CITE

    15 USC Sec. 78u-3                                           01/08/2008

EXPCITE

    TITLE 15 - COMMERCE AND TRADE
    CHAPTER 2B - SECURITIES EXCHANGES

HEAD

    Sec. 78u-3. Cease-and-desist proceedings

STATUTE

    (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.

SOURCE

    (June 6, 1934, ch. 404, title I, Sec. 21C, as added Pub. L. 101-
    429, title II, Sec. 203, Oct. 15, 1990, 104 Stat. 939; amended
    Pub. L. 107-204, Sec. 3(b)(3), title XI, Secs. 1103, 1105(a), July
    30, 2002, 116 Stat. 749, 807, 809.)

REFERENCES IN TEXT

      This chapter, referred to in subsec. (a), was in the original
    "this title". See References in Text note set out under section 78a
    of this title.
      Section 7201 of this title, referred to in subsec. (c)(2), was in
    the original "section 2 of the Sarbanes-Oxley Act of 2002", Pub. L.
    107-204, which enacted section 7201 of this title and amended
    section 78c of this title.

AMENDMENTS

      2002 - Subsec. (c)(2). Pub. L. 107-204, Sec. 1103(b), substituted
    "paragraph (1)" for "This".
      Pub. L. 107-204, Sec. 3(b)(3), inserted "registered public
    accounting firm (as defined in section 7201 of this title)," after
    "government securities dealer,".
      Subsec. (c)(3). Pub. L. 107-204, Sec. 1103(a), added par. (3).
      Subsec. (f). Pub. L. 107-204, Sec. 1105(a), added subsec. (f).
                              EFFECTIVE DATE
      Section effective Oct. 15, 1990, with provisions relating to
    civil penalties and accounting and disgorgement, see section
    1(c)(1), (2) of Pub. L. 101-429, set out in an Effective Date of
    1990 Amendment note under section 77g of this title.

FOOTNOTE

    (!1) So in original.