Text: S.647 — 101st Congress (1989-1990)All Information (Except Text)

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--S.647--
S.647
One Hundred First Congress of the United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday, the twenty-third day
of January,
one thousand nine hundred and ninety
An Act
To amend the Federal securities laws in order to provide additional enforcement
remedies for violations of those laws and to eliminate abuses in transactions
in penny stocks, and for other purposes.
 Be it enacted by the Senate and House of Representatives of the United
 States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS; EFFECTIVE DATE.
 (a) SHORT TITLE- This Act may be cited as the `Securities Enforcement
 Remedies and Penny Stock Reform Act of 1990'.
 (b) Table of Contents-
Sec. 1. Short title; table of contents; effective dates.
TITLE I--AMENDMENTS TO THE SECURITIES ACT OF 1933
Sec. 101. Authority of a court to impose money penalties and to prohibit
persons from serving as officers and directors.
Sec. 102. Cease-and-desist authority.
TITLE II--AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934
Sec. 201. Enforcement of title.
Sec. 202. Civil remedies in administrative proceedings.
Sec. 203. Cease-and-desist authority.
Sec. 204. Procedural rules for cease-and-desist proceedings.
Sec. 205. Conforming amendments to section 15B.
Sec. 206. Signature guarantees.
TITLE III--AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940
Sec. 301. Civil remedies in administrative proceedings.
Sec. 302. Money penalties in civil actions.
TITLE IV--AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940
Sec. 401. Civil remedies in administrative proceedings.
Sec. 402. Money penalties in civil actions.
Sec. 403. Conforming amendment to section 214.
TITLE V--PENNY STOCK REFORM
Sec. 501. Short title.
Sec. 502. Findings.
Sec. 503. Definition of penny stock.
Sec. 504. Expansion of section 15(b) sanction authority with respect to
penny stocks.
Sec. 505. Requirements for brokers and dealers of penny stocks.
Sec. 506. Development of automated quotation systems for penny stocks.
Sec. 507. Voidability of contracts in violation of section 15(c)(2).
Sec. 508. Restrictions on blank check offerings.
Sec. 509. Broker/dealer disciplinary history.
Sec. 510. Review of regulatory structures and procedures.
 (c) EFFECTIVE DATES-
 (1) IN GENERAL- Except as provided in paragraphs (2) and (3), the amendments
 made by this Act shall be effective upon enactment.
 (2) CIVIL PENALTIES-
 (A) IN GENERAL- No civil penalty may be imposed pursuant to the amendments
 made by this Act on the basis of conduct occurring before the date of
 enactment of this Act.
 (B) ACCOUNTING AND DISGORGEMENT- Subparagraph (A) shall not operate to
 preclude the Securities and Exchange Commission from ordering an accounting
 or disgorgement pursuant to the amendments made by this Act.
 (3) SPECIAL RULES FOR TITLE V-
 (A) SECTIONS 503 AND 504- Except as provided in subparagraph (C), sections
 503 and 504 shall be effective 12 months after the date of enactment of
 this Act or upon the issuance of final regulations initially implementing
 such section, whichever is earlier.
 (B) SECTIONS 505 AND 508- Except as provided in subparagraph (C), sections
 505 and 508 shall be effective 18 months after the date of enactment of
 this Act or upon the issuance of final regulations initially implementing
 such sections, whichever is earlier.
 (C) COMMENCEMENT OF RULEMAKING- Not later than 180 days after the date of
 enactment of this Act, the Commission shall commence rulemaking proceedings
 to implement sections 503, 505, and 508.
TITLE I--AMENDMENTS TO THE SECURITIES ACT OF 1933
SEC. 101. AUTHORITY OF A COURT TO IMPOSE MONEY PENALTIES AND TO PROHIBIT
PERSONS FROM SERVING AS OFFICERS AND DIRECTORS.
 Section 20 of the Securities Act of 1933 (15 U.S.C. 77t) is amended by
 adding at the end thereof the following new subsections:
 `(d) MONEY PENALTIES IN CIVIL ACTIONS-
 `(1) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission that
 any person has violated any provision of this title, the rules or regulations
 thereunder, or a cease-and-desist order entered by the Commission pursuant to
 section 8A of this title, other than by committing a violation subject to a
 penalty pursuant to section 21A of the Securities Exchange Act of 1934, the
 Commission may bring an action in a United States district court to seek,
 and the court shall have jurisdiction to impose, upon a proper showing,
 a civil penalty to be paid by the person who committed such violation.
 `(2) AMOUNT OF PENALTY-
 `(A) FIRST TIER- The amount of the penalty shall be determined by the court
 in light of the facts and circumstances. For each violation, the amount of
 the penalty shall not exceed the greater of (i) $5,000 for a natural person
 or $50,000 for any other person, or (ii) the gross amount of pecuniary gain
 to such defendant as a result of the violation.
 `(B) SECOND TIER- Notwithstanding subparagraph (A), the amount of penalty
 for each such violation shall not exceed the greater of (i) $50,000 for a
 natural person or $250,000 for any other person, or (ii) the gross amount
 of pecuniary gain to such defendant as a result of the violation, if the
 violation 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 amount of
 penalty for each such violation shall not exceed the greater of (i) $100,000
 for a natural person or $500,000 for any other person, or (ii) the gross
 amount of pecuniary gain to such defendant as a result of the violation, if--
 `(I) the violation described in paragraph (1) involved fraud, deceit,
 manipulation, or deliberate or reckless disregard of a regulatory requirement;
 and
 `(II) such violation directly or indirectly resulted in substantial losses
 or created a significant risk of substantial losses to other persons.
 `(3) PROCEDURES FOR COLLECTION-
 `(A) PAYMENT OF PENALTY TO TREASURY- A penalty imposed under this section
 shall be payable into the Treasury of the United States.
 `(B) COLLECTION OF PENALTIES- If a person upon whom such a penalty is
 imposed shall fail to pay such penalty within the time prescribed in the
 court's order, the Commission may refer the matter to the Attorney General
 who shall recover such penalty by action in the appropriate United States
 district court.
 `(C) REMEDY NOT EXCLUSIVE- The actions authorized by this subsection may be
 brought in addition to any other action that the Commission or the Attorney
 General is entitled to bring.
 `(D) JURISDICTION AND VENUE- For purposes of section 22 of this title,
 actions under this section shall be actions to enforce a liability or a
 duty created by this title.
 `(4) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-AND-DESIST
 ORDER- In an action to enforce a cease-and-desist order entered by the
 Commission pursuant to section 8A, each separate violation of such order
 shall be a separate offense, except that in the case of a violation through
 a continuing failure to comply with such an order, each day of the failure
 to comply with the order shall be deemed a separate offense.
 `(e) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM SERVING AS OFFICERS AND
 DIRECTORS- In any proceeding under subsection (b), the court may prohibit,
 conditionally or unconditionally, and permanently or for such period of
 time as it shall determine, any person who violated section 17(a)(1) of this
 title from acting as an officer or director of any issuer that has a class
 of securities registered pursuant to section 12 of the Securities Exchange
 Act of 1934 or that is required to file reports pursuant to section 15(d)
 of such Act if the person's conduct demonstrates substantial unfitness to
 serve as an officer or director of any such issuer.'.
SEC. 102. CEASE-AND-DESIST AUTHORITY.
 The Securities Act of 1933 (15 U.S.C. 77 et seq.) is amended by inserting
 after section 8 the following:
`CEASE-AND-DESIST PROCEEDINGS
 `SEC. 8A. (a) AUTHORITY OF THE 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 title, 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) 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), 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 proceeding. 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- This subsection 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.
 `(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),
 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 9(a) of this title shall not apply to a
 temporary order entered pursuant to this section.
 `(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
 In any cease-and-desist proceeding under subsection (a), 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.'.
TITLE II--AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934
SEC. 201. ENFORCEMENT OF TITLE.
 Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d))
 is amended--
 (1) by redesignating subsection (d) as subsection (d)(1);
 (2) by inserting after subsection (d)(1) the following new paragraphs:
 `(2) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM SERVING AS OFFICERS AND
 DIRECTORS- In any proceeding under paragraph (1) of this subsection, the
 court may prohibit, conditionally or unconditionally, and permanently or for
 such period of time as it shall determine, any person who violated section
 10(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 12 of this title or that is required to file reports
 pursuant to section 15(d) of this title if the person's conduct demonstrates
 substantial unfitness to serve as an officer or director of any such issuer.
 `(3) Money Penalties in Civil Actions-
 `(A) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission that
 any person has violated any provision of this title, the rules or regulations
 thereunder, or a cease-and-desist order entered by the Commission pursuant to
 section 21C of this title, other than by committing a violation subject to
 a penalty pursuant to section 21A, the Commission may bring an action in a
 United States district court to seek, and the court shall have jurisdiction
 to impose, upon a proper showing, a civil penalty to be paid by the person
 who committed such violation.
 `(B) AMOUNT OF PENALTY-
 `(i) FIRST TIER- The amount of the penalty shall be determined by the court
 in light of the facts and circumstances. For each violation, the amount of
 the penalty shall not exceed the greater of (I) $5,000 for a natural person
 or $50,000 for any other person, or (II) the gross amount of pecuniary gain
 to such defendant as a result of the violation.
 `(ii) SECOND TIER- Notwithstanding clause (i), the amount of penalty for
 each such violation shall not exceed the greater of (I) $50,000 for a
 natural person or $250,000 for any other person, or (II) the gross amount
 of pecuniary gain to such defendant as a result of the violation, if the
 violation described in subparagraph (A) involved fraud, deceit, manipulation,
 or deliberate or reckless disregard of a regulatory requirement.
 `(iii) THIRD TIER- Notwithstanding clauses (i) and (ii), the amount of penalty
 for each such violation shall not exceed the greater of (I) $100,000 for a
 natural person or $500,000 for any other person, or (II) the gross amount
 of pecuniary gain to such defendant as a result of the violation, if--
 `(aa) the violation described in subparagraph (A) involved fraud, deceit,
 manipulation, or deliberate or reckless disregard of a regulatory requirement;
 and
 `(bb) such violation directly or indirectly resulted in substantial losses
 or created a significant risk of substantial losses to other persons.
 `(C) Procedures for collection-
 `(i) PAYMENT OF PENALTY TO TREASURY- A penalty imposed under this section
 shall be payable into the Treasury of the United States.
 `(ii) COLLECTION OF PENALTIES- If a person upon whom such a penalty is
 imposed shall fail to pay such penalty within the time prescribed in the
 court's order, the Commission may refer the matter to the Attorney General
 who shall recover such penalty by action in the appropriate United States
 district court.
 `(iii) REMEDY NOT EXCLUSIVE- The actions authorized by this paragraph may be
 brought in addition to any other action that the Commission or the Attorney
 General is entitled to bring.
 `(iv) JURISDICTION AND VENUE- For purposes of section 27 of this title,
 actions under this paragraph shall be actions to enforce a liability or a
 duty created by this title.
 `(D) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-AND-DESIST ORDER-
 In an action to enforce a cease-and-desist order entered by the Commission
 pursuant to section 21C, each separate violation of such order shall be a
 separate offense, except that in the case of a violation through a continuing
 failure to comply with the order, each day of the failure to comply shall
 be deemed a separate offense.'.
SEC. 202. CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS.
 (a) The Securities Exchange Act of 1934 is amended by inserting after
 section 21A (15 U.S.C. 78u-1) the following:
`CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS
 `SEC. 21B. (a) COMMISSION AUTHORITY TO ASSESS MONEY PENALTIES- In any
 proceeding instituted pursuant to sections 15(b)(4), 15(b)(6), 15B, 15C,
 or 17A of this title against any person, the Commission or the appropriate
 regulatory agency may impose a civil penalty if it finds, on the record
 after notice and opportunity for hearing, that such person--
 `(1) has willfully violated any provision of the Securities Act of 1933,
 the Investment Company Act of 1940, the Investment Advisers Act of 1940,
 or this title, or the rules or regulations thereunder, or the rules of the
 Municipal Securities Rulemaking Board;
 `(2) has willfully aided, abetted, counseled, commanded, induced, or procured
 such a violation by any other person;
 `(3) has willfully made or caused to be made in any application for
 registration or report required to be filed with the Commission or with any
 other appropriate regulatory agency under this title, or in any proceeding
 before the Commission with respect to registration, 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 application or report any material fact which is required
 to be stated therein; or
 `(4) has failed reasonably to supervise, within the meaning of section
 15(b)(4)(E) of this title, with a view to preventing violations of the
 provisions of such statutes, rules and regulations, another person who
 commits such a violation, if such other person is subject to his supervision;
and that such penalty is in the public interest.
 `(b) MAXIMUM AMOUNT OF PENALTY-
 `(1) FIRST TIER- The maximum amount of penalty for each act or omission
 described in subsection (a) shall be $5,000 for a natural person or $50,000
 for any other person.
 `(2) SECOND TIER- Notwithstanding paragraph (1), 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 subsection (a) involved fraud, deceit, manipulation, or deliberate or
 reckless disregard of a regulatory requirement.
 `(3) THIRD TIER- Notwithstanding paragraphs (1) and (2), 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--
 `(A) the act or omission described in subsection (a) involved fraud,
 deceit, manipulation, or deliberate or reckless disregard of a regulatory
 requirement; and
 `(B) 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.
 `(c) DETERMINATION OF PUBLIC INTEREST- In considering under this section
 whether a penalty is in the public interest, the Commission or the appropriate
 regulatory agency may consider--
 `(1) whether the act or omission for which such penalty is assessed involved
 fraud, deceit, manipulation, or deliberate or reckless disregard of a
 regulatory requirement;
 `(2) the harm to other persons resulting either directly or indirectly from
 such act or omission;
 `(3) the extent to which any person was unjustly enriched, taking into
 account any restitution made to persons injured by such behavior;
 `(4) 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 15(b)(4)(B) of this title;
 `(5) the need to deter such person and other persons from committing such
 acts or omissions; and
 `(6) such other matters as justice may require.
 `(d) EVIDENCE CONCERNING ABILITY TO PAY- In any proceeding in which the
 Commission or the appropriate regulatory agency may impose a penalty under
 this section, a respondent may present evidence of the respondent's ability
 to pay such penalty. The Commission or the appropriate regulatory agency
 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 AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
 In any proceeding in which the Commission or the appropriate regulatory
 agency may impose a penalty under this section, the Commission or the
 appropriate regulatory agency 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.'.
 (b) CONFORMING AMENDMENT- The heading of section 21A of this title (15
 U.S.C. 78u-1) is amended to read as follows:
`CIVIL PENALTIES FOR INSIDER TRADING'.
SEC. 203. CEASE-AND-DESIST AUTHORITY.
 The Securities and Exchange Act of 1934 is amended by adding after section
 21B (as added by section 202 of this Act) the following new section:
`CEASE-AND-DESIST PROCEEDINGS
 `SEC. 21C. (a) AUTHORITY OF THE 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 title, 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) 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), 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- This subsection 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.
 `(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),
 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 25 of this title shall not apply to a
 temporary order entered pursuant to this section.
 `(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
 In any cease-and-desist proceeding under subsection (a), 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.'.
SEC. 204. PROCEDURAL RULES FOR CEASE-AND-DESIST PROCEEDINGS.
 Section 23 of the Securities Exchange Act of 1934 (15 U.S.C. 78w) is amended
 by adding at the end thereof the following new subsection:
 `(d) CEASE-AND-DESIST PROCEDURES- Within 1 year after the date of enactment
 of this subsection, the Commission shall establish regulations providing for
 the expeditious conduct of hearings and rendering of decisions under section
 21C of this title, section 8A of the Securities Act of 1933, section 9(f)
 of the Investment Company Act of 1940, and section 203(k) of the Investment
 Advisers Act of 1940.'.
SEC. 205. CONFORMING AMENDMENTS TO SECTION 15B.
 Section 15B(c)(6)(A) of the Securities Exchange Act of 1934 (15
 U.S.C. 78o-4(c)(6)(A)) is amended--
 (1) by striking `and the nature' and inserting `, the nature'; and
 (2) by striking `proposed action and' and inserting `proposed action, and
 whether the Commission is seeking a monetary penalty against such municipal
 securities dealer or such associated person pursuant to section 21B of this
 title; and '.
SEC. 206. SIGNATURE GUARANTEES.
 Section 17A(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78q-9(d)(4))
 is amended by adding at the end the following:
 `(5) A registered transfer agent may not, directly or indirectly, engage in
 any activity in connection with the guarantee of a signature of an endorser
 of a security, including the acceptance or rejection of such guarantee, in
 contravention of such rules and regulations as the Commission may prescribe
 as necessary or appropriate in the public interest, for the protection of
 investors, to facilitate the equitable treatment of financial institutions
 which issue such guarantees, or otherwise in furtherance of the purposes
 of this title.'.
TITLE III--AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940
SEC. 301. CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS.
 Section 9 of the Investment Company Act of 1940 (15 U.S.C. 80a-9) is amended--
 (1) by redesignating subsection (d) as subsection (g);
 (2) by inserting after subsection (c) the following new subsections:
 `(d) Money Penalties in Administrative Proceedings-
 `(1) AUTHORITY OF COMMISSION- In any proceeding instituted pursuant to
 subsection (b) 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,
 the Securities Exchange Act of 1934, the Investment Advisers Act of 1940,
 or this title, 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 title, 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 203(e)(2)
 of the Investment Advisers Act of 1940;
 `(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 AN ORDER REQUIRING AN 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 THE 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 title, 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 40(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 43 of this title shall not apply to a
 temporary order entered pursuant to this section.
 `(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
 In any cease-and-desist proceeding under subsection (f)(1), 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.'; and
 (3) in redesignated subsection (g), by striking `subsections (a) through
 (c) of'.
SEC. 302. MONEY PENALTIES IN CIVIL ACTIONS.
 Section 42 of the Investment Company Act of 1940 (15 U.S.C. 80a-41) is
 amended by adding at the end thereof the following new subsection:
 `(e) MONEY PENALTIES IN CIVIL ACTIONS-
 `(1) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission that
 any person has violated any provision of this title, the rules or regulations
 thereunder, or a cease-and-desist order entered by the Commission pursuant to
 section 9(f) of this title, the Commission may bring an action in a United
 States district court to seek, and the court shall have jurisdiction to
 impose, upon a proper showing, a civil penalty to be paid by the person
 who committed such violation.
 `(2) AMOUNT OF PENALTY-
 `(A) FIRST TIER- The amount of the penalty shall be determined by the court
 in light of the facts and circumstances. For each violation, the amount of
 the penalty shall not exceed the greater of (i) $5,000 for a natural person
 or $50,000 for any other person, or (ii) the gross amount of pecuniary gain
 to such defendant as a result of the violation.
 `(B) SECOND TIER- Notwithstanding subparagraph (A), the amount of penalty
 for each such violation shall not exceed the greater of (i) $50,000 for a
 natural person or $250,000 for any other person, or (ii) the gross amount
 of pecuniary gain to such defendant as a result of the violation, if the
 violation 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 amount of
 penalty for each such violation shall not exceed the greater of (i) $100,000
 for a natural person or $500,000 for any other person, or (ii) the gross
 amount of pecuniary gain to such defendant as a result of the violation, if--
 `(I) the violation described in paragraph (1) involved fraud, deceit,
 manipulation, or deliberate or reckless disregard of a regulatory requirement;
 and
 `(II) such violation directly or indirectly resulted in substantial losses
 or created a significant risk of substantial losses to other persons.
 `(3) PROCEDURES FOR COLLECTION-
 `(A) PAYMENT OF PENALTY TO TREASURY- A penalty imposed under this section
 shall be payable into the Treasury of the United States.
 `(B) COLLECTION OF PENALTIES- If a person upon whom such a penalty is
 imposed shall fail to pay such penalty within the time prescribed in the
 court's order, the Commission may refer the matter to the Attorney General
 who shall recover such penalty by action in the appropriate United States
 district court.
 `(C) REMEDY NOT EXCLUSIVE- The actions authorized by this subsection may be
 brought in addition to any other action that the Commission or the Attorney
 General is entitled to bring.
 `(D) JURISDICTION AND VENUE- For purposes of section 44 of this title,
 actions under this paragraph shall be actions to enforce a liability or a
 duty created by this title.
 `(4) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-AND-DESIST ORDER-
 In an action to enforce a cease-and-desist order entered by the Commission
 pursuant to section 9(f), each separate violation of such order shall
 be a separate offense, except that in the case of a violation through a
 continuing failure to comply with the order, each day of the failure to
 comply shall be deemed a separate offense.'.
TITLE IV--AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940
SEC. 401. CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS.
 Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) is
 amended by adding at the end thereof the following new subsections:
 `(i) MONEY PENALTIES IN ADMINISTRATIVE PROCEEDINGS-
 `(1) AUTHORITY OF COMMISSION- In any proceeding instituted pursuant to
 subsection (e) or (f) 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,
 the Securities Exchange Act of 1934, the Investment Company Act of 1940,
 or this title, or the rules or regulations thereunder;
 `(B) has willfully aided, abetted, counseled, commanded, induced, or procured
 such a violation by any other person;
 `(C) has willfully made or caused to be made in any application for
 registration or report required to be filed with the Commission under
 this title, or in any proceeding before the Commission with respect to
 registration, 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 application or
 report any material fact which was required to be stated therein; or
 `(D) has failed reasonably to supervise, within the meaning of section
 203(e)(5) of this title, with a view to preventing violations of the
 provisions of this title and the rules and regulations thereunder, another
 person who commits such a violation, if such other person is subject to
 his supervision;
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 203(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.
 `(j) AUTHORITY TO ENTER AN ORDER REQUIRING AN 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.
 `(k) Cease-and-Desist Proceedings-
 `(1) AUTHORITY OF THE 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 title, 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 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, notwithstanding section
 211(c) 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 213 of this title shall not apply to a
 temporary order entered pursuant to this section.
 `(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT-
 In any cease-and-desist proceeding under paragraph (1), 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.'.
SEC. 402. MONEY PENALTIES IN CIVIL ACTIONS.
 Section 209 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is
 amended by adding at the end thereof the following new subsection:
 `(e) MONEY PENALTIES IN CIVIL ACTIONS-
 `(1) AUTHORITY OF COMMISSION- Whenever it shall appear to the Commission that
 any person has violated any provision of this title, the rules or regulations
 thereunder, or a cease-and-desist order entered by the Commission pursuant
 to section 203(k) of this title, the Commission may bring an action in a
 United States district court to seek, and the court shall have jurisdiction
 to impose, upon a proper showing, a civil penalty to be paid by the person
 who committed such violation.
 `(2) AMOUNT OF PENALTY-
 `(A) FIRST TIER- The amount of the penalty shall be determined by the court
 in light of the facts and circumstances. For each violation, the amount of
 the penalty shall not exceed the greater of (i) $5,000 for a natural person
 or $50,000 for any other person, or (ii) the gross amount of pecuniary gain
 to such defendant as a result of the violation.
 `(B) SECOND TIER- Notwithstanding subparagraph (A), the amount of penalty
 for each such violation shall not exceed the greater of (i) $50,000 for a
 natural person or $250,000 for any other person, or (ii) the gross amount
 of pecuniary gain to such defendant as a result of the violation, if the
 violation 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 amount of
 penalty for each such violation shall not exceed the greater of (i) $100,000
 for a natural person or $500,000 for any other person, or (ii) the gross
 amount of pecuniary gain to such defendant as a result of the violation, if--
 `(I) the violation described in paragraph (1) involved fraud, deceit,
 manipulation, or deliberate or reckless disregard of a regulatory requirement;
 and
 `(II) such violation directly or indirectly resulted in substantial losses
 or created a significant risk of substantial losses to other persons.
 `(3) PROCEDURES FOR COLLECTION-
 `(A) PAYMENT OF PENALTY TO TREASURY- A penalty imposed under this section
 shall be payable into the Treasury of the United States.
 `(B) COLLECTION OF PENALTIES- If a person upon whom such a penalty is
 imposed shall fail to pay such penalty within the time prescribed in the
 court's order, the Commission may refer the matter to the Attorney General
 who shall recover such penalty by action in the appropriate United States
 district court.
 `(C) REMEDY NOT EXCLUSIVE- The actions authorized by this subsection may be
 brought in addition to any other action that the Commission or the Attorney
 General is entitled to bring.
 `(D) JURISDICTION AND VENUE- For purposes of section 214 of this title,
 actions under this paragraph shall be actions to enforce a liability or a
 duty created by this title.
 `(4) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-AND-DESIST ORDER-
 In an action to enforce a cease-and-desist order entered by the Commission
 pursuant to section 203(k), each separate violation of such order shall
 be a separate offense, except that in the case of a violation through a
 continuing failure to comply with the order, each day of the failure to
 comply shall be deemed a separate offense.'.
SEC. 403. CONFORMING AMENDMENT TO SECTION 214.
 Section 214 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-14)
 is amended--
 (1) by inserting after `all suits in equity' the following: `and actions
 at law brought to enforce any liability or duty created by, or'; and
 (2) by inserting after `Any suit or action' the following: `to enforce any
 liability or duty created by, or'.
TITLE V--PENNY STOCK REFORM
SEC. 501. SHORT TITLE.
 This title may be cited as the `Penny Stock Reform Act of 1990'.
SEC. 502. FINDINGS.
 The Congress finds the following:
 (1) The maintenance of an honest and healthy primary and secondary market for
 securities offerings is essential to enhancing long-term capital formation
 and economic growth and providing legitimate investment opportunities for
 individuals and institutions.
 (2) Protecting investors in new securities is a critical component in the
 maintenance of an honest and healthy market for such securities.
 (3) Protecting issuers of new securities and promoting the capital formation
 process on behalf of small companies are fundamental concerns in maintaining
 a strong economy and viable trading markets.
 (4) Unscrupulous market practices and market participants have pervaded the
 `penny stock' market with an overwhelming amount of fraud and abuse.
 (5) Although the Securities and Exchange Commission, State securities
 regulators, and securities self-regulators have made efforts to curb
 these abusive and harmful practices, the penny stock market still lacks an
 adequate and sufficient regulatory structure, particularly in comparison
 to the structure for overseeing trading in National Market System securities.
 (6) Investors in the penny stock market suffer from a serious lack of
 adequate information concerning price and volume of penny stock transactions,
 the nature of this market, and the specific securities in which they are
 investing.
 (7) Current practices do not adequately regulate the role of `promoters' and
 `consultants' in the penny stock market, and many professionals who have been
 banned from the securities markets have ended up in promoter and consultant
 roles, contributing substantially to fraudulent and abusive schemes.
 (8) The present regulatory environment has permitted the ascendancy of the
 use of particular market practices, such as `reverse mergers' with shell
 corporations and `blank check' offerings, which are used to facilitate
 manipulation schemes and harm investors.
 (9) In light of the substantial and continuing problems in the penny stock
 markets, additional legislative measures are necessary and appropriate.
SEC. 503. DEFINITION OF PENNY STOCK.
 Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))
 is amended by adding at the end thereof the following new paragraph:
 `(51)(A) The term `penny stock' means any equity security other than a
 security that is--
 `(i) registered or approved for registration and traded on a national
 securities exchange that meets such criteria as the Commission shall
 prescribe by rule or regulation for purposes of this paragraph;
 `(ii) authorized for quotation on an automated quotation system sponsored
 by a registered securities association, if such system (I) was established
 and in operation before January 1, 1990, and (II) meets such criteria as
 the Commission shall prescribe by rule or regulation for purposes of this
 paragraph;
 `(iii) issued by an investment company registered under the Investment
 Company Act of 1940;
 `(iv) excluded, on the basis of exceeding a minimum price, net tangible
 assets of the issuer, or other relevant criteria, from the definition of
 such term by rule or regulation which the Commission shall prescribe for
 purposes of this paragraph; or
 `(v) exempted, in whole or in part, conditionally or unconditionally,
 from the definition of such term by rule, regulation, or order prescribed
 by the Commission.
 `(B) The Commission may, by rule, regulation, or order, designate any
 equity security or class of equity securities described in clause (i) or
 (ii) of subparagraph (A) as within the meaning of the term `penny stock'
 if such security or class of securities is traded other than on a national
 securities exchange or through an automated quotation system described in
 clause (ii) of subparagraph (A).
 `(C) In exercising its authority under this paragraph to prescribe rules,
 regulations, and orders, the Commission shall determine that such rule,
 regulation, or order is consistent with the public interest and the protection
 of investors.'.
SEC. 504. EXPANSION OF SECTION 15(b) SANCTION AUTHORITY WITH RESPECT TO
PENNY STOCKS.
 (a) AMENDMENT- Section 15(b)(6) of the Securities Exchange Act of 1934
 (15 U.S.C. 78o(b)(6)) is amended to read as follows:
 `(6)(A) With respect to any person who is associated, who is seeking to
 become associated, or, at the time of the alleged misconduct, who was
 associated or was seeking to become associated with a broker or dealer, or
 any person participating, or, at the time of the alleged misconduct, who was
 participating, in an offering of any penny stock, the Commission, by order,
 shall censure, place limitations on the activities or functions of such
 person, or suspend for a period not exceeding 12 months, or bar such person
 from being associated with a broker or dealer, or from participating in an
 offering of penny stock, if the Commission finds, on the record after notice
 and opportunity for a hearing, that such censure, placing of limitations,
 suspension, or bar is in the public interest and that such person--
 `(i) has committed or omitted any act or omission enumerated in subparagraph
 (A), (D), or (E) of paragraph (4) of this subsection;
 `(ii) has been convicted of any offense specified in subparagraph (B) of
 such paragraph (4) within 10 years of the commencement of the proceedings
 under this paragraph; or
 `(iii) is enjoined from any action, conduct, or practice specified in
 subparagraph (C) of such paragraph (4).
 `(B) It shall be unlawful--
 `(i) for any person as to whom an order under subparagraph (A) is in effect,
 without the consent of the Commission, willfully to become, or to be,
 associated with a broker or dealer in contravention of such order, or to
 participate in an offering of penny stock in contravention of such order;
 `(ii) for any broker or dealer to permit such a person, without the consent
 of the Commission, to become or remain, a person associated with the broker
 or dealer in contravention of such order, if such broker or dealer knew,
 or in the exercise of reasonable care should have known, of such order; or
 `(iii) for any broker or dealer to permit such a person, without the
 consent of the Commission, to participate in an offering of penny stock in
 contravention of such order, if such broker or dealer knew, or in the exercise
 of reasonable care should have known, of such order and of such participation.
 `(C) For purposes of this paragraph, the term `person participating in
 an offering of penny stock' includes any person acting as any promoter,
 finder, consultant, agent, or other person who engages in activities with
 a broker, dealer, or issuer for purposes of the issuance or trading in any
 penny stock, or inducing or attempting to induce the purchase or sale of
 any penny stock. The Commission may, by rule or regulation, define such
 term to include other activities, and may, by rule, regulation, or order,
 exempt any person or class of persons, in whole or in part, conditionally
 or unconditionally, from such term.'.
 (b) RECOMMENDATIONS- Within 6 months after the date of enactment of this Act,
 the Securities and Exchange Commission shall submit to each House of the
 Congress such recommendations as the Commission considers appropriate with
 respect to further revision of section 15(b)(6) of the Securities Exchange
 Act of 1934 (15 U.S.C. 78o(b)(6)). In preparing such recommendations,
 the Commission shall consider the desirability and effect of expanding the
 applicability of such section to any promoter, finder, consultant, agent
 or other person who engages in activities with a broker, dealer, or issuer
 for purposes of the issuance of or trading in, or inducing or attempting
 to induce the purchase or sale of, any security (and not just penny stock).
SEC. 505. REQUIREMENTS FOR BROKERS AND DEALERS OF PENNY STOCKS.
 Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended
 by adding at the end thereof the following new subsection:
 `(g) REQUIREMENTS FOR TRANSACTIONS IN PENNY STOCKS-
 `(1) IN GENERAL- No broker or dealer shall make use of the mails or any
 means or instrumentality of interstate commerce to effect any transaction
 in, or to induce or attempt to induce the purchase or sale of, any penny
 stock by any customer except in accordance with the requirements of this
 subsection and the rules and regulations prescribed under this subsection.
 `(2) RISK DISCLOSURE WITH RESPECT TO PENNY STOCKS- Prior to effecting any
 transaction in any penny stock, a broker or dealer shall give the customer
 a risk disclosure document that--
 `(A) contains a description of the nature and level of risk in the market
 for penny stocks in both public offerings and secondary trading;
 `(B) contains a description of the broker's or dealer's duties to the customer
 and of the rights and remedies available to the customer with respect to
 violations of such duties or other requirements of Federal securities laws;
 `(C) contains a brief, clear, narrative description of a dealer market,
 including `bid' and `ask' prices for penny stocks and the significance of
 the spread between the bid and ask prices;
 `(D) contains the toll free telephone number for inquiries on disciplinary
 actions established pursuant to section 15A(i) of this title;
 `(E) defines significant terms used in the disclosure document or in the
 conduct of trading in penny stocks; and
 `(F) contains such other information, and is in such form (including language,
 type size, and format), as the Commission shall require by rule or regulation.
 `(3) COMMISSION RULES RELATING TO DISCLOSURE- The Commission shall adopt
 rules setting forth additional standards for the disclosure by brokers
 and dealers to customers of information concerning transactions in penny
 stocks. Such rules--
 `(A) shall require brokers and dealers to disclose to each customer, prior to
 effecting any transaction in, and at the time of confirming any transaction
 with respect to any penny stock, in accordance with such procedures and
 methods as the Commission may require consistent with the public interest
 and the protection of investors--
 `(i) the bid and ask prices for penny stock, or such other information as
 the Commission may, by rule, require to provide customers with more useful
 and reliable information relating to the price of such stock;
 `(ii) the number of shares to which such bid and ask prices apply, or other
 comparable information relating to the depth and liquidity of the market
 for such stock; and
 `(iii) the amount and a description of any compensation that the broker or
 dealer and the associated person thereof will receive or has received in
 connection with such transaction;
 `(B) shall require brokers and dealers to provide, to each customer whose
 account with the broker or dealer contains penny stocks, a monthly statement
 indicating the market value of the penny stocks in that account or indicating
 that the market value of such stock cannot be determined because of the
 unavailability of firm quotes; and
 `(C) may, as the Commission finds necessary or appropriate in the public
 interest or for the protection of investors, require brokers and dealers
 to disclose to customers additional information concerning transactions in
 penny stocks.
 `(4) EXEMPTIONS- The Commission, as it determines consistent with the
 public interest and the protection of investors, may by rule, regulation,
 or order exempt in whole or in part, conditionally or unconditionally, any
 person or class of persons, or any transaction or class of transactions,
 from the requirements of this subsection. Such exemptions shall include
 an exemption for brokers and dealers based on the minimal percentage of
 the broker's or dealer's commissions, commission-equivalents, and markups
 received from transactions in penny stocks.
 `(5) REGULATIONS- It shall be unlawful for any person to violate such rules
 and regulations as the Commission shall prescribe in the public interest
 or for the protection of investors or to maintain fair and orderly markets--
 `(A) as necessary or appropriate to carry out this subsection; or
 `(B) as reasonably designed to prevent fraudulent, deceptive, or manipulative
 acts and practices with respect to penny stocks.'.
SEC. 506. DEVELOPMENT OF AUTOMATED QUOTATION SYSTEMS FOR PENNY STOCKS.
 The Securities Exchange Act of 1934 is amended by inserting after section
 17A the following new section:
`AUTOMATED QUOTATION SYSTEMS FOR PENNY STOCKS
 `SEC. 17B. (a) FINDINGS- The Congress finds that--
 `(1) the market for penny stocks suffers from a lack of reliable and accurate
 quotation and last sale information available to investors and regulators;
 `(2) it is in the public interest and appropriate for the protection
 of investors and the maintenance of fair and orderly markets to improve
 significantly the information available to brokers, dealers, investors,
 and regulators with respect to quotations for and transactions in penny
 stocks; and
 `(3) a fully implemented automated quotation system for penny stocks would
 meet the information needs of investors and market participants and would
 add visibility and regulatory and surveillance data to that market.
 `(b) MANDATE TO FACILITATE THE ESTABLISHMENT OF AUTOMATED QUOTATION SYSTEMS-
 `(1) IN GENERAL- The Commission shall facilitate the widespread dissemination
 of reliable and accurate last sale and quotation information with respect
 to penny stocks in accordance with the findings set forth in subsection (a),
 with a view toward establishing, at the earliest feasible time, one or more
 automated quotation systems that will collect and disseminate information
 regarding all penny stocks.
 `(2) CHARACTERISTICS OF SYSTEMS- Each such automated quotation system shall--
 `(A) be operated by a registered securities association or a national
 securities exchange in accordance with such rules as the Commission and
 these entities shall prescribe;
 `(B) collect and disseminate quotation and transaction information;
 `(C) except as provided in subsection (c), provide bid and ask quotations
 of participating brokers or dealers, or comparably accurate and reliable
 pricing information, which shall constitute firm bids or offers for at least
 such minimum numbers of shares or minimum dollar amounts as the Commission
 and the registered securities association or national securities exchange
 shall require; and
 `(D) provide for the reporting of the volume of penny stock transactions,
 including last sale reporting, when the volume reaches appropriate levels
 that the Commission shall specify by rule or order.
 `(c) EXEMPTIVE AUTHORITY- The Commission may, by rule or order, grant such
 exemptions, in whole or in part, conditionally or unconditionally, to any
 penny stock or class of penny stocks from the requirements of subsection
 (b) as the Commission determines to be consistent with the public interest,
 the protection of investors, and the maintenance of fair and orderly markets.
 `(d) COMMISSION REPORTING REQUIREMENTS- The Commission shall, in each of
 the first 5 annual reports (under section 23(b)(1) of this title) submitted
 more than 12 months after the date of enactment of this section, include
 a description of the status of the penny stock automated quotation system
 or systems required by subsection (b). Such description shall include--
 `(1) a review of the development, implementation, and progress of the
 project, including achievement of significant milestones and current project
 schedule; and
 `(2) a review of the activities of registered securities associations and
 national securities exchanges in the development of the system.'.
SEC. 507. VOIDABILITY OF CONTRACTS IN VIOLATION OF SECTION 15(c)(2).
 Section 29(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78cc(b))
 is amended--
 (1) in clause (A), by striking `paragraph (2) or (3)' and inserting `paragraph
 (3)';
 (2) in clause (B), by striking `paragraph (1)' and inserting `paragraph
 (1) or (2)'; and
 (3) by adding at the end thereof the following new sentence: `The Commission
 may, in a rule or regulation prescribed pursuant to such paragraph (2) of
 such section 15(c), designate such rule or regulation, or portion thereof,
 as a rule or regulation, or portion thereof, a contract in violation of
 which shall not be void by reason of this subsection.'.
SEC. 508. RESTRICTIONS ON BLANK CHECK OFFERINGS.
 Section 7 of the Securities Act of 1933 (15 U.S.C. 77g) is amended--
 (1) by inserting `(a)' after `SEC. 7.'; and
 (2) by adding at the end thereof the following new subsection:
 `(b)(1) The Commission shall prescribe special rules with respect
 to registration statements filed by any issuer that is a blank check
 company. Such rules may, as the Commission determines necessary or appropriate
 in the public interest or for the protection of investors--
 `(A) require such issuers to provide timely disclosure, prior to or after such
 statement becomes effective under section 8, of (i) information regarding
 the company to be acquired and the specific application of the proceeds
 of the offering, or (ii) additional information necessary to prevent such
 statement from being misleading;
 `(B) place limitations on the use of such proceeds and the distribution of
 securities by such issuer until the disclosures required under subparagraph
 (A) have been made; and
 `(C) provide a right of rescission to shareholders of such securities.
 `(2) The Commission may, as it determines consistent with the public interest
 and the protection of investors, by rule or order exempt any issuer or
 class of issuers from the rules prescribed under paragraph (1).
 `(3) For purposes of paragraph (1) of this subsection, the term `blank check
 company' means any development stage company that is issuing a penny stock
 (within the meaning of section 3(a)(51) of the Securities Exchange Act of
 1934) and that--
 `(A) has no specific business plan or purpose; or
 `(B) has indicated that its business plan is to merge with an unidentified
 company or companies.'.
SEC. 509. BROKER/DEALER DISCIPLINARY HISTORY.
 Section 15A of the Securities Exchange Act 1934 (15 U.S.C. 78o-3) is amended
 by adding at the end the following:
 `(i) A registered securities association shall, within one year from the
 date of enactment of this section, (1) establish and maintain a toll-free
 telephone listing to receive inquiries regarding disciplinary actions
 involving its members and their associated persons, and (2) promptly respond
 to such inquiries in writing. Such association may charge persons, other
 than individual investors, reasonable fees for written responses to such
 inquiries. Such an association shall not have any liability to any person
 for any actions taken or omitted in good faith under this paragraph.'.
SEC. 510. REVIEW OF REGULATORY STRUCTURES AND PROCEDURES.
 (a) REVIEW REQUIRED- The Comptroller General, in consultation with the
 Securities and Exchange Commission, shall conduct a review of the rules,
 procedures, facilities, and oversight and enforcement activities of
 self-regulatory organizations under the Securities Exchange Act of 1934
 with respect to penny stocks (within the meaning of section 3(a)(51) of
 such Act). Such review shall include an analysis of--
 (1) the resources devoted by self-regulatory organizations to the detection,
 investigation, prosecution, and correction of fraud and abuse in the trading
 of such penny stocks;
 (2) the methods and techniques used, and alternative methods which may be
 used, in those oversight and enforcement activities, including methods and
 techniques involving coordinated oversight and enforcement activities with
 other Federal and State authorities;
 (3) the adequacy of the rules, procedures, and facilities of such
 self-regulatory organizations for the prevention of excessive spreads and
 markups, unscrupulous sales practices, and other conduct inconsistent with
 high standards of commercial honor and just and equitable principles of trade;
 (4) any obstacles to or limitations on the authority of self-regulatory
 organizations that impair the conduct of those oversight and enforcement
 activities;
 (5) the adequacy of current listing and maintenance requirements and
 procedures and the potential for erosion of such requirements and procedures
 due to issuer avoidance of penny stock designation and regulation; and
 (6) such other matters as the Comptroller General considers necessary
 or appropriate.
 (b) REPORT- Within one year after the date of enactment of this Act,
 the Comptroller General shall submit a report on the review required by
 subsection (a). Such report shall include, in addition to a statement of
 findings with respect to each matter described in paragraphs (1) through
 (6) of such subsection, such recommendations as the Comptroller General
 considers appropriate with respect to legislative or administrative changes.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.