15 U.S.C. § 80a–9 — Ineligibility of certain affiliated persons and underwriters

submitted 86 years ago by ch. 686 to r/title-15-COMMERCE-AND-TRADE · 2,805 words · no verdicts yet

in plain englishAI-generated · not legal advice

This section bars people with certain securities convictions, court injunctions, or misconduct findings from working for or advising registered investment companies. The SEC can also ban people through its own hearings for violating securities laws, and can fine them, order they repay ill-gotten gains, or issue cease-and-desist orders, including emergency temporary orders in serious cases. Banned people may ask the SEC for an exemption.

(a) Persons deemed ineligible for service with investment companies, etc.; investment adviser. Certain people can't legally work as an employee, officer, director, advisory board member, investment adviser, or depositor of a registered investment company — or as the main underwriter for a registered open-end company, unit investment trust, or face-amount certificate company. Three groups are barred: (1) Anyone convicted, within the last 10 years, of a felony or misdemeanor that involved buying or selling a security, or that grew out of their work as an underwriter, broker, dealer, investment adviser, municipal securities dealer, government securities broker or dealer, bank, transfer agent, credit rating agency, or an entity registered under the Commodity Exchange Act — or as an affiliated person, salesperson, or employee of an investment company, bank, insurance company, or Commodity Exchange Act registrant. (2) Anyone a court has permanently or temporarily enjoined, because of misconduct, from acting in any of those same roles, or from continuing conduct connected to buying or selling securities. (3) A company is barred if any of its affiliated persons is barred under (1) or (2). For this section, "investment adviser" also includes an adviser as defined in subchapter II of this chapter (the Investment Advisers Act). (b) Certain persons serving investment companies; administrative action of Commission. Separately, after giving notice and a chance for a hearing, the Commission can issue its own order banning someone — for a set time or permanently — from serving as an employee, officer, director, advisory board member, investment adviser, or depositor of, or principal underwriter for, a registered investment company, or as an affiliated person of that adviser, depositor, or underwriter. The Commission can do this if the person: (1) willfully made or caused a false or misleading statement of material fact — or willfully left out a required material fact — in a registration statement, application, or report filed under this subchapter; (2) willfully violated the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act (subchapter II), this subchapter, the Commodity Exchange Act, or any rule under them; (3) willfully helped, encouraged, ordered, or brought about someone else's violation of those same laws or rules; (4) has been found by a foreign financial regulator to have (A) made or caused a false or misleading statement, or omitted a required material fact, in an application, report, or proceeding before a foreign securities authority; (B) violated a foreign securities or commodity-futures law or regulation; or (C) helped someone else violate such a foreign law or regulation; (5) was convicted within the last 10 years, by a foreign court, of a crime substantially like the offense described in (a)(1); or (6) has been enjoined by a foreign court, for misconduct, from acting in the roles described in (a)(2), or an equivalent foreign role, or from related conduct connected to buying or selling securities. (c) Application of ineligible person for exemption. Anyone barred under subsection (a) can ask the Commission for an exemption. The Commission must grant it — fully, or on a temporary or conditional basis — if the person shows that the ban is unfairly harsh as applied to them, or that their conduct doesn't make it against the public interest or investor protection to let them back in. (d) Money penalties in administrative proceedings. (1) In a subsection (b) proceeding, the Commission can fine a person if it finds, after notice and a hearing, that a fine serves the public interest and that the person willfully violated the securities laws listed above, willfully helped someone else violate them, or willfully made or caused a false or misleading statement (or omission) in a filing under this subchapter. In a subsection (f) cease-and-desist proceeding, the Commission can fine a person it finds is violating, has violated, or caused a violation of this subchapter or its rules. (2) The maximum fine depends on how bad the conduct was. First tier: $5,000 for an individual, $50,000 for anyone else, per violation. Second tier — if the violation involved fraud, deceit, manipulation, or reckless disregard of a rule: $50,000 for an individual, $250,000 for anyone else. Third tier — if it involved fraud, deceit, manipulation, or reckless disregard, and it also caused substantial losses (or a big risk of them) to others, or substantial gain to the violator: $100,000 for an individual, $500,000 for anyone else. (3) In deciding whether a fine serves the public interest, the Commission can weigh whether fraud or reckless disregard was involved, the harm to others, whether the person was unjustly enriched (minus any restitution paid), whether the person has past violations or convictions, how much deterrence is needed, and any other relevant facts. (4) A person facing a fine may show evidence of their ability to pay it, including their ability to stay in business, and the Commission may consider that evidence in deciding whether the fine serves the public interest. (e) Authority to enter order requiring accounting and disgorgement. In any proceeding where the Commission can fine someone under this section, it can also order them to account for and give back their gains, plus reasonable interest. The Commission can write rules covering how such money is paid to investors, what interest rate applies, and similar details. (f) Cease-and-desist proceedings. (1) If, after notice and a hearing, the Commission finds someone is violating, has violated, or is about to violate this subchapter or its rules, it can publish its findings and order that person — and anyone else who caused the violation through something they knew or should have known would contribute to it — to stop, and to stay stopped in the future. The order can also require the person to take steps to comply, on whatever timeline the Commission sets, and that requirement can extend to any security, issuer, or other person. (2) The hearing must be scheduled between 30 and 60 days after the notice is served, unless the Commission and the respondent agree to a different date. (3) In urgent cases, the Commission can act faster. If it decides that the violation, or its continuation, would likely cause serious loss or misuse of assets, serious investor harm, or serious harm to the public interest before the full case is done, it can issue a temporary cease-and-desist order. Normally that still requires notice and a hearing first — but the Commission can skip that if it decides advance notice would be impractical or against the public interest. The temporary order takes effect once served, and stays in force until the full case ends, unless a court or the Commission lifts it. This emergency power only reaches respondents who work (or worked, at the time of the alleged misconduct) as a broker, dealer, investment adviser, investment company, municipal securities dealer, government securities broker or dealer, or transfer agent, or as someone associated with one of those. (4) A respondent can challenge a temporary order. First, they can ask the Commission itself to set it aside, limit it, or suspend it — and if the order was issued without a prior hearing, they can demand a hearing within 10 days, which the Commission must hold and decide quickly. After that, they can ask a federal district court — where they live, do business, or in Washington, D.C. — to set the order aside, limit it, or suspend it; that request must come within 10 days of being served (if there was a prior Commission hearing) or within 10 days of the Commission's decision on their own request (if there wasn't). Going to court doesn't automatically pause the Commission's order — only the court itself can do that. And section 80a-42's usual review process doesn't apply to these temporary orders. (5) In any subsection (f)(1) proceeding, the Commission can also order accounting and disgorgement, with reasonable interest, the same way it can under subsection (e). (g) Corporate or other trustees performing functions of investment advisers. Wherever this section says "investment adviser," that also includes a corporate or other trustee that is actually doing an investment adviser's job.

the actual law source: uscode.house.gov ↗public domain

(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, credit rating agency, 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, credit rating agency, 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; or

(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); 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), 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.

Any person who is ineligible, by reason of subsection (a), 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

(A) In general

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 penalty is in the public interest, and that such person—

(i)

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;

(ii)

has willfully aided, abetted, counseled, commanded, induced, or procured such a violation by any other person; or

(iii)

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; 1

(B) Cease-and-desist proceedings

In any proceeding instituted pursuant to subsection (f) against any person, the Commission may impose a civil penalty if the Commission finds, on the record, after notice and opportunity for hearing, that such person—

(i)

is violating or has violated any provision of this subchapter, or any rule or regulation issued under this subchapter; or

(ii)

is or was a cause of the violation of any provision of this subchapter, or any rule or regulation issued under this subchapter.

(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.

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.

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), 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.

Source credit: (Aug. 22, 1940, ch. 686, title I, § 9, 54 Stat. 805; Pub. L. 91–547, § 4, Dec. 14, 1970, 84 Stat. 1415; Pub. L. 94–29, § 28(6), June 4, 1975, 89 Stat. 166; Pub. L. 99–571, title I, § 102(l), Oct. 28, 1986, 100 Stat. 3220; Pub. L. 100–181, title VI, § 609, Dec. 4, 1987, 101 Stat. 1261; Pub. L. 101–429, title III, § 301, Oct. 15, 1990, 104 Stat. 941; Pub. L. 101–550, title II, § 205(a), Nov. 15, 1990, 104 Stat. 2718; Pub. L. 106–102, title II, § 222, Nov. 12, 1999, 113 Stat. 1401; Pub. L. 109–291, § 4(b)(2)(B), Sept. 29, 2006, 120 Stat. 1337; Pub. L. 111–203, title IX, §§ 929P(a)(3), 985(d)(2), July 21, 2010, 124 Stat. 1863, 1934.)

history & why it existsrecord from the source credit

1940Enacted · Act of Aug. 22, 1940, ch. 686 · 54 Stat. 805
1970Amended · Pub. L. 91-547 · 84 Stat. 1415
1975Amended · Pub. L. 94-29 · 89 Stat. 166
1986Amended · Pub. L. 99-571 · 100 Stat. 3220
1987Amended · Pub. L. 100-181 · 101 Stat. 1261
1990Amended · Pub. L. 101-429 · 104 Stat. 941
1990Amended · Pub. L. 101-550 · 104 Stat. 2718
1999Amended · Pub. L. 106-102 · 113 Stat. 1401
2006Amended · Pub. L. 109-291 · 120 Stat. 1337
2010Amended · Pub. L. 111-203 · 124 Stat. 1863, 1934

A history note hasn’t been published yet. The record shows enactment by ch. 686 on 1940-08-22.

all 0 arguments · sorted by: best

no arguments yet — make the first case