[Federal Register Volume 66, Number 23 (Friday, February 2, 2001)]
[Rules and Regulations]
[Pages 8761-8764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2846]


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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release Nos. 33-7946; 34-43897; IA-1921; IC-24846]


Adjustments to Civil Monetary Penalty Amounts

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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

SUMMARY: This rule implements the Federal Civil Penalties Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996, which requires that the Commission adopt a regulation 
adjusting for inflation the maximum amount of civil monetary penalties 
under the Securities Act of 1933, the Securities Exchange Act of 1934, 
the Investment Company Act of 1940, and the Investment Advisers Act of 
1940.

EFFECTIVE DATE: February 2, 2001.

FOR FURTHER INFORMATION CONTACT: Richard A. Levine, Assistant General 
Counsel at (202) 942-0890, or Scot E. Draeger, Attorney, Office of the 
General Counsel at (202) 942-0852.

SUPPLEMENTARY INFORMATION:

I. Background

    This regulation implements the Debt Collection Improvement Act of 
1996 (``DCIA'').\1\ The DCIA amended the Federal Civil Penalties 
Inflation Adjustment Act of 1990 (``FCPIAA'') \2\ to require that each 
federal agency adopt regulations at least once every four years, 
adjusting for inflation the maximum amount of the civil monetary 
penalties (``CMPs'') under the statutes administered by the agency.\3\
---------------------------------------------------------------------------

    \1\ Pub. L. No. 104-134, section 31001(s) (April 26, 1996).
    \2\ 28 U.S.C. 2461 (1990).
    \3\ An increased CMP applies only to violations that occur after 
the increase takes effect.
---------------------------------------------------------------------------

    A civil monetary penalty (``CMP'') is defined in relevant part as 
any penalty, fine, or other sanction that: (1) Is for a specific 
amount, or has a maximum amount, as provided by federal law; and (2) is 
assessed or enforced by an agency in an administrative proceeding or by 
a federal court pursuant to federal law.\4\ This definition covers the 
monetary penalty provisions contained in the statutes administered by 
the Commission.
---------------------------------------------------------------------------

    \4\ 28 U.S.C. 2461(3)(2).
---------------------------------------------------------------------------

    The DCIA requires that the penalties be adjusted by the cost-of-
living adjustment set forth in Section 5 of the FCPIAA.\5\ The cost-of-
living adjustment is defined as the percentage by which the U.S. 
Department of Labor's Consumer Price Index \6\ (``CPI'') for the month 
of June for the year preceding the adjustment exceeds the CPI for the 
month of June for the year in which the amount of the penalty was last 
set or adjusted pursuant to law.\7\ The statute contains specific rules 
for rounding each increase based on the size of the penalty.\8\ 
Agencies do not have discretion in whether to adjust a maximum CMP, or 
the methods used to determine the adjustment. Although the DCIA imposed 
a 10 percent maximum increase for each penalty for the first adjustment 
pursuant thereto, which adjustment was made in 1996, that limitation 
does not apply to the adjustments subsequently made.
---------------------------------------------------------------------------

    \5\ Pub. L. No. 104-134.
    \6\ ``Consumer Price Index'' means the Consumer Price Index for 
all urban consumers (``CPI-U'') published by the Department of 
Labor.
    \7\ 28 U.S.C. 2461(5)(b).
    \8\ 28 U.S.C. 2461(5)(a)(1)-(6).
---------------------------------------------------------------------------

    The Commission administers four statutes which provide for civil 
monetary penalties: the Securities Act of 1933; the Securities Exchange 
Act of 1934; the Investment Company Act of 1940; and the Investment 
Advisers Act of 1940. Penalties administered by the Commission were 
first adjusted by rules effective December 9, 1996.\9\ The DCIA 
requires the civil monetary penalties to be adjusted for inflation 
every four years. Therefore, the Commission is directed by statute to 
increase the maximum amount of each penalty by the appropriate 
formulated amount.\10\
---------------------------------------------------------------------------

    \9\ See 17 CFR 201.1001.
    \10\ The CPI-All Urban Consumers--for June of the year in which 
the penalties were last adjusted (June 1996) was 469.5. The CPI for 
June of the year preceding the proposed adjustments (June 2000) was 
516.5. Therefore, the inflation factor for the cost-of-living 
adjustment for penalties last amended in 1996 is 1.10 (i.e., an 
increase of 10%).
---------------------------------------------------------------------------

    Accordingly, the Commission is adopting an amendment to 17 CFR 201 
to add section 201.1002 and Table II to Subpart E, increasing the 
amount of each civil monetary penalty authorized by the Securities Act 
of 1933, the Securities Exchange Act of 1934, the Investment Company 
Act of 1940, and the Investment Advisers Act of 1940. The adjustments 
set forth in the amendment apply to violations occurring after the 
effective date of the amendment.
    The amendment also provides for a revision to 17 CFR 201.1001 to 
clarify the time period for which the new adjustments to the civil 
monetary penalties will govern, and a revision to correct a 
typographical error in the earlier rule. The chart \11\ accompanying 
the 1996 adjustments erroneously stated the amount of the CMP for a 
violation of 15 U.S.C. 78u(d)(3) by a natural person. The correct 
amount of the CMP for that violation is $5,500, not $5,000.
---------------------------------------------------------------------------

    \11\ 17 CFR 201, Subpart E, Table I.
---------------------------------------------------------------------------

II. Summary of the Calculation

    To explain the inflation adjustment calculation for CMP amounts 
that were last adjusted in 1996, we will use the following example. 
Under the CMP provisions, as amended in 1996, the Commission may impose 
a maximum CMP of $1,100,000 for certain insider trading violations by a 
controlling person. First, we determine the appropriate CPI for June of 
the calendar year preceding the year of adjustment. Because we are 
adjusting CMPs in 2001, we use the CPI for June of 2000, which was 
516.5. We must also determine the CPI for June of the year the CMP was 
last adjusted for inflation. Because the Commission last adjusted CMPs 
in 1996, we use the CPI for June of 1996, which was 469.5.
    Second, we calculate the cost-of-living adjustment or inflation 
factor. To

[[Page 8762]]

do this we divide the CPI for June of 2000 (516.5) by the CPI for June 
of 1996 (469.5). Our result is 1.10 (i.e., a 10 percent increase).
    Third, we calculate the raw inflation adjustment. To do this, we 
multiply the maximum penalty amounts by the inflation factor. In our 
example, $1,100,000 multiplied by the inflation factor of 1.10 equals 
$1,210,000.
    Fourth, we round the raw inflation amounts according to the 
rounding rules in Section 5(a) of the FCPIAA. Since we round only the 
increased amount, we calculate the increased amount by subtracting the 
current maximum penalty amounts from the raw maximum inflation 
adjustments. Accordingly, the increased amount for the maximum penalty 
in our example is $110,000 (i.e., $1,210,000 less $1,100,000). Under 
the rounding rules, if the penalty is greater than $200,000, we round 
the increase to the nearest multiple of $25,000. Therefore, the maximum 
penalty increase in our example is $100,000.
    Fifth, we add the rounded increase to the maximum penalty amount 
last set or adjusted. In our example, $1,100,000 plus $100,000 yields a 
maximum inflation adjustment penalty amount of $1,200,000.\12\
---------------------------------------------------------------------------

    \12\ When examining Table II to Subpart E of Part 201, you will 
notice that the operation of the statutorily mandated computation, 
together with rounding rules, does not result in any adjustment to 
certain penalties. These particular penalties (the ones for which no 
adjustment is being made in 2001) will be subject to slightly 
different treatment when calculating the 2005 adjustment. Under the 
statute, when we adjust these particular penalties in 2005, we will 
be required to use the CPI-U for June of the year when these 
particular penalties (the ones for which no adjustment is being made 
in 2001) were ``last adjusted.'' When calculating the 2005 
adjustment to the particular penalties not being adjusted in 2001, 
we will use the CPI-U for 1996 (the year that these particular 
penalties were last adjusted).
---------------------------------------------------------------------------

III. Related Matters

A. Administrative Procedure Act--Immediate Effectiveness of Final Rule

    To issue a final rule without public notice and comment, an agency 
must find good cause that notice and comment are impractical, 
unnecessary, or contrary to public interest.\13\ Because the Commission 
is required by statute to adjust the civil monetary penalties within 
its jurisdiction by the cost-of-living adjustment formula set forth in 
Section 5 of the FCPIAA, the Commission finds that good cause exists to 
dispense with public notice and comment pursuant to the notice and 
comment provisions of the Administrative Procedure Act (``APA'').\14\ 
Specifically, the Commission finds that because the adjustment is 
mandated by Congress and does not involve the exercise of Commission 
discretion or any policy judgments, public notice and comment is 
unnecessary.
---------------------------------------------------------------------------

    \13\ 5 U.S.C. 553(b).
    \14\ 5 U.S.C. 553(b)(3)(B).
---------------------------------------------------------------------------

    Under the DCIA, agencies must make the required inflation 
adjustment to civil monetary penalties: (1) According to a very 
specific formula in the statute, and (2) within four years of the last 
inflation adjustment. Agencies have no discretion as to the amount or 
timing of the adjustment. The regulation and amendments discussed 
herein are ministerial, technical, and noncontroversial. Furthermore, 
because the regulation and amendments concern penalties for conduct 
that is already illegal under existing law, there is no need for 
effected parties to have thirty days prior to the effectiveness of the 
regulation and amendments during which to adjust their conduct. 
Accordingly, the Commission believes that there is good cause to make 
this regulation and amendments effective immediately upon publication.

B. Regulatory Flexibility Act

    A regulatory flexibility analysis under the Regulatory Flexibility 
Act (``RFA'') is required only when an agency must publish a general 
notice of proposed rulemaking for notice and comment.\15\ As already 
noted, notice and comment are not required for this final rule. 
Therefore, the RFA does not require a regulatory flexibility 
analysis.\16\
---------------------------------------------------------------------------

    \15\ 5 U.S.C. 603.
    \16\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

C. Cost-Benefit Analysis

    The Commission considers generally the costs and benefits of its 
rules and regulations. The regulation and minor amendments merely 
adjust civil monetary penalties in accordance with inflation as 
required by the DCIA, and have no impact on disclosure or compliance 
costs. Furthermore, Congress, in mandating the inflationary 
adjustments, has already determined that any possible increase in costs 
is justified by the overall benefits of such adjustments.
    The regulation and amendments are in the interest of the public and 
in furtherance of investor protection. The benefit provided by the 
inflationary adjustment to the maximum civil monetary penalties is that 
of maintaining the level of deterrence effectuated by the civil 
monetary penalties, and not allowing such deterrent effect to be 
diminished by inflation.

D. Paperwork Reduction Act

    This rule does not contain any collection of information 
requirements as defined by the Paperwork Reduction Act of 1995 as 
amended.\17\ Therefore, Office of Management and Budget review is not 
required.
---------------------------------------------------------------------------

    \17\ 44 U.S.C. 3501 et. seq.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Part 201

    Administrative practice and procedure, Claims, Confidential 
business information, Lawyers, Securities.

Text of Amendment

    For the reasons set forth in the preamble, part 201, title 17, 
chapter II of the Code of Federal Regulations is amended as follows:

PART 201--RULES OF PRACTICE

Subpart E--Adjustments to Civil Monetary Penalties

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

    Authority: Pub. L. 104-134, 110 Stat. 1321.
    2. Section 201.1001 is revised to read as follows:


Sec. 201.1001  Adjustment of civil monetary penalties--1996.

    As required by the Debt Collection Improvement Act of 1996, the 
maximum amounts of all civil monetary penalties under the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Investment 
Company Act of 1940, and the Investment Advisers Act of 1940 are 
adjusted for inflation in accordance with Table I to this subpart. The 
adjustments set forth in Table I apply to violations occurring after 
December 9, 1996 and before February 2, 2001.
    3.Table I to Subpart E for the entry 15 USC 78u(d)(3) is amended by 
revising ``5,000'' to read ``5,500'' in the last column.

    4. Section 201.1002 and Table II to Subpart E are added following 
Table I to Subpart E to read as follows:


Sec. 201.1002  Adjustment of civil monetary penalties--2001.

    As required by the Debt Collection Improvement Act of 1996, the 
maximum amounts of all civil monetary penalties under the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Investment 
Company Act of 1940, and the Investment Advisers Act of 1940 are 
adjusted for inflation in accordance with Table II to this subpart. The 
adjustments set forth in Table II apply

[[Page 8763]]

to violations occurring after February 2, 2001.

                       Table II to Subpart E--Civil Monetary Penalty Inflation Adjustments
----------------------------------------------------------------------------------------------------------------
                                                                                          Maximum
                                                                               Year       penalty      Adjusted
                                               Civil monetary penalty        penalty       amount      maximum
           U.S. Code citation                       description             amount was    pursuant     penalty
                                                                               last       to 1996       amount
                                                                             adjusted    adjustment
----------------------------------------------------------------------------------------------------------------
Securities and Exchange Commission:
    15 USC 77t(d).......................  For natural person.............         1996       $5,500       $6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses or risk of losses to
                                           others.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses or risk of
                                           losses to others.
    15 USC 78ff(b)......................  Exchange Act/failure to file            1996          110          110
                                           information documents, reports.
    15 USC 78ff(c)(1)(B)................  Foreign Corrupt Practices--any          1996       11,000       11,000
                                           issuer.
    15 USC 78ff(c)(2)(C)................  Foreign Corrupt Practices--any          1996       11,000       11,000
                                           agent or stockholder acting on
                                           behalf of issuer.
    15 USC 78u-1(a)(3)..................  Insider Trading--controlling            1996    1,100,000    1,200,000
                                           person.
    15 USC 78u-2........................  For natural person.............         1996        5,500        6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses to others/gains to self.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses to others/
                                           gain to self.
    15 USC 78u(d)(3)....................  For natural person.............         1996        5,500        6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses or risk of losses to
                                           others.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses or risk of
                                           losses to others.
    15 USC 80a-9(d).....................  For natural person.............         1996        5,500       $6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses to others/gains to self.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses to others/
                                           gain to self.
    15 USC 80a-41(e)....................  For natural person.............         1996        5,500        6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses or risk of losses to
                                           others.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses or risk of
                                           losses to others.
    15 USC 80b-3(i).....................  For natural person.............         1996        5,500        6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses to others/gains to self.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses to others/
                                           gain to self.
    15 USC 80b-9(e).....................  For natural person.............         1996        5,500        6,500
                                          For any other person...........         1996       55,000       60,000
                                          For natural person/fraud.......         1996       55,000       60,000
                                          For any other person/fraud.....         1996      275,000      300,000
                                          For natural person/substantial          1996      110,000      120,000
                                           losses or risk of losses to
                                           others.
                                          For any other person/                   1996      550,000      600,000
                                           substantial losses or risk of
                                           losses to others.
----------------------------------------------------------------------------------------------------------------



[[Page 8764]]

    Dated: January 29, 2001.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-2846 Filed 2-1-01; 8:45 am]
BILLING CODE 8010-01-U