15 U.S.C. § 78r — Liability for misleading statements

Page 406 TITLE 15—COMMERCE AND TRADE § 78r maintenance of fair and orderly markets to improve significantly the information avail- able to brokers, dealers, investors, and regu- lators with respect to quotations for and transactions in penny stocks; and (3) a fully implemented automated quotation system for penny stocks would meet the infor- mation needs of investors and market partici- pants and would add visibility and regulatory and surveillance data to that market. (b) Mandate to facilitate establishment of auto- mated quotation systems (1) In general The Commission shall facilitate the wide- spread dissemination of reliable and accurate last sale and quotation information with re- spect to penny stocks in accordance with the findings set forth in subsection (a), with a view toward establishing, at the earliest fea- sible time, one or more automated quotation systems that will collect and disseminate in- formation regarding all penny stocks. (2) Characteristics of systems Each such automated quotation system shall— (A) be operated by a registered securities association or a national securities exchange in accordance with such rules as the Com- mission and these entities shall prescribe; (B) collect and disseminate quotation and transaction information; (C) except as provided in subsection (c), provide bid and ask quotations of partici- pating brokers or dealers, or comparably ac- curate and reliable pricing information, which shall constitute firm bids or offers for at least such minimum 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 ap- propriate levels that the Commission shall specify by rule or order. (c) Exemptive authority The Commission may, by rule or order, grant such exemptions, in whole or in part, condi- tionally 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 78w(b)(1) of this title) submitted more than 12 months after Oc- tober 15, 1990, include a description of the status of the penny stock automated quotation system or systems required by subsection (b). Such de- scription shall include— (1) a review of the development, implemen- tation, and progress of the project, including achievement of significant milestones and cur- rent project schedule; and (2) a review of the activities of registered se- curities associations and national securities exchanges in the development of the system. (June 6, 1934, ch. 404, title I, § 17B, as added Pub. L. 101–429, title V, § 506, Oct. 15, 1990, 104 Stat. 955.) Editorial Notes REFERENCES IN TEXT Section 78w(b)(1) of this title, referred to in subsec. (d), was omitted from the Code. For further details re- lated to reports referred to in subsec. (d), see Codifica- tion note set out under section 78w of this title. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Oct. 15, 1990, with provisions relat- ing to civil penalties and accounting and disgorgement, see section 1(c)(1), (2) of Pub. L. 101–429, set out in an Effective Date of 1990 Amendment note under section 77g of this title. § 78r. Liability for misleading statements (a) Persons liable; persons entitled to recover; defense of good faith; suit at law or in equity; costs, etc. Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to this chapter or any rule or regulation thereunder or any under- taking contained in a registration statement as provided in subsection (d) of section 78o of this title, which statement 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, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such state- ment, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. A person seeking to en- force such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, re- quire an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against ei- ther party litigant. (b) Contribution Every person who becomes liable to make pay- ment under this section may recover contribu- tion as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. (c) Period of limitations No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action ac- crued. (June 6, 1934, ch. 404, title I, § 18, 48 Stat. 897; May 27, 1936, ch. 462, § 5, 49 Stat. 1379.) Editorial Notes REFERENCES IN TEXT This chapter, referred to in subsec. (a), was in the original ‘‘this title’’. See References in Text note set out under section 78a of this title. Page 407 TITLE 15—COMMERCE AND TRADE § 78s AMENDMENTS 1936—Subsec. (a). Act May 27, 1936, inserted ‘‘or any undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title’’. § 78s. Registration, responsibilities, and over- sight of self-regulatory organizations (a) Registration procedures; notice of filing; other regulatory agencies (1) The Commission shall, upon the filing of an application for registration as a national securi- ties exchange, registered securities association, or registered clearing agency, pursuant to sec- tion 78f, 78o–3, or 78q–1 of this title, respectively, publish notice of such filing and afford inter- ested persons an opportunity to submit written data, views, and arguments concerning such ap- plication. Within ninety days of the date of pub- lication of such notice (or within such longer pe- riod as to which the applicant consents), the Commission shall— (A) by order grant such registration, or (B) institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and oppor- tunity for hearing and shall be concluded within one hundred eighty days of the date of a publication of notice of the filing of the ap- plication for registration. At the conclusion of such proceedings the Commission, by order, shall grant or deny such registration. The Commission may extend the time for conclu- sion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the applicant con- sents. The Commission shall grant such registration if it finds that the requirements of this chapter and the rules and regulations thereunder with respect to the applicant are satisfied. The Com- mission shall deny such registration if it does not make such finding. (2) With respect to an application for registra- tion filed by a clearing agency for which the Commission is not the appropriate regulatory agency— (A) The Commission shall not grant reg- istration prior to the sixtieth day after the date of publication of notice of the filing of such application unless the appropriate regu- latory agency for such clearing agency has no- tified the Commission of such appropriate reg- ulatory agency’s determination that such clearing agency is so organized and has the ca- pacity to be able to safeguard securities and funds in its custody or control or for which it is responsible and that the rules of such clear- ing agency are designed to assure the safe- guarding of such securities and funds. (B) The Commission shall institute pro- ceedings in accordance with paragraph (1)(B) of this subsection to determine whether reg- istration should be denied if the appropriate regulatory agency for such clearing agency notifies the Commission within sixty days of the date of publication of notice of the filing of such application of such appropriate regu- latory agency’s (i) determination that such clearing agency may not be so organized or have the capacity to be able to safeguard secu- rities or funds in its custody or control or for which it is responsible or that the rules of such clearing agency may not be designed to assure the safeguarding of such securities and funds and (ii) reasons for such determination. (C) The Commission shall deny registration if the appropriate regulatory agency for such clearing agency notifies the Commission prior to the conclusion of proceedings instituted in accordance with paragraph (1)(B) of this sub- section of such appropriate regulatory agen- cy’s (i) determination that such clearing agen- cy is not so organized or does not have the ca- pacity to be able to safeguard securities or funds in its custody or control or for which it is responsible or that the rules of such clear- ing agency are not designed to assure the safe- guarding of such securities or funds and (ii) reasons for such determination. (3) A self-regulatory organization may, upon such terms and conditions as the Commission, by rule, deems necessary or appropriate in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any self-regulatory organization is no longer in existence or has ceased to do business in the capacity specified in its application for registration, the Commission, by order, shall cancel its registration. Upon the withdrawal of a national securities association from registration or the cancellation, suspen- sion, or revocation of the registration of a na- tional securities association, the registration of any association affiliated therewith shall auto- matically terminate. (b) Proposed rule changes; notice; proceedings (1) Each self-regulatory organization shall file with the Commission, in accordance with such rules as the Commission may prescribe, copies of any proposed rule or any proposed change in, addition to, or deletion from the rules of such self-regulatory organization (hereinafter in this subsection collectively referred to as a ‘‘pro- posed rule change’’) accompanied by a concise general statement of the basis and purpose of such proposed rule change. The Commission shall, as soon as practicable after the date of the filing of any proposed rule change, publish no- tice thereof together with the terms of sub- stance of the proposed rule change or a descrip- tion of the subjects and issues involved. The Commission shall give interested persons an op- portunity to submit written data, views, and ar- guments concerning such proposed rule change. No proposed rule change shall take effect unless approved by the Commission or otherwise per- mitted in accordance with the provisions of this subsection. (2) APPROVAL PROCESS.— (A) APPROVAL PROCESS ESTABLISHED.— (i) IN GENERAL.—Except as provided in clause (ii), not later than 45 days after the date of publication of a proposed rule change under paragraph (1), the Commission shall— (I) by order, approve or disapprove the proposed rule change; or