Securities Enforcement Remedies and Penny Stock Reform Act of 1990
PL 101-429 (S.647), enacted 10/15/1990

PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 931 
Public Law 101-429 
101st Congress 
An Act 
To amend the FederaQ securities laws in order to provide additional enforcement 
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remedies for violations of those laws and to eliminate abuses in transactions in 
' 
penny stocks, and for other purposes. 
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Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
Securities 
Enforcement 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS; EFFECTIVE DATE. 
Remedies and 
Penny Stock 
(a) SHORT TITLE.—This Act may be cited as the "Securities Reform Act of 
Enforcement Remedies and Penny Stock Reform Act of 1990". 
^^ 
(b) TABLE OF CONTENTS.- 
_ 
fn^Sent 
Sec. 1. Short title; table of contents; effective dates. 
companies. 
Fraud. 
TITLE I—AMENDMENTS TO THE SECURITIES ACT OF 1933 
15 USC 78a note. 
Sec. 101. Authority of a court to impose money penalties and to prohibit persons 
from serving as officers and directors. 
Sec. 102. Cease-and-desist authority. 
TITLE II—AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934 
Sec. 201. Enforcement of title. 
Sec. 202. Civil remedies in administrative proceedings. 
Sec. 203. Cease-and-desist authority. 
Sec. 204. Procedural rules for cease-and-desist proceedings. 
Sec. 205. Conforming amendments to section 15B. 
Sec. 206. Signature guarantees. 
TITLE III—AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940 
Sec. 301. Civil remedies in administrative proceedings. 
Sec. 302. Money penalties in civil actions. 
TITLE IV—AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940 
Sec. 401. Civil remedies in administrative proceedings. 
Sec. 402. Money penalties in civil actions. 
Sec. 403. Conforming amendment to section 214. 
TITLE V—PENNY STOCK REFORM 
Sec. 501. Short title. 
Sec. 502. Findings. 
Sec. 503. Definition of penny stock. 
Sec. 504. Expansion of section 15(b) sanction authority with respect to penny stocks. 
Sec. 505. Requirements for brokers and dealers of penny stocks. 
Sec. 506. Development of automated quotation systems for penny stocks. 
Sec. 507. Voidability of contracts in violation of section 15(cX2). 
Sec. 508. Restrictions on blank check offerings. 
Sec. 509. Broker/dealer disciplinary history. 
Sec. 510. Review of regulatory structures and procedures. 
(c) EFFECTIVE DATES.— 
15 USC 77g note. 
(1) IN GENERAL.—Except as provided in paragraphs (2) and (3), 
the amendments made by this Act shall be effective upon 
enactment. 
(2) CIVIL PENALTIES.— 
(A) IN GENERAL.—No civil penalty may be imposed pursu-
ant to the amendments made by this Act on the basis of 
conduct occurring before the date of enactment of this Act. 
49-139 O - 90 (429) 
104 STAT. 932 
PUBLIC LAW 101-429—OCT. 15, 1990 
(B) ACCOUNTING AND DISGORGEMENT.—Subparagraph (A) 
shall not operate to preclude the Securities and Exchange 
Commission from ordering an accounting or disgorgement 
pursuant to the amendments made by this Act. 
(3) SPECIAL RULES FOR TITLE V.— 
(A) SECTIONS 503 AND 504.—Except as provided in 
subparagraph (C), sections 503 and 504 shall be effective 12 
months after the date of enactment of this Act or upon the 
issuance of final regulations initially implementing such 
section, whichever is earlier. 
(B) SECTIONS 505 AND 508.—Except as provided in 
subparagraph (C), sections 505 and 508 shall be effective 18 
months after the date of enactment of this Act or upon the 
issuance of final regulations initially implementing such 
sections, whichever is earlier. 
(C) COMMENCEMENT OF RULEMAKING.—Not later than 180 
days after the date of enactment of this Act, the Commis-
sion shall commence rulemaking proceedings to implement 
sections 503, 505, and 508. 
TITLE I—AMENDMENTS TO THE 
SECURITIES ACT OF 1933 
SEC. 101. AUTHORITY OF A COURT TO IMPOSE MONEY PENALTIES AND TO 
PROHIBIT PERSONS FROM SERVING AS OFFICERS AND DIREC-
TORS. 
Section 20 of the Securities Act of 1933 (15 U.S.C. lit) is amended 
by adding at the end thereof the following new subsections: 
"(d) MONEY PENALTIES IN CIVIL ACTIONS.— 
"(1) AUTHORITY OF COMMISSION.—Whenever it shall appear to 
the Commission that any person has violated any provision of 
this title, the rules or regulations thereunder, or a ceeise-and-
desist order entered by the Commission pursuant to section 8A 
of this title, other than by committing a violation subject to a 
penalty pursuant to section 21A of the Securities Exchange Act 
of 1934, the Commission may bring an action in a United States 
district court to seek, and the court shall have jurisdiction to 
impose, upon a proper showing, a civil penalty to be paid by the 
person who committed such violation. 
"(2) AMOUNT OF PENALTY.— 
"(A) FIRST TIER.—The amount of the penalty shall be 
determined by the court in light of the facts and cir-
cumstances. For each violation, the amount of the penalty 
shall not exceed the greater of (i) $5,000 for a natural 
person or $50,000 for any other person, or (ii) the gross 
amount of pecuniary gain to such defendant as a result of 
the violation. 
"(B) SECOND TIER.—Notwithstanding subparagraph (A), 
the amount of penalty for each such violation shall not 
exceed the greater of (i) $50,000 for a natural person or 
$250,000 for any other person, or (ii) the gross amount of 
pecuniary ggiin to such defendant as a result of the viola-
tion, if the violation described in paragraph (1) involved 
fraud, deceit, manipulation, or deliberate or reckless dis-
regard of a regulatory requirement. 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 933 
"(C) THIRD TIER.—Notwithstanding subparagraphs (A) 
and (B), the amount of penalty for each such violation shall 
not exceed the greater of (i) $100,000 for a natural person or 
$500,000 for any other person, or (ii) the gross amount of 
pecuniary gain to such defendant as a result of the viola-
tion, if— 
"(I) the violation described in paragraph (1) involved 
fraud, deceit, manipulation, or deliberate or reckless 
disregard of a regulatory requirement; and 
"(II) such violation directly or indirectly resulted in 
substantial losses or created a significant risk of 
substantial losses to other persons. 
"(3) PROCEDURES FOR COLLECTION.— 
"(A) PAYMENT OF PENALTY TO TREASURY.—A penalty im-
posed under this section shall be payable into the Treasury 
of the United States. 
"(B) COLLECTION OF PENALTIES.—If a person upon whom 
such a penalty is imposed shall fail to pay such penalty 
within the time prescribed in the court's order, the Commis-
sion may refer the matter to the Attorney General who 
shall recover such penalty by action in the appropriate 
United States district court. 
"(C) REMEDY NOT EXCLUSIVE.—The actions authorized by 
this subsection may be brought in addition to any other 
action that the Commission or the Attorney General is 
entitled to bring. 
"(D) JURISDICTION AND VENUE.—For purposes of section 
22 of this title, actions under this section shall be actions to 
enforce a liability or a duty created by this title. 
"(4) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-
AND-DESIST ORDER.—In an action to enforce a cease-and-desist 
order entered by the Commission pursuant to section 8A, each 
separate violation of such order shall be a separate offense, 
except that in the case of a violation through a continuing 
failure to comply with such an order, each day of the failure to 
comply with the order shall be deemed a separate offense. 
"(e) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM SERVING 
AS OFFICERS AND DIRECTORS.—In any proceeding under subsection 
(b), the court may prohibit, conditionally or unconditionally, and 
permanently or for such period of time as it shall determine, any 
person who violated section 17(aXl) of this title from acting as an 
officer or director of any issuer that has a class of securities reg-
istered pursuant to section 12 of the Securities Exchange Act of 1934 
or that is required to file reports pursuant to section 15(d) of such 
Act if the person's conduct demonstrates substantial unfitness to 
serve as an officer or director of any such issuer.". 
SEC. 102. CEASE-AND-DESIST AUTHORITY. 
^ 
The Securities Act of 1933 (15 U.S.C. 77 et seq.) is amended by 
inserting after section 8 the following: 
"CEASE-AND-DESIST PROCEEDINGS 
"SEC. 8A. (a) AUTHORITY OF THE COMMISSION.—If the Commission 
15 use 77h-i. 
finds, after notice and opportunity for hearing, that any person is 
violating, has violated, or is about to violate any provision of this 
title, or any rule or regulation thereunder, the Commission may 
104 STAT. 934 
PUBLIC LAW 101-429—OCT. 15, 1990 
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 commit-
ting or causing such violation and any future violation of the same 
provision, rule, or regulation. Such order may, in addition to requir-
ing 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) 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 respond-
ent 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), 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 lim-
ited 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 
proceeding. 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 com-
, 
petent jurisdiction, shall remain effective and enforceable pend-
ing the completion of the proceedings. 
(2) APPUCABILITY.—This subsection shall apply only to a 
respondent that acts, or, at the time of the alleged misconduct 
acted, as a broker, dealer, investment adviser, investment com-
pany, municipal securities dealer, government securities broker, 
government securities dealer, 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. 
"(d) REVIEW OF TEMPORARY ORDERS.— 
"(1) COMMISSION REVIEW.—At any time after the respondent 
has been served with a temporary cease-and-desist order pursu-
ant to subsection (c), the respondent may apply to the Commis-
sion 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 respond-
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 935 
ent may, within 10 days after the date on which the order was 
served, request a hearing on such application and the Commis-
sion shall hold a hearing and render a decision on such applica-
tion 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 re-
spect to any temporary cease-and-desist order entered with-
out 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 hear-
ing may not apply to the court except after hearing and decision 
by the Commission on the respondent's application under para-
graph (1) of this subsection. 
"(3) 
N o 
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 9(a) of this title shall not 
apply to a temporary order entered pursuant to this section. 
"(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING 
AND DISGORGEMENT.—In any cease-and-desist proceeding under 
subsection (a), 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 ac-
crual, and such other matters as it deems appropriate to implement 
this subsection.". 
TITLE II—AMENDMENTS TO THE 
SECURITIES EXCHANGE ACT OF 1934 
SEC. 201. ENFORCEMENT OF TITLE. 
Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 
78u(d)) is amended— 
(1) by redesignating subsection (d) as subsection (d)(1); 
(2) by inserting after subsection (d)(1) the following new para-
graphs: 
"(2) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM SERVING 
AS OFFICERS AND DIRECTORS.—In any proceeding under paragraph 
(1) of this subsection, the court may prohibit, conditionally or un-
conditionally, and permanently or for such period of time as it shall 
determine, any person who violated section 10(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 12 of this title or that is required to file reports pursuant to 
section 15(d) of this title if the person's conduct demonstrates 
104 STAT. 936 
PUBLIC LAW 101-429—OCT. 15, 1990 
substantial unfitness to serve as an officer or director of any such 
issuer. 
"(3) MONEY PENALTIES IN CIVIL ACTIONS.— 
Courts. 
"(A) AUTHORITY OF COMMISSION.—Whenever it shall appear to 
the Commission that any person has violated any provision of 
this title, the rules or regulations thereunder, or a cease-and-
desist order entered by the Commission pursuant to section 21C 
of this title, other than by committing a violation subject to a 
penalty pursuant to section 21A, the Commission may bring an 
action in a United States district court to seek, and the court 
shall have jurisdiction to impose, upon a proper showing, a civil 
penalty to be paid by the person who committed such violation. 
"(B) AMOUNT OF PENALTY.— 
"(i) FIRST TIER.—The amount of the penalty shall be 
determined by the court in light of the facts and cir-
cumstances. For each violation, the amount of the penalty 
shall not exceed the greater of (I) $5,000 for a natural 
person or $50,000 for any other person, or (II) the gross 
amount of pecuniary gain to such defendant as a result of 
the violation, 
"(ii) 
SECOND TIER.—Notwithstanding clause (i), the 
amount of penalty for each such violation shall not exceed 
the greater of (I) $50,000 for a natural person or $250,000 for 
any other person, or (II) the gross amount of pecuniary gain 
to such defendant as a result of the violation, if the viola-
tion described in subparagraph (A) involved fraud, deceit, 
manipulation, or deliberate or reckless disregard of a regu-
latory requirement. 
"(iii) THIRD TIER.—Notwithstanding clauses (i) and (ii), the 
amount of penalty for each such violation shall not exceed 
the greater of (I) $100,000 for a natural person or $500,000 
for any other person, or (II) the gross amount of pecuniary 
gain to such defendant as a result of the violation, if— 
"(£ia) the violation described in subparagraph (A) 
involved fraud, deceit, manipulation, or deliberate or 
reckless disregard of a regulatory requirement; and 
"(bb) such violation directly or indirectly resulted in 
substantial losses or created a significant risk of 
substantial losses to other persons. 
"(C) PROCEDURES FOR COLLECTION.— 
"(i) PAYMENT OF PENALTY TO TREASURY.—A penalty im-
posed under this section shall be payable into the Treasury 
of the United States. 
"(ii) COLLECTION OF PENALTIES.—If a person upon whom 
such a penalty is imposed shall fail to pay such penalty 
within the time prescribed in the court's order, the Commis-
sion may refer the matter to the Attorney General who 
shall recover such penalty by action in the appropriate 
United States district court. 
"(iii) REMEDY NOT EXCLUSIVE.—The actions authorized by 
this pareigraph may be brought in addition to any other 
action that the Commission or the Attorney General is 
entitled to bring. 
"(iv) JURISDICTION AND VENUE.—For purposes of section 
27 of this title, actions under this paragraph shall be ac-
tions to enforce a liability or a duty created by this title. 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 937 
"(D) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-
AND-DESIST ORDER.—In an action to enforce a cease-and-desist 
order entered by the Commission pursuant to section 21C, each 
separate violation of such order shall be a separate offense, 
except that in the case of a violation through a continuing 
failure to comply with the order, each day of the failure to 
comply shall be deemed a separate offense.". 
SEC. 202. CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS. 
(a) The Securities Exchange Act of 1934 is amended by inserting 
after section 21A (15 U.S.C. 78u-l) the following: 
"CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS 
"SEC. 21B. (a) COMMISSION AUTHORITY TO ASSESS MONEY PEN- 
15USC78U-2. 
ALTIES.—In any proceeding instituted pursuant to sections 15(b)(4),' 
15(b)(6), 15B, 15C, or 17A of this title against any person, the 
Commission or the appropriate regulatory agency may impose a 
civil penalty if it finds, on the record after notice and opportunity 
for hearing, that such person— 
"(1) has willfully violated any provision of the Securities Act 
of 1933, the Investment Company Act of 1940, the Investment 
Advisers Act of 1940, or this title, or the rules or regulations 
thereunder, or the rules of the Municipal Securities Rule-
making Board; 
"(2) has willfully aided, abetted, counseled, commanded, in-
duced, or procured such a violation by any other person; 
"(3) has willfully made or caused to be made in any applica-
tion for registration or report required to be filed with the 
Commission or with any other appropriate regulatory agency 
under this title, or in any proceeding before the Commission 
with respect to registration, any statement which was, at the 
time and in the light of the circumstances under which it was 
made, false or misleading with respect to any material fact, or 
has omitted to state in any such application or report any 
material fact which is required to be stated therein; or 
"(4) has failed reasonably to supervise, within the meaning of 
section 15(b)(4)(E) of this title, with a view to preventing viola-
tions of the provisions of such statutes, rules and regulations, 
another person who commits such a violation, if such other 
person is subject to his supervision; 
and that such penalty is in the public interest. 
"(b) MAXIMUM AMOUNT OF PENALTY.— 
"(1) FIRST TIER.—The maximum amount of penalty for each 
act or omission described in subsection (a) shall be $5,000 for a 
natural person or $50,000 for any other person. 
"(2) SECOND TIER.—Notwithstanding paragraph (1), the maxi-
mum amount of penalty for each such act or omission shall be 
$50,000 for a natural person or $250,000 for any other person if 
the act or omission described in subsection (a) involved fraud, 
deceit, manipulation, or deliberate or reckless disregard of a 
regulatory requirement. 
"(3) THIRD TIER.—Notwithstanding paragraphs (1) and (2), the 
maximum amount of penalty for each such act or omission shall 
be $100,000 for a natural person or $500,000 for any other 
person i
f
— 
104 STAT. 938 
PUBLIC LAW 101-429—OCT. 15, 1990 
"(A) the act or omission described in subsection (a) in-
volved fraud, deceit, manipulation, or deliberate or reckless 
disregard of a regulatory requirement; and 
"(B) such act or omission directly or indirectly resulted in 
substantial losses or created a significant risk of substantial 
losses to other persons or resulted in substantial pecuniary 
gain to the person who committed the act or omission, 
"(c) DETERMINATION OF PUBUC INTEREST.—In considering under 
this section whether a penalty is in the public interest, the Commis-
sion or the appropriate regulatory agency may consider— 
"(1) whether the act or omission for which such penalty is 
assessed involved fraud, deceit, manipulation, or deliberate or 
reckless disregard of a regulatory requirement; 
"(2) the harm to other persons resulting either directly or 
indirectly from such act or omission; 
"(3) the extent to which any person was unjustly enriched, 
taking into account any restitution made to persons injured by 
such behavior; 
"(4) whether such person previously has been found by the 
(Dommission, another appropriate regulatory agency, or a self-
regulatory organization to have violated the Federal securities 
laws. State securities laws, or the rules of a self-regulatory 
organization, has been enjoined by a court of competent jurisdic-
tion from violations of such laws or rules, or has been convicted 
by a court of competent jurisdiction of violations of such laws or 
of any felony or misdemeanor described in section 15(bX4XB) of 
this title; 
"(5) the need to deter such person and other persons from 
committing such acts or omissions; and 
"(6) such other matters as justice may require. 
"(d) EVIDENCE CONCERNING ABIUTY TO PAY.—In any proceeding 
in which the Commission or the appropriate regulatory agency may 
impose a penalty under this section, a respondent may present 
evidence of the respondent's ability to pay such penalty. The 
Commission or the appropriate regulatory agency may, in its discre-
tion, consider such evidence in determining whether such penalty is 
in the public interest. Such evidence may relate to the extent of 
such person's ability to continue in business and the coUectability of 
a penalty, taking into account any other claims of the United States 
or third parties upon such person's assets and the amount of such 
person's assets. 
"(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING 
AND DISGORGEMENT.—In any proceeding in which the Commission 
or the appropriate regulatory £igency may impose a pengilty under 
this section, the Commission or the appropriate regulatory agency 
may enter an order requiring accounting and disgorgement, includ-
ing 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.". 
(b) CONFORMING AMENDMENT.—The heading of section 21A of this 
title (15 U.S.C. 78u-l) is amended to read as follows: 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 939 
"CIVIL PENALTIES FOR INSIDER TRADING". 
SEC. 203. CEASE-AND-DESIST AUTHORITY. 
The Securities and Exchange Act of 1934 is amended by adding 
after section 21B (as added by section 202 of this Act) the following 
new section: 
"CEASE-AND-DESIST PROCEEDINGS 
"SEC. 21C. (a) AUTHORITY OF THE COMMISSION.—If the Commission is use 78u-3. 
finds, after notice and opportunity for hearing, that any person is 
violating, has violated, or is about to violate any provision of this 
title, 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 commit-
ting or causing such violation and any future violation of the same 
provision, rule, or regulation. Such order may, in addition to requir-
ing 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) 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 respond-
ent 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), 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 lim-
ited 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 £ind 
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 deter-
mines that notice and hearing prior to entry would be imprac-
ticable 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. 
104 STAT. 940 
PUBLIC LAW 101-429—OCT. 15, 1990 
"(2) APPUCABIUTY.—This subsection shall apply only to a 
respondent that acts, or, at the time of the alleged misconduct 
acted, as a broker, dealer, investment adviser, investment com-
pany, municipal securities dealer, government securities broker, 
government securities dealer, or transfer agent, or is, or was at 
the time of the alleged misconduct, an Eissociated person of, or a 
person seeking to become associated with, any of the foregoing. 
"(d) REVIEW OF TEMPORARY ORDERS.— 
"(1) COMMISSION REVIEW.—At any time after the respondent 
has been served with a temporary cease-and-desist order pursu-
ant to subsection (c), the respondent may apply to the Commis-
sion to have the order set aside, limited, or suspended. If the 
respondent has been feerved with a temporary cease-and-desist 
order entered without a prior Commission hearing, the respond-
ent may, within 10 days after the date on which the order was 
served, request a hearing on such application and the Commis-
sion shall hold a hearing £ind render a decision on such applica-
tion 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 rfe-
spect to any temporary ceeise-and-desist order entered with-
out 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 hear-
ing may not apply to the court except after hearing and decision 
by the Commission on the respondent's application under para-
graph (1) of this subsection. 
"(3) 
N o 
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 25 of this title shall not 
apply to a temporary order entered pursuant to this section. 
"(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING 
AND DISGORGEMENT.—In any cease-and-desist proceeding under 
subsection (a), 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 ac-
crual, and such other matters as it deems appropriate to implement 
this subsection.". 
SEC. 204. PROCEDURAL RULES FOR CEASE-AND-DESIST PROCEEDINGS. 
Section 23 of the Securities Exchange Act of 1934 (15 U.S.C. 78w) 
is amended by adding at the end thereof the following new subsec-
tion: 
Regulations. 
"(d) CEASE-AND-DESIST PROCEDURES.—Within 1 year after the date 
of enactment of this subsection, the Commission shall establish 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 941 
regulations providing for the expeditious conduct of hearings and 
rendering of decisions under section 21C of this title, section 8A of 
the Securities Act of 1933, section 9(f) of the Investment Company 
Act of 1940, and section 203(k) of the Investment Advisers Act of 
1940.". 
SEC. 205. CONFORMING AMENDMENTS TO SECTION 15B. 
Section 15B(c)(6XA) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-4(cX6)(A)) is amended— 
(1) by striking "and the nature" and inserting ", the 
nature"; and 
(2) by striking "proposed action and" and inserting "proposed 
action, and whether the Commission is seeking a monetary 
penalty against such municipal securities dealer or such associ-
ated person pursuant to section 21B of this title; and ". 
SEC. 206. SIGNATURE GUARANTEES. 
Section 17A(d) of the Securities Exchange Act of 1934 (15 U.S.C. 15 USC 78q-l. 
78q-9(dX4)) is amended by adding at the end the following: 
"(5) A registered transfer agent may not, directly or indirectly, 
engage in any activity in connection with the guarantee of a signa-
ture of an endorser of a security, including the acceptance or 
rejection of such guarantee, in contravention of such rules and 
regulations as the Commission may prescribe as necessary or appro-
priate in the public interest, for the protection of investors, to 
facilitate the equitable treatment of financial institutions which 
issue such guarantees, or otherwise in furtherance of the purposes of 
this title.". 
TITLE III—AMENDMENTS TO THE 
INVESTMENT COMPANY ACT OF 1940 
SEC. 301. CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS. 
Section 9 of the Investment Company Act of 1940 (15 U.S.C. 80a-9) 
is amended— 
(1) by redesignating subsection (d) as subsection (g); 
(2) by inserting after subsection (c) the following new subsec-
tions: 
"(d) MONEY PENALTIES IN ADMINISTRATIVE PROCEEDINGS.— 
"(1) AUTHORITY OF COMMISSION.—In any proceeding instituted 
pursuant to subsection (b) against any person, the Commission 
may impose a civil penalty if it finds, on the record after notice 
and opportunity for hearing, that such person— 
'(A) has willfully violated any provision of the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Invest-
ment Advisers Act of 1940, or this title, or the rules or 
regulations thereunder; 
'(B) has willfully aided, abetted, counseled, commanded, 
induced, or procured such a violation by any other person; 
or 
"(C) has willfully made or caused to be made in any 
registration statement, application, or report required to be 
filed with the Commission under this title, any statement 
which was, at the time and in the light of the circumstances 
under which it was made, false or misleading with respect 
104 STAT. 942 
PUBLIC LAW 101-429—OCT. 15, 1990 
to any material fact, or has omitted to state in any such 
registration statement, application, or report any material 
fact which was required to be stated therein; 
and that such penalty is in the public interest. 
"(2) MAXIMUM AMOUNT OF PENALTY.— 
"(A) FIRST TIER.—The maximum amount of penalty for 
each act or omission described in paragraph (1) shall be 
$5,000 for a natural person or $50,000 for any other person. 
"(B) SECOND TIER.—Notwithstanding subparagraph (A), 
the maximum amount of penalty for each such act or 
omission shall be $50,000 for a natural person or $250,000 
for any other person if the act or omission described in 
paragraph (1) involved fraud, deceit, manipulation, or delib-
erate or reckless disregard of a regulatory requirement. 
"(C) THIRD TIER.—Notwithstanding subparagraphs (A) 
and (B), the maximum amount of penalty for each such act 
or omission shall be $100,000 for a natural person or 
$500,000 for any other person if— 
"(i) the act or omission described in paragraph (1) 
involved fraud, deceit, manipulation, or deliberate or 
reckless disregard of a regulatory requirement; and 
"(ii) such act or omission directly or indirectly re-
sulted in substantial losses or created a significant risk 
of substantial losses to other persons or resulted in 
substantial pecuniary gain to the person who commit-
ted the act or omission. 
"(3) DETERMINATION OF PUBUC INTEREST.—In considering 
under this section whether a penalty is in the public interest, 
the Commission may consider— 
"(A) whether the act or omission for which such penalty 
is assessed involved fraud, deceit, manipulation, or delib-
erate or reckless disregard of a regulatory requirement; 
"(B) the harm to other persons resulting either directly or 
indirectly from such act or omission; 
"(C) the extent to which any person was unjustly en-
riched, taking into account any restitution made to persons 
injured by such behavior; 
"(D) whether such person previously has been found by 
the Commission, another appropriate regulatory agency, or 
a self-regulatory organization to have violated the Federal 
securities laws, State securities laws, or the rules of a self-
regulatory organization, has been enjoined by a court of 
competent jurisdiction from violations of such laws or rules, 
or has been convicted by a court of competent jurisdiction of 
violations of such laws or of any felony or misdemeanor 
described in section 203(e)(2) of the Investment Advisers Act 
of 1940; 
"(E) the need to deter such person and other persons from 
committing such acts or omissions; and 
"(F) such other matters as justice may require. 
"(4) EVIDENCE CONCERNING ABILITY TO PAY.—In any proceed-
ing in which the Commission may impose a penalty under this 
section, a respondent may present evidence of the respondent's 
ability to pay such penalty. The Commission may, in its discre-
tion, consider such evidence in determining whether such pen-
alty is in the public interest. Such evidence may relate to the 
extent of such person's ability to continue in business and the 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 943 
coUectability of a penalty, taking into account any other claims 
of the United States or third parties upon such person's assets 
and the amount of such person's assets. 
"(e) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING 
AND DISGORGEMENT.—In any proceeding in which the Commission 
may impose a penalty under this section, the Commission may enter 
an order requiring accounting and disgorgement, including reason-
able interest. The Commission is authorized to adopt rules, regula-
tions, and orders concerning pajonents to investors, rates of interest, 
periods of accrual, and such other matters as it deems appropriate to 
implement this subsection. 
"(f) CEASE-AND-DESIST PROCEEDINGS.— 
"(1) AUTHORITY OF THE 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 title, 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 provi-
sion, 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 Commis-
sion may specify, with such provision, rule, or regulation with 
respect to any security, any issuer, or any other person. 
' (2) HEARING.—The notice instituting proceedings pursuant 
to paragraph (1) 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 (Dommission with the consent 
of any respondent so served. 
"(3) TEMPORARY ORDER.— 
"(A) IN GENERAL.—Whenever the Commission determines 
that the alleged violation or threatened violation specified 
in the notice instituting proceedings pursuant to paragraph 
(1), or the continuation thereof, is likely to result in signifi-
cant dissipation or conversion of assets, significant harm to 
investors, or substantial harm to the public interest, includ-
ing, but not limited to, losses to the Securities Investor 
Protection Corporation, prior to the completion of the 
proceeding, the Commission may enter a temporary order 
requiring the respondent to cease and desist from the viola-
tion 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 Commis-
sion, notwitl^tanding section 40(a) of this title, determines 
that notice and hearing prior to entry would be impractica-
104 STAT. 944 
PUBLIC LAW 101-429—OCT. 15, 1990 
ble 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 Commis-
sion or a court of competent jurisdiction, shall remain 
effective and enforceable pending the completion of the 
proceedings. 
"(B) APPLICABILITY.—This paragraph shall apply only to a 
respondent that acts, or, at the time of the alleged mis-
conduct acted, as a broker, dealer, investment adviser, 
investment company, municipal securities dealer, govern-
ment securities broker, government securities dealer, 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. 
"(4) REVIEW OF TEMPORARY ORDERS.— 
"(A) COMMISSION REVIEW.—At any time after the respond-
ent has been served with a temporary cease-and-desist 
order pursuant to paragraph (3), the respondent may apply 
to the Commission to have the order set aside, limited, or 
suspended. If the respondent has been served with a tem-
porary 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. 
"(B) JUDICIAL REVIEW.—Within— 
"(i) 10 days after the date the respondent was served 
with a temporary cease-and-desist order entered with a 
prior Commission hearing, or 
"(ii) 10 days after the Commission renders a decision 
on an application and hearing under subparagraph (A), 
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 Colum-
bia, 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 subparagraph (A) of 
this paragraph. 
"(C) 
N o AUTOMATIC STAY OF TEMPORARY ORDER.—The 
commencement of proceedings under subparagraph (B) of 
this paragraph shall not, unless specifically ordered by the 
court, operate as a stay of the Commission's order. 
"(D) EXCLUSIVE REVIEW.—Section 43 of this title shall not' 
apply to a temporary order entered pursuant to this section. 
"(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNT-
ING AND DISGORGEMENT.—In any cease-and-desist proceeding 
under subsection (fKD, the Commission may enter an order 
requiring accounting and disgorgement, including reasonable 
interest. The Commission is authorized to adopt rules, regula-
tions, and orders concerning payments to investors, rates of 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 945 
interest, periods of accrual, and such other matters as it deems 
appropriate to implement this subsection."; and 
(3) in redesignated subsection (g), by striking "subsections (a) 
through (c) of. 
SEC. 302. MONEY PENALTIES IN CIVIL ACTIONS. 
Section 42 of the Investment Company Act of 1940 (15 U.S.C. 80a-
41) is amended by adding at the end thereof the following new 
subsection: 
"(e) MONEY PENALTIES IN CIVIL ACTIONS.— 
"(1) AUTHORITY OF COMMISSION.—Whenever it shall appear to 
the Commission that any person hsis violated any provision of 
this title, the rules or regulations thereunder, or a cease-and-
desist order entered by the Commission pursuant to section 9(f) 
of this title, the Commission may bring an action in a United 
States district court to seek, and the court shall have jurisdic-
tion to impose, upon a proper showing, a civil penalty to be paid 
by the person who committed such violation. 
"(2) AMOUNT OF PENALTY.— 
"(A) FIRST TIER.—The eimount of the penalty shall be 
determined by the court in light of the facts and cir-
cumstances. For each violation, the amount of the penalty 
shall not exceed the greater of (i) $5,000 for a natural 
person or $50,000 for any other person, or (ii) the gross 
amount of pecuniary gain to such defendant as a result of 
the violation. 
"(B) SECOND TIER.—Notwithstanding subparagraph (A), 
the amount of penalty for each such violation shall not 
exceed the greater of (i) $50,000 for a naturgd person or 
$250,000 for any other person, or (ii) the gross Eimount of 
^ 
pecuniary gain to such defendant as a result of the viola-
tion, if the violation described in parsigraph (1) involved 
fraud, deceit, msinipulation, or deliberate or reckless dis-
regard of a regulatory requirement. 
"(C) THIRD TIER.—Notwithstanding subparagraphs (A) 
and (B), the amount of penalty for each such violation shall 
not exceed the greater of (i) $100,000 for a natural person or 
$500,000 for any other person, or (ii) the gross amount of 
pecuniary gain to such defendant as a result of the viola-
tion, if— 
"(I) the violation described in paragraph (1) involved 
fraud, deceit, manipulation, or deliberate or reckless 
disregard of a regulatory requirement; and 
"(II) such violation directly or indirectly resulted in 
substantial losses or created a significant risk of 
substantial losses to other persons. 
"(3) PROCEDURES FOR COLLECTION.— 
"(A) PAYMENT OF PENALTY TO TREASURY.—A penalty im-
posed under this section shall be payable into the Treasury 
of the United States. 
"(B) COLLECTION OF PENALTIES.—If a person upon whom 
such a penalty is imposed shall fail to pay such penalty 
lyi 
within the time prescribed in the court's order, the Commis-
si' 
sion may refer the matter to the Attorney General who 
shall recover such penalty by action in the appropriate 
United States district court. 
104 STAT. 946 
PUBLIC LAW 101-429—OCT. 15, 1990 
"(C) REMEDY NOT EXCLUSIVE.—The actions authorized by 
this subsection may be brought in addition to any other 
action that the Commission or the Attorney General is 
entitled to bring. 
"(D) JURISDICTION AND VENUE.—For purposes of section 
44 of this title, actions under this paragraph shall be ac-
tions to enforce a liability or a duty created by this title. 
"(4) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-
AND-DESIST ORDER.—In an action to enforce a cease-and-desist 
order entered by the Commission pursuant to section 9(f), each 
separate violation of such order shall be a separate offense, 
except that in the case of a violation through a continuing 
failure to comply with the order, each day of the failure to 
comply shall be deemed a separate offense.". 
TITLE IV—AMENDMENTS TO THE 
INVESTMENT ADVISERS ACT OF 1940 
SEC. 401. CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS. 
Sectj'>r. 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
3) is <;inended by adding at the end thereof the following new 
subsections: 
"(i) MONEY PENALTIES IN ADMINISTRATIVE PROCEEDINGS.— 
"(1) AUTHORITY OF COMMISSION.—In any proceeding instituted 
pursuant to subsection (e) or (f) against any person, the Commis-
sion may impose a civil penalty if it finds, on the record after 
notice and opportunity for hearing, that such person— 
"(A) has willfully violated any provision of the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Invest-
ment Company Act of 1940, or this title, or the rules or 
regulations thereunder; 
"(B) has willfully aided, abetted, counseled, commanded, 
induced, or procured such a violation by any other person; 
"(C) has willfully made or caused to be made in any 
application for registration or report required to be filed 
with the Commission under this title, or in any proceeding 
before the Commission with respect to registration, any 
statement which was, at the time and in the light of the 
circumstances under which it was made, false or misleading 
with respect to any material fact, or has omitted to state in 
any such application or report any material fact which was 
required to be stated therein; or 
' (D) has failed reasonably to supervise, within the mean-
ing of section 203(eX5) of this title, with a view to prevent-
ing violations of the provisions of this title and the rules 
and regulations thereunder, another person who commits 
such a violation, if such other person is subject to his 
supervision; 
and that such penalty is in the public interest. 
"(2) MAXIMUM AMOUNT OF PENALTY.— 
"(A) FIRST TIER.—The maximum amount of penalty for 
each act or omission described in paragraph (1) shall be 
$5,000 for a natural person or $50,000 for any other person. 
"(B) SECOND TIER.—Notwithstanding subparagraph (A), 
the maximum amount of penalty for each such act or 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 947 
omission shall be $50,000 for a natural person or $250,000 
for any other person if the act or omission described in 
paragraph (1) involved fraud, deceit, manipulation, or delib-
erate or reckless disregard of a regulatory requirement. 
"(C) THIRD TIER.—Notwithstanding subparagraphs (A) 
and (B), the maximum amount of penalty for each such act 
or omission shall be $100,000 for a natural person or 
$500,000 for Einy other person if— 
"(i) the act or omission described in paragraph (1) 
- 
involved fraud, deceit, manipulation, or deliberate or 
reckless disregard of a regulatory requirement; and 
"(ii) such act or omission directly or indirectly re-
sulted in substantial losses or created a significant risk 
of substantial losses to other persons or resulted in 
substantial pecuniary gain to the person who commit-
ted the act or omission. 
"(3) DETERMINATION OP PUBUC INTEREST.—In considering 
under this section whether a penalty is in the public interest, 
the Commission may consider— 
"(A) whether the act or omission for which such penalty 
is assessed involved fraud, deceit, manipulation, or delib-
erate or reckless disregard of a regulatory requirement; 
"(B) the harm to other persons resulting either directly or 
indirectly from such act or omission; 
"(C) the extent to which any person was unjustly en-
riched, taking into account any restitution made to persons 
injured by such behavior; 
"(D) whether such person previously has been found by 
the Commission, another appropriate regulatory agency, or 
a self-regulatory organization to have violated the Federal 
securities laws. State securities laws, or the rules of a self-
regulatory organization, has been enjoined by a court of 
competent jurisdiction from violations of such laws or rules, 
or has been convicted by a court of competent jurisdiction of 
violations of such laws or of any felony or misdemeanor 
described in section 203(e)(2) of this title; 
"(E) the need to deter such person £ind other persons from 
committing such acts or omissions; and 
"(F) such other matters £is justice may require. 
"(4) EVIDENCE CONCERNING ABILITY TO PAY.—In any proceed-
ing in which the Commission may impose a penalty under this 
section, a respondent may present evidence of the respondent's 
ability to pay such penalty. The Commission may, in its discre-
tion, consider such evidence in determining whether such pen-
alty is in the public interest. Such evidence may relate to the 
extent of such person's ability to continue in business and the 
coUectability of a penalty, taking into account any other claims 
of the United States or third parties upon such person's assets 
and the amount of such person s sissets. 
"(j) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING 
AND DISGORGEMENT.—In any proceeding in which the Commission 
may impose a penalty under this section, the Commission may enter 
an order requiring accounting and disgorgement, including reason-
able interest. The Commission is authorized to adopt rules, regula-
tions, and orders concerning payments to investors, rates of interest, 
periods of accrual, and such other matters as it deems appropriate to 
implement this subsection. 
104 STAT. 948 
PUBLIC LAW 101-429—OCT. 15, 1990 
"(k) CEASE-AND-DESIST PROCEEDINGS.— 
"(1) AUTHORITY OF THE 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 title, 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 provi-
sion, 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 Commis-
sion may specify, with such provision, rule, or regulation with 
respect to any security, any issuer, or any other person. 
' (2) HEARING.—The notice instituting proceedings pursuant 
to paragraph (1) 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. 
"(3) TEMPORARY ORDER.— 
"(A) IN GENERAL.—Whenever the Commission determines 
that the alleged violation or threatened violation specified 
in the notice instituting proceedings pursuant to paragraph 
(1), or the continuation thereof, is likely to result in signifi-
cant dissipation or conversion of assets, significant harm to 
investors, or substantial harm to the public interest, includ-
ing, 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 viola-
tion 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 Commis-
sion, notwithstanding section 211(c) of this title, determines 
that notice and hearing prior to entry would be impractica-
ble 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 Commis-
sion or a court of competent jurisdiction, shall remain 
effective and enforceable pending the completion of the 
proceedings. 
"(B) APPLICABILITY.—This paragraph shall apply only to a 
respondent that acts, or, at the time of the alleged mis-
.conduct acted, as a broker, dealer, investment adviser, 
investment company, municipal securities dealer, govern-
ment securities broker, government securities dealer, or 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 949 
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. 
"(4) REVIEW OF TEMPORARY ORDERS.— 
"(A) COMMISSION REVIEW.—At any time after the respond-
ent has been served with a temporary cease-and-desist 
order pursugmt to paragraph (3), the respondent may apply 
to the Commission to have the order set aside, limited, or 
suspended. If the respondent has been served with a tem-
porary 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. 
"(B) JUDICIAL REVIEW.—Within— 
"(i) 10 days after the date the respondent was served 
with a temporary cease-and-desist order entered with a 
prior Commission hearing, or 
"(ii) 10 days after the Commission renders a decision 
on an application and hearing under subparagraph (A), 
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 Colum-
bia, for an order setting Eiside, 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 subparagraph (A) of 
this paragraph. 
"(C) N o AUTOMATIC STAY OF TEMPORARY ORDER.—The 
commencement of proceedings under subparagraph (B) of 
this paragraph shall not, unless specifically ordered by the 
court, operate as a stay of the Commission's order. 
"(D) EXCLUSIVE REVIEW.—Section 213 of this title shall 
not apply to a temporary order entered pursuant to this 
section. 
"(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNT-
ING AND DISGORGEMENT.—In any cease-and-desist proceeding 
under paragraph (1), the Commission may enter an order 
requiring accounting and disgorgement, including reasonable 
interest. The Commission is authorized to adopt rules, regula-
tions, and orders concerning payments to investors, rates of 
interest, periods of accrual, and such other matters as it deems 
appropriate to implement this subsection.". 
SEC. 402. MONEY PENALTIES IN CIVIL ACTIONS. 
Section 209 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
9) is amended by adding at the end thereof the following new 
subsection: 
"(e) MONEY PENALTIES IN CIVIL ACTIONS.— 
"(1) AUTHORITY OF COMMISSION.—Whenever it shall appear to 
the Commission that any person has violated any provision of 
104 STAT. 950 
PUBLIC LAW 101-429—OCT. 15, 1990 
this title, the rules or regulations thereunder, or a cease-and-
desist order entered by the Commission pursuant to section 
203(k) of this title, the Commission may bring an action in a 
United States district court to seek, and the court shall have 
jurisdiction to impose, upon a proper showing, a civil penalty to 
be paid by the person who committed such violation. 
"(2) AMOUNT OF PENALTY.— 
"(A) FIRST TIER.—The amount of the penalty shall be 
determined by the court in light of the facts and cir-
cumstances. For each violation, the amount of the penalty 
shall not exceed the greater of (i) $5,000 for a natural 
person or $50,000 for any other person, or (ii) the gross 
amount of pecuniary gain to such defendant as a result of 
the violation. 
"(B) SECOND TIER.—Notwithstanding subparagraph (A), 
the amount of penalty for each such violation shall not 
exceed the greater of (i) $50,000 for a natural person or 
$250,000 for any other person, or (ii) the gross amount of 
pecuniary gain to such defendant as a result of the viola-
tion, if the violation described in paragraph (1) involved 
fraud, deceit, manipulation, or deliberate or reckless dis-
regard of a regulatory requirement. 
"(C) THIRD TIER.—Notwithstanding subparagraphs (A) 
and (B), the amount of penalty for each such violation shall 
not exceed the greater of (i) $100,000 for a natural person or 
$500,000 for any other person, or (ii) the gross amount of 
pecuniary gain to such defendant as a result of the viola-
tion, if— 
"(I) the violation described in paragraph (1) involved 
fraud, deceit, manipulation, or deliberate or reckless 
disregard of a regulatory requirement; and 
"(II) such violation directly or indirectly resulted in 
substantial losses or created a significant risk of 
substantial losses to other persons. 
"(3) PROCEDURES FOR COLLECTION.— 
"(A) PAYMENT OF PENALTY TO TREASURY.—A penalty im-
posed under this section shall be payable into the Treasury 
of the United States. 
"(B) COLLECTION OF PENALTIES.—If a person upon whom 
such a penalty is imposed shall fail to pay such penalty 
within the time prescribed in the court's order, the Commis-
sion may refer the matter to the Attorney General who 
shall recover such penalty by action in the appropriate 
United States district court. 
"(C) REMEDY NOT EXCLUSIVE.—The actions authorized by 
this subsection may be brought in addition to any other 
action that the Commission or the Attorney General is 
entitled to bring, 
"(D) JURISDICTION AND VENUE.—For purposes of section 
214 of this title, actions under this paragraph shall be 
actions to enforce a liability or a duty created by this title. 
"(4) SPECIAL PROVISIONS RELATING TO A VIOLATION OF A CEASE-
AND-DESIST ORDER.—In an action to enforce a cease-and-desist 
order entered by the Commission pursuant to section 203(k), 
each separate violation of such order shall be a separate offense, 
except that in the case of a violation through a continuing 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 951 
failure to comply with the order, each day of the failure to 
comply shall be deemed a separate offense.". 
SEC. 403. CONFORMING AMENDMENT TO SECTION 214. 
Section 214 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
14) is amended— 
(1) by inserting after "all suits in equity" the following: "and 
actions at law brought to enforce any liability or duty created 
by, or"; and 
(2) by inserting after "Any suit or action" the following: "to 
enforce any liability or duty created by, or". 
TITLE V—PENNY STOCK REFORM 
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1990. 
SEC. 501. SHORT TITLE. 
15 USC 78a note. 
This title may be cited as the "Penny Stock Reform Act of 1990". 
SEC. 502. FINDINGS. 
15 USC 78o note. 
The Congress finds the following: 
(1) The maintenance of an honest and healthy primary and 
secondary market for securities offerings is essential to enhanc-
ing long-term capital formation and economic growth and 
providing legitimate investment opportunities for individuals 
and institutions. 
(2) Protecting investors in new securities is a critical compo-
nent in the maintenance of an honest and healthy market for 
such securities. 
(3) Protecting issuers of new securities and promoting the 
capital formation process on behalf of small companies are 
fundamental concerns in maintaining a strong economy and 
viable trading markets. 
(4) Unscrupulous market practices and market participants 
have pervaded the "penny stock" market with an overwhelming 
amount of fraud and abuse. 
(5) Although the Securities and Exchange Commission, State 
securities regulators, and securities self-regulators have made 
efforts to curb these abusive and harmful practices, the penny 
stock market still lacks an adequate and sufficient regulatory 
structure, particularly in comparison to the structure for 
overseeing trading in National Market System securities. 
(6) Investors in the penny stock market suffer from a serious 
lack of adequate information concerning price and volume of 
penny stock transactions, the nature of this market, and the 
specific securities in which they are investing. 
(7) Current practices do not adequately regulate the role of 
"promoters" and "consultants" in the penny stock market, and 
many professionals who have been banned from the securities 
markets have ended up in promoter and consultant roles, 
contributing substantially to fraudulent and abusive schemes. 
(8) The present regulatory environment has permitted the 
ascendancy of the use of particular market practices, such as 
"reverse mergers" with shell corporations and "blank check" 
offerings, which are used to facilitate manipulation schemes 
and harm investors. 
104 STAT. 952 
PUBLIC LAW 101-429—OCT. 15, 1990 
(9) In light of the substantial and continuing problems in the 
penny stock markets, additional legislative measures are nec-
essary and appropriate. 
SEC. 503. DEFINITION OF PENNY STOCK. 
Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)) is amended by adding at the end thereof the following new 
paragraph: 
Regulations. 
"(51)(A) The term 'penny stock' means any equity security 
other than a security that is— 
"(i) registered or approved for registration and traded on 
a national securities exchange that meets such criteria as 
the Commission shall prescribe by rule or regulation for 
purposes of this paragraph; 
"(ii) authorized for quotation on an automated quotation 
system sponsored by a registered securities association, if 
such system (I) was established and in operation before 
January 1,1990, and (II) meets such criteria as the Commis-
sion shall prescribe by rule or regulation for purposes of 
this paragraph; 
"(iii) issued by an investment company registered under 
the Investment Company Act of 1940; 
"(iv) excluded, on the basis of exceeding a minimum 
price, net tangible assets of the issuer, or other relevant 
criteria, from the definition of such term by rule or regula-
tion which the Commission shall prescribe for purposes of 
this paragraph; or 
"(v) exempted, in whole or in part, conditionally or un-
conditionally, from the definition of such term by rule, 
regulation, or order prescribed by the Commission. 
"(B) The Commission may, by rule, regulation, or order, 
designate any equity security or class of equity securities de-
scribed in clause (i) or (ii) of subparagraph (A) as within the 
meaning of the term 'penny stock' if such security or class of 
securities is traded other than on a national securities exchange 
or through an automated quotation system described in clause 
(ii) of subparagraph (A). 
"(C) In exercising its authority under this paragraph to pre-
scribe rules, regulations, and orders, the Commission shall 
determine that such rule, regulation, or order is consistent with 
the public interest and the protection of investors.". 
SEC. 504. EXPANSION OF SECTION 15(b) SANCTION AUTHORITY WITH RE-
SPECT TO PENNY STOCKS. 
(a) AMENDMENT.—Section 15(bX6) of the Securities Exchange Act 
of 1934 (15 U.S.C. 780(b)(6)) is amended to read as follows: 
"(6XA) With respect to any person who is associated, who is 
seeking to become associated, or, at the time of the alleged mis-
conduct, who was associated or was seeking to become associated 
with a broker or dealer, or any person participating, or, at the time 
of the alleged misconduct, who was participating, in an offering of 
any penny stock, the Commission, by order, shall censure, place 
limitations on the activities or functions of such person, or suspend 
for a period not exceeding 12 months, or bar such person from being 
associated with a broker or dealer, or from participating in an 
offering of penny stock, if the Commission finds, on the record after 
notice and opportunity for a hearing, that such censure, placing of 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 953 
limitations, suspension, or bar is in the public interest and that such 
person— 
"(i) has committed or omitted any act or omission enumerated 
in subparagraph (A), (D), or (E) of paragraph (4) of this subsec-
tion; 
"(ii) has been convicted of any offense specified in subpara-
graph (B) of such paragraph (4) within 10 years of the 
commencement of the proceedings under this paragraph; or 
"(iii) is enjoined from any action, conduct, or practice speci-
fied in subparagraph (C) of such paragraph (4). 
"(B) It shall be unlawful— 
"(i) for any person as to whom an order under subparagraph 
(A) is in effect, without the consent of the Commission, willfully 
to become, or to be, associated with a broker or dealer in 
contravention of such order, or to participate in an offering of 
penny stock in contravention of such order; 
"(ii) for any broker or dealer to permit such a person, without 
the consent of the Commission, to become or remain, a person 
Eissociated with the broker or dealer in contravention of such 
order, if such broker or dealer knew, or in the exercise of 
reasonable care should have known, of such order; or 
"(iii) for any broker or dealer to permit such a person, without 
the consent of the Commission, to participate in an offering of 
penny stock in contravention of such order, if such broker or 
dealer knew, or in the exercise of reasonable care should have 
known, of such order and of such participation. 
"(C) For purposes of this paragraph, the term 'person participat-
ing in an offering of penny stock includes any person acting as any 
promoter, finder, consultant, agent, or other person who engages in 
activities with a broker, dealer, or issuer for purposes of the issuance 
or trading in any penny stock, or inducing or attempting to induce 
the purchase or sale of any penny stock. The Commission may, by 
rule or regulation, define such term to include other activities, and 
may, by rule, regulation, or order, exempt any person or class of 
persons, in whole or in part, conditionally or unconditionally, from 
such term.". 
(b) RECOMMENDATIONS.—Within 6 months gifter the date of enact- 15 USC 78o note, 
ment of this Act, the Securities and Exchange Commission shall 
submit to each House of the Congress such recommendations as the 
Commission considers appropriate with respect to further revision 
of section 15(bX6) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(bX6)). In preparing such recommendations, the Commission 
shall consider the desirability and effect of expanding the applicabil-
ity of such section to any promoter, finder, consultant, agent or 
other person who engages in activities with a broker, dealer, or 
issuer for purposes of the issuance of or trading in, or inducing or 
attempting to induce the purchase or sale of, any security (and not 
just penny stock). 
SEC. 5
0
5
. 
REQUIREMENTS FOR BROKERS AND DEALERS OF PENNY 
STOCKS. 
Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) is 
amended by adding at the end thereof the following new subsection: 
"(g) REQUIREMENTS FOR TRANSACTIONS IN PENNY STOCKS.— 
"(1) IN GENERAL.—No broker or dealer shall make use of the 
-
^ 
mails or any means or instrumentality of interstate commerce 
to effect any transaction in, or to induce or attempt to induce 
104 STAT. 954 
PUBLIC LAW 101-429—OCT. 15, 1990 
the purchase or sale of, any penny stock by any customer except 
in accordance with the requirements of this subsection and the 
rules and regulations prescribed under this subsection. 
"(2) RISK DISCLOSURE WITH RESPECT TO PENNY STOCKS.—Prior to 
effecting any transaction in any penny stock, a broker or dealer 
shall give the customer a risk disclosure document that— 
"(A) contains a description of the nature and level of risk 
in the market for penny stocks in both public offerings and 
secondary trading; 
"(B) contains a description of the broker's or dealer's 
duties to the customer and of the rights and remedies 
available to the customer with respect to violations of such 
duties or other requirements of Federal securities laws; 
"(C) contains a brief, clear, narrative description of a 
dealer market, including 'bid' and 'ask' prices for penny 
stocks and the significance of the spread between the bid 
and ask prices; 
"(D) contains the toll free telephone number for inquiries 
on disciplinary actions established pursuant to section 
15A(i) of this title; 
"(E) defines significant terms used in the disclosure docu-
ment or in the conduct of trading in penny stocks; and 
"(F) contains such other information, and is in such form 
(including language, type size, and format), as the Commis-
sion shall require by rule or regulation. 
"(3) 
COMMISSION 
RULES 
RELATING 
TO 
DISCLOSURE.—The 
Ck)mmission shall adopt rules setting forth additional standards 
for the disclosure by brokers and dealers to customers of 
information concerning transactions in penny stocks. Such 
rules— 
"(A) shall require brokers and dealers to disclose to each 
customer, prior to effecting any transaction in, and at the 
time of confirming any transaction with respect to any 
penny stock, in accordance with such procedures and meth-
ods as the C!ommission may require consistent with the 
public interest and the protection of investors— 
"(i) the bid and ask prices for penny stock, or such 
other information as the Commission may, by rule, 
require to provide customers with more useful and 
reliable information relating to the price of such stock; 
"(ii) the number of shares to which such bid and ask 
prices apply, or other comparable information relating 
to the depth and liquidity of the market for such stock; 
and 
"(iii) the amount and a description of any compensa-
tion that the broker or dealer and the associated person 
thereof will receive or has received in connection with 
such transaction; 
"(B) shall require brokers and dealers to provide, to each 
customer whose account with the broker or dealer contains 
penny stocks, a monthly statement indicating the market 
value of the penny stocks in that account or indicating that 
the market value of such stock cannot be determined be-
cause of the unavailability of firm quotes; and 
"(C) may, as the Commission finds necessary or appro-
priate in the public interest or for the protection of inves-
tors, require brokers and dealers to disclose to customers 
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 955 
additional information concerning transactions in penny 
stocks. 
"(4) EXEMPTIONS.—The Commission, as it determines consist-
ent with the public interest and the protection of investors, may 
by rule, regulation, or order exempt in whole or in part, condi-
tionally or unconditionally, any person or class of persons, or 
any transaction or class of transactions, from the requirements 
of this subsection. Such exemptions shall include an exemption 
for brokers and dealers based on the minimal percentage of the 
broker's or dealer's commissions, commission-equivalents, and 
markups received from transactions in penny stocks. 
"(5) REGULATIONS.—It shall be unlawful for any person to 
violate such rules and regulations as the Commission shall 
prescribe in the public interest or for the protection of investors 
or to maintain fair and orderly markets— 
"(A) as necessary or appropriate to carry out this subsec-
tion; or 
"(B) as reasonably designed to prevent fraudulent, decep-
tive, or manipulative acts and practices with respect to 
penny stocks.'. 
SEC. 506. DEVELOPMENT OF AUTOMATED QUOTATION SYSTEMS FOR 
PENNY STOCKS. 
The Securities Exchange Act of 1934 is amended by inserting after 
section 17A the following new section: 
"AUTOMATED QUOTATION SYSTEMS FOR PENNY STOCKS 
"SEC. 17B. (a) FINDINGS.—The Congress finds that— 
15 USC 78q-2. 
"(1) the market for penny stocks suffers from a lack of 
reliable and accurate quotation and last sale information avail-
able to investors and regulators; 
"(2) it is in the public interest and appropriate for the protec-
tion of investors and the maintenance of fair and orderly mar-
kets to improve significantly the information available to bro-
kers, dealers, investors, and regulators with respect to quota-
tions for and transactions in penny stocks; and 
"(3) a fully implemented automated quotation system for 
penny stocks would meet the information needs of investors and 
market participants £ind would add visibility and regulatory 
£md surveillance data to that market. 
"(b) MANDATE TO FACIUTATE THE EISTABLISHMENT OF AUTOMATED 
QUOTATION SYSTEMS.— 
"(1) IN GENERAL.—The Commission shall facilitate the wide-
spread dissemination of reliable and accurate last sale and 
quotation information with respect to penny stocks in accord-
ance with the findings set forth in subsection (a), with a view 
toward establishing, at the earliest feasible time, one or more 
automated quotation systems that will collect and disseminate 
information regarding all penny stocks. 
"(2) CHARACTERISTICS OF SYSTEMS.—Each such automated 
quotation system shall— 
"(A) be operated by a registered securities gissociation or a 
national securities exchange in accordeince with such rules 
as the Commission and these entities shall prescribe; 
"Ci 
"(B) collect and disseminate quotation and transaction 
•' 
information; 
104 STAT. 956 
PUBLIC LAW 101-429—OCT. 15, 1990 
"(C) except as provided in subsection (c), provide bid and 
ask quotations of participating brokers or dealers, or com-
parably accurate and reliable pricing information, which 
shall constitute firm bids or offers for at least such mini-
mum numbers of shares or minimum dollar amounts as the 
Commission and the registered securities association or 
national securities exchange shall require; and 
"(D) provide for the reporting of the volume of penny 
stock transactions, including last sale reporting, when the 
volume reaches appropriate levels that the Commission 
shall specify by rule or order. 
"(c) ExEMPnvE AUTHORITY.—The Commission may, by rule or 
order, grant such exemptions, in whole or in part, conditionally or 
unconditionally, to any penny stock or class of penny stocks from 
the requirements of subsection (b) as the Commission determines to 
be consistent with the public interest, the protection of investors, 
and the maintenance of fair and orderly markets. 
"(d) COMMISSION REPORTING REQUIREMENTS.—The Commission 
shall, in each of the first 5 annual reports (under section 23(bXl) of 
^ 
this title) submitted more than 12 months after the date of enact-
ment of this section, include a description of the status of the penny 
stock automated quotation system or systems required by subsection 
(b). Such description shall include— 
"(1) a review of the development, implementation, and 
progress of the project, including achievement of significant 
milestones and current project schedule; and 
"(2) a review of the activities of registered securities associa-
tions and national securities exchanges in the development of 
the system.". 
SEC. 507. VOIDABILITY OF CONTRACTS IN VIOLATION OF SECTION 15(c)(2). 
Section 29(b) of the Securities Exchange Act of 1934 (15 U.S.C. 
78cc(b)) is amended— 
(1) in clause (A), by striking "paragraph (2) or (3)" and insert-
ing "paragraph (3)"; 
(2) in clause (B), by striking "paragraph (1)" and inserting 
"paragraph (1) or (2)"; and 
(3) by adding at the end thereof the following new sentence: 
"The Commission may, in a rule or regulation prescribed pursu-
ant to such paragraph (2) of such section 15(c), designate such 
rule or regulation, or portion thereof, as a rule or regulation, or 
portion thereof, a contract in violation of which shall not be 
void by reason of this subsection.". 
SEC. 508. RESTRICTIONS ON BLANK CHECK OFFERINGS. 
Section 7 of the Securities Act of 1933 (15 U.S.C. 77g) is amended— 
(1) by inserting "(a)" after "SEC. 7."; and 
(2) by adding at the end thereof the following new subsection: 
"(b)(1) The Commission shall prescribe special rules with respect 
to registration statements filed by any issuer that is a blank check 
company. Such rules may, as the Commission determines necessary 
or appropriate in the public interest or for the protection of inves-
tors— 
"(A) require such issuers to provide timely disclosure, prior to 
or after such statement becomes effective under section 8, of (i) 
information regarding the company to be acquired and the 
specific application of the proceeds of the offering, or (ii) addi-
PUBLIC LAW 101-429—OCT. 15, 1990 
104 STAT. 957 
tional information necessary to prevent such statement from 
being misleading; 
"(B) place limitations on the use of such proceeds and the 
distribution of securities by such issuer until the disclosures 
required under subparagraph (A) have been made; and 
"(C) provide a right of rescission to shareholders of such 
securities. 
"(2) The Commission may, as it determines consistent with the 
public interest and the protection of investors, by rule or order 
exempt any issuer or class of issuers from the rules prescribed under 
paragraph (1). 
"(3) For purposes of paragraph (1) of this subsection, the term 
'blank check company' means any development stage company that 
is issuing a penny stock (within the meaning of section 3(a)(51) of the 
Securities Exchange Act of 1934) and that— 
"(A) has no specific business plan or purpose; or 
"(B) has indicated that its business plan is to merge with an 
unidentified company or companies.". 
SEC. 509. BROKER/DEALER DISCIPLINARY HISTORY. 
Section 15A of the Securities Exchange Act 1934 (15 U.S.C. 78o-3) 
is amended by adding at the end the following: 
"(i) A registered securities association shall, within one year from Telecommunications. 
the date of enactment of this section, (1) establish and maintain a 
toll-free telephone listing to receive inquiries regarding disciplinary 
actions involving its members and their associated persons, and (2) 
promptly respond to such inquiries in writing. Such association may 
charge persons, other than individual investors, reasonable fees for 
written responses to such inquiries. Such an association shall not 
have any liability to any person for any actions taken or omitted in 
good faith under this paragraph.". 
SEC. 510. REVIEW OF REGULATORY STRUCTURES AND PROCEDURES. 
15 USC 78s note. 
(a) REVIEW REQUIRED.—The ClomptroUer General, in consultation 
with the Securities and Exchange Commission, sheill conduct a 
review of the rules, procedures, facilities, and oversight and enforce-
ment activities of self-regulatory organizations under the Securities 
Exchange Act of 1934 with respect to penny stocks (within the 
meaning of section 3(aX51) of such Act). Such review shall include an 
angilysis of^ 
(1) the resources devoted by self-regulatory organizations to 
the detection, investigation, prosecution, and correction of fraud 
and abuse in the trading of such penny stocks; 
(2) the methods and techniques used, and alternative methods 
which may be used, in those oversight and enforcement activi-
ties, including methods and techniques involving coordinated 
oversight and enforcement activities with other Federal and 
State authorities; 
(3) the adequacy of the rules, procedures, and facilities of such 
self-regulatory organizations for the prevention of excessive 
spreads and markups, unscrupulous sales practices, and other 
conduct inconsistent with high standards of commercial honor 
and just and equitable principles of trade; 
(4) any obstacles to or limitations on the authority of self-
regulatory organizations that impair the conduct of those over-
sight and enforcement activities; 
104 STAT. 958 
PUBLIC LAW 101-429—OCT. 15, 1990 
(5) the adequacy of current listing and maintenance require-
ments and procedures and the potential for erosion of such 
requirements and procedures due to issuer avoidance of penny 
stock designation and regulation; and 
(6) such other matters as the Comptroller General considers 
necessary or appropriate. 
(b) REPORT.—Within one year after the date of enactment of this 
Act, the Comptroller General shall submit a report on the review 
required by subsection (a). Such report shall include, in addition to a 
statement of findings with respect to each matter described in 
paragraphs (1) through (6) of such subsection, such recommenda-
tions as the Comptroller General considers appropriate with respect 
to legislative or administrative changes. 
Approved October 15, 1990. 
LEGISLATIVE HISTORY—S. 647 (H.R. 975) (H.R. 5325): 
HOUSE REPORTS: No. 101-616 accompanying H.R. 975 (Comm. on Energy and 
Commerce). 
SENATE REPORTS: No. 101-337 (Comm. on Banking, Housing, and Urban Affairs). 
CONGRESSIONAL RECORD, Vol. 136 (1990): 
July 18, considered and passed Senate. 
July 23, H.R. 5325 considered and passed House; S. 647, amended, passed in 
lieu. 
Sept. 27, Senate concurred in House amendments with an amendment. 
Oct. 1, House concurred in Senate amendment.