[Federal Register Volume 74, Number 40 (Tuesday, March 3, 2009)]
[Rules and Regulations]
[Pages 9159-9162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-4379]



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  Federal Register / Vol. 74, No. 40 / Tuesday, March 3, 2009 / Rules 
and Regulations  

[[Page 9159]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release Nos. 33-9009; 34-59449; IA-2845; IC-28635]


Adjustments to Civil Monetary Penalty Amounts

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: This rule implements the Federal Civil Penalties Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996. The Commission is adopting a rule adjusting for inflation 
the maximum amount of civil monetary penalties under the Securities Act 
of 1933, the Securities Exchange Act of 1934, the Investment Company 
Act of 1940, the Investment Advisers Act of 1940, and certain penalties 
under the Sarbanes-Oxley Act of 2002.

DATES: Effective Date: March 3, 2009.

FOR FURTHER INFORMATION CONTACT: Richard A. Levine, Assistant General 
Counsel, at (202) 551-5168, or James A. Cappoli, Office of the General 
Counsel, at (202) 551-7923.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule implements the Debt Collection Improvement Act of 1996 
(``DCIA'').\1\ The DCIA amended the Federal Civil Penalties Inflation 
Adjustment Act of 1990 (``FCPIAA'') \2\ to require each federal agency 
to adopt regulations at least once every four years that adjust for 
inflation the maximum amount of the civil monetary penalties (``CMPs'') 
under the statutes administered by the agency.\3\
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    \1\ Public Law 104-134, 110 Stat. 1321-373 (1996) (codified at 
28 U.S.C. 2461 note).
    \2\ 28 U.S.C. 2461 note.
    \3\ Increased CMPs apply only to violations that occur after the 
increase takes effect.
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    A civil monetary penalty (``CMP'') is defined in relevant part as 
any penalty, fine, or other sanction that: (1) Is for a specific 
amount, or has a maximum amount, as provided by federal law; and (2) is 
assessed or enforced by an agency in an administrative proceeding or by 
a federal court pursuant to federal law.\4\ This definition covers the 
monetary penalty provisions contained in the statutes administered by 
the Commission. In addition, this definition encompasses the civil 
monetary penalties that may be imposed by the Public Company Accounting 
Oversight Board (the ``PCAOB'') in its disciplinary proceedings 
pursuant to 15 U.S.C. 7215(c)(4)(D).\5\
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    \4\ 28 U.S.C. 2461 note (3)(2).
    \5\ The Commission may by order affirm, modify, remand, or set 
aside sanctions, including civil monetary penalties, imposed by the 
PCAOB. See Section 107(c) of the Sarbanes-Oxley Act of 2002, 15 
U.S.C. 7217. The Commission may enforce such orders in federal 
district court pursuant to Section 21(e) of the Securities Exchange 
Act of 1934. As a result, penalties assessed by the PCAOB in its 
disciplinary proceedings are penalties ``enforced'' by the 
Commission for purposes of the Act. See Adjustments to Civil 
Monetary Penalty Amounts, Release No. 33-8530 (Feb. 4, 2005) [70 FR 
7606 (Feb. 14, 2005)].
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    The DCIA requires that the penalties be adjusted by the cost-of-
living adjustment set forth in Section 5 of the FCPIAA.\6\ The cost-of-
living adjustment is defined in the FCPIAA as the percentage by which 
the U.S. Department of Labor's Consumer Price Index for all-urban 
consumers (``CPI-U'') \7\ for the month of June for the year preceding 
the adjustment exceeds the CPI-U for the month of June for the year in 
which the amount of the penalty was last set or adjusted pursuant to 
law.\8\ The statute contains specific rules for rounding each increase 
based on the size of the penalty.\9\ Agencies do not have discretion 
over whether to adjust a maximum CMP, or the method used to determine 
the adjustment. Although the DCIA imposes a 10 percent maximum increase 
for each penalty for the first adjustment pursuant thereto, that 
limitation does not apply to subsequent adjustments.
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    \6\ 28 U.S.C. 2461 note (5).
    \7\ 28 U.S.C. 2461 note (3)(3).
    \8\ 28 U.S.C. 2461 note (5)(b).
    \9\ 28 U.S.C. 2461 note (5)(a)(1)-(6).
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    The Commission administers four statutes that provide for civil 
monetary penalties: the Securities Act of 1933; the Securities Exchange 
Act of 1934; the Investment Company Act of 1940; and the Investment 
Advisers Act of 1940. In addition, the Sarbanes-Oxley Act of 2002 
provides the PCAOB (over which the Commission has jurisdiction) 
authority to levy civil monetary penalties in its disciplinary 
proceedings.\10\ Penalties administered by the Commission were last 
adjusted by rules effective February 14, 2005.\11\ The DCIA requires 
the civil monetary penalties to be adjusted for inflation at least once 
every four years. The Commission is therefore obligated by statute to 
increase the maximum amount of each penalty by the appropriate 
formulated amount.
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    \10\ 15 U.S.C. 7215(c)(4)(D).
    \11\ See 17 CFR 201.1003.
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    Accordingly, the Commission is adopting an amendment to 17 CFR Part 
201 to add Sec.  201.1004 and Table IV to Subpart E, increasing the 
amount of each civil monetary penalty authorized by the Securities Act 
of 1933, the Securities Exchange Act of 1934, the Investment Company 
Act of 1940, the Investment Advisers Act of 1940, and certain penalties 
under the Sarbanes-Oxley Act of 2002. The adjustments set forth in the 
amendment apply to violations occurring after the effective date of the 
amendment.

II. Summary of the Calculation

    To explain the inflation adjustment calculation for CMP amounts 
that were last adjusted in 2005, we will use the following example. 
Under the current provisions, the Commission may impose a maximum CMP 
of $1,275,000 for certain insider trading violations by a controlling 
person. To determine the new CMP amounts under the amendment, first we 
determine the appropriate CPI-U for June of the calendar year preceding 
the year of adjustment. Because we are adjusting CMPs in 2009, we use 
the CPI-U for June of 2008, which was 218.815. We must also determine 
the CPI-U for June of the year the CMP was last adjusted for inflation. 
Because the Commission last adjusted this CMP in 2005, we use the CPI-U 
for June of 2005, which was 194.5.
    Second, we calculate the cost-of-living adjustment or inflation 
factor. To

[[Page 9160]]

do this we divide the CPI for June of 2008 (218.815) by the CPI for 
June of 2005 (194.5). Our result is 1.1250.
    Third, we calculate the raw inflation adjustment (the inflation 
adjustment before rounding). To do this, we multiply the maximum 
penalty amounts by the inflation factor. In our example, $1,275,000 
multiplied by the inflation factor of 1.1250 equals $1,434,391.
    Fourth, we round the raw inflation amounts according to the 
rounding rules in Section 5(a) of the FCPIAA. Since we round only the 
increase amount, we calculate the increased amount by subtracting the 
current maximum penalty amounts from the raw maximum inflation 
adjustments. Accordingly, the increase amount for the maximum penalty 
in our example is $159,391 (i.e., $1,434,391 less $1,275,000). Under 
the rounding rules, if the penalty is greater than $200,000, we round 
the increase to the nearest multiple of $25,000. Therefore, the maximum 
penalty increase in our example is $150,000.
    Fifth, we add the rounded increase to the maximum penalty amount 
last set or adjusted. In our example, $1,275,000 plus $150,000 yields a 
maximum inflation adjustment penalty amount of $1,425,000.\12\
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    \12\ The adjustments in Table IV to Subpart E of Part 201 
reflect that the operation of the statutorily mandated computation, 
together with rounding rules, does not result in any adjustment to 
one penalty. This particular penalty will be subject to slightly 
different treatment when calculating the next adjustment. Under the 
statute, when we next adjust these penalties, we will be required to 
use the CPI-U for June of the year when this particular penalty was 
``last adjusted,'' rather than the CPI-U for 2009.
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III. Related Matters

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

    Under the Administrative Procedure Act (``APA''), a final rule may 
be issued without public notice and comment if the agency finds good 
cause that notice and comment are impractical, unnecessary, or contrary 
to public interest.\13\ Because the Commission is required by statute 
to adjust the civil monetary penalties within its jurisdiction by the 
cost-of-living adjustment formula set forth in Section 5 of the FCPIAA, 
the Commission finds that good cause exists to dispense with public 
notice and comment pursuant to the notice and comment provisions of the 
APA.\14\ Specifically, the Commission finds that because the adjustment 
is mandated by Congress and does not involve the exercise of Commission 
discretion or any policy judgments, public notice and comment is 
unnecessary.\15\
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    \13\ 5 U.S.C. 553(b)(3)(B).
    \14\ 5 U.S.C. 553(b)(3)(B).
    \15\ A regulatory flexibility analysis under the Regulatory 
Flexibility Act (``RFA'') is required only when an agency must 
publish a general notice of proposed rulemaking for notice and 
comment. See 5 U.S.C. 603. As noted above, notice and comment are 
not required for this final rule. Therefore, the RFA does not apply.
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    Under the DCIA, agencies must make the required inflation 
adjustment to civil monetary penalties: (1) According to a very 
specific formula in the statute; and (2) within four years of the last 
inflation adjustment. Agencies have no discretion as to the amount of 
the adjustment and have limited discretion as to the timing of the 
adjustment, in that agencies are required to make the adjustment at 
least once every four years. The regulation discussed herein is 
ministerial, technical, and noncontroversial. Furthermore, because the 
regulation concerns penalties for conduct that is already illegal under 
existing law, there is no need for affected parties to have thirty days 
prior to the effectiveness of the regulation and amendments to adjust 
their conduct. Accordingly, the Commission believes that there is good 
cause to make this regulation effective immediately upon 
publication.\16\
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    \16\ Additionally, this finding satisfies the requirements for 
immediate effectiveness under the Small Business Regulatory 
Enforcement Fairness Act. See 5 U.S.C. 808(2); see also id. 
801(a)(4).
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B. Cost-Benefit Analysis

    The Commission is sensitive to the costs and benefits that result 
from its rules. This regulation merely adjusts civil monetary penalties 
in accordance with inflation as required by the DCIA, and has no impact 
on disclosure or compliance costs. The benefit provided by the 
inflationary adjustment to the maximum civil monetary penalties is that 
of maintaining the level of deterrence effectuated by the civil 
monetary penalties, and not allowing such deterrent effect to be 
diminished by inflation. Furthermore, Congress, in mandating the 
inflationary adjustments, has already determined that any possible 
increase in costs is justified by the overall benefits of such 
adjustments.

C. Paperwork Reduction Act

    This rule does not contain any collection of information 
requirements as defined by the Paperwork Reduction Act of 1995 as 
amended.\17\
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    \17\ 44 U.S.C. 3501 et seq.
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D. Statutory Basis

    The Commission is adopting these amendments to 17 CFR Part 201, 
Subpart E pursuant to the directives and authority of the DCIA, Public 
Law 104-134, 110 Stat. 1321-373 (1996).

List of Subjects in 17 CFR Part 201

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

Text of Amendment

0
For the reasons set forth in the preamble, part 201, title 17, chapter 
II of the Code of Federal Regulations is amended as follows:

PART 201--RULES OF PRACTICE

Subpart E--Adjustment of Civil Monetary Penalties

0
1. The authority citation for part 201, Subpart E, is revised to read 
as follows:

    Authority: 28 U.S.C. 2461 note.


0
2. Section 201.1004 and Table IV to Subpart E are added to read as 
follows:


Sec.  201.1004  Adjustment of civil monetary penalties--2009.

    As required by the Debt Collection Improvement Act of 1996, the 
maximum amounts of all civil monetary penalties under the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Investment 
Company Act of 1940, the Investment Advisers Act of 1940, and certain 
penalties under the Sarbanes-Oxley Act of 2002 are adjusted for 
inflation in accordance with Table IV to this subpart. The adjustments 
set forth in Table IV apply to violations occurring after March 3, 
2009.

[[Page 9161]]



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       Table IV to Subpart E            Civil monetary penalty                        Maximum
------------------------------------    inflation adjustments                         penalty        Adjusted
                                    -----------------------------  Year penalty       amount          maximum
                                                                    amount was      pursuant to       penalty
         U.S. Code citation             Civil monetary penalty    last  adjusted       last           amount
                                             description                            adjustment
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Securities and Exchange Commission:  ...........................  ..............  ..............  ..............
    15 U.S.C. 77t(d)...............  For natural person.........            2001          $6,500          $7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses or risk
                                      of losses to others.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses or risk
                                      of losses to others.
    15 U.S.C. 78ff(b)..............  Exchange Act/failure to                1996             110             110
                                      file information
                                      documents, reports.
    15 U.S.C. 78ff(c)(1)(B)........  Foreign Corrupt Practices--            1996          11,000          16,000
                                      any issuer.
    15 U.S.C. 78ff(c)(2)(C)........  Foreign Corrupt Practices--            1996          11,000          16,000
                                      any agent or stockholder
                                      acting on behalf of issuer.
    15 U.S.C. 78u-1(a)(3)..........  Insider Trading--                      2005       1,275,000       1,425,000
                                      controlling person.
    15 U.S.C. 78u-2................  For natural person.........            2001           6,500           7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses to
                                      others/gains to self.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses to
                                      others/gain to self.
    15 U.S.C. 78u(d)(3)............  For natural person.........            2001           6,500           7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses or risk
                                      of losses to others.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses or risk
                                      of losses to others.
    15 U.S.C. 80a-9(d).............  For natural person.........            2001           6,500           7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses to
                                      others/gains to self.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses to
                                      others/gain to self.
    15 U.S.C. 80a-41(e)............  For natural person.........            2001           6,500           7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses or risk
                                      of losses to others.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses or risk
                                      of losses to others.
    15 U.S.C. 80b-3(i).............  For natural person.........            2001           6,500           7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses to
                                      others/gains to self.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses to
                                      others/gain to self.
    15 U.S.C. 80b-9(e).............  For natural person.........            2001           6,500           7,500
                                     For any other person.......            2005          65,000          75,000
                                     For natural person/fraud...            2005          65,000          75,000
                                     For any other person/fraud.            2005         325,000         375,000
                                     For natural person/                    2005         130,000         150,000
                                      substantial losses or risk
                                      of losses to others.
                                     For any other person/                  2005         650,000         725,000
                                      substantial losses or risk
                                      of losses to others.
    15 U.S.C. 7215(c)(4)(D)(i).....  For natural person.........            2005         110,000         120,000
                                     For any other person.......            2005       2,100,000       2,375,000
    15 U.S.C. 7215(c)(4)(D)(ii)....  For natural person.........            2005         800,000         900,000
                                     For any other person.......            2005      15,825,000      17,800,000
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[[Page 9162]]

    Dated: February 25, 2009.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-4379 Filed 3-2-09; 8:45 am]
BILLING CODE 8011-01-P