[Federal Register Volume 68, Number 234 (Friday, December 5, 2003)]
[Proposed Rules]
[Pages 68186-68201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29932]



[[Page 68185]]

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Part IV





Securities and Exchange Commission





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17 CFR Parts 200, 201, and 240



Proposed Amendments to the Rules of Practice and Related Provisions; 
Proposed Rule

  Federal Register / Vol. 68, No. 234 / Friday, December 5, 2003 / 
Proposed Rules  

[[Page 68186]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 201, and 240

[Release No. 34-48832; File No. S7-25-03]
RIN 3235-AI


Proposed Amendments to the Rules of Practice and Related 
Provisions

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
proposing for public comment amendments to its Rules of Practice and 
related provisions in light of the Sarbanes-Oxley Act of 2002. The 
Sarbanes-Oxley Act, among other things, authorizes the Commission to 
review disciplinary actions of the Public Company Accounting Oversight 
Board (``Board'') and to create ``Fair Funds'' in Commission 
administrative proceedings. The Commission is also proposing for public 
comment amendments to other provisions of the Rules of Practice 
(``Rules'') as a result of its experience with those rules and to 
correct certain citations. The proposed amendments are intended to 
enhance the transparency and facilitate parties' understanding of the 
applicability of the review process to Board proceedings, and to make 
practice under the rules easier and more efficient.

DATES: Comments must be submitted on or before January 5, 2004.

ADDRESSES: To help us process and review your comments efficiently, 
comments should be sent by hard copy or e-mail, but not by both 
methods.
    Comments sent by hard copy should be submitted in triplicate to 
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549-0609. Alternatively, 
comments may be submitted electronically to the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. S7-25-03. This file number should be included on the subject 
line if e-mail is used. All comment letters received will be available 
for public inspection and copying in the Commission's Public Reference 
Room, 450 Fifth Street, NW., Washington, DC 20549. Electronically 
submitted comment letters will be posted on the Commission's Internet 
Web site (http://www.sec.gov).\1\
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    \1\ The Commission does not edit personal identifying 
information, such as names or electronic mail addresses, from 
electronic submissions. Interested persons submitting comments 
should submit only information that they wish to make publicly 
available.

FOR FURTHER INFORMATION CONTACT: Diane V. White, Office of the General 
Counsel, (202) 942-0950, Securities and Exchange Commission, 450 5th 
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Street, NW., Washington, DC 20549-0208.

SUPPLEMENTARY INFORMATION: The Commission proposes to amend its Rules 
of Practice and related provisions. The amendments are being proposed 
in accordance with the provisions of the Sarbanes-Oxley Act of 2002 \2\ 
and as a result of the Commission's experience with its existing rules. 
Additional amendments correct typographical errors and change certain 
citations to conform to the amended rules.\3\
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    \2\ 15 U.S.C. 7201 et seq.
    \3\ Any necessary delegations will be adopted when the rules 
become final.
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I. Discussion

A. Proposed Amendments as a Result of the Sarbanes-Oxley Act

    Section 107(c) of the Sarbanes-Oxley Act \4\ authorizes the 
Commission to review disciplinary actions imposed by the Board and 
actions that result in the disapproval of registration of a public 
accounting firm.\5\ Sections 105(d) and 107(c) of the Sarbanes-Oxley 
Act require the Board to give the Commission notice if it disapproves 
the registration of a public accounting firm or if it disciplines a 
registered public accounting firm or a person associated with a 
registered public accounting firm.
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    \4\ 15 U.S.C. 7217(c).
    \5\ Under section 102(c) of the Sarbanes-Oxley Act, 15 U.S.C. 
7212(c), the Board's written notice of disapproval of a complete 
application for registration as a registered public accounting firm 
is treated as a ``disciplinary sanction'' for purposes of sections 
105(d) and 107(c) of that act, 15 U.S.C. 7215(d), 7217(c).
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    In creating its framework for Commission review of Board actions, 
section 107(c) of the Sarbanes-Oxley Act specifies that sections 
19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934,\6\ which 
govern Commission review of self-regulatory organization disciplinary 
proceedings, shall govern Commission review of final disciplinary 
sanctions imposed by the Board ``as fully as if the Board were a self-
regulatory organization and the Commission were the appropriate 
regulatory agency for such organization for purposes of those sections 
19(d)(2) and 19(e)(1) * * *'' The effect of this statutory provision is 
to make Board actions subject to Commission review under those Exchange 
Act provisions on the same basis as actions by existing self-regulatory 
organizations, and to make relevant rules under those provisions 
applicable to that review. Thus, the administrative structure currently 
used by the Commission in reviewing self-regulatory disciplinary 
organization proceedings, including relevant provisions of the Rules, 
is applicable to persons seeking review of Board actions.
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    \6\ 15 U.S.C. 78s(d)(2), 78s(e)(1).
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    The Commission nonetheless has determined to propose amendments to 
certain of its rules in order to enhance the transparency and 
facilitate parties' understanding of the applicability of the review 
process to Board proceedings. Certain of those changes to its Rules 
will include specific references to Commission review of Board actions 
and, for example, identify the process by which the Board will provide 
notice to the Commission of its actions. The Commission asks for 
comment as to whether adjustments to the existing rules, in addition to 
those the Commission proposes, are warranted in order to permit the 
Commission more effectively to exercise its statutory review authority 
with respect to Board proceedings.
1. Disapproval of Registration
    Proposed Rule 19d-4(a) would add definitions. Proposed Rule 19d-
4(b) would require the Board to file with the Commission and serve on 
the public accounting firm a notice of disapproval of registration 
within 30 days of the Board's action.\7\ The notice would include the 
firm's name and last known address (as reflected in the Board's 
records) the basis for the Board's disapproval, a copy of the Board's 
written notice of disapproval, and such other information as the Board 
deems relevant.
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    \7\ The thirty-day period for filing is consistent with the 
thirty days provided in section 19(d)(2) of the Exchange Act for the 
filing of an application for review by a person aggrieved by certain 
actions taken by a self-regulatory organization. The Commission 
requests comment as to whether this period is appropriate in the 
context of review of actions by the Board, or whether a longer or 
shorter period would be preferable.
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2. Review of Disciplinary Sanctions
    Proposed Rule 19d-4(c) would require the Board to file and serve a 
notice of any disciplinary sanction, other than a disapproval of 
registration, within 30 days of the Board's action.\8\ The notice would 
provide the name and last address (as reflected in the Board's records) 
of the associated person or registered public accounting firm

[[Page 68187]]

disciplined and a description of the acts or omissions upon which the 
sanction is based. The notice would also specify the sanction imposed, 
give the effective date of the sanction, and include a statement of the 
reasons for the sanction or a copy of the Board's statement justifying 
the sanction, as well as such other information as the Board deems 
relevant.
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    \8\ Comment is requested as to whether the thirty-day period is 
appropriate in this context, or whether a longer or shorter period 
would be preferable.
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    Proposed Rule 440(a) would permit any person aggrieved by a final 
disciplinary sanction (including disapproval of a completed application 
for registration of a public accounting firm) imposed by the Board to 
file an application for review with the Commission. Proposed Rule 
440(b) would require that any application be filed within 30 days after 
the Board's notice under proposed Rule 19d-4 is received by the 
aggrieved person.\9\ The application would identify the determination 
complained of and would contain a brief statement of the alleged errors 
in the determination. The application would be accompanied by a notice 
of appearance by counsel, if any, filed in accordance with Rule 102(d). 
Under proposed Rule 440(d), the Board would have fourteen days after 
receipt of the application to certify the record to the Commission and 
serve one copy of the record index on each party.
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    \9\ Comment is requested as to whether the thirty-day period is 
appropriate in this context, or whether a longer or shorter period 
would be preferable.
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3. Stay of Board Action
    In accordance with section 105(e)(1) of the Sarbanes-Oxley Act, 
\10\ proposed Rule 440(c) would provide that filing of an application 
for review acts as a stay of the Board's action unless the Commission 
otherwise orders. Proposed Rule 401(e)(1) would permit any person 
aggrieved by the automatic stay to ask the Commission to lift the stay. 
The Commission may, in any event, lift the stay on its own motion. The 
Commission requests comment as to whether other persons should be 
permitted to request that the stay be lifted.
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    \10\ 15 U.S.C. 7215(c)(1).
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4. Summary Action; Expedition
    As permitted under section 105(e)(1) of the Sarbanes-Oxley Act, 
proposed Rule 401(e)(2) would provide that the Commission may act 
summarily, without notice and opportunity for hearing. The Commission 
may also expedite consideration of a motion to lift a stay of Board 
action to the extent expedition is consistent with the Commission's 
other responsibilities. If the consideration of a motion to lift is 
expedited, proposed Rule 401(e)(3) would provide that persons opposing 
the lifting of the stay may file an opposition within two days of 
service of the motion to lift unless the Commission orders a different 
period. \11\
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    \11\ The two-day period is modeled after current Rule 401(d)(3), 
which permits persons opposing a motion to the Commission for a stay 
to file a statement in opposition within two days of service of the 
motion. Comment is requested as to whether this period is 
appropriate, or whether a longer or shorter period would be 
preferable.
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5. Review on Motion of the Commission
    Proposed Rule 441(a) would permit the Commission to review a Board 
disciplinary sanction on its own motion. The Commission proposes that 
it would determine whether to take review of a Board disciplinary 
sanction within 40 days after the Board files its notice of the action. 
\12\ Proposed Rule 441(b) permits the Commission to give notice to the 
parties that it wishes to raise any material matter, whether or not the 
parties previously raised that matter. The Commission may provide an 
opportunity for supplemental briefing if the Commission believes that 
such briefing would significantly aid its decisional process.
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    \12\ Rule 421(a) permits the Commission to order review of 
certain determinations by self-regulatory organization within 40 
days after notice thereof is filed with the Commission. The 
Commission requests comment as to whether this period is 
appropriate, or whether a longer or shorter period would be 
preferable.
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6. Amendments to Existing Rules
    The Commission is also proposing amendments to the following Rules 
of Practice with respect to the review proceedings created by the 
Sarbanes-Oxley Act:
    [sbull] The definition of ``proceeding'' in Rule 101(a)(9) 
(Definitions) would be amended to include review of Board disciplinary 
sanctions under proposed Rule 440.
    [sbull] The Commission would amend Rule 202(a) (Specification of 
procedures by parties in certain proceedings) and Rule 210 (Parties, 
limited participants and amici curiae), which permits intervention and 
leave to participate on a limited basis, to exclude review of Board 
disciplinary sanctions under proposed Rule 440. These Rules currently 
do not apply to Commission enforcement or disciplinary proceedings or 
review of determinations by self-regulatory organizations. The 
Commission asks for comment as to whether proposed Rules 440 and 441 
would provide sufficient procedures for review of Board disciplinary 
sanctions, or whether intervention or limited participation would be 
appropriate in Commission review of Board disciplinary sanctions.
    [sbull] Rule 450(a)(2) (Briefs filed with the Commission) would be 
amended to provide for briefs to be filed in the Commission's review of 
final disciplinary sanctions imposed by the Board. Under the proposed 
Rule, the Commission would issue a briefing schedule order within 21 
days (or such longer time as provided by the Commission) following its 
receipt of the Board's index of the record of the Board's 
determination.
    [sbull] The Commission would define the contents of the record 
before it in its review of Board action to include the record certified 
to the Commission by the Board, any application for review, and any 
submissions made to the Commission, by adding Rule 460(a)(3) (Record 
before the Commission).
    The Commission would also revise its ex parte rule, 17 CFR 200.111 
(Prohibitions; application, definitions), to provide that, in 
proceedings to review Board action, the prohibitions against ex parte 
communications would commence when a copy of the application for review 
of the Board's action is served on the Secretary to the Commission.

B. Fair Funds and Disgorgement

    Section 308(a) of the Sarbanes-Oxley Act \13\ provides that, in a 
Commission administrative proceeding where the Commission or a hearing 
officer enters an order requiring disgorgement from a respondent for a 
violation of the securities laws, or the respondent agrees in 
settlement to payment of such disgorgement, any civil penalty also 
ordered against that respondent may be added to the disgorgement funds 
to create a ``Fair Fund'' to be disbursed by the Commission for the 
benefit of the victims of such violation. Section 308(b) of the 
Sarbanes-Oxley Act \14\ authorizes the Commission to accept gifts or 
bequests to the United States of real and personal property for deposit 
in a Fair Fund.
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    \13\ 15 U.S.C. 7246(a).
    \14\ 15 U.S.C. 7246(b).
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    Administration of, and distribution to investors under, Fair Funds 
and disgorgement plans, occurs after the conclusion of the principal 
action against a respondent. The functions involved are administrative, 
and are not subject to provisions such as Rule 120 of the Rules of 
Practice, the ex parte communication rule in subpart D of the Rules of 
Practice. Recognizing this, the Commission proposes to remove from 
subpart D of the Rules of Practice Rules 610 through 620, which relate 
to the

[[Page 68188]]

development, submission, approval, and administration of orders of 
disgorgement, and to the right to challenge orders of disgorgement, and 
to include them in a new subpart F.
    Proposed Rule 1100 would state that the Commission is authorized to 
create a Fair Fund in any administrative proceeding in which a final 
order is entered against a respondent requiring disgorgement and 
payment of a civil money penalty. The Commission may also create a Fair 
Fund if it approves a settlement of an administrative proceeding that 
provides for a respondent's payment of disgorgement and a civil money 
penalty. The proposed Rule would also explain that the Commission may 
add to the Fair Fund any property received in accordance with section 
308(b) of the Sarbanes-Oxley Act.\15\
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    \15\ Section 308(b) of the Sarbanes-Oxley Act provides that the 
Commission may accept, hold, and utilize gifts of property for a 
Fair Fund. Gifts of property received pursuant to this section may 
be deposited only in a Fair Fund.
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    Certain requirements for Fair Funds would suggest that the 
Commission's Rules should make some distinctions between Fair Funds and 
disgorgement funds. For example, Fair Funds must be disbursed to the 
investors harmed by the securities law violations at issue. The purpose 
of disgorgement is to require a wrong-doer to pay back the ill-gotten 
gains that the wrong-doer obtained by virtue of his or her violation. 
Thus, the Commission can order a wrong-doer to disgorge ill-gotten 
gains whether or not investors suffered any damages as a result of the 
violation.\16\ Where there are no identifiable victims of a violation, 
the Commission proposes to permit that the disgorgement and civil money 
penalty amounts be paid to the United States Treasury. The Commission 
asks for comment on this proposal.
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    \16\ See e.g., SEC v. First City Financial Corp., 890 F. 2d 
1215, 1230 (D.C. Cir. 1989) (defendant who violated Exchange Act 
section 13 required to disgorge although harm was to the market as a 
whole, not to particular persons).
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    In other respects, the Commission believes that the requirements 
for Fair Funds and disgorgement funds should be similar. In some cases, 
the Commission may conclude that it is in the public interest to impose 
a civil money penalty and order disgorgement even though the relative 
value of the ill-gotten gains and the number of potential claimants 
would result in high administrative costs and de minimis distributions 
to individual investors. Under such circumstances, the Commission would 
continue its practice of ordering that the disgorgement and civil 
penalty amount be paid directly to the United States Treasury.
    Current Rule 611(b) provides that the Commission may authorize 
payment of disgorgement funds to any court registry or court-appointed 
receiver in any case that alleges the same or similar facts against the 
respondent. The Commission proposes to continue this authority with 
respect to disgorgement funds and Fair Funds in proposed Rule 1102(a).
    The proposed Rules would permit either the Commission or the 
hearing officer, as appropriate, to oversee the administration of both 
disgorgement funds and Fair Funds.
    Proposed Rule 1101(a) would continue the practice under current 
Rule 610 of allowing the Commission or the hearing officer at any time 
to order a party to submit a plan for the administration of either a 
Fair Fund or a disgorgement fund. Unless ordered otherwise, the 
Division of Enforcement would be required to submit such a plan within 
60 days after the respondent has tendered the funds or other assets 
pursuant to the Commission's order to pay disgorgement and, if 
applicable, a civil money penalty.
    Proposed Rule 1101(b) would extend the requirements of current Rule 
611(a) to require that both Fair Fund or disgorgement fund plans 
provide for: receiving and holding additional funds, including funds 
received under section 308(b) of the Sarbanes-Oxley Act; identifying 
categories of persons who are potentially eligible to receive funds; 
providing notice to potentially eligible persons of the fund's 
existence and their potential eligibility; handling claims; termination 
of the fund and disposition of any remaining assets; administration of 
the fund; and such other provisions as the Commission or hearing 
officer deem appropriate.
    As discussed above, proposed Rule 1102(b) would continue to permit 
the Commission or the hearing officer to order that funds be paid 
directly to the United States Treasury if the cost of administering the 
fund and the relative value of the disgorgement fund, together with any 
civil money penalty, and the number of potential claimants would not 
justify distribution of the funds.
    Proposed Rule 1103 would amend and renumber current Rule 612 to 
require that notice of either a proposed disgorgement plan or a 
proposed Fair Fund plan be published in the SEC News Digest, the SEC 
Docket, and such other publications as the Commission or the hearing 
officer directs. The notice would specify how to obtain copies of the 
proposed plan and inform those desiring to comment to submit their 
written views to the Commission. The Commission also proposes posting 
notice of a proposed plan on its website. The Commission seeks comment 
as to how website posting can be done most effectively.
    Proposed Rule 1104 would replace and renumber current Rule 613 to 
provide that, at any time after 30 days following publication of the 
notice of a proposed disgorgement plan or a proposed Fair Fund plan, 
the Commission or the hearing officer may approve, modify, or 
disapprove the proposed plan. The Commission or the hearing officer may 
order publication of a substantially modified plan prior to adoption.
    Proposed Rule 1105 would replace and amend current Rule 614 to 
provide for administration of Fair Funds, as well as disgorgement 
funds. The proposed Rule would continue to permit the Commission or 
hearing officer to appoint any person, including a Commission employee, 
as fund administrator. Either the Commission or the hearing officer 
would be able to remove an administrator.
    An administrator who is not a Commission employee must post a bond 
in an amount approved by the Commission. An administrator who is not a 
Commission employee may receive a fee for reasonable services, subject 
to approval by the Commission or the hearing officer. Commission 
employees may not receive such fees. Fees and expenses from fund 
administration would be paid first from interest and then, if the 
interest were insufficient, from corpus. The administrator would give 
periodic accountings, as ordered, and submit a final accounting prior 
to his or her discharge and cancellation of any bond.
    Current Rule 614(a) would be renumbered Rule 1105(b). The Rule 
currently provides that a respondent may be required or permitted to 
administer a plan of disgorgement, subject to terms the Commission or 
the hearing officer deems appropriate. At this time, the Commission 
does not propose to extend this provision to Fair Funds although it 
invites comment on this issue. A Fair Fund would include a civil 
penalty and might include funds conveyed to the United States pursuant 
to section 308(b) of the Sarbanes-Oxley Act.
    Proposed Rule 1106 would renumber Rule 620 to make clear that no 
person would be granted the right to intervene or appear in a 
proceeding to challenge an order of disgorgement, an order creating a 
Fair Fund, an order approving, modifying, or disapproving a 
disgorgement plan or a Fair Fund plan,

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or any determination relating to a plan based solely upon the person's 
eligibility or potential eligibility to participate in a fund or based 
on a private right of action. Under the proposed Rule, as is the case 
under the existing disgorgement Rule, such person's participation would 
be limited to submitting comments in accordance with proposed Rule 
1103.

C. Other Proposed Amendments

    In 1995, the Commission substantially amended its Rules of 
Practice. After several years of experience with these Rules, the 
Commission believes that certain changes to the Rules would make 
practice under those Rules easier and more efficient. The Commission 
invites comments with respect to these proposed modifications.
    1. The existing Rules do not make explicit the Commission's 
authority to order a variation from the rules governing proceedings 
before it. The Commission is proposing to include in Rule 100 a new 
paragraph (c) that would specify that the Commission may by order 
direct, in a particular proceeding, that an alternative procedure shall 
apply or that compliance with an otherwise applicable rule is 
unnecessary, upon its determination that to do so would serve the 
interests of justice and not result in prejudice to any party to the 
proceeding.
    2. Under section 11A of the Exchange Act and the rules thereunder, 
the Commission is authorized to adjudicate certain disputes involving 
registered securities information processors, national market system 
plans, or transaction reporting plans.\17\ In addition to the inclusion 
of review of Board disciplinary sanctions discussed above, the 
Commission proposes to amend Rule 101(a)(9) to expand the definition of 
``proceedings'' to make clear that the Rules of Practice are applicable 
to such adjudications.\18\
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    \17\ See Exchange Act section 11A(b)(5) (requiring Commission to 
review prohibitions or limitations of access to services offered by 
registered securities information processors); Exchange Act Rule 
11Aa3-2(e) (giving Commission discretion to entertain appeals from 
actions under national market system plans); Exchange Act Rule 
11Aa3-1(f) (giving Commission discretion to entertain appeals in 
connection with implementation or operation of transaction reporting 
plans).
    \18\ Because the current Rules of Practice do not specify a 
particular procedure for proceedings under Exchange Act section 11A, 
the Commission has been required to specify by order the procedural 
rules that are to be employed in section 11A review proceedings. 
See, e.g., The Cincinnati Stock Exchange, Exchange Act Rel. No. 
43316 (Sept. 21, 2000), 73 SEC Docket 1006 (Order Accepting 
Jurisdiction, Establishing Procedures, and Ordering Briefs).
    Proposed Rule 101(a)(12) would also define the term ``Board'' to 
refer to the Public Company Accounting Oversight Board.
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    3. The Commission currently requires counsel to file a motion to 
withdraw as counsel. Many agencies instead permit counsel to file a 
notice of withdrawal, which does not require agency action but informs 
the agency and parties of counsel's withdrawal. The Commission believes 
that a notice would preserve the intended benefits of the existing 
requirement by providing timely notice to both the Commission and the 
parties of the withdrawal. It would also eliminate the need for the 
Commission or the hearing officer to rule on a motion for withdrawal.
    The proposed amendment of Rule 102(d)(4) would require any person 
seeking to withdraw his or her appearance in a representative capacity 
to file a notice of withdrawal with the Commission or the hearing 
officer, stating the name, address, and telephone number of the 
withdrawing representative; the name, address, and telephone number of 
the person for whom the appearance was made; and the effective date of 
the withdrawal. If the person seeking to withdraw knows the name, 
address, and telephone number of the new representative, or knows that 
the person for whom the appearance was made intends to represent him- 
or herself, that information would also have to be included in the 
notice. The amended Rule would require that notice be served on the 
parties in accordance with Rule 150, and that the notice be filed at 
least five days before the proposed effective date of the withdrawal.
    4. The Commission is considering a proposed amendment that would 
specifically recognize the authority of hearing officers to correct 
manifest errors of fact in initial decisions. The Commission has found 
that some appeals to it could be streamlined if certain issues were 
addressed first to the hearing officer. The proposed amendment would 
add to the enumeration of powers of hearing officers in Rule 111 the 
authority to consider and rule upon a motion to correct a manifest 
error of fact, provided that such a motion is filed within ten days of 
the initial decision.
    5. Currently, Rule 141(a)(3) requires the Secretary to ``place in 
the record of the proceeding a certificate of service'' of orders 
instituting proceedings. The proposed amendment of the Rule would 
delete this requirement, substituting a requirement that the Secretary 
``maintain a record of service on parties.'' The amendment would allow 
the Secretary to maintain computerized rather than hard copy records of 
service.
    6. Current Rule 141(a)(3) also requires that, if service is 
effected by mail, the certificate ``shall be accompanied by a 
confirmation of receipt or of attempted delivery,'' which is also to be 
maintained in the record of the proceeding. The proposed amendment of 
Rule 141(a)(3) would delete the requirement that such documents be 
retained in the record of the proceeding, allowing the Secretary to 
retain all the confirmation or records of attempted delivery in a 
single file. The Commission believes that this form of recordkeeping 
will permit easier retrieval of these documents.
    7. Current Rule 141(b) provides for the service of written orders 
or decisions by the Commission or a hearing officer, other than an 
order instituting proceedings, to be served by any method of service 
authorized under Rule 141(a) or Rule 150(c). The proposed amendment of 
Rule 150(c) discussed below would, among other things, eliminate the 
requirement that parties seeking to serve each other by facsimile 
transmission agree to do so in writing. The Commission proposes to 
retain the requirement of a written agreement as a precondition to 
service of orders and decisions by facsimile. The proposed amendment of 
Rule 141(b) would replace the reference to Rule 150(c) with a reference 
to Rules 150(c)(1)-(3).
    8. Consistent with Rule 5(b)(2)(D) of the Federal Rules of Civil 
Procedure, existing Rule 150(c)(4), which governs service of documents 
on parties by facsimile transmission, requires parties who choose to 
serve each other by facsimile to agree to do so in a signed writing. 
The existing Rule also requires that receipt of each document served by 
facsimile be confirmed by a manually signed receipt. The proposed 
amendment would delete both of these requirements. It would, however, 
allow a party to decline to receive service by facsimile. Such a 
declination would have to be made in writing and served in accordance 
with Rule 150. The proposed Rule would also require that facsimile 
transmissions be made at a time that results in their receipt during 
the Commission's business hours as defined in Rule 104.
    The Commission's experience shows that in many instances parties 
are serving one another by facsimile but are not entering into the 
agreements or confirming by manually signed receipt. Under the new 
Rule, parties who choose service by facsimile would be required to 
provide the Commission and the parties with notice of the facsimile 
machine telephone number to be used and the hours of facsimile machine 
operation.

[[Page 68190]]

    The Commission solicits views about what might constitute 
sufficient evidence of completion of facsimile service. See current 
Rule 150(d). The Commission also seeks comment as to whether parties 
making service by facsimile, or the Commission serving orders and 
decisions by facsimile, should be required to transmit a non-facsimile 
original contemporaneously with service by facsimile. The current Rule 
allows parties to specify in the written agreement providing for 
service by facsimile whether a non-facsimile document is to be 
provided.
    9. Rule 151 currently does not permit filing of documents with the 
Commission by facsimile transmission. The proposed amendment would 
allow such filing. The proposed amendment makes clear, however, that 
one who seeks to file by facsimile assumes the risk that the 
transmission will not be completed in a timely or legible fashion. As 
proposed, Rule 151 would require that parties filing by facsimile 
should be required to transmit a non-facsimile original 
contemporaneously. At present, the Commission receives a hard copy of 
filings to satisfy Rule 153(a), which requires that filings be signed 
by at least one counsel of record, or if a party is acting as his or 
her own counsel, by the party. The Commission requests comments as to 
how the signature requirement should be implemented if filings are by 
facsimile and if no hard copy original is required to be filed.
    In addition, the Commission requests comments as to whether filing 
by e-mail should be permitted. If such filing is permitted, the 
Commission requests comments as to whether the requirements applicable 
to filing by facsimile transmission would also be appropriate in that 
context.
    Current Rule 151 requires that papers required to be served on a 
party shall be filed with the Commission ``at the time of service or 
promptly thereafter.'' To conform with other Rules, the proposed 
amendment would require filing with the Commission 
``contemporaneously'' with service on a party.
    10. Rule 152(a)(2) currently allows the use of either 10-point or 
12-point type in papers filed in Commission proceedings. To enhance the 
legibility of filings, the proposed amendment would require the use of 
12-point or larger type.
    11. Current Rule 154 limits a brief in support of or in opposition 
to a motion to 10 pages, exclusive of pages containing any table of 
contents, table of authorities, and/or addendum. The Commission has 
received filings by parties who attempt to circumvent this page 
limitation by filing 10-page briefs and extremely lengthy motions. The 
proposed amendment seeks to establish a combined page limit of 15 pages 
for the motion and brief.
    12. Current Rule 151 provides that persons must file papers with 
the Commission within the time limit for filing. Rule 160 gives an 
additional three days for service by mail. Questions have been raised 
about whether a person receives three additional days to respond if 
service is made by mail when the Commission's or hearing officer's 
order specifies a date certain for filing a response. The proposed 
amendment to Rule 160 would make clear that the person does not receive 
additional time. If a party requires a short extension, the Commission 
believes that the party could request that extension under Rule 161.
    13. Rule 201 currently provides for the consolidation of 
proceedings. The proposed amendment would permit the Commission also to 
order any proceeding severed with respect to some or all of the 
parties. The proposed amendment would provide that motions to sever 
must be addressed to the Commission and represent that a settlement 
offer has been submitted to the Secretary for Commission consideration, 
or otherwise show good cause. The Commission asks for comment as to 
whether the law judges should have the power to sever parties from a 
proceeding.
    14. Current Rule 230(a)(1)(vi) requires the Division of Enforcement 
to make available for inspection and copying by any party any final 
examination or inspection reports prepared by the Office of Compliance 
Inspections and Examinations, the Division of Market Regulation, or the 
Division of Investment Management that have been obtained by the 
Division of Enforcement prior to the institution of the proceedings, in 
connection with the investigation leading to the Division of 
Enforcement's recommendation to institute proceedings. The proposed 
amendment would state that such reports must be produced only if the 
Division intends either to introduce them into evidence, or to use them 
to refresh the recollection of any witness.
    Examined parties receive notice of examination findings in the 
examination process, and do not require notice through the Rules of 
Practice. Therefore, in order to protect the confidentiality of 
examination reports, the proposed amendment would limit production of 
examination and inspection reports to circumstances where the Division 
intends to introduce the report into evidence, either in reliance on 
the report to prove its case, or to refresh the recollection of any 
witness.
    The proposed amendment would not alter the requirement that the 
Division produce documents that contain material exculpatory evidence 
as required by Brady v. Maryland.\19\
---------------------------------------------------------------------------

    \19\ 373 U.S. 83, 87 (1963).
---------------------------------------------------------------------------

    Current Rule 230(c) permits the hearing officer to require the 
Division of Enforcement to submit for review a list of withheld 
documents. The proposed amendment would provide that when similar 
documents are withheld, those documents may be identified by category 
instead of individual document. Under the proposed amendment, the 
hearing officer would retain discretion to determine when an 
identification by category is insufficient. The proposed amendment 
would also correct typographical errors in the cross-reference to 
paragraphs pursuant to which documents may be withheld.
    15. Current Rule 231(a), relating to production of witness 
statements, refers to ``any statement * * * that would be required to 
be produced by the Jencks Act, 18 U.S.C. 3500.'' There has been some 
question as to what constitutes a ``statement'' under this provision. 
The proposed change would make clear that the Commission will rely on 
the definition of ``statement'' contained in the Jencks Act \20\ in 
applying this Rule.
---------------------------------------------------------------------------

    \20\ 18 U.S.C. 3500(e).
---------------------------------------------------------------------------

    16. Current Rule 232(e)(1) allows only the person to whom a 
subpoena is directed or a person who is an owner, creator, or the 
subject of the documents to be produced pursuant to a subpoena, to 
oppose the subpoena. The proposed amendment would add that any party 
may also oppose a subpoena.
    Subpoenas directed at third party witnesses can be overly broad. 
Some recipients of such subpoenas may lack the sophistication or 
resources to dispute the scope of the subpoenas, and it would be unfair 
to require them to make filings in opposition. The proposed amendment 
would allow the Division of Enforcement, or any other party, to present 
arguments about whether subpoenas to any witnesses are unreasonable, 
oppressive, or unduly burdensome.
    17. Current Rule 235(a) provides that a hearing officer may grant a 
motion to introduce a prior sworn statement of a witness who is out of 
the United States, unless it appears that the absence of the witness 
was procured by the party offering the prior sworn statement. Current 
Rule 233, however, which sets forth the basis for ordering a 
deposition, does not permit the taking of a deposition when it is 
anticipated that a

[[Page 68191]]

witness will be absent from the United States. Since depositions can be 
used only to preserve testimony of a witness who is unlikely to attend 
the hearing, the proposed revision of Rule 233 would allow the taking 
of a deposition of a witness currently within the United States who is 
expected to be outside the United States so long as the deposition will 
serve the interests of justice and it appears that the party requesting 
the deposition did not procure the witness's absence.
    18. Rule 350(b) currently requires the Secretary to retain 
documents that are marked for identification but not offered into 
evidence. There does not seem to be any reason to keep documents that 
the party did not seek to introduce, and the proposed amendment would 
delete that requirement. The Secretary would continue to retain 
documents offered into evidence but excluded from the record so that, 
in the event of an objection, the Commission could consider any 
arguments that the documents should be admitted.
    19. Proposed Rule 351(a) deletes a reference to a practice 
abandoned several years ago whereby the interested division took 
custody of the exhibits after a hearing and was responsible for having 
them sent to the Secretary. Currently the court reporter takes custody 
of exhibits.
    20. Current Rule 360(d)(1) provides that an initial decision of a 
hearing officer becomes the final decision of the Commission unless a 
party or aggrieved person entitled to review files a petition for 
review, or the Commission orders review on its own initiative. Current 
Rule 360(e) further provides that, if an initial decision becomes the 
final decision of the Commission as to a party, the Commission shall 
issue an order that the decision has become final as to that party. The 
interplay of these Rules appears to have engendered confusion as to 
when a decision is final and enforceable. The proposed amendments would 
renumber paragraph 360(d)(2) as (d)(1) and combine paragraphs (d)(1) 
and (e) as (d)(2), clarifying that a decision becomes final upon the 
issuance of a finality order by the Commission.
    21. Current Rule 400 provides for the Commission to grant 
interlocutory review only in ``extraordinary circumstances.'' The 
proposed amendment would instruct the parties that petitions for 
interlocutory review are ``disfavored,'' making clear that such 
petitions rarely would be granted. The proposed amendment would 
recognize, however, that the Commission retains discretion to undertake 
such review on its own motion at any time.
    22. A proposed amendment to Rules 400 and 430 would provide that 
certain matters are subject to interlocutory review under Rule 400, not 
Rule 430. Rule 430 permits review of matters delegated to the staff. 
Under 17 CFR 200.30-9 and 30-10, certain functions are delegated to the 
administrative law judges and the chief administrative law judge. As 
the Rules are currently drafted, such determinations arguably might be 
reviewable under Rule 430 although the determination would not merit 
interlocutory review under Rule 400. The amendment would make clear 
that Rule 400 is the sole route for interlocutory review of 
determinations by a hearing officer.
    23. Current Rule 401(d)(1) provides that any person aggrieved by an 
action by a self-regulatory organization for which the Commission is 
the appropriate review agency, for which action review may be sought 
pursuant to Rule 420, may seek a stay of that action. The proposed 
amendment would clarify that a stay can be sought only at the time an 
application for review is filed or thereafter. Filing an application 
for review brings the action before the Commission. Since the proposed 
amendment of Rule 420(c) reduces the content requirements for an 
application for review, the requirement that an application be filed 
when or before a stay is sought would not impose a significant delay.
    24. The Commission requests comment on the proposed amendment of 
Rule 410(b), which would permit an opposing party to file a cross-
petition for review within ten days from the filing of a petition for 
review, making it unnecessary for parties to file protective defensive 
petitions for review.
    Another proposed amendment would delete Rule 410(d), thus 
abolishing the opposition to the petition for review. The Commission 
requests comment on the proposal to abolish the petition for review. In 
the Commission's experience, the utility of such oppositions has been 
quite limited, given that the Commission has long had a policy of 
granting petitions for review, believing that there is a benefit to 
Commission review when a party takes exception to a decision. Moreover, 
the Commission believes that a motion for summary affirmance would 
permit the Commission to dispose of matters suited to more abbreviated 
review.
    25. The proposed amendment of Rule 411(e) would provide a 21-day 
time limit for filing a motion for summary affirmance. The proposed 
amendment would also set forth standards both for granting and for 
denying summary affirmance. Summary affirmance would be granted if the 
Commission finds that no issue raised in the initial decision warrants 
consideration by the Commission of further oral or written argument. 
Summary affirmance would be denied upon a reasonable showing that a 
prejudicial error was committed in the conduct of the proceeding or 
that the decision embodies an exercise of discretion or decision of law 
or policy that is important and that the Commission should review.
    26. Section 19(d) of the Exchange Act requires a person who appeals 
from self-regulatory organization disciplinary action to do so within 
30 days ``or within such longer period as'' the Commission ``may 
determine.'' The proposed amendment to Rule 420(b) would make clear 
that an appeal from self-regulatory organization action must be filed 
within 30 days, absent a showing of extraordinary circumstances, and 
will not be extended by the Commission under Rule 161. This standard is 
consistent with prior Commission precedent.\21\
---------------------------------------------------------------------------

    \21\ See, e.g., Lance E. Van Alstyne, 53 S.E.C. 1093, 1099 
(1998) (Commission will not authorize late filing of appeals by 
self-regulatory organizations absent extraordinary circumstances).
---------------------------------------------------------------------------

    Current Rule 420 contains language that might suggest that the 
applicant's address be used to serve only the record index. The 
proposed amendment would provide that the applicant identify where he 
or she may be served for all purposes.
    27. Rule 450(c), which sets limits on the page length of briefs, 
would be amended to limit instead the number of words in briefs. The 
proposed word limits--14,000 for principal briefs and 7,000 for any 
reply brief--are based on Rule 32 of the Federal Rules of Appellate 
Procedure. The proposed amendment would also state that motions to file 
oversized briefs are disfavored. In exceptional cases, however, where 
more pages may be needed to address the issues--for example, where the 
Division of Enforcement must address arguments by multiple 
respondents--the Commission may, upon motion, allow longer filings.
    Except when a principal brief does not exceed 30 pages in length, 
or a reply brief does not exceed 15 pages in length, the proposed 
amendment would require the attorney filing the brief (or an 
unrepresented party) to certify that the brief complies with the length 
limitation and to state the number of words in the brief. The proposed 
amendment would permit the party certifying the length of the brief to 
rely on the word count of the word processing system used to prepare 
the brief.

[[Page 68192]]

    The Commission has received briefs which sought to incorporate by 
reference briefs filed before the hearing officer in the proceeding on 
appeal. Such incorporation by reference, if allowed, would erode the 
page-limit requirements of Rule 450(c). The proposed amendment provides 
that pleadings incorporated by reference will be included in 
determining the word count of briefs. The amendment is intended to 
promote adherence to the length limitations of Rule 450(c) and to 
encourage parties to exercise judgment in selecting the arguments that 
best advance their positions rather than simply repeating previously 
formulated contentions.
    28. The current Rules make no provision for the use of visual aids 
at oral argument. The proposed amendment of Rule 451(b) would prohibit 
the use of visual aids unless copies are provided to the Commission and 
all parties at least five business days before the argument is to be 
held.\22\ The Commission requests comment as to whether five business 
days provides sufficient time for the parties to prepare adequate 
responses to proposed visual aids.
---------------------------------------------------------------------------

    \22\ A further proposed amendment would conform the language of 
Rule 451(b) to reflect Commission practice not to issue the order 
setting oral argument in a Commission administrative proceeding 
until the date for argument is set.
---------------------------------------------------------------------------

    29. Current Rule 360(a)(2) directs the hearing officer to issue an 
initial decision within the time period specified in the order 
instituting proceedings. To address the hearing officer's inability to 
comply with this directive where a proceeding is stayed by order of the 
hearing officer or the Commission under Rule 210(c)(3) because a 
criminal investigation or prosecution is pending, the proposed 
amendment of Rule 360(a)(2) would specify that, if a proceeding is 
stayed under the authority of Rule 210(c)(3), the specified time period 
for issuance of the initial decision, as well as any other time limits 
established in orders issued by the hearing officer under Rule 
360(a)(2), will be automatically tolled during the period in which the 
stay is in effect.
    30. Rule 360(d)(2) provides that the initial decision shall not 
become final as to a party or person if a timely petition for review is 
filed by that party or person. The proposed amendment would add the 
timely filing, by a party or an aggrieved person entitled to review, of 
a motion to correct an initial decision to the hearing officer as an 
event that prevents the initial decision from becoming the final 
decision of the Commission as to that party or person until the hearing 
officer has decided the motion. The proposed amendment would also make 
conforming changes to Rule 360(b), which specifies that an initial 
decision shall include a statement reflecting the provisions of Rule 
360(d).
    A proposed amendment of Rule 410(b) would provide that the time to 
file a petition for review is stayed until 21 days after resolution of 
any motion to correct an initial decision filed before the hearing 
officer so that, while a motion to correct is pending, a party need not 
file a petition for review to preserve its appeal rights.
    Current Rule 470 specifies a 15-page limit for a motion for 
reconsideration, rather than the ten pages permitted for other motions. 
There does not seem to be any reason for treating motions for 
reconsideration differently from other motions. The amendment proposes 
to limit the party seeking reconsideration to the same number of pages 
and the same format used for other motions under the Rules of Practice. 
The Commission requests comment as to whether motions for 
reconsideration should be subject to different requirements from other 
motions, and if so, what differences would be appropriate.
    31. The proposed amendment of Rule 601 would codify existing 
practice for payment of disgorgement, interest, and penalties. The 
proposal standardizes the language currently used by hearing officers 
in initial decisions and the Commission in its orders, as follows:

    (c) Method of making payment. Payment shall be made by United 
States postal money order, wire transfer, certified check, bank 
cashier's check, or bank money order made payable to the Securities 
and Exchange Commission. The payment shall be mailed or delivered to 
the Office of Financial Management of the Commission. Payment shall 
be accompanied by a letter that identifies the name and number of 
the case and the name of the respondent making payment. A copy of 
the letter and the instrument of payment shall be sent to counsel 
for the Division of Enforcement.

II. Request for Public Comments

    We request and encourage any interested person to submit comments 
regarding: (1) The proposed changes that are the subject of this 
release, (2) additional or different changes, or (3) other matters that 
may have an effect on the proposals contained in this release.

III. Administrative Procedure Act, Regulatory Flexibility Act, and 
Paperwork Reduction Act

    The Commission finds, in accordance with section 533(b)(3)(A) of 
the Administrative Procedure Act, \23\ that this revision relates 
solely to agency organization, procedure, 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 \24\ therefore does not apply. Similarly, 
because these rules relate to ``agency organization, procedure or 
practice that does not substantially affect the rights or obligations 
of non-agency parties,'' the Commission is not soliciting comment for 
purposes of the Small Business Regulatory Enforcement Fairness Act. 
\25\ Nonetheless, the Commission has determined that it would be useful 
to publish these proposed rules for notice and comment, before 
adoption. \26\
---------------------------------------------------------------------------

    \23\ 5 U.S.C. 553(b)(3)(A).
    \24\ 5 U.S.C. 601 et seq.
    \25\ 5 U.S.C. 804(3)(C).
    \26\ See 5 U.S.C. 603.
---------------------------------------------------------------------------

    These rules do not contain any collection of information 
requirements as defined by the Paperwork Reduction Act of 1995, as 
amended. \27\
---------------------------------------------------------------------------

    \27\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

IV. Costs and Benefits of the Proposed Rules and Amendments

    The Sarbanes-Oxley Act of 2002 authorizes the Commission to review 
disciplinary actions by the Public Company Accounting Oversight Board 
as well as actions resulting in disapproval of registration of public 
accounting firms. In response, the Commission proposes to revise 
certain of its rules in order to enhance the transparency and 
facilitate parties' understanding of the applicability of the review 
process to Board proceedings. The Sarbanes-Oxley Act also provides that 
where the Commission or a hearing officer in a Commission 
administrative proceeding enters an order requiring disgorgement and a 
civil money penalty, the Commission may create a ``Fair Fund'' 
combining the disgorgement and the civil money penalty to be disbursed 
for the benefit of the victims of the securities law violations at 
issue in the proceeding. In response, the Commission proposes 
regulatory provisions for the submission and administration of Fair 
Fund plans and disgorgement plans. The Commission also proposes to take 
this opportunity to amend other provisions of the rules.
    Taken as a whole, the Commission's Rules of Practice (``Rules'') 
create governmental review and remedial processes. That is, they are 
procedural and administrative in nature. The benefits to the parties 
are the familiar benefits of due process: notice,

[[Page 68193]]

opportunity to be heard, efficiency and fairness. The cost of these 
processes, on the other hand, falls largely on the oversight bodies.
    For purposes of cost/benefit analysis, the processes created by the 
regulatory provisions proposed in this release, given their procedural 
nature, might best be viewed as a whole. Nonetheless, to the extent 
possible, specific benefits and costs that can be more narrowly 
associated with separate provisions are identified below. However, 
because there are so many provisions, and because the costs tend to be 
primarily governmental, we do not provide separate sections for our 
respective cost and benefit analyses. Rather, we simply identify each 
provision proposed and discuss any benefits and costs that may be 
associated with it beyond the more general points summarized above.
    Proposed Rule 19d-4(b) requires the Board to file with the 
Commission and serve on the public accounting firm a notice of 
disapproval of registration within 30 days of the Board's action. 
Proposed Rule 19d-4(c) imposes on the Board a similar filing and 
service requirement for notices of any disciplinary sanction other than 
a disapproval of registration. Timely notice is a fundamental aspect of 
due process. It benefits those who receive notice by allowing them to 
plan and take action in light of the Board's findings. Timely filing 
with the Commission lets the Commission know of the conclusion of Board 
proceedings so that it can exert oversight over the quality and 
fairness of those proceedings, which benefits parties to the 
proceedings as well as the general public. These rules would impose a 
small administrative cost on the Board.
    Proposed Rules 440 and 441 provide for Commission review of Board 
actions. Proposed Rule 440 allows review upon application of a person 
aggrieved by a final Board disciplinary sanction, including disapproval 
of a completed application for registration of a public accounting 
firm, and proposed Rule 441 permits Commission review of Board 
disciplinary sanctions upon the Commission's own motion. The Rules 
pertain to the review mechanism required by the Sarbanes-Oxley Act, 
informing those upon whom Board sanctions are imposed of the option of 
Commission review and instructing them about procedures involved in 
initiating the review process.
    Commission review of Board findings benefits parties to Board 
proceedings (and, to a lesser extent, the general public) by protecting 
against arbitrary, capricious, or otherwise unlawful treatment. Review 
also allows the Commission to exercise a check on, and protect the 
public interest in, the quality and consistency of Board findings.
    Parties involved in review proceedings will incur legal and other 
costs. Review upon application by a person aggrieved, under proposed 
Rule 440, is optional. Thus, a party would only incur these costs if it 
expected a net benefit from the review process. In the case of review 
upon the Commission's own motion under proposed Rule 441, however, the 
parties involved might otherwise have chosen to avoid incurring the 
costs.
    In accordance with section 105(e)(1) of the Sarbanes-Oxley Act, 
proposed Rule 440(c) provides that filing an application for review 
with the Commission acts as a stay of the Board's action unless the 
Commission orders otherwise. Proposed Rule 401(e) allows (1) persons 
aggrieved by such an automatic stay to ask the Commission to lift the 
stay; (2) the Commission to lift such a stay summarily, without notice 
and opportunity for a hearing; and (3) persons opposing the lifting of 
such a stay to file an opposition.
    Rule 440(c) benefits the party upon whom Board sanctions have been 
imposed by allowing that party an opportunity to be heard in the review 
process before the Board's sanctions take effect. The automatic stay 
imposes a cost upon third parties who would benefit if the sanctions 
went into place immediately.
    Allowing a person aggrieved by the automatic stay to ask to have 
the stay lifted benefits the aggrieved person by offering the option of 
a possible earlier termination of the stay. Those availing themselves 
of this option will incur legal and other costs, though since the 
procedure is optional, they will presumably do so only if they conclude 
that doing so yields an expected net benefit. Similarly, allowing 
opposition to a motion to lift allows those opposing the motion an 
opportunity to be heard. Although opposing a motion could involve legal 
and other expenses, since opposition is optional, parties would only 
incur those costs if they expected a net benefit from opposing.
    Allowing the Commission to lift a stay summarily could benefit 
persons aggrieved by the stay by providing prompt and inexpensive 
relief. At the same time, those who might oppose the lifting of the 
stay would be denied notice and an opportunity to be heard in 
connection with the lifting of the stay.
    Section 308(a) of the Sarbanes-Oxley Act provides that, in a 
Commission administrative proceeding where the Commission or a hearing 
officer enters an order requiring disgorgement and a civil money 
penalty, the Commission may create a ``Fair Fund'' by including the 
civil penalty with the disgorgement amount. The Commission is required 
to disburse money from a Fair Fund for the benefit of the victims of 
the securities law violations at issue in the proceeding.
    Proposed Rule 1101 would authorize the Commission to create a Fair 
Fund in any administrative proceeding in which a final order is entered 
imposing disgorgement and a civil money penalty, and would permit the 
Commission to add to the Fair Fund any property received in accordance 
with section 308(b) of the Sarbanes-Oxley Act. The Commission would 
also be allowed to create a Fair Fund if it approves a settlement of an 
administrative proceeding that provides for payment of disgorgement and 
a civil money penalty. Where the relative value of the ill-gotten gains 
and the number of potential claimants would result in high 
administrative costs and de minimis distributions to investors, the 
proposed rules would allow the Commission not to create a Fair Fund, 
and the disgorgement and civil penalty amounts would be paid directly 
to the United States Treasury.
    Creating and administering Fair Funds benefits victims of 
securities law violations, who would be more likely to be made whole. 
Allowing monies that would otherwise go into a Fair Fund to be paid to 
the Treasury where investors would receive only de minimis 
distributions would prevent those monies from being consumed by 
administrative costs, though at a cost to victims who might otherwise 
have received a minimal payment from a Fair Fund.
    The proposed amendment of Rule 102(d)(4) would allow a person 
seeking to withdraw his or her appearance before the Commission in a 
representative capacity to file a notice of withdrawal rather than the 
motion to withdraw that is currently required. Filing a notice would 
preserve the benefits of the existing requirement by giving the 
Commission and the parties timely notice of withdrawal. Preparing and 
filing a notice may be less expensive than preparing and filing a 
motion. Additionally, the proposed amendment would increase efficiency 
by eliminating the need for the Commission or a hearing officer to rule 
on a motion for withdrawal.
    The proposed amendment of Rule 150(c)(4) would eliminate the 
requirements that parties who choose to serve each other by facsimile 
transmission (1) agree to do so in a

[[Page 68194]]

signed writing, and (2) confirm receipt of each document by a manually 
signed receipt. Eliminating these requirements would result in lower 
costs to the serving parties. However, eliminating the requirement of a 
signed receipt could make it more difficult to prove that a 
transmission was received.
    The proposed amendment of Rule 151 would allow parties to file 
documents with the Commission by facsimile transmission. This amendment 
provides parties an additional option for transmitting documents to the 
Commission. Facsimile filing would allow the Commission to receive, and 
be able to address, documents in as timely a fashion as possible. Costs 
of transmission by facsimile are likely to be lower than overnight or 
courier fees. The proposal would not impose any new costs, since the 
existing methods for filing with the Commission remain available.
    The proposed amendment to Rule 154 establishes a combined page 
limit of 15 pages for a motion and a brief in support of the motion. 
The 15-page limit would also apply to a brief in opposition to a motion 
and to any reply brief. The proposed amendment to Rule 450(c) provides 
that pleadings incorporated by reference will be included in 
determining the page count of briefs.
    Reducing page limits may result in lower legal costs to the 
parties. Limiting the number of pages submitted also keeps proceedings 
efficient.
    The proposed amendment of Rule 233 would allow the taking of a 
deposition of a witness then within the United States, who is expected 
to be outside the United States at the time of an administrative 
hearing, so long as the deposition will serve the interests of justice 
and it appears that the party requesting the deposition did not procure 
the witness's absence. The proposal serves the interests of justice by 
making available a statement that otherwise might not have been made 
part of the record. If use of such a deposition results in the absence 
from a hearing of a witness who otherwise would have appeared, there 
would be a loss in that the hearing officer would have no opportunity 
to assess demeanor. However, since the Rule allows a deposition only 
where it appears that the party requesting the deposition did not 
procure the witness's absence, such a series of events should rarely 
occur.
    The remaining proposals variously clarify existing practice, relate 
to internal agency management, increase the efficiency of proceedings, 
or promote due process.
    The Commission requests data to quantify the costs and the value of 
the benefits identified. The Commission also seeks estimates and views 
regarding these costs and benefits for particular types of market 
participants, as well as any other costs or benefits that may result 
from the adoption of the proposed rules.

V. Effect on Efficiency, Competition and Capital Formation

    Section 2(b) of the Securities Act of 1933,\28\ section 3(f) of the 
Exchange Act,\29\ section 2(c) of the Investment Company Act of 
1940,\30\ and section 202(c) of the Investment Advisers Act of 1940 
\31\ require us, when engaging in rulemaking that requires us to 
consider or determine whether an act is necessary or appropriate in the 
public interest, to consider whether the action will promote 
efficiency, competition, and capital formation. Section 23(a)(2) of the 
Exchange Act \32\ prohibits us from adopting any rule that would impose 
a burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. The proposed rules are intended to 
enhance the transparency and facilitate parties' understanding of the 
applicability of the Commission review process to Board proceedings. 
The proposed rules and amendments also include regulatory provisions 
for the submission and administration of Fair Funds plans and 
disgorgement plans, and the proposed amendments are intended to clarify 
existing practice and increase the efficiency of Commission enforcement 
and self-regulatory organization disciplinary review proceedings. The 
proposed rules and amendments would apply to all persons involved in 
administrative proceedings before the Commission and therefore the 
Commission does not expect the proposed rules and amendments to have an 
anti-competitive effect. To the extent the proposed rules and 
amendments would foster making whole victims of securities laws 
violations and would increase the transparency of the Commission's 
administrative practice and the efficiency of the Commission's 
proceedings, there might be an increase in investor confidence in 
market fairness and efficiency. However, the magnitude of the effect of 
the proposed amendments in this regard is difficult to quantify. We 
request comment on the possible effects of our rule proposals on 
efficiency, competition, and capital formation. Commenters are 
requested to provide empirical data and other factual support for their 
views if possible.
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    \28\ 15 U.S.C. 77b(b).
    \29\ 15 U.S.C. 78c(f).
    \30\ 15 U.S.C. 80a-2(c).
    \31\ 15 U.S.C. 80b-2(c).
    \32\ 15 U.S.C. 78w(a)(2).
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VI. Statutory Basis and Text of Proposed Amendments

    These amendments to the Rules of Practice and related provisions 
are being adopted pursuant to statutory authority granted to the 
Commission, including section 3 of the Sarbanes-Oxley Act, 15 U.S.C. 
7202; section 19 of the Securities Act, 15 U.S.C. 77s; sections 19 and 
23 of the Securities Exchange Act, 15 U.S.C. 78s and 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

17 CFR Parts 200 and 201

    Administrative practice and procedure.

17 CFR Part 240

    Reporting and Recordkeeping Requirements; Securities.

Text of the Amendment

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

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

    1. The general authority citation for part 200, subpart A is 
revised to read as follows:

Subpart A--Organization and Program Management

    Authority: 15 U.S.C. 77s, 77sss, 78d-1, 78d-2, 78w, 78ll(d), 
78mmm, 79t, 80a-37, 80b-11, and 7202, unless otherwise noted.
* * * * *
    2. In Sec.  200.21, paragraph (b), remove the words ``Rule 2(e) of 
the Commission's Rules of Practice (Sec.  201.2(e) of this chapter)'' 
and, in their place, add the words ``Rule 102(e) of the Commission's 
Rules of Practice (Sec.  201.102(e) of this chapter)''.

Subpart B--Disposition of Commission Business

    3. The authority citation for subpart B continues to read as 
follows:

    Authority: 5 U.S.C. 552b; 15 U.S.C. 78d-1 and 78w.


[[Page 68195]]


    4. In Sec.  200.43, paragraph (c)(3), remove the words ``Rule 26 of 
the Commission's rules of practice, 17 CFR 201.26'' and, in their 
place, add the words ``Rules 430 and 431 of the Commission's Rules of 
Practice, Sec. Sec.  201.430 and 201.431 of this chapter''.
    5. The authority citation for part 200, subpart F, is revised to 
read as follows:

Subpart F--Code of Behavior Governing Ex Parte Communications 
Between Persons Outside the Commission and Decisional Employees

    Authority: 15 U.S.C. 77s, 77sss, 78w, 79t, 80a-37, 80b-11, and 
7202; and 5 U.S.C. 557.

    6. Section 200.111 is amended by:
    a. Redesignating paragraph (c)(1)(iii) as paragraph (c)(1)(iv); and
    b. Adding new paragraph (c)(1)(iii).
    The addition reads as follows:


Sec.  200.111  Prohibitions; application; definitions.

* * * * *
    (c) Period during which prohibitions apply. (1) * * *
    (iii) That, in proceedings under Title I of the Sarbanes-Oxley Act 
of 2002, 15 U.S.C. 7211-7219, these prohibitions shall commence at the 
time that a copy of an application for review has been filed with the 
Commission and served on the Public Company Accounting Oversight Board; 
and
* * * * *

PART 201--RULES OF PRACTICE

Subpart D--Rules of Practice

    7. The authority citation for part 201, subpart D, is revised to 
read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77sss, 
77ttt, 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, 80a-8, 80a-9, 80a-37, 
80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11, 80b-
12, 7202, 7215, and 7217.

    8. Section 201.100 is amended by adding paragraph (c) to read as 
follows:


Sec.  201.100  Scope of the rules of practice.

* * * * *
    (c) The Commission, upon its determination that to do so would 
serve the interests of justice and not result in prejudice to the 
parties to the proceeding, may by order direct, in a particular 
proceeding, that an alternative procedure shall apply or that 
compliance with an otherwise applicable rule is unnecessary.
    9. Section 201.101 is amended by:
    a. Revising paragraph (a)(9); and
    b. Adding paragraph (a)(12).
    The revision and addition read as follows:


Sec.  201.101  Definitions.

    (a) * * *
    (9) Proceeding means any agency process initiated:
    (i) By an order instituting proceedings; or
    (ii) By the filing, pursuant to Sec.  201.410, of a petition for 
review of an initial decision by a hearing officer; or
    (iii) By the filing, pursuant to Sec.  201.420, of an application 
for review of a self-regulatory organization determination; or
    (iv) By the filing, pursuant to Sec.  201.430, of a notice of 
intention to file a petition for review of a determination made 
pursuant to delegated authority; or
    (v) By the filing, pursuant to Sec.  201.440, of an application for 
review of a determination by the Public Company Accounting Oversight 
Board; or
    (vi) By the filing, pursuant to Sec.  240.11Aa3-1(f) of this 
chapter, of an application for review of an action or failure to act in 
connection with the implementation or operation of any effective 
transaction reporting plan; or
    (vii) By the filing, pursuant to Sec.  240.11Aa3-2(e) of this 
chapter, of an application for review of an action taken or failure to 
act in connection with the implementation or operation of any effective 
national market system plan.
* * * * *
    (12) Board means the Public Company Accounting Oversight Board.
* * * * *
    10. Section 201.102 is amended by revising paragraph (d)(4) to read 
as follows:


Sec.  201.102  Appearance and practice before the Commission.

* * * * *
    (d) Designation of address for service; notice of appearance; power 
of attorney; withdrawal. * * *
    (4) Withdrawal. Any person seeking to withdraw his or her 
appearance in a representative capacity shall file a notice of 
withdrawal with the Commission or the hearing officer. The notice shall 
state the name, address, and telephone number of the withdrawing 
representative; the name, address, and telephone number of the person 
for whom the appearance was made; and the effective date of the 
withdrawal. If the person seeking to withdraw knows the name, address, 
and telephone number of the new representative, or knows that the 
person for whom the appearance was made intends to represent him- or 
herself, that information shall be included in the notice. The notice 
must be served on the parties in accordance with Sec.  201.150. The 
notice shall be filed at least five days before the proposed effective 
date of the withdrawal.
* * * * *
    11. Section 201.111 is amended by revising paragraph (h) to read as 
follows:


Sec.  201.111  Hearing officer: Authority.

* * * * *
    (h) Subject to any limitations set forth elsewhere in these Rules 
of Practice, considering and ruling upon all procedural and other 
motions, including a motion to correct a manifest error of fact in the 
initial decision, provided that such a motion to correct is filed 
within ten days of the initial decision;
* * * * *
    12. Section 201.141 is amended by:
    a. Revising the section heading; and
    b. Revising paragraphs (a)(3) and (b) to read as follows:
    The revisions read as follows:


Sec.  201.141  Orders and decisions: Service of orders instituting 
proceedings and other orders and decisions.

    (a) Service of an order instituting proceedings.
* * * * *
    (3) Record of service. The Secretary shall maintain a record of 
service on parties, identifying the party given notice, the method of 
service, the date of service, the address to which service was made, 
and the person who made service. If service is made in person, the 
certificate of service shall state, if available, the name of the 
individual to whom the order was given. If service is made by U.S. 
Postal Service certified or Express Mail, the Secretary shall maintain 
the confirmation of receipt or of attempted delivery. If service is 
made to an agent authorized by appointment to receive service, the 
certificate of service shall be accompanied by evidence of the 
appointment.
* * * * *
    (b) Service of orders or decisions other than an order instituting 
proceedings. Written orders or decisions issued by the Commission or by 
a hearing officer shall be served promptly on each party pursuant to 
any method of service authorized under paragraph (a) of this section or 
Sec.  201.150(c)(1)-(3). Such orders or decisions may also be served by 
facsimile transmission if the party to be served has agreed to accept 
such service in a writing, signed by the party, and has provided the 
Commission with information concerning the facsimile machine telephone 
number and hours of

[[Page 68196]]

facsimile machine operation. Service of orders or decisions by the 
Commission, including those entered pursuant to delegated authority, 
shall be made by the Secretary or, as authorized by the Secretary, by a 
member of an interested division. Service of orders or decisions issued 
by a hearing officer shall be made by the Secretary or the hearing 
officer.
    13. Section 201.150 is amended by revising paragraph (c)(4) to read 
as follows:


Sec.  201.150  Service of papers by parties.

* * * * *
    (c) How made. * * *
    (4) Transmitting the papers by facsimile transmission where the 
following conditions are met:
    (i) The persons so serving each other have provided the Commission 
and the parties with notice of the facsimile machine telephone number 
to be used and the hours of facsimile machine operation;
    (ii) The transmission is made at such a time that it is received 
during the Commission's business hours as defined in Sec.  201.104; and
    (iii) The sender of the transmission has not been served in 
accordance with Sec.  201.150 with a written notice from the recipient 
of the transmission declining service by facsimile transmission.
* * * * *
    14. Section 201.151 is amended by revising paragraph (a) to read as 
follows:


Sec.  201.151  Filing of papers with the Commission: Procedure.

    (a) When to file. All papers required to be served by a party upon 
any person shall be filed contemporaneously with the Commission. Papers 
required to be filed with the Commission must be received within the 
time limit, if any, for such filing. Filing with the Commission may be 
made by facsimile transmission if the party also contemporaneously 
transmits to the Commission a non-facsimile original with a manual 
signature. However, any person filing with the Commission by facsimile 
transmission will be responsible for assuring that the Commission 
receives a complete and legible filing within the time limit set for 
such filing.
* * * * *
    15. Section 201.152 is amended by revising paragraph (a)(2) to read 
as follows:


Sec.  201.152  Filing of papers: Form.

    (a) Specifications. * * *
    (2) Be typewritten or printed in 12-point or larger typeface or 
otherwise reproduced by a process that produces permanent and plainly 
legible copies;
* * * * *
    16. Section 201.154 is amended by revising paragraph (c) to read as 
follows:


Sec.  201.154  Motions.

* * * * *
    (c) Length limitation. A motion, together with the brief in support 
of the motion; the brief in opposition to the motion; or any reply 
brief, shall not exceed 15 pages, exclusive of pages containing any 
table of contents or table of authorities. The page limit shall not 
apply to any addendum that consists solely of copies of applicable 
cases, pertinent legislative provisions, or relevant exhibits. Requests 
for leave to file motions and briefs in excess of 15 pages are 
disfavored.
    17. Section 201.160 is amended by revising paragraph (b) to read as 
follows:


Sec.  201.160  Time computation.

* * * * *
    (b) Additional time for service by mail. If service is made by 
mail, three days shall be added to the prescribed period for response 
unless an order of the Commission or the hearing officer specifies a 
date certain for filing. In the event that an order of the Commission 
or the hearing officer specifies a date certain for filing, no time 
shall be added for service by mail.
    18. Section 201.201 is amended by:
    a. Revising the section heading;
    b. Designating the current text as paragraph (a) and adding a 
paragraph heading; and
    c. Adding paragraph (b).
    The revision and additions read as follows:


Sec.  201.201  Consolidation and severance of proceedings.

    (a) Consolidation.* * *
    (b) Severance. By order of the Commission, any proceeding may be 
severed with respect to some or all parties. Any motion to sever must 
be made solely to the Commission and must include a representation that 
a settlement offer is pending before the Commission or otherwise show 
good cause.
    19. Section 201.202 is amended by revising the introductory text of 
paragraph (a) to read as follows:


Sec.  201.202  Specification of procedures by parties in certain 
proceedings.

    (a) Motion to specify procedures. In any proceeding other than an 
enforcement or disciplinary proceeding, a proceeding to review a 
determination by a self-regulatory organization pursuant to Sec. Sec.  
201.420 and 201.421, or a proceeding to review a determination of the 
Board pursuant to Sec. Sec.  201.440 and 201.441, a party may, at any 
time up to 20 days prior to the start of a hearing, make a motion to 
specify the procedures necessary or appropriate for the proceeding with 
particular reference to:
* * * * *
    20. Section 201.210 is amended by revising paragraph (a)(1) and the 
introductory text to paragraphs (b)(1) and (c) to read as follows:


Sec.  201.210  Parties, limited participants and amici curiae.

    (a) Parties in an enforcement or disciplinary proceeding, a 
proceeding to review a self-regulatory organization determination, or a 
proceeding to review a Board determination--
    (1) Generally. No person shall be granted leave to become a party 
or a non-party participant on a limited basis in an enforcement or 
disciplinary proceeding, a proceeding to review a determination by a 
self-regulatory organization pursuant to Sec. Sec.  201.420 and 
201.421, or a proceeding to review a determination by the Board 
pursuant to Sec. Sec.  201.440 and 201.441, except as authorized by 
paragraph (c) of this section.
* * * * *
    (b) Intervention as a party.--(1) Generally. In any proceeding, 
other than an enforcement proceeding, a disciplinary proceeding, a 
proceeding to review a self-regulatory determination, or a proceeding 
to review a Board determination, any person may seek leave to intervene 
as a party by filing a motion setting forth the person's interest in 
the proceeding:
* * * * *
    (c) Leave to participate on a limited basis. In any proceeding, 
other than an enforcement proceeding, a disciplinary proceeding, a 
proceeding to review a self-regulatory determination, or a proceeding 
to review a Board 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:
* * * * *
    21. Section 201.230 is amended by revising paragraphs (a)(1)(vi) 
and (c) to read as follows:


Sec.  201.230  Enforcement and disciplinary proceedings: Availability 
of documents for inspection and copying.

* * * * *
    (a) Documents to be available for inspection and copying. (1) * * *
    (vi) Any final examination or inspection reports prepared by the 
Office of Compliance Inspections and Examinations, the Division of 
Market

[[Page 68197]]

Regulation, or the Division of Investment Management, if the Division 
of Enforcement intends either to introduce any such report into 
evidence or to use any such report to refresh the recollection of any 
witness.
* * * * *
    (c) Withheld document list. The hearing officer may require the 
Division of Enforcement to submit for review a list of documents or 
categories of documents withheld pursuant to paragraphs (b)(1)(i) 
through (b)(1)(iv) of this section or to submit any document withheld, 
and may determine whether any such document should be made available 
for inspection and copying. When similar documents are withheld 
pursuant to paragraphs (b)(1)(i) through (b)(1)(iv) of this section, 
those documents may be identified by category instead of by individual 
document. The hearing officer retains discretion to determine when an 
identification by category is insufficient.
* * * * *
    22. Section 201.231 is amended by revising paragraph (a) to read as 
follows:


Sec.  201.231  Enforcement and disciplinary proceedings: Production of 
witness statements.

    (a) Availability. Any respondent in an enforcement or disciplinary 
proceeding may move that the Division of Enforcement produce for 
inspection and copying any statement of any person called or to be 
called as a witness by the Division of Enforcement that pertains, or is 
expected to pertain, to his or her direct testimony and that would be 
required to be produced pursuant to the Jencks Act, 18 U.S.C. 3500. For 
purposes of this section, statement shall have the meaning set forth in 
18 U.S.C. 3500(e). Such production shall be made at a time and place 
fixed by the hearing officer and shall be made available to any party, 
provided, however, that the production shall be made under conditions 
intended to preserve the items to be inspected or copied.
* * * * *
    23. Section 201.232 is amended by revising paragraph (e)(1) to read 
as follows:


201.232  Subpoenas.

* * * * *
    (e) Application to quash or modify. (1) Any person to whom a 
subpoena is directed, or who is an owner, creator or the subject of the 
documents that are to be produced pursuant to a subpoena, or any party 
may, prior to the time specified therein for compliance, but in no 
event more than 15 days after the date of service of such subpoena, 
request that the subpoena be quashed or modified. Such request shall be 
made by application filed with the Secretary and served on all parties 
pursuant to Sec.  201.150. The party on whose behalf the subpoena was 
issued may, within five days of service of the application, file an 
opposition to the application. If a hearing officer has been assigned 
to the proceeding, the application to quash shall be directed to that 
hearing officer for consideration, even if the subpoena was issued by 
another person.
* * * * *
    24. Section 201.233 is amended by revising paragraph (b) to read as 
follows:


Sec.  201.233  Deposition upon oral examination.

* * * * *
    (b) Required finding when ordering a deposition. In the discretion 
of the Commission or the hearing officer, an order for a deposition may 
be issued upon a finding that the prospective witness will likely give 
testimony material to the proceeding; that it is likely the prospective 
witness, who is then within the United States, will be unable to attend 
or testify at the hearing because of age, sickness, infirmity, 
imprisonment, other disability, or absence from the United States, 
unless it appears that the absence of the witness was procured by the 
party requesting the deposition; and that the taking of a deposition 
will serve the interests of justice.
* * * * *
    25. Section 201.350 is amended by revising paragraph (b) to read as 
follows:


Sec.  201.350  Record in proceedings before hearing officer; retention 
of documents; copies.

* * * * *
    (b) Retention of documents not admitted. Any document offered into 
evidence but excluded shall not be considered a part of the record. The 
Secretary shall retain any such document until the later of the date 
upon which a Commission order ending the proceeding becomes final, or 
the conclusion of any judicial review of the Commission's order.
* * * * *
    26. Section 201.351 is amended by revising paragraph (a) to read as 
follows:


Sec.  201.351  Transmittal of documents to Secretary; record index; 
certification.

    (a) Transmittal from hearing officer to Secretary of partial record 
index. The hearing officer may, at any time, transmit to the Secretary 
motions, exhibits or any other original documents filed with or 
accepted into evidence by the hearing officer, together with a list of 
such documents.
* * * * *
    27. Section 201.360 is amended by:
    a. Adding a sentence at the end of paragraph (a)(2);
    b. Revising paragraphs (b)(1), (b)(2) and (d); and
    c. Removing paragraph (e).
    The addition and revisions read as follows:


Sec.  201.360  Initial decision of hearing officer.

    (a)(1) * * *
    (2) Time period for filing initial decision. * * * If a stay is 
granted pursuant to Sec.  201.210(c)(3), the time period specified in 
the order instituting proceedings in which the hearing officer's 
initial decision must be filed with the Secretary, as well as any other 
time limits established in orders issued by the hearing officer in the 
proceeding, shall be automatically tolled during the period while the 
stay is in effect.
    (b) Content. * * *
    (1) The Commission will enter an order of finality as to each party 
unless a party or an aggrieved person entitled to review timely files a 
petition for review of the initial decision or a motion to correct a 
manifest error of fact in the initial decision with the hearing 
officer, or the Commission determines on its own initiative to review 
the initial decision; and
    (2) If a party or an aggrieved person entitled to review timely 
files a petition for review or a motion to correct a manifest error of 
fact in the initial decision with the hearing officer, or if the 
Commission takes action to review as to a party or an aggrieved person 
entitled to review, the initial decision shall not become final as to 
that party or person.
* * * * *
    (d) Finality. (1) If a party or an aggrieved person entitled to 
review timely files a petition for review or a motion to correct a 
manifest error of fact in the initial decision, or if the Commission on 
its own initiative orders review of a decision with respect to a party 
or a person aggrieved who would be entitled to review, the initial 
decision shall not become final as to that party or person.
    (2) If a party or aggrieved person entitled to review fails to file 
timely a petition for review or a motion to correct a manifest error of 
fact in the initial decision, and if the Commission does not order 
review of a decision on its own initiative, the Commission will issue 
an order that the decision has become final as to that party. The 
decision becomes final upon issuance of

[[Page 68198]]

the order. The order of finality shall state the date on which 
sanctions, if any, take effect. Notice of the order shall be published 
in the SEC News Digest and the SEC Docket, and on the SEC Web site.
    28. Section 201.400 is amended by revising paragraph (a) to read as 
follows:


Sec.  201.400  Interlocutory review.

    (a) Availability. The Commission may, at any time, on its own 
motion, direct that any matter be submitted to it for review. Petitions 
by parties for interlocutory review are disfavored, and the Commission 
ordinarily will grant a petition to review a hearing officer ruling 
prior to its consideration of an initial decision only in extraordinary 
circumstances. The Commission may decline to consider a ruling 
certified by a hearing officer pursuant to paragraph (c) of this 
section or the petition of a party who has been denied certification if 
it determines that interlocutory review is not warranted or appropriate 
under the circumstances. This section is the exclusive remedy for 
review of a hearing officer's ruling prior to Commission consideration 
of the entire proceeding and is the sole mechanism for appeal of 
actions delegated pursuant to 17 CFR 200.30-9 and 200.30-10.
* * * * *
    29. Section 201.401 is amended by:
    a. Revising the section heading and paragraph (d)(1); and
    b. Adding paragraph (e).
    The revisions and addition read as follows:


Sec.  201.401  Consideration of stays.

* * * * *
    (d) Stay of an action by a self-regulatory organization.
    (1) Availability. A motion for a stay of an action by a self-
regulatory organization for which the Commission is the appropriate 
regulatory agency, for which action review may be sought pursuant to 
Sec.  201.420, may be made by any person aggrieved thereby at the time 
an application for review is filed in accordance with Sec.  201.420 or 
thereafter.
* * * * *
    (e) Lifting of stay of action by the Public Company Accounting 
Oversight Board. (1) Availability. Any person aggrieved by the stay of 
action by the Board entered in accordance with 15 U.S.C. 7215(e) for 
which review has been sought pursuant to Sec.  201.440 or which the 
Commission has taken up on its motion pursuant to Sec.  201.441 may 
make a motion to lift the stay. The Commission may, at any time, on its 
own motion determine whether to lift the automatic stay.
    (2) Summary action. The Commission may lift a stay summarily, 
without notice and opportunity for hearing.
    (3) Expedited consideration. The Commission may expedite 
consideration of a motion to lift a stay of Board action, consistent 
with the Commission's other responsibilities. Where consideration is 
expedited, persons opposing the lifting of the stay may file a 
statement in opposition within two days of service of the motion 
requesting lifting of the stay unless the Commission, by written order, 
shall specify a different period.
    30. Section 201.410 is amended by:
    a. Revising paragraph (b); and
    b. Removing and reserving paragraph (d).
    The revision reads as follows:


Sec.  201.410  Appeal of initial decisions by hearing officers.

* * * * *
    (b) Procedure. The petition for review of an initial decision shall 
be filed with the Commission within such time after service of the 
initial decision as prescribed by the hearing officer pursuant to Sec.  
201.360(b) unless a party has filed a motion to correct an initial 
decision with the hearing officer. If such correction has been sought, 
a party shall have 21 days from the date of the hearing officer's order 
resolving the motion for to correct to file a petition for review. The 
petition shall set forth the specific findings and conclusions of the 
initial decision as to which exception is taken, together with 
supporting reasons for each exception. Supporting reasons may be stated 
in summary form. Any exception to an initial decision not stated in the 
petition for review, or in a previously filed proposed finding made 
pursuant to Sec.  201.340 may, at the discretion of the Commission, be 
deemed to have been waived by the petitioner. In the event a petition 
for review is filed, any other party to the proceeding may file a 
cross-petition for review within the original time allowed for seeking 
review or within ten days from the date that the petition for review 
was filed, whichever is later.
* * * * *
    31. Section 201.411 is amended by revising paragraph (e) as 
follows:


Sec.  201.411  Commission consideration of decisions by hearing 
officers.

* * * * *
    (e) Summary affirmance. (1) At any time within 21 days after the 
filing of a petition for review pursuant to Sec.  201.410(b), any party 
may file a motion in accordance with Sec.  201.154 asking that the 
Commission summarily affirm an initial decision. Any party may file an 
opposition and reply to such motion in accordance with Sec.  201.154. 
Pending determination of the motion for summary affirmance, the 
Commission, in its discretion, may delay issuance of a briefing 
schedule order pursuant to Sec.  201.450.
    (2) Upon consideration of the motion and any opposition or upon its 
own initiative, the Commission may summarily affirm an initial 
decision. The Commission may grant summary affirmance if it finds that 
no issue raised in the initial decision warrants consideration by the 
Commission of further oral or written argument. The Commission will 
decline to grant summary affirmance upon a reasonable showing that a 
prejudicial error was committed in the conduct of the proceeding or 
that the decision embodies an exercise of discretion or decision of law 
or policy that is important and that the Commission should review.
* * * * *
    32. Section 201.420 is amended by:
    a. Revising paragraph (b);
    b. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e); 
and
    c. Adding new paragraph (c).
    The revision and addition read as follows:


Sec.  201.420  Appeal of determinations by self-regulatory 
organizations.

* * * * *
    (b) Procedure. As required by section 19(d)(1) of the Securities 
Exchange Act of 1934, 15 U.S.C. 78s(d)(1), an applicant must file an 
application for review with the Commission within 30 days after the 
notice of the determination is filed with the Commission and received 
by the aggrieved person applying for review. The Commission will not 
extend this 30-day period, absent a showing of extraordinary 
circumstances. This section is the exclusive remedy for seeking an 
extension of the 30-day period.
    (c) Application. The application shall be filed with the Commission 
pursuant to Sec.  201.151. The applicant shall serve the application on 
the self-regulatory organization. The application shall identify the 
determination complained of and set forth in summary form a brief 
statement of the alleged errors in the determination and supporting 
reasons therefor. The application shall state an address where the 
applicant can be served. The application should not exceed two pages in 
length. The application shall be accompanied by the notice of 
appearance required by Sec.  201.102(d).
* * * * *

[[Page 68199]]

    33. Section 201.430 is amended by revising paragraph (a) to read as 
follows:


Sec.  201.430  Appeal of actions made pursuant to delegated authority.

    (a) Scope of rule. Any person aggrieved by an action made by 
authority delegated in Sec. Sec.  200.30-1 through 200.30-8 or 
Sec. Sec.  200.30-11 through 200.30-18 of this chapter may seek review 
of the action pursuant to paragraph (b) of this section.
* * * * *
    34. Sections 201.440 and 201.441 are added to read as follows:


Sec.  201.440  Appeal of determinations by the Public Company 
Accounting Oversight Board.

    (a) Application for review; when available. Any person who is 
aggrieved by a determination of the Board with respect to any final 
disciplinary sanction, including disapproval of a completed application 
for registration of a public accounting firm, may file an application 
for review.
    (b) Procedure. An aggrieved person may file an application for 
review with the Commission pursuant to Sec.  201.151 within 30 days 
after the notice filed by the Board of its determination with the 
Commission pursuant to Sec.  240.19d-4 of this chapter is received by 
the aggrieved person applying for review. The applicant shall serve the 
application on the Board at the same time. The application shall 
identify the determination complained of, set forth in summary form a 
brief statement of alleged errors in the determination and supporting 
reasons therefor, and state an address where the applicant can be 
served. The notice of appearance required by Sec.  201.102(d) shall 
accompany the application.
    (c) Stay of determination. Filing an application for review with 
the Commission pursuant to paragraph (b) of this section operates as a 
stay of the Board's determination unless the Commission otherwise 
orders either pursuant to a motion filed in accordance with Sec.  
201.401(e) or upon its own motion.
    (d) Certification of the record; service of the index. Within 
fourteen days after receipt of an application for review, the Board 
shall certify and file with the Commission one copy of the record upon 
which it took the complained-of action. The Board shall file with the 
Commission three copies of an index of such record, and shall serve one 
copy of the index on each party.


Sec.  201.441  Commission consideration of Board determinations.

    (a) Commission review other than pursuant to an application for 
review. The Commission may, on its own initiative, order review of any 
final disciplinary sanction, including disapproval of a completed 
application for registration of a public accounting firm, imposed by 
the Board that could be the subject to an application for review 
pursuant to Sec.  201.440(a) within 40 days after the Board filed 
notice thereof pursuant to Sec.  240.19d-4 of this chapter.
    (b) Supplemental briefing. The Commission may at any time prior to 
the issuance of its decision raise or consider any matter that it deems 
material, whether or not raised by the parties. The Commission will 
give notice to the parties and an opportunity for supplemental briefing 
with respect to issues not briefed by the parties where the Commission 
believes that such briefing could significantly aid the decisional 
process.
    35. Section 201.450 is amended by:
    a. Redesignating paragraphs (a)(2)(iii) and (a)(2)(iv) as 
paragraphs (a)(2)(iv) and (a)(2)(v);
    b. Adding new paragraph (a)(2)(iii);
    c. Revising paragraph (c); and
    d. Adding paragraph (d).
    The additions and revision read as follows:


Sec.  201.450  Briefs filed with the Commission.

    (a) Briefing schedule order. * * *
    (2) * * *
    (iii) Receipt by the Commission of an index to the record of a 
determination by the Board filed pursuant to Sec.  201.440(d);
* * * * *
    (c) Length limitation. Except with leave of the Commission, opening 
and opposition briefs shall not exceed 14,000 words and reply briefs 
shall not exceed 7,000 words, exclusive of pages containing the table 
of contents, table of authorities, and any addendum that consists 
solely of copies of applicable cases, pertinent legislative provisions, 
or rules and exhibits. The number of words shall include pleadings 
incorporated by reference. Motions to file briefs in excess of these 
limitations are disfavored.
    (d) Certificate of compliance. An opening or opposition brief that 
does not exceed 30 pages in length, exclusive of pages containing the 
table of contents, table of authorities, and any addendum that consists 
solely of copies of applicable cases, pertinent legislative provisions, 
or rules and exhibits, but inclusive of pleadings incorporated by 
reference, is presumptively considered to contain no more than 14,000 
words. A reply brief that does not exceed 15 pages in length, exclusive 
of pages containing the table of contents, table of authorities, and 
any addendum that consists solely of copies of applicable cases, 
pertinent legislative provisions, or rules and exhibits, but inclusive 
of pleadings incorporated by reference, is presumptively considered to 
contain no more than 7,000 words. Any brief that exceeds these page 
limits must include a certificate by the attorney, or an unrepresented 
party, stating that the brief complies with the length limitation set 
forth in Sec.  201.450(c) and stating the number of words in the brief. 
The person preparing the certificate may rely on the word count of the 
word-processing system used to prepare the brief.
    36. Section 201.451 is amended by revising paragraph (b) to read as 
follows:


Sec.  201.451  Oral argument before the Commission.

* * * * *
    (b) Procedure. Requests for oral argument shall be made by separate 
motion accompanying the initial brief on the merits. The Commission 
shall issue an order as to whether oral argument is to be heard, and if 
so, the time and place therefor. If oral argument is granted, the time 
fixed for oral argument shall be changed only by written order of the 
Commission, for good cause shown. The order shall state at whose 
request the change is made and the reasons for any such changes. No 
visual aids may be used at oral argument unless copies have been 
provided to the Commission and all parties at least five business days 
before the argument is to be held.
* * * * *
    37. Section 201.460 is amended by adding paragraph (a)(3) to read 
as follows:


Sec.  201.460  Record before the Commission.

* * * * *
    (a) Contents of the record. * * *
    (3) In a proceeding for final decision before the Commission 
reviewing a determination of the Board, the record shall consist of:
    (i) The record certified pursuant to Sec.  201.440(d) by the Board;
    (ii) Any application for review; and
    (iii) Any submissions, moving papers and briefs filed on appeal or 
review.
* * * * *
    38. Section 201.470 is amended by revising paragraph (b) to read as 
follows:


Sec.  201.470  Reconsideration.

* * * * *
    (b) Procedure. A motion for reconsideration shall be filed within 
10 days after service of the order complained of, or within such time 
as

[[Page 68200]]

the Commission may prescribe upon motion for extension of time filed by 
the person seeking reconsideration, if the motion is made within the 
foregoing 10-day period. The motion for reconsideration shall briefly 
and specifically state the matters of record alleged to have been 
erroneously decided, the grounds relied upon, and the relief sought. A 
motion for reconsideration shall conform to the requirements, including 
page length, provided in Sec.  201.154. No response to a motion for 
reconsideration shall be filed unless requested by the Commission. Any 
response so requested shall comply with Sec.  201.154.
    39. Section 201.601 is amended by adding paragraph (c) to read as 
follows:


Sec.  201.601  Prompt payment of disgorgement, interest and penalties.

* * * * *
    (c) Method of making payment. Payment shall be made by United 
States postal money order, wire transfer, certified check, bank 
cashier's check, or bank money order made payable to the Securities and 
Exchange Commission. The payment shall be mailed or delivered to the 
Office of Financial Management of the Commission. Payment shall be 
accompanied by a letter that identifies the name and number of the case 
and the name of the respondent making payment. A copy of the letter and 
the instrument of payment shall be sent to counsel for the Division of 
Enforcement.
    40. Sections 201.610 through 201.614 and Sec.  201.620 are removed 
and reserved.
    41. Sections 201.1100 through 201.1106, Subpart F--Fair Fund and 
Disgorgement Plans--are added to read as follows:

Subpart F--Fair Fund and Disgorgement Plans

Sec.
201.1100 Creation of Fair Fund.
201.1101 Submission of plan of distribution; contents of plan.
201.1102 Provisions for payment.
201.1103 Notice of proposed plan and opportunity for comment by non-
parties.
201.1104 Order approving, modifying, or disapproving proposed plan.
201.1105 Administration of plan.
201.1106 Right to challenge.

    Authority: 15 U.S.C. 77h-1, 77s, 77u, 78c(b), 78d-1, 78d-2, 78u-
2, 78u-3, 78v, 78w, 80a-9, 80a-37, 80a-39, 80a-40, 80b-3, 80b-11, 
80b-12, and 7246.


Sec.  201.1100  Creation of Fair Fund.

    In any agency process initiated by an order instituting proceedings 
in which the Commission issues an order requiring the payment of 
disgorgement by a respondent and also assessing a civil money penalty 
against that respondent, the Commission may order that the amount of 
the disgorgement and of the civil money penalty, together with any 
funds received by the Commission pursuant to 15 U.S.C. 7246(b), be used 
to create a fund for the benefit of investors who were harmed by the 
violation.


Sec.  201.1101  Submission of plan of distribution; contents of plan.

    (a) Submission. The Commission or the hearing officer may, at any 
time, order any party to submit a plan for the administration and 
distribution of funds in a Fair Fund or disgorgement funds. Unless 
ordered otherwise, the Division of Enforcement shall submit a proposed 
plan no later than 60 days after the respondent has turned over the 
funds or other assets pursuant to the Commission's order imposing 
disgorgement and, if applicable, a civil money penalty and any appeals 
of the Commission's order have been waived or completed, or appeal is 
no longer available.
    (b) Contents of plan. Unless otherwise ordered, a plan for the 
administration of a Fair Fund or a disgorgement fund shall include the 
following elements:
    (1) Procedures for the receipt of additional funds, including the 
specification of any account where funds will be held, the instruments 
in which the funds may be invested; and, in the case of a Fair Fund, 
the receipt of any funds pursuant to 15 U.S.C. 7246(b), if applicable;
    (2) Specification of categories of persons potentially eligible to 
receive proceeds from the fund;
    (3) Procedures for providing notice to such persons of the 
existence of the fund and their potential eligibility to receive 
proceeds of the fund;
    (4) Procedures for making and approving claims, procedures for 
handling disputed claims, and a cut-off date for the making of claims;
    (5) A proposed date for the termination of the fund, including 
provision for the disposition of any funds not otherwise distributed;
    (6) Procedures for the administration of the fund, including 
selection, compensation, and, as necessary, indemnification of a fund 
administrator to oversee the fund, process claims, prepare accountings, 
file tax returns, and, subject to the approval of the Commission, make 
distributions from the fund to investors who were harmed by the 
violation; and
    (7) Such other provisions as the Commission or the hearing officer 
may require.


Sec.  201.1102  Provisions for payment.

    (a) Payment to registry of the court or court-appointed receiver. 
Subject to such conditions as the Commission or the hearing officer 
shall deem appropriate, a plan for the administration of a Fair Fund or 
a disgorgement fund may provide for payment of funds into a court 
registry or to a court-appointed receiver in any case pending in 
federal or state court against a respondent or any other person based 
upon a complaint alleging violations arising from the same or 
substantially similar facts as those alleged in the Commission's order 
instituting proceedings.
    (b) Payment to the United States Treasury under certain 
circumstances. When, in the opinion of the Commission or the hearing 
officer, the cost of administering a plan of disgorgement relative to 
the value of the available disgorgement funds and the number of 
potential claimants would not justify distribution of the disgorgement 
funds to injured investors, the plan may provide that the disgorgement 
funds and any civil penalty shall be paid directly to the general fund 
of the United States Treasury.


Sec.  201.1103  Notice of proposed plan and opportunity for comment by 
non-parties.

    Notice of a proposed plan of disgorgement or a proposed Fair Fund 
plan shall be published in the SEC News Digest and the SEC Docket, on 
the SEC website, and in such other publications as the Commission or 
the hearing officer may require. The notice shall specify how copies of 
the proposed plan may be obtained and shall state that persons desiring 
to comment on the proposed plan may submit their views, in writing, to 
the Commission.


Sec.  201.1104  Order approving, modifying, or disapproving proposed 
plan.

    At any time after 30 days following publication of notice of a 
proposed plan of disgorgement or of a proposed Fair Fund plan, the 
Commission shall, by order, approve, approve with modifications, or 
disapprove the proposed plan. In the discretion of the Commission, a 
proposed plan that is substantially modified prior to adoption may be 
republished for an additional comment period pursuant to Sec.  
201.1103. The order approving or disapproving the plan should be 
entered within 30 days after the end of the final period allowed for 
comments on the proposed plan unless the Commission or the hearing 
officer, by written order, allows a longer period for good cause shown.

[[Page 68201]]

Sec.  201.1105  Administration of plan.

    (a) Appointment and removal of administrator. The Commission or the 
hearing officer shall have discretion to appoint any person, including 
a Commission employee, as administrator of a plan of disgorgement or a 
Fair Fund plan and to delegate to that person responsibility for 
administering the plan. An administrator may be removed at any time by 
order of the Commission or hearing officer.
    (b) Assistance by respondent. A respondent may be required or 
permitted to administer or assist in administering a plan of 
disgorgement subject to such terms and conditions as the Commission or 
hearing officer deem appropriate to ensure the proper distribution of 
the funds.
    (c) Administrator to post bond. If the administrator is not a 
Commission employee, the administrator shall be required to obtain a 
bond in the manner prescribed in 11 U.S.C. 322, in an amount to be 
approved by the Commission. The cost of the bond may be paid for as a 
cost of administration. The Commission may waive posting of a bond for 
good cause shown.
    (d) Administrator's fees. If the administrator is a Commission 
employee, no fee shall be paid to the administrator for his or her 
services. If the administrator is not a Commission employee, the 
administrator may file an application for fees for completed services, 
and upon approval by the Commission or a hearing officer, may be paid a 
reasonable fee for those services. Any objections thereto shall be 
filed within 21 days of service of the application on the parties.
    (e) Source of funds. Unless otherwise ordered, fees and other 
expenses of administering the plan shall be paid first from the 
interest earned on the funds, and if the interest is not sufficient, 
then from the corpus.
    (f) Accountings. During the first 10 days of each calendar quarter, 
or as otherwise directed by the Commission or the hearing officer, the 
administrator shall file an accounting of all monies earned or received 
and all monies spent in connection with the administration of the plan 
of disgorgement. A final accounting shall be submitted for approval of 
the Commission or hearing officer prior to discharge of the 
administrator and cancellation of the administrator's bond, if any.
    (g) Amendment. A plan may be amended upon motion by any party or by 
the plan administrator or upon the Commission's or the hearing 
officer's own motion.


Sec.  201.1106  Right to challenge.

    Other than in connection with the opportunity to submit comments as 
provided in Sec.  201.1103, no person shall be granted leave to 
intervene or to participate or otherwise to appear in any agency 
proceeding or otherwise to challenge an order of disgorgement or of 
creation of a Fair Fund; or an order approving, approving with 
modifications, or disapproving a plan of disgorgement or a Fair Fund 
plan; or any determination relating to a plan based solely upon that 
person's eligibility or potential eligibility to participate in a fund 
or based upon any private right of action such person may have against 
any person who is also a respondent in the proceeding.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    42. The authority citation for part 240 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.

* * * * *
    43. Section 240.19d-4 is added to read as follows:


Sec.  240.19d-4  Notice by the Public Company Accounting Oversight 
Board of disapproval of registration or of disciplinary action.

    (a) Definitions.
    (1) Board means the Public Company Accounting Oversight Board.
    (2) Public accounting firm shall have the meaning set forth in 15 
U.S.C. 7201(a)(11).
    (3) Registered public accounting firm shall have the meaning set 
forth in 15 U.S.C. 7201(a)(12).
    (4) Associated person shall mean a person associated with a 
registered public accounting firm as defined in 15 U.S.C. 7201(a)(9).
    (b)(1) Notice of disapproval of registration. If the Board 
disapproves a completed application for registration by a public 
accounting firm, the Board shall file a notice of its disapproval with 
the Commission within 30 days and serve a copy on the public accounting 
firm.
    (2) Contents of the notice. The notice required by paragraph (b)(1) 
of this section shall provide the following information:
    (i) The name of the public accounting firm and the public 
accounting firm's last known address as reflected in the Board's 
records;
    (ii) The basis for the Board's disapproval, and a copy of the 
Board's written notice of disapproval; and
    (iii) Such other information as the Board may deem relevant.
    (c)(1) Notice of disciplinary action. If the Board imposes any 
final disciplinary sanction on any registered public accounting firm or 
any associated person of a registered public accounting firm under 15 
U.S.C. 7215(b)(3) or 7215(c), the Board shall file a notice of the 
disciplinary sanction with the Commission within 30 days and serve a 
copy on the person sanctioned.
    (2) Contents of the notice. The notice required by paragraph (c)(1) 
of this section shall provide the following information:
    (i) The name of the registered public accounting firm or the 
associated person, together with the firm's or the person's last known 
address as reflected in the Board's records;
    (ii) A description of the acts or practices, or omissions to act, 
upon which the sanction is based;
    (iii) A statement of the sanction imposed, the reasons therefor, or 
a copy of the Board's statement justifying the sanction, and the 
effective date of such sanction; and
    (iv) Such other information as the Board may deem relevant.

    By the Commission.
    Dated: November 23, 2003.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29932 Filed 12-4-03; 8:45 am]
BILLING CODE 8010-01-P