Microcap Fraud Prevention Act of 2001

107th CONGRESS

2d Session

S. 1985

To allow Federal securities enforcement actions to be predicated on State securities enforcement actions, to prevent migration of rogue securities brokers between and among financial services industries, and for other purposes.

IN THE SENATE OF THE UNITED STATES

March 5, 2002

Ms. COLLINS introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Microcap Fraud Prevention Act of 2001'.

SEC. 2. AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.

Section 15(b)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(4)) is amended--

(1) in each of subparagraphs (A) through (E), by striking the period at the end and inserting a semicolon;

(2) by striking subparagraph (F) and inserting the following:

`(F) is subject to any order of the Commission barring or suspending the right of the person to be associated with a broker or dealer;';

(3) in subparagraph (G)--

(A) in clause (i), by striking `has omitted' and all that follows through the semicolon and inserting `omitted to state in any such application, report, or proceeding any material fact that is required to be stated therein;';

(B) in clause (ii)--

(i) by striking `transactions in securities,' and inserting `securities, banking, insurance,'; and

(ii) by adding `or' at the end; and

(i) by inserting `other' after `violation by any';

(ii) by striking `empowering a foreign financial regulatory authority regarding transactions in securities,' and inserting `regarding securities, banking, insurance,';

(iii) by striking `has been found, by a foreign financial regulatory authority,'; and

(iv) by striking the period at the end and inserting `; or'; and

(4) by adding at the end the following:

`(H) is subject to any order of a State securities commission (or any agency or office performing like functions), State authority that supervises or examines financial institutions, State insurance commission (or any agency or office performing like functions), or an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) that--

`(i) bars such person from association with an entity regulated by such commission, authority, agency, or officer, or from engaging in the business of securities, insurance, or banking; or

`(ii) constitutes a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct.'.

SEC. 3. AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940.

Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) is amended--

(1) in subsection (e)--

(A) in each of paragraphs (1) through (6), by striking the period at the end and inserting a semicolon; and

(B) by striking paragraphs (7) and (8) and inserting the following:

`(7) is subject to any order of the Commission barring or suspending the right of the person to be associated with an investment adviser;

`(8) 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, or in any proceeding before, that foreign financial regulatory 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 omitted to state in any such application or report filed with, or in any proceeding before, that foreign financial regulatory authority any material fact that is required to be stated in the application, report, or proceeding;

`(B) violated any foreign statute or regulation regarding securities, banking, insurance, 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 securities, banking, insurance, 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 failed reasonably to supervise, with a view to preventing violations of any such statute or regulation, another person who commits such a violation, if the other person is subject to its supervision; or

`(9) is subject to any order of a State securities commission (or any agency or office performing like functions), State authority that supervises or examines financial institutions, State insurance commission (or any agency or office performing like functions), or an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) that--

`(A) bars such investment adviser or person from association with an entity regulated by such commission, authority, agency, or officer, or from engaging in the business of securities, insurance, or banking; or

`(B) constitutes a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct.'; and

(2) in subsection (f)--

(A) by striking `(6), or (8)' and inserting `(6), (8), or (9)'; and

(B) by striking `paragraph (2)' and inserting `paragraph (2) or (3)'.

SEC. 4. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940.

Section 9(b) of the Investment Company Act of 1940 (15 U.S.C. 80a-9(b)) is amended--

(1) in paragraph (4), by striking subparagraphs (A) through (C) and inserting the following:

`(A) made or caused to be made in any application for registration or report required to be filed with, or in any proceeding before, that foreign financial regulatory 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 omitted to state in any application or report filed with, or in any proceeding before, that foreign financial regulatory authority any material fact that is required to be stated in the application, report, or proceeding;

(2) in paragraph (5), by striking `or' at the end;

(3) in paragraph (6), by striking the period at the end and inserting `; or'; and

(4) by adding at the end the following:

`(7) is subject to any order of a State securities commission (or any agency or office performing like functions), State authority that supervises or examines financial institutions, State insurance commission (or any agency or office performing like functions), or an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) that--

`(A) bars such person from association with an entity regulated by such commission, authority, agency, or officer, or from engaging in the business of securities, insurance, or banking; or

`(B) constitutes a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct.'.

SEC. 5. CONFORMING AMENDMENTS.

(a) MUNICIPAL SECURITIES DEALERS- Section 15B(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(c)) is amended--

(1) in paragraph (2), by striking `act or omission' and all that follows through the period and inserting `act, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of section 15(b)(4), has been convicted of any offense specified in section 15(b)(4)(B) within 10 years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in section 15(b)(4)(C).'; and

(2) in paragraph (4), in the first sentence, by striking `any act or omission' and all that follows through the period and inserting `or omitted any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of section 15(b)(4), has been convicted of any offense specified in section 15(b)(4)(B) within 10 years of the commencement of the proceedings under this paragraph, or is enjoined from any action, conduct, or practice specified in section 15(b)(4)(C).'.

(b) GOVERNMENT SECURITIES BROKERS AND DEALERS- Section 15C(c)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5(c)(1)) is amended--

(1) in subparagraph (A), by striking `or omission enumerated in subparagraph (A), (D), (E), or (G) of paragraph (4) of section 15(b) of this title' and inserting `, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of section 15(b)(4)'; and

(2) in subparagraph (C), by striking `or omission enumerated in subparagraph (A), (D), (E), or (G) of paragraph (4) of section 15(b) of this title' and inserting `, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of section 15(b)(4)'.

(1) in paragraph (3)(A), by striking `any act enumerated in subparagraph (A), (D), (E), or (G) of paragraph (4) of section 15(b) of this title' and inserting `any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of section 15(b)(4)'; and

(2) in paragraph (4)(C), in the first sentence, by striking `any act enumerated' and all that follows through `of this title,' and inserting `any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of paragraph (4) of section 15(b),'.

(d) STATUTORY DISQUALIFICATIONS- Section 3(a)(39)(F) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(39)(F)) is amended--

(1) by striking `any act enumerated in subparagraph (D), (E), or (G) of paragraph (4) of section 15(b) of this title' and inserting `any act, or is subject to an order or finding, enumerated in subparagraph (D), (E), (G), or (H) of section 15(b)(4)';

(2) by striking `subparagraph (B) of such paragraph (4)' and inserting `section 15(b)(4)(B)'; and

(3) by striking `subparagraph (C) of such paragraph (4)' and inserting `section 15(b)(4)(C)'.

SEC. 6. BROADENING OF PENNY STOCK BAR.

Section 15(b)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(6)) is amended--

(1) in subparagraph (A)--

(A) by striking `of any penny stock' and inserting `of any noncovered security';

(B) by striking `of penny stock' and inserting `of any noncovered security'; and

(C) in clause (i), by striking `or omission enumerated' and all that follows through the semicolon and inserting `, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (G), or (H) of paragraph (4)';

(2) in subparagraph (B)--

(A) by striking `an offering of penny stock' each place that term appears and inserting `any securities offering'; and

(B) in clause (iii), by striking `such a person' and inserting `a person as to whom an order under section 21(d)(5) or subparagraph (A) of this paragraph is in effect'; and

(3) by striking subparagraph (C) and inserting the following:

`(C) For purposes of this paragraph--

`(i) the term `noncovered security' means any security other than those described in paragraphs (1) and (2) of section 18(b) of the Securities Act of 1933 (15 U.S.C. 77r(b)); and

`(ii) the term `participation in an offering of noncovered securities'--

`(I) means acting as a promoter, finder, consultant, or agent, or engaging in activities with a broker, dealer, or issuer for purposes of the issuance of or trading in any noncovered security, or inducing or attempting to induce the purchase or sale of any noncovered security;

`(II) includes other activities that the Commission specifies by rule or regulation; and

`(III) excludes any person or class of persons, in whole or in part, conditionally or unconditionally, that the Commission, by rule, regulation, or order, may exclude.'.

SEC. 7. COURT AUTHORITY TO PROHIBIT OFFERINGS OF NONCOVERED SECURITIES.

Section 21(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended--

(1) by striking `(d)(1) Whenever' and inserting the following:

`(d) AUTHORITY OF COURTS AND COMMISSION FOR VIOLATIONS-

`(1) COURT ACTIONS- Whenever';

(2) in paragraphs (2) and (3), by moving each of the margins in those paragraphs 2 ems to the right; and

(3) by adding at the end the following:

`(5) COURT AUTHORITY TO PROHIBIT PERSONS FROM PARTICIPATING IN OFFERING OF NONCOVERED SECURITIES-

`(A) IN GENERAL- In any proceeding under paragraph (1), the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person that violated section 10(b) or the rules or regulations issued thereunder in connection with any transaction in any noncovered security from participating in an offering of a noncovered security.

`(B) DEFINITIONS- For purposes of this paragraph--

`(i) the term `noncovered security' means any security other than those described in paragraphs (1) and (2) of section 18(b) of the Securities Act of 1933 (15 U.S.C. 77r(b)); and

`(ii) the term `participation in an offering of noncovered securities'--

`(II) includes other activities that the Commission specifies by rule or regulation; and

`(III) excludes any person or class of persons, in whole or in part, conditionally or unconditionally, that the Commission, by rule, regulation, or order, may exempt.'.

SEC. 8. BROADENING OF OFFICER AND DIRECTOR BAR.

Section 21(d)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is amended--

(1) by striking `of this title or that' and inserting `, that'; and

(2) by striking `of this title if' and inserting `, or the securities of which are quoted in any quotation medium, if'.

SEC. 9. VIOLATIONS OF COURT ORDERED BARS.

(a) IN GENERAL- Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end the following:

`(j) BAR ON PARTICIPATION- It shall be unlawful for any person, against which an order under paragraph (2) or (5) of subsection (d) is in effect, to serve as officer, director, or participant in any offering involving a noncovered security (as defined in subsection (d)(5)(B)) in contravention of that order.'.

(b) CONFORMING AMENDMENT- Section 21(d)(3)(D) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(D)) is amended by inserting `or relating to a violation of subsection (j) of this section,' before `each separate'.

END