Rules of Practice for Adjudication Proceedings, 45338-45369 [2011-19032]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 76, Number 145 (Thursday, July 28, 2011)]
[Rules and Regulations]
[Pages 45338-45369]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19032]



[[Page 45337]]

Vol. 76

Thursday,

No. 145

July 28, 2011

Part II





Bureau of Consumer Financial Protection





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12 CFR Part 1081





Rules of Practice for Adjudication Proceedings; Final Rule

Federal Register / Vol. 76, No. 145 / Thursday, July 28, 2011 / Rules 
and Regulations

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1081

[Docket No. CFPB-2011-0006]
RIN 3170-AA05


Rules of Practice for Adjudication Proceedings

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

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SUMMARY: Section 1053(e) of the Consumer Financial Protection Act of 
2010 requires the Bureau of Consumer Financial Protection (``CFPB'' or 
``Bureau'') to prescribe rules establishing procedures for the conduct 
of adjudication proceedings conducted pursuant to section 1053. This 
interim final rule with a request for public comment sets forth those 
rules.

DATES: This interim final rule is effective on July 28, 2011. Written 
comments must be received on or before September 26, 2011.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0006, by any of the following methods:
     Electronic: https://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail or Hand Delivery/Courier in Lieu of Mail: Monica 
Jackson, Office of the Executive Secretary, Consumer Financial 
Protection Bureau, 1801 L Street, NW., Washington, DC 20036.
    All submissions must include the agency name and docket number or 
Regulatory Information Number (RIN) for this rulemaking. In general, 
all comments received will be posted without change to https://www.regulations.gov. In addition, comments will be available for public 
inspection and copying at 1801 L Street, NW., Washington, DC 20036, on 
official business days between the hours of 10 a.m. and 5 p.m. Eastern 
Time. You can make an appointment to inspect the documents by 
telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1801 L 
Street, NW., Washington, DC 20036, (202) 435-7275.

SUPPLEMENTARY INFORMATION: 
    The Bureau herein promulgates its Rules of Practice Governing 
Adjudication Proceedings (``Rules''), pursuant to section 1053(e) of 
the Consumer Financial Protection Act of 2010 (``Act''),\1\ 12 U.S.C. 
5563(e). The Rules are promulgated as interim final rules with a 
request for comment. The Bureau invites interested members of the 
public to submit written comments addressing the issues raised herein.
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    \1\ The Act is Title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, as amended, Public Law 111-203 (July 21, 
2010), Title X, 12 U.S.C. 5481 et seq. Section 1066 of the Act 
grants the Secretary of the Treasury interim authority to perform 
certain functions of the CFPB. Pursuant to that authority, Treasury 
publishes these Rules on behalf of the CFPB.
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A. Background

    The Rules will govern proceedings brought under section 1053 of the 
Act, 12 U.S.C. 5563, which authorizes the Bureau to use administrative 
adjudications to ensure or enforce compliance with (a) the provisions 
of the Act, (b) the rules prescribed by the Bureau under the Act, and 
(c) any other Federal law or regulation that the Bureau is authorized 
to enforce. The Rules do not apply to the issuance of temporary cease-
and-desist proceedings pursuant to section 1053(c) of the Act, but the 
Bureau invites comments as to whether special rules governing such 
proceedings are necessary and, if so, what they should provide. The 
Rules are modeled on the uniform rules and procedures for 
administrative hearings (``Uniform Rules'') adopted by the prudential 
regulators pursuant to section 916 of the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989 (``FIRREA''), 56 FR 38024 
(Aug. 9, 1991); \2\ the Federal Trade Commission's (``FTC'') Rules of 
Practice for Adjudicative Proceedings (``FTC Rules''), 16 CFR part 3; 
and the Security and Exchange Commission's (``SEC'') Rules of Practice 
(``SEC Rules''), 17 CFR part 201. The Bureau has also looked to the 
Model Adjudication Rules prepared by the Administrative Conference of 
the United States. See Michael P. Cox, The Model Adjudication Rules 
(MARs), 11 T.M. Cooley L. Rev. 75 (1994).
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    \2\ For ease of reference, citations to the Uniform Rules herein 
are to the Uniform Rules as adopted by the Office of the Comptroller 
of the Currency, which are codified at 12 CFR part 19.
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    In drafting these Rules, the Bureau endeavored to create a process 
that simultaneously provides for expeditious resolution of claims and 
ensures that parties who appear before the Bureau receive a fair 
hearing. Notably, in the last several decades, both the SEC and the FTC 
revised their rules of practice relating to administrative proceedings 
to make the adjudicatory process more efficient. In 1990, the SEC 
created a task force ``to review the rules and procedures relating to 
[SEC] administrative proceedings, to identify sources of delay in those 
proceedings and to recommend steps to make the adjudicatory process 
more efficient and effective.'' 60 FR 32738, 32738 (June 23, 1995). The 
result was a comprehensive revision of the SEC Rules in 1995. See id. 
Similarly, when the FTC proposed revisions to its Rules of Practice for 
Adjudicative Proceedings in 2008, the FTC's Notice of Proposed 
Rulemaking stated: ``In particular, the [FTC's] Part 3 adjudicatory 
process has long been criticized as being too protracted * * * The 
[FTC] believes that these comprehensive proposed rule revisions would 
strike an appropriate balance between the need for fair process and 
quality decision-making, the desire for efficient and speedy resolution 
of matters, and the potential costs imposed on the Commission and the 
parties.'' 73 FR 58831, 58832-33 (Oct. 7, 2008). The Rules adopted 
herein are animated by the experiences of these agencies. Drawing from 
best practices of existing agency adjudication processes, these Rules 
look to learn from and improve upon other agencies' efforts to 
streamline their processes while protecting parties' rights to fair and 
impartial proceedings. The following discussion outlines some 
significant aspects of the Rules.
    The Rules adopt a decision-making procedure that incorporates 
elements of the SEC Rules, FTC Rules, and Uniform Rules. The Rules 
implement a procedure, like that of the Uniform Rules, whereby a 
hearing officer will issue a recommended decision in each 
administrative adjudication. Like the FTC Rules, the Bureau's Rules 
provide any party the right to contest the recommended decision by 
filing a notice of appeal to the Director and perfecting the appeal by 
later filing an opening brief. In the event a party fails to timely 
file or perfect an appeal, the Director may either adopt the 
recommended decision as the Bureau's final decision or order further 
briefing with respect to any findings of fact or conclusions of law 
contained in the recommended decision. The Bureau believes this 
approach best balances the need for expeditious decision-making with 
protecting the parties' rights to ultimate consideration of a matter by 
the Director.
    In keeping with this approach, the Rules also provide that the 
hearing

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officer will decide dispositive motions in the first instance, subject 
to the same right of review provided for recommended decisions in the 
event that the ruling upon such a motion disposes of the case. The 
Bureau has adopted this model because it provides for the most 
expeditious resolution of matters while preserving all parties' rights 
to review by the Director.
    The Rules set deadlines for both the recommended decision of the 
hearing officer and the final decision of the Director. The Bureau has 
adopted an approach, similar to that used by the SEC, wherein the 
hearing officer is permitted a specified period of time--300 days, 
beginning with service of the notice of charges--to issue a recommended 
decision. The Rules also require the hearing officer to convene a 
scheduling conference soon after the respondent files its answer to 
craft a schedule appropriate to the particular proceeding. This 
construct gives the hearing officer considerable discretion in 
conducting proceedings and the flexibility to respond to the nuances of 
individual matters while ensuring that each case concludes within a 
fixed number of days. The Rules do permit hearing officers to request 
an extension of the 300-day deadline, but the Bureau's intent is that 
such extensions will be requested of and granted by the Director only 
in rare circumstances.
    The Rules for the timing of the Director's decision on appeal or 
review are guided by the language of section 1053 of the Act, 12 U.S.C. 
5563. If a recommended decision is appealed to the Director, or the 
Director orders additional briefing regarding the recommended decision, 
the Rules provide that the Director must notify the parties that the 
case has been submitted for final Bureau decision at the expiration of 
the time permitted for filing reply briefs with the Director. The 
Director then must issue his or her final decision within 90 days of 
providing such notice to the parties. See 12 U.S.C. 5563(b)(3). In 
keeping with the goal of providing for the expeditious resolution of 
claims, the Rules also adopt the SEC's standard governing extensions of 
time, which makes it clear that such extensions are generally 
disfavored.
    The Bureau has adopted the SEC's affirmative disclosure approach to 
fact discovery in administrative adjudications. See generally 17 CFR 
201.230. Thus, the Rules provide that the Division of Enforcement will 
provide any party in an adjudication proceeding with an opportunity to 
inspect and copy certain categories of documents obtained by the 
Division of Enforcement from persons not employed by the Bureau, as 
that term is defined in the Rules, in connection with the investigation 
leading to the institution of the proceedings and certain categories of 
documents created by the Bureau, provided such material is not 
privileged or otherwise protected from disclosure. The Division of 
Enforcement's obligation under this rule relates only to documents 
obtained by the Division of Enforcement; documents located only in the 
files of other divisions or offices of the Bureau are beyond the scope 
of this rule. As set forth in greater detail in the section-by-section 
analysis below, the Bureau has modified the SEC rule slightly, by 
eliminating any reference to Brady v. Maryland while retaining an 
obligation to turn over material exculpatory information in the 
Division of Enforcement's possession, and by providing that nothing in 
the rule shall require the Division of Enforcement to provide reports 
of examination to parties to whom the reports do not relate.
    The goal in adopting the SEC's approach in this regard is to ensure 
that respondents have access to all of the material facts underlying 
Enforcement Counsel's decision to commence enforcement proceedings and 
have a fair opportunity to prepare and present a defense, while 
eliminating much of the expense and delay often associated with pre-
trial discovery in civil matters. Recognizing that administrative 
adjudications will take place after a Bureau investigation intended to 
gather relevant evidence, and in light of the affirmative obligation 
that the Rules place on Enforcement Counsel to provide access to 
materials gathered in the course of the investigation, the Rules do not 
provide for many other traditional forms of pre-trial discovery, such 
as interrogatories and depositions. The Rules do provide for the 
deposition of witnesses unavailable for trial, the use of subpoenas to 
compel the production of documentary or tangible evidence, and, in 
appropriate cases, expert discovery, thus ensuring that respondents 
have an adequate opportunity to marshal evidence in support of their 
defense. We believe this approach will promote the fair and speedy 
resolution of claims while ensuring that parties have access to the 
relevant information necessary to prepare a defense.

B. Section-by-Section Summary

Subpart A--General Rules

Section 1081.100 Scope of the Rules of Practice

    This section sets forth the scope of the Rules and states that they 
apply to adjudication proceedings brought under section 1053 of the 
Act. Pursuant to the definition of the term ``adjudication proceeding'' 
in Sec.  103 of the Rules, the Rules do not apply to proceedings 
intended to lead to the formulation of a temporary cease-and-desist 
order pursuant to section 1053(c) of the Act, although they would apply 
to subsequent proceedings initiated by a notice of charges seeking a 
permanent cease-and-desist order or other relief. The Rules do not 
apply to Bureau investigations, rulemakings, or other proceedings.

Section 1081.101 Expedition and Fairness of Proceedings

    This section, which is modeled on the FTC Rules, 16 CFR 3.1, sets 
forth the Bureau's policy to avoid delays in any stage of an 
adjudication proceeding while still ensuring fairness to all parties. 
It further permits the hearing officer or the Director to shorten time 
periods set by the Rules, provided that the parties consent to 
shortened time periods. This authority could be used in proceedings 
where expedited hearings would serve the public interest or where the 
issues do not require expert discovery or extended evidentiary 
hearings.

Section 1081.102 Rules of Construction

    This section, drawn from the Uniform Rules, 12 CFR 19.2, makes 
clear that the use of any term in the Rules includes either its 
singular or plural form, as appropriate, and that the use of the 
masculine, feminine, or neuter gender shall, if appropriate, be read to 
encompass all three. This section also explicitly states that, unless 
otherwise indicated, any action required to be taken by a party to a 
proceeding may be taken by the party's counsel. Finally, this section 
provides that terms not otherwise defined by Sec.  103 should be 
defined in accordance with the Act.

Section 1081.103 Definitions

    This section sets forth definitions of certain terms used in the 
Rules. It defines ``adjudication proceeding'' to include any proceeding 
conducted pursuant to section 1053 of the Act, except for proceedings 
to obtain a temporary cease-and-desist order pursuant to section 
1053(c). The Bureau intends for the term ``counsel'' to

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include any individual representing a party, including, as appropriate, 
an individual representing himself or herself. The term ``Director'' 
has been defined to include the Director, as well as any person 
authorized to perform the functions of the Director in accordance with 
the law. This is intended to allow the Deputy Director or Acting 
Director, or a delegee of the Director, as appropriate, to perform the 
functions of the Director. It is also intended to allow the Secretary 
of the Treasury to perform certain functions of the Director in 
accordance with section 1066 of the Act. The term ``person employed by 
the Bureau'' is defined to include Bureau employees and contractors as 
well as others working under the direction of Bureau personnel, and is 
intended to encompass, among other things, consulting experts.

Section 1081.104 Authority of the Hearing Officer

    This section enumerates powers granted to the hearing officer 
subsequent to appointment. The list of powers in paragraph (b) is not 
intended to be exhaustive. The hearing officer is permitted to take any 
other action necessary and appropriate to discharge the duties of a 
presiding officer. All powers granted by this provision are intended to 
further the Bureau's goal of an expeditious, fair, and impartial 
hearing process. The powers set forth in this section are generally 
drawn from the Administrative Procedure Act (``APA''), 5 U.S.C. 556, 
557, and are similar to the powers granted to hearing officers and 
administrative law judges under the Uniform Rules, the SEC Rules, and 
the FTC Rules.
    This section provides the hearing officer with the explicit 
authority to issue sanctions against parties or their counsel as may be 
necessary to deter sanctionable conduct, provided that any person to be 
sanctioned first has an opportunity to show cause as to why no sanction 
should issue. The Bureau believes such authority is included within the 
hearing officer's authority to regulate the course of the hearing, 5 
U.S.C. 556(c)(5), but considers it appropriate to explicitly authorize 
the exercise of such authority in the Rules. The Bureau notes that the 
MARs provide adjudicators with the authority ``to impose appropriate 
sanctions against any party or person failing to obey his/her order, 
refusing to adhere to reasonable standards of orderly and ethical 
conduct, or refusing to act in good faith.'' See MARs, 11 T. M. Cooley 
L. Rev. at 83.

Section 1081.105 Assignment, Substitution, Performance, 
Disqualification of Hearing Officer

    This section is modeled on the FTC and the SEC Rules setting forth 
the process for assigning hearing officers in the event that more than 
one hearing officer is available to the Bureau. See 16 CFR 3.42(b), 
(e); 17 CFR 201.110, 201.112, 201.120. Consistent with 5 U.S.C. 3105, 
hearing officers will be ``assigned to cases in rotation so far as 
practicable.'' This section also sets forth the process by which 
hearing officers may be disqualified from presiding over an 
adjudication proceeding. Section 556(b) of the APA, 5 U.S.C. 556(b), 
provides that a hearing officer may disqualify himself or herself at 
any time. The standard for making a motion to disqualify requires that 
the movant have a reasonable, good faith basis for the motion. This 
standard is intended to emphasize that there must be objective reasons 
to seek a disqualification, not just a subjective, though sincerely 
held, belief. If a hearing officer does not withdraw in response to a 
motion for withdrawal, the motion is certified to the Director for his 
or her review in accordance with the Rules' interlocutory review 
provision. Finally, this section provides the procedure for 
reassignment of a proceeding in the event a hearing officer becomes 
unavailable.

Section 1081.106 Deadlines

    This section provides that deadlines for action by the hearing 
officer established by the Rules do not confer any substantive rights 
on respondents. The SEC Rules, 17 CFR 201.360(a)(2), contain similar 
language regarding the timelines set out for certain hearing officer 
actions in SEC proceedings.

Section 1081.107 Appearance and Practice in Adjudication Proceedings

    This section is largely based on the Uniform Rules, 12 CFR 19.6, 
and sets forth the criteria for persons acting in a representative 
capacity for parties in adjudication proceedings. A notice of 
appearance is required to be filed by an individual representing any 
party, including an individual representing the Bureau, simultaneously 
with or before the submission of papers or other act of representation 
on behalf of a party. Any counsel filing a notice of appearance is 
deemed to represent that he or she agrees and is authorized to accept 
service on behalf of the represented party. The section also sets forth 
the standards of conduct expected of attorneys and others practicing 
before the Bureau. It provides that counsel may be excluded or 
suspended from proceedings, or disbarred from practicing before the 
Bureau, for engaging in sanctionable conduct during any phase of the 
adjudication proceeding.

Section 1081.108 Good Faith Certification

    This section is based on the Uniform Rules, 12 CFR 19.7, and 
requires that all filings and submissions be signed by at least one 
counsel of record, or the party if appearing on his or her own behalf. 
This section provides that, by signing a filing or submission, the 
counsel or party certifies and attests that the document has been read 
by the signer, and, to the best of his or her knowledge, is well 
grounded in fact and is supported by existing law or a good faith 
argument for the extension or modification of the existing law. In 
addition, the certification attests that the filing or submission is 
not for purposes of unnecessary delay or any improper purpose. Oral 
motions or arguments are also subject to the good faith certification: 
the act of making the oral motion or argument constitutes the required 
certification. Finally, this section makes clear that a violation of 
the good faith certification requirement would be grounds for sanctions 
under Sec.  104(b)(13). This section, which also mirrors the 
requirements of Federal Rule of Civil Procedure 11, is intended to 
ensure that parties and their counsel are not abusing the 
administrative process by making filings that are factually or legally 
unfounded or intended simply to delay or obstruct the proceeding.

Section 1081.109 Conflict of Interest

    In general, conflicts of interest in representing parties to 
adjudication proceedings are prohibited by the Rules. The hearing 
officer is empowered to take corrective steps to eliminate such 
conflicts. If counsel represents more than one party to a proceeding, 
counsel is required to file at the time he or she files his or her 
notice of appearance a certification that: (1) The potential for 
possible conflicts of interest has been fully discussed with each such 
party; and (2) the parties individually waive any right to assert any 
conflicts of interest during the proceeding. This approach is based 
upon the Uniform Rules, 12 CFR 19.8, which itself was based upon the 
Model Code of Conduct for attorneys and the District of Columbia Ethics 
Rule. See 56 FR 27790, 27793 (June 17, 1991).

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Section 1081.110 Ex Parte Communication

    This section implements the APA's prohibition on ex parte 
communications. See 5 U.S.C. 554(d)(1), 557(d)(1). Paragraphs (a)(1), 
(a)(2), and (b) are based on the Uniform Rules, 12 CFR 19.9(a), (b), 
and prohibit an ex parte communication relevant to the merits of an 
adjudication proceeding between a person not employed by the Bureau and 
the Director, hearing officer, or any decisional employee during the 
pendency of an adjudication proceeding. Paragraph (a)(3) defines the 
term ``pendency of an adjudication proceeding,'' and provides that if 
the person responsible for the communication has knowledge that a 
notice of charges will or is likely to be issued, the pendency of an 
adjudication shall be deemed to have commenced at the time of his or 
her acquisition of such knowledge. This provision implements 5 U.S.C. 
557(d)(1)(E).
    Consistent with the MARs and the practice of other agencies, 
communications regarding the status of the proceeding are expressly 
excluded from the definition of ex parte communications. See MARs, 11 
T.M. Cooley L. Rev. at 87; 12 CFR 19.9(a)(2); 16 CFR 4.7(a). If an ex 
parte communication does occur, the document itself, or if oral, a 
memorandum of the substance of the communication must be placed in the 
record. All other parties to the proceeding may have the opportunity to 
respond to the prohibited communication, and such response may include 
a recommendation for sanctions. The hearing officer or the Director, as 
appropriate, may determine whether sanctions are appropriate.
    Finally, paragraph (e) of this section provides that the hearing 
officer is not permitted to consult an interested person or a party on 
any matter relevant to the merits of the adjudication, except to the 
extent required for the disposition of ex parte matters. Consistent 
with 5 U.S.C. 554(d), this paragraph also provides that Bureau 
employees engaged in an investigational or prosecutorial function, 
other than the Director, may not participate in the decision-making 
function in the same or a factually related matter.

Section 1081.111 Filing of Papers

    This section requires the filing of papers in an adjudication 
proceeding. It specifies the papers that must be filed and addresses 
the time and manner of filing. The section provides for filing by 
electronic transmission upon the conditions specified by the Director 
or the hearing officer, recognizing that while the Bureau anticipates 
the development of an electronic filing system, it may adopt other 
means of electronic filing in the interim (e.g., e[dash]mail 
transmission). The section authorizes other methods of filing if a 
respondent demonstrates that filing via electronic transmission is not 
practical.

Section 1081.112 Formal Requirements as to Papers Filed

    This section sets forth the formal requirements for papers filed in 
adjudication proceedings. It sets forth formatting requirements, 
requires that all documents be signed in accordance with Sec.  108, and 
requires the redaction of sensitive personal information from filings 
where the filing party determines that such information is not relevant 
or otherwise necessary for the conduct of the proceeding. This section 
also sets forth the method of filing documents containing information 
for which confidential treatment has been granted or is sought, and 
requires that in addition to the filing of the confidential information 
under seal, an expurgated copy of the filing be made on the public 
record. Section 119 governs the filing of motions seeking confidential 
treatment of information and sets forth the standard to be applied by 
the hearing officer in determining whether to grant such treatment.

Section 1081.113 Service of Papers

    This section requires that every paper filed in a proceeding be 
served on all other parties to the proceeding in the manner set forth 
in the rule. Service by electronic transmission is encouraged, but is 
conditioned upon the consent of the parties. The section also sets 
forth specific methods for the Bureau to serve notices of charges, as 
well as recommended decisions and final orders. In this regard, the 
section provides that such service cannot be made by First Class mail, 
but also provides that service may be made on authorized agents for 
service of process.
    The section also provides that the Bureau may serve persons at the 
most recent business address provided to the Bureau in connection with 
a person's registration with the Bureau. Although no such registration 
requirements currently exist, the Bureau has included this provision to 
account for any such requirements in the future. In the event that a 
party is required to register with the Bureau and maintain the accuracy 
of such registration information, the Bureau should be entitled to rely 
upon such information for service of process. This provision is modeled 
on the SEC Rules, 17 CFR 201.141(a)(2)(iii).

Section 1081.114 Construction of Time Limits

    This section provides common rules for computing time limits, 
taking into account the effect of weekends and holidays on time periods 
that are 10 days or less. This section also sets forth when filing or 
service is effective. With regard to time limits for responsive 
pleadings or papers, the Rules incorporate a three-day extension for 
mail service, similar to the Federal Rules of Civil Procedure, and a 
one-day extension for overnight delivery, as contained in some 
agencies' existing rules. A one-day extension for service by electronic 
transmission is consistent with the Uniform Rules and reflects that 
electronic transmission may result in delays in actual receipt by the 
person served.

Section 1081.115 Change of Time Limits

    This section is modeled on the SEC Rules, 17 CFR 201.161, and is 
intended to limit extensions of time to those necessary to prevent 
substantial prejudice. The section is intended to further the Bureau's 
goal of ensuring the timely conclusion of adjudication proceedings. The 
section generally provides the hearing officer and the Director with 
the authority to extend the time limits prescribed by the Rules in 
certain defined circumstances. In keeping with the goal of expeditious 
resolution of proceedings, this section provides that motions for 
extension of time are strongly disfavored and may only be granted after 
consideration of various enumerated factors, provided that the 
requesting party makes a strong showing that denial of the motion would 
substantially prejudice its case. The section also provides that any 
extension of time shall not exceed 21 days unless the hearing officer 
or Director, as appropriate, states on the record or in a written order 
the reasons why a longer extension of time is necessary. Finally, the 
section provides that the granting of a motion for an extension of time 
does not affect the deadline for the recommended decision of the 
hearing officer, which must be filed no later than the earlier of 300 
days after the filing of the notice or charges or 90 days after the end 
of post-hearing briefing (unless separately extended by the Director as 
provided for in Sec.  400).

Section 1081.116 Witness Fees and Expenses

    This section provides that fees and expenses for non-party 
witnesses subpoenaed pursuant to these Rules

[[Page 45342]]

shall be the same as for witnesses in United States district courts.

Section 1081.117 Bureau's Right To Conduct Examination, Collect 
Information

    This section, which is modeled on the Uniform Rules, 12 CFR 19.16, 
states that nothing contained in the Rules shall be construed to limit 
the right of the Bureau to conduct examinations or visitations of any 
person, or the right of the Bureau to conduct any form of investigation 
authorized by law, or to take other actions the Bureau is authorized to 
take outside the context of conducting adjudication proceedings. This 
section is intended to clarify that the pendency of an adjudication 
proceeding with respect to a person shall not affect the Bureau's 
authority to exercise any of its powers with respect to that person.

Section 1081.118 Collateral Attacks on Adjudication Proceedings

    This section, which is modeled on the Uniform Rules, 12 CFR 19.17, 
is intended to preclude the use of collateral attacks to circumvent or 
delay the administrative process.

Section 1081.119 Confidential Information; Protective Orders

    This section sets forth the means by which a party or another 
person may seek a protective order shielding confidential information. 
While generally modeled on the SEC Rules, 17 CFR 201.322, the section 
adopts the substantive standard set forth in the FTC Rules, 16 CFR 
3.45(b), which provides that the hearing officer may grant a protective 
order only upon a finding that public disclosure will likely result in 
a clearly defined, serious injury to the person requesting confidential 
treatment or after finding that the material constitutes sensitive 
personal information. The Rule adopts the FTC's standard because it 
comports with the Bureau's goals of providing as much transparency in 
the adjudicative process as possible, while also protecting 
confidential business information or other sensitive information of 
parties appearing before the Bureau or third parties whose information 
may be introduced into evidence. The Bureau expects that the standard 
set forth in this section will be met in cases where the disclosure of 
trade secrets or other information to the public or to parties is 
likely to result in harm, but that the standard will not be met simply 
because the information at issue is deemed ``confidential'' or 
``proprietary'' by the movant. To the extent that a movant can identify 
a clearly defined, serious injury likely to result from the disclosure 
of such particular information, it will be protected; generalized 
claims of competitive or other injury generally will not suffice. This 
section provides that documents subject to a motion for confidential 
treatment will be maintained under seal until the motion is decided.

Section 1081.120 Settlement

    This section is based on the SEC Rules, 17 CFR 201.240. It 
addresses offers of settlement made both prior to and after the 
institution of proceedings. Any person who is notified that a 
proceeding may or will be instituted against him or her, or any party 
to a proceeding, may make an offer of settlement in writing at any 
time. Any settlement offer shall be presented to the Director with a 
recommendation, except that, if the recommendation is unfavorable, the 
offer shall not be presented to the Director unless the person making 
the offer so requests.
    The section requires that each offer of settlement recite or 
incorporate as part of the offer the provisions of paragraphs (c)(3) 
and (c)(4). Because certain facts necessary for the Director to make a 
reasoned judgment as to whether a particular settlement offer is in the 
public interest will often be available only to the Bureau employee 
that negotiated the proposed settlement, paragraph (c)(4)(i) requires 
waiver of any provisions, under the Rules or otherwise, that may be 
construed to prohibit ex parte communications regarding the settlement 
offer between the Director and Bureau employee involved in litigating 
the proceeding. Paragraph (c)(4)(ii) requires waiver of any right to 
claim bias or prejudgment by the Director arising from the Director's 
consideration or discussions concerning settlement of all or any part 
of the proceeding. If the Director rejects the offer of settlement, the 
person making the offer shall be notified of the Director's action. The 
rejection of the offer of settlement shall not affect the continued 
validity of the waivers pursuant to paragraph (c)(4).

Section 1081.121 Cooperation With Other Agencies

    This section sets forth the policy of the Bureau to cooperate with 
other governmental agencies to avoid unnecessary overlapping or 
duplication of regulatory functions.

Subpart B--Initiation of Proceedings and Prehearing Rules

Section 1081.200 Commencement of Proceedings and Contents of Notice of 
Charges

    This section, similar to the comparable Uniform Rule, 12 CFR 19.18, 
contains the requirements relating to the initiation of adjudication 
proceedings, including the required content of a notice of charges 
initiating a hearing. In provisions modeled on the MARs and the Federal 
Rules of Civil Procedure, see MARs, 11 T.M. Cooley L. Rev. at 96; Fed. 
R. Civ. P. 41(a), this section also sets forth the circumstances under 
which the Bureau may voluntarily dismiss an adjudication proceeding, 
either on its own motion before the respondent(s) serve an answer, or 
by filing a stipulation of dismissal signed by all parties who have 
appeared. Unless the notice or stipulation of dismissal states 
otherwise, a dismissal pursuant to this section is without prejudice. 
In keeping with the principle that Bureau proceedings are presumed to 
be public, this section also provides that a notice of charges shall be 
released to the public after affording the respondent or others an 
opportunity to seek a protective order to shield confidential 
information.

Section 1081.201 Answer

    This section requires a respondent to file an answer in all cases. 
The Bureau considered, but rejected, the approach set forth in the SEC 
Rules, 17 CFR 201.220(a), whereby an answer is required only if 
specified in the notice of charges. The Bureau believes that an answer 
can help focus and narrow the matters at issue. Respondents must file 
an answer within 14 days of service of the notice of charges. The 14-
day time period is adopted from the FTC Rules, 16 CFR 3.12. As in the 
Uniform Rules, 12 CFR 19.19(c), failure to file a timely answer is 
deemed to be a waiver of the right to appear and a consent to the entry 
of an order granting the relief sought by the Bureau in the notice of 
charges. This section provides that in the case of default, the hearing 
officer is authorized, without further proceedings, to find the facts 
to be as alleged in the notice of charges and to enter a recommended 
decision containing appropriate findings and conclusions.
    This section adopts the procedure from the SEC Rules for a motion 
to set aside a default, 17 CFR 201.155. It also provides that the 
hearing officer, prior to the filing of the recommended decision, or 
the Director, at any time, may set aside a default for good cause 
shown.

[[Page 45343]]

Section 1081.202 Amended Pleadings

    This section provides that the parties may amend the notice of 
charges or the answer at any stage of the proceeding. Formal amendments 
to the notice of charges and answer are not required when an issue not 
raised by the notice of charges or answer is tried at the hearing by 
express or implied consent of the parties. In the event that a party 
seeks to introduce evidence at a hearing that is outside the scope of 
matters raised in the notice of charges or answer, the hearing officer 
may admit the evidence when admission is likely to assist in 
adjudicating the merits of the action unless the objecting party 
demonstrates that admission of such evidence would unfairly prejudice 
that party's action or defense upon the merits. The Bureau has adopted 
this liberal standard to the amendment of the pleadings to promote 
adjudication on the merits, and believes that the standard set forth in 
the rule should adequately protect parties from undue prejudice.

Section 1081.203 Scheduling Conference

    This section requires the parties to meet before the initial 
scheduling conference to discuss the nature and basis of their claims 
and defenses, the possibilities for a prompt settlement or resolution 
of the case, and other matters to be determined at the scheduling 
conference.
    Within 20 days of the service of the notice of charges, or at 
another time if the parties agree, the hearing officer and the parties 
are to have a scheduling conference. This section sets forth the issues 
to be discussed at the scheduling conference. These issues are drawn 
from those the parties are required to discuss at scheduling and 
prehearing conferences under the Uniform Rules, 12 CFR 19.31, the SEC 
Rules, 17 CFR 201.221, and the FTC Rules, 16 CFR 3.21. Paragraph (b)(1) 
provides that the parties shall be prepared to address the 
determination of hearing dates and location, and whether, in 
proceedings under section 1053(b) of the Act, the hearing should 
commence later than 60 days after service of the notice of charges. 
This provision was added to account for the requirement in section 
1053(b) of the Act that the hearing be held no earlier than 30 days nor 
later than 60 days after the date of service of the notice of charges, 
unless an earlier or later date is set by the Bureau at the request of 
any party so served. It is expected that the parties shall discuss a 
hearing date at the scheduling conference, and that this would afford 
respondents the opportunity to request a hearing date outside the 30-
to-60 day timeframe.
    It is also expected that at or before the scheduling conference, 
the parties will discuss any issues related to the production of 
documents pursuant to Sec.  206, any anticipated motions for witness 
statements pursuant to Sec.  207, whether either party intends to issue 
documentary subpoenas, and whether either party believes that 
depositions will be necessary to preserve the testimony of witnesses 
who will be unavailable for the hearing. The parties are also expected 
to discuss the need and a schedule for any expert discovery.
    The hearing officer is required to issue a scheduling order at or 
within five days of the conclusion of the scheduling hearing, setting 
forth the date and location of the hearing, as well as other procedural 
determinations made. It is expected that the hearing officer will 
establish any dates for expert discovery in the scheduling order, or 
else expressly find that such discovery is not necessary or reasonable 
in a particular case. This scheduling order will govern the course of 
the proceedings, unless later modified by the hearing officer.
    Provision for a prompt scheduling conference followed by prompt 
issuance of a scheduling order is necessary in order to allow for the 
orderly course of proceedings on the timeline set forth elsewhere in 
the Rules. Particularly in cases brought pursuant to section 1053(b) of 
the Act in which the respondent does not request a hearing date outside 
the 30-to-60 day timeframe set forth in the statute, it is essential 
that the hearing officer and the parties have a clear understanding of 
the applicable schedule at the earliest possible date.
    As provided for in the SEC Rules, 17 CFR 201.221(f), this section 
provides that any person named as a respondent in a notice of charges 
who fails to appear at a scheduling conference may be deemed in default 
pursuant to Sec.  201(d)(1). Finally, like the FTC Rules, 16 CFR 
3.21(g), this section provides that scheduling conferences are 
presumptively public unless the hearing officer determines otherwise 
based on the standard set forth in Sec.  119.

Section 1081.204 Consolidation and Severance of Actions

    This section, modeled after the Uniform Rules, 12 CFR 19.22, allows 
the consolidation of actions if the proceedings arise out of the same 
transaction, occurrence, or series of transactions or occurrences or if 
the proceedings involve at least one common respondent or a material 
common question of law or fact. Proceedings are not to be consolidated 
if to do so would unreasonably delay the proceeding or cause 
significant injustice.
    Severance, on the other hand, may be granted by the hearing officer 
only if he or she determines that undue prejudice or injustice would 
result from a consolidated proceeding and if such prejudice or 
injustice would outweigh the interests of judicial economy and speed in 
the adjudication of actions. This is a higher standard than is required 
for the consolidation of actions.

Section 1081.205 Non-Dispositive Motions

    This section governs all motions other than motions to dismiss or 
motions for summary disposition, which are governed by Sec.  212. The 
section generally sets forth the requirements for filing a non-
dispositive motion, and requires that all such motions must be in 
writing, state with particularity the relief sought, and include a 
proposed order. This section also makes clear that motions filed 
pursuant to sections that impose different requirements should follow 
those requirements, and the requirements of Sec.  205 to the extent 
they are not inconsistent. For example, Sec.  208(g), which relates to 
motions to quash subpoenas, provides for a shorter time period for the 
filing of a responsive brief and prohibits the filing of a reply unless 
requested by the hearing officer. These conditions govern motions to 
quash, but such motions are still subject to other provisions of Sec.  
205, including, inter alia, the need to meet and confer, deadlines for 
the hearing officer's ruling, and length limitations of the briefs.
    Like the Uniform Rules and the FTC Rules, 12 CFR 19.23(d)(1); 16 
CFR 3.22(d), this section gives a party 10 days after service of a non-
dispositive motion to respond to such motion in writing. It provides 
for reply briefs, which must be filed within three days after service 
of the response. A party's failure to respond to a motion shall waive 
that party's right to oppose such motion and constitutes consent to the 
entry of an order substantially in the form of the order accompanying 
that motion. This section adopts the SEC's 15-page length limitation 
for non-dispositive motions and oppositions, 17 CFR 201.154(c), and a 
six page length limitation for reply briefs. The Bureau has adopted 
these time and length limitations because they provide parties ample 
opportunity to express their views on matters that do not concern the 
ultimate disposition of the action.

[[Page 45344]]

    The section also requires parties to make a good faith effort to 
meet and confer prior to the filing of a non-dispositive motion in an 
effort to resolve the controversy by agreement. The Bureau has included 
the meet-and-confer requirement because it believes that such 
conferences can help obviate the need for, or narrow the scope of, 
disputed motions, thus saving both the parties and the hearing officer 
time and resources.
    This section provides that the hearing officer shall rule on a non-
dispositive motion, and shall do so within 14 days after the expiration 
of the time for filing of all motions papers authorized by this 
section, and that the pendency of a motion shall not stay proceedings. 
This time limitation is based on the FTC Rules, 16 CFR 3.22(e), and is 
intended to ensure the timely resolution of disputes so that the 
proceeding as a whole can conclude in a fair and expeditious manner. As 
noted above, both the FTC and the SEC have revised their rules of 
practice to provide for the more expeditious resolution of 
administrative adjudications, and the incorporation of a time period in 
which the hearing officer must rule on a non-dispositive motion is, in 
the views of the Bureau, a critical part of that effort. See 73 FR 
58831, 58836 (Oct. 7, 2008) (FTC expects that provision requiring ALJs 
to decide motions within 14 days will expedite cases).

Section 1081.206 Availability of Documents for Inspection and Copying

    Modeled primarily after the SEC Rules, 17 CFR 201.230, this section 
adopts the SEC's affirmative disclosure approach to fact discovery in 
administrative adjudications. Generally, this section requires that the 
Division of Enforcement make available for inspection and copying 
certain categories of documents obtained by the Division of Enforcement 
prior to the institution of proceedings from persons not employed by 
the Bureau, in connection with the investigation leading to the 
institution of proceedings.
    The Bureau believes that this section will promote the fair and 
efficient resolution of administrative proceedings. A respondent's 
right to inspect and copy documents under this section is automatic; 
the respondent does not need to make a formal request for access 
through the hearing officer. Pursuant to this section, the Division of 
Enforcement will turn over information from its investigatory file that 
was obtained from persons not employed by the Bureau as part of the 
investigation resulting in the Bureau's decision to institute 
proceedings. The respondent will have access to the documents, 
testimony, and other information that the Bureau relied upon in 
determining to file a notice of charges, in addition to evidence that 
the Bureau will rely upon at the hearing.
    This approach has several advantages. By automatically providing 
respondents with the factual information gathered by the Division of 
Enforcement in the course of the investigation leading to the 
institution of proceedings, this provision helps ensure that 
respondents have a complete understanding of the basis for the Bureau's 
action and can more accurately and efficiently determine the nature of 
their defenses or whether they wish to seek settlement. Because this 
approach renders traditional document discovery largely unnecessary, it 
will lead to a faster and more efficient resolution of Bureau 
administrative proceedings, saving both the Bureau and respondents the 
resources typically expended in the civil discovery process.
    The section adopts most of the procedures and conditions set forth 
in the SEC Rules, as discussed below.
    Pursuant to paragraph (a)(1), the Division of Enforcement's 
obligation under this section relates to documents obtained by the 
Division of Enforcement. Documents located only in the files of other 
divisions or offices are beyond the scope of the rule. The term 
``documents'' has been defined in the same manner as the term 
``documentary material'' in section 1051(4) of the Act, and 
encompasses, among other things, electronic files or other data or data 
compilations stored in any medium.
    Paragraph (a)(1) also provides that the Division of Enforcement 
will make the documents available for inspection and copying. This 
provision is modeled after the SEC Rules and the Federal Rules of Civil 
Procedure. The Bureau anticipates that in most cases it will simply 
provide either paper or electronic copies of the material at issue to 
respondents, but has adopted the formulation in the rule to preserve 
flexibility and the Division of Enforcement's right to require 
inspection and copying in appropriate cases.
    Paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) describe the 
types of documents that are subject to the disclosure requirement of 
paragraph (a)(1). Paragraph (a)(2) provides that the Division of 
Enforcement shall also make available each civil investigative demand 
or other written request to provide documents or to be interviewed 
issued by the Division of Enforcement in connection with the 
investigation leading to the institution of proceedings. The Division 
of Enforcement shall also make available any final examination or 
inspection reports prepared by any other Division of the Bureau if the 
Division of Enforcement either intends to introduce any such report 
into evidence or to use any such report to refresh the recollection of, 
or impeach, any witness. The provisions of paragraph (a)(2) are 
included in the SEC Rules, but have been broken out into a separate 
paragraph of this section because they do not comprise documents that 
the Division of Enforcement obtained from persons not employed by the 
Bureau, and thus do not technically fall within the scope of paragraph 
(a)(1).
    Pursuant to Sec.  1081.208, a respondent may seek production of 
other documents pursuant to subpoena. Paragraph (a)(3) is intended to 
make clear that the affirmative disclosure obligation set forth in 
paragraphs (a)(1) and (a)(2) does not preclude the availability of 
subpoenas as separately provided by the Rules.
    Paragraph (a)(4) provides that this section does not require the 
Division of Enforcement to produce a final examination or inspection 
report prepared by any other Division of the Bureau to a respondent who 
is not the subject of that report. The Bureau has added this provision, 
which does not appear in the SEC Rules, out of concern for the 
privileged and confidential nature of examination and inspection 
reports and to make clear that respondents cannot rely upon the 
Bureau's affirmative disclosure obligation to require the production of 
supervision or examination reports concerning other persons. Although 
the disclosure obligation as drafted would not require the production 
of such reports, the Bureau is adding this provision to remove any 
question regarding the issue.
    Paragraph (b)(1) of this section permits the Division of 
Enforcement to withhold documents that would otherwise be produced 
under paragraph (a) under five exceptions. Exception (i) shields 
information subject to a claim of privilege. Exception (ii) protects as 
work product internal documents prepared by persons employed by the 
Bureau, including consulting experts, which will not be offered in 
evidence. Work product includes any notes, working papers, memoranda or 
other similar materials, prepared by an attorney or under an attorney's 
direction in anticipation of litigation. See Hickman v. Taylor, 329 
U.S. 495 (1947); see also Fed. R. Civ. P. 26(b)(3) and (b)(5). 
Accountants, paralegals, investigators, and consulting experts who work 
on an

[[Page 45345]]

investigation do so at the direction of the Director, an associate 
director, or another supervisory attorney, and their work product is 
therefore shielded by the rule. Although such material would not fall 
within the purview of paragraphs (a)(1) and (a)(2), the Bureau has 
retained this provision of the SEC Rule to make clear that such work 
product is not subject to the affirmative disclosure obligation. An 
examination or inspection report prepared by one of the Bureau's 
Supervision Divisions, which the Division of Enforcement intends to 
introduce into evidence or to use to refresh the recollection of, or 
impeach, a witness, is explicitly excluded from the materials that may 
be withheld pursuant to this exception.
    Exception (iii) protects the identity of a confidential source. See 
5 U.S.C. 552(b)(7)(C) and (D). Exception (iv) provides that documents 
need not be produced where applicable law prohibits their production. 
Exception (v) protects any other document or category of documents that 
the hearing officer determines may be withheld as not relevant to the 
subject matter of the proceeding, or otherwise for good cause shown. 
This exception is intended to provide the hearing officer with the 
flexibility to adjust the Bureau's affirmative disclosure obligation to 
the particular contours of a proceeding. For example, this exception 
could be used in a situation where a single investigation involves a 
discrete segment or segments that are related only indirectly, or not 
at all, to the recommendations ultimately made to the Director with 
respect to the particular respondents in a specific proceeding. To 
require that documents not relevant to the subject matter of the 
proceeding be made available, simply because they were obtained as part 
of a broad investigation, burdens the respondent as well as the 
Division of Enforcement with unnecessary costs and delay.
    Paragraph (b)(2) of this section provides that paragraph (b) does 
not authorize the Division of Enforcement to withhold material 
exculpatory evidence in the possession of the Division of Enforcement 
that would otherwise be subject to disclosure pursuant to paragraph 
(a). Pursuant to this section, the Division of Enforcement will provide 
respondents with material exculpatory evidence it has obtained from 
persons not employed by the Bureau even if such evidence is contained 
in documents that the Division of Enforcement is otherwise permitted to 
withhold pursuant to paragraph (b)(1).
    The Bureau has declined to adopt the SEC Rules' explicit reference 
to Brady v. Maryland, 373 U.S. 83 (1963) in this context. Proceedings 
under this part are civil in nature, not criminal, and the requirements 
of Brady are therefore inapplicable. The Division of Enforcement will 
turn over information from its investigatory file that was obtained 
from persons not employed by the Bureau as part of the investigation 
resulting in the Bureau's decision to institute proceedings, including 
any material exculpatory evidence so obtained. The Bureau understands 
this approach to be consistent with that provided for in the SEC Rules.
    The Bureau has also added the clause ``that would otherwise be 
required to be produced pursuant to paragraph (a) of this section'' to 
paragraph (b) to make clear that the material exculpatory evidence 
provision works in concert with paragraph (a), and does not impose a 
separate, free-standing obligation to disclose exculpatory evidence 
that is not otherwise within the scope of paragraph (a).
    Paragraph (c) provides that the hearing officer may require the 
Division of Enforcement to submit a withheld document list, and may 
order that a withheld document be made available for inspection and 
copying.
    Pursuant to paragraph (d), the Division of Enforcement is required 
to make the material governed by this section available for inspection 
and copying no later than seven days after service of the notice of 
charges. The Bureau has considered requiring production of the covered 
material at the time the notice of charges is served, but has decided 
against such an approach. A provision for a delay of no more than seven 
days will allow for the entry of any appropriate protective orders and 
is consistent with the SEC's approach in this regard. See 17 CFR 
201.230(d). It is the Bureau's expectation that the Division of 
Enforcement will make this material available as soon as possible in 
every case.
    Paragraphs (e) and (f) set forth the procedure to obtain copies of 
documents and the costs of such copies. As noted above, the Bureau 
anticipates providing electronic copies of the documents to respondents 
in most cases, and paragraph (f) accounts for such a provision of 
electronic documents. In order to preserve the discretion of the 
Division of Enforcement, however, this paragraph includes provisions 
governing the inspection and copying of documents. In order to provide 
for the safekeeping of documents subject to inspection, and to control 
costs associated with the implementation of this section, paragraph (e) 
provides that documents shall be made available for inspection and 
copying at the Bureau office where they are ordinarily maintained, or 
at such other place as the parties may agree. In cases in which 
electronic production is unwarranted, this process appears more likely 
to result in prompt access to documents obtained by the Division of 
Enforcement that are the basis of the allegations contained in the 
notice of charges.
    In a provision added by the Bureau, paragraph (g) of this section 
imposes upon the Division of Enforcement a duty to supplement its 
disclosures under paragraph (a)(1) of this section if it acquires 
information after making its disclosures that it intends to rely upon 
at a hearing.
    Like the SEC Rules, 17 CFR 201.230(h), paragraph (h) provides for a 
``harmless error'' standard in the event the Division of Enforcement 
fails to make available to a respondent a document required to be made 
available by this section.
    Finally, paragraph (i) is modeled on the FTC Rules, 16 CFR 3.31(g), 
and provides a ``claw back'' mechanism whereby inadvertent disclosure 
of privileged or protected information or communications shall not 
constitute a waiver of the privilege or protection, provided that the 
party took reasonable steps to prevent disclosure and promptly took 
reasonable steps to rectify the error. Furthermore, paragraph (i) 
provides that disclosure of privileged or protected information or 
communications shall waive the privilege only if the waiver was 
intentional and that the scope of such waiver is limited to the 
undisclosed information or communications concerning the same subject 
matter, which in fairness ought to be considered together with the 
disclosed information or communications. Paragraph (i) expressly 
applies to disclosures made by any party during an adjudication 
proceeding.

Section 1081.207 Production of Witness Statements

    Modeled after the SEC Rules, 17 CFR 201.231, this section provides 
that a respondent may request for inspection and copying any statement 
of a Division of Enforcement witness that (1) pertains to or is 
expected to pertain to his or her direct testimony; and (2) would be 
required to be produced pursuant to the Jencks Act, 18 U.S.C. 3500, if 
the adjudication proceeding were a criminal proceeding. This section is 
intended to promote the principles of transparency

[[Page 45346]]

and efficiency discussed with respect to Sec.  1081.206. Note, however, 
that the respondent is required to move for the production of these 
statements.
    The Jencks Act does not require production of a witness' prior 
statement until the witness takes the stand. The Bureau expects that in 
most cases, the Division of Enforcement will provide prehearing 
production voluntarily. Submission of a witness' prior statement, 
however, may provide a motive for intimidation of that witness or 
improper contact by a respondent with the witness. The rule provides, 
therefore, that the time for delivery of witness statements is to be 
determined by the hearing officer, so that a case-specific 
determination of such risks can be made if necessary. Upon a showing 
that there is substantial risk of improper use of a witness' prior 
statement, the hearing officer may take appropriate steps. For example, 
a hearing officer may delay production of a prior statement, or 
prohibit parties from communicating with particular witnesses.
    Like Sec.  1081.206 and the SEC Rules, this section provides for a 
``harmless error'' standard in the event the Division of Enforcement 
fails to make available a statement required to be made available by 
this section.

Section 1081.208 Subpoenas

    This section is modeled after the SEC Rules, 17 CFR 201.232, and 
provides that, in connection with a hearing, a party may request the 
issuance of a subpoena for the attendance and testimony of a witness or 
the production of documents. The availability of subpoenas for 
witnesses and documents ensures that respondents have available to them 
the necessary tools to adduce evidence in support of their defenses. A 
subpoena may only be issued by the hearing officer (as opposed to 
counsel) and the section sets forth procedures to prevent the issuance 
of subpoenas that may be unreasonable, oppressive, excessive in scope, 
or unduly burdensome. The section also sets forth procedures and 
standards applicable to a motion to quash or modify a subpoena.
    Paragraph (h) of this section also provides that, if a subpoenaed 
person fails to comply, the Bureau, on its own motion or on the motion 
of the party at whose request the subpoena was issued, may seek an 
order requiring compliance. In accordance with section 1052(b)(2) of 
the Act, which authorizes the Bureau or a Bureau investigator to seek 
enforcement of a subpoena, paragraph (h) only authorizes the Bureau--
and not the party at whose request the subpoena was issued--to seek 
judicial enforcement of the subpoena. Compare 12 CFR 19.26(c) 
(authorizing the ``subpoenaing party or any other aggrieved party'' to 
seek judicial enforcement). In a provision added by the Bureau, this 
section also provides that failure to request that the Bureau seek 
enforcement of a subpoena constitutes waiver of any claim of prejudice 
predicated upon the unavailability of the testimony or evidence sought. 
This provision was added to prevent a respondent from declining to 
request that the Bureau seek to enforce the subpoena of a witness who 
fails to comply, and later claiming that his or her defense was 
prejudiced based upon the unavailability of that witness.

Section 1081.209 Deposition of Witness Unavailable for Hearing

    This section, generally modeled after the Uniform Rules and the SEC 
Rules, 12 CFR 19.27; 17 CFR 201.233, provides that parties may seek to 
depose material witnesses unavailable for the hearing upon application 
to the hearing officer for a deposition subpoena. The application must 
state that the witness is expected to be unavailable due to age, 
illness, infirmity or other reason and that the petitioning party was 
not the cause of the witness's unavailability. The Bureau has adopted 
the Uniform Rules' formulation of this standard, which provides for 
such depositions when the witness is ``otherwise unavailable,'' to 
account for the possible unavailability of witnesses for reasons other 
than those specified in the SEC Rules.
    Paragraph (a)(2) requires a party seeking to record a deposition by 
audio-visual means to so note in the request for a deposition subpoena. 
This provision is modeled on Federal Rule of Civil Procedure 30(b)(3). 
Paragraph (a)(4) also provides that a deposition cannot be taken on 
less than 14 days' notice to the witness and all parties, absent an 
order to the contrary from the hearing officer.
    Paragraph (h) incorporates several provisions from the SEC Rules. 
It provides that the witness being deposed may have an attorney present 
during the deposition; that objections to questions of evidence shall 
be noted by the deposition officer, but that only the hearing officer 
shall have the power to decide on the competency, materia