Page images

- 5.

Subsection (e) of that section provides that whenever it appears to the Commission that any person is engaged or about to engage in any acts or practices which constitute or would constitute a violation of the provisions of that statute, or any rule or regulation thereunder, it may in its discretion bring a civil action in the proper district court of the United States to enjoin such acts or practices and, upon a proper showing, be granted a permanent or temporary injunction.

Section 30(b) of the 1934 Act states that the provisions of that statut do not apply to any person ins. r as he transacts a business in securities outside of the jursidiction of the United States, unless he transacts such business in contravention of rules and regulations prescribed by the Commission thereunder as necessary or appropriate to prevent evasion of that statute. However, certain judicial decisions indicate that the provisions of this section do not restrict the jursidiction of the Commission as much as may be suggested by the language of the Section. See, for example, Schoenbaum v. Firstbrook, 405 F.2d 200 (C.A.2., 1968), cert. denied 395 U.S. 906 (1969).

The criminal penalty provisions of the 1934 Act are contained in Section 32(a) of that Act. They provide that any person who willfully violates any provision of that statute, or who willfully or knowingly makes or causes to be made any statement in any application, report or document required to be filed under that statute or any rule or regulation thereunder or any undertaking contained in a registration statement, which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $10,000, or imprisoned not more than 2 years, or both.

Section 32(b) of the 1934 Act provides that any issuer which fails to file information, documents or reports required to be filed under subsection (d) of Section 15 of that statute or any rule or regulation thereunder, shall forfeit $100 to the United States for each day of such failure to file. This forfeiture is in lieu of any criminal penalty for such failure to file.

The Public Utility Holding Company Act of 1935 ("1935 Act")

Under Section 18(d), the Commission may apply for judicial enforcement of subpoenas issued in connection with investigations. Section 18(f) grants the Commission power to bring actions to enjoin violations of the 1935 Act and to enforce compliance. The Commission may also apply for writs of mandamus under Section 18(g) to enforce compliance with any provision of the 1935 Act and any rules or regulations promulgated thereunder.

- 6

Section 21 states that the 1935 Act does not affect the Commission's jurisdiction under the 1933 and 1934 Acts. Enforcement powers under the 1933 and 1934 Acts apply with respect to companies subject to those statutes as well as to the 1935 Act.

The Trust Indenture Act of 1939

Section 321(a) of the Trust Indenture Act of 1939 grants the Commission investigative authority comparable to that described above under Section 19(b) of the 1933 Act. In addition, Section 321(a) expressly incorporates by reference the powers granted to the Commission under Section 20 of the 1933 Act (concerning civil injunctive powers), and Section 22(b) of the 1933 Act (concerning enforcement of subpoena powers).

Section 325 of the Trust Indenture Act of 1939 provides criminal penalties for willfull violations of any provision of that Act, and states that violation and conviction can result in a fine of not more than $5,000 or imprisonment for not more than five years, or both.

The Investment Company Act of 1940

The Investment Advisers Act of 1940

The Commission has the power to revoke the registration of any company that has failed to file a registration statement or a report required pursuant to Section 30(a) or (b), or that has filed such a registration statement or report but has omitted therefrom material facts required to be stated therein, or has filed such a registration statement or report in violation of Section 34(b). Revocation of registration proceedings pursuant to Section 8(e) of the Investment Company Act includes notification by registered or certified mail of the failure of the report to meet the provisions of the Act which, if no correct filing is made, is followed by notice and opportunity for hearing and an order suspending or revoking registration.

Section 42 is the general enforcement provision under the Act which grants the Commission the visual investigatory powers, subpoena powers and powers to sue for injunctions and restraining orders in the appropriate district court to enforce the provisions of the Act.

Similar powers are granted to the Commission under the Investment Advisers Act by Section 209. Section 203(e) of the Advisers Act grants the power to revoke registration under appropriate circumstances.

60-146 - 75-6

- 7

4. The majority of securities and corporations subject to the provisions of the various statutes administered by the Commission comply with the registration and reporting requirements of those statutes, without the need to resort to enforcement action. Of course, some of the required reports are not timely filed and certain others may be incomplete in certain respects when initially filed. As such situations come to the attention of the Commission's staff, it seeks to obtain any information omitted from such reports and encourages those required to file reports to do so in a timely fashion.

In a limited number of situations where there has been a continuing failure to file reports, where material has repeatedly been omitted from reports, or where there has been a continuing failure to file reports in a timely fashion, the Commission may bring an appropriate enforcement action in order to attempt to prevent the recurrence of such problems in the future. The action to be taken by the Commission in such situations may take a number of different forms, depending upon the circumstances, including an order suspending the effectiveness of any registration statements that may be in effect as to the company's securities, an administrative proceeding suspending or barring persons from being associated with a securities brokerage firm, or the filing of a civil action seeking a court order enjoining the respondents from failure to file the required reports in timely fashion, ordering that such reports be filed in timely fashion in the future, and possibly imposing other requirements on the respondents in order to attempt to insure future compliance with the reporting requirements.

In addition to numerous injunctive and administrative proceedings that have been brought by the Commission in this regard, there have been a number of criminal prosecutions based in whole or in part on failure to register a public offering of securities with the Commission. See, for example, U.S. v. Abrams 357 F.2d 539 (C.A. 2, 1966); U.S. v. Wolfson 405 F.2d 779 (C.A. 2, 1968); and J.S. v. Re 336 F.2d 306 (C.A. 2, 1964).

Similarly, criminal prosecutions have also been based in whole or in part on failure to comply with the report filing requirements of the Securities Exchange Act of 1934. See, for example, U.S. v. Guterma, 281 F.2d 742 (C.A. 2, 1960) Form 10-K (annual report) and Form 4; U.S. v. Eskow, 442 F.2d 1060 (C.A. 2, 1970) false financial statements; U.S. v. Colasurdo, 453 F.2d 585 (C.A. 2, 1971) current report on Form 8-K and; U.S. v. Pope, 189 F. Supp. 12 (S.D.N.Y. 1960) proxy statements.

- 8

5. Confidential Requirements and Other Restrictions - Some of the statutes that the Commission administers permit or require the Commission to treat certain materials filed with or submitted to it as non-public. In addition, the Commission has promulgated certain rules and regulations pursuant to which it may afford non-public treatment to certain other matters to the extent permitted under the Freedom of Information Act, as amended, 5 U.S.C. 552.

Thus, for example, the Commission is required to withhold from public scrutiny portions of certain contracts required to be filed in connection with registration statements for the sale of securities under the Securities Act, if the Commission should determine that disclosure "would impair the value of the contract and would not be necessary for the protection of the investors.' See Item 30 of Schedule A, 15 U.S.C. 77aa. The procedure to be followed by persons seeking non-public treatment of portions of material contracts is set forth in Rule 17 CFR 230.485.

Under Section 24(a) of the Securities Exchange Act of 1934, the Commission is forbidden to disclose "trade secrets or processes" contained in "any application, report or document filed with the Commission under that Act." Pursuant to Section 24(b), 15 U.S.C. 78x(b), objections to the public disclosure of other information contained in applications, reports or other documents may be made, although the Commission is authorized to make that information public "when in its judgment a disclosure of such information is in the public interest. The procedure to be followed by persons seeking confidential treatment under Section 24(b) is set forth in Rule 17 CFR 240.24b-2, adopted by the Commission to implement the statutory provisions.2/

In connection with certain regulatory activities, the Commission receives information in confidence in order to assure that it will have access to sensitive business information that it needs to do its work. Thus, for example, certain agreements executed by brokers or dealers in securities are required to be submitted to the Commission but are afforded non-public treatment in accordance with the procedures set forth in Rule 17 CFR 240.15c3-1(c)(7)(vii). Similarly, certain schedules concerning the valuation of securities and commodities positions and commitments submitted by brokers and dealers may be treated as non-public in accordance with Rule 17 CFR 240.17a-5(b)(3).

2/ Provisions similar to those contained in Section 24 of the Securities Exchange Act are also contained in Section 22 of the Public Utility Holding Company Act and Section 45 of the Investment Company Act. The procedures to be followed by persons seeking confidential treatment under those provisions are set forth in Rules 17 CFR 250.104(b) and 270.45a-1, respectively.


Likewise, to preserve the integrity of the Commission's investigatory procedures in advance of possible enforcement action, the Commission's Rule 17 CFR 203.5 provides that investigations shall be non-public unless otherwise ordered by the Commission, and Rule 203.2 provides that information or documents obtained in an investigation shall be deemed non-public unless they are made a matter of public records.3/

Of course, the Commission will protect information classified by other government agencies in the interests of the national defense or foreign policy, see Rules 17 CFR 230.171, 240.0-6 and 250.105.

It should be apparent from the foregoing brief description of the Commission's rules on confidential treatment of materials filed with it that the thrust of its rules in this area is two-fold:


To assist the Commission in the performance of its regulatory responsibilities with respect to the securities industry, including those who issue, distribute, sell or trade in securities.

b. To aid in its investigative and enforcement activities directed toward persons who have presumably violated or are about to violate the laws which it administers.

Being thus oriented, the Commission's rules on the subject of prohibiting or restricting public dissemination of information would not impede the use of any information gathered by it in its data-collection activities with respect to foreign investments in the United States.


Public Dissemination of Data See Section I, A.1 for a description of public dissemination of investor reports. Copies of publications mentioned therein are attached.

B. Desirable Improvements in Data-Collection Activities

1. In the area of foreign ownership of equity and other voting securities of U.S. entities, the SEC has recently conducted a public fact-finding investigation regarding the matter of beneficial ownership, takeovers and acquisitions by both foreign and domestic persons. This investigation was announced initially in Securities Act Release No. 5526, dated September 9, 1974. A copy of this release is enclosed as an attachment to this memorandum.

3/ In addition to these general rules, similar rules have also been promulgated pursuant to certain of the statutes enforced by the Commission. See 17 CFR 230.122, 240.0-4, 250.104 (c) and 260.0-6.

« PreviousContinue »