PUBLIC LAW
96-433—OCT.
10, 1980
94 STAT. 1855
Public Law 96-
96th
Congress
433
An Act
Oct. 10, 1980
[H.R. 7939]
Brokers and
dealers'
customers,
increased
protection;
financial
privacy,
applicability to
SEC.
To amend the Securities Investor Protection Act to increase the amount of protec-
tion available under such Act to customers of brokers and dealers, and to provide
for the applicability of the Right to Financial Privacy Act of 1978 to the Securi-
ties and Exchange Commission.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
AMENDMENTS TO THE SECURITIES INVESTOR PROTECTION ACT
SECTION 1. Section 9(a) of the Securities Investor Protection Act (15
U.S.C. 78fff-3(a)) is amended—
(1) by striking out "$100,000" and inserting in
Ueu
thereof
"$500,000"; and
(2) in paragraph (1), by striking out "$40,000" and inserting in
lieu
thereof'^$100,000".
AMENDMENT
TO
THE
RIGHT
TO
FINANCIAL
PRIVACY
ACT OF 1978
SEC.
2. Section 1122 of the Right to Financial Privacy Act of
1978
(12
U.S.C. 3422) is amended to read as follows:
"SECURITIES AND EXCHANGE COMMISSION
"SEC.
1122. Except as provided in the Securities Exchange Act of
1934,
this Act shall apply with respect to the Securities and Exchange
15 USC
78a.
Commission.".
AMENDMENT TO THE SECURITIES EXCHANGE ACT OF 1934
SEC.
3. Section 21 of the Securities Exchange Act of 1934 (15 U.S.C.
78u) is amended by adding at the end thereof the following:
"(h)(1) The Right to Financial Privacy Act of 1978 shall apply with
respect to the Commission, except as otherwise provided in this
subsection.
"(2) Notwithstanding section 1105 or 1107 of the Right to Financial
Privacy Act of 1978, the Commission may have access to and obtain
copies of, or the information contained in financial records of a
customer from
a
financial institution without prior notice to the
customer upon an ex parte showing to an appropriate United States
district court that the Commission seeks such financial records
pursuant to a subpena issued in conformity with the requirements of
section 19(b) of the Securities Act of 1933, section 21(b) of the
Securities Exchange Act of 1934, section 18(c) of the Public Utility
Holding Company Act of 1935, section 42(b) of the Investment
Company Act of 1940, or section 209(b) of the Investment Advisers
Act of 1940, and that the Commission has reason to believe
that—
"(A) delay in obtaining access to such financial records, or the
required notice, will result
in—
"(i) flight from prosecution;
12 USC 3401
note.
Records, access.
12 USC 3405,
3407.
15 USC 77s.
15 USC 78u.
15 USC 79r.
15 USC
80a-41.
15 USC 80b-9.
79-194
O—81—pt.
2
37 : QL3
94 STAT. 1856 PUBLIC LAW
96-433—OCT.
10, 1980
Ex parte order
granting delay.
Delay, extension.
12
use
3409.
Subpena.
Notice.
Ante, p. 1855.
Proceedings and
records.
Annual
tabulation;
report to
Congress.
12
use
3401
note.
"(ii)
destruction of or tampering with evidence;
"(iii)
transfer of assets or records outside the territorial
limits of the United States;
"(iv)
improper conversion of investor assets; or
"(v)
impeding the ability of the Commission to identify or
trace the source or disposition of funds involved in any
securities transaction;
"(B) such financial records are necessary to identify or trace
the record or beneficial ownership interest in any security;
"(C) the acts, practices or course of conduct under investigation
involve—
"(i) the dissemination of
materially
false or misleading
information concerning any security, issuer, or market, or
the failure to make disclosures required under the securities
laws,
which remain uncorrected; or
"(ii) a financial loss to investors or other persons protected
under the securities laws which remains substantially un-
compensated; or
"(D)
the acts, practices or course of conduct under investiga-
tion—
"(i) involve significant financial speculation in securities;
or
"(ii) endanger the stability of any financial or investment
intermediary.
"(3) Any application under paragraph (2) for a delay in notice shall
be made with reasonable specificity.
"(4)(A) Upon a showing described in paragraph (2), the presiding
judge or magistrate shall enter an ex parte order granting the
requested delay for a period not to exceed ninety days and an order
prohibiting the financial institution involved from disclosing that
records have been obtained or that a request for records has been
made.
"(B) Extensions of the period of delay of notice provided in subpara-
graph (A) of up to ninety days each may be granted by the court upon
application, but only in accordance with this subsection or section
1109(a), (b)(1), or (b)(2) of the Right to Financial Privacy Act of 1978.
"(C) Upon expiration of the period of delay of notification ordered
under subparagraph (A) or (B), the customer shall be served with or
mailed a copy of the subpena insofar as it applies to the customer
together with the following notice which shall describe with reason-
able specificity the nature of the investigation for which the Commis-
sion sought the financial records:
" 'Records or information concerning your transactions which are
held by the financial institution named in the attached subpena were
supplied to the Securities and Exchange Commission on (date).
Notification was withheld pursuant to a determination by the (title of
court so ordering) under section 21(h) of the Securities Exchange Act
of
1934
that (state reason). The purpose of the investigation or official
proceeding was (state purpose).'.
"(5) Upon application by the Commission, all proceedings pursuant
to paragraphs (2) and (4) shall be held in camera and the records
thereof sealed until expiration of the period of delay or such other
date as the presiding judge or magistrate may permit.
"(6) The Commission shall compile an annual tabulation of the
occasions on which the Commission used each separate subparagraph
or clause of paragraph (2) of this subsection or the provisions of the
Right to Financial Privacy Act of 1978 to obtain access to financial
records of a customer and include it in its annual report to the
PUBLIC LAW
96-433—OCT.
10, 1980 94 STAT. 1857
Congress. Section 1121(b) of the Right to Financial Privacy Act of
1978 shall not apply with respect to the Commission.
"(7XA)
Following the expiration of the period of delay of notifica-
tion ordered by the court pursuant to paragraph (4) of this subsection,
the customer may, upon motion, reopen the proceeding in the district
court which issued the order. If the presiding judge or magistrate
finds that the movant is the customer to whom the records obtained
by the Commission pertain, and that the Commission has obtained
financial records or information contained therein in violation of this
subsection, other than paragraph (1), it may order that the customer
be granted civil penalties against the Commission in an amount equal
to the sum
of—
"(i)
$100 without regard to the volume of records involved;
"(ii)
any out-of-pocket damages sustained by the customer as a
direct result of the disclosure; and
"(iii)
if the violation is found to have been willful, intentional,
and without good faith, such punitive damages as the court may
allow, together with the costs of the action and reasonable
attorney's fees as determined by the court.
"(B) Upon a finding that the Commission
h£is
obtained financial
records or information contained therein in violation of this subsec-
tion, other than paragraph
(1),
the court, in its discretion, may also or
in the alternative issue injunctive relief to require the Commission
to comply with this subsection with respect to any subpena which
the Commission issues in the future for financial records of such
customer for purposes of the same investigation.
"(C) Whenever the court determines that the Commission has
failed to comply with this subsection, other than paragraph (1), and
the court finds that the circumstances raise questions of whether an
officer or employee of the Commission acted in a willful and inten-
tional manner and without good faith with respect to the violation,
the Office of Personnel Management shall promptly initiate a pro-
ceeding to determine whether disciplinary action is warranted
against the agent or employee who was primarily responsible for the
violation. After investigating and considering the evidence sub-
mitted, the Office of Personnel Management shall submit its findings
and recommendations to the Commission and shall send copies of the
findings and recommendations to the officer or employee or his
representative. The Commission shall take the corrective action that
the Office of Personnel Management recommends.
"(8) The relief described in paragraphs (7) and (10) shall be the only
remedies or sanctions available to a customer for a violation of this
subsection, other than paragraph (1), and nothing herein or in the
Right to Financial Privacy Act of
1978
shall be deemed to prohibit the
use in any investigation or proceeding of financial records, or the
information contained therein, obtained by a subpena issued by the
Commission. In the
C£ise
of an unsuccessful action under paragraph
(7),
the court shall award the costs of the action and attorney's fees to
the Commission if the presiding judge or magistrate finds that the
customer's claims were made in bad faith.
"(9XA)
The
(Dommission
may transfer financial records or the
information contained therein to any government authority if the
Commission proceeds as a transferring agency in accordance with
section
1112
of the Right to Financial Privacy Act of
1978,
except that
the customer notice required under section 1112 (b) or (c) of such Act
may be delayed upon a showing by the Commission, in accordance
with the procedure set forth in paragraphs (4) and (5), that one or
more of subparagraphs (A) through (D) of paragraph (2) apply.
12
use
3421.
Reopening of
proceeding.
Civil penalties.
Injunctive
relief.
0PM
investigation.
Findings and
recommenda-
tions,
submittal
to
SEC.
12
use
3401
note.
Costs and fees.
Records,
transfer.
12
use
3412.
94 STAT. 1858
PUBLIC LAW
96-433—OCT.
10, 1980
Records, transfer.
12
use
3412.
Disclosure
restrictions,
customer
notification.
12
use
3401
note.
Procedures and
penalties.
Financial
institution's
records.
Records
requests,
challenges.
Defined terms.
"(B) The Commission
may,
without notice
to
the customer pursuant
to section
1112
of the Right to Financial Privacy Act of
1978,
transfer
financial records or the information contained therein to a State
securities agency or to the Department of Justice. Financial records
or information transferred by the Commission to the Department of
Justice or to a State securities agency pursuant to the provisions of
this subparagraph may be disclosed or used only in an
admioistra-
tive, civil, or
crimuaal
action or
inv^tigation
by the Department of
Justice
or
the State securities agency which
arises
out of
or
relates to
the
acts,
practices,
or
courses of conduct investigated by the Commis-
sion,
except that if the Department of Justice or the State securities
agency determines that the information should be disclosed or used
for any other purpose, it may
do
so if it notifies the customer, except
as otherwise provided in the Right to Financial Privacy Act of 1978,
within 30 days of its determination, or complies with the require-
ments of section
1109
of such Act
r^arding
delay of notice.
"(10) Any government authority violating paragraph (9) shall be
subject to the procedures and penalties
apphcable
to the Commission
under paragraph
(7KA)
with respect
to
a violation
by
the Commission
in
obtaining
financial
records.
"(11)
Notwithstanding the provisions of this subsection, the Com-
mission may obtain financial records fi^m a financial institution or
transfer such records in accordance with provisions of the Right to
Financial Privacy Act of
1978.
"(12)
Nothing m this subsection shall enlarge
or
restrict any rights
of a financial institution to challenge requests for records made bv
the Commission
imder
existing
law.
Nothmg in this subsection shall
entitle a customer to assert
an;^
rights of a financial institution.
"(13)
Unless the context otherwise
requires,
all terms defined in the
Right to Financial Privacy Act of 1978 which are common to this
subsection shall
have the
same meaning
as in
such Act.".
CONFORMING AMENDMENT
SEC.
4. The second sentence of section 21(g) of the Securities
Exchange Act of
1934 (15
U.S.C.
78u^))
is amended by inserting "and
in subsection
(h)"
after
"as
used herein".
EFFECTIVE DATES
15
use
78u
note.
SEC.
5.
(a) The
amendments
made by
section
1
of this Act shall take
effect on
the date
of enactment of this Act.
(b) The amendments made by sections
2,3,
and 4 of this Act shall
take effect
on
November
10,19s0.
Nothing in this Act
or
in the Right
to Financial Privacy Act of 1978 shall apply to any Securities and
Exchange Commission subpena issued prior
to
such date.
Approved October 10, 1980.
LEGISLATIVE HISTORY:
HOUSE REPORT No.
96-1321,
Pt. I (eomm. on
Intersta«fe
and Foreign eommerce).
CONGRESSIONAL RECORD, Vol. 126 (1980):
Sept. 22, 23, considered and passed House.
Sept. 25, considered and passed Senate.
