
[Federal Register Volume 78, Number 43 (Tuesday, March 5, 2013)]
[Rules and Regulations]
[Pages 14179-14183]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04931]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release Nos. 33-9387; 34-68994; IA-3557; IC-30408]


Adjustments to Civil Monetary Penalty Amounts

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: This rule implements the Federal Civil Penalties Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996. The Commission is adopting a rule adjusting for inflation 
the maximum amount of civil monetary penalties under the Securities Act 
of 1933, the Securities Exchange Act of 1934, the Investment Company 
Act of 1940, the Investment Advisers Act of 1940, and certain penalties 
under the Sarbanes-Oxley Act of 2002.

DATES: Effective Date: March 5, 2013.

FOR FURTHER INFORMATION CONTACT: James A. Cappoli, Senior Special 
Counsel, Office of the General Counsel, at (202) 551-7923, or Miles S. 
Treakle, Senior Counsel, Office of the General Counsel, at (202) 551-
3609.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule implements the Debt Collection Improvement Act of 1996 
(``DCIA'').\1\ The DCIA amended the Federal Civil Penalties Inflation 
Adjustment Act of 1990 (``FCPIAA'') \2\ to require each federal agency 
to adopt regulations at least once every four years that adjust for 
inflation the maximum amount of the civil monetary penalties (``CMPs'') 
under the statutes administered by the agency.\3\
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    \1\ Public Law 104-134, 110 Stat. 1321-373 (1996) (codified at 
28 U.S.C. 2461 note).
    \2\ 28 U.S.C. 2461 note.
    \3\ Increased CMPs apply only to violations that occur after the 
increase takes effect.
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    A civil monetary penalty (``CMP'') is defined in relevant part as 
any penalty, fine, or other sanction that: (1) Is for a specific 
amount, or has a maximum amount, as provided by federal law; and (2) is 
assessed or enforced by an agency in an administrative proceeding or by 
a federal court pursuant to federal law.\4\ This definition covers the 
monetary penalty provisions contained in the statutes administered by 
the Commission. In addition, this definition encompasses the civil 
monetary penalties that may be imposed by the Public Company Accounting 
Oversight Board (the ``PCAOB'') in its disciplinary proceedings 
pursuant to 15 U.S.C. 7215(c)(4)(D).\5\
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    \4\ 28 U.S.C. 2461 note (3)(2).
    \5\ The Commission may by order affirm, modify, remand, or set 
aside sanctions, including civil monetary penalties, imposed by the 
PCAOB. See Section 107(c) of the Sarbanes-Oxley Act of 2002, 15 
U.S.C. 7217. The Commission may enforce such orders in federal 
district court pursuant to Section 21(e) of the Securities Exchange 
Act of 1934. As a result, penalties assessed by the PCAOB in its 
disciplinary proceedings are penalties ``enforced'' by the 
Commission for purposes of the Act. See Adjustments to Civil 
Monetary Penalty Amounts, Release No. 33-8530 (Feb. 4, 2005) [70 FR 
7606 (Feb. 14, 2005)].
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    The DCIA requires that the penalties be adjusted by the cost-of-
living adjustment set forth in Section 5 of the FCPIAA.\6\ The cost-of-
living adjustment is defined in the FCPIAA as the percentage by which 
the U.S. Department of Labor's Consumer Price Index for all-urban 
consumers (``CPI-U'') \7\ for the month of June for the year preceding 
the adjustment exceeds the CPI-U for the month of June for the year in 
which the amount of the penalty was last set or adjusted pursuant to 
law.\8\ The statute contains specific rules for rounding each increase 
based on the size of the penalty.\9\ Agencies do not have discretion 
over whether to adjust a maximum CMP, or the method used

[[Page 14180]]

to determine the adjustment. Although the DCIA imposes a 10 percent 
maximum increase for each penalty for the first adjustment pursuant 
thereto, that limitation does not apply to subsequent adjustments.
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    \6\ 28 U.S.C. 2461 note (5).
    \7\ 28 U.S.C. 2461 note (3)(3).
    \8\ 28 U.S.C. 2461 note (5)(b).
    \9\ 28 U.S.C. 2461 note (5)(a)(1)-(6).
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    The Commission administers four statutes that provide for civil 
monetary penalties: The Securities Act of 1933; the Securities Exchange 
Act of 1934; the Investment Company Act of 1940; and the Investment 
Advisers Act of 1940. In addition, the Sarbanes-Oxley Act of 2002 
provides the PCAOB (over which the Commission has jurisdiction) 
authority to levy civil monetary penalties in its disciplinary 
proceedings.\10\ Penalties administered by the Commission were last 
adjusted by rules effective March 3, 2009.\11\ The DCIA requires the 
civil monetary penalties to be adjusted for inflation at least once 
every four years. The Commission is therefore obligated by statute to 
increase the maximum amount of each penalty by the appropriate 
formulated amount.
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    \10\ 15 U.S.C. 7215(c)(4)(D).
    \11\ See 17 CFR 201.1004.
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    Accordingly, the Commission is adopting an amendment to 17 CFR part 
201 to add Sec.  201.1005 and Table V to Subpart E, increasing the 
amount of each civil monetary penalty authorized by the Securities Act 
of 1933, the Securities Exchange Act of 1934, the Investment Company 
Act of 1940, the Investment Advisers Act of 1940, and certain penalties 
under the Sarbanes-Oxley Act of 2002.\12\ The adjustments set forth in 
the amendment apply to violations occurring after the effective date of 
the amendment.
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    \12\ The Commission also is adopting technical corrections to 
Table I, Table II, Table III, and Table IV of 17 CFR Part 201. 17 
CFR 201.1001-1004. Each of these tables referenced 15 U.S.C. 
78ff(c)(2)(C), rather than 15 U.S.C. 78ff(c)(2)(B). The technical 
corrections will amend each table to refer to the correct paragraph.
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II. Summary of the Calculation

    To explain the inflation adjustment calculation for CMP amounts 
that were last adjusted in 2009, we will use the following example. 
Under the current provisions, the Commission may impose a maximum CMP 
of $1,425,000 for certain insider trading violations by a controlling 
person. To determine the new CMP amounts under the amendment, first we 
determine the appropriate CPI-U for June of the calendar year preceding 
the year of adjustment. Because we are adjusting CMPs in 2013, we use 
the CPI-U for June of 2012, which was 229.478. We must also determine 
the CPI-U for June of the year the CMP was last adjusted for inflation. 
Because the Commission last adjusted this CMP in 2009, we use the CPI-U 
for June of 2009, which was 215.693.
    Second, we calculate the cost-of-living adjustment or inflation 
factor. To do this we divide the CPI for June of 2012 (229.478) by the 
CPI for June of 2009 (215.693). Our result is 1.0639.
    Third, we calculate the raw inflation adjustment (the inflation 
adjustment before rounding). To do this, we multiply the maximum 
penalty amounts by the inflation factor. In our example, $1,425,000 
multiplied by the inflation factor of 1.0639 equals $1,516,058.
    Fourth, we round the raw inflation amounts according to the 
rounding rules in Section 5(a) of the FCPIAA. Since we round only the 
increase amount, we calculate the increased amount by subtracting the 
current maximum penalty amounts from the raw maximum inflation 
adjustments. Accordingly, the increase amount for the maximum penalty 
in our example is $91,072 (i.e., $1,516,058 less $1,425,000). Under the 
rounding rules, if the penalty is greater than $200,000, we round the 
increase to the nearest multiple of $25,000. Therefore, the maximum 
penalty increase in our example is $100,000.
    Fifth, we add the rounded increase to the maximum penalty amount 
last set or adjusted. In our example, $1,425,000 plus $100,000 yields a 
maximum inflation adjustment penalty amount of $1,525,000.\13\
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    \13\ The adjustments in Table V to Subpart E of Part 201 reflect 
that the operation of the statutorily mandated computation, together 
with rounding rules, does not result in any adjustment to ten 
penalties. These particular penalties will be subject to slightly 
different treatment when calculating the next adjustment. Under the 
statute, when we next adjust these penalties, we will be required to 
use the CPI-U for June of the year when these particular penalties 
were ``last adjusted,'' rather than the CPI-U for 2013.
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III. Related Matters

Administrative Procedure Act--Immediate Effectiveness of Final Rule

    Under the Administrative Procedure Act (``APA''), a final rule may 
be issued without public notice and comment if the agency finds good 
cause that notice and comment are impractical, unnecessary, or contrary 
to public interest.\14\ Because the Commission is required by statute 
to adjust the civil monetary penalties within its jurisdiction by the 
cost-of-living adjustment formula set forth in Section 5 of the FCPIAA, 
the Commission finds that good cause exists to dispense with public 
notice and comment pursuant to the notice and comment provisions of the 
APA.\15\ Specifically, the Commission finds that because the adjustment 
is mandated by Congress and does not involve the exercise of Commission 
discretion or any policy judgments, public notice and comment is 
unnecessary.\16\
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    \14\ 5 U.S.C. 553(b)(3)(B).
    \15\ 5 U.S.C. 553(b)(3)(B).
    \16\ A regulatory flexibility analysis under the Regulatory 
Flexibility Act (``RFA'') is required only when an agency must 
publish a general notice of proposed rulemaking for notice and 
comment. See 5 U.S.C. 603. As noted above, notice and comment are 
not required for this final rule. Therefore, the RFA does not apply.
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    Under the DCIA, agencies must make the required inflation 
adjustment to civil monetary penalties: (1) According to a very 
specific formula in the statute; and (2) within four years of the last 
inflation adjustment. Agencies have no discretion as to the amount of 
the adjustment and have limited discretion as to the timing of the 
adjustment, in that agencies are required to make the adjustment at 
least once every four years. The regulation discussed herein is 
ministerial, technical, and noncontroversial. Furthermore, because the 
regulation concerns penalties for conduct that is already illegal under 
existing law, there is no need for affected parties to have thirty days 
prior to the effectiveness of the regulation and amendments to adjust 
their conduct. Accordingly, the Commission believes that there is good 
cause to make this regulation effective immediately upon 
publication.\17\
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    \17\ Additionally, this finding satisfies the requirements for 
immediate effectiveness under the Small Business Regulatory 
Enforcement Fairness Act. See 5 U.S.C. 808(2); see also id. 
801(a)(4).
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A. Economic Analysis

    The Commission is sensitive to the costs and benefits that result 
from its rules. This regulation merely adjusts civil monetary penalties 
in accordance with inflation as required by the DCIA, and has no impact 
on disclosure or compliance costs. The Commission notes that the civil 
monetary penalties ordered in SEC proceedings in fiscal year 2012 
totaled approximately $1,021.0 million. Assuming that the Commission is 
successful in obtaining civil monetary penalties in fiscal years 
subsequent to the enactment of the new regulation in similar proportion 
to that obtained in fiscal year 2012, the inflationary adjustment 
pursuant to the new regulation would result in a maximum increase in 
the civil monetary penalties ordered of approximately 6.4%, or $65.3 
million. This figure assumes that the Commission would obtain a civil 
monetary penalty equal to the maximum statutory amount in each

[[Page 14181]]

case, which clearly overstates the effect of the adjustment to the 
penalties. The Commission further notes that, in many cases in which it 
has obtained large civil monetary penalties, such penalties were 
calculated on the basis of the gross pecuniary gain rather than the 
maximum penalty dollar amount set by statute that will be adjusted by 
this rule.\18\ In addition, the Commission notes that this figure 
includes penalties imposed for insider trading, for which the statutory 
maximum is stated as an amount not to exceed three times the profit 
gained or loss avoided as a result of the violation, rather than by 
reference to a statutory dollar amount that is affected by this 
regulation.\19\ Therefore, the Commission does not believe that 
adjusting civil monetary penalties will significantly affect the amount 
of penalties it obtains.
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    \18\ For example, 15 U.S.C. 77t(d)(2)(A), after adjusting for 
inflation as required by the DCIA, provides that ``the amount of the 
penalty shall not exceed the greater of (i) [$7,500] for a natural 
person or [$80,000] for any other person, or (ii) the gross amount 
of pecuniary gain to such defendant as a result of the violation.''
    \19\ 15 U.S.C. 78u-1(a)(2). In fiscal year 2012, penalties 
imposed under this provision totaled over $140 million.
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    The benefit provided by the inflationary adjustment to the maximum 
civil monetary penalties is that of maintaining the level of deterrence 
effectuated by the civil monetary penalties, and not allowing such 
deterrent effect to be diminished by inflation. The costs of 
implementing this rule should be negligible, because the only change 
from the current, baseline situation is determining potential penalties 
using a new maximum dollar amount. Furthermore, Congress, in mandating 
the inflationary adjustments, has already determined that any possible 
increase in costs is justified by the overall benefits of such 
adjustments.

B. Paperwork Reduction Act

    This rule does not contain any collection of information 
requirements as defined by the Paperwork Reduction Act of 1995 as 
amended.\20\
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    \20\ 44 U.S.C. 3501 et seq.
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C. Statutory Basis

    The Commission is adopting these amendments to 17 CFR Part 201, 
Subpart E pursuant to the directives and authority of the DCIA, Pub. L. 
No. 104-134, 110 Stat. 1321-373 (1996).

List of Subjects in 17 CFR Part 201

    Administrative practice and procedure, Claims, Confidential 
business information, Lawyers, Securities.

Text of Amendment

    For the reasons set forth in the preamble, part 201, title 17, 
chapter II of the Code of Federal Regulations is amended as follows:

PART 201--RULES OF PRACTICE

Subpart E--Adjustment of Civil Monetary Penalties

0
1. The authority citation for part 201, Subpart E, continues to read as 
follows:

    Authority: 28 U.S.C. 2461 note.


Sec.  201.1001  [Amended]

0
2. Section 201.1001 is amended in Table 1 in the first column labeled 
``U.S. code citation'' by removing the reference ``15 U.S.C. 
78ff(c)(2)(C) * * *'' and adding in its place ``15 U.S.C. 78ff(c)(2)(B) 
* * *''.


Sec.  201.1002  [Amended]

0
3. Section 201.1002 is amended in Table II in the first column labeled 
``U.S. code citation'' by removing the reference ``15 U.S.C. 
78ff(c)(2)(C) * * *'' and adding in its place ``15 U.S.C. 78ff(c)(2)(B) 
* * *''.


Sec.  201.1003  [Amended]

0
4. Section 201.1003 is amended in Table III in the first column labeled 
``U.S. code citation'' by removing the reference ``15 U.S.C. 
78ff(c)(2)(C) * * *.'' and adding in its place ``15 U.S.C. 
78ff(c)(2)(B) * * *''.


Sec.  201.1004  [Amended]

0
5. Section 201.1004 is amended in Table IV in the first column labeled 
``U.S. code citation'' by removing the reference ``15 U.S.C. 
78ff(c)(2)(C) * * *'' and adding in its place ``15 U.S.C. 78ff(c)(2)(B) 
* * *''.

0
6. Section 201.1005 and Table V to Subpart E are added to read as 
follows:


Sec.  201.1005  Adjustment of civil monetary penalties--2013.

    As required by the Debt Collection Improvement Act of 1996, the 
maximum amounts of all civil monetary penalties under the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Investment 
Company Act of 1940, the Investment Advisers Act of 1940, and certain 
penalties under the Sarbanes-Oxley Act of 2002 are adjusted for 
inflation in accordance with Table V to this subpart. The adjustments 
set forth in Table V apply to violations occurring after March 5, 2013.

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         Table V to subpart E            Civil monetary penalty                       Maximum
---------------------------------------   inflation adjustments                       penalty
                                       --------------------------  Year penalty       amount         Adjusted
                                                                    amount was     pursuant  to       maximum
          U.S. Code citation             Civil monetary penalty    last adjusted       last       penalty amount
                                               description                          adjustment
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Securities and Exchange Commission:
    15 U.S.C. 77h-1(g)................  For natural person......            2010          $7,500          $7,500
                                        For any other person....            2010          75,000          80,000
                                        For natural person/fraud            2010          75,000          80,000
                                        For any other person/               2010         375,000         400,000
                                         fraud.
                                        For natural person/                 2010         150,000         160,000
                                         substantial losses or
                                         risk of losses to
                                         others.
                                        For any other person/               2010         725,000         775,000
                                         substantial losses or
                                         risk of losses to
                                         others.
    15 U.S.C. 77t(d)..................  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses or
                                         risk of losses to
                                         others.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses or
                                         risk of losses to
                                         others.

[[Page 14182]]

 
    15 U.S.C. 78ff(b).................  Exchange Act/failure to             1996             110             210
                                         file information
                                         documents, reports.
    15 U.S.C. 78ff(c)(1)(B)...........  Foreign Corrupt                     2009          16,000          16,000
                                         Practices--any issuer.
    15 U.S.C. 78ff(c)(2)(B)...........  Foreign Corrupt                     2009          16,000          16,000
                                         Practices--any agent or
                                         stockholder acting on
                                         behalf of issuer.
    15 U.S.C. 78u-1(a)(3).............  Insider Trading--                   2009       1,425,000       1,525,000
                                         controlling person.
    15 U.S.C. 78u-2...................  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses to
                                         others/gains to self.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses to
                                         others/gain to self.
    15 U.S.C. 78u(d)(3)...............  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses or
                                         risk of losses to
                                         others.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses or
                                         risk of losses to
                                         others.
    15 U.S.C. 80a-9(d)................  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses to
                                         others/gains to self.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses to
                                         others/gain to self.
    15 U.S.C. 80a-41(e)...............  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses or
                                         risk of losses to
                                         others.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses or
                                         risk of losses to
                                         others.
    15 U.S.C. 80b-3(i)................  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses to
                                         others/gains to self.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses to
                                         others/gain to self.
    15 U.S.C. 80b-9(e)................  For natural person......            2009           7,500           7,500
                                        For any other person....            2009          75,000          80,000
                                        For natural person/fraud            2009          75,000          80,000
                                        For any other person/               2009         375,000         400,000
                                         fraud.
                                        For natural person/                 2009         150,000         160,000
                                         substantial losses or
                                         risk of losses to
                                         others.
                                        For any other person/               2009         725,000         775,000
                                         substantial losses or
                                         risk of losses to
                                         others.
    15 U.S.C. 7215(c)(4)(D)(i)........  For natural person......            2009         120,000         130,000
                                        For any other person....            2009       2,375,000       2,525,000
    15 U.S.C. 7215(c)(4)(D)(ii).......  For natural person......            2009         900,000         950,000
                                        For any other person....            2009      17,800,000      18,925,000
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[[Page 14183]]

    Dated: February 27, 2013.
    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-04931 Filed 3-4-13; 8:45 am]
BILLING CODE 8011-01-P


