27360 Federal Register / Vol. 74, No. 109 / Tuesday, June 9, 2009 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4A TCDO is a preliminary order issued in 

connection with an underlying disciplinary 

proceeding that has been initiated or will be 

initiated immediately. 

5See Securities Exchange Act Release No. 47925 

(May 23, 2003), 68 FR 33548 (June 4, 2003) (Order 

Approving File No. SR–NASD–98–80). 

6See Securities Exchange Act Release No. 51860 

(June 16, 2005), 70 FR 36427 (June 23, 2005) (Notice 

of Filing and Immediate Effectiveness of File No. 

SR–NASD–2005–061); Securities Exchange Act 

Release No. 55819 (May 25, 2007), 72 FR 30895 

(June 4, 2007) (Notice of Filing and Immediate 

Effectiveness of File No. SR–NASD–2007–033). 

7See Securities Exchange Act Release No. 55819 

(May 25, 2007), 72 FR 30895 (June 4, 2007) (Notice 

of Filing and Immediate Effectiveness of File No. 

SR–NASD–2007–033). 

8See Securities Exchange Act Release No. 60028 

(June 2, 2009) (SR–FINRA–2009–035). 

9See L.H. Ross & Company, Securities Exchange 

Act Release No. 51270, 2005 SEC LEXIS 452 

(February 28, 2005). 

The Chairman of the Commission 

affirms that the establishment of the 

Committee is necessary and in the 

public interest. 

By the Commission. 

Dated: June 3, 2009. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–13349 Filed 6–8–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60035; File No. SR–FINRA– 

2009–034] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Extend FINRA’s 

Authority Under the Cease and Desist 

Pilot Program 

June 3, 2009. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 18, 

2009, the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under paragraph (f)(6) of Rule 

19b–4 under the Act,3 which renders 

the proposal effective upon receipt of 

this filing by the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to extend 

FINRA’s authority under its cease and 

desist pilot program, as further detailed 

herein, and to make certain technical 

amendments. The proposed rule change 

does not propose any substantive 

changes to the existing cease and desist 

authority pilot program. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

In May 2003, the Commission 

approved, on a two-year pilot basis, a 

rule change that gave FINRA authority 

to issue temporary cease and desist 

orders (‘‘TCDOs’’) 4 and made explicit 

FINRA’s ability to impose permanent 

cease and desist orders as a remedy in 

disciplinary cases.5 The pilot program 

also gave FINRA authority to enforce 

cease and desist orders. In June 2005 

and June 2007, the SEC approved [sic] 

two-year extensions of the pilot 

program.6 The current two-year pilot 

expires on June 23, 2009.7

In a companion rule filing filed with 

the SEC on May 18, 2009,8 FINRA is 

proposing to make the pilot program 

permanent without any substantive 

changes to the terms of the existing 

program. In the current rule filing, 

FINRA seeks to extend the pilot until 

the SEC approves or disapproves the 

proposal to make the pilot permanent so 

that the cease and desist authority does 

not lapse while the proposal is pending 

at the SEC. The proposed action would 

enable FINRA to continue to issue 

TCDOs and impose permanent cease 

and desist orders as a remedy in 

disciplinary cases. The proposed action 

also would give FINRA authority to 

continue to initiate expedited 

proceedings when respondents violate 

temporary or permanent cease and 

desist orders. 

When it first sought cease and desist 

authority, FINRA stated that it would 

use the authority sparingly. That has 

been the case. Since the pilot program 

was first approved in 2003, FINRA has 

issued only one TCDO and one 

permanent cease and desist order (both 

in the same case, which is described 

below). If the pilot is extended, the 

cease and desist rules would continue to 

be used judiciously. There are times, 

however, when their use is crucial. 

In the one case initiated under the 

pilot program, FINRA’s Department of 

Enforcement (‘‘Enforcement’’) alleged 

that the member in question was 

engaged in widespread fraud that 

included, among other things, making 

material misrepresentations and 

omissions in connection with the 

private offering of its own stock, 

effecting unauthorized transactions and 

using customer funds improperly.9

Enforcement showed that not only was 

the member attempting to continue the 

fraudulent offering, it also was 

funneling money and assets to a nonmember affiliate. Enforcement alleged, 

and a hearing panel found, that a TCDO 

was necessary because the member’s 

continuation of the misconduct was 

likely to result in further dissipation or 

conversion of assets and other 

significant harm to investors before the 

completion of the underlying 

disciplinary proceeding. After the 

hearing panel issued a permanent cease 

and desist order following a full 

disciplinary hearing, the parties settled 

the case, resulting in the expulsion of 

the member, the bar of its owner and the 

imposition of almost $12 million in 

fines and restitution. 

The proposed temporary extension of 

the pilot program will provide FINRA 

with a mechanism to continue to take 

appropriate remedial action against a 

member or an associated person that has 

engaged (or is engaging) in violative 

conduct that could cause continuing 

harm to the investing public if not 

addressed expeditiously while the SEC 

is considering FINRA’s proposal to 

permanently adopt the pilot program. It 

must be emphasized, however, that the 

cease and desist provisions contain 

numerous procedural protections for 

respondents to ensure that the 

proceedings are fair. 

Federal Register / Vol. 74, No. 109 / Tuesday, June 9, 2009 / Notices 27361 

10See supra, note 8. 

11 15 U.S.C. 78o–3(b)(6). 

12 15 U.S.C. 78o–3(b)(7). 

13 15 U.S.C. 78s(b)(3)(A). 

14 17 CFR 240.19b–4(f)(6). 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

The proposed rule change also would 

make certain technical amendments to 

the rule text, namely to correct 

punctuation in FINRA Rule 9556 and 

update FINRA Rule 9810 to reflect a 

change in FINRA style convention when 

referencing the federal securities laws. 

FINRA has filed the proposed rule 

change to extend FINRA’s authority 

under its cease and desist pilot program 

for immediate effectiveness. The 

implementation date will be June 23, 

2009. The pilot program will remain in 

effect until the SEC approves FINRA’s 

proposed rule change to make the pilot 

permanent 10 and such rule change 

becomes effective or the SEC 

disapproves such proposed rule change. 

2. Statutory Basis 

The proposed rule change is 

consistent with the provisions of 

Section 15A(b)(6) of the Act,11 which 

requires, among other things, that 

FINRA’s rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The proposed rule 

change also is consistent with the 

provisions of Section 15A(b)(7) of the 

Act,12 which provides that FINRA 

members, or persons associated with its 

members, must be appropriately 

disciplined for violations of any 

provisions of the Act or FINRA’s rules. 

Extending the pilot program is 

consistent with FINRA’s obligations 

under the Act because cease and desist 

orders are designed to stop violative 

conduct that is likely to cause 

dissipation or conversion of assets or 

other significant harm to investors. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 13 and Rule 19b– 

4(f)(6) thereunder.14

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–FINRA–2009–034 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2009–034. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2009–034 and 

should be submitted on or before June 

30, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–13503 Filed 6–8–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60022; File No. SR–FINRA– 

2009–031] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change Relating to the 

Reporting of Over-the-Counter 

Transactions in Equity Securities 

Executed Outside Normal Market 

Hours 

June 1, 2009. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 8, 

2009, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. On May 29, 2009, 

FINRA filed Amendment No. 1 to the 

proposed rule change. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend FINRA 

trade reporting rules relating to overthe-counter transactions in equity 

securities executed outside normal 

market hours to (1) require that any