[Federal Register Volume 78, Number 43 (Tuesday, March 5, 2013)]
[Rules and Regulations]
[Pages 14179-14183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04931]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 201
[Release Nos. 33-9387; 34-68994; IA-3557; IC-30408]
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 5, 2013.
FOR FURTHER INFORMATION CONTACT: James A. Cappoli, Senior Special
Counsel, Office of the General Counsel, at (202) 551-7923, or Miles S.
Treakle, Senior Counsel, Office of the General Counsel, at (202) 551-
3609.
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
[[Page 14180]]
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 March 3, 2009.\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 201.1004.
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Accordingly, the Commission is adopting an amendment to 17 CFR part
201 to add Sec. 201.1005 and Table V 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.\12\ The adjustments set forth in
the amendment apply to violations occurring after the effective date of
the amendment.
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\12\ The Commission also is adopting technical corrections to
Table I, Table II, Table III, and Table IV of 17 CFR Part 201. 17
CFR 201.1001-1004. Each of these tables referenced 15 U.S.C.
78ff(c)(2)(C), rather than 15 U.S.C. 78ff(c)(2)(B). The technical
corrections will amend each table to refer to the correct paragraph.
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II. Summary of the Calculation
To explain the inflation adjustment calculation for CMP amounts
that were last adjusted in 2009, we will use the following example.
Under the current provisions, the Commission may impose a maximum CMP
of $1,425,000 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 2013, we use
the CPI-U for June of 2012, which was 229.478. 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 2009, we use the CPI-U
for June of 2009, which was 215.693.
Second, we calculate the cost-of-living adjustment or inflation
factor. To do this we divide the CPI for June of 2012 (229.478) by the
CPI for June of 2009 (215.693). Our result is 1.0639.
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, $1,425,000
multiplied by the inflation factor of 1.0639 equals $1,516,058.
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 $91,072 (i.e., $1,516,058 less $1,425,000). Under the
rounding rules, if the penalty is greater than $200,000, we round the
increase to the nearest multiple of $25,000. Therefore, the maximum
penalty increase in our example is $100,000.
Fifth, we add the rounded increase to the maximum penalty amount
last set or adjusted. In our example, $1,425,000 plus $100,000 yields a
maximum inflation adjustment penalty amount of $1,525,000.\13\
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\13\ The adjustments in Table V 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 ten
penalties. These particular penalties 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 these particular penalties
were ``last adjusted,'' rather than the CPI-U for 2013.
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III. Related Matters
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.\14\ 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.\15\ 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.\16\
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\14\ 5 U.S.C. 553(b)(3)(B).
\15\ 5 U.S.C. 553(b)(3)(B).
\16\ 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.\17\
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\17\ 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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A. Economic 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 Commission notes that the civil
monetary penalties ordered in SEC proceedings in fiscal year 2012
totaled approximately $1,021.0 million. Assuming that the Commission is
successful in obtaining civil monetary penalties in fiscal years
subsequent to the enactment of the new regulation in similar proportion
to that obtained in fiscal year 2012, the inflationary adjustment
pursuant to the new regulation would result in a maximum increase in
the civil monetary penalties ordered of approximately 6.4%, or $65.3
million. This figure assumes that the Commission would obtain a civil
monetary penalty equal to the maximum statutory amount in each
[[Page 14181]]
case, which clearly overstates the effect of the adjustment to the
penalties. The Commission further notes that, in many cases in which it
has obtained large civil monetary penalties, such penalties were
calculated on the basis of the gross pecuniary gain rather than the
maximum penalty dollar amount set by statute that will be adjusted by
this rule.\18\ In addition, the Commission notes that this figure
includes penalties imposed for insider trading, for which the statutory
maximum is stated as an amount not to exceed three times the profit
gained or loss avoided as a result of the violation, rather than by
reference to a statutory dollar amount that is affected by this
regulation.\19\ Therefore, the Commission does not believe that
adjusting civil monetary penalties will significantly affect the amount
of penalties it obtains.
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\18\ For example, 15 U.S.C. 77t(d)(2)(A), after adjusting for
inflation as required by the DCIA, provides that ``the amount of the
penalty shall not exceed the greater of (i) [$7,500] for a natural
person or [$80,000] for any other person, or (ii) the gross amount
of pecuniary gain to such defendant as a result of the violation.''
\19\ 15 U.S.C. 78u-1(a)(2). In fiscal year 2012, penalties
imposed under this provision totaled over $140 million.
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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. The costs of
implementing this rule should be negligible, because the only change
from the current, baseline situation is determining potential penalties
using a new maximum dollar amount. 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.
B. Paperwork Reduction Act
This rule does not contain any collection of information
requirements as defined by the Paperwork Reduction Act of 1995 as
amended.\20\
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\20\ 44 U.S.C. 3501 et seq.
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C. Statutory Basis
The Commission is adopting these amendments to 17 CFR Part 201,
Subpart E pursuant to the directives and authority of the DCIA, Pub. L.
No. 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
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, continues to read as
follows:
Authority: 28 U.S.C. 2461 note.
Sec. 201.1001 [Amended]
0
2. Section 201.1001 is amended in Table 1 in the first column labeled
``U.S. code citation'' by removing the reference ``15 U.S.C.
78ff(c)(2)(C) * * *'' and adding in its place ``15 U.S.C. 78ff(c)(2)(B)
* * *''.
Sec. 201.1002 [Amended]
0
3. Section 201.1002 is amended in Table II in the first column labeled
``U.S. code citation'' by removing the reference ``15 U.S.C.
78ff(c)(2)(C) * * *'' and adding in its place ``15 U.S.C. 78ff(c)(2)(B)
* * *''.
Sec. 201.1003 [Amended]
0
4. Section 201.1003 is amended in Table III in the first column labeled
``U.S. code citation'' by removing the reference ``15 U.S.C.
78ff(c)(2)(C) * * *.'' and adding in its place ``15 U.S.C.
78ff(c)(2)(B) * * *''.
Sec. 201.1004 [Amended]
0
5. Section 201.1004 is amended in Table IV in the first column labeled
``U.S. code citation'' by removing the reference ``15 U.S.C.
78ff(c)(2)(C) * * *'' and adding in its place ``15 U.S.C. 78ff(c)(2)(B)
* * *''.
0
6. Section 201.1005 and Table V to Subpart E are added to read as
follows:
Sec. 201.1005 Adjustment of civil monetary penalties--2013.
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 V to this subpart. The adjustments
set forth in Table V apply to violations occurring after March 5, 2013.
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Table V to subpart E Civil monetary penalty Maximum
--------------------------------------- inflation adjustments penalty
-------------------------- Year penalty amount Adjusted
amount was pursuant to maximum
U.S. Code citation Civil monetary penalty last adjusted last penalty amount
description adjustment
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Securities and Exchange Commission:
15 U.S.C. 77h-1(g)................ For natural person...... 2010 $7,500 $7,500
For any other person.... 2010 75,000 80,000
For natural person/fraud 2010 75,000 80,000
For any other person/ 2010 375,000 400,000
fraud.
For natural person/ 2010 150,000 160,000
substantial losses or
risk of losses to
others.
For any other person/ 2010 725,000 775,000
substantial losses or
risk of losses to
others.
15 U.S.C. 77t(d).................. For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses or
risk of losses to
others.
For any other person/ 2009 725,000 775,000
substantial losses or
risk of losses to
others.
[[Page 14182]]
15 U.S.C. 78ff(b)................. Exchange Act/failure to 1996 110 210
file information
documents, reports.
15 U.S.C. 78ff(c)(1)(B)........... Foreign Corrupt 2009 16,000 16,000
Practices--any issuer.
15 U.S.C. 78ff(c)(2)(B)........... Foreign Corrupt 2009 16,000 16,000
Practices--any agent or
stockholder acting on
behalf of issuer.
15 U.S.C. 78u-1(a)(3)............. Insider Trading-- 2009 1,425,000 1,525,000
controlling person.
15 U.S.C. 78u-2................... For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses to
others/gains to self.
For any other person/ 2009 725,000 775,000
substantial losses to
others/gain to self.
15 U.S.C. 78u(d)(3)............... For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses or
risk of losses to
others.
For any other person/ 2009 725,000 775,000
substantial losses or
risk of losses to
others.
15 U.S.C. 80a-9(d)................ For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses to
others/gains to self.
For any other person/ 2009 725,000 775,000
substantial losses to
others/gain to self.
15 U.S.C. 80a-41(e)............... For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses or
risk of losses to
others.
For any other person/ 2009 725,000 775,000
substantial losses or
risk of losses to
others.
15 U.S.C. 80b-3(i)................ For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses to
others/gains to self.
For any other person/ 2009 725,000 775,000
substantial losses to
others/gain to self.
15 U.S.C. 80b-9(e)................ For natural person...... 2009 7,500 7,500
For any other person.... 2009 75,000 80,000
For natural person/fraud 2009 75,000 80,000
For any other person/ 2009 375,000 400,000
fraud.
For natural person/ 2009 150,000 160,000
substantial losses or
risk of losses to
others.
For any other person/ 2009 725,000 775,000
substantial losses or
risk of losses to
others.
15 U.S.C. 7215(c)(4)(D)(i)........ For natural person...... 2009 120,000 130,000
For any other person.... 2009 2,375,000 2,525,000
15 U.S.C. 7215(c)(4)(D)(ii)....... For natural person...... 2009 900,000 950,000
For any other person.... 2009 17,800,000 18,925,000
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[[Page 14183]]
Dated: February 27, 2013.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-04931 Filed 3-4-13; 8:45 am]
BILLING CODE 8011-01-P