[Federal Register Volume 81, Number 146 (Friday, July 29, 2016)]
[Rules and Regulations]
[Pages 50211-50242]
[FR Doc No: 2016-16987]

Vol. 81

Friday,

No. 146

July 29, 2016

Part IV

Securities and Exchange Commission

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17 CFR Part 201

Amendments to the Commission's Rules of Practice; Final Rule

Federal Register / Vol. 81 , No. 146 / Friday, July 29, 2016 / Rules
and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release No. 34-78319; File No. S7-18-15]
RIN 3235-AL87

Amendments to the Commission's Rules of Practice

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to its Rules of Practice. These changes concern,
among other things, the timing of hearings in administrative
proceedings, depositions, summary disposition, and the contents of an
answer.

DATES: Effective Date: The final rules are effective September 27,
2016.
    Applicability Dates: The applicability dates for proceedings
pending as of July 13, 2016, are discussed in Section Q of this
release.

FOR FURTHER INFORMATION CONTACT: Adela Choi, Senior Counsel, and Sarit
Klein, Attorney Advisor, Office of the General Counsel,<PHONE_NUMBER>,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to
Rules 141, 154, 161, 180, 220, 221, 222, 230, 232, 233, 234, 235, 250,
320, 360, 410, 411, 420, 440, 450 and 900 of its Rules of Practice [17
CFR 201.141, 201.154, 201.161, 201.180, 201.220, 201.221, 201.222,
201.230, 201.232, 201.233, 201.234, 201.235, 201.250, 201.320, 201.360,
201.410, 201.411, 201.420, 201.440, 201.450 and 201.900].

I. Introduction
II. Description of the Final Rules
    A. Rule 360 (Initial Decision of Hearing Officer and Timing of
Hearing)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    B. Rule 233 (Depositions Upon Oral Examination)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    C. Rule 232 (Subpoenas)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    D. Rule 141 (Orders and Decisions; Service of Orders Instituting
Proceedings and Other Orders and Decisions)
    E. Rule 161 (Extensions of Time, Postponements and Adjournments)
    F. Rule 180 (Sanctions)
    G. Rule 220 (Answer to Allegations)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    H. Rule 221 (Prehearing Conference)
    I. Rule 222 (Prehearing Submissions)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    J. Rule 230 (Enforcement and Disciplinary Proceedings:
Availability of Documents for Inspection and Copying)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    K. Rule 234 (Depositions Upon Written Questions)
    L. Rule 235 (Introducing Prior Sworn Statements or Declarations)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    M. Rule 250 (Dispositive Motions)
    N. Rule 320 (Evidence: Admissibility)
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    O. Amendments to Appellate Procedure in Rules 410, 411, 420, 440
and 450
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    P. Amendments to Rule 900 Guidelines
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
    Q. Effective Date, Applicability Dates and Transition Period
    1. Proposed Rule
    2. Comments Received
    3. Final Rule
III. Economic Analysis
IV. Administrative Law Matters
V. Statutory Basis

I. Introduction

    On September 24, 2015, the Commission proposed for comment
amendments to its Rules of Practice. Among other things, we proposed to
update the Rules of Practice, adjust the timing of hearings and other
deadlines in administrative proceedings, and provide parties in
administrative proceedings with the ability to take depositions.\1\ We
also proposed to clarify and amend certain other rules, including the
admissibility of hearsay and the requirements for the contents of an
answer. In addition, we proposed amendments to certain procedures that
govern appeals to the Commission. The proposed amendments were intended
to update the Rules of Practice and introduce additional flexibility
into administrative proceedings, while continuing to provide for the
timely and efficient disposition of proceedings.\2\
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    \1\ Amendments to the Commission's Rules of Practice, Exchange
Act Release No. 75976 (Sept. 24, 2015), 80 FR 60091 (Oct. 5, 2015),
available at https://www.gpo.gov/fdsys/pkg/FR-2015-10-05/pdf/2015-24707.pdf (last visited July 8, 2016).
    \2\ Promoting timeliness and efficiency in administrative
proceedings has been a longstanding goal of the Commission. See
Rules of Practice, Exchange Act Release No. 48018 (June 11, 2003),
68 FR 35787 (June 17, 2003), available at https://www.gpo.gov/fdsys/pkg/FR-2003-06-17/pdf/03-15262.pdf (last visited July 8, 2016)
(``2003 Release'') (amending Rules of Practice ``to improve the
timeliness of [the Commission's] administrative proceedings'');
Rules of Practice, Exchange Act Release No. 35833 (June 9, 1995), 60
FR 32738 (June 23, 1995), available at https://www.gpo.gov/fdsys/pkg/FR-1995-06-23/pdf/95-14750.pdf (``1995 Release'') (last visited
July 8, 2016) (amending Rules of Practice to ``better facilitate
full, fair and efficient proceedings . . .''); see also id., 60 FR
at 32753, Comment to Rule 161 (``Extensions of Time, Postponements
and Adjournments'') (``The rule requires the hearing officer to
consider explicitly the efficient and timely administration of
justice when determining whether to grant a postponement,
adjournment or extension of time for filing of papers. The need for
delay must be balanced against the need to bring each case to a
timely conclusion, consistent with the public interest.'').
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    We received 13 comment letters in response to the proposal.\3\
Commenters generally supported the Commission's efforts to update the
rules, expand the discovery process and enlarge the timetables in
administrative proceedings, and in some instances suggested additional
changes. Some commenters argued that the proposed amendments were too
incremental.\4\ Others focused on the legitimacy of the Commission's
administrative forum, and in so doing offered suggestions that went
beyond the scope of the proposed amendments.\5\ After carefully
considering the comments, we are adopting amendments to our Rules of
Practice as described below.
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    \3\ The comment letters are located at http://www.sec.gov/comments/s7-18-15/s71815.shtml (last visited July 8, 2016).
    \4\ See, e.g., David M. Zornow, Christopher J. Gunther and Chad
E. Silverman letter dated December 4, 2015 (``Zornow/Gunther/
Silverman'').
    \5\ These comments generally expressed opposition to the
administrative forum. See, e.g., Joseph A. Grundfest letter dated
December 4, 2015 (``Grundfest'') (recommending the adoption of a
mechanism to allow respondents in certain cases to remove a
proceeding filed administratively to federal court); id. (arguing
that the ability to proceed in an administrative forum creates the
possibility that the Commission will choose to shield controversial
cases from the full scrutiny of federal district and appellate
courts); Zornow/Gunther/Silverman (asserting that conflicts of
interest preclude the Commission from being perceived as a neutral
arbiter). Because these comments are outside the scope of the
proposed amendments, we have not addressed them in the adopting
release.
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II. Description of the Final Rules

    As with the proposing release, we begin with a discussion of the
amendments to Rule 360, which sets forth the framework and timing for
the stages of an administrative proceeding. Next, we discuss Rule 233
governing depositions, followed by Rule 232, which prescribes standards
for the issuance of subpoenas and motions to

quash. The remaining rule amendments are discussed in numerical order.

A. Rule 360 (Initial Decision of Hearing Officer and Timing of Hearing)

1. Proposed Rule
    Rule 360 \6\ governs the time period for the filing of an initial
decision by the hearing officer and establishes the timing for the
stages of an administrative proceeding, which include a prehearing
period, a hearing, a period for reviewing hearing transcripts and
submitting post-hearing briefs, and a deadline for the hearing officer
to file an initial decision with the Office of the Secretary of the
Commission (the ``Secretary''). Rule 360(a)(2) currently designates the
timeframes for each of these stages based on the date of service of an
order instituting proceedings (``OIP''). Initial decisions must be
filed within the number of days prescribed by the Commission in the
OIP: 120, 210, or 300 days from the date of service of the OIP. The
prehearing period, start date of the hearing, and period for review of
the transcript and post-hearing briefing are, in turn, determined by
the date of the OIP and time periods corresponding to the applicable
initial decision deadline. Should the hearing officer determine that it
is not possible to issue the initial decision within the period
specified in the OIP, the Chief Administrative Law Judge is authorized,
under current Rule 360(a)(3), to request an extension of time from the
Commission.
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    \6\ 17 CFR 201.360.
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    We proposed to modify three aspects of the timing of a proceeding
under Rule 360. First, the proposal modifies the calculation of the
initial decision deadline by changing the trigger date for the time to
file an initial decision from the OIP service date to the date of
completion of post-hearing or dispositive motion briefing or a finding
of a default. This modification divorces the deadline for the
completion of an initial decision from other stages of the proceeding,
and is reflected in an amendment separating current Rule 360(a)(2) into
two paragraphs, proposed Rule 360(a)(2)(i) covering the initial
decision deadline and proposed Rule 360(a)(2)(ii) covering the
prehearing period. Under proposed Rule 360(a)(2)(i), the OIP designates
the time period for preparation of the initial decision as 30, 75 or
120 days from the completion of post-hearing or dispositive motion
briefing or a finding of a default.
    Second, proposed Rule 360(a)(2)(ii) provides a range of time during
which the hearing must begin. For proceedings with an initial decision
deadline of 120 days, the proposal doubles the maximum length of the
prehearing period from the current approximately four months to no more
than eight months after service of the OIP. Pursuant to the proposal,
under the 75-day timeline, the hearing would begin approximately two
and one-half months (but not more than six months) from the date of
service of the OIP, and for 30-day proceedings, the hearing would begin
approximately one month (but no more than four months) from the date of
service of the OIP. Consistent with current practice, the hearing
officer would issue an order setting the hearing dates following a
prehearing conference with the parties pursuant to Rule 221. The
proposed extensions of time were designed to accommodate deposition
discovery in 120-day cases and generally allow for additional time for
prehearing preparation and review of documents, while retaining an
outer time limit to promote timely and efficient resolution of the
proceedings.
    Proposed Rule 360(a)(2)(ii), like current Rule 360(a)(2),
contemplated an initial schedule allowing approximately two months for
review of transcripts and submission of post-hearing briefs.
    Third, the proposal adds a procedure for the hearing officer to
extend the initial decision deadline. Under proposed Rule
360(a)(3)(ii), the hearing officer is permitted to certify to the
Commission the need to extend the initial decision deadline by up to 30
days for case management purposes. This certification must be issued at
least 30 days before the expiration of the initial decision deadline,
and the proposed extension would take effect absent a Commission order
to the contrary issued within 14 days after it receives the
certification.
2. Comments Received
    Commenters generally supported extensions of the prehearing period
under Rule 360, but some suggested that longer or more flexible periods
be adopted. Several commenters advocated longer prehearing periods of,
for instance, twelve months or eighteen months,\7\ and one commenter
argued against any ``pre-determined limit[s]'' on the timing of
proceedings.\8\ A number of commenters argued that hearing officers
should be given the discretion to set the prehearing period or to
authorize extensions of the period on a case-by-case basis.\9\ Several
commenters suggested alternative methods for calculating the prehearing
period, for instance, based on the length of the Division of
Enforcement (the ``Division'') investigation \10\ or the date the
Division completes production of the investigative file.\11\
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    \7\ See, e.g., Financial Services Roundtable letter dated
December 4, 2015 (``FSR''); New Jersey State Bar Association letter
dated December 1, 2015 (``NJSBA'').
    \8\ See Zornow/Gunther/Silverman.
    \9\ See, e.g., Susan E. Brune letter dated November 24, 2015
(``Brune''); Grundfest; Calfee, Halter & Griswold, LLP letter dated
November 30, 2015 (``Calfee''); Gibson, Dunn & Crutcher LLP letter
dated December 4, 2015 (``Gibson'').
    \10\ See Stephen E. Hudson letter dated December 3, 2015
(``Hudson I'').
    \11\ See Gibson; Calfee.
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    In urging longer prehearing periods, commenters argued that
respondents need longer discovery periods to review and address
evidence gathered by the Division during the investigation that
precedes the institution of proceedings. These commenters generally
cited the size of the Division's investigative files (including
electronic document productions) to be reviewed by respondents during
the period, the time required for respondents to receive the complete
investigative file during the prehearing period, and the need to
counter lengthy and extensive Division investigations.\12\ Commenters
also offered comparisons to the length of discovery and flexible
scheduling procedures in federal courts and in the administrative
proceedings of some other agencies.\13\
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    \12\ See, e.g., Navistar International Corporation letter dated
December 3, 2015 (``Navistar'').
    \13\ See Brune; Gibson; Navistar.
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    Most commenters who addressed this proposed rule focused on the
maximum prehearing period for proceedings designated as 120-day
matters. But one commenter urged further extensions to the prehearing
period for all administrative proceedings and to other time periods
designated under Rule 360(a)(2)(ii).\14\ This commenter supported the
proposal to divorce the deadline for the initial decision from the
other stages of the proceeding but argued that the Commission should
extend the period for post-hearing briefing to three months, rather
than the two months allocated under both the current and proposed
rules. The commenter also suggested modifying the certification process
for 30-day extensions under Rule 360 to require the hearing officer's
certification to be issued 45 or 60 days before the deadline, and an
order from the Commission expressly granting or rejecting the proposed
extension.\15\
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    \14\ NJSBA.
    \15\ Id.

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3. Final Rule
    We are adopting Rule 360(a)(2)(i) substantially as proposed, with
non-substantive modifications intended to clarify that multiple events
(i.e., completion of post-hearing briefing where a hearing has been
completed, completion of briefing on a dispositive motion where there
is no hearing, or the determination of a default) may trigger the
running of the 30, 75 or 120-day deadline for the initial decision.\16\
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    \16\ We emphasize that, as provided for in current Rule
360(a)(1), unless the Commission directs otherwise, the hearing
officer shall prepare an initial decision in any proceeding in which
the Commission directs a hearing officer to preside at a hearing,
provided, however, that an initial decision may be waived by the
parties with the consent of the hearing officer pursuant to Rule
202.
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    In addition, we believe it is appropriate, consistent with the view
of commenters suggesting a longer prehearing period under the 120-day
timeline, to modify the proposed amendments to Rule 360(a)(2)(ii) to
extend by an additional two months the maximum prehearing period for
proceedings in this category. As adopted, Rule 360(a)(2)(ii) provides
that under the 120-day timeline, the hearing officer shall issue an
order scheduling the hearing to begin approximately four months (but no
more than ten months, instead of the proposed eight) from the date of
service of the OIP.\17\ The longer prehearing period is intended to
provide parties, in appropriate cases, additional time to review the
investigative record, conduct depositions under amended Rule 233, and
prepare for a hearing.\18\
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    \17\ The prehearing periods in this rule do not affect the
statutory hearing requirements in cease-and-desist proceedings. In
such proceedings, the Commission is required to set a hearing date
not earlier than 30 days nor later than 60 days after service of the
OIP, unless an earlier or later date is set by the Commission with
the consent of any respondent so served. See, e.g., Securities
Exchange Act of 1934 (``Exchange Act'') Section 21C(b), 15 U.S.C.
78u-3(b).
    \18\ By lengthening the prehearing period, the Commission does
not suggest that every 120-day matter will qualify for the maximum
ten-month period. Proceedings designated for the 120-day timeline
will range from routine matters involving a single violation of the
securities laws to matters involving, for example, multiple and
distinct alleged violations, a particularly voluminous investigative
record, or a complex set of factual allegations. In setting the
hearing date, the hearing officer should assess whether the
proceeding at issue warrants the maximum prehearing period or
whether a shorter prehearing period would provide the parties with
adequate preparation time. In keeping with the goal of resolving
administrative proceedings in an expeditious manner, the maximum
prehearing period should be the exception rather than the norm.
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    While we recognize that some might view the maximum ten-month
prehearing period as not long enough, the Commission believes that the
final rule strikes the appropriate balance between the time needed to
conduct discovery and prepare for a hearing and the Commission's goal
of timely and efficiently resolving administrative proceedings.
    In response to commenters urging open-ended prehearing periods as
determined by hearing officers, we note that the Commission amended
Rule 360 in 2003 to impose mandatory deadlines for completion of
initial decisions because of concerns about adherence to the Rule's
then-existing non-binding goals.\19\ We continue to believe that timely
completion of proceedings can be achieved more successfully with
express deadlines for completion of the various steps in the
administrative proceeding. In designating timeframes for proceedings in
the OIP, the Commission considers ``the nature, complexity, and urgency
of the subject matter,'' with due regard for the public interest and
the protection of investors.\20\
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    \19\ See 2003 Release, 68 FR at 35787.
    \20\ 17 CFR 201.360(a)(2)(i).
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    We are amending Rule 360(a)(2)(ii) in one additional respect to
resolve an apparent discrepancy with existing Rule 340, which governs
the timeframes for filing post-hearing briefs. Specifically, we are
amending Rule 360(a)(2)(ii) to remove the approximately two-month
timeframe for obtaining transcripts and submitting post-hearing briefs.
The Commission included these internal timeframes when it amended Rule
360 in 2003 to address concerns that setting only an outside deadline
for the issuance of an initial decision by the hearing officer could
incentivize the hearing officer to curtail the parties' prehearing
preparation time and post-hearing briefing time while reserving the
majority of the overall time period for the hearing officer to draft
the initial decision.\21\ This should not be a concern under amended
Rule 360, because under the amended rule the deadline for filing the
initial decision is triggered not by the date of service of the OIP,
but by the completion of post-hearing briefing (or, if there is no
hearing, the completion of briefing on a dispositive motion or the
determination of a default). The ``approximately 2-month'' language
contained in current and proposed Rule 360 for submission of post-
hearing briefs also may create unnecessary ambiguity in the post-
hearing briefing requirements set forth in Rule 340, which provides
that the hearing officer shall by order set the deadlines for post-
hearing briefing for a period that shall not exceed 90 days after the
close of the hearing, unless the hearing officer, for good cause shown,
permits a different period.\22\
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    \21\ See 2003 Release, 68 FR at 35787.
    \22\ We did not propose, and are not now amending, Rule 340.
However, given that one of the overall purposes of these amendments
is to promote efficiency in the adjudication of administrative
proceedings, the ``good cause'' standard for granting extensions
beyond the 90-day timeframe set forth in Rule 340 should continue to
be rarely granted, limited to truly unusual circumstances, and not
introduce undue delay in the resolution of proceedings.
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    We are adopting Rule 360(a)(2)(ii) as proposed with respect to the
scheduling of hearings in 75-day and 30-day proceedings, with a
conforming change to remove the approximate timeframes set forth in the
rule for obtaining a transcript and submitting post-hearing briefs, for
the reasons discussed above. The final amendment provides for an outer
limit of six months for the hearing to commence under the 75-day
timeline, and an outer limit of four months for the hearing to commence
in 30-day proceedings. Proceedings in the 75-day category typically
involve ``follow-on'' proceedings following certain injunctions or
criminal convictions.\23\ The 30-day designation typically is reserved
for proceedings under Section 12(j) of the Exchange Act.\24\ We
continue to believe that the proposed prehearing periods for these
cases is appropriate since they are by their nature more routine than
120-day proceedings, and are sometimes uncontested. We therefore
believe that the prehearing periods for these cases, which we are
adopting as proposed, will provide adequate preparation time for the
parties while balancing the need for efficient resolution of
administrative proceedings.
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    \23\ The Commission is authorized to institute administrative
proceedings following certain injunctions or convictions of persons
associated with or seeking to associate in the securities industry.
See, e.g., Exchange Act Section 15(b), 15 U.S.C. 78o(b); Section
203(f) of the Investment Advisers Act of 1940, 15 U.S.C. 80b-3(f).
    \24\ Section 12(j) of the Exchange Act authorizes the
Commission, among other things, to revoke the registration of a
security if the issuer fails to comply with the federal securities
laws. See 15 U.S.C. 78l(j).
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    We are adopting Rule 360(a)(3) as proposed. The final rule permits
the hearing officer presiding over the proceeding to certify to the
Commission a need to extend the initial decision deadline by up to 30
days for case management purposes. This certification must be issued no
later than 30 days prior to the expiration of the initial decision
deadline. One commenter supported the proposed certification procedure
but suggested requiring the certification to be issued 45 or 60 days
prior to the expiration of the initial decision deadline. The
Commission continues to believe that a 30-day period provides
sufficient notice

to the parties of the hearing officer's certification. In response to
the comment suggesting the Commission issue an order expressly granting
or rejecting the hearing officer's proposed extension, we do not
believe this added procedure is necessary. As adopted, the rule
provides that if the Commission has not issued an order to the contrary
within 14 days after receiving the certification, the extension sought
in the hearing officer's certification shall take effect. In the
Commission's view, the final rule provides sufficient clarity on
whether the proposed extension has been granted.

B. Rule 233 (Depositions Upon Oral Examination)

 1. Proposed Rule
    Current Rule 233 permits any party to move for permission to take
the deposition of a witness who likely will be unavailable to attend or
testify at the hearing. We proposed to amend Rule 233 to permit a
limited number of additional depositions. As proposed, amended Rule 233
permits the respondent and the Division in a single-respondent
proceeding designated as a 120-day proceeding each to notice the
depositions of three persons. In a multi-respondent 120-day proceeding,
the Division is permitted to notice five depositions, and the
respondents collectively can also notice five depositions. Under the
proposal, the parties could also request that the hearing officer issue
a subpoena for documents in conjunction with the deposition. Proposed
Rule 233 also sets forth procedures for deposition practice, including
a six-hour time limit for depositions, contents of the notice of
deposition, and other matters.
2. Comments Received
    Most commenters urged that the final rule provide respondents the
ability to conduct more depositions than the Commission proposed.
Commenters appeared to be animated by two principal concerns. First,
commenters believed that the Commission's proposal to limit parties to
a fixed number of depositions did not accommodate respondents'
potential need for additional depositions depending on the facts and
circumstances of the individual case, particularly in complex or multi-
party proceedings.\25\ Second, commenters argued that the Division's
investigation before the Commission initiates proceedings creates an
information imbalance that warrants providing respondents with
additional opportunities to conduct depositions.\26\
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    \25\ Center for Capital Market Competitiveness, U.S. Chamber of
Commerce letter dated December 4, 2015 (``CCMC''); Calfee; NJSBA;
Navistar; Hudson I; Zornow/Gunther/Silverman; FSR; Gibson;
Grundfest.
    \26\ Aegis J. Frumento and Stephanie Korenman letter dated
December 4, 2015 (``Frumento/Korenman''); Brune; Navistar; Hudson I;
Zornow/Gunther/Silverman; FSR; CCMC.
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    Commenters suggested a variety of possible parameters for
additional depositions. Most commenters urged that hearing officers be
granted discretion to approve requests for additional depositions,
similar to the practice under Rule 30 of the Federal Rules of Civil
Procedure.\27\ Commenters criticized the ``one size fits all'' approach
of the proposed rule,\28\ and argued that hearing officer discretion in
the matter of depositions is necessary because each case presents
unique facts and circumstances. Three commenters suggested guidelines
for exercising such discretion based on limitations found in Rule 26 of
the Federal Rules of Civil Procedure.\29\
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    \27\ Brune; Calfee; NJSBA; Navistar; Hudson I; Gibson; Frumento/
Korenman; CCMC. One of these commenters further pointed out that the
adjudication rules of the Federal Trade Commission do not limit the
number of discovery depositions. Gibson (citing 16 CFR 3.31(a)).
However, one commenter believed that a limit of ten depositions per
party would be reasonable. FSR.
    \28\ Stephen E. Hudson letter dated December 4, 2015 (``Hudson
II'', incorporating anonymous blog); Zornow/Gunther/Silverman.
    \29\ NJSBA (citing Fed.R.Civ.P. 26(b)(2)(C)); Hudson I (same);
Gibson (citing Fed.R.Civ.P. 26(b)(1)).
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    Commenters differed on the number of depositions they believed the
rule should permit as a matter of right (i.e., before a party would be
required to seek leave from the hearing officer to notice the
deposition). A number of commenters pointed the Commission to Rule
30(a)(2) of the Federal Rules of Civil Procedure as an appropriate
model.\30\ Rule 30(a)(2) requires leave of court for a deposition if
the deposition would result in plaintiffs as a group or defendants as a
group taking more than ten depositions.\31\ Two of these commenters
further urged that ten depositions be permitted to each party \32\ or
each respondent,\33\ rather than to each side. One commenter suggested
five depositions for each respondent in either a single-respondent or
multi-respondent proceeding as an appropriate starting point, coupled
with hearing officer discretion to enlarge the number.\34\
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    \30\ Brune; Navistar; Hudson I; FSR; CCMC.
    \31\ Fed.R.Civ.P. 30(a)(2)(A)(i).
    \32\ FSR.
    \33\ CCMC.
    \34\ Gibson.
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    Three commenters supported the Commission's proposal of three
depositions in a single-respondent proceeding and five depositions in a
multi-respondent proceeding, subject, again, to hearing officer
discretion to enlarge the number, and with certain other caveats.\35\
One of these commenters suggested that the three- and five-deposition
limits proposed by the Commission should be limited to fact witnesses,
and not include experts.\36\ A second commenter proposed that hearing
officers be required to grant a party in a single-respondent proceeding
leave to take more than three depositions, and a party in a multi-
respondent proceeding leave to take more than five depositions.\37\
Another of these commenters added that that the Division should not be
permitted to notice any depositions at all.\38\ Two commenters urged
that the rule not set any predetermined limits, but rather that the
number of depositions be left entirely to the discretion of the hearing
officer.\39\
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    \35\ Calfee; NJSBA; Frumento/Korenman.
    \36\ Calfee; see also CCMC (proposing ten depositions of right
for each respondent, not including expert depositions, which would
be separately authorized by the hearing officer).
    \37\ NJSBA.
    \38\ Frumento/Korenman.
    \39\ Zornow/Gunther/Silverman; Grundfest.
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    A number of commenters took issue with the Commission's proposal
that the respondents in a multi-respondent proceeding share a fixed
number of depositions.\40\ These commenters generally argued that,
because respondents may have divergent interests, each respondent
should be entitled to take the same number of depositions.\41\ In
addition, several commenters--citing the ability of the Division to
develop an extensive investigative record before the initiation of the
proceeding--argued that the Division should not be permitted to take
any depositions, or that its right to do so should be limited in
various ways.\42\
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    \40\ Calfee; Hudson II (incorporating anonymous blog); FSR;
Gibson; CCMC.
    \41\ FSR; CCMC.
    \42\ Brune (Division should be permitted to depose only
respondents' experts, or fact witnesses with leave); Hudson I
(same); FSR (Division should not be able to depose witnesses whose
testimony was taken during the investigation); Frumento/Korenman (no
depositions at all for Division); CCMC (Division should only be
permitted to take depositions based upon proffer to hearing officer
explaining why the staff were unable to take testimony during the
investigation, or that the deposition is needed because of new
information obtained after the completion of the investigation).
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    Finally, two commenters urged that the Commission permit seven
hours for each deposition, consistent with the practice in federal
courts, rather than the proposed six hours.\43\
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    \43\ Calfee; FSR; see Fed.R.Civ.P. 30(c).

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3. Final Rule
    We are adopting the proposed amendments to Rule 233 with certain
modifications. The proposed amendments to Rule 233, in conjunction with
increasing the maximum prehearing time period under Rule 360, were
intended to provide parties with the potential benefits of deposition
discovery without sacrificing the public interest or the Commission's
goal of resolving administrative proceedings promptly and efficiently.
We have weighed commenters' concerns against the need to maintain this
balance.
    There are sound justifications for limiting the availability of
depositions in Commission administrative proceedings as compared with
litigation under the Federal Rules of Civil Procedure. Typically, in a
federal civil action a complaint is filed, and, because neither party
can compel testimony prior to the filing of the complaint, oral
depositions thereafter play a critical role in gathering preliminary
and background discovery, in addition to gathering evidence for use at
trial. However, in a Commission enforcement action, the complaint (in a
federal court action) or the OIP (in an administrative proceeding) is
premised on an evidentiary record developed through the staff's pre-
filing investigation. The Division produces to respondents various
materials from the investigative file--i.e., non-privileged documents
gathered by the Division, transcripts of investigative testimony, and
disclosure of material, exculpatory facts (Brady material)--that
provide significant guidance to respondents in determining the most
important witnesses to depose.\44\ Thus, as some commenters appeared to
acknowledge, a principal goal of oral depositions in our administrative
proceedings would be to supplement the record, not create it.\45\ Given
these different starting points, the fact that rules that govern
discovery in federal court also apply to Commission federal court
enforcement actions does not provide a compelling reason for
incorporating the same deposition discovery rules into our
administrative practice, in particular given the Commission's strong
interest in establishing a timely and efficient administrative
forum.\46\ Accordingly, we do not agree with commenters who advocated
further expanding the proposed oral deposition rights in our
administrative proceedings commensurate with Rule 30 of the Federal
Rules of Civil Procedure, including ten depositions per side (or per
party) as of right.
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    \44\ Rule 230 requires early production by the Division of non-
privileged documents and transcripts of testimony obtained during
the investigation. Under Rule 230, which incorporates certain
criminal process rights derived from criminal cases and statutes,
respondents receive documents that contain material exculpatory
evidence under Brady v. Maryland, 373 U.S. 83, 87 (1963). No
analogous provision is present in the Federal Rules of Civil
Procedure.
    \45\ See Brune (transcripts of investigative testimony ``can
reflect no meaningful exploration of important areas. . . .'');
Hudson I (same); FSR (``[R]espondents did not have an opportunity to
ask [investigative] witnesses questions or to choose which witnesses
to examine.'').
    \46\ See supra note 2. In response to the commenter who also
pointed us to the adjudication rules of the FTC, we note that agency
practice is varied on this issue. See Gibson. A number of agencies
do not permit prehearing discovery depositions except with respect
to witnesses who will be unavailable at the hearing. See, e.g., 12
CFR 1081.209 and 77 FR 39057, 39073 (June 29, 2012) (Consumer
Financial Protection Bureau); 17 CFR 10.44 and 41 FR 2508, 2509
(Jan. 16, 1976) (Commodity Futures Trading Commission); 12 CFR
308.27 (Federal Deposit Insurance Corporation).
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    At the same time we recognize, as many commenters noted, that some
cases may present unique issues or challenges that warrant affording
the parties additional opportunities to conduct prehearing depositions.
While the Commission's expectation is that such circumstances will
rarely be present, we agree that our rules should be flexible enough to
accommodate reasonable requests for a limited number of additional
depositions. For this reason, the final rule includes a new provision,
Rule 233(a)(3), that permits either side to move the hearing officer
for leave to notice up to two additional depositions.
    Paragraphs (a)(1) and (2) of amended Rule 233 retain the proposed
rule's limitations on depositions as a matter of right. They provide
that, in a single-respondent proceeding under the 120-day timeframe set
forth in Rule 360, the respondent and the Division may each file
written notices to depose up to three persons; and, in a multi-
respondent 120-day proceeding, the respondents collectively may file
joint written notices to depose up to five persons and the Division may
file written notices to depose up to five persons.\47\ However, because
we are persuaded that a seven-hour limit to depositions, rather than
the six-hour limit we proposed, balances the Commission's goal of
timely and efficient administrative proceedings and the benefits of
allowing parties more time to depose witnesses, we have revised
paragraph (j)(1) of Rule 233 to provide for a seven-hour limit to
depositions.\48\ Amended paragraph (a)(5) further makes clear that the
fact that a witness testified during an investigation does not preclude
the deposition of that witness.\49\
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    \47\ Federal Rule of Civil Procedure 30(a)(2)(A) similarly sets
a deposition limit per side, not per party. See 8A Charles Alan
Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and
Procedure section 2104 (3d ed.).
    \48\ This is consistent with the Federal Rules of Civil
Procedure. See Fed.R.Civ.P. 30(d)(1).
    \49\ This provision has been renumbered from the proposed rule,
where it was numbered paragraph (a)(4).
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    The final rule limits depositions to 120-day proceedings as
proposed. Thus, parties will not be permitted to notice depositions in
proceedings where the initial decision is placed on either the 30- or
75-day timeline under amended Rule 360. As adopted, Rule 360 provides
for the hearing in proceedings placed on the 120-day timeline to
commence between four and ten months from the date of service of the
OIP. We anticipate that this extended period will provide sufficient
time for parties to take the allotted number of depositions, along with
any additional depositions that may be permitted under new paragraph
(a)(3) of the Rule (discussed below), and to complete their other
prehearing preparation. Further, as discussed below, and as reflected
in amended Rule 221, we expect that the depositions each party plans to
notice, including the identities of the proposed deponents, will be one
of the topics discussed at any initial prehearing conference.\50\
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    \50\ See infra discussion at section H.
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    We disagree with commenters who urged that the Division not be
permitted to notice depositions (or have its deposition rights limited)
in view of the Division's ability to take investigative testimony
before the proceedings are instituted. Investigative testimony
generally is directed at ascertaining facts in order for the staff to
determine whether to recommend that the Commission authorize an action
for violations of the federal securities laws. Once the investigative
record has been sifted through and the Commission has instituted an
administrative proceeding, issues relevant to a claim or defense may
become clarified and warrant new or additional focus in discovery.\51\
Thus, the prehearing discovery context is sufficiently different from
the investigation such that the Division should be entitled to the same
discovery rights as respondents in order to prepare

its case for the hearing.\52\ Moreover, information gathered from
depositions taken by the respondents might reveal the need for the
Division to depose other persons. Also, in some instances, witnesses
decline to answer questions in investigative testimony based upon
assertion of attorney-client privilege or the Fifth Amendment, but
those protections might no longer apply by the time of depositions in
an administrative proceeding. Thus, many reasons support the need for
the Division to have the same rights as respondents to conduct
depositions.
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    \51\ As just one example, the Commission's experience has been
that issues relating to possible reliance on professionals are not
always clarified during the investigation. Today the Commission is
also amending Rule 220 to require that respondents state in an
answer whether they relied on professionals. This early statement
will enable the Division to consider this issue in formulating its
deposition plan.
    \52\ See SEC v. Saul, 133 FRD. 115 (N.D. Ill. 1990); SEC v.
Espuelas, 699 F. Supp. 2d 655 (S.D.N.Y. 2010). ``There is no
authority which suggests that it is appropriate to limit the SEC's
right to take discovery based upon the extent of its previous
investigation into the facts underlying the case.'' SEC v. Sargent,
229 F.3d 68, 80 (1st Cir. 2000) (relying on Saul).
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    New paragraph (a)(3) of amended Rule 233 permits the hearing
officer in a 120-day proceeding to grant either side leave to take up
to two additional depositions beyond those permitted under paragraphs
(a)(1) and (2). This means that, in proceedings involving a single
respondent, the hearing officer may permit up to a maximum of five
depositions for the respondent and five depositions for the Division.
In proceedings involving multiple respondents, the hearing officer may
permit up to a maximum of seven depositions for all respondents,
collectively, and seven depositions for the Division.
    Paragraph (a)(3) is intended to permit a limited number of
additional depositions in compelling circumstances without
significantly increasing the burdens for all the parties or undermining
the goal of providing a prompt and efficient administrative forum. As
discussed above, we have increased the prehearing period in 120-day
proceedings to a maximum of ten months. As amended, Rule 233 will now
permit parties to notice up to seven depositions of witnesses from
among the categories set forth in amended Rule 232(e), compared with no
depositions permitted under the current rule (except for witnesses
likely to be unavailable at the hearing). We believe that these new
deposition opportunities will afford respondents and the Division
additional opportunities to develop the record without compromising the
hearing schedule.
    A motion for additional depositions under paragraph (a)(3) must be
filed no later than 90 days prior to the hearing date. We anticipate
that this deadline will give the parties sufficient time at the outset
of a proceeding to identify additional witnesses they wish to depose,
and to confer with other parties to determine whether they intend also
to file a motion and, in a multi-respondent proceeding, whether there
are any common putative deponents, before moving the hearing officer
for leave. This deadline should also enable any motions to be resolved
and additional depositions to be taken in a timely manner, consistent
with the needs of the parties to prepare for the hearing.
    To support a prompt determination on a motion for additional
depositions, paragraph (a)(3)(i) establishes a simplified motion
practice leading to an expedited decision from the hearing officer. Any
party opposing the motion must file its opposition, if any, within five
days; the motion and any oppositions are each limited to seven pages;
and neither separate points and authorities nor replies are
permitted.\53\ The proceeding will not automatically be stayed during
the pendency of a motion. Further, under paragraph (a)(3)(iii), if the
moving party proposes to take the additional depositions upon written
questions, as provided for in Rule 234, the motion must state that
fact, and the written questions must be submitted with the motion for
additional depositions.
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    \53\ We have made separate conforming amendments to Rule 154
(Motions), whereby the requirements of that rule do not apply where
another rule expressly applies to a particular motion.
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    Paragraph (a)(3)(ii) establishes two requirements for a grant of
additional depositions. First, the additional depositions must satisfy
the requirements of Rule 232(e). Amended Rule 232(e), among other
things, requires the hearing officer, upon application, to quash or
modify a deposition if the deposition would be unreasonable,
oppressive, unduly burdensome, would unduly delay the hearing, or if
the proposed deponent does not fall within one of the three categories
of witnesses authorized for depositions under Rule 232(e)(3). By
requiring that any additional depositions satisfy the requirements of
Rule 232(e), we intend to incorporate the standards under that Rule
into the motion practice under paragraph (a)(3); opposing parties do
not need to file a separate application to quash.\54\ However, for any
depositions a party may take as a matter of right, the Commission or a
hearing officer may quash such a deposition notice following the filing
of a motion made pursuant to Rule 232(e).
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    \54\ This does not preclude proposed deponents or other persons
described in Rule 232(e)(1) from filing an application under that
rule to quash or modify a notice of deposition or a subpoena.
---------------------------------------------------------------------------

    If the requested additional depositions satisfy the threshold
requirements of Rule 232(e), the moving side must also demonstrate that
it has a compelling need to take the additional depositions. To make
this showing the moving side must, in its motion, identify each witness
that it intends to depose as of right and the additional witnesses that
it seeks to depose; describe the role of each witness and each proposed
additional witness; describe the matters concerning which each witness
and each proposed additional witness is expected to be questioned and
why each deposition is necessary to the side's arguments, claims, or
defenses; and show that the additional depositions requested will not
be cumulative or duplicative.
    Paragraph (b) of amended Rule 233 retains the existing procedure
whereby a party may seek leave of the hearing officer to take the
deposition of a witness who will likely be unavailable to attend or
testify at the hearing. A deposition granted under paragraph (b) does
not count against the moving side's permissible number of depositions
by right or additional depositions under paragraph (a). Nothing in the
rules as amended changes the current practices or standards for
obtaining leave to depose individuals under paragraph (b). As before, a
deposition under Rule 233(b) is available only upon a showing that the
prospective witness will likely give testimony that is material to the
hearing; that it is likely the prospective witness will be unable to
attend or testify at the hearing because of age, sickness, infirmity,
imprisonment, other disability, or absence from the United States
(unless it appears that absence of the witness was procured by the
moving party); and that the taking of the deposition will serve the
interests of justice. These standards should prevent this provision
from being used as a means to circumvent the number of depositions
allowed under Rule 233(a).
    We received no comments on the remaining proposed amendments to
Rule 233, with the exception, as noted above, of the six-hour length of
depositions. The final rule changes this to seven hours.\55\
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    \55\ We note that we have made certain other minor changes to
this rule from the proposed rule, including: (1) Deleting the
requirement that a notice of deposition describe the scope of the
testimony to be taken; (2) requiring that each party bear its own
transcription costs; (3) clarifying that the deposition officer must
furnish a copy of the transcript to any party or the deponent, as
directed by the party or person paying the charges; and (4)
providing that any party may seek relief from the hearing officer
with respect to disputes over the conduct of a deposition. These
changes are generally intended to simplify the rule text or to
clarify minor procedural matters.

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C. Amendments to Rule 232 (Subpoenas)

1. Proposed Rule
    Current Rule 232 addresses the availability of, and standards for
issuing, subpoenas requiring the attendance of witnesses at hearings
and the production of documents. We proposed amendments to Rule 232 to
correspond with the new provisions on depositions in Rule 233. As
proposed, amended Rule 232(e)(1) permits a person who is subject to a
deposition notice, or a party, to move to quash or modify the notice.
This proposed amendment is intended to promote efficiency in the
discovery process by allowing persons to move at the notice stage,
rather than waiting for a party to request the issuance of a subpoena
to compel attendance. Proposed paragraphs (e)(2) and (3) of the rule
establish additional standards governing the hearing officer's decision
on an application to quash or modify a notice of deposition or
subpoena. Proposed paragraph (e)(2) adds undue delay of the hearing as
a ground for quashing or modifying a deposition notice or subpoena (to
the existing grounds that compliance would be unreasonable, oppressive,
or unduly burdensome). This amendment requires the hearing officer or
the Commission to consider the delaying effect of compliance with a
subpoena or notice of deposition, and is intended to promote the
efficient use of time for discovery during the prehearing period.
    Proposed paragraph (e)(3) requires that the hearing officer or the
Commission quash or modify the subpoena unless the requesting party
demonstrates that the proposed deponent is a fact witness (except that
those witnesses whose only knowledge of relevant facts arose from the
Division's investigation or the proceeding may not be deposed), an
expert witness designated pursuant to Rule 222(b), or a document
custodian (except those Division or Commission personnel who have
custody of documents or data that were produced by the Division to the
respondent), and that the notice or subpoena otherwise satisfies the
requirements of Rule 233(a). This provision is intended to foster use
of depositions where appropriate and promote meaningful discovery,
within the limits of the number of depositions provided per side
pursuant to proposed Rule 233(a).
    Proposed Rule 232(f) requires each party to pay the fees and
expenses of its own expert witnesses.
2. Comments Received
    One commenter submitted for our consideration several links to a
securities blog that criticized many of the proposed changes to our
Rules of Practice.\56\ With respect to Rule 232, the author of the blog
made two principal comments. The author took issue with the requirement
of Rule 232 that a subpoena be issued by the hearing officer, as
compared with Rule 45 of the Federal Rules of Civil Procedure, which
permits parties to issue subpoenas without the judge acting as a
``gatekeeper.'' The author asserted that hearing officers, ``at the
prodding of'' the Division, permit only limited discovery in
administrative proceedings, and criticized the proposed changes to Rule
232 for not addressing this situation. The author also objected to the
requirement of proposed Rule 232(e)(3) that a subpoena be quashed or
modified unless the requesting party demonstrates that the proposed
deponent is a fact witness, an expert witness, or a document custodian.
The author argued that, instead, respondents should be permitted to use
their allotted number of depositions to notice persons they deem
important to their defense irrespective of such limitations.
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    \56\ Hudson II.
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3. Final Rule
    We are adopting amended Rule 232 substantially as proposed, with
one change to correspond to changes we have made to Rule 220 (``Answer
to Allegations''). As is discussed below, we have adopted an amendment
to Rule 220 that requires respondents to state in the answer whether
they relied on professionals. In conjunction with this change, we have
amended Rule 232(e)(3)(i) to clarify that a proposed deponent may
include a fact witness relative to any claim of the Division, any
defense, or anything else required to be included in an answer pursuant
to Rule 220(c).
    With regard to the one comment referenced above, we note, first,
that Rule 232 is based on Section 555(d) of the Administrative
Procedure Act (``APA''),\57\ which does not contemplate that parties to
agency proceedings would themselves issue subpoenas.\58\ The grounds
for a hearing officer denying a request to issue a subpoena under Rule
232--that it is ``unreasonable, oppressive, excessive in scope, or
unduly burdensome''--are also consistent with well-established judicial
standards,\59\ and we have no evidence that hearing officers are not
acting diligently and in good faith in their consideration of current
requests for subpoenas, or that they would not do so in implementing
the standards for quashing or modifying deposition subpoenas set forth
under the amended rule.
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    \57\ 1995 Release, 60 FR at 32764.
    \58\ 5 U.S.C. 555(d); Attorney General's Manual on the
Administrative Procedure Act, section 6(c) (1947) (``Attorney
General's Manual'').
    \59\ Attorney General's Manual, section 6(c) (``[A]gencies may
refuse to issue to private parties subpoenas which appear to be so
irrelevant or unreasonable that a court would refuse to enforce
them.''); Wiwa v. Royal Dutch Petroleum Co., 392 F.3d 812 (5th Cir.
2004) (under Federal Rule of Civil Procedure 45, a court has the
power to quash or modify a subpoena if it is unreasonable and
oppressive, and subjects a party to undue burden).
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    Second, depositions impose costs and burdens not just on the party
taking the deposition but on all other parties to the proceeding and
upon the deponent. The proposed rule was based on the Commission's
experience that fact witnesses, expert witnesses, and document
custodians are the individuals most likely to have information relevant
to the issues to be decided.\60\ We are not aware of, nor did any
commenter suggest, any other categories of witnesses whose deposition
would be necessary in administrative proceedings. If there are
instances in which a party requires the testimony of a witness who does
not fit within the three categories to testify, the party may seek to
call that witness at the hearing, either by voluntary appearance or by
subpoena of the witness, if otherwise permitted under the Rules.
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    \60\ In contrast to Federal Rule of Civil Procedure 30(b)(6),
neither current Rule 232(e)(3) nor Rule 233 permits depositions of a
public or private corporation, partnership, association,
governmental agency, or other entity. Such depositions are not
permitted under the amended Rules of Practice.
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D. Rule 141 (Orders and Decisions; Service of Orders Instituting
Proceedings and Other Orders and Decisions)

1. Proposed Rule
    Rule 141(a)(2)(iv) \61\ contains the requirements for serving an
OIP on a person in a foreign country. The current rule allows for
service of an OIP on persons in foreign countries by any method
specified in the rule, or ``by any other method reasonably calculated
to give notice, provided that the method of service used is not
prohibited by the law of the foreign country.''
---------------------------------------------------------------------------

    \61\ 17 CFR 201.141(a)(2)(iv).
---------------------------------------------------------------------------

    We proposed to amend this rule so that service reasonably
calculated to give notice includes any method

authorized by the Hague Convention on the Service Abroad of Judicial
and Extrajudicial Documents; methods prescribed by the foreign
country's law for service in that country in an action in its courts of
general jurisdiction; or as the foreign authority directs in response
to a letter rogatory or letter of request. In addition, under the
proposed rule, unless prohibited by the foreign country's law, service
can be made by delivering a copy of the OIP to the individual
personally, or using any form of mail that the Secretary or the
interested division addresses and sends to the individual and that
requires a signed receipt. The proposed rule also allows service by any
other means not prohibited by international agreement, as the
Commission or hearing officer orders. Like the similar provision in the
Federal Rules of Civil Procedure, this provision covers situations
where existing agreements do not apply, or efforts to serve under such
agreements are or would be unsuccessful.
    We also proposed to amend Rule 141(a)(3), which requires the
Secretary to maintain a record of service on parties, to make clear
that in instances where a division of the Commission (rather than the
Secretary) serves an OIP, the division must file with the Secretary
either an acknowledgement of service by the person served or proof of
service.
2. Final Rule
    We did not receive comments on this aspect of the proposal and are
adopting the amendments as proposed. In addition to clarifying that
proper service on persons in foreign countries may be made by any of
the above methods, the rule provides certainty regarding whether
service of an OIP has been effected properly and allows the Commission
to rely on international agreements in which foreign countries have
agreed to accept certain forms of service as valid. The final amendment
provides that a division that serves an OIP must file with the
Secretary either an acknowledgement of service by the person served or
proof of service consisting of a statement by the person who made
service certifying the date and manner of service; the names of the
persons served; and their mail or electronic addresses, facsimile
numbers, or the addresses of the places of delivery, as appropriate for
the manner of service.

E. Rule 161 (Extensions of Time, Postponements and Adjournments)

    Rule 161 \62\ governs extensions of time, postponements, and
adjournments requested by parties. Under current Rule 161(c)(2), a
hearing officer may stay a proceeding pending the Commission's
consideration of offers of settlement under certain limited
circumstances, but that stay does not affect any of the deadlines in
Rule 360. In recognition of the important role of settlement in
administrative proceedings, we proposed to amend Rule 161(c)(2) to
allow a stay pending Commission consideration of settlement offers to
also stay the timelines set forth in Rule 360.\63\ All the other
requirements for granting a stay under the current rule would remain
unchanged. The Commission did not receive any comments on this aspect
of the proposal. We are adopting the amendments as proposed.
---------------------------------------------------------------------------

    \62\ 17 CFR 201.161.
    \63\ We are also adopting a conforming amendment to Rule
360(a)(2)(ii) to include a cross-reference to amended Rule
161(c)(2).
---------------------------------------------------------------------------

F. Rule 180 (Sanctions)

    Current Rule 180 allows the Commission or a hearing officer to
exclude a person from a hearing or conference, or summarily suspend a
person from representing others in a proceeding, if the person engages
in contemptuous conduct before either the Commission or a hearing
officer. The exclusion or summary suspension can last for the duration
or any portion of a proceeding, and the person may seek review of the
exclusion or suspension by filing a motion to vacate with the
Commission. We proposed to amend Rule 180 to allow the Commission or a
hearing officer to exclude or summarily suspend a person for any
portion of a deposition, as well as the proceeding, a conference, or a
hearing. The person would have the same right to review of the
exclusion or suspension by filing a motion to vacate with the
Commission. We did not receive any comments on this aspect of the
proposal and are adopting the rule as proposed, with the addition of
one ministerial edit to Rule 180(c).
    As currently drafted, Rule 180(c) provides that the Commission or
hearing officer may enter a default pursuant to Rule 155, dismiss the
case, decide the particular matter at issue against that person, or
prohibit the introduction of evidence or exclude testimony concerning
that matter if a person fails to (1) make a filing required under the
Rules of Practice; or (2) cure a deficient filing within the time
specified by the Commission or the hearing officer pursuant to Rule
180(b).\64\ We are amending the Rule to substitute the phrase ``one or
more claims'' for the phrase ``the case,'' and to substitute the word
``claim'' for the word ``matter.'' These non-substantive changes are
designed to more accurately reflect the terminology used in
administrative proceedings but are not intended to, and do not, change
the substance of the Rule.
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    \64\ Emphasis added.
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G. Rule 220 (Answer to Allegations)

1. Proposed Rule
    Current Rule 220 sets forth the requirements for filing answers to
allegations in an OIP.\65\ Among other things, it requires a respondent
to state in the answer whether the respondent is asserting any
defenses, including res judicata and statute of limitations.\66\ We
proposed amendments to Rule 220 to emphasize that a respondent must
affirmatively state in an answer whether the respondent is asserting
any avoidance or affirmative defenses, including but not limited to res
judicata, statute of limitations or reliance even if such theories are
``not technically considered affirmative defenses.'' \67\ Timely
assertion of such theories, we explained, ``would focus the use of
prehearing discovery, foster early identification of key issues and, as
a result, make the discovery process more effective and efficient.''
\68\
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    \65\ 17 CFR 201.220.
    \66\ Id.
    \67\ 80 FR at 60095. Compare Fed. R. Civ. P. 8(c) (``In
responding to a pleading, a party must affirmatively state any
avoidance or affirmative defense.'') ``Generally speaking,'' Federal
Rule of Civil Procedure 8(c)'s reference to ``an avoidance or
affirmative defense'' ``encompasses two types of defensive
allegations: Those that admit the allegations of the complaint but
suggest some other reason why there is no right of recovery, and
those that concern allegations outside of the plaintiff's prima
facie case that the defendant therefore cannot raise by a simple
denial in the answer.'' 5 Charles Alan Wright, Arthur R. Miller &
Edward H. Cooper, Federal Practice and Procedure section 1271 (3d
ed.). As discussed below, in the final rule we have clarified the
reference to ``reliance'' in the proposed rule.
    \68\ 80 FR at 60095.
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2. Comments Received
    Commenters generally opposed the proposed amendment and requested
that it be withdrawn. Commenters' principal contention was that
``reliance on counsel is not a defense required to be raised in an
answer, but simply goes to the evidence of whether a respondent acted
in good faith.'' \69\ Commenters also

argued that the proposed amendment prejudices respondents, provides an
unfair advantage to Division staff in administrative proceedings,
improperly requires respondents to disclose their trial strategy, and
infringes on the attorney work-product privilege.\70\
---------------------------------------------------------------------------

    \69\ NJSBA (citing Howard v. SEC, 376 F.3d 1136, 1147 (D.C. Cir.
2004) (holding that ``reliance on the advice of counsel need not be
a formal defense'')); see also Hudson II (citing anonymous blog
post) and infra note 72.
    \70\ NJSBA; Hudson II.
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3. Final Rule
    We continue to believe that timely assertion of reliance would
focus the use of prehearing discovery and foster early identification
of key issues, so that they may be explored in discovery and
depositions, and, as a result, make the discovery process more
effective and efficient. We therefore are adopting the amended Rule
substantially as proposed, with one clarifying modification. The final
rule is not intended to change the substantive law regarding reliance
or any of the securities laws. The Commission recognizes that, in cases
involving scienter-based misconduct, the Division bears the burden of
proof on demonstrating that the respondent acted with scienter.
    However, we have modified the final rule to give more content to
and clarify the requirement that respondents disclose ``reliance.'' As
adopted, the final rule now requires a respondent to state in the
answer ``whether the respondent relied on the advice of counsel,
accountants, auditors, or other professionals, in connection with any
claim, violation alleged, or remedy sought.'' The reference to
accountants, auditors, and other professionals reflects that, in
addition to arguing that they relied on the advice of counsel,
respondents in Commission administrative proceedings (and defendants in
Commission civil enforcement actions) often assert that the respondent
(or defendant) relied on such professionals in connection with the
conduct alleged.\71\ The amended rule therefore requires respondents to
state in their answer whether they intend to raise the issue of
reliance on professional advice in the proceeding, whether as part of
an assertion of a formal affirmative defense or an argument in response
to the claims alleged in the OIP on which the Division retains the
burden of proof. The amended rule provides that failure to do so may be
deemed a waiver.
---------------------------------------------------------------------------

    \71\ See, e.g., Answer of Respondent Jim Hopkins at 25, ] 4, In
re Flannery, No. 3-14081 (Oct. 26, 2010); Answer of John Patrick
(``Sean'') Flannery to Order Instituting Administrative and Cease-
and-Desist Proceedings at 12, ]] 5, 6, In re Flannery, No. 3-14081
(Oct. 26, 2010); Answer of Defendant Samuel E. Wyly, Doc. 58 at 29,
SEC v. Wyly, 10-cv-5760 (S.D.N.Y.) (Apr. 28, 2011) (``Plaintiff's
claims are barred in whole or in part because Defendant relied in
good faith upon the judgment, advice, and counsel of
professionals.''); see also NJSBA.
---------------------------------------------------------------------------

    Contrary to the comments discussed above, the Commission believes
this change will not materially alter current practice and will not
unfairly advantage the Division because, as noted, even in the absence
of this clarification, respondents often assert reliance in their
answers to Commission OIPs.\72\ Finally, this amendment would align
administrative proceedings with civil litigation in generally aiming to
eliminate surprise and identifying the issues for the hearing.\73\
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    \72\ Whether, and to what extent, the assertion of reliance on
advice or involvement of counsel in the answer to the OIP results in
the waiver of the attorney-client privilege depends on the facts of
any given proceeding. As a general matter, ``the attorney-client
privilege cannot at once be used as a shield and a sword.'' United
States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991). In
determining whether the privilege is waived, hearing officers should
consider how respondents have framed their reliance on counsel in
the answer, the allegations in the OIP, and the facts and
circumstances underlying the assertion of reliance. The parties may
discuss these issues at the prehearing conference pursuant to Rule
221.
    \73\ See Pierce v. Pierce, 5 F.R.D. 125 (D.D.C. 1946); cf.
Fed.R.Civ.P. 1.
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H. Rule 221 (Prehearing Conference)

    Rule 221 permits a hearing officer to direct the parties to meet
for an initial prehearing conference and includes a list of subjects to
be discussed.\74\ We proposed amendments to Rule 221(c) to add
depositions and expert witness disclosures or reports to the list of
subjects to be discussed at the prehearing conference. We received no
comments on this aspect of the proposal.
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    \74\ 17 CFR 201.221(b).
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    We are adopting the amendment as proposed with respect to
depositions and expert witness disclosures. The addition of depositions
to certain proceedings will potentially raise issues, including the
identity of the persons to be deposed and the timing of any
depositions, that will benefit from early discussion between the
parties and with the hearing officer. At a prehearing conference, the
parties and the hearing officer may discuss the timing of depositions,
the proposed deponents, whether any party will be making a motion
seeking leave to conduct additional depositions pursuant to amended
Rule 233, and any issues any party foresees arising in connection with
the proposed depositions.
    In addition, we are modifying Rule 221(c) in two other respects.
First, in response to comments advocating amendments that would require
a date certain by which the Division should complete its document
production under Rule 230,\75\ we are amending Rule 221(c) to include
in the list of subjects to be discussed at a prehearing conference the
timing for completion of production of documents as set forth in Rule
230. The Commission expects that the Division will continue its
practice of timely producing documents, and any potential concerns
surrounding the completion of document production should be discussed
with the hearing officer at a prehearing conference.\76\
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    \75\ See Calfee (suggesting rule should require production to be
completed not later than seven days prior to the deadline for filing
an answer); Gibson (suggesting a time period of 45 days from
initiation of a proceeding).
    \76\ Rule 230(d) provides, inter alia, unless otherwise ordered
by the Commission or the hearing officer, the Division shall
commence making documents available to a respondent for inspection
and copying pursuant to the section no later than 7 days after
service of the order instituting proceedings. 17 CFR 201.230(d).
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    Second, we are amending Rule 221(c)(8) to clarify that the subjects
to be discussed at the prehearing conference include the filing of any
motion pursuant to Rule 250. As amended, Rule 250 contemplates the
filing of various types of dispositive motions (i.e., motion for a
ruling on the pleadings, motion for summary disposition, and motion for
a ruling as a matter of law following completion of a case in chief).
Parties may discuss at a prehearing conference whether they anticipate
filing any motions pursuant to amended Rule 250, and the timing of such
motions.\77\
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    \77\ See infra discussion of Rule 250 at Section M.
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I. Rule 222 (Prehearing Submissions)

1. Proposed Rule
    Rule 222(b) \78\ provides that a party who intends to call an
expert witness shall disclose information related to the expert's
background, including qualifications, prior testimony, and
publications. We proposed amendments to current Rule 222(b)'s
requirement that parties submit a list of other proceedings in which
their expert witness has given expert testimony and a list of
publications authored or co-authored by their expert witness. As
proposed, Rule 222(b) limits the list of proceedings to the previous
four years, and limits the list of publications to the previous ten
years.
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    \78\ 17 CFR 201.222.
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    The proposed amendment requires disclosure of a written report for
a witness retained or specially employed to provide expert testimony in
the case, or for an employee of a party whose duties regularly involve
giving expert

testimony. The proposed amendment outlines the elements of that written
report, including a complete statement of all opinions the witness will
express and the basis and reasons for them, the facts or data
considered by the witness in forming them, any exhibits that will be
used to summarize or support them, and a statement of the compensation
to be paid for the expert's study and testimony in the case.
    As proposed, the amendment provides for two categories of
information protected from discovery: (1) Drafts of any report or other
disclosure required to be submitted in final form; and (2)
communications between a party's attorney and the party's expert
witness who would be required to submit a report under the rules,
unless the communications related to the expert's compensation, or
certain facts, information, or assumptions provided by the attorney to
the expert.
2. Comments Received
    We received one comment on this aspect of the proposal. The
commenter generally supported the amendment in light of the similarity
of the proposed rule to Rule 26(b) of the Federal Rules of Civil
Procedure but urged the Commission to adopt a rule allowing the parties
to present direct expert testimony at all hearings.\79\
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    \79\ Gibson.
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3. Final Rule
    We are adopting the rule substantially as proposed, with one
ministerial edit. As proposed, the rule text provided that
communications between a party's attorney and the party's expert
witness who is identified under this section need not be furnished,
subject to certain exceptions. Consistent with the requirements for
expert witness disclosures and expert reports in the Federal Rules of
Civil Procedure, and to align the rule text with the description of the
amendments in the proposing release, we have revised the rule to
clarify that the protections afforded to communications between a
party's attorney and the party's expert witness under section (b)(2)
apply to communications with experts who are required to provide a
report under the rule.\80\
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    \80\ Section (b) only addresses experts whom a party intends to
call at the hearing. The rule does not cover consulting experts,
i.e., experts who have been retained or specially employed in
anticipation of litigation or to prepare for the hearing, but who
are not expected to be called as witnesses at the hearing.
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    We believe the amendments to Rule 222 will promote efficiency in
both prehearing discovery and the hearing.\81\ Moreover, the final rule
comports with current practices of some hearing officers, who have
required such expert reports in proceedings before them.\82\
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    \81\ See Fed.R.Civ.P. 26(b)(4), (a)(2), respectively.
    \82\ See, e.g., ZPR Investment Management, Inc., Admin Proc.
Ruling Rel. No. 775 (Aug. 6, 2013), available at http://www.sec.gov/alj/aljorders/2013/ap-775.pdf (last visited July 11, 2016) (general
prehearing order stating that ``expert reports should be as specific
and detailed as those presented in federal district court pursuant
to Federal Rule of Civil Procedure 26.'').
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    The final rule requires each party who intends to call an expert
witness to submit a statement of the expert's qualifications, a listing
of other proceedings in which the expert has given expert testimony
during the previous four years, and a list of publications authored or
co-authored by the expert in the previous ten years. Additionally, if
the witness is one retained or specially employed to provide expert
testimony in the case or one whose duties as the party's employee
regularly involve giving expert testimony, then the party must include
in the disclosure a written report--prepared and signed by the witness.
The report must contain: (i) A complete statement of all opinions the
witness will express and the basis and reasons for them; (ii) the facts
or data considered by the witness in forming them; (iii) any exhibits
that will be used to summarize or support them; and (iv) a statement of
the compensation to be paid for the study and testimony in the case.
Consistent with the proposal, amended Rule 222 protects from disclosure
(1) draft reports or other disclosure required to be submitted in final
form, and (2) communications between a party's attorney and the party's
expert witness required to provide a report under the rule, except if
the communications relate to compensation for the expert's study or
testimony, identify facts or data that the party's attorney provided
and that the expert considered in forming the opinions to be expressed,
or identify assumptions that the party's attorney provided and that the
expert relied on in forming the opinions to be expressed.
    We disagree with the comment suggesting that the rule be altered to
require that expert witnesses testify at the hearing in all cases.
Hearing officers currently use expert reports as evidence and permit
direct examination as necessary,\83\ a practice that we understand
comports with the practice followed by a number of district judges in
federal court bench trials. We believe that the final rule furthers the
goal of efficiency without compromising a respondent's ability to
present direct expert testimony.
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    \83\ See, e.g., Leslie A. Arouh, Admin Proc. File No. 3-10884,
2003 SEC LEXIS 3210 (Feb. 19, 2003) (ordering production of
respondent's expert report as evidence, ``to be fleshed out as
needed by further direct testimony, and subject to cross
examination.''); Reliance Financial Advisors, LLC, Admin Proc.
Ruling Rel. No. 2627, 2015 SEC LEXIS 1703 (May 4, 2015) (order
following prehearing conference stating that a hearing officer
``will accept the Division's expert report as testimony but will
expect brief direct testimony by the expert during the hearing as
well''); Ambassador Capital Management, LLC, Admin Proc. Ruling Rel.
No. 1149 n.1, 2014 SEC LEXIS 45 (Jan. 7, 2014) (order setting
prehearing schedule stating, ``[a]t the prehearing conference, it
was established that any party offering expert testimony shall be
prepared to conduct direct examination of the expert for no more
than forty-five minutes at the hearing'').
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J. Rule 230 (Enforcement and Disciplinary Proceedings: Availability of
Documents for Inspection and Copying)

1. Proposed Rule
    After the institution of proceedings, Rule 230(a) \84\ requires the
Division to make available to respondents certain documents obtained by
the Division in connection with an investigation. Rule 230(b) \85\
provides a list of documents that may be withheld from this production.
We proposed to amend Rule 230(b) to provide that the Division may
redact certain sensitive personal information from documents that will
be made available, unless the information concerns the person to whom
the documents are being produced. We also proposed to amend Rule 230(b)
to clarify that the Division may withhold or redact documents that
reflect settlement negotiations with persons or entities who are not
respondents in the proceeding at issue.
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    \84\ 17 CFR 201.230(a).
    \85\ 17 CFR 201.230(b).
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2. Comments Received
    One commenter supported the proposal but advocated additional
amendments to Rule 230.\86\ The commenter argued that, in addition to
the categories of documents listed in Rule 230(a)(1)(i), the rule
should require disclosure by the Division of all persons that the
Division interviewed or took testimony from during the investigation,
including a summary of the factual topics covered in each
interview.\87\ The commenter also advocated amendments to Rule 230(b)
that would preclude Division staff from introducing, as evidence in
administrative proceedings, any Wells submissions, pre-Wells
submissions and white papers submitted by a party to the proceeding.
This commenter argued that the same

policy arguments supporting an exclusion of settlement negotiations
from disclosure also apply to the content of Wells submissions.\88\
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    \86\ CCMC.
    \87\ Id.
    \88\ Id.
---------------------------------------------------------------------------

3. Final Rule
    We are adopting Rule 230 as proposed, with one ministerial change
unrelated to the proposal.\89\ The final rule permits the Division to
redact an individual's social security number, an individual's date-of-
birth, the name of an individual known to be a minor, or a financial
account number, taxpayer-identification number, credit card or debit
card number, passport number, driver's license number, or state-issued
identification number other than the last four digits of the number. We
believe this amendment provides an important safeguard that should
enhance the protection afforded to sensitive personal information. It
is also consistent with privacy rules of some federal district
courts.\90\ In addition, final Rule 230(b) provides that the Division
may withhold or redact documents that reflect settlement negotiations
with persons or entities who are not respondents in the proceeding at
issue. As we explained in the proposal, this amendment is consistent
with the important public policy interest in candid settlement
negotiations,\91\ and we believe it will help to preserve the
confidentiality of settlement discussions and safeguard the privacy of
potential respondents with whom the Division has negotiated.
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    \89\ Specifically, we are amending the reference in current Rule
230(a)(1)(vi) to the Division of Market Regulation to reflect the
current name of the Division--i.e., the Division of Trading and
Markets.
    \90\ See, e.g., Fed.R.Civ.P. 5.2(a); DDC Local Civ. R. 5.4(f).
    \91\ See generally, Federal Rule of Evidence 408 (``Compromise
Offers and Negotiations''), Advisory Committee Notes; 2 McCormick on
Evid. section 266 (7th ed.).
---------------------------------------------------------------------------

    We decline to expand Rule 230 to require the Division to disclose
all persons interviewed during the investigation, or to require the
staff to produce summaries of all such interviews, as suggested by one
commenter. Rule 230(a) generally requires the Division to make
available for inspection and copying documents obtained by the Division
from persons not employed by the Commission during the course of its
investigation prior to the institution of proceedings.\92\ This
includes each subpoena issued during the investigation, all other
written requests to persons not employed by the Commission to provide
documents or to be interviewed, the documents turned over in response
to any such subpoenas or other written requests, all transcripts and
transcript exhibits, and any other documents obtained from persons not
employed by the Commission.\93\ Rule 232 permits a party to request the
issuance of subpoenas requiring the production of documents and
subpoenas compelling the testimony of witnesses. The Commission
believes that, taken together, these discovery tools will enable the
parties to identify witnesses who may possess relevant information and
to determine who should be deposed prior to the hearing.\94\
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    \92\ See 17 CFR 201.230(a).
    \93\ 17 CFR 201.230(a)(1)(i)-(v).
    \94\ We do not believe it is necessary or appropriate to require
disclosure by the Division of every person interviewed or deposed
during an investigation, or to require the Division to prepare
summaries of all such interviews, as suggested by the commenter. In
its fact-gathering role, Division staff may interview dozens of
potential witnesses in the course of an investigation that can span
many months. Such interviews often serve to narrow the scope of an
investigation, and the persons interviewed ultimately may bear no
relevance to the proceedings instituted by the Commission.
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    With the exception of certain final inspection or examination
reports that the Division intends to use at the hearing, documents
prepared by Commission staff are treated as attorney work-product, and
are not required to be produced pursuant to Rule 230.\95\ The
Commission believes it appropriate to continue the current practice of
allowing the hearing officer to evaluate attorney work-product
production disputes on a case-by-case basis.\96\ This comports with
federal district court practice for resolving discovery disputes
concerning the production of attorney work-product under Federal Rule
of Civil Procedure 26(b).\97\
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    \95\ See 17 CFR 201.230(b)(1)(ii); see also 1995 Release, 60 FR
at 32762 (comments (a) and (b) to Rule 230). Work product includes
any notes, working papers, memoranda or other similar materials,
prepared by an attorney in anticipation of litigation. See Hickman
v. Taylor, 329 U.S. 495 (1947); see also Fed. R. Civ. P. 26(b)(3)
and (b)(5).
    \96\ Rule 230(c) authorizes the hearing officer to review any
documents withheld by the Division pursuant to Rule 230(b)(1)(i)-
(iv). See, e.g., Piper Capital Management, Inc. et al., Admin. Proc.
Rel. No. 577, 1999 SEC LEXIS 301 at *20 (Jan. 15, 1999) (granting
motion for in camera inspection of documents comprising, reflecting
or summarizing off-record interviews which Division conducted with
one witness''); Jeffrey R. Patterson, et al. Admin. Proc. File No.
3-10936, 2003 SEC LEXIS 3217 (finding, following in camera review,
that staff's handwritten notes of witness's interview did not
contain exculpatory evidence and thus were not required to be made
available under Rule 230).
    \97\ See, e.g., SEC v. NIR Group, 283 FRD. 127; 2012 U.S. Dist.
LEXIS 116062 at *21, *23 (E.D.N.Y. Aug. 17, 2012) (denying, in part,
defendant's motion to compel following in camera review of sample
Division interview notes and memoranda relating to same); SEC v.
Treadway, et al., 229 FRD. 454, 455-56, 2005 U.S. Dist. LEXIS 15167,
at *4-5 (S.D.N.Y. July 26, 2005) (following in camera review,
upholding Magistrate Judge determination that proffer session notes
prepared by Division attorneys were protected attorney work-
product).
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    The final rule will not, as one commenter suggested, prohibit the
use of Wells submissions and white papers as evidence in administrative
proceedings. A Wells notice provided to a respondent by the Division
states that the Commission may use the information contained in such a
submission as an admission, or in any other manner permitted by the
Federal Rules of Evidence, or for any of the Routine Uses of
Information described in Form 1662, ``Supplemental Information for
Persons Requested to Supply Information Voluntarily or Directed to
Supply Information Pursuant to a Commission Subpoena.'' \98\ A
respondent is therefore given notice prior to providing any Wells
submissions of the various uses the Division may make of the
information included therein.
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    \98\ Form 1662 can be found at: http://www.sec.gov/about/forms/sec1662.pdf.
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    The Commission does not treat Wells submissions as settlement
materials.\99\ The procedures for submitting offers of settlement to
the Commission are governed by Rule 240.\100\ Those procedures require,
among other things, an offer of settlement signed by the person making
the offer, as well as a waiver by the person of, among other things,
the right to claim bias or prejudgment by the Commission based on the
consideration of or discussions concerning settlement of all or any
part of the proceeding.\101\ In contrast, the Wells submission process
is governed by Rule 5(c) of the Commission's Informal and Other
Procedures, which provides persons who become involved in preliminary
or formal investigations the opportunity to voluntarily submit ``a
written statement to the Commission setting forth their interests and
position in regard to the subject matter of the investigation.'' \102\
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    \99\ Cf. In re IPO Securities Litig., 2003 U.S. Dist. LEXIS
23102 at *13 (S.D.N.Y. Jan 12, 2004) (``Wells submissions are not in
themselves settlement materials, although they may sometimes contain
offers of settlement'').
    \100\ 17 CFR 201.240.
    \101\ 17 CFR 201.240(b) and (c)(5).
    \102\ 17 CFR 202.5(c).
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    The Commission's longstanding view has been that Wells submissions
``will normally prove most useful in connection with questions of
policy, and on occasion, questions of law, bearing upon the question of
whether a proceeding should be initiated, together with considerations
relevant to a particular prospective defendant or respondent that might
not otherwise be brought clearly to the Commission's

attention.'' \103\ We believe this approach remains sound because it
furthers the Commission's goal of having before it the position of
persons under investigation at the time it is asked to consider
initiating an enforcement action. In addition, we believe that the
credibility of a respondent's Wells submission could be diminished if
the final rule restricted the use of such submissions in subsequent
administrative proceedings. Such a rule could enable a potential
respondent to freely deny, or make arguments fundamentally inconsistent
with, statements or claims made in prior Wells submissions. We
therefore believe it is appropriate not to treat Wells submissions as
settlement materials. Rather, hearing officers may continue the current
practice of determining whether, under the facts and circumstances, a
Wells submission should be excluded from a proceeding.
---------------------------------------------------------------------------

    \103\ See Procedures Relating to the Commencement of Enforcement
Proceedings and Termination of Staff Investigations, Securities Act
Rel. No. 5310, 1972 SEC LEXIS 238 (Sept. 27, 1972) (emphasis added).
---------------------------------------------------------------------------

K. Rule 234 (Depositions Upon Written Questions)

    Current Rule 234 contains procedures for taking depositions through
written questions. Under Rule 234, a party may make a motion to take a
deposition on written questions by filing the questions with the
motion. We proposed to amend the rule to provide that the moving party
may take a deposition on written questions either by stipulation of the
parties or by filing a motion demonstrating good cause. We did not
receive any comments on this aspect of the proposal and are adopting
the amendment as proposed, with one ministerial change to paragraph
(a), which in the proposal inadvertently referred to Rule 232 instead
of Rule 233. The amendment is intended to provide a clear standard
under which the hearing officer or Commission would review such a
motion. The amendment replaces the standard under the current rule,
which references current Rule 233(b)'s limit on depositions to
witnesses unable to appear or testify at a hearing.

L. Rule 235 (Introducing Prior Sworn Statements or Declarations)

1. Proposed Rule
    Current Rule 235 \104\ allows the introduction of certain prior
sworn statements into the record. Current Rule 235(a) sets forth the
standards for persons making a motion to introduce prior sworn
statements of non-party witnesses. We proposed to amend Rule 235(a) to
include in the list of prior sworn statements depositions taken
pursuant to Rules 233 or 234, as well as investigative testimony and
declarations taken under penalty of perjury pursuant to 28 U.S.C. 1746.
In addition, we proposed to add new paragraph (b) to Rule 235 to permit
the use of statements made by a party or a party's officers, directors,
or managing agents, and to clarify that such statements may be used by
an adverse party for any purpose. Consistent with the proposed
amendments to Rule 235(a), the amendments to new Rule 235(b) included
depositions taken pursuant to Rules 233 or 234, as well as
investigative testimony and declarations taken under penalty of perjury
pursuant to 28 U.S.C. 1746.
---------------------------------------------------------------------------

    \104\ 17 CFR 201.235.
---------------------------------------------------------------------------

2. Comments Received
    We received one comment on this aspect of the proposal. A
securities blog entry cited by the commenter objected to the
introduction of sworn statements under current Rule 235.\105\ The
author of the blog asserted, without providing support, that hearing
officers currently admit unreliable investigative testimony into the
record and that the proposal endorses this practice. The author opposed
the admission of investigative testimony and declarations and argued
that the proposal would unfairly benefit the Division.
---------------------------------------------------------------------------

    \105\ See Hudson II (citing anonymous blog).
---------------------------------------------------------------------------

3. Final Rule
    We are adopting the amendments as proposed. We believe that current
Rule 235 contains sufficient safeguards to prevent the introduction of
unreliable testimony. For instance, to introduce a prior sworn
statement under current Rule 235(a), a person must make a motion
setting forth reasons for introducing the statement. The standard for
granting such a motion focuses on the admissibility and relevance of
the statement, the availability of the witness for the hearing, and the
presumption favoring oral testimony of witnesses in an open hearing.
The statements that will be admissible pursuant to amended Rule
235(a)--including statements made pursuant to 28 U.S.C. 1746,
deposition testimony, investigative testimony, and other sworn
statements--will be subject to these standards.
    Amended Rule 235(b) will permit an adverse party to seek the
admission of statements made by a party or the party's officer,
director, or managing agent. A party opposing the introduction or use
of such statements may still object to their admission under amended
Rule 320 to the extent such evidence is ``irrelevant, immaterial,
unduly repetitious, or unreliable.'' \106\
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    \106\ See infra discussion at Section N.
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M. Rule 250 (Dispositive Motions)

    Rule 250 currently provides that a party may move for summary
disposition after a respondent's answer is filed and documents have
been made available to the respondent and sets forth the procedures and
standards governing such a motion. If the ``interested division,''
e.g., the Division of Enforcement, has not completed its case in chief,
a motion for summary disposition may be made only with leave of the
hearing officer. Rule 250 has been used by parties in our proceedings
in a manner analogous to the summary judgment procedure in the Federal
Rules of Civil Procedure. It also has been used as a means of seeking a
ruling on the pleadings or seeking dismissal as a matter of law either
early in a proceeding or following the Division's completion of its
evidentiary presentation at the hearing.
    A principal purpose of Rule 250 is to facilitate the efficient
resolution of proceedings by disposing of issues prior to the hearing,
where appropriate, without introducing unnecessary delays or costs into
the proceeding. As we have previously explained, the rule ``balances
the potential efficiency gained by allowing the hearing officer to
eliminate unnecessary hearings in some cases against the costs of
allowing additional motions, prehearing procedures and the attendant
delay in cases where a hearing in which all evidence can be presented
and witness demeanor can be observed is warranted.'' \107\
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    \107\ See 1995 Release, 60 FR at 32767-68; see also id. at 32767
(``Summary disposition is a procedure that can resolve issues prior
to hearing, thereby reducing the costs of hearing and expediting
resolution of the proceeding.'').
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    We did not propose to amend Rule 250. However, one commenter
suggested that the Commission modify the current rule to permit a
respondent to challenge the Division's ``legal theories . . . as of
right'' \108\ prior to the hearing. As discussed below, we are amending
Rule 250 both to respond to the commenter's suggestion and to clarify
how summary disposition motions will operate in conjunction with the
amendments to Rules 233 and 360 that permit parties to take depositions
and that provide for a longer maximum prehearing period in 120-day
proceedings. Consistent with the Commission's prior commentary on Rule
250, these amendments are

intended to maintain the balance between encouraging more streamlined
proceedings while protecting against unwarranted delays and costs.\109\
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    \108\ Gibson.
    \109\ As noted supra at n.16 and pursuant to current Rule
360(a)(1), unless the Commission directs otherwise, the hearing
officer shall prepare an initial decision in any proceeding in which
the Commission directs a hearing officer to preside at a hearing,
provided, however, that an initial decision may be waived by the
parties with the consent of the hearing officer pursuant to Rule
202. These amendments do not alter this requirement.
---------------------------------------------------------------------------

    Amended Rule 250 provides that three types of dispositive motions
may be filed at different stages of an administrative proceeding and
sets forth the standards and procedures governing each type of motion.
These motions--described in paragraphs (a)-(d) of the amended rule--
generally correspond to certain dispositive motions that may be filed
in federal court under the Federal Rules of Civil Procedure.
    Paragraph (a) of amended Rule 250 governs the filing of motions for
a ruling on the pleadings. It provides that, no later than 14 days
after a respondent's answer has been filed, any party may move for a
ruling on the pleadings on one or more claims or defenses, asserting
that, even accepting all of the non-movant's factual allegations as
true and drawing all reasonable inferences in the non-movant's favor,
it is entitled to a ruling as a matter of law. Paragraph (a) thus
permits a respondent to seek a ruling as a matter of law based on the
factual allegations in the OIP and permits either party to seek a
ruling as a matter of law after the filing of an answer.\110\
Consistent with the commenter's suggestion, we believe that obtaining
leave of the hearing officer prior to filing such a motion is
unnecessary; a motion under paragraph (a) is, therefore, available to
any party as a matter of right. Additionally, paragraph (a) provides
that a hearing officer shall promptly grant or deny the motion. This is
intended to help ensure that such motions do not serve to delay
proceedings.\111\
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    \110\ This is analogous to Rules 12(b)(6) and 12(c) of the
Federal Rules of Civil Procedure. See Fed.R.Civ.P. 12(b)(6) (failure
to state a claim upon which relief can be granted); 12(c) (judgment
on the pleadings).
    \111\ The same commenter suggested that the Commission be
required to promptly hear and resolve all appeals from hearing
officer denials of prehearing motions for summary disposition that
attack the statutory or regulatory basis for the proceeding, or that
challenge the constitutionality thereof. See Gibson. The Commission
has not adopted this suggestion because we believe the existing
mechanism for review is appropriate and is consistent with the
overall goal of ensuring an efficient resolution of proceedings. See
generally Gary L. McDuff, Exchange Act Release No. 78066, 2016 WL
3254513 (June 14, 2016). Under Rule 400(a), we ``may, at any time,
on [our] own motion, direct that any matter be submitted to [us] for
review.'' Consistent with Rule 400(a), a respondent may seek review
of issues such as those raised by the commenter at any point in an
administrative proceeding. We have likewise not adopted the
commenter's suggestion that we adopt a rule providing that an
administrative proceeding will be automatically stayed pending final
resolution of a respondent's challenge to the legality of the
proceeding. See Gibson. We decline to adopt such a blanket rule
because, among other things, it would unduly delay proceedings where
the underlying legal challenge lacks merit. Moreover, any respondent
may seek a stay of the administrative proceeding and, where
appropriate, the Commission in its discretion may issue such a stay.
---------------------------------------------------------------------------

    Paragraph (b) of amended Rule 250 governs the filing of motions for
summary disposition in proceedings designated as 30- and 75-day
proceedings pursuant to amended Rule 360. It provides that after a
respondent's answer has been filed and documents have been made
available to that respondent pursuant to Rule 230, any party may move
for summary disposition on one or more claims or defenses, asserting
that the undisputed pleaded facts, declarations, affidavits,
documentary evidence or facts officially noted pursuant to Rule 323
show (1) that there is no genuine issue with regard to any material
fact and (2) that the movant is entitled to summary disposition as a
matter of law.\112\ If it appears that a party, for good cause shown,
cannot present prior to the hearing facts essential to oppose the
motion, paragraph (b) provides that the hearing officer shall deny or
defer the motion. Leave of the hearing officer is not required to file
such a motion in 30- and 75-day cases. This is consistent with existing
practice in the proceedings we have designated for shorter timeframes--
including, for example, proceedings pursuant to Exchange Act Section
12(j) \113\ as well as follow-on proceedings \114\--where we have
repeatedly observed that summary disposition is typically appropriate
because the issues to be decided are narrowly focused and the facts not
genuinely in dispute.
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    \112\ This is analogous to Federal Rule of Civil Procedure 56.
See Fed.R.Civ.P. 56 (summary judgment). To streamline amended Rule
250, we have deleted the portion of current Rule 250(a) that
provided that, the facts of the pleadings of the party against whom
the motion is made shall be taken as true, except as modified by
stipulations or admissions made by that party, by uncontested
affidavits, or by facts officially noted pursuant to Rule 323. This
is not intended to be a substantive change. Consistent with current
Commission opinions regarding summary disposition motions, the facts
should be construed in the light most favorable to the non-moving
party. See, e.g., Jay T. Comeaux, Exchange Act Release No. 72896,
2014 WL 4160054, at *2 (Aug. 21, 2014). Importantly, a non-moving
party ``may not rely on bare allegations or denials but instead must
present specific facts showing a genuine issue of material fact for
resolution at a hearing.'' Id.; see also Kornman v. SEC, 592 F.3d
173, 182 (D.C. Cir. 2010) (finding that summary disposition was
properly granted where the respondent ``proffered no evidence to
contradict either his admissions or the Division's evidence'');
Conrad P. Seghers, Advisers Act Release No. 2656, 2007 WL 2790633 at
*4 n.25 (Sept. 26, 2007) (``[Respondent] must set forth specific
facts establishing a genuine issue of material fact and may not rely
upon mere allegations in his pleadings to the law judge to create a
genuine issue.''), petition denied, 548 F.3d 129, 136 (D.C. Cir.
2008).
    \113\ See, e.g., China Biotics, Inc., Exchange Act Release No.
70800, 2013 WL 5883342, at *16 (Nov. 4, 2013) (explaining that
summary disposition in a proceeding pursuant to Section 12(j) was
appropriate when the respondent ``still has not identified any
evidence demonstrating a genuine issue of material fact''); Citizens
Capital Corp., Exchange Act Release No. 67313, at 16 (June 19, 2012)
(``We have found that summary disposition is appropriate in
proceedings like this one brought pursuant to Exchange Act Section
12(j), where the issuer has not disputed the facts that constitute
the violation.'').
    \114\ See, e.g., Jeffrey L. Gibson, Exchange Act Release No.
57266, 2008 SEC LEXIS 236, at *19-20 (Feb. 4, 2008) (``Use of the
summary disposition procedure has been repeatedly upheld in cases
such as this one where the respondent has been enjoined or
convicted, and the sole determination concerns the appropriate
sanction.'') petition denied, 561 F.3d 548, 555 (6th Cir. 2009);
Adoption of Amendments to the Rules of Practice and Related
Provisions and Delegations of Authority of the Commission, Exchange
Act Release No. 52846 (Nov. 29, 2005), 70 FR 72566, 72567 (Dec. 5,
2005), available at http://www.sec.gov/rules/final/34-52846.pdf
(last visited July 8, 2016) (``Motions for summary dispositions are
often made in cases where a respondent has been criminally convicted
or an injunction has been entered and the conviction or injunction
provides the basis for an administrative order against the
respondent.'').
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    Paragraph (c) of amended Rule 250 governs the filing of motions for
summary disposition in proceedings designated as 120-day proceedings
pursuant to amended Rule 360. It provides that after a respondent's
answer has been filed and documents have been made available to that
respondent pursuant to Rule 230, any party may make a motion for
summary disposition on one or more claims or defenses, asserting that
the undisputed pleaded facts, declarations, affidavits, deposition
transcripts, documentary evidence or facts officially noted pursuant to
Rule 323 show (1) that there is no genuine issue with regard to any
material fact and (2) that the movant is entitled to summary
disposition as a matter of law.\115\ If it appears that a party, for
good cause shown, cannot present prior to the hearing facts essential
to justify opposition to the motion, paragraph (c) provides that the
hearing officer shall deny or defer the motion.
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    \115\ This is analogous to Federal Rule of Civil Procedure 56
(summary judgment); see also supra note 112.
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    Leave of the hearing officer must be obtained in order to file a
Rule 250(c) motion. Leave may be granted only if the moving party
establishes good cause and if consideration of the motion will not
delay the scheduled start of the

hearing. Paragraph (c) further provides that the hearing officer shall
promptly grant or deny the motion for summary disposition or shall
defer decision on the motion.
    The requirement that leave be obtained to make a motion under
paragraph (c) is consistent with the Commission's long-held view that
because ``[t]ypically, Commission proceedings that reach litigation
involve basic disagreement as to material facts . . . [t]he
circumstances when summary disposition prior to hearing could be
appropriately sought or granted will be comparatively rare.'' \116\ In
contrast to matters like 12(j) proceedings that are amenable to
resolution on summary disposition,\117\ we have noted that the
proceedings designated for the longest timeline may not be
``appropriate vehicle[s]'' for summary disposition.\118\ This is so
because, as a general matter, hearings are necessary in 120-day
proceedings for evidence to be taken on fact-intensive issues such as a
respondent's state of mind that generally are not susceptible to
summary disposition.
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    \116\ 1995 Release, 60 FR at 32768.
    \117\ See supra note 113.
    \118\ Comeaux, 2014 WL 4160054, at *4 n.30 (``We urge parties in
the future to consider whether, if the Commission has determined
that a particular matter is not an appropriate vehicle for the 120-
or 210-day time periods [under current Rule 360], it is an
appropriate vehicle for a motion for summary disposition.'').
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    Consequently, we have previously stated in discussing Rule 250 that
``leave to file such a motion shall be granted only for good cause
shown, and if consideration of the motion will not delay the scheduled
start of the hearing.'' \119\ We now codify this as the two-part
standard for a hearing officer to grant leave for a party to file a
motion for summary disposition under amended Rule 250(c).\120\ It is
the Commission's view that good cause may generally be demonstrated
where there is a substantial likelihood that the party seeking leave to
file a motion under paragraph (c) will be successful on the merits of
the motion.\121\ Additional factors the hearing officer generally
should consider in assessing whether a party has demonstrated good
cause include, but are not limited to, whether (1) there is agreement
among the parties on the operative facts that are the basis of the
motion; (2) the motion, if granted, would obviate the need to conduct a
substantial portion, or all, of the final hearing; and (3) the motion
would not impose undue expense or harassment on the opposing party.
Consideration of these factors is intended to further the goal of Rule
250 to promote efficient resolution of proceedings, without introducing
unnecessary costs or delays. Consistent with the Commission's prior
statements regarding summary disposition in proceedings designated for
the longest timeframe, we believe that the good cause standard under
paragraph (c) will rarely be satisfied.\122\ Granting leave to file a
motion for summary disposition only in exceptional cases where good
cause is established, and limiting summary disposition to the rare
cases where it is appropriate, promotes efficiency by avoiding the
attendant delays that may ensue if a hearing officer grants summary
disposition and the Commission subsequently remands the case for an
evidentiary hearing.\123\
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    \119\ See 1995 Release, 60 FR at 32768.
    \120\ Hearing officers have cited to this standard in assessing
whether to grant leave to file a summary disposition motion under
current Rule 250. See, e.g., Arthur F. Jacob, CPA, Admin. Proc.
Ruling No. 3370, 2015 SEC LEXIS 4945, at *3 (Dec. 4, 2015).
    \121\ See 1995 Release, 60 FR at 32768, Comment to Rule 250
(``Where a genuine issue as to material facts clearly exists as to
an issue, it would be inappropriate for a party to seek leave to
file a motion for summary disposition or for a hearing officer to
grant the motion.'').
    \122\ We note that we have removed the provision in current Rule
250(b) stating that denial of leave to file a summary disposition
motion ``is not subject to interlocutory appeal.'' The denial of
leave to file a motion pursuant to paragraph (c) in amended Rule 250
is subject to Commission review, consistent with the Commission's
plenary authority over our administrative proceedings. See supra
note 111.
    \123\ See, e.g., Diane M. Keefe, Exchange Act Release No. 61928,
2010 SEC LEXIS 1122, at *4-5 (Apr. 16, 2010) (reversing grant of
summary disposition, remanding for a hearing, and noting ``[w]e have
reviewed the limited record before us and believe that the record
would benefit from direct and cross-examination of any relevant
witnesses and the fact-finding determinations of a law judge'' and
``that amplification of the current record with facts supporting
either party's position on the issue of materiality would aid any
decisional process''); Joseph P. Doxey, Exchange Act Release No.
77773, 2016 WL 2593988 (May 5, 2016) (finding evidence did not
support grant of summary disposition as to Division's allegations of
antifraud and registration violations and remanding claims to the
law judge).
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    Paragraph (d) of amended Rule 250 governs the filing of motions for
a ruling following completion of the Division's case in chief at a
hearing. It provides that following the interested division's
presentation of its case in chief, any party may make a motion,
asserting that it is entitled to a ruling as a matter of law on one or
more claims or defenses.\124\ Leave from the hearing officer is not
required to file such a motion. But as with the motion for summary
disposition discussed in paragraph (c), it is the Commission's view
that proceedings designated for the longest timeframe will rarely be
amenable to resolution based solely on the Division's case in chief,
and prior to the respondent's presentation of evidence, and therefore
we believe that Rule 250(d) motions should be granted in only the
rarest of cases.\125\
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    \124\ This is analogous to Federal Rule of Civil Procedure 50(a)
(judgment as a matter of law).
    \125\ In Rita Villa, Exchange Act Release No. 39518, 1998 WL
4530 (Jan. 6, 1998), the Commission stated that it did not favor an
``abbreviated procedure'' in which a hearing officer orally granted
a motion for summary disposition following the presentation of the
Division's case in chief. We clarify today that Rita Villa, which
interpreted a prior Rule of Practice, should not be read to apply to
amended Rule 250(d) to suggest that a party may never make a motion
for summary disposition after a hearing has begun. Such a motion is
available as of right: Under amended Rule 250(d), a party may move
for a ruling as a matter of law following completion of the
Division's case in chief.
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    Paragraph (e) of amended Rule 250 provides the length limitations
applicable to dispositive motions under paragraphs (a)-(d) of amended
Rule 250.\126\ It provides that dispositive motions, together with any
supporting memorandum of points and authorities (exclusive of any
declarations, affidavits, deposition transcripts or other attachments),
shall not exceed 9,800 words and that requests for leave to file
motions and accompanying documents in excess of 9,800 words are
disfavored.\127\ A party should not circumvent this length limitation
by filing or appending a separate document, incorporated by reference
into the supporting memorandum, that contains a recitation of any
allegedly undisputed facts. To the extent that a party does incorporate
a separate statement of facts by reference in its memorandum, such a
document counts towards the length limitations in paragraph (e). A
motion that does not, together with any accompanying memorandum of
points and authorities, exceed 35, double-spaced pages in length,
inclusive of pleadings incorporated by reference (but excluding any
declarations, affidavits, deposition transcripts or attachments) is
presumptively considered to contain no more than 9,800 words. Any
motion that exceeds this page limit must include a certificate by the
attorney, or an unrepresented party, stating that the

brief complies with the word limit set forth in this paragraph and
stating the number of words in the motion. The person preparing the
certificate may rely on the word count of a word-processing program to
prepare the document.
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    \126\ Motions made pursuant to amended Rule 250(d) may be made
orally, or in writing, but such motions should not be used as a
means of delaying completion of the hearing. Should the hearing
officer decide that a motion made pursuant to Rule 250(d) requires
briefing, the hearing officer may require the parties to brief the
motion while the hearing continues to proceed.
    \127\ We note that paragraph (e) of amended Rule 250 contains
the same length limitations as were applicable to summary
disposition motions under current Rule 250(c). We have added the
term ``deposition transcripts'' to the list of documents excluded
from the page count to comport with the language of amended Rule
250(d) and the amendments to Rule 233.
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    Paragraph (f) of amended Rule 250 provides the length limitations
and response times for opposition and reply briefs pertaining to
motions under paragraphs (a)-(d) of amended Rule 250. Paragraph (f)(1)
provides that the length limitations in paragraph (e) apply to any
opposition to a motion under paragraphs (a)-(d) of amended Rule 250.
This reflects the Commission's belief that, in the context of summary
disposition motions, affording the responding party the same page
limitation as the moving party should help to ensure that the
responding party has a sufficient opportunity to respond to all of the
positions advanced in the motion. Paragraph (f)(1) further provides
that the length limitations in Rule 154(c) apply to any reply; this is
consistent with current practice. Paragraph (f)(2)(i) provides that the
response times in Rule 154(b) apply to all opposition and reply briefs
pertaining to motions under paragraphs (a), (b), and (d) of amended
Rule 250. Paragraph (f)(2)(ii) provides that, for any motion for which
leave has been granted consistent with the standard in paragraph (c),
any opposition must be filed within 21 days after service of a Rule
250(c) motion and that any reply shall be filed within seven days after
the service of any opposition. These expanded response times for
oppositions and replies pertaining to summary disposition motions
pursuant to paragraph (c) are intended to provide sufficient time to
respond to the motion in those rare instances where good cause to file
such a motion has been established.

N. Rule 320 (Evidence: Admissibility)

1. Proposed Rule
    Rule 320 provides the standards for admissibility of evidence.
Under the current rule, the Commission or hearing officer may receive
relevant evidence and shall exclude all evidence that is irrelevant,
immaterial, or unduly repetitious. We proposed to amend the rule to add
``unreliable'' to the list of evidence that shall be excluded. In
addition, we proposed adding new Rule 320(b) to clarify that hearsay
may be admitted if it is relevant, material, and bears satisfactory
indicia of reliability so that its use is fair.
2. Comments Received
    Commenters raised a number of concerns about the admissibility of
hearsay under proposed Rule 320(b). Most commenters argued that the
Commission should incorporate Federal Rules of Evidence governing
hearsay into the Commission's administrative proceedings.\128\
Commenters, focusing on the importance of cross-examination to test
``credibility, memory, [and] bias,'' argued for limiting the admission
of hearsay.\129\ Commenters also argued that applying the federal court
hearsay rules would ensure consistency and objectivity in
administrative proceedings,\130\ and suggested that allowing hearsay
evidence in administrative proceedings incentivizes forum selection
based on the quality and nature of the evidence and witnesses rather
than other more appropriate considerations.\131\ Some commenters
contended that the Commission had not, or could not, ``establish a
principled basis for adopting a different standard'' than the federal
rules or other rules requiring ``greater scrutiny of hearsay
evidence.'' \132\
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    \128\ FSR; Gibson; Hudson II (citing anonymous blog); Brune;
Grundfest; NJSBA.
    \129\ Gibson; CCMC.
    \130\ Calfee.
    \131\ Gibson.
    \132\ FSR; see also Brune; NJSBA.
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    Other commenters acknowledged the longstanding admissibility of
hearsay in administrative proceedings,\133\ but argued that the
proposed hearsay standards are nevertheless insufficient.\134\ One such
commenter argued that the Commission should be bound by the federal
rules, and advocated the exclusion of hearsay evidence in proceedings
involving civil monetary penalties or bars from association in the
securities industry.\135\ The other commenter advocated various other