SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 201
[Release No. 34-40636; File No. S7-23-98]
Rules of Practice
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
SUMMARY: The Securities and Exchange Commission is adopting amendments to
its Rules of Practice, Rules 210 and 221. The Commission is amending Rule
210 to permit, for representatives of any federal, state, or local criminal
prosecutorial authority, limited participation for the purpose of
requesting a stay in an enforcement or disciplinary proceeding, in order to
support efforts to bring criminal prosecutions arising out of securities
violations. The Commission is amending Rule 221 to require only one
prehearing conference, instead of two, as previously required, in order to
streamline the administrative process and conserve the parties' and the
Commission's resources.
EFFECTIVE DATE: [insert date 30 days after publication].
FOR FURTHER INFORMATION CONTACT: Joan L. Loizeaux, Principal Assistant
General Counsel, or Kathleen O'Mara, Senior Counsel, Office of General
Counsel, (202) 942-0950, Securities and Exchange Commission, 450 Fifth
Street, N.W., Stop 6-6, Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION:
I. DISCUSSION
The Commission adopted, after notice and comment, comprehensive
revisions to its Rules of Practice that became effective on July 24, 1995.
<(1)> These revisions were the result of an approximately two-and-a-
half year study by the Commission's Task Force on Administrative
Proceedings that culminated in a comprehensive report. <(2)> The Task
Force found that the fundamental structure of the Commission's
administrative process was sound and successfully protected the essential
interests of respondents, investors, and the public, but that some changes
were necessary. The Task Force recommended changes to the Rules of
Practice in an effort to set forth applicable procedural requirements more
completely, in a format easier to use, and to streamline procedures that
had become burdensome.
In November 1997, the Commission's Inspector General issued a report
evaluating the Commission's Administrative Proceedings Process in an
attempt to assess the impact of the new Rules of Practice. The Inspector
General recommended, among other things, that the Commission review Rules
210 and 221. The Commission reviewed these rules and proposed that the
rules be changed as discussed below (and reflected in the text of the
rules). The proposed rules were published for notice and comment on
September 2, 1998 in the Federal Register. <(3)> No comments were
received.
The Commission is adopting these rules as proposed.
<(1)> Final Rules of Practice, Exchange Act Release No.
35833, 60 FR 32738 (June 23, 1995).
<(2)> Task Force on Administrative Proceedings, Securities
and Exchange Commission, Fair and Efficient
Administrative Proceedings: Report of the Task Force
(February 1993).
<(3)> Rules of Practice -- Rules 210 and 221, Exchange Act
Release No. 40364 (August 26, 1998), 63 FR 46716.
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Rule 210 previously prohibited intervention or limited participation
in Commission enforcement proceedings and in disciplinary proceedings to
review self-regulatory organization determinations. <(4)> Prohibiting
intervention or participation in these cases served the purpose of
preventing extraneous issues from diverting administrative proceedings
before the Commission and promoted timely and efficient resolution of all
matters before the Commission.
In recent years, however, the Commission has received requests from
representatives of various federal and local criminal prosecutors to
participate in enforcement proceedings in order to request a stay of the
Commission's proceedings during the pendency of a criminal investigation or
prosecution based on the same or related underlying conduct. These
authorities typically assert that substantial prejudice could result to a
criminal prosecution if an administrative proceeding is not postponed.
The Commission supports efforts to bring criminal prosecutions arising
out of securities violations. Accordingly, the Commission is adopting
amendments to Rule 210 to allow authorized representatives of the United
States Department of Justice, including any United States Attorney's
Office, and of state and local prosecutors to seek leave to participate in
a Commission enforcement or disciplinary proceeding for the limited purpose
of requesting a stay in that proceeding. We have determined that the
process of considering such requests for postponements will be facilitated
if those seeking them are permitted to present their views to the hearing
<(4)> Rule 210(f), however, allowed the Commission or a
hearing officer to modify the provisions of Rule 210 to
impose such terms and conditions on participation of
any person in any proceeding as it may deem necessary
or appropriate in the public interest.
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officer. The hearing officer can then evaluate that request in light of
the hearing's status. Any postponement of an enforcement or disciplinary
proceeding, however, should be based on a showing of good cause and be
limited to a reasonable period of time, balancing the need for delay
against the need to bring the proceeding to a timely resolution, consistent
with the public interest.
The Commission is also adopting amendments to Rule 221 to require a
single prehearing conference, instead of the two prehearing conferences
previously required. The Commission's experience with this Rule has
indicated that, as a routine practice, two conferences are not always
necessary. Therefore, in order to streamline the administrative process,
conserving the parties', as well as the Commission's, resources, the
Commission is amending the rule to require only one prehearing conference.
Rule 221 would continue to permit the hearing officer in his or her
discretion to order additional prehearing conferences on his or her own
motion or at the request of a party.
II. ADMINISTRATIVE PROCEDURE ACT AND REGULATORY FLEXIBILITY ACT
The Commission finds, in accordance with the Administrative Procedure
Act, 5 U.S.C. 553(b)(3)(A), that this revision relates solely to agency
organization, procedures, 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, 5 U.S.C. 601 et seq., also does not apply. Nonetheless,
the Commission previously published these rule changes for notice and
comment.
III. STATUTORY BASIS AND TEXT OF PROPOSED AMENDMENT
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The proposed Rule amendments would be promulgated pursuant to section
19 of the Securities Act, 15 U.S.C. 77s; section 23 of the Exchange Act, 15
U.S.C. 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.
List of Subjects
17 CFR Part 201
Administrative practice and procedure.
For the reasons set forth in the preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended as follows:
PART 201 - Subpart D - Rules of Practice
1. The authority citation for Part 201, Subpart D, continues to read
as follows:
AUTHORITY: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 78c(b), 78d-
1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78s, 78u-2, 78u-3, 78v, 78w, 79c,
79s, 79t, 79z-5a, 77sss, 77ttt, 80a-8,
80a-9, 80a-37, 80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3,
80b-9, 80b-11, and 80b-12 unless otherwise noted.
2. Section 201.210 is amended by revising paragraph (a)(1) and the
introductory text of paragraph (c) and adding paragraph (c)(3) to read as
follows:
201.210 Parties, limited participants and amici curiae.
(a) Parties in an enforcement or disciplinary proceeding or a
proceeding to review a self-regulatory organization determinationÄÄ(1)
Generally. No person shall be granted leave to become a party or non-party
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participant on a limited basis in an enforcement or disciplinary proceeding
or a proceeding to review a determination by a self-regulatory organization
pursuant to 201.420 and 201.421, except as authorized by paragraph (c) of
this section.
* * * * *
(c) Leave to participate on a limited basis. In any proceeding, other
than an enforcement proceeding, a disciplinary proceeding or a proceeding
to review a self-regulatory organization determination, any person may seek
leave to participate on a limited basis as a non-party participant as to
any matter affecting the person's interests. In any enforcement proceeding
or disciplinary proceeding, an authorized representative of the United
States Department of Justice, an authorized representative of a United
States Attorney, or an authorized representative of any criminal
prosecutorial authority of any State or any other political subdivision of
a State may seek leave to participate on a limited basis as a non-party
participant as provided in paragraph (c)(3) of this section.
* * * * *
(3) Leave to participate in certain Commission proceedings by a
representative of the United States Department of Justice, a United States
Attorney's Office, or a criminal prosecutorial authority of any State or
any other political subdivision of a State. The Commission or the hearing
officer may grant leave to participate on a limited basis to an authorized
representative of the United States Department of Justice, an authorized
representative of a United States Attorney, or an authorized representative
of any criminal prosecutorial authority of any State or any other political
subdivision of a State for the purpose of requesting a stay during the
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pendency of a criminal investigation or prosecution arising out of the same
or similar facts that are at issue in the pending Commission enforcement or
disciplinary proceeding. Upon a showing that such a stay is in the public
interest or for the protection of investors, the motion for stay shall be
favored. A stay granted under this paragraph (c)(3) may be granted for
such a period and upon such conditions as the Commission or the hearing
officer deems appropriate.
* * * * *
3. Section 201.221 is amended by revising the section heading and
paragraphs (a) and (d) to read as follows:
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201.221 Prehearing conference.
(a) Purposes of conference. The purposes of a prehearing
conference include, but are not limited to:
(1) Expediting the disposition of the proceeding;
(2) Establishing early and continuing control of the proceeding by the
hearing officer; and
(3) Improving the quality of the hearing through more thorough
preparation.
* * * * *
(d) Required prehearing conference. Except where the emergency nature
of a proceeding would make a prehearing conference clearly inappropriate,
at least one prehearing conference should be held.
* * * * *
By the Commission.
Jonathan G. Katz
Secretary
November 4, 1998
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