[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1189 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1189

  To allow Federal securities enforcement actions to be predicated on 
  State securities enforcement actions, to prevent migration of rogue 
securities brokers between and among financial services industries, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              June 9, 1999

 Ms. Collins (for herself, Mr. Cleland, and Mr. Gregg) introduced the 
 following bill; which was read twice and referred to the Committee on 
                   Banking, Housing and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To allow Federal securities enforcement actions to be predicated on 
  State securities enforcement actions, to prevent migration of rogue 
securities brokers between and among financial services industries, and 
                          for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Microcap Fraud Prevention Act of 
1999''.

SEC. 2. AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.

    Section 15(b)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(b)(4)) is amended--
            (1) by striking subparagraph (F) and inserting the 
        following:
            ``(F) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with a 
        broker or dealer;'';
            (2) in subparagraph (G)--
                    (A) in clause (i), by striking ``has omitted'' and 
                all that follows through the semicolon and inserting 
                ``omitted to state in any such application, report, or 
                proceeding any material fact that is required to be 
                stated therein;'';
                    (B) in clause (ii)--
                            (i) by striking ``transactions in 
                        securities,'' and inserting ``securities, 
                        banking, insurance,''; and
                            (ii) by adding ``or'' at the end; and
                    (C) in clause (iii)--
                            (i) by inserting ``other'' after 
                        ``violation by any'';
                            (ii) by striking ``empowering a foreign 
                        financial regulatory authority regarding 
                        transactions in securities,'' and inserting 
                        ``regarding securities, banking, insurance,'';
                            (iii) by striking ``has been found, by a 
                        foreign financial regulatory authority,''; and
                            (iv) by striking the period at the end and 
                        inserting ``; or''; and
            (3) by adding at the end the following:
            ``(H) is subject to any order of a State securities 
        commission (or any agency or office performing like functions), 
        State authority that supervises or examines financial 
        institutions, State insurance commission (or any agency or 
        office performing like functions), or an appropriate Federal 
        banking agency (as defined in section 3 of the Federal Deposit 
        Insurance Act) that--
                    ``(i) bars such person from association with an 
                entity regulated by such commission, authority, agency, 
                or officer, or from engaging in the business of 
                securities, insurance, or banking; or
                    ``(ii) constitutes a final order based on 
                violations of any laws or regulations that prohibit 
                fraudulent, manipulative, or deceptive conduct.''.

SEC. 3. AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940.

    Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
3) is amended--
            (1) in subsection (e)--
                    (A) by striking paragraphs (7) and (8) and 
                inserting the following:
            ``(7) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with an 
        investment adviser;
            ``(8) has been found by a foreign financial regulatory 
        authority to have--
                    ``(A) made or caused to be made in any application 
                for registration or report required to be filed with, 
                or in any proceeding before, that foreign financial 
                regulatory authority, any statement that was, at the 
                time and in light of the circumstances under which it 
                was made, false or misleading with respect to any 
                material fact, or omitted to state in any application 
                or report filed with, or in any proceeding before, that 
                foreign financial regulatory authority any material 
                fact that is required to be stated in the application, 
                report, or proceeding;
                    ``(B) violated any foreign statute or regulation 
                regarding securities, banking, insurance, or contracts 
of sale of a commodity for future delivery traded on or subject to the 
rules of a contract market or any board of trade; or
                    ``(C) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other person 
                of any foreign statute or regulation regarding 
                securities, banking, insurance, or contracts of sale of 
                a commodity for future delivery traded on or subject to 
                the rules of a contract market or any board of trade, 
                or failed reasonably to supervise, with a view to 
                preventing violations of any such statute or 
                regulation, another person who commits such a 
                violation, if the other person is subject to its 
                supervision; or
            ``(9) is subject to any order of a State securities 
        commission (or any agency or office performing like functions), 
        State authority that supervises or examines financial 
        institutions, State insurance commission (or any agency or 
        office performing like functions), or an appropriate Federal 
        banking agency (as defined in section 3 of the Federal Deposit 
        Insurance Act) that--
                    ``(A) bars such investment adviser or person from 
                association with an entity regulated by such 
                commission, authority, agency, or officer, or from 
                engaging in the business of securities, insurance, or 
                banking; or
                    ``(B) constitutes a final order based on violations 
                of any laws or regulations that prohibit fraudulent, 
                manipulative, or deceptive conduct.''; and
            (2) in subsection (f)--
                    (A) by striking ``(6), or (8)'' and inserting 
                ``(6), (8), or (9)''; and
                    (B) by striking ``paragraph (2)'' and inserting 
                ``paragraph (2) or (3)''.

SEC. 4. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940.

    Section 9(b) of the Investment Company Act of 1940 (15 U.S.C. 80a-
9(b)) is amended--
            (1) in paragraph (4), by striking subparagraphs (A) through 
        (C) and inserting the following:
                    ``(A) made or caused to be made in any application 
                for registration or report required to be filed with, 
                or in any proceeding before, that foreign financial 
                regulatory authority, any statement that was, at the 
                time and in light of the circumstances under which it 
                was made, false or misleading with respect to any 
                material fact, or omitted to state in any application 
                or report filed with, or in any proceeding before, that 
                foreign financial regulatory authority any material 
                fact that is required to be stated in the application, 
                report, or proceeding;
                    ``(B) violated any foreign statute or regulation 
                regarding securities, banking, insurance, or contracts 
                of sale of a commodity for future delivery traded on or 
                subject to the rules of a contract market or any board 
                of trade; or
                    ``(C) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other person 
                of any foreign statute or regulation regarding 
                securities, banking, insurance, or contracts of sale of 
                a commodity for future delivery traded on or subject to 
                the rules of a contract market or any board of 
                trade;'';
            (2) in paragraph (5), by striking ``or'' at the end; and
            (3) in paragraph (6), by striking the period at the end and 
        inserting the following: ``; or
            ``(7) is subject to any order of a State securities 
        commission (or any agency or office performing like functions), 
        State authority that supervises or examines financial 
        institutions, State insurance commission (or any agency or 
        office performing like functions), or an appropriate Federal 
        banking agency (as defined in section 3 of the Federal Deposit 
        Insurance Act) that--
                    ``(A) bars such person from association with an 
                entity regulated by such commission, authority, agency, 
                or officer, or from engaging in the business of 
                securities, insurance, or banking; or
                    ``(B) constitutes a final order based on violations 
                of any laws or regulations that prohibit fraudulent, 
                manipulative, or deceptive conduct.''.

SEC. 5. CONFORMING AMENDMENTS.

    (a) Municipal Securities Dealers.--Section 15B(c) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-4(c)) is amended--
            (1) in paragraph (2), by striking ``act or omission'' and 
        all that follows through the period and inserting ``act, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
(D), (E), (G), or (H) of section 15(b)(4), has been convicted of any 
offense specified in section 15(b)(4)(B) within 10 years of the 
commencement of the proceedings under this paragraph, or is enjoined 
from any action, conduct, or practice specified in section 
15(b)(4)(C).''; and
            (2) in paragraph (4), in the first sentence, by striking 
        ``any act or ommission'' and all that follows through the 
        period and inserting ``or omitted any act, or is subject to an 
        order or finding, enumerated in subparagraph (A), (D), (E), 
        (G), or (H) of section 15(b)(4), has been convicted of any 
        offense specified in section 15(b)(4)(B) within 10 years of the 
        commencement of the proceedings under this paragraph, or is 
        enjoined from any action, conduct, or practice specified in 
        section 15(b)(4)(C).''.
    (b) Government Securities Brokers and Dealers.--Section 15C(c)(1) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5(c)(1)) is 
amended--
            (1) in subparagraph (A), by striking ``or omission 
        enumerated in subparagraph (A), (D), (E), or (G) of paragraph 
        (4) of section 15(b) of this title'' and inserting ``, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H) of section 15(b)(4)''; and
            (2) in subparagraph (C), by striking ``or omission 
        enumerated in subparagraph (A), (D), (E), or (G) of paragraph 
        (4) of section 15(b) of this title'' and inserting ``, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H) of section 15(b)(4)''.
    (c) Clearing Agencies.--Section 17A(c) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78q-1(c)) is amended--
            (1) in paragraph (3)(A), by striking ``any act enumerated 
        in subparagraph (A), (D), (E), or (G) of paragraph (4) of 
        section 15(b) of this title'' and inserting ``any act, or is 
        subject to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (G), or (H) of section 15(b)(4)''; and
            (2) in paragraph (4)(C), in the first sentence, by striking 
        ``any act enumerated in subparagraph (A), (D), (E), or (G) of 
        paragraph (4) of section 15(b) of this title'' and inserting 
        ``any act, or is subject to an order or finding, enumerated in 
        subparagraph (A), (D), (E), (G), or (H) of section 15(b)(4)''.
    (d) Statutory Disqualifications.--Section 3(a)(39) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(39)) is amended--
            (1) in subparagraph (B)(i), by striking ``order to'' and 
        inserting ``order of''; and
            (2) in subparagraph (F)--
                    (A) by striking ``any act enumerated in 
                subparagraph (D), (E), or (G) of paragraph (4) of 
                section 15(b) of this title'' and inserting ``any act, 
                or is subject to an order or finding, enumerated in 
                subparagraph (D), (E), (G), or (H) of section 
                15(b)(4)'';
                    (B) by striking ``subparagraph (B) of such 
                paragraph (4)'' and inserting ``section 15(b)(4)(B)''; 
                and
                    (C) by striking ``subparagraph (C) of such 
                paragraph (4)'' and inserting ``section 15(b)(4)(C)''.

SEC. 6. BROADENING OF PENNY STOCK BAR.

    Section 15(b)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(b)(6)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``of any penny stock'' and 
                inserting ``of any noncovered security'';
                    (B) by striking ``of penny stock'' and inserting 
                ``of any noncovered security''; and
                    (C) in clause (i), by striking ``or omission 
                enumerated in subparagraph (A), (D), (E), or (G) of 
                paragraph (4) of this subsection'' and inserting ``, or 
                is subject to an order or finding, enumerated in 
                subparagraph (A), (D), (E), (G), or (H) of paragraph 
                (4)'';
            (2) in subparagraph (B)--
                    (A) by striking ``an offering of penny stock'' each 
                place it appears and inserting ``any securities 
                offering''; and
                    (B) in clause (iii), by striking ``such a person'' 
                and inserting ``a person as to whom an order under 
                section 21(d)(5) or subparagraph (A) of this paragraph 
                is in effect''; and
            (3) by striking subparagraph (C) and inserting the 
        following:
    ``(C) For purposes of this paragraph--
            ``(i) the term `noncovered security' means any security 
        other than those described in paragraphs (1) and (2) of section 
        18(b) of the Securities Act of 1933; and
            ``(ii) the term `participation in an offering of noncovered 
        securities'--
                    ``(I) means acting as a promoter, finder, 
                consultant, or agent, or engaging in activities with a 
                broker, dealer, or issuer for purposes of the issuance 
                of or trading in any noncovered security, or inducing 
                or attempting to induce the purchase or sale of any 
                noncovered security;
                    ``(II) includes other activities that the 
                Commission specifies by rule or regulation; and
                    ``(III) excludes any person or class of persons, in 
                whole or in part, conditionally or unconditionally, 
                that the Commission, by rule, regulation, or order, may 
                exclude.''.

SEC. 7. COURT AUTHORITY TO PROHIBIT OFFERINGS OF NONCOVERED SECURITIES.

    Section 21(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78u(d)) is amended by adding at the end the following:
            ``(5) Court authority to prohibit persons from 
        participating in offering of noncovered securities.--
                    ``(A) In general.--In any proceeding under 
                paragraph (1), the court may prohibit, conditionally or 
                unconditionally, and permanently or for such period of 
                time as it shall determine, any person that violated 
                section 10(b) or the rules or regulations issued 
                thereunder in connection with any transaction in any 
                noncovered security from participating in an offering 
                of a noncovered security.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) the term `noncovered security' means 
                        any security other than those described in 
                        paragraphs (1) and (2) of section 18(b) of the 
                        Securities Act of 1933; and
                            ``(ii) the term `participation in an 
                        offering of noncovered securities'--
                                    ``(I) means acting as a promoter, 
                                finder, consultant, or agent, or 
                                engaging in activities with a broker, 
                                dealer, or issuer for purposes of the 
                                issuance of or trading in any 
                                noncovered security, or inducing or 
                                attempting to induce the purchase or 
                                sale of any noncovered security;
                                    ``(II) includes other activities 
                                that the Commission specifies by rule 
                                or regulation; and
                                    ``(III) excludes any person or 
                                class of persons, in whole or in part, 
                                conditionally or unconditionally, that 
                                the Commission, by rule, regulation, or 
                                order, may exempt.''.

SEC. 8. BROADENING OF OFFICER AND DIRECTOR BAR.

    Section 21(d)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 
78u(d)(2)) is amended--
            (1) by striking ``of this title or that'' and inserting ``, 
        that''; and
            (2) by striking ``of this title if'' and inserting ``, or 
        the securities of which are quoted in any quotation medium, 
        if''.

SEC. 9. VIOLATIONS OF COURT ORDERED BARS.

    (a) In General.--Section 21 of the Securities Exchange Act of 1934 
(15 U.S.C. 78u) is amended by adding at the end the following:
    ``(i) Bar on Participation.--It shall be unlawful for any person, 
against which an order under paragraph (2) or (5) of subsection (d) is 
in effect, to serve as officer, director, or participant in any 
offering involving a noncovered security (as defined in subsection 
(d)(5)(B)) in contravention of such order.''.
    (b) Conforming Amendment.--Section 21(d)(3)(D) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(D)) is amended by inserting 
``or relating to a violation of subsection (i) of this section,'' 
before ``each separate''.
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