§ 80a-9. — Ineligibility of certain affiliated persons and underwriters.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC80a-9]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I--INVESTMENT COMPANIES
Sec. 80a-9. Ineligibility of certain affiliated persons and
underwriters
(a) Persons deemed ineligible for service with investment companies,
etc.; investment adviser
It shall be unlawful for any of the following persons to serve or
act in the capacity of employee, officer, director, member of an
advisory board, investment adviser, or depositor of any registered
investment company, or principal underwriter for any registered open-end
company, registered unit investment trust, or registered face-amount
certificate company:
(1) any person who within 10 years has been convicted of any
felony or misdemeanor involving the purchase or sale of any security
or arising out of such person's conduct as an underwriter, broker,
dealer, investment adviser, municipal securities dealer, government
securities broker, government securities dealer, bank, transfer
agent, or entity or person required to be registered under the
Commodity Exchange Act [7 U.S.C. 1 et seq.], or as an affiliated
person, salesman, or employee of any investment company, bank,
insurance company, or entity or person required to be registered
under the Commodity Exchange Act;
(2) any person who, by reason of any misconduct, is permanently
or temporarily enjoined by order, judgment, or decree of any court
of competent jurisdiction from acting as an underwriter, broker,
dealer, investment adviser, municipal securities dealer, government
securities broker, government securities dealer, bank, transfer
agent, or entity or person required to be registered under the
Commodity Exchange Act [7 U.S.C. 1 et seq.], or as an affiliated
person, salesman, or employee of any investment company, bank,
insurance company, or entity or person required to be registered
under the Commodity Exchange Act, or from engaging in or continuing
any conduct or practice in connection with any such activity or in
connection with the purchase or sale of any security; or
(3) a company any affiliated person of which is ineligible, by
reason of paragraph (1) or (2) of this subsection, to serve or act
in the foregoing capacities.
For the purposes of paragraphs (1) to (3) of this subsection, the term
``investment adviser'' shall include an investment adviser as defined in
subchapter II of this chapter.
(b) Certain persons serving investment companies; administrative action
of Commission
The Commission may, after notice and opportunity for hearing, by
order prohibit, conditionally or unconditionally, either permanently or
for such period of time as it in its discretion shall deem appropriate
in the public interest, any person from serving or acting as an
employee, officer, director, member of an advisory board, investment
adviser or depositor of, or principal underwriter for, a registered
investment company or affiliated person of such investment adviser,
depositor, or principal underwriter, if such person--
(1) has willfully made or caused to be made in any registration
statement, application or report filed with the Commission under
this subchapter any statement which was at the time and in the light
of the circumstances under which it was made false or misleading
with respect to any material fact, or has omitted to state in any
such registration statement, application, or report any material
fact which was required to be stated therein;
(2) has willfully violated any provision of the Securities Act
of 1933 [15 U.S.C. 77a et seq.], or of the Securities Exchange Act
of 1934 [15 U.S.C. 78a et seq.], or of subchapter II of this
chapter, or of this subchapter, or of the Commodity Exchange Act [7
U.S.C. 1 et seq.], or of any rule or regulation under any of such
statutes;
(3) has willfully aided, abetted, counseled, commanded, induced,
or procured the violation by any other person of the Securities Act
of 1933 [15 U.S.C. 77a et seq.], or of the Securities Exchange Act
of 1934 [15 U.S.C. 78a et seq.], or of subchapter II of this
chapter, or of this subchapter, or of the Commodity Exchange Act [7
U.S.C. 1 et seq.], or of any rule or regulation under any of such
statutes;
(4) has been found by a foreign financial regulatory authority
to have--
(A) made or caused to be made in any application for
registration or report required to be filed with a foreign
securities authority, or in any proceeding before a foreign
securities authority with respect to registration, any statement
that was at the time and in light of the circumstances under
which it was made false or misleading with respect to any
material fact, or has omitted to state in any application or
report to a foreign securities authority any material fact that
is required to be stated therein;
(B) violated any foreign statute or regulation regarding
transactions in securities or contracts of sale of a commodity
for future delivery traded on or subject to the rules of a
contract market or any board of trade;
(C) aided, abetted, counseled, commanded, induced, or
procured the violation by any other person of any foreign
statute or regulation regarding transactions in securities or
contracts of sale of a commodity for future delivery traded on
or subject to the rules of a contract market or any board of
trade;
(5) within 10 years has been convicted by a foreign court of
competent jurisdiction of a crime, however denominated by the laws
of the relevant foreign government, that is substantially equivalent
to an offense set forth in paragraph (1) of subsection (a) of this
section; or
(6) by reason of any misconduct, is temporarily or permanently
enjoined by any foreign court of competent jurisdiction from acting
in any of the capacities, set forth in paragraph (2) of subsection
(a) of this section, or a substantially equivalent foreign capacity,
or from engaging in or continuing any conduct or practice in
connection with any such activity or in connection with the purchase
or sale of any security.
(c) Application of ineligible person for exemption
Any person who is ineligible, by reason of subsection (a) of this
section, to serve or act in the capacities enumerated in such
subsection, may file with the Commission an application for an exemption
from the provisions of such subsection. The Commission shall by order
grant such application, either unconditionally or on an appropriate
temporary or other conditional basis, if it is established that the
prohibitions of such subsection (a) as applied to such person, are
unduly or disproportionately severe or that the conduct of such person
has been such as not to make it against the public interest or
protection of investors to grant such application.
(d) Money penalties in administrative proceedings
(1) Authority of Commission
In any proceeding instituted pursuant to subsection (b) of this
section against any person, the Commission may impose a civil
penalty if it finds, on the record after notice and opportunity for
hearing, that such person--
(A) has willfully violated any provision of the Securities
Act of 1933 [15 U.S.C. 77a et seq.], the Securities Exchange Act
of 1934 [15 U.S.C. 78a et seq.], subchapter II of this chapter,
or this subchapter, or the rules or regulations thereunder;
(B) has willfully aided, abetted, counseled, commanded,
induced, or procured such a violation by any other person; or
(C) has willfully made or caused to be made in any
registration statement, application, or report required to be
filed with the Commission under this subchapter, any statement
which was, at the time and in the light of the circumstances
under which it was made, false or misleading with respect to any
material fact, or has omitted to state in any such registration
statement, application, or report any material fact which was
required to be stated therein;
and that such penalty is in the public interest.
(2) Maximum amount of penalty
(A) First tier
The maximum amount of penalty for each act or omission
described in paragraph (1) shall be $5,000 for a natural person
or $50,000 for any other person.
(B) Second tier
Notwithstanding subparagraph (A), the maximum amount of
penalty for each such act or omission shall be $50,000 for a
natural person or $250,000 for any other person if the act or
omission described in paragraph (1) involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a
regulatory requirement.
(C) Third tier
Notwithstanding subparagraphs (A) and (B), the maximum
amount of penalty for each such act or omission shall be
$100,000 for a natural person or $500,000 for any other person
if--
(i) the act or omission described in paragraph (1)
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement; and
(ii) such act or omission directly or indirectly
resulted in substantial losses or created a significant risk
of substantial losses to other persons or resulted in
substantial pecuniary gain to the person who committed the
act or omission.
(3) Determination of public interest
In considering under this section whether a penalty is in the
public interest, the Commission may consider--
(A) whether the act or omission for which such penalty is
assessed involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement;
(B) the harm to other persons resulting either directly or
indirectly from such act or omission;
(C) the extent to which any person was unjustly enriched,
taking into account any restitution made to persons injured by
such behavior;
(D) whether such person previously has been found by the
Commission, another appropriate regulatory agency, or a self-
regulatory organization to have violated the Federal securities
laws, State securities laws, or the rules of a self-regulatory
organization, has been enjoined by a court of competent
jurisdiction from violations of such laws or rules, or has been
convicted by a court of competent jurisdiction of violations of
such laws or of any felony or misdemeanor described in section
80b-3(e)(2) of this title;
(E) the need to deter such person and other persons from
committing such acts or omissions; and
(F) such other matters as justice may require.
(4) Evidence concerning ability to pay
In any proceeding in which the Commission may impose a penalty
under this section, a respondent may present evidence of the
respondent's ability to pay such penalty. The Commission may, in its
discretion, consider such evidence in determining whether such
penalty is in the public interest. Such evidence may relate to the
extent of such person's ability to continue in business and the
collectability of a penalty, taking into account any other claims of
the United States or third parties upon such person's assets and the
amount of such person's assets.
(e) Authority to enter order requiring accounting and disgorgement
In any proceeding in which the Commission may impose a penalty under
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) Cease-and-desist proceedings
(1) 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 subchapter, 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.
(2) Hearing
The notice instituting proceedings pursuant to paragraph (1)
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.
(3) Temporary order
(A) In general
Whenever the Commission determines that the alleged
violation or threatened violation specified in the notice
instituting proceedings pursuant to paragraph (1), 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
proceeding, 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, notwithstanding section 80a-
39(a) of this title, 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.
(B) Applicability
This paragraph 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, 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.
(4) Review of temporary orders
(A) Commission review
At any time after the respondent has been served with a
temporary cease-and-desist order pursuant to paragraph (3), 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.
(B) Judicial review
Within--
(i) 10 days after the date the respondent was served
with a temporary cease-and-desist order entered with a prior
Commission hearing, or
(ii) 10 days after the Commission renders a decision on
an application and hearing under subparagraph (A), 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 subparagraph (A) of this paragraph.
(C) No automatic stay of temporary order
The commencement of proceedings under subparagraph (B) of
this paragraph shall not, unless specifically ordered by the
court, operate as a stay of the Commission's order.
(D) Exclusive review
Section 80a-42 of this title shall not apply to a temporary
order entered pursuant to this section.
(5) Authority to enter order requiring accounting and
disgorgement
In any cease-and-desist proceeding under subsection (f)(1) 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.
(g) Corporate or other trustees performing functions of investment
advisers
For the purposes of this section, the term ``investment adviser''
includes a corporate or other trustee performing the functions of an
investment adviser.
(Aug. 22, 1940, ch. 686, title I, Sec. 9, 54 Stat. 805; Pub. L. 91-547,
Sec. 4, Dec. 14, 1970, 84 Stat. 1415; Pub. L. 94-29, Sec. 28(6), June 4,
1975, 89 Stat. 166; Pub. L. 99-571, title I, Sec. 102(l), Oct. 28, 1986,
100 Stat. 3220; Pub. L. 100-181, title VI, Sec. 609, Dec. 4, 1987, 101
Stat. 1261; Pub. L. 101-429, title III, Sec. 301, Oct. 15, 1990, 104
Stat. 941; Pub. L. 101-550, title II, Sec. 205(a), Nov. 15, 1990, 104
Stat. 2718; Pub. L. 106-102, title II, Sec. 222, Nov. 12, 1999, 113
Stat. 1401.)
References in Text
The Commodity Exchange Act, referred to in subsecs. (a)(1), (2) and
(b)(2), (3), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended,
which is classified generally to chapter 1 (Sec. 1 et seq.) of Title 7,
Agriculture. For complete classification of this Act to the Code, see
section 1 of Title 7 and Tables.
The Securities Act of 1933, referred to in subsecs. (b)(2), (3) and
(d)(1)(A), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, as
amended, which is classified generally to subchapter I (Sec. 77a et
seq.) of chapter 2A of this title. For complete classification of this
Act to the Code, see section 77a of this title and Tables.
The Securities Exchange Act of 1934, referred to in subsecs. (b)(2),
(3) and (d)(1)(A), is act June 6, 1934, ch. 404, 48 Stat. 881, as
amended, which is classified generally to 2B (Sec. 78a et seq.) of this
title. For complete classification of this Act to the Code, see section
78a of this title and Tables.
Amendments
1999--Subsec. (a)(1), (2). Pub. L. 106-102 substituted ``securities
dealer, bank, transfer agent,'' for ``securities dealer, transfer
agent,''.
1990--Subsec. (b)(4) to (6). Pub. L. 101-550 added pars. (4) to (6).
Subsecs. (d) to (f). Pub. L. 101-429, Sec. 301(1), (2), added
subsecs. (d) to (f) and redesignated former subsec. (d) as (g).
Subsec. (g). Pub. L. 101-429, Sec. 301(3), which directed the
striking out of ``subsections (a) through (c) of'' after ``the purposes
of'', was executed by striking out ``subsection (a) through (c) of'' as
the probable intent of Congress.
Pub. L. 101-429, Sec. 301(1), redesignated subsec. (d) as (g).
1987--Subsec. (a)(1), (2). Pub. L. 100-181 amended pars. (1) and (2)
generally. Prior to amendment, pars. (1) and (2) read as follows:
``(1) any person who within 10 years has been convicted of any
felony or misdemeanor involving the purchase or sale of any security or
arising out of such person's conduct as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities
broker, government securities dealer, or entity or person required to be
registered under the Commodity Exchange Act, or as an affiliated person,
salesman, or employee of any investment company, bank, insurance
company, or entity or person required to be registered under the
Commodity Exchange Act;
``(2) any person who, by reason of any misconduct, is permanently or
temporarily enjoined by order, judgment, or decree of any court of
competent jurisdiction from acting as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities
broker, government securities dealer, or entity or person required to be
registered under the Commodity Exchange Act, or as an affiliated person,
salesman, or employee of any investment company, bank, insurance
company, or entity or person required to be registered under the
Commodity Exchange Act, or from engaging in or continuing any conduct or
practice in connection with any such activity or in connection with the
purchase or sale of any security; or''.
1986--Subsec. (a)(1), (2). Pub. L. 99-571, Sec. 102(l)(1), inserted
pars. (1) and (2) and struck out former pars. (1) and (2) which read as
follows:
``(1) any person who within ten years has been convicted of any
felony or misdemeanor involving the purchase or sale of any security or
arising out of such person's conduct as an underwriter, broker, dealer,
or investment adviser, or as an affiliated person, salesman, or employee
of any investment company, bank, or insurance company;
``(2) any person who, by reason of any misconduct, is permanently or
temporarily enjoined by order, judgment, or decree of any court of
competent jurisdiction from acting as an underwriter, broker, dealer, or
investment adviser, or as an affiliated person, salesman, or employee of
any investment company, bank, or insurance company, or from engaging in
or continuing any conduct or practice in connection with any such
activity or in connection with the purchase or sale of any security;
or''.
Subsec. (b)(2), (3). Pub. L. 99-571, Sec. 102(l)(2), (3), inserted
reference to Commodity Exchange Act.
1975--Subsec. (d). Pub. L. 94-29 added subsec. (d).
1970--Subsec. (a). Pub. L. 91-547, Sec. 4(a), inserted ``employee,''
before ``officer'' in introductory text.
Subsecs. (b), (c). Pub. L. 91-547, Sec. 4(b), added subsec. (b) and
redesignated former subsec. (b) as (c).
Effective Date of 1999 Amendment
Amendment by Pub. L. 106-102 effective 18 months after Nov. 12,
1999, see section 225 of Pub. L. 106-102, set out as a note under
section 77c of this title.
Effective Date of 1990 Amendment
Amendment by Pub. L. 101-429 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 a note under
section 77g of this title.
Effective Date of 1986 Amendment
Amendment by Pub. L. 99-571 effective 270 days after Oct. 28, 1986,
see section 401 of Pub. L. 99-571, set out as an Effective Date note
under section 78o-5 of this title.
Effective Date of 1975 Amendment
Amendment by Pub. L. 94-29 effective June 4, 1975, see section 31(a)
of Pub. L. 94-29, set out as a note under section 78b of this title.
Effective Date of 1970 Amendment
Amendment by Pub. L. 91-547 effective Dec. 14, 1970, see section 30
of Pub. L. 91-547, set out as a note under section 80a-52 of this title.
Transfer of Functions
For transfer of functions of Securities and Exchange Commission,
with certain exceptions, to Chairman of such Commission, see Reorg. Plan
No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat.
1265, set out under section 78d of this title.
Section Referred to in Other Sections
This section is referred to in sections 78w, 80a-6, 80a-35, 80a-41,
80a-58 of this title; title 29 section 1111.
