15 U.S.C. § 78u : US Code - Section 78U: Investigations and actions

Search 15 U.S.C. § 78u : US Code - Section 78U: Investigations and actions

(a) Authority and discretion of Commission to investigate
violations
(1) The Commission may, in its discretion, make such
investigations as it deems necessary to determine whether any
person has violated, is violating, or is about to violate any
provision of this chapter, the rules or regulations thereunder, the
rules of a national securities exchange or registered securities
association of which such person is a member or a person associated
with a member, the rules of a registered clearing agency in which
such person is a participant, the rules of the Public Company
Accounting Oversight Board, of which such person is a registered
public accounting firm or a person associated with such a firm, or
the rules of the Municipal Securities Rulemaking Board, and may
require or permit any person to file with it a statement in
writing, under oath or otherwise as the Commission shall determine,
as to all the facts and circumstances concerning the matter to be
investigated. The Commission is authorized in its discretion, to
publish information concerning any such violations, and to
investigate any facts, conditions, practices, or matters which it
may deem necessary or proper to aid in the enforcement of such
provisions, in the prescribing of rules and regulations under this
chapter, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which
this chapter relates.
(2) On request from a foreign securities authority, the
Commission may provide assistance in accordance with this paragraph
if the requesting authority states that the requesting authority is
conducting an investigation which it deems necessary to determine
whether any person has violated, is violating, or is about to
violate any laws or rules relating to securities matters that the
requesting authority administers or enforces. The Commission may,
in its discretion, conduct such investigation as the Commission
deems necessary to collect information and evidence pertinent to
the request for assistance. Such assistance may be provided without
regard to whether the facts stated in the request would also
constitute a violation of the laws of the United States. In
deciding whether to provide such assistance, the Commission shall
consider whether (A) the requesting authority has agreed to provide
reciprocal assistance in securities matters to the Commission; and
(B) compliance with the request would prejudice the public interest
of the United States.
(b) Attendance of witnesses; production of records
For the purpose of any such investigation, or any other
proceeding under this chapter, any member of the Commission or any
officer designated by it is empowered to administer oaths and
affirmations, subpena witnesses, compel their attendance, take
evidence, and require the production of any books, papers,
correspondence, memoranda, or other records which the Commission
deems relevant or material to the inquiry. Such attendance of
witnesses and the production of any such records may be required
from any place in the United States or any State at any designated
place of hearing.
(c) Judicial enforcement of investigative power of Commission;
refusal to obey subpena; criminal sanctions
In case of contumacy by, or refusal to obey a subpena issued to,
any person, the Commission may invoke the aid of any court of the
United States within the jurisdiction of which such investigation
or proceeding is carried on, or where such person resides or
carries on business, in requiring the attendance and testimony of
witnesses and the production of books, papers, correspondence,
memoranda, and other records. And such court may issue an order
requiring such person to appear before the Commission or member or
officer designated by the Commission, there to produce records, if
so ordered, or to give testimony touching the matter under
investigation or in question; and any failure to obey such order of
the court may be punished by such court as a contempt thereof. All
process in any such case may be served in the judicial district
whereof such person is an inhabitant or wherever he may be found.
Any person who shall, without just cause, fail or refuse to attend
and testify or to answer any lawful inquiry or to produce books,
papers, correspondence, memoranda, and other records, if in his
power so to do, in obedience to the subpena of the Commission,
shall be guilty of a misdemeanor and, upon conviction, shall be
subject to a fine of not more than $1,000 or to imprisonment for a
term of not more than one year, or both.
(d) Injunction proceedings; authority of court to prohibit persons
from serving as officers and directors; money penalties in civil
actions
(1) Whenever it shall appear to the Commission that any person is
engaged or is about to engage in acts or practices constituting a
violation of any provision of this chapter, the rules or
regulations thereunder, the rules of a national securities exchange
or registered securities association of which such person is a
member or a person associated with a member, the rules of a
registered clearing agency in which such person is a participant,
the rules of the Public Company Accounting Oversight Board, of
which such person is a registered public accounting firm or a
person associated with such a firm, or the rules of the Municipal
Securities Rulemaking Board, it may in its discretion bring an
action in the proper district court of the United States, the
United States District Court for the District of Columbia, or the
United States courts of any territory or other place subject to the
jurisdiction of the United States, to enjoin such acts or
practices, and upon a proper showing a permanent or temporary
injunction or restraining order shall be granted without bond. The
Commission may transmit such evidence as may be available
concerning such acts or practices as may constitute a violation of
any provision of this chapter or the rules or regulations
thereunder to the Attorney General, who may, in his discretion,
institute the necessary criminal proceedings under this chapter.
(2) Authority of Court To Prohibit Persons From Serving as
Officers and Directors. - In any proceeding under paragraph (1) of
this subsection, the court may prohibit, conditionally or
unconditionally, and permanently or for such period of time as it
shall determine, any person who violated section 78j(b) of this
title or the rules or regulations thereunder from acting as an
officer or director of any issuer that has a class of securities
registered pursuant to section 78l of this title or that is
required to file reports pursuant to section 78o(d) of this title
if the person's conduct demonstrates unfitness to serve as an
officer or director of any such issuer.
(3) Money Penalties in Civil Actions. -
(A) Authority of commission. - Whenever it shall appear to the
Commission that any person has violated any provision of this
chapter, the rules or regulations thereunder, or a cease-and-
desist order entered by the Commission pursuant to section 78u-3
of this title, other than by committing a violation subject to a
penalty pursuant to section 78u-1 of this title, the Commission
may bring an action in a United States district court to seek,
and the court shall have jurisdiction to impose, upon a proper
showing, a civil penalty to be paid by the person who committed
such violation.
(B) Amount of penalty. -
(i) First tier. - The amount of the penalty shall be
determined by the court in light of the facts and
circumstances. For each violation, the amount of the penalty
shall not exceed the greater of (I) $5,000 for a natural person
or $50,000 for any other person, or (II) the gross amount of
pecuniary gain to such defendant as a result of the violation.
(ii) Second tier. - Notwithstanding clause (i), the amount of
penalty for each such violation shall not exceed the greater of
(I) $50,000 for a natural person or $250,000 for any other
person, or (II) the gross amount of pecuniary gain to such
defendant as a result of the violation, if the violation
described in subparagraph (A) involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a
regulatory requirement.
(iii) Third tier. - Notwithstanding clauses (i) and (ii), the
amount of penalty for each such violation shall not exceed the
greater of (I) $100,000 for a natural person or $500,000 for
any other person, or (II) the gross amount of pecuniary gain to
such defendant as a result of the violation, if -
(aa) the violation described in subparagraph (A) involved
fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement; and
(bb) such violation directly or indirectly resulted in
substantial losses or created a significant risk of
substantial losses to other persons.
(C) Procedures for collection. -
(i) Payment of penalty to treasury. - A penalty imposed under
this section shall be payable into the Treasury of the United
States, except as otherwise provided in section 7246 of this
title.
(ii) Collection of penalties. - If a person upon whom such a
penalty is imposed shall fail to pay such penalty within the
time prescribed in the court's order, the Commission may refer
the matter to the Attorney General who shall recover such
penalty by action in the appropriate United States district
court.
(iii) Remedy not exclusive. - The actions authorized by this
paragraph may be brought in addition to any other action that
the Commission or the Attorney General is entitled to bring.
(iv) Jurisdiction and venue. - For purposes of section 78aa
of this title, actions under this paragraph shall be actions to
enforce a liability or a duty created by this chapter.
(D) Special provisions relating to a violation of a cease-and-
desist order. - In an action to enforce a cease-and-desist order
entered by the Commission pursuant to section 78u-3 of this
title, each separate violation of such order shall be a separate
offense, except that in the case of a violation through a
continuing failure to comply with the order, each day of the
failure to comply shall be deemed a separate offense.
(4) Prohibition of attorneys' fees paid from commission
disgorgement funds. - Except as otherwise ordered by the court upon
motion by the Commission, or, in the case of an administrative
action, as otherwise ordered by the Commission, funds disgorged as
the result of an action brought by the Commission in Federal court,
or as a result of any Commission administrative action, shall not
be distributed as payment for attorneys' fees or expenses incurred
by private parties seeking distribution of the disgorged funds.
(5) Equitable Relief. - In any action or proceeding brought or
instituted by the Commission under any provision of the securities
laws, the Commission may seek, and any Federal court may grant, any
equitable relief that may be appropriate or necessary for the
benefit of investors.
(6) Authority of a court to prohibit persons from participating
in an offering of penny stock. -
(A) In general. - In any proceeding under paragraph (1) against
any person participating in, or, at the time of the alleged
misconduct who was participating in, an offering of penny stock,
the court may prohibit that person from participating in an
offering of penny stock, conditionally or unconditionally, and
permanently or for such period of time as the court shall
determine.
(B) Definition. - For purposes of this paragraph, the term
"person participating in an offering of penny stock" includes any
person engaging in activities with a broker, dealer, or issuer
for purposes of issuing, trading, or inducing or attempting to
induce the purchase or sale of, any penny stock. The Commission
may, by rule or regulation, define such term to include other
activities, and may, by rule, regulation, or order, exempt any
person or class of persons, in whole or in part, conditionally or
unconditionally, from inclusion in such term.
(e) Mandamus
Upon application of the Commission the district courts of the
United States and the United States courts of any territory or
other place subject to the jurisdiction of the United States shall
have jurisdiction to issue writs of mandamus, injunctions, and
orders commanding (1) any person to comply with the provisions of
this chapter, the rules, regulations, and orders thereunder, the
rules of a national securities exchange or registered securities
association of which such person is a member or person associated
with a member, the rules of a registered clearing agency in which
such person is a participant, the rules of the Public Company
Accounting Oversight Board, of which such person is a registered
public accounting firm or a person associated with such a firm, the
rules of the Municipal Securities Rulemaking Board, or any
undertaking contained in a registration statement as provided in
subsection (d) of section 78o of this title, (2) any national
securities exchange or registered securities association to enforce
compliance by its members and persons associated with its members
with the provisions of this chapter, the rules, regulations, and
orders thereunder, and the rules of such exchange or association,
or (3) any registered clearing agency to enforce compliance by its
participants with the provisions of the rules of such clearing
agency.
(f) Rules of self-regulatory organizations or Board
Notwithstanding any other provision of this chapter, the
Commission shall not bring any action pursuant to subsection (d) or
(e) of this section against any person for violation of, or to
command compliance with, the rules of a self-regulatory
organization or the Public Company Accounting Oversight Board
unless it appears to the Commission that (1) such self-regulatory
organization or the Public Company Accounting Oversight Board is
unable or unwilling to take appropriate action against such person
in the public interest and for the protection of investors, or (2)
such action is otherwise necessary or appropriate in the public
interest or for the protection of investors.
(g) Consolidation of actions; consent of Commission
Notwithstanding the provisions of section 1407(a) of title 28, or
any other provision of law, no action for equitable relief
instituted by the Commission pursuant to the securities laws shall
be consolidated or coordinated with other actions not brought by
the Commission, even though such other actions may involve common
questions of fact, unless such consolidation is consented to by the
Commission.
(h) Access to records
(1) The Right to Financial Privacy Act of 1978 [12 U.S.C. 3401 et
seq.] shall apply with respect to the Commission, except as
otherwise provided in this subsection.
(2) Notwithstanding section 1105 or 1107 of the Right to
Financial Privacy Act of 1978 [12 U.S.C. 3405 or 3407], the
Commission may have access to and obtain copies of, or the
information contained in financial records of a customer from a
financial institution without prior notice to the customer upon an
ex parte showing to an appropriate United States district court
that the Commission seeks such financial records pursuant to a
subpena issued in conformity with the requirements of section 19(b)
(!1) of the Securities Act of 1933, section 21(b) of the Securities
Exchange Act of 1934 [15 U.S.C. 78u(b)], section 18(c) of the
Public Utility Holding Company Act of 1935,(!1) section 42(b) of
the Investment Company Act of 1940 [15 U.S.C. 80a-41(b)], or
section 209(b) of the Investment Advisers Act of 1940 [15 U.S.C.
80b-9(b)], and that the Commission has reason to believe that -
(A) delay in obtaining access to such financial records, or the
required notice, will result in -
(i) flight from prosecution;
(ii) destruction of or tampering with evidence;
(iii) transfer of assets or records outside the territorial
limits of the United States;
(iv) improper conversion of investor assets; or
(v) impeding the ability of the Commission to identify or
trace the source or disposition of funds involved in any
securities transaction;
(B) such financial records are necessary to identify or trace
the record or beneficial ownership interest in any security;
(C) the acts, practices or course of conduct under
investigation involve -
(i) the dissemination of materially false or misleading
information concerning any security, issuer, or market, or the
failure to make disclosures required under the securities laws,
which remain uncorrected; or
(ii) a financial loss to investors or other persons protected
under the securities laws which remains substantially
uncompensated; or
(D) the acts, practices or course of conduct under
investigation -
(i) involve significant financial speculation in securities;
or
(ii) endanger the stability of any financial or investment
intermediary.
(3) Any application under paragraph (2) for a delay in notice
shall be made with reasonable specificity.
(4)(A) Upon a showing described in paragraph (2), the presiding
judge or magistrate judge shall enter an ex parte order granting
the requested delay for a period not to exceed ninety days and an
order prohibiting the financial institution involved from
disclosing that records have been obtained or that a request for
records has been made.
(B) Extensions of the period of delay of notice provided in
subparagraph (A) of up to ninety days each may be granted by the
court upon application, but only in accordance with this subsection
or section 1109(a), (b)(1), or (b)(2) of the Right to Financial
Privacy Act of 1978 [12 U.S.C. 3409(a), (b)(1), or (b)(2)].
(C) Upon expiration of the period of delay of notification
ordered under subparagraph (A) or (B), the customer shall be served
with or mailed a copy of the subpena insofar as it applies to the
customer together with the following notice which shall describe
with reasonable specificity the nature of the investigation for
which the Commission sought the financial records:
"Records or information concerning your transactions which are
held by the financial institution named in the attached subpena
were supplied to the Securities and Exchange Commission on (date).
Notification was withheld pursuant to a determination by the (title
of court so ordering) under section 21(h) of the Securities
Exchange Act of 1934 that (state reason). The purpose of the
investigation or official proceeding was (state purpose)."
(5) Upon application by the Commission, all proceedings pursuant
to paragraphs (2) and (4) shall be held in camera and the records
thereof sealed until expiration of the period of delay or such
other date as the presiding judge or magistrate judge may permit.
(6) The Commission shall compile an annual tabulation of the
occasions on which the Commission used each separate subparagraph
or clause of paragraph (2) of this subsection or the provisions of
the Right to Financial Privacy Act of 1978 [12 U.S.C. 3401 et seq.]
to obtain access to financial records of a customer and include it
in its annual report to the Congress. Section 1121(b) (!1) of the
Right to Financial Privacy Act of 1978 shall not apply with respect
to the Commission.
(7)(A) Following the expiration of the period of delay of
notification ordered by the court pursuant to paragraph (4) of this
subsection, the customer may, upon motion, reopen the proceeding in
the district court which issued the order. If the presiding judge
or magistrate judge finds that the movant is the customer to whom
the records obtained by the Commission pertain, and that the
Commission has obtained financial records or information contained
therein in violation of this subsection, other than paragraph (1),
it may order that the customer be granted civil penalties against
the Commission in an amount equal to the sum of -
(i) $100 without regard to the volume of records involved;
(ii) any out-of-pocket damages sustained by the customer as a
direct result of the disclosure; and
(iii) if the violation is found to have been willful,
intentional, and without good faith, such punitive damages as the
court may allow, together with the costs of the action and
reasonable attorney's fees as determined by the court.
(B) Upon a finding that the Commission has obtained financial
records or information contained therein in violation of this
subsection, other than paragraph (1), the court, in its discretion,
may also or in the alternative issue injunctive relief to require
the Commission to comply with this subsection with respect to any
subpena which the Commission issues in the future for financial
records of such customer for purposes of the same investigation.
(C) Whenever the court determines that the Commission has failed
to comply with this subsection, other than paragraph (1), and the
court finds that the circumstances raise questions of whether an
officer or employee of the Commission acted in a willful and
intentional manner and without good faith with respect to the
violation, the Office of Personnel Management shall promptly
initiate a proceeding to determine whether disciplinary action is
warranted against the agent or employee who was primarily
responsible for the violation. After investigating and considering
the evidence submitted, the Office of Personnel Management shall
submit its findings and recommendations to the Commission and shall
send copies of the findings and recommendations to the officer or
employee or his representative. The Commission shall take the
corrective action that the Office of Personnel Management
recommends.
(8) The relief described in paragraphs (7) and (10) shall be the
only remedies or sanctions available to a customer for a violation
of this subsection, other than paragraph (1), and nothing herein or
in the Right to Financial Privacy Act of 1978 [12 U.S.C. 3401 et
seq.] shall be deemed to prohibit the use in any investigation or
proceeding of financial records, or the information contained
therein, obtained by a subpena issued by the Commission. In the
case of an unsuccessful action under paragraph (7), the court shall
award the costs of the action and attorney's fees to the Commission
if the presiding judge or magistrate judge finds that the
customer's claims were made in bad faith.
(9)(A) The Commission may transfer financial records or the
information contained therein to any government authority if the
Commission proceeds as a transferring agency in accordance with
section 1112 of the Right to Financial Privacy Act of 1978 [12
U.S.C. 3412], except that the customer notice required under
section 1112(b) or (c) of such Act [12 U.S.C. 3412(b) or (c)] may
be delayed upon a showing by the Commission, in accordance with the
procedure set forth in paragraphs (4) and (5), that one or more of
subparagraphs (A) through (D) of paragraph (2) apply.
(B) The Commission may, without notice to the customer pursuant
to section 1112 or the Right to Financial Privacy Act of 1978 [12
U.S.C. 3412], transfer financial records or the information
contained therein to a State securities agency or to the Department
of Justice. Financial records or information transferred by the
Commission to the Department of Justice or to a State securities
agency pursuant to the provisions of this subparagraph may be
disclosed or used only in an administrative, civil, or criminal
action or investigation by the Department of Justice or the State
securities agency which arises out of or relates to the acts,
practices, or courses of conduct investigated by the Commission,
except that if the Department of Justice or the State securities
agency determines that the information should be disclosed or used
for any other purpose, it may do so if it notifies the customer,
except as otherwise provided in the Right to Financial Privacy Act
of 1978 [12 U.S.C. 3401 et seq.], within 30 days of its
determination, or complies with the requirements of section 1109 of
such Act [12 U.S.C. 3409] regarding delay of notice.
(10) Any government authority violating paragraph (9) shall be
subject to the procedures and penalties applicable to the
Commission under paragraph (7)(A) with respect to a violation by
the Commission in obtaining financial records.
(11) Notwithstanding the provisions of this subsection, the
Commission may obtain financial records from a financial
institution or transfer such records in accordance with provisions
of the Right to Financial Privacy Act of 1978 [12 U.S.C. 3401 et
seq.].
(12) Nothing in this subsection shall enlarge or restrict any
rights of a financial institution to challenge requests for records
made by the Commission under existing law. Nothing in this
subsection shall entitle a customer to assert any rights of a
financial institution.
(13) Unless the context otherwise requires, all terms defined in
the Right to Financial Privacy Act of 1978 [12 U.S.C. 3401 et seq.]
which are common to this subsection shall have the same meaning as
in such Act.
(i) Information to CFTC
The Commission shall provide the Commodity Futures Trading
Commission with notice of the commencement of any proceeding and a
copy of any order entered by the Commission against any broker or
dealer registered pursuant to section 78o(b)(11) of this title, any
exchange registered pursuant to section 78f(g) of this title, or
any national securities association registered pursuant to section
78o-3(k) of this title.