[Federal Register Volume 60, Number 173 (Thursday, September 7, 1995)]
[Rules and Regulations]
[Pages 46498-46500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22110]



=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release No. 34-36174; File No. S7-40-92]
RIN 3235-AF91


Rules of Practice; Technical Amendments and Corrections

AGENCY: Securities and Exchange Commission.

ACTION: Technical amendments and corrections to final rules.

-----------------------------------------------------------------------

SUMMARY: This document contains technical amendments and corrected 
comments for the Securities and Exchange Commission's Rules of Practice 
adopted on June 9, 1995 and published Friday, June 23, 1995 (60 FR 
32738). The Rules of Practice are the procedural rules that govern 
Commission administrative proceedings.

EFFECTIVE DATE: September 5, 1995.

FOR FURTHER INFORMATION CONTACT: Andrew Z. Glickman, Office of the 
General Counsel at (202) 942-0870; U.S. Securities and Exchange 
Commission; 450 Fifth Street, NW., Stop 6-6; Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

Background

    The Commission recently consolidated its inspection and examination 
functions from the Divisions of Market Regulation and Investment 
Management into a new office--the Office of Compliance Inspections and 
Examinations. See 60 FR 39643 (Aug. 3, 1995) (establishment of office 
and delegation of authority). This release contains technical 
amendments to reflect these changes in the Rules of Practice and 
corrections to the comments associated with the changed rules. This 
release also corrects a citation error.
    Comments (a) and (b) to Rule 230 (which originally appeared in the 
Supplementary Information section on page 32762, in the tenth line of 
the first column) are corrected to read as follows:
    Comment (a): A respondent's right to inspect and copy documents 
under this rule is automatic; the respondent does not need to make a 
formal request for access through the hearing officer. Generally, the 
rule requires that the Division of Enforcement make available for 
inspection and copying documents obtained by the Division from persons 
not employed by the Commission during the course of its investigation 
prior to the institution of proceedings. 

[[Page 46499]]
Final inspection or examination reports prepared by the Office of 
Compliance Inspections and Examinations, the Division of Market 
Regulation or the Division of Investment Management, may be attorney 
work product, and other privileges may apply to such reports. 
Nonetheless, the Commission has determined as a general matter that 
these final reports will be made available, but only to named 
respondents in Commission-initiated adjudicative proceedings. This rule 
does not restrict the Commission's ability to withhold these reports 
from public disclosure in other contexts, such as pursuant to a request 
under the Freedom of Information Act. 5 U.S.C. 552.
    Rule 230 is not the exclusive means by which a respondent may 
obtain access to or production of documents. Production of documents 
prepared by the staff may be required under the doctrine of Brady v. 
Maryland, 373 U.S. 83 (1963), or pursuant to Jencks Act requirements 
made applicable to the Commission pursuant to Rule 231, or may be 
sought by subpoena pursuant to Rule 232 or through other procedures. 
See, e.g., Freedom of Information Act, 5 U.S.C. 552.
    The Rule states that the Division of Enforcement shall (1) make 
available for inspection and copying (2) documents (3) obtained by the 
Division (4) in connection with the investigation leading to the 
institution of proceedings.
    (1) The Division of Enforcement is required to make documents 
available for inspection and copying. It is not required to produce a 
copy of the documents to each respondent.
    (2) The definition of the term ``documents'' in paragraph (a) is 
modeled on the definition of documents in Rule 34 of the Federal Rules 
of Civil Procedure.
    (3) The Division of Enforcement's obligation under this rule 
relates to documents obtained by the Division of Enforcement. Documents 
located only in the files of other divisions or offices are beyond the 
scope of the rule.
    (4) The ``investigation leading to the Division's recommendation to 
institute proceedings'' ordinarily is delineated by the investigation 
number or numbers under which requests for documents, testimony or 
other information were made. When an investigation is initiated by the 
Division of Enforcement it is assigned a number, often referred to as 
the ``case'' or ``investigation'' number. Each request for documents, 
testimony or other information from persons not employed by the 
Commission specifies the investigation or preliminary investigation 
number to which it relates. In turn, each written recommendation by the 
Division of Enforcement to institute proceedings identifies on its 
cover page, by investigation number, the source investigation or 
investigations to which it relates. Accordingly, the identity and 
content of the appropriate investigation file or files from which 
documents must be made available can be based on objective criteria.
    Comment (b): Under paragraph (b), the Division can withhold 
documents under four exceptions. Exception (1) shields information 
subject to a claim of privilege. Exception (2) protects as attorney 
work product internal documents prepared by Commission employees, which 
will not be offered in evidence. Work product includes any notes, 
working papers, memoranda or other similar materials, prepared by an 
attorney in anticipation of litigation. See Hickman v. Taylor, 329 U.S. 
495 (1947); see also Fed. R. Civ. P. 26 (b)(3) and (b)(5). Except to 
the limited extent specifically provided in paragraph (a), documents 
prepared by Commission staff are treated as attorney work product, and 
do not have to be made available pursuant to this rule. Accountants, 
paralegals and investigators who work on an investigation do so at the 
direction of the director, an associate director, an associate regional 
administrator or another supervisory attorney, and their work product 
is therefore shielded by the rule. A respondent's claim that work 
product should be turned over will necessarily be evaluated on a case-
by-case basis.
    Exception (3) protects the identity of a confidential source. See 5 
U.S.C. 552(b)(7) (C) and (D). Exception (4) protects any other document 
or category of documents that the hearing officer determines may be 
withheld as not relevant to the subject matter of the proceeding, or 
otherwise for good cause shown. This exception provides a mechanism to 
address a situation where a single investigation involves a discrete 
segment or segments that are related only indirectly, or not at all, to 
the recommendations ultimately made to the Commission with respect to 
the particular respondents in a specific proceeding. To require that 
documents not relevant to the subject matter of the proceeding be made 
available, simply because they were obtained as part of a broad 
investigation, burdens the respondent as well as the Division of 
Enforcement with unnecessary costs and delay.
    For example, a single investigation may encompass inquiry into an 
issuer's allegedly false accounting disclosure and an unrelated 
manipulation of the issuer's securities by a third party. If the 
recommendation to the Commission and resulting administrative 
proceeding involve only the accounting disclosures, the Division could 
seek leave to withhold trading records, transcripts and other documents 
related to the manipulation investigation.
    Comment (a) to Rule 430 (which originally appeared in the 
Supplementary Information section on page 32777, in the fifth line of 
the second column) is corrected to read as follows:
    Comment (a): Congress granted the Commission explicit authority to 
delegate certain functions to an individual commissioner, division 
directors and others in 1962. Pub. L. No. 87-592, 76 Stat. 394. This 
authority appears in Sections 4A and 4B of the Exchange Act, 15 U.S.C. 
78d-1 and 78d-2, and was amended most recently in 1987. See Pub. L. No. 
100-181, Title III, section 308(a), 101 Stat. 1254. The predecessor 
rule to Rules 430 and 431, former Rule 26, was adopted in 1963. See 
Securities Act Release No. 4588 (Mar. 8, 1963) (adopting release).
    Due to the different nature of matters delegated to hearing 
officers, senior staff or the duty officer, the Commission's rules 
provide different mechanisms for review of such actions. See Rules 410 
and 411 (procedures relating to initial decisions by a hearing 
officer); 17 CFR 200.42 (procedures relating to duty officer). Rule 430 
relates to certain delegations made to staff. It applies only to review 
of actions taken pursuant to authority delegated in 17 CFR 200.30-1 
through 200.30-18. Authority delegated by other provisions--for 
example, the delegation of authority to issue subpoenas pursuant to a 
private order directing investigation (``formal order'')--is not 
subject to the Rule.

Correction of Publication

    Accordingly, the publication on June 23, 1995 of the final Rules of 
Practice, which were the subject of FR Doc. 95-14750, is corrected as 
follows:


Sec. 201.100  [Corrected]

    1. On page 32797, in the eighth line of the first column, in 
Sec. 201.100(b)(2) ``17 CFR 200.42.'' is corrected to read ``17 CFR 
200.43.''


Sec. 201.230  [Corrected]

    2. On page 32807, in the first column, in Sec. 201.230, paragraph 
(a)(1)(vi) is corrected to read as follows:
    ``(vi) Any final examination or inspection reports prepared by the 
Office of Compliance Inspections and Examinations, the Division of 
Market 

[[Page 46500]]
Regulation, or the Division of Investment Management.''


Sec. 201.430  [Corrected]

    3. On page 32814, in the first column, last line, in 
Sec. 201.430(a) the reference to ``200.30-17'' is corrected to read 
``200.30-18''.
    4. On page 32814, in the second column, in Sec. 201.430(c) the 
reference to ``200.30-17'' is corrected to read ``200.30-18''.


Sec. 201.431  [Corrected]

    5. On page 32814, in the second column, in the sixth line of 
Sec. 201.431(a) ``200.30-17'' is corrected to read ``200.30-18''.

    Dated: August 31, 1995.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22110 Filed 9-6-95; 8:45 am]
BILLING CODE 8010-01-P