-
regulatory organizations.
201.430 Appeal of actions made pursuant to delegated authority.
201.431 Commission consideration of actions made pursuant to
delegated authority.
201.450 Briefs filed with the Commission.
201.451 Oral argument before the Commission.
201.452 Additional evidence.
201.460 Record before the Commission.
201.470 Reconsideration.
201.490 Receipt of petitions for judicial review pursuant to 28
U.S.C. 2112(a)(1).
Rules Relating To Temporary Orders And Suspensions
201.500 Expedited consideration of proceedings.
201.510 Temporary cease-and-desist orders: application process.
201.511 Temporary cease-and-desist orders: notice; procedures for
hearing.
201.512 Temporary cease-and-desist orders: issuance after notice
and opportunity for hearing.
201.513 Temporary cease-and-desist orders: issuance without prior
notice and opportunity for hearing.
201.514 Temporary cease-and-desist orders: judicial review;
duration.
201.520 Suspension of registration of brokers, dealers, or other
Exchange Act-registered entities: application.
201.521 Suspension of registration of brokers, dealers, or other
Exchange Act-registered entities: notice and opportunity for hearing
on application.
201.522 Suspension of registration of brokers, dealers, or other
Exchange Act-registered entities: issuance and review of order.
201.523 [Reserved].
201.524 Suspension of registrations: duration.
201.530 Initial decision on permanent order: timing for submitting
proposed findings and preparation of decision.
201.531 Initial decision on permanent order: effect on temporary
order.
201.540 Appeal and Commission review of initial decision making a
temporary order permanent.
201.550 Summary suspensions pursuant to Exchange Act Section
12(k)(1)(A).
Rules Regarding Disgorgement And Penalty Payments
201.600 Interest on sums disgorged.
201.601 Prompt payment of disgorgement, interest and penalties.
201.610 Submission of proposed plan of disgorgement.
201.611 Contents of plan of disgorgement; provisions for payment.
201.612 Notice of proposed plan of disgorgement and opportunity for
comment by non-parties.
201.613 Order approving, modifying or disapproving proposed plan of
disgorgement.
201.614 Administration of plan of disgorgement.
201.620 Right to challenge order of disgorgement.
201.630 Inability to pay disgorgement, interest or penalties.
Informal Procedures And Supplementary Information Concerning
Adjudicatory Proceedings
201.900 Informal Procedures and Supplementary Information
Concerning Adjudicatory Proceedings.
Table I to Subpart D--Adversary Adjudications Conducted by the
Commission under 5 U.S.C. 554
Table II to Subpart D--Cross-reference table showing location of
Rules of Practice adopted in 1995 with former Rules of Practice,
related rules and statutory provisions.
Table III to Subpart D--Cross-reference table showing location of
former Rules of Practice and related rules with Rules of Practice
adopted in 1995
Subpart D--Rules of Practice
Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u,
78c(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78s, 78u-2, 78u-
3, 78v, 78w, 79c, 79s, 79t, 79z-5a, 77sss, 77ttt, 80a-8, 80a-9, 80a-
37, 80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11,
and 80b-12 unless otherwise noted.
General Rules
Sec. 201.100 Scope of the rules of practice.
(a) Unless provided otherwise, these Rules of Practice govern
proceedings before the Commission under the statutes that it
administers. [[Page 32797]]
(b) These rules do not apply to:
(1) Investigations, except where made specifically applicable by
the Rules Relating to Investigations, part 203 of this chapter; or
(2) Actions taken by the duty officer pursuant to delegated
authority under 17 CFR 200.42.
Sec. 201.101 Definitions.
(a) For purposes of these Rules of Practice, unless explicitly
stated to the contrary:
(1) Commission means the United States Securities and Exchange
Commission, or a panel of Commissioners constituting a quorum of the
Commission, or a single Commissioner acting as duty officer pursuant to
17 CFR 200.43;
(2) Counsel means any attorney representing a party or any other
person representing a party pursuant to Sec. 201.102(b);
(3) Disciplinary proceeding means an action pursuant to
Sec. 201.102(e);
(4) Enforcement proceeding means an action, initiated by an order
instituting proceedings, held for the purpose of determining whether or
not a person is about to violate, has violated, has caused a violation
of, or has aided or abetted a violation of any statute or rule
administered by the Commission, or whether to impose a sanction as
defined in Section 551(10) of the Administrative Procedure Act, 5
U.S.C. 551(10);
(5) Hearing officer means an administrative law judge, a panel of
Commissioners constituting less than a quorum of the Commission, an
individual Commissioner, or any other person duly authorized to preside
at a hearing;
(6) Interested division means a division or an office assigned
primary responsibility by the Commission to participate in a particular
proceeding;
(7) Order instituting proceedings means an order issued by the
Commission commencing a proceeding or an order issued by the Commission
to hold a hearing;
(8) Party means the interested division, any person named as a
respondent in an order instituting proceedings, any applicant named in
the caption of any order, persons entitled to notice in a stop order
proceeding as set forth in Sec. 201.200(a)(2) or any person seeking
Commission review of a decision;
(9) Proceeding means any agency process initiated by an order
instituting proceedings; or by the filing, pursuant to Sec. 201.410, of
a petition for review of an initial decision by a hearing officer; or
by the filing, pursuant to Sec. 201.420, of an application for review
of a self-regulatory organization determination; or by the filing,
pursuant to Sec. 201.430, of a notice of intention to file a petition
for review of a determination made pursuant to delegated authority;
(10) Secretary means the Secretary of the Commission; and
(11) Temporary sanction means a temporary cease-and-desist order or
a temporary suspension of the registration of a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, or transfer agent pending final determination
whether the registration shall be revoked.
(b) [Reserved]
Sec. 201.102 Appearance and practice before the Commission.
A person shall not be represented before the Commission or a
hearing officer except as stated in paragraphs (a) and (b) of this
section or as otherwise permitted by the Commission or a hearing
officer.
(a) Representing oneself. In any proceeding, an individual may
appear on his or her own behalf.
(b) Representing others. In any proceeding, a person may be
represented by an attorney at law admitted to practice before the
Supreme Court of the United States or the highest court of any State
(as defined in Section 3(a)(16) of the Exchange Act, 15 U.S.C.
78c(a)(16)); a member of a partnership may represent the partnership; a
bona fide officer of a corporation, trust or association may represent
the corporation, trust or association; and an officer or employee of a
state commission or of a department or political subdivision of a state
may represent the state commission or the department or political
subdivision of the state.
(c) Former Commission employees. Former employees of the Commission
must comply with the restrictions on practice contained in the
Commission's Conduct Regulation, Subpart M, 17 CFR 200.735.
(d) Designation of address for service; notice of appearance; power
of attorney; withdrawal. (1) Representing oneself. When an individual
first makes any filing or otherwise appears on his or her own behalf
before the Commission or a hearing officer in a proceeding as defined
in Sec. 201.101(a), he or she shall file with the Commission, or
otherwise state on the record, and keep current, an address at which
any notice or other written communication required to be served upon
him or her or furnished to him or her may be sent and a telephone
number where he or she may be reached during business hours.
(2) Representing others. When a person first makes any filing or
otherwise appears in a representative capacity before the Commission or
a hearing officer in a proceeding as defined in Sec. 201.101(a), that
person shall file with the Commission, and keep current, a written
notice stating the name of the proceeding; the representative's name,
business address and telephone number; and the name and address of the
person or persons represented.
(3) Power of attorney. Any individual appearing or practicing
before the Commission in a representative capacity may be required to
file a power of attorney with the Commission showing his or her
authority to act in such capacity.
(4) Withdrawal. Withdrawal by any individual appearing in a
representative capacity shall be permitted only by order of the
Commission or the hearing officer. A motion seeking leave to withdraw
shall state with specificity the reasons for such withdrawal.
(e) Suspension and disbarment. (1) Generally. The Commission may
censure a person or deny, temporarily or permanently, the privilege of
appearing or practicing before it in any way to any person who is found
by the Commission after notice and opportunity for hearing in the
matter:
(i) Not to possess the requisite qualifications to represent
others; or
(ii) To be lacking in character or integrity or to have engaged in
unethical or improper professional conduct; or
(iii) To have willfully violated, or willfully aided and abetted
the violation of any provision of the Federal securities laws or the
rules and regulations thereunder.
(2) Certain professionals and convicted persons. Any attorney who
has been suspended or disbarred by a court of the United States or of
any State; or any person whose license to practice as an accountant,
engineer, or other professional or expert has been revoked or suspended
in any State; or any person who has been convicted of a felony or a
misdemeanor involving moral turpitude shall be forthwith suspended from
appearing or practicing before the Commission. A disbarment,
suspension, revocation or conviction within the meaning of this section
shall be deemed to have occurred when the disbarring, suspending,
revoking or convicting agency or tribunal enters its judgment or order,
including a judgment or order on a plea of nolo contendere, regardless
of whether an appeal of such judgment or order is pending or could be
taken. [[Page 32798]]
(3) Temporary suspensions. An order of temporary suspension shall
become effective upon service on the respondent. No order of temporary
suspension shall be entered by the Commission pursuant to paragraph
(e)(3)(i) of this section more than 90 days after the date on which the
final judgment or order entered in a judicial or administrative
proceeding described in paragraph (e)(3)(i)(A) or (e)(3)(i)(B) of this
section has become effective, whether upon completion of review or
appeal procedures or because further review or appeal procedures are no
longer available.
(i) The Commission, with due regard to the public interest and
without preliminary hearing, may, by order, temporarily suspend from
appearing or practicing before it any attorney, accountant, engineer,
or other professional or expert who has been by name:
(A) Permanently enjoined by any court of competent jurisdiction, by
reason of his or her misconduct in an action brought by the Commission,
from violating or aiding and abetting the violation of any provision of
the Federal securities laws or of the rules and regulations thereunder;
or
(B) Found by any court of competent jurisdiction in an action
brought by the Commission to which he or she is a party or found by the
Commission in any administrative proceeding to which he or she is a
party to have violated (unless the violation was found not to have been
willful) or aided and abetted the violation of any provision of the
Federal securities laws or of the rules and regulations thereunder.
(ii) Any person temporarily suspended from appearing and practicing
before the Commission in accordance with paragraph (e)(3)(i) of this
section may, within 30 days after service upon him or her of the order
of temporary suspension, petition the Commission to lift the temporary
suspension. If no petition has been received by the Commission within
30 days after service of the order, the suspension shall become
permanent.
(iii) Within 30 days after the filing of a petition in accordance
with paragraph (e)(3)(ii) of this section, the Commission shall either
lift the temporary suspension, or set the matter down for hearing at a
time and place designated by the Commission, or both, and, after
opportunity for hearing, may censure the petitioner or disqualify the
petitioner from appearing or practicing before the Commission for a
period of time or permanently. In every case in which the temporary
suspension has not been lifted, every hearing held and other action
taken pursuant to this paragraph (e)(3) shall be expedited in
accordance with Sec. 201.500. If the hearing is held before a hearing
officer, the time limits set forth in Sec. 201.531 will govern review
of the hearing officer's initial decision.
(iv) In any hearing held on a petition filed in accordance with
paragraph (e)(3)(ii) of this section, the staff of the Commission shall
show either that the petitioner has been enjoined as described in
paragraph (e)(3)(i)(A) of this section or that the petitioner has been
found to have committed or aided and abetted violations as described in
paragraph (e)(3)(i)(B) of this section and that showing, without more,
may be the basis for censure or disqualification. Once that showing has
been made, the burden shall be upon the petitioner to show cause why he
or she should not be censured or temporarily or permanently
disqualified from appearing and practicing before the Commission. In
any such hearing, the petitioner may not contest any finding made
against him or her or fact admitted by him or her in the judicial or
administrative proceeding upon which the proceeding under this
paragraph (e)(3) is predicated. A person who has consented to the entry
of a permanent injunction as described in paragraph (e)(3)(i)(A) of
this section without admitting the facts set forth in the complaint
shall be presumed for all purposes under this paragraph (e)(3) to have
been enjoined by reason of the misconduct alleged in the complaint.
(4) Filing of prior orders. Any person appearing or practicing
before the Commission who has been the subject of an order, judgment,
decree, or finding as set forth in paragraph (e)(3) of this section
shall promptly file with the Secretary a copy thereof (together with
any related opinion or statement of the agency or tribunal involved).
Failure to file any such paper, order, judgment, decree or finding
shall not impair the operation of any other provision of this section.
(5) Reinstatement. (i) An application for reinstatement of a person
permanently suspended or disqualified under paragraph (e)(1) or (e)(3)
of this section may be made at any time, and the applicant may, in the
Commission's discretion, be afforded a hearing; however, the suspension
or disqualification shall continue unless and until the applicant has
been reinstated by the Commission for good cause shown.
(ii) Any person suspended under paragraph (e)(2) of this section
shall be reinstated by the Commission, upon appropriate application, if
all the grounds for application of the provisions of that paragraph are
subsequently removed by a reversal of the conviction or termination of
the suspension, disbarment, or revocation. An application for
reinstatement on any other grounds by any person suspended under
paragraph (e)(2) of this section may be filed at any time and the
applicant shall be accorded an opportunity for a hearing in the matter;
however, such suspension shall continue unless and until the applicant
has been reinstated by order of the Commission for good cause shown.
(6) Other proceedings not precluded. A proceeding brought under
paragraph (e)(1), (e)(2) or (e)(3) of this section shall not preclude
another proceeding brought under these same paragraphs.
(7) Public hearings. All hearings held under this paragraph (e)
shall be public unless otherwise ordered by the Commission on its own
motion or after considering the motion of a party.
(f) Practice defined. For the purposes of these Rules of Practice,
practicing before the Commission shall include, but shall not be
limited to:
(1) Transacting any business with the Commission; and
(2) The preparation of any statement, opinion or other paper by any
attorney, accountant, engineer or other professional or expert, filed
with the Commission in any registration statement, notification,
application, report or other document with the consent of such
attorney, accountant, engineer or other professional or expert.
Sec. 201.103 Construction of rules.
(a) The Rules of Practice shall be construed and administered to
secure the just, speedy, and inexpensive determination of every
proceeding.
(b) In any particular proceeding, to the extent that there is a
conflict between these rules and a procedural requirement contained in
any statute, or any rule or form adopted thereunder, the latter shall
control.
(c) For purposes of these rules:
(1) Any term in the singular includes the plural, and any term in
the plural includes the singular, if such use would be appropriate;
(2) Any use of a masculine, feminine, or neuter gender encompasses
such other genders as would be appropriate; and
(3) Unless the context requires otherwise, counsel for a party may
take any action required or permitted to be taken by such party.
Sec. 201.104 Business hours.
The Headquarters office of the Commission, at 450 Fifth Street,
N.W., Washington, D.C. 20549, is open each [[Page 32799]] day, except
Saturdays, Sundays, and Federal legal holidays, from 9 a.m. to 5:30
p.m., Eastern Standard Time or Eastern Daylight Saving Time, whichever
is currently in effect in Washington, D.C. Federal legal holidays
consist of New Year's Day; Birthday of Martin Luther King, Jr.;
Presidents Day; Memorial Day; Independence Day; Labor Day; Columbus
Day; Veterans Day; Thanksgiving Day; Christmas Day; and any other day
appointed as a holiday in Washington, D.C. by the President or the
Congress of the United States.
Sec. 201.110 Presiding officer.
All proceedings shall be presided over by the Commission or, if the
Commission so orders, by a hearing officer. When the Commission
designates that the hearing officer shall be an administrative law
judge, the Chief Administrative Law Judge shall select, pursuant to 17
CFR 200.30-10, the administrative law judge to preside.
Sec. 201.111 Hearing officer: authority.
The hearing officer shall have the authority to do all things
necessary and appropriate to discharge his or her duties. No provision
of these Rules of Practice shall be construed to limit the powers of
the hearing officer provided by the Administrative Procedure Act, 5
U.S.C. 556, 557. The powers of the hearing officer include, but are not
limited to, the following:
(a) Administering oaths and affirmations;
(b) Issuing subpoenas authorized by law and revoking, quashing, or
modifying any such subpoena;
(c) Receiving relevant evidence and ruling upon the admission of
evidence and offers of proof;
(d) Regulating the course of a proceeding and the conduct of the
parties and their counsel;
(e) Holding prehearing and other conferences as set forth in
Sec. 201.221 and requiring the attendance at any such conference of at
least one representative of each party who has authority to negotiate
concerning the resolution of issues in controversy;
(f) Recusing himself or herself upon motion made by a party or upon
his or her own motion;
(g) Ordering, in his or her discretion, in a proceeding involving
more than one respondent, that the interested division indicate, on the
record, at least one day prior to the presentation of any evidence,
each respondent against whom that evidence will be offered;
(h) Subject to any limitations set forth elsewhere in these rules,
considering and ruling upon all procedural and other motions;
(i) Preparing an initial decision as provided in Sec. 201.360;
(j) Upon notice to all parties, reopening any hearing prior to the
filing of an initial decision therein, or, if no initial decision is to
be filed, prior to the time fixed for the filing of final briefs with
the Commission; and
(k) Informing the parties as to the availability of one or more
alternative means of dispute resolution, and encouraging the use of
such methods.
Sec. 201.112 Hearing officer: disqualification and withdrawal.
(a) Notice of disqualification. At any time a hearing officer
believes himself or herself to be disqualified from considering a
matter, the hearing officer shall issue a notice stating that he or she
is withdrawing from the matter and setting forth the reasons therefor.
(b) Motion for withdrawal. Any party who has a reasonable, good
faith basis to believe that a hearing officer has a personal bias, or
is otherwise disqualified from hearing a case, may make a motion to the
hearing officer that the hearing officer withdraw. The motion shall be
accompanied by an affidavit setting forth in detail the facts alleged
to constitute grounds for disqualification. If the hearing officer
finds himself or herself not disqualified, he or she shall so rule and
shall continue to preside over the proceeding.
Sec. 201.120 Ex parte communications.
(a) Except to the extent required for the disposition of ex parte
matters as authorized by law, the person presiding over an evidentiary
hearing may not:
(1) Consult a person or party on a fact in issue, unless on notice
and opportunity for all parties to participate; or
(2) Be responsible to or subject to the supervision or direction of
an employee or agent engaged in the performance of investigative or
prosecuting functions for the Commission.
(b) The Commission's code of behavior regarding ex parte
communications between persons outside the Commission and decisional
employees, 17 CFR 200.110 through 200.114, governs other prohibited
communications during a proceeding conducted under the Rules of
Practice.
Sec. 201.121 Separation of functions.
Any Commission officer, employee or agent engaged in the
performance of investigative or prosecutorial functions for the
Commission in a proceeding as defined in Sec. 201.101(a) may not, in
that proceeding or one that is factually related, participate or advise
in the decision, or in Commission review of the decision pursuant to
Section 557 of the Administrative Procedure Act, 5 U.S.C. 557, except
as a witness or counsel in the proceeding.
Sec. 201.140 Commission orders and decisions: signature and
availability.
(a) Signature required. All orders and decisions of the Commission
shall be signed by the Secretary or any other person duly authorized by
the Commission.
(b) Availability for inspection. Each order and decision shall be
available for inspection by the public from the date of entry, unless
the order or decision is nonpublic. A nonpublic order or decision shall
be available for inspection by any person entitled to inspect it from
the date of entry.
(c) Date of entry of orders. The date of entry of a Commission
order shall be the date the order is signed. Such date shall be
reflected in the caption of the order, or if there is no caption, in
the order itself.
Sec. 201.141 Orders and decisions: service of orders instituting
proceeding and other orders and decisions.
(a) Service of an order instituting proceedings. (1) By whom made.
The Secretary, or another duly authorized officer of the Commission,
shall serve a copy of an order instituting proceedings on each person
named in the order as a party. The Secretary may direct an interested
division to assist in making service.
(2) How made. (i) To individuals. Notice of a proceeding shall be
made to an individual by delivering a copy of the order instituting
proceedings to the individual or to an agent authorized by appointment
or by law to receive such notice. Delivery means--handing a copy of the
order to the individual; or leaving a copy at the individual's office
with a clerk or other person in charge thereof; or leaving a copy at
the individual's dwelling house or usual place of abode with some
person of suitable age and discretion then residing therein; or sending
a copy of the order addressed to the individual by U.S. Postal Service
certified, registered or Express Mail and obtaining a confirmation of
receipt; or giving confirmed telegraphic notice.
(ii) To corporations or entities. Notice of a proceeding shall be
made to a person other than a natural person by delivering a copy of
the order instituting proceedings to an officer, managing or general
agent, or any other agent authorized by appointment or by law to
receive such notice, by any method specified in paragraph (a)(2)(i) of
this section. [[Page 32800]]
(iii) Upon persons registered with the Commission. In addition to
any other method of service specified in paragraph (a)(2) of this
section, notice may be made to a person currently registered with the
Commission as a broker, dealer, municipal securities dealer, government
securities broker, government securities dealer, investment adviser,
investment company or transfer agent by sending a copy of the order
addressed to the most recent business address shown on the person's
registration form by U.S. Postal Service certified, registered or
Express Mail and obtaining a confirmation of attempted delivery.
(iv) Upon persons in a foreign country. Notice of a proceeding to a
person in a foreign country may be made by any method specified in
paragraph (a)(2) of this section, or by any other method reasonably
calculated to give notice, provided that the method of service used is
not prohibited by the law of the foreign country.
(v) In stop order proceedings. Notwithstanding any other provision
of paragraph (a)(2) of this section, in proceedings pursuant to
Sections 8 or 10 of the Securities Act of 1933, 15 U.S.C. 77h or 77j,
or Sections 305 or 307 of the Trust Indenture Act of 1939, 15 U.S.C.
77eee or 77ggg, notice of the institution of proceedings shall be made
by personal service or confirmed telegraphic notice, or a waiver obtain
pursuant to paragraph (a)(4) of this section.
(3) Certificate of service. The Secretary shall place in the record
of the proceeding a certificate of service identifying the party given
notice, the method of service, the date of service, the address to
which service was made and the person who made service. If service is
made in person, the certificate shall state, if available, the name of
the individual to whom the order was given. If service is made by U.S.
Postal Service certified, registered or Express Mail, the certificate
shall be accompanied by a confirmation of receipt or of attempted
delivery, as required. If service is made to an agent authorized by
appointment to receive service, the certificate shall be accompanied by
evidence of the appointment.
(4) Waiver of service. In lieu of service as set forth in paragraph
(a)(2) of this section, the party may be provided a copy of the order
instituting proceedings by first class mail or other reliable means if
a waiver of service is obtained from the party and placed in the
record.
(b) Service of orders or decisions other than an order instituting
proceedings. Written orders or decisions issued by the Commission or by
a hearing officer shall be served promptly on each party pursuant to
any method of service authorized under paragraph (a) of this section or
Sec. 201.150(c). Service of orders or decisions by the Commission,
including those entered pursuant to delegated authority, shall be made
by the Secretary or, as authorized by the Secretary, by a member of an
interested division. Service of orders or decisions issued by a hearing
officer shall be made by the Secretary or the hearing officer.
Sec. 201.150 Service of papers by parties.
(a) When required. In every proceeding as defined in
Sec. 201.101(a), each paper, including each notice of appearance,
written motion, brief, or other written communication, shall be served
upon each party in the proceeding in accordance with the provisions of
this section; provided, however, that absent an order to the contrary,
no service shall be required for motions which may be heard ex parte.
(b) Upon a person represented by counsel. Whenever service is
required to be made upon a person represented by counsel who has filed
a notice of appearance pursuant to Sec. 201.102, service shall be made
pursuant to paragraph (c) of this section upon counsel, unless service
upon the person represented is ordered by the Commission or the hearing
officer.
(c) How made. Service shall be made by delivering a copy of the
filing. Delivery means:
(1) Personal service--handing a copy to the person required to be
served; or leaving a copy at the person's office with a clerk or other
person in charge thereof, or, if there is no one in charge, leaving it
in a conspicuous place therein; or, if the office is closed or the
person to be served has no office, leaving it at the person's dwelling
house or usual place of abode with some person of suitable age and
discretion then residing therein;
(2) Mailing the papers through the U.S. Postal Service by first
class, registered, or certified mail or Express Mail delivery addressed
to the person;
(3) Sending the papers through a commercial courier service or
express delivery service; or
(4) Transmitting the papers by facsimile machine where the
following conditions are met:
(i) The persons serving each other by facsimile transmission have
agreed to do so in a writing, signed by each party, which specifies
such terms as they deem necessary with respect to facsimile machine
telephone numbers to be used, hours of facsimile machine operation, the
provision of non-facsimile original or copy, and any other such
matters; and
(ii) Receipt of each document served by facsimile is confirmed by a
manually signed receipt delivered by facsimile machine or other means
agreed to by the parties.
(d) When service is complete. Personal service, service by U.S.
Postal Service Express Mail or service by a commercial courier or
express delivery service is complete upon delivery. Service by mail is
complete upon mailing. Service by facsimile is complete upon
confirmation of transmission by delivery of a manually signed receipt.
Sec. 201.151 Filing of papers with the Commission: procedure.
(a) When to file. All papers required to be served by a party upon
any person shall be filed with the Commission at the time of service or
promptly thereafter. Papers required to be filed with the Commission
must be received within the time limit, if any, for such filing.
(b) Where to file. Filing of papers with the Commission shall be
made by filing them with the Secretary. When a proceeding is assigned
to a hearing officer, a person making a filing with the Secretary shall
promptly provide to the hearing officer a copy of any such filing,
provided, however, that the hearing officer may direct or permit
filings to be made with him or her, in which event the hearing officer
shall note thereon the filing date and promptly provide the Secretary
with either the original or a copy of any such filings.
(c) To whom to direct the filing. Unless otherwise provided, where
the Commission has assigned a case to a hearing officer, all motions,
objections, applications or other filings made during a proceeding
prior to the filing of an initial decision therein, or, if no initial
decision is to be filed, prior to the time fixed for the filing of
briefs with the Commission, shall be directed to and decided by the
hearing officer.
(d) Certificate of service. Papers filed with the Commission or a
hearing officer shall be accompanied by a certificate stating the name
of the person or persons served, the date of service, the method of
service and the mailing address or facsimile telephone number to which
service was made, if not made in person. If the method of service to
any party is different from the method of service to any other party or
the method for filing with the Commission, the certificate shall state
why a different means of service was used. [[Page 32801]]
Sec. 201.152 Filing of papers: form.
(a) Specifications. Papers filed in connection with any proceeding
as defined in Sec. 201.101(a) shall:
(1) Be on one grade of unglazed white paper measuring 8\1/2\ x 11
inches, except that, to the extent that the reduction of larger
documents would render them illegible, such documents may be filed on
larger paper;
(2) Be typewritten or printed in either 10- or 12-point typeface or
otherwise reproduced by a process that produces permanent and plainly
legible copies;
(3) Include at the head of the paper, or on a title page, the name
of the Commission, the title of the proceeding, the names of the
parties, the subject of the particular paper or pleading, and the file
number assigned to the proceeding;
(4) Be paginated with left hand margins at least 1 inch wide, and
other margins of at least 1 inch;
(5) Be double-spaced, with single-spaced footnotes and single-
spaced indented quotations; and
(6) Be stapled, clipped or otherwise fastened in the upper left
corner.
(b) Signature required. All papers must be dated and signed as
provided in Sec. 201.153.
(c) Suitability for recordkeeping. Documents which, in the opinion
of the Commission, are not suitable for computer scanning or
microfilming may be rejected.
(d) Number of copies. An original and three copies of all papers
shall be filed.
(e) Form of briefs. All briefs containing more than 10 pages shall
include a table of contents, an alphabetized table of cases, a table of
statutes, and a table of other authorities cited, with references to
the pages of the brief wherein they are cited.
(f) Scandalous or impertinent matter. Any scandalous or impertinent
matter contained in any brief or pleading or in connection with any
oral presentation in a proceeding may be stricken on order of the
Commission or the hearing officer.
Sec. 201.153 Filing of papers: signature requirement and effect.
(a) General requirements. Following the issuance of an order
instituting proceedings, every filing of a party represented by counsel
shall be signed by at least one counsel of record in his or her name
and shall state that counsel's business address and telephone number. A
party who acts as his or her own counsel shall sign his or her
individual name and state his or her address and telephone number on
every filing.
(b) Effect of signature. (1) The signature of a counsel or party
shall constitute a certification that:
(i) the person signing the filing has read the filing;
(ii) to the best of his or her knowledge, information, and belief,
formed after reasonable inquiry, the filing is well grounded in fact
and is warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law; and
(iii) the filing is not made for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the cost
of adjudication.
(2) If a filing is not signed, the hearing officer or the
Commission shall strike the filing, unless it is signed promptly after
the omission is called to the attention of the person making the
filing.
Sec. 201.154 Motions.
(a) Generally. Unless made during a hearing or conference, a motion
shall be in writing, shall state with particularity the grounds
therefor, shall set forth the relief or order sought, and shall be
accompanied by a written brief of the points and authorities relied
upon. All written motions shall be served in accordance with
Sec. 201.150, be filed in accordance with Sec. 201.151, meet the
requirements of Sec. 201.152, and be signed in accordance with
Sec. 201.153. The Commission or the hearing officer may order that an
oral motion be submitted in writing. Unless otherwise ordered by the
Commission or the hearing officer, if a motion is properly made to the
Commission concerning a proceeding to which a hearing officer is
assigned, the proceeding before the hearing officer shall continue
pending the determination of the motion by the Commission. No oral
argument shall be heard on any motion unless the Commission or the
hearing officer otherwise directs.
(b) Opposing and reply briefs. Except as provided in Sec. 201.401,
briefs in opposition to a motion shall be filed within five days after
service of the motion. Reply briefs shall be filed within three days
after service of the opposition.
(c) Length limitation. A brief in support of or opposition to a
motion shall not exceed 10 pages, exclusive of pages containing any
table of contents, table of authorities, and/or addendum. Requests for
leave to file briefs in excess of 10 pages are disfavored.
Sec. 201.155 Default; motion to set aside default.
(a) A party to a proceeding may be deemed to be in default and the
Commission or the hearing officer may determine the proceeding against
that party upon consideration of the record, including the order
instituting proceedings, the allegations of which may be deemed to be
true, if that party fails:
(1) To appear, in person or through a representative, at a hearing
or conference of which that party has been notified;
(2) To answer, to respond to a dispositive motion within the time
provided, or otherwise to defend the proceeding; or
(3) To cure a deficient filing within the time specified by the
commission or the hearing officer pursuant to Sec. 201.180(b).
(b) A motion to set aside a default shall be made within a
reasonable time, state the reasons for the failure to appear or defend,
and specify the nature of the proposed defense in the proceeding. In
order to prevent injustice and on such conditions as may be
appropriate, the hearing officer, at any time prior to the filing of
the initial decision, or the Commission, at any time, may for good
cause shown set aside a default.
Sec. 201.160 Time computation.
(a) Computation. In computing any period of time prescribed in or
allowed by these Rules of Practice or by order of the Commission, the
day of the act, event, or default from which the designated period of
time begins to run shall not be included. The last day of the period so
computed shall be included unless it is a Saturday, Sunday, or Federal
legal holiday (as defined in Sec. 201.104), in which event the period
runs until the end of the next day that is not a Saturday, Sunday, or
Federal legal holiday. Intermediate Saturdays, Sundays, and Federal
legal holidays shall be excluded from the computation when the period
of time prescribed or allowed is seven days or less, not including any
additional time allowed for service by mail in paragraph (b) of this
section. If on the day a filing is to be made, weather or other
conditions have caused the Secretary's office or other designated
filing location to close, the filing deadline shall be extended to the
end of the next day that is neither a Saturday, a Sunday, nor a Federal
legal holiday.
(b) Additional time for service by mail. If service is made by
mail, three days shall be added to the prescribed period for response.
Sec. 201.161 Extensions of time, postponements and adjournments.
(a) Availability. Except as otherwise provided by law, the
Commission, at any time, or the hearing officer, at any time prior to
the filing of his or her [[Page 32802]] initial decision or, if no
initial decision is to be filed, at any time prior to the closing of
the record, may, for good cause shown, extend or shorten any time
limits prescribed by these Rules of Practice for the filing of any
papers and may, consistent with paragraph (b) of this section, postpone
or adjourn any hearing.
(b) Limitations on postponements, adjournments and extensions. A
hearing shall begin at the time and place ordered, provided that,
within the limits provided by statute, the Commission or the hearing
officer may for good cause shown postpone the commencement of the
hearing or adjourn a convened hearing for a reasonable period of time
or change the place of hearing.
(1) Additional considerations. In considering a motion for
postponement of the start of a hearing, adjournment once a hearing has
begun, or extensions of time for filing papers, the hearing officer or
the Commission shall consider, in addition to any other factors:
(i) The length of the proceeding to date;
(ii) The number of postponements, adjournments or extensions
already granted;
(iii) The stage of the proceedings at the time of the request; and
(iv) Any other such matters as justice may require.
(2) Time limit. Postponements, adjournments or extensions of time
for filing papers shall not exceed 21 days unless the Commission or the
hearing officer states on the record or sets forth in a written order
the reasons why a longer period of time is necessary.
Sec. 201.180 Sanctions.
(a) Contemptuous conduct.
(1) Subject to exclusion or suspension. Contemptuous conduct by any
person before the Commission or a hearing officer during any
proceeding, including any conference, shall be grounds for the
Commission or the hearing officer to:
(i) Exclude that person from such hearing or conference, or any
portion thereof; and/or
(ii) Summarily suspend that person from representing others in the
proceeding in which such conduct occurred for the duration, or any
portion, of the proceeding.
(2) Review procedure. A person excluded from a hearing or
conference, or a counsel summarily suspended from practice for the
duration or any portion of a proceeding, may seek review of the
exclusion or suspension by filing with the Commission, within three
days of the exclusion or suspension order, a motion to vacate the
order. The Commission shall consider such motion on an expedited basis
as provided in Sec. 201.500.
(3) Adjournment. Upon motion by a party represented by counsel
subject to an order of exclusion or suspension, an adjournment shall be
granted to allow the retention of new counsel. In determining the
length of an adjournment, the Commission or hearing officer shall
consider, in addition to the factors set forth in Sec. 201.161, the
availability of co-counsel for the party or of other members of a
suspended counsel's firm.
(b) Deficient filings; leave to cure deficiencies. The Commission
or the hearing officer may reject, in whole or in part, any filing that
fails to comply with any requirements of these Rules of Practice or of
any order issued in the proceeding in which the filing was made. Any
such filings shall not be part of the record. The Commission or the
hearing officer may direct a party to cure any deficiencies and to
resubmit the filing within a fixed time period.
(c) Failure to make required filing or to cure deficient filing.
The Commission or the hearing officer may enter a default pursuant to
Sec. 201.155, dismiss the case, decide the particular matter at issue
against that person, or prohibit the introduction of evidence or
exclude testimony concerning that matter if a person fails:
(1) To make a filing required under these Rules of Practice; or
(2) To cure a deficient filing within the time specified by the
Commission or the hearing officer pursuant to paragraph (b) of this
section.
Sec. 201.190 Confidential treatment of information in certain filings.
(a) Application. An application for confidential treatment pursuant
to the provisions of Clause 30 of Schedule A of the Securities Act of
1933, 15 U.S.C. 77aa(30), and Rule 406 thereunder, 17 CFR 230.406;
Section 24(b)(2) of the Securities Exchange Act of 1934, 15 U.S.C.
78x(b)(2), and Rule 24b-2 thereunder, 17 CFR 240.24b-2; Section 22(b)
of the Public Utility Holding Company Act of 1935, 15 U.S.C. 79v(b),
and Rule 104 thereunder, 17 CFR 250.104; Section 45(a) of the
Investment Company Act of 1940, 15 U.S.C. 80a-44(a), and Rule 45a-1
thereunder, 17 CFR 270.45a-1; or Section 210(a) of the Investment
Advisers Act of 1940, 15 U.S.C. 80b-10(a), shall be filed with the
Secretary. The application shall be accompanied by a sealed copy of the
materials as to which confidential treatment is sought.
(b) Procedure for supplying additional information. The applicant
may be required to furnish in writing additional information with
respect to the grounds for objection to public disclosure. Failure to
supply the information so requested within 14 days from the date of
receipt by the applicant of a notice of the information required shall
be deemed a waiver of the objection to public disclosure of that
portion of the information to which the additional information relates,
unless the Commission or the hearing officer shall otherwise order for
good cause shown at or before the expiration of such 14-day period.
(c) Confidentiality of materials pending final decision. Pending
the determination of the application for confidential treatment,
transcripts, non-final orders including an initial decision, if any,
and other materials in connection with the application shall be placed
under seal; shall be for the confidential use only of the hearing
officer, the Commission, the applicant, and any other parties and
counsel; and shall be made available to the public only in accordance
with orders of the Commission.
(d) Public availability of orders. Any final order of the
Commission denying or sustaining an application for confidential
treatment shall be made public. Any prior findings or opinions relating
to an application for confidential treatment under this section shall
be made public at such time as the material as to which confidentiality
was requested is made public.
Sec. 201.191 Adjudications not required to be determined on the record
after notice and opportunity for hearing.
(a) Scope of the rule. This rule applies to every case of
adjudication, as defined in 5 U.S.C. 551, pursuant to any statute which
the Commission administers, where adjudication is not required to be
determined on the record after notice and opportunity for hearing and
which the Commission has not chosen to determine on the record after
notice and opportunity for hearing.
(b) Procedure. In every case of adjudication under paragraph (a) of
this section, the Commission shall give prompt notice of any adverse
action or final disposition to any person who has requested the
Commission to make (or not to make) any such adjudication, and furnish
to any such person a written statement of reasons therefor. Additional
procedures may be specified in rules relating to specific types of such
adjudications. Where any such rule provides for the publication of a
Commission order, notice of the action [[Page 32803]] or disposition
shall be deemed to be given by such publication.
(c) Contents of the record. If the Commission provides notice and
opportunity for the submission of written comments by parties to the
adjudication or, as the case may be, by other interested persons,
written comments received on or before the closing date for comments,
unless accorded confidential treatment pursuant to statute or rule of
the Commission, become a part of the record of the adjudication. The
Commission, in its discretion, may accept and include in the record
written comments filed with the Commission after the closing date.
Sec. 201.192 Rulemaking: issuance, amendment and repeal of rules of
general application.
(a) By petition. Any person desiring the issuance, amendment or
repeal of a rule of general application may file a petition therefor
with the Secretary. Such petition shall include a statement setting
forth the text or the substance of any proposed rule or amendment
desired or specifying the rule the repeal of which is desired, and
stating the nature of his or her interest and his or her reasons for
seeking the issuance, amendment or repeal of the rule. The Secretary
shall acknowledge, in writing, receipt of the petition and refer it to
the appropriate division or office for consideration and
recommendation. Such recommendations shall be transmitted with the
petition to the Commission for such action as the Commission deems
appropriate. The Secretary shall notify the petitioner of the action
taken by the Commission.
(b) Notice of proposed issuance, amendment or repeal of rules.
Except where the Commission finds that notice and public procedure are
impracticable, unnecessary, or contrary to the public interest,
whenever the Commission proposes to issue, amend, or repeal any rule or
regulation of general application other than an interpretive rule;
general statement of policy; or rule of agency organization, procedure,
or practice; or any matter relating to agency management or personnel
or to public property, loans, grants, benefits, or contracts, there
shall first be published in the Federal Register a notice of the
proposed action. Such notice shall include:
(1) A statement of the time, place, and nature of the rulemaking
proceeding, with particular reference to the manner in which interested
persons shall be afforded the opportunity to participate in such
proceeding;
(2) Reference to the authority under which the rule is proposed;
and
(3) The terms or substance of the proposed rule or a description of
the subjects and issues involved.
Sec. 201.193 Applications by barred individuals for consent to
associate.
Preliminary note
This rule governs applications to the Commission by certain
persons, barred by Commission order from association with brokers,
dealers, municipal securities dealers, government securities
brokers, government securities dealers, investment advisers,
investment companies or transfer agents, for consent to become so
associated. Applications made pursuant to this section must show
that the proposed association would be consistent with the public
interest. In addition to the information specifically required by
the rule, applications should be supplemented, where appropriate, by
written statements of individuals (other than the applicant) who are
competent to attest to the applicant's character, employment
performance, and other relevant information. Intentional
misstatements or omissions of fact may constitute criminal
violations of 18 U.S.C. 1001 et seq. and other provisions of law.
The nature of the supervision that an applicant will receive or
exercise as an associated person with a registered entity is an
important matter bearing upon the public interest. In meeting the
burden of showing that the proposed association is consistent with
the public interest, the application and supporting documentation
must demonstrate that the proposed supervision, procedures, or terms
and conditions of employment are reasonably designed to prevent a
recurrence of the conduct that led to imposition of the bar. As an
associated person, the applicant will be limited to association in a
specified capacity with a particular registered entity and may also
be subject to specific terms and conditions.
Normally, the applicant's burden of demonstrating that the
proposed association is consistent with the public interest will be
difficult to meet where the applicant is to be supervised by, or is
to supervise, another barred individual. In addition, where an
applicant wishes to become the sole proprietor of a registered
entity and thus is seeking Commission consent notwithstanding an
absence of supervision, the applicant's burden will be difficult to
meet.
In addition to the factors set forth in paragraph (d) of this
section, the Commission will consider the nature of the findings
that resulted in the bar when making its determination as to whether
the proposed association is consistent with the public interest. In
this regard, attention is directed to Rule 5(e) of the Commission's
Rules on Informal and Other Procedures, 17 CFR 202.5(e). Among other
things, Rule 5(e) sets forth the Commission's policy ``not to permit
a * * * respondent [in an administrative proceeding] to consent to *
* * [an] order that imposes a sanction while denying the allegations
in the * * * order for proceedings.'' Consistent with the rationale
underlying that policy, and in order to avoid the appearance that an
application made pursuant to this section was granted on the basis
of such denial, the Commission will not consider any application
that attempts to reargue or collaterally attack the findings that
resulted in the Commission's bar order.
(a) Scope of rule. Applications for Commission consent to
associate, or to change the terms and conditions of association, with a
registered broker, dealer, municipal securities dealer, government
securities broker, government securities dealer, investment adviser,
investment company or transfer agent may be made pursuant to this
section where a Commission order bars the individual from association
with a registered entity and:
(1) Such barred individual seeks to become associated with an
entity that is not a member of a self-regulatory organization; or
(2) The order contains a proviso that application may be made to
the Commission after a specified period of time.
(b) Form of application. Each application shall be supported by an
affidavit, manually signed by the applicant, that addresses the factors
set forth in paragraph (d) of this section. One original and three
copies of the application shall be filed pursuant to Secs. 201.151,
201.152 and 201.153. Each application shall include as exhibits:
(1) A copy of the Commission order imposing the bar;
(2) An undertaking by the applicant to notify immediately the
Commission in writing if any information submitted in support of the
application becomes materially false or misleading while the
application is pending;
(3) The following forms, as appropriate:
(i) A copy of a completed Form U-4, where the applicant's proposed
association is with a broker-dealer or municipal securities dealer;
(ii) A copy of a completed Form MSD-4, where the applicant's
proposed association is with a bank municipal securities dealer;
(iii) The information required by Form ADV, 17 CFR 279.1, with
respect to the applicant, where the applicant's proposed association is
with an investment adviser;
(iv) The information required by Form TA-1, 17 CFR 249b.100, with
respect to the applicant, where the applicant's proposed association is
with a transfer agent; and
(4) A written statement by the proposed employer that describes:
(i) The terms and conditions of employment and supervision to be
[[Page 32804]] exercised over such applicant and, where applicable, by
such applicant;
(ii) The qualifications, experience, and disciplinary records of
the proposed supervisor(s) of the applicant;
(iii) The compliance and disciplinary history, during the two years
preceding the filing of the application, of the office in which the
applicant will be employed; and
(iv) The names of any other associated persons in the same office
who have previously been barred by the Commission, and whether they are
to be supervised by the applicant.
(c) Required showing. The applicant shall make a showing
satisfactory to the Commission that the proposed association would be
consistent with the public interest.
(d) Factors to be addressed. The affidavit required by paragraph
(b) of this section shall address each of the following:
(1) The time period since the imposition of the bar;
(2) Any restitution or similar action taken by the applicant to
recompense any person injured by the misconduct that resulted in the
bar;
(3) The applicant's compliance with the order imposing the bar;
(4) The applicant's employment during the period subsequent to
imposition of the bar;
(5) The capacity or position in which the applicant proposes to be
associated;
(6) The manner and extent of supervision to be exercised over such
applicant and, where applicable, by such applicant;
(7) Any relevant courses, seminars, examinations or other actions
completed by the applicant subsequent to imposition of the bar to
prepare for his or her return to the securities business; and
(8) Any other information material to the application.
(e) Notification to applicant and written statement. In the event
an adverse recommendation is proposed by the staff with respect to an
application made pursuant to this section, the applicant shall be so
advised and provided with a written statement of the reasons for such
recommendation. The applicant shall then have 30 days to submit a
written statement in response.
(f) Concurrent applications. The Commission will not consider any
application submitted pursuant to this section if any other application
for consent to associate concerning the same applicant is pending
before any self-regulatory organization.
Initiation of Proceedings and Prehearing Rules
Sec. 201.200 Initiation of proceedings.
(a) Order instituting proceedings: notice and opportunity for
hearing.(1) Generally. Whenever an order instituting proceedings is
issued by the Commission, appropriate notice thereof shall be given to
each party to the proceeding by the Secretary or another duly
designated officer of the Commission. Each party shall be given notice
of any hearing within a time reasonable in light of the circumstances,
in advance of the hearing; provided, however, no prior notice need be
given to a respondent if the Commission has authorized the Division of
Enforcement to seek a temporary sanction ex parte.
(2) Stop order proceedings: additional persons entitled to notice.
Any notice of a proceeding relating to the issuance of a stop order
suspending the effectiveness of a registration statement pursuant to
Section 8(d) of the Securities Act of 1933, 15 U.S.C. 77h(d), shall be
sent to or served on the issuer; or, in the case of a foreign
government or political subdivision thereof, sent to or served on the
underwriter; or, in the case of a foreign or territorial person, sent
to or served on its duly authorized representative in the United States
named in the registration statement, properly directed in the case of
telegraphic notice to the address given in such statement. In addition,
if such proceeding is commenced within 90 days after the registration
statement has become effective, notice of the proceeding shall be given
to the agent for service named on the facing sheet of the registration
statement and to each other person designated on the facing sheet of
the registration statement as a person to whom copies of communications
to such agent are to be sent.
(b) Content of order. The order instituting proceedings shall:
(1) State the nature of any hearing;
(2) State the legal authority and jurisdiction under which the
hearing is to be held;
(3) Contain a short and plain statement of the matters of fact and
law to be considered and determined, unless the order directs an answer
pursuant to Sec. 201.220 in which case the order shall set forth the
factual and legal basis alleged therefor in such detail as will permit
a specific response thereto; and
(4) State the nature of any relief or action sought or taken.
(c) Time and place of hearing. The time and place for any hearing
shall be fixed with due regard for the public interest and the
convenience and necessity of the parties, other participants, or their
representatives.
(d) Amendment to order instituting proceedings.(1) By the
Commission. Upon motion by a party, the Commission may, at any time,
amend an order instituting proceedings to include new matters of fact
or law.
(2) By the hearing officer. Upon motion by a party, the hearing
officer may, at any time prior to the filing of an initial decision or,
if no initial decision is to be filed, prior to the time fixed for the
filing of final briefs with the Commission, amend an order instituting
proceedings to include new matters of fact or law that are within the
scope of the original order instituting proceedings.
(e) Publication of notice of public hearings. Unless otherwise
ordered by the Commission, notice of any public hearing shall be given
general circulation by release to the public, by publication in the SEC
News Digest and, where directed, by publication in the Federal
Register.
Sec. 201.201 Consolidation of proceedings.
By order of the Commission or a hearing officer, proceedings
involving a common question of law or fact may be consolidated for
hearing of any or all the matters at issue in such proceedings. The
Commission or the hearing officer may make such orders concerning the
conduct of such proceedings as it deems appropriate to avoid
unnecessary cost or delay. Consolidation shall not prejudice any rights
under these Rules of Practice and shall not affect the right of any
party to raise issues that could have been raised if consolidation had
not occurred. For purposes of this section, no distinction is made
between joinder and consolidation of proceedings.
Sec. 201.202 Specification of procedures by parties in certain
proceedings.
(a) Motion to specify procedures. In any proceeding other than an
enforcement or disciplinary proceeding or a proceeding to review a
determination by a self-regulatory organization pursuant to
Secs. 201.420 and 201.421, a party may, at any time up to 20 days prior
to the start of a hearing, make a motion to specify the procedures
necessary or appropriate for the proceeding, with particular reference
to:
(1) Whether there should be an initial decision by a hearing
officer;
(2) Whether any interested division of the Commission may assist in
the preparation of the Commission's decision; and
(3) Whether there should be a 30-day waiting period between the
issuance of [[Page 32805]] the Commission's order and the date it is to
become effective.
(b) Objections; effect of failure to object. Any other party may
object to the procedures so specified, and such party may specify such
additional procedures as it considers necessary or appropriate. In the
absence of such objection or such specification of additional
procedures, such other party may be deemed to have waived objection to
the specified procedures.
(c) Approval required. Any proposal pursuant to paragraph (a) of
this section, even if not objected to by any party, shall be subject to
the written approval of the hearing officer.
(d) Procedure upon agreement to waive an initial decision. If an
initial decision is waived pursuant to paragraph (a) of this section,
the hearing officer shall notify the Secretary and, unless the
Commission directs otherwise within 14 days, no initial decision shall
be issued.
Sec. 201.210 Parties, limited participants and amici curiae.
(a) Parties in an enforcement or disciplinary proceeding or a
proceeding to review a self-regulatory organization determination. (1)
Generally. No person shall be granted leave to become a party or a non-
party participant on a limited basis in an enforcement or disciplinary
proceeding or a proceeding to review a determination by a self-
regulatory organization pursuant to Secs. 201.420 and 201.421.
(2) Disgorgement proceedings. In an enforcement proceeding, a
person may state his or her views with respect to a proposed plan of
disgorgement or file a proof of claim pursuant to Sec. 201.612.
(b) Intervention as a party. (1) Generally. In any proceeding,
other than an enforcement proceeding, a disciplinary proceeding or a
proceeding to review a self-regulatory organization determination, any
person may seek leave to intervene as a party by filing a motion
setting forth the person's interest in the proceeding. No person,
however, shall be admitted as a party to a proceeding by intervention
unless it is determined that leave to participate pursuant to paragraph
(c) of this section would be inadequate for the protection of his or
her interests.
(i) In a proceeding under the Public Utility Holding Company Act of
1935, any representative of interested consumers or security holders,
or any other person whose participation in the proceeding may be in the
public interest or for the protection of investors or consumers, may be
admitted as a party upon the filing of a written motion setting forth
the person's interest in the proceeding.
(ii) In a proceeding under the Investment Company Act of 1940, any
representative of interested security holders, or any other person
whose participation in the proceeding may be in the public interest or
for the protection of investors, may be admitted as a party upon the
filing of a written motion setting forth the person's interest in the
proceeding.
(2) Intervention as of right. (i) In proceedings under the Public
Utility Holding Company Act of 1935, any interested representative,
agency, authority or instrumentality of the United States or any
interested State, State commission, municipality or other political
subdivision of a state shall be admitted as a party to any proceeding
upon the filing of a written motion requesting leave to be admitted.
(ii) In proceedings under the Investment Company Act of 1940, any
interested State or State agency shall be admitted as a party to any
proceeding upon the filing of a written motion requesting leave to be
admitted.
(c) Leave to participate on a limited basis. In any proceeding,
other than an enforcement proceeding, a disciplinary proceeding or a
proceeding to review a self-regulatory organization determination, any
person may seek leave to participate on a limited basis as a non-party
participant as to any matter affecting the person's interests.
(1) Procedure. Motions for leave to participate shall be in
writing, shall set forth the nature and extent of the movant's interest
in the proceeding, and, except where good cause for late filing is
shown, shall be filed not later than 20 days prior to the date fixed
for the commencement of the hearing. Leave to participate pursuant to
this paragraph (c) may include such rights of a party as the hearing
officer may deem appropriate. Persons granted leave to participate
shall be served in accordance with Sec. 201.150; provided, however,
that a party to the proceeding may move that the extent of notice of
filings or other papers to be provided to persons granted leave to
participate be limited, or may move that the persons granted leave to
participate bear the cost of being provided copies of any or all
filings or other papers. Persons granted leave to participate shall be
bound, except as may be otherwise determined by the hearing officer, by
any stipulation between the parties to the proceeding with respect to
procedure, including submission of evidence, substitution of exhibits,
corrections of the record, the time within which briefs or exceptions
may be filed or proposed findings and conclusions may be submitted, the
filing of initial decisions, the procedure to be followed in the
preparation of decisions and the effective date of the Commission's
order in the case. Where the filing of briefs or exceptions or the
submission of proposed findings and conclusions are waived by the
parties to the proceedings, a person granted leave to participate
pursuant to this paragraph (c) shall not be permitted to file a brief
or exceptions or submit proposed findings and conclusions except by
leave of the Commission or of the hearing officer.
(2) Certain persons entitled to leave to participate. The hearing
officer is directed to grant leave to participate under this paragraph
(c) to any person to whom it is proposed to issue any security in
exchange for one or more bona fide outstanding securities, claims or
property interests, or partly in such exchange and partly for cash,
where the Commission is authorized to approve the terms and conditions
of such issuance and exchange after a hearing upon the fairness of such
terms and conditions.
(d) Amicus participation.
(1) Availability. An amicus brief may be filed only if:
(i) A motion for leave to file the brief has been granted;
(ii) The brief is accompanied by written consent of all parties;
(iii) The brief is filed at the request of the Commission or the
hearing officer; or
(iv) The brief is presented by the United States or an officer or
agency thereof, or by a State, Territory or Commonwealth.
(2) Procedure. An amicus brief may be filed conditionally with the
motion for leave. The motion for leave shall identify the interest of
the movant and shall state the reasons why a brief of an amicus curiae
is desirable. Except as all parties otherwise consent, any amicus
curiae shall file its brief within the time allowed the party whose
position the amicus will support, unless the Commission or hearing
officer, for cause shown, grants leave for a later filing. In the event
that a later filing is allowed, the order granting leave to file shall
specify when an opposing party may reply to the brief. A motion of an
amicus curiae to participate in oral argument will be granted only for
extraordinary reasons.
(e) Permission to state views. Any person may make a motion seeking
leave to file a memorandum or make an oral statement of his or her
views. Any such communication may be included in the record; provided,
however, that unless offered and admitted as evidence [[Page 32806]] of
the truth of the statements therein made, any assertions of fact
submitted pursuant to the provisions of this paragraph (e) will be
considered only to the extent that the statements therein made are
otherwise supported by the record.
(f) Modification of participation provisions. The Commission or the
hearing officer may, by order, modify the provisions of this section
which would otherwise be applicable, and may impose such terms and
conditions on the participation of any person in any proceeding as it
may deem necessary or appropriate in the public interest.
201.220 Answer to allegations.
(a) When required. In its order instituting proceedings, the
Commission may require any party to file an answer to each of the
allegations contained therein. Even if not so ordered, any party in any
proceeding may elect to file an answer. Any other person granted leave
by the Commission or the hearing officer to participate on a limited
basis in such proceedings pursuant to Sec. 201.210(c) may be required
to file an answer.
(b) When to file. Except where a different period is provided by
rule or by order, a party required to file an answer as provided in
paragraph (a) of this section shall do so within 20 days after service
upon the party of the order instituting proceedings. Persons granted
leave to participate on a limited basis in the proceeding pursuant to
Sec. 201.210(c) may file an answer within a reasonable time, as
determined by the Commission or the hearing officer. If the order
instituting proceedings is amended, the Commission or the hearing
officer may require that an amended answer be filed and, if such an
answer is required, shall specify a date for the filing thereof.
(c) Contents; effect of failure to deny. Unless otherwise directed
by the hearing officer or the Commission, an answer shall specifically
admit, deny, or state that the party does not have, and is unable to
obtain, sufficient information to admit or deny each allegation in the
order instituting proceedings. When a party intends in good faith to
deny only a part of an allegation, the party shall specify so much of
it as is true and shall deny only the remainder. A statement of a lack
of information shall have the effect of a denial. A defense of res
judicata, statute of limitations or any other matter constituting an
affirmative defense shall be asserted in the answer. Any allegation not
denied shall be deemed admitted.
(d) Motion for more definite statement. A party may file with an
answer a motion for a more definite statement of specified matters of
fact or law to be considered or determined. Such motion shall state the
respects in which, and the reasons why, each such matter of fact or law
should be required to be made more definite. If the motion is granted,
the order granting such motion shall set the periods for filing such a
statement and any answer thereto.
(e) Amendments. A party may amend its answer at any time by written
consent of each adverse party or with leave of the Commission or the
hearing officer. Leave shall be freely granted when justice so
requires.
(f) Failure to file answer: default. If a party respondent fails to
file an answer required by this section within the time provided, such
person may be deemed in default pursuant to Sec. 201.155(a). A party
may make a motion to set aside a default pursuant to Sec. 201.155(b).
201.221 Prehearing conferences.
(a) Purposes of conferences. The purposes of prehearing conferences
include, but are not limited to:
(1) Expediting the disposition of the proceeding;
(2) Establishing early and continuing control of the proceeding by
the hearing officer; and
(3) Improving the quality of the hearing through more thorough
preparation.
(b) Procedure. On his or her own motion or at the request of a
party, the hearing officer may, in his or her discretion, direct
counsel or any party to meet for an initial, final or other prehearing
conference. Such conferences may be held with or without the hearing
officer present as the hearing officer deems appropriate. Where such a
conference is held outside the presence of the hearing officer, the
hearing officer shall be advised promptly by the parties of any
agreements reached. Such conferences also may be held with one or more
persons participating by telephone or other remote means.
(c) Subjects to be discussed. At a prehearing conference
consideration may be given and action taken with respect to any and all
of the following:
(1) Simplification and clarification of the issues;
(2) Exchange of witness and exhibit lists and copies of exhibits;
(3) Stipulations, admissions of fact, and stipulations concerning
the contents, authenticity, or admissibility into evidence of
documents;
(4) Matters of which official notice may be taken;
(5) The schedule for exchanging prehearing motions or briefs, if
any;
(6) The method of service for papers other than Commission orders;
(7) Summary disposition of any or all issues;
(8) Settlement of any or all issues;
(9) Determination of hearing dates;
(10) Amendments to the order instituting proceedings or answers
thereto;
(11) Production of documents as set forth in Sec. 201.230, and
prehearing production of documents in response to subpoenas duces tecum
as set forth in Sec. 201.232;
(12) Specification of procedures as set forth in Sec. 201.202; and
(13) Such other matters as may aid in the orderly and expeditious
disposition of the proceeding.
(d) Required prehearing conferences. Except where the emergency
nature of a proceeding would make a prehearing conference clearly
inappropriate, both an initial and a final prehearing conference should
be held. Unless ordered otherwise, an initial prehearing conference
shall be held within 14 days of the service of an answer, or if no
answer is required, within 14 days of service of the order instituting
proceedings. A final conference shall be held as close to the start of
the hearing as reasonable under the circumstances.
(e) Prehearing orders. At or following the conclusion of any
conference held pursuant to this section, the hearing officer shall
enter a ruling or order which recites the agreements reached and any
procedural determinations made by the hearing officer.
(f) Failure to appear: default. Any person who is named in an order
instituting proceedings as a person against whom findings may be made
or sanctions imposed and who fails to appear, in person or through a
representative, at a prehearing conference of which he or she has been
duly notified may be deemed in default pursuant to Sec. 201.155(a). A
party may make a motion to set aside a default pursuant to
Sec. 201.155(b).
Sec. 201.222 Prehearing submissions.
(a) Submissions generally. The hearing officer, on his or her own
motion, or at the request of a party or other participant, may order
any party, including the interested division, to furnish such
information as deemed appropriate, including any or all of the
following:
(1) An outline or narrative summary of its case or defense;
(2) The legal theories upon which it will rely;
(3) Copies and a list of documents that it intends to introduce at
the hearing; and [[Page 32807]]
(4) A list of witnesses who will testify on its behalf, including
the witnesses' names, occupations, addresses and a brief summary of
their expected testimony.
(b) Expert witnesses. Each party who intends to call an expert
witness shall submit, in addition to the information required by
paragraph (a)(4) of this section, a statement of the expert's
qualifications, a listing of other proceedings in which the expert has
given expert testimony, and a list of publications authored or co-
authored by the expert.
Sec. 201.230 Enforcement and disciplinary proceedings: availability of
documents for inspection and copying.
For purposes of this section, the term documents shall include
writings, drawings, graphs, charts, photographs, recordings and other
data compilations, including data stored by computer, from which
information can be obtained.
(a) Documents to be available for inspection and copying. (1)
Unless otherwise provided by this section, or by order of the
Commission or the hearing officer, the Division of Enforcement shall
make available for inspection and copying by any party documents
obtained by the Division prior to the institution of proceedings, in
connection with the investigation leading to the Division's
recommendation to institute proceedings. Such documents shall include:
(i) Each subpoena issued;
(ii) Every other written request to persons not employed by the
Commission to provide documents or to be interviewed;
(iii) The documents turned over in response to any such subpoenas
or other written requests;
(iv) All transcripts and transcript exhibits;
(v) Any other documents obtained from persons not employed by the
Commission; and
(vi) Any final examination or inspection reports prepared by the
Division of Market Regulation or the Division of Investment Management.
(2) Nothing in this paragraph (a) shall limit the right of the
Division to make available any other document, or shall limit the right
of a respondent to seek access to or production pursuant to subpoena of
any other document, or shall limit the authority of the hearing officer
to order the production of any document pursuant to subpoena.
(b) Documents that may be withheld. (1) The Division of Enforcement
may withhold a document if:
(i) The document is privileged;
(ii) The document is an internal memorandum, note or writing
prepared by a Commission employee, other than an examination or
inspection report as specified in paragraph (a)(1)(vi) of this section,
or is otherwise attorney work product and will not be offered in
evidence;
(iii) The document would disclose the identity of a confidential
source; or
(iv) The hearing officer grants leave to withhold a document or
category of documents as not relevant to the subject matter of the
proceeding or otherwise, for good cause shown.
(2) Nothing in this paragraph (b) authorizes the Division of
Enforcement in connection with an enforcement or disciplinary
proceeding to withhold, contrary to the doctrine of Brady v. Maryland,
373 U.S. 83, 87 (1963), documents that contain material exculpatory
evidence.
(c) Withheld document list. The hearing officer may require the
Division of Enforcement to submit for review a list of documents
withheld pursuant to paragraphs (b)(1) through (b)(4) of this section
or to submit any document withheld, and may determine whether any such
document should be made available for inspection and copying.
(d) Timing of inspection and copying. Unless otherwise ordered by
the Commission or the hearing officer, the Division of Enforcement
shall commence making documents available to a respondent for
inspection and copying pursuant to this section no later than 14 days
after the respondent files an answer. In a proceeding in which a
temporary cease-and-desist order is sought pursuant to Sec. 201.510 or
a temporary suspension of registration is sought pursuant to
Sec. 201.520, documents shall be made available no later than the day
after service of the decision as to whether to issue a temporary cease-
and-desist order or temporary suspension order.
(e) Place of inspection and copying. Documents subject to
inspection and copying pursuant to this section shall be made available
to the respondent for inspection and copying at the Commission office
where they are ordinarily maintained, or at such other place as the
parties, in writing, may agree. A respondent shall not be given custody
of the documents or leave to remove the documents from the Commission's
offices pursuant to the requirements of this section other than by
written agreement of the Division of Enforcement. Such agreement shall
specify the documents subject to the agreement, the date they shall be
returned and such other terms or conditions as are appropriate to
provide for the safekeeping of the documents.
(f) Copying costs and procedures. The respondent may obtain a
photocopy of any documents made available for inspection. The
respondent shall be responsible for the cost of photocopying. Unless
otherwise ordered, charges for copies made by the Division of
Enforcement at the request of the respondent will be at the rate
charged pursuant to the fee schedule at 17 CFR 200.80e for copies. The
respondent shall be given access to the documents at the Commission's
offices or such other place as the parties may agree during normal
business hours for copying of documents at the respondent's expense.
(g) Issuance of investigatory subpoenas after institution of
proceedings. The Division of Enforcement shall promptly inform the
hearing officer and each party if investigatory subpoenas are issued
under the same investigation file number or pursuant to the same order
directing private investigation (``formal order'') under which the
investigation leading to the institution of proceedings was conducted.
The hearing officer shall order such steps as necessary and appropriate
to assure that the issuance of investigatory subpoenas after the
institution of proceedings is not for the purpose of obtaining evidence
relevant to the proceedings and that any relevant documents that may be
obtained through the use of investigatory subpoenas in a continuing
investigation are made available to each respondent for inspection and
copying on a timely basis.
(h) Failure to make documents available--harmless error. In the
event that a document required to be made available to a respondent
pursuant to this section is not made available by the Division of
Enforcement, no rehearing or redecision of a proceeding already heard
or decided shall be required, unless the respondent shall establish
that the failure to make the document available was not harmless error.
Sec. 201.231 Enforcement and disciplinary proceedings: production of
witness statements.
(a) Availability. Any respondent in an enforcement or disciplinary
proceeding may move that the Division of Enforcement produce for
inspection and copying any statement of any person called or to be
called as a witness by the division that pertains, or is expected to
pertain, to his or her direct testimony and that would be required to
be produced pursuant to the Jencks Act, 18 U.S.C. 3500. Such production
shall be [[Page 32808]] made at a time and place fixed by the hearing
officer and shall be made available to any party, provided, however,
that the production shall be made under conditions intended to preserve
the items to be inspected or copied.
(b) Failure to produce--harmless error. In the event that a
statement required to be made available for inspection and copying by a
respondent is not turned over by the Division of Enforcement, no
rehearing or redecision of a proceeding already heard or decided shall
be required unless the respondent establishes that the failure to turn
over the statement was not harmless error.
Sec. 201.232 Subpoenas.
(a) Availability; procedure. In connection with any hearing ordered
by the Commission, a party may request the issuance of subpoenas
requiring the attendance and testimony of witnesses at the designated
time and place of hearing, and subpoenas requiring the production of
documentary or other tangible evidence returnable at any designated
time or place. Unless made on the record at a hearing, requests for
issuance of a subpoena shall be made in writing and served on each
party pursuant to Sec. 201.150. A person whose request for a subpoena
has been denied or modified may not request that any other person issue
the subpoena.
(1) Unavailability of hearing officer. In the event that the
hearing officer assigned to a proceeding is unavailable, the party
seeking issuance of the subpoena may seek its issuance from the first
available of the following persons: the Chief Administrative Law Judge,
the law judge most senior in service as a law judge, the duty officer,
any other member of the Commission, or any other person designated by
the Commission to issue subpoenas. Requests for issuance of a subpoena
made to the Commission, or any member thereof, must be submitted to the
Secretary, not to an individual Commissioner.
(2) Signing may be delegated. A hearing officer may authorize
issuance of a subpoena, and may delegate the manual signing of the
subpoena to any other person authorized to issue subpoenas.
(b) Standards for issuance. Where it appears to the person asked to
issue the subpoena that the subpoena sought may be unreasonable,
oppressive, excessive in scope, or unduly burdensome, he or she may, in
his or her discretion, as a condition precedent to the issuance of the
subpoena, require the person seeking the subpoena to show the general
relevance and reasonable scope of the testimony or other evidence
sought. If after consideration of all the circumstances, the person
requested to issue the subpoena determines that the subpoena or any of
its terms is unreasonable, oppressive, excessive in scope, or unduly
burdensome, he or she may refuse to issue the subpoena, or issue it
only upon such conditions as fairness requires. In making the foregoing
determination, the person issuing the subpoena may inquire of the other
participants whether they will stipulate to the facts sought to be
proved.
(c) Service. Service shall be made pursuant to the provisions of
Sec. 201.150 (b) through (d). The provisions of this paragraph (c)
shall apply to the issuance of subpoenas for purposes of
investigations, as required by 17 CFR 203.8, as well as hearings.
(d) Tender of fees required. When a subpoena compelling the
attendance of a person at a hearing or deposition is issued at the
instance of anyone other than an officer or agency of the United
States, service is valid only if the subpoena is accompanied by a
tender to the subpoenaed person of the fees for one day's attendance
and mileage specified by paragraph (f) of this section.
(e) Application to quash or modify. (1) Procedure. Any person to
whom a subpoena is directed or who is an owner, creator or the subject
of the documents that are to be produced pursuant to a subpoena may,
prior to the time specified therein for compliance, but in no event
more than 15 days after the date of service of such subpoena, request
that the subpoena be quashed or modified. Such request shall be made by
application filed with the Secretary and served on all parties pursuant
to Sec. 201.150. The party on whose behalf the subpoena was issued may,
within five days of service of the application, file an opposition to
the application. If a hearing officer has been assigned to the
proceeding, the application to quash shall be directed to that hearing
officer for consideration, even if the subpoena was issued by another
person.
(2) Standards governing application to quash or modify. If
compliance with the subpoena would be unreasonable, oppressive or
unduly burdensome, the hearing officer or the Commission shall quash or
modify the subpoena, or may order return of the subpoena only upon
specified conditions. These conditions may include but are not limited
to a requirement that the party on whose behalf the subpoena was issued
shall make reasonable compensation to the person to whom the subpoena
was addressed for the cost of copying or transporting evidence to the
place for return of the subpoena.
(f) Witness fees and mileage. Witnesses summoned before the
Commission shall be paid the same fees and mileage that are paid to
witnesses in the courts of the United States, and witnesses whose
depositions are taken and the persons taking the same shall severally
be entitled to the same fees as are paid for like services in the
courts of the United States. Witness fees and mileage shall be paid by
the party at whose instance the witnesses appear.
Sec. 201.233 Depositions upon oral examination.
(a) Procedure. Any party desiring to take the testimony of a
witness by deposition shall make a written motion setting forth the
reasons why such deposition should be taken including the specific
reasons why the party believes the witness will be unable to attend or
testify at the hearing; the name and address of the prospective
witness; the matters concerning which the prospective witness is
expected to be questioned; and the proposed time and place for the
taking of the deposition.
(b) Required finding when ordering a deposition. In the discretion
of the Commission or the hearing officer, an order for deposition may
be issued upon a finding that the prospective witness will likely give
testimony material to the proceeding, that it is likely the prospective
witness will be unable to attend or testify at the hearing because of
age, sickness, infirmity, imprisonment or other disability, and that
the taking of a deposition will serve the interests of justice.
(c) Contents of order. An order for deposition shall designate by
name a deposition officer. The designated officer may be the hearing
officer or any other person authorized to administer oaths by the laws
of the United States or of the place where the deposition is to be
held. An order for deposition also shall state:
(1) The name of the witness whose deposition is to be taken;
(2) The scope of the testimony to be taken;
(3) The time and place of the deposition;
(4) The manner of recording, preserving and filing the deposition;
and
(5) The number of copies, if any, of the deposition and exhibits to
be filed upon completion of the deposition.
(d) Procedure at depositions. A witness whose testimony is taken by
deposition shall be sworn or shall affirm before any questions are put
to him or [[Page 32809]] her. Examination and cross-examination of
deponents may proceed as permitted at a hearing. The witness being
deposed may have counsel present during the deposition.
(e) Objections to questions or evidence. Objections to questions or
evidence shall be in short form, stating the grounds of objection
relied upon. Objections to questions or evidence shall be noted by the
deposition officer upon the deposition, but a deposition officer other
than the hearing officer shall not have the power to decide on the
competency, materiality or relevance of evidence. Failure to object to
questions or evidence before the deposition officer shall not be deemed
a waiver unless the ground of the objection is one that might have been
obviated or removed if presented at that time.
(f) Filing of depositions. The questions propounded and all answers
or objections shall be recorded or transcribed verbatim, and a
transcript prepared by the deposition officer, or under his or her
direction. The transcript shall be subscribed by the witness and
certified by the deposition officer. The original deposition and
exhibits shall be filed with the Secretary. A copy of the deposition
shall be available to the deponent and each party for purchase at
prescribed rates.
(g) Payment. The cost of the transcript shall be paid by the party
requesting the deposition.
Sec. 201.234 Depositions upon written questions.
(a) Availability. Depositions may be taken and submitted on written
questions upon motion of any party. The motion shall include the
information specified in Sec. 201.233(a). A decision on the motion
shall be governed by the provisions of Sec. 201.233(b).
(b) Procedure. Written questions shall be filed with the motion.
Within 10 days after service of the motion and written questions, any
party may file objections to such written questions and any party may
file cross-questions. When a deposition is taken pursuant to this
section no persons other than the witness, counsel to the witness, the
deposition officer, and, if the deposition officer does not act as
reporter, a reporter, shall be present at the examination of the
witness. No party shall be present or represented unless otherwise
permitted by order. The deposition officer shall propound the questions
and cross-questions to the witness in the order submitted.
(c) Additional requirements. The order for deposition, filing of
the deposition, form of the deposition and use of the deposition in the
record shall be governed by paragraphs (c) through (g) of Sec. 201.233,
except that no cross-examination shall be made.
Sec. 201.235 Introducing prior sworn statements of witnesses into the
record.
(a) At a hearing, any person wishing to introduce a prior, sworn
statement of a witness, not a party, otherwise admissible in the
proceeding, may make a motion setting forth the reasons therefor. If
only part of a statement is offered in evidence, the hearing officer
may require that all relevant portions of the statement be introduced.
If all of a statement is offered in evidence, the hearing officer may
require that portions not relevant to the proceeding be excluded. A
motion to introduce a prior sworn statement may be granted if:
(1) The witness is dead;
(2) The witness is out of the United States, unless it appears that
the absence of the witness was procured by the party offering the prior
sworn statement;
(3) The witness is unable to attend or testify because of age,
sickness, infirmity, imprisonment or other disability;
(4) The party offering the prior sworn statement has been unable to
procure the attendance of the witness by subpoena; or,
(5) In the discretion of the Commission or the hearing officer, it
would be desirable, in the interests of justice, to allow the prior
sworn statement to be used. In making this determination, due regard
shall be given to the presumption that witnesses will testify orally in
an open hearing. If the parties have stipulated to accept a prior sworn
statement in lieu of live testimony, consideration shall also be given
to the convenience of the parties in avoiding unnecessary expense.
Sec. 201.240 Settlement.
(a) Availability. Any person who is notified that a proceeding may
or will be instituted against him or her, or any party to a proceeding
already instituted, may, at any time, propose in writing an offer of
settlement.
(b) Procedure. An offer of settlement shall state that it is made
pursuant to this section; shall recite or incorporate as a part of the
offer the provisions of paragraphs (c) (4) and (5) of this section;
shall be signed by the person making the offer, not by counsel; and
shall be submitted to the interested division.
(c) Consideration of offers of settlement. (1) Offers of settlement
shall be considered by the interested division when time, the nature of
the proceedings, and the public interest permit.
(2) Where a hearing officer is assigned to a proceeding, the
interested division and the party submitting the offer may request that
the hearing officer express his or her views regarding the
appropriateness of the offer of settlement. A request for the hearing
officer to express his or her views on an offer of settlement or
otherwise to participate in a settlement conference constitutes a
waiver by the persons making the request of any right to claim bias or
prejudgment by the hearing officer based on the views expressed.
(3) The interested division shall present the offer of settlement
to the Commission with its recommendation, except that, if the
division's recommendation is unfavorable, the offer shall not be
presented to the Commission unless the person making the offer so
requests.
(4) By submitting an offer of settlement, the person making the
offer waives, subject to acceptance of the offer:
(i) All hearings pursuant to the statutory provisions under which
the proceeding is to be or has been instituted;
(ii) The filing of proposed findings of fact and conclusions of
law;
(iii) Proceedings before, and an initial decision by, a hearing
officer;
(iv) All post-hearing procedures; and
(v) Judicial review by any court.
(5) By submitting an offer of settlement the person further waives:
(i) Such provisions of the Rules of Practice or other requirements
of law as may be construed to prevent any member of the Commission's
staff from participating in the preparation of, or advising the
Commission as to, any order, opinion, finding of fact, or conclusion of
law to be entered pursuant to the offer; and
(ii) Any right to claim bias or prejudgment by the Commission based
on the consideration of or discussions concerning settlement of all or
any part of the proceeding.
(6) If the Commission rejects the offer of settlement, the person
making the offer shall be notified of the Commission's action and the
offer of settlement shall be deemed withdrawn. The rejected offer shall
not constitute a part of the record in any proceeding against the
person making the offer, provided, however, that rejection of an offer
of settlement does not affect the continued validity of waivers
pursuant to paragraph (c)(5) of this section with respect to any
discussions concerning the rejected offer of settlement.
(7) Final acceptance of any offer of settlement will occur only
upon the [[Page 32810]] issuance of findings and an order by the
Commission.
Sec. 201.250 Motion for summary disposition.
(a) After a respondent's answer has been filed and, in an
enforcement or a disciplinary proceeding, documents have been made
available to that respondent for inspection and copying pursuant to
Sec. 201.230, the respondent, or the interested division may make a
motion for summary disposition of any or all allegations of the order
instituting proceedings with respect to that respondent. If the
interested division has not completed presentation of its case in
chief, a motion for summary disposition shall be made only with leave
of the hearing officer. The facts of the pleadings of the party against
whom the motion is made shall be taken as true, except as modified by
stipulations or admissions made by that party, by uncontested
affidavits, or by facts officially noted pursuant to Sec. 201.323.
(b) The hearing officer shall promptly grant or deny the motion for
summary disposition or shall defer decision on the motion. The hearing
officer may grant the motion for summary disposition if there is no
genuine issue with regard to any material fact and the party making the
motion is entitled to a summary disposition as a matter of law. If it
appears that a party, for good cause shown, cannot present by affidavit
prior to hearing facts essential to justify opposition to the motion,
the hearing officer shall deny or defer the motion. A hearing officer's
decision to deny leave to file a motion for summary disposition is not
subject to interlocutory appeal.
(c) The motion for summary disposition, supporting memorandum of
points and authorities, and any declarations, affidavits or attachments
shall not exceed 35 pages in length.
Rules Regarding Hearings
Sec. 201.300 Hearings.
Hearings for the purpose of taking evidence shall be held only upon
order of the Commission. All hearings shall be conducted in a fair,
impartial, expeditious and orderly manner.
Sec. 201.301 Hearings to be public.
All hearings, except hearings on applications for confidential
treatment filed pursuant to Sec. 201.190, hearings held to consider a
motion for a protective order pursuant to Sec. 201.322, and hearings on
ex parte application for a temporary cease-and-desist order, shall be
public unless otherwise ordered by the Commission on its own motion or
the motion of a party. No hearing shall be nonpublic where all
respondents request that the hearing be made public.
Sec. 201.302 Record of hearings.
(a) Recordation. Unless ordered otherwise by the hearing officer or
the Commission, all hearings shall be recorded and a written transcript
thereof shall be prepared.
(b) Availability of a transcript. Transcripts of public hearings
shall be available for purchase at prescribed rates. Transcripts of
nonpublic proceedings, and transcripts subject to a protective order
pursuant to Sec. 201.322, shall be available for purchase only by
parties; provided, however, that any person compelled to submit data or
evidence in a hearing may purchase a copy of his or her own testimony.
(c) Transcript correction. Prior to the filing of post-hearing
briefs or proposed findings and conclusions, or within such earlier
time as directed by the Commission or the hearing officer, a party or
witness may make a motion to correct the transcript. Proposed
corrections of the transcript may be submitted to the hearing officer
by stipulation pursuant to Sec. 201.324, or by motion. Upon notice to
all parties to the proceeding, the hearing officer may, by order,
specify corrections to the transcript.
Sec. 201.310 Failure to appear at hearings: default.
Any person named in an order instituting proceedings as a person
against whom findings may be made or sanctions imposed who fails to
appear at a hearing of which he or she has been duly notified may be
deemed to be in default pursuant to Sec. 201.155(a). A party may make a
motion to set aside a default pursuant to Sec. 201.155(b).
Sec. 201.320 Evidence: admissibility.
The Commission or the hearing officer may receive relevant evidence
and shall exclude all evidence that is irrelevant, immaterial or unduly
repetitious.
Sec. 201.321 Evidence: objections and offers of proof.
(a) Objections. Objections to the admission or exclusion of
evidence must be made on the record and shall be in short form, stating
the grounds relied upon. Exceptions to any ruling thereon by the
hearing officer need not be noted at the time of the ruling. Such
exceptions will be deemed waived on appeal to the Commission, however,
unless raised:
(1) Pursuant to interlocutory review in accordance with
Sec. 201.400;
(2) In a proposed finding or conclusion filed pursuant to
Sec. 201.340; or
(3) In a petition for Commission review of an initial decision
filed in accordance with Sec. 201.410.
(b) Offers of proof. Whenever evidence is excluded from the record,
the party offering such evidence may make an offer of proof, which
shall be included in the record. Excluded material shall be retained
pursuant to Sec. 201.350(b).
Sec. 201.322 Evidence: confidential information, protective orders.
(a) Procedure. In any proceeding as defined in Sec. 201.101(a), a
party, any person who is the owner, subject or creator of a document
subject to subpoena or which may be introduced as evidence, or any
witness who testifies at a hearing may file a motion requesting a
protective order to limit from disclosure to other parties or to the
public documents or testimony that contain confidential information.
The motion should include a general summary or extract of the documents
without revealing confidential details. If the movant seeks a
protective order against disclosure to other parties as well as the
public, copies of the documents shall not be served on other parties.
Unless the documents are unavailable, the movant shall file for in
camera inspection a sealed copy of the documents as to which the order
is sought.
(b) Basis for issuance. Documents and testimony introduced in a
public hearing are presumed to be public. A motion for a protective
order shall be granted only upon a finding that the harm resulting from
disclosure would outweigh the benefits of disclosure.
(c) Requests for additional information supporting confidentiality.
A movant under paragraph (a) of this section may be required to furnish
in writing additional information with respect to the grounds for
confidentiality. Failure to supply the information so requested within
five days from the date of receipt by the movant of a notice of the
information required shall be deemed a waiver of the objection to
public disclosure of that portion of the documents to which the
additional information relates, unless the Commission or the hearing
officer shall otherwise order for good cause shown at or before the
expiration of such five-day period.
(d) Confidentiality of documents pending decision. Pending a
determination of a motion under this section, the documents as to which
confidential treatment is sought and any other documents that would
reveal the confidential information in those documents shall be
maintained under [[Page 32811]] seal and shall be disclosed only in
accordance with orders of the Commission or the hearing officer. Any
order issued in connection with a motion under this section shall be
public unless the order would disclose information as to which a
protective order has been granted, in which case that portion of the
order that would reveal the protected information shall be nonpublic.
Sec. 201.323 Evidence: official notice.
Official notice may be taken of any material fact which might be
judicially noticed by a district court of the United States, any matter
in the public official records of the Commission, or any matter which
is peculiarly within the knowledge of the Commission as an expert body.
If official notice is requested or taken of a material fact not
appearing in the evidence in the record, the parties, upon timely
request, shall be afforded an opportunity to establish the contrary.
Sec. 201.324 Evidence: stipulations.
The parties may, by stipulation, at any stage of the proceeding
agree upon any pertinent facts in the proceeding. A stipulation may be
received in evidence and, when received, shall be binding on the
parties to the stipulation.
Sec. 201.325 Evidence: presentation under oath or affirmation.
A witness at a hearing for the purpose of taking evidence shall
testify under oath or affirmation.
Sec. 201.326 Evidence: presentation, rebuttal and cross-examination.
In any proceeding in which a hearing is required to be conducted on
the record after opportunity for hearing in accord with 5 U.S.C.
556(a), a party is entitled to present its case or defense by oral or
documentary evidence, to submit rebuttal evidence, and to conduct such
cross-examination as, in the discretion of the Commission or the
hearing officer, may be required for a full and true disclosure of the
facts. The scope and form of evidence, rebuttal evidence, if any, and
cross-examination, if any, in any other proceeding shall be determined
by the Commission or the hearing officer in each proceeding.
Sec. 201.340 Proposed findings, conclusions and supporting briefs.
(a) Opportunity to file. Before an initial decision is issued, each
party shall have an opportunity, reasonable in light of all the
circumstances, to file in writing proposed findings and conclusions
together with, or as a part of, its brief.
(b) Procedure. Proposed findings of fact must be supported by
citations to specific portions of the record. If successive filings are
directed, the proposed findings and conclusions of the party assigned
to file first shall be set forth in serially numbered paragraphs, and
any counter statement of proposed findings and conclusions must, in
addition to any other matter, indicate those paragraphs of the
proposals already filed as to which there is no dispute. A reply brief
may be filed by the party assigned to file first, or, where
simultaneous filings are directed, reply briefs may be filed by each
party, within the period prescribed therefor by the hearing officer. No
further briefs may be filed except with leave of the hearing officer.
(c) Time for filing. In any proceeding in which an initial decision
is to be issued:
(1) At the end of each hearing, the hearing officer shall, by
order, after consultation with the parties, prescribe the period within
which proposed findings and conclusions and supporting briefs are to be
filed. The party or parties directed to file first shall make its or
their initial filing within 30 days of the end of the hearing unless
the hearing officer, for good cause shown, permits a different period
and sets forth in the order the reasons why the different period is
necessary.
(2) The total period within which all such proposed findings and
conclusions and supporting briefs and any counter statements of
proposed findings and conclusions and reply briefs are to be filed
shall be no longer than 90 days after the close of the hearing unless
the hearing officer, for good cause shown, permits a different period
and sets forth in an order the reasons why the different period is
necessary.
Sec. 201.350 Record in proceedings before hearing officer; retention
of documents; copies.
(a) Contents of the record. The record shall consist of:
(1) The order instituting proceedings, each notice of hearing and
any amendments;
(2) Each application, motion, submission or other paper, and any
amendments, motions, objections, and exceptions to or regarding them;
(3) Each stipulation, transcript of testimony and document or other
item admitted into evidence;
(4) Each written communication accepted by the hearing officer
pursuant to Sec. 201.210;
(5) With respect to a request to disqualify a hearing officer or to
allow the hearing officer's withdrawal under Sec. 201.112, each
affidavit or transcript of testimony taken and the decision made in
connection with the request;
(6) All motions, briefs and other papers filed on interlocutory
appeal;
(7) All proposed findings and conclusions;
(8) Each written order issued by the hearing officer or Commission;
and
(9) Any other document or item accepted into the record by the
hearing officer.
(b) Retention of documents not admitted. Any document offered in
evidence but excluded, and any document marked for identification but
not offered as an exhibit, shall not be considered a part of the
record. The Secretary shall retain any such documents until the later
of the date upon which a Commission order ending the proceeding becomes
final, or the conclusion of any judicial review of the Commission's
order.
(c) Substitution of copies. A true copy of a document may be
substituted for any document in the record or any document retained
pursuant to paragraph (b) of this section.
Sec. 201.351 Transmittal of documents to Secretary; record index;
certification.
(a) Transmittal from hearing officer to Secretary of partial record
index. The hearing officer may, at any time, transmit to the Secretary
motions, exhibits or any other original documents filed with or
accepted into evidence by the hearing officer, together with an index
of such documents. The hearing officer, may, by order, require the
interested division or other persons to assist in promptly transporting
such documents from the hearing location to the Office of the
Secretary.
(b) Preparation, certification of record index. Promptly after the
close of the hearing, the hearing officer shall transmit to the
Secretary an index of the originals of any motions, exhibits or any
other documents filed with or accepted into evidence by the hearing
officer that have not been previously transmitted to the Secretary, and
the Secretary shall prepare a record index. Prior to issuance of an
initial decision, or if no initial decision is to be prepared, within
30 days of the close of the hearing, the Secretary shall transmit the
record index to the hearing officer and serve a copy of the record
index on each party. Any person may file proposed corrections to the
record index with the hearing officer within 15 days of service of the
record index. The hearing officer shall, by order, direct whether any
corrections to the record index shall be made. The Secretary shall make
such corrections, if any, and issue a revised [[Page 32812]] record
index. If an initial decision is to be issued, the initial decision
shall include a certification that the record consists of the items set
forth in the record index or revised record index issued by the
Secretary.
(c) Final transmittal of record items to the Secretary. After the
close of the hearing, the hearing officer shall transmit to the
Secretary originals of any motions, exhibits or any other documents
filed with, or accepted into evidence by, the hearing officer, or any
other portions of the record that have not already been transmitted to
the Secretary. Prior to service of the initial decision by the
Secretary, or if no initial decision is to be issued, within 60 days of
the close of the hearing, the Secretary shall inform the hearing
officer if any portions of the record are not in the Secretary's
custody.
Sec. 201.360 Initial decision of hearing officer.
(a) When required. Unless the Commission directs otherwise, the
hearing officer shall prepare an initial decision in any proceeding in
which the Commission directs a hearing officer to preside at a hearing,
provided, however, that an initial decision may be waived by the
parties with the consent of the hearing officer pursuant to
Sec. 201.202.
(b) Content. An initial decision shall include: findings and
conclusions, and the reasons or basis therefor, as to all the material
issues of fact, law or discretion presented on the record and the
appropriate order, sanction, relief, or denial thereof. The initial
decision shall also state the time period, not to exceed 21 days after
service of the decision, except for good cause shown, within which a
petition for review of the initial decision may be filed. The reasons
for any extension of time shall be stated in the initial decision. The
initial decision shall also include a statement that, as provided in
paragraph (d) of this section:
(1) The initial decision shall become the final decision of the
Commission as to each party unless a party files a petition for review
of the initial decision or the Commission determines on its own
initiative to review the initial decision as to a party; and
(2) If a party timely files a petition for review or the Commission
takes action to review as to a party, the initial decision shall not
become final with respect to that party.
(c) Filing, service and publication. The hearing officer shall file
the initial decision with the Secretary. The Secretary shall promptly
serve the initial decision upon the parties and shall promptly publish
notice of the filing thereof in the SEC News Digest. Thereafter, the
Secretary shall publish the initial decision in the SEC Docket;
provided, however, that in nonpublic proceedings no notice shall be
published unless the Commission otherwise directs.
(d) When final.
(1) Unless a party or an aggrieved person entitled to review files
a petition for review in accordance with the time limit specified in
the initial decision, or unless the Commission on its own initiative
orders review pursuant to Sec. 201.411, an initial decision shall
become the final decision of the Commission.
(2) If a petition for review is timely filed by a party or an
aggrieved person entitled to review, or if the Commission upon its own
initiative has ordered review of a decision with respect to a party or
a person aggrieved who would be entitled to review, the initial
decision shall not become final as to that party or person.
(e) Order of finality. In the event that the initial decision
becomes the final decision of the Commission with respect to a party,
the Commission shall issue an order that the decision has become final
as to that party. The order of finality shall state the date on which
sanctions, if any, take effect. Notice of the order shall be published
in the SEC News Digest and the SEC Docket.
Appeal to the Commission and Commission Review
Sec. 201.400 Interlocutory review.
(a) Availability. The Commission will not review a hearing
officer's ruling prior to its consideration of the entire proceeding in
the absence of extraordinary circumstances. The Commission may decline
to consider a ruling certified by a hearing officer pursuant to
paragraph (c) of this section if it determines that interlocutory
review is not warranted or appropriate under the circumstances. The
Commission may, at any time, on its own motion, direct that any matter
be submitted to it for review.
(b) Expedited consideration. Interlocutory review of a hearing
officer's ruling shall be expedited in every way, consistent with the
Commission's other responsibilities.
(c) Certification process. A ruling submitted to the Commission for
interlocutory review must be certified in writing by the hearing
officer and shall specify the material relevant to the ruling involved.
The hearing officer shall not certify a ruling unless:
(1) His or her ruling would compel testimony of Commission members,
officers or employees or the production of documentary evidence in
their custody; or
(2) Upon application by a party, within five days of the hearing
officer's ruling, the hearing officer is of the opinion that:
(i) The ruling involves a controlling question of law as to which
there is substantial ground for difference of opinion; and
(ii) An immediate review of the order may materially advance the
completion of the proceeding.
(d) Proceedings not stayed. The filing of an application for review
or the grant of review shall not stay proceedings before the hearing
officer unless he or she, or the Commission, shall so order. The
Commission will not consider the motion for a stay unless the motion
shall have first been made to the hearing officer.
Sec. 201.401 Issuance of stays.
(a) Procedure. A request for a stay shall be made by written
motion, filed pursuant to Sec. 201.154, and served on all parties
pursuant to Sec. 201.150. The motion shall state the reasons for the
relief requested and the facts relied upon, and, if the facts are
subject to dispute, the motion shall be supported by affidavits or
other sworn statements or copies thereof. Portions of the record
relevant to the relief sought, if available to the movant, shall be
filed with the motion. The Commission may issue a stay based on such
motion or on its own motion.
(b) Scope of relief. The Commission may grant a stay in whole or in
part, and may condition relief under this section upon such terms, or
upon the implementation of such procedures, as it deems appropriate.
(c) Stay of a Commission order. A motion for a stay of a Commission
order may be made by any person aggrieved thereby who would be entitled
to review in a federal court of appeals. A motion seeking to stay the
effectiveness of a Commission order pending judicial review may be made
to the Commission at any time during which the Commission retains
jurisdiction over the proceeding.
(d) Stay of an action by a self-regulatory organization.
(1) Availability. A motion for a stay of an action by a self-
regulatory organization for which the Commission is the appropriate
regulatory agency, for which action review may be sought pursuant to
Sec. 201.420, may be made by any person aggrieved thereby.
(2) Summary entry. A stay may be entered summarily, without notice
and opportunity for hearing. [[Page 32813]]
(3) Expedited consideration. Where the action complained of has
already taken effect and the motion for stay is filed within 10 days of
the effectiveness of the action, or where the action complained of,
will, by its terms, take effect within five days of the filing of the
motion for stay, the consideration of and decision on the motion for a
stay shall be expedited in every way, consistent with the Commission's
other responsibilities. Where consideration will be expedited, persons
opposing the motion for a stay may file a statement in opposition
within two days of service of the motion unless the Commission, by
written order, shall specify a different period.
Sec. 201.410 Appeal of initial decisions by hearing officers.
(a) Petition for review; when available. In any proceeding in which
an initial decision is made by a hearing officer, any party, and any
other person who would have been entitled to judicial review of the
decision entered therein if the Commission itself had made the
decision, may file a petition for review of the decision with the
Commission.
(b) Procedure. The petition for review of an initial decision shall
be filed with the Commission within such time after service of the
initial decision as prescribed by the hearing officer pursuant to
Sec. 201.360(b). The petition shall set forth the specific findings and
conclusions of the initial decision as to which exception is taken,
together with supporting reasons for each exception. Supporting reasons
may be stated in summary form. Any exception to an initial decision not
stated in the petition for review, or in a previously filed proposed
finding made pursuant to Sec. 201.340, may, at the discretion of the
Commission, be deemed to have been waived by the petitioner.
(c) Financial disclosure statement requirement. Any person who
files a petition for review of an initial decision that asserts that
person's inability to pay either disgorgement, interest or a penalty
shall file with the opening brief a sworn financial disclosure
statement containing the information specified in Sec. 201.630(b).
(d) Opposition to review. A party may seek leave to file a brief in
opposition to a petition for review within five days of the filing of
the petition. The Commission will grant leave, or order the filing of
an opposition on its own motion, only if it determines that briefing
will significantly aid the decisional process. A brief in opposition
shall identify those issues which do not warrant consideration by the
Commission and shall state succinctly the reasons therefore.
(e) Prerequisite to judicial review. Pursuant to Section 704 of the
Administrative Procedure Act, 5 U.S.C. 704, a petition to the
Commission for review of an initial decision is a prerequisite to the
seeking of judicial review of a final order entered pursuant to such
decision.
Sec. 201.411 Commission consideration of initial decisions by hearing
officers.
(a) Scope of review. The Commission may affirm, reverse, modify,
set aside or remand for further proceedings, in whole or in part, an
initial decision by a hearing officer and may make any findings or
conclusions that in its judgment are proper and on the basis of the
record.
(b) Standards for granting review pursuant to a petition for
review.
(1) Mandatory review. After a petition for review has been filed,
the Commission shall review any initial decision that:
(i) Denies any request for action pursuant to Section 8(a) or
Section 8(c) of the Securities Act of 1933, 15 U.S.C. 77h(a), (c), or
the first sentence of Section 12(d) of the Exchange Act, 15 U.S.C.
78l(d);
(ii) Suspends trading in a security pursuant to Section 12(k) of
the Exchange Act, 15 U.S.C. 78l(k); or
(iii) Is in a case of adjudication (as defined in 5 U.S.C. 551) not
required to be determined on the record after notice and opportunity
for hearing (except to the extent there is involved a matter described
in 5 U.S.C. 554(a) (1) through (6)).
(2) Discretionary review. The Commission may decline to review any
other decision. In determining whether to grant review, the Commission
shall consider whether the petition for review makes a reasonable
showing that:
(i) A prejudicial error was committed in the conduct of the
proceeding; or
(ii) The decision embodies:
(A) A finding or conclusion of material fact that is clearly
erroneous; or
(B) A conclusion of law that is erroneous; or
(C) An exercise of discretion or decision of law or policy that is
important and that the Commission should review.
(c) Commission review other than pursuant to a petition for review.
The Commission may, on its own initiative, order review of any initial
decision, or a portion of any initial decision, within 21 days after
the end of the period established for filing a petition for review
pursuant to Sec. 201.410(b) or any brief in opposition to a petition
for review permitted pursuant to Sec. 201.410(d). A party who does not
intend to file a petition for review, and who desires the Commission's
determination whether to order review on its own initiative to be made
in a shorter time, may make a motion for an expedited decision,
accompanied by a written statement that the party waives its right to
file a petition for review. The vote of one member of the Commission,
conveyed to the Secretary, shall be sufficient to bring a matter before
the Commission for review.
(d) Limitations on matters reviewed. Review by the Commission of an
initial decision shall be limited to the issues specified in the
petition for review or the issues, if any, specified in the briefing
schedule order issued pursuant to Sec. 201.450(a). On notice to all
parties, however, the Commission may, at any time prior to issuance of
its decision, raise and determine any other matters that it deems
material, with opportunity for oral or written argument thereon by the
parties.
(e) Summary affirmance. The Commission may summarily affirm an
initial decision based upon the petition for review and any response
thereto, without further briefing, if it finds that no issue raised in
the petition for review warrants further consideration by the
Commission.
(f) Failure to obtain a majority. In the event a majority of
participating Commissioners do not agree to a disposition on the
merits, the initial decision shall be of no effect, and an order will
be issued in accordance with this result.
Sec. 201.420 Appeal of determinations by self-regulatory
organizations.
(a) Application for review; when available. An application for
review by the Commission may be filed by any person who is aggrieved by
a self-regulatory organization determination as to which a notice is
required to be filed with the Commission pursuant to Section 19(d)(1)
of the Exchange Act, 15 U.S.C. 78s(d)(1). Such determinations include
any:
(1) Final disciplinary sanction;
(2) Denial or conditioning of membership or participation;
(3) Prohibition or limitation in respect to access to services
offered by that self-regulatory organization or a member thereof; or
(4) Bar from association.
(b) Procedure. An application for review may be filed with the
Commission pursuant to Sec. 201.151 within 30 days after notice of the
determination was filed with the Commission pursuant to Section
[[Page 32814]] 19(d)(1) of the Exchange Act, 15 U.S.C. 78s(d)(1), and
received by the aggrieved person applying for review. The application
shall be served by the applicant on the self-regulatory organization.
The application shall identify the determination complained of, set
forth in summary form a brief statement of alleged errors in the
determination and supporting reasons therefor and state an address
where the applicant can be served with the record index. The
application shall be accompanied by the notice of appearance required
by Sec. 201.102(d).
(c) Determination not stayed. Filing an application for review with
the Commission pursuant to paragraph (b) of this section shall not
operate as a stay of the complained of determination made by the self-
regulatory organization unless the Commission otherwise orders either
pursuant to a motion filed in accordance with Sec. 201.401 or on its
own motion.
(d) Certification of the record; service of the index. Fourteen
days after receipt of an application for review or a Commission order
for review, the self-regulatory organization shall certify and file
with the Commission one copy of the record upon which the action
complained of was taken, and shall file with the Commission three
copies of an index to such record, and shall serve upon each party one
copy of the index.
Sec. 201.421 Commission consideration of determinations by self-
regulatory organizations.
(a) Commission review other than pursuant to a petition for review.
The Commission may, on its own initiative, order review of any
determination by a self-regulatory organization that could be subject
to an application for review pursuant to Sec. 201.420(a) within 40 days
after notice thereof was filed with the Commission pursuant to Section
19(d)(1) of the Exchange Act, 15 U.S.C. 78s(d)(1).
(b) Supplemental briefing. The Commission may at any time prior to
issuance of its decision raise or consider any matter that it deems
material, whether or not raised by the parties. Notice to the parties
and an opportunity for supplemental briefing with respect to issues not
briefed by the parties shall be given where the Commission believes
that such briefing would significantly aid the decisional process.
Sec. 201.430 Appeal of actions made pursuant to delegated authority.
(a) Scope of rule. Any person aggrieved by an action made by
authority delegated in Secs. 200.30-1 through 200.30-17 of this chapter
may seek review of the action pursuant to paragraph (b) of this
section.
(b) Procedure.
(1) Notice of intention to petition for review. A party or any
person aggrieved by an action made pursuant to delegated authority may
seek Commission review of the action by filing a written notice of
intention to petition for review within five days after actual notice
to the party of the action or service of notice of the action pursuant
to Sec. 201.141(b), whichever is earlier. The notice shall identify the
petitioner and the action complained of, and shall be accompanied by a
notice of appearance pursuant to Sec. 201.102(d).
(2) Petition for review. Within five days after the filing of a
notice of intention to petition for review pursuant to paragraph (b)(1)
of this section, the person seeking review shall file a petition for
review containing a clear and concise statement of the issues to be
reviewed and the reasons why review is appropriate. The petition shall
include exceptions to any findings of fact or conclusions of law made,
together with supporting reasons for such exceptions based on
appropriate citations to such record as may exist. These reasons may be
stated in summary form.
(c) Prerequisite to judicial review. Pursuant to Section 704 of the
Administrative Procedure Act, 5 U.S.C. 704, a petition to the
Commission for review of an action made by authority delegated in
Secs. 200.30-1 through 200.30-17 of this chapter is a prerequisite to
the seeking of judicial review of a final order entered pursuant to
such an action.
Sec. 201.431 Commission consideration of actions made pursuant to
delegated authority.
(a) Scope of review. The Commission may affirm, reverse, modify,
set aside or remand for further proceedings, in whole or in part, any
action made pursuant to authority delegated in Secs. 200.30-1 through
200.30-17 of this chapter.
(b) Standards for granting review pursuant to a petition for
review.
(1) Mandatory review. After a petition for review has been filed,
the Commission shall review any action that it would be required to
review pursuant to Sec. 201.411(b)(1) if the action was made as the
initial decision of a hearing officer.
(2) Discretionary review. The Commission may decline to review any
other action. In determining whether to grant review, the Commission
shall consider the factors set forth in Sec. 201.411(b)(2).
(c) Commission review other than pursuant to a petition for review.
The Commission may, on its own initiative, order review of any action
made pursuant to delegated authority at any time, provided, however,
that where there are one or more parties to the matter, such review
shall not be ordered more than ten days after the action. The vote of
one member of the Commission, conveyed to the Secretary, shall be
sufficient to bring a matter before the Commission for review.
(d) Required items in an order for review. In an order granting a
petition for review or directing review on the Commission's own
initiative, the Commission shall set forth the time within which any
party or other person may file a statement in support of or in
opposition to the action made by delegated authority and shall state
whether a stay shall be granted, if none is in effect, or shall be
continued, if in effect pursuant to paragraph (e) of this section.
(e) Automatic stay of delegated action. An action made pursuant to
delegated authority shall have immediate effect and be deemed the
action of the Commission. Upon filing with the Commission of a notice
of intention to petition for review, or upon notice to the Secretary of
the vote of a Commissioner that a matter be reviewed, an action made
pursuant to delegated authority shall be stayed until the Commission
orders otherwise, provided, however, there shall be no automatic stay
of an action:
(1) To grant a stay of action by the Commission or a self-
regulatory organization as authorized by 17 CFR 200.30-14(g) (5)-(6);
or
(2) To commence a subpoena enforcement proceeding as authorized by
17 CFR 200.30-4(a)(10).
(f) Effectiveness of stay or of Commission decision to modify or
reverse a delegated action. As against any person who shall have acted
in reliance upon any action at a delegated level, any stay or any
modification or reversal by the Commission of such action shall be
effective only from the time such person receives actual notice of such
stay, modification or reversal.
Sec. 201.450 Briefs filed with the Commission.
(a) Briefing schedule order. Other than review ordered pursuant to
Sec. 201.431, if review of a determination is mandated by statute,
rule, or judicial order or the Commission determines to grant review as
a matter of discretion, the Commission shall issue a briefing schedule
order directing the party or parties to file opening briefs and
[[Page 32815]] specifying particular issues, if any, as to which
briefing should be limited or directed. Unless otherwise provided,
opening briefs shall be filed within 40 days of the date of the
briefing schedule order. Opposition briefs shall be filed within 30
days after the date opening briefs are due. Reply briefs shall be filed
within 14 days after the date opposition briefs are due. No briefs in
addition to those specified in the briefing schedule order may be filed
except with leave of the Commission. The briefing schedule order shall
be issued:
(1) At the time the Commission orders review on its own initiative
pursuant to Secs. 201.411 or 201.421, or orders interlocutory review on
its own motion pursuant to Sec. 201.400(a); or
(2) Within 21 days, or such longer time as provided by the
Commission, after:
(i) The last day permitted for filing a petition for review
pursuant to Sec. 201.410(b) or a brief in opposition to a petition for
review pursuant to Sec. 201.410(d);
(ii) Receipt by the Commission of an index to the record of a
determination of a self-regulatory organization filed pursuant to
Sec. 201.420(d);
(iii) Receipt by the Commission of the mandate of a court of
appeals with respect to a judicial remand; or
(iv) Certification of a ruling for interlocutory review pursuant to
Sec. 201.400(c).
(b) Contents of briefs. Briefs shall be confined to the particular
matters at issue. Each exception to the findings or conclusions being
reviewed shall be stated succinctly. Exceptions shall be supported by
citation to the relevant portions of the record, including references
to the specific pages relied upon, and by concise argument including
citation of such statutes, decisions and other authorities as may be
relevant. If the exception relates to the admission or exclusion of
evidence, the substance of the evidence admitted or excluded shall be
set forth in the brief, in an appendix thereto, or by citation to the
record. Reply briefs shall be confined to matters in opposition briefs
of other parties.
(c) Length limitation. Opening and opposition briefs shall not
exceed 50 pages and reply briefs shall not exceed 25 pages, exclusive
of pages containing the table of contents, table of authorities, and
any addendum, except with leave of the Commission.
Sec. 201.451 Oral argument before the Commission.
(a) Availability. The Commission, on its own motion or the motion
of a party or any other aggrieved person entitled to Commission review,
may order oral argument with respect to any matter. Motions for oral
argument with respect to whether to affirm all or part of an initial
decision by a hearing officer shall be granted unless exceptional
circumstances make oral argument impractical or inadvisable. The
Commission will consider appeals, motions and other matters properly
before it on the basis of the papers filed by the parties without oral
argument unless the Commission determines that the presentation of
facts and legal arguments in the briefs and record and the decisional
process would be significantly aided by oral argument.
(b) Procedure. Requests for oral argument shall be made by separate
motion accompanying the initial brief on the merits. The Commission
shall issue an order as to whether oral argument is to be heard, and if
so, the time and place therefor. The grant or denial of a motion for
oral argument shall be made promptly after the filing of the last brief
called for by the briefing schedule. If oral argument is granted, the
time fixed for oral argument shall be changed only by written order of
the Commission, for good cause shown. The order shall state at whose
request the change is made and the reasons for any such change.
(c) Time allowed. Unless the Commission orders otherwise, not more
than one half-hour per side will be allowed for oral argument. The
Commission may, in its discretion, determine that several persons have
a common interest, and that the interests represented will be
considered a single side for purposes of allotting time for oral
argument. Time will be divided equally among persons on a single side,
provided, however, that by mutual agreement they may reallocate their
time among themselves. A request for additional time must be made by
motion filed reasonably in advance of the date fixed for argument.
(d) Participation of Commissioners. A member of the Commission who
was not present at the oral argument may participate in the decision of
the proceeding, provided that the member has reviewed the transcript of
such argument prior to such participation. The decision shall state
whether the required review was made.
Sec. 201.452 Additional evidence.
Upon its own motion or the motion of a party, the Commission may
allow the submission of additional evidence. A party may file a motion
for leave to adduce additional evidence at any time prior to issuance
of a decision by the Commission. Such motion shall show with
particularity that such additional evidence is material and that there
were reasonable grounds for failure to adduce such evidence previously.
The Commission may accept or hear additional evidence, may remand the
proceeding to a self-regulatory organization, or may remand or refer
the proceeding to a hearing officer for the taking of additional
evidence, as appropriate.
Sec. 201.460 Record before the Commission.
The Commission shall determine each matter on the basis of the
record.
(a) Contents of the record.
(1) In proceedings for final decision before the Commission other
than those reviewing a determination by a self-regulatory organization,
the record shall consist of:
(i) All items part of the record below in accordance with
Sec. 201.350;
(ii) Any petitions for review, cross-petitions or oppositions; and
(iii) All briefs, motions, submissions and other papers filed on
appeal or review.
(2) In a proceeding for final decision before the Commission
reviewing a determination by a self-regulatory organization, the record
shall consist of:
(i) The record certified pursuant to Sec. 201.420(d) by the self-
regulatory organization;
(ii) Any application for review; and
(iii) Any submissions, moving papers, and briefs filed on appeal or
review.
(b) Transmittal of record to Commission. Within 14 days after the
last date set for filing briefs or such later date as the Commission
directs, the Secretary shall transmit the record to the Commission.
(c) Review of documents not admitted. Any document offered in
evidence but excluded by the hearing officer or the Commission and any
document marked for identification but not offered as an exhibit shall
not be considered a part of the record before the Commission on appeal
but shall be transmitted to the Commission by the Secretary if so
requested by the Commission. In the event that the Commission does not
request the document, the Secretary shall retain the document not
admitted into the record until the later of:
(1) The date upon which the Commission's order becomes final, or
(2) The conclusion of any judicial review of that order.
Sec. 201.470 Reconsideration.
(a) Scope of rule. A party or any person aggrieved by a
determination in a proceeding may file a motion for reconsideration of
a final order issued by the Commission. [[Page 32816]]
(b) Procedure. A motion for reconsideration shall be filed within
10 days after service of the order complained of on each party, or
within such time as the Commission may prescribe upon motion of the
person seeking reconsideration, if made within the foregoing 10-day
period. The motion for reconsideration shall briefly and specifically
state the matters of record alleged to have been erroneously decided,
the grounds relied upon, and the relief sought. Except with permission
of the Commission, a motion for reconsideration shall not exceed 15
pages. No responses to a motion for reconsideration shall be filed
unless requested by the Commission.
Sec. 201.490 Receipt of petitions for judicial review pursuant to 28
U.S.C. 2112(a)(1).
The Commission officer and office designated pursuant to 28 U.S.C.
2112(a)(1) to receive copies of petitions for review of Commission
orders from the persons instituting review in a court of appeals, are
the Secretary and the Office of the Secretary at the Commission's
Headquarters. Ten copies of each petition shall be submitted. Each copy
shall state on its face that it is being submitted to the Commission
pursuant to 28 U.S.C. 2112 by the person or persons who filed the
petition in the court of appeals.
Rules Relating to Temporary Orders and Suspensions
Sec. 201.500 Expedited consideration of proceedings.
Consistent with the Commission's or the hearing officer's other
responsibilities, every hearing shall be held and every decision shall
be rendered at the earliest possible time in connection with:
(a) An application for a temporary sanction, as defined in
Sec. 201.101(a), or a proceeding to determine whether a temporary
sanction should be made permanent;
(b) A motion or application to review an order suspending
temporarily the effectiveness of an exemption from registration
pursuant to Regulations A, B, E or F under the Securities Act,
Secs. 230.258, 230.336, 230.610 or 230.656 of this chapter; or,
(c) A motion to or petition to review an order suspending
temporarily the privilege of appearing before the Commission under
Sec. 201.102(e)(3), or a sanction under Sec. 201.180(a)(1).
Sec. 201.510 Temporary cease-and-desist orders: application process.
(a) Procedure. A request for entry of a temporary cease-and-desist
order shall be made by application filed by the Division of
Enforcement. The application shall set forth the statutory provision or
rule that each respondent is alleged to have violated; the temporary
relief sought against each respondent, including whether the respondent
would be required to take action to prevent the dissipation or
conversion of assets; and whether the relief is sought ex parte.
(b) Accompanying documents. The application shall be accompanied by
a declaration of facts signed by a person with knowledge of the facts
contained therein, a memorandum of points and authorities, a proposed
order imposing the temporary relief sought, and, unless relief is
sought ex parte, a proposed notice of hearing and order to show cause
whether the temporary relief should be imposed. If a proceeding for a
permanent cease-and-desist order has not already been commenced, a
proposed order instituting proceedings to determine whether a permanent
cease-and-desist order should be imposed shall also be filed with the
application.
(c) With whom filed. The application shall be filed with the
Secretary or, if the Secretary is unavailable, with the duty officer.
In no event shall an application be filed with an administrative law
judge.
(d) Record of proceedings. Hearings, including ex parte
presentations made by the Division of Enforcement pursuant to
Sec. 201.513, shall be recorded or transcribed pursuant to
Sec. 201.302.
Sec. 201.511 Temporary cease-and-desist orders: notice; procedures for
hearing.
(a) Notice: how given. Notice of an application for a temporary
cease-and-desist order shall be made by serving a notice of hearing and
order to show cause pursuant to Sec. 201.141(b) or, where timely
service of a notice of hearing pursuant to Sec. 201.141(b) is not
practicable, by any other means reasonably calculated to give actual
notice that a hearing will be held, including telephonic notification
of the general subject matter, time, and place of the hearing. If an
application is made ex parte, pursuant to Sec. 201.513, no notice to a
respondent need be given prior to the Commission's consideration of the
application.
(b) Hearing before the Commission. Except as provided in paragraph
(d) of this section, hearings on an application for a temporary cease-
and-desist order shall be held before the Commission.
(c) Presiding officer: designation. The Chairman shall preside or
designate a Commissioner to preside at the hearing. If the Chairman is
absent or unavailable at the time of hearing and no other Commissioner
has been designated to preside, the duty officer on the day the hearing
begins shall preside or designate another Commissioner to preside.
(d) Procedure at hearing. (1) The presiding officer shall have all
those powers of a hearing officer set forth in Sec. 201.111 and shall
rule on the admissibility of evidence and other procedural matters,
including, but not limited to whether oral testimony will be heard; the
time allowed each party for the submission of evidence or argument; and
whether post-hearing submission of briefs, proposed findings of fact
and conclusions of law will be permitted and if so, the procedures for
submission; provided, however, that the person presiding may consult
with other Commissioners participating in the hearing on these or any
other question of procedure.
(2) Each Commissioner present at the hearing shall be afforded a
reasonable opportunity to ask questions of witnesses, if any, or of
counsel.
(3) A party or witness may participate by telephone. Alternative
means of remote access, including a video link, shall be permitted in
the Commission's discretion. Factors the Commission may consider in
determining whether to permit alternative means of remote access
include, but are not limited to, whether allowing an alternative means
of access will delay the hearing, whether the alternative means is
reliable, and whether the party proposing its use has made arrangements
to pay for its cost.
(4) After a hearing has begun, the Commission may, on its own
motion, or the motion of a party, assign a hearing officer to preside
at the taking of oral testimony or other evidence and to certify the
record of such testimony or other evidence to the Commission within a
fixed period of time. No recommended or initial decision shall be made
by such a hearing officer.
Sec. 201.512 Temporary cease-and-desist orders: issuance after notice
and opportunity for hearing.
(a) Basis for issuance. A temporary cease-and-desist order shall be
issued only if the Commission determines that the alleged violation or
threatened violation specified in an order instituting proceedings
whether to enter a permanent cease-and-desist order pursuant to
Securities Act Section 8A(a), 15 U.S.C. 77h-1(a), Exchange Act Section
21C(a), 15 U.S.C. 78u-3(a), Investment Company Act Section 9(f)(1), 15
U.S.C. 80a-9(f)(1), or Investment Advisers Act Section 203(k)(1), 15
U.S.C. 80b-3(k)(1), or the continuation thereof, is likely to result
[[Page 32817]] in significant dissipation or conversion of assets,
significant harm to investors, or substantial harm to the public
interest, including, but not limited to, losses to the Securities
Investor Protection Corporation, prior to the completion of proceedings
on the permanent cease-and-desist order.
(b) Content, scope and form of order. Every temporary cease-and-
desist order granted shall:
(1) Describe the basis for its issuance, including the alleged or
threatened violations and the harm that is likely to result without the
issuance of an order;
(2) Describe in reasonable detail, and not by reference to the
order instituting proceedings or any other document, the act or acts
the respondent is to take or refrain from taking; and
(3) Be indorsed with the date and hour of issuance.
(c) Effective upon service. A temporary cease-and-desist order is
effective upon service upon the respondent.
(d) Service: how made. Service of a temporary cease-and-desist
order shall be made pursuant to Sec. 201.141(a). The person who serves
the order shall promptly file a declaration of service identifying the
person served, the method of service, the date of service, the address
to which service was made and the person who made service; provided,
however, failure to file such a declaration shall have no effect on the
validity of the service.
(e) Commission review. At any time after the respondent has been
served with a temporary cease-and-desist order, the respondent may
apply to the Commission to have the order set aside, limited or
suspended. The application shall set forth with specificity the facts
that support the request.
Sec. 201.513 Temporary cease-and-desist orders: issuance without prior
notice and opportunity for hearing.
In addition to the requirements for issuance of a temporary cease-
and-desist order set forth in Sec. 201.512, the following requirements
shall apply if a temporary cease-and-desist order is to be entered
without prior notice and opportunity for hearing:
(a) Basis for issuance without prior notice and opportunity for
hearing. A temporary cease-and-desist order may be issued without
notice and opportunity for hearing only if the Commission determines,
from specific facts in the record of the proceeding, that notice and
hearing prior to entry of an order would be impracticable or contrary
to the public interest.
(b) Content of the order. An ex parte temporary cease-and-desist
order shall state specifically why notice and hearing would have been
impracticable or contrary to the public interest.
(c) Hearing before the Commission. If a respondent has been served
with a temporary cease-and-desist order entered without a prior
Commission hearing, the respondent may apply to the Commission to have
the order set aside, limited, or suspended, and if the application is
made within 10 days after the date on which the order was served, may
request a hearing on such application. The Commission shall hold a
hearing and render a decision on the respondent's application at the
earliest possible time. The hearing shall begin within two days of the
filing of the application unless the applicant consents to a longer
period or the Commission, by order, for good cause shown, sets a later
date. The Commission shall render a decision on the application within
five calendar days of its filing, provided, however, that the
Commission, by order, for good cause shown, may extend the time within
which a decision may be rendered for a single period of five calendar
days, or such longer time as consented to by the applicant. If the
Commission does not render its decision within 10 days of the
respondent's application or such longer time as consented to by the
applicant, the temporary order shall be suspended until a decision is
rendered.
(d) Presiding officer, procedure at hearing. Procedures with
respect to the selection of a presiding officer and the conduct of the
hearing shall be in accordance with Sec. 201.511.
Sec. 201.514 Temporary cease-and-desist orders: judicial review;
duration.
(a) Availability of judicial review. Judicial review of a temporary
cease-and-desist order shall be available as provided in Section
8A(d)(2) of the Securities Act, 15 U.S.C. 77h-1(d)(2), Section
21C(d)(2) of the Exchange Act, 15 U.S.C. 78u-3(d)(2), Section
9(f)(4)(B) of the Investment Company Act, 15 U.S.C. 80a-9(f)(4)(B), or
Section 203(k)(4)(B) of the Investment Advisers Act, 15 U.S.C. 80b-
3(k)(4)(B).
(b) Duration. Unless set aside, limited, or suspended, either by
order of the Commission, a court of competent jurisdiction, or a
hearing officer acting pursuant to Sec. 201.531, or by operation of
Sec. 201.513, a temporary cease-and-desist order shall remain effective
and enforceable until the earlier of:
(1) The completion of the proceedings whether a permanent order
shall be entered; or
(2) 180 days, or such longer time as consented to by the
respondent, after issuance of a briefing schedule order pursuant to
Sec. 201.540(b), if an initial decision whether a permanent order
should be entered is appealed.
Sec. 201.520 Suspension of registration of brokers, dealers, or other
Exchange Act-registered entities: application.
(a) Procedure. A request for suspension of a registered broker,
dealer, municipal securities dealer, government securities broker,
government securities dealer, or transfer agent pending a final
determination whether the registration shall be revoked shall be made
by application filed by the Division of Enforcement. The application
shall set forth the statutory provision or rule that each respondent is
alleged to have violated and the temporary suspension sought as to each
respondent.
(b) Accompanying documents. The application shall be accompanied by
a declaration of facts signed by a person with knowledge of the facts
contained therein, a memorandum of points and authorities, a proposed
order imposing the temporary suspension of registration sought, and a
proposed notice of hearing and order to show cause whether the
temporary suspension of registration should be imposed. If a proceeding
to determine whether to revoke the registration permanently has not
already been commenced, a proposed order instituting proceedings to
determine whether a permanent sanction should be imposed shall also be
filed with the application.
(c) With whom filed. The application shall be filed with the
Secretary or, if the Secretary is unavailable, with the duty officer.
In no event shall an application be filed with an administrative law
judge.
(d) Record of hearings. All hearings shall be recorded or
transcribed pursuant to Sec. 201.302.
Sec. 201.521 Suspension of registration of brokers, dealers, or other
Exchange Act-registered entities: notice and opportunity for hearing on
application.
(a) How given. Notice of an application to suspend a registration
pursuant to Sec. 201.520 shall be made by serving a notice of hearing
and order to show cause pursuant to Sec. 201.141(b) or, where timely
service of a notice of hearing pursuant to Sec. 201.141(b) is not
practicable, by any other means reasonably calculated to give actual
notice that a hearing will be held, including telephonic notification
of the general subject matter, time, and place of the hearing.
(b) Hearing: before whom held. Except as provided in paragraph (d)
of this section, hearings on an application to [[Page 32818]] suspend a
registration pursuant to Sec. 201.520 shall be held before the
Commission.
(c) Presiding officer: designation. The Chairman shall preside or
designate a Commissioner to preside at the hearing. If the Chairman is
absent or unavailable at the time of hearing and no other Commissioner
has been designated to preside, the duty officer on the day the hearing
begins shall preside or designate another Commissioner to preside.
(d) Procedure at hearing. (1) The presiding officer shall have all
those powers of a hearing officer set forth in Sec. 201.111 and shall
rule on the admissibility of evidence and other procedural matters,
including, but not limited to whether oral testimony will be heard; the
time allowed each party for the submission of evidence or argument; and
whether post-hearing submission of briefs, proposed findings of fact
and conclusions of law will be permitted and if so, the procedures for
submission; provided, however, that the person presiding may consult
with other Commissioners participating in the hearing on these or any
other question of procedure.
(2) Each Commissioner present at the hearing shall be afforded a
reasonable opportunity to ask questions of witnesses, if any, or
counsel.
(3) A party or witness may participate by telephone. Alternative
means of remote access, including a video link, shall be permitted in
the Commission's discretion. Factors the Commission may consider in
determining whether to permit alternative means of remote access
include, but are not limited to, whether allowing an alternative means
of access will delay the hearing, whether the alternative means is
reliable, and whether the party proposing its use has made arrangements
to pay for its cost.
(4) After a hearing has begun, the Commission may, on its own
motion or the motion of a party, assign a hearing officer to preside at
the taking of oral testimony or other evidence and to certify the
record of such testimony or other evidence to the Commission within a
fixed period of time. No recommended or initial decision shall be made.
Sec. 201.522 Suspension of registration of brokers, dealers, or other
Exchange Act-registered entities: issuance and review of order.
(a) Basis for issuance. An order suspending a registration, pending
final determination as to whether the registration shall be revoked
shall be issued only if the Commission finds that the suspension is
necessary or appropriate in the public interest or for the protection
of investors.
(b) Content, scope and form of order. Each order suspending a
registration shall:
(1) Describe the basis for its issuance, including the alleged or
threatened violations and the harm that is likely to result without the
issuance of an order;
(2) Describe in reasonable detail, and not by reference to the
order instituting proceedings or any other document, the act or acts
the respondent is to take or refrain from taking; and
(3) Be indorsed with the date and hour of issuance.
(c) Effective upon service. An order suspending a registration is
effective upon service upon the respondent.
(d) Service: how made. Service of an order suspending a
registration shall be made pursuant to Sec. 201.141(a). The person who
serves the order shall promptly file a declaration of service
identifying the person served, the method of service, the date of
service, the address to which service was made and the person who made
service; provided, however, failure to file such a declaration shall
have no effect on the validity of the service.
(e) Commission review. At any time after the respondent has been
served with an order suspending a registration, the respondent may
apply to the Commission or the hearing officer to have the order set
aside, limited, or suspended. The application shall set forth with
specificity the facts that support the request.
Sec. 201.523 [Reserved].
Sec. 201.524 Suspension of registrations: duration.
Unless set aside, limited or suspended by order of the Commission,
a court of competent jurisdiction, or a hearing officer acting pursuant
to Sec. 201.531, an order suspending a registration shall remain
effective and enforceable until the earlier of:
(a) The completion of the proceedings whether the registration
shall be permanently revoked; or
(b) 180 days, or such longer time as consented to by the
respondent, after issuance of a briefing schedule order pursuant to
Sec. 201.540(b), if an initial decision whether the registration shall
be permanently revoked is appealed.
Sec. 201.530 Initial decision on permanent order: timing for
submitting proposed findings and preparation of decision.
Unless otherwise ordered by the Commission or hearing officer, if a
temporary cease-and-desist order or suspension of registration order is
in effect, the following time limits shall apply to preparation of an
initial decision as to whether such order should be made permanent:
(a) Proposed findings and conclusions and briefs in support thereof
shall be filed 30 days after the close of the hearing;
(b) The record in the proceedings shall be served by the Secretary
upon the hearing officer three days after the date for the filing of
the last brief called for by the hearing officer; and
(c) The initial decision shall be filed with the Secretary at the
earliest possible time, but in no event more than 30 days after service
of the record, unless the hearing officer, by order, shall extend the
time for good cause shown for a period not to exceed 30 days.
Sec. 201.531 Initial decision on permanent order: effect on temporary
order.
(a) Specification of permanent sanction. If, at the time an initial
decision is issued, a temporary sanction is in effect as to any
respondent, the initial decision shall specify:
(1) Which terms or conditions of a temporary cease-and-desist
order, if any, shall become permanent; and
(2) Whether a temporary suspension of a respondent's registration,
if any, shall be made a permanent revocation of registration.
(b) Modification of temporary order. If any temporary sanction
shall not become permanent under the terms of the initial decision, the
hearing officer shall issue a separate order setting aside, limiting or
suspending the temporary sanction then in effect in accordance with the
terms of the initial decision. The hearing officer shall decline to
suspend a term or condition of a temporary cease-and-desist order if it
is found that the continued effectiveness of such term or condition is
necessary to effectuate any term of the relief ordered in the initial
decision, including the payment of disgorgement, interest or penalties.
An order modifying temporary sanctions shall be effective 14 days after
service. Within one week of service of the order modifying temporary
sanctions any party may seek a stay or modification of the order from
the Commission pursuant to Sec. 201.401.
Sec. 201.540 Appeal and Commission review of initial decision making a
temporary order permanent.
(a) Petition for review. Any person who seeks Commission review of
an initial decision as to whether a temporary sanction shall be made
permanent shall file a petition for review pursuant to Sec. 201.410,
provided, [[Page 32819]] however, that the petition must be filed
within 10 days after service of the initial decision.
(b) Review procedure. If the Commission determines to grant or
order review, it shall issue a briefing schedule order pursuant to
Sec. 201.450. Unless otherwise ordered by the Commission, opening
briefs shall be filed within 21 days of the order granting or ordering
review, and opposition briefs shall be filed within 14 days after
opening briefs are filed. Reply briefs shall be filed within seven days
after opposition briefs are filed. Oral argument, if granted by the
Commission, shall be held within 90 days of the issuance of the
briefing schedule order.
Sec. 201.550 Summary suspensions pursuant to Exchange Act Section
12(k)(1)(A).
(a) Petition for termination of suspension. Any person adversely
affected by a suspension pursuant to Section 12(k)(1)(A) of the
Exchange Act, 15 U.S.C. 78l(k)(1)(A), who desires to show that such
suspension is not necessary in the public interest or for the
protection of investors may file a sworn petition with the Secretary,
requesting that the suspension be terminated. The petition shall set
forth the reasons why the petitioner believes that the suspension of
trading should not continue and state with particularity the facts upon
which the petitioner relies.
(b) Commission consideration of a petition. The Commission, in its
discretion, may schedule a hearing on the matter, request additional
written submissions, or decide the matter on the facts presented in the
petition and any other relevant facts known to the Commission. If the
petitioner fails to cooperate with, obstructs, or refuses to permit the
making of an examination by the Commission, such conduct shall be
grounds to deny the petition.
Rules Regarding Disgorgement and Penalty Payments
Sec. 201.600 Interest on sums disgorged.
(a) Interest required. Prejudgment interest shall be due on any sum
required to be paid pursuant to an order of disgorgement. The
disgorgement order shall specify each violation that forms the basis
for the disgorgement ordered; the date which, for purposes of
calculating disgorgement, each such violation was deemed to have
occurred; the amount to be disgorged for each such violation; and the
total sum to be disgorged. Prejudgment interest shall be due from the
first day of the month following each such violation through the last
day of the month preceding the month in which payment of disgorgement
is made. The order shall state the amount of prejudgment interest owed
as of the date of the disgorgement order and that interest shall
continue to accrue on all funds owed until they are paid.
(b) Rate of interest. Interest on the sum to be disgorged shall be
computed at the underpayment rate of interest established under Section
6621(a)(2) of the Internal Revenue Code, 26 U.S.C. 6621(a)(2), and
shall be compounded quarterly. The Commission or the hearing officer
may, by order, specify a lower rate of prejudgment interest as to any
funds which the respondent has placed in an escrow or otherwise
guaranteed for payment of disgorgement upon a final determination of
the respondent's liability. Escrow and other guarantee arrangements
must be approved by the Commission or the hearing officer prior to
entry of the disgorgement order.
Sec. 201.601 Prompt payment of disgorgement, interest and penalties.
(a) Timing of payments. Unless otherwise provided, funds due
pursuant to an order by the Commission requiring the payment of
disgorgement, interest or penalties shall be paid no later than 21 days
after service of the order, and funds due pursuant to an order by a
hearing officer shall be paid on the first day after the order becomes
final pursuant to Sec. 201.360.
(b) Stays. A stay of any order requiring the payment of
disgorgement, interest or penalties may be sought at any time pursuant
to Sec. 201.401.
Sec. 201.610 Submission of proposed plan of disgorgement.
The Commission or the hearing officer may, at any time, order any
party to submit a plan for the administration and distribution of
disgorgement funds. Unless ordered otherwise, the Division of
Enforcement shall submit a proposed plan no later than 60 days after
funds or other assets have been turned over by the respondent pursuant
to a Commission disgorgement order and any appeals of the disgorgement
order have been waived or completed, or appeal is no longer available.
Sec. 201.611 Contents of plan of disgorgement; provisions for payment.
(a) Required plan elements. Unless otherwise ordered, a plan for
the administration of a disgorgement fund shall include the following
elements:
(1) Procedures for the receipt of additional funds, including the
specification of an account where funds will be held and the
instruments in which the funds may be invested;
(2) Specification of categories of persons potentially eligible to
receive proceeds from the fund;
(3) Procedure for providing notice to such persons of the existence
of the fund and their potential eligibility to receive proceeds of the
fund;
(4) Procedures for making and approving claims, procedures for
handling disputed claims and a cut-off date for the making of claims;
(5) A proposed date for the termination of the fund, including
provision for the disposition of any funds not otherwise distributed;
(6) Procedures for the administration of the fund, including
selection, compensation and, as necessary, indemnification of a fund
administrator to oversee the fund, process claims, prepare accountings,
file tax returns and, subject to the approval of the Commission, make
distributions from the fund to investors; and
(7) Such other provisions as the Commission or the hearing officer
may require.
(b) Payment to registry of the court or court-appointed receiver.
Subject to such conditions as the Commission or the hearing officer
shall deem appropriate, a plan of disgorgement may provide for payment
of disgorgement funds into a court registry or to a court-appointed
receiver in any case pending in federal or state court against a
respondent or any other person based upon a complaint alleging
violations arising from the same or substantially similar facts as
those alleged in the Commission's order instituting proceedings.
(c) Payment to the United States Treasury under certain
circumstances. When, in the opinion of the Commission or the hearing
officer, the cost of administering a plan of disgorgement relative to
the value of the available disgorgement funds and the number of
potential claimants would not justify distribution of the disgorgement
funds to injured investors, the plan may provide that the funds shall
be paid directly to the general fund of the United States Treasury.
Sec. 201.612 Notice of proposed plan of disgorgement and opportunity
for comment by non-parties.
Notice of a proposed plan of disgorgement shall be published in the
SEC News Digest, in the SEC Docket, and in such other publications as
the Commission or the hearing officer may require. The notice shall
specify how copies of the proposed plan may be obtained and shall state
that persons desiring to comment on the proposed [[Page 32820]] plan
may submit their views, in writing, to the Commission.
Sec. 201.613 Order approving, modifying or disapproving proposed plan
of disgorgement.
At any time more than 30 days after publication of notice of a
proposed plan of disgorgement, the hearing officer or the Commission
shall, by order, approve, approve with modifications, or disapprove the
proposed plan. In the discretion of the Commission or the hearing
officer, a proposed plan of disgorgement that is substantially modified
prior to adoption may be republished for an additional comment period
pursuant to Sec. 201.612. The order approving or disapproving the plan
should be entered within 30 days after the end of the final period
allowed for comments on the proposed plan unless the Commission or the
hearing officer, by written order, allows a longer period for good
cause shown.
Sec. 201.614 Administration of plan of disgorgement.
(a) Appointment and removal of administrator. The Commission or the
hearing officer shall have discretion to appoint any person, including
a Commission employee, as administrator of a plan of disgorgement and
to delegate to that person responsibility for administering the plan. A
respondent may be required or permitted to administer or assist in
administering a plan of disgorgement, subject to such terms and
conditions as the Commission or the hearing officer deem appropriate to
ensure the proper distribution of funds. An administrator may be
removed at any time by order of the Commission or hearing officer.
(b) Administrator to post bond. If the administrator is not a
Commission employee, the administrator shall be required to obtain a
bond in the manner prescribed by 11 U.S.C. 322, in an amount to be
approved by the Commission. The cost of the bond may be paid for as a
cost of administration. The Commission may waive posting of a bond for
good cause shown.
(c) Administrator's fees. If the administrator is a Commission
employee, no fee shall be paid to the administrator for his or her
services. If the administrator is not a Commission employee, he or she
may file an application for fees for completed services, and upon
approval by the Commission or a hearing officer, may be paid a
reasonable fee for those services. Any objections thereto shall be
filed within 21 days of service of the application on the parties.
(d) Source of funds. Unless otherwise ordered, fees and other
expenses of administering the plan of disgorgement shall be paid first
from the interest earned on disgorged funds, and if the interest is not
sufficient, then from the corpus.
(e) Accountings. During the first 10 days of each calendar quarter,
or as otherwise directed by the Commission or the hearing officer, the
administrator shall file an accounting of all monies earned or received
and all monies spent in connection with the administration of the plan
of disgorgement. A final accounting shall be submitted for approval of
the Commission or hearing officer prior to discharge of the
administrator and cancellation of the administrator's bond, if any.
(f) Amendment. A plan may be amended upon motion by any party or
the plan administrator or upon the Commission's or hearing officer's
own motion.
Sec. 201.620 Right to challenge order of disgorgement.
Other than in connection with the opportunity to submit comments as
provided in Sec. 201.612, no person shall be granted leave to intervene
or to participate in a proceeding or otherwise to appear to challenge
an order of disgorgement; or an order approving, approving with
modifications, or disapproving a plan of disgorgement; or any
determination relating to a plan of disgorgement based solely upon that
person's eligibility or potential eligibility to participate in a
disgorgement fund or based upon any private right of action such person
may have against any person who is also a respondent in an enforcement
proceeding.
Sec. 201.630 Inability to pay disgorgement, interest or penalties.
(a) Generally. In any proceeding in which an order requiring
payment of disgorgement, interest or penalties may be entered, a
respondent may present evidence of an inability to pay disgorgement,
interest or a penalty. The Commission may, in its discretion, or the
hearing officer may, in his or her discretion, consider evidence
concerning ability to pay in determining whether disgorgement, interest
or a penalty is in the public interest.
(b) Financial disclosure statement. Any respondent who asserts an
inability to pay disgorgement, interest or penalties may be required to
file a sworn financial disclosure statement and to keep the statement
current. The financial statement shall show the respondent's assets,
liabilities, income or other funds received and expenses or other
payments, from the date of the first violation alleged against that
respondent in the order instituting proceedings, or such later date as
specified by the Commission or a hearing officer, to the date of the
order requiring the disclosure statement to be filed. By order, the
Commission or the hearing officer may prescribe the use of the
Disclosure of Assets and Financial Information Form (see Form D-A at
Sec. 209.1 of this chapter) or any other form, may specify other time
periods for which disclosure is required, and may require such other
information as deemed necessary to evaluate a claim of inability to
pay.
(c) Confidentiality. Any respondent submitting financial
information pursuant to this section or Sec. 201.410(c) may make a
motion, pursuant to Sec. 201.322, for the issuance of a protective
order against disclosure of the information submitted to the public or
to any parties other than the Division of Enforcement. Prior to a
ruling on the motion, no party receiving information as to which a
motion for a protective order has been made may transfer or convey the
information to any other person without the prior permission of the
Commission or the hearing officer.
(d) Service required. Notwithstanding any provision of
Sec. 201.322, a copy of the financial disclosure statement shall be
served on the Division of Enforcement.
(e) Failure to file required financial information: sanction. Any
respondent who, after making a claim of inability to pay either
disgorgement, interest or a penalty, fails to file a financial
disclosure statement when such a filing has been ordered or is required
by rule may, in the discretion of the Commission or the hearing
officer, be deemed to have waived the claim of inability to pay. No
sanction pursuant to Secs. 201.155 or 201.180 shall be imposed for a
failure to file such a statement.
Informal Procedures and Supplementary Information Concerning
Adjudicatory Proceedings
Sec. 201.900 Informal Procedures and Supplementary Information
Concerning Adjudicatory Proceedings.
(a) Guidelines for the timely completion of proceedings.
(1) Timely resolution of adjudicatory proceedings is one factor in
assessing the effectiveness of the adjudicatory program in protecting
investors, promoting public confidence in the securities markets and
assuring respondents a fair hearing. Establishment of guidelines for
the timely completion of key phases of contested administrative
proceedings [[Page 32821]] provides a standard for both the Commission
and the public to gauge the Commission's adjudicatory program on this
criterion. The Commission has directed that, to the extent possible:
(i) An administrative law judge's initial decision should be filed
with the Secretary within 10 months of issuance of the order
instituting proceedings.
(ii) A decision by the Commission on review of an interlocutory
matter should be completed within 45 days of the date set for filing
the final brief on the matter submitted for review.
(iii) A decision by the Commission on a motion to stay a decision
that has already taken effect or that will take effect within five days
of the filing of the motion, should be issued within five days of the
date set for filing of the opposition to the motion for a stay. If the
decision complained of has not taken effect, the Commission's decision
should be issued within 45 days of the date set for filing of the
opposition to the motion for a stay.
(iv) A decision by the Commission with respect to an appeal from
the initial decision of a hearing officer, a review of a determination
by a self-regulatory organization, or a remand of a prior Commission
decision by a court of appeals should be issued within 11 months from
the date the petition for review, application for review, or mandate of
the court is filed.
(2) The guidelines in this paragraph (a) do not create a
requirement that each portion of a proceeding or the entire proceeding
be completed within the periods described. Among other reasons, a
proceeding at either the hearing stage or on review by the Commission
may require additional time because it is unusually complex or because
the record is exceptionally long. In addition, fairness is enhanced if
the Commission's deliberative process is not constrained by an
inflexible schedule. In some proceedings, deliberation may be delayed
by the need to consider more urgent matters, to permit the preparation
of dissenting opinions, or for other good cause. The guidelines will be
used by the Commission as one of several criteria in monitoring and
evaluating its adjudicatory program. The guidelines will be examined
periodically, and, if necessary, readjusted in light of changes in the
pending caseload and the available level of staff resources.
(b) Reports to the Commission on pending cases. The administrative
law judges, the Secretary and the General Counsel have each been
delegated authority to issue certain orders or adjudicate certain
proceedings. See 17 CFR 200.30-1, et seq. Proceedings are also assigned
to the General Counsel for the preparation of a proposed order or
opinion which will then be recommended to the Commission for
consideration. In order to improve accountability by and to the
Commission for management of the docket, the Commission has directed
that confidential status reports with respect to all filed adjudicatory
proceedings shall be made periodically to the Commission. These reports
will be made through the Secretary, with a minimum frequency
established by the Commission. In connection with these periodic
reports, if a proceeding assigned to an administrative law judge or
pending before the Commission has not been concluded within 30 days of
the guidelines established in paragraph (a) of this section, the Chief
Administrative Law Judge or the General Counsel, respectively, shall
specifically apprise the Commission of that fact, and shall describe
the procedural posture of the case, project an estimated date for
conclusion of the proceeding, and provide such other information as is
necessary to enable the Commission to determine whether additional
steps are necessary to reach a fair and timely resolution of the
matter.
(c) Publication of information concerning the pending case docket.
Ongoing disclosure of information about the adjudication program
caseload increases awareness of the importance of the program,
facilitates oversight of the program and promotes confidence in the
efficiency and fairness of the program by investors, securities
industry participants, self-regulatory organizations and other members
of the public. The Commission has directed the Secretary to publish in
the SEC Docket in the first and seventh months of each fiscal year
summary statistical information about the status of pending
adjudicatory proceedings and changes in the Commission's caseload over
the prior six months. The report will include the number of cases
pending before the administrative law judges and the Commission at the
beginning and end of the six-month period. The report will also show
increases in the caseload arising from new cases being instituted,
appealed or remanded to the Commission and decreases in the caseload
arising from the disposition of proceedings by issuance of initial
decisions, issuance of final decisions issued on appeal of initial
decisions, other dispositions of appeals of initial decisions, final
decisions on review of self-regulatory organization determinations,
other dispositions on review of self-regulatory organization
determinations, and decisions with respect to stays or interlocutory
motions. For each category of decision, the report shall also show the
median age of the cases at the time of the decision and the number of
cases decided within the guidelines for the timely completion of
adjudicatory proceedings.
Table I to Subpart D--Adversary Adjudications Conducted by the
Commission under 5 U.S.C. 554
Securities Exchange Act of 1934
Section 11A(b)(6), 15 U.S.C. 78k-1(b)(6) (suspension or revocation
of registration, or censure of a securities information processor).
Section 11A(c)(3)(A), 15 U.S.C. 78k-1(c)(3)(A) (prohibition of
transactions by brokers and dealers in registered securities other than
on a national securities exchange).
Section 12(j), 15 U.S.C. 78l(j) (suspensions of effective date or
revocation of registration of a security).
Section 15(b)(4), 15 U.S.C. 78o(b)(4) (suspension or revocation of
registration, or censure of a broker or dealer).
Section 15(b)(6)(A), 15 U.S.C. 78o(b)(6)(A) (censure, suspension or
bar an associate of a broker or a dealer).
Section 15B(c)(2), 15 U.S.C. 78o-4(c)(2) (suspension or revocation
of registration, or censure of a municipal securities dealer).
Section 15B(c)(4), 15 U.S.C. 78o-4(c)(4) (censure, suspension or
bar of an associate of a municipal securities broker or dealer).
Section 15B(c)(8), 15 U.S.C. 78o-4(c)(8) (removal or censure of
member of the Municipal Securities Rulemaking Board).
Section 15C(c)(1)(A), 15 U.S.C. 78o-5(c)(1)(A) (suspension or
revocation of registration, or censure of a government securities
broker or dealer).
Section 15C(c)(1)(C), 15 U.S.C. 78o-5(c)(1)(C) (censure, suspension
or bar of an associate of a government securities broker or dealer).
Section 17A(c)(3), 15 U.S.C. 78q-1(c)(3) (deny registration,
censure, place limitation on, suspend, or revoke registration of a
transfer agent).
Section 17A(c)(4)(C), 15 U.S.C. 78q-1(c)(4)(C) (censure, place
limitations on, suspend or bar certain persons associated or seeking to
associate with a transfer agent).
Section 19(h)(1), 15 U.S.C. 78s(h)(1) (suspension or revocation of
registration, or censure of a self-regulatory organization).
[[Page 32822]]
Section 19(h)(2), 15 U.S.C. 78s(h)(2) (suspension or expulsion of a
member of a self-regulatory organization).
Section 19(h)(3), 15 U.S.C. 78s(h)(3) (suspension or bar of a
person from being associated with a national securities exchange or
registered securities association).
Section 19(h)(4), 15 U.S.C. 78s(h)(4) (removal or censure of a
director or officer of a self-regulatory organization).
Section 21B(a), 15 U.S.C. 78u-2(a) (imposition of civil penalties
against any person for violation of the federal securities laws).
Ivestment Company Act of 1940
Section 9(d)(1), 15 U.S.C. 80a-9(d)(1) (imposition of civil
penalties against any person for violation of the federal securities
laws).
Investment Advisers Act of 1940
Section 203(e), 15 U.S.C. 80b-3(e) (suspension or revocation of
registration, or censure of an investment adviser).
Section 203(f), 15 U.S.C. 80b-3(f) (censure, suspension, or bar of
an associate of an investment adviser).
Section 203(i)(1), 15 U.S.C. 80b-3(i)(1) (imposition of civil
penalties against any person for violation of the federal securities
laws).
Table II to Subpart D--Cross-reference Table Showing Location of Rules
of Practice Adopted in 1995 with Former Rules of Practice, Related
Rules, and Statutory Provisions
------------------------------------------------------------------------
New rules (17 CFR 201) Former rules/Act Sec.
------------------------------------------------------------------------
100................................ 1.
101................................ none.
102................................ 2.
102(d)(4).......................... none.
103(a)-(c)......................... none.
104................................ 5.
110................................ 11(b).
111................................ 11(d)-(e), 16(g).
112................................ 11(c).
120................................ 5 U.S.C. 554(d).
121................................ 5 U.S.C. 554(d).
140(a)............................. 22(h).
140(b)-(c)......................... 22(k).
141(a)............................. 6(a), (b), (f).
141(b)............................. 23(d).
150(a)............................. 23(a).
150(b)............................. 2(d), (h).
150(c)............................. 23(b).
150(d)............................. 23(c).
151................................ 12(b), 22(a).
152(a)-(e)......................... 22(a)-(h).
152(f)............................. 20(d).
153................................ 7(f).
154................................ 11(e).
155................................ 12(d).
160................................ 22(j), 23(b).
161................................ 13.
180(a)............................. 2(f).
180(b)-(c)......................... none.
190................................ 25.
191................................ 27, 28.
192................................ 4.
193................................ 29.
200(a)(1).......................... 6(a), (b).
200(a)(2).......................... 6(f).
200(b), (c)........................ 6(a), (b).
200(d)............................. 6(d).
200(e)............................. 6(c).
201................................ 10.
202................................ 8(b), (c).
210................................ 9.
220................................ 7(a)-(e).
221(a)-(c), (e).................... 8(d)
221(d)............................. none.
221(f)............................. 6(e).
222(a)............................. 8(d).
222(b)............................. none.
230................................ none.
231(a)............................. 11-1.
231(b)............................. none.
232(a)-(d)......................... 14(b).
232(e)-(f)......................... 14(b)(2), (c).
233................................ 15(a)-(e).
234................................ 15(g).
235................................ 15(f).
240................................ 8(a).
250................................ 11(e).
300................................ 11(a)-(b).
301................................ 11(b).
302(a)............................. 11(f).
302(b)............................. 25(d).
302(c)............................. 20(c).
310................................ 6(e).
320................................ 14(a).
321(a)............................. 11(e).
321(b)............................. none.
322................................ none.
323................................ 14(d).
324................................ none.
325................................ 14(a).
326................................ 14(a).
340................................ 16(d)-(e).
350................................ 20(a)-(b).
351................................ 20(a)(4).
360(a)............................. 16(b).
360(b)............................. 16(a).
360(c)............................. 16(f).
360(d), (e)........................ 17(f).
400................................ 12(a).
401................................ 12(c).
401(d)(2).......................... 15 U.S.C. 78s(d)(2).
410(a)............................. 17(a).
410(b)............................. 17(b).
410(c)............................. none.
410(d)............................. none.
410(e)............................. 17(h).
411(a)............................. 17(g)(2).
411(b)............................. 17(d).
411(c)............................. 17(c).
411(d)............................. 17(g)(1).
411(e)............................. 17(d).
411(f)............................. 17(g)(3).
420(a), (b), (d)................... 17 CFR 240.19d-3(b).
420(c)............................. 15 U.S.C. 78s(d)(2).
420(d)............................. 58.
421(a)............................. 15 U.S.C. 78s(e)-(f).
421(b)-(c)......................... none.
430................................ 26(a), (c).
431(a)............................. none.
431(b)............................. 26(b).
431(c)............................. 26(d).
431(d)-(f)......................... 26(e).
450(a)............................. 17(e).
450(b)............................. 18, 17 CFR 240.19d-3(c)-(g).
450(c)............................. 22(d).
451................................ 21.
452................................ 21(d).
460................................ 20, 21(c).
470................................ 21(e).
490................................ 23(e).
500................................ none.
510................................ none.
511................................ none.
512................................ none.
513................................ none.
514................................ none.
520................................ none.
521................................ none.
522................................ none.
524................................ none.
530................................ 19.
531................................ none.
540................................ none.
550................................ 17 CFR 202.8.
600................................ none.
601................................ none.
610................................ none.
611................................ none.
612................................ none.
613................................ none.
614................................ none.
620................................ none.
630................................ none.
900................................ none.
------------------------------------------------------------------------
Table III to Subpart D--Cross-reference Table Showing Location of Former
Rules of Practice and Related Rules With Rules of Practice Adopted in
1995
------------------------------------------------------------------------
Former rules New rules (17 CFR 201)
------------------------------------------------------------------------
1.................................. 100.
2.................................. 102.
2(d), (h).......................... 150(b).
2(f)............................... 180(a).
3 [reserved]....................... n/a.
[[Page 32823]]
4.................................. 192.
5.................................. 104.
6(a)............................... 200(b).
6(a),(b),(f)....................... 141(a).
6(a), (b).......................... 200(a)(1).
6(b)............................... 200(c).
6(c), (d).......................... 200(d), (e).
6(e)............................... 221(f), 310.
6(f)............................... 200(a)(2).
7(a)-(e)........................... 220.
7(f)............................... 153.
8(a)............................... 240.
8(b)-(c)........................... 202.
8(d)............................... 221, 222(a).
9.................................. 210.
10................................. 201.
11(a)-(b).......................... 300.
11(b).............................. 110, 301.
11(c).............................. 112.
11(d), (e)......................... 111.
11(e).............................. 154, 250, 321(a).
11(f).............................. 302(a).
11-1............................... 231(a).
12(a).............................. 400.
12(b).............................. 151(c).
12(c).............................. 401.
12(d).............................. 155.
13................................. 161.
14(a).............................. 320, 325, 326.
14(b).............................. 232(a)-(d).
14(b)(2), (c)...................... 232(e)-(f).
14(d).............................. 323.
15(a)-(e).......................... 233.
15(f).............................. 235.
15(g).............................. 234.
16(a).............................. 360(b).
16(b).............................. 360(a).
16(c) [reserved]................... n/a.
16(d)-(e).......................... 340.
16(f).............................. 351, 360(c).
16(g).............................. 111.
17(a).............................. 410(a).
17(b).............................. 410(b).
17(c).............................. 411(c).
17(d).............................. 411(b), (e).
17(e).............................. 450(a), (d).
17(f).............................. 360(d), (e).
17(g).............................. 411(d), (a), (f).
17(h).............................. 410(e).
18................................. 450(b).
19................................. 530.
20(a)-(b).......................... 350, 351, 460.
20(c).............................. 302(c).
20(d).............................. 152(f).
21................................. 451.
21(c).............................. 460.
21(d).............................. 452.
21(e).............................. 470.
22(a).............................. 151(a)-(c), 152.
22(b) [reserved]................... n/a.
22(c).............................. 152(d).
22(d).............................. 152(e), 450(c).
22(e)-(g).......................... 152(a)-(c).
22(h).............................. 140(a).
22(i).............................. none.
22(j), (k)......................... 160, 140(c).
22(k).............................. 140(b).
23(a).............................. 150(a).
23(b).............................. 150(c), 160.
23(c).............................. 150(d).
23(d).............................. 141(b).
23(e).............................. 490.
24................................. 17 CFR 228.10(f), 17 CFR 229.10(d).
25................................. 190.
25(d).............................. 302(b).
26(a), (c)......................... 430.
26(b).............................. 431(b).
26(d).............................. 431(c).
26(e).............................. 431(d)-(f).
27................................. 191.
28................................. 191.
29................................. 193.
17 CFR 202.8....................... 550.
17 CFR 240.19d-2................... 401(a)-(b), (d).
17 CFR 240.19d-3(a)................ 420,421.
17 CFR 240.19d-3(b)................ 420(a), (b), (d).
17 CFR 240.19d-3(c)-(d)............ 450, 180(c).
17 CFR 240.19d-3(e)................ 452.
17 CFR 240.19d-3(f)................ 451.
17 CFR 240.19d-3(g)................ 100.
------------------------------------------------------------------------
PART 202--INFORMAL AND OTHER PROCEDURES
40. The authority citation for Part 202 continues to read in part
as follows:
Authority: 15 U.S.C. 77s, 77t, 78d-1, 78u, 78w, 78ll(d), 79r,
79t, 77sss, 77uuu, 80a-37, 80a-41, 80b-9, and 80b-11, unless
otherwise noted.
* * * * *
Sec. 202.8 [Removed and reserved]
41. Section 202.8 is removed and reserved:
PART 203--RULES RELATING TO INVESTIGATIONS
42. The authority citation for Part 203 continues to read as
follows:
Authority: 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11,
unless otherwise noted.
Sec. 203.3 [Amended]
43. In Sec. 203.3, remove the words ``Sec. 201.2(e) of this chapter
(Rule 2(e)'', and, in their place, add the words ``Sec. 201.102(e) of
this chapter (Rule 102(e)''.
Sec. 203.7 [Amended]
44. In Sec. 203.7(b), remove the words ``Sec. 201.2(b) of this
chapter (Rule 2(b)'', and, in their place, add the words
``Sec. 201.101(a) of this chapter (Rule 101(a)''.
Sec. 203.8 [Amended]
45. In Sec. 203.8, remove the words ``Sec. 201.14(b) of this
chapter (Rule 14(b) of the Commission's rules of practice)'', and, in
their place, add the words ``Rule 232(c) of the Commission's Rules of
Practice, Sec. 201.232(c) of this chapter''.
46. Part 209 is added to read as follows:
PART 209--FORMS PRESCRIBED UNDER THE COMMISSION'S RULES OF PRACTICE
Sec.
209.0-1 Availability of forms.
209.1 Form D-A: Disclosure of assets and financial information.
Authority: 15 U.S.C. 77h-1, 77u, 78u-2, 78u-3, 78v, 78w, 80a-9,
80a-37, 80a-38, 80a39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11,
and 80b-12, unless otherwise noted.
Sec. 209.0-1 Availability of forms.
(a) This part identifies and describes the forms for use under the
Securities and Exchange Commission's Rules of Practice, part 201 of
this chapter.
(b) Any person may obtain a copy of any form prescribed for use in
this part by written request to the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. Any person may inspect
the forms at this address and at the Commission's regional and district
offices. (See Sec. 200.11 of this chapter for the addresses of the SEC
regional and district offices.)
Sec. 209.1 Form D-A: Disclosure of assets and financial information.
(a) Rules 410 and 630 of the Rules of Practice (17 CFR 201.410 and
201.630) provide that under certain circumstances a respondent who
asserts or intends to assert an inability to pay disgorgement, interest
or penalties may be required to disclose certain financial information.
Unless otherwise ordered, this form may be used by individuals required
to supply such information.
(b) The respondent filing Form D-A is required promptly to notify
the Commission of any material change in the answer to any question on
this form.
(c) Form D-A may not be withheld from the interested division. A
respondent making financial information disclosures on this form after
the institution of proceedings may make a motion, pursuant to Rule 322
of the Commission's Rules of Practice (17 CFR 201.322), for the
issuance of a protective order to limit disclosure to the public or
parties other than the interested division of the information submitted
on Form D-A. A request for a protective order allows the requester an
opportunity to justify the need for [[Page 32824]] confidentiality. The
making of a motion for a protective order, however, does not guarantee
that disclosure will be limited.
(d) No party receiving information for which a motion for a
protective order has been made may transfer or convey the information
to any other person prior to a ruling on the motion without the prior
permission of the Commission or a hearing officer.
(e) A person making financial information disclosures on Form D-A
prior to the institution of proceedings, in connection with an offer of
settlement or otherwise, may request confidential treatment of the
information pursuant to the Freedom of Information Act. See the
Commission's Freedom of Information Act (``FOIA'') regulations, 17 CFR
200.83. A request for confidential treatment allows the requester an
opportunity to substantiate the need for confidentiality. No
determination as to the validity of any request for confidential
treatment will be made until a request for disclosure of the
information under FOIA is received.
Editorial Note: The text of Form D-A appears in the appendix to
this document and will not appear in the Code of Federal
Regulations.
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
47. The authority citation for Part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-
11, unless otherwise noted.
48. By amending Sec. 228.10 by adding paragraph (f) to read as
follows:
Sec. 228.10 (Item 10) General.
* * * * *
(f) Incorporation by Reference. Where rules, regulations, or
instructions to forms of the Commission permit incorporation by
reference, a document may be so incorporated by reference to the
specific document and to the prior filing or submission in which such
document was physically filed or submitted. Except where a registrant
or issuer is expressly required to incorporate a document or documents
by reference, reference may not be made to any document which
incorporates another document by reference if the pertinent portion of
the document containing the information or financial statements to be
incorporated by reference includes an incorporation by reference to
another document. No document on file with the Commission for more than
five years may be incorporated by reference except:
(1) Documents contained in registration statements, which may be
incorporated by reference as long as the registrant has a reporting
requirement with the Commission; or
(2) Documents that the registrant specifically identifies by
physical location by SEC file number reference, provided such materials
have not been disposed of by the Commission pursuant to its Records
Control Schedule (17 CFR 200.80f).
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
49. The authority citation for Part 229 continues to read in part
as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79e, 79n,
79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.
* * * * *
50. By amending Sec. 229.10 by adding paragraph (d) to read as
follows:
Sec. 229.10 General.
* * * * *
(d) Incorporation by Reference. Where rules, regulations, or
instructions to forms of the Commission permit incorporation by
reference, a document may be so incorporated by reference to the
specific document and to the prior filing or submission in which such
document was physically filed or submitted. Except where a registrant
or issuer is expressly required to incorporate a document or documents
by reference, reference may not be made to any document which
incorporates another document by reference if the pertinent portion of
the document containing the information or financial statements to be
incorporated by reference includes an incorporation by reference to
another document. No document on file with the Commission for more than
five years may be incorporated by reference except:
(1) Documents contained in registration statements, which may be
incorporated by reference as long as the registrant has a reporting
requirement with the Commission; or
(2) Documents that the registrant specifically identifies by
physical location by SEC file number reference, provided such materials
have not been disposed of by the Commission pursuant to its Records
Control Schedule (17 CFR 200.80f).
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
51. The authority citation for Part 230 continues to read in part
as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and
80a-37, unless otherwise noted.
* * * * *
Sec. 230.406 [Amended]
52. In Sec. 230.406 paragraphs (e), (g), (h)(1) and (h)(2), remove
the words ``Sec. 201.26'', and, in their place, add the words
``Sec. 201.431''.
Sec. 230.411 [Amended]
53. In Secs. 230.411(b)(4), remove the words ``Rule 24 of the
Commission's Rules of Practice (Sec. 201.24 of this chapter)'' and in
paragraph (c) remove the words ``Rule 24 of the Commission's Rules of
Practice'' and add, in their place, the words ``Sec. 228.10(f) and
Sec. 229.10(d) of this chapter''.
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
54. The authority citation for part 232 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.
Sec. 232.101 [Amended]
55. In Sec. 232.101(c)(13), remove the words ``Rules of Practice
(Secs. 201.1-201.29 of this chapter)'', and add, in their place, the
words ``Subpart D of Part 201 of this chapter''.
Sec. 232.102 [Amended]
56. In Sec. 232.102(a), remove the words ``Rule 24 of the
Commission's Rules of Practice (Sec. 201.24 of this chapter)'', and
add, in their place, the words ``Sec. 228.10(f) and Sec. 229.10(d) of
this chapter''.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
57. The authority citation for Part 240 continues to read in part
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * * [[Page 32825]]
Sec. 240.12b-23 [Amended]
58. In Sec. 240.12b-23(b), remove the words ``Rule 24 of the
Commission's Rules of Practice (Sec. 201.24 of this chapter)'' and add,
in their place, the words ``Sec. 228.10(f) and Sec. 229.10(d) of this
chapter''.
Sec. 240.12b-32 [Amended]
59. In Sec. 240.12b-32(a), remove the words ``Sec. 201.24 of this
chapter'' and add, in their place, ``Sec. 228.10(f) and Sec. 229.10(d)
of this chapter''.
Sec. 240.14a-101 [Amended]
60. In Sec. 240.14a-101 NOTE D 1, remove the words ``Rule 24 of the
Commission's Rules of Practice (Sec. 201.24 of this chapter)'' and add,
in their place, the words ``Sec. 228.10(f) and Sec. 229.10(d) of this
chapter''.
61. Sections 240.19d-2 and 19d-3 are revised to read as follows:
Sec. 240.19d-2 Applications for stays of disciplinary sanctions or
summary suspensions by a self-regulatory organization.
If any self-regulatory organization imposes any final disciplinary
sanction as to which a notice is required to be filed with the
Commission pursuant to Section 19(d)(1) of the Exchange Act, 15 U.S.C.
78s(d)(1), pursuant to Section 6(b)(6), 15A(b)(7) or 17A(b)(3)(G) of
the Act (15 U.S.C. 78f(b)(6), 78o-3(b)(7) or 78q-1(b)(3)(G)), or
summarily suspends or limits or prohibits access pursuant to Section
6(d)(3), 15A(h)(3) or 17A(b)(5)(C) of the Act (15 U.S.C. 78f(d)(3),
78o-3(h)(3) or 78q-1(b)(5)(C)), any person aggrieved thereby for which
the Commission is the appropriate regulatory agency may file with the
Commission a written motion for a stay of imposition of such action
pursuant to Rule 401 of the Commission's Rules of Practice,
Sec. 201.401 of this chapter.
Sec. 240.19d-3 Applications for review of final disciplinary
sanctions, denials of membership, participation or association, or
prohibitions or limitations of access to services imposed by self-
regulatory organizations.
Applications to the Commission for review of any final disciplinary
sanction, denial or conditioning of membership, participation, bar from
association, or prohibition or limitation with respect to access to
services offered by a self-regulatory organization or a member thereof
by any such organization shall be made pursuant to Rule 420 of the
Commission's Rules of Practice, Sec. 201.420 of this chapter.
Sec. 240.24b-2 [Amended]
62. In Sec. 240.24b-2 paragraphs (d)(2), (e)(1), and (e)(2), remove
the words ``17 CFR 201.26'', and, in their place, add the words
``Sec. 201.431 of this chapter''.
PART 250--GENERAL RULES AND REGULATIONS, PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935
63. The authority citation for part 250 continues to read as
follows:
Authority: 15 U.S.C. 79c, 79f(b), 79i(c)(3), 79t, unless
otherwise noted.
Sec. 250.22 [Amended]
64. In Sec. 250.22(b)(1), remove the words ``Sec. 201.24 of this
chapter'' and add, in their place, ``Sec. 228.10(f) and Sec. 229.10(d)
of this chapter''.
PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF
1939
65. The authority citation for part 260 continues to read as
follows:
Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d); 80b-3,
80b-4, and 80b-11.
Sec. 260.7a-29 [Amended]
66. In Sec. 260.7a-29(a), remove the words ``Sec. 201.24 of this
chapter'' and add, in their place, ``Sec. 228.10(f) and Sec. 229.10(d)
of this chapter''.
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
67. The authority citation for part 270 continues to read in part
as follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-37, 80a-39 unless
otherwise noted.
* * * * *
Sec. 270.0-4 [Amended]
68. In Sec. 270.0-4(a), remove the words ``Sec. 201.24 of this
chapter'' and add, in their place, ``Sec. 228.10(f) and Sec. 229.10(d)
of this chapter''.
Sec. 270.8b-32 [Amended]
69. In Sec. 270.8b-32(a), remove the words ``Sec. 201.24 of this
chapter'' and add, in their place, ``Sec. 228.10(f) and Sec. 229.10(d)
of this chapter''.
PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940
70. The authority citation for part 275 continues to read in part
as follows:
Authority: 15 U.S.C. 80b-3, 80b-4, 80b-6A, 80b-11, unless
otherwise noted.
* * * * *
Sec. 275.0-6 [Amended]
71. In Sec. 275.0-6 paragraph (a) and the NOTE at the end of the
section, remove the words ``Sec. 201.24 of this chapter'' and add, in
their place, ``Sec. 228.10(f) and Sec. 229.10(d) of this chapter''.
By the Commission.
Dated: June 9, 1995.
Margaret H. McFarland,
Deputy Secretary.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix--Form D-A
BILLING CODE 8010-01-P
[[Page 32826]]
[GRAPHIC][TIFF OMITTED]TR23JN95.000
[[Page 32827]]
[GRAPHIC][TIFF OMITTED]TR23JN95.001
[[Page 32828]]
[GRAPHIC][TIFF OMITTED]TR23JN95.002
[[Page 32829]]
[GRAPHIC][TIFF OMITTED]TR23JN95.003
[[Page 32830]]
[GRAPHIC][TIFF OMITTED]TR23JN95.004
[[Page 32831]]
[GRAPHIC][TIFF OMITTED]TR23JN95.005
[[Page 32832]]
[GRAPHIC][TIFF OMITTED]TR23JN95.006
[[Page 32833]]
[GRAPHIC][TIFF OMITTED]TR23JN95.007
[[Page 32834]]
[GRAPHIC][TIFF OMITTED]TR23JN95.008
[FR Doc. 95-14750 Filed 6-22-95; 8:45 am]
BILLING CODE 8010-01-C
