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U.S. Code as of:
01/19/04
Section 78u-3. Cease-and-desist proceedings
(a) Authority of Commission
If the Commission finds, after notice and opportunity for
hearing, that any person is violating, has violated, or is about to
violate any provision of this chapter, or any rule or regulation
thereunder, the Commission may publish its findings and enter an
order requiring such person, and any other person that is, was, or
would be a cause of the violation, due to an act or omission the
person knew or should have known would contribute to such
violation, to cease and desist from committing or causing such
violation and any future violation of the same provision, rule, or
regulation. Such order may, in addition to requiring a person to
cease and desist from committing or causing a violation, require
such person to comply, or to take steps to effect compliance, with
such provision, rule, or regulation, upon such terms and conditions
and within such time as the Commission may specify in such order.
Any such order may, as the Commission deems appropriate, require
future compliance or steps to effect future compliance, either
permanently or for such period of time as the Commission may
specify, with such provision, rule, or regulation with respect to
any security, any issuer, or any other person.
(b) Hearing
The notice instituting proceedings pursuant to subsection (a) of
this section shall fix a hearing date not earlier than 30 days nor
later than 60 days after service of the notice unless an earlier or
a later date is set by the Commission with the consent of any
respondent so served.
(c) Temporary order
(1) In general
Whenever the Commission determines that the alleged violation
or threatened violation specified in the notice instituting
proceedings pursuant to subsection (a) of this section, or the
continuation thereof, is likely to result in significant
dissipation or conversion of assets, significant harm to
investors, or substantial harm to the public interest, including,
but not limited to, losses to the Securities Investor Protection
Corporation, prior to the completion of the proceedings, the
Commission may enter a temporary order requiring the respondent
to cease and desist from the violation or threatened violation
and to take such action to prevent the violation or threatened
violation and to prevent dissipation or conversion of assets,
significant harm to investors, or substantial harm to the public
interest as the Commission deems appropriate pending completion
of such proceedings. Such an order shall be entered only after
notice and opportunity for a hearing, unless the Commission
determines that notice and hearing prior to entry would be
impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent
and, unless set aside, limited, or suspended by the Commission or
a court of competent jurisdiction, shall remain effective and
enforceable pending the completion of the proceedings.
(2) Applicability
paragraph (1) subsection (!1) shall apply only to a respondent
that acts, or, at the time of the alleged misconduct acted, as a
broker, dealer, investment adviser, investment company, municipal
securities dealer, government securities broker, government
securities dealer, registered public accounting firm (as defined
in section 7201 of this title), or transfer agent, or is, or was
at the time of the alleged misconduct, an associated person of,
or a person seeking to become associated with, any of the
foregoing.
(3) Temporary freeze
(A) In general
(i) Issuance of temporary order
Whenever, during the course of a lawful investigation
involving possible violations of the Federal securities laws
by an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons, agents,
or employees, it shall appear to the Commission that it is
likely that the issuer will make extraordinary payments
(whether compensation or otherwise) to any of the foregoing
persons, the Commission may petition a Federal district court
for a temporary order requiring the issuer to escrow, subject
to court supervision, those payments in an interest-bearing
account for 45 days.
(ii) Standard
A temporary order shall be entered under clause (i), only
after notice and opportunity for a hearing, unless the court
determines that notice and hearing prior to entry of the
order would be impracticable or contrary to the public
interest.
(iii) Effective period
A temporary order issued under clause (i) shall -
(I) become effective immediately;
(II) be served upon the parties subject to it; and
(III) unless set aside, limited or suspended by a court
of competent jurisdiction, shall remain effective and
enforceable for 45 days.
(iv) Extensions authorized
The effective period of an order under this subparagraph
may be extended by the court upon good cause shown for not
longer than 45 additional days, provided that the combined
period of the order shall not exceed 90 days.
(B) Process on determination of violations
(i) Violations charged
If the issuer or other person described in subparagraph (A)
is charged with any violation of the Federal securities laws
before the expiration of the effective period of a temporary
order under subparagraph (A) (including any applicable
extension period), the order shall remain in effect, subject
to court approval, until the conclusion of any legal
proceedings related thereto, and the affected issuer or other
person, shall have the right to petition the court for review
of the order.
(ii) Violations not charged
If the issuer or other person described in subparagraph (A)
is not charged with any violation of the Federal securities
laws before the expiration of the effective period of a
temporary order under subparagraph (A) (including any
applicable extension period), the escrow shall terminate at
the expiration of the 45-day effective period (or the
expiration of any extension period, as applicable), and the
disputed payments (with accrued interest) shall be returned
to the issuer or other affected person.
(d) Review of temporary orders
(1) Commission review
At any time after the respondent has been served with a
temporary cease-and-desist order pursuant to subsection (c) of
this section, the respondent may apply to the Commission to have
the order set aside, limited, or suspended. If the respondent has
been served with a temporary cease-and-desist order entered
without a prior Commission hearing, the respondent may, within 10
days after the date on which the order was served, request a
hearing on such application and the Commission shall hold a
hearing and render a decision on such application at the earliest
possible time.
(2) Judicial review
Within -
(A) 10 days after the date the respondent was served with a
temporary cease-and-desist order entered with a prior
Commission hearing, or
(B) 10 days after the Commission renders a decision on an
application and hearing under paragraph (1), with respect to
any temporary cease-and-desist order entered without a prior
Commission hearing,
the respondent may apply to the United States district court for
the district in which the respondent resides or has its principal
place of business, or for the District of Columbia, for an order
setting aside, limiting, or suspending the effectiveness or
enforcement of the order, and the court shall have jurisdiction
to enter such an order. A respondent served with a temporary
cease-and-desist order entered without a prior Commission hearing
may not apply to the court except after hearing and decision by
the Commission on the respondent's application under paragraph
(1) of this subsection.
(3) No automatic stay of temporary order
The commencement of proceedings under paragraph (2) of this
subsection shall not, unless specifically ordered by the court,
operate as a stay of the Commission's order.
(4) Exclusive review
Section 78y of this title shall not apply to a temporary order
entered pursuant to this section.
(e) Authority to enter order requiring accounting and disgorgement
In any cease-and-desist proceeding under subsection (a) of this
section, the Commission may enter an order requiring accounting and
disgorgement, including reasonable interest. The Commission is
authorized to adopt rules, regulations, and orders concerning
payments to investors, rates of interest, periods of accrual, and
such other matters as it deems appropriate to implement this
subsection.
(f) Authority of the Commission to prohibit persons from serving as
officers or directors
In any cease-and-desist proceeding under subsection (a) of this
section, the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such
period of time as it shall determine, any person who has violated
section 78j(b) of this title or the rules or regulations
thereunder, from acting as an officer or director of any issuer
that has a class of securities registered pursuant to section 78l
of this title, or that is required to file reports pursuant to
section 78o(d) of this title, if the conduct of that person
demonstrates unfitness to serve as an officer or director of any
such issuer.
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