Summary of industry arguments.-The injunction is an historically discretionary measure. The new language "has engaged" might give a court impetus to enjoin without proof of threatened repetition. If so, it may be used as a punitive penalty by an agency. It already has adequate criminal remedies.

Suggestions of industry.--1. Delete "has engaged" in the later acts. 2. Pass the amendment, but add in this act and the 1940 acts the necessity of proving likelihood of repetitive violation, "a proper showing of equity." 3. Change "shall" to "may."

Summary of SEC arguments.-The 1933 act should be conformed to congressional intention expressed in the 1940 acts. The power is needed to stop fraudulent sellers who will continue to harm the public when the SEC fails to get an injunction under present law.

SECTION 11 ADDITION OF PROHIBITION AGAINST AIDERS AND ABETTORS

Section 11 of S. 1178 would add a new section to the 1933 act making it unlawful for persons to do indirectly acts which they are forbidden to do directly. In addition, the section makes it unlawful for any person to aid, abet, or induce another person to violate the act.

The new section does not limit the application of the criminal aiding and abetting statute of the United States Judicial Code. Rather the amendment borrows the concept of aiding and abetting from the criminal law and seeks to insure that persons will be liable in civil administrative actions by the SEC, as well as in criminal actions.

In the opinion of the industry, this provision should be limited under sections of the 1933 act which treat the problem in part. As an instance, the power could be inserted in section 20 (b), discussed above, allowing the agency to seek an injunction against a person aiding and abetting a violator. Or again, it could be placed under section 15, which describes the liability of controlling persons. This section says the person who by stock ownership, agency, or otherwise, controls someone civilly liable under section 11 or 12 (the registration and seller sections previously studied) will be jointly liable with the person liable.

But the SEC insists that placing it under section 15, for example, would be unnecessarily restrictive, since that only applies to selling violations. This power is sought in order to penalize abettors of all violations. Amendments of

S. 1179 will assist the SEC in denying or revoking a dealer-broker's registration in section 15 (b) of the Securities Exchange Act of 1934 by showing under the new section that an abettor has willfully violated the Securities Act of 1933.

In addition, the industry fears that private litigants, not only the SEC, may find in this section a vehicle by which to sue aiders and abettors. For the statute does not say who can sue-it merely says "it shall be unlawful" (to aid or abet). The courts have extended from the SEC to private plaintiffs a right of suit under a comparably general antifraud provision of the 1934 Securities Exchange Act (sec. 10 (b)).

Suggestions of industry agreeable to SEC.-Make it clear that no civil liability is intended.

[S. 1179, 86th Cong., 1st sess.]

A BILL To amend certain provisions of the Securities Exchange Act of 1934, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That paragraph (3) of section 3 (a) of the Securities Exchange Act of 1934, as amended, is amended to read as follows: "(3) The term 'member' when used with respect to an exchange means any firm, organization, corporation or other person permitted either to effect transactions on the exchange without the services of another person acting as broker, or to make use of the facilities of an exchange for transactions thereon without payment of a commission or fee or with the payment of a commission or fee which is less than that charged the general public, and any general partner, officer, or director of any such firm, organization, corporation, or other person.' SEC. 2. Paragraph (16) of section 3(a) of the Securities Exchange Act of 1934, as amended, is amended by striking out "Alaska," and "the Philippine Islands,”. SEC. 3. Subsection (e) of section 6 of the Securities Exchange Act of 1934, as amended, is amended by striking out "thirty" and substituting in lieu thereof "ninety".

SEC. 4. The introductory paragraph of subsection (c) of section 7 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(c) It shall be unlawful for any member of a national securities exchange, or any broker or dealer who transacts a business in securities through the medium of any such member, or any broker or dealer registered pursuant to section 15 of this title, directly or indirectly to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer—”.

SEC. 5. The introductory paragraph of section 8 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"SEC. 8. It shall be unlawful for any member of a national securities exchange, or any broker or dealer who transacts a business in securities through the medium of any such member, or any broker or dealer registered pursuant to section 15 of this title, directly or indirectly—”.

SEC. 6. Subsection (b) of section 8 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(b) to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers' acceptance or commercial bills) in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility of brokers and dealers."

SEC. 7. Subsection (d) of section 8 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(d) To borrow, lend or hold any securities received or carried for the account of any customer, or any securities substituted therefor, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to securities carried for the accounts of customers."

SEC. 8. Clauses (B) and (C) of paragraph (1) of section 9(a) of the Securities Exchange Act of 1934, as amended, are amended by striking out the words "of substantially the same size".

SEC. 9. Paragraphs (2) and (6) of section 9(a) of the Securities Exchange Act of 1934, as amended, are amended by striking out "a series of" and inserting in lieu thereof "one or more".

SEC. 10. Subsection (b) of section 10 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(b) To use or employ, in connection with the purchase or sale of, or any attempt to purchase or sell, any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors."

SEC. 11. Subsection (d) of section 11 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(d) It shall be unlawful for a member of a national securities exchange, or any broker or dealer who transacts a business in securities through the medium of a member, or any broker or dealer registered pursuant to section 15 of this title, to effect (1) any transaction in connection with which, directly or indirectly, he extends or maintains or arranges for the extension or maintenance of credit to or for a customer on any security (other than an exempted security) which was a part of a new issue in the distribution of which he participated as a member of a selling syndicate or group within thirty days prior to such transaction: Provided, That credit shall not be deemed extended by reason of a bona fide delayed delivery of any such security against full payment of the entire purchase price thereof upon such delivery within thirty-five days after such purchase, or (2) any transaction with respect to any security (other than an exempted security) unless, if the transaction is with a customer, he discloses to such customer in writing at or before the completion of the transaction whether he is acting as a dealer for his own account, as a broker for such customer, or as a broker for some other person."

SEC. 12. Subsection (b) of section 14 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(b) It shall be unlawful for any member of a national securities exchange, or any broker or dealer who transacts a business in securities through the medium of any such member, or any broker or dealer registered pursuant to section 15

of this title, to give a proxy, consent, or authorization in respect of any security registered on a national securities exchange and carried for the account of a customer in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors."

SEC. 13. The fourth paragraph of section 15(b) of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"The Commission shall, after appropriate notice and opportunity for hearing, by order deny registration to, or suspend for a period not exceeding twelve months or revoke the registration of, any broker or dealer if it finds that such denial, suspension or revocation is in the public interest and that (1) such broker or dealer whether prior or subsequent to becoming such, or (2) any partner, officer, director, or branch manager of such broker or dealer (or any person occupying a similar status or performing similar functions), or any person directly or indirectly controlling or controlled by such broker or dealer, whether prior or subsequent to becoming such, (A) has willfully made or caused to be made in any application for registration pursuant to this subsection or in any document supplemental thereto or in any proceeding before the Commission with respect to registration pursuant to this subsection 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 (B) has been convicted within ten years preceding the filing of any such application or at any time thereafter of any felony or misdemeanor which the Commission finds (i) involves the purchase or sale of any security, or (ii) arises out of the conduct of the business of a broker or dealer or investment adviser, or (iii) involves embezzlement, fraudulent conversion, or misappropriation of funds, securities or other property, or (iv) involves a violation of section 1341, 1342, or 1343 of title 18, United States Code, as heretofore or hereafter amended; or (C) is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or arising out of the conduct of the business of a broker or dealer or investment adviser; or (D) has willfully violated any provision of the Securities Act of 1933 or the Investment Advisers Act of 1940, or of this title, as any of such statutes heretofore have been or hereafter may be amended, or of any rule or regulation thereunder. Pending final determination whether any such registration shall be denied, the Commission may by order postpone the effective date of such registration for a period not to exceed ninety days, but if, after appropriate notice and opportunity for hearing, it shall appear to the Commission to be necessary or appropriate in the public interest or for the protection of investors to postpone the effective date of such registration until final determination, the Commission shall so order. Pending final determination whether any such registration shall be revoked, the Commission shall by order suspend such registration if, after appropriate notice and opportunity for hearing, such suspension shall appear to the Commission to be necessary or appropriate in the public interest or for the protection of investors. Any registered broker or dealer may, upon such terms and conditions as the Commission may deem necessary in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Commission. An application for registration may be withdrawn only with the consent of the Commission if the request to withdraw such application is received by the Commission after it has commenced a proceeding to deny registration. If the Commission finds that any registered broker or dealer, or any broker or dealer for whom an application for registration is pending, is no longer in existence or has ceased to do business as a broker or dealer, the Commission shall by order cancel the registration or application of such broker or dealer."

SEC. 14. Paragraph (3) of section 15 (c) of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(3) No broker or dealer shall make use of the mails or of any means or instrumentaliity of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) on a 'when issued' or 'when distributed' basis, otherwise than on a national securities exchange, in contravention of such rules and regulations with respect to 'when issued' or 'when distributed' trading as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors."

SEC. 15. Subsection (c) of section 15 of the Securities Exchange Act of 1934, as amended, is amended by adding the following new paragraph:

"(4) If in its opinion the public interest and the protection of investors so requires, the Commission is authorized summarily to suspend trading, otherwise than on a national securities exchange, in any security (other than an exempted security) for one or more periods no one of which shall exceed ten days. No broker or dealer shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security in which trading is so suspended, otherwise than on a national security exchange."

SEC. 16. Subsection (b) (4) of section 15A of the Securities Exchange Act of 1934, as amended, is amended by adding the following after the semicolon at the end thereof: "in entering any such order, the Commission, association or exchange shall have jurisdiction to determine who was a cause thereof, after appropriate notice and opportunity for hearing;".

SEC. 17. Section 15A of the Securities Exchange Act of 1934, as amended, is amended by adding the following new subsection at the end thereof:

"(o) If any registered securities association (whether national or affiliated) shall, pursuant to rules adopted under this section, take any action against any person associated with a member thereof, or prohibit any person from becoming associated with a member thereof, such action shall be subject to review by the Commission in the same manner and to the same extent as action against a member pursuant to subsections (g) and (h) of this section."

SEC. 18. Paragraph (1) of section 19(a) of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(1) After appropriate notice and opportunity for hearing, by order to suspend for a period not exceeding twelve months or to withdraw the registration of a national securities exchange if the Commission finds (A) that such exchange is not so organized as to be able to comply with the provisions of this title and the rules and regulations thereunder, or (B) that the rules of such exchange are not just and adequate to insure fair dealing and to protect investors, or (C) that such exchange has violated any provision of this title or of the rules and regulations thereunder or has failed to enforce, so far as is within its power, compliance therewith by a member or by an issuer of a security registered thereon."

SEC. 19. Paragraph (2) of subsection (a) of section 19 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(2) After appropriate notice and opportunity for hearing, by order to deny, to suspend the effective date, to suspend for a period not exceeding twelve months, or to withdraw, the registration of a security registered pursuant to any provision of this title if the Commission finds that the issuer of such security has failed to comply with any provision of this title or of any rule or regulation thereunder. If the public interest and the protection of investors so require, the Commission may by order temporarily suspend trading in any such security on any national securities exchange pending final determination of any proceeding under this subsection; upon request of the issuer the Commission shall promptly hear and determine whether the public interest and the protection of investors require the continuation of such temporary suspension. No broker or dealer shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security in which trading is temporarily so suspended, on a national securities exchange or otherwise."

SEC. 20. Paragraph (4) of subsection (a) of section 19 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(4) And if in its opinion the public interest so requires, summarily to suspend trading on any national securities exchange in any security registered pursuant to any provision of this title, for one or more periods no one of which shall exceed ten days, or with the approval of the President, summarily to suspend all trading on any national securities exchange for one or more periods no one of which shall exceed ninety days. No broker or dealer shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security, in which trading is so suspended pursuant to any provision of this clause (4), on a national securities exchange or otherwise."

SEC. 21. The caption of section 20 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"LIABILITIES OF CONTROLLING AND ASSOCIATED PERSONS"

SEC. 22. Subsection (b) of section 20 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(b) It shall be unlawful for any person indirectly, or through or by means of any other person, to do any act or thing which it would be unlawful for such person to do directly under the provisions of this title or any rule or regulation thereunder. It shall be unlawful for any person to aid, abet, counsel, command, induce, or procure the violation of any provision of this title or any rule or regulation thereunder by any other person. These provisions shall not constitute a limitation with respect to the applicability to this title of section 2 of title 18, United States Code."

SEC. 23. Subsection (a) of section 21 of the Securities Exchange Act of 1934, as amended, is amended by striking out "has violated or is about to violate" and inserting in lieu thereof "has violated, is violating, or is about to violate". SEC. 24. Subsection (e) of section 21 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(e) Whenever it shall appear to the Commission that any person has engaged, is engaged, or is about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this title, or of any rule or regulation thereunder, or that any person has failed to comply with the provisions of this title, any rule or regulation thereunder or any order of the Commission made in pursuance thereof or with any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title, it may in its discretion bring an action in the proper distirct court of the United States, or the proper United States court of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this title or any rule, regulation, or order thereunder. Upon a proper showing that such person has engaged, is engaged, or is about to engage in any such act or practice, or that he has failed to comply with this title or any such rule, regulation, or order, a permanent or temporary injunction, restraining order, or other order, shall be granted without bond. The Commission may transmit such evidence as may be available concerning such acts or practices to the Attorney General, who may, in his discretion, institute the necessary criminal proceeding under this title."

SEC. 25. Subsection (f) of section 21 of the Securities Exchange Act of 1934, as amended, is amended to read as follows:

"(f) In any proceeding under subsection (e), the court, upon application of the Commission, may adjudge a broker or dealer a bankrupt if the court finds that the broker or dealer is unable to meet his debts as they mature. The court shall thereupon appoint a qualified trustee in bankruptcy, who may be a receiver theretofore appointed by the court in the proceedings under subsection (e). Thereafter the estate of such broker or dealer shall be administered as provided in the Bankruptcy Act, as now in effect or as it may hereafter be amended. For purposes of adjudging a broker or dealer a bankrupt under this subsection, the provisions of section 3 of the Bankruptcy Aet shall not apply."

SEC. 26. Subsection (a) of section 25 of the Securities Exchange Act of 1934, as amended, is amended by striking out "sections 239 and 240 of the Judicial Code, as amended (U.SC., title 28, secs. 346 and 347)" and inserting in lieu thereof "section 1254 of title 28, United States Code".

SEC. 27. Section 27 of the Securities Exchange Act of 1934, as amended, is amended by striking out "sections 128 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 225 and 347)" and inserting in lieu thereof “sections 1254, 1291, 1292, and 1293 of title 28, United States Code".

SEC. 28. Clause A of section 29 (b) of the Securities Exchange Act of 1934, as amended, is amended to read as follows: "A" That no contract shall be void by reason of this subsection because of any violation of any rule or regulation prescribed pursuant to subsection (b) of section 8 or paragraph (2) of subsection (c) of section 15 of this title, and".

SEC. 29. Subsection (c) of section 32 of the Securities Exchange Act of 1934. as amended, is amended by redesignating that subsection as (d) and amending it to read as follows:

"(d) The provisions of this section shall not apply in the case of any violation of any rule or regulation prescribed pursuant to subsection (b) of section 8 of this title, except a violation which consists of making, or causing to be made, any statement in any report or document required to be filed under any such rule or regulation, which statement was at the time and in the light of the