Skip to Content

Rule

Adoption of Amendments to the Rules of Practice and Delegations of Authority of the Commission

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble Start Printed Page 13166

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rules.

SUMMARY:

The Securities and Exchange Commission (“Commission”) is amending its Rules of Practice and certain of its delegations of authority to the staff in light of the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act, among other things, authorizes the Commission to review disciplinary actions of the Public Company Accounting Oversight Board and to create “Fair Funds” in Commission administrative proceedings. The Commission also is amending other provisions of the Rules of Practice and its delegations as a result of its experience with those rules and to correct certain citations. The amendments will enhance the transparency and facilitate parties' understanding of the applicability of the review process to Board proceedings. The amendments also will make practice under the rules easier and more efficient.

EFFECTIVE DATE:

April 19, 2004.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Bari S. Podell, Office of the General Counsel, (202) 942-0950, Securities and Exchange Commission, 450 5th Street, NW., Washington, DC 20549-0208.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

On November 25, 2003, the Commission proposed amendments to the Rules of Practice (“Rules”).[1] The Commission proposed new rules to effectuate the provisions of the Sarbanes-Oxley Act of 2002.[2] The Commission also proposed additional amendments to its existing Rules as a result of experience with those rules. Additional amendments were proposed to correct typographical errors and change certain citations to conform to the amended rules.

I. Discussion

The Commission requested comment from interested persons. The Commission received two comment letters in response to the Proposing Release.[3] One comment letter expressed concern that the Commission preserve funds for future disgorgement funds. The other comment letter recommended certain bookkeeping measures. The Commission will consider the two commenters' observations and suggestions in connection with these issues. There were no comment letters addressing the text or operation of the proposed Rules. After careful consideration, the Commission is adopting the amendments to the Rules of Practice and related provisions, as well as certain delegations of authority to the staff, essentially as proposed.

A. Amendments as a Result of the Sarbanes-Oxley Act

Section 107(c) of the Sarbanes-Oxley Act [4] provides for Commission review of disciplinary actions imposed by the Public Company Accounting Oversight Board (“Board”) and actions that result in the disapproval of registration of a public accounting firm.[5] Sections 105(d) and 107(c) of the Sarbanes-Oxley Act require the Board to give the Commission notice if the Board disapproves the registration of a public accounting firm or if the Board disciplines a registered public accounting firm or a person associated with a registered public accounting firm.

In creating its framework for Commission review of Board actions, section 107(c) of the Sarbanes-Oxley Act specifies that sections 19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934,[6] which govern Commission review of self-regulatory organization disciplinary proceedings, shall govern Commission review of final disciplinary sanctions imposed by the Board “as fully as if the Board were a self-regulatory organization and the Commission were the appropriate regulatory agency for such organization for purposes of those sections 19(d)(2) and 19(e)(1). * * *” As described in the proposing release, the effect of section 107(c) of the Sarbanes-Oxley Act is to make Board actions subject to Commission review under those Exchange Act provisions on the same basis as actions by existing self-regulatory organizations, and to make relevant rules under those provisions applicable to that review.

The Commission nonetheless proposed to enact new rules and to amend others for purposes of clarity. The Commission has now determined to adopt the new proposed rules and those changes as proposed. The changes include specific references to Commission review of Board actions and, for example, identify the process by which the Board will provide notice to the Commission of its actions.

1. Disapproval of Registration

Rule 19d-4(a) adds definitions. As proposed and adopted, rule 19d-4(b) will require the Board to file with the Commission and to serve on the public accounting firm a notice of disapproval of registration within 30 days of the Board's action.[7] The notice must include the firm's name and last known address (as reflected in the Board's records), the basis for the Board's disapproval, a copy of the Board's written notice of disapproval, and such other information as the Board deems relevant.

2. Review of Disciplinary Sanctions

The Commission has determined to adopt proposed Rule 19d-4(c). That rule requires the Board to file and serve a notice of any disciplinary sanction, other than a disapproval of registration, within 30 days of the Board's action. The notice must provide the name and last address (as reflected in the Board's records) of the associated person or registered public accounting firm disciplined and a description of the acts or omissions on which the sanction is based. The notice must also specify the sanction imposed, give the effective date of the sanction, and include a statement of the reasons for the sanction or a copy of the Board's statement justifying the sanction, as well as such other information as the Board deems relevant.

The Commission is also adopting proposed Rule 440(a) with respect to applications for review from actions of the Board. Rule 440(a) permits any person aggrieved by a final disciplinary sanction (including disapproval of a completed application for registration of a public accounting firm) imposed by the Board to file an application for review with the Commission. Rule Start Printed Page 13167440(b) requires any application to be filed within 30 days after the Board's notice under Rule 19d-4 is received by the aggrieved person. The application must identify the determination complained of and contain a brief statement of the alleged errors in the determination. If the applicant is represented by counsel, the application must be accompanied by a notice of counsel's appearance, filed in accordance with new Rule 102(d). Under Rule 440(d), the Board has fourteen days after receipt of the application to certify the record to the Commission and serve one copy of the record index on each party.

3. Stay of Board Action

In accordance with section 105(e)(1) of the Sarbanes-Oxley Act,[8] proposed Rule 440(c) provided that filing an application for review would act as a stay of the Board's action unless the Commission otherwise orders. Proposed Rule 401(e)(1) would permit any person aggrieved by the automatic stay to ask the Commission to lift the stay. The Commission may, in any event, lift the stay on its own motion.

As permitted under section 105(e)(1) of the Sarbanes-Oxley Act, proposed Rule 401(e)(2) provided that the Commission may act to lift a stay of Board action summarily, without notice and opportunity for a hearing. The Commission could also expedite consideration of a motion to lift a stay of Board action to the extent expedition is consistent with the Commission's other responsibilities. If the consideration of a motion to lift is expedited, proposed Rule 401(e)(3) permitted persons opposing the lifting of the stay to file an opposition within two days of service of the motion to lift unless the Commission orders a different period.[9] The Commission is adopting all these provisions.

4. Review on Motion of the Commission

The Commission is also adopting proposed Rule 441(a), which permits the Commission to review a Board disciplinary sanction on its own motion. The Commission must determine whether to take review of a Board disciplinary sanction within 40 days after the Board files its notice of the action.[10] Rule 441(b) permits the Commission to raise any material matter, whether or not the parties previously raised that matter. The Commission can raise material matters in cases it takes up on its own motion and in cases that are appealed to it. The Commission may provide notice and an opportunity for supplemental briefing if the Commission believes that such briefing would significantly aid its decisional process.

5. Amendments to Existing Rules

The Commission also adopts as proposed certain amendments to the following Rules with respect to the review proceedings created by the Sarbanes-Oxley Act:

  • The definition of “proceeding” in Rule 101(a)(9) (Definitions) is amended to include review of Board disciplinary sanctions under Rule 440.[11]
  • Rule 202(a) (Specification of procedures by parties in certain proceedings) and Rule 210 (Parties, limited participants and amici curiae), which permit intervention and leave to participate on a limited basis, are amended to exclude review of Board disciplinary sanctions under Rule 440. These Rules currently do not apply to Commission enforcement or disciplinary proceedings or to review of determinations by self-regulatory organizations.
  • Rule 450(a)(2) (Briefs filed with the Commission) is amended to include a provision for briefs to be filed in the Commission's review of final disciplinary sanctions imposed by the Board. Under the Rule, the Commission would issue a briefing schedule order within 21 days (or such longer time as provided by the Commission) following its receipt of the Board's index of the record of the Board's determination.
  • Rule 460(a)(3) (Record before the Commission) defines the contents of the record before the Commission to include the record certified to the Commission by the Board, any application for review, and any submissions made to the Commission.

The Commission is revising its ex parte rule, 17 CFR 200.111 (Prohibitions; application, definitions), to provide that, in proceedings to review Board action, the prohibitions against ex parte communications commence when a copy of the application for review of the Board's action has been filed with the Commission and served on the Board.[12]

6. Delegations of Authority

To implement these rule amendments, the Commission adds certain delegations to the staff. Title 17 CFR 200.30-7 (Delegation of authority to the Secretary of the Commission) currently delegates to the Commission's Secretary the authority, among other things, to postpone or adjourn hearings, set and reallocate time for oral argument, extend the time to make filings, issue orders pursuant to offers of settlement, and certify records to the appropriate United States Court of Appeals. The Commission is amending this delegation to make clear that the delegations extend, where appropriate, to proceedings under the Sarbanes-Oxley Act.

The Commission also is amending 17 CFR 200.30-7(a)(5) and 200.30-10(a)(5), which currently permit the Secretary or the Chief Administrative Law Judge, respectively, to authorize a party to file briefs exceeding 60 pages “in accordance with Rule 450(c).” However, existing Rule 450(c) provides that briefs cannot exceed 50 pages, absent leave of the Commission.[13] The Commission therefore is correcting these delegations to provide that the Secretary or the Chief Administrative Law Judge may authorize a party to file briefs exceeding 50 pages. The Commission also is making clear that its delegation of authority to the Secretary and its delegation of authority to the Chief Administrative Law Judge include proceedings under the Securities Investor Protection Act of 1970 and under Rule 102(e).

The Commission further amends 17 CFR 200.30-14(g)(1) to delegate to the General Counsel the authority, among other things, to grant requests for the submission of late briefs, issue an order dismissing a proceeding as to a party if the party requests to withdraw its appeal, permit a party to supplement the record, and issue briefing schedule orders in proceedings under the Sarbanes-Oxley Act. The General Counsel also is delegated the authority, in proceedings under the Sarbanes-Oxley Act, to determine that an application for review has been abandoned, to determine whether to stay a Commission order or vacate a Start Printed Page 13168preexisting stay pending appeal of the order to the Federal courts, to grant or deny requests for oral argument, and to determine whether to lift the automatic stay of a disciplinary sanction. The General Counsel is further delegated the authority to request additional briefs from the parties. See 17 CFR 200.30-14(g)(1)(vii), (g)(4), (g)(5), (g)(7), and (g)(8).

B. Fair Funds and Disgorgement

Section 308(a) of the Sarbanes-Oxley Act [14] provides that, in a Commission administrative proceeding where the Commission or a hearing officer enters an order requiring disgorgement from a respondent for a violation of the securities laws, or where the respondent agrees in settlement to payment of such disgorgement, any civil penalty also ordered against that respondent may be added to the disgorgement funds to create a “Fair Fund” to be disbursed by the Commission for the benefit of the victims of such violation. Section 308(b) of the Sarbanes-Oxley Act [15] authorizes the Commission to accept gifts or bequests to the United States of real and personal property for deposit in a Fair Fund.

Administration of, and distribution to investors under, Fair Funds and disgorgement plans occur after the conclusion of the principal action against a respondent. The functions involved are administrative in nature and not subject to provisions such as Rule 120 of the Rules of Practice and the ex parte communication rule. Recognizing this, the Commission has determined to adopt its proposal to remove, from subpart D of the Rules of Practice, Rules 610 through 620, which relate to the development, submission, approval, and administration of orders of disgorgement, and to the right to challenge orders of disgorgement, and to include them in a new subpart F.

The Commission is adopting Rules 1100, 1101, and 1102 as proposed. New Rule 1100 authorizes the Commission to create a Fair Fund in any administrative proceeding in which a final order is entered against a respondent requiring disgorgement and payment of a civil money penalty. The Commission may also create a Fair Fund if it approves a settlement of an administrative proceeding that provides for a respondent's payment of disgorgement and a civil money penalty. The Commission may add to the Fair Fund any property received in accordance with section 308(b) of the Sarbanes-Oxley Act.[16]

The Commission has the power to require disgorgement of a wrong-doer's ill-gotten gains obtained by virtue of his or her securities law violation, regardless of whether particular investors suffered any damages.[17] The Commission notes that Fair Funds must be disbursed to the investors harmed by the securities law violation at issue. Where there are no identifiable victims of a violation, the Commission will continue to require that any disgorgement and civil money penalty amounts be paid to the United States Treasury.

In some cases, the Commission may conclude that it is in the public interest to impose a civil money penalty and order disgorgement even though the relative value of the ill-gotten gains and the number of potential claimants would result in high administrative costs and de minimis distributions to individual investors. Under such circumstances, the Commission will not create a Fair Fund and will continue its practice of ordering that the disgorgement and civil penalty amount be paid directly to the United States Treasury.

The Rules permit the Commission or the hearing officer, as appropriate, to oversee the administration of both disgorgement funds and Fair Funds. As adopted, Rule 1101(a) allows the Commission or the hearing officer at any time to order any party to submit a plan for the administration of either a Fair Fund or a disgorgement fund. Unless ordered otherwise, the Division of Enforcement must submit such a plan within 60 days after the respondent has tendered the funds or other assets pursuant to the Commission's order to pay disgorgement and, if applicable, a civil money penalty.

Rule 1101(b) requires that a Fair Fund plan or disgorgement fund plan shall provide for: Receiving and holding additional funds, including any funds received under section 308(b) of the Sarbanes-Oxley Act; identifying categories of persons potentially eligible to receive funds; providing notice to those persons of the fund's existence and their potential eligibility; processing claims; termination of the fund and disposition of any remaining assets not otherwise distributed; administration of the fund; and such other provisions as the Commission or the hearing officer deems appropriate.

Rule 1102(a) provides that the Commission may authorize payment of disgorgement funds into any court registry or to a court-appointed receiver in any case that alleges the same or similar facts against the respondent.

Rule 1102(b) permits the Commission or the hearing officer to order that funds be paid directly to the United States Treasury if the cost of administering the fund relative to the value of the disgorgement fund, together with any civil money penalty, and the number of potential claimants do not justify distribution of the funds.

As adopted, Rule 1103 requires that notice of a proposed disgorgement plan or a proposed Fair Fund plan be published in the SEC Docket or such other publications as the Commission or the hearing officer directs. The notice must specify how to obtain copies of the proposed plan and inform those desiring to comment to submit their written views to the Commission. The Commission also would post notice of a proposed plan on its Web site. The reference in the proposed rule to publication in the SEC News Digest has been deleted since the News Digest now is available through the Commission's Web site.

The Commission is also adopting Rules 1104, 1105, and 1106 as proposed. Rule 1104 provides that, at any time after 30 days following publication of the notice of a proposed disgorgement plan or a proposed Fair Fund plan, the Commission or the hearing officer may approve, modify, or disapprove the proposed plan. If a plan is substantially modified, the Commission or the hearing officer may order publication of the modified plan before its adoption.

Rule 1105 provides for the administration of Fair Funds and disgorgement funds. It permits the Commission or the hearing officer to appoint any person, including a Commission employee, as a fund administrator. Either the Commission or the hearing officer would be able to remove an administrator.

An administrator who is not a Commission employee must post a bond in an amount designated by the Commission, unless the bond is waived by the Commission. An administrator who is not a Commission employee may receive a fee for reasonable services, subject to approval by the Commission or the hearing officer. Commission employees may not receive such fees. Fees and expenses from fund administration would be paid first from interest and then, if the interest were Start Printed Page 13169insufficient, from corpus. The administrator must give periodic accountings, as ordered, and submit a final accounting prior to his or her discharge and cancellation of any bond. On motion of a party or the administrator or upon notice of the hearing officer or the Commission, the plan may be amended.

Rule 1105(b) provides that a respondent may be required or permitted to administer a plan of disgorgement, subject to terms the Commission or the hearing officer deems appropriate. At this time, the Commission does not propose to extend this provision to Fair Funds. A Fair Fund would include a civil penalty and might include funds conveyed to the United States pursuant to section 308(b) of the Sarbanes-Oxley Act.

Rule 1106 states that no person will be granted the right to intervene or appear in a proceeding to challenge an order of disgorgement, an order creating a Fair Fund, an order approving, modifying, or disapproving a disgorgement plan or a Fair Fund plan, or any determination relating to a plan based solely on the person's eligibility or potential eligibility to participate in a fund or based on a private right of action. As was the case under the Commission's disgorgement rules before these amendments, such person's participation is limited to submitting comments in accordance with Rule 1103.

C. Other Proposed Amendments

In 1995, the Commission substantially amended its Rules of Practice. After several years of experience with these Rules, the Commission has determined to make certain changes to the Rules to make practice under them easier and more efficient.

1. The existing Rules do not make explicit the Commission's authority to order a variation from the rules governing proceedings before it. The Commission is adopting proposed Rule 100(c), which specifies that the Commission may, by order, direct in a particular proceeding that an alternative procedure shall apply or that compliance with an otherwise applicable rule is unnecessary. Such an order would be based on the Commission's determination that to do so would serve the interests of justice and not result in prejudice to any party to the proceeding.

2. Section 11A of the Exchange Act and the rules thereunder authorize the Commission to adjudicate certain disputes involving registered securities information processors, national market system plans, or transaction reporting plans.[18] In addition to the inclusion of review of Board disciplinary sanctions discussed above, as proposed, Rule 101(a)(9) is amended to expand the definition of “proceeding” to make clear that the Rules of Practice are applicable to such adjudications.[19]

3. The Commission previously required counsel to file a motion to withdraw as counsel. The Commission is adopting proposed Rule 102(d)(4), which will now require only that a person who seeks to withdraw his or her appearance in a representative capacity file a notice of withdrawal with the Commission or the hearing officer. The notice should state the withdrawing representative's name, address, and telephone number; the name, address, and telephone number of the person for whom the appearance was made; and the withdrawal's effective date. If the person who seeks to withdraw knows the new representative's name, address, and telephone number, or knows that the person for whom the appearance was made intends to represent him- or herself, that information would also be required to be included in the notice. The notice must be served on the parties in accordance with Rule 150. In addition, the notice must be filed at least five days before the proposed effective date of the withdrawal.

4. The Commission has found that some appeals could be streamlined if certain issues were addressed first to the hearing officer. The Commission is therefore adopting the proposed amendment to Rule 111. The amendment authorizes hearing officers to consider and rule on a motion to correct a manifest error of fact, provided that the motion is filed within ten days of the initial decision.

5. Former Rule 141(a)(3) required the Secretary to “maintain a record of service on parties.” The rule is amended to authorize the Secretary to maintain records of service in computerized records, rather than hard copy records.

6. Former Rule 141(a)(3) required the Secretary to place in the record of the proceeding confirmations of delivery of service. The Commission has concluded that it is easier to maintain confirmations of service by certified mail in a single file. The Commission believes this form of recordkeeping will permit easier retrieval of these documents. The Commission amends Rule 141(a)(3) accordingly.

7. Former Rule 141(b) provided that service of written orders or decisions by the Commission or by a hearing officer, other than an order instituting proceedings, must be made by any method of service authorized under Rule 141(a) or Rule 150(c)(1)-(3). As discussed below, the Commission now is amending Rule 150 to abolish the requirement that the parties agree in writing to accept service by facsimile transmission.

However, the Commission has determined that it is important to be able to demonstrate that a party has agreed to accept service of an order or decision by facsimile transmission. Therefore, as amended, Rule 141(b) provides that orders and decisions may be served by facsimile only if the party to be served has agreed to accept such service in a writing, signed by the party, and has provided the Commission with facsimile machine telephone number and hours of facsimile machine operation. Rule 141(b) replaces the reference to Rule 150(c) with a reference to Rules 150(c)(1)-(3).

8. As noted above, the Commission is adopting its proposed amendment to Rule 150(c)(4), governing parties' service of documents by facsimile transmission, to eliminate the requirement that parties who seek to serve each other by facsimile agree to do so in writing. As proposed, the Commission also is amending Rule 150(c)(4) to eliminate the requirement that receipt of each document served by facsimile be confirmed by a manually signed receipt. The Commission's experience has shown that, in many instances, parties were serving each other by facsimile but were not entering into the agreements or confirming by manually signed receipt. Under Rule 150(c)(4), persons who choose service by facsimile must provide the Commission and the parties with notice of the facsimile machine telephone number to be used and the hours of facsimile machine operation. As amended, Rule 150(c)(4)(ii) requires that facsimile transmissions be made at a time that results in their receipt during Start Printed Page 13170the Commission's business hours as defined in Rule 104.[20]

The Commission is also adopting proposed Rule 150(c)(4)(iii). That rule permits a party to decline to receive service by facsimile. Such a declination must be made in writing and served in accordance with Rule 150.

The Commission has determined to retain Rule 150(d)'s requirement that service by facsimile is complete upon confirmation of transmission by delivery of a manually signed receipt. The Commission asked for comment as to whether parties making service by facsimile should continue to provide a non-facsimile original contemporaneously with service by facsimile unless the parties agreed otherwise. The Commission received no comment, and has determined to eliminate this requirement.

9. Former Rule 151 provided that all papers required to be served by a party should be filed with the Commission “at the time of service or promptly thereafter.” Some parties have delayed making filings with the Commission. The rule is amended to make clear that filings with the Commission must be done “contemporaneously” with service on the parties. The Commission is also adopting its proposal to permit filings with the Commission to be made by facsimile transmission if the party also contemporaneously transmits to the Commission a non-facsimile original with a manual signature. Any person filing with the Commission by facsimile transmission assumes the risk that the transmission will not be completed in a timely or legible fashion.

10. The Commission is adopting its proposed amendment to Rule 152(a)(2) to require the use of 12-point or larger type (and eliminate the use of 10-point type) in order to enhance the legibility of filings.

11. Rule 154 previously limited a brief in support of or in opposition to a motion to 10 pages, exclusive of pages containing any table of contents, table of authorities, and/or addendum. As a result, the Commission received filings by parties who attempted to circumvent this page limitation by filing 10-page briefs and extremely lengthy motions. The Commission is adopting the proposed amendment to Rule 154 to establish a combined page limit of 15 pages for the motion and brief. This limitation is exclusive of any table of contents, table of authorities, or any addendum that consists solely of applicable cases, pertinent legislative provisions, or relevant exhibits. The proposal has been clarified to provide that the excluded addendum may include pertinent rule provisions.

12. Current Rule 151 provides that persons must file papers with the Commission within any time specified for filing.[21] Rule 160 provided generally that a prescribed period for response may be extended three days for service by mail. The Commission is adopting its proposed amendment to Rule 160 to make clear that a person does not receive additional time for service by mail if the order of the Commission or the hearing officer specifies a date certain for filing. If a party requires a short extension, the Commission believes that the party could request that extension under Rule 161.

13. Current Rule 201 provides for the consolidation of proceedings.[22] In accordance with the proposal, new Rule 201(b) permits the Commission to order any proceeding severed with respect to some or all of the parties. Motions to sever must be addressed to the Commission and represent that a settlement offer has been submitted to the Secretary for Commission consideration or otherwise show good cause.

14. Former Rule 230(a)(1)(vi) required production of final examination and inspection reports. The Commission is adopting its proposed amendment to Rule 230(a)(1)(vi). The amendment states that any final examination or inspection reports prepared by the Office of Compliance Inspections and Examinations, the Division of Market Regulation, or the Division of Investment Management must be produced only if the Division of Enforcement intends either to introduce them into evidence or to use them to refresh a witness's recollection.

The Commission provides examined parties with notice of examination findings in the examination process. As a result, the amendment limits the production of examination and inspection reports to circumstances where the Division of Enforcement intends to introduce the report into evidence, either in reliance on the report to prove its case, or to refresh the recollection of any witness. The amendment does not alter the requirement that the Division produce documents containing material exculpatory evidence as required by Brady v. Maryland.[23]

Current Rule 230(c) permits the hearing officer to require the Division of Enforcement to submit for review a list of withheld documents.[24] The Commission is adopting its proposed amendment to provide that, when documents are withheld, those documents may be identified by category instead of individual document. Under the amendment, the hearing officer retains discretion to determine when an identification by category is insufficient.[25]

15. Rule 231(a), relating to the production of witness statements, refers to “any statement * * * that would be required to be produced by the Jencks Act, 18 U.S.C. 3500.” The Commission is adopting, as proposed, an amendment that provides that the Commission will rely on the definition of “statement” contained in the Jencks Act [26] in applying this Rule.

16. Rule 232(e)(1) formerly allowed only the person to whom a subpoena is directed or a person who is an owner, creator, or the subject of the documents to be produced pursuant to a subpoena, to oppose the subpoena. Subpoenas directed at third party witnesses can be overly broad. Some recipients of such subpoenas may lack the sophistication or resources to dispute the scope of the subpoenas. The Commission therefore has determined to adopt its proposed amendment to allow any party to the proceeding to present arguments about whether a subpoena directed to any witness is unreasonable, oppressive, or unduly burdensome.

17. Current Rule 233 sets forth the basis for ordering a deposition.[27] The Commission is enacting its proposed amendment to allow the taking of a deposition of a witness who currently is within the United States, but who is expected to be outside the United States during the time of the hearing, provided that the deposition will serve the interests of justice, and that it appears that the party requesting the deposition did not procure the witness's absence.

18. Rule 350(b) requires the Secretary to retain documents offered into evidence, but excluded from the record, so that in the event of an objection, the Commission may consider any arguments that the documents should be admitted. The Commission is amending Rule 350(b) to eliminate the requirement that the Secretary also retain documents that are marked for identification but not offered into evidence.

19. Rule 351(a) is amended to delete a reference to a practice abandoned Start Printed Page 13171several years ago in which the interested division took custody of the exhibits after a hearing and was responsible for having them sent to the Secretary. Currently, the court reporter takes custody of exhibits.

20. Rule 360(a)(2) directs the hearing officer to issue an initial decision within the time period specified in the order instituting proceedings. To address the hearing officer's inability to comply with this directive when a proceeding is stayed by order of the hearing officer or the Commission under Rule 210(c)(3),[28] the Commission is, as proposed, amending Rule 360(a)(2) to state that, in the event of a stay of the proceeding under the authority of Rule 210(c)(3), the specified time period for issuance of the initial decision, as well as any other time limits established in orders issued by the hearing officer under Rule 360(a)(2), will be automatically tolled during the period in which the stay is in effect.

21. Rule 360(b)(1) formerly provided that the Commission will enter an order of finality as to each party unless a party or aggrieved person timely files a petition for review of the initial decision or the Commission decides on its own initiative to review the initial decision. The rule is amended to provide further that the Commission will not enter an order of finality if a motion to correct a manifest error of fact in the initial decision is filed with the hearing officer.

22. Rule 360(d)(1) is amended to provide that an initial decision becomes final upon the Commission's issuance of a finality order. The prior rule provided that an initial decision became final on the lapse of time but also required the issuance of a finality order. The amendment makes clear when a decision becomes final. As adopted, Rule 360(d)(1) provides that notice of the order will appear in the SEC Docket and on the website.

Former Rule 360(d)(2) provided that the initial decision would not become final as to a party or person if a timely petition for review were filed by that party or person. New Rule 360(d)(1) provides that timely filing, by a party or an aggrieved person entitled to review, of a motion to correct an initial decision to the hearing officer, as well as a timely petition for review, will mean that the initial decision will not become the final decision of the Commission as to that party or person. The amendment also makes conforming changes to Rule 360(b) specifying that an initial decision shall include a statement reflecting the provisions of Rule 360(d).

Rule 410(b) is amended to provide that the time to file a petition for review is stayed until 21 days after resolution of any motion to correct an initial decision filed before the hearing officer. While a motion to correct is pending, a party need not file a petition for review to preserve its appeal rights.

23. The Commission adopts proposed Rule 400 to make clear that petitions for interlocutory review are “disfavored” and rarely will be granted. The amendment recognizes, however, that the Commission retains discretion to undertake such review on its own motion at any time.

24. As proposed, Rule 400 also is amended to state that it is the sole route for interlocutory review of determinations by a hearing officer, and the sole mechanism for appeal of actions delegated pursuant to 17 CFR 200.30-9 and 200.30-10.[29]

25. The Commission is adopting its proposed Rule 401(d)(1) to clarify that an applicant can seek a stay of an action by a self-regulatory organization only at the time an application for review is filed or thereafter. Filing an application for review brings the action before the Commission. Since Rule 420(c) is being amended to reduce the length of an application for review, the requirement that an application be filed either when or before a stay is sought will not impose a significant burden.

26. Rule 410(b), as proposed, is amended to permit an opposing party to file a cross-petition for review within ten days from the filing of a petition for review. This amendment will make it unnecessary for parties to file protective defensive petitions for review.

Rule 410(d) is deleted, as proposed, thus abolishing the opposition to the petition for review. The Commission believes that a motion for summary affirmance will permit the Commission to dispose of matters suited to more abbreviated review.

27. The Commission is adopting its proposed amendments to Rule 411(e), governing summary affirmance. Rule 411(e) is amended to provide a 21-day time limit after the filing of a petition for review for filing a motion for summary affirmance. The amendment also sets forth standards for granting and denying summary affirmance. Summary affirmance will be granted if the Commission finds that no issue raised in the initial decision warrants consideration by the Commission of further oral or written argument. Summary affirmance will be denied upon a reasonable showing that a prejudicial error was committed in the conduct of the proceeding or that the decision embodies an exercise of discretion or decision of law or policy that is important and that the Commission should review.

28. Section 19(d) of the Exchange Act requires a person who appeals from self-regulatory organization disciplinary action to do so within 30 days after the notice of determination is filed with the Commission and received by the aggrieved person “or within such longer period as” the Commission “may determine.” The Commission is adopting its proposed change to Rule 420(b) to make clear that an appeal from self-regulatory organization action must be filed within 30 days, absent a showing of extraordinary circumstances. This standard is consistent with prior Commission precedent.[30]

As proposed, Rule 420(c) is amended to provide that an application for review of a self-regulatory organization action is limited to two pages. Former Rule 420 contained language suggesting that the applicant's address could be used to serve only the record index. Rule 420(c) is amended to provide that the applicant identify where he or she may be served for all purposes.

29. Former Rule 450(c) sets limits on the number of pages in briefs. In accordance with Federal Rule of Appellate Procedure 32, the Commission is adopting its proposed word limits—14,000 for principal briefs and 7,000 for any reply brief. The amendment also states that motions to file oversized briefs are disfavored. In exceptional cases, however, where more pages may be needed to address the issues—for example, where the Division of Enforcement must address arguments by multiple respondents—the Commission may, upon motion, allow longer filings.

The proposal provided that, if a principal brief exceeded 30 pages in length, or a reply brief exceeded 15 pages in length, the attorney filing the brief (or an unrepresented party) was required to certify that the brief complied with the length limitation and to state the number of words in the brief. As adopted, this requirement has been extended to any representative of a party. The amendment permits the person certifying the length of the brief to rely on the word count of the word Start Printed Page 13172processing system used to prepare the brief.

The Commission has received briefs that sought to incorporate by reference briefs filed before the hearing officer in the proceeding on appeal. Incorporation of other pleadings by reference erodes the page-limit requirements of Rule 450(c). The Commission is adopting the proposed amendment that provides that pleadings incorporated by reference will be included in determining the word count of briefs. The amendment is intended to promote adherence to the length limitations of Rule 450(c) and to encourage parties to exercise judgment in selecting the arguments that best advance their positions rather than simply repeating previously formulated contentions.

30. Current Rule 451, governing oral argument, did not contemplate visual aids. As it proposed, the Commission is amending Rule 451(b) to prohibit the use of visual aids unless copies are provided to the Commission and parties at least five business days before the argument is to be held.[31]

31. Former Rule 470 specified a 15-page limit for a motion for reconsideration. There does not seem to be any reason for treating motions for reconsideration differently from other motions. As it proposed, the Commission is amending Rule 470 to limit the party seeking reconsideration to the same number of pages and the same format used for other motions under the Rules of Practice.

32. Current Rule 601 codifies existing practice for payment of disgorgement, interest, and penalties. As the Commission proposed, the amendment of Rule 601 standardizes the language currently used by hearing officers in initial decisions and the Commission in its orders, as follows:

(c) Method of making payment. Payment shall be made by United States postal money order, wire transfer, certified check, bank cashier's check, or bank money order made payable to the Securities and Exchange Commission. The payment shall be mailed or delivered to the office designated by this Commission. Payment shall be accompanied by a letter that identifies the name and number of the case and the name of the respondent making payment. A copy of the letter and the instrument of payment shall be sent to counsel for the Division of Enforcement.

II. Administrative Procedure Act, Regulatory Flexibility Act, and Paperwork Reduction Act

The Commission finds, in accordance with section 553(b)(3)(A) of the Administrative Procedure Act,[32] that this revision relates solely to agency organization, procedure, or practice. It is therefore not subject to the provisions of the Administrative Procedure Act requiring notice, opportunity for public comment, and publication. The Regulatory Flexibility Act [33] therefore does not apply. Nonetheless, the Commission had previously determined that it would be useful to publish the proposed rule changes for notice and comment before adoption. The Commission considered all comments received. Because these rules relate to “agency organization, procedure or practice that does not substantially affect the rights or obligations of non-agency parties,” they are not subject to the Small Business Regulatory Enforcement Fairness Act.[34]

These rules do not contain any collection of information requirements as defined by the Paperwork Reduction Act of 1995, as amended.[35]

III. Costs and Benefits of the Rules and Amendments

The Sarbanes-Oxley Act authorizes the Commission to review disciplinary actions by the Public Company Accounting Oversight Board as well as actions resulting in disapproval of registration of public accounting firms. In response, the Commission has revised certain of its rules in order to enhance the transparency and facilitate parties' understanding of the applicability of the review process to Board proceedings. The Sarbanes-Oxley Act also provides that, where the Commission or a hearing officer in a Commission administrative proceeding enters an order requiring disgorgement and a civil money penalty, the Commission may create a “Fair Fund” combining the disgorgement and the civil money penalty to be disbursed for the benefit of the victims of the securities law violations at issue in the proceeding. The Commission has enacted rules for the submission and administration of Fair Fund plans and disgorgement plans. The Commission also has amended other provisions of the rules.

Taken as a whole, the Commission's Rules create governmental review and remedial processes. That is, they are procedural and administrative in nature. The benefits to the parties are the familiar benefits of due process: Notice, opportunity to be heard, efficiency, and fairness. The cost of these processes, on the other hand, falls largely on the oversight bodies.

For purposes of cost/benefit analysis, given the procedural nature of these Rules, we believe that the regulatory provisions are best viewed as a whole. To the extent possible, we discuss specific benefits and costs that can be more narrowly associated with separate provisions. However, because there are so many provisions, and because the costs tend to be primarily governmental, we do not provide separate sections for our respective cost and benefit analyses. Rather, we simply identify each provision proposed and discuss any benefits and costs that may be associated with it beyond the more general points summarized above.

Rule 19d-4(b) requires the Board to file with the Commission and serve on the public accounting firm a notice of disapproval of registration within 30 days of the Board's action. Rule 19d-4(c) imposes on the Board a similar filing and service requirement for notices of any disciplinary sanction other than a disapproval of registration. Timely notice is a fundamental aspect of due process. It benefits those who receive notice by allowing them to plan and take action in light of the Board's findings. Timely filing with the Commission lets the Commission know of the conclusion of Board proceedings so that it can exert oversight over the quality and fairness of those proceedings, which benefits parties to the proceedings as well as the general public. These rules will impose a small administrative cost on the Board.

Rules 440 and 441 provide for Commission review of Board actions. Rule 440 allows review upon application of a person aggrieved by a final Board disciplinary sanction, including disapproval of a completed application for registration of a public accounting firm. Rule 441 permits Commission review of Board disciplinary sanctions upon the Commission's own motion. The Rules pertain to the review mechanism required by the Sarbanes-Oxley Act, informing those upon whom Board sanctions are imposed of the option of Commission review and instructing them about procedures involved in initiating the review process.

Commission review of Board findings benefits parties to Board proceedings (and, to a lesser extent, the general public) by protecting against arbitrary, capricious, or otherwise unlawful Start Printed Page 13173treatment. Review also allows the Commission to exercise a check on, and protect the public interest in, the quality and consistency of Board findings and determinations.

Parties involved in review proceedings will incur legal and other costs. Review upon application by a person aggrieved, under Rule 440, is optional. Thus, a party would incur these costs only if it expected a net benefit from the review process. In the case of review upon the Commission's own motion under Rule 441, however, the parties involved might otherwise have chosen to avoid incurring the costs.

In accordance with section 105(e)(1) of the Sarbanes-Oxley Act, Rule 440(c) provides that filing an application for review with the Commission acts as a stay of the Board's action unless the Commission orders otherwise. Rule 401(e) allows: (1) Persons aggrieved by such an automatic stay to ask the Commission to lift the stay; (2) the Commission to lift such a stay summarily, without notice and opportunity for a hearing; and (3) persons opposing the lifting of such a stay to file an opposition.

Rule 440(c) benefits the party upon whom Board sanctions have been imposed by allowing that party an opportunity to be heard in the review process before the Board's sanctions take effect. The automatic stay imposes a cost upon third parties who would benefit if the sanctions went into place immediately.

Allowing a person aggrieved by the automatic stay to ask to have the stay lifted benefits the aggrieved person by offering the option of a possible earlier termination of the stay. Those availing themselves of this option will incur legal and other costs. Because the procedure is optional, they will presumably do so only if they conclude that doing so yields an expected net benefit. Similarly, allowing opposition to a motion to lift permits those opposing the motion an opportunity to be heard. Although opposing a motion could involve legal and other expenses, because opposition is optional, parties would incur those costs only if they expected a net benefit from opposing.

Allowing the Commission to lift a stay summarily could benefit persons aggrieved by the stay by providing prompt and inexpensive relief. At the same time, those who might oppose the lifting of the stay would be denied notice and an opportunity to be heard in connection with the lifting of the stay.

Section 308(a) of the Sarbanes Oxley-Act provides that, in a Commission administrative proceeding where the Commission or a hearing officer enters an order requiring disgorgement and a civil money penalty, the Commission may create a “Fair Fund” by including the civil penalty with the disgorgement amount. The Commission is required to disburse money from a Fair Fund for the benefit of the victims of the securities law violations at issue in the proceeding.

Rule 1101 authorizes the Commission to create a Fair Fund in any administrative proceeding in which a final order is entered imposing disgorgement and a civil money penalty. The Commission also may create a Fair Fund if it approves a settlement of an administrative proceeding that provides for payment of disgorgement and a civil money penalty. Where the relative value of the ill-gotten gains and the number of potential claimants results in high administrative costs and de minimis distributions to investors, the Commission would not expect to create a Fair Fund. The disgorgement and civil penalty amounts would be paid directly to the United States Treasury.

Creating and administering Fair Funds benefits victims of securities law violations, who are more likely to be made whole. Allowing monies that otherwise would go into a Fair Fund to be paid to the Treasury where investors would receive only de minimis distributions will prevent those monies from being consumed by administrative costs, although at a cost to victims who might have received a minimal payment from a Fair Fund.

Rule 102(d)(4) is amended to allow a person seeking to withdraw his or her appearance before the Commission in a representative capacity to file a notice of withdrawal rather than the motion to withdraw that was required under the former Rule. Filing a notice preserves the benefits of the existing requirement by giving the Commission and the parties timely notice of withdrawal. Preparing and filing a notice should be less expensive than preparing and filing a motion. Additionally, this amendment increases efficiency by eliminating the need for the Commission or a hearing officer to rule on a motion for withdrawal.

The amendment of Rule 150(c)(4) deletes the requirements that parties who choose to serve each other by facsimile transmission (1) agree to do so in a signed writing, and (2) confirm receipt of each document by a manually signed receipt. Elimination of these requirements results in lower costs to the serving parties. However, eliminating the requirement of a signed receipt could make it more difficult to prove that a transmission was received.

The amendment of Rule 151 allows parties to file documents with the Commission by facsimile transmission. This amendment provides parties an additional option for transmitting documents to the Commission. Facsimile filing allows the Commission to receive and be able to address documents in as timely a fashion as possible. Costs of transmission by facsimile are likely to be lower than overnight or courier fees. The amendment does not impose any new costs, since the existing methods for filing with the Commission remain available.

The amendment to Rule 154 establishes a combined page limit of 15 pages for a motion and a brief in support of the motion. The 15-page limit also applies to a brief in opposition to a motion and to any reply brief. The amendment to Rule 450(c) provides that pleadings incorporated by reference will be included in determining the page count of briefs. Reducing page limits may result in lower legal costs to the parties. Limiting the number of pages submitted also keeps proceedings efficient.

The amendment of Rule 233 allows the taking of a deposition of a witness, then within the United States, who is expected to be outside the United States at the time of an administrative hearing, so long as the deposition will serve the interests of justice and it appears that the party requesting the deposition did not procure the witness's absence. The amendment serves the interests of justice by making available a statement that otherwise might not have been made part of the record. Using a deposition results in the absence from a hearing of a witness who otherwise would have appeared. This results in the hearing officer's having no opportunity to assess demeanor. However, since the Rule allows a deposition only where it appears that the party requesting the deposition did not procure the witness's absence, such a series of events should rarely occur.

The remaining amendments clarify existing practice, relate to internal agency management, increase the efficiency of proceedings, or promote due process.

The Commission requested data to quantify the costs and the value of the benefits identified. We received no comments in response to this request. Start Printed Page 13174

IV. Effect on Efficiency, Competition and Capital Formation

Section 2(b) of the Securities Act of 1933,[36] section 3(f) of the Exchange Act,37 section 2(c) of the Investment Company Act of 1940,38 and section 202(c) of the Investment Advisers Act of 1940 39 require us, when engaging in rulemaking that requires us to consider or determine whether an act is necessary or appropriate in the public interest, to consider whether the action will promote efficiency, competition, and capital formation. Section 23(a)(2) of the Exchange Act 40 prohibits us from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the Exchange Act's purposes.

These rules are intended to enhance the transparency and facilitate parties' understanding of the applicability of the Commission review process to Board proceedings. The rules and amendments also include regulatory provisions for the submission and administration of Fair Funds plans and disgorgement plans. They are intended to clarify existing practice and increase the efficiency of Commission enforcement and self-regulatory organization disciplinary review proceedings.

The rules and amendments apply to all persons involved in administrative proceedings before the Commission. Therefore, the Commission does not expect the proposed rules and amendments to have an anti-competitive effect. To the extent the rules and amendments foster making whole victims of securities laws violations and increase the transparency of the Commission's administrative practice and the efficiency of its proceedings, there should be an increase in investor confidence in market fairness and efficiency. However, the magnitude of the effect of the amendments in this regard is difficult to quantify. We requested comment on the possible effects of our rule proposals on efficiency, competition, and capital formation. We received no comments in response to this request.

V. Statutory Basis for the Rules

These amendments to the Rules of Practice and related provisions are being adopted pursuant to statutory authority granted to the Commission, including section 3 of the Sarbanes-Oxley Act, 15 U.S.C. 7202; section 19 of the Securities Act, 15 U.S.C. 77s; sections 4A, 19, and 23 of the Exchange Act, 15 U.S.C. 78s and 78w; section 20 of the Public Utility Holding Company Act, 15 U.S.C. 79t; section 319 of the Trust Indenture Act, 15 U.S.C. 77sss; sections 38 and 40 of the Investment Company Act, 15 U.S.C. 80a-37 and 80a-39; and section 211 of the Investment Advisers Act, 15 U.S.C. 80b-11.

Start List of Subjects

List of Subjects

End List of Subjects

Text of Adopted Rules

Start Amendment Part

For the reasons set out in the preamble, Title 17, Chapter II of the Code of Federal Regulations is amended as follows:

End Amendment Part Start Part

PART 200—ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS

End Part Start Amendment Part

1. The general authority citation for part 200, subpart A is revised to read as follows:

End Amendment Part

Subpart A—Organization and Program Management

Start Authority

Authority: 15 U.S.C. 77s, 77o, 77sss, 78d, 78d-1, 78d-2, 78w, 78 ll (d), 78mmm, 79t, 80a-37, 80b-11, and 7202, unless otherwise noted.

End Authority
* * * * *
[Amended]
Start Amendment Part

2. In § 200.21, paragraph (b), remove the words “Rule 2(e) of the Commission's Rules of Practice (§ 201.2(e) of this chapter)”, and in their place, add the words “Rule 102(e) of the Commission's Rules of Practice (§ 201.102(e) of this chapter)”.

End Amendment Part Start Amendment Part

3. Section 200.30-7 is amended by revising the introductory text of paragraph (a) and paragraphs (a)(5), (a)(6), and (a)(11) to read as follows:

End Amendment Part
Delegation of authority to Secretary of the Commission.
* * * * *

(a) 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., the provisions of Rule 102(e) of the Commission's Rules of Practice, Section 201.102(e) of this chapter, and Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219;

* * * * *

(5) To permit the filing of briefs with the Commission exceeding 50 pages in length, pursuant to Rule 450(c) of the Commission's Rules of Practice, § 201.450(c) of this chapter;

(6) To certify records of proceedings upon which are entered orders the subject of review in courts of appeals pursuant to section 9 of the Securities Act of 1933, 15 U.S.C. 77i, section 25 of the Securities Exchange Act of 1934, 15 U.S.C. 78y, section 24 of the Public Utility Holding Company Act of 1935, 15 U.S.C. 79x, section 322(a) of the Trust Indenture Act of 1939, 15 U.S.C. 77vvv(a), section 43 of the Investment Company Act of 1940, 15 U.S.C. 80a-42, section 213 of the Investment Advisers Act of 1940, 15 U.S.C. 80b-13, and Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219;

* * * * *

(11) To publish pursuant to Rule 1103 of the Commission's Rules of Practice (§ 201.1103 of this chapter) notice for fair fund and disgorgement plans, and if no negative comments are received, to issue orders approving proposed fair fund plans and disgorgement plans pursuant to Rule 1104 of the Commission's Rules of Practice (§ 201.1104 of this chapter). Upon the motion of the staff for good cause shown, to approve the publication of proposed fair fund plans and disgorgement plans that omit plan elements required by Rule 1101 of the Commission's Rules of Practice (§ 201.1101 of this chapter).

* * * * *
Start Amendment Part

4. Section 200.30-10 is amended by:

End Amendment Part Start Amendment Part

a. Removing the authority citations following the sections; and

End Amendment Part Start Amendment Part

b. Revising the introductory text of paragraph (a) and paragraph (a)(5).

End Amendment Part

The revisions read as follows:

Delegation of authority to Chief Administrative Law Judge.
* * * * *

(a) With respect to proceedings conducted before an administrative law judge, 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 Start Printed Page 13175Holding 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, § 201.102(e) of this chapter:

* * * * *

(5) To permit the filing of briefs exceeding 50 pages in length, pursuant to Rule 450(c) of the Commission's Rules of Practice, § 201.450(c) of this chapter;

* * * * *
Start Amendment Part

5. Section 200.30-14 is amended by:

End Amendment Part Start Amendment Part

a. Revising the introductory text of paragraph (g)(1) and of paragraphs (g)(1)(vii), (g)(4), (g)(5), and (g)(7); and

End Amendment Part Start Amendment Part

b. Adding paragraph (g)(8).

End Amendment Part

The revisions and addition read as follows:

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., the provisions of Rule 102(e) of the Commission Rules of Practice, § 201.102(e) of this chapter, and Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219:

* * * * *

(vii) To request additional briefs or grant requests for the submission of late or additional briefs, or the acceptance of affidavits or other material for inclusion in the record or in support of motions or petitions addressed to the Commission.

* * * * *

(4) With respect to proceedings conducted under sections 19(d), (e), and (f) of the Securities Exchange Act of 1934, 15 U.S.C. 78s(d), (e), and (f), and Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, to determine that an application for review under any of those sections has been abandoned, under the provisions of Rule 420 or 440 of the Commission's Rules of Practice, § 201.420 or 201.440 of this chapter, or otherwise, and accordingly to issue an order dismissing the application.

(5) With respect to proceedings conducted 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., the provisions of Rule 102(e) of the Commission's Rules of Practice, § 201.102(e) of this chapter, and Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, to determine applications to stay Commission orders pending appeal of those orders to the federal courts and to determine application 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), or by the Public Company Accounting Oversight Board pursuant to Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, to grant or deny requests for oral argument in accordance with the provisions of Rule 451 of the Commission's Rules of Practice, § 201.451 of this chapter.

(8) In connection with Commission review of actions taken by the Public Company Accounting Oversight Board pursuant to Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, to determine whether to lift the automatic stay of a disciplinary sanction.

* * * * *

Subpart B—Disposition of Commission Business

Start Amendment Part

6. The authority citation for part 200, subpart B continues to read as follows:

End Amendment Part Start Authority

Authority: 5 U.S.C. 552b; 15 U.S.C. 78d-1 and 78w.

End Authority
[Amended]
Start Amendment Part

7. In § 200.43, paragraph (c)(3), remove the words “Rule 26 of the Commission's rules of practice,

End Amendment Part Start Amendment Part

8. The authority citation for part 200, subpart F, is revised to read as follows:

End Amendment Part

Subpart F—Code of Behavior Governing Ex Parte Communications Between Persons Outside the Commission and Decisional Employees

Start Authority

Authority: 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11, and 7202; and 5 U.S.C. 557.

End Authority Start Amendment Part

9. Section 200.111 is amended by:

End Amendment Part Start Amendment Part

a. Revising paragraph (c)(1)(ii);

End Amendment Part Start Amendment Part

b. Redesignating paragraph (c)(1)(iii) as paragraph (c)(1)(iv); and

End Amendment Part Start Amendment Part

c. Adding new paragraph (c)(1)(iii).

End Amendment Part

The revision and addition read as follows:

Prohibitions; application; definitions.
* * * * *

(c) * * *

(1) * * *

(ii) That in proceedings under section 19(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78s(d), these prohibitions shall commence at the time that a copy of an application for review has been filed with the Commission and served on the self-regulatory organization.

(iii) That in proceedings under Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, these prohibitions shall commence at the time that a copy of an application for review has been filed with the Commission and served on the Public Company Accounting Oversight Board; and

* * * * *
Start Part

PART 201—RULES OF PRACTICE

Subpart D—Rules of Practice

End Part Start Amendment Part

10. The authority citation for part 201, subpart D, is revised to read as follows:

End Amendment Part Start Authority

Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 78c(b), 78d-1, 78d-2, 78 l, 78m, 78n, 78 o (d), 78 o-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, 80b-12, 7202, 7215, and 7217.

End Authority Start Amendment Part

11. Section 201.100 is amended by adding paragraph (c) to read as follows:

End Amendment Part
Scope of the rules of practice.
* * * * *

(c) The Commission, upon its determination that to do so would serve the interests of justice and not result in prejudice to the parties to the proceeding, may by order direct, in a particular proceeding, that an alternative procedure shall apply or that compliance with an otherwise applicable rule is unnecessary.

Start Amendment Part

12. Section 201.101 is amended by:

End Amendment Part Start Amendment Part

a. Revising paragraph (a)(9);

End Amendment Part Start Amendment Part

b. Removing the word “and” at the end of paragraph (a)(10);

End Amendment Part Start Amendment Part

c. Removing the period at the end of paragraph (a)(11), and in its place adding “; and”; and

End Amendment Part Start Amendment Part

d. Adding paragraph (a)(12).

End Amendment Part

The revision and addition read as follows:

Start Printed Page 13176
Definitions.

(a) * * *

(9) Proceeding means any agency process initiated:

(i) By an order instituting proceedings; or

(ii) By the filing, pursuant to § 201.410, of a petition for review of an initial decision by a hearing officer; or

(iii) By the filing, pursuant to § 201.420, of an application for review of a self-regulatory organization determination; or

(iv) By the filing, pursuant to § 201.430, of a notice of intention to file a petition for review of a determination made pursuant to delegated authority; or

(v) By the filing, pursuant to § 201.440, of an application for review of a determination by the Public Company Accounting Oversight Board; or

(vi) By the filing, pursuant to § 240.11Aa3-1(f) of this chapter, of an application for review of an action or failure to act in connection with the implementation or operation of any effective transaction reporting plan; or

(vii) By the filing, pursuant to § 240.11Aa3-2(e) of this chapter, of an application for review of an action taken or failure to act in connection with the implementation or operation of any effective national market system plan; or

(viii) By the filing, pursuant to Section 11A(b)(5) of the Securities Exchange Act of 1934, of an application for review of a determination of a registered securities information processor;

* * * * *

(12) Board means the Public Company Accounting Oversight Board.

* * * * *
Start Amendment Part

13. Section 201.102 is amended by revising paragraph (d)(4) to read as follows:

End Amendment Part
Appearance and practice before the Commission.
* * * * *

(d) * * *

(4) Withdrawal. Any person seeking to withdraw his or her appearance in a representative capacity shall file a notice of withdrawal with the Commission or the hearing officer. The notice shall state the name, address, and telephone number of the withdrawing representative; the name, address, and telephone number of the person for whom the appearance was made; and the effective date of the withdrawal. If the person seeking to withdraw knows the name, address, and telephone number of the new representative, or knows that the person for whom the appearance was made intends to represent him- or herself, that information shall be included in the notice. The notice must be served on the parties in accordance with § 201.150. The notice shall be filed at least five days before the proposed effective date of the withdrawal.

* * * * *
Start Amendment Part

14. Section 201.111 is amended by revising paragraph (h) to read as follows:

End Amendment Part
Hearing officer: Authority.
* * * * *

(h) Subject to any limitations set forth elsewhere in these Rules of Practice, considering and ruling upon all procedural and other motions, including a motion to correct a manifest error of fact in the initial decision, provided that such a motion to correct is filed within ten days of the initial decision;

* * * * *
Start Amendment Part

15. Section 201.141 is amended by:

End Amendment Part Start Amendment Part

a. Revising the section heading; and

End Amendment Part Start Amendment Part

b. Revising paragraphs (a)(3) and (b) to read as follows:

End Amendment Part

The revisions read as follows:

Orders and decisions: Service of orders instituting proceedings and other orders and decisions.

(a) * * *

(3) Record of service. The Secretary shall maintain a record of service on parties (in hard copy or computerized format), 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 of service 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 or Express Mail, the Secretary shall maintain the confirmation of receipt or of attempted delivery. If service is made to an agent authorized by appointment to receive service, the certificate of service shall be accompanied by evidence of the appointment.

* * * * *

(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 § 201.150(c)(1)-(3). Such orders or decisions may also be served by facsimile transmission if the party to be served has agreed to accept such service in a writing, signed by the party, and has provided the Commission with information concerning the facsimile machine telephone number and hours of facsimile machine operation. 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.

Start Amendment Part

16. Section 201.150 is amended by revising paragraph (c)(4) to read as follows:

End Amendment Part
Service of papers by parties.
* * * * *

(c) * * *

(4) Transmitting the papers by facsimile transmission where the following conditions are met:

(i) The persons so serving each other have provided the Commission and the parties with notice of the facsimile machine telephone number to be used and the hours of facsimile machine operation;

(ii) The transmission is made at such a time that it is received during the Commission's business hours as defined in § 201.104; and

(iii) The sender of the transmission previously has not been served in accordance with § 201.150 with a written notice from the recipient of the transmission declining service by facsimile transmission.

* * * * *
Start Amendment Part

17. Section 201.151 is amended by revising paragraph (a) to read as follows:

End Amendment Part
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 contemporaneously with the Commission. Papers required to be filed with the Commission must be received within the time limit, if any, for such filing. Filing with the Commission may be made by facsimile transmission if the party also contemporaneously transmits to the Commission a non-facsimile original with a manual signature. However, any person filing with the Commission by facsimile transmission will be responsible for assuring that the Commission receives a complete and legible filing within the time limit set for such filing.

* * * * *
Start Amendment Part

18. Section 201.152 is amended by revising paragraph (a)(2) to read as follows:

End Amendment Part
Filing of papers: Form.

(a) * * *

(2) Be typewritten or printed in 12-point or larger typeface or otherwise Start Printed Page 13177reproduced by a process that produces permanent and plainly legible copies;

* * * * *
Start Amendment Part

19. Section 201.154 is amended by revising paragraph (c) to read as follows:

End Amendment Part
Motions.
* * * * *

(c) Length limitation. A motion, together with the brief in support of the motion, the brief in opposition to the motion, or any reply brief, shall not exceed 15 pages, exclusive of pages containing any table of contents or table of authorities. The page limit shall not apply to any addendum that consists solely of copies of applicable cases, pertinent legislative provisions or rules, or relevant exhibits. Requests for leave to file motions and briefs in excess of 15 pages are disfavored.

Start Amendment Part

20. Section 201.160 is amended by revising paragraph (b) to read as follows:

End Amendment Part
Time computation.
* * * * *

(b) Additional time for service by mail. If service is made by mail, three days shall be added to the prescribed period for response unless an order of the Commission or the hearing officer specifies a date certain for filing. In the event that an order of the Commission or the hearing officer specifies a date certain for filing, no time shall be added for service by mail.

Start Amendment Part

21. Section 201.201 is amended by:

End Amendment Part Start Amendment Part

a. Revising the section heading;

End Amendment Part Start Amendment Part

b. Designating the current text as paragraph (a) and adding a paragraph heading; and

End Amendment Part Start Amendment Part

c. Adding paragraph (b).

End Amendment Part

The revision and additions read as follows:

Consolidation and severance of proceedings.

(a) Consolidation. * * *

(b) Severance. By order of the Commission, any proceeding may be severed with respect to some or all parties. Any motion to sever must be made solely to the Commission and must include a representation that a settlement offer is pending before the Commission or otherwise show good cause.

Start Amendment Part

22. Section 201.202 is amended by revising the introductory text of paragraph (a) to read as follows:

End Amendment Part
Specification of procedures by parties in certain proceedings.

(a) Motion to specify procedures. In any proceeding other than an enforcement or disciplinary proceeding, a proceeding to review a determination by a self-regulatory organization pursuant to §§ 201.420 and 201.421, or a proceeding to review a determination of the Board pursuant to §§ 201.440 and 201.441, 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:

* * * * *
Start Amendment Part

23. Section 201.210 is amended by revising the introductory text of paragraph (a), revising paragraph (a)(1) and the introductory text of paragraphs (b)(1) and (c) read to read as follows:

End Amendment Part
Parties, limited participants and amici curiae.

(a) Parties in an enforcement or disciplinary proceeding, a proceeding to review a self-regulatory organization determination, or a proceeding to review a Board 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, a proceeding to review a determination by a self-regulatory organization pursuant to §§ 201.420 and 201.421, or a proceeding to review a determination by the Board pursuant to §§ 201.440 and 201.441, except as authorized by paragraph (c) of this section.

* * * * *

(b) * * * (1) Generally. In any proceeding, other than an enforcement proceeding, a disciplinary proceeding, a proceeding to review a self-regulatory determination, or a proceeding to review a Board determination, any person may seek leave to intervene as a party by filing a motion setting forth the person's interest in the proceeding:

* * * * *

(c) Leave to participate on a limited basis. In any proceeding, other than an enforcement proceeding, a disciplinary proceeding, a proceeding to review a self-regulatory determination, or a proceeding to review a Board 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:

* * * * *
Start Amendment Part

24. Section 201.230 is amended by revising paragraphs (a)(1)(vi) and (c) to read as follows:

End Amendment Part
Enforcement and disciplinary proceedings: Availability of documents for inspection and copying.
* * * * *

(a) * * *

(1) * * *

(vi) Any final examination or inspection reports prepared by the Office of Compliance Inspections and Examinations, the Division of Market Regulation, or the Division of Investment Management, if the Division of Enforcement intends either to introduce any such report into evidence or to use any such report to refresh the recollection of any witness.

* * * * *

(c) Withheld document list. The hearing officer may require the Division of Enforcement to submit for review a list of documents or categories of documents withheld pursuant to paragraphs (b)(1)(i) through (b)(1)(iv) of this section or to submit any document withheld, and may determine whether any such document should be made available for inspection and copying. When similar documents are withheld pursuant to paragraphs (b)(1)(i) through (b)(1)(iv) of this section, those documents may be identified by category instead of by individual document. The hearing officer retains discretion to determine when an identification by category is insufficient.

* * * * *
Start Amendment Part

25. Section 201.231 is amended by revising paragraph (a) to read as follows:

End Amendment Part
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 of Enforcement 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. For purposes of this section, statement shall have the meaning set forth in 18 U.S.C. 3500(e). 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.

* * * * *
Start Amendment Part

26. Section 201.232 is amended by revising paragraph (e)(1) to read as follows:

End Amendment Part
Subpoenas.
* * * * *

(e) * * * (1) 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, or any party may, prior to the time specified therein for compliance, but in no event more than 15 days after the date of service of Start Printed Page 13178such 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 § 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.

* * * * *
Start Amendment Part

27. Section 201.233 is amended by revising paragraph (b) to read as follows:

End Amendment Part
Deposition upon oral examination.
* * * * *

(b) Required finding when ordering a deposition. In the discretion of the Commission or the hearing officer, an order for a 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, who is then within the United States, will be unable to attend or testify at the hearing because of age, sickness, infirmity, imprisonment, other disability, or absence from the United States, unless it appears that the absence of the witness was procured by the party requesting the deposition; and that the taking of a deposition will serve the interests of justice.

* * * * *
Start Amendment Part

28. Section 201.350 is amended by revising paragraph (b) to read as follows:

End Amendment Part
Record in proceedings before hearing officer; retention of documents; copies.
* * * * *

(b) Retention of documents not admitted. Any document offered into evidence but excluded shall not be considered a part of the record. The Secretary shall retain any such document 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.

* * * * *
Start Amendment Part

29. Section 201.351 is amended by revising paragraph (a) to read as follows:

End Amendment Part
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 a list of such documents.

* * * * *
Start Amendment Part

30. Section 201.360 is amended by:

End Amendment Part Start Amendment Part

a. Adding a sentence at the end of paragraph (a)(2);

End Amendment Part Start Amendment Part

b. Revising paragraphs (b)(1), (b)(2), and (d); and

End Amendment Part Start Amendment Part

c. Removing paragraph (e).

End Amendment Part

The addition and revisions read as follows:

Initial decision of hearing officer.

(a)(1) * * *

(2) * * * If a stay is granted pursuant to § 201.210(c)(3), the time period specified in the order instituting proceedings in which the hearing officer's initial decision must be filed with the Secretary, as well as any other time limits established in orders issued by the hearing officer in the proceeding, shall be automatically tolled during the period while the stay is in effect.

* * * * *

(b) * * *

(1) The Commission will enter an order of finality as to each party unless a party or an aggrieved person entitled to review timely files a petition for review of the initial decision or a motion to correct a manifest error of fact in the initial decision with the hearing officer, or the Commission determines on its own initiative to review the initial decision; and

(2) If a party or an aggrieved person entitled to review timely files a petition for review or a motion to correct a manifest error of fact in the initial decision with the hearing officer, or if the Commission takes action to review as to a party or an aggrieved person entitled to review, the initial decision shall not become final as to that party or person.

* * * * *

(d) Finality. (1) If a party or an aggrieved person entitled to review timely files a petition for review or a motion to correct a manifest error of fact in the initial decision, or if the Commission on its own initiative orders 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.

(2) If a party or aggrieved person entitled to review fails to file timely a petition for review or a motion to correct a manifest error of fact in the initial decision, and if the Commission does not order review of a decision on its own initiative, the Commission will issue an order that the decision has become final as to that party. The decision becomes final upon issuance of the order. 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 Docket and on the SEC Web site.

Start Amendment Part

31. Section 201.400 is amended by revising paragraph (a) to read as follows:

End Amendment Part
Interlocutory review.

(a) Availability. The Commission may, at any time, on its own motion, direct that any matter be submitted to it for review. Petitions by parties for interlocutory review are disfavored, and the Commission ordinarily will grant a petition to review a hearing officer ruling prior to its consideration of an initial decision only in extraordinary circumstances. The Commission may decline to consider a ruling certified by a hearing officer pursuant to paragraph (c) of this section or the petition of a party who has been denied certification if it determines that interlocutory review is not warranted or appropriate under the circumstances. This section is the exclusive remedy for review of a hearing officer's ruling prior to Commission consideration of the entire proceeding and is the sole mechanism for appeal of actions delegated pursuant to §§ 200.30-9 and 200.30-10 of this chapter.

* * * * *
Start Amendment Part

32. Section 201.401 is amended by:

End Amendment Part Start Amendment Part

a. Revising the section heading and paragraph (d)(1); and

End Amendment Part Start Amendment Part

b. Adding paragraph (e).

End Amendment Part

The revisions and addition read as follows:

Consideration of stays.
* * * * *

(d) * * *

(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 § 201.420, may be made by any person aggrieved thereby at the time an application for review is filed in accordance with § 201.420 or thereafter.

* * * * *

(e) Lifting of stay of action by the Public Company Accounting Oversight Board. (1) Availability. Any person aggrieved by a stay of action by the Board entered in accordance with 15 U.S.C. 7215(e) for which review has been sought pursuant to § 201.440 or which the Commission has taken up on its motion pursuant to § 201.441 may make a motion to lift the stay. The Commission may, at any time, on its own motion determine whether to lift the automatic stay. Start Printed Page 13179

(2) Summary action. The Commission may lift a stay summarily, without notice and opportunity for hearing.

(3) Expedited consideration. The Commission may expedite consideration of a motion to lift a stay of Board action, consistent with the Commission's other responsibilities. Where consideration is expedited, persons opposing the lifting of the stay may file a statement in opposition within two days of service of the motion requesting lifting of the stay unless the Commission, by written order, shall specify a different period.

Start Amendment Part

33. Section 201.410 is amended by:

End Amendment Part Start Amendment Part

a. Revising paragraph (b); and

End Amendment Part Start Amendment Part

b. Removing and reserving paragraph (d).

End Amendment Part

The revision reads as follows:

Appeal of initial decisions by hearing officers.
* * * * *

(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 § 201.360(b) unless a party has filed a motion to correct an initial decision with the hearing officer. If such correction has been sought, a party shall have 21 days from the date of the hearing officer's order resolving the motion to correct to file a petition for review. 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 § 201.340 may, at the discretion of the Commission, be deemed to have been waived by the petitioner. In the event a petition for review is filed, any other party to the proceeding may file a cross-petition for review within the original time allowed for seeking review or within ten days from the date that the petition for review was filed, whichever is later.

* * * * *
Start Amendment Part

34. Section 201.411 is amended by revising paragraph (e) as follows:

End Amendment Part
Commission consideration of decisions by hearing officers.
* * * * *

(e) Summary affirmance. (1) At any time within 21 days after the filing of a petition for review pursuant to § 201.410(b), any party may file a motion in accordance with § 201.154 asking that the Commission summarily affirm an initial decision. Any party may file an opposition and reply to such motion in accordance with § 201.154. Pending determination of the motion for summary affirmance, the Commission, in its discretion, may delay issuance of a briefing schedule order pursuant to § 201.450.

(2) Upon consideration of the motion and any opposition or upon its own initiative, the Commission may summarily affirm an initial decision. The Commission may grant summary affirmance if it finds that no issue raised in the initial decision warrants consideration by the Commission of further oral or written argument. The Commission will decline to grant summary affirmance upon a reasonable showing that a prejudicial error was committed in the conduct of the proceeding or that the decision embodies an exercise of discretion or decision of law or policy that is important and that the Commission should review.

* * * * *
Start Amendment Part

35. Section 201.420 is amended by:

End Amendment Part Start Amendment Part

a. Revising paragraph (b);

End Amendment Part Start Amendment Part

b. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e); and

End Amendment Part Start Amendment Part

c. Adding new paragraph (c).

End Amendment Part

The revision and addition read as follows:

Appeal of determinations by self-regulatory organizations.
* * * * *

(b) Procedure. As required by section 19(d)(1) of the Securities Exchange Act of 1934, 15 U.S.C. 78s(d)(1), an applicant must file an application for review with the Commission within 30 days after the notice of the determination is filed with the Commission and received by the aggrieved person applying for review. The Commission will not extend this 30-day period, absent a showing of extraordinary circumstances. This section is the exclusive remedy for seeking an extension of the 30-day period.

(c) Application. The application shall be filed with the Commission pursuant to § 201.151. The applicant shall serve the application on the self-regulatory organization. The application shall identify the determination complained of and set forth in summary form a brief statement of the alleged errors in the determination and supporting reasons therefor. The application shall state an address where the applicant can be served. The application should not exceed two pages in length. If the applicant will be represented by a representative, the application shall be accompanied by the notice of appearance required by § 201.102(d).

* * * * *
Start Amendment Part

36. Section 201.430 is amended by revising paragraph (a) to read as follows:

End Amendment Part
Appeal of actions made pursuant to delegated authority.

(a) Scope of rule. Any person aggrieved by an action made by authority delegated in §§ 200.30-1 through 200.30-8 or §§ 200.30-11 through 200.30-18 of this chapter may seek review of the action pursuant to paragraph (b) of this section.

* * * * *
Start Amendment Part

37. Sections 201.440 and 201.441 are added to read as follows:

End Amendment Part
Appeal of determinations by the Public Company Accounting Oversight Board.

(a) Application for review; when available. Any person who is aggrieved by a determination of the Board with respect to any final disciplinary sanction, including disapproval of a completed application for registration of a public accounting firm, may file an application for review.

(b) Procedure. An aggrieved person may file an application for review with the Commission pursuant to § 201.151 within 30 days after the notice filed by the Board of its determination with the Commission pursuant to § 240.19d-4 of this chapter is received by the aggrieved person applying for review. The applicant shall serve the application on the Board at the same time. 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. The notice of appearance required by § 201.102(d) shall accompany the application.

(c) Stay of determination. Filing an application for review with the Commission pursuant to paragraph (b) of this section operates as a stay of the Board's determination unless the Commission otherwise orders either pursuant to a motion filed in accordance with § 201.401(e) or upon its own motion.

(d) Certification of the record; service of the index. Within fourteen days after receipt of an application for review, the Board shall certify and file with the Commission one copy of the record upon which it took the complained-of action. The Board shall file with the Commission three copies of an index of such record, and shall serve one copy of the index on each party.

Start Printed Page 13180
Commission consideration of Board determinations.

(a) Commission review other than pursuant to an application for review. The Commission may, on its own initiative, order review of any final disciplinary sanction, including disapproval of a completed application for registration of a public accounting firm, imposed by the Board that could be subject to an application for review pursuant to § 201.440(a) within 40 days after the Board filed notice thereof pursuant to § 240.19d-4 of this chapter.

(b) Supplemental briefing. The Commission may at any time prior to the issuance of its decision raise or consider any matter that it deems material, whether or not raised by the parties. The Commission will give notice to the parties and an opportunity for supplemental briefing with respect to issues not briefed by the parties where the Commission believes that such briefing could significantly aid the decisional process.

Start Amendment Part

38. Section 201.450 is amended by:

End Amendment Part Start Amendment Part

a. Redesignating paragraphs (a)(2)(iii) and (a)(2)(iv) as paragraphs (a)(2)(iv) and (a)(2)(v);

End Amendment Part Start Amendment Part

b. Adding new paragraph (a)(2)(iii);

End Amendment Part Start Amendment Part

c. Revising paragraph (c); and

End Amendment Part Start Amendment Part

d. Adding paragraph (d).

End Amendment Part

The additions and revision read as follows:

Briefs filed with the Commission.

(a) * * *

(2) * * *

(iii) Receipt by the Commission of an index to the record of a determination by the Board filed pursuant to § 201.440(d);

* * * * *

(c) Length limitation. Except with leave of the Commission, opening and opposition briefs shall not exceed 14,000 words and reply briefs shall not exceed 7,000 words, exclusive of pages containing the table of contents, table of authorities, and any addendum that consists solely of copies of applicable cases, pertinent legislative provisions or rules, and exhibits. The number of words shall include pleadings incorporated by reference. Motions to file briefs in excess of these limitations are disfavored.

(d) Certificate of compliance. An opening or opposition brief that does not exceed 30 pages in length, exclusive of pages containing the table of contents, table of authorities, and any addendum that consists solely of copies of applicable cases, pertinent legislative provisions, or rules and exhibits, but inclusive of pleadings incorporated by reference, is presumptively considered to contain no more than 14,000 words. A reply brief that does not exceed 15 pages in length, exclusive of pages containing the table of contents, table of authorities, and any addendum that consists solely of copies of applicable cases, pertinent legislative provisions, or rules and exhibits, but inclusive of pleadings incorporated by reference, is presumptively considered to contain no more than 7,000 words. Any brief that exceeds these page limits must include a certificate by the party's representative, or an unrepresented party, stating that the brief complies with the length limitation set forth in § 201.450(c) and stating the number of words in the brief. The person preparing the certificate may rely on the word count of the word-processing system used to prepare the brief.

Start Amendment Part

39. Section 201.451 is amended by revising paragraph (b) to read as follows:

End Amendment Part
Oral argument before the Commission.
* * * * *

(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. 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 changes. No visual aids may be used at oral argument unless copies have been provided to the Commission and all parties at least five business days before the argument is to be held.

* * * * *
Start Amendment Part

40. Section 201.460 is amended by adding paragraph (a)(3) to read as follows:

End Amendment Part
Record before the Commission.
* * * * *

(a) * * *

(3) In a proceeding for final decision before the Commission reviewing a determination of the Board, the record shall consist of:

(i) The record certified pursuant to § 201.440(d) by the Board;

(ii) Any application for review; and

(iii) Any submissions, moving papers, and briefs filed on appeal or review.

* * * * *
Start Amendment Part

41. Section 201.470 is amended by revising paragraph (b) to read as follows:

End Amendment Part
Reconsideration.
* * * * *

(b) Procedure. A motion for reconsideration shall be filed within 10 days after service of the order complained of, or within such time as the Commission may prescribe upon motion for extension of time filed by the person seeking reconsideration, if the motion is 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. A motion for reconsideration shall conform to the requirements, including page length, provided in § 201.154. No response to a motion for reconsideration shall be filed unless requested by the Commission. Any response so requested shall comply with § 201.154.

Start Amendment Part

42. Section 201.601 is amended by adding paragraph (c) to read as follows:

End Amendment Part
Prompt payment of disgorgement, interest and penalties.
* * * * *

(c) Method of making payment. Payment shall be made by United States postal money order, wire transfer, certified check, bank cashier's check, or bank money order made payable to the Securities and Exchange Commission. The payment shall be mailed or delivered to the office designated by this Commission. Payment shall be accompanied by a letter that identifies the name and number of the case and the name of the respondent making payment. A copy of the letter and the instrument of payment shall be sent to counsel for the Division of Enforcement.

Start Amendment Part

43. Sections 201.610 through 201.614 and § 201.620 are removed and reserved.

End Amendment Part Start Amendment Part

44. Sections 201.1100 through 201.1106, Subpart F—Fair Fund and Disgorgement Plans—are added to read as follows:

End Amendment Part

Subpart F—Fair Fund and Disgorgement Plans

201.1100
Creation of Fair Fund.
201.1101
Submission of plan of distribution; contents of plan.
201.1102
Provisions for payment.
201.1103
Notice of proposed plan and opportunity for comment by non-parties.
201.1104
Order approving, modifying, or disapproving proposed plan.
201.1105
Administration of plan.
201.1106
Right to challenge.
Start Authority

Authority: 15 U.S.C. 77h-1, 77s, 77u, 78c(b), 78d-1, 78d-2, 78u-2, 78u-3, 78v, 78w, 80a-9, 80a-37, 80a-39, 80a-40, 80b-3, 80b-11, 80b-12, and 7246.

End Authority
Start Printed Page 13181
Creation of Fair Fund.

In any agency process initiated by an order instituting proceedings in which the Commission issues an order requiring the payment of disgorgement by a respondent and also assessing a civil money penalty against that respondent, the Commission may order that the amount of the disgorgement and of the civil money penalty, together with any funds received by the Commission pursuant to 15 U.S.C. 7246(b), be used to create a fund for the benefit of investors who were harmed by the violation.

Submission of plan of distribution; contents of plan.

(a) Submission. The Commission or the hearing officer may, at any time, order any party to submit a plan for the administration and distribution of funds in a Fair Fund or disgorgement fund. Unless ordered otherwise, the Division of Enforcement shall submit a proposed plan no later than 60 days after the respondent has turned over the funds or other assets pursuant to the Commission's order imposing disgorgement and, if applicable, a civil money penalty and any appeals of the Commission's order have been waived or completed, or appeal is no longer available.

(b) Contents of plan. Unless otherwise ordered, a plan for the administration of a Fair Fund or a disgorgement fund shall include the following elements:

(1) Procedures for the receipt of additional funds, including the specification of any account where funds will be held, the instruments in which the funds may be invested; and, in the case of a Fair Fund, the receipt of any funds pursuant to 15 U.S.C. 7246(b), if applicable;

(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 who were harmed by the violation; and

(7) Such other provisions as the Commission or the hearing officer may require.

Provisions for payment.

(a) 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 for the administration of a Fair Fund or a disgorgement fund may provide for payment of 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.

(b) 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 disgorgement funds and any civil penalty shall be paid directly to the general fund of the United States Treasury.

Notice of proposed plan and opportunity for comment by non-parties.

Notice of a proposed plan of disgorgement or a proposed Fair Fund plan shall be published in the SEC Docket, on the SEC website, 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.

Order approving, modifying, or disapproving proposed plan.

At any time after 30 days following publication of notice of a proposed plan of disgorgement or of a proposed Fair Fund plan, the Commission shall, by order, approve, approve with modifications, or disapprove the proposed plan. In the discretion of the Commission, a proposed plan that is substantially modified prior to adoption may be republished for an additional comment period pursuant to § 201.1103. 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.

Administration of plan.

(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 or a Fair Fund plan and to delegate to that person responsibility for administering the plan. An administrator may be removed at any time by order of the Commission or hearing officer.

(b) Assistance by respondent. 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 deems appropriate to ensure the proper distribution of the funds.

(c) 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 in 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.

(d) 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, the administrator 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.

(e) Source of funds. Unless otherwise ordered, fees and other expenses of administering the plan shall be paid first from the interest earned on the funds, and if the interest is not sufficient, then from the corpus.

(f) 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. Start Printed Page 13182

(g) Amendment. A plan may be amended upon motion by any party or by the plan administrator or upon the Commission's or the hearing officer's own motion.

Right to challenge.

Other than in connection with the opportunity to submit comments as provided in § 201.1103, no person shall be granted leave to intervene or to participate or otherwise to appear in any agency proceeding or otherwise to challenge an order of disgorgement or creation of a Fair Fund; or an order approving, approving with modifications, or disapproving a plan of disgorgement or a Fair Fund plan; or any determination relating to a plan based solely upon that person's eligibility or potential eligibility to participate in a fund or based upon any private right of action such person may have against any person who is also a respondent in the proceeding.

Start Part

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

End Part Start Amendment Part

45. The authority citation for part 240 continues to read in part as follows:

End Amendment Part Start Authority

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78 l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78 ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted.

End Authority
* * * * *
Start Amendment Part

46. Section 240.19d-4 is added to read as follows:

End Amendment Part
Notice by the Public Company Accounting Oversight Board of disapproval of registration or of disciplinary action.

(a) Definitions—(1) Board means the Public Company Accounting Oversight Board.

(2) Public accounting firm shall have the meaning set forth in 15 U.S.C. 7201(a)(11).

(3) Registered public accounting firm shall have the meaning set forth in 15 U.S.C. 7201(a)(12).

(4) Associated person shall mean a person associated with a registered public accounting firm as defined in 15 U.S.C. 7201(a)(9).

(b)(1) Notice of disapproval of registration. If the Board disapproves a completed application for registration by a public accounting firm, the Board shall file a notice of its disapproval with the Commission within 30 days and serve a copy on the public accounting firm.

(2) Contents of the notice. The notice required by paragraph (b)(1) of this section shall provide the following information:

(i) The name of the public accounting firm and the public accounting firm's last known address as reflected in the Board's records;

(ii) The basis for the Board's disapproval, and a copy of the Board's written notice of disapproval; and

(iii) Such other information as the Board may deem relevant.

(c)(1) Notice of disciplinary action. If the Board imposes any final disciplinary sanction on any registered public accounting firm or any associated person of a registered public accounting firm under 15 U.S.C. 7215(b)(3) or 7215(c), the Board shall file a notice of the disciplinary sanction with the Commission within 30 days and serve a copy on the person sanctioned.

(2) Contents of the notice. The notice required by paragraph (c)(1) of this section shall provide the following information:

(i) The name of the registered public accounting firm or the associated person, together with the firm's or the person's last known address as reflected in the Board's records;

(ii) A description of the acts or practices, or omissions to act, upon which the sanction is based;

(iii) A statement of the sanction imposed, the reasons therefor, or a copy of the Board's statement justifying the sanction, and the effective date of such sanction; and

(iv) Such other information as the Board may deem relevant.

Start Signature

Dated: March 12, 2004.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

End Signature End Supplemental Information

Footnotes

1.  Proposed Amendments to the Rules of Practice and Related Provisions, Exchange Act Release No. 48832, 68 FR 68185 (Dec. 5, 2003). It is noted that the release incorrectly was dated November 23, 2003. The correct date of the release is November 25, 2003.

Back to Citation

3.  Letters from Donna L. Greer, Vice-President of Business Development, Greer Information Services, Ltd. (December 31, 2003), and from Joseph E. Dryer, Houston, Texas (December 4, 2003).

Back to Citation

5.  Under section 102(c) of the Sarbanes-Oxley Act, 15 U.S.C. 7212(c), the Board's written notice of disapproval of a complete application for registration as a registered public accounting firm is treated as a “disciplinary sanction” for purposes of sections 105(d) and 107(c) of that Act, 15 U.S.C. 7215(d), 7217(c).

Back to Citation

6.  15 U.S.C. 78s(d)(2) and 78s(e)(1).

Back to Citation

7.  The 30-day period for filing is consistent with the thirty days provided in section 19(d)(2) of the Exchange Act for the filing of an application for review by a person aggrieved by certain actions taken by a self-regulatory organization.

Back to Citation

9.  The two-day period is modeled after Rule 401(d)(3), which permits persons opposing a motion to the Commission for a stay to file a statement in opposition within two days of service of the motion.

Back to Citation

10.  Rule 421(a) permits the Commission to order review of certain determinations by a self-regulatory organization within 40 days after notice thereof is filed with the Commission.

Back to Citation

11.  Rule 101(a)(12) defines the term “Board” to mean the Public Company Accounting Oversight Board.

Back to Citation

12.  At the same time, the Commission is correcting 17 CFR 200.111(c)(1)(ii) to provide that, in proceedings under section 19(d) of the Securities Exchange Act of 1934, the prohibitions against ex parte communications commence when a copy of the application for review of the self-regulatory organization's action is filed with the Commission. The rule currently provides that the prohibition commences when the Secretary serves the application on the self-regulatory organization. This no longer is the Commission's practice. The change conforms the language of the provision to reflect current practice.

Back to Citation

16.  Section 308(b) of the Sarbanes-Oxley Act provides that the Commission may accept, hold, and utilize gifts of property for a Fair Fund.

Back to Citation

17.  See, e.g., SEC v. First City Financial Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989) (defendant who violated Exchange Act section 13 required to disgorge although harm was to the market as a whole, not to particular persons).

Back to Citation

18.  See Exchange Act section 11A(b)(5) (requiring Commission to review prohibitions or limitations of access to services offered by registered securities information processors); Exchange Act Rule 11Aa3-2(e) (giving Commission discretion to entertain appeals from actions under national market system plans); Exchange Act Rule 11Aa3-1(f) (giving Commission discretion to entertain appeals in connection with implementation or operation of transaction reporting plans).

Back to Citation

19.  Because the current Rules of Practice do not specify a particular procedure for proceedings under Exchange Act section 11A, the Commission has been required to specify by order the procedural rules that are to be employed in section 11A review proceedings. See, e.g., The Cincinnati Stock Exchange, Exchange Act Release No. 43316 (Sept. 21, 2000), 73 SEC Docket 1006 (Order Accepting Jurisdiction, Establishing Procedures, and Ordering Briefs).

Back to Citation

23.  373 U.S. 83, 87 (1963).

Back to Citation

25.  The amendment of Rule 230 also corrects typographical errors in the cross-reference to paragraphs pursuant to which documents may be withheld.

Back to Citation

28.  17 CFR 201.210(c)(3). This rule will apply to all cases instituted on or after July 17, 2003, the effective date of the Commission's recent amendments to its Rules of Practice. Securities Act Rel. No. 8240, 68 FR 35787 (June 17, 2003).

Back to Citation

29.  Rule 430 is amended to delete reference to 17 CFR 200.30-9 and 200.30-10.

Back to Citation

30.  See, e.g., Lance E. Van Alstyne, 53 S.E.C. 1093, 1099 (1998) (Commission will not authorize late filing of appeals of self-regulatory organization proceedings absent extraordinary circumstances).

Back to Citation

31.  A further amendment conforms the language of Rule 451(b) to reflect Commission practice not to issue the order setting oral argument in a Commission administrative proceeding until the date for argument is set.

Back to Citation

36.  15 U.S.C. 77b(b).

37.  15 U.S.C. 78c(f).

38.  15 U.S.C. 80a-2(c).

39.  15 U.S.C. 80b-2(c).

40.  15 U.S.C. 78w(a)(2).

Back to Citation

[FR Doc. 04-6069 Filed 3-18-04; 8:45 am]

BILLING CODE 8010-01-P