§ 78u-3. — Ceaseanddesist proceedings.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC78u-3]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B--SECURITIES EXCHANGES
Sec. 78u-3. Cease-and-desist proceedings
(a) Authority of Commission
If the Commission finds, after notice and opportunity for hearing,
that any person is violating, has violated, or is about to violate any
provision of this chapter, or any rule or regulation thereunder, the
Commission may publish its findings and enter an order requiring such
person, and any other person that is, was, or would be a cause of the
violation, due to an act or omission the person knew or should have
known would contribute to such violation, to cease and desist from
committing or causing such violation and any future violation of the
same provision, rule, or regulation. Such order may, in addition to
requiring a person to cease and desist from committing or causing a
violation, require such person to comply, or to take steps to effect
compliance, with such provision, rule, or regulation, upon such terms
and conditions and within such time as the Commission may specify in
such order. Any such order may, as the Commission deems appropriate,
require future compliance or steps to effect future compliance, either
permanently or for such period of time as the Commission may specify,
with such provision, rule, or regulation with respect to any security,
any issuer, or any other person.
(b) Hearing
The notice instituting proceedings pursuant to subsection (a) of
this section shall fix a hearing date not earlier than 30 days nor later
than 60 days after service of the notice unless an earlier or a later
date is set by the Commission with the consent of any respondent so
served.
(c) Temporary order
(1) In general
Whenever the Commission determines that the alleged violation or
threatened violation specified in the notice instituting proceedings
pursuant to subsection (a) of this section, or the continuation
thereof, is likely to result in significant dissipation or
conversion of assets, significant harm to investors, or substantial
harm to the public interest, including, but not limited to, losses
to the Securities Investor Protection Corporation, prior to the
completion of the proceedings, the Commission may enter a temporary
order requiring the respondent to cease and desist from the
violation or threatened violation and to take such action to prevent
the violation or threatened violation and to prevent dissipation or
conversion of assets, significant harm to investors, or substantial
harm to the public interest as the Commission deems appropriate
pending completion of such proceedings. Such an order shall be
entered only after notice and opportunity for a hearing, unless the
Commission determines that notice and hearing prior to entry would
be impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent and,
unless set aside, limited, or suspended by the Commission or a court
of competent jurisdiction, shall remain effective and enforceable
pending the completion of the proceedings.
(2) Applicability
paragraph (1) subsection \1\ shall apply only to a respondent
that acts, or, at the time of the alleged misconduct acted, as a
broker, dealer, investment adviser, investment company, municipal
securities dealer, government securities broker, government
securities dealer, registered public accounting firm (as defined in
section 7201 of this title), or transfer agent, or is, or was at the
time of the alleged misconduct, an associated person of, or a person
seeking to become associated with, any of the foregoing.
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\1\ So in original.
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(3) Temporary freeze
(A) In general
(i) Issuance of temporary order
Whenever, during the course of a lawful investigation
involving possible violations of the Federal securities laws
by an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons, agents,
or employees, it shall appear to the Commission that it is
likely that the issuer will make extraordinary payments
(whether compensation or otherwise) to any of the foregoing
persons, the Commission may petition a Federal district
court for a temporary order requiring the issuer to escrow,
subject to court supervision, those payments in an interest-
bearing account for 45 days.
(ii) Standard
A temporary order shall be entered under clause (i),
only after notice and opportunity for a hearing, unless the
court determines that notice and hearing prior to entry of
the order would be impracticable or contrary to the public
interest.
(iii) Effective period
A temporary order issued under clause (i) shall--
(I) become effective immediately;
(II) be served upon the parties subject to it; and
(III) unless set aside, limited or suspended by a
court of competent jurisdiction, shall remain effective
and enforceable for 45 days.
(iv) Extensions authorized
The effective period of an order under this subparagraph
may be extended by the court upon good cause shown for not
longer than 45 additional days, provided that the combined
period of the order shall not exceed 90 days.
(B) Process on determination of violations
(i) Violations charged
If the issuer or other person described in subparagraph
(A) is charged with any violation of the Federal securities
laws before the expiration of the effective period of a
temporary order under subparagraph (A) (including any
applicable extension period), the order shall remain in
effect, subject to court approval, until the conclusion of
any legal proceedings related thereto, and the affected
issuer or other person, shall have the right to petition the
court for review of the order.
(ii) Violations not charged
If the issuer or other person described in subparagraph
(A) is not charged with any violation of the Federal
securities laws before the expiration of the effective
period of a temporary order under subparagraph (A)
(including any applicable extension period), the escrow
shall terminate at the expiration of the 45-day effective
period (or the expiration of any extension period, as
applicable), and the disputed payments (with accrued
interest) shall be returned to the issuer or other affected
person.
(d) Review of temporary orders
(1) Commission review
At any time after the respondent has been served with a
temporary cease-and-desist order pursuant to subsection (c) of this
section, the respondent may apply to the Commission to have the
order set aside, limited, or suspended. If the respondent has been
served with a temporary cease-and-desist order entered without a
prior Commission hearing, the respondent may, within 10 days after
the date on which the order was served, request a hearing on such
application and the Commission shall hold a hearing and render a
decision on such application at the earliest possible time.
(2) Judicial review
Within--
(A) 10 days after the date the respondent was served with a
temporary cease-and-desist order entered with a prior Commission
hearing, or
(B) 10 days after the Commission renders a decision on an
application and hearing under paragraph (1), with respect to any
temporary cease-and-desist order entered without a prior
Commission hearing,
the respondent may apply to the United States district court for the
district in which the respondent resides or has its principal place
of business, or for the District of Columbia, for an order setting
aside, limiting, or suspending the effectiveness or enforcement of
the order, and the court shall have jurisdiction to enter such an
order. A respondent served with a temporary cease-and-desist order
entered without a prior Commission hearing may not apply to the
court except after hearing and decision by the Commission on the
respondent's application under paragraph (1) of this subsection.
(3) No automatic stay of temporary order
The commencement of proceedings under paragraph (2) of this
subsection shall not, unless specifically ordered by the court,
operate as a stay of the Commission's order.
(4) Exclusive review
Section 78y of this title shall not apply to a temporary order
entered pursuant to this section.
(e) Authority to enter order requiring accounting and disgorgement
In any cease-and-desist proceeding under subsection (a) of this
section, the Commission may enter an order requiring accounting and
disgorgement, including reasonable interest. The Commission is
authorized to adopt rules, regulations, and orders concerning payments
to investors, rates of interest, periods of accrual, and such other
matters as it deems appropriate to implement this subsection.
(f) Authority of the Commission to prohibit persons from serving as
officers or directors
In any cease-and-desist proceeding under subsection (a) of this
section, the Commission may issue an order to prohibit, conditionally or
unconditionally, and permanently or for such period of time as it shall
determine, any person who has violated section 78j(b) of this title or
the rules or regulations thereunder, from acting as an officer or
director of any issuer that has a class of securities registered
pursuant to section 78l of this title, or that is required to file
reports pursuant to section 78o(d) of this title, if the conduct of that
person demonstrates unfitness to serve as an officer or director of any
such issuer.
(June 6, 1934, ch. 404, title I, Sec. 21C, as added Pub. L. 101-429,
title II, Sec. 203, Oct. 15, 1990, 104 Stat. 939; amended Pub. L. 107-
204, Sec. 3(b)(3), title XI, Secs. 1103, 1105(a), July 30, 2002, 116
Stat. 749, 807, 809.)
References in Text
This chapter, referred to in subsec. (a), was in the original ``this
title''. See References in Text note set out under section 78a of this
title.
Section 7201 of this title, referred to in subsec. (c)(2), was in
the original ``section 2 of the Sarbanes-Oxley Act of 2002'', Pub. L.
107-204, which enacted section 7201 of this title and amended section
78c of this title.
Amendments
2002--Subsec. (c)(2). Pub. L. 107-204, Sec. 1103(b), substituted
``paragraph (1)'' for ``This''.
Pub. L. 107-204, Sec. 3(b)(3), inserted ``registered public
accounting firm (as defined in section 7201 of this title),'' after
``government securities dealer,''.
Subsec. (c)(3). Pub. L. 107-204, Sec. 1103(a), added par. (3).
Subsec. (f). Pub. L. 107-204, Sec. 1105(a), added subsec. (f).
Effective Date
Section effective Oct. 15, 1990, with provisions relating to civil
penalties and accounting and disgorgement, see section 1(c)(1), (2) of
Pub. L. 101-429, set out in an Effective Date of 1990 Amendment note
under section 77g of this title.
Section Referred to in Other Sections
This section is referred to in sections 78j-1, 78u, 78w of this
title.
