[Federal Register Volume 63, Number 219 (Friday, November 13, 1998)]
[Rules and Regulations]
[Pages 63404-63405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30407]


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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release No. 34-40636; File No. S7-23-98]


Rules of Practice

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

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

SUMMARY: The Securities and Exchange Commission is adopting amendments 
to its Rules of Practice, Rules 210 and 221. The Commission is amending 
Rule 210 to permit, for representatives of any federal, state, or local 
criminal prosecutorial authority, limited participation for the purpose 
of requesting a stay in an enforcement or disciplinary proceeding, in 
order to support efforts to bring criminal prosecutions arising out of 
securities violations. The Commission is amending Rule 221 to require 
only one prehearing conference, instead of two, as previously required, 
in order to streamline the administrative process and conserve the 
parties' and the Commission's resources.

EFFECTIVE DATE: December 14, 1998.

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.
---------------------------------------------------------------------------

    \1\ Final Rules of Practice, Exchange Act Release No. 35833, 60 
FR 32738 (June 23, 1995).
    \2\ Task Force on Administrative Proceedings, Securities and 
Exchange Commission, Fair and Efficient Administrative Proceedings: 
Report of the Task Force (February 1993).
---------------------------------------------------------------------------

    In November 1997, the Commission's Inspector General issued a 
report evaluating the Commission's Administrative Proceedings Process 
in an attempt to assess the impact of the new Rules of Practice. The 
Inspector General recommended, among other things, that the Commission 
review Rules 210 and 221. The Commission reviewed these rules and 
proposed that the rules be changed as discussed below (and reflected in 
the text of the rules). The proposed rules were published for notice 
and comment on September 2, 1998 in the Federal Register.3 
No comments were received. The Commission is adopting these rules as 
proposed.
---------------------------------------------------------------------------

    \3\ Rules of Practice--Rules 210 and 221, Exchange Act Release 
No. 40364 (August 26, 1998), 63 FR 46716.
---------------------------------------------------------------------------

    Rule 210 previously prohibited intervention or limited 
participation in Commission enforcement proceedings and in disciplinary 
proceedings to review self-regulatory organization 
determinations.4 Prohibiting intervention or participation 
in these cases served the purpose of preventing extraneous issues from 
diverting administrative proceedings before the Commission and promoted 
timely and efficient resolution of all matters before the Commission.
---------------------------------------------------------------------------

    \4\ Rule 210(f), however, allowed the Commission or a hearing 
officer to modify the provisions of Rule 210 to impose such terms 
and conditions on participation of any person in any proceeding as 
it may deem necessary or appropriate in the public interest.
---------------------------------------------------------------------------

    In recent years, however, the Commission has received requests from 
representatives of various federal and local criminal prosecutors to 
participate in enforcement proceedings in order to request a stay of 
the Commission's proceedings during the pendency of a criminal 
investigation or prosecution based on the same or related underlying 
conduct. These authorities typically assert that substantial prejudice 
could result to a criminal prosecution if an administrative proceeding 
is not postponed.
    The Commission supports efforts to bring criminal prosecutions 
arising out of securities violations. Accordingly, the Commission is 
adopting amendments to Rule 210 to allow authorized representatives of 
the United States Department of Justice, including any United States 
Attorney's Office, and of state and local prosecutors to seek leave to 
participate in a Commission enforcement or disciplinary proceeding for 
the limited purpose of requesting a

[[Page 63405]]

stay in that proceeding. We have determined that the process of 
considering such requests for postponements will be facilitated if 
those seeking them are permitted to present their views to the hearing 
officer. The hearing officer can then evaluate that request in light of 
the hearing's status. Any postponement of an enforcement or 
disciplinary proceeding, however, should be based on a showing of good 
cause and be limited to a reasonable period of time, balancing the need 
for delay against the need to bring the proceeding to a timely 
resolution, consistent with the public interest.
    The Commission is also adopting amendments to Rule 221 to require a 
single prehearing conference, instead of the two prehearing conferences 
previously required. The Commission's experience with this Rule has 
indicated that, as a routine practice, two conferences are not always 
necessary. Therefore, in order to streamline the administrative 
process, conserving the parties', as well as the Commission's, 
resources, the Commission is amending the rule to require only one 
prehearing conference. Rule 221 would continue to permit the hearing 
officer in his or her discretion to order additional prehearing 
conferences on his or her own motion or at the request of a party.

II. Administrative Procedure Act and Regulatory Flexibility Act

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

III. Statutory Basis and Text of Proposed Amendment

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

List of Subjects in 17 CFR Part 201

    Administrative practice and procedure.

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

PART 201--SUBPART D--RULES OF PRACTICE

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

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

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


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 other political subdivision of a State. The Commission or 
the hearing officer may grant leave to participate on a limited basis 
to an authorized representative of the United States Department of 
Justice, an authorized representative of a United States Attorney, or 
an authorized representative of any criminal prosecutorial authority of 
any State or any other political subdivision of a State for the purpose 
of requesting a stay during the 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.
* * * * *
    Dated: November 4, 1998.

    By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-30407 Filed 11-12-98; 8:45 am]
BILLING CODE 8010-01-P