Sec.

200.735-12 Special Government employees. 200.735-13 Disciplinary and other remedial

action.

200.735-14 Employees on leave of absence. 200.735-15 Interpretative and advisory

service.

Subpart A-Organization and Program Management

AUTHORITY: The provisions of this Subpart A issued under secs. 19, 23, 48 Stat. 85, 901, as amended, sec. 20, 49 Stat. 833, sec. 319, 53 Stat. 1173, secs. 38, 211, 54 Stat. 841, 855; 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11, unless otherwise noted.

SOURCE: The provisions of this Subpart A appear at 25 F.R. 12712, Dec. 22, 1962, unless otherwise noted.

§ 200.1

General statement and statutory authority.

The Securities and Exchange Commission was created in 1934 under the Securities Exchange Act. That Act transferred to the Commission the administration of the Securities Act of 1933, formerly administered by the Federal Trade Commission. Subsequent laws assigned to the Securities and Exchange Commission for administration are: Public Utility Holding Company Act of 1935, Trust Indenture Act of 1939, Investment Company Act of 1940, and Investment Advisers Act of 1940. By the terms of Chapter X of the Bankruptcy Act, as amended in 1938, the Commission also serves as adviser to United States District Courts in connection with certain proceedings for the reorganization of debtor corporations. Considered together, the laws administered by the Commission proved for the following.

(a) Public disclosure of pertinent facts concerning public offerings of securities and securities listed on national securities exchanges and certain securities trade in the over-the-counter markets.

(b) Enforcement of disclosure requirements in the soliciting of proxies for meetings of security holders by companies whose securities are listed on exchange, public utility holding companies, and their subsidiaries and investment companies.

(c) Regulation of the trading in securities on national securities exchanges and in the over-the-counter markets.

(d) Investigation of securities frauds, manipulations, and other violations, and the imposition and enforcement of legal sanctions therefor.

(e) Registration, and the regulation of certain activities, of brokers, dealers and investment advisers.

(f) Supervision of the activities of mutual funds and other investment companies.

(g) Administration of statutory standards governing protective and other provisions of trust indentures under which debt securities are sold to the public.

(h) Regulation of the purchase and sale of securities, utility properties, and other assets by registered public utility holding companies and their electric and gas utility subsidiaries; enforcement of statutory standards for public utility holding company system simplification and integration; and approval of their reorganization, mergers and consolida

tions.

(i) Performance of advisory services to Federal courts in corporate reorganization proceedings under Chapter X of the Bankruptcy Act.

(j) Administrative sanctions, injunctive remedies and criminal prosecution. There are also private rights of action for investors injured by violations of the Acts.

§ 200.2 Statutory functions.

Following are brief descriptions of the Commission's functions under each of the statutes it administers:

(a) Securities Act of 1933. (1) Issuers of securities making public offerings for sale in interstate commerce or through the mails, directly or by others on their behalf, are required to file with the Commission registration statements containing financial and other pertinent data about the issuer and the offering. A similar requirement is provided with respect to such public offerings on behalf of a controlling person of the issuer. Unless a registration statement is in effect with respect to such securities, it is unlawful to sell the securities in interstate commerce or through the mails. (There are certain limited exemptions, such as government securities, non-public offerings, and intrastate offerings.) The effectiveness of a registration statement may be refused or suspended after a hearing if the statement contains material misstatements or omissions, thus barring sale of the securities until it is appropriately amended. Registration is not a finding by the Commission as to the accuracy of the facts disclosed; and it is unlawful so to represent. Moreover,

registration of securities does not imply approval of the issue by the Commission or insure investors against loss in their purchase, but serves rather to provide information upon which investors may make an informed and realistic evaluation of the worth of the securities.

(2) Persons responsible for filing false information with the Commission subject themselves to the risk of fine or imprisonment or both; and the issuing company, its directors, officers, and the underwriters and dealers and others may be liable in damages to purchasers of registered securities if the disclosures in the registration statements and prospectus are materially defective. Also the statute contains antifraud provisions which apply generally to the sale of securities, whether or not registered.

(b) Securities Exchange Act of 1934. This Act requires the filing of registration applications and annual and other reports with national securities exchanges and the Commission, by companies whose securities are listed upon the exchanges. Annual and other reports must be filed also by certain companies whose securities are traded in the overthe-counter markets. These must contain financial and other data prescribed by the Commission for the information of investors. Material misstatements or omissions are grounds for suspension or withdrawal of the security from exchange trading. This Act makes unlawful solicitations of proxies, authorizations or consents from holders of listed securities in contravention of rules prescribed by the Commission. These rules provide for disclosures to securities holders of information relevant to the matters which are the subject of solicitations. The Act also requires disclosure of the holdings and the transactions by officers, directors and large (10%) holders of equity securities of companies having such securities listed on a national securities exchange. The Act also provides for registration with the Commission and for regulation by the Commission of national securities exchanges, brokers and dealers engaged in an over-the-counter securities business, and national associations of such dealers. It gives the Commission rule making power with respect to short sales, stabilizing, floor trading, activities of specialists and odd-lot dealers, and such matters as excessive trading by the exchange members. The Act empowers the Board of Governors of the Federal

Reserve System to prescribe minimum margin requirements with respect to listed securities.

(c) Public Utility Holding Company Act of 1935. This Act provides for regulation by the Commission of the purchase and sale of securities, properties, and other assets by companies comprised within electric and gas utility holding company systems, their intrasystem transactions and service and management arrangements. It further provides for limitation of system operations to physically integrated and coordinated properties, and simplification of complex corporate and capital structures and elimination of unfair distribution of voting power. The issuance and sale of securities by holding companies and their subsidiaries, unless exempt (subject to conditions and terms which the Commission is empowered to impose) as an issue expressly authorized by the state commission in the state in which the issuer is incorporated, must be found by the Commission to meet statutory standards, namely: that the new security is reasonably adapted to the security structure and earning power of the issuer; that the proposed financing is necessary and appropriate to the economical and efficient operation of the company's business; that the consideration received, and fees, commissions, and other remuneration paid are fair; and that the terms and conditions of the sale are not detrimental to investors, consumers, or the public. The purchase and sale of utility properties and other assets may not be made in contravention of rules, regulations, or orders of the Commission regarding the consideration to be received, maintenance of competitive conditions, fees and commissions, accounts, disclosure of interest, and similar matters. In passing upon proposals for reorganization, merger, or consolidation, the Commission must be satisfied that the objectives of the act generally are complied with and that the terms of the proposals are fair and equitable to all classes of security holders affected.

(d) Trust Indenture Act of 1939. This Act is designed to safeguard the interests of purchasers of publicly offered debt securities issued under trust indentures through provisions requiring in such indentures the elimination of certain types of exculpatory clauses and the inclusion of certain protective provisions. The act also requires that the indenture trustee, who is a representative of the

debt holders, shall be "independent" by proscribing certain relationships which might conflict with the proper exercise of his duties.

(e) Investment Company Act of 1940. This Act provides for the registration with the Commission of investment companies and subjects their activities to regulation in accordance with standards prescribed in the interests of protecting investors. Various transactions of investment companies, including transactions with affiliated interests, are prohibited unless exempted by the Commission. The Commission is authorized to prepare reports to security holders on the fairness of plans of reorganization, merger or consolidation; it may institute court action to enjoin the consummation of plans considered grossly unfair to security holders, or to enjoin acts and practices of management involving gross misconduct or gross abuse of trust and to disqualify from office officials responsible therefor.

(f) Investment Advisers Act of 1940. Persons who, for compensation, engage in the business of advising others with respect to their security transactions must register with the Commission. Their activities in the conduct of such business are subject to standards of the act which make unlawful those practices which constitute fraud or deceit and which require, among other things, disclosure of any interests they may have in transactions executed for clients. The Act grants to the Commission rule-making power with respect to fraudulent and other activities of investment advisers.

(g) Chapter X of the Bankruptcy Act. Chapter X of the Bankruptcy Act provides for certain mandatory and certain discretionary activities of the Commission to aid the federal courts in the administration of the affairs of debtor corporations being reorganized under that chapter. The Commission may participate as a party and it may advise the court with respect to the feasibility and fairness of proposed plans of reorganization.

GENERAL ORGANIZATION § 200.10 The Commission.

The Commission is composed of five members, not more than three of whom may be members of the same political party. The members are appointed by the President, with the advice and consent of the Senate, for 5-year terms, one term ending each year. The Chairman

is designated by the President pursuant to the provisions of section 3 of Reorganization Plan No. 10 of 1950 (3 CFR, 1949-1953 Comp., p. 1006). The Commission is assisted by a staff, which includes lawyers, accountants, engineers, financial security analysts, investigators and examiners, as well as administrative and clerical employees.

§ 200.11 Headquarters Office-Regional Office relationship.

(a) (1) Division and Office Heads in the Headquarters Office have Commission-wide responsibility to the Commission for the overall development, policy and technical guidance, and policy direction of the operating programs under their jurisdiction.

(2) Each Regional Administrator is responsible for the direction and supervision of his work force and for the execution of all programs in his region as shown in paragraph (b) of this section, in accordance with established policy.

(b) Regional Administrators of the Commission.

Region 1. New York, New Jersey.-Regional Administrator, 225 Broadway, New York, N.Y. 10007

Region 2. Massachusetts, Connecticut, Rhode Island, Vermont, New Hampshire, Maine.-Regional Administrator, Federal Building, Post Office Square, Boston, Mass. 02109

Region 3. Tennessee, Virgin Islands, Puerto Rico, North Carolina, South Carolina, Georgia, Alabama, Mississippi, Florida, and that part of Louisiana lying east of the Atchafalaya River.-Regional Administrator, Suite 138, 1371 Peachtree Street NE., Atlanta, Ga. 30309

Region 4. Illinois, Indiana, Iowa, Kansas City (Kans.), Kentucky, Michigan, Minnesota, Missouri, Ohio, Wisconsin.-Regional Administrator, Bankers Building (Room 630), 105 West Adams Street, Chicago, Ill. 60603

Region 5. Oklahoma, Arkansas, Texas, that part of Louisiana lying west of the Atchafalaya River, and Kansas (except Kansas City). Regional Administrator, United States Courthouse (Room 301), 10th and Lamar Streets, Fort Worth, Tex. 76102.

Region 6. Wyoming, Colorado, New Mexico, Nebraska, North Dakota, South Dakota, Utah.-Regional Administrator, 802 Midland Savings Building, 444 17th Street, Denver, Colo. 80202

Region 7. California, Nevada, Arizona, Hawaii, Guam.-Regional Administrator, Box 36042, 450 Golden Gate Avenue, San Francisco, California, 94102.

Region 8. Washington, Oregon, Idaho, ka.-Regional Administrator,

Hoge Building (ninth floor), 705 Second Avenue, Seattle, Wash. 98104

Region 9. Pennsylvania, Maryland, Virginia, West Virginia, Delaware, District of Columbia.-Regional Administrator, Courts Building, 310 Sixth Street, NW., Washington, D.C. 20549

[27 F.R. 12712, Dec. 22, 1962, as amended at 28 F.R. 6970, July 9, 1963; 29 F.R. 11579, Aug. 13, 1964]

§ 200.12 Functional responsibilities.

This section sets forth the administrative and substantive responsibilities of the Division Directors, Office Heads, Regional Administrators, and certain other Commission officers. All Commission officers and other staff members, except Hearing Examiners, shall perform, in addition to the duties herein set forth, such additional duties as the Chairman of the Commission may assign from time to time. These officers also serve as liaison with government and other agencies concerning matters within their respective functional responsibilities.

§ 200.13 The Secretary of the Commission.

(a) The Secretary of the Commission is responsible to the Commission for the preparation and maintenance of the Minute Record of all official actions of the Commission. As custodian of the official seal of the Commission, he also has the responsibility for authenticating documents. In addition, he is the press and information officer, and is responsible for the preparation and distribu tion of releases announcing the various actions of the Commission.

(b) In addition, the Secretary is responsible to the Commission for the scheduling of oral arguments before the Commission and of administrative hearings before Hearing Examiners, as well as the related function of designating Examiners to preside at such hearings. He also performs various functions under the Commission's Rules of Practice, particularly with respect to procedural matters arising during the course of administrative proceedings.

§ 200.14 Hearing Examiners.

Hearings for the purpose of developing the evidentiary record in the Commission's administrative proceedings are conducted before its Hearing Examiners. They rule on the admissibility of evidence and on legal and other issues which arise during the course of such proceedings. Unless waived by the parties, a