[Federal Register Volume 63, Number 170 (Wednesday, September 2, 1998)]
[Proposed Rules]
[Pages 46716-46718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23610]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release No. 34-40364; File No. S7-23-98]


Rules of Practice

AGENCY: Securities and Exchange Commission.


[[Page 46717]]


ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing for public 
comment amendments to its Rules of Practice, Rules 210 and 221. Rule 
210 currently prohibits any person from intervening or participating on 
a limited basis as a party or non-party in an enforcement proceeding, a 
disciplinary proceeding, or a proceeding to review a self-regulatory 
organization determination. The Commission is proposing to amend Rule 
210 to permit representatives of any federal, state, or local criminal 
prosecutorial authority limited participation for the purpose of 
requesting a stay, in order to support efforts to bring criminal 
prosecutions arising out of securities violations. Rule 221 currently 
requires that parties generally participate in both an initial and a 
final prehearing conference. The Commission proposes requiring only one 
prehearing conference, in order to streamline the administrative 
process and conserve the parties' and the Commission's resources.

DATES: Comments must be submitted on or before October 2, 1998.

ADDRESSES: Interested persons should submit three copies of their 
written comments to: Jonathan G. Katz, Secretary; U.S. Securities and 
Exchange Commission; 450 Fifth Street, N.W., Washington, D.C. 20549. 
Comments also may be submitted electronically at the following E-mail 
address: [email protected]. All comment letters should refer to File 
No. S7-23-98. This file number should be included on the subject line 
if E-mail is used. All comments received will be available for public 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, N.W., Washington, DC 20549. Electronically submitted 
comment letters will be posted on the Commission's Internet web site 
(http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Joan L. Loizeaux, Principal Assistant 
General Counsel, or Kathleen O'Mara, Senior Counsel, Office of General 
Counsel, (202) 942-0950, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Stop 6-6, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

I. Discussion

    The Commission adopted, after notice and comment, comprehensive 
revisions to its Rules of Practice that became effective on July 24, 
1995.1 These revisions were the result of an approximately 
two-and-a-half year study by the Commission's Task Force on 
Administrative Proceedings that culminated in a comprehensive 
report.2 The Task Force found that the fundamental structure 
of the Commission's administrative process was sound and successfully 
protected the essential interests of respondents, investors, and the 
public, but that some changes were necessary. The Task Force 
recommended changes to the Rules of Practice in an effort to set forth 
applicable procedural requirements more completely, in a format easier 
to use, and to streamline procedures that had become burdensome.
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    \1\ Final Rules of Practice, Exchange Act Release No. 35833, 60 
FR 32738 (June 23, 1995).
    \2\ Task Force on Administrative Proceedings, Securities and 
Exchange Commission, Fair and Efficient Administrative Proceedings: 
Report of the Task Force (Feb. 1993).
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    In November 1997, the Commission's Inspector General issued a 
report evaluating the Commission's Administrative Proceedings Process 
in an attempt to assess the impact of the new Rules of Practice. The 
Inspector General recommended, among other things, that the Commission 
review Rules 210 and 221. The Commission has reviewed these rules and 
proposes that the rules be changed as discussed below (and reflected in 
the text of the rules).
    Rule 210 currently prohibits intervention or limited participation 
in Commission enforcement or in disciplinary proceedings to review 
self-regulatory organization determinations.3 This 
prohibition exists due to the distinct issues raised by enforcement 
proceedings, in which the government seeks to impose sanctions upon 
named persons. The Commission believed that the only parties should be 
those specified by the Commission in the order instituting proceedings, 
and no one else, should be granted status as a limited or non-party 
participant. In addition, prohibiting intervention or participation in 
Commission cases served the purpose of preventing extraneous issues 
from diverting proceedings and promoted timely and efficient resolution 
of particular matters before the Commission.
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    \3\ Rule 210(f) does, however, allow the Commission or a hearing 
officer to modify the provisions of Rule 210 to impose such terms 
and conditions on participation of any person in any proceeding as 
it may deem necessary or appropriate in the public interest.
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    In recent years, the Commission has received requests from 
representatives of various federal and local criminal prosecutors to 
enter an appearance in order to request a stay of the Commission's 
proceedings during the pendency of a criminal investigation or 
prosecution based on the same or related underlying conduct. These 
authorities typically assert that substantial prejudice could result to 
a criminal prosecution if an administrative proceeding is not 
postponed.
    The Commission supports efforts to bring criminal prosecutions 
arising out of securities violations. Accordingly, the Commission 
proposes that Rule 210 be amended to allow authorized representatives 
of the United States Department of Justice, including any United States 
Attorney's Office, and of state and local prosecutors to seek leave to 
participate in a Commission proceeding for the limited purpose of 
requesting a stay in that proceeding. The process of considering such 
requests for postponements will be facilitated if those seeking them 
are permitted to present their views to the hearing officer. The 
hearing officer can then evaluate that request in light of the 
hearing's status. Any postponement of an administrative proceeding, 
however, should be based on a showing of good cause and be limited to a 
reasonable period of time, balancing the need for delay against the 
need to bring the administrative proceeding to a timely resolution, 
consistent with the public interest.
    In addition, the Commission proposes to amend Rule 221 to require a 
single prehearing conference, instead of the two prehearing conferences 
currently required. The Commission's experience with this Rule 
indicates that, as a routine practice, two conferences are not always 
necessary. Accordingly, in order to streamline the administrative 
process, conserving the parties', as well as the Commission's, 
resources, the Commission proposes requiring only one prehearing 
conference. Rule 221 would continue to permit the hearing officer in 
his or her discretion to order additional prehearing conferences on his 
or her own motion or at the request of a party.

II. Administrative Procedure Act and Regulatory Flexibility Act

    The Commission finds, in accordance with the Administrative 
Procedure Act, 5 U.S.C. 553(b)(3)(A), that this revision relates solely 
to agency organization, procedures, or practice. It is therefore not 
subject to the provisions of the Administrative Procedure Act requiring 
notice, opportunity for public comment, and publication. The Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq., also does not apply. 
Nonetheless, the Commission has determined it would be useful to 
publish these proposed rule changes for notice and comment, before 
adoption.

[[Page 46718]]

III. Statutory Basis and Text of Proposed Amendment

    The proposed Rule amendments would be promulgated pursuant to 
section 19 of the Securities Act, 15 U.S.C. 77s; section 23 of the 
Exchange Act, 15 U.S.C. 78w; section 20 of the PUHCA, 15 U.S.C. 79t; 
section 319 of the Trust Indenture Act, 15 U.S.C. 77sss; sections 38 
and 40 of the Investment Company Act, 15 U.S.C. 80a-37 and 80a-39; and 
section 211 of the Investment Advisers Act, 15 U.S.C. 80b-11.

List of Subjects 17 CFR Part 201

    Administrative practice and procedure.

    For the reasons set forth in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 201--SUBPART D--RULES OF PRACTICE

    1. The authority citation for Part 201, Subpart D, continues to 
read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 
78c(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78s, 78u-2, 78u-
3, 78v, 78w, 79c, 79s, 79t, 79z-5a, 77sss, 77ttt, 80a-8, 80a-9, 80a-
37, 80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11, 
and 80b-12 unless otherwise noted.

    2. Section 201.210 is amended by revising paragraph (a)(1) and the 
introductory text of paragraph (c) and adding paragraph (c)(3) to read 
as follows:


Sec. 201.210  Parties, limited participants and amici curiae.

    (a) Parties in an enforcement or disciplinary proceeding or a 
proceeding to review a self-regulatory organization determination--(1) 
Generally. No person shall be granted leave to become a party or non-
party participant on a limited basis in an enforcement or disciplinary 
proceeding or a proceeding to review a determination by a self-
regulatory organization pursuant to Secs. 201.420 and 201.421, except 
as authorized by paragraph (c) of this section.
* * * * *
    (c) Leave to participate on a limited basis. In any proceeding, 
other than an enforcement proceeding, a disciplinary proceeding, or a 
proceeding to review a self-regulatory organization determination, any 
person may seek leave to participate on a limited basis as a non-party 
participant as to any matter affecting the person's interests. In any 
enforcement proceeding or disciplinary proceeding, an authorized 
representative of the United States Department of Justice, an 
authorized representative of a United States Attorney, or an authorized 
representative of any criminal prosecutorial authority of any State or 
any other political subdivision of a State may seek leave to 
participate on a limited basis as a non-party participant as provided 
in paragraph (c)(3) of this section.
* * * * *
    (3) Leave to participate in certain Commission proceedings by a 
representative of the United States Department of Justice, a United 
States Attorney's Office, or a criminal prosecutorial authority of any 
State or any political subdivision of a State. The Commission or the 
hearing officer may grant leave to participate on a limited basis to an 
authorized representative of the United States Department of Justice, 
an authorized representative of a United States Attorney, or an 
authorized representative of any criminal prosecutorial authority of 
any State or any political subdivision of a State for the purpose of 
requesting a stay during the pendency of a criminal investigation or 
prosecution arising out of the same or similar facts that are at issue 
in the pending Commission enforcement or disciplinary proceeding. Upon 
a showing that such a stay is in the public interest or for the 
protection of investors, the motion for stay shall be favored. A stay 
granted under this paragraph (c)(3) may be granted for such a period 
and upon such conditions as the Commission or the hearing officer deems 
appropriate.
* * * * *
    3. Section 201.221 is amended by revising the section heading and 
paragraphs (a) and (d) to read as follows:


Sec. 201.221  Prehearing conference.

    (a) Purposes of conference. The purposes of a prehearing conference 
include, but are not limited to:
    (1) Expediting the disposition of the proceeding;
    (2) Establishing early and continuing control of the proceeding by 
the hearing officer; and
    (3) Improving the quality of the hearing through more thorough 
preparation.
* * * * *
    (d) Required prehearing conference. Except where the emergency 
nature of a proceeding would make a prehearing conference clearly 
inappropriate, at least one prehearing conference should be held.
* * * * *
    By the Commission.
    Dated: August 26, 1998.

Jonathan G. Katz,
Secretary.
[FR Doc. 98-23610 Filed 9-1-98; 8:45 am]
BILLING CODE 8010-01-P