Gupta v. Securities and Exchange Commission

Filing 16

MEMORANDUM OF LAW in Opposition re: 10 MOTION to Dismiss Complaint. /Memorandum of Law of Plaintiff Rajat K. Gupta in Opposition to Defendant's Motion To Dismiss Complaint. Document filed by Rajat K. Gupta. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(Naftalis, Gary)

EXHIBIT B

H. R. 4173

One Hundred Eleventh Congress
of the
United States of America
AT T H E S E C O N D S E S S I O N
Begun and held at the City of Washington on Tuesday,
the fifth day of January, two thousand and ten

An Act
To promote the financial stability of the United States by improving accountability
and transparency in the financial system, to end ‘‘too big to fail’’, to protect
the American taxpayer by ending bailouts, to protect consumers from abusive
financial services practices, and for other purposes.

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Dodd-Frank
Wall Street Reform and Consumer Protection Act’’.
(b) TABLE OF CONTENTS.—The table of contents for this Act
is as follows:
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.

1.
2.
3.
4.
5.
6.

Short title; table of contents.
Definitions.
Severability.
Effective date.
Budgetary effects.
Antitrust savings clause.
TITLE I—FINANCIAL STABILITY

Sec. 101. Short title.
Sec. 102. Definitions.
Subtitle A—Financial Stability Oversight Council
Sec. 111. Financial Stability Oversight Council established.
Sec. 112. Council authority.
Sec. 113. Authority to require supervision and regulation of certain nonbank financial companies.
Sec. 114. Registration of nonbank financial companies supervised by the Board of
Governors.
Sec. 115. Enhanced supervision and prudential standards for nonbank financial
companies supervised by the Board of Governors and certain bank holding companies.
Sec. 116. Reports.
Sec. 117. Treatment of certain companies that cease to be bank holding companies.
Sec. 118. Council funding.
Sec. 119. Resolution of supervisory jurisdictional disputes among member agencies.
Sec. 120. Additional standards applicable to activities or practices for financial stability purposes.
Sec. 121. Mitigation of risks to financial stability.
Sec. 122. GAO Audit of Council.
Sec. 123. Study of the effects of size and complexity of financial institutions on capital market efficiency and economic growth.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.

151.
152.
153.
154.
155.
156.

Subtitle B—Office of Financial Research
Definitions.
Office of Financial Research established.
Purpose and duties of the Office.
Organizational structure; responsibilities of primary programmatic units.
Funding.
Transition oversight.

H. R. 4173—487
violation of a provision of this Act, or of any rule or regulation
issued under this Act, shall be deemed to be in violation of such
provision to the same extent as the person to whom such assistance
is provided.’’.
SEC. 929N. AUTHORITY TO IMPOSE PENALTIES FOR AIDING AND ABETTING VIOLATIONS OF THE INVESTMENT ADVISERS ACT.

Section 209 of the Investment Advisers Act of 1940 (15 U.S.C.
80b–9) is amended by inserting at the end the following new subsection:
‘‘(f) AIDING AND ABETTING.—For purposes of any action brought
by the Commission under subsection (e), any person that knowingly
or recklessly has aided, abetted, counseled, commanded, induced,
or procured a violation of any provision of this Act, or of any
rule, regulation, or order hereunder, shall be deemed to be in
violation of such provision, rule, regulation, or order to the same
extent as the person that committed such violation.’’.
SEC. 929O. AIDING AND ABETTING STANDARD OF KNOWLEDGE SATISFIED BY RECKLESSNESS.

Section 20(e) of the Securities Exchange Act of 1934 (15 U.S.C.
78t(e)) is amended by inserting ‘‘or recklessly’’ after ‘‘knowingly’’.
SEC. 929P. STRENGTHENING ENFORCEMENT BY THE COMMISSION.

(a) AUTHORITY TO IMPOSE CIVIL PENALTIES IN CEASE AND
DESIST PROCEEDINGS.—
(1) UNDER THE SECURITIES ACT OF 1933.—Section 8A of
the Securities Act of 1933 (15 U.S.C. 77h–1) is amended by
adding at the end the following new subsection:
‘‘(g) AUTHORITY TO IMPOSE MONEY PENALTIES.—
‘‘(1) GROUNDS.—In any cease-and-desist proceeding under
subsection (a), the Commission may impose a civil penalty
on a person if the Commission finds, on the record, after notice
and opportunity for hearing, that—
‘‘(A) such person—
‘‘(i) is violating or has violated any provision of
this title, or any rule or regulation issued under this
title; or
‘‘(ii) is or was a cause of the violation of any
provision of this title, or any rule or regulation thereunder; and
‘‘(B) such penalty is in the public interest.
‘‘(2) MAXIMUM AMOUNT OF PENALTY.—
‘‘(A) FIRST TIER.—The maximum amount of a penalty
for each act or omission described in paragraph (1) shall
be $7,500 for a natural person or $75,000 for any other
person.
‘‘(B) SECOND TIER.—Notwithstanding subparagraph
(A), the maximum amount of penalty for each such act
or omission shall be $75,000 for a natural person or
$375,000 for any other person, if the act or omission
described in paragraph (1) involved fraud, deceit, manipulation, or deliberate 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 $150,000 for a natural person
or $725,000 for any other person, if—

H. R. 4173—488
‘‘(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
resulted in—
‘‘(I) substantial losses or created a significant
risk of substantial losses to other persons; or
‘‘(II) substantial pecuniary gain to the person
who committed the act or omission.
‘‘(3) EVIDENCE CONCERNING ABILITY TO PAY.—In any proceeding in which the Commission may impose a penalty under
this section, a respondent may present evidence of the ability
of the respondent to pay such penalty. The Commission may,
in its discretion, consider such evidence in determining whether
such penalty is in the public interest. Such evidence may relate
to the extent of the ability of the respondent to continue in
business and the collectability of a penalty, taking into account
any other claims of the United States or third parties upon
the assets of the respondent and the amount of the assets
of the respondent.’’.
(2) UNDER THE SECURITIES EXCHANGE ACT OF 1934.—Section
21B(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78u–
2(a)) is amended—
(A) by striking the matter following paragraph (4);
(B) in the matter preceding paragraph (1), by inserting
after ‘‘opportunity for hearing,’’ the following: ‘‘that such
penalty is in the public interest and’’;
(C) by redesignating paragraphs (1) through (4) as
subparagraphs (A) through (D), respectively, and adjusting
the margins accordingly;
(D) by striking ‘‘In any proceeding’’ and inserting the
following:
‘‘(1) IN GENERAL.—In any proceeding’’; and
(E) by adding at the end the following:
‘‘(2) CEASE-AND-DESIST PROCEEDINGS.—In any proceeding
instituted under section 21C against any person, the Commission may impose a civil penalty, if the Commission finds, on
the record after notice and opportunity for hearing, that such
person—
‘‘(A) is violating or has violated any provision of this
title, or any rule or regulation issued under this title;
or
‘‘(B) is or was a cause of the violation of any provision
of this title, or any rule or regulation issued under this
title.’’.
(3) UNDER THE INVESTMENT COMPANY ACT OF 1940.—Section
9(d)(1) of the Investment Company Act of 1940 (15 U.S.C.
80a–9(d)(1)) is amended—
(A) by striking the matter following subparagraph (C);
(B) in the matter preceding subparagraph (A), by
inserting after ‘‘opportunity for hearing,’’ the following:
‘‘that such penalty is in the public interest, and’’;
(C) by redesignating subparagraphs (A) through (C)
as clauses (i) through (iii), respectively, and adjusting the
margins accordingly;
(D) by striking ‘‘In any proceeding’’ and inserting the
following:

H. R. 4173—489
‘‘(A) IN GENERAL.—In any proceeding’’; and
(E) by adding at the end the following:
‘‘(B) CEASE-AND-DESIST PROCEEDINGS.—In any proceeding instituted pursuant to subsection (f) against any
person, the Commission may impose a civil penalty if the
Commission finds, on the record, after notice and opportunity for hearing, that such person—
‘‘(i) is violating or has violated any provision of
this title, or any rule or regulation issued under this
title; or
‘‘(ii) is or was a cause of the violation of any
provision of this title, or any rule or regulation issued
under this title.’’.
(4) UNDER THE INVESTMENT ADVISERS ACT OF 1940.—Section
203(i)(1) of the Investment Advisers Act of 1940 (15 U.S.C.
80b–3(i)(1)) is amended—
(A) by striking the matter following subparagraph (D);
(B) in the matter preceding subparagraph (A), by
inserting after ‘‘opportunity for hearing,’’ the following:
‘‘that such penalty is in the public interest and’’;
(C) by redesignating subparagraphs (A) through (D)
as clauses (i) through (iv), respectively, and adjusting the
margins accordingly;
(D) by striking ‘‘In any proceeding’’ and inserting the
following:
‘‘(A) IN GENERAL.—In any proceeding’’; and
(E) by adding at the end the following new subparagraph:
‘‘(B) CEASE-AND-DESIST PROCEEDINGS.—In any proceeding instituted pursuant to subsection (k) against any
person, the Commission may impose a civil penalty if the
Commission finds, on the record, after notice and opportunity for hearing, that such person—
‘‘(i) is violating or has violated any provision of
this title, or any rule or regulation issued under this
title; or
‘‘(ii) is or was a cause of the violation of any
provision of this title, or any rule or regulation issued
under this title.’’.
(b) EXTRATERRITORIAL JURISDICTION OF THE ANTIFRAUD PROVISIONS OF THE FEDERAL SECURITIES LAWS.—
(1) UNDER THE SECURITIES ACT OF 1933.—Section 22 of
the Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by
adding at the end the following new subsection:
‘‘(c) EXTRATERRITORIAL JURISDICTION.—The district courts of
the United States and the United States courts of any Territory
shall have jurisdiction of an action or proceeding brought or
instituted by the Commission or the United States alleging a violation of section 17(a) involving—
‘‘(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even if the
securities transaction occurs outside the United States and
involves only foreign investors; or
‘‘(2) conduct occurring outside the United States that has
a foreseeable substantial effect within the United States.’’.

H. R. 4173—490
(2) UNDER THE SECURITIES EXCHANGE ACT OF 1934.—Section
27 of the Securities Exchange Act of 1934 (15 U.S.C. 78aa)
is amended—
(A) by striking ‘‘The district’’ and inserting the following:
‘‘(a) IN GENERAL.—The district’’; and
(B) by adding at the end the following new subsection:
‘‘(b) EXTRATERRITORIAL JURISDICTION.—The district courts of
the United States and the United States courts of any Territory
shall have jurisdiction of an action or proceeding brought or
instituted by the Commission or the United States alleging a violation of the antifraud provisions of this title involving—
‘‘(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even if the
securities transaction occurs outside the United States and
involves only foreign investors; or
‘‘(2) conduct occurring outside the United States that has
a foreseeable substantial effect within the United States.’’.
(3) UNDER THE INVESTMENT ADVISERS ACT OF 1940.—Section
214 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–
14) is amended—
(A) by striking ‘‘The district’’ and inserting the following:
‘‘(a) IN GENERAL.—The district’’; and
(B) by adding at the end the following new subsection:
‘‘(b) EXTRATERRITORIAL JURISDICTION.—The district courts of
the United States and the United States courts of any Territory
shall have jurisdiction of an action or proceeding brought or
instituted by the Commission or the United States alleging a violation of section 206 involving—
‘‘(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even if the
violation is committed by a foreign adviser and involves only
foreign investors; or
‘‘(2) conduct occurring outside the United States that has
a foreseeable substantial effect within the United States.’’.
(c) CONTROL PERSON LIABILITY UNDER THE SECURITIES
EXCHANGE ACT OF 1934.—Section 20(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78t(a)) is amended by inserting after ‘‘controlled person is liable’’ the following: ‘‘(including to the Commission
in any action brought under paragraph (1) or (3) of section 21(d))’’.
SEC. 929Q. REVISION TO RECORDKEEPING RULE.

(a) INVESTMENT COMPANY ACT OF 1940 AMENDMENTS.—Section
31 of the Investment Company Act of 1940 (15 U.S.C. 80a–30)
is amended—
(1) in subsection (a)(1), by adding at the end the following:
‘‘Each person having custody or use of the securities, deposits,
or credits of a registered investment company shall maintain
and preserve all records that relate to the custody or use
by such person of the securities, deposits, or credits of the
registered investment company for such period or periods as
the Commission, by rule or regulation, may prescribe, as necessary or appropriate in the public interest or for the protection
of investors.’’; and
(2) in subsection (b), by adding at the end the following:
‘‘(4) RECORDS OF PERSONS WITH CUSTODY OR USE.—