101st CONGRESS
2d Session
S. 647
AMENDMENTS
S 647 EAH1S
In the House of Representatives, U. S.,
July 23, 1990.
Resolved, That the bill from the Senate (S. 647) entitled `An Act to amend
the Federal securities laws in order to provide additional enforcement
remedies for violations of those laws', do pass with the following
AMENDMENTS:
Strike out all after the enacting clause and insert:

e86ebef474b31b1810bc5d3641c0fa847e1b697a13dd4e85a2cf44cb44e7bc47

(a) SHORT TITLE- This Act may be cited as the `Securities Enforcement and
Penny Stock Reform Act of 1990'.
(b) Table of Contents-

a05a729f3dd8caefe16ec797d6f9b39b4530f75acc10343126d31b58c835a5a4

persons from serving as officers and directors.

9b9fe8e748196f7920982d6ca7e496474d1864591d7d45ae048df85853e5dce4

TITLE I

-AMENDMENTS TO THE SECURITIES ACT OF 1933

6e28101a79d287d0b10743e33d76f17f625364280739bce8d746945db36ea3fd

TITLE V

-PENNY STOCK REFORM

(c) EFFECTIVE DATES-
(1) IN GENERAL- Except as provided in paragraph (2) and title V of this Act,
the amendments made by this Act shall be effective upon enactment.
(2) CIVIL PENALTIES- No civil penalty may be imposed pursuant to the
amendments made by this Act on the basis of conduct occurring before the
date of enactment of this Act.
(3) ACCOUNTING AND DISGORGEMENT- Paragraph (2) shall not operate to preclude
the Securities and Exchange Commission from ordering an accounting or
disgorgement pursuant to the amendments made by this Act.

2c51c4d584f8e6a1a9242cdca86c89fa977d65d83d942776ebe0c98a0e3a2de7

PERSONS FROM SERVING AS OFFICERS AND DIRECTORS.
Section 20 of the Securities Act of 1933 (15 U.S.C. 77t) is amended by
adding at the end thereof the following new subsections:
`(d) MONEY PENALTIES IN CIVIL ACTIONS-
`(1) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission that
any person has violated any provision of this title, the rules or regulations
thereunder, or a cease-and-desist order entered by the Commission pursuant
to section 8A of this title, other than by committing a violation subject to
a penalty pursuant to section 21A of the Securities Exchange Act of 1934,
the Commission may bring an action in the 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.
`(2) AMOUNT OF PENALTY- 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 (A) $100,000 for
an individual or $500,000 for any other person, or (B) the gross amount
of pecuniary gain to such defendant as a result of the violation.
`(3) PROCEDURES FOR COLLECTION-
`(A) PAYMENT OF PENALTY TO TREASURY- A penalty imposed under this section
shall be payable into the Treasury of the United States.
`(B) 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.
`(C) REMEDY NOT EXCLUSIVE- The actions authorized by this subsection may
be brought in addition to any other action that the Commission or the
Attorney General is entitled to bring.
`(D) JURISDICTION AND VENUE- For purposes of section 22 of this title,
actions under this section shall be actions to enforce a liability or a
duty created by this title.
`(4) 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 8A, each separate violation of such an order shall
be a separate offense, except that in the case of a violation through a
continuing failure to comply with such an order, each day of the failure
to comply with the order shall be deemed a separate offense.
`(e) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM SERVING AS OFFICERS AND
DIRECTORS- In any proceeding under subsection (b), the court may prohibit,
conditionally or unconditionally, and permanently or for such period of
time as it shall determine, any person who violated section 17(a)(1) of this
title from acting as an officer or director of any issuer that has a class
of securities registered pursuant to section 12 of the Securities Exchange
Act of 1934 or that is required to file reports pursuant to section 15(d)
of such Act if the person's conduct demonstrates substantial unfitness to
serve as an officer or director of any such issuer.'.

a1361c9cab66512d4ca4808df498ae4c485146046fef2d1f0b5e213519e1838b

The Securities Act of 1933 (15 U.S.C. 77 et seq.) is amended by inserting
after section 8 the following:
`CEASE-AND-DESIST PROCEEDINGS
`SEC. 8A. (a) AUTHORITY OF THE COMMISSION- If the Commission finds,
after notice and opportunity for hearing, that any person is violating,
has violated, or is about to violate any provision of this title, or any
rule or regulation thereunder, the Commission may publish its findings and
enter an order requiring such person, and any other person that is, was,
or would be a cause of the violation, due to an act or omission such other
person knew or should have known would contribute to such violation, to
cease and desist from committing or causing such violation and any future
violation of the same provision, rule, or regulation. Such order may,
in addition to requiring a person to cease and desist from committing or
causing a violation, require such person to comply, or to take steps to
effect compliance, with such provision, rule, or regulation, upon such
terms and conditions and within such time as the Commission may specify
in such order. Any such order may, as the Commission deems appropriate,
require future compliance or steps to effect future compliance, either
permanently or for such period of time as the Commission may specify,
with such provision, rule, or regulation with respect to any security,
any issuer, or any other person.
`(b) HEARING- The notice instituting proceedings pursuant to subsection
(a) shall fix a hearing date not earlier than 30 days nor later than 60
days after service of the notice unless an earlier or a later date is set
by the Commission with the consent of any respondent so served.
`(c) Temporary Order-
`(1) IN GENERAL- Whenever the Commission determines that the violation
or threatened violation specified in the notice instituting proceedings
pursuant to subsection (a), or the continuation thereof, is likely to result
in significant dissipation or conversion of assets, significant harm to
investors, or substantial harm to the public interest, including, but not
limited to, losses to the Securities Investor Protection Corporation, prior
to the completion of the proceedings, the Commission may enter a temporary
order requiring the respondent to cease and desist from the violation or
threatened violation and to take such action to prevent the violation or
threatened violation and to prevent dissipation or conversion of assets,
significant harm to investors, or substantial harm to the public interest as
the Commission deems appropriate pending completion of such proceeding. Such
an order shall be entered only after notice and opportunity for a hearing,
unless the Commission determines that notice and hearing prior to entry
would be impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent and, unless
set aside, limited, or suspended by the Commission or a court of competent
jurisdiction, shall remain effective and enforceable pending the completion
of the proceedings.
`(2) APPLICABILITY- This subsection shall apply only to a respondent that
acts, or, at the time of the alleged misconduct acted, as a broker, dealer,
investment adviser, investment company, municipal securities dealer,
government securities broker, government securities dealer, or transfer
agent, or is, or was at the time of the alleged misconduct, an associated
person of any of the foregoing.
`(d) REVIEW OF TEMPORARY ORDERS-
`(1) COMMISSION REVIEW- At any time after the respondent has been served
with a temporary cease-and-desist order pursuant to subsection (c),
the respondent may apply to the Commission to have the order set aside,
limited, or suspended. If the respondent has been served with a temporary
cease-and-desist order entered without a prior Commission hearing, the
respondent may, within 10 days after the date on which the order was served,
request a hearing on such application and the Commission shall hold a hearing
and render a decision on such application at the earliest possible time.
`(2) JUDICIAL REVIEW- Within--
`(A) 10 days after the date the respondent was served with a temporary
cease-and-desist order entered with a prior Commission hearing, or
`(B) 10 days after the Commission renders a decision on an application and
hearing under paragraph (1), with respect to any temporary cease-and-desist
order entered without a prior Commission hearing,
the respondent may apply to the United States district court for the district
in which the respondent resides or has its principal place of business,
or for the District of Columbia, for an order setting aside, limiting,
or suspending the effectiveness or enforcement of the order, and the court
shall have jurisdiction to enter such an order. A respondent served with a
temporary cease-and-desist order entered without a prior Commission hearing
may not make application to the court for a hearing except after hearing and
decision by the Commission on the respondent's application under paragraph
(1) of this subsection.
`(3) NO AUTOMATIC STAY OF TEMPORARY ORDER- The commencement of proceedings
under paragraph (2) of this subsection shall not, unless specifically
ordered by the court, operate as a stay of the Commission's order.
`(4) EXCLUSIVE REVIEW- Section 9(a) of this title shall not apply to a
temporary order entered pursuant to this section.
`(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
In any cease-and-desist proceeding under subsection (a), the Commission may
enter an order requiring accounting and disgorgement, including reasonable
interest. The Commission is authorized to adopt rules, regulations,
and orders concerning payments to investors, rates of interest, periods
of accrual, and such other matters as it deems appropriate to implement
this subsection.'.

f2bf9f6a598b2dd3d68dcf37c7f3e6d2f2670fd267b7271b949efff89361ee18

Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d))
is amended--
(1) by redesignating subsection (d) as subsection (d)(1);
(2) by inserting after subsection (d)(1) the following new paragraphs:
`(2) AUTHORITY OF A 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
10(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 12 of this title or that is required to
file reports pursuant to subsection (d) of section 15 of this title if
the person's conduct demonstrates substantial 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 title, the rules
or regulations thereunder, or a cease-and-desist order entered by the
Commission pursuant to section 21C of this title, other than by committing
a violation subject to a penalty pursuant to section 21A, 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- 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) $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.
`(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.
`(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 27 of this title,
actions under this paragraph shall be actions to enforce a liability or
a duty created by this title.
`(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 21C, 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.'.

5af1918dc558dd8714cc52857a4c46fd02d90b8c979ef23a0a8604796f07d3c0

TITLE II

-AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934

(a) The Securities Exchange Act of 1934 is amended by inserting after
section 21A (15 U.S.C. 78u-1) the following:
`CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS
`SEC. 21B. (a) COMMISSION AUTHORITY TO ASSESS MONEY PENALTIES- In any
proceeding instituted pursuant to sections 15(b)(4), 15(b)(6), 15B, 15C,
or 17A of this title against any person, the Commission or the appropriate
regulatory agency may impose a civil penalty if it finds, on the record
after notice and opportunity for hearing, that such person--
`(1) has willfully violated any provision of the Securities Act of 1933,
the Investment Company Act of 1940, the Investment Advisers Act of 1940,
or this title, or the rules or regulations thereunder, or the rules of
the Municipal Securities Rulemaking Board;
`(2) has willfully aided, abetted, counseled, commanded, induced, or
procured such a violation by any other person;
`(3) has willfully made or caused to be made in any application for
registration or report required to be filed with the Commission or with any
other appropriate regulatory agency under this title, or in any proceeding
before the Commission with respect to registration, any statement which was,
at the time and in the light of the circumstances under which it was made,
false or misleading with respect to any material fact, or has omitted to
state in any such application or report any material fact which is required
to be stated therein; or
`(4) has failed reasonably to supervise, within the meaning of section
15(b)(4)(E) of this title, with a view to preventing violations of the
provisions of such statutes, rules and regulations, another person who
commits such a violation, if such other person is subject to his supervision;
and that such penalty is in the public interest.
`(b) MAXIMUM AMOUNT OF PENALTY- The maximum amount of penalty for each
such act or omission described in subsection (a) shall be $100,000 for a
natural person or $500,000 for any other person.
`(c) DETERMINATION OF PUBLIC INTEREST- In considering under this section
whether a penalty is in the public interest, the Commission or the
appropriate regulatory agency may consider--
`(1) whether the act or omission for which such penalty is assessed
involved fraud, deceit, manipulation, or deliberate or reckless disregard
of a regulatory requirement;
`(2) the harm to other persons resulting either directly or indirectly
from such act or omission;
`(3) the extent to which any person was unjustly enriched, taking into
account any restitution made to persons injured by such behavior;
`(4) whether such person previously has been found by the Commission,
another appropriate regulatory agency, or a self-regulatory organization to
have violated the Federal securities laws, State securities laws, or the
rules of a self-regulatory organization, has been enjoined by a court of
competent jurisdiction from violations of such laws or rules, or has been
convicted by a court of competent jurisdiction of violations of such laws or
of any felony or misdemeanor described in section 15(b)(4)(B) of this title;
`(5) the need to deter such person and other persons from committing such
acts or omissions; and
`(6) such other matters as justice may require.
`(d) EVIDENCE CONCERNING ABILITY TO PAY- In any proceeding in which the
Commission or the appropriate regulatory agency may impose a penalty under
this section, a respondent may present evidence of the respondent's ability
to pay such penalty. The Commission or the appropriate regulatory agency
may, in its discretion, consider such evidence in determining whether such
penalty is in the public interest. Such evidence may relate to the extent
of such person's ability to continue in business and the collectability of a
penalty, taking into account any other claims of the United States or third
parties upon such person's assets and the amount of such person's assets.
`(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
In any proceeding in which the Commission or the appropriate regulatory
agency may impose a penalty under this section, the Commission or the
appropriate regulatory agency may enter an order requiring accounting and a
disgorgement, including reasonable interest. The Commission is authorized
to adopt rules, regulations, and orders concerning payments to investors,
rates of interest, periods of accrual, and such other matters as it deems
appropriate to implement this subsection.'.
(b) CONFORMING AMENDMENT- The heading of section 21A of this title (15
U.S.C. 78u-1) is amended to read as follows:
`CIVIL PENALTIES FOR INSIDER TRADING'

9434a1ab1e90a15a006f8a134532bd93ad31764acfad893575ce8abdaab8cd75

The Securities and Exchange Act of 1934 is amended by adding after section
21B (as added by section 202 of this Act) the following new section:
`CEASE-AND-DESIST PROCEEDINGS
`SEC. 21C. (a) AUTHORITY OF THE COMMISSION- If the Commission finds,
after notice and opportunity for hearing, that any person is violating,
has violated, or is about to violate any provision of this title, or any
rule or regulation thereunder, the Commission may publish its findings
and enter an order requiring such person, and any other person that is,
was, or would be a causing of the violation, due to an act or omission
the person knew or should have known would contribute to such violation,
to cease and desist from committing or causing such violation and any
future violation of the same provision, rule, or regulation. Such order
may, in addition to requiring a person to cease and desist from committing
or causing a violation, require such person to comply, or to take steps to
effect compliance, with such provision, rule, or regulation, upon such terms
and within such time as the Commission may specify in such order. Any such
order may, as the Commission deems appropriate, require future compliance
or steps to effect future compliance, either permanently or for such
period of time as the Commission may specify, with such provision, rule,
or regulation with respect to any security, any issuer, or any other person.
`(b) HEARING- The notice instituting proceedings pursuant to subsection
(a) shall fix a hearing date not earlier than 30 days nor later than 60
days after service of the notice unless an earlier or a later date is set
by the Commission with the consent of any respondent so served.
`(c) TEMPORARY ORDER-
`(1) IN GENERAL- Whenever the Commission determines that the violation
or threatened violation specified in the notice instituting proceedings
pursuant to subsection (a), or the continuation thereof, is likely to result
in significant dissipation or conversion of assets, significant harm to
investors, or substantial harm to the public interest, including, but not
limited to, losses to the Securities Investor Protection Corporation, prior
to the completion of the proceedings, the Commission may enter a temporary
order requiring the respondent to cease and desist from the violation or
threatened violation and to take such action to prevent the violation or
threatened violation and to prevent dissipation or conversion of assets,
significant harm to investors, or substantial harm to the public interest as
the Commission deems appropriate pending completion of such proceedings. Such
an order shall be entered only after notice and opportunity for a hearing,
unless the Commission determines that notice and hearing prior to entry
would be impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent and, unless
set aside, limited, or suspended by the Commission or a court of competent
jurisdiction, shall remain effective and enforceable pending the completion
of the proceedings.
`(2) APPLICABILITY- This subsection shall apply only to a respondent that
acts, or, at the time of the alleged misconduct acted, as a broker, dealer,
investment adviser, investment company, municipal securities dealer,
government securities broker, government securities dealer, or transfer
agent, or is, or was at the time of the alleged misconduct, an associated
person of any of the foregoing.
`(d) REVIEW OF TEMPORARY ORDERS-
`(1) COMMISSION REVIEW- At any time after the respondent has been served
with a temporary cease-and-desist order pursuant to subsection (c),
the respondent may apply to the Commission to have the order set aside,
limited, or suspended. If the respondent has been served with a temporary
cease-and-desist order entered without a prior Commission hearing, the
respondent may, within 10 days after the date on which the order was served,
request a hearing on such application and the Commission shall hold a hearing
and render a decision on such application at the earliest possible time.
`(2) JUDICIAL REVIEW- Within--
`(A) 10 days after the date the respondent was served with a temporary
cease-and-desist order entered with a prior Commission hearing, or
`(B) with respect to any temporary cease-and-desist order entered without
a prior Commission hearing, 10 days after the Commission renders a decision
on an application and hearing under paragraph (1),
the respondent may apply to the United States district court for the district
in which the respondent resides or has its principal place of business,
or for the District of Columbia, for an order setting aside, limiting,
or suspending the effectiveness or enforcement of the order, and the court
shall have jurisdiction to enter such an order. A respondent served with a
temporary cease-and-desist order entered without a prior Commission hearing
may not make application to the court for a hearing except after hearing and
decision by the Commission on the respondent's application under paragraph
(1) of this subsection.
`(3) NO AUTOMATIC STAY OF TEMPORARY ORDER- The commencement of proceedings
under paragraph (2) of this subsection shall not, unless specifically
ordered by the court, operate as a stay of the Commission's order.
`(4) EXCLUSIVE REVIEW- Section 25 of this title shall not apply to temporary
order entered pursuant to this section.
`(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
In any cease-and-desist proceeding under subsection (a), the Commission may
enter an order requiring accounting and disgorgement, including reasonable
interest. The Commission is authorized to adopt rules, regulations,
and orders concerning payments to investors, rates of interest, periods
of accrual, and such other matters as it deems appropriate to implement
this subsection.'.

b274fad197a33b72928d1266bd66581bdddce3556af4d6dcfe7bf5340952c28a

Section 23 of the Securities Exchange Act of 1934 (15 U.S.C. 78w) is
amended by adding at the end thereof the following new subsection:
`(d) CEASE-AND-DESIST PROCEDURES- Within 1 year after the date of enactment
of this subsection, the Commission shall establish regulations providing
for the expeditious conduct of hearings and rendering of decisions under
section 21C of this title, section 8A of the Securities Act of 1933,
section 9(f) of the Investment Company Act of 1940, and section 203(k)
of the Investment Advisers Act of 1940.'.

855415c9aa3451c7fe8a69613ea7c9d12317fccaab6ff47b392ac3a56b781397

Section 15B(c)(6)(A) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-4(c)(6)(A)) is amended--
(1) by striking `and the nature' and inserting `, the nature'; and
(2) by striking `proposed action and' and inserting `proposed action,
and whether the Commission is seeking a monetary penalty against such
municipal securities dealer or such associated person pursuant to section
21B of this title; and '.

8c8105faa9ed54b0d01f1a06248efeff7ad4c091b5ca5be19a8a3e689c6300cb

Section 9 of the Investment Company Act of 1940 (15 U.S.C. 80a-9)
is amended--
(1) by redesignating subsection (d) as subsection (g);
(2) by inserting after subsection (c) the following new subsections:
`(d) Money Penalties in Administrative Proceedings-
`(1) COMMISSION AUTHORITY- In any proceeding instituted pursuant to
subsection (b) against any person, the Commission may impose a civil
penalty if it finds, on the record after notice and opportunity for hearing,
that such person--
`(A) has willfully violated any provision of the Securities Act of 1933,
the Securities Exchange Act of 1934, the Investment Advisers Act of 1940,
or this title, or the rules or regulations thereunder;
`(B) has willfully aided, abetted, counseled, commanded, induced, or
procured such a violation by any other person; or
`(C) has willfully made or caused to be made in any registration statement,
application, or report required to be filed with the Commission under
this title, any statement which was, at the time and in the light of the
circumstances under which it was made, false or misleading with respect
to any material fact, or has omitted to state in any such registration
statement, application, or report any material fact which was required to
be stated therein;
and that such penalty is in the public interest.
`(2) MAXIMUM AMOUNT OF PENALTY- The maximum amount of the penalty for each
such act or omission described in paragraph (1) shall be $100,000 for a
natural person or $500,000 for any other person.
`(3) DETERMINATION OF PUBLIC INTEREST- In considering under this section
whether a penalty is in the public interest, the Commission may consider--
`(A) whether the act or omission for which such penalty is assessed
involved fraud, deceit, manipulation, or deliberate or reckless disregard
of a regulatory requirement;
`(B) the harm to other persons resulting either directly or indirectly
from such act or omission;
`(C) the extent to which any person was unjustly enriched, taking into
account any restitution made to persons injured by such behavior;
`(D) whether such person previously has been found by the Commission,
another appropriate regulatory agency, or a self-regulatory organization
to have violated the Federal securities laws, State securities laws,
or the rules of a self-regulatory organization, has been enjoined by a
court of competent jurisdiction from violations of such laws or rules, or
has been convicted by a court of competent jurisdiction of violations of
such laws or of any felony or misdemeanor described in section 203(e)(2)
of the Investment Advisers Act of 1940;
`(E) the need to deter such person and other persons from committing such
acts or omissions; and
`(F) such other matters as justice may require.
`(4) EVIDENCE CONCERNING ABILITY TO PAY- In any proceeding in which the
Commission may assess a penalty under this section, a respondent may present
evidence of the respondent's ability to pay such penalty. The Commission
may, in its discretion, consider such evidence in determining whether such
penalty is in the public interest. Such evidence may relate to the extent of
such person's ability to continue in business, and the collectability of a
penalty, taking into account any other claims of the United States or third
parties upon such person's assets and the amount of such person's assets.
`(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
In any proceeding in which the Commission may impose a penalty under this
section, the Commission may enter an order requiring accounting and a
disgorgement, including reasonable interest. The Commission is authorized
to adopt rules, regulations, and orders concerning payments to investors,
rates of interest, and such other matters as it deems appropriate to
implement this subsection.
`(f) Cease-and-Desist Proceedings-
`(1) AUTHORITY OF THE COMMISSION- If the Commission finds, after notice and
opportunity for hearing, that any person is violating, has violated, or is
about to violate any provision of this title, or any rule or regulation
thereunder, the Commission may publish its findings and enter an order
requiring such person, and any other person that is, was, or would be a
cause of the violation, due to an act or omission the person knew or should
have known would contribute to such violation, to cease and desist from
committing or causing such violation and any future violation of the same
provision, rule, or regulation. Such order may, in addition to requiring a
person to cease and desist from committing or causing a violation, require
such person to comply, or to take steps to effect compliance, with such
provision, rule, or regulation, upon such terms and conditions and for
such time as the Commission may specify in such order. Any such order may,
as the Commission deems appropriate, require future compliance or steps to
effect future compliance, either permanently or for such period of time
as the Commission may specify, with such provision, rule, or regulation
with respect to any security, any issuer, or any other person.
`(2) HEARING- The notice instituting proceedings pursuant to paragraph (1)
shall fix a hearing date not earlier than 30 days nor later than 60 days
after service of the notice unless an earlier or a later date is set by
the Commission with the consent of any respondent so served.
`(3) TEMPORARY ORDER-
`(A) Whenever the Commission determines that the violation or threatened
violation specified in the notice instituting proceedings pursuant
to paragraph (1), or the continuation thereof, is likely to result in
significant dissipation or conversion of assets, significant harm to
investors, or substantial harm to the public interest, including, but not
limited to, losses to the Securities Investor Protection Corporation,
prior to the completion of the proceeding, the Commission may enter a
temporary order requiring the respondent to cease and desist from the
violation or threatened violation and to prevent dissipation or conversion
of assets, significant harm to investors, or substantial harm to the
public interest as the Commission deems appropriate pending completion
of such proceedings. Such an order shall be entered only after notice and
opportunity for a hearing, unless the Commission, notwithstanding section
40(a) of this title, determines that notice and hearing prior to entry
would be impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent and, unless
set aside, limited, or suspended by the Commission or a court of competent
jurisdiction, shall remain effective and enforceable pending the completion
of the proceedings.
`(B) This paragraph shall apply only to a respondent that acts, or, at
the time of the alleged misconduct acted, as a broker, dealer, investment
adviser, investment company, municipal securities dealer, government
securities broker, government securities dealer, or transfer agent, or is,
or was at the time of the alleged misconduct, an associated person of any
of the foregoing.
`(4) REVIEW OF TEMPORARY ORDERS-
`(A) COMMISSION REVIEW- At any time after the respondent has been served
with a temporary cease-and-desist order pursuant to paragraph (3),
the respondent may apply to the Commission to have the order set aside,
limited, or suspended. If the respondent has been served with a temporary
cease-and-desist order entered without a prior Commission hearing, the
respondent may, within 10 days after the date on which the order was served,
request a hearing on such application and the Commission shall hold a hearing
and render a decision on such application at the earliest possible time.
`(B) JUDICIAL REVIEW- Within--
`(i) 10 days after the date the respondent was served with a temporary
cease-and-desist order entered with a prior Commission hearing, or
`(ii) with respect to any temporary cease-and-desist order entered without
a prior Commission hearing, 10 days after the Commission renders a decision
on an application and hearing under subparagraph (A),
the respondent may apply to the United States district court for the district
in which the respondent resides or has its principal place of business,
or for the District of Columbia, for an order setting aside, limiting,
or suspending the effectiveness or enforcement of the order, and the court
shall have jurisdiction to enter such an order. A respondent served with a
temporary cease-and-desist order entered without a prior Commission hearing
may not make application to the court for a hearing except after hearing and
decision by the Commission on the respondent's application under subparagraph
(A) of this paragraph.
`(C) NO AUTOMATIC STAY OF TEMPORARY ORDER- The commencement of proceedings
under subparagraph (B) of this paragraph shall not, unless specifically
ordered by the court, operate as a stay of the Commission's order.
`(D) EXCLUSIVE REVIEW- Section 43 of this title shall not apply to a
temporary order entered pursuant to this section.
`(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT- In
any cease-and-desist proceeding under subsection (f)(1), the Commission may
enter an order requiring accounting and disgorgement, including reasonable
interest. The Commission is authorized to adopt rules, regulations, and
orders concerning payments to investors, rates of interest, periods of
accrual, and such other matters as it deems necessary to implement this
subsection.'; and
(3) in redesignated subsection (g), by striking `subsections (a) through
(c) of'.

04dffba75f81a19f75d6d58c89352ec459594c3e1f4cdb51d3a1a157e97d931f

TITLE III

-AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940

Section 42 of the Investment Company Act of 1940 (15 U.S.C. 80a-41) is
amended by adding at the end thereof the following new subsection:
`(e) MONEY PENALTIES IN CIVIL ACTIONS-
`(1) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission
that any person has violated any provision of this title or the rules or
regulations thereunder, or a cease-and-desist order entered pursuant to
section 9(f) 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.
`(2) AMOUNT OF PENALTY- 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 (A) $100,000
for a natural person or $500,000 for any other person, or (B) the gross
amount of pecuniary gain to such defendant as a result of the violation.
`(3) PROCEDURES FOR COLLECTION-
`(A) PAYMENT OF PENALTY TO TREASURY- A penalty imposed under this section
shall be payable into the Treasury of the United States.
`(B) 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.
`(C) REMEDY NOT EXCLUSIVE- The actions authorized by this subsection may
be brought in addition to any other action that the Commission or the
Attorney General is entitled to bring.
`(D) JURISDICTION AND VENUE- For purposes of section 44 of this title,
actions under this paragraph shall be actions to enforce a liability or
a duty created by this title.
`(4) 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 9(f), 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 such order each day of the failure to
comply shall be deemed a separate offense.'.

a5765116ff98dec28ca497fdbd987f7ecb667e13db87f250cd1de29e4c79345f

Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3)
is amended by adding at the end thereof the following new subsections:
`(i) MONEY PENALTIES IN ADMINISTRATIVE PROCEEDINGS-
`(1) AUTHORITY OF COMMISSION- In any proceeding instituted pursuant to
subsection (e) or (f) against any person, the Commission may impose a
civil penalty if it finds, upon the record after notice and opportunity
for hearing, that such person--
`(A) has willfully violated any provision of the Securities Act of 1933,
the Securities Exchange Act of 1934, the Investment Company Act of 1940,
or this title, or the rules or regulations thereunder;
`(B) has willfully aided, abetted, counseled, commanded, induced, or
procured such a violation by any other person;
`(C) has willfully made or caused to be made in any application for
registration or report required to be filed with the Commission under
this title, or in any proceeding before the Commission with respect to
registration, any statement which was, at the time and in the light of the
circumstances under which it was made, false or misleading with respect
to any material fact, or has omitted to state in any such registration
statement, application, or report any material fact which was required to
be stated therein; or
`(D) has failed reasonably to supervise, within the meaning of section
203(e)(5) of this title, with a view to preventing violations of the
provisions of this title and such rules and regulations, another person who
commits such a violation, if such other person is subject to his supervision;
and that such penalty is in the public interest.
`(2) MAXIMUM AMOUNT OF PENALTY- The maximum amount of the penalty for each
act or omission described in paragraph (1) shall be $100,000 for a natural
person or $500,000 for any other person.
`(3) DETERMINATION OF PUBLIC INTEREST- In considering under this section
whether a penalty is in the public interest, the Commission may consider--
`(A) whether the act or omission for which such penalty is assessed
involved fraud, deceit, manipulation, or deliberate or reckless disregard
of a regulatory requirement;
`(B) the harm to other persons resulting either directly or indirectly
from such act or omission;
`(C) the extent to which any person was unjustly enriched, taking into
account any restitution made to persons injured by such behavior;
`(D) whether such person previously has been found by the Commission,
another appropriate regulatory agency, or a self-regulatory organization to
have violated the Federal securities laws, State securities laws, or the
rules of a self-regulatory organization, has been enjoined by a court of
competent jurisdiction from violations of such laws or rules, or has been
convicted by a court of competent jurisdiction of violations of such laws
or of any felony or misdemeanor described in section 203(e)(2) of this title;
`(E) the need to deter such person and other persons from committing such
acts or omissions; and
`(F) such other matters as justice may require.
`(4) EVIDENCE CONCERNING ABILITY TO PAY- In any proceeding in which the
Commission may impose a penalty under this section, a respondent may present
evidence of the respondent's ability to pay such penalty. The Commission
may, in its discretion, consider such evidence in determining whether such
penalty is in the public interest. Such evidence may relate to the extent
of such person's ability to continue in business and the collectability of a
penalty, taking into account any other claims of the United States or third
parties upon such person's assets and the amount of such person's assets.
`(j) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
In any proceeding in which the Commission may impose a penalty under
this section, the Commission may enter an order requiring accounting and
disgorgement, including reasonable interest. The Commission is authorized
to adopt rules, regulations, and orders concerning payments to investors,
rates of interest, periods of accrual and such other matters as it deems
appropriate to implement this subsection.
`(k) Cease-and-Desist Proceedings-
`(1) AUTHORITY OF THE COMMISSION- If the Commission finds, after notice and
opportunity for hearing, that any person is violating, has violated, or is
about to violate any provision of this title, or any rule or regulation
thereunder, the Commission may publish its findings and enter an order
requiring such person, and any other person that is, was, or would be a
cause of the violation, due to an act or omission the person knew or should
have known would contribute to such violation, to cease and desist from
committing or causing such violation and any future violation of the same
provision, rule, or regulation. Such order may, in addition to requiring a
person to cease and desist from committing or causing a violation, require
such person to comply, or to take steps to effect compliance, with such
provision, rule, or regulation, upon such terms and conditions and within
such time as the Commission may specify in such order. Any such order may,
as the Commission deems appropriate, require future compliance or steps to
effect future compliance, either permanently or for such period of time as
the Commission may specify, with such provision, rule, or regulation with
respect to any security, any issuer, or any other person.
`(2) HEARING- The notice instituting proceedings pursuant to subsection
(k)(1) shall fix a hearing date not earlier than 30 days nor later than
60 days after service of the notice unless an earlier or a later date is
set by the Commission with the consent of any respondent so served.
`(3) TEMPORARY ORDER-
`(A) IN GENERAL- Whenever the Commission determines that the violation
or threatened violation specified in the notice instituting proceedings
pursuant to subsection (k)(1), or the continuation thereof, is likely to
result in significant dissipation or conversion of assets, significant harm
to investors, or substantial harm to the public interest, including, but
not limited to, losses to the Securities Investor Protection Corporation,
prior to the completion of the proceedings, the Commission may enter a
temporary order requiring the respondent to cease and desist from the
violation or threatened violation and to take such action to prevent the
violation or threatened violation and to prevent dissipation or conversion
of assets, significant harm to investors, or substantial harm to the
public interest as the Commission deems appropriate pending completion
of such proceedings. Such an order shall be entered only after notice and
opportunity for a hearing, unless the Commission, notwithstanding section
211(c) of this title, determines that notice and hearing prior to entry
would be impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent and, unless
set aside, limited, or suspended by the Commission or a court of competent
jurisdiction, shall remain effective and enforceable pending the completion
of the proceedings.
`(B) APPLICABILITY- This paragraph shall apply only to a respondent that
acts, or, at the time of the alleged misconduct acted, as a broker, dealer,
investment adviser, investment company, municipal securities dealer,
government securities broker, government securities dealer, or transfer
agent, or is, or was at the time of the alleged misconduct, an associated
person of any of the foregoing.
`(4) Review of temporary orders-
`(A) COMMISSION REVIEW- At any time after the respondent has been served
with a temporary cease-and-desist order pursuant to paragraph (3),
the respondent may apply to the Commission to have the order set aside,
limited, or suspended. If the respondent has been served with a temporary
cease-and-desist order entered without a prior Commission hearing, the
respondent may, within 10 days after the date on which the order was served,
request a hearing on such application and the Commission shall hold a hearing
and render a decision on such application at the earliest possible time.
`(B) JUDICIAL REVIEW- Within--
`(i) 10 days after the date the respondent was served with a temporary
cease-and-desist order entered with a prior Commission hearing, or
`(ii) with respect to any temporary cease-and-desist order entered without
a prior Commission hearing, 10 days after the Commission renders a decision
on an application and hearing under subparagraph (A),
the respondent may apply to the United States district court for the district
in which the respondent resides or has its principal place of business,
or for the District of Columbia, for an order setting aside, limiting,
or suspending the effectiveness or enforcement of the order, and the court
shall have jurisdiction to enter such an order. A respondent served with a
temporary cease-and-desist order entered without a prior Commission hearing
may not make application to the court for a hearing except after hearing and
decision by the Commission on the respondent's application under subparagraph
(A) of this paragraph.
`(C) NO AUTOMATIC STAY OF TEMPORARY ORDER- The commencement of proceedings
under subparagraph (B) of this paragraph shall not, unless specifically
ordered by the court, operate as a stay of the Commission's order.
`(D) EXCLUSIVE REVIEW- Section 213 of this title shall not apply to a
temporary order entered pursuant to this section.
`(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT- In
any cease-and-desist proceeding under subsection (k)(1), the Commission may
enter an order requiring accounting and disgorgement, including reasonable
interest. The Commission is authorized to adopt rules, regulations,
and orders concerning payments to investors, rates of interest, periods
of accrual, and such other matters as it deems appropriate to implement
this subsection.'.

880a3fc60741c0ff843bbed48be4dca682242c4161d0f652da5fe5e994d8d627

TITLE IV

-AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940

Section 209 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-9)
is amended by adding at the end thereof the following new subsection:
`(e) MONEY PENALTIES IN CIVIL ACTIONS-
`(1) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission
that any person has violated any provision of this title or the rules
or regulations thereunder, or a cease-and-desist order entered by the
Commission pursuant to section 203(k) 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.
`(2) AMOUNT OF PENALTY- 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 (A) $100,000
for a natural person or $500,000 for any other person, or (B) the gross
amount of pecuniary gain to such defendant as a result of the violation.
`(3) PROCEDURES FOR COLLECTION-
`(A) PAYMENT OF PENALTY TO TREASURY--A penalty imposed under this section
shall be payable into the Treasury of the United States.
`(B) 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.
`(C) REMEDY NOT EXCLUSIVE- The actions authorized by this subsection may
be brought in addition to any other action that the Commission or the
Attorney General is entitled to bring.
`(D) JURISDICTION AND VENUE- For purposes of section 214 of this title,
actions under this paragraph shall be actions to enforce a liability or
a duty created by this title.
`(4) 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 203(k), 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.'.

131248cf0773945cd72c55afbee145549a7cb3cc7d7803de2f0df82858a91bb9

Section 214 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-14)
is amended--
(1) by inserting after `all suits in equity' the following: `and actions
at law brought to enforce any liability or duty created by, or'; and
(2) by inserting after `Any suit or action' the following: `to enforce
any liability or duty created by, or'.

472a1be54c7ef2b9c0fb925306041086631520f6f4019f4396b289f05a05f579

This Act may be cited as the `Penny Stock Reform Act of 1990'.

aafa1400820d5937253f82751e4ddb9f551cc3987df9af6acb1decb030cfe2bf

The Congress finds the following:
(1) The maintenance of an honest and healthy primary and secondary market for
securities offerings is essential to enhancing long-term capital formation
and economic growth and providing legitimate investment opportunities for
individuals and institutions.
(2) Protecting investors in new securities is a critical component in the
maintenance of an honest and healthy market for such securities.
(3) Protecting issuers of new securities and promoting the capital formation
process on behalf of small companies are fundamental concerns in maintaining
a strong economy and viable trading markets.
(4) Unscrupulous market practices and market participants have pervaded the
`penny stock' market with an overwhelming amount of fraud and abuse.
(5) Although the Securities and Exchange Commission, State securities
regulators, and securities self-regulators have made efforts to curb
these abusive and harmful practices, the penny stock market still lacks an
adequate and sufficient regulatory structure, particularly in comparison
to the structure for overseeing trading in exchange-traded and national
market system securities.
(6) Investors in the penny stock market suffer from a serious lack
of adequate information concerning price and volume of penny stock
transactions, the nature of this market, and the specific securities in
which they are investing.
(7) Current practices do not adequately regulate the role of `promoters' and
`consultants' in the penny stock market, and many professionals who have been
banned from the securities markets have ended up in promoter and consultant
roles, contributing substantially to fraudulent and abusive schemes.
(8) The present regulatory environment has permitted the ascendancy of the
use of particular market practices, such as `reverse mergers' with shell
corporations and `blank check' offerings, which are used to facilitate
manipulation schemes and harm investors.
(9) In light of the substantial and continuing problems in the penny stock
markets, additional legislative measures are necessary and appropriate.

8a47758c71e8067c86b440122746eb8e99819c026c2229c0fac706a78552fd5c

(a) AMENDMENT- Section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)) is amended by adding at the end thereof the following
new paragraph:
`(51)(A) The term `penny stock' means any equity security other than a
security that is--
`(i) registered or approved for registration and traded on a national
securities exchange that meets such criteria as the Commission shall
prescribe by rule or regulation for purposes of this paragraph;
`(ii) authorized for quotation on an automated quotation system sponsored
by a registered securities association, if such system (I) was established
and in operation before January 1, 1990, and (II) meets such criteria
as the Commission shall prescribe by rule or regulation for purposes of
this paragraph;
`(iii) issued by an investment company registered under the Investment
Company Act of 1940;
`(iv) excluded, on the basis of exceeding a minimum price, net tangible
assets of the issuer, or other relevant criteria, from the definition of
such term by rule or regulation which the Commission shall prescribe for
purposes of this paragraph; or
`(v) exempted, in whole or in part, conditionally or unconditionally,
from the definition of such term by rule, regulation, or order prescribed
by the Commission.
`(B) Notwithstanding clause (i) or (ii) of subparagraph (A), the Commission
may, by rule, regulation, or order, designate any security or class of
securities described in such clauses as within the meaning of the term
`penny stock' if such securities or class of securities are traded otherwise
than on a national securities exchange or through an automated quotation
system described in clause (ii) of subparagraph (A).
`(C) In exercising its authority under this paragraph to prescribe rules,
regulations, and orders, the Commission shall determine that such rule,
regulation, or order is consistent with the public interest and the
protection of investors.'.
(b) SCHEDULE FOR REGULATIONS- The Commission shall prescribe rules or
regulations to implement the amendment made by subsection (a) of this
section within one year after the date of enactment of this Act.

952c83ce3ca6e7ce433185730fd56ca5c1838e4045238ea098d4675458ecf3dd

OF PENNY STOCK.
(a) AMENDMENT- Section 15(b) of the Securities Exchange Act (15
U.S.C. 78o(b)) is amended by striking paragraph (6) thereof and inserting
the following:
`(6)(A) The Commission, by order, shall censure or place limitations on
the activities or functions of any person associated, seeking to become
associated, or, at the time of the alleged misconduct, associated or seeking
to become associated with a broker or dealer, or suspend for a period
not exceeding 12 months or bar any such person from being associated
with a broker or dealer, or from participating in a distribution of
any penny stock, if the Commission finds, on the record after notice
and opportunity for hearing, that such censure, placing of limitations,
suspension, or bar is in the public interest and that such person has
committed or omitted any act or omission enumerated in subparagraph (A),
(D), or (E) of paragraph (4) of this subsection, has been convicted of
any offense specified in subparagraph (B) of such paragraph (4) within 10
years of the commencement of the proceedings under this paragraph, or is
enjoined from any action, conduct, or practice specified in subparagraph
(C) of such paragraph (4). It shall be unlawful for any person as to
whom such an order suspending or barring him from being associated with
a broker or dealer or from participating in a distribution of any penny
stock is in effect, without the consent of the Commission, willfully to
become, or to be, associated with a broker or dealer, or to participate
in a distribution of any penny stock. It shall be unlawful for any broker
or dealer to permit such a person, without the consent of the Commission,
to become, or remain, a person associated with him, and for any broker or
dealer to participate in a distribution of any penny stock in which such a
person is participating if such broker or dealer knew, or in the exercise
of reasonable care should have known, of such order.
`(B) For purposes of this paragraph, the term `participating in a
distribution of any penny stock' includes acting as any promoter, finder,
consultant, agent or other person who engages in activities with a broker,
dealer, or issuer for purposes of the issuance of or trading in any penny
stock, 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 such term.'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) of this section
shall be effective on the earlier of one year after the date of enactment
of the Act or the effective date of rules or regulations prescribed by
the Commission to implement section 3(a)(51) of the Securities Exchange
Act of 1934, as added by this Act.

66ccdc887f37d8f05f475fea6d0c77f2c15d33e1f1e86db96b8113092feff993

(a) AMENDMENT- Section 15 of the Securities Exchange Act of 1934 (15
U.S.C. 78o) is amended by adding at the end thereof the following new
subsection:
`(g) REQUIREMENTS FOR TRANSACTIONS IN PENNY STOCKS-
`(1) IN GENERAL- No broker or dealer shall make use of the mails or any
means or instrumentality of interstate commerce to effect any transaction
in, or to induce or attempt to induce the purchase or sale of, any penny
stock by any customer except in accordance with the requirements of this
subsection and the rules and regulations prescribed under this subsection.
`(2) RISK DISCLOSURE WITH RESPECT TO PENNY STOCKS- Prior to effecting any
transaction in any penny stock, a broker or dealer shall give the customer
a risk disclosure document that--
`(A) contains a description of the nature and level of risk inherent in
the market for penny stocks in both public offerings and secondary trading;
`(B) contains a description of the broker's or dealer's duties to the
customer and of the rights and remedies available to the customer with
respect to violations of such duties or other requirements of Federal
securities laws;
`(C) contains a brief, clear description of a dealer market, including
`bid' and `ask' prices for penny stocks and the significance of the spread
between the bid and ask prices;
`(D) contains the toll free telephone number for inquiries on disciplinary
actions established pursuant to section 15A(i) of this title;
`(E) defines significant terms used in the disclosure document or in the
conduct of trading in penny stocks; and
`(F) contains such other information, and is in such form (including
language, type size, and format), as the Commission shall require by rule
or regulation.
`(3) COMMISSION RULES RELATING TO DISCLOSURE- The Commission, by rule
or regulation, shall adopt within one year after the date of enactment
of this subsection additional standards for the disclosure by brokers
and dealers to customers of information concerning transactions in penny
stocks. Such rules--
`(A) shall require brokers and dealers to disclose to each customer,
prior to effecting any transaction in, and at the time of confirming
any transaction with respect to any penny stock, in accordance with such
procedures and methods as the Commission may require consistent with the
public interest and the protection of investors--
`(i) the bid and ask prices for such penny stock, or such other comparable
information as the Commission may, by rule, require relating to the price
of such stock, if bid and ask prices are not available;
`(ii) the number of shares to which such bid and ask prices apply, or
such other comparable information as the Commission may, by rule, require
relating to the depth and liquidity of the market for such stock; and
`(iii) the amount of any commission, and a description of any additional
compensation, that the broker or dealer or associated person thereof will
receive or has received in such transaction;
`(B) shall require brokers and dealers to provide, to each customer
whose account with the broker or dealer contains penny stocks, a monthly
statement indicating the market value of the penny stocks in that account
or indicating that the market value of such stock cannot be determined
because of the unavailability of firm quotes; and
`(C) may, as the Commission finds necessary or appropriate in the public
interest or for the protection of investors, require brokers and dealers to
disclose to customers such additional information concerning transactions
in penny stocks as the Commission may require.
`(4) EXEMPTIONS- The Commission, as it determines consistent with the
public interest and the protection of investors, may by rule, regulation,
or order exempt in whole or in part, conditionally or unconditionally, any
person or class of persons, or any transaction or class of transactions,
from the requirements of this subsection. Such exemptions shall include
an exemption for brokers and dealers based on the minimal percentage of
the broker's or dealer's commissions, commission-equivalents, and markups
received from transactions in penny stocks.
`(5) REGULATIONS- It shall be unlawful for any person to violate such rules
and regulations as the Commission shall prescribe in the public interest
or for the protection of investors or to maintain fair and orderly markets--
`(A) as necessary or appropriate to carry out this subsection; or
`(B) as reasonably designed to prevent fraudulent, deceptive, or manipulative
acts and practices with respect to penny stocks.'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) of this section
shall be effective on and after one year after the date of enactment of this
Act, except that the Commission shall prescribe rules or regulations to carry
out such amendment within one year after the date of enactment of this Act.

d076d521b6d6e28aa87faaa9c5b825c1e36a59ba7f5bc965a59eb261010b4b55

The Securities Exchange Act of 1934 is amended by inserting after section
17A the following new section:
`AUTOMATED QUOTATION SYSTEMS FOR PENNY STOCKS
`SEC. 17B. (a) FINDINGS- The Congress finds that--
`(1) the market for penny stocks suffers from a lack of reliable and accurate
quotation and last sale information available to investors and regulators;
`(2) it is in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly markets to improve
significantly the information available to brokers, dealers, investors,
and regulators with respect to quotations for and transactions in penny
stocks; and
`(3) a fully implemented automated quotation system for penny stocks would
meet the information needs of investors and market participants and would
add visibility and regulatory and surveillance data to that market.
`(b) MANDATE TO FACILITATE THE ESTABLISHMENT OF AUTOMATED QUOTATION SYSTEMS-
`(1) IN GENERAL- The Commission is authorized and directed, therefore,
having due regard for the public interest, the protection of investors, and
the maintenance of fair and orderly markets, to facilitate the widespread
dissemination of reliable and accurate last sale and quotation information
with respect to penny stocks in accordance with the findings set forth in
subsection (a), with a view toward establishing, at the earliest feasible
time, one or more automated quotation systems that will collect and
disseminate information regarding all penny stocks.
`(2) CHARACTERISTICS OF SYSTEMS- Each such automated quotation system shall--
`(A) be operated by a registered securities association or a national
securities exchange in accordance with such rules as the Commission and
these entities shall prescribe;
`(B) collect and disseminate quotation and transaction information;
`(C) except as provided in subsection (c), provide bid and ask quotations
of participating brokers or dealers, or comparably accurate and reliable
pricing information, which shall constitute firm bids or offers for at least
such minimum numbers of shares or minimum dollar amounts as the Commission
and the registered securities association or national securities exchange
shall require; and
`(D) provide for the reporting of the volume of penny stock transactions,
including last sale reporting, when the volume reaches appropriate levels
that the Commission shall specify by rule or order.
`(c) EXEMPTIVE AUTHORITY- The Commission may, by rule or order, grant such
exemptions, in whole or in part, conditionally or unconditionally, to any
class or classes of penny stocks from the requirements of paragraph (1)
or (2)(C) of subsection (b) as the Commission determines to be consistent
with the public interest, the protection of investors, and the maintenance
of fair and orderly markets.
`(d) COMMISSION REPORTING REQUIREMENTS- The Commission shall, in each of
the first 5 annual reports (under section 23(b)(1)) submitted more than 12
months after the date of enactment of this section, include a description
of the status of the penny stock automated quotation system or systems
required by subsection (b). Such description shall include--
`(1) a review of the development, implementation, and progress of the
project, including achievement of significant milestones and current
project schedule; and
`(2) a review of the activities of registered securities associations and
national securities exchanges in the development of the system.'.

0c0fe241a34b88cd256691acb33c5e8f1550120d980fa6cb821f2357ab387a8c

(a) REVIEW REQUIRED- The Securities and Exchange Commission shall conduct a
review of the rules, procedures, facilities, and oversight and enforcement
activities of self-regulatory organizations under the Securities Exchange
Act of 1934 with respect to penny stocks (within the meaning of section
3(a)(51) of such Act). Such review shall include an analysis of--
(1) the resources devoted by self-regulatory organizations to the detection,
investigation, prosecution, and correction of fraud and abuse in the
trading of such penny stocks;
(2) the methods and techniques used, and alternative methods which may be
used, in those oversight and enforcement activities, including methods and
techniques involving coordinated oversight and enforcement activities with
other Federal and State authorities;
(3) the adequacy of the rules, procedures, and facilities of such
self-regulatory organizations for the prevention of excessive spreads
and markups, unscrupulous sales practices, and other conduct inconsistent
with high standards of commercial honor and just and equitable principles
of trade;
(4) any obstacles to or limitations on the authority of self-regulatory
organizations that impair the conduct of those oversight and enforcement
activities;
(5) the adequacy of current listing and maintenance requirements and
procedures and the potential for erosion of such requirements and procedures
due to issuer avoidance of penny stock designation and regulation; and
(6) such other matters as the Commission considers necessary or appropriate.
(b) REPORT- Within one year after the date of enactment of this Act,
the Commission shall submit a report on the review required by subsection
(a). Such report shall include, in addition to a statement of findings with
respect to each matter described in paragraphs (1) through (6) of such
subsection, such recommendations as the Commission considers appropriate
with respect to legislative or administrative changes.

a8ceb99e613dd250a83e4fe7e24c95eb1c36e8ea038f99cac131231bbd6437ac

Section 29(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78cc(b))
is amended--
(1) in clause (A), by striking `paragraph (2) or (3)' and inserting
`paragraph (3)';
(2) in clause (B), by striking `paragraph (1)' and inserting `paragraph
(1) or (2)'; and
(3) by adding at the end thereof the following new sentence: `The Commission
may, in a rule or regulation prescribed pursuant to such paragraph (2) of
such section 15(c), designate such rule or regulation, or portion thereof,
as a rule or regulation, or portion thereof, a contract in violation of
which shall not be void by reason of this subsection.'.

37d24a410d46b073ce327e60868f654682bfc455a6f38c2e34a1bfbbe1f7c15b

(a) AMENDMENTS- Section 7 of the Securities Act of 1933 (15 U.S.C. 77g)
is amended--
(1) by inserting `(a)' after `Sec. 7.'; and
(2) by adding at the end thereof the following new subsection:
`(b)(1) The Commission shall prescribe special rules with respect to
registration statements filed by any issuer that is a blank check
company. Such rules may, as the Commission determines necessary or
appropriate in the public interest or for the protection of investors--
`(A) require such issuers to provide timely disclosure, either prior to or
after such statement becomes effective under section 8, of (i) information
regarding the company to be acquired and the specific application of the
proceeds of the offering, or (ii) additional information necessary to
prevent such statement from being misleading;
`(B) place limitations on the use of such proceeds and the distribution of
securities by such issuer until the disclosures required under subparagraph
(A) have been made; and
`(C) provide a right of rescission to shareholders of such securities.
`(2) The Commission may, as it determines consistent with the public
interest and the protection of investors, exempt any issuer or class of
issuers from the rules prescribed under paragraph (1).
`(3) For purposes of paragraph (1) of this subsection, the term `blank check
company' means any development stage company that is issuing a penny stock
(within the meaning of section 3(a)(51) of the Securities Exchange Act of
1934) and that--
`(A) has no specific business plan or purpose; or
`(B) has indicated that its business plan is to merge with an unidentified
company or companies.'.
(b) SCHEDULE FOR RULES- The Commission shall prescribe rules to implement
the amendment made by subsection (a) of this section within one year after
the date of enactment of this Act.

5cdc9a21973030b6b2b6ef8ca13af32c1d36605da72e00a4e3d253fe9b31084b

Section 15A of the Securities Exchange Act 1934 (15 U.S.C. 78o-3) is
amended by adding at the end the following:
`(i) A registered securities association shall (1) establish and maintain
a toll-free telephone listing to receive inquiries from investors and
the public regarding disciplinary actions involving its members and
their associated persons, and (2) promptly respond to such inquiries
in writing. Such association may charge persons, other than individual
investors, reasonable fees for written responses to such inquiries. Such
an association shall not have any liability to any person for any actions
taken or omitted in good faith under this paragraph.'.
Amend the title so as to read: `An Act to amend the Federal securities
laws in order to provide additional enforcement remedies for violations
of those laws and to eliminate abuses in transactions in penny stocks,
and for other purposes.'.
Attest:
Clerk.
S 647 EAH1S----2
S 647 EAH1S----3
S 647 EAH1S----4
S 647 EAH1S----5

cf11c66663df448cc9f0be811aa5f25bf7d17c51966f96d607dbfd58f7de0e18

Securities Law Enforcement Remedies Act of 1989 — S. 647

Other Sections

TITLE I

TITLE V

TITLE II

TITLE III

TITLE IV

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