# Encyclopedia of White-Collar & Corporate Crime

Encyclopedias

### Edited by: Lawrence M. Salinger, Ph.D.

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## Introduction

IN THE 2000s, white-collar crime has become a topic of almost daily news. The white-collar crime that caused the bankruptcy of Enron Corporation resulted in financial losses exceeding $66 billion to stockholders, and likely helped lead to the recall of the governor of California. Massive violations of laws pertaining to improper investments in mutual funds and large banking firms in the United States have resulted in major losses to legitimate investors, whose losses are still being calculated. The use of shareholders' assets to fund the lavish private lifestyles of corporate chief executive officers, presidents, and chairs of the board of large corporations are becoming the fodder of scandal and media. For example, television viewers were treated to an edited version of a videotape of Tyco International Limited head Dennis Kozlowski and friends in a$2-million bacchanal celebrating his wife's birthday at the expense of the corporation. The WorldCom bankruptcy that resulted from white-collar crime caused billions of dollars in lost investments. The costs to ordinary stockholders are massive, but costs to employees, collateral business, communities, and society are incalculable.

Human lives have been altered forever by the unlawful actions of a few whose need for power and profit resulted in illegal, unethical, and immoral acts. While one can conceive of the plausibility that the offenders did not define their behaviors as criminal, that in part could be because there is no clear definition of what is meant by the term white-collar crime.

The concept of white-collar crime was first conceived by Edward Alsworth Ross (1907), and approximately 30 years later white-collar crime was born in the ideas of Edwin H. Sutherland (1939–40). Sutherland, in coining the term, defined white-collar crime as “… a crime committed by a person of respectability and high social status in the course of his occupation.” For Sutherland, the white-collar category included “business managers and executives,” although, in research, he included corporations as offenders as well. He believed that a white-collar offense was a crime if it proved to be socially injurious and punishable.

Therefore, an act of white-collar crime could be dealt with in a criminal, civil, or administrative manner. Paul Tappan (1947), a lawyer and sociologist, disagreed with Sutherland's argument. Tappan believed that a behavior could only be considered a white-collar crime if the act was legally defined as a crime and if the offender had been convicted for the offense. That is, he rejected Sutherland's belief that a white-collar crime could be a violation of civil or administrative law without being condemned by criminal law. Frank Hartung (1950) argued that while legal definitions were important in the general scheme of things, white-collar crimes represented a special case. Whereas, in most instances, it is possible to distinguish between criminal and civil violations, in the case of white-collar crime the artificial distinction between civil and criminal laws was blurred and lacked importance. In response to Hartung's statement, Ernest Burgess (1950) rejected a totally legal definition of crime, arguing for a labeling-perspective definition that required that persons could only be criminals if they perceived of themselves as such. From the white-collar offender's perspective, Gilbert Geis's (1967) findings would support Burgess's definition of crime. Geis found that white-collar criminals often do not perceive their acts as crime, and therefore do not perceive of themselves as criminals.

Marshall Clinard and Richard Quinney (1973) replaced the term white-collar crime with two other classification categories, Corporate Crime and Occupational Crime. Corporate Crime referred to the criminal behaviors of corporate entities, while Occupational Crime referred to the criminal behaviors of persons within their occupational status.

Laura Schrager and James Short (1978) proposed the term organizational crime. They considered such crime in the context of the operative goals of the organization, the actual unstated goals of the organization, which often differ from its official goals. Clinard and Peter Yeager (1980) defined corporate crime as “… any act committed by corporations that is punishable by the state, regardless of whether it is punished under administrative, civil, or criminal law.”

Albert Biderman and Albert Reiss (1980) withdrew the idea of status from the definition of white-collar crime. They argued that individuals, other than those of an upper-class, were capable of committing crimes in their occupational roles. As a result, they emphasized the importance of defining white-collar crime as a violation of a position of trust. For example, if a waitress inflates a customer's bill, the customer is likely to pay both the inflated amount as well as a larger tip without realizing that she has been victimized. The waitress, for her part, not only profits personally, but also violates the trust placed in her by her employer.

James Coleman (1989) suggested that many of the attempts to redefine white-collar crime in other terms have undermined Sutherland's 1949 position since they “do not include many of the offenses covered in Sutherland's original definition,” and/or “are best seen as varieties of white-collar crime.” Clinard (1990) suggested replacing white-collar crime with the terms corporate corruption and abuse of corporate power. These terms included both corporate and occupational crimes, regardless of whether they violate criminal, civil, or administrative laws. In addition, Clinard included behaviors that may not be explicitly defined as violations of law, but that may be unethical and/or immoral in the corporate or occupational context. For example, a scientist who cheats on her research by altering the findings of a study may not have violated a law or regulation, but instead has violated an ethical rule or norm of the scientific community. Under Clinard's hypothesis, that person may have committed a white-collar offense, since she engaged in an unethical and/or immoral behavior in her occupational context.

For the purposes of this encyclopedia, white-collar crime can be defined as:

Any behavior that occurs in a corporate and/or individual occupational context; and, that is committed for personal and/or corporate gain; and/or, violates the trust associated with that individual's and/or corporation's position and/or status; and that is a violation of any criminal law, civil law, administrative law, rule, ruling, norm, or regulation condemning the behavior.

This definition is necessarily both sociological and legalistic in nature, and therefore includes any behavior that may be socially defined as unethical or immoral, as well as behavior that is not legally defined as an offense. In addition, the definition does not include Sutherland's requisite that the violation be “committed by a person of respectability and high social status.” This description was not included because white-collar crimes can be committed by persons who do not necessarily hold “high social status.”

Bank tellers do not usually enjoy high social status in our society however, they are in a position of trust where they can engage in white-collar crime. Furthermore, John Hagan and Patricia Parker (1985) have suggested that those persons convicted for white-collar offenses are more likely to be in middle-management than in the high prestige and social status group of the top managers in criminal corporations. Finally, punishability for an act is not an important issue. However, it may be assumed that if an act is a violation of some law, then it must be punishable as well. This broad definition of white-collar crime may bother some scholars in the field. However, given the diversity of the behaviors that have come to be described as white-collar and corporate crime, it is difficult to create a succinct definition without necessarily excluding some of the tangential behaviors.

History of White-Collar Crime

Laws against those actions that have come to be defined as white-collar crimes have existed since ancient times. Usually, such laws were developed in reaction to events in which there was a perception that something had occurred that challenged the moral sensibilities of the society. Geis, in his article in this encyclopedia on ancient mercantile crime, discusses the creation of laws to protect consumers and to guarantee an adequate food supply for the people. While hoarding grain in order to reduce supply and provide large profits might make sense to a lot of people, hoarding could also lead to pubic unrest and the overthrow of governments that chose to do nothing to guarantee a reasonably priced supply of staple foods.

George Robb (1993) described the cyclical development and repeal of white-collar crime laws in response to specific acts of fraud and immorality in business that brought fortunes to some and ruin to many. Many of these laws were developed to deal with “stock touting,” a practice that has existed as long as there have been stock markets, and that continues to occur to this day. Stock touting involves creating companies, and issuing stock in those companies based on false and/or misleading assets, information, or promise.

For example, Robb wrote about persons who created companies to build railroads in far parts of Great Britain, claiming that they possessed government guarantees that when the railroad was built, stockholders would be instantly wealthy. The stock sold quickly to speculators interested in making money, and the touters quickly disappeared, money in hand, with no railroad ever built. Such frauds aimed at unsuspecting speculators can be found in modern days as well. For example, the high-technology “bubble” of the 1990s resulted in the sale of stock in companies with much promise, but little if any underlying market value. When the bubble burst, stockholders were left holding shares in companies that lacked any tangible assets. Compounding the problem, many stockholders had borrowed money using their stockholdings as collateral, leaving those unable to repay their debts bankrupt and their lenders taking losses as well. Robb noted that touting laws were enacted in reaction to such losses, and would be repeatedly repealed once the British Parliament decided that there was no longer a risk of such behaviors. Unfortunately, as soon as the laws were repealed, stock touts reappeared, new laws were created in response to their behaviors, and the cycle would continue over and over.

The Interstate Commerce Commission (ICC) Act of 1887 was enacted in the United States in response to the behaviors of the robber barons in the railroad industry. The robber barons, who included so-called reputable business leaders and politicians such as Leland Stanford, Sr., and Jay Gould, built railroads connecting the East and West Coasts of the United States, often without investing a cent of their own, and used their transportation monopoly to their own benefit. Before the passage of the ICC act, the railroad owners were free to set their own prices for transporting goods, often raising prices to the point that western farmers and ranchers could not make a profit on their goods. The ICC act created a commission that was meant to regulate the cost of interstate transportation of goods to guarantee that railroads would receive a fair income for their services, while farmers and ranchers would still be able to profit from their labors and goods.

The Sherman Antitrust Act of 1890 was enacted as a response to the growth of monopolies that threatened to destroy competition in the marketplace. A monopoly occurs when a producer controls an entire market for a product to the exclusion of others who would produce the product for a lesser cost. A monopoly allows the controlling producer to set any price for a product. A monopoly producer can set that price as high as she wants, with no fear of losing business due to competition from other producers. The Sherman Act was officially enacted because companies in various industry groups were attempting to eliminate their competition in the marketplace, thus hurting the economy.

It is noteworthy, however, that for the first decade of its existence, the Sherman Act was used almost exclusively as a tool to harass and criminalize the labor unions in their attempts to organize employees of those corporations which the act was enacted to regulate. Other acts, such as the Clayton Antitrust Act of 1914, the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, the Cellar-Kefauver Act of 1950, and the Hart-Scott-Rodino Act of 1976, furthered attempts to shape and regulate unethical behaviors of business.

The Pure Food, Drug, and Cosmetic Act of 1906 served to rein-in industries that produced products that might endanger the welfare of Americans. Prior to this act, there were no enforceable regulation over food production in the United States. Authors, such as Upton Sinclair, in his novel The Jungle, exposed the abuses in the meatpacking industry. Also, prior to the passage of the act, potions sold as drugs and cosmetics often had little or no positive effect; more likely having a significant negative effect on the health safety of consumers. The Sarbanes-Oxley Act of 2002 is a more recent attempt to respond to corporate criminal wrongdoing, requiring greater disclosure and accountability for corporate boards-of-trustees for the unethical and illegal behaviors of their executives and corporations.

The academic study of white-collar crime did not begin until Sutherland used the term white-collar crime in his presidential address before the American Sociological Society in 1939. In his 1949 book, White-Collar Crime, Sutherland presented the results of a study of white-collar crime offenses. During the next decade, a very limited amount of research on white-collar crime existed, primarily involving the definitional issues discussed previously. It was not until the publication of studies of the descriptions of behaviors defined as white-collar or corporate crimes, or Modus Operandi Studies as John Braithwaite (1985) has called them, that academic researchers renewed their interest in the topic.

These included studies such as Geis's research on the heavy electrical equipment scandal of the late 1950s and early 1960s; Quinney's (1963) study of prescription violations among pharmacists, and Diane Vaughan's (1983) investigation of the Revco prescription fraud scandal. These and similar research probes have given us a basic description of diverse white-collar and corporate crimes.

The Encyclopedia

This reference, the Encyclopedia of White-Collar & Corporate Crime, is edited to incorporate information about a variety of white-collar crimes, and provides examples of persons, statutes, companies, and convictions. It is acknowledged that it does not, and cannot encompass all behaviors that may be defined as white-collar crimes. The articles have been written primarily for the college library, public library, and high-school library readers. Post-graduate academics and law firms may find the reference useful to add to their libraries. As such, the articles focus on the introductory knowledge that students can utilize.

The authors of the articles come from a variety of social science disciplines, although nearly all are current or retired academicians. The articles on laws describe the specific elements of the laws in terms of what types of illegal acts they are meant to apply to. Articles dealing individuals give a brief biographical sketch of the individual, but primarily focus on how they relate to the study of white-collar crime. Criminal events include descriptions of specific cases of white-collar crime, some very current, and others that were studied in the past. Both are relevant to our knowledge of white-collar crime. Some of the articles also deal with white-collar crime in countries other than the United States, to provide perspective that white-collar and corporate crime is hardly an American phenomenon.

As the definitions of white-collar and corporate crime remain somewhat fluid, we have included in this work other articles dealing with organized crime and prostitution, for example, which we acknowledge are not conventionally defined as whitecollar crimes. However, elements of organized crime, prostitution, drug-trafficking, human-trafficking (for example) are addressed in this encyclopedia as these are criminal activities intertwined with white-collar crimes such as money-laundering, bribery, and government corruption.

, GENERAL EDITOR, JUNE 2004

## Timeline

1473

One of the first pieces of legislation relating to the crime known today as embezzlement is enacted in England based on a crime known as the Carrier's Case, which involved the theft of bales of wool by an agent while transporting them to the coast.

1863

Congress enacts the False Claims Act; it is designed to deter fraud against the federal government by authorizing private citizens to file charges against any party attempting to collect payment from the government through fraudulent claims.

1880

The term boycott is originated, named after Charles Cunningham Boycott, whose ruthless evictions of tenants in Ireland provoked his employees so much they refused to have any dealings with him.

1881

Looking to supplement a federal trademark law passed in 1870, Congress passes the Trade-Mark Act, which allows trademark holders to sue for infringement of their trademarked product.

1886

A United States Supreme Court ruling in Santa Barbara v. California declares that a corporation is a natural person, that is, a corporation is guaranteed the same civil liberties that a person has bestowed upon him or her.

1890

The Sherman Antitrust Act provides a working definition of corporate crime, stating, “every contract, combination in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by a fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.”

1906

The federal government files a lawsuit against Standard Oil and John D. Rockefeller, claiming violation of the Sherman Antitrust Act. The case is debated all the way to Supreme Court, and in 1911 Standard Oil is divided into 34 smaller companies.

1906

President Theodore Roosevelt coins the term muckrakers, referring to a group of journalists who were among the first to expose corruption in American big business. He said of them, “[they have] provided American journalism with what many regard as one of its finest hours.”

1906

In response to Upton Sinclair's concerns about the safety of America's meat supply documented in The Jungle, coupled with issues pertaining to the quality of drugs being manufactured and the highly exaggerated claims proffered by the producers of health tonics, salves, and potions, Congress enacts The Pure Food and Drug Act. The act specifies that any meat products sold in interstate commerce had to be inspected by federal regulators.

1907

Edward Alsworth Ross introduces the concept of economic or financial crimes without giving evidence of the immensity of the offenses that exist at the time.

1898–1914

In the first five years following the enactment of the Sherman Antitrust Act, the U.S. Department of Justice only files nine cases relating to antitrust laws, and only 16 in the first 12 years.

Of the first 10 antitrust cases, the majority are filed against organized labor and labor organizer Samuel Gompers alleging restraint of trade by organizing strikes and boycotts. This was not the legislative intent of lawmakers stated in the Sherman Antitrust Act.

1914

The Federal Trade Commission Act is enacted. The act states that false advertising, which includes advertising facts that the advertiser has no reasonable basis to believe, regardless of future events that may prove the facts true, is an unfair and deceptive form of commerce.

1914

Due to the vague language in antitrust legislation, the U.S. Congress passes the Clayton Antitrust Act, supplementing and strengthening the Sherman Antitrust Act of 1890.

1920

The U.S. Congress passes the Truth in Fabric Act, designed to accurately display the type of fur or cloth the consumer is buying.

1924

Portuguese-born Arturo Alvez Reis uses forged government documents in order to deceive the British bank-note printer, Waterlow, into assuming that Alvez was executing an official government order. Alvez makes off with a high sum of Portuguese bank notes before the British authorities discover his intentions later that year.

1927

The U.S. Supreme Court upholds the previous ruling on the Teapot Dome Scandal, which declared the federal government's leases on the Teapot Dome and Elk Hills oil reserves as “illegal and fraudulent.” Warren G. Harding, who was implicated in the scandal, is considered by many political historians to have been the worst president in U.S. history.

1931

Notorious gangster Al Capone, whose crimes extend far beyond the one he was imprisoned for, is convicted of income tax evasion, as the mafia boss kept no record of his finances.

1938

The U.S. Congress passes The Food, Drug, and Cosmetic Act, regulating cosmetics and therapeutic devices.

1939

Edwin Sutherland presents his presidential address to the American Sociological Society (ASS) meeting in Philadelphia, Pennsylvania. In the address, Sutherland, for the first time, describes white-collar crime, a term he has coined to describe the criminal activities of the upper-class and corporations.

1946

The Lanham Act, which lays the groundwork for all future trademark legislation, defines a trademark as “any word, name, symbol, device, or any combination thereof adopted by a manufacturer or merchants to identify goods and distinguish them from those manufactured or sold by others.”

1947

The first environmental law in the 20th century is passed. The Federal Insecticide, Fungicide and Rodenticide Act requires companies to register pesticides used in interstate commerce.

1949

Edwin Sutherland publishes the first edition of White-Collar Crime. In that book, he details the criminal behaviors of the 70 largest U.S. corporations at the time. He does not mention the names of the corporations out of apparent fear of reprisal. The 1983 third edition of the book, published 33 years after Sutherland's death, gives the names of the corporations studied for the first edition. He also theorizes that white-collar crime can be explained best by his theory of differential association, which assumes that all behaviors are learned behaviors.

1950

The Celler-Kefauver Act is passed, strengthening previous antitrust legislation by amending sections and adding provisions to the Clayton Antitrust Act of 1914.

1949–56

Telephone company AT&T is accused of antitrust laws by the Federal Communications Commission (FCC); the FCC's intention being the removal of AT&T subsidiaries Western Electric and Bell Laboratories from the company's system. AT&T agrees to a consent decree, allowing the company to keep control of the two subsidiaries but forbidding it to expand into other areas of communication.

1956

Congress passes the Federal Water Pollution Control Act. The act creates the Federal Water Pollution Control Administration, which approves and regulates new water quality standards.

1956

Facing mounting lawsuits by thousands of women claiming their children had been born with birth defects, pharmaceutical manufacturer Merrell Dow discontinues the production of Bendectin, a prescription drug that is used to alleviate morning sickness and nausea in pregnant women.

1959

The U.S. Senate begins committee hearings into allegations that the largest electrical equipment makers in the United States were conspiring to fix prices. Among the manufacturers were major providers General Electric, Westinghouse, Allis Chalmers, and Federal Pacific Electric. 1960

Congress investigates the meatpacking industry; reports conclude that about 15 percent of all commercially slaughtered animals and about 25 percent of all commercially prepared meat products were not examined by USDA investigators because the meat was only distributed within the slaughtering and packing plant's state.

1960

The International Brotherhood of Teamsters Pension Fund managers loan money from the fund to organized criminals, usually through straw men, for casinos, hotels, and resorts. The recipients of the fund “proceeds” included such noteworthy establishments as Rancho La Costa, Circus Circus, Caesar's Palace, the Dunes, and the Sands.

1957–61

Multinational conglomerate General Electric, Westinghouse, and other manufacturers of heavy electrical equipment are convicted of price-fixing and other charges for electrical equipment valued at $1.74 billion per year. It is the largest price-fixing case in the history of the Sherman Antitrust Act at that time. This is the first time that individual whitecollar criminals are jailed for their offenses. GE's fine is equivalent to a person earning$175,000 per year having to pay a $3 parking ticket. 1962 United States Steel Corporation is accused of violations of the Sherman Antitrust Act, issuing building loans that stipulate the builder/borrower must use materials purchased from the steel corporation at artificially high prices. The case is tried in the Supreme Court three times before a February 1977 ruling stated that the corporation did not violate antitrust laws. 1962 The U.S. Congress passes the Kefauver Harris Drug Amendments, requiring that drug companies show evidence their products were safe to a relative degree. 1965 The United States Congress passes the Federal Cigarette Labeling and Advertising Act, requiring the surgeon general's health warnings on all cigarette packages. 1966 The U.S. Congress passes the National Traffic and Motor Vehicle Safety Act in mandating the incorporation of safety devices that were designed to prevent as many fatalities as possible in automobile accidents. During the next six years, automobile accidents decline at an average rate of 3.5 percent annually. The act also established the National Highway Traffic Safety Administration under the Department of Transportation to oversee safety and consumer programs, including motor vehicle crash testing and automotive recalls. 1968 The U.S. Congress passes the Truth in Lending Act, designed to promote economic stability by protecting the credit rights of consumers. No longer, the act says, will consumers be subject to fine print and misleading credit applications. 1970 Ford Motor Corporation unveils its new automobile, the Pinto, despite tests revealing that rear-end collisions sometimes caused fuel-line ruptures, setting the vehicle aflame. 1970 In response to rising concerns about worker and workplace safety, the U.S. Congress passes the Occupational Safety and Health Act. Enacted under the federal government's Constitutional right to regulate interstate commerce, the legislation aimed to guarantee that workers across the country have a workplace that is free from unreasonable dangers. 1970 In response to growing concern for the environment, the Clean Air Act (CAA), first passed in 1970 and amended substantially in 1990, introduced a set of guidelines requiring states to regulate sources of air pollution to specific air quality requirements, and to have regulatory programs in order to attain improved levels of air quality. 1971 The U.S. Congress bans all broadcast advertising related to cigarettes. 1972 The Consumer Product Safety Act is enacted as a response to perceptions that product liability laws did not sufficiently protect consumers from unsafe products. To implement the act, the Consumer Product Safety Commission was created. The Commission was responsible for administering additional consumer protection laws, including the Federal Hazardous Substances Act and the Flammable Fabrics Act. 1976 Amending the Clayton Act of 1914, Congress passes the Hart-Scott-Rodino Antitrust Improvements Act, requiring that certain proposed mergers of assets be approved beforehand by the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice. 1976 The Toxic Substances Control Act is signed into law by the U.S. Congress and directs the administrator of the Environmental Protection Agency (EPA) to establish testing procedures for toxic chemicals, publicize results of chemicals that prove to be dangerous, and to set guidelines for controlling toxic chemicals. 1977–79 The Federal Bureau of Investigation conducts a sting operation in which agents pretend to be wealthy Arab sheiks seeking investment opportunities in the United States. Seven legislators, including a Senator and six Congressional representatives are videotaped accepting bribes from these agents in return for political favors. The scandal comes to be known as ABSCAM, after the bogus Abdul Enterprise company. 1980 Marshall Clinard's book, Corporate Crime, reveals that between 1975 and 1976 the country's 582 largest corporations had violated the law a total of 1,553 times. 1980 The Equal Employment Opportunity Commission issues a set of guidelines detailing prohibited sexual behavior that applies to all federal agencies and to private businesses with 15 or more employees 1981 Three General Electric executives are imprisoned over a payment of$1.25 million to a Puerto Rican official to obtain contracts to a federally owned electrical plant.

1984

Ten thousand workers and townspeople are killed after one of Union Carbide's India-based plant releases liquid methyl isocyanate, a harmful gaseous chemical, after allowing a number of their products to rust and decay.

1984

A Louisiana hospital requires that all surgical patients use the services of one of four anesthesiologists. A competing anesthesiologist charged that this violated the Sherman Antitrust Act. The U.S. Supreme Court's 1984 decision that this case did not represent an illegal tying arrangement was based on the hospital's lack of dominant position; it only housed 30 percent of area hospitalized patients.

1976–85

A report by the U.S. General Accounting Office reveals that 51.5 percent of all drugs introduced had to be relabeled because of serious adverse reactions found after the marketing of these drugs.

1980–86

Teledyne Hydra-Power, a unit of Teledyne Industries, defrauds the U.S. Navy of $4.5 million on a helicopter contract by inflating the price of parts and hours worked. 1988 The Major Fraud Act is signed into law by President Ronald Reagan, significantly increasing the maximum penalties that could be assessed for certain economic frauds committed against the U.S. government. 1988 Congress updates the Lanham Act with the Trademark Law Revision Act, changing the period of trademark protection from 20 years to 10 years, with infinite renewals. The act also stipulates that after five years, the trademark holder is required to file an affidavit showing that the trademark will continue to be used. 1989 The U.S. government brings criminal charges against Charles Keating for fraud, racketeering and conspiracy, and the government takes control of Lincoln Savings and Loan. 1989 The U.S. Public Interest Research Group reports that oil company Chevron's operations in the Gulf of Mexico have a less-than-admirable safety record. The research firm reported that between 1956 and 1989, offshore rigs operated by Chevron had experienced 10 gas blowouts, 65 fires and explosions, 40 pollution incidents, and 5 pipeline breaks or leaks. 1989 A study by research firm Essential Information reports that between 1984 and 1989, Chevron had spilled a total of 2.8 million gallons of oil, making it the world's largest and most consistent spiller of oil. 1989 Talk show televangelist Jim Bakker is convicted of fraudulently raising more than$158 million. A 28-page indictment included 8 counts of mail fraud, 15 counts of wire fraud use of telephone and television, and 1 count of conspiracy to commit wire and mail fraud.

1989

U.S. multinational corporation Union Carbide settles out of court for $480 million with the families of victims involved in a 1984 chemical spill. 1990 The U.S. Congress passes the Nutrition Labeling and Education Act of 1990, requiring all packaged foods to carry labels with nutrition information. 1990 Problems, including bribery and mispricing, involving General Electric become so pervasive that the Pentagon's Defense Contract Management Agency takes the unique step of setting up a special investigations office just for the company. The office secures 22 criminal indictments against the company, its subcontractors and employees, and recovers$221.7 million.

1980–90

Legislation is enacted to curb redlining, a process in which real estate agents and insurance companies exclude certain socioeconomic groups and/or races from certain neighborhoods. Such acts include the Home Ownership Protection Act, the Community Reinvestment Act, and the Home Mortgage Disclosure Act.

1991

Twenty-five employees are killed in a fire in an Imperial Food Products Incorporated chicken processing plant. The employees were unable to escape the flames due to the exit doors being locked due to management fear of employee theft.

1991

Investment company Solomon Smith Barney's telecom research analyst Jack Grubman falsifies company reports to make certain companies appear healthier than they actually were, causing a number of investors to lose substantial amounts of money.

1992

A lagged time-series analysis of price-fixing offenses between 1890 and 1988 finds no significant relationship between price-fixing enforcement and political and economic variables. The study is the only longterm longitudinal study of price-fixing.

1997

Camel Cigarette Corporation drops its famous Joe Camel advertising campaign amid mounting lawsuits that claimed the cigarette-smoking cartoon character featured on posters was marketed toward children, a demographic that could not legally purchase the product.

1990–2000

The Financial Action Task Force (FATF) calculates that approximately $500 billion is processed in money laundering operations around the world each year. 2000 Owens Corning, which sells industrial pipe insulation, is driven to bankruptcy by the settlement of over 243,000 asbestos-related claims. 2001 An Italian court acquits former chemical company managers of charges that stemmed from a 10-year period in which 150 workers died from exposure to a harmful chemical. The managers were acquitted because the company was not aware of the harmful effects of the chemical until after the workers were contaminated. 1990–2002 General Electric is involved in 63 court cases brought against it by the federal government. The sum of the settlements reaches$982 million.

2002

The Securities and Exchange Commission files a lawsuit against former executives of Waste Management, Inc., accusing them of inflating earnings by almost $2 million. 2002 John J. Rigas of Adelphia Communications, a cable company based in a small rural town, is accused by the federal government of concealing$2.3 billion in debt, and is convicted in July 2004 of conspiracy, bank fraud, and securities fraud.

2002

In response to the growing amount of stock fraud cases, Congress passes the Sarbanes-Oxley Act, creating a series of oversight measures, and expanded and increased the sanctions for illicit white-collar actions.

1980–2003

Millions of Americans are affected by advanced fee fraud associated with African-based criminal groups. Advanced fee fraud involves a promise of a large amount of money given to the participant if the participant details personal banking information to the foreign-based entity.

2004

Ken Lay, former chairman and CEO of Enron, is charged with 11 felonies, including bank fraud, wire fraud, and securities fraud in a criminal indictment.

2004

Media tycoon Martha Stewart is convicted of lying to cover up possible insider trading. Critics accuse prosecutors of zealously showcasing the Stewart case as an example of how rich and famous whitecollar criminals are now being pursued and prosecuted by the U.S. government.

## List of Contributors

Aka, Arsene

Catholic University of America

Barnhill, John H.

Independent Scholar

Brightman, Hank L.

Saint Peter's College

Brumagen, Regan

Georgia College & State

University

Campagna, Daniel S.

Mount Mary College

Carroll, Carole Mekeig

Middle Tennessee State University

Cheng, Hongming

St. Thomas University, Zhejiang Wanli University

Coelho, Alfredo Manuel

University of Montpellier, France

Cottino, Amedeo

University of Torino, Italy

Creibaum, Linda M.

Arkansas State University

Crisel, Cynthia

Arkansas State University

Cruz, Laura

Western Carolina University

Cundiff, Kirby R.

Hillsdale College

Davis, Jason

University of South Florida

Samuel De Luca

University of North Florida

Desnoyers, Ronald C., Jr.

Roger Williams University

Dodge, Mary

Fanning, James

University of North Florida

Feller, Wende Vyborney

St. Mary's College of California

Geis, Gilbert

University of California, Irvine

Golson, Kevin G.

Golson Books, Ltd.

Green, Gary S.

Christopher Newport

University

Griffin, Sean Patrick

Penn State University, Abington

Gunkel, S.

Doane College

Haigh, Jane G.

University of Arizona

Hemmerle, Oliver Benjamin

Mannheim University, Germany

Holst, Arthur

Widener University

Holtfreter, Kristy

Florida State University

Katz, Rebecca

Keane, Marguerite

University of California, San Diego

Langton, Lynn

University of Florida

MacKenzie, D. W.

Ramapo College

Martin, S.

Cornell University

Matheson, Victor

Williams College

McBride, David W.

University of Nottingham, England

McGregor, Michael

George Mason University

Moore, Robert

Delta State University

Muzzatti, Stephen

University of Northern Iowa

Neumann, Caryn E.

Ohio State University

O'Hayon, Gregory

Independent Scholar

O'Sullivan, Robin K.

University of Southern Maine

Palmer, Scott

RGS Economics

Payne, Brian K.

Old Dominion University

Piquero, Nicole Leeper

University of Florida

Pontell, Henry N.

University of California, Irvine

Prono, Luca

University of Nottingham, England

Purdy, Elizabeth

Independent Scholar

Purdy, Sean

Reasons, Charles E.

Central Washington University

Richardson, Annette

Robinson, Matthew

Appalachian State University

Roodhouse, Mark

York University, England

Ross, Debra E.

Grand Valley State University

Roule, Trifin

Journal of Money Laundering Control

Rouse, Kristen L.

Tallahassee Community College

Schoepfer, Andrea

University of Florida

Schneider, Stephen

Shicor, David

California State University

Siegfried, Michael

Coker College

Simon, David

University of North Florida

University of California, Berkeley

Steverson, Leonard A.

South Georgia College

Ulmer, Bryan K.

Arkansas State University

Walsh, John

Mahidol University, Thailand

Walsh, Patrick D.

Loyola University

New Orleans

Warnes, Kathy

University of Toledo

Young, Ronald

Georgia Southern University

• ## Appendix A: Resource Guide

Books

A Short History of Financial Euphoria by John Kenneth Galbraith (Penguin Books, 1993)

American Reform and Reformers by Martha May (Greenwood, 1996)

Anatomy of a Fraud: Inside the Finances of the PTL Ministries by Gary Tidwell (Wiley, 1993)

Antitrust Experiment in America by Donald Dewey (Columbia University Press, 1990)

Antitrust Revolution by John E. Kwoka, Jr. and Lawrence J. White (Oxford University Press, 1999)

Art Crime by John Conklin (Praeger, 1994)

At Any Cost: Corporate Greed, Women, and the Dalkon Shield by Morton Mintz (Pantheon Books, 1985)

Bribes by John T. Noonan, Jr. (Macmillan, 1984)

Class Action: The Story of Louise Jenson and the Landmark Case That Changed Sexual Harassment Law by Clara Bingham and Laura Leedy Gansler (Doubleday, 2002)

Combating Corporate Crime: Local Prosecutors at Work by Michael L. Benson and Francis T. Cullen (Northeastern University, 1998)

Constitution and Campaign Finance Reform: An Anthology edited by Frederick G. Slabach (Carolina Academic Press, 1998).

Contemporary Issues in Crime and Criminal Justice: Essays in Honor of Gilbert Geis edited by Henry Pontell and David Schicor (Prentice Hall, 2001)

Controlling Unlawful Organizational Behavior: Social Structure and Corporate Misconduct by Diane Vaughn (University of Chicago Press, 1983)

Corporate Board: Confronting the Paradoxes by Ada Demb and F.-Friedrich Neubauer (Oxford University Press, 1992)

Corporate Corruption: The Abuse of Power by Marshall B. Clinard (Praeger, 1990)

Corporate Crime and Violence: Big Business Power and the Abuse of the Public Trust by Russell Mokhiber (Sierra Club Books, 1988)

Corporate Crime by Marshall B. Clinard and Peter Cleary Yeager, with collaboration of Ruth Blackburn Clinard (Free Press, 1980)

Corporate Crime Corporate Violence A Primer by Nancy K. Frank and Michael J. Lynch (Harrow and Heston Publishers, 1992)

Corporate Crime Under Attack: The Ford Pinto Case and Beyond by Francis T. Cullen, William J. Maakestad, and Gray Cavender (Anderson, 1987)

Corporate Crime, Law, and Social Control by Sally S. Simpson (Cambridge University Press, 2002)

Corporate Violence: Injury and Death for Profit by Stuart Hills (Bowman and Littlefield, 1988)

Crimes of Privilege: Readings in White-Collar Crime by Neal Shover and John Paul Wright (Oxford University Press, 2001)

Crimes of the Middle Classes: White-Collar Offenders in the Federal Courts by David Weisburd, Stanton Wheeler, Elin Waring, and Nancy Bode (Yale University Press, 1991)

Criminal Behavior Systems: A Typology by Marshall B. Clinard and Richard Quinney (Holt, Rinehart, and Winston, 1967)

Criminal Elite: The Sociology of White-Collar Crime by James W. Coleman (St. Martin's Press, 1998)

Criminal Organization: Its Elementary Forms by Donal R. Cressey (Harper and Row, 1972)

Criminological Theory: Context and Consequences by J. Robert Lilly, Francis T. Cullen, and Richard A. Ball (Sage Publications, 2002)

Criminology of Edwin Sutherland by Mark Gaylord and John Galliher (Transaction Books, 1988)

Dangerous Ground: The World of Hazardous Waste Crime by Donald J. Rebovich (Transaction Press, 1992)

Department of Justice, The by Luther A. Huston (Praeger, 1967)

Dying for Growth: Global Inequality and the Health of the Poor by Jim Yong Kim, Joyce Millen, Alec V. Irwin, and John Gershman (Common Courage Press, 2000)

Elite Deviance by David R. Simon (Allyn and Bacon, 1999)

Environmental Crime: Enforcement, Policy and Social Responsibility by Mary Clifford (Aspen Publications, 1998)

Environmental Crime: The Criminal Justice System's Role in Protecting the Environment by Yingyi Situ and David Emmons (Sage Publications, 2000)

Federal Trade Commission: An Experiment in the Control of Business by C. Thomas (Columbia University Press, 1932)

Fraud Examination by W. Steve Albrecht (Thompson-Southwestern, 2003)

Government Racket 2000: All New Washington Waste from A to Z by Martin L. Gross (Avon, 2001)

Illegal Corporate Behavior by Marshall B. Clinard and Peter Cleary Yeager (Government Printing Office, 1979)

Impact of Public Policy on Corporate Offenders, The by Brent Fisse and John Braithwaite (State University of New York Press, 1983)

In the Wake of the Exxon Valdez by Art Davidson (Sierra Club Books, 1990)

Inequality, Crime, and Public Policy by John Braithwaite (Routledge, 1979)

Informed Consent by John A. Byrne (McGraw-Hill, 1996)

Knapp Commission Report on Police Corruption, The (George Brazilier, 1973)

Law and Insider Trading: In Search of A Level Playing Field by Elizabeth Szockyj (William S. Hein & Co., 1993)

Masters of Deception: The Worldwide White-Collar Crime Crisis and Ways to Protect Yourself by Louis Mizell (Wiley, 1997)

Medical Malpractice: Theory, Evidence, and Public Policy by Patricia M. Danzon (Cambridge University Press, 1985)

Merchants of Death: The American Tobacco Industry by Lawrence White (Beech Tree, 1988)

Occupational Fraud and Abuse by Joseph T. Wells (Obsidian Publishing, 1997)

On White-Collar Crime by Gilbert Geis (D.C. Heath, 1982)

Organization of Corporate Crime: Dynamics of Antitrust Violation by Katherine M. Jamieson (Sage Publications, 1994)

Organized Crime by Gary W. Potter and Michael D. Lyman (Prentice Hall, 2002)

Organized Crime: A Compilation of U.N. Documents 1975–1998 by M. Cherif Bassiouni and Eduardo Vetere (Transnational Publishers, 1998)

Organizing the Breathless: Cotton Dust, Southern Politics, & the Brown Lung Association by Robert E. Botsch (University Press of Kentucky, 1993)

Other People's Money by Donald R. Cressey (Free Press, 1953)

Outrageous Misconduct: The Asbestos Industry on Trial by Paul Bradeur (Pantheon Books, 1985)

Prescription for Profit: How Doctors Defraud Medicaid by Paul Jesilow, Henry Pontell, and Gilbert Geis (University of California Press, 1993)

Profit Without Honor: White Collar Crime & the Looting of America by Stephen M. Rosoff, Robert Tillman, and Henry Pontell (Prentice Hall, 2001)

Regulating Fraud: White-Collar Crime and the Criminal Process by M. Levi (Tavistock, 1987)

Restorative Justice and Responsive Regulation by John Braithwaite (Oxford University Press, 2002)

Road to Love Canal: Managing Industrial Waste before EPA by Craig E. Colten and Peter Skinner (University of Texas Press, 1996)

Silent Spring by Rachel Carson (Houghton Mifflin, 1962)

Sin and Society: An Analysis of Latter-Day Inequity by E.A. Ross (Houghton Mifflin, 1965)

Sitting in Judgment: The Sentencing of White-Collar Criminals by Stanton Wheeler, Kenneth Mann, and Austin Sarat (Yale University Press, 1988)

Stealing Dreams: A Fertility Clinic Scandal by Gilbert Geis (Northeastern University Press, 2004)

Swindled! Classic Business Frauds of the Seventies by Donald Moffitt (Dow Jones Books, 1976)

The Jungle by Upton Sinclair (Bantam Classics, reprint 1981)

Theft of the Nation: The Structure and Operations of Organized Crime in America by Donald R. Cressey (Harper and Row, 1969)

To Punish or Persuade: Enforcement of Coal Mine Safety by John Braithwaite (State University of New York Press, 1985)

Tony Soprano's America: The Criminal Side of the American Dream by David R. Simon (Westview, 2002)

Trusted Criminals: White Collar Crime in Contemporary Society by David O. Friedrichs (Wadsworth Publishing Company, 2004)

Understanding Corporate Criminality edited by Michael Blankenship (Garland, 1993)

Unsafe at Any Speed: The Designed-In Dangers of the American Automobile by Ralph Nader (Grossman, 1972)

Utilization-Focused Evaluation: The New Century Text by Michael Quinn Patton (Sage Publications, 1997)

Wall Street Words: An Essential A to Z Guide for Today's Investor by David L. Scott (Houghton Mifflin, 1997)

Warhogs: A History of War Profits in America by Stuart D. Brandes (University Press of Kentucky, 1997)

Wealth by Stealth: Corporate Crime, Corporate Law and the Perversion of Democracy by Harry Glasbeck (Between the Lines, 2002)

Whistleblowers: Exposing Corruption in Government and Industry by Myron Peretz Glazer and Penina Migdal Glazer (Basic Books, 1989)

Whistleblowing: Loyalty and Dissent in the Corporation by A. F. Westin (McGraw-Hill, 1981)

White Collar Crime Reconsidered edited by K. Schlegel and D. Weisburd (Northeastern University Press, 1992)

White Collar Crime: Cases and Materials by Pamela H. Bucy (West Publishing, 1992)

White-Collar Crime and Criminal Careers by David Weisburd, Elin Waring, and Ellen Chayet (Cambridge University Press, 2001)

White-Collar Crime by Edwin H. Sutherland (Holt, Rinehart, and Winston, 1949)

White-Collar Crime in a Nutshell by Ellen S. Podgor and Jerold H. Israel (West Publishing, 1997)

White-Collar Crime in America by Jay Albanese (Prentice Hall, 1994)

White-Collar Crime: Classic and Contemporary Views edited by Gilbert Geis, Robert F. Meier, and Lawrence M. Salinger (Free Press, 1995)

White-Collar Crime: The Uncut Version by Edwin H. Sutherland (Yale University Press, 1983)

White-Collar Deviance by David R. Simon and Frank E. Hagan (Allyn & Bacon, 1998)

Women Who Embezzle or Defraud: A Study of Convicted Felons by Dorothy Zeitz (Praeger, 1981)

Journals

Advances in Criminological Theory (Rutgers University Press)

American Criminal Law Review (Georgetown University Press)

American Journal of Criminal Law (University of Texas Press)

American Journal of Sociology (University of Chicago Press)

American Sociological Review (American Sociological Association)

Corporate Counsel's Guide to White-Collar Crime (Business Laws, Inc.)

Criminal Justice (Sage Publications)

Criminology (American Society of Criminology)

Environmental Law Reporter (Environmental Law Institute)

FBI Law Enforcement Bulletin (Federal Bureau of Investigation)

FDA Consumer (Food and Drug Administration)

Harvard Journal of Law and Public Policy (Harvard University)

Journal of Contemporary Criminal Justice (Sage Publications)

Journal of Criminal Law and Criminology (Nothwestern University School of Law)

Journal of Financial Economics (University of Rochester Press)

Justice Quarterly (Academy of Criminal Justice Sciences)

Law and Society Review (Law and Society Association)

Management Review (Massachusetts Institute of Technology Press)

Social Problems (Society for the Study of Social Problems)

The British Journal of Criminology (Oxford University Press)

Theoretical Criminology (Sage Publications)

Western Criminology Review (Western Society of Criminology)

International Journal of Social Economics (Emerald Academic)

International Journal of the Economics of Business (Routledge, Taylor & Francis)

Magazine and Newspapers

American Demographics (Primedia Publishing)

Black Enterprise (Earl G. Graves, Ltd.)

Bloomberg Markets (Bloomberg LP)

Corporate Crime Reporter (American Communications)

Crain's New York Business (Crain Communications)

Euromoney (Euromoney Institutional Investor PLC)

Far Eastern Economic Review (Dow Jones & Compaay, Inc., Hong Kong)

Fast Company (Gruner + Jahr USA Publishing)

Financial Times (The Financial Times, Ltd.)

Forbes (Forbes, Inc.)

Fortune (Time, Inc.)

Harvard Business Review (Harvard University Press)

Inc. (Gruner + Jahr USA Publishing)

Industry Week (Penton Media, Inc.)

International Herald Tribune (The New York Times Company)

Kiplinger's (The Kiplinger Washington Editors)

New York Times (The New York Times Company)

Money (Time Inc., Time Warner)

Smart Money (Dow Jones & Company)

The Economist (The Economist Group, Inc.)

Wall Street Journal (Dow Jones & Company, Inc.)

Washington Post (The Washington Post Company)

White-Collar Crime Fighter (White Collar Crime 101 LLC)

White-Collar Crime Reporter (Andrews Publications)

Worth (Worth Media)

Internet Websites

Almost all journals, magazines, newspapers, and associations have dedicated websites that can be easily located using standard internet search engines. One rule of caution in using internet research tools in white-collar and corporate crime: rely on “branded” media, that is, websites associated with known media and institutions. Some recommended websites include:

http://www.commerce.gov (U.S. Department of Commerce)

http://www.cpsc.gov (Consumer Product Safety Commission)

http://www.epa.gov (U.S. Environmental Protection Agency)

http://www.fda.gov (U.S. Food and Drug Administration)

http://www.hoovers.com (Hoover's Handbook of American Business)

http://www.loc.gov (U.S. Library of Congress)

http://www.nber.org (National Bureau of Economic Research)

http://www.nw3c.org (National White-Collar Crime Center)

http://www.sec.gov (U.S. Securities and Exchange Commission)

http://www.un.org/english (United Nations)

http://www.doj.gov (U.S. Department of Justice)

http://www.treas.gov (U.S. Treasury Department)

http://www.whitehouse.gov/omb/budget/fy2004/ (Budget of the United States)

http://www.whitecollarcrimefyi.com (Lawyershop, Inc.)

## Appendix B: Glossary

Italics refer to cross-referenced Glossary entries.

Abuse: In some cultures, a minor Fraud or infraction.

Accomplice: In fraud, a partner to the fraud scheme. See also Perpetrator and Shill.

Advance Fee Scheme: The Fraudster collects fees in advance without ever intending to fulfill the agreement to provide services or products.

Affidavit: A sworn statement.

Affiliate Bidding: A condition in purchasing when multiple bids are tendered for a contract from a single company under various names to give the appearance of competition.

Agent: A person with an agency relationship (employee or independent contractor).

At will: An employment situation where the employee is not protected from arbitrary firing—the employee works only at the pleasure of management and may be terminated at any time for no reason. Contrast For cause.

Backdate: To post a date on a document earlier than the actual creation date for purposes of deception.

Back Door: In computer fraud, unauthorized entry point or weakness discovered by a Hacker. Similar to Trapdoor, except that back doors are usually preexisting weaknesses.

Bait-and-Switch: In consumer fraud, advertising a low cost item and then steering customers to a higher-priced item when they come to buy, claiming the low priced item was sold out.

Bank Examiner Scheme: The Fraudster poses as a bank examiner who is trying to catch a dishonest teller. The bank examiner needs the victim to withdraw a substantial sum from her account to test the teller. The examiner then asks the victim to hand over the cash for a receipt while he uses the cash as evidence. The fraudulent examiner then disappears with the cash, and the receipt turns out to be worthless.

Bankruptcy Fraud: The Perpetrator files a notice of bankruptcy. He then approaches each of his creditors (who have received a cop of the notice of bankruptcy) and tells each one in turn that they are the special one that he wants to see get paid at least something. The creditor often settles for 10 percent of the amount owed. Once a settlement with one creditor is reached, the perpetrator approaches the next creditor, and so on until all creditors have been settled at a small fraction of the outstanding amounts owed. The perpetrator then withdraws his petition for bankruptcy, have extinguished most of his debt for a small fraction of the original amount.

Bid Rigging: In purchasing, any scheme that gives the appearance of competitive bids but is actually not competitive because the participants establish the winner before submitting bids for the contract. See Affiliate Bidding and Bid Rotation.

Bid Rotation: In purchasing, when bidders for contracts Collude to distribute work among themselves by establishing which among them will win particular bids.

Boiler Room Operation: A fraud scheme that attempts to sell worthless securities (or similar assets) over the telephone through high pressure sales tactics. If the money is sent in or the credit card number given out, there is nothing of value received.

Bribery: To offer money in exchange for favorite treatment or to compel or influence some action. Official (government employee or elected official) bribery involves a promise for acting or withholding some official act. Official bribery (Corruption) is unlawful in most cultures. Commercial Bribery is known as “facilitating payments” in some cultures and is not a crime in most cultures, although it often is against the organization's policies and procedures.

Bucket Shop: A securities fraud scheme that pretends to buy and sell securities for customers, but actually never invests the money it receives. The scheme depends upon stock price manipulation or a continuously rising market to encourage more buyers than sellers. Also associated sometimes with the Pump-and-Dump scheme.

Case Method: In fraud Investigation, a six-step process of gathering evidence in order to identify a Suspect.

Chain of Custody: In evidentiary matters, the record of possession from original discovery until produced at trial. If the chain of custody is broken or unclear, the Evidence may be challenged as not the original or not in its original condition.

Chain Letter Schemes: Letters with names listed and claims that the recipient of the letter, by putting their name on the list, removing the top name and sending them some nominal amount, then mailing the new list to some number of friends and acquaintances, will receive a lot of riches in the mail. There is usually also a “curse” or bad luck associated with individuals who “break the chain.”

Check Kiting: See Kiting.

Code of Ethics: A document adopted by an organization that describes the expectations of the organization of employee and management behavior to all employees, suppliers, customers, the government, and the community.

Coerce: To influence action against someone's will, usually by threat.

Collateral Frauds: Fraudulent representing collateral for loans that 1) does not exist, 2) is not owned by the loan applicant, or 3) is grossly over-valued, or all of these.

Collude: In the context of Fraud, to act together for a fraudulent purpose.

Commercial Bribery: Giving and accepting payments to favor or not favor a commercial transaction or relationship. See also Bribery and Corruption.

Computer Virus: See Virus.

Con: Short form of Confidence Game.

Conceal(ment): The second step in committing a Fraud. To hide from view.

Confidence Game: A fraud scheme where the Perpetrator gains the confidence of the Mark to defraud the Mark in some way. Perfect confidence games are so effective that Marks do not report them to the authorities for fear of looking foolish or because the game involved something unlawful (such as illegal gambling).

Conflict of Interest: An employee owes a duty to the employer to act in the interest of the employer (and no other) when carrying out the duties of an employer. A conflict exists when the employee has some personal kinship, friendship or financial interest in the transaction that may divide the employee's interests and put his duty to his employer in jeopardy.

Conspiracy: Two or more persons come together for the purpose of committing a Fraud.

Conversion: The third step in a Fraud. To exchange for personal gain.

“Cooking the Books”: Altering the official accounts to deceive. See also Journal Entry Fraud.

Cost of Goods Sold changes: Unusual changes in cost of goods sold as a percentage of sales may be an indicator of the theft of revenue or theft of finished goods inventory. See Fictitious Refunds Fraud.

Covert: Hidden or secret, as in Covert Operations.

Covert Operation: A plan or activity to obtain evidence through Operatives or Agents whose true role is undisclosed to the target. Examples of covert operations include Undercover work and Pretense. See also Ruse.

Cyber-crime: Referring to frauds perpetrated on the Internet or through the use of computers.

Cycle Counts: In inventory control, counting various portions of the inventory frequently until it is all counted (vs. counting once a quarter or year).

Defalcation: A word for Fraud, theft, or other dishonest act relating to a position of trust in an organization.

Defamation: The act of knowingly uttering Slander or printing Libel that is untrue but harms another person's character and reputation.

Denial of Access attack: A computer Virus or computer program run to generate many thousands of requests to the central computer, thereby tying up the processor and denying legitimate requests of access.

Deposition: A pre-trial legal proceeding in which a person is questioned under oath by an attorney, usually witnessed and recorded by audio, video, and/or written verbatim notes. The purpose of the deposition is to discover Evidence that may be used later at trial or to induce the person to make statements of fact that can be used at trial.

Directory Advertising Schemes: Fraudulent invoices claiming that the company is listed in a business directory and requesting payment. There may or may not be such a directory, and the directory may or may not ever be distributed or distributed as widely as claimed. For certain, no one ever ordered or authorized the directory advertisement. See also Shipping Short.

Documentary Evidence: Written or photographic representations of fact.

Dual Custody: A method of protecting cash by requiring all cash assets handled by two people (two signatures, two keys, two people counting, etc.).

Dummy: Fictitious.

“Dumpster Diving”: Rummaging through someone's trash to obtain information.

Electronic Surveillance: Listening and/or recording activities using electronic means (audio and video) without being detected. In some jurisdictions, electronic surveillance is unlawful without permission from all parties.

Embezzlement: Theft of money from an employer by an employee using false entries in accounting records to cover up the crime. See also Journal Entry Fraud.

Employee Account Fraud: When employees are also customers, employees may make unauthorized adjustments to their accounts (including write-off).

Entrapment: Unlawfully lured into a crime by a police officer. A common defense in a criminal activity where the criminal claims they were innocent and would not have been involved in the crime otherwise.

Expense Report Fraud: Charging unauthorized or fictitious amounts on an expense report. See Padding Expense Accounts.

Exposure: The potential for loss.

Extortion: The offer to keep from harm in exchange for money or other consideration. The demand for Restitution in exchange for not prosecuting a crime is a form of extortion.

Factors of Fraud: Opportunity (an opening or control weakness to be able to commit the fraud), Pressure (a problem that cannot be shared or resolved), and Attitude (a propensity to steal or the ability to rationalize fraudulent behavior). All frauds have these three factors as a cause.

False Claims: Claims for reimbursement by an employee or contractor for nonexistent or inflated expenses. False claims can be for business expenses or personal expenses (such as medical). See Padding Expense Accounts.

False Credentials: Misrepresenting education or experience or professional certification to fraudulently obtain and hold employment.

False Imprisonment: During an Interrogation, blocking the subject's avenue of escape, essentially holding the person against their will. Unless the person has been arrested, they may not be detained against their will at any time.

False Pretense: See Pretense, Ruse or Subterfuge.

Fictitious Refunds Scheme: Preparing false documents of refunds to cover thefts of cash. A retail cashiering fraud. See Cost of Goods Sold changes.

Fictitious Sales: A scheme to record sales to fictitious customers or fictitious sales to existing customers at the end of one period and reversing the transactions at the beginning of the next period. The purpose of the scheme is to inflate sales to create false profit statements or earn unwarranted bonuses. Excessive credit memos or sales cancellations at the beginning of an accounting period can be an indicator of this fraud.

Fiduciary Duty: The acts necessary (usually of an authorized employee or agent) to carry out a responsibility to care for assets prudently. See Embezzlement.

Firewall: A software program that protects direct access to a local area network by establishing a public network in front of the trusted network. The purpose of the program is to secure data and systems from Hackers.

For Cause: An employment arrangement where employees may only be terminated for a proven cause. For contrast, see At will.

Forensic: Suitable for use in a court proceeding.

Forensic Auditing: Examination of a business process for evidence of Fraud.

Forgery: Creation of false documents or altering existing documents, especially financial instruments or other authorizations.

Fraud: A theft, concealment and conversion to personal gain of another's money, physical assets, information, or time.

Fraud Scenarios: A method of developing mental models of possible Frauds.

Fraudster: One who commits the Fraud.

Ghost Employees: Fictitious employees on the payroll, for whom the supervisor or manager receives the extra paychecks.

Hacker: (Old) One who enjoys unraveling the mysteries of the computer. (Modern) A person who attacks another's computer and seeks to gain unauthorized access by hacking (breaking down) the computer's logical security.

Hearsay: A weak form of evidence that is an opinion of the witness or that is not personally and directly known to her.

Hidden Bank Accounts: A possible indication of Embezzlement, Bribery or Kickback frauds.

Hot Line: A telephone number to report suspected Fraud. Often hot lines are handled as anonymous tips.

Impeach: In Testimony, to catch the person in a lie or contradiction of fact.

Improprieties: A polite word for Frauds and wrongdoings.

Inflated Inventory: An indication of Embezzlement or possible theft of inventory. See Inventory Shrinkage.

Influence Peddling: The offer by a government official to use their office to influence actions for a private party in return for something of value.

Informant: A person, such as a co-worker or friend of the accused, used in the investigation of a fraud who may know something about the crime but is otherwise not involved.

Insider Trading: Using business information not released to the public to reap profits trading in the financial markets.

Interrogation: An interview of a suspect conducted for the main purpose of obtaining an admission of guilt, to identify and neutralize defenses the target may raise, and to obtain information used to impeach the Suspect.

Interview: A structured (planned) question and answer session with a person designed to elicit information.

Inventory Shrinkage: Theft of physical inventory.

Investigation: A structured gathering of Documentary Evidence and Testimony to solve a reported Fraud.

Irregularity: A polite word for Fraud.

Kickback: A payment by a vendor to an employee at the request of the employee in order for the vendor to receive favorable treatment.

Kiting: Using several bank accounts in different banks, making deposits and writing checks against the accounts before the deposit checks clear the banking system, creating a “float” of money out of nothing more than the lag in time while checks clear and post to their respective accounts.

Lapping: Stealing a customer payment and then using a subsequent customer payment to cover the previous customer's account. This overlapping payments creates a “float” of money that can be used as long as all payments are eventually posted. What usually occurs is that the lapping process builds up like a giant pyramid until it falls apart when not enough payments are available to cover the amounts owed.

Libel: Knowingly publishing false statements about another person that creates harm.

Lie Detector: See Polygraph.

Lifestyle changes: A possible indicator of theft is the sudden change in lifestyle such as exhibiting more than usual wealth.

Lowballing: Placing an unusually low bid to win the business. Often with the intent to inflate the price later with extras or change orders. Also can indicate a defective Request for Proposal.

Malicious Prosecution: Targeting someone for prosecution without reasonable grounds for suspicion.

Mark: The intended victim of a Swindle or Confidence Game.

Misappropriation: A polite word for theft.

Multi-Level Marketing: A form of Pyramid Scheme, not necessarily fraudulent, where sales are made to retail customers and commissions earned through many levels of the chain within the pyramid. The chain is built and expanded by each layer constantly recruiting more people to sell the product.

Negative Invoicing: Using an invoice for a negative amount to cover a theft of a customer payment. The negative invoice is less noticeable than a credit memorandum and usually under less stringent control. A negative invoice is a symptom of possible theft.

Nigerian Letter: A fraud scheme that now includes fax and email versions of a letter from a supposed official in Nigeria. The official has a large sum of money (often stated as $20 to$30 million) to transfer out of the country. Due to exchange controls, the official asks for the victim's help with the transfer. All that is required to earn a hefty reward/commission is to furnish the Nigerian official with your bank account number, and they will handle the rest. What actually happens is that the Perpetrator depletes the victim's account.

Obstruction of Justice: Impeding a lawful Investigation by such acts as providing false documents, false testimony, destruction of evidence, and intimidating witnesses.

Ombudsman: A person who acts as an advocate for employee grievances against the organization. Also, a neutral party to whom employees can turn to report Fraud.

Operative: A person acting on one's behalf or under care, custody or control in a specific manner. A source or Informant working Undercover in Covert Operations is an operative. There is no agency relationship with an operative as with an Agent.

Overbilling schemes: Padding invoices with extraneous or fictitious items. Intentional duplicate billing, such as billing two parties for the same work is also an overbilling scheme.

Overt: Open, not hidden. See Covert for contrast.

Out-of-Route: Outside sales or service workers who deviate from their normal route or time schedule, such as conducting personal errands or taking excessively long coffee or lunch breaks.

Outstanding Items: In checking operations, checks that have been written but not cleared through the bank. An equivalent banking term for interbank transactions.

Padding Expense Accounts: Adding extra expense items or inflating the value of legitimate expense items to obtain unwarranted reimbursements.

Padding Overtime: Adding extra hours to falsely inflate the payroll and earn unwarranted pay.

Palming: To conceal in the hand.

Perjury: Lying under oath, including sworn court Depositions, Affidavits, statements, and documents.

Perpetrator: The person who commits the Fraud.

Personal Identification Number: A code used to access personal data or accounts.

Pilfering: Theft, usually referring to theft of physical goods. In retail business, customer theft is known as Shoplifting and employee theft is called pilfering. Occasionally used also with theft of cash, especially petty cash or for small thefts.

PIN: See Personal Identification Number.

Pigeon Drop: A fraud scheme that involves a wallet/purse/envelope with a large sum of money in it but no identification. The Perpetrator and Accomplice, together with the victim “finds” the wallet, and the victim is persuaded to withdraw a sum of money as “good faith” to share in the cache. The victim is distracted and the Perpetrators steal the money and disappear with it.

Pingponging: In medical insurance or Workers Compensation Fraud, referring patients to other doctors in the same clinic in order to claim reimbursement for “consultations” rather than for actual treatment. See also False Claims.

Polygraph: A machine for recording a number of life signs (breathing rate, pulse, etc.) to aid in determining if a Suspect is lying. Also known as a Lie Detector.

Ponzi Scheme: A fraud in which a high rate of return is promised on investments. The first few investors receive the high rate of return from part of the investments of later victims. At no time is any actual investment made.

Pretense: Also False Pretense. To represent something to be what it is not. See Ruse and Subterfuge.

Pump-and-Dump: Manipulating stock prices by artificially creating demand through rumor, high pressure sales tactics, or multiple large orders. The price is pumped upwards and then when other investors join the trend, the original investors dump the stock in a rapid sell-off. See also Bucket Shop.

Pyramid Scheme: A commercial version of the Chain Letter scheme where the Fraudster sells bogus distributorships, franchises or business opportunity plans to people who are in turn induced to do the same. See also Multi-Level Marketing.

Razoring: Removing the last check, invoice, purchase order or other sequentially numbered item from a pad of items by carefully cutting with a razor around the staple holding the pad together. In this manner, fictitious transactions can be documented on official forms.

Reconciliation: A process of comparing details with control totals, such as checks paid during the month and deposits made that month with the change in bank balance at end of the month.

Red Flags: Symptoms and indicators (of Fraud).

Remote Access Unit: See Maintenance Port.

Request for Proposal: A request to potential vendors for tender offers or bids to perform a service or provide a product (or both) to solve a particular business problem. See also Request for Quote.

Request for Quote: A request to potential vendors for price quotes and delivery terms, usually for much simpler procurement requirements than a Request for Proposals.

Restitution: Restoring money or property to the victim of a Fraud.

Resume Inflation: See False Credentials.

Rube: A slang term for a Mark or victim, especially someone who appears naïve.

Ruse: A scheme that tries to make something appear as something else. Hiding the true meaning or acting out a lie. A Subterfuge or Pretense.

Sabotage: Destroying or delaying some part of the business process.

Salami: In banking, a fraud that involves taking all of the round-down fractional cents from periodic interest payments and crediting them to a single account. Thus each transaction has only a thin slice removed.

Salting cash: Testing accounts receivable employee honesty by placing some cash in the customer receivables process to see if it is reported as cash or stolen.

Secure Socket Layer: A protocol used in electronic commerce to afford more security to transactions on the Internet.

Self-Approval: The act of authorizing a transaction for one's own benefits or gains, or an act of approval for an activity in which the approval authority participated.

Sewer Service: Many consumer frauds rely on litigation to win judgments to collect the proceeds of the fraud. These organizations limit the ability of the victim to defend against this litigation by not informing them of the suit (literally dropping the Subpoena “down the sewer”) and filing false Affidavits in court that the litigation papers had been properly served.

Shadowing: Following the suspect or target of Surveillance from place to place to observe activities without being detected.

Shell Game: A game where a pebble or dried pea is hidden under one of three shells or cans. The Perpetrator moves the shells around quickly, often Palming the pebble, and then asks the Mark to choose the shell where the pea is located. A common street Confidence Game. See also Sleight-of-hand.

Shill: A person in a Confidence Game who acts as a participant to draw in the Mark. An Accomplice—one who is paid to play as part of a Swindle. Derived from casino gambling, where the shill is a paid employee used to attract other gamblers.

Short-and-Over: An account used in cashiering operations to track the imbalance of cash to sales recorded. A perfectly balanced cash operation dayafter-day, with no shorts or overs, is a symptom of possible theft. It is unusual to never make mistakes handling money.

Shorting: In medical frauds, delivering less prescription medicine than actually charged to the insurance company or government.

Short Shipping: Shipping less than the quantity shown on the invoice (or shipping nothing at all; see Directory Advertising Scheme).

Shoulder Surfing: Observing someone using a PIN (Personal Identification Number) by covertly looking over her shoulder, sometimes with the aid of binoculars or a video camera with zoom lens.

Shrinkage: See Inventory Shrinkage.

Slander: Knowingly uttering false statements about another person that causes harm.

Sleight-of-hand: A magician's trick. The ability to conceal a physical action by distracting the participant. See also Palming.

Spying: See Surveillance.

Stationary Surveillance: Observation of activities of a suspect from one vantage point. Also known as a Stakeout.

Statutory Employee: An employee by action and tax law, but not actually on the payroll. There are potential violations of U.S. tax and employment benefits laws if independent contractors and consultants are found to be statutory employees instead.

Suborn: The act of Bribery.

Subterfuge: Masking the true nature or reason for an action.

Surveillance: Gathering evidence through observation from outside of the operation (contrasted with Undercover). Surveillance can be Moving Surveillance, Stationary Surveillance or Electronic Surveillance. Also known as Spying.

Suspect (n.): The target of the fraud Investigation. See also Perpetrator and Fraudster.

Suspect (v.): To place under suspicion of wrongdoing.

Swindle: A scheme to obtain money by Ruse or False Pretense. See also Confidence Game.

Testimony: Oral evidence (representations of fact) taken by Interview or Interrogation. Testimonial evidence is necessarily weaker than Documentary Evidence.

Theft: The first step in a Fraud. Unlawfully taking.

Thief's Calculator: A collection of innocent-looking bits and pieces near the cash register for the purpose of tracking the amount of cash stolen by Skimming.

Tone at the Top: The messages and actions of senior management in relation to Fraud detection and deterrence.

Trapdoor: In computer fraud, a means of unauthorized access to the computer operating system or files, usually placed by a Hacker.

Trojan Horse: A type of computer program that remains inert (and possibly hidden) until activated by an external event such as a date. Used as Viruses to disrupt or destroy computer operations, or used to open a Trapdoor for unauthorized access.

Unauthorized Use: Policies should be in place to determine what business resources may be used for personal business and at what times. Other use constitutes Theft.

Undercover: Secret or Covert Operations where a person works under an assumed identity, adopts a disguise, or takes on an assumed role in order to gather evidence for prosecution.

Under-ring: To record less than the actual sales price. Usually refers to a cashier ringing a sale on a cash register. Under-rings may be a method used in Skimming cash by the cashier, or they may be used to give unauthorized discounts to an Accomplice.

Unethical: Behavior that does not meet community standards for “right behavior,” but that does not violate any laws either.

Unlawful: Behavior that violates established laws.

Virus: In computer operations, a program that is deliberately released to a system with the ability to replicate itself and spread by attaching unauthorized data to files. Viruses can be benign, just taking up disk storage space, or they may be vicious and actually destroy data or deny access.

Voids: In cashiering, ringing a Void to cancel a previous sale. Excessive voids may be a sign of theft.

Whistleblowing: The act of an employee revealing suspected fraud (usually involving senior management) to an outside third party.

Witnesses: People who may have information of a Fraud based on observation.

Worker's Compensation Fraud: False claims for on-the-job injuries. Usually takes the Collusion of employee and unscrupulous doctors to submit false diagnoses. Back injuries (soft tissue strains) and stress are the most common ailments used in this scheme.

## Appendix C: Law Summaries

• Contents
• Clayton Antitrust Act
• Sherman Antitrust Act
• Celler-Kefauver Act of 1950
• Sarbanes-Oxley Act of 2002
• Federal Food, Drug, and Cosmetic Act of 1914
• False Claims Act

Clayton Antitrust Act 1914

Chapter 1. Monopolies and Combinations in Restraint of Trade

§ 12. Words defined; short title

(a) “Antitrust laws,” as used herein, includes the Act entitled “An Act to protect trade and commerce against unlawful restraints and monopolies,” approved July second, eighteen hundred and ninety [15 USCS §§ 1 et seq.]; sections seventy-three to seventy-six, inclusive, of an Act entitled “An Act to reduce taxation, to provide revenue for the Government, and for other purposes,” of August twenty-seventh, eighteen hundred and ninety-four [15 USCS §§ 8–11]; an Act entitled “An Act to amend sections seventy-three and seventy-six of the Act of August twenty-seventh, eighteen hundred and ninety-four, entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes,’” approved February twelfth, nineteen hundred and thirteen [amending 15 USCS §§ 8, 11]; and also this Act.

“Commerce,” as used herein, means trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places under the jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States: Provided, That nothing in this Act contained shall apply to the Philippine Islands.

The word “person” or “persons” wherever used in this Act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

(b) This Act may be cited as the “Clayton Act.”

§ 13. Discrimination in price, services, or facilities

(a) Price; selection of customers. It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered: Provided, however, That the Federal Trade Commission may, after due investigation and hearing to all interested parties, fix and establish quantity limits, and revise the same as it finds necessary, as to particular commodities or classes of commodities, where it finds that available purchasers in greater quantities are so few as to render differentials on account thereof unjustly discriminatory or promotive of monopoly in any line of commerce; and the foregoing shall then not be construed to permit differentials based on differences in quantities greater than those so fixed and established: And provided further, That nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade: And provided further, That nothing herein contained shall prevent price changes from time to time where in response to changing conditions affecting the market for or the marketability of the goods concerned, such as but not limited to actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned.

(b) Burden of rebutting prima-facie case of discrimination. Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima-facie case thus made by showing justification shall be upon the person charged with a violation of this section, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, that nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.

(c) Payment or acceptance of commission, brokerage or other compensation. It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

(d) Payment for services or facilities for processing or sale. It shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

(e) Furnishing services or facilities for processing, handling, etc. It shall be unlawful for any person to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for sale of such commodity so purchased upon terms not accorded to all purchasers on proportionally equal terms.

(f) Knowingly inducing or receiving discriminatory price. It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section.

§ 14. Sale, etc., on agreement not to use goods of competitor

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies or other commodities, whether patented or unpatented, for use, consumption or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.

§ 15. Suits by persons injured

(a) Amount of recovery; prejudgment interest. Except as provided in subsection (b), any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. The court may award under this section, pursuant to a motion by such person promptly made, simple interest on actual damages for the period beginning on the date of service of such person's pleading setting forth a claim under the antitrust laws and ending on the date of judgment, or for any shorter period therein, if the court finds that the award of such interest for such period is just in the circumstances. In determining whether an award of interest under this section for any period is just in the circumstances, the court shall consider only—

• whether such person or the opposing party, or either party's representative, made motions or asserted claims or defenses so lacking in it as to show that such party or representative acted intentionally for delay, or otherwise acted in bad faith;
• whether, in the course of the action involved, such person or the opposing party, or either party's representative, violated any applicable rule, statute, or court order providing for sanctions for dilatory behavior or otherwise providing for expeditious proceedings; and
• whether such person or the opposing party, or either party's representative, engaged in conduct primarily for the purpose of delaying the litigation or increasing the cost thereof.

(b) Amount of damages payable to foreign states and instrumentalities of foreign states.

• Except as provided in paragraph (2), any person who is a foreign state may not recover under subsection (a) an amount in excess of the actual damages sustained by it and the cost of suit, including a reasonable attorney's fee.
• Paragraph (1) shall not apply to a foreign state if—
• such foreign state would be denied, under section 1605(a)(2) of title 28 of the United States Code [28 USCS § 1605(a)(2)], immunity in a case in which the action is based upon a commercial activity, or an act, that is the subject matter of its claim under this section;
• such foreign state waives all defenses based upon or arising out of its status as a foreign state, to any claims brought against it in the same action;
• such foreign state engages primarily in commercial activities; and
• such foreign state does not function, with respect to the commercial activity, or the act, that is the subject matter of its claim under this section as a procurement entity for itself or for another foreign state.

(c) Definitions. For purposes of this section—

• the term “commercial activity” shall have the meaning given it in section 1603(d) of title 28, United States Code [28 USCS § 1603(d)], and
• the term “foreign state” shall have the meaning given it in section 1603(a) of title 28, United States Code [28 USCS § 1603(a)].

§ 15a. Suits by United States; amount of recovery; prejudgment interest

Whenever the United States is hereafter injured in its business or property by reason of anything forbidden in the antitrust laws it may sue therefor in the United States district court for the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by it sustained and the cost of suit. The court may award under this section, pursuant to a motion by the United States promptly made, simple interest on threefold the damages for the period beginning on the date of service of the pleading of the United States setting forth a claim under the antitrust laws and ending on the date of judgment, or for any shorter period therein, if the court finds that the award of such interest for such period is just in the circumstances. In determining whether an award of interest under this section for any period is just in the circumstances, the court shall consider only—

• whether the United States or the opposing party, or either party's representative, made motions or asserted claims or defenses so lacking in merit as to show that such party or representative acted intentionally for delay or otherwise acted in bad faith;
• whether, in the course of the action involved, the United States or the opposing party, or either party's representative, violated any applicable rule, statute, or court order providing for sanctions for dilatory behavior or otherwise providing for expeditious proceedings;
• whether the United States or the opposing party, or either party's representative, engaged in conduct primarily for the purpose of delaying the litigation or increasing the cost thereof; and
• whether the award of such interest is necessary to compensate the United States adequately for the injury sustained by the United States. 15b. Limitation of actions

Any action to enforce any cause of action under section 4, 4A, or 4C [15 USCS §§ 15, 15a, 15c] shall be forever barred unless commenced within four years after the cause of action accrued. No cause of action barred under existing law on the effective date of this Act shall be revived by this Act.

§ 16. Judgments

(a) Prima facie evidence; collateral estoppel. A final judgment or decree heretofore or hereafter rendered in any civil or criminal proceeding brought by or on behalf of the United States under the antitrust laws to the effect that a defendant has violated said laws shall be prima facie evidence against such defendant in any action or proceeding brought by any other party against such defendant under said laws as to all matters respecting which said judgment or decree would be an estoppel as between the parties thereto: Provided, That this section shall not apply to consent judgments or decrees entered before any testimony has been taken. Nothing contained in this section shall be construed to impose any limitation on the application of collateral estoppel, except that, in any action or proceeding brought under the antitrust laws, collateral estoppel effect shall not be given to any finding made by the Federal Trade Commission under the antitrust laws or under section 5 of the Federal Trade Commission Act [15 USCS § 45] which could give rise to a claim for relief under the antitrust laws.

(b) Consent judgments and competitive impact statements; publication in Federal Register; availability of copies to the public. Any proposal for a consent judgment submitted by the United States for entry in any civil proceeding brought by or on behalf of the United States under the antitrust laws shall be filed with the district court before which such proceeding is pending and published by the United States in the Federal Register at least 60 days prior to the effective date of such judgment. Any written comments relating to such proposal and any responses by the United States thereto, shall also be filed with such district court and published by the United States in the Federal Register within such sixty-day period. Copies of such proposal and any other materials and documents which the United States considered determinative in formulating such proposal, shall also be made available to the public at the district court and in such other districts as the court may subsequently direct. Simultaneously with the filing of such proposal, unless otherwise instructed by the court, the United States shall file with the district court, publish in the Federal Register, and thereafter furnish to any person upon request, a competitive impact statement which shall recite—

• the nature and purpose of the proceeding;
• a description of the practices or events giving rise to the alleged violation of the antitrust laws;
• an explanation of the proposal for a consent judgment, including an explanation of any unusual circumstances giving rise to such proposal or any provision contained therein, relief to be obtained thereby, and the anticipated effects on competition of such relief;
• the remedies available to potential private plaintiffs damaged by the alleged violation in the event that such proposal for the consent judgment is entered in such proceeding;
• a description of the procedures available for modification of such proposal; and
• a description and evaluation of alternatives to such proposal actually considered by the United States.

(c) Publication of summaries in newspapers. The United States shall also cause to be published, commencing at least 60 days prior to the effective date of the judgment described in subsection (b) of this section, for 7 days over a period of 2 weeks in newspapers of general circulation of the district in which the case has been filed, in the District of Columbia, and in such other districts as the court may direct—

• a summary of the terms of the proposal for the consent judgment,
• a summary of the competitive impact statement filed under subsection (b),
• and a list of the materials and documents under subsection (b) which the United States shall make available for purposes of meaningful public comment, and the place where such materials and documents are available for public inspection.

(d) Consideration of public comments by Attorney General and publication of response. During the 60-day period as specified in subsection (b) of this section, and such additional time as the United States may request and the court may grant, the United States shall receive and consider any written comments relating to the proposal for the consent judgment submitted under subsection (b). The Attorney General or his designee shall establish procedures to carry out the provisions of this subsection, but such 60-day time period shall not be shortened except by order of the district court upon a showing that (1) extraordinary circumstances require such shortening and (2) such shortening is not adverse to the public interest. At the close of the period during which such comments may be received, the United States shall file with the district court and cause to be published in the Federal Register a response to such comments.

(e) Public interest determination. Before entering any consent judgment proposed by the United States under this section, the court shall determine that the entry of such judgment is in the public interest. For the purpose of such determination, the court may consider—

• the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration or relief sought, anticipated effects of alternative remedies actually considered, and any other considerations bearing upon the adequacy of such judgment;
• the impact of entry of such judgment upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

(f) Procedure for public interest determination. In making its determination under subsection (e), the court may—

• take testimony of Government officials or experts or such other expert witnesses, upon motion of any party or participant or upon its own motion, as the court may deem appropriate;
• appoint a special master and such outside consultants or expert witnesses as the court may deem appropriate; and request and obtain the views, evaluations, or advice of any individual, group or agency of government with respect to any aspects of the proposed judgment or the effect of such judgment, in such manner as the court deems appropriate;
• authorize full or limited participation in proceedings before the court by interested persons or agencies, including appearance amicus curiae, intervention as a party pursuant to the Federal Rules of Civil Procedure, examination of witnesses or documentary materials, or participation in any other manner and extent which serves the public interest as the court may deem appropriate;
• review any comments including any objections filed with the United States under subsection (d) concerning the proposed judgment and the responses of the United States to such comments and objections; and
• take such other action in the public interest as the court may deem appropriate.

(g) Filing of written or oral communications with the district court. Not later than 10 days following the date of the filing of any proposal for a consent judgment under subsection (b), each defendant shall file with the district court a description of any and all written or oral communications by or on behalf of such defendant, including any and all written or oral communications on behalf of such defendant, or other person, with any officer or employee of the United States concerning or relevant to such proposal, except that any such communications made by counsel of record alone with the Attorney General or the employees of the Department of Justice alone shall be excluded from the requirements of this subsection. Prior to the entry of any consent judgment pursuant to the antitrust laws, each defendant shall certify to the district court that the requirements of this subsection have been complied with and that such filing is a true and complete description of such communications known to the defendant or which the defendant reasonably should have known.

(h) Inadmissibility as evidence of proceedings before the district court and the competitive impact statement. Proceedings before the district court under subsections (e) and (f) of this section, and the competitive impact statement filed under subsection (b) of this section, shall not be admissible against any defendant in any action or proceeding brought by any other party against such defendant under the antitrust laws or by the United States under section 4A of this Act [15 USCS § 15a] nor constitute a basis for the introduction of the consent judgment as prima facie evidence against such defendant in any such action or proceeding.

(i) Suspension of limitations. Whenever any civil or criminal proceeding is instituted by the United States to prevent, restrain, or punish violations of any of the antitrust laws, but not including an action under section 4A [15 USCS § 15a], the running of the statute of limitations in respect of every private or State right of action arising under said laws and based in whole or in part on any matter complained of in said proceeding shall be suspended during the pendency thereof and for one year thereafter: Provided, however, That whenever the running of the statute of limitations in respect of a cause of action arising under section 4 or 4C [15 USCS §§ 15, 15c] is suspended hereunder, any action to enforce such cause of action shall be forever barred unless commenced either within the period of suspension or within four years after the cause of action accrued.

§ 17. Antitrust laws not applicable to labor organizations

The labor of a human being is not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws.

§ 18. Acquisition by one corporation of stock of another

See Celler-Kefauver Act 1950

§ 19. Interlocking directorates and officers

(a)(1) No person shall, at the same time, serve as a director or officer in any two corporations (other than banks, banking associations, and trust companies) that are—

• engaged in whole or in part in commerce; and
• by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws;

If each of the corporations has capital, surplus, and undivided profits aggregating more than $10,000,000 as adjusted pursuant to paragraph (5) of this subsection. • Notwithstanding the provisions of paragraph (1), simultaneous service as a director or officer in any two corporations shall not be prohibited by this section if— • the competitive sales of either corporation are less than$ 1,000,000, as adjusted pursuant to paragraph (5) of this subsection;
• the competitive sales of either corporation are less than 2 per centum of that corporation's total sales; or
• the competitive sales of each corporation are less than 4 per centum of that corporation's total sales.

For purposes of this paragraph, “competitive sales” means the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation's last completed fiscal year. For the purposes of this paragraph, “total sales” means the gross revenues for all products and services sold by one corporation over that corporation's last completed fiscal year.

• The eligibility of a director or officer under the provisions of paragraph (1) shall be determined by the capital, surplus and undivided profits, exclusive of dividends declared but not paid to stockholders, of each corporation at the end of that corporation's last completed fiscal year.
• For purposes of this section, the term “officer” means an officer elected or chosen by the Board of Directors.
• For each fiscal year commencing after September 30, 1990, the $10,000,000 and$ 1,000,000 thresholds in this subsection shall be increased (or decreased) as of October 1 each year by an amount equal to the percentage increase (or decrease) in the gross national product, as determined by the Department of Commerce or its successor, for the year then ended over the level so established for the year ending September 30, 1989. As soon as practicable, but not later than January 31 of each year, the Federal Trade Commission shall publish the adjusted amounts required by this paragraph.

(b) When any person elected or chosen as a director or officer of any corporation subject to the provisions hereof is eligible at the time of his election or selection to act for such corporation in such capacity, his eligibility to act in such capacity shall not be affected by any of the provisions hereof by reason of any change in the capital, surplus and undivided profits, or affairs of such corporation from whatever cause, until the expiration of one year from the date on which the event causing ineligibility occurred.

§ 21. Enforcement provisions

(a) Commission, Board, or Secretary authorized to enforce compliance. Authority to enforce compliance with sections 2, 3, 7, and 8 of this Act [15 USCS §§ 13, 14, 18, 19] by the persons respectively subject thereto is hereby vested in the Surface Transportation Board where applicable to common carriers subject to jurisdiction under subtitle IV of title 49, United States Code [49 USCS §§ 10101 et seq.]; in the Federal Communications Commission where applicable to common carriers engaged in wire or radio communication or radio transmission of energy; in the Secretary of Transportation where applicable to air carriers and foreign air carriers subject to the Federal Aviation Act of 1958 [49 USCS §§ 40101 et seq.]; in the Federal Reserve Board [Board of Governors of the Federal Reserve System] where applicable to banks, banking associations, and trust companies; and in the Federal Trade Commission where applicable to all other character of commerce to be exercised as follows:

(b) Issuance of complaints for violations; hearing; intervention; filing of testimony; report; cease and desist orders; reopening and alteration of reports or orders. Whenever the Commission, Board, or Secretary vested with jurisdiction thereof shall have reason to believe that any person is violating or has violated any of the provisions of sections 2, 3, 7, and 8 of this Act [15 USCS §§ 13, 14, 18, 19], it shall issue and serve upon such person and the Attorney General a complaint stating its charges in that respect, and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the Commission, Board, or Secretary requiring such person to cease and desist from the violation of the law so charged in said complaint. The Attorney General shall have the right to intervene and appear in said proceeding and any person may make application, and upon good cause shown may be allowed by the Commission, Board, or Secretary, to intervene and appear in said proceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the Commission, Board, or Secretary. If upon such hearing the Commission, Board, or Secretary, as the case may be, shall be of the opinion that any of the provisions of said sections have been or are being violated, it shall make a report in writing, in which it shall state its findings as to the facts, and shall issue and cause to be served on such person an order requiring such person to cease and desist from such violations, and divest itself of the stock, or other share capital, or assets, held or rid itself of the directors chosen contrary to the provisions of sections 7 and 8 of this Act [15 USCS §§ 18, 19], if any there be, in the manner and within the time fixed by said order. Until the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time, or, if a petition for review has been filed within such time then until the record in the proceeding has been filed in a court of appeals of the United States, as hereinafter provided, the Commission, Board, or Secretary may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. After the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time, the Commission, Board, or Secretary may at any time, after notice and opportunity for hearing, reopen and alter, modify, or set aside, in whole or in part, any report or order made or issued by it under this section, whenever in the opinion of the Commission, Board, or Secretary conditions of fact or of law have so changed as to require such action or if the public interest shall so require: provided, however, That the said person may, within sixty days after service upon him or it of said report or order entered after such a reopening, obtain a review thereof in the appropriate court of appeals of the United States, in the manner provided in subsection (c) of this section.

(c) Review of orders; jurisdiction; filing of petition and record of proceeding; conclusiveness of findings; additional evidence; modification of findings; finality of judgment and decree. Any person required by such order of the commission, board, or Secretary to cease and desist from any such violation may obtain a review of such order in the court of appeals of the United States for any circuit within which such violation occurred or within which such person resides or carries on business, by filing in the court, within sixty days after the date of the service of such order, a written petition praying that the order of the commission, board, or Secretary be set aside. A copy of such petition shall be forthwith transmitted by the clerk of the court to the commission, board, or Secretary and thereupon the commission, board, or Secretary shall file in the court the record in the proceeding, as provided in section 2112 of title 28, United States Code. Upon such filing of the petition the court shall have jurisdiction of the proceeding and of the question determined therein concurrently with the commission, board, or Secretary until the filing of the record, and shall have power to make and enter a decree affirming, modifying, or setting aside the order of the commission, board, or Secretary and enforcing the same to the extent that such order is affirmed, and to issue such writs as are ancillary to its jurisdiction or are necessary in its judgment to prevent injury to the public or to competitors pendente lite. The findings of the commission, board, or Secretary as to the facts, if supported by substantial evidence, shall be conclusive. To the extent that the order of the commission, board, or Secretary is affirmed, the court shall issue its own order commanding obedience to the terms of such order of the commission, board, or Secretary. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceeding before the commission, board, or Secretary, the court may order such additional evidence to be taken before the commission, board, or Secretary, and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The commission, board, or Secretary may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and shall file such modified or new findings, which, if supported by subsantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of its original order, with the return of such additional evidence. The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari, as provided in section 1254 of title 28 of the United States Code.

(d) Exclusive jurisdiction of Court of Appeals. Upon the filing of the record with it the jurisdiction of the court of appeals to affirm, enforce, modify, or set aside orders of the commission, board, or Secretary shall be exclusive.

(e) Liability under antitrust laws. No order of the commission, board, or Secretary or judgment of the court to enforce the same shall in anywise relieve or absolve any person from any liability under the antitrust laws.

(f) Service of complaints, orders and other processes. Complaints, orders, and other processes of the commission, board, or Secretary under this section may be served by anyone duly authorized by the commission, board, or Secretary, either (1) by delivering a copy thereof to the person to be served, or to a member of the partnership to be served, or to the president, secretary, or other executive officer or a director of the corporation to be served; or (2) by leaving a copy thereof at the residence or the principal office or place of business of such person; or (3) by mailing by registered or certified mail a copy thereof addressed to such person at his or its residence or principal office or place of business. The verified return by the person so serving said complaint, order, or other process setting forth the manner of said service shall be proof of the same, and the return post office receipt for said complaint, order, or other process mailed by registered or certified mail as aforesaid shall be proof of the service of the same.

(g) Finality of orders generally. Any order issued under subsection (b) shall become final—

• upon the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time; but the commission, board, or Secretary may thereafter modify or set aside its order to the extent provided in the last sentence of subsection (b); or
• upon the expiration of the time allowed for filing a petition for certiorari, if the order of the commission, board, or Secretary has been affirmed, or the petition for review has been dismissed by the court of appeals, and no petition for certiorari has been duly filed; or
• upon the denial of a petition for certiorari, if the order of the commission, board, or Secretary has been affirmed or the petition for review has been dismissed by the court of appeals; or
• upon the expiration of thirty days from the date of issuance of the mandate of the Supreme Court, if such Court directs that the order of the commission, board, or Secretary be affirmed or the petition for review be dismissed.

(h) Finality of orders modified by Supreme Court. If the Supreme Court directs that the order of the commission, board, or Secretary be modified or set aside, the order of the commission, board, or Secretary rendered in accordance with the mandate of the Supreme Court shall become final upon the expiration of thirty days from the time it was rendered, unless within such thirty days either party has instituted proceedings to have such order corrected to accord with the mandate, in which event the order of the commission, board, or Secretary shall become final when so corrected.

(i) Finality of orders modified by Court of Appeals. If the order of the commission, board, or Secretary is modified or set aside by the court of appeals, and if (1) the time allowed for filing a petition for certiorari has expired and no such petition has been duly filed, or (2) the petition for certiorari has been denied, or (3) the decision of the court has been affirmed by the Supreme Court, then the order of the commission, board, or Secretary rendered in accordance with the mandate of the court of appeals shall become final on the expiration of thirty days from the time such order of the commission, board, or Secretary was rendered, unless within such thirty days either party has instituted proceedings to have such order corrected so that it will accord with the mandate, in which event the order of the commission, board, or Secretary shall become final when so corrected.

(j) Finality of orders issued on rehearing ordered by Court of Appeals or Supreme Court. If the Supreme Court orders a rehearing; or if the case is remanded by the court of appeals to the commission, board, or Secretary for a rehearing, and if (1) the time allowed for filing a petition for certiorari has expired, and no such petition has been duly filed, or (2) the petition for certiorari has been denied, or (3) the decision of the court has been affirmed by the Supreme Court, then the order of the commission, board, or Secretary rendered upon such rehearing shall become final in the same manner as though no prior order of the commission, board, or Secretary had been rendered.

(k) “Mandate” defined. As used in this section the term “mandate,” in case a mandate has been recalled prior to the expiration of thirty days from the date of issuance thereof, means the final mandate.

(l) Penalties. Any person who violates any order issued by the commission, board, or Secretary under subsection (b) after such order has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation, which shall accrue to the United States and may be recovered in a civil action brought by the United States. Each separate violation of any such order shall be a separate offense, except that in the case of a violation through continuing failure or neglect to obey a final order of the commission, board, or Secretary each day of continuance of such failure or neglect shall be deemed a separate offense. § 22. District in which to sue corporation Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found. § 23. Suits by United States; subpoenas for witnesses In any suit, action, or proceeding brought by or on behalf of the United States subpoenas for witnesses who are required to attend a court of the United States in any judicial district in any case, civil or criminal, arising under the antitrust laws may run into any other district: Provided, That in civil cases no writ of subpoena shall issue for witnesses living out of the district in which the court is held at a greater distance than one hundred miles from the place of holding the same without the permission of the trial court being first had upon proper application and cause shown. § 24. Liability of directors and agents of corporation Whenever a corporation shall violate any of the penal provisions of the antitrust laws, such violation shall be deemed to be also that of the individual directors, officers, or agents of such corporation who shall have authorized, ordered, or done any of the acts constituting in whole or in part such violation, and such violation shall be deemed a misdemeanor, and upon conviction therefor of any such director, officer, or agent he shall be punished by a fine of not exceeding$ 5,000 or by imprisonment for not exceeding one year, or by both, in the discretion of the court.

§ 25. Restraining violations; procedure

The several district courts of the United States are invested with jurisdiction to prevent and restrain violations of this Act, and it shall be the duty of the several district attorneys of the United States [United States attorneys], in their respective districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties complained of shall have been duly notified of such petition, the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition, and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises. Whenever it shall appear to the court before which any such proceeding may be pending that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned whether they reside in the district in which the court is held or not, and subpoenas to that end may be served in any district by the marshal thereof.

§ 26. Injunctive relief for private parties; exception; costs

Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, including sections two, three, seven and eight of this Act [15 USCS §§ 13, 14, 18, and 19], when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings, and upon the execution of proper bond against damages for an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate, a preliminary injunction may issue: Provided, That nothing herein contained shall be construed to entitle any person, firm, corporation, or association, except the United States, to bring suit for injunctive relief against any common carrier subject to the jurisdiction of the Surface Transportation Board under subtitle IV of title 49, United States Code [49 USCS §§ 10101 et seq.]. In any action under this section in which the plaintiff substantially prevails, the court shall award the cost of suit, including a reasonable attorney's fee, to such plaintiff.

§ 27. Effect of partial invalidity

If any clause, sentence, paragraph, or part of this Act shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder thereof, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered.

Celler-Kefauver Act 1950 (amending § 7 of the Clayton Antitrust Act)

Chapter 1. Monopolies and Combinations in Restraint of Trade

§ 18. Acquisition by one corporation of stock of another

No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.

No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.

This section shall not apply to persons purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall anything contained in this section prevent a corporation engaged in commerce or in any activity affecting commerce from causing the formation of subsidiary corporations for the actual carrying on of their immediate lawful business, or the natural and legitimate branches or extensions thereof, or from owning and holding all or a part of the stock of such subsidiary corporations, when the effect of such formation is not to substantially lessen competition.

Nor shall anything herein contained be construed to prohibit any common carrier subject to the laws to regulate commerce from aiding in the construction of branches or short lines so located as to become feeders to the main line of the company so aiding in such construction or from acquiring or owning all or any part of the stock of such branch lines, nor to prevent any such common carrier from acquiring and owning all or any part of the stock of a branch or short line constructed by an independent company where there is no substantial competition between the company owning the branch line so constructed and the company owning the main line acquiring the property or an interest therein, nor to prevent such common carrier from extending any of its lines through the medium of the acquisition of stock or otherwise of any other common carrier where there is no substantial competition between the company extending its lines and the company whose stock, property, or an interest therein is so acquired.

Nothing contained in this section shall be held to affect or impair any right heretofore legally acquired: Provided, That nothing in this section shall be held or construed to authorize or make lawful anything heretofore prohibited or made illegal by the antitrust laws, nor to exempt any person from the penal provisions thereof or the civil remedies therein provided.

Nothing contained in this section shall apply to transactions duly consummated pursuant to authority given by the Secretary of Transportation, Federal Power Commission, Surface Transportation Board, the Securities and Exchange Commission in the exercise of its jurisdiction under section 10 of the Public Utility Holding Company Act of 1935 [15 USCS § 79j], the United States Maritime Commission, or the Secretary of Agriculture under any statutory provision vesting such power in such Commission, Board, or Secretary.

Sherman Antitrust Act

United States Code Service

Chapter 1. Monopolies And Combinations In Restraint of Trade

§ 1. Trusts, etc., in restraint of trade illegal; penalty

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person,$ 350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

§ 2. Monopolization; penalty

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person,$ 350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

§ 3. Trusts in Territories or District of Columbia illegal; combination a felony

(a) Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person,$ 350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

(b) Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce in any Territory of the United States or of the District of Columbia, or between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia, and any State or States or foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person,$ 350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. § 4 Jurisdiction of courts; duty of United States attorneys; Procedure The several circuit [district] courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act [15 USCS §§ 1 et seq.]; and it shall be the duty of the several district attorneys of the United States [United States attorneys], in their respective districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties complained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises.

§ 5. Bringing in additional parties

Whenever it shall appear to the court before which any proceeding under section four of this Act [15 USCS § 4] may be pending, that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not; and subpoenas to that end may be served in any district by the marshal thereof.

§ 6. Forfeiture of property in transit

Any property owned under any contract or by any combination, or pursuant to any conspiracy (and being the subject thereof) mentioned in section one of this Act [15 USCS § 1], and being in the course of transportation from one State to another, or to a foreign country, shall be forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law.

§ 6a. Conduct involving trade or commerce with foreign nations

This Act [15 USCS §§ 1 et seq.] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

• such conduct has a direct, substantial, and reasonably foreseeable effect—
• on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
• on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and
• such effect gives rise to a claim under the provisions of this Act [15 USCS §§ 1 et seq.], other than this section.

If this Act [15 USCS §§ 1 et seq.] applies to such conduct only because of the operation of paragraph (1)(B), then this Act [15 USCS §§ 1 et seq.] shall apply to such conduct only for injury to export business in the United States.

§ 7. “Person” defined

The word “person,” or “persons,” wherever used in this Act [15 USCS §§ 1 et seq.] shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

Sarbanes-Oxley Act 2002

United States Code Service

Chapter 98. Public Company Accounting Reform and Corporate Responsibility

§ 7201. Definitions

In this Act, the following definitions shall apply:

• Appropriate State regulatory authority. The term “appropriate State regulatory authority” means the State agency or other authority responsible for the licensure or other regulation of the practice of accounting in the State or States having jurisdiction over a registered public accounting firm or associated person thereof, with respect to the matter in question.
• Audit. The term “audit” means an examination of the financial statements of any issuer by an independent public accounting firm in accordance with the rules of the Board or the Commission (or, for the period preceding the adoption of applicable rules of the Board under section 103 [15 USCS § 7213], in accordance with then-applicable generally accepted auditing and related standards for such purposes), for the purpose of expressing an opinion on such statements.
• Audit committee. The term “audit committee” means—
• a committee (or equivalent body) established by and amongst the board of directors of an issuer for the purpose of overseeing the accounting and financial reporting processes of the issuer and audits of the financial statements of the issuer; and
• if no such committee exists with respect to an issuer, the entire board of directors of the issuer.
• Audit report. The term “audit report” means a document or other record—
• prepared following an audit performed for purposes of compliance by an issuer with the requirements of the securities laws; and
• in which a public accounting firm either—
• sets forth the opinion of that firm regarding a financial statement, report, or other document; or
• asserts that no such opinion can be expressed.
• Board. The term “Board” means the Public Company Accounting Oversight Board established under section 101 [15 USCS § 7211].
• Commission. The term “Commission” means the Securities and Exchange Commission.
• Issuer. The term “issuer” means an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)), the securities of which are registered under section 12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.
• Non-audit services. The term “non-audit services” means any professional services provided to an issuer by a registered public accounting firm, other than those provided to an issuer in connection with an audit or a review of the financial statements of an issuer.
• Person associated with a public accounting firm.
• In general. The terms “person associated with a public accounting firm” (or with a “registered public accounting firm”) and “associated person of a public accounting firm” (or of a “registered public accounting firm”) mean any individual proprietor, partner, shareholder, principal, accountant, or other professional employee of a public accounting firm, or any other independent contractor or entity that, in connection with the preparation or issuance of any audit report—
• shares in the profits of, or receives compensation in any other form from, that firm; or
• participates as agent or otherwise on behalf of such accounting firm in any activity of that firm.
• Exemption authority. The Board may, by rule, exempt persons engaged only in ministerial tasks from the definition in subparagraph (A), to the extent that the Board determines that any such exemption is consistent with the purposes of this Act, the public interest, or the protection of investors.
• Professional standards. The term “professional standards” means—
• accounting principles that are—
• established by the standard setting body described in section 19(b) of the Securities Act of 1933 [15 USCS § 77s(b)], as amended by this Act, or prescribed by the Commission under section 19(a) of that Act (15 U.S.C. 17a(s) [77s(a)] [15 USCS § 77s(a)]) or section 13(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78a(m) [78m(b)] [15 USCS § 78m(b)]); and
• relevant to audit reports for particular issuers, or dealt with in the quality control system of a particular registered public accounting firm; and
• auditing standards, standards for attestation engagements, quality control policies and procedures, ethical and competency standards, and independence standards (including rules implementing title II) that the Board or the Commission determines—
• relate to the preparation or issuance of audit reports for issuers; and
• are established or adopted by the Board under section 103(a) [15 USCS § 7213(a)], or are promulgated as rules of the Commission.
• Public accounting firm. The term “public accounting firm” means—
• a proprietorship, partnership, incorporated association, corporation, limited liability company, limited liability partnership, or other legal entity that is engaged in the practice of public accounting or preparing or issuing audit reports; and
• to the extent so designated by the rules of the Board, any associated person of any entity described in subparagraph (A).
• Registered public accounting firm. The term “registered public accounting firm” means a public accounting firm registered with the Board in accordance with this Act.
• Rules of the Board. The term “rules of the Board” means the bylaws and rules of the Board (as submitted to, and approved, modified, or amended by the Commission, in accordance with section 107 [15 USCS § 7217]), and those stated policies, practices, and interpretations of the Board that the Commission, by rule, may deem to be rules of the Board, as necessary or appropriate in the public interest or for the protection of investors.
• Security. The term “security” has the same meaning as in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
• Securities laws. The term “securities laws” means the provisions of law referred to in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as amended by this Act, and includes the rules, regulations, and orders issued by the Commission thereunder
• State. The term “State” means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other territory or possession of the United States.

§ 7202. Commission rules and enforcement

(a) Regulatory action. The Commission shall promulgate such rules and regulations, as may be necessary or appropriate in the public interest or for the protection of investors, and in furtherance of this Act.

(b) Enforcement.

• In general. A violation by any person of this Act, any rule or regulation of the Commission issued under this Act, or any rule of the Board shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the rules and regulations issued thereunder, consistent with the provisions of this Act, and any such person shall be subject to the same penalties, and to the same extent, as for a violation of that Act or such rules or regulations.
• [Omitted]

(c) Effect on Commission authority. Nothing in this Act or the rules of the Board shall be construed to impair or limit—

• the authority of the Commission to regulate the accounting profession, accounting firms, or persons associated with such firms for purposes of enforcement of the securities laws;
• the authority of the Commission to set standards for accounting or auditing practices or auditor independence, derived from other provisions of the securities laws or the rules or regulations thereunder, for purposes of the preparation and issuance of any audit report, or otherwise under applicable law; or
• the ability of the Commission to take, on the initiative of the Commission, legal, administrative, or disciplinary action against any registered public accounting firm or any associated person thereof. Public Accounting Oversight Board

(a) Establishment of Board. There is established the Public Company Accounting Oversight Board, to oversee the audit of public companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors. The Board shall be a body corporate, operate as a nonprofit corporation, and have succession until dissolved by an Act of Congress.

(b) Status. The Board shall not be an agency or establishment of the United States Government, and, except as otherwise provided in this Act, shall be subject to, and have all the powers conferred upon a nonprofit corporation by, the District of Columbia Nonprofit Corporation Act [unclassified]. No member or person employed by, or agent for, the Board shall be deemed to be an officer or employee of or agent for the Federal Government by reason of such service.

(c) Duties of the Board. The Board shall, subject to action by the Commission under section 107 [15 USCS § 7217], and once a determination is made by the Commission under subsection (d) of this section—

• register public accounting firms that prepare audit reports for issuers, in accordance with section 102 [15 USCS § 7212];
• establish or adopt, or both, by rule, auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for issuers, in accordance with section 103 [15 USCS § 7213];
• conduct inspections of registered public accounting firms, in accordance with section 104 [15 USCS § 7214] and the rules of the Board;
• conduct investigations and disciplinary proceedings concerning, and impose appropriate sanctions where justified upon, registered public accounting firms and associated persons of such firms, in accordance with section 105 [15 USCS § 7215];
• perform such other duties or functions as the Board (or the Commission, by rule or order) determines are necessary or appropriate to promote high professional standards among, and improve the quality of audit services offered by, registered public accounting firms and associated persons thereof, or otherwise to carry out this Act, in order to protect investors, or to further the public interest;
• enforce compliance with this Act, the rules of the Board, professional standards, and the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, by registered public accounting firms and associated persons thereof; and
• set the budget and manage the operations of the Board and the staff of the Board.

(d) Commission determination. The members of the Board shall take such action (including hiring of staff, proposal of rules, and adoption of initial and transitional auditing and other professional standards) as may be necessary or appropriate to enable the Commission to determine, not later than 270 days after the date of enactment of this Act [enacted July 30, 2002], that the Board is so organized and has the capacity to carry out the requirements of this title [15 USCS §§ 7211 et seq.], and to enforce compliance with this title [15 USCS §§ 7211 et seq.] by registered public accounting firms and associated persons thereof. The Commission shall be responsible, prior to the appointment of the Board, for the planning for the establishment and administrative transition to the Board's operation.

(e) Board membership.

• Composition. The Board shall have 5 members, appointed from among prominent individuals of integrity and reputation who have a demonstrated commitment to the interests of investors and the public, and an understanding of the responsibilities for and nature of the financial disclosures required of issuers under the securities laws and the obligations of accountants with respect to the preparation and issuance of audit reports with respect to such disclosures.
• Limitation. Two members, and only 2 members, of the Board shall be or have been certified public accountants pursuant to the laws of 1 or more States, provided that, if 1 of those 2 members is the chairperson, he or she may not have been a practicing certified public accountant for at least 5 years prior to his or her appointment to the Board.
• Full-time independent service. Each member of the Board shall serve on a full-time basis, and may not, concurrent with service on the Board, be employed by any other person or engage in any other professional or business activity. No member of the Board may share in any of the profits of, or receive payments from, a public accounting firm (or any other person, as determined by rule of the Commission), other than fixed continuing payments, subject to such conditions as the Commission may impose, under standard arrangements for the retirement of members of public accounting firms.
• Appointment of Board members.
• Initial board. Not later than 90 days after the date of enactment of this Act [enacted July 30, 2002], the Commission, after consultation with the Chairman of the Board of Governors of the Federal Reserve System and the Secretary of the Treasury, shall appoint the chairperson and other initial members of the Board, and shall designate a term of service for each.
• Vacancies. A vacancy on the Board shall not affect the powers of the Board, but shall be filled in the same manner as provided for appointments under this section.
• Term of service.
• In general. The term of service of each Board member shall be 5 years, and until a successor is appointed, except that—
• the terms of office of the initial Board members (other than the chairperson) shall expire in annual increments, 1 on each of the first 4 anniversaries of the initial date of appointment; and
• any Board member appointed to fill a vacancy occurring before the expiration of the term for which the predecessor was appointed shall be appointed only for the remainder of that term.
• Term limitation. No person may serve as a member of the Board, or as chairperson of the Board, for more than 2 terms, whether or not such terms of service are consecutive.
• Removal from office. A member of the Board may be removed by the Commission from office, in accordance with section 107(d)(3) [15 USCS § 7217(d)(3)], for good cause shown before the expiration of the term of that member.

(f) Powers of the Board. In addition to any authority granted to the Board otherwise in this Act, the Board shall have the power, subject to section 107 [15 USCS § 7217]—

• to sue and be sued, complain and defend, in its corporate name and through its own counsel, with the approval of the Commission, in any Federal, State, or other court;
• to conduct its operations and maintain offices, and to exercise all other rights and powers authorized by this Act, in any State, without regard to any qualification, licensing, or other provision of law in effect in such State (or a political subdivision thereof);
• to lease, purchase, accept gifts or donations of or otherwise acquire, improve, use, sell, exchange, or convey, all of or an interest in any property, wherever situated;
• to appoint such employees, accountants, attorneys, and other agents as may be necessary or appropriate, and to determine their qualifications, define their duties, and fix their salaries or other compensation (at a level that is comparable to private sector self-regulatory, accounting, technical, supervisory, or other staff or management positions);
• to allocate, assess, and collect accounting support fees established pursuant to section 109 [15 USCS § 7219], for the Board, and other fees and charges imposed under this title [15 USCS §§ 7211 et seq.]; and
• to enter into contracts, execute instruments, incur liabilities, and do any and all other acts and things necessary, appropriate, or incidental to the conduct of its operations and the exercise of its obligations, rights, and powers imposed or granted by this title [15 USCS §§ 7211 et seq.].

(g) Rules of the Board. The rules of the Board shall, subject to the approval of the Commission—

• provide for the operation and administration of the Board, the exercise of its authority, and the performance of its responsibilities under this Act;
• permit, as the Board determines necessary or appropriate, delegation by the Board of any of its functions to an individual member or employee of the Board, or to a division of the Board, including functions with respect to hearing, determining, ordering, certifying, reporting, or otherwise acting as to any matter, except that—
• the Board shall retain a discretionary right to review any action pursuant to any such delegated function, upon its own motion;
• a person shall be entitled to a review by the Board with respect to any matter so delegated, and the decision of the Board upon such review shall be deemed to be the action of the Board for all purposes (including appeal or review thereof); and
• if the right to exercise a review described in subparagraph (A) is declined, or if no such review is sought within the time stated in the rules of the Board, then the action taken by the holder of such delegation shall for all purposes, including appeal or review thereof, be deemed to be the action of the Board;
• establish ethics rules and standards of conduct for Board members and staff, including a bar on practice before the Board (and the Commission, with respect to Board-related matters) of 1 year for former members of the Board, and appropriate periods (not to exceed 1 year) for former staff of the Board; and
• provide as otherwise required by this Act.

(h) Annual report to the Commission. The Board shall submit an annual report (including its audited financial statements) to the Commission, and the Commission shall transmit a copy of that report to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives, not later than 30 days after the date of receipt of that report by the Commission.

§ 7212. Registration with the Board

(a) Mandatory registration. Beginning 180 days after the date of the determination of the Commission under section 101(d) [15 USCS § 7211(d)], it shall be unlawful for any person that is not a registered public accounting firm to prepare or issue, or to participate in the preparation or issuance of, any audit report with respect to any issuer.

(b) Applications for registration.

• Form of application. A public accounting firm shall use such form as the Board may prescribe, by rule, to apply for registration under this section.
• Contents of applications. Each public accounting firm shall submit, as part of its application for registration, in such detail as the Board shall specify—
• the names of all issuers for which the firm prepared or issued audit reports during the immediately preceding calendar year, and for which the firm expects to prepare or issue audit reports during the current calendar year;
• the annual fees received by the firm from each such issuer for audit services, other accounting services, and non-audit services, respectively;
• such other current financial information for the most recently completed fiscal year of the firm as the Board may reasonably request;
• a statement of the quality control policies of the firm for its accounting and auditing practices;
• a list of all accountants associated with the firm who participate in or contribute to the preparation of audit reports, stating the license or certification number of each such person, as well as the State license numbers of the firm itself;
• information relating to criminal, civil, or administrative actions or disciplinary proceedings pending against the firm or any associated person of the firm in connection with any audit report;
• copies of any periodic or annual disclosure filed by an issuer with the Commission during the immediately preceding calendar year which discloses accounting disagreements between such issuer and the firm in connection with an audit report furnished or prepared by the firm for such issuer; and
• such other information as the rules of the Board or the Commission shall specify as necessary or appropriate in the public interest or for the protection of investors.
• Consents. Each application for registration under this subsection shall include—
• a consent executed by the public accounting firm to cooperation in and compliance with any request for testimony or the production of documents made by the Board in the furtherance of its authority and responsibilities under this title [15 USCS §§ 7211 et seq.] (and an agreement to secure and enforce similar consents from each of the associated persons of the public accounting firm as a condition of their continued employment by or other association with such firm); and
• a statement that such firm understands and agrees that cooperation and compliance, as described in the consent required by subparagraph (A), and the securing and enforcement of such consents from its associated persons, in accordance with the rules of the Board, shall be a condition to the continuing effectiveness of the registration of the firm with the Board.

(c) Action on applications.

• Timing. The Board shall approve a completed application for registration not later than 45 days after the date of receipt of the application, in accordance with the rules of the Board, unless the Board, prior to such date, issues a written notice of disapproval to, or requests more information from, the prospective registrant.
• Treatment. A written notice of disapproval of a completed application under paragraph (1) for registration shall be treated as a disciplinary sanction for purposes of sections 105(d) and 107(c)[15 USCS §§ 7215(d), 7217(c)].

(d) Periodic reports. Each registered public accounting firm shall submit an annual report to the Board, and may be required to report more frequently, as necessary to update the information contained in its application for registration under this section, and to provide to the Board such additional information as the Board or the Commission may specify, in accordance with subsection (b)(2).

(e) Public availability. Registration applications and annual reports required by this subsection, or such portions of such applications or reports as may be designated under rules of the Board, shall be made available for public inspection, subject to rules of the Board or the Commission, and to applicable laws relating to the confidentiality of proprietary, personal, or other information contained in such applications or reports, provided that, in all events, the Board shall protect from public disclosure information reasonably identified by the subject accounting firm as proprietary information.

(f) Registration and annual fees. The Board shall assess and collect a registration fee and an annual fee from each registered public accounting firm, in amounts that are sufficient to recover the costs of processing and reviewing applications and annual reports.

§ 7213. Auditing, quality control, and independence standards and rules

(a) Auditing, quality control, and ethics standards.

• In general. The Board shall, by rule, establish, including, to the extent it determines appropriate, through adoption of standards proposed by 1 or more professional groups of accountants designated pursuant to paragraph (3)(A) or advisory groups convened pursuant to paragraph (4), and amend or otherwise modify or alter, such auditing and related attestation standards, such quality control standards, and such ethics standards to be used by registered public accounting firms in the preparation and issuance of audit reports, as required by this Act or the rules of the Commission, or as may be necessary or appropriate in the public interest or for the protection of investors.
• Rule requirements. In carrying out paragraph (1), the Board—
• shall include in the auditing standards that it adopts, requirements that each registered public accounting firm shall—
• prepare, and maintain for a period of not less than 7 years, audit work papers, and other information related to any audit report, in sufficient detail to support the conclusions reached in such report;
• provide a concurring or second partner review and approval of such audit report (and other related information), and concurring approval in its issuance, by a qualified person (as prescribed by the Board) associated with the public accounting firm, other than the person in charge of the audit, or by an independent reviewer (as prescribed by the Board); and
• describe in each audit report the scope of the auditor's testing of the internal control structure and procedures of the issuer, required by section 404(b) [15 USCS § 7262(b)], and present (in such report or in a separate report)—
• the findings of the auditor from such testing;
• an evaluation of whether such internal control structure and procedures—
• include maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
• a description, at a minimum, of material weaknesses in such internal controls, and of any material noncompliance found on the basis of such testing.
• shall include, in the quality control standards that it adopts with respect to the issuance of audit reports, requirements for every registered public accounting firm relating to—
• monitoring of professional ethics and independence from issuers on behalf of which the firm issues audit reports;
• consultation within such firm on accounting and auditing questions;
• supervision of audit work;
• hiring, professional development, advancement of personnel;
• the acceptance and continuation of engagements;
• internal inspection; and
• such other requirements as the Board may prescribe, subject to subsection (a)(1).
• Authority to adopt other standards.
• In general. In carrying out this subsection, the Board—
• may adopt as its rules, subject to the terms of section 107 [15 USCS § 7217], any portion of any statement of auditing standards or other professional standards that the Board determines satisfy the requirements of paragraph (1), and that were proposed by 1 or more professional groups of accountants that shall be designated or recognized by the Board, by rule, for such purpose, pursuant to this paragraph or 1 or more advisory groups convened pursuant to paragraph (4); and
• notwithstanding clause (i), shall retain full authority to modify, supplement, revise, or subsequently amend, modify, or repeal, in whole or in part, any portion of any statement described in clause (i).
• Initial and transitional standards. The Board shall adopt standards described in subparagraph (A)(i) as initial or transitional standards, to the extent the Board determines necessary, prior to a determination of the Commission under section 101(d) [15 USCS § 7211(d)], and such standards shall be separately approved by the Commission at the time of that determination, without regard to the procedures required by section 107 [15 USCS § 7217] that otherwise would apply to the approval of rules of the Board.
• Advisory groups. The Board shall convene, or authorize its staff to convene, such expert advisory groups as may be appropriate, which may include practicing accountants and other experts, as well as representatives of other interested groups, subject to such rules as the Board may prescribe to prevent conflicts of interest, to make recommendations concerning the content (including proposed drafts) of auditing, quality control, ethics, independence, or other standards required to be established under this section.

(b) Independence standards and rules. The Board shall establish such rules as may be necessary or appropriate in the public interest or for the protection of investors, to implement, or as authorized under, title II of this Act.

(c) Cooperation with designated professional groups of accountants and advisory groups.

• In general. The Board shall cooperate on an ongoing basis with professional groups of accountants designated under subsection (a)(3)(A) and advisory groups convened under subsection (a)(4) in the examination of the need for changes in any standards subject to its authority under subsection (a), recommend issues for inclusion on the agendas of such designated professional groups of accountants or advisory groups, and take such other steps as it deems appropriate to increase the effectiveness of the standard setting process.
• Board responses. The Board shall respond in a timely fashion to requests from designated professional groups of accountants and advisory groups referred to in paragraph (1) for any changes in standards over which the Board has authority.

(d) Evaluation of standard setting process. The Board shall include in the annual report required by section 101(h) [15 USCS § 7211(h)] the results of its standard setting responsibilities during the period to which the report relates, including a discussion of the work of the Board with any designated professional groups of accountants and advisory groups described in paragraphs (3)(A) and (4) of subsection (a), and its pending issues agenda for future standard setting projects.

§ 7214. Inspections of registered public accounting firms

(a) In general. The Board shall conduct a continuing program of inspections to assess the degree of compliance of each registered public accounting firm and associated persons of that firm with this Act, the rules of the Board, the rules of the Commission, or professional standards, in connection with its performance of audits, issuance of audit reports, and related matters involving issuers.

(b) Inspection frequency.

• In general. Subject to paragraph (2), inspections required by this section shall be conducted—
• annually with respect to each registered public accounting firm that regularly provides audit reports for more than 100 issuers; and
• not less frequently than once every 3 years with respect to each registered public accounting firm that regularly provides audit reports for 100 or fewer issuers.
• Adjustments to schedules. The Board may, by rule, adjust the inspection schedules set under paragraph (1) if the Board finds that different inspection schedules are consistent with the purposes of this Act, the public interest, and the protection of investors. The Board may conduct special inspections at the request of the Commission or upon its own motion.

(c) Procedures. The Board shall, in each inspection under this section, and in accordance with its rules for such inspections—

• identify any act or practice or omission to act by the registered public accounting firm, or by any associated person thereof, revealed by such inspection that may be in violation of this Act, the rules of the Board, the rules of the Commission, the firm's own quality control policies, or professional standards;
• report any such act, practice, or omission, if appropriate, to the Commission and each appropriate State regulatory authority; and
• begin a formal investigation or take disciplinary action, if appropriate, with respect to any such violation, in accordance with this Act and the rules of the Board.

(d) Conduct of inspections. In conducting an inspection of a registered public accounting firm under this section, the Board shall—

• inspect and review selected audit and review engagements of the firm (which may include audit engagements that are the subject of ongoing litigation or other controversy between the firm and 1 or more third parties), performed at various offices and by various associated persons of the firm, as selected by the Board;
• evaluate the sufficiency of the quality control system of the firm, and the manner of the documentation and communication of that system by the firm; and
• perform such other testing of the audit, supervisory, and quality control procedures of the firm as are necessary or appropriate in light of the purpose of the inspection and the responsibilities of the Board.

(e) Record retention. The rules of the Board may require the retention by registered public accounting firms for inspection purposes of records whose retention is not otherwise required by section 103 [15 USCS § 7213] or the rules issued thereunder.

(f) Procedures for review. The rules of the Board shall provide a procedure for the review of and response to a draft inspection report by the registered public accounting firm under inspection. The Board shall take such action with respect to such response as it considers appropriate (including revising the draft report or continuing or supplementing its inspection activities before issuing a final report), but the text of any such response, appropriately redacted to protect information reasonably identified by the accounting firm as confidential, shall be attached to and made part of the inspection report.

(g) Report. A written report of the findings of the Board for each inspection under this section, subject to subsection (h), shall be—

• transmitted, in appropriate detail, to the Commission and each appropriate State regulatory authority, accompanied by any letter or comments by the Board or the inspector, and any letter of response from the registered public accounting firm; and
• made available in appropriate detail to the public (subject to section 105(b)(5)(A) [15 USCS § 7215(b)(5)(A)], and to the protection of such confidential and proprietary information as the Board may determine to be appropriate, or as may be required by law), except that no portions of the inspection report that deal with criticisms of or potential defects in the quality control systems of the firm under inspection shall be made public if those criticisms or defects are addressed by the firm, to the satisfaction of the Board, not later than 12 months after the date of the inspection report.

(h) Interim Commission review.

• Reviewable matters. A registered public accounting firm may seek review by the Commission, pursuant to such rules as the Commission shall promulgate, if the firm—
• has provided the Board with a response, pursuant to rules issued by the Board under subsection (f), to the substance of particular items in a draft inspection report, and disagrees with the assessments contained in any final report prepared by the Board following such response; or
• disagrees with the determination of the Board that criticisms or defects identified in an inspection report have not been addressed to the satisfaction of the Board within 12 months of the date of the inspection report, for purposes of subsection (g)(2).
• Treatment of review. Any decision of the Commission with respect to a review under paragraph (1) shall not be reviewable under section 25 of the Securities Exchange Act of 1934 (15 U.S.C. 78y), or deemed to be “final agency action” for purposes of section 704 of title 5, United States Code.
• Timing. Review under paragraph (1) may be sought during the 30-day period following the date of the event giving rise to the review under subparagraph (A) or (B) of paragraph (1).

§ 7215. Investigations and disciplinary proceedings

(a) In general. The Board shall establish, by rule, subject to the requirements of this section, fair procedures for the investigation and disciplining of registered public accounting firms and associated persons of such firms.

(b) Investigations.

• Authority. In accordance with the rules of the Board, the Board may conduct an investigation of any act or practice, or omission to act, by a registered public accounting firm, any associated person of such firm, or both, that may violate any provision of this Act, the rules of the Board, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, including the rules of the Commission issued under this Act, or professional standards, regardless of how the act, practice, or omission is brought to the attention of the Board.
• Testimony and document production. In addition to such other actions as the Board determines to be necessary or appropriate, the rules of the Board may—
• require the testimony of the firm or of any person associated with a registered public accounting firm, with respect to any matter that the Board considers relevant or material to an investigation;
• require the production of audit work papers and any other document or information in the possession of a registered public accounting firm or any associated person thereof, wherever domiciled, that the Board considers relevant or material to the investigation, and may inspect the books and records of such firm or associated person to verify the accuracy of any documents or information supplied;
• request the testimony of, and production of any document in the possession of, any other person, including any client of a registered public accounting firm that the Board considers relevant or material to an investigation under this section, with appropriate notice, subject to the needs of the investigation, as permitted under the rules of the Board; and
• provide for procedures to seek issuance by the Commission, in a manner established by the Commission, of a subpoena to require the testimony of, and production of any document in the possession of, any person, including any client of a registered public accounting firm, that the Board considers relevant or material to an investigation under this section.
• Noncooperation with investigations.
• In general. If a registered public accounting firm or any associated person thereof refuses to testify, produce documents, or otherwise cooperate with the Board in connection with an investigation under this section, the Board may—
• suspend or bar such person from being associated with a registered public accounting firm, or require the registered public accounting firm to end such association;
• suspend or revoke the registration of the public accounting firm; and
• invoke such other lesser sanctions as the Board considers appropriate, and as specified by rule of the Board.
• Procedure. Any action taken by the Board under this paragraph shall be subject to the terms of section 107(c) [15 USCS § 7217(c)].
• Coordination and referral of investigations.
• Coordination. The Board shall notify the Commission of any pending Board investigation involving a potential violation of the securities laws, and thereafter coordinate its work with the work of the Commission's Division of Enforcement, as necessary to protect an ongoing Commission investigation.
• Referral. The Board may refer an investigation under this section—
• to the Commission;
• to any other Federal functional regulator (as defined in section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809)), in the case of an investigation that concerns an audit report for an institution that is subject to the jurisdiction of such regulator; and
• at the direction of the Commission, to—
• the Attorney General of the United States;
• the attorney general of 1 or more States; and
• the appropriate State regulatory authority.
• Use of documents.
• Confidentiality. Except as provided in subparagraph (B), all documents and information prepared or received by or specifically for the Board, and deliberations of the Board and its employees and agents, in connection with an inspection under section 104 [15 USCS § 7214] or with an investigation under this section, shall be confidential and privileged as an evidentiary matter (and shall not be subject to civil discovery or other legal process) in any proceeding in any Federal or State court or administrative agency, and shall be exempt from disclosure, in the hands of an agency or establishment of the Federal Government, under the Freedom of Information Act (5 U.S.C. 552a), or otherwise, unless and until presented in connection with a public proceeding or released in accordance with subsection (c).
• Availability to government agencies. Without the loss of its status as confidential and privileged in the hands of the Board, all information referred to in subparagraph (A) may—
• be made available to the Commission; and
• in the discretion of the Board, when determined by the Board to be necessary to accomplish the purposes of this Act or to protect investors, be made available to—
• the Attorney General of the United States;
• the appropriate Federal functional regulator (as defined in section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809)), other than the Commission, with respect to an audit report for an institution subject to the jurisdiction of such regulator;
• State attorneys general in connection with any criminal investigation; and
• any appropriate State regulatory authority, each of which shall maintain such information as confidential and privileged.
• Immunity. Any employee of the Board engaged in carrying out an investigation under this Act shall be immune from any civil liability arising out of such investigation in the same manner and to the same extent as an employee of the Federal Government in similar circumstances.

(c) Disciplinary procedures.

• Notification; recordkeeping. The rules of the Board shall provide that in any proceeding by the Board to determine whether a registered public accounting firm, or an associated person thereof, should be disciplined, the Board shall—
• bring specific charges with respect to the firm or associated person;
• notify such firm or associated person of, and provide to the firm or associated person an opportunity to defend against, such charges; and
• keep a record of the proceedings.
• Public hearings. Hearings under this section shall not be public, unless otherwise ordered by the Board for good cause shown, with the consent of the parties to such hearing.
• Supporting statement. A determination by the Board to impose a sanction under this subsection shall be supported by a statement setting forth—
• each act or practice in which the registered public accounting firm, or associated person, has engaged (or omitted to engage), or that forms a basis for all or a part of such sanction;
• the specific provision of this Act, the securities laws, the rules of the Board, or professional standards which the Board determines has been violated; and
• the sanction imposed, including a justification for that sanction.
• Sanctions. If the Board finds, based on all of the facts and circumstances, that a registered public accounting firm or associated person thereof has engaged in any act or practice, or omitted to act, in violation of this Act, the rules of the Board, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, including the rules of the Commission issued under this Act, or professional standards, the Board may impose such disciplinary or remedial sanctions as it determines appropriate, subject to applicable limitations under paragraph (5), including—
• temporary suspension or permanent revocation of registration under this title [15 USCS §§ 7211 et seq.];
• temporary or permanent suspension or bar of a person from further association with any registered public accounting firm;
• temporary or permanent limitation on the activities, functions, or operations of such firm or person (other than in connection with required additional professional education or training);
• a civil money penalty for each such violation, in an amount equal to—
• not more than $100,000 for a natural person or$ 2,000,000 for any other person; and
• in any case to which paragraph (5) applies, not more than $750,000 for a natural person or$ 15,000,000 for any other person;
• censure;
• required additional professional education or training; or
• any other appropriate sanction provided for in the rules of the Board.
• Intentional or other knowing conduct. The sanctions and penalties described in subparagraphs (A) through (C) and (D)(ii) of paragraph (4) shall only apply to—
• intentional or knowing conduct, including reckless conduct, that results in violation of the applicable statutory, regulatory, or professional standard; or
• repeated instances of negligent conduct, each resulting in a violation of the applicable statutory, regulatory, or professional standard.
• Failure to supervise.
• In general. The Board may impose sanctions under this section on a registered accounting firm or upon the supervisory personnel of such firm, if the Board finds that—
• the firm has failed reasonably to supervise an associated person, either as required by the rules of the Board relating to auditing or quality control standards, or otherwise, with a view to preventing violations of this Act, the rules of the Board, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, including the rules of the Commission under this Act, or professional standards; and
• such associated person commits a violation of this Act, or any of such rules, laws, or standards.
• Rule of construction. No associated person of a registered public accounting firm shall be deemed to have failed reasonably to supervise any other person for purposes of subparagraph (A), if—
• there have been established in and for that firm procedures, and a system for applying such procedures, that comply with applicable rules of the Board and that would reasonably be expected to prevent and detect any such violation by such associated person; and
• such person has reasonably discharged the duties and obligations incumbent upon that person by reason of such procedures and system, and had no reasonable cause to believe that such procedures and system were not being complied with.
• Effect of suspension.
• Association with a public accounting firm. It shall be unlawful for any person that is suspended or barred from being associated with a registered public accounting firm under this subsection willfully to become or remain associated with any registered public accounting firm, or for any registered public accounting firm that knew, or, in the exercise of reasonable care should have known, of the suspension or bar, to permit such an association, without the consent of the Board or the Commission.
• Association with an issuer. It shall be unlawful for any person that is suspended or barred from being associated with an issuer under this subsection willfully to become or remain associated with any issuer in an accountancy or a financial management capacity, and for any issuer that knew, or in the exercise of reasonable care should have known, of such suspension or bar, to permit such an association, without the consent of the Board or the Commission.

(d) Reporting of sanctions.

• Recipients. If the Board imposes a disciplinary sanction, in accordance with this section, the Board shall report the sanction to—
• the Commission;
• any appropriate State regulatory authority or any foreign accountancy licensing board with which such firm or person is licensed or certified; and
• the public (once any stay on the imposition of such sanction has been lifted).
• Contents. The information reported under paragraph (1) shall include—
• the name of the sanctioned person;
• a description of the sanction and the basis for its imposition; and
• such other information as the Board deems appropriate.

(e) Stay of sanctions.

• In general. Application to the Commission for review, or the institution by the Commission of review, of any disciplinary action of the Board shall operate as a stay of any such disciplinary action, unless and until the Commission orders (summarily or after notice and opportunity for hearing on the question of a stay, which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that no such stay shall continue to operate.
• Expedited procedures. The Commission shall establish for appropriate cases an expedited procedure for consideration and determination of the question of the duration of a stay pending review of any disciplinary action of the Board under this subsection.

§ 7216. Foreign public accounting firms

(a) Applicability to certain foreign firms.

• In general. Any foreign public accounting firm that prepares or furnishes an audit report with respect to any issuer, shall be subject to this Act and the rules of the Board and the Commission issued under this Act, in the same manner and to the same extent as a public accounting firm that is organized and operates under the laws of the United States or any State, except that registration pursuant to section 102 [15 USCS § 7212] shall not by itself provide a basis for subjecting such a foreign public accounting firm to the jurisdiction of the Federal or State courts, other than with respect to controversies between such firms and the Board.
• Board authority. The Board may, by rule, determine that a foreign public accounting firm (or a class of such firms) that does not issue audit reports nonetheless plays such a substantial role in the preparation and furnishing of such reports for particular issuers, that it is necessary or appropriate, in light of the purposes of this Act and in the public interest or for the protection of investors, that such firm (or class of firms) should be treated as a public accounting firm (or firms) for purposes of registration under, and oversight by the Board in accordance with, this title [15 USCS §§ 7211 et seq.].

(b) Production of audit workpapers.

• Consent by foreign firms. If a foreign public accounting firm issues an opinion or otherwise performs material services upon which a registered public accounting firm relies in issuing all or part of any audit report or any opinion contained in an audit report, that foreign public accounting firm shall be deemed to have consented—
• to produce its audit workpapers for the Board or the Commission in connection with any investigation by either body with respect to that audit report; and
• to be subject to the jurisdiction of the courts of the United States for purposes of enforcement of any request for production of such workpapers.
• Consent by domestic firms. A registered public accounting firm that relies upon the opinion of a foreign public accounting firm, as described in paragraph (1), shall be deemed—
• to have consented to supplying the audit workpapers of that foreign public accounting firm in response to a request for production by the Board or the Commission; and
• to have secured the agreement of that foreign public accounting firm to such production, as a condition of its reliance on the opinion of that foreign public accounting firm.

(c) Exemption authority. The Commission, and the Board, subject to the approval of the Commission, may, by rule, regulation, or order, and as the Commission (or Board) determines necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions exempt any foreign public accounting firm, or any class of such firms, from any provision of this Act or the rules of the Board or the Commission issued under this Act.

(d) Definition. In this section, the term “foreign public accounting firm” means a public accounting firm that is organized and operates under the laws of a foreign government or political subdivision thereof.

§ 7217. Commission oversight of the Board

(a) General oversight responsibility. The Commission shall have oversight and enforcement authority over the Board, as provided in this Act. The provisions of section 17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)), and of section 17(b)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(b)(1)) shall apply to the Board as fully as if the Board were a “registered securities association” for purposes of those sections 17(a)(1) and 17(b)(1) [15 USCS § 78q(a)(1), (b)(1)].

(b) Rules of the Board.

• Definition. In this section, the term “proposed rule” means any proposed rule of the Board, and any modification of any such rule.
• Prior approval required. No rule of the Board shall become effective without prior approval of the Commission in accordance with this section, other than as provided in section 103(a)(3)(B) [15 USCS § 7213(a)(3)(B)] with respect to initial or transitional standards.
• Approval criteria. The Commission shall approve a proposed rule, if it finds that the rule is consistent with the requirements of this Act and the securities laws, or is necessary or appropriate in the public interest or for the protection of investors.
• Proposed rule procedures. The provisions of paragraphs (1) through (3) of section 19(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) shall govern the proposed rules of the Board, as fully as if the Board were a “registered securities association” for purposes of that section 19(b) [15 USCS § 78s(b)], except that, for purposes of this paragraph—
• the phrase “consistent with the requirements of this title and the rules and regulations thereunder applicable to such organization” in section 19(b)(2) of that Act [15 USCS § 78s(b)(2)] shall be deemed to read “consistent with the requirements of title I of the Sarbanes-Oxley Act of 2002 [15 USCS §§ 7211 et seq.], and the rules and regulations issued thereunder applicable to such organization, or as necessary or appropriate in the public interest or for the protection of investors”; and
• the phrase “otherwise in furtherance of the purposes of this title” in section 19(b)(3)(C) of that Act [15 USCS § 78s(b)(3)(C)] shall be deemed to read “otherwise in furtherance of the purposes of title I of the Sarbanes-Oxley Act of 2002 [15 USCS §§ 7211 et seq.]”.
• Commission authority to amend rules of the Board. The provisions of section 19(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78s(c)) shall govern the abrogation, deletion, or addition to portions of the rules of the Board by the Commission as fully as if the Board were a “registered securities association” for purposes of that section 19(c) [15 USCS § 78s(c)], except that the phrase “to conform its rules to the requirements of this title and the rules and regulations thereunder applicable to such organization, or otherwise in furtherance of the purposes of this title” in section 19(c) of that Act [15 USCS § 78s(c)] shall, for purposes of this paragraph, be deemed to read “to assure the fair administration of the Public Company Accounting Oversight Board, conform the rules promulgated by that Board to the requirements of title I of the Sarbanes-Oxley Act of 2002 [15 USCS §§ 7211 et seq.], or otherwise further the purposes of that Act, the securities laws, and the rules and regulations thereunder applicable to that Board”.

(c) Commission review of disciplinary action taken by the Board.

• Notice of sanction. The Board shall promptly file notice with the Commission of any final sanction on any registered public accounting firm or on any associated person thereof, in such form and containing such information as the Commission, by rule, may prescribe.
• Review of sanctions. The provisions of sections 19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78s(d)(2) and (e)(1)) shall govern the review by the Commission of final disciplinary sanctions imposed by the Board (including sanctions imposed under section 105(b)(3) of this Act [15 USCS § 7215(b)(3)] for noncooperation in an investigation of the Board), as fully as if the Board were a self-regulatory organization and the Commission were the appropriate regulatory agency for such organization for purposes of those sections 19(d)(2) and 19(e)(1) [15 USCS § 78s(d)(2), (e)(1)], except that, for purposes of this paragraph—
• section 105(e) of this Act [15 USCS § 7215(e)] (rather than that section 19(d)(2) [15 USCS § 78s(d)(2)]) shall govern the extent to which application for, or institution by the Commission on its own motion of, review of any disciplinary action of the Board operates as a stay of such action;
• references in that section 19(e)(1) [15 USCS § 78s(e)(1)] to “members” of such an organization shall be deemed to be references to registered public accounting firms;
• the phrase “consistent with the purposes of this title” in that section 19(e)(1) [15 USCS § 78s(e)(1)] shall be deemed to read “consistent with the purposes of this title and title I of the Sarbanes-Oxley Act of 2002 [15 USCS §§ 78a et seq., 7211 et seq.]”;
• references to rules of the Municipal Securities Rulemaking Board in that section 19(e)(1) [15 USCS § 78s(e)(1)] shall not apply; and
• the reference to section 19(e)(2) of the Securities Exchange Act of 1934 [15 USCS § 78s(e)(2)] shall refer instead to section 107(c)(3) of this Act [15 USCS § 7217(c)(3)].
• Commission modification authority. The Commission may enhance, modify, cancel, reduce, or require the remission of a sanction imposed by the Board upon a registered public accounting firm or associated person thereof, if the Commission, having due regard for the public interest and the protection of investors, finds, after a proceeding in accordance with this subsection, that the sanction—
• is not necessary or appropriate in furtherance of this Act or the securities laws; or
• is excessive, oppressive, inadequate, or otherwise not appropriate to the finding or the basis on which the sanction was imposed.

(d) Censure of the Board; other sanctions.

• Rescission of Board authority. The Commission, by rule, consistent with the public interest, the protection of investors, and the other purposes of this Act and the securities laws, may relieve the Board of any responsibility to enforce compliance with any provision of this Act, the securities laws, the rules of the Board, or professional standards.
• Censure of the Board; limitations. The Commission may, by order, as it determines necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act or the securities laws, censure or impose limitations upon the activities, functions, and operations of the Board, if the Commission finds, on the record, after notice and opportunity for a hearing, that the Board—
• has violated or is unable to comply with any provision of this Act, the rules of the Board, or the securities laws; or
• without reasonable justification or excuse, has failed to enforce compliance with any such provision or rule, or any professional standard by a registered public accounting firm or an associated person thereof.
• Censure of Board members; removal from office. The Commission may, as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act or the securities laws, remove from office or censure any member of the Board, if the Commission finds, on the record, after notice and opportunity for a hearing, that such member—
• has willfully violated any provision of this Act, the rules of the Board, or the securities laws;
• has willfully abused the authority of that member; or
• without reasonable justification or excuse, has failed to enforce compliance with any such provision or rule, or any professional standard by any registered public accounting firm or any associated person thereof.

§ 7218. Accounting standards

(a) [Omitted]

(b) Commission authority. The Commission shall promulgate such rules and regulations to carry out section 19(b) of the Securities Act of 1933 [15 USCS § 77s(b)], as added by this section, as it deems necessary or appropriate in the public interest or for the protection of investors.

(c) No effect on Commission powers. Nothing in this Act, including this section and the amendment made by this section, shall be construed to impair or limit the authority of the Commission to establish accounting principles or standards for purposes of enforcement of the securities laws.

(d) Study and report on adopting principles-based accounting.

• Study.
• In general. The Commission shall conduct a study on the adoption by the United States financial reporting system of a principles-based accounting system.
• Study topics. The study required by subparagraph (A) shall include an examination of—
• the extent to which principles-based accounting and financial reporting exists in the United States;
• the length of time required for change from a rules-based to a principles-based financial reporting system;
• the feasibility of and proposed methods by which a principles-based system may be implemented; and
• a thorough economic analysis of the implementation of a principles-based system.
• Report. Not later than 1 year after the date of enactment of this Act [enacted July 30, 2002], the Commission shall submit a report on the results of the study required by paragraph (1) to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.

§ 7219. Funding

(a) In general. The Board, and the standard setting body designated pursuant to section 19(b) of the Securities Act of 1933 [15 USCS § 77s(b)], as amended by section 108 [15 USCS § 7218], shall be funded as provided in this section.

(b) Annual budgets. The Board and the standard setting body referred to in subsection (a) shall each establish a budget for each fiscal year, which shall be reviewed and approved according to their respective internal procedures not less than 1 month prior to the commencement of the fiscal year to which the budget pertains (or at the beginning of the Board's first fiscal year, which may be a short fiscal year). The budget of the Board shall be subject to approval by the Commission. The budget for the first fiscal year of the Board shall be prepared and approved promptly following the appointment of the initial five Board members, to permit action by the Board of the organizational tasks contemplated by section 101(d) [15 USCS § 7211(d)].

(c) Sources and uses of funds.

• Recoverable budget expenses. The budget of the Board (reduced by any registration or annual fees received under section 102(e) [15 USCS § 7212(e)] for the year preceding the year for which the budget is being computed), and all of the budget of the standard setting body referred to in subsection (a), for each fiscal year of each of those 2 entities, shall be payable from annual accounting support fees, in accordance with subsections (d) and (e). Accounting support fees and other receipts of the Board and of such standard-setting body shall not be considered public monies of the United States.
• Funds generated from the collection of monetary penalties. Subject to the availability in advance in an appropriations Act, and notwithstanding subsection (i), all funds collected by the Board as a result of the assessment of monetary penalties shall be used to fund a merit scholarship program for undergraduate and graduate students enrolled in accredited accounting degree programs, which program is to be administered by the Board or by an entity or agent identified by the Board.

(d) Annual accounting support fee for the Board.

• Establishment of fee. The Board shall establish, with the approval of the Commission, a reasonable annual accounting support fee (or a formula for the computation thereof), as may be necessary or appropriate to establish and maintain the Board. Such fee may also cover costs incurred in the Board's first fiscal year (which may be a short fiscal year), or may be levied separately with respect to such short fiscal year.
• Assessments. The rules of the Board under paragraph (1) shall provide for the equitable allocation, assessment, and collection by the Board (or an agent appointed by the Board) of the fee established under paragraph (1), among issuers, in accordance with subsection (g), allowing for differentiation among classes of issuers, as appropriate.

(e) Annual accounting support fee for standard setting body. The annual accounting support fee for the standard setting body referred to in subsection (a)—

• shall be allocated in accordance with subsection (g), and assessed and collected against each issuer, on behalf of the standard setting body, by 1 or more appropriate designated collection agents, as may be necessary or appropriate to pay for the budget and provide for the expenses of that standard setting body, and to provide for an independent, stable source of funding for such body, subject to review by the Commission; and
• may differentiate among different classes of issuers.

(f) Limitation on fee. The amount of fees collected under this section for a fiscal year on behalf of the Board or the standards setting body, as the case may be, shall not exceed the recoverable budget expenses of the Board or body, respectively (which may include operating, capital, and accrued items), referred to in subsection (c)(1).

(g) Allocation of accounting support fees among issuers. Any amount due from issuers (or a particular class of issuers) under this section to fund the budget of the Board or the standard setting body referred to in subsection (a) shall be allocated among and payable by each issuer (or each issuer in a particular class, as applicable) in an amount equal to the total of such amount, multiplied by a fraction—

• the numerator of which is the average monthly equity market capitalization of the issuer for the 12-month period immediately preceding the beginning of the fiscal year to which such budget relates; and
• the denominator of which is the average monthly equity market capitalization of all such issuers for such 12-month period.

(h) [Omitted]

(i) Rule of construction. Nothing in this section shall be construed to render either the Board, the standard setting body referred to in subsection (a), or both, subject to procedures in Congress to authorize or appropriate public funds, or to prevent such organization from utilizing additional sources of revenue for its activities, such as earnings from publication sales, provided that each additional source of revenue shall not jeopardize, in the judgment of the Commission, the actual and perceived independence of such organization.

(j) Start-up expenses of the Board. From the unexpended balances of the appropriations to the Commission for fiscal year 2003, the Secretary of the Treasury is authorized to advance to the Board not to exceed the amount necessary to cover the expenses of the Board during its first fiscal year (which may be a short fiscal year).

Auditor Independence

§ 7231. Exemption authority

The Board may, on a case by case basis, exempt any person, issuer, public accounting firm, or transaction from the prohibition on the provision of services under section 10A(g) of the Securities Exchange Act of 1934 [15 USCS § 78j-1(g)] (as added by this section), to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors, and subject to review by the Commission in the same manner as for rules of the Board under section 107 [15 USCS § 7217].

§ 7232. Study of mandatory rotation of registered public accounting firms

(a) Study and review required. The Comptroller General of the United States shall conduct a study and review of the potential effects of requiring the mandatory rotation of registered public accounting firms.

(b) Report required. Not later than 1 year after the date of enactment of this Act [enacted July 30, 2002], the Comptroller General shall submit a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives on the results of the study and review required by this section.

(c) Definition. For purposes of this section, the term “mandatory rotation” refers to the imposition of a limit on the period of years in which a particular registered public accounting firm may be the auditor of record for a particular issuer.

§ 7233. Commission authority

(a) Commission regulations. Not later than 180 days after the date of enactment of this Act [enacted July 30, 2002], the Commission shall issue final regulations to carry out each of subsections (g) through (l) of section 10A of the Securities Exchange Act of 1934 [15 USCS § 78j-1], as added by this title.

(b) Auditor independence. It shall be unlawful for any registered public accounting firm (or an associated person thereof, as applicable) to prepare or issue any audit report with respect to any issuer, if the firm or associated person engages in any activity with respect to that issuer prohibited by any of subsections (g) through (l) of section 10A of the Securities Exchange Act of 1934 [15 USCS § 78j-1], as added by this title, or any rule or regulation of the Commission or of the Board issued thereunder.

§ 7234. Considerations by appropriate State regulatory authorities

In supervising nonregistered public accounting firms and their associated persons, appropriate State regulatory authorities should make an independent determination of the proper standards applicable, particularly taking into consideration the size and nature of the business of the accounting firms they supervise and the size and nature of the business of the clients of those firms. The standards applied by the Board under this Act should not be presumed to be applicable for purposes of this section for small and medium sized nonregistered public accounting firms.

Corporate Responsibility

§ 7241. Corporate responsibility for financial reports

(a) Regulations required. The Commission shall, by rule, require, for each company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted under either such section of such Act that—

• the signing officer has reviewed the report;
• based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;
• based on such officer's knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report;
• the signing officers—
• are responsible for establishing and maintaining internal controls;
• have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;
• have evaluated the effectiveness of the issuer's internal controls as of a date within 90 days prior to the report; and
• have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;
• the signing officers have disclosed to the issuer's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function)—
• all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer's ability to record, process, summarize, and report financial data and have identified for the issuer's auditors any material weaknesses in internal controls; and
• any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and
• the signing officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

(b) Foreign reincorporations have no effect. Nothing in this section 302 [this section] shall be interpreted or applied in any way to allow any issuer to lessen the legal force of the statement required under this section 302 [this section], by an issuer having reincorporated or having engaged in any other transaction that resulted in the transfer of the corporate domicile or offices of the issuer from inside the United States to outside of the United States.

(c) Deadline. The rules required by subsection (a) shall be effective not later than 30 days after the date of enactment of this Act [enacted July 30, 2002].

§ 7242. Improper influence on conduct of audits

(a) Rules to prohibit. It shall be unlawful, in contravention of such rules or regulations as the Commission shall prescribe as necessary and appropriate in the public interest or for the protection of investors, for any officer or director of an issuer, or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the performance of an audit of the financial statements of that issuer for the purpose of rendering such financial statements materially misleading.

(b) Enforcement. In any civil proceeding, the Commission shall have exclusive authority to enforce this section and any rule or regulation issued under this section.

(c) No preemption of other law. The provisions of subsection (a) shall be in addition to, and shall not supersede or preempt, any other provision of law or any rule or regulation issued thereunder.

(d) Deadline for rulemaking. The Commission shall—

• propose the rules or regulations required by this section, not later than 90 days after the date of enactment of this Act [enacted July 30, 2002]; and
• issue final rules or regulations required by this section, not later than 270 days after that date of enactment [enacted July 30, 2002].

§ 7243. Forfeiture of certain bonuses and profits

(a) Additional compensation prior to noncompliance with commission financial reporting requirements. If an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall reimburse the issuer for—

• any bonus or other incentive-based or equity-based compensation received by that person from the issuer during the 12-month period following the first public issuance or filing with the Commission (whichever first occurs) of the financial document embodying such financial reporting requirement; and
• any profits realized from the sale of securities of the issuer during that 12-month period.

(b) Commission exemption authority. The Commission may exempt any person from the application of subsection (a), as it deems necessary and appropriate.

§ 7244. Insider trades during pension fund blackout periods

(a) Prohibition of insider trading during pension fund blackout periods.

• In general. Except to the extent otherwise provided by rule of the Commission pursuant to paragraph (3), it shall be unlawful for any director or executive officer of an issuer of any equity security (other than an exempted security), directly or indirectly, to purchase, sell, or otherwise acquire or transfer any equity security of the issuer (other than an exempted security) during any blackout period with respect to such equity security if such director or officer acquires such equity security in connection with his or her service or employment as a director or executive officer.
• Remedy.
• In general. Any profit realized by a director or executive officer referred to in paragraph (1) from any purchase, sale, or other acquisition or transfer in violation of this subsection shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such director or executive officer in entering into the transaction.
• Actions to recover profits. An action to recover profits in accordance with this subsection may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer fails or refuses to bring such action within 60 days after the date of request, or fails diligently to prosecute the action thereafter, except that no such suit shall be brought more than 2 years after the date on which such profit was realized.
• Rulemaking authorized. The Commission shall, in consultation with the Secretary of Labor, issue rules to clarify the application of this subsection and to prevent evasion thereof. Such rules shall provide for the application of the requirements of paragraph (1) with respect to entities treated as a single employer with respect to an issuer under section 414(b), (c), (m), or (o) of the Internal Revenue Code of 1986 [26 USCS § 414(b), (c), (m), or (o)] to the extent necessary to clarify the application of such requirements and to prevent evasion thereof. Such rules may also provide for appropriate exceptions from the requirements of this subsection, including exceptions for purchases pursuant to an automatic dividend reinvestment program or purchases or sales made pursuant to an advance election.
• Blackout period. For purposes of this subsection, the term “blackout period”, with respect to the equity securities of any issuer—
• means any period of more than 3 consecutive business days during which the ability of not fewer than 50 percent of the participants or beneficiaries under all individual account plans maintained by the issuer to purchase, sell, or otherwise acquire or transfer an interest in any equity of such issuer held in such an individual account plan is temporarily suspended by the issuer or by a fiduciary of the plan; and
• does not include, under regulations which shall be prescribed by the Commission—
• a regularly scheduled period in which the participants and beneficiaries may not purchase, sell, or otherwise acquire or transfer an interest in any equity of such issuer, if such period is—
• incorporated into the individual account plan; and
• timely disclosed to employees before becoming participants under the individual account plan or as a subsequent amendment to the plan; or
• any suspension described in subparagraph (A) that is imposed solely in connection with persons becoming participants or beneficiaries, or ceasing to be participants or beneficiaries, in an individual account plan by reason of a corporate merger, acquisition, divestiture, or similar transaction involving the plan or plan sponsor.
• Individual account plan. For purposes of this subsection, the term “individual account plan” has the meaning provided in section 3(34) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(34), except that such term shall not include a one-participant retirement plan (within the meaning of section 101(i)(8)(B) of such Act (29 U.S.C. 1021(i)(8)(B))).
• Notice to directors, executive officers, and the Commission. In any case in which a director or executive officer is subject to the requirements of this subsection in connection with a blackout period (as defined in paragraph (4)) with respect to any equity securities, the issuer of such equity securities shall timely notify such director or officer and the Securities and Exchange Commission of such blackout period.

(b) Notice requirements to participants and beneficiaries under ERISA.

• [Omitted]
• Issuance of initial guidance and model notice. The Secretary of Labor shall issue initial guidance and a model notice pursuant to section 101(i)(6) of the Employee Retirement Income Security Act of 1974 [29 USCS § 1021(i)(6)] (as added by this subsection) not later than January 1, 2003. Not later than 75 days after the date of the enactment of this Act [enacted July 30, 2002, the Secretary shall promulgate interim final rules necessary to carry out the amendments made by this subsection.
• [Omitted]
• [(4)](3) Plan amendments. If any amendment made by this subsection requires an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after the effective date of this section, if—
• during the period after such amendment made by this subsection takes effect and before such first plan year, the plan is operated in good faith compliance with the requirements of such amendment made by this subsection, and
• such plan amendment applies retroactively to the period after such amendment made by this subsection takes effect and before such first plan year.

(c) Effective date. The provisions of this section (including the amendments made thereby) shall take effect 180 days after the date of the enactment of this Act [enacted July 30, 2002]. Good faith compliance with the requirements of such provisions in advance of the issuance of applicable regulations thereunder shall be treated as compliance with such provisions.

§ 7245. Rules of professional responsibility for attorneys

Not later than 180 days after the date of enactment of this Act [enacted July 30, 2002], the Commission shall issue rules, in the public interest and for the protection of investors, setting forth minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers, including a rule—

• requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company (or the equivalent thereof); and
• if the counsel or officer does not appropriately respond to the evidence (adopting, as necessary, appropriate remedial measures or sanctions with respect to the violation), requiring the attorney to report the evidence to the audit committee of the board of directors of the issuer or to another committee of the board of directors comprised solely of directors not employed directly or indirectly by the issuer, or to the board of directors.

§ 7246. Fair funds for investors

(a) Civil penalties added to disgorgement funds for the relief of victims. If in any judicial or administrative action brought by the Commission under the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) the Commission obtains an order requiring disgorgement against any person for a violation of such laws or the rules or regulations thereunder, or such person agrees in settlement of any such action to such disgorgement, and the Commission also obtains pursuant to such laws a civil penalty against such person, the amount of such civil penalty shall, on the motion or at the direction of the Commission, be added to and become part of the disgorgement fund for the benefit of the victims of such violation.

(b) Acceptance of additional donations. The Commission is authorized to accept, hold, administer, and utilize gifts, bequests and devises of property, both real and personal, to the United States for a disgorgement fund described in subsection (a). Such gifts, bequests, and devises of money and proceeds from sales of other property received as gifts, bequests, or devises shall be deposited in the disgorgement fund and shall be available for allocation in accordance with subsection (a).

(c) Study required.

• Subject of study. The Commission shall review and analyze—
• enforcement actions by the Commission over the five years preceding the date of the enactment of this Act [enacted July 30, 2002] that have included proceedings to obtain civil penalties or disgorgements to identify areas where such proceedings may be utilized to efficiently, effectively, and fairly provide restitution for injured investors; and
• other methods to more efficiently, effectively, and fairly provide restitution to injured investors, including methods to improve the collection rates for civil penalties and disgorgements.
• Report required. The Commission shall report its findings to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate within 180 days after of the date of the enactment of this Act [enacted July 30, 2002], and shall use such findings to revise its rules and regulations as necessary. The report shall include a discussion of regulatory or legislative actions that are recommended or that may be necessary to address concerns identified in the study.

(d) [Omitted]

(e) Definition. As used in this section, the term “disgorgement fund” means a fund established in any administrative or judicial proceeding described in subsection (a).

Enhanced Financial Disclosures

§ 7261. Disclosures in periodic reports

(a) [Omitted]

(b) Commission rules on pro forma figures. Not later than 180 days after the date of enactment of the Sarbanes-Oxley Act fo [of] 2002 [enacted July 30, 2002], the Commission shall issue final rules providing that pro forma financial information included in any periodic or other report filed with the Commission pursuant to the securities laws, or in any public disclosure or press or other release, shall be presented in a manner that—

• does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the pro forma financial information, in light of the circumstances under which it is presented, not misleading; and
• reconciles it with the financial condition and results of operations of the issuer under generally accepted accounting principles.

(c) Study and report on special purpose entities.

• Study required. The Commission shall, not later than 1 year after the effective date of adoption of off-balance sheet disclosure rules required by section 13(j) of the Securities Exchange Act of 1934 [15 USCS § 78m(j)], as added by this section, complete a study of filings by issuers and their disclosures to determine—
• the extent of off-balance sheet transactions, including assets, liabilities, leases, losses, and the use of special purpose entities; and
• whether generally accepted accounting rules result in financial statements of issuers reflecting the economics of such off-balance sheet transactions to investors in a transparent fashion.
• Report and recommendations. Not later than 6 months after the date of completion of the study required by paragraph (1), the Commission shall submit a report to the President, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives, setting forth—
• the amount or an estimate of the amount of off-balance sheet transactions, including assets, liabilities, leases, and losses of, and the use of special purpose entities by, issuers filing periodic reports pursuant to section 13 or 15 of the Securities Exchange Act of 1934 [15 USCS § 78m or 78o];
• the extent to which special purpose entities are used to facilitate off-balance sheet transactions;
• whether generally accepted accounting principles or the rules of the Commission result in financial statements of issuers reflecting the economics of such transactions to investors in a transparent fashion;
• whether generally accepted accounting principles specifically result in the consolidation of special purpose entities sponsored by an issuer in cases in which the issuer has the majority of the risks and rewards of the special purpose entity; and
• any recommendations of the Commission for improving the transparency and quality of reporting off-balance sheet transactions in the financial statements and disclosures required to be filed by an issuer with the Commission.

§ 7262. Management assessment of internal controls

(a) Rules required. The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal control report, which shall—

• state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and
• contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.

(b) Internal control evaluation and reporting. With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement.

§ 7263. Exemption

Nothing in section 401 [15 USCS § 7261], 402, or 404 [15 USCS § 7262], the amendments made by those sections, or the rules of the Commission under those sections shall apply to any investment company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8).

§ 7264. Code of ethics for senior financial officers

(a) Code of ethics disclosure. The Commission shall issue rules to require each issuer, together with periodic reports required pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 [15 USCS § 78m(a) or 78o(d)], to disclose whether or not, and if not, the reason therefor, such issuer has adopted a code of ethics for senior financial officers, applicable to its principal financial officer and comptroller or principal accounting officer, or persons performing similar functions.

(b) Changes in codes of ethics. The Commission shall revise its regulations concerning matters requiring prompt disclosure on Form 8-K (or any successor thereto) to require the immediate disclosure, by means of the filing of such form, dissemination by the Internet or by other electronic means, by any issuer of any change in or waiver of the code of ethics for senior financial officers.

(c) Definition. In this section, the term “code of ethics” means such standards as are reasonably necessary to promote—

• honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
• full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the issuer; and
• compliance with applicable governmental rules and regulations.

(d) Deadline for rulemaking. The Commission shall—

• propose rules to implement this section, not later than 90 days after the date of enactment of this Act [enacted July 30, 2002]; and
• issue final rules to implement this section, not later than 180 days after that date of enactment.

§ 7265. Disclosure of audit committee financial expert

(a) Rules defining “financial expert”. The Commission shall issue rules, as necessary or appropriate in the public interest and consistent with the protection of investors, to require each issuer, together with periodic reports required pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934 [15 USCS §§ 78m(a), 78o(d)], to disclose whether or not, and if not, the reasons therefor, the audit committee of that issuer is comprised of at least 1 member who is a financial expert, as such term is defined by the Commission.

(b) Considerations. In defining the term “financial expert” for purposes of subsection (a), the Commission shall consider whether a person has, through education and experience as a public accountant or auditor or a principal financial officer, comptroller, or principal accounting officer of an issuer, or from a position involving the performance of similar functions—

• an understanding of generally accepted accounting principles and financial statements;
• experience in—
• the preparation or auditing of financial statements of generally comparable issuers; and
• the application of such principles in connection with the accounting for estimates, accruals, and reserves;
• experience with internal accounting controls; and
• an understanding of audit committee functions.

(c) Deadline for rulemaking. The Commission shall—

• propose rules to implement this section, not later than 90 days after the date of enactment of this Act [enacted July 30, 2002]; and
• issue final rules to implement this section, not later than 180 days after that date of enactment.

§ 7266. Enhanced review of periodic disclosures by issuers

(a) Regular and systematic review. The Commission shall review disclosures made by issuers reporting under section 13(a) of the Securities Exchange Act of 1934 [15 USCS § 78m(a)] (including reports filed on Form 10-K), and which have a class of securities listed on a national securities exchange or traded on an automated quotation facility of a national securities association, on a regular and systematic basis for the protection of investors. Such review shall include a review of an issuer's financial statement.

Chapter 2. Federal Trade Commission; Promotion of Export Trade and Prevention of Unifair Methods of Competition

§ 41. Federal Trade Commission established; membership; vacancies;

A commission is created and established, to be known as the Federal Trade Commission (hereinafter referred to as the commission), which shall be composed of five commissioners, who shall be appointed by the President, by and with the advice and consent of the Senate. Not more than three of the commissioners shall be members of the same political party. The first commissioners appointed shall continue in office for terms of three, four, five, six, and seven years, respectively, from the date of taking effect of this Act, the term of each to be designated by the President, but their successors shall be appointed for terms of seven years, except that any person chosen to fill a vacancy shall be appointed only for the unexpired term of the commissioner whom he shall succeed: Provided, however, That upon the expiration of his term of office a Commissioner shall continue to serve until his successor shall have been appointed and shall have qualified. The commission [President] shall choose a chairman from its own [the commission's] membership. No commissioner shall engage in any other business, vocation, or employment. Any commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. A vacancy in the commission shall not impair the right of the remaining commissioners to exercise all the powers of the commission.

§ 44. Definitions

The words defined in this section shall have the following meaning when found in this Act, to wit:

“Commerce” means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation.

“Corporation” shall be deemed to include any company, trust, socalled Massachusetts trust, or association, incorporated or unincorporated, which is organized to carry on business for its own profit or that of its members, and has shares of capital or capital stock or certificates of interest, and any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, without shares of capital or capital stock or certificates of interest, except partnerships, which is organized to carry on business for its own profit or that of its members. “Documentary evidence” includes all documents, papers, correspondence, books of account, and financial and corporate records.

“Acts to regulate commerce” means the Act entitled “An Act to regulate commerce,” approved February 14, 1887, and all Acts amendatory thereof and supplementary thereto [49 USCS §§ 10101 et seq.] and the Communications Act of 1934 and all Acts amendatory thereof and supplementary thereto.

“Antitrust Acts” means the Act entitled “An Act to protect trade and commerce against unlawful restraints and monopolies,” approved July 2, 1890; also sections 73 to 76 inclusive, of an Act entitled “An Act to reduce taxation, to provide revenue for the Government, and for other purposes,” approved August 27, 1894 [15 USCS §§ 8–11]; also the Act entitled “An Act to amend sections 73 and 76, of the Act of August 27, 1894, entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes,’” approved February 12, 1913 [amending 15 USCS §§ 8, 11]; and also the Act entitled “An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes,” approved October 15, 1914.

“Banks” means the types of banks and other financial institutions referred to in section 18(f)(2) [15 USCS § 57a(f)(2)].

§ 45. Unfair methods of competition unlawful; prevention by Commission

(a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign trade.

• Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.
• The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks, savings and loan institutions described in section 18(f)(3) [15 USCS § 57a(f)(3)], Federal credit unions described in section 18(f)(4) [15 USCS § 57a(f)(4)], common carriers subject to the Acts to regulate commerce, air carriers and foreign air carriers subject to the Federal Aviation Act of 1958 [49 USCS §§ 40101 et seq.], and persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act, 1921, as amended [7 USCS §§ 181 et seq.], except as provided in section 406(b) of said Act [7 USCS § 227(b)], from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.
• This subsection shall not apply to unfair methods of competition involving commerce with foreign nations (other than import commerce) unless—
• such methods of competition have a direct, substantial, and reasonably foreseeable effect—
• on commerce which is not commerce with foreign nations, or on import commerce with foreign nations; or
• on export commerce with foreign nations, of a person engaged in such commerce in the United States; and
• such effect gives rise to a claim under the provisions of this subsection, other than this paragraph.
• If this subsection applies to such methods of competition only because of the operation of subparagraph (A)(ii), this subsection shall apply to such conduct only for injury to export business in the United States.

(b) Proceeding by Commission; modifying and setting aside orders. Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in or affecting commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person, partnership, or corporation so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the Commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so charged in said complaint. Any person, partnership, or corporation may make application, and upon good cause shown may be allowed by the Commission to intervene and appear in said proceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the Commission. If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by this Act, it shall make a report in writing in which it shall state its findings as to the facts and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice. Until the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time, or, if a petition for review has been filed within such time then until the record in the proceeding has been filed in a court of appeals of the United States, as hereinafter provided, the Commission may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. After the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time, the Commission may at any time, after notice and opportunity for hearing, reopen and alter, modify, or set aside, in whole or in part, any report or order made or issued by it under this section, whenever in the opinion of the Commission conditions of fact or of law have so changed as to require such action or if the public interest shall so require, except that (1) the said person, partnership, or corporation may, within sixty days after the service upon him or it of said report or order entered after such a reopening, obtain a review thereof in the appropriate court of appeals of the United States, in the manner provided in subsection (c) of this section; and (2) in the case of an order, the Commission shall reopen any such order to consider whether such order (including any affirmative relief provision contained in such order) should be altered, modified, or set aside, in whole or in part, if the person, partnership, or corporation involved files a request with the Commission which makes a satisfactory showing that changed conditions of law or fact require such order to be altered, modified, or set aside, in whole or in part. The Commission shall determine whether to alter, modify, or set aside any order of the Commission in response to a request made by a person, partnership, or corporation under paragraph [clause] (2) not later than 120 days after the date of the filing of such request.

(c) Review of order; rehearing. Any person, partnership, or corporation required by an order of the Commission to cease and desist from using any method of competition or act or practice may obtain a review of such order in the [circuit] court of appeals of the United States, within any circuit where the method of competition or the act or practice in question was used or where such person, partnership, or corporation resides or carries on business, by filing in the court, within sixty days from the date of the service of such order, a written petition praying that the order of the Commission be set aside. A copy of such petition shall be forthwith transmitted by the clerk of the court to the Commission, and thereupon the Commission shall file in the court the record in the proceeding, as provided in section 2112 of title 28, United States Code. Upon such filing of the petition the court shall have jurisdiction of the proceeding and of the question determined therein concurrently with the Commission until the filing of the record and shall have power to make and enter a decree affirming, modifying, or setting aside the order of the Commission, and enforcing the same to the extent that such order is affirmed and to issue such writs as are ancillary to its jurisdiction or are necessary in its judgment to prevent injury to the public or to competitors pendente lite. The findings of the Commission as to the facts, if supported by evidence, shall be conclusive. To the extent that the order of the Commission is affirmed, the court shall thereupon issue its own order commanding obedience to the terms of such order of the Commission. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceeding before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The Commission may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of its original order, with the return of such additional evidence. The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari, as provided in section 240 of the Judicial Code [28 USCS § 1254].

(d) Jurisdiction of court. Upon the filing of the record with it the jurisdiction of the [circuit] court of appeals of the United States to affirm, enforce, modify, or set aside orders of the Commission shall be exclusive.

(e) Extension from liability. No order of the Commission or judgment of court to enforce the same shall in anywise relieve or absolve any person, partnership, or corporation from any liability under the Antitrust Acts.

(f) Service of complaints, orders and other processes; return. Complaints, orders, and other processes of the Commission under this section may be served by anyone duly authorized by the Commission, either (a) by delivering a copy thereof to the person to be served, or to a member of the partnership to be served, or the president, secretary, or other executive officer or a director of the corporation to be served; or (b) by leaving a copy thereof at the residence or the principal office or place of business of such person, partnership, or corporation; or (c) by mailing a copy thereof by registered mail or by certified mail addressed to such person, partnership, or corporation at his or its residence or principal office or place of business. The verified return by the person so serving said complaint, order, or other process setting forth the manner of said service shall be proof of the same, and the return post office receipt for said complaint, order, or other process mailed by registered mail or by certified mail as aforesaid shall be proof of the service of the same.

(g) Finality of order. An order of the Commission to cease and desist shall become final—

• Upon the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time; but the Commission may thereafter modify or set aside its order to the extent provided in the last sentence of subsection (b).
• Except as to any order provision subject to paragraph (4), upon the sixtieth day after such order is served, if a petition for review has been duly filed; except that any such order may be stayed, in whole or in part and subject to such conditions as may be appropriate, by—
• the Commission;
• an appropriate court of appeals of the United States, if (i) a petition for review of such order is pending in such court, and (ii) an application for such a stay was previously submitted to the Commission and the Commission, within the 30-day period beginning on the date the application was received by the Commission, either denied the application or did not grant or deny the application; or
• the Supreme Court, if an applicable petition for certiorari is pending.
• For purposes of subsection (m)(1)(B) and of section 19(a)(2) [15 USCS § 57b(a)(2)], if a petition for review of the order of the Commission has been filed—
• upon the expiration of the time allowed for filing a petition for certiorari, if the order of the Commission has been affirmed or the petition for review has been dismissed by the court of appeals and no petition for certiorari has been duly filed;
• upon the denial of a petition for certiorari, if the order of the Commission has been affirmed or the petition for review has been dismissed by the court of appeals; or
• upon the expiration of 30 days from the date of issuance of a mandate of the Supreme Court directing that the order of the Commission be affirmed or the petition for review be dismissed.
• In the case of an order provision requiring a person, partnership, or corporation to divest itself of stock, other share capital, or assets, if a petition for review of such order of the Commission has been filed—
• upon the expiration of the time allowed for filing a petition for certiorari, if the order of the Commission has been affirmed or the petition for review has been dismissed by the court of appeals and no petition for certiorari has been duly filed;
• upon the denial of a petition for certiorari, if the order of the Commission has been affirmed or the petition for review has been dismissed by the court of appeals; or
• upon the expiration of 30 days from the date of issuance of a mandate of the Supreme Court directing that the order of the Commission be affirmed or the petition for review be dismissed.

(h) Modification or setting aside of order by Supreme Court. If the Supreme Court directs that the order of the Commission be modified or set aside, the order of the Commission rendered in accordance with the mandate of the Supreme Court shall become final upon the expiration of thirty days from the time it was rendered, unless within such thirty days either party has instituted proceedings to have such order corrected to accord with the mandate, in which event the order of the Commission shall become final when so corrected.

(i) Modification or setting aside of order by Court of Appeals. If the order of the Commission is modified or set aside by the [circuit] court of appeals, and if (1) the time allowed for filing a petition for certiorari has expired and no such petition has been duly filed, or (2) the petition for certiorari has been denied, or (3) the decision of the court has been affirmed by the Supreme Court, then the order of the Commission rendered in accordance with the mandate of the court of appeals shall become final on the expiration of thirty days from the time such order of the Commission was rendered, unless within such thirty days either party has instituted proceedings to have such order corrected so that it will accord with the mandate, in which event the order of the Commission shall become final when so corrected.

(j) Rehearing upon order or remand. If the Supreme Court orders a rehearing; or if the case is remanded by the [circuit] court of appeals to the Commission for a rehearing, and if (1) the time allowed for filing a petition for certiorari has expired, and no such petition has been duly filed, or (2) the petition for certiorari has been denied, or (3) the decision of the court has been affirmed by the Supreme Court, then the order of the Commission rendered upon such rehearing shall become final in the same manner as though no prior order of the Commission had been rendered.

(k) “Mandate” defined. As used in this section the term “mandate,” in case a mandate has been recalled prior to the expiration of thirty days from the date of issuance thereof, means the final mandate.

(l) Penalty for violation of order; injunctions and other appropriate equitable relief. Any person, partnership, or corporation who violates an order of the Commission after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $10,000 for each violation, which shall accrue to the United States and may be recovered in a civil action brought by the Attorney General of the United States. Each separate violation of such an order shall be a separate offense, except that in the case of a violation through continuing failure to obey or neglect to obey a final order of the Commission, each day of continuance of such failure or neglect shall be deemed a separate offense. In such actions, the United States district courts are empowered to grant mandatory injunctions and such other and further equitable relief as they deem appropriate in the enforcement of such final orders of the Commission. (m) Civil actions for recovery of penalties for knowing violations of rules and cease and desist orders respecting unfair or deceptive acts or practices; jurisdiction; maximum amount of penalties; continuing violations; de novo determinations; compromise or settlement procedure. • (A) The Commission may commence a civil action to recover a civil penalty in a district court of the United States against any person, partnership, or corporation which violates any rule under this Act respecting unfair or deceptive acts or practices (other than an interpretive rule or a rule violation of which the Commission has provided is not an unfair or deceptive act or practice in violation of subsection (a)(1)) with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule. In such action, such person, partnership, or corporation shall be liable for a civil penalty of not more than$ 10,000 for each violation.
• If the Commission determines in a proceeding under subsection (b) that any act or practice is unfair or deceptive, and issues a final cease and desist order, other than a consent order, with respect to such act or practice, then the Commission may commence a civil action to obtain a civil penalty in a district court of the United States against any person, partnership, or corporation which engages in such act or practice—
• after such cease and desist order becomes final (whether or not such person, partnership, or corporation was subject to such cease and desist order), and
• with actual knowledge that such act or practice is unfair or deceptive and is unlawful under subsection (a)(1) of this section.
• In such action, such person, partnership, or corporation shall be liable for a civil penalty of not more than $10,000 for each violation. • In the case of a violation through continuing failure to comply with a rule or with section 5(a)(1) [subsec. (a)(1) of this section], each day of continuance of such failure shall be treated as a separate violation, for purposes of subparagraphs (A) and (B). In determining the amount of such a civil penalty, the court shall take into account the degree of culpability, any history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require. • If the cease and desist order establishing that the act or practice is unfair or deceptive was not issued against the defendant in a civil penalty action under paragraph (1)(B) the issues of fact in such action against such defendant shall be tried de novo. Upon request of any party to such an action against such defendant, the court shall also review the determination of law made by the Commission in the proceeding under subsection (b) that the act or practice which was the subject of such proceeding constituted an unfair or deceptive act or practice in violation of subsection (a). • The Commission may compromise or settle any action for a civil penalty if such compromise or settlement is accompanied by a public statement of its reasons and is approved by the court. (n) Definition of unfair acts or practices. The Commission shall have no authority under this section or section 18 [15 USCS § 57a] to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination. § 45a. Labels on products To the extent any person introduces, delivers for introduction, sells, advertises, or offers for sale in commerce a product with a “Made in the U.S.A.” or “Made in America” label, or the equivalent thereof, in order to represent that such product was in whole or substantial part of domestic origin, such label shall be consistent with decisions and orders of the Federal Trade Commission issued pursuant to section 5 of the Federal Trade Commission Act [15 USCS § 45]. This section only applies to such labels. Nothing in this section shall preclude the application of other provisions of law relating to labeling. The Commission may periodically consider an appropriate percentage of imported components which may be included in the product and still be reasonably consistent with such decisions and orders. Nothing in this section shall preclude use of such labels for products that contain imported components under the label when the label also discloses such information in a clear and conspicuous manner. The Commission shall administer this section pursuant to section 5 of the Federal Trade Commission Act [15 USCS § 45] and may from time to time issue rules pursuant to section 553 of title 5, United States Code, for such purpose. If a rule is issued, such violation shall be treated by the Commission as a violation of a rule under section 18 of the Federal Trade Commission Act (15 U.S.C. 57a) regarding unfair or deceptive acts or practices. This section shall be effective upon publication in the Federal Register of a Notice of the provisions of this section. The Commission shall publish such notice within six months after the enactment of this section [Sept. 13, 1994]. § 46. Additional powers of Commission The commission shall also have power— (a) Investigation of persons, partnerships, or corporations. To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce, excepting banks, savings and loan institutions described in section 18(f)(3) [15 USCS § 57a(f)(3)], Federal credit unions described in section 18(f)(4) [15 USCS § 57a(f)(4)], and common carriers subject to the Act to regulate commerce, and its relation to other persons, partnerships, and corporations. (b) Reports of persons, partnerships, and corporations. To require, by general or special orders, persons, partnerships, and corporations engaged in or whose business affects commerce, excepting banks, savings and loan institutions described in section 18(f)(3) [15 USCS § 57a(f)(3)], Federal credit unions described in section 18(f)(4) [15 USCS § 57a(f)(4)], and common carriers subject to the Act to regulate commerce, or any class of them, or any of them, respectively, to file with the commission in such form as the commission may prescribe annual or special, or both annual and special, reports, or answers in writing to specific questions, furnishing to the commission such information as it may require as to the organization, business, conduct, practices, management, and relation to other corporations, partnerships, and individuals of the respective persons, partnerships, and corporations filing such reports or answers in writing. Such reports and answers shall be made under oath, or otherwise, as the commission may prescribe, and shall be filed with the commission within such reasonable period as the commission may prescribe, unless additional time be granted in any case by the commission. (c) Investigation of compliance with antitrust decrees. Whenever a final decree has been entered against any defendant corporation in any suit brought by the United States to prevent and restrain any violation of the antitrust Acts, to make investigation, upon its own initiative, of the manner in which the decree has been or is being carried out, and upon the application of the Attorney General it shall be its duty to make such investigation. It shall transmit to the Attorney General a report embodying its findings and recommendations as a result of any such investigation, and the report shall be made public in the discretion of the commission. (d) Investigations of violations of antitrust statutes. Upon the direction of the President or either House of Congress to investigate and report the facts relating to any alleged violations of the antitrust Acts by any corporation. (e) Readjustment of business of corporations violating antitrust statutes. Upon the application of the Attorney General to investigate and make recommendations for the readjustment of the business of any corporation alleged to be violating the antitrust Acts in order that the corporation may thereafter maintain its organization, management, and conduct of business in accordance with law. (f) Publication of information; reports. To make public from time to time such portions of the information obtained by it hereunder as are in the public interest; and to make annual and special reports to the Congress and to submit therewith recommendations for additional legislation; and to provide for the publication of its reports and decisions in such form and manner as may be best adapted for public information and use: Provided, That the Commission shall not have any authority to make public any trade secret or any commercial or financial information which is obtained from any person and which is privileged or confidential, except that the Commission may disclose such information to officers and employees of appropriate Federal law enforcement agencies or to any officer or employee of any State law enforcement agency upon the prior certification of an officer of any such Federal or State law enforcement agency that such information will be maintained in confidence and will be used only for official law enforcement purposes. (g) Classification of corporations; regulations. From time to time to classify corporations and (except as provided in section 18(a)(2) of this Act [15 USCS § 57a(a)(2)]) to make rules and regulations for the purpose of carrying out the provisions of this Act. (h) Investigations of foreign trade conditions; reports. To investigate, from time to time, trade conditions in and with foreign countries where associations, combinations, or practices of manufacturers, merchants, or traders, or other conditions, may affect the foreign trade of the United States, and to report to Congress thereon, with such recommendations as it deems advisable. (i) With respect to the International Antitrust Enforcement Assistance Act of 1994, to conduct investigations of possible violations of foreign antitrust laws (as defined in section 12 of such Act [15 USCS § 6211]). Provided, That the exception of “banks, savings and loan institutions described in section 18(f)(3) [15 USCS § 57a(f)(3)], Federal credit unions described in section 18(f)(4) [15 USCS § 57a(f)(4)], and common carriers subject to the Act to regulate commerce” from the Commission's powers defined in clauses (a) and (b) of this section, shall not be construed to limit the Commission's authority to gather and compile information, to investigate, or to require reports or answers from, any person, partnership, or corporation to the extent that such action is necessary to the investigation of any person, partnership, or corporation, group of persons, partnerships, or corporations, or industry which is not engaged or is engaged only incidentally in banking, in business as a savings and loan institution, in business as a Federal credit union, or in business as a common carrier subject to the Act to regulate commerce. The Commission shall establish a plan designed to substantially reduce burdens imposed upon small businesses as a result of requirements established by the Commission under clause (b) relating to the filing of quarterly financial reports. Such plan shall (1) be established after consultation with small businesses and persons who use the information contained in such quarterly financial reports; (2) provide for a reduction of the number of small businesses required to file such quarterly financial reports; and (3) make revisions in the forms used for such quarterly financial reports for the purpose of reducing the complexity of such forms. The Commission, not later than December 31, 1980, shall submit such plan to the Committee on Commerce, Science, and Transportation of the Senate and to the Committee on Energy and Commerce of the House of Representatives. Such plan shall take effect not later than October 31, 1981. No officer or employee of the Commission or any Commissioner may publish or disclose information to the public, or to any Federal agency, whereby any line-of-business data furnished by a particular establishment or individual can be identified. No one other than designated sworn officers and employees of the Commission may examine the line-of-business reports from individual firms, and information provided in the line-of-business program administered by the Commission shall be used only for statistical purposes. Information for carrying out specific law enforcement responsibilities of the Commission shall be obtained under practices and procedures in effect on the date of the enactment of the Federal Trade Commission Improvements Act of 1980 [enacted May 28, 1980], or as changed by law. Nothing in this section (other than the provisions of clause (c) and clause (d)) shall apply to the business of insurance, except that the Commission shall have authority to conduct studies and prepare reports relating to the business of insurance. The Commission may exercise such authority only upon receiving a request which is agreed to by a majority of the members of the Committee on Commerce, Science, and Transportation of the Senate or the Committee on Energy and Commerce of the House of Representatives. The authority to conduct any such study shall expire at the end of the Congress during which the request for such study was made. § 47. Reference of suits under antitrust statutes to Commission In any suit in equity brought by or under the direction of the Attorney General as provided in the antitrust Acts, the court may, upon the conclusion of the testimony therein, if it shall be then of opinion that the complainant is entitled to relief, refer said suit to the commission, as a master in chancery, to ascertain and report an appropriate form of decree therein. The commission shall proceed upon such notice to the parties and under such rules of procedure as the court may prescribe, and upon the coming in of such report such exceptions may be filed and such proceedings had in relation thereto as upon the report of a master in other equity causes, but the court may adopt or reject such report, in whole or in part, and enter such decree as the nature of the case may in its judgment require. § 49. Documentary evidence; depositions; witnesses For the purposes of this Act the commission, or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documentary evidence of any person, partnership, or corporation being investigated or proceeded against; and the commission shall have power to require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation. Any member of the commission may sign subpoenas, and members and examiners of the commission may administer oaths and affirmations, examine witnesses, and receive evidence. Such attendance of witnesses and the production of such documentary evidence, may be required from any place in the United States, at any designated place of hearing. And in case of disobedience to a subpoena the commission may invoke the aid of any court of the United States in requiring the attendance and testimony of witnesses and the production of documentary evidence. Any of the district courts of the United States within the jurisdiction of which such inquiry is carried on may, in case of contumacy or refusal to obey a subpoena issued to any person, partnership, or corporation, issue an order requiring such person, partnership, or corporation to appear before the commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof. Upon the application of the Attorney General of the United States, at the request of the commission, the district courts of the United States shall have jurisdiction to issue writs of mandamus commanding any person, partnership, or corporation to comply with this Act or any order of the commission made in pursuance thereof. The commission may order testimony to be taken by deposition in any proceeding or investigation pending under this Act at any stage of such proceeding or investigation. Such depositions may be taken before any person designated by the commission and having power to administer oaths. Such testimony shall be reduced to writing by the person taking the deposition, or under his direction, and shall then be subscribed by the deponent. Any person may be compelled to appear and depose and to produce documentary evidence in the same manner as witnesses may be compelled to appear and testify and produce documentary evidence before the commission as hereinbefore provided. Witnesses summoned before the commission shall be paid the same fees and mileage that are paid witnesses in the courts of the United States, and witnesses whose depositions are taken and the persons taking the same shall severally be entitled to the same fees as are paid for like services in the courts of the United States. § 50. Offenses and penalties Any person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry or to produce any documentary evidence, if in his power to do so, in obedience to an order of a district court of the United States directing compliance with the subpoena or lawful requirement of the commission, shall be guilty of an offense and upon conviction thereof by a court of competent jurisdiction shall be punished by a fine of not less than$ 1,000 nor more than $5,000, or by imprisonment for not more than one year, or by both such fine and imprisonment. Any person who shall willfully make or cause to be made, any false entry or statement of fact in any report required to be made under this Act, or who shall willfully make, or cause to be made, any false entry in any account, record, or memorandum kept by any person, partnership, or corporation subject to this Act, or who shall willfully neglect or fail to make, or cause to be made, full, true, and correct entries in such accounts, records, or memoranda of all facts and transactions appertaining to the business of such person, partnership, or corporation, or who shall willfully remove out of the jurisdiction of the United States, or willfully mutilate, alter, or by any other means falsify any documentary evidence of such person, partnership, or corporation, or who shall willfully refuse to submit to the commission or to any of its authorized agents, for the purpose of inspection and taking copies, any documentary evidence of such person, partnership, or corporation in his possession or within his control, shall be deemed guilty of an offense against the United States, and shall be subject, upon conviction in any court of the United States of competent jurisdiction, to a fine of not less than$ 1,000 nor more than $5,000, or to imprisonment for a term of not more than three years, or to both such fine and imprisonment. If any persons, partnership or corporation required by this Act to file any annual or special report shall fail so to do within the time fixed by the commission for filing the same, and such failure shall continue for thirty days after notice of such default, the corporation shall forfeit to the United States the sum of$ 100 for each and every day of the continuance of such failure, which forfeiture shall be payable into the Treasury of the United States, and shall be recoverable in a civil suit in the name of the United States brought in the case of a corporation or partnership in the district where the corporation or partnership has its principal office or in any district in which it shall do business, and in the case of any person in the district where such person resides or has his principal place of business. It shall be the duty of the various district attorneys [United States attorneys], under the direction of the Attorney General of the United States, to prosecute for the recovery of forfeitures. The costs and expenses of such prosecution shall be paid out of the appropriation for the expenses of the courts of the United States.

Any officer or employee of the commission who shall make public any information obtained by the commission without its authority, unless directed by a court, shall be deemed guilty of a misdemeanor, and, upon conviction thereof, shall be punished by a fine not exceeding $5,000, or by imprisonment not exceeding one year, or by fine and imprisonment, in the discretion of the court. § 52. Dissemination of false advertisements (a) Unlawfulness. It shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement— • By United States mails, or in or having an effect upon commerce, by any means, for the purpose of inducing, or which is likely to induce, directly or indirectly the purchase of foods, drugs, devices, services, or cosmetics; or • By any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in or having an effect upon commerce of food, drugs, devices, services, or cosmetics. (b) Unfair or deceptive act or practice. The dissemination or the causing to be disseminated of any false advertisement within the provisions of subsection (a) of this section shall be an unfair or deceptive act or practice in or affecting commerce within the meaning of section 5 [15 USCS § 45]. § 53. False advertisements; injunctions and restraining orders (a) Power of Commission; jurisdiction of courts. Whenever the Commission has reason to believe— • that any person, partnership, or corporation is engaged in, or is about to engage in, the dissemination or the causing of the dissemination of any advertisement in violation of section 12 [15 USCS § 52], and • that the enjoining thereof pending the issuance of a complaint by the Commission under section 5 [15 USCS § 45], and until such complaint is dismissed by the Commission or set aside by the court on review, or the order of the Commission to cease and desist made thereon has become final within the meaning of section 5 [15 USCS § 45], would be to the interest of the public, the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States or in the United States court of any Territory, to enjoin the dissemination or the causing of the dissemination of such advertisement. Upon proper showing a temporary injunction or restraining order shall be granted without bond. Any suit may be brought where such person, partnership, or corporation resides or transacts business, or wherever venue is proper under section 1391 of title 28, United States Code. In addition, the court may, if the court determines that the interests of justice require that any other person, partnership, or corporation should be a party in such suit, cause such other person, partnership, or corporation to be added as a party without regard to whether venue is otherwise proper in the district in which the suit is brought. In any suit under this section, process may be served on any person, partnership, or corporation wherever it may be found. (b) Temporary restraining orders; preliminary injunctions. Whenever the Commission has reason to believe • that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and • that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond: Provided, however, That if a complaint is not filed within such period (not exceeding 20 days) as may be specified by the court after issuance of the temporary restraining order or preliminary injunction, the order or injunction shall be dissolved by the court and be of no further force and effect: Provided further, That in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction. Any suit may be brought where such person, partnership, or corporation resides or transacts business, or wherever venue is proper under section 1391 of title 28, United States Code. In addition, the court may, if the court determines that the interests of justice require that any other person, partnership, or corporation should be a party in such suit, cause such other person, partnership, or corporation to be added as a party without regard to whether venue is otherwise proper in the district in which the suit is brought. In any suit under this section, process may be served on any person, partnership, or corporation wherever it may be found. (c) Service of process of the Commission; proof of service. Any process of the Commission under this section may be served by any person duly authorized by the Commission— • by delivering a copy of such process to the person to be served, to a member of the partnership to be served, or to the president, secretary, or other executive officer or a director of the corporation to be served; • by leaving a copy of such process at the residence or the principal office or place of business of such person, partnership, or corporation; or • by mailing a copy of such process by registered mail or certified mail addressed to such person, partnership, or corporation at his, or her, or its residence, principal office, or principal place or business. The verified return by the person serving such process setting forth the manner of such service shall be proof of the same. (d) Exception of periodical publications. Whenever it appears to the satisfaction of the court in the case of a newspaper, magazine, periodical, or other publication, published at regular intervals— • that restraining the dissemination of a false advertisement in any particular issue of such publication would delay the delivery of such issue after the regular time therefor, and • that such delay would be due to the method by which the manufacture and distribution of such publication is customarily conducted by the publisher in accordance with sound business practice, and not to any method or device adopted for the evasion of this section or to prevent or delay the issuance of an injunction or restraining order with respect to such false advertisement or any other advertisement, the court shall exclude such issue from the operation of the restraining order or injunction. § 54. False advertisements; penalties (a) Imposition of penalties. Any person, partnership, or corporation who violates any provision of section 12(a) [15 USCS § 52(a)] shall, if the use of the commodity advertised may be injurious to health because of results from such use under the conditions prescribed in the advertisement thereof, or under such conditions as are customary or usual, or if such violation is with intent to defraud or mislead, be guilty of a misdemeanor, and upon conviction shall be punished by a fine of not more than$ 5,000 or by imprisonment for not more than six months, or by both such fine and imprisonment; except that if the conviction is for a violation committed after a first conviction of such person, partnership, or corporation, for any violation of such section, punishment shall be by a fine of not more than $10,000 or by imprisonment for not more than one year, or by both such fine and imprisonment: Provided, That for the purposes of this section meats and meat food products duly inspected, marked, and labeled in accordance with rules and regulations issued under the Meat Inspection Act approved March 4, 1907, as amended, shall be conclusively presumed not injurious to health at the time the same leave official “establishments.” (b) Exception of advertising medium or agency. No publisher, radiobroadcast licensee, or agency or medium for the dissemination of advertising, except the manufacturer, packer, distributor, or seller of the commodity to which the false advertisement relates, shall be liable under this section by reason of the dissemination by him of any false advertisement, unless he has refused, on the request of the Commission, to furnish the Commission the name and post-office address of the manufacturer, packer, distributor, seller, or advertising agency, residing in the United States, who caused him to disseminate such advertisement. No advertising agency shall be liable under this section by reason of the causing by it of the dissemination of any false advertisement, unless it has refused, on the request of the Commission, to furnish the Commission the name and post-office address of the manufacturer, packer, distributor, or seller, residing in the United States, who caused it to cause the dissemination of such advertisement. § 55. Additional definitions For the purposes of sections 12, 13 and 14 [15 USCS §§ 52, 53, 54]— (a) False advertisement. • The term “false advertisement” means an advertisement, other than labeling, which is misleading in a material respect; and in determining whether any advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual. No advertisement of a drug shall be deemed to be false if it is disseminated only to members of the medical profession, contains no false representation of a material fact, and includes, or is accompanied in each instance by truthful disclosure of, the formula showing quantitatively each ingredient of such drug. • In the case of oleomargarine or margarine an advertisement shall be deemed misleading in a material respect if in such advertisement representations are made or suggested by statement, word, grade designation, design, device, symbol, sound, or any combination thereof, that such oleomargarine or margarine is a dairy product, except that nothing contained herein shall prevent a truthful, accurate, and full statement in any such advertisement of all the ingredients contained in such oleomargarine or margarine. (b) Food. The term “food” means (1) articles used for food or drink for man or other animals, (2) chewing gum, and (3) articles used for components of any such article. (c) Drug. The term “drug” means (1) articles recognized in the official United States Pharmacopoeia, official Homoeopathic Pharmacopoeia of the United States, or official National Formulary, or any supplement to any of them; and (2) articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and (3) articles (other than food) intended to affect the structure or any function of the body of man or other animals; and (4) articles intended for use as a component of any article specified in clause (1), (2), or (3); but does not include devices or their components, parts, or accessories. (d) Device. The term “device” (except when used in subsection (a) of this section) means an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is— • recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, • intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or • intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its principal intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its principal intended purposes. (e) Cosmetic. The term “cosmetic” means (1) articles to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof intended for cleansing, beautifying, promoting attractiveness, or altering the appearance, and (2) articles intended for use as a component of any such article; except that such term shall not include soap. (f) Oleomargarine or margarine. For the purpose of this section and section 407 of the Federal Food, Drug, and Cosmetic Act, as amended [21 USCS § 347], the term “oleomargarine” or “margarine” includes— (1) all substances, mixtures, and compounds known as oleomargarine or margarine; (2) all substances, mixtures, and compounds which have a consistence similar to that of butter and which contain any edible oils or fats other than milk fat if made in imitation or semblance of butter. § 57. Separability clause If any provision of this Act or the application thereof to any person, partnership, corporation, or circumstance, is held invalid, the remainder of the Act and the application of such provision to any other person, partnership, corporation, or circumstance, shall not be affected thereby. § 57b. Civil actions for violations of rules and cease and desist orders respecting unfair or deceptive acts or practices (a) Suits by Commission against persons, partnerships, or corporations; jurisdiction; relief for dishonest or fraudulent acts. • If any person, partnership, or corporation violates any rule under this Act respecting unfair or deceptive acts or practices (other than an interpretive rule, or a rule violation of which the Commission has provided is not an unfair or deceptive act or practice in violation of section 5(a) [15 USCS § 45(a)]), then the Commission may commence a civil action against such person, partnership, or corporation for relief under subsection (b) in a United States district court or in any court of competent jurisdiction of a State. • If any person, partnership, or corporation engages in any unfair or deceptive act or practice (within the meaning of section 5(a)(1) [15 USCS § 45(a)(1)]) with respect to which the Commission has issued a final cease and desist order which is applicable to such person, partnership, or corporation, then the Commission may commence a civil action against such person, partnership, or corporation in a United States district court or in any court of competent jurisdiction of a State. If the Commission satisfies the court that the act or practice to which the cease and desist order relates is one which a reasonable man would have known under the circumstances was dishonest or fraudulent, the court may grant relief under subsection (b). (b) Nature of relief available. The court in an action under subsection (a) shall have jurisdiction to grant such relief as the court finds necessary to redress injury to consumers or other persons, partnership, and corporations resulting from the rule violation or the unfair or deceptive act or practice, as the case may be. Such relief may include, but shall not be limited to, rescission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice, as the case may be; except that nothing in this subsection is intended to authorize the imposition of any exemplary or punitive damages. (c) Conclusiveness of findings of Commission in cease and desist proceedings; notice of judicial proceedings to injured persons, etc. • If (A) a cease and desist order issued under section 5(b) [15 USCS § 45(b)] has become final under section 5(g) [15 USCS § 45(g)] with respect to any person's, partnership's, or corporation's rule violation or unfair or deceptive act or practice, and (B) an action under this section is brought with respect to such person's, partnership's, or corporation's rule violation or act or practice, then the findings of the Commission as to the material facts in the proceeding under section 5(b) [15 USCS § 45(b)] with respect to such person's, partnership's, or corporation's rule violation or act or practice, shall be conclusive unless (i) the terms of such cease and desist order expressly provide that the Commission's findings shall not be conclusive, or (ii) the order became final by reason of section 5(g)(1) [15 USCS § 45(g)(1)], in which case such finding shall be conclusive if supported by evidence. • The court shall cause notice of an action under this section to be given in a manner which is reasonably calculated, under all of the circumstances, to apprise the persons, partnerships, and corporations allegedly injured by the defendant's rule violation or act or practice of the pendency of such action. Such notice may, in the discretion of the court, be given by publication. (d) Time for bringing of actions. No action may be brought brought by the Commission under this section more than 3 years after the rule violation to which an action under subsection (a)(1) relates, or the unfair or deceptive act or practice to which an action under subsection (a)(2) relates; except that if a cease and desist order with respect to any person's, partnership's, or corporation's rule violation or unfair or deceptive act or practice has become final and such order was issued in a proceeding under section 5(b) [15 USCS § 45(b)] which was commenced not later than 3 years after the rule violation or act or practice occurred, a civil action may be commenced under this section against such person, partnership, or corporation at any time before the expiration of one year after such order becomes final. (e) Availability of additional Federal or State remedies; other authority of Commission unaffected. Remedies provided in this section are in addition to, and not in lieu of, any other remedy or right of action provided by State or Federal law. Nothing in this section shall be construed to affect any authority of the Commission under any other provision of law. § 57b-2. Confidentiality (a) Definitions. For purposes of this section: • The term “material” means documentary material, tangible things, written reports or answers to questions, and transcripts of oral testimony. • The term “Federal agency” has the meaning given it in section 552(e) of title 5, United States Code. (b) Procedures respecting documents, tangible things, or transcripts of oral testimony received pursuant to compulsory process in investigation. • With respect to any document, tangible thing, or transcript of oral testimony received by the Commission pursuant to compulsory process in an investigation, a purpose of which is to determine whether any person may have violated any provision of the laws administered by the Commission, the procedures established in paragraph (2) through paragraph (7) shall apply. • (A) The Commission shall designate a duly authorized agent to serve as custodian of documentary material, tangible things, or written reports or answers to questions, and transcripts of oral testimony, and such additional duly authorized agents as the Commission shall determine from time to time to be necessary to serve as deputies to the custodian. • Any person upon whom any demand for the production of documentary material has been duly served shall make such material available for inspection and copying or reproduction to the custodian designated in such demand at the principal place of business of such person (or at such other place as such custodian and such person thereafter may agree and prescribe in writing or as the court may direct pursuant to section 20(h) [15 USCS § 57b-1(h)]) on the return date specified in such demand (or on such later date as such custodian may prescribe in writing). Such person may upon written agreement between such person and the custodian substitute copies for originals of all or any part of such material. • (A) The custodian to whom any documentary material, tangible things, written reports or answers to questions, and transcripts of oral testimony are delivered shall take physical possession of such material, reports or answers, and transcripts, and shall be responsible for the use made of such material, reports or answers, and transcripts, and for the return of material, pursuant to the requirements of this section. • The custodian may prepare such copies of the documentary material, written reports or answers to questions, and transcripts of oral testimony, and may make tangible things available, as may be required for official use by any duly authorized officer or employee of the Commission under regulations which shall be promulgated by the Commission. Notwithstanding subparagraph (C), such material, things, and transcripts may be used by any such officer or employee in connection with the taking of oral testimony under this section. • Except as otherwise provided in this section, while in the possession of the custodian, no documentary material, tangible things, reports or answers to questions, and transcripts of oral testimony shall be available for examination by any individual other than a duly authorized officer or employee of the Commission without the consent of the person who produced the material, things, or transcripts. Nothing in this section is intended to prevent disclosure to either House of the Congress or to any committee or subcommittee of the Congress, except that the Commission immediately shall notify the owner or provider of any such information of a request for information designated as confidential by the owner or provider. • While in the possession of the custodian and under such reasonable terms and conditions as the Commission shall prescribe— • documentary material, tangible things, or written reports shall be available for examination by the person who produced the material, or by any duly authorized representative of such person; and • answers to questions in writing and transcripts of oral testimony shall be available for examination by the person who produced the testimony or by his attorney. • Whenever the Commission has instituted a proceeding against a person, partnership, or corporation, the custodian may deliver to any officer or employee of the Commission documentary material, tangible things, written reports or answers to questions, and transcripts of oral testimony for official use in connection with such proceeding. Upon the completion of the proceeding, the officer or employee shall return to the custodian any such material so delivered which has not been received into the record of the proceeding. • If any documentary material, tangible things, written reports or answers to questions, and transcripts of oral testimony have been produced in the course of any investigation by any person pursuant to compulsory process and— • any proceeding arising out of the investigation has been completed; or • no proceeding in which the material may be used has been commenced within a reasonable time after completion of the examination and analysis of all such material and other information assembled in the course of the investigation; • then the custodian shall, upon written request of the person who produced the material, return to the person any such material which has not been received into the record of any such proceeding (other than copies of such material made by the custodian pursuant to paragraph (3)(B)). • The custodian of any documentary material, written reports or answers to questions, and transcripts of oral testimony may deliver to any officers or employees of appropriate Federal law enforcement agencies, in response to a written request, copies of such material for use in connection with an investigation or proceeding under the jurisdiction of any such agency. The custodian of any tangible things may make such things available for inspection to such persons on the same basis. Such materials shall not be made available to any such agency until the custodian receives certification of any officer of such agency that such information will be maintained in confidence and will be used only for official law enforcement purposes. Such documentary material, results of inspections of tangible things, written reports or answers to questions, and transcripts of oral testimony may be used by any officer or employee of such agency only in such manner and subject to such conditions as apply to the Commission under this section. The custodian may make such materials available to any State law enforcement agency upon the prior certification of any officer of such agency that such information will be maintained in confidence and will be used only for official law enforcement purposes. • In the event of the death, disability, or separation from service in the Commission of the custodian of any documentary material, tangible things, written reports or answers to questions, and transcripts of oral testimony produced under any demand issued under this Act, or the official relief of the custodian from responsibility for the custody and control of such material, the Commission promptly shall— • designate under paragraph (2)(A) another duly authorized agent to serve as custodian of such material; and • transmit in writing to the person who produced the material or testimony notice as to the identity and address of the successor so designated. • Any successor designated under paragraph (2)(A) as a result of the requirements of this paragraph shall have (with regard to the material involved) all duties and responsibilities imposed by this section upon his predecessor in office with regard to such material, except that he shall not be held responsible for any default or dereliction which occurred before his designation. (c) Information considered confidential. • All information reported to or otherwise obtained by the Commission which is not subject to the requirements of subsection (b) shall be considered confidential when so marked by the person supplying the information and shall not be disclosed, except in accordance with the procedures established in paragraph (2) and paragraph (3). • If the Commission determines that a document marked confidential by the person supplying it may be disclosed because it is not a trade secret or commercial or financial information which is obtained from any person and which is privileged or confidential, within the meaning of section 6(f) [15 USCS § 46(f)], then the Commission shall notify such person in writing that the Commission intends to disclose the document at a date not less than 10 days after the date of receipt of notification. • Any person receiving such notification may, if he believes disclosure of the document would cause disclosure of a trade secret, or commercial or financial information which is obtained from any person and which is privileged or confidential, within the meaning of section 6(f) 15 USCS § 46(f)], before the date set for release of the document, bring an action in the district court of the United States for the district within which the documents are located or in the United States District Court for the District of Columbia to restrain disclosure of the document. Any person receiving such notification may file with the appropriate district court or court of appeals of the United States, as appropriate, an application for a stay of disclosure. The documents shall not be disclosed until the court has ruled on the application for a stay. (d) Particular disclosures allowed. • The provisions of subsection (c) shall not be construed to prohibit— • the disclosure of information to either House of the Congress or to any committee or subcommittee of the Congress, except that the Commission immediately shall notify the owner or provider of any such information of a request for information designated as confidential by the owner or provider; • the disclosure of the results of any investigation or study carried out or prepared by the Commission, except that no information shall be identified nor shall information be disclosed in such a manner as to disclose a trade secret of any person supplying the trade secret, or to disclose any commercial or financial information which is obtained from any person and which is privileged or confidential; • the disclosure of relevant and material information in Commission adjudicative proceedings or in judicial proceedings to which the Commission is a party; or • the disclosure to a Federal agency of disaggregated information obtained in accordance with section 3512 of title 44, United States Code, except that the recipient agency shall use such disaggregated information for economic, statistical, or policymaking purposes only, and shall not disclose such information in an individually identifiable form. • Any disclosure of relevant and material information in Commission adjudicative proceedings or in judicial proceedings to which the Commission is a party shall be governed by the rules of the Commission for adjudicative proceedings or by court rules or orders, except that the rules of the Commission shall not be amended in a manner inconsistent with the purposes of this section. (e) Effect on other statutory provisions limiting disclosure. Nothing in this section shall supersede any statutory provision which expressly prohibits or limits particular disclosures by the Commission, or which authorizes disclosures to any other Federal agency. (f) Exemption from disclosure. Any material which is received by the Commission in any investigation, a purpose of which is to determine whether any person may have violated any provision of the laws administered by the Commission, and which is provided pursuant to any compulsory process under this Act or which is provided voluntarily in place of such compulsory process shall be exempt from disclosure under section 552 of title 5, United States Code. Federal Food, Drug, And Cosmetic Act Title 21. Food and Drugs Chapter 9. Federal Food, Drug, And Cosmetic Act Definitions § 331. Prohibited acts The following acts and the causing thereof are hereby prohibited: (a) The introduction or delivery for introduction into interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded. (b) The adulteration or misbranding of any food, drug, device, or cosmetic in interstate commerce. (c) The receipt in interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded, and the delivery or proffered delivery thereof for pay or otherwise. (d) The introduction or delivery for introduction into interstate commerce of any article in violation of section 404 or 505 [21 USCS § 344 or 355]. (e) The refusal to permit access to or copying of any record as required by section 412, 414, 504, 703, or 704(a) [21 USCS § 350a, 350c, 354, 373, or 374(a)]; or the failure to establish or maintain any record, or make any report, required under section 412, 414(b), 504, 505(i) or (k), 512(a)(4)(C), 512(j), (l), or (m), 515(f), or 519 [21 USCS § 350a, 350c(b), 354, 355(i) or (k), 360b(a)(4)(C), 360b(j), (l), or (m) 360e(f), or 360i] or the refusal to permit access to or verification or copying of any such required record. (f) The refusal to permit entry or inspection as authorized by section 704 [21 USCS § 374]. (g) The manufacture, within any Territory of any food, drug, device, or cosmetic that is adulterated or misbranded. (h) The giving of a guaranty or undertaking referred to in section 303(c)(2) [21 USCS § 333(c)(2)], which guaranty or undertaking is false, except by a person who relied upon a guaranty or undertaking to the same effect signed by, containing the name and address of, the person residing in the United States from whom he received in good faith the food, drug, device, or cosmetic; or the giving of a guaranty or undertaking referred to in section 303(c)(3) [21 USCS § 333(c)(3)], which guaranty or undertaking is false. (i) (1) Forging, counterfeiting, simulating, or falsely representing, or without proper authority using any mark, stamp, tag, label, or other identification device authorized or required by regulations promulgated under the provisions of section 404 or 721 [21 USCS § 344 or 379e]. • Making, selling, disposing of, or keeping in possession, control, or custody, or concealing any punch, die, plate, stone, or other thing designed to print, imprint, or reproduce the trademark, trade name, or other identifying mark, imprint, or device of another or any likeness of any of the foregoing upon any drug or container or labeling thereof so as to render such drug a counterfeit drug. • The doing of any act which causes a drug to be a counterfeit drug, or the sale or dispensing, or the holding for sale or dispensing, of a counterfeit drug. (j) The using by any person to his own advantage or revealing, other than to the Secretary or officers or employees of the Department, or to the courts when relevant in any judicial proceeding under this Act [21 USCS §§ 301 et seq.], any information acquired under authority of section 404, 409, 412, 414, 505, 510, 512, 513, 514, 515, 516, 518, 519, 520, 704, 708 or 721 [21 USCS § 344, 348, 350a, 350c, 355, 360, 360b, 360c, 360d, 360e, 360f, 360h, 360i, 360j, 374, 379, or 379e], concerning any method or process which as a trade secret is entitled to protection; or the violating of section 408(i)(2) [21 USCS § 346a(i)(2)] or any regulation issued under that section. This paragraph does not authorize the withholding of information from either House of Congress or from, to the extent of matter within its jurisdiction, any committee or subcommittee of such committee or any joint committee of Congress or any subcommittee of such joint committee. (k) The alteration, mutilation, destruction, obliteration, or removal of the whole or any part of the labeling of, or the doing of any other act with respect to, a food, drug, device, or cosmetic, if such act is done while such article is held for sale (whether or not the first sale) after shipment in interstate commerce and results in such article being adulterated or misbranded. (l) [Deleted] (m) The sale or offering for sale of colored oleomargarine or colored margarine, or the possession or serving of colored oleomargarine or colored margarine in violation of sections 407(b), or 407(c) [21 USCS § 347(b) or (c)]. (n) The using, in labeling, advertising or other sales promotion of any reference to any report or analysis furnished in compliance with section 704 [21 USCS § 374]. (o) In the case of a prescription drug distributed or offered for sale in interstate commerce, the failure of the manufacturer, packer, or distributor thereof to maintain for transmittal, or to transmit, to any practitioner licensed by applicable State law to administer such drug who makes written request for information as to such drug, true and correct copies of all printed matter which is required to be included in any package in which that drug is distributed or sold, or such other printed matter as is approved by the Secretary. Nothing in this paragraph shall be construed to exempt any person from any labeling requirement imposed by or under other provisions of this Act [21 USCS §§ 301 et seq.]. (p) The failure to register in accordance with section 510 [21 USCS § 360], the failure to provide any information required by section 510(j) or 510k, [21 USCS § 360(j) or (k)], or the failure to provide a notice required by section 510(j)(2) [21 USCS 360(j)(2)]. (q) (1) The failure or refusal to (A) comply with any requirement prescribed under section 518 or 520(g) [21 USCS § 360h or 360j(g)], (B) furnish any notification or other material or information required by or under section 519 or 520(g) [21 USCS § 360i or 360j(g)], or (C) comply with a requirement under section 522 [21 USCS § 360l]. • With respect to any device, the submission of any report that is required by or under this Act [21 USCS §§ 301 et seq.] that is false or misleading in any material respect. (r) The movement of a device in violation of an order under section 304(g) [21 USCS § 334(g)] or the removal or alteration of any mark or label required by the order to identify the device as detained. (s) The failure to provide the notice required by section 412(c) or 412(e) [21 USCS § 350a(c) or (e)], the failure to make the reports required by section 412(f)(1)(B) [21 USCS § 350a(b)(1)(B), the failure to retain the records required by section 412(b)(4) [21 USCS § 350a(b)(4)], or the failure to meet the requirements prescribed under section 412(f)(3) [21 USCS § 350a(f)(3)]. (t) The importation of a drug in violation of section 801(d)(1) [21 USCS § 381(d)(1)], the sale, purchase, or trade of a drug or drug sample or the offer to sell, purchase, or trade a drug or drug sample in violation of section 503(c) [21 USCS § 353(c)], the sale, purchase, or trade of a coupon, the offer to sell, purchase, or trade such a coupon, or the counterfeiting of such a coupon in violation of section 503(c)(2) [21 USCS § 353(c)(2)], the distribution of a drug sample in violation of section 503(d) [21 USCS § 353(d)], or the failure to otherwise comply with the requirements of section 503(d) [21 USCS § 353(d)], or the distribution of drugs in violation of section 503(e) [21 USCS § 353(e)] or the failure to otherwise comply with the requirements of section 503(e) [21 USCS § 353(e)]. (u) The failure to comply with any requirements of the provisions of, or any regulations or orders of the Secretary, under section 512(a)(4)(A), 512(a)(4)(D), or 512(a)(5) [21 USCS § 360b(a)(4)(A), (4)(D), or (5)]. (v) The introduction or delivery for introduction into interstate commerce of a dietary supplement that is unsafe under section 413 [21 USCS § 350b]. (w) The making of a knowingly false statement in any statement, certificate of analysis, record, or report required or requested under section 801(d)(3) [21 USCS § 381(d)(3)]; the failure to submit a certificate of analysis as required under such section; the failure to maintain records or to submit records or reports as required by such section; the release into interstate commerce of any article or portion thereof imported into the United States under such section or any finished product made from such article or portion, except for export in accordance with section 801(e) or 802 [21 USCS § 381(e) or 382], or with section 351(h) of the Public Health Service Act [42 USCS § 262(h)]; or the failure to so export or to destroy such an article or portions thereof, or such a finished product. (x) The falsification of a declaration of conformity submitted under section 514(c) [21 USCS § 360d(c)] or the failure or refusal to provide data or information requested by the Secretary under paragraph (3) of such section. (y) In the case of a drug, device, or food— • the submission of a report or recommendation by a person accredited under section 523 [21 USCS § 360m] that is false or misleading in any material respect; • the disclosure by a person accredited under section 523 [21 USCS § 360m] of confidential commercial information or any trade secret without the express written consent of the person who submitted such information or secret to such person; or • the receipt by a person accredited under section 523 [21 USCS § 360m] of a bribe in any form or the doing of any corrupt act by such person associated with a responsibility delegated to such person under this Act [21 USCS §§ 301 et seq.]. (z) The dissemination of information in violation of section 551 [21 USCS § 360aaa]. (aa) The importation of a covered product in violation of section 804 [21 USCS § 384], the falsification of any record required to be maintained or provided to the Secretary under such section, or any other violation of regulations under such section. (bb) The transfer of an article of food in violation of an order under section 304(h) [21 USCS § 334(h)], or the removal or alteration of any mark or label required by the order to identify the article as detained. (cc) The importing or offering for import into the United States of an article of food by, with the assistance of, or at the direction of, a person debarred under section 306(b)(3) [21 USCS § 335a(b)(3)]. (dd) The failure to register in accordance with section 415 [21 USCS § 350d]. (ee) The importing or offering for import into the United States of an article of food in violation of the requirements under section 801(m) [21 USCS § 381(m)]. (ff) The importing or offering for import into the United States of a drug or device with respect to which there is a failure to comply with a request of the Secretary to submit to the Secretary a statement under section 801(o) [21 USCS § 381(o)]. (gg) The knowing failure of a person accredited under paragraph (2) of section 704(g) [21 USCS § 374(g)] to comply with paragraph (7)(E) of such section; the knowing inclusion by such a person of false information in an inspection report under paragraph (7)(A) of such section; or the knowing failure of such a person to include material facts in such a report. § 332. Injunction proceedings (a) Jurisdiction of courts. The district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 301 [21 USCS § 331], except paragraphs (h), (i), and (j). (b) Violation of injunction. In case of violation of an injunction or restraining order issued under this section, which also constitutes a violation of this Act, trial shall be by the court, or, upon demand of the accused, by a jury. § 333. Penalties (a) Violation of 21 USCS § 331. • Any person who violates a provision of section 301 [21 USCS § 331] shall be imprisoned for not more than one year or fined not more than$ 1,000, or both.
• Notwithstanding the provisions of paragraph (1) of this section, if any person commits such a violation after a conviction of him under this section has become final, or commits such a violation with the intent to defraud or mislead, such person shall be imprisoned for not more than three years or fined not more than $10,000 or both. (b) Imprisonment and fines. • Notwithstanding subsection (a), any person who violates section 301(t) [21 USCS § 331(t)] by— • knowingly importing a drug in violation of section 801(d)(1) [21 USCS § 381(d)(1)], • knowingly selling, purchasing, or trading a drug or drug sample or knowingly offering to sell, purchase, or trade a drug or drug sample, in violation of section 503(c)(1) [21 USCS § 353(c)(1)], • knowingly selling, purchasing, or trading a coupon, knowingly offering to sell, purchase, or trade such a coupon, or knowingly counterfeiting such a coupon, in violation of section 503(c)(2) [21 USCS § 353(c)(2)], or • knowingly distributing drugs in violation of section 503(e)(2)(A) [21 USCS § 353(e)(2)(A)], shall be imprisoned for not more than 10 years or fined not more than$ 250,000, or both.
• Any manufacturer or distributor who distributes drug samples by means other than the mail or common carrier whose representative, during the course of the representative's employment or association with that manufacturer or distributor, violated section 301(t) [21 USCS § 331(t)] because of a violation of section 503(c)(1) [21 USCS § 353(c)(1)] or violated any State law prohibiting the sale, purchase, or trade of a drug sample subject to section 503(b) [21 USCS § 353(b)] or the offer to sell, purchase, or trade such a drug sample shall, upon conviction of the representative for such violation, be subject to the following civil penalties:
• A civil penalty of not more than $50,000 for each of the first two such violations resulting in a conviction of any representative of the manufacturer or distributor in any 10-year period. • A civil penalty of not more than$ 1,000,000 for each violation resulting in a conviction of any representative after the second conviction in any 10-year period. For the purposes of this paragraph, multiple convictions of one or more persons arising out of the same event or transaction, or a related series of events or transactions, shall be considered as one violation.
• Any manufacturer or distributor who violates section 301(t) [21 USCS § 331(t)] because of a failure to make a report required by section 503(d)(3)(E) [21 USCS § 353(d)(3)(E)] shall be subject to a civil penalty of not more than $100,000. • (A) If a manufacturer or distributor or any representative of such manufacturer or distributor provides information leading to the institution of a criminal proceeding against, and conviction of, any representative of that manufacturer or distributor for a violation of section 301(t) [21 USCS § 331(t)] because of a sale, purchase, or trade or offer to purchase, sell, or trade a drug sample in violation of section 503(c)(1) [21 USCS § 353(c)(1)] or for a violation of State law prohibiting the sale, purchase, or trade or offer to sell, purchase, or trade a drug sample, the conviction of such representative shall not be considered as a violation for purposes of paragraph (2). • If, in an action brought under paragraph (2) against a manufacturer or distributor relating to the conviction of a representative of such manufacturer or distributor for the sale, purchase, or trade of a drug or the offer to sell, purchase, or trade a drug, it is shown, by clear and convincing evidence— • that the manufacturer or distributor conducted, before the institution of a criminal proceeding against such representative for the violation which resulted in such conviction, an investigation of events or transactions which would have led to the reporting of information leading to the institution of a criminal proceeding against, and conviction of, such representative for such purchase, sale, or trade or offer to purchase, sell, or trade, or • that, except in the case of the conviction of a representative employed in a supervisory function, despite diligent implementation by the manufacturer or distributor of an independent audit and security system designed to detect such a violation, the manufacturer or distributor could not reasonably have been expected to have detected such violation, • the conviction of such representative shall not be considered as a conviction for purposes of paragraph (2). • If a person provides information leading to the institution of a criminal proceeding against, and conviction of, a person for a violation of section 301(t) [21 USCS § 331(t)] because of the sale, purchase, or trade of a drug sample or the offer to sell, purchase, or trade a drug sample in violation of section 503(c)(1) [21 USCS § 353(c)(1)], such person shall be entitled to one-half of the criminal fine imposed and collected for such violation but not more than$ 125,000.
• Notwithstanding subsection (a), any person who is a manufacturer or importer of a covered product pursuant to section 804(a) [21 USCS § 384(a)] and knowingly fails to comply with a requirement of section 804(e) [21 USCS § 384(e)] that is applicable to such manufacturer or importer, respectively, shall be imprisoned for not more than 10 years or fined not more than $250,000, or both. (c) Exceptions in certain cases of good faith, etc. No person shall be subject to the penalties of subsection (a)(1) of this section, (1) for having received in interstate commerce any article and delivered it or proffered delivery of it, if such delivery or proffer was made in good faith, unless he refuses to furnish on request of an officer or employee duly designated by the Secretary the name and address of the person from whom he purchased or received such article and copies of all documents, if any there be, pertaining to the delivery of the article to him; or (2) for having violated section 301(a) or (d) [21 USCS § 331(a), (d)], if he establishes a guaranty or undertaking signed by, and containing the name and address of, the person residing in the United States from whom he received in good faith the article, to the effect, in case of an alleged violation of section 301(a) [21 USCS § 331(a)], that such article is not adulterated or misbranded, within the meaning of this Act, designating this Act, or to the effect, in case of an alleged violation of section 301(d) [21 USCS § 331(d)], that such article is not an article which may not, under the provisions of section 404 or 505 [21 USCS § 344 or 355], be introduced into interstate commerce; or (3) for having violated section 301(a) [21 USCS § 331(a)], where the violation exists because the article is adulterated by reason of containing a color additive not from a batch certified in accordance with regulations promulgated by the Secretary, under this Act, if such person establishes a guaranty or undertaking signed by, and containing the name and address of, the manufacturer of the color additive, to the effect that such color additive was from a batch certified in accordance with the applicable regulations promulgated by the Secretary under this Act; or (4) for having violated section 301(b), (c) or (k) [21 USCS § 331(b), (c) or (k)] by failure to comply with section 502(f) [21 USCS § 352(f)] in respect to an article received in interstate commerce to which neither section 503(a) [21 USCS § 353(a)] nor section 503(b)(1) [21 USCS § 353(b)(1)] is applicable, if the delivery or proffered delivery was made in good faith and the labeling at the time thereof contained the same directions for use and warning statements as were contained in the labeling at the time of such receipt of such article; or (5) for having violated section 301(i)(2) [21 USCS § 331(i)(2)] if such person acted in good faith and had no reason to believe that use of the punch, die, plate, stone, or other thing involved would result in a drug being a counterfeit drug, or for having violated section 301(i)(3) [21 USCS § 331(i)(3)] if the person doing the act or causing it to be done acted in good faith and had no reason to believe that the drug was a counterfeit drug. (d) Exceptions involving misbranded food. No person shall be subject to the penalties of subsection (a)(1) of this section for a violation of section 301 [21 USCS § 331] involving misbranded food if the violation exists solely because the food is misbranded under section 403(a)(2) [21 USCS § 343(a)(2)] because of its advertising. (e) Distribution of or possession with intent to distribute human growth hormone; exception. • Except as provided in paragraph (2), whoever knowingly distributes, or possesses with intent to distribute, human growth hormone for any use in humans other than the treatment of a disease or other recognized medical condition, where such use has been authorized by the Secretary of Health and Human Services under section 505 [21 USCS § 355] and pursuant to the order of a physician, is guilty of an offense punishable by not more than 5 years in prison, such fines as are authorized by title 18, United States Code, or both. • Whoever commits any offense set forth in paragraph (1) and such offense involves an individual under 18 years of age is punishable by not more than 10 years imprisonment, such fines as are authorized by title 18, United States Code, or both. • Any conviction for a violation of paragraphs (1) and (2) of this subsection shall be considered a felony violation of the Controlled Substances Act for the purposes of forfeiture under section 413 of such Act [21 USCS § 853]. • As used in this subsection the term “human growth hormone” means somatrem, somatropin, or an analogue of either of them. • The Drug Enforcement Administration is authorized to investigate offenses punishable by this subsection. (f) Civil penalties. • (A) Except as provided in subparagraph (B), any person who violates a requirement of this Act which relates to devices shall be liable to the United States for a civil penalty in an amount not to exceed$ 15,000 for each such violation, and not to exceed $1,000,000 for all such violations adjudicated in a single proceeding. For purposes of the preceding sentence, a person accredited under paragraph (2) of section 704(g) [21 USCS § 374(g)] who is substantially not in compliance with the standards of accreditation under such section, or who poses a threat to public health or fails to act in a manner that is consistent with the purposes of such section, shall be considered to have violated a requirement of this Act that relates to devices. • Subparagraph (A) shall not apply— • to any person who violates the requirements of section 519(a) or 520(f) [21 USCS § 360i(a) or § 360j(f)] unless such violation constitutes (I) a significant or knowing departure from such requirements, or (II) a risk to public health, • to any person who commits minor violations of section 519(e) or 519(f) [21 USCS § 360i(e) or (f)] (only with respect to correction reports) if such person demonstrates substantial compliance with such section, or • to violations of section 501(a)(2)(A) [21 USCS § 360(a)(2)(A)] which involve one or more devices which are not defective. • (A) Any person who introduces into interstate commerce or delivers for introduction into interstate commerce an article of food that is adulterated within the meaning of section 402(a)(2)(B) [21 USCS § 342(a)(2)(B)] shall be subject to a civil money penalty of not more than$ 50,000 in the case of an individual and $250,000 in the case of any other person for such introduction or delivery, not to exceed$ 500,000 for all such violations adjudicated in a single proceeding.
• This paragraph shall not apply to any person who grew the article of food that is adulterated. If the Secretary assesses a civil penalty against any person under this paragraph, the Secretary may not use the criminal authorities under this section to sanction such person for the introduction or delivery for introduction into interstate commerce of the article of food that is adulterated. If the Secretary assesses a civil penalty against any person under this paragraph, the Secretary may not use the seizure authorities of section 304 [21 USCS § 334] or the injunction authorities of section 302 [21 USCS § 332] with respect to the article of food that is adulterated.
• In a hearing to assess a civil penalty under this paragraph, the presiding officer shall have the same authority with regard to compelling testimony or production of documents as a presiding officer has under section 408(g)(2)(B) [21 USCS § 346a(g)(2)(B)]. The third sentence of paragraph (3)(A) shall not apply to any investigation under this paragraph.
• (A) A civil penalty under paragraph (1) or (2) shall be assessed by the Secretary by an order made on the record after opportunity for a hearing provided in accordance with this subparagraph and section 554 of title 5, United States Code. Before issuing such an order, the Secretary shall give written notice to the person to be assessed a civil penalty under such order of the Secretary's proposal to issue such order and provide such person an opportunity for a hearing on the order. In the course of any investigation, the Secretary may issue subpoenas requiring the attendance and testimony of witnesses and the production of evidence that relates to the matter under investigation.
• In determining the amount of a civil penalty, the Secretary shall take into account the nature, circumstances, extent, and gravity of the violation or violations and, with respect to the violator, ability to pay, effect on ability to continue to do business, any history of prior such violations, the degree of culpability, and such other matters as justice may require.
• The Secretary may compromise, modify, or remit, with or without conditions, any civil penalty which may be assessed under paragraph (1) or (2). The amount of such penalty, when finally determined, or the amount agreed upon in compromise, may be deducted from any sums owing by the United States to the person charged.
• Any person who requested, in accordance with paragraph (3)(A), a hearing respecting the assessment of a civil penalty and who is aggrieved by an order assessing a civil penalty may file a petition for judicial review of such order with the United States Court of Appeals for the District of Columbia Circuit or for any other circuit in which such person resides or transacts business. Such a petition may only be filed within the 60-day period beginning on the date the order making such assessment was issued.
• If any person fails to pay an assessment of a civil penalty—
• after the order making the assessment becomes final, and if such person does not file a petition for judicial review of the order in accordance with paragraph (4), or
• after a court in an action brought under paragraph (4) has entered a final judgment in favor of the Secretary, the Attorney General shall recover the amount assessed (plus interest at currently prevailing rates from the date of the expiration of the 60-day period referred to in paragraph (4) or the date of such final judgment, as the case may be) in an action brought in any appropriate district court of the United States. In such an action, the validity, amount, and appropriateness of such penalty shall not be subject to review.

§ 334. Seizure

(a) Grounds and jurisdiction.

• Any article of food, drug, or cosmetic that is adulterated or misbranded when introduced into or while in interstate commerce or while held for sale (whether or not the first sale) after shipment in interstate commerce, or which may not, under the provisions of section 404 or 505 [21 USCS § 344 or 355], be introduced into interstate commerce, shall be liable to be proceeded against while in interstate commerce, or at any time thereafter, on libel of information and condemned in any district court of the United States or United States court of a Territory within the jurisdiction of which the article is found. No libel for condemnation shall be instituted under this Act [21 USCS §§ 301 et seq.], for any alleged misbranding if there is pending in any court a libel for condemnation proceeding under this Act [21 USCS §§ 301 et seq.] based upon the same alleged misbranding, and not more than one such proceeding shall be instituted if no such proceeding is so pending, except that such limitations shall not apply (A) when such misbranding has been the basis of a prior judgment in favor of the United States, in a criminal, injunction, or libel for condemnation proceeding under this Act [21 USCS §§ 301 et seq.], or (B) when the Secretary has probable cause to believe from facts found, without hearing, by him or any officer or employee of the Department that the misbranded article is dangerous to health, or that the labeling of the misbranded article is fraudulent, or would be in a material respect misleading to the injury or damage of the purchaser or consumer. In any case where the number of libel for condemnation proceedings is limited as above provided the proceeding pending or instituted shall, on application of the claimant, seasonably made, be removed for trial to any district agreed upon by stipulation between the parties, or, in case of failure to so stipulate within a reasonable time, the claimant may apply to the court of the district in which the seizure has been made, and such court (after giving the United States attorney for such district reasonable notice and opportunity to be heard) shall by order, unless good cause to the contrary is shown, specify a district of reasonable proximity to the claimant's principal place of business, to which the case shall be removed for trial.
• The following shall be liable to be proceeded against at any time on libel of information and condemned in any district court of the United States or United States court of a Territory within the jurisdiction of which they are found: (A) Any drug that is a counterfeit drug, (B) Any container of a counterfeit drug, (C) Any punch, die, plate, stone, labeling, container, or other thing used or designed for use in making a counterfeit drug or drugs, and (D) Any adulterated or misbranded device.
• (A) Except as provided in subparagraph (B), no libel for condemnation may be instituted under paragraph (1) or (2) against any food which—
• is misbranded under section 403(a)(2) [21 USCS § 343(a)(2)] because of its advertising, and
• is being held for sale to the ultimate consumer in an establishment other than an establishment owned or operated by a manufacturer, packer, or distributor of the food.
• A libel for condemnation may be instituted under paragraph (1) or (2) against a food described in subparagraph (A) if—
• (I) the food's advertising which resulted in the food being misbranded under section 403(a)(2) [21 USCS § 343(a)(2)] was disseminated in the establishment in which the food is being held for sale to the ultimate consumer,
• such advertising was disseminated by, or under the direction of, the owner or operator of such establishment, or
• all or part of the cost of such advertising was paid by such owner or operator; and
• the owner or operator of such establishment used such advertising in the establishment to promote the sale of the food.

(b) Procedure; multiplicity of pending proceedings. The article, equipment, or other thing proceeded against shall be liable to seizure by process pursuant to the libel, and the procedure in cases under this section shall conform, as nearly as may be, to the procedure in admiralty; except that on demand of either party any issue of fact joined in any such case shall be tried by jury. When libel for condemnation proceedings under this section, involving the same claimant and the same issues of adulteration or misbranding, are pending in two or more jurisdictions, such pending proceedings, upon application of the claimant seasonably made to the court of one such jurisdiction, shall be consolidated for trial by order of such court, and tried in (1) any district selected by the claimant where one of such proceedings is pending; or (2) a district agreed upon by stipulation between the parties. If no order for consolidation is so made within a reasonable time, the claimant may apply to the court of one such jurisdiction, and such court (after giving the United States attorney for such district reason able notice and opportunity to be heard) shall by order, unless good cause to the contrary is shown, specify a district of reasonable proximity to the claimant's principal place of business, in which all such pending proceedings shall be consolidated for trial and tried. Such order of consolidation shall not apply so as to require the removal of any case the date for trial of which has been fixed. The court granting such order shall give prompt notification thereof to the other courts having jurisdiction of the cases covered thereby.

(c) Availability of samples of seized goods prior to trial. The court at any time after seizure up to a reasonable time before trial shall by order allow any party to a condemnation proceeding, his attorney or agent, to obtain a representative sample of the article seized and a true copy of the analysis, if any, on which the proceeding is based and the identifying marks or numbers, if any, of the packages from which the samples analyzed were obtained.

(d) Disposition of goods after decree of condemnation; claims for remission or mitigation of forfeitures.

• Any food, drug, device, or cosmetic condemned under this section shall, after entry of the decree, be disposed of by destruction or sale as the court may, in accordance with the provisions of this section, direct and the proceeds thereof, if sold, less the legal costs and charges, shall be paid into the Treasury of the United States; but such article shall not be sold under such decree contrary to the provisions of this Act [21 USCS §§ 301 et seq.] or the laws of the jurisdiction in which sold. After entry of the decree and upon the payment of the costs of such proceedings and the execution of a good and sufficient bond conditioned that such article shall not be sold or disposed of contrary to the provisions of this Act [21 USCS §§ 301 et seq.] or the laws of any State or Territory in which sold, the court may by order direct that such article be delivered to the owner thereof to be destroyed or brought into compliance with the provisions of this Act [21 USCS §§ 301 et seq.] under the supervision of an officer or employee duly designated by the Secretary, and the expenses of such supervision shall be paid by the person obtaining release of the article under bond. If the article was imported into the United States and the person seeking its release establishes (A) that the adulteration, misbranding, or violation did not occur after the article was imported, and (B) that he had no cause for believing that it was adulterated, misbranded, or in violation before it was released from customs custody, the court may permit the article to be delivered to the owner for exportation in lieu of destruction upon a showing by the owner that all of the conditions of section 801(e) [21 USCS § 381(e)] can and will be met. The provisions of this sentence shall not apply where condemnation is based upon violation of section 402(a)(1), (2), or (6) [21 USCS § 342(a)(1), (2), or (6)], section 501(a)(3) [21 USCS § 351(a)(3)], section 502(j) [21 USCS § 352(j)], or section 601(a) or (d) [21 USCS § 361(a) or (d)]. Where such exportation is made to the original foreign supplier, then subparagraphs (A) and (B) of section 801(e)(1) [21 USCS § 381(e)(1)(A), (B)] and the preceding sentence shall not be applicable; and in all cases of exportation the bond shall be conditioned that the article shall not be sold or disposed of until the applicable conditions of section 801(e) [21 USCS § 381(e)] have been met. Any person seeking to export an imported article pursuant to any of the provisions of this subsection shall establish that the article was intended for export at the time the article entered commerce. Any article condemned by reason of its being an article which may not, under section 404 or 505 [21 USCS § 344 or 355] be introduced into interest to commerce, shall be disposed of by destruction.
• The provisions of paragraph (1) of this subsection shall, to the extent deemed appropriate by the court, apply to any equipment or other thing which is not otherwise within the scope of such paragraph and which is referred to in paragraph (2) of subsection (a).
• Whenever in any proceeding under this section, involving paragraph (2) of subsection (a), the condemnation of any equipment or thing (other than a drug) is decreed, the court shall allow the claim of any claimant, to the extent of such claimant's interest, for remission or mitigation of such forfeiture if such claimant proves to the satisfaction of the court (i) that he has not committed or caused to be committed any prohibited act referred to in such paragraph (2) and has no interest in any drug referred to therein, (ii) that he has an interest in such equipment or other thing as owner or lienor or otherwise, acquired by him in good faith, and (iii) that he at no time had any knowledge or reason to believe that such equipment or other thing was being or would be used in, or to facilitate, the violation of laws of the United States relating to counterfeit drugs.

(e) Costs. When a decree of condemnation is entered against the article, court costs and fees, and storage and other proper expenses, shall be awarded against the person, if any, intervening as claimant of the article.

(f) Removal of case for trial. In the case of removal for trial of any case as provided by subsection (a) or (b)—

• The clerk of the court from which removal is made shall promptly transmit to the court in which the case is to be tried all records in the case necessary in order that such court may exercise jurisdiction.
• The court to which such case was removed shall have the powers and be subject to the duties, for purposes of such case, which the court from which removal was made would have had, or to which such court would have been subject, if such case had not been removed.

• If during an inspection conducted under section 704 [21 USCS § 374] of a facility or a vehicle, a device which the officer or employee making the inspection has reason to believe is adulterated or misbranded is found in such facility or vehicle, such officer or employee may order the device detained (in accordance with regulations prescribed by the Secretary) for a reasonable period which may not exceed twenty days unless the Secretary determines that a period of detention greater than twenty days is required to institute an action under subsection (a) or section 302 [21 USCS § 332], in which case he may authorize a detention period of not to exceed thirty days. Regulations of the Secretary prescribed under this paragraph shall require that before a device may be ordered detained under this paragraph the Secretary or an officer or employee designated by the Secretary approve such order. A detention order under this paragraph may require the labeling or marking of a device during the period of its detention for the purpose of identifying the device as detained. Any person who would be entitled to claim a device if it were seized under subsection (a) may appeal to the Secretary a detention of such device under this paragraph. Within five days of the date an appeal of a detention is filed with the Secretary, the Secretary shall after affording opportunity for an informal hearing by order confirm the detention or revoke it.
• (A) Except as authorized by subparagraph (B), a device subject to a detention order issued under paragraph (1) shall not be moved by any person from the place at which it is ordered detained until—
• released by the Secretary, or
• the expiration of the detention period applicable to such order, whichever occurs first.
• A device subject to a detention order under paragraph (1) may be moved—
• in accordance with regulations prescribed by the Secretary, and
• if not in final form for shipment, at the discretion of the manufacturer of the device for the purpose of completing the work required to put it in such form.

• Detention authority
• In general. An officer or qualified employee of the Food and Drug Administration may order the detention, in accordance with this subsection, of any article of food that is found during an inspection, examination, or investigation under this Act [21 USCS §§ 301 et seq.] conducted by such officer or qualified employee, if the officer or qualified employee has credible evidence or information indicating that such article presents a threat of serious adverse health consequences or death to humans or animals.
• Secretary's approval. An article of food may be ordered detained under subparagraph (A) only if the Secretary or an official designated by the Secretary approves the order. An official may not be so designated unless the official is the director of the district under this Act [21 USCS §§ 301 et seq.] in which the article involved is located, or is an official senior to such director
• Period of detention. An article of food may be detained under paragraph (1) for a reasonable period, not to exceed 20 days, unless a greater period, not to exceed 30 days, is necessary, to enable the Secretary to institute an action under subsection (a) or section 302 [21 USCS § 332]. The Secretary shall by regulation provide for procedures for instituting such action on an expedited basis with respect to perishable foods.
• Security of detained article. An order under paragraph (1) with respect to an article of food may require that such article be labeled or marked as detained, and shall require that the article be removed to a secure facility, as appropriate. An article subject to such an order shall not be transferred by any person from the place at which the article is ordered detained, or from the place to which the article is so removed, as the case may be, until released by the Secretary or until the expiration of the detention period applicable under such order, whichever occurs first. This subsection may not be construed as authorizing the delivery of the article pursuant to the execution of a bond while the article is subject to the order, and section 801(b) [21 USCS § 381(b)] does not authorize the delivery of the article pursuant to the execution of a bond while the article is subject to the order.
• Appeal of detention order.
• In general. With respect to an article of food ordered detained under paragraph (1), any person who would be entitled to be a claimant for such article if the article were seized under subsection (a) may appeal the order to the Secretary. Within five days after such an appeal is filed, the Secretary, after providing opportunity for an informal hearing, shall confirm or terminate the order involved, and such confirmation by the Secretary shall be considered a final agency action for purposes of section 702 of title 5, United States Code. If during such five-day period the Secretary fails to provide such an opportunity, or to confirm or terminate such order, the order is deemed to be terminated.
• Effect of instituting court action. The process under subparagraph (A) for the appeal of an order under paragraph (1) terminates if the Secretary institutes an action under subsection (a) or section 302 [21 USCS § 332] regarding the article of food involved.

§ 335b. Civil penalties

(a) In general. Any person that the Secretary finds—

• knowingly made or caused to be made, to any officer, employee, or agent of the Department of Health and Human Services, a false statement or misrepresentation of a material fact in connection with an abbreviated drug application,
• bribed or attempted to bribe or paid or attempted to pay an illegal gratuity to any officer, employee, or agent of the Department of Health and Human Services in connection with an abbreviated drug application,
• destroyed, altered, removed, or secreted, or procured the destruction, alteration, removal, or secretion of, any material document or other material evidence which was the property of or in the possession of the Department of Health and Human Services for the purpose of interfering with that Department's discharge of its responsibilities in connection with an abbreviated drug application,
• knowingly failed to disclose, to an officer or employee of the Department of Health and Human Services, a material fact which such person had an obligation to disclose relating to any drug subject to an abbreviated drug application,
• knowingly obstructed an investigation of the Department of Health and Human Services into any drug subject to an abbreviated drug application,
• is a person that has an approved or pending drug product application and has knowingly—
• employed or retained as a consultant or contractor, or
• otherwise used in any capacity the services of, a person who was debarred under section 306 [21 USCS § 335a], or
• is an individual debarred under section 306 [21 USCS § 335a]and, during the period of debarment, provided services in any capacity to a person that had an approved or pending drug product application, shall be liable to the United States for a civil penalty for each such violation in an amount not to exceed $250,000 in the case of an individual and$ 1,000,000 in the case of any other person.

(b) Procedure.

• In general.
• Action by the Secretary. A civil penalty under subsection (a) shall be assessed by the Secretary on a person by an order made on the record after an opportunity for an agency hearing on disputed issues of material fact and the amount of the penalty. In the course of any investigation or hearing under this subparagraph, the Secretary may administer oaths and affirmations, examine witnesses, receive evidence, and issue subpoenas requiring the attendance and testimony of witnesses and the production of evidence that relates to the matter under investigation.
• Action by the Attorney General. In lieu of a proceeding under subparagraph (A), the Attorney General may, upon request of the Secretary, institute a civil action to recover a civil money penalty in the amount and for any of the acts set forth in subsection (a). Such an action may be instituted separately from or in connection with any other claim, civil or criminal, initiated by the Attorney General under this Act.
• Amount. In determining the amount of a civil penalty under paragraph (1), the Secretary or the court shall take into account the nature, circumstances, extent, and gravity of the act subject to penalty, the person's ability to pay, the effect on the person's ability to continue to do business, any history of prior, similar acts, and such other matters as justice may require.
• Limitation on actions. No action may be initiated under this section—
• with respect to any act described in subsection (a) that occurred before the date of the enactment of this section [enacted May 13, 1992], or
• more than 6 years after the date when facts material to the act are known or reasonably should have been known by the Secretary but in no event more than 10 years after the date the act took place.

(c) Judicial review. Any person that is the subject of an adverse decision under subsection (b)(1)(A) may obtain a review of such decision by the United States Court of Appeals for the District of Columbia or for the circuit in which the person resides, by filing in such court (within 60 days following the date the person is notified of the Secretary's decision) a petition requesting that the decision be modified or set aside.

(d) Recovery of penalties. The Attorney General may recover any civil penalty (plus interest at the currently prevailing rates from the date the penalty became final) assessed under subsection (b)(1)(A) in an action brought in the name of the United States. The amount of such penalty may be deducted, when the penalty has become final, from any sums then or later owing by the United States to the person against whom the penalty has been assessed. In an action brought under this subsection, the validity, amount, and appropriateness of the penalty shall not be subject to judicial review.

(e) Informants. The Secretary may award to any individual (other than an officer or employee of the Federal Government or a person who materially participated in any conduct described in subsection (a)) who provides information leading to the imposition of a civil penalty under this section an amount not to exceed—

• $250,000, or • one-half of the penalty so imposed and collected, whichever is less. The decision of the Secretary on such award shall not be reviewable. § 342. Adulterated food A food shall be deemed to be adulterated— (a) Poisonous, insanitary, or deleterious ingredients. • If it bears or contains any poisonous or deleterious substance which may render it injurious to health; but in case the substance is not an added substance such food shall not be considered adulterated under this clause if the quantity of such substance in such food does not ordinarily render it injurious to health.[; or] (2)(A) if it bears or contains any added poisonous or added deleterious substance (other than a substance that is a pesticide chemical residue in or on a raw agricultural commodity or processed food, a food additive, a color additive, or a new animal drug) that is unsafe within the meaning of section 406 [21 USCS § 346]; or (B) if it bears or contains a pesticide chemical residue that is unsafe within the meaning of section 408(a) [21 USCS § 346a(a)]; or (C) if it is or if it bears or contains (i) any food additive that is unsafe within the meaning of section 409 [21 USCS § 348]; or (ii) a new animal drug (or conversion product thereof) that is unsafe within the meaning of section 512 [21 USCS § 360b]; or (3) if it consists in whole or in part of any filthy, putrid, or decomposed substances, or if it is otherwise unfit for food; or (4) if it has been prepared, packed, or held under insanitary conditions whereby it may have become contaminated with filth, or whereby it may have been rendered injurious to health; or (5) if it is, in whole or in part, the product of a diseased animal or of an animal which has died otherwise than by slaughter; or (6) if its container is composed, in whole or in part, of any poisonous or deleterious substance which may render the contents injurious to health; or (7) if it has been intentionally subjected to radiation, unless the use of the radiation was in conformity with a regulation or exemption in effect pursuant to section 409 [21 USCS § 348]. (b) Absence, substitution, or addition of constituents. (1) If any valuable constituent has been in whole or in part omitted or abstracted therefrom; or (2) if any substance has been substituted wholly or in part therefor; or (3) if damage or inferiority has been concealed in any manner; or (4) if any substance has been added thereto or mixed or packed therewith so as to increase its bulk or weight, or reduce its quality or strength, or make it appear better or of greater value than it is. (c) Color additives. If it is, or it bears or contains, a color additive which is unsafe within the meaning of section 721(a) [21 USCS § 379e(a)]. (d) Confectionery containing alcohol or nonnutritive substance. If it is confectionery, and— • has partially or completely imbedded therein any nonnutritive object, except that this subparagraph shall not apply in the case of any nonnutritive object if, in the judgment of the Secretary as provided by regulations, such object is of practical functional value to the confectionery product and would not render the product injurious or hazardous to health; • bears or contains any alcohol other than alcohol not in excess of one-half of 1 per centum by volume derived solely from the use of flavoring extracts, except that this clause shall not apply to confectionery which is introduced or delivered for introduction into, or received or held for sale in, interstate commerce if the sale of such confectionery is permitted under the laws of the State in which such confectionery is intended to be offered for sale; or • bears or contains any nonnutritive substance, except that this subparagraph shall not apply to a safe nonnutritive substance which is in or on confectionery by reason of its use for some practical functional purpose in the manufacture, packaging, or storage of such confectionery if the use of the substance does not promote deception of the consumer or otherwise result in adulteration or misbranding in violation of any provision of this Act [21 USCS §§ 301 et seq.], except that the Secretary may, for the purpose of avoiding or resolving uncertainty as to the application of this subparagraph, issue regulations allowing or prohibiting the use of particular nonnutritive substances. (e) Oleomargarine containing filthy, putrid, etc., matter. If it is oleomargarine or margarine or butter and any of the raw material used therein consisted in whole or in part of any filthy, putrid, or decomposed substance, or such oleomargarine or margarine or butter is otherwise unfit for food. (f) Safety of dietary supplements and burden of proof on FDA. • If it is a dietary supplement or contains a dietary ingredient that— • presents a significant or unreasonable risk of illness or injury under— • conditions of use recommended or suggested in labeling, or • if no conditions of use are suggested or recommended in the labeling, under ordinary conditions of use; • is a new dietary ingredient for which there is inadequate information to provide reasonable assurance that such ingredient does not present a significant or unreasonable risk of illness or injury; • the Secretary declares to pose an imminent hazard to public health or safety, except that the authority to make such declaration shall not be delegated and the Secretary shall promptly after such a declaration initiate a proceeding in accordance with sections 554 and 556 of title 5, United States Code, to affirm or withdraw the declaration; or • is or contains a dietary ingredient that renders it adulterated under paragraph (a)(1) under the conditions of use recommended or suggested in the labeling of such dietary supplement. • In any proceeding under this subparagraph, the United States shall bear the burden of proof on each element to show that a dietary supplement is adulterated. The court shall decide any issue under this paragraph on a de novo basis. • Before the Secretary may report to a United States attorney a violation of paragraph (1)(A) for a civil proceeding, the person against whom such proceeding would be initiated shall be given appropriate notice and the opportunity to present views, orally and in writing, at least 10 days before such notice, with regard to such proceeding. (g) Good manufacturing practices. • If it is a dietary supplement and it has been prepared, packed, or held under conditions that do not meet current good manufacturing practice regulations, including regulations requiring, when necessary, expiration date labeling, issued by the Secretary under subparagraph (2). • The Secretary may by regulation prescribe good manufacturing practices for dietary supplements. Such regulations shall be modeled after current good manufacturing practice regulations for food and may not impose standards for which there is no current and generally available analytical methodology. No standard of current good manufacturing practice may be imposed unless such standard is included in a regulation promulgated after notice and opportunity for comment in accordance with chapter 5 of title 5, United States Code [5 USCS §§ 500 et seq.]. (h) If it is an article of food imported or offered for import into the United States and the article of food has previously been refused admission under section 801(a) [21 USCS § 381(a)], unless the person reoffering the article affirmatively establishes, at the expense of the owner or consignee of the article, that the article complies with the applicable requirements of this Act [21 USCS §§ 301 et seq.], as determined by the Secretary. § 343. Misbranded food A food shall be deemed to be misbranded— (a) False or misleading label. If (1) its labeling is false or misleading in any particular, or (2) in the case of a food to which section 411 [21 USCS § 350] applies, its advertising is false or misleading in a material respect or its labeling is in violation of section 411(b)(2) [21 USCS § 350(b)(2)]. (b) Offer for sale under another name. If it is offered for sale under the name of another food. (c) Imitation of another food. If it is an imitation of another food, unless its label bears, in type of uniform size and prominence, the word “imitation” and, immediately thereafter, the name of the food imitated. (d) Misleading container. If its container is so made, formed, or filled as to be misleading. (e) Package form. If in package form unless it bears a label containing (1) the name and place of business of the manufacturer, packer, or distributor; and (2) an accurate statement of the quantity of the contents in terms of weight, measure, or numerical count, except that under clause (2) of this paragraph reasonable variations shall be permitted, and exemptions as to small packages shall be established, by regulations prescribed by the Secretary. (f) Prominence of information on label. If any word, statement, or other information required by or under authority of this Act [21 USCS §§ 301 et seq.] to appear on the label or labeling is not prominently placed thereon with such conspicuousness (as compared with other words, statements, designs, or devices, in the labeling) and in such terms as to render it likely to be read and understood by the ordinary individual under customary conditions of purchase and use. (g) Representation as to definition and standard of identity. If it purports to be or is represented as a food for which a definition and standard of identity has been prescribed by regulations as provided by section 401 [21 USCS § 341], unless (1) it conforms to such definition and standard, and (2) its label bears the name of the food specified in the definition and standard, and, insofar as may be required by such regulations, the common names of optional ingredients (other than spices, flavoring, and coloring) present in such food. (h) Representation as to standards of quality and fill of container. If it purports to be or is represented as— • a food for which a standard of quality has been prescribed by regulations as provided by section 401 [21 USCS § 341], and its quality falls below such standard, unless its label bears, in such manner and form as such regulations specify, a statement that it falls below such standard; • a food for which a standard or standards of fill of container have been prescribed by regulations as provided by section 401 [21 USCS § 341], and it falls below the standard of fill of container applicable thereto, unless its label bears, in such manner and form as such regulations specify, a statement that it falls below such standard; or • a food that is pasteurized unless— • such food has been subjected to a safe process or treatment that is prescribed as pasteurization for such food in a regulation promulgated under this Act [21 USCS §§ 301 et seq.]; or • (i) such food has been subjected to a safe process or treatment that— • is reasonably certain to achieve destruction or elimination in the food of the most resistant microorganisms of public health significance that are likely to occur in the food; • is at least as protective of the public health as a process or treatment described in subparagraph (A); • is effective for a period that is at least as long as the shelf life of the food when stored under normal and moderate abuse conditions; and • is the subject of a notification to the Secretary, including effectiveness data regarding the process or treatment; and • at least 120 days have passed after the date of receipt of such notification by the Secretary without the Secretary making a determination that the process or treatment involved has not been shown to meet the requirements of subclauses (I) through (III) of clause (i). For purposes of paragraph (3), a determination by the Secretary that a process or treatment has not been shown to meet the requirements of subclauses (I) through (III) of subparagraph (B)(i) shall constitute final agency action under such subclauses. (i) Label where no representation as to definition and standard of quality. Unless its label bears (1) the common or usual name of the food, if any there be, and (2) in case it is fabricated from two or more ingredients, the common or usual name of each such ingredient and if the food purports to be a beverage containing vegetable or fruit juice, a statement with appropriate prominence on the information panel of the total percentage of such fruit or vegetable juice contained in the food; except that spices, flavorings, and colors not required to be certified under section 721(c) [21 USCS § 379e(c)] unless sold as spices, flavorings, or such colors, may be designated as spices, flavorings, and colorings without naming each. To the extent that compliance with the requirements of clause (2) of this paragraph is impracticable, or results in deception or unfair competition, exemptions shall be established by regulations promulgated by the Secretary. (j) Representation for special dietary use. If it purports to be or is represented for special dietary uses, unless its label bears such information concerning its vitamin, mineral, and other dietary properties as the Secretary determines to be, and by regulations prescribes as, necessary in order fully to inform purchasers as to its value for such uses. (k) Artificial flavoring, artificial coloring, or chemical preservatives. If it bears or contains any artificial flavoring, artificial coloring, or chemical preservative, unless it bears labeling stating that fact, except that to the extent that compliance with the requirements of this paragraph is impracticable, exemptions shall be established by regulations promulgated by the Secretary. The provisions of this paragraph and paragraphs (g) and (i) with respect to artificial coloring shall not apply in the case of butter, cheese, or ice cream. The provisions of this paragraph with respect to chemical preservatives shall not apply to a pesticide chemical when used in or on a raw agricultural commodity which is the produce of the soil. (l) Pesticide chemicals on raw agricultural commodities. If it is a raw agricultural commodity which is the produce of the soil, bearing or containing a pesticide chemical applied after harvest, unless the shipping container of such commodity bears labeling which declares the presence of such chemical in or on such commodity and the common or usual name and the function of such chemical, except that no such declaration shall be required while such commodity, having been removed from the shipping container, is being held or displayed for sale at retail out of such container in accordance with the custom of the trade. (m) Color additives. If it is a color additive, unless its packaging and labeling are in conformity with such packaging and labeling requirements, applicable to such color additive, as may be contained in regulations issued under section 721 [21 USCS § 379e]. (n) Packaging or labeling of drugs in violation of regulations. If its packaging or labeling is in violation of an applicable regulation issued pursuant to section 3 or 4 of the Poison Prevention Packaging Act of 1970 [15 USCS § 1472 or 1473]. (o) [Repealed] (p) [Deleted] (q) Nutrition labeling; information required. • Except as provided in subparagraphs (3), (4), and (5), if it is a food intended for human consumption and is offered for sale, unless its label or labeling bears nutrition information that provides— • (i) the serving size which is an amount customarily consumed and which is expressed in a common household measure that is appropriate to the food, or • if the use of the food is not typically expressed in a serving size, the common household unit of measure that expresses the serving size of the food, • the number of servings or other units of measure per container, • the total number of calories— • derived from any source, and • derived from the total fat, in each serving size or other unit of measure of the food, • the amount of the following nutrients: Total fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber, and total protein contained in each serving size or other unit of measure, • any vitamin, mineral, or other nutrient required to be placed on the label and labeling of food under this Act [21 USCS §§ 301 et seq.] before October 1, 1990, if the Secretary determines that such information will assist consumers in maintaining healthy dietary practices. • The Secretary may by regulation require any information required to be placed on the label or labeling by this subparagraph or subparagraph (2)(A) to be highlighted on the label or labeling by larger type, bold type, or contrasting color if the Secretary determines that such highlighting will assist consumers in maintaining healthy dietary practices. • (A) If the Secretary determines that a nutrient other than a nutrient required by subparagraph (1)(C), (1)(D), or (1)(E) should be included in the label or labeling of food subject to subparagraph (1) for purposes of providing information regarding the nutritional value of such food that will assist consumers in maintaining healthy dietary practices, the Secretary may by regulation require that information relating to such additional nutrient be included in the label or labeling of such food. • If the Secretary determines that the information relating to a nutrient required by subparagraph (1)(C), (1)(D), or (1)(E) or clause (A) of this subparagraph to be included in the label or labeling of food is not necessary to assist consumers in maintaining healthy dietary practices, the Secretary may by regulation remove information relating to such nutrient from such requirement. • For food that is received in bulk containers at a retail establishment, the Secretary may, by regulation, provide that the nutrition information required by subparagraphs (1) and (2) be displayed at the location in the retail establishment at which the food is offered for sale. • (A) The Secretary shall provide for furnishing the nutrition information required by subparagraphs (1) and (2) with respect to raw agricultural commodities and raw fish by issuing voluntary nutrition guidelines, as provided by clause (B) or by issuing regulations that are mandatory as provided by clause (D). • (i) Upon the expiration of 12 months after the date of the enactment of the Nutrition Labeling and Education Act of 1990 [enacted Nov. 8, 1990], the Secretary, after providing an opportunity for comment, shall issue guidelines for food retailers offering raw agricultural commodities or raw fish to provide nutrition information specified in subparagraphs (1) and (2). Such guidelines shall take into account the actions taken by food retailers during such 12-month period to provide to consumers nutrition information on raw agricultural commodities and raw fish. Such guidelines shall only apply— • in the case of raw agricultural commodities, to the 20 varieties of vegetables most frequently consumed during a year and the 20 varieties of fruit most frequently consumed during a year, and • to the 20 varieties of raw fish most frequently consumed during a year. • The vegetables, fruits, and raw fish to which such guidelines apply shall be determined by the Secretary by regulation and the Secretary may apply such guidelines regionally. • Upon the expiration of 12 months after the date of the enactment of the Nutrition Labeling and Education Act of 1990 [enacted Nov. 8, 1990], the Secretary shall issue a final regulation defining the circumstances that constitute substantial compliance by food retailers with the guidelines issued under subclause (i). The regulation shall provide that there is not substantial compliance if a significant number of retailers have failed to comply with the guidelines. The size of the retailers and the portion of the market served by retailers in compliance with the guidelines shall be considered in determining whether the substantial-compliance standard has been met. • (i) Upon the expiration of 30 months after the date of the enactment of the Nutrition Labeling and Education Act of 1990 [enacted Nov. 8, 1990], the Secretary shall issue a report on actions taken by food retailers to provide consumers with nutrition information for raw agricultural commodities and raw fish under the guidelines issued under clause (A). Such report shall include a determination of whether there is substantial compliance with the guidelines. • If the Secretary finds that there is substantial compliance with the guidelines, the Secretary shall issue a report and make a determination of the type required in subclause (i) every two years. • (i) If the Secretary determines that there is not substantial compliance with the guidelines issued under clause (A), the Secretary shall at the time such determination is made issue proposed regulations requiring that any person who offers raw agricultural commodities or raw fish to consumers to provide, in a manner prescribed by regulations, the nutrition information required by subparagraphs (1) and (2). The Secretary shall issue final regulations imposing such requirements 6 months after issuing the proposed regulations. The final regulations shall become effective 6 months after the date of their promulgation. • Regulations issued under subclause (i) may require that the nutrition information required by subparagraphs (1) and (2) be provided for more than 20 varieties of vegetables, 20 varieties of fruit, and 20 varieties of fish most frequently consumed during a year if the Secretary finds that a larger number of such products are frequently consumed. Such regulations shall permit such information to be provided in a single location in each area in which raw agricultural commodities and raw fish are offered for sale. Such regulations may provide that information shall be expressed as an average or range per serving of the same type of raw agricultural commodity or raw fish. The Secretary shall develop and make available to the persons who offer such food to consumers the information required by subparagraphs (1) and (2). • Regulations issued under subclause (i) shall permit the required information to be provided in each area of an establishment in which raw agricultural commodities and raw Fish are offered for sale. The regulations shall permit food retailers to display the required information by supplying copies of the information provided by the Secretary, by making the information available in brochure, notebook or leaflet form, or by posting a sign disclosing the information. Such regulations shall also permit presentation of the required information to be supplemented by a video, live demonstration, or other media which the Secretary approves. • For purposes of this subparagraph, the term “fish” includes freshwater or marine fin fish, crustaceans, and mollusks, including shellfish, amphibians, and other forms of aquatic animal life. • No person who offers raw agricultural commodities or raw fish to consumers may be prosecuted for minor violations of this subparagraph if there has been substantial compliance with the requirements of this paragraph. • Subparagraphs (1), (2), (3), and (4) shall not apply to food— • which is served in restaurants or other establishments in which food is served for immediate human consumption or which is sold for sale or use in such establishments, • which is processed and prepared primarily in a retail establishment, which is ready for human consumption, which is of the type described in subclause (i), and which is offered for sale to consumers but not for immediate human consumption in such establishment and which is not offered for sale outside such establishment, • which is an infant formula subject to section 412 [21 USCS § 350a], • which is a medical food as defined in section 5(b) of the Orphan Drug Act (21 U.S.C. 360ee(b)), or • which is described in section 405(2) [21 USCS § 345(2)]. • Subparagraphs (1) and (2) shall not apply to the label of a food if the Secretary determines by regulations that compliance with such subparagraphs is impracticable because the package of such food is too small to comply with the requirements of such subparagraphs and if the label of such food does not contain any nutrition information. • If a food contains insignificant amounts, as determined by the Secretary, of all the nutrients required by subparagraphs (1) and (2) to be listed in the label or labeling of food, the requirements of such subparagraphs shall not apply to such food if the label, labeling, or advertising of such food does not make any claim with respect to the nutritional value of such food. If a food contains insignificant amounts, as determined by the Secretary, of more than one-half the nutrients required by subparagraphs (1) and (2) to be in the label or labeling of the food, the Secretary shall require the amounts of such nutrients to be stated in a simplified form prescribed by the Secretary • If a person offers food for sale and has annual gross sales made or business done in sales to consumers which is not more than$ 500,000 or has annual gross sales made or business done in sales of food to consumers which is not more than $50,000, the requirements of subparagraphs (1), (2), (3), and (4) shall not apply with respect to food sold by such person to consumers unless the label or labeling of food offered by such person provides nutrition information or makes a nutrition claim. • During the 12-month period for which an exemption from subparagraphs (1) and (2) is claimed pursuant to this subclause, the requirements of such subparagraphs shall not apply to any food product if— • the labeling for such product does not provide nutrition information or make a claim subject to paragraph (r), • the person who claims for such product an exemption from such subparagraphs employed fewer than an average of 100 fulltime equivalent employees, • such person provided the notice described in subclause (iii), and • in the case of a food product which was sold in the 12-month period preceding the period for which an exemption was claimed, fewer than 100,000 units of such product were sold in the United States during such preceding period, or in the case of a food product which was not sold in the 12-month period preceding the period for which such exemption is claimed, fewer than 100,000 units of such product are reasonably anticipated to be sold in the United States during the period for which such exemption is claimed. • During the 12-month period after the applicable date referred to in this sentence, the requirements of subparagraphs (1) and (2) shall not apply to any food product which was first introduced into interstate commerce before May 8, 1994, if the labeling for such product does not provide nutrition information or make a claim subject to paragraph (r), if such person provided the notice described in subclause (iii), and if— • during the 12-month period preceding May 8, 1994, the person who claims for such product an exemption from such subparagraphs employed fewer than an average of 300 full-time equivalent employees and fewer than 600,000 units of such product were sold in the United States, • during the 12-month period preceding May 8, 1995, the person who claims for such product an exemption from such subparagraphs employed fewer than an average of 300 full-time equivalent employees and fewer than 400,000 units of such product were sold in the United States, or • during the 12-month period preceding May 8, 1996, the person who claims for such product an exemption from such subparagraphs employed fewer than an average of 200 full-time equivalent employees and fewer than 200,000 units of such product were sold in the United States. • The notice referred to in subclauses (i) and (ii) shall be given to the Secretary prior to the beginning of the period during which the exemption under subclause (i) or (ii) is to be in effect, shall state that the person claiming such exemption for a food product has complied with the applicable requirements of subclause (i) or (ii), and shall— • state the average number of full-time equivalent employees such person employed during the 12 months preceding the date such person claims such exemption, • state the approximate number of units the person claiming the exemption sold in the United States, • if the exemption is claimed for a food product which was sold in the 12-month period preceding the period for which the exemption was claimed, state the approximate number of units of such product which were sold in the United States during such preceding period, and, if the exemption is claimed for a food product which was not sold in such preceding period, state the number of units of such product which such person reasonably anticipates will be sold in the United States during the period for which the exemption was claimed, and • contain such information as the Secretary may require to verify the information required by the preceding provisions of this subclause if the Secretary has questioned the validity of such information. If a person is not an importer, has fewer than 10 full-time equivalent employees, and sells fewer than 10,000 units of any food product in any year, such person is not required to file a notice for such product under this subclause for such year. • In the case of a person who claimed an exemption under subclause (i) or (ii), if, during the period of such exemption, the number of full-time equivalent employees of such person exceeds the number in such subclause or if the number of food products sold in the United States exceeds the number in such subclause, such exemption shall extend to the expiration of 18 months after the date the number of full-time equivalent employees or food products sold exceeded the applicable number • For any food product first introduced into interstate commerce after May 8, 2002, the Secretary may by regulation lower the employee or units of food products requirement of subclause (i) if the Secretary determines that the cost of compliance with such lower requirement will not place an undue burden on persons subject to such lower requirement. • For purposes of subclauses (i), (ii), (iii), (iv), and (v)— • the term “unit” means the packaging or, if there is no packaging, the form in which a food product is offered for sale to consumers, • the term “food product” means food in any sized package which is manufactured by a single manufacturer or which bears the same brand name, which bears the same statement of identity, and which has similar preparation methods, and • the term “person” in the case of a corporation includes all domestic and foreign affiliates of the corporation. • A dietary supplement product (including a food to which section 411 [21 USCS § 350] applies) shall comply with the requirements of subparagraphs (1) and (2) in a manner which is appropriate for the product and which is specified in regulations of the Secretary which shall provide that— • nutrition information shall first list those dietary ingredients that are present in the product in a significant amount and for which a recommendation for daily consumption has been established by the Secretary, except that a dietary ingredient shall not be required to be listed if it is not present in a significant amount, and shall list any other dietary ingredient present and identified as having no such recommendation; • the listing of dietary ingredients shall include the quantity of each such ingredient (or of a proprietary blend of such ingredients) per serving; • the listing of dietary ingredients may include the source of a dietary ingredient; and • the nutrition information shall immediately precede the ingredient information required under subclause (i), except that no ingredient identified pursuant to subclause (i) shall be required to be identified a second time. • Subparagraphs (1), (2), (3), and (4) shall not apply to food which is sold by a food distributor if the food distributor principally sells food to restaurants or other establishments in which food is served for immediate human consumption and does not manufacture, process, or repackage the food it sells. (r) Labeling required. • Except as provided in clauses (A) through (C) of subparagraph (5), if it is a food intended for human consumption which is offered for sale and for which a claim is made in the label or labeling of the food which expressly or by implication— • characterizes the level of any nutrient which is of the type required by paragraph (q)(1) or (q)(2) to be in the label or labeling of the food unless the claim is made in accordance with subparagraph (2), or • characterizes the relationship of any nutrient which is of the type required by paragraph (q)(1) or (q)(2) to be in the label or labeling of the food to a disease or a health-related condition unless the claim is made in accordance with subparagraph (3) or (5)(D). • A statement of the type required by paragraph (q) that appears as part of the nutrition information required or permitted by such paragraph is not a claim which is subject to this paragraph and a claim subject to clause (A) is not subject to clause (B). • Except as provided in subparagraphs (4)(A)(ii) and (4)(A)(iii) and clauses (A) through (C) of subparagraph (5), a claim described in subparagraph (1)(A)— • may be made only if the characterization of the level made in the claim uses terms which are defined in regulations of the Secretary, • may not state the absence of a nutrient unless— • the nutrient is usually present in the food or in a food which substitutes for the food as defined by the Secretary by regulation, or • the Secretary by regulation permits such a statement on the basis of a finding that such a statement would assist consumers in maintaining healthy dietary practices and the statement discloses that the nutrient is not usually present in the food, • may not be made with respect to the level of cholesterol in the food if the food contains, as determined by the Secretary by regulation, fat or saturated fat in an amount which increases to persons in the general population the risk of disease or a health related condition which is diet related unless— • the Secretary finds by regulation that the level of cholesterol is substantially less than the level usually present in the food or in a food which substitutes for the food and which has a significant market share, or the Secretary by regulation permits a statement regarding the absence of cholesterol on the basis of a finding that cholesterol is not usually present in the food and that such a statement would assist consumers in maintaining healthy dietary practices and the regulation requires that the statement disclose that cholesterol is not usually present in the food, and • the label or labeling of the food discloses the level of such fat or saturated fat in immediate proximity to such claim and with appropriate prominence which shall be no less than one-half the size of the claim with respect to the level of cholesterol, • may not be made with respect to the level of saturated fat in the food if the food contains cholesterol unless the label or labeling of the food discloses the level of cholesterol in the food in immediate proximity to such claim and with appropriate prominence which shall be no less than one-half the size of the claim with respect to the level of saturated fat, • may not state that a food is high in dietary fiber unless the food is low in total fat as defined by the Secretary or the label or labeling discloses the level of total fat in the food in immediate proximity to such statement and with appropriate prominence which shall be no less than one-half the size of the claim with respect to the level of dietary fiber, and • may not be made if the Secretary by regulation prohibits the claim because the claim is misleading in light of the level of another nutrient in the food. • If a claim described in subparagraph (1)(A) is made with respect to a nutrient in a food and the Secretary makes a determination that the food contains a nutrient at a level that increases to persons in the general population the risk of a disease or health-related condition that is diet related, the label or labeling of such food shall contain, prominently and in immediate proximity to such claim, the following statement: “See nutrition information for—content.” The blank shall identify the nutrient associated with the increased disease or health-related condition risk. In making the determination described in this clause, the Secretary shall take into account the significance of the food in the total daily diet. • Subparagraph (2)(A) does not apply to a claim described in subparagraph (1)(A) and contained in the label or labeling of a food if such claim is contained in the brand name of such food and such brand name was in use on such food before October 25, 1989, unless the brand name contains a term defined by the Secretary under subparagraph (2)(A)(i). Such a claim is subject to paragraph (a). • Subparagraph (2) does not apply to a claim described in subparagraph (1)(A) which uses the term “diet” and is contained in the label or labeling of a soft drink if (i) such claim is contained in the brand name of such soft drink, (ii) such brand name was in use on such soft drink before October 25, 1989, and (iii) the use of the term “diet” was in conformity with section 105.66 of title 21 of the Code of Federal Regulations. Such a claim is subject to paragraph (a). • Subclauses (i) through (v) of subparagraph (2)(A) do not apply to a statement in the label or labeling of food which describes the percentage of vitamins and minerals in the food in relation to the amount of such vitamins and minerals recommended for daily consumption by the Secretary. • Subclause (i) clause (A) does not apply to a statement in the labeling of a dietary supplement that characterizes the percentage level of a dietary ingredient for which the Secretary has not established a reference daily intake, daily recommended value, or other recommendation for daily consumption. • A claim of the type described in subparagraph (1)(A) for a nutrient, for which the Secretary has not promulgated a regulation under clause (A)(i), shall be authorized and may be made with respect to a food if— • a scientific body of the United States Government with official responsibility for public health protection or research directly relating to human nutrition (such as the National Institutes of Health or the Centers for Disease Control and Prevention) or the National Academy of Sciences or any of its subdivisions has published an authoritative statement, which is currently in effect, which identifies the nutrient level to which the claim refers; • a person has submitted to the Secretary, at least 120 days (during which the Secretary may notify any person who is making a claim as authorized by clause (C) that such person has not submitted all the information required by such clause) before the first introduction into interstate commerce of the food with a label containing the claim, (I) a notice of the claim, which shall include the exact words used in the claim and shall include a concise description of the basis upon which such person relied for determining that the requirements of subclause (i) have been satisfied, (II) a copy of the statement referred to in subclause (i) upon which such person relied in making the claim, and (III) a balanced representation of the scientific literature relating to the nutrient level to which the claim refers; • the claim and the food for which the claim is made are in compliance with clauses (A) and (B), and are otherwise in compliance with paragraph (a) and section 201(n) [21 USCS § 321(n)]; and • the claim is stated in a manner so that the claim is an accurate representation of the authoritative statement referred to in subclause (i) and so that the claim enables the public to comprehend the information provided in the claim and to understand the relative significance of such information in the context of a total daily diet. • For purposes of this clause, a statement shall be regarded as an authoritative statement of a scientific body described in subclause (i) only if the statement is published by the scientific body and shall not include a statement of an employee of the scientific body made in the individual capacity of the employee. • A claim submitted under the requirements of clause (G) may be made until— • such time as the Secretary issues a regulation— • prohibiting or modifying the claim and the regulation has become effective, or • finding that the requirements of clause (G) have not been met, including finding that the petitioner had not submitted all the information required by such clause; or • a district court of the United States in an enforcement proceeding under chapter III [21 USCS §§ 331 et seq.] has determined that the requirements of clause (G) have not been met. • Except as provided in subparagraph (5), a claim described in subparagraph (1)(B) may only be made— • if the claim meets the requirements of the regulations of the Secretary promulgated under clause (B), and • if the food for which the claim is made does not contain, as determined by the Secretary by regulation, any nutrient in an amount which increases to persons in the general population the risk of a disease or health-related condition which is diet related, taking into account the significance of the food in the total daily diet, except that the Secretary may by regulation permit such a claim based on a finding that such a claim would assist consumers in maintaining healthy dietary practices and based on a requirement that the label contain a disclosure of the type required by subparagraph (2)(B). • The Secretary shall promulgate regulations authorizing claims of the type described in subparagraph (1)(B) only if the Secretary determines, based on the totality of publicly available scientific evidence (including evidence from well-designed studies conducted in a manner which is consistent with generally recognized scientific procedures and principles), that there is significant scientific agreement, among experts qualified by scientific training and experience to evaluate such claims, that the claim is supported by such evidence. • A regulation described in subclause (i) shall describe— • the relationship between a nutrient of the type required in the label or labeling of food by paragraph (q)(1) or (q)(2) and a disease or health-related condition, and • the significance of each such nutrient in affecting such disease or health-related condition. • A regulation described in subclause (i) shall require such claim to be stated in a manner so that the claim is an accurate representation of the matters set out in subclause (ii) and so that the claim enables the public to comprehend the information provided in the claim and to understand the relative significance of such information in the context of a total daily diet. • Notwithstanding the provisions of clauses (A)(i) and (B), a claim of the type described in subparagraph (1)(B) which is not authorized by the Secretary in a regulation promulgated in accordance with clause (B) shall be authorized and may be made with respect to a food if— • a scientific body of the United States Government with official responsibility for public health protection or research directly relating to human nutrition (such as the National Institutes of Health or the Centers for Disease Control and Prevention) or the National Academy of Sciences or any of its subdivisions has published an authoritative statement, which is currently in effect, about the relationship between a nutrient and a disease or health-related condition to which the claim refers; • a person has submitted to the Secretary, at least 120 days (during which the Secretary may notify any person who is making a claim as authorized by clause (C) that such person has not submitted all the information required by such clause) before the first introduction into interstate commerce of the food with a label containing the claim, (I) a notice of the claim, which shall include the exact words used in the claim and shall include a concise description of the basis upon which such person relied for determining that the requirements of subclause (i) have been satisfied, (II) a copy of the statement referred to in subclause (i) upon which such person relied in making the claim, and (III) a balanced representation of the scientific literature relating to the relationship between a nutrient and a disease or health-related condition to which the claim refers; • the claim and the food for which the claim is made are in compliance with clause (A)(ii) and are otherwise in compliance with paragraph (a) and section 201(n) [21 USCS § 321(n)]; and • the claim is stated in a manner so that the claim is an accurate representation of the authoritative statement referred to in subclause (i) and so that the claim enables the public to comprehend the information provided in the claim and to understand the relative significance of such information in the context of a total daily diet. • For purposes of this clause, a statement shall be regarded as an authoritative statement of a scientific body described in subclause (i) only if the statement is published by the scientific body and shall not include a statement of an employee of the scientific body made in the individual capacity of the employee. • A claim submitted under the requirements of clause (C) may be made until— • such time as the Secretary issues a regulation under the standard in clause (B)(i)— • prohibiting or modifying the claim and the regulation has become effective, or • finding that the requirements of clause (C) have not been met, including finding that the petitioner has not submitted all the information required by such clause; or • a district court of the United States in an enforcement proceeding under chapter III [21 USCS §§ 331 et seq.] has determined that the requirements of clause (C) have not been met. • (A) (i) Any person may petition the Secretary to issue a regulation under subparagraph (2)(A)(i) or (3)(B) relating to a claim described in subparagraph (1)(A) or (1)(B). Not later than 100 days after the petition is received by the Secretary, the Secretary shall issue a final decision denying the petition or file the petition for further action by the Secretary. If the Secretary does not act within such 100 days, the petition shall be deemed to be denied unless an extension is mutually agreed upon by the Secretary and the petitioner. If the Secretary denies the petition or the petition is deemed to be denied, the petition shall not be made available to the public. If the Secretary files the petition, the Secretary shall deny the petition or issue a proposed regulation to take the action requested in the petition not later than 90 days after the date of such decision. If the Secretary does not act within such 90 days, the petition shall be deemed to be denied unless an extension is mutually agreed upon by the Secretary and the petitioner. If the Secretary issues a proposed regulation, the rulemaking shall be completed within 540 days of the date the petition is received by the Secretary. If the Secretary does not issue a regulation within such 540 days, the Secretary shall provide the Committee on Commerce of the House of Representatives and the Committee on Labor and Human Resources of the Senate the reasons action on the regulation did not occur within such 540 days. • Any person may petition the Secretary for permission to use in a claim described in subparagraph (1)(A) terms that are consistent with the terms defined by the Secretary under subparagraph (2)(A)(i). Within 90 days of the submission of such a petition, the Secretary shall issue a final decision denying the petition or granting such permission. • Any person may petition the Secretary for permission to use an implied claim described in subparagraph (1)(A) in a brand name. After publishing notice of an opportunity to comment on the petition in the Federal Register and making the petition available to the public, the Secretary shall grant the petition if the Secretary finds that such claim is not misleading and is consistent with terms defined by the Secretary under subparagraph (2)(A)(i). The Secretary shall grant or deny the petition within 100 days of the date it is submitted to the Secretary and the petition shall be considered granted if the Secretary does not act on it within such 100 days. • A petition under clause (A)(i) respecting a claim described in subparagraph (1)(A) or (1)(B) shall include an explanation of the reasons why the claim meets the requirements of this paragraph and a summary of the scientific data which supports such reasons. • If a petition for a regulation under subparagraph (3)(B) relies on a report from an authoritative scientific body of the United States, the Secretary shall consider such report and shall justify any decision rejecting the conclusions of such report. • (A) This paragraph does not apply to infant formulas subject to section 412(h) [21 USCS § 350a(h)] and medical foods as defined in section 5(b) of the Orphan Drug Act [21 USCS § 360ee(b)]. • Subclauses (iii) through (v) of subparagraph (2)(A) and subparagraph (2)(B) do not apply to food which is served in restaurants or other establishments in which food is served for immediate human consumption or which is sold for sale or use in such establishments. • A subparagraph (1)(A) claim made with respect to a food which claim is required by a standard of identity issued under section 401 [21 USCS § 341] shall not be subject to subparagraph (2)(A)(i) or (2)(B). • A subparagraph (1)(B) claim made with respect to a dietary supplement of vitamins, minerals, herbs, or other similar nutritional substances shall not be subject to subparagraph (3) but shall be subject to a procedure and standard, respecting the validity of such claim, established by regulation of the Secretary • For purposes of paragraph (r)(1)(B), a statement for a dietary supplement may be made if— • the statement claims a benefit related to a classical nutrient deficiency disease and discloses the prevalence of such disease in the United States, describes the role of a nutrient or dietary ingredient intended to affect the structure or function in humans, characterizes the documented mechanism by which a nutrient or dietary ingredient acts to maintain such structure or function, or describes general well-being from consumption of a nutrient or dietary ingredient, • the manufacturer of the dietary supplement has substantiation that such statement is truthful and not misleading, and • the statement contains, prominently displayed and in boldface type, the following: “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” • A statement under this subparagraph may not claim to diagnose, mitigate, treat, cure, or prevent a specific disease or class of diseases. If the manufacturer of a dietary supplement proposes to make a statement described in the first sentence of this subparagraph in the labeling of the dietary supplement, the manufacturer shall notify the Secretary no later than 30 days after the first marketing of the dietary supplement with such statement that such a statement is being made. • The Secretary may make proposed regulations issued under this paragraph effective upon publication pending consideration of public comment and publication of a final regulation if the Secretary determines that such action is necessary— • to enable the Secretary to review and act promptly on petitions the Secretary determines provide for information necessary to— • enable consumers to develop and maintain healthy dietary practices; • enable consumers to be informed promptly and effectively of important new knowledge regarding nutritional and health benefits of food; or • ensure that scientifically sound nutritional and health information is provided to consumers as soon as possible; or • to enable the Secretary to act promptly to ban or modify a claim under this paragraph. • Such proposed regulations shall be deemed final agency action for purposes of judicial review. (s) Dietary supplements If— • it is a dietary supplement; and • the label or labeling of the supplement fails to list— • the name of each ingredient of the supplement that is described in section 201(ff) [21 USCS § 321(ff)]; and • (I) the quantity of each such ingredient; or • with respect to a proprietary blend of such ingredients, the total quantity of all ingredients in the blend; • the label or labeling of the dietary supplement fails to identify the product by using the term “dietary supplement”, which term may be modified with the name of such an ingredient; • the supplement contains an ingredient described in section 201(ff)(1)(C) [21 USCS § 321(ff)(1)(C)], and the label or labeling of the supplement fails to identify any part of the plant from which the ingredient is derived; • the supplement— • is covered by the specifications of an official compendium; • is represented as conforming to the specifications of an official compendium; and • fails to so conform; or • the supplement— • is not covered by the specifications of an official compendium; and • (I) fails to have the identity and strength that the supplement is represented to have; or • fails to meet the quality (including tablet or capsule disintegration), purity, or compositional specifications, based on validated assay or other appropriate methods, that the supplement is represented to meet. A dietary supplement shall not be deemed misbranded solely because its label or labeling contains directions or conditions of use or warnings. (t) If it purports to be or is represented as catfish, unless it is fish classified within the family Ictaluridae. (u) If it purports to be or is represented as ginseng, unless it is an herb or herbal ingredient derived from a plant classified within the genus Panax. (v) If— • it fails to bear a label required by the Secretary under section 801(n)(1) [21 USCS § 381(n)(1)] (relating to food refused admission into the United States); • the Secretary finds that the food presents a threat of serious adverse health consequences or death to humans or animals; and • upon or after notifying the owner or consignee involved that the label is required under section 801 [21 USCS § 381], the Secretary informs the owner or consignee that the food presents such a threat. § 351. Adulterated drugs and devices A drug or device shall be deemed to be adulterated— (a) Poisonous, insanitary, etc., ingredients; adequate controls in manufacture. (1) If it consists in whole or in part of any filthy, putrid, or decomposed substance; or (2)(A) if it has been prepared, packed, or held under insanitary conditions whereby it may have been contaminated with filth, or whereby it may have been rendered injurious to health; or (B) if it is a drug and the methods used in, or the facilities or controls used for, its manufacture, processing, packing, or holding do not conform to or are not operated or administered in conformity with current good manufacturing practice to assure that such drug meets the requirements of this Act as to safety and has the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to possess; or (C) if it is a compounded positron emission tomography drug and the methods used in, or the facilities and controls used for, its compounding, processing, packing, or holding do not conform to or are not operated or administered in conformity with the positron emission tomography compounding standards and the official monographs of the United States Pharmacopoeia to assure that such drug meets the requirements of this Act as to safety and has the identity and strength, and meets the quality and purity characteristics, that it purports or is represented to possess; or (3) if its container is composed, in whole or in part, of any poisonous or deleterious substance which may render the contents injurious to health; or (4) if (A) it bears or contains, for purposes of coloring only, a color additive which is unsafe within the meaning of section 721(a) [21 USCS § 379e(a)], or (B) it is a color additive the intended use of which in or on drugs or devices is for purposes of coloring only and is unsafe within the meaning of section 721(a) [21 USCS § 379e(a)]; or (5) if it is a new animal drug which is unsafe within the meaning of section 512 [21 USCS § 360b]; or (6) if it is an animal feed bearing or contaminating a new animal drug, and such animal feed is unsafe within the meaning of section 512 [21 USCS § 360f]. (b) Strength, quality, or purity differing from official compendium. If it purports to be or is represented as a drug the name of which is recognized in an official compendium, and its strength differs from, or its quality or purity falls below, the standard set forth in such compendium. Such determination as to strength, quality, or purity shall be made in accordance with the tests or methods of assay set forth in such compendium, except that whenever tests or methods of assay have not been prescribed in such compendium, or such tests or methods of assay as are prescribed are, in the judgment of the Secretary, insufficient for the making of such determination, the Secretary shall bring such fact to the attention of the appropriate body charged with the revision of such compendium, and if such body fails within a reasonable time to prescribe tests or methods of assay which, in the judgment of the Secretary, are sufficient for purposes of this paragraph, then the Secretary shall promulgate regulations prescribing appropriate tests or methods of assay in accordance with which such determination as to strength, quality, or purity shall be made. No drug defined in an official compendium shall be deemed to be adulterated under this paragraph because it differs from the standard of strength, quality, or purity therefor set forth in such compendium, if its difference in strength, quality, or purity from such standard is plainly stated on its label. Whenever a drug is recognized in both the United States Pharmacopoeia and the Homoeopathic Pharmacopoeia of the United States it shall be subject to the requirements of the United States Pharmacopoeia unless it is labeled and offered for sale as a homoeopathic drug, in which case it shall be subject to the provisions of the Homoeopathic Pharmacopoeia of the United States and not to those of the United States Pharmacopoeia. (c) Misrepresentation of strength, etc., where drug is unrecognized in compendium. If it is not subject to the provisions of paragraph (b) of this section and its strength differs from, or its purity or quality falls below, that which it purports or is represented to possess. (d) Mixture with or substitution of another substance. If it is a drug and any substance has been (1) mixed or packed therewith so as to reduce its quality or strength or (2) substituted wholly or in part therefor. (e) Devices not in conformity with performance standards. • If it is, or purports to be or is represented as, a device which is subject to a performance standard established under section 514 [21 USCS § 360d], unless such device is in all respects in conformity with such standard. • If it is declared to be, purports to be, or is represented as, a device that is in conformity with any standard recognized under section 514(c) [21 USCS § 360d(c)] unless such device is in all respects in conformity with such standard. (f) Certain class III devices. • If it is a class III device— • (i) which is required by a regulation promulgated under subsection (b) of section 515 [21 USCS § 360e] to have an approval under such section of an application for premarket approval and which is not exempt from section 515 [21 USCS § 360e] under section 520(g) [21 USCS § 360j(g)], and • (I) for which an application for premarket approval or a notice of completion of a product development protocol was not filed with the Secretary within the ninety-day period beginning on the date of the promulgation of such regulation, or • for which such an application was filed and approval of the application has been denied, suspended, or withdrawn, or such a notice was filed and has been declared not completed or the approval of the device under the protocol has been withdrawn; • (i) which was classified under section 513(f) [21 USCS § 360c(f)] into class III, which under section 515(a) [21 USCS § 360e(a)] is required to have in effect an approved application for premarket approval, and which is not exempt from section 515 [21 USCS § 360e] under section 520(g) [21 USCS § 360j(g)], and • which has an application which has been suspended or is otherwise not in effect; or • which was classified under section 520(l) [21 USCS § 360j(l)] into class III, which under such section is required to have in effect an approved application under section 515 [21 USCS § 360e], and which has an application which has been suspended or is otherwise not in effect. • (A) In the case of a device classified under section 513(f) [21 USCS § 360c(f)] into class III and intended solely for investigational use, paragraph (1)(B) shall not apply with respect to such device during the period ending on the ninetieth day after the date of the promulgation of the regulations prescribing the procedures and conditions required by section 520(g)(2) [21 USCS § 360j(g)(2)]. • In the case of a device subject to a regulation promulgated under subsection (b) of section 515 [21 USCS § 360e(b)], paragraph (1) shall not apply with respect to such device during the period ending— • on the last day of the thirtieth calendar month beginning after the month in which the classification of the device in class III became effective under section 513 [21 USCS § 360c], or • on the ninetieth day after the date of the promulgation of such regulation, whichever occurs later. (g) Banned devices. If it is a banned device. (h) Manufacture, packing, storage, or installation of device not in conformity with applicable requirements or conditions. If it is a device and the methods used in, or the facilities or controls used for, its manufacture, packing, storage, or installation are not in conformity with applicable requirements under section 520(f)(1) [21 USCS § 360j(f)(1)] or an applicable condition prescribed by an order under section 520(f)(2) [21 USCS § 360j(f)(2)]. (i) Failure to comply with requirements under which device was exempted for investigational use. If it is a device for which an exemption has been granted under section 520(g) [21 USCS § 360j(g)] for investigational use and the person who was granted such exemption or any investigator who uses such device under such exemption fails to comply with a requirement prescribed by or under such section. § 352. Misbranded drugs and devices A drug or device shall be deemed to be misbranded— (a) False or misleading label. If its labeling is false or misleading in any particular. Health care economic information provided to a formulary committee, or other similar entity, in the course of the committee or the entity carrying out its responsibilities for the selection of drugs for managed care or other similar organizations, shall not be considered to be false or misleading under this paragraph if the health care economic information directly relates to an indication approved under section 505 [21 USCS § 355] or under section 351(a) of the Public Health Service Act [42 USCS § 262(a)] for such drug and is based on competent and reliable scientific evidence. The requirements set forth in section 505(a) [21 USCS § 355(a)] or in section 351(a) of the Public Health Service Act [42 USCS § 262(a)] shall not apply to health care economic information provided to such a committee or entity in accordance with this paragraph. Information that is relevant to the substantiation of the health care economic information presented pursuant to this paragraph shall be made available to the Secretary upon request. In this paragraph, the term “health care economic information” means any analysis that identifies, measures, or compares the economic consequences, including the costs of the represented health outcomes, of the use of a drug to the use of another drug, to another health care intervention, or to no intervention. (b) Package form; Contents of label. If in package form unless it bears a label containing (1) the name and place of business of the manufacturer, packer, or distributor; and (2) an accurate statement of the quantity of the contents in terms of weight, measure, or numerical count: Provided, That under clause (2) of this paragraph reasonable variations shall be permitted, and exemptions as to small packages shall be established, by regulations prescribed by the Secretary. (c) Prominence of information on label. If any word, statement, or other information required by or under authority of this Act to appear on the label or labeling is not prominently placed thereon with such conspicuousness (as compared with other words, statements, designs, or devices, in the labeling) and in such terms as to render it likely to be read and understood by the ordinary individual under customary conditions of purchase and use. (d) [Repealed] (e) Designation of drugs or devices by established names. • If it is a drug, unless its label bears, to the exclusion of any other nonproprietary name (except the applicable systematic chemical name or the chemical formula)— • the established name (as defined in subparagraph (3)) of the drug, if there is such a name; • the established name and quantity or, if determined to be appropriate by the Secretary, the proportion of each active ingredient, including the quantity, kind, and proportion of any alcohol, and also including whether active or not the established name and quantity or if determined to be appropriate by the Secretary, the proportion of any bromides, ether, chloroform, acetanilide, acetophenetidin, amidopyrine, antipyrine, atropine, hyoscine, hyoscyamine, arsenic, digitalis, digitalis glucosides, mercury, ouabain, strophanthin, strychnine, thyroid, or any derivative or preparation of any such substances, contained therein, except that the requirement for stating the quantity of the active ingredients, other than the quantity of those specifically named in this subclause, shall not apply to nonprescription drugs not intended for human use; and • the established name of each inactive ingredient listed in alphabetical order on the outside container of the retail package and, if determined to be appropriate by the Secretary, on the immediate container, as prescribed in regulation promulgated by the Secretary, except that nothing in this subclause shall be deemed to require that any trade secret be divulged, and except that the requirements of this subclause with respect to alphabetical order shall apply only to nonprescription drugs that are not also cosmetics and that this subclause shall not apply to nonprescription drugs not intended for human use. • For any prescription drug the established name of such drug or ingredient, as the case may be, on such label (and on any labeling on which a name for such drug or ingredient is used) shall be printed prominently and in type at least half as large as that used thereon for any proprietary name or designation for such drug or ingredient, except that to the extent that compliance with the requirements of subclause (ii) or (iii) of clause (A) or this clause is impracticable, exemptions shall be established by regulations promulgated by the Secretary. • If it is a device and it has an established name, unless its label bears, to the exclusion of any other nonproprietary name, its established name (as defined in subparagraph (4)) prominently printed in type at least half as large as that used thereon for any proprietary name or designation for such device, except that to the extent compliance with the requirements of this subparagraph is impracticable, exemptions shall be established by regulations promulgated by the Secretary. • As used in subparagraph (1), the term “established name,” with respect to a drug or ingredient thereof, means (A) the applicable official name designated pursuant to section 508 [21 USCS § 358], or (B), if there is no such name and such drug, or such ingredient, is an article recognized in an official compendium, then the official title thereof in such compendium, or (C) if neither clause (A) nor clause (B) of this subparagraph applies, then the common or usual name, if any, of such drug or of such ingredient, except that where clause (B) of this subparagraph applies to an article recognized in the United States Pharmacopeia and in the Homoeopathic Pharmacopoeia under different official titles, the official title used in the United States Pharmacopeia shall apply unless it is labeled and offered for sale as a homoeopathic drug, in which case the official title used in the Homoeopathic Pharmacopoeia shall apply. • As used in subparagraph (2), the term “established name” with respect to a device means (A) the applicable official name of the device designated pursuant to section 508 [21 USCS § 358], (B) if there is no such name and such device is an article recognized in an official compendium, then the official title thereof in such compendium, or (C) if neither clause (A) nor clause (B) of this subparagraph applies, then any common or usual name of such device. (f) Directions for use and warnings on label. Unless its labeling bears (1) adequate directions for use; and (2) such adequate warnings against use in those pathological conditions or by children where its use may be dangerous to health, or against unsafe dosage or methods or duration of administration or application, in such manner and form, as are necessary for the protection of users, except that where any requirement of clause (1) of this paragraph, as applied to any drug or device, is not necessary for the protection of the public health, the Secretary shall promulgate regulations exempting such drug or device from such requirement. Required labeling for prescription devices intended for use in health care facilities may be made available solely by electronic means provided that the labeling complies with all applicable requirements of law and, that the manufacturer affords health care facilities the opportunity to request the labeling in paper form, and after such request, promptly provides the health care facility the requested information without additional cost. (g) Representations as recognized drug; packing and labeling; inconsistent requirements for designation of drug. If it purports to be a drug the name of which is recognized in an official compendium, unless it is packaged and labeled as prescribed therein. The method of packing may be modified with the consent of the Secretary. Whenever a drug is recognized in both the United States Pharmacopoeia and the Homoeopathic Pharmacopoeia of the United States it shall be subject to the requirements of the United States Pharmacopoeia with respect to packaging and labeling unless it is labeled and offered for sale as a homoeopathic drug, in which case it shall be subject to the provisions of the Homoeopathic Pharmacopoeia of the United States, and not to those of the United States Pharmacopoeia, except that in the event of inconsistency between the requirements of this paragraph and those of paragraph (e) as to the name by which the drug or its ingredients shall be designated, the requirements of paragraph (e) shall prevail. (h) Deteriorative drugs; packing and labeling. If it has been found by the Secretary to be a drug liable to deterioration, unless it is packaged in such form and manner, and its label bears a statement of such precautions, as the Secretary shall by regulations require as necessary for the protection of the public health. No such regulation shall be established for any drug recognized in an official compendium until the Secretary shall have informed the appropriate body charged with the revision of such compendium of the need for such packaging or labeling requirements and such body shall have failed within a reasonable time to prescribe such requirements. (i) Drug; misleading container; imitation; offer for sale under another name. If it is a drug and its container is so made, formed, or filled as to be misleading, or (2) if it is an imitation of another drug; or (3) if it is offered for sale under the name of another drug. (j) Health-endangering when used as prescribed. If it is dangerous to health when used in the dosage, or manner or with the frequency or duration prescribed, recommended, or suggested in the labeling thereof. (k), (l) [Repealed] (m) Color additives; packing and labeling. If it is a color additive the intended use of which is for the purpose of coloring only, unless its packaging and labeling are in conformity with such packaging and labeling requirements applicable to such color additive, as may be contained in regulations issued under section 721 [21 USCS § 379e]. (n) Prescription drug advertisements: established name; quantitative formula; side effects, contraindications, and effectiveness; prior approval; false advertising; labeling; construction of the Convention on Psychotropic Substances. In the case of any prescription drug distributed or offered for sale in any State, unless the manufacturer, packer, or distributor thereof includes in all advertisements and other descriptive printed matter issued or caused to be issued by the manufacturer, packer, or distributor with respect to that drug a true statement of (1) the established name as defined in section 502(e) [subsec. (e) of this section], printed prominently and in type at least half as large as that used for any trade or brand name thereof, (2) the formula showing quantitatively each ingredient of such drug to the extent required for labels under section 502(e) [subsec. (e) of this section], and (3) such other information in brief summary relating to side effects, contraindications, and effectiveness as shall be required in regulations which shall be issued by the Secretary in accordance with the procedure specified in section 701(e) of this Act [21 USCS § 371(e)], except that (A) except in extraordinary circumstances, no regulation issued under this paragraph shall require prior approval by the Secretary of the content of any advertisement, and (B) no advertisement of a prescription drug, published after the effective date of regulations issued under this paragraph applicable to advertisements of prescription drugs, shall, with respect to the matters specified in this paragraph or covered by such regulations, be subject to the provisions of sections 12 through 17 of the Federal Trade Commission Act, as amended [15 USCS §§ 52–57]. This paragraph (n) shall not be applicable to any printed matter which the Secretary determines to be labeling as defined in section 201(m) of this Act [21 USCS § 321(m)]. Nothing in the Convention on Psychotropic Substances, signed at Vienna, Austria, on February 21, 1971, shall be construed to prevent drug price communications to consumers. (o) Drugs or devices from nonregistered establishments. If it was manufactured, prepared, propagated, compounded, or processed in an establishment in any State not duly registered under section 510 [21 USCS § 360], if it was not included in a list required by section 510(j) [21 USCS § 360(j)], if a notice or other information respecting it was not provided as required by such section or section 510(k) [21 USCS § 360(k)], or if it does not bear such symbols from the uniform system for identification of devices prescribed under section 510(e) [21 USCS § 360(e)] as the Secretary by regulation requires. (p) Packaging or labeling of drugs in violation of regulations. If it is a drug and its packaging or labeling is in violation of an applicable regulation issued pursuant to section 3 or 4 of the Poison Prevention Packaging Act of 1970 [15 USCS § 1472 or 1473]. (q) Restricted devices using false or misleading advertising or used in violation of regulations. In the case of any restricted device distributed or offered for sale in any State, if (1) its advertising is false or misleading in any particular, or (2) it is sold, distributed, or used in violation of regulations prescribed under section 520(e) [21 USCS § 360j(e)]. (r) Restricted devices not carrying requisite accompanying statements in advertisements and other descriptive printed matter. In the case of any restricted device distributed or offered for sale in any State, unless the manufacturer, packer, or distributor thereof includes in all advertisements and other descriptive printed matter issued or caused to be issued by the manufacturer, packer, or distributor with respect to that device (1) a true statement of the device's established name as defined in section 502(e) [21 USCS § 352(e)], printed prominently and in type at least half as large as that used for any trade or brand name thereof, and (2) a brief statement of the intended uses of the device and relevant warnings, precautions, side effects, and contra-indications and, in the case of specific devices made subject to a finding by the Secretary after notice and opportunity for comment that such action is necessary to protect the public health, a full description of the components of such device or the formula showing quantitatively each ingredient of such device to the extent required in regulations which shall be issued by the Secretary after an opportunity for a hearing. Except in extraordinary circumstances, no regulation issued under this paragraph shall require prior approval by the Secretary of the content of any advertisement and no advertisement of a restricted device, published after the effective date of this paragraph shall, with respect to the matters specified in this paragraph or covered by regulations issued hereunder, be subject to the provisions of sections 12 through 15 of the Federal Trade Commission Act (15 U.S.C. 52–55). This paragraph shall not be applicable to any printed matter which the Secretary determines to be labeling as defined in section 201(m) [21 USCS § 321(m)]. (s) Devices subject to performance standards not bearing requisite labeling. If it is a device subject to a performance standard established under section 514 [21 USCS § 360d], unless it bears such labeling as may be prescribed in such performance standard. (t) Devices for which there has been a failure or refusal to give required notification or to furnish required material or information. If it is a device and there was a failure or refusal (1) to comply with any requirement prescribed under section 518 [21 USCS § 360h] respecting the device, (2) to furnish any material or information required by or under section 519 [21 USCS § 360i] respecting the device, or (3) to comply with a requirement under section 522 [21 USCS § 360l]. § 361. Adulterated cosmetics A cosmetic shall be deemed to be adulterated— (a) If it bears or contains any poisonous or deleterious substance which may render it injurious to users under the conditions of use prescribed in the labeling thereof, or under such conditions of use as are customary or usual, except that this provision shall not apply to coaltar hair dye, the label of which bears the following legend conspicuously displayed thereon: “Caution—This product contains ingredients which may cause skin irritation on certain individuals and a preliminary test according to accompanying directions should first be made. This product must not be used for dyeing the eyelashes or eyebrows; to do so may cause blindness.”, and the labeling of which bears adequate directions for such preliminary testing. For the purposes of this paragraph and paragraph (e) the term “hair dye” shall not include eyelash dyes or eyebrow dyes. (b) If it consists in whole or in part of any filthy, putrid, or decomposed substance. (c) If it has been prepared, packed, or held under insanitary conditions whereby it may have become contaminated with filth, or whereby it may have been rendered injurious to health. (d) If its container is composed in whole or in part, of any poisonous or deleterious substance which may render the contents injurious to health. (e) If it is not a hair dye and it is, or it bears or contains, a color additive which is unsafe within the meaning of section 721(a) [21 USCS § 379e(a)]. § 362. Misbranded cosmetics A cosmetic shall be deemed to be misbranded— (a) If its labeling is false or misleading in any particular. (b) If in package form unless it bears a label containing (1) the name and place of business of the manufacturer, packer, or distributor; and (2) an accurate statement of the quantity of the contents in terms of weight, measure, or numerical count: Provided, That under clause (2) of this paragraph reasonable variations shall be permitted, and exemptions as to small packages shall be established, by regulations prescribed by the Secretary. (c) If any word, statement, or other information required by or under authority of this Act to appear on the label or labeling is not prominently placed thereon with such conspicuousness (as compared with other words, statements, designs, or devices, in the labeling) and in such terms as to render it likely to be read and understood by the ordinary individual under customary conditions of purchase and use. (d) If its container is so made, formed, or filled as to be misleading. (e) If it is a color additive, unless its packaging and labeling are in conformity with such packaging and labeling requirements, applicable to such color additive, as may be contained in regulations issued under section 721 [21 USCS § 379e]. This paragraph shall not apply to packages of color additives which, with respect to their use for cosmetics, are marketed and intended for use only in or on hair dyes (as defined in the last sentence of section 601(a) [21 USCS § 361(a)]. (f) If its packaging or labeling is in violation of an applicable regulation issued pursuant to section 3 or 4 of the Poison Prevention Packaging Act of 1970 [15 USCS § 1472 or 1473]. § 371. Regulations and hearings (a) Authority to promulgate regulations. The authority to promulgate regulations for the efficient enforcement of this Act, except as otherwise provided in this section, is hereby vested in the Secretary. (b) Regulations for imports and exports. The Secretary of the Treasury and the Secretary of Health and Human Services shall jointly prescribe regulations for the efficient enforcement of the provisions of section 801 [21 USCS § 381], except as otherwise provided therein. Such regulations shall be promulgated in such manner and take effect at such time, after due notice, as the Secretary of Health and Human Services shall determine. (c) Conduct of hearings. Hearings authorized or required by this Act shall be conducted by the Secretary or such officer or employee as he may designate for the purpose. (d) Effectiveness of definitions and standards of identity. The definitions and standards of identity promulgated in accordance with the provisions of this Act shall be effective for the purposes of the enforcement of this Act, notwithstanding such definitions and standards as may be contained in other laws of the United States and regulations promulgated thereunder. (e) Procedure for establishment. • Any action for the issuance, amendment, or repeal of any regulation under section 403(j), 404(a), 406, 501(b), or 502 (d) or (h) of this Act [21 USCS § 343(j), 344(a), 346, 351(b) or 352(d) or (h)], and any action for the amendment or repeal of any definition and standard of identity under section 401 of this Act [21 USCS § 341] for any dairy product (including products regulated under parts 131, 133 and 135 of title 21, Code of Federal Regulations) shall be begun by a proposal made (A) by the Secretary on his own initiative, or (B) by petition of any interested person, showing reasonable grounds therefor, filed with the Secretary. The Secretary shall publish such proposal and shall afford all interested persons an opportunity to present their views thereon, orally or in writing. As soon as practicable thereafter, the Secretary shall by order act upon such proposal and shall make such order public. Except as provided in paragraph (2), the order shall become effective at such time as may be specified therein, but not prior to the day following the last day on which objections may be filed under such paragraph. • On or before the thirtieth day after the date on which an order entered under paragraph (1) is made public, any person who will be adversely affected by such order if placed in effect may file objections thereto with the Secretary, specifying with particularity the provisions of the order deemed objectionable, stating the grounds therefor, and requesting a public hearing upon such objections. Until final action upon such objections is taken by the Secretary under paragraph (3), the filing of such objections shall operate to stay the effectiveness of those provisions of the order to which the objections are made. As soon as practicable after the time for filing objections has expired the Secretary shall publish a notice in the Federal Register specifying those parts of the order which have been stayed by the filing of objections and, if no objections have been filed, stating that fact. • As soon as practicable after such request for a public hearing, the Secretary, after due notice, shall hold such a public hearing for the purpose of receiving evidence relevant and material to the issues raised by such objections. At the hearing, any interested person may be heard in person or by representative. As soon as practicable after completion of the hearing, the Secretary shall by order act upon such objections and make such order public. Such order shall be based only on substantial evidence of record at such hearing and shall set forth, as part of the order, detailed findings of fact on which the order is based. The Secretary shall specify in the order the date on which it shall take effect, except that it shall not be made to take effect prior to the ninetieth day after its publication unless the Secretary finds that emergency conditions exist necessitating an earlier effective date, in which event the Secretary shall specify in the order his findings as to such conditions. (f) Review of order. • In a case of actual controversy as to the validity of any order under subsection (e), any person who will be adversely affected by such order if placed in effect may at any time prior to the ninetieth day after such order is issued file a petition with the Circuit Court of Appeals of the United States [United States Court of Appeals] for the circuit wherein such person resides or has his principal place of business, for a judicial review of such order. A copy of the petition shall be forthwith transmitted by the clerk of the court to the Secretary or other officer designated by him for that purpose. The Secretary thereupon shall file in the court the record of the proceedings on which the Secretary based his order, as provided in section 2112 of title 28, United States Code. • If the petitioner applies to the court for leave to adduce additional evidence, and shows to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceedings before the Secretary, the court may order such additional evidence (and evidence in rebuttal thereof) to be taken before the Secretary, and to be adduced upon the hearing, in such manner and upon such terms and conditions as to the court may seem proper. The Secretary may modify his findings as to the facts, or make new findings, by reason of the additional evidence so taken, and he shall file such modified or new findings, and his recommendations, if any, for the modification or setting aside of his original order, with the return of such additional evidence. • Upon the filing of the petition referred to in paragraph (1) of this subsection, the court shall have jurisdiction to affirm the order, or to set it aside in whole or in part, temporarily or permanently. If the order of the Secretary refuses to issue, amend, or repeal a regulation and such order is not in accordance with the law the court shall by its judgment order the Secretary to take action, with respect to such regulation, in accordance with law. The findings of the Secretary as to the facts, if supported by substantial evidence, shall be conclusive. • The judgment of the court affirming or setting aside, in whole or in part, any such order of the Secretary shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in section 1254 of title 28, United States Code, as amended. • Any action instituted under this subsection shall survive notwithstanding any change in the person occupying the office of Secretary or any vacancy in such office. • The remedies provided for in this subsection shall be in addition to and not in substitution for any other remedies provided by law. (g) Copies of records of hearings. A certified copy of the transcript of the record and proceedings under subsection (e) shall be furnished by the Secretary to any interested party at his request, and payment of the costs thereof, and shall be admissible in any criminal, libel for condemnation, exclusion of imports, or other proceeding arising under or in respect to this Act, irrespective of whether proceedings with respect to the order have previously been instituted or become final under subsection (f). (h) Guidance documents. • (A) The Secretary shall develop guidance documents with public participation and ensure that information identifying the existence of such documents and the documents themselves are made available to the public both in written form and, as feasible, through electronic means. Such documents shall not create or confer any rights for or on any person, although they present the views of the Secretary on matters under the jurisdiction of the Food and Drug Administration. • Although guidance documents shall not be binding on the Secretary, the Secretary shall ensure that employees of the Food and Drug Administration do not deviate from such guidances without appropriate justification and supervisory concurrence. The Secretary shall provide training to employees in how to develop and use guidance documents and shall monitor the development and issuance of such documents. • For guidance documents that set forth initial interpretations of a statute or regulation, changes in interpretation or policy that are of more than a minor nature, complex scientific issues, or highly controversial issues, the Secretary shall ensure public participation prior to implementation of guidance documents, unless the Secretary determines that such prior public participation is not feasible or appropriate. In such cases, the Secretary shall provide for public comment upon implementation and take such comment into account. • For guidance documents that set forth existing practices or minor changes in policy, the Secretary shall provide for public comment upon implementation. • In developing guidance documents, the Secretary shall ensure uniform nomenclature for such documents and uniform internal procedures for approval of such documents. The Secretary shall ensure that guidance documents and revisions of such documents are properly dated and indicate the nonbinding nature of the documents. The Secretary shall periodically review all guidance documents and, where appropriate, revise such documents. • The Secretary, acting through the Commissioner, shall maintain electronically and update and publish periodically in the Federal Register a list of guidance documents. All such documents shall be made available to the public. • The Secretary shall ensure that an effective appeals mechanism is in place to address complaints that the Food and Drug Administration is not developing and using guidance documents in accordance with this subsection. • Not later than July 1, 2000, the Secretary after evaluating the effectiveness of the Good Guidance Practices document, published in the Federal Register at 62 Fed. Reg. 8961, shall promulgate a regulation consistent with this subsection specifying the policies and procedures of the Food and Drug Administration for the development, issuance, and use of guidance documents. False Claims Act Title 31. Money and Finance Subtitle III. Financial Management Chapter 37. Claims Subchapter III. Claims Against the United States Government § 3729. False claims (a) Liability for certain acts. Any person who— • knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; • knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; • conspires to defraud the Government by getting a false or fraudulent claim allowed or paid; • has possession, custody, or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or receipt; • authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true; • knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge the property; or • knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than$ 5,000 and not more than \$ 10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person, except that if the court finds that—
• the person committing the violation of this subsection furnished officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information;
• such person fully cooperated with any Government investigation of such violation; and
• at the time such person furnished the United States with the information about the violation, no criminal prosecution, civil action, or administrative action had commenced under this title with respect to such violation, and the person did not have actual knowledge of the existence of an investigation into such violation; the court may assess not less than 2 times the amount of damages which the Government sustains because of the act of the person. A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages.

(b) Knowing and knowingly defined. For purposes of this section, the terms “knowing” and “knowingly” mean that a person, with respect to information—

• has actual knowledge of the information;
• acts in deliberate ignorance of the truth or falsity of the information; or
• acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.

(c) Claim defined. For purposes of this section, “claim” includes any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.

(d) Exemption from disclosure. Any information furnished pursuant to subparagraphs (A) through (C) of subsection (a) shall be exempt from disclosure under section 552 of title 5.

(e) Exclusion. This section does not apply to claims, records, or statements made under the Internal Revenue Code of 1986.

§ 3730. Civil actions for false claims

(a) Responsibilities of the Attorney General. The Attorney General diligently shall investigate a violation under section 3729. If the Attorney General finds that a person has violated or is violating section 3729, the Attorney General may bring a civil action under this section against the person.

(b) Actions by private persons.

• A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.
• A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure. The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.
• The Government may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal under paragraph (2). Any such motions may be supported by affidavits or other submissions in camera. The defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed and served upon the defendant pursuant to Rule 4 of the Federal Rules of Civil Procedure.
• Before the expiration of the 60-day period or any extensions obtained under paragraph (3), the Government shall—
• proceed with the action, in which case the action shall be conducted by the Government; or
• notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.
• When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.

(c) Rights of the parties to qui tam actions.

• If the Government proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2).
• (A) The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.
• The Government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances. Upon a showing of good cause, such hearing may be held in camera.
• Upon a showing by the Government that unrestricted participation during the course of the litigation by the person initiating the action would interfere with or unduly delay the Government's prosecution of the case, or would be repetitious, irrelevant, or for purposes of harassment, the court may, in its discretion, impose limitations on the person's participation, such as—
• limiting the number of witnesses the person may call;
• limiting the length of the testimony of such witnesses;
• limiting the person's cross-examination of witnesses; or
• otherwise limiting the participation by the person in the litigation.
• Upon a showing by the defendant that unrestricted participation during the course of the litigation by the person initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense, the court may limit the participation by the person in the litigation.
• If the Government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the Government so requests, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts (at the Government's expense). When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene at a later date upon a showing of good cause.
• Whether or not the Government proceeds with the action, upon a showing by the Government that certain actions of discovery by the person initiating the action would interfere with the Government's investigation or prosecution of a criminal or civil matter arising out of the same facts, the court may stay such discovery for a period of not more than 60 days. Such a showing shall be conducted in camera. The court may extend the 60-day period upon a further showing in camera that the Government has pursued the criminal or civil investigation or proceedings with reasonable diligence and any proposed discovery in the civil action will interfere with the ongoing criminal or civil investigation or proceedings.
• Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section. Any finding of fact or conclusion of law made in such other proceeding that has become final shall be conclusive on all parties to an action under this section. For purposes of the preceding sentence, a finding or conclusion is final if it has been finally determined on appeal to the appropriate court of the United States, if all time for filing such an appeal with respect to the finding or conclusion has expired, or if the finding or conclusion is not subject to judicial review.

(d) Award to qui tam plaintiff.

• If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [General] Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
• If the Government does not proceed with an action under this section, the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds. Such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
• Whether or not the Government proceeds with the action, if the court finds that the action was brought by a person who planned and initiated the violation of section 3729 upon which the action was brought, then the court may, to the extent the court considers appropriate, reduce the share of the proceeds of the action which the person would otherwise receive under paragraph (1) or (2) of this subsection, taking into account the role of that person in advancing the case to litigation and any relevant circumstances pertaining to the violation. If the person bringing the action is convicted of criminal conduct arising from his or her role in the violation of section 3729, that person shall be dismissed from the civil action and shall not receive any share of the proceeds of the action. Such dismissal shall not prejudice the right of the United States to continue the action, represented by the Department of Justice.
• If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys' fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.

(e) Certain actions barred.

• No court shall have jurisdiction over an action brought by a former or present member of the armed forces under subsection (b) of this section against a member of the armed forces arising out of such person's service in the armed forces.
• (A) No court shall have jurisdiction over an action brought under subsection (b) against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought.
• For purposes of this paragraph, “senior executive branch official” means any officer or employee listed in paragraphs (1) through (8) of section 101(f) of the Ethics in Government Act of 1978 (5 U.S.C. App.).
• In no event may a person bring an action under subsection (b) which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party.
• (A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [General] Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
• For purposes of this paragraph, “original source” means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.

(f) Government not liable for certain expenses. The Government is not liable for expenses which a person incurs in bringing an action under this section.

(g) Fees and expenses to prevailing defendant. In civil actions brought under this section by the United States, the provisions of section 2412(d) of title 28 shall apply.

(h) Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees. An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection.

§ 3731. False claims procedure

(a) A subpena [subpoena] requiring the attendance of a witness at a trial or hearing conducted under section 3730 of this title may be served at any place in the United States.

(b) A civil action under section 3730 may not be brought—

• more than 6 years after the date on which the violation of section 3729 is committed, or
• more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.

(c) In any action brought under section 3730, the United States shall be required to prove all essential elements of the cause of action, including damages, by a preponderance of the evidence.

(d) Notwithstanding any other provision of law, the Federal Rules of Criminal Procedure, or the Federal Rules of Evidence, a final judgment rendered in favor of the United States in any criminal proceeding charging fraud or false statements, whether upon a verdict after trial or upon a plea of guilty or nolo contendere, shall estop the defendant from denying the essential elements of the offense in any action which involves the same transaction as in the criminal proceeding and which is brought under subsection (a) or (b) of section 3730.

§ 3732. False claims jurisdiction

(a) Actions under section 3730. Any action under section 3730 may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transacts business, or in which any act proscribed by section 3729 occurred. A summons as required by the Federal Rules of Civil Procedure shall be issued by the appropriate district court and served at any place within or outside the United States.

(b) Claims under state law. The district courts shall have jurisdiction over any action brought under the laws of any State for the recovery of funds paid by a State or local government if the action arises from the same transaction or occurrence as an action brought under section 3730.

§ 3733. Civil investigative demands

(a) In general.

• Issuance and service. Whenever the Attorney General has reason to believe that any person may be in possession, custody, or control of any documentary material or information relevant to a false claims law investigation, the Attorney General may, before commencing a civil proceeding under section 3730 or other false claims law, issue in writing and cause to be served upon such person, a civil investigative demand requiring such person—
• to produce such documentary material for inspection and copying,
• to answer in writing written interrogatories with respect to such documentary material or information,
• to give oral testimony concerning such documentary material or information, or
• to furnish any combination of such material, answers, or testimony. The Attorney General may not delegate the authority to issue civil investigative demands under this subsection. Whenever a civil investigative demand is an express demand for any product of discovery, the Attorney General, the Deputy Attorney General, or an Assistant Attorney General shall cause to be served, in any manner authorized by this section, a copy of such demand upon the person from whom the discovery was obtained and shall notify the person to whom such demand is issued of the date on which such copy was served.
• Each civil investigative demand issued under paragraph (1) shall state the nature of the conduct constituting the alleged violation of a false claims law which is under investigation, and the applicable provision of law alleged to be violated.
• If such demand is for the production of documentary material, the demand shall—
• describe each class of documentary material to be produced with such definiteness and certainty as to permit such material to be fairly identified;
• prescribe a return date for each such class which will provide a reasonable period of time within which the material so demanded may be assembled and made available for inspection and copying; and
• identify the false claims law investigator to whom such material shall be made available.
• If such demand is for answers to written interrogatories, the demand shall—
• set forth with specificity the written interrogatories to be answered;
• prescribe dates at which time answers to written interrogatories shall be submitted; and
• identify the false claims law investigator to whom such answers shall be submitted.
• If such demand is for the giving of oral testimony, the demand shall—
• prescribe a date, time, and place at which oral testimony shall be commenced;
• identify a false claims law investigator who shall conduct the examination and the custodian to whom the transcript of such examination shall be submitted;
• specify that such attendance and testimony are necessary to the conduct of the investigation;
• notify the person receiving the demand of the right to be accompanied by an attorney and any other representative; and
• describe the general purpose for which the demand is being issued and the general nature of the testimony, including the primary areas of inquiry, which will be taken pursuant to the demand.
• Any civil investigative demand issued under this section which is an express demand for any product of discovery shall not be returned or returnable until 20 days after a copy of such demand has been served upon the person from whom the discovery was obtained.
• The date prescribed for the commencement of oral testimony pursuant to a civil investigative demand issued under this section shall be a date which is not less than seven days after the date on which demand is received, unless the Attorney General or an Assistant Attorney General designated by the Attorney General determines that exceptional circumstances are present which warrant the commencement of such testimony within a lesser period of time.
• The Attorney General shall not authorize the issuance under this section of more than one civil investigative demand for oral testimony by the same person unless the person requests otherwise or unless the Attorney General, after investigation, notifies that person in writing that an additional demand for oral testimony is necessary. The Attorney General may not, notwithstanding section 510 of title 28, authorize the performance, by any other officer, employee, or agency, of any function vested in the Attorney General under this subparagraph.

(b) Protected material or information.

• In general. A civil investigative demand issued under subsection (a) may not require the production of any documentary material, the submission of any answers to written interrogatories, or the giving of any oral testimony if such material, answers, or testimony would be protected from disclosure under—
• the standards applicable to subpoenas or subpoenas duces tecum issued by a court of the United States to aid in a grand jury investigation; or
• the standards applicable to discovery requests under the Federal Rules of Civil Procedure, to the extent that the application of such standards to any such demand is appropriate and consistent with the provisions and purposes of this section.
• Effect on other orders, rules, and laws. Any such demand which is an express demand for any product of discovery supersedes any inconsistent order, rule, or provision of law (other than this section) preventing or restraining disclosure of such product of discovery to any person. Disclosure of any product of discovery pursuant to any such express demand does not constitute a waiver of any right or privilege which the person making such disclosure may be entitled to invoke to resist discovery of trial preparation materials.

(c) Service; jurisdiction.

• By whom served. Any civil investigative demand issued under subsection (a) may be served by a false claims law investigator, or by a United States marshal or a deputy marshal, at any place within the territorial jurisdiction of any court of the United States.
• Service in foreign countries. Any such demand or any petition filed under subsection (j) may be served upon any person who is not found within the territorial jurisdiction of any court of the United States in such manner as the Federal Rules of Civil Procedure prescribe for service in a foreign country. To the extent that the courts of the United States can assert jurisdiction over any such person consistent with due process, the United States District Court for the District of Columbia shall have the same jurisdiction to take any action respecting compliance with this section by any such person that such court would have if such person were personally within the jurisdiction of such court.

(d) Service upon legal entities and natural persons.

• Legal entities. Service of any civil investigative demand issued under subsection (a) or of any petition filed under subsection (j) may be made upon a partnership, corporation, association, or other legal entity by—
• delivering an executed copy of such demand or petition to any partner, executive officer, managing agent, or general agent of the partnership, corporation, association, or entity, or to any agent authorized by appointment or by law to receive service of process on behalf of such partnership, corporation, association, or entity;
• delivering an executed copy of such demand or petition to the principal office or place of business of the partnership, corporation, association, or entity; or
• depositing an executed copy of such demand or petition in the United States mails by registered or certified mail, with a return receipt requested, addressed to such partnership, corporation, association, or entity at its principal office or place of business.
• Natural persons. Service of any such demand or petition may be made upon any natural person by—
• delivering an executed copy of such demand or petition to the person; or
• depositing an executed copy of such demand or petition in the United States mails by registered or certified mail, with a return receipt requested, addressed to the person at the person's residence or principal office or place of business.

(e) Proof of service. A verified return by the individual serving any civil investigative demand issued under subsection (a) or any petition filed under subsection (j) setting forth the manner of such service shall be proof of such service. In the case of service by registered or certified mail, such return shall be accompanied by the return post office receipt of delivery of such demand.

(f) Documentary material.

• Sworn certificates. The production of documentary material in response to a civil investigative demand served under this section shall be made under a sworn certificate, in such form as the demand designates, by—
• in the case of a natural person, the person to whom the demand is directed, or
• in the case of a person other than a natural person, a person having knowledge of the facts and circumstances relating to such production and authorized to act on behalf of such person.
• The certificate shall state that all of the documentary material required by the demand and in the possession, custody, or control of the person to whom the demand is directed has been produced and made available to the false claims law investigator identified in the demand.
• Production of materials. Any person upon whom any civil investigative demand for the production of documentary material has been served under this section shall make such material available for inspection and copying to the false claims law investigator identified in such demand at the principal place of business of such person, or at such other place as the false claims law investigator and the person thereafter may agree and prescribe in writing, or as the court may direct under subsection (j)(1). Such material shall be made so available on the return date specified in such demand, or on such later date as the false claims law investigator may prescribe in writing. Such person may, upon written agreement between the person and the false claims law investigator, substitute copies for originals of all or any part of such material.

(g) Interrogatories. Each interrogatory in a civil investigative demand served under this section shall be answered separately and fully in writing under oath and shall be submitted under a sworn certificate, in such form as the demand designates, by—

• in the case of a natural person, the person to whom the demand is directed, or
• in the case of a person other than a natural person, the person or persons responsible for answering each interrogatory.

If any interrogatory is objected to, the reasons for the objection shall be stated in the certificate instead of an answer. The certificate shall state that all information required by the demand and in the possession, custody, control, or knowledge of the person to whom the demand is directed has been submitted. To the extent that any information is not furnished, the information shall be identified and reasons set forth with particularity regarding the reasons why the information was not furnished.

(h) Oral examinations.

• Procedures. The examination of any person pursuant to a civil investigative demand for oral testimony served under this section shall be taken before an officer authorized to administer oaths and affirmations by the laws of the United States or of the place where the examination is held. The officer before whom the testimony is to be taken shall put the witness on oath or affirmation and shall, personally or by someone acting under the direction of the officer and in the officer's presence, record the testimony of the witness. The testimony shall be taken stenographically and shall be transcribed. When the testimony is fully transcribed, the officer before whom the testimony is taken shall promptly transmit a copy of the transcript of the testimony to the custodian. This subsection shall not preclude the taking of testimony by any means authorized by, and in a manner consistent with, the Federal Rules of Civil Procedure.
• Persons present. The false claims law investigator conducting the examination shall exclude from the place where the examination is held all persons except the person giving the testimony, the attorney for and any other representative of the person giving the testimony, the attorney for the Government, any person who may be agreed upon by the attorney for the Government and the person giving the testimony, the officer before whom the testimony is to be taken, and any stenographer taking such testimony.
• Where testimony taken. The oral testimony of any person taken pursuant to a civil investigative demand served under this section shall be taken in the judicial district of the United States within which such person resides, is found, or transacts business, or in such other place as may be agreed upon by the false claims law investigator conducting the examination and such person.
• Transcript of testimony. When the testimony is fully transcribed, the false claims law investigator or the officer before whom the testimony is taken shall afford the witness, who may be accompanied by counsel, a reasonable opportunity to examine and read the transcript, unless such examination and reading are waived by the witness. Any changes in form or substance which the witness desires to make shall be entered and identified upon the transcript by the officer or the false claims law investigator, with a statement of the reasons given by the witness for making such changes. The transcript shall then be signed by the witness, unless the witness in writing waives the signing, is ill, cannot be found, or refuses to sign. If the transcript is not signed by the witness within 30 days after being afforded a reasonable opportunity to examine it, the officer or the false claims law investigator shall sign it and state on the record the fact of the waiver, illness, absence of the witness, or the refusal to sign, together with the reasons, if any, given therefor.
• Certification and delivery to custodian. The officer before whom the testimony is taken shall certify on the transcript that the witness was sworn by the officer and that the transcript is a true record of the testimony given by the witness, and the officer or false claims law investigator shall promptly deliver the transcript, or send the transcript by registered or certified mail, to the custodian.
• Furnishing or inspection of transcript by witness. Upon payment of reasonable charges therefor, the false claims law investigator shall furnish a copy of the transcript to the witness only, except that the Attorney General, the Deputy Attorney General, or an Assistant Attorney General may, for good cause, limit such witness to inspection of the official transcript of the witness' testimony.
• Conduct of oral testimony.
• Any person compelled to appear for oral testimony under a civil investigative demand issued under subsection (a) may be accompanied, represented, and advised by counsel. Counsel may advise such person, in confidence, with respect to any question asked of such person. Such person or counsel may object on the record to any question, in whole or in part, and shall briefly state for the record the reason for the objection. An objection may be made, received, and entered upon the record when it is claimed that such person is entitled to refuse to answer the question on the grounds of any constitutional or other legal right or privilege, including the privilege against self-incrimination. Such person may not otherwise object to or refuse to answer any question, and may not directly or through counsel otherwise interrupt the oral examination. If such person refuses to answer any question, a petition may be filed in the district court of the United States under subsection (j)(1) for an order compelling such person to answer such question.
• If such person refuses to answer any question on the grounds of the privilege against self-incrimination, the testimony of such person may be compelled in accordance with the provisions of part V of title 18 [18 USCS §§ 6001 et seq.].
• Witness fees and allowances. Any person appearing for oral testimony under a civil investigative demand issued under subsection (a) shall be entitled to the same fees and allowances which are paid to witnesses in the district courts of the United States.

(i) Custodians of documents, answers, and transcripts.

• Designation. The Attorney General shall designate a false claims law investigator to serve as custodian of documentary material, answers to interrogatories, and transcripts of oral testimony received under this section, and shall designate such additional false claims law investigators as the Attorney General determines from time to time to be necessary to serve as deputies to the custodian.
• Responsibility for materials; disclosure.
• A false claims law investigator who receives any documentary material, answers to interrogatories, or transcripts of oral testimony under this section shall transmit them to the custodian. The custodian shall take physical possession of such material, answers, or transcripts and shall be responsible for the use made of them and for the return of documentary material under paragraph (4).
• The custodian may cause the preparation of such copies of such documentary material, answers to interrogatories, or transcripts of oral testimony as may be required for official use by any false claims law investigator, or other officer or employee of the Department of Justice, who is authorized for such use under regulations which the Attorney General shall issue. Such material, answers, and transcripts may be used by any such authorized false claims law investigator or other officer or employee in connection with the taking of oral testimony under this section.
• Except as otherwise provided in this subsection, no documentary material, answers to interrogatories, or transcripts of oral testimony, or copies thereof, while in the possession of the custodian, shall be available for examination by any individual other than a false claims law investigator or other officer or employee of the Department of Justice authorized under subparagraph (B).

## Photo Credits

PhotoDisc, Inc.: Pages 6, 12, 16, 18, 23, 38, 48, 60, 76, 77, 106, 111, 129, 134, 135, 164, 174, 191, 200, 201, 225, 246, 260, 270, 271, 280, 286, 307, 316, 326, 350, 356, 364, 373, 394, 395, 413, 424, 434, 457, 490, 491, 511, 518, 529, 535, 536, 559, 565, 574, 578, 586, 608, 612, 617, 628, 632, 648, 668, 683, 713, 726, 749, 751, 752, 753, 770, 772, 791, 828, 829, 842, 849. Andy Burris Photography: Page 72. U.S. National Archives and Records Administration: Pages 34, 115, 145, 170, 177, 483, 567, 665, 693. Internet: http://www.restorativejustice.com104; http://www.thosedoolittles.com223; http://www.indyprops.com335 (left); http://www.ctv.ca335 (right); http://www.epa.gov389; http://www.dangerous.com806; http://www.velb.de810, 811.