[House Report 107-610]
[From the U.S. Government Publishing Office]
107th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 107-610
======================================================================
SARBANES-OXLEY ACT OF 2002
_______
July 24, 2002.--Ordered to be printed
_______
Mr. Oxley, from the committee of conference, submitted the following
CONFERENCE REPORT
[To accompany H.R. 3763]
The committee of conference on the disagreeing votes of the
two Houses on the amendment of the Senate to the bill (H.R.
3763), to protect investors by improving the accuracy and
reliability of corporate disclosures made pursuant to the
securities laws, and for other purposes, having met, after full
and free conference, have agreed to recommend and do recommend
to their respective Houses as follows:
That the House recede from its disagreement to the
amendment of the Senate and agree to the same with an amendment
as follows:
In lieu of the matter proposed to be inserted by the Senate
amendment, insert the following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Sarbanes-
Oxley Act of 2002''.
(b) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Commission rules and enforcement.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec. 101. Establishment; administrative provisions.
Sec. 102. Registration with the Board.
Sec. 103. Auditing, quality control, and independence standards and
rules.
Sec. 104. Inspections of registered public accounting firms.
Sec. 105. Investigations and disciplinary proceedings.
Sec. 106. Foreign public accounting firms.
Sec. 107. Commission oversight of the Board.
Sec. 108. Accounting standards.
Sec. 109. Funding.
TITLE II--AUDITOR INDEPENDENCE
Sec. 201. Services outside the scope of practice of auditors.
Sec. 202. Preapproval requirements.
Sec. 203. Audit partner rotation.
Sec. 204. Auditor reports to audit committees.
Sec. 205. Conforming amendments.
Sec. 206. Conflicts of interest.
Sec. 207. Study of mandatory rotation of registered public accounting
firms.
Sec. 208. Commission authority.
Sec. 209. Considerations by appropriate State regulatory authorities.
TITLE III--CORPORATE RESPONSIBILITY
Sec. 301. Public company audit committees.
Sec. 302. Corporate responsibility for financial reports.
Sec. 303. Improper influence on conduct of audits.
Sec. 304. Forfeiture of certain bonuses and profits.
Sec. 305. Officer and director bars and penalties.
Sec. 306. Insider trades during pension fund blackout periods.
Sec. 307. Rules of professional responsibility for attorneys.
Sec. 308. Fair funds for investors.
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
Sec. 401. Disclosures in periodic reports.
Sec. 402. Enhanced conflict of interest provisions.
Sec. 403. Disclosures of transactions involving management and principal
stockholders.
Sec. 404. Management assessment of internal controls.
Sec. 405. Exemption.
Sec. 406. Code of ethics for senior financial officers.
Sec. 407. Disclosure of audit committee financial expert.
Sec. 408. Enhanced review of periodic disclosures by issuers.
Sec. 409. Real time issuer disclosures.
TITLE V--ANALYST CONFLICTS OF INTEREST
Sec. 501. Treatment of securities analysts by registered securities
associations and national securities exchanges.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
Sec. 601. Authorization of appropriations.
Sec. 602. Appearance and practice before the Commission.
Sec. 603. Federal court authority to impose penny stock bars.
Sec. 604. Qualifications of associated persons of brokers and dealers.
TITLE VII--STUDIES AND REPORTS
Sec. 701. GAO study and report regarding consolidation of public
accounting firms.
Sec. 702. Commission study and report regarding credit rating agencies.
Sec. 703. Study and report on violators and violations
Sec. 704. Study of enforcement actions.
Sec. 705. Study of investment banks.
TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
Sec. 801. Short title.
Sec. 802. Criminal penalties for altering documents.
Sec. 803. Debts nondischargeable if incurred in violation of securities
fraud laws.
Sec. 804. Statute of limitations for securities fraud.
Sec. 805. Review of Federal Sentencing Guidelines for obstruction of
justice and extensive criminal fraud.
Sec. 806. Protection for employees of publicly traded companies who
provide evidence of fraud.
Sec. 807. Criminal penalties for defrauding shareholders of publicly
traded companies.
TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
Sec. 901. Short title.
Sec. 902. Attempts and conspiracies to commit criminal fraud offenses.
Sec. 903. Criminal penalties for mail and wire fraud.
Sec. 904. Criminal penalties for violations of the Employee Retirement
Income Security Act of 1974.
Sec. 905. Amendment to sentencing guidelines relating to certain white-
collar offenses.
Sec. 906. Corporate responsibility for financial reports.
TITLE X--CORPORATE TAX RETURNS
Sec. 1001. Sense of the Senate regarding the signing of corporate tax
returns by chief executive officers.
TITLE XI--CORPORATE FRAUD AND ACCOUNTABILITY
Sec. 1101. Short title.
Sec. 1102. Tampering with a record or otherwise impeding an official
proceeding.
Sec. 1103. Temporary freeze authority for the Securities and Exchange
Commission.
Sec. 1104. Amendment to the Federal Sentencing Guidelines.
Sec. 1105. Authority of the Commission to prohibit persons from serving
as officers or directors.
Sec. 1106. Increased criminal penalties under Securities Exchange Act of
1934.
Sec. 1107. Retaliation against informants.
SEC. 2. DEFINITIONS.
(a) In General.--In this Act, the following definitions
shall apply:
(1) 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.
(2) 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, in accordance with then-
applicable generally accepted auditing and related
standards for such purposes), for the purpose of
expressing an opinion on such statements.
(3) Audit committee.--The term ``audit committee''
means--
(A) 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
(B) if no such committee exists with
respect to an issuer, the entire board of
directors of the issuer.
(4) Audit report.--The term ``audit report'' means
a document or other record--
(A) prepared following an audit performed
for purposes of compliance by an issuer with
the requirements of the securities laws; and
(B) in which a public accounting firm
either--
(i) sets forth the opinion of that
firm regarding a financial statement,
report, or other document; or
(ii) asserts that no such opinion
can be expressed.
(5) Board.--The term ``Board'' means the Public
Company Accounting Oversight Board established under
section 101.
(6) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(7) 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
registeredunder 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.
(8) 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.
(9) Person associated with a public accounting
firm.--
(A) 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--
(i) shares in the profits of, or
receives compensation in any other form
from, that firm; or
(ii) participates as agent or
otherwise on behalf of such accounting
firm in any activity of that firm.
(B) 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.
(10) Professional standards.--The term
``professional standards'' means--
(A) accounting principles that are--
(i) established by the standard
setting body described in section 19(b)
of the Securities Act of 1933, as
amended by this Act, or prescribed by
the Commission under section 19(a) of
that Act (15 U.S.C. 17a(s)) or section
13(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78a(m)); and
(ii) relevant to audit reports for
particular issuers, or dealt with in
the quality control system of a
particular registered public accounting
firm; and
(B) 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--
(i) relate to the preparation or
issuance of audit reports for issuers;
and
(ii) are established or adopted by
the Board under section 103(a), or are
promulgated as rules of the Commission.
(11) Public accounting firm.--The term ``public
accounting firm'' means--
(A) 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
(B) to the extent so designated by the
rules of the Board, any associated person of
any entity described in subparagraph (A).
(12) Registered public accounting firm.--The term
``registered public accounting firm'' means a public
accounting firm registered with the Board in accordance
with this Act.
(13) 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), 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.
(14) 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)).
(15) 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.
(16) 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.
(b) Conforming Amendment.--Section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is
amended by inserting ``the Sarbanes-Oxley Act of 2002,'' before
``the Public''.
SEC. 3. 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.--
(1) 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.
(2) Investigations, injunctions, and prosecution of
offenses.--Section 21 of the Securities Exchange Act of
1934 (15 U.S.C. 78u) is amended--
(A) in subsection (a)(1), by inserting
``the rules of the Public Company Accounting
Oversight Board, of which such person is a
registered public accounting firm or a person
associated with such a firm,'' after ``is a
participant,'';
(B) in subsection (d)(1), by inserting
``the rules of the Public Company Accounting
Oversight Board, of which such person is a
registered public accounting firm or a person
associated with such a firm,'' after ``is a
participant,'';
(C) in subsection (e), by inserting ``the
rules of the Public Company Accounting
Oversight Board, of which such person is a
registered public accounting firm or a person
associated with such a firm,'' after ``is a
participant,''; and
(D) in subsection (f), by inserting ``or
the Public Company Accounting Oversight Board''
after ``self-regulatory organization'' each
place that term appears.
(3) Cease-and-desist proceedings.--Section
21C(c)(2) of the Securities Exchange Act of 1934 (15
U.S.C. 78u-3(c)(2)) is amended by inserting
``registered public accounting firm (as defined in
section 2 of the Sarbanes-Oxley Act of 2002),'' after
``government securities dealer,''.
(4) Enforcement by federal banking agencies.--
Section 12(i) of the Securities Exchange Act of 1934
(15 U.S.C. 78l(i)) is amended by--
(A) striking ``sections 12,'' each place it
appears and inserting ``sections 10A(m), 12,'';
and
(B) striking ``and 16,'' each place it
appears and inserting ``and 16 of this Act, and
sections 302, 303, 304, 306, 401(b), 404, 406,
and 407 of the Sarbanes-Oxley Act of 2002,''.
(c) Effect on Commission Authority.--Nothing in this Act or
the rules of the Board shall be construed to impair or limit--
(1) 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;
(2) 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
(3) 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.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
(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. 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, and once a
determination is made by the Commission under subsection (d) of
this section--
(1) register public accounting firms that prepare
audit reports for issuers, in accordance with section
102;
(2) 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;
(3) conduct inspections of registered public
accounting firms, in accordance with section 104 and
the rules of the Board;
(4) 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;
(5) 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;
(6) 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
(7) 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, that the
Board is so organized and has the capacity to carry out the
requirements of this title, and to enforce compliance with this
title 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.--
(1) 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.
(2) 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.
(3) 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.
(4) Appointment of board members.--
(A) Initial board.--Not later than 90 days
after the date of enactment of this Act, 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.
(B) 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.
(5) Term of service.--
(A) In general.--The term of service of
each Board member shall be 5 years, and until a
successor is appointed, except that--
(i) 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
(ii) 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.
(B) 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.
(6) Removal from office.--A member of the Board may
be removed by the Commission from office, in accordance
with section 107(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--
(1) 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;
(2) 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);
(3) 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;
(4) 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);
(5) to allocate, assess, and collect accounting
support fees established pursuant to section 109, for
the Board, and other fees and charges imposed under
this title; and
(6) 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.
(g) Rules of the Board.--The rules of the Board shall,
subject to the approval of the Commission--
(1) provide for the operation and administration of
the Board, the exercise of its authority, and the
performance of its responsibilities under this Act;
(2) 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--
(A) the Board shall retain a discretionary
right to review any action pursuant to any such
delegated function, upon its own motion;
(B) 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
(C) 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;
(3) 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
(4) 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.
SEC. 102. REGISTRATION WITH THE BOARD.
(a) Mandatory Registration.--Beginning 180 days after the
date of the determination of the Commission under section
101(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.--
(1) 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.
(2) Contents of applications.--Each public
accounting firm shall submit, as part of its
application for registration, in such detail as the
Board shall specify--
(A) 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;
(B) the annual fees received by the firm
from each such issuer for audit services, other
accounting services, and non-audit services,
respectively;
(C) such other current financial
information for the most recently completed
fiscal year of the firm as the Board may
reasonably request;
(D) a statement of the quality control
policies of the firm for its accounting and
auditing practices;
(E) 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;
(F) 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;
(G) 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
(H) 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.
(3) Consents.--Each application for registration
under this subsection shall include--
(A) 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 (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
(B) 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.--
(1) 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.
(2) 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).
(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 rulesof
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.
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND
RULES.
(a) Auditing, Quality Control, and Ethics Standards.--
(1) 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.
(2) Rule requirements.--In carrying out paragraph
(1), the Board--
(A) shall include in the auditing standards
that it adopts, requirements that each
registered public accounting firm shall--
(i) 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;
(ii) 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
(iii) 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), and present (in such
report or in a separate report)--
(I) the findings of the
auditor from such testing;
(II) an evaluation of
whether such internal control
structure and procedures--
(aa) include
maintenance of records
that in reasonable
detail accurately and
fairly reflect the
transactions and
dispositions of the
assets of the issuer;
(bb) 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
(III) a description, at a
minimum, of material weaknesses
in such internal controls, and
of any material noncompliance
found on the basis of such
testing.
(B) 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--
(i) monitoring of professional
ethics and independence from issuers on
behalf of which the firm issues audit
reports;
(ii) consultation within such firm
on accounting and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional
development, and advancement of
personnel;
(v) the acceptance and continuation
of engagements;
(vi) internal inspection; and
(vii) such other requirements as
the Board may prescribe, subject to
subsection (a)(1).
(3) Authority to adopt other standards.--
(A) In general.--In carrying out this
subsection, the Board--
(i) may adopt as its rules, subject
to the terms of section 107, 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
(ii) 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).
(B) 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), 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 that otherwise would apply to the
approval of rules of the Board.
(4) 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.--
(1) 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.
(2) Board responses.--The Board shall respond in a
timely fashion to requests from designated professional
groups of accountants and advisory groups referred to
inparagraph (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)
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.
SEC. 104. 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.--
(1) In general.--Subject to paragraph (2),
inspections required by this section shall be
conducted--
(A) annually with respect to each
registered public accounting firm that
regularly provides audit reports for more than
100 issuers; and
(B) 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.
(2) 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--
(1) 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;
(2) report any such act, practice, or omission, if
appropriate, to the Commission and each appropriate
State regulatory authority; and
(3) 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--
(1) 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;
(2) 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
(3) 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 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--
(1) 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
(2) made available in appropriate detail to the
public (subject to section 105(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.--
(1) 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--
(A) 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
(B) 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).
(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.
(3) 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).
SEC. 105. 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.--
(1) 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.
(2) 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--
(A) 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;
(B) 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;
(C) 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
(D) 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.
(3) Noncooperation with investigations.--
(A) 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--
(i) 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;
(ii) suspend or revoke the
registration of the public accounting
firm; and
(iii) invoke such other lesser
sanctions as the Board considers
appropriate, and as specified by rule
of the Board.
(B) Procedure.--Any action taken by the
Board under this paragraph shall be subject to
the terms of section 107(c).
(4) Coordination and referral of investigations.--
(A) 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.
(B) Referral.--The Board may refer an
investigation under this section--
(i) to the Commission;
(ii) 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
(iii) at the direction of the
Commission, to--
(I) the Attorney General of
the United States;
(II) the attorney general
of 1 or more States; and
(III) the appropriate State
regulatory authority.
(5) Use of documents.--
(A) 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 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).
(B) 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--
(i) be made available to the
Commission; and
(ii) 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--
(I) the Attorney General of
the United States;
(II) 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;
(III) State attorneys
general in connection with any
criminal investigation; and
(IV) any appropriate State
regulatory authority,
each of which shall maintain such information
as confidential and privileged.
(6) 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.--
(1) 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--
(A) bring specific charges with respect to
the firm or associated person;
(B) notify such firm or associated person
of, and provide to the firm or associated
person an opportunity to defend against, such
charges; and
(C) keep a record of the proceedings.
(2) 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.
(3) Supporting statement.--A determination by the
Board to impose a sanction under this subsection shall
be supported by a statement setting forth--
(A) 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;
(B) 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
(C) the sanction imposed, including a
justification for that sanction.
(4) 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 Commissionissued
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--
(A) temporary suspension or permanent
revocation of registration under this title;
(B) temporary or permanent suspension or
bar of a person from further association with
any registered public accounting firm;
(C) 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);
(D) a civil money penalty for each such
violation, in an amount equal to--
(i) not more than $100,000 for a
natural person or $2,000,000 for any
other person; and
(ii) 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;
(E) censure;
(F) required additional professional
education or training; or
(G) any other appropriate sanction provided
for in the rules of the Board.
(5) 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--
(A) intentional or knowing conduct,
including reckless conduct, that results in
violation of the applicable statutory,
regulatory, or professional standard; or
(B) repeated instances of negligent
conduct, each resulting in a violation of the
applicable statutory, regulatory, or
professional standard.
(6) Failure to supervise.--
(A) 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--
(i) 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
(ii) such associated person commits
a violation of this Act, or any of such
rules, laws, or standards.
(B) 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--
(i) 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
(ii) 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.
(7) Effect of suspension.--
(A) 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.
(B) 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.--
(1) Recipients.--If the Board imposes a
disciplinary sanction, in accordance with this section,
the Board shall report the sanction to--
(A) the Commission;
(B) any appropriate State regulatory
authority or any foreign accountancy licensing
board with which such firm or person is
licensed or certified; and
(C) the public (once any stay on the
imposition of such sanction has been lifted).
(2) Contents.--The information reported under
paragraph (1) shall include--
(A) the name of the sanctioned person;
(B) a description of the sanction and the
basis for its imposition; and
(C) such other information as the Board
deems appropriate.
(e) Stay of Sanctions.--
(1) 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.
(2) 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.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) Applicability to Certain Foreign Firms.--
(1) 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 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.
(2) 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.
(b) Production of Audit Workpapers.--
(1) 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--
(A) 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
(B) 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.
(2) 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--
(A) 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
(B) 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.
SEC. 107. 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).
(b) Rules of the Board.--
(1) Definition.--In this section, the term
``proposed rule'' means any proposed rule of the Board,
and any modification of any such rule.
(2) 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) with respect to
initial or transitional standards.
(3) 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.
(4) 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),
except that, for purposes of this paragraph--
(A) 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
shall be deemed to read ``consistent with the
requirements of title I of the Sarbanes-Oxley
Act of 2002, 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
(B) the phrase ``otherwise in furtherance
of the purposes of this title'' in section
19(b)(3)(C) of that Act shall be deemed to read
``otherwise in furtherance of the purposes of
title I of the Sarbanes-Oxley Act of 2002''.
(5) 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),
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 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, 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.--
(1) 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.
(2) 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
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), except that, for
purposes of this paragraph--
(A) section 105(e) of this Act (rather than
that section 19(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;
(B) references in that section 19(e)(1) to
``members'' of such an organization shall be
deemed to be references to registered public
accounting firms;
(C) the phrase ``consistent with the
purposes of this title'' in that section
19(e)(1) shall be deemed to read ``consistent
with the purposes of this title and title I of
the Sarbanes-Oxley Act of 2002'';
(D) references to rules of the Municipal
Securities Rulemaking Board in that section
19(e)(1) shall not apply; and
(E) the reference to section 19(e)(2) of
the Securities Exchange Act of 1934 shall refer
instead to section 107(c)(3) of this Act.
(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--
(A) is not necessary or appropriate in
furtherance of this Act or the securities laws;
or
(B) 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.--
(1) 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.
(2) 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--
(A) has violated or is unable to comply
with any provision of this Act, the rules of
the Board, or the securities laws; or
(B) 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.
(3) 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--
(A) has willfully violated any provision of
this Act, the rules of the Board, or the
securities laws;
(B) has willfully abused the authority of
that member; or
(C) 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.
SEC. 108. ACCOUNTING STANDARDS.
(a) Amendment to Securities Act of 1933.--Section 19 of the
Securities Act of 1933 (15 U.S.C. 77s) is amended--
(1) by redesignating subsections (b) and (c) as
subsections (c) and (d), respectively; and
(2) by inserting after subsection (a) the
following:
``(b) Recognition of Accounting Standards.--
``(1) In general.--In carrying out its authority
under subsection (a) and under section 13(b) of the
Securities Exchange Act of 1934, the Commission may
recognize, as `generally accepted' for purposes of the
securities laws, any accounting principles established
by a standard setting body--
``(A) that--
``(i) is organized as a private
entity;
``(ii) has, for administrative and
operational purposes, a board of
trustees (or equivalent body) serving
in the public interest, the majority of
whom are not, concurrent with their
service on such board, and have not
been during the 2-year period preceding
such service, associated persons of any
registered public accounting firm;
``(iii) is funded as provided in
section 109 of the Sarbanes-Oxley Act
of 2002;
``(iv) has adopted procedures to
ensure prompt consideration, by
majority vote of its members, of
changes to accounting principles
necessary to reflect emerging
accounting issues and changing business
practices; and
``(v) considers, in adopting
accounting principles, the need to keep
standards current in order to reflect
changes in the business environment,
the extent to which international
convergence on high quality accounting
standards is necessary or appropriate
in the public interest and for the
protection of investors; and
``(B) that the Commission determines has
the capacity to assist the Commission in
fulfilling the requirements of subsection (a)
and section 13(b) of the Securities Exchange
Act of 1934, because, at a minimum, the
standard setting body is capable of improving
the accuracy and effectiveness of financial
reporting and the protection of investors under
the securities laws.
``(2) Annual report.--A standard setting body
described in paragraph (1) shall submit an annual
report to the Commission and the public, containing
audited financial statements of that standard setting
body.''.
(b) Commission Authority.--The Commission shall promulgate
such rules and regulations to carry out section 19(b) of the
Securities Act of 1933, 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.--
(1) Study.--
(A) In general.--The Commission shall
conduct a study on the adoption by the United
States financial reporting system of a
principles-based accounting system.
(B) Study topics.--The study required by
subparagraph (A) shall include an examination
of--
(i) the extent to which principles-
based accounting and financial
reporting exists in the United States;
(ii) the length of time required
for change from a rules-based to a
principles-based financial reporting
system;
(iii) the feasibility of and
proposed methods by which a principles-
based system may be implemented; and
(iv) a thorough economic analysis
of the implementation of a principles-
based system.
(2) Report.--Not later than 1 year after the date
of enactment of this Act, 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.
SEC. 109. FUNDING.
(a) In General.--The Board, and the standard setting body
designated pursuant to section 19(b) of the Securities Act of
1933, as amended by section 108, 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).
(c) Sources and Uses of Funds.--
(1) Recoverable budget expenses.--The budget of the
Board (reduced by any registration or annual fees
received under section 102(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 suchstandard-setting body shall not
be considered public monies of the United States.
(2) 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.--
(1) 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.
(2) 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)--
(1) 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
(2) 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--
(1) 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
(2) the denominator of which is the average monthly
equity market capitalization of all such issuers for
such 12-month period.
(h) Conforming Amendments.--Section 13(b)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is
amended--
(1) in subparagraph (A), by striking ``and'' at the
end; and
(2) in subparagraph (B), by striking the period at
the end and inserting the following: ``; and
``(C) notwithstanding any other provision of law,
pay the allocable share of such issuer of a reasonable
annual accounting support fee or fees, determined in
accordance with section 109 of the Sarbanes-Oxley Act
of 2002.''.
(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).
TITLE II--AUDITOR INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.
(a) Prohibited Activities.--Section 10A of the Securities
Exchange Act of 1934 (15 U.S.C. 78j-1) is amended by adding at
the end the following:
``(g) Prohibited Activities.--Except as provided in
subsection (h), it shall be unlawful for a registered public
accounting firm (and any associated person of that firm, to the
extent determined appropriate by the Commission) that performs
for any issuer any audit required by this title or the rules of
the Commission under this title or, beginning 180 days after
the date of commencement of the operations of the Public
Company Accounting Oversight Board established under section
101 of the Sarbanes-Oxley Act of 2002 (in this section referred
to as the `Board'), the rules of the Board, to provide to that
issuer, contemporaneously with the audit, any non-audit
service, including--
``(1) bookkeeping or other services related to the
accounting records or financial statements of the audit
client;
``(2) financial information systems design and
implementation;
``(3) appraisal or valuation services, fairness
opinions, or contribution-in-kind reports;
``(4) actuarial services;
``(5) internal audit outsourcing services;
``(6) management functions or human resources;
``(7) broker or dealer, investment adviser, or
investment banking services;
``(8) legal services and expert services unrelated
to the audit; and
``(9) any other service that the Board determines,
by regulation, is impermissible.
``(h) Preapproval Required for Non-Audit Services.--A
registered public accounting firm may engage in any non-audit
service, including tax services, that is not described in any
of paragraphs (1) through (9) of subsection (g) for an audit
client, only if the activity is approved in advance by the
audit committee of the issuer, in accordance with subsection
(i).''.
(b) 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 (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.
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934 (15
U.S.C. 78j-1), as amended by this Act, is amended by adding at
the end the following:
``(i) Preapproval Requirements.--
``(1) In general.--
``(A) Audit committee action.--All auditing
services (which may entail providing comfort
letters in connection with securities
underwritings or statutory audits required for
insurance companies for purposes ofState law)
and non-audit services, other than as provided in subparagraph (B),
provided to an issuer by the auditor of the issuer shall be preapproved
by the audit committee of the issuer.
``(B) De minimus exception.--The
preapproval requirement under subparagraph (A)
is waived with respect to the provision of non-
audit services for an issuer, if--
``(i) the aggregate amount of all
such non-audit services provided to the
issuer constitutes not more than 5
percent of the total amount of revenues
paid by the issuer to its auditor
during the fiscal year in which the
nonaudit services are provided;
``(ii) such services were not
recognized by the issuer at the time of
the engagement to be non-audit
services; and
``(iii) such services are promptly
brought to the attention of the audit
committee of the issuer and approved
prior to the completion of the audit by
the audit committee or by 1 or more
members of the audit committee who are
members of the board of directors to
whom authority to grant such approvals
has been delegated by the audit
committee.
``(2) Disclosure to investors.--Approval by an
audit committee of an issuer under this subsection of a
non-audit service to be performed by the auditor of the
issuer shall be disclosed to investors in periodic
reports required by section 13(a).
``(3) Delegation authority.--The audit committee of
an issuer may delegate to 1 or more designated members
of the audit committee who are independent directors of
the board of directors, the authority to grant
preapprovals required by this subsection. The decisions
of any member to whom authority is delegated under this
paragraph to preapprove an activity under this
subsection shall be presented to the full audit
committee at each of its scheduled meetings.
``(4) Approval of audit services for other
purposes.--In carrying out its duties under subsection
(m)(2), if the audit committee of an issuer approves an
audit service within the scope of the engagement of the
auditor, such audit service shall be deemed to have
been preapproved for purposes of this subsection.''.
SEC. 203. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934 (15
U.S.C. 78j-1), as amended by this Act, is amended by adding at
the end the following:
``(j) Audit Partner Rotation.--It shall be unlawful for a
registered public accounting firm to provide audit services to
an issuer if the lead (or coordinating) audit partner (having
primary responsibility for the audit), or the audit partner
responsible for reviewing the audit, has performed audit
services for that issuer in each of the 5 previous fiscal years
of that issuer.''.
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15
U.S.C. 78j-1), as amended by this Act, is amended by adding at
the end the following:
``(k) Reports to Audit Committees.--Each registered public
accounting firm that performs for any issuer any audit required
by this title shall timely report to the audit committee of the
issuer--
``(1) all critical accounting policies and
practices to be used;
``(2) all alternative treatments of financial
information within generally accepted accounting
principles that have been discussed with management
officials of the issuer, ramifications of the use of
such alternative disclosures and treatments, and the
treatment preferred by the registered public accounting
firm; and
``(3) other material written communications between
the registered public accounting firm and the
management of the issuer, such as any management letter
or schedule of unadjusted differences.''.
SEC. 205. CONFORMING AMENDMENTS.
(a) Definitions.--Section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end
the following:
``(58) Audit committee.--The term `audit committee'
means--
``(A) 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
``(B) if no such committee exists with
respect to an issuer, the entire board of
directors of the issuer.
``(59) Registered public accounting firm.--The term
`registered public accounting firm' has the same
meaning as in section 2 of the Sarbanes-Oxley Act of
2002.''.
(b) Auditor Requirements.--Section 10A of the Securities
Exchange Act of 1934 (15 U.S.C. 78j-1) is amended--
(1) by striking ``an independent public
accountant'' each place that term appears and inserting
``a registered public accounting firm'';
(2) by striking ``the independent public
accountant'' each place that term appears and inserting
``the registered public accounting firm'';
(3) in subsection (c), by striking ``No independent
public accountant'' and inserting ``No registered
public accounting firm''; and
(4) in subsection (b)--
(A) by striking ``the accountant'' each
place that term appears and inserting ``the
firm'';
(B) by striking ``such accountant'' each
place that term appears and inserting ``such
firm''; and
(C) in paragraph (4), by striking ``the
accountant's report'' and inserting ``the
report of the firm''.
(c) Other References.--The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.) is amended--
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by
striking ``independent public accountants'' each place
that term appears and inserting ``a registered public
accounting firm''; and
(2) in subsections (e) and (i) of section 17 (15
U.S.C. 78q), by striking ``an independent public
accountant'' each place that term appears and inserting
``a registered public accounting firm''.
(d) Conforming Amendment.--Section 10A(f) of the Securities
Exchange Act of 1934 (15 U.S.C. 78k(f)) is amended--
(1) by striking ``Definition'' and inserting
``Definitions''; and
(2) by adding at the end the following: ``As used
in this section, the term `issuer' means an issuer (as
defined in section 3), the securities of which are
registered under section 12, or that is required to
file reports pursuant to section 15(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.''.
SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15
U.S.C. 78j-1), as amended by this Act, is amended by adding at
the end the following:
``(l) Conflicts of Interest.--It shall be unlawful for a
registered public accounting firm to perform for an issuer any
audit service required by this title, if a chief executive
officer, controller, chief financial officer, chief accounting
officer, or any person serving in an equivalent position for
the issuer, was employed by that registered independent public
accounting firm and participated in any capacity in the audit
of that issuer during the 1-year period preceding the date of
the initiation of the audit.''.
SEC. 207. 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, 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.
SEC. 208. COMMISSION AUTHORITY.
(a) Commission Regulations.--Not later than 180 days after
the date of enactment of this Act, 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, 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, as added by this title, or any
rule or regulation of the Commission or of the Board issued
thereunder.
SEC. 209. 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.
TITLE III--CORPORATE RESPONSIBILITY
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15
U.S.C. 78f) is amended by adding at the end the following:
``(m) Standards Relating to Audit Committees.--
``(1) Commission rules.--
``(A) In general.--Effective not later than
270 days after the date of enactment of this
subsection, the Commission shall, by rule,
direct the national securities exchanges and
national securities associations to prohibit
the listing of any security of an issuer that
is not in compliance with the requirements of
any portion of paragraphs (2) through (6).
``(B) Opportunity to cure defects.--The
rules of the Commission under subparagraph (A)
shall provide for appropriate procedures for an
issuer to have an opportunity to cure any
defects that would be the basis for a
prohibition under subparagraph (A), before the
imposition of such prohibition.
``(2) Responsibilities relating to registered
public accounting firms.--The audit committee of each
issuer, in its capacity as a committee of the board of
directors, shall be directly responsible for the
appointment, compensation, and oversight of the work of
any registered public accounting firm employed by that
issuer (including resolution of disagreements between
management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an
audit report or related work, and each such registered
public accounting firm shall report directly to the
audit committee.
``(3) Independence.--
``(A) In general.--Each member of the audit
committee of the issuer shall be a member of
the board of directors of the issuer, and shall
otherwise be independent.
``(B) Criteria.--In order to be considered
to be independent for purposes of this
paragraph, a member of an audit committee of an
issuer may not, other than in his or her
capacity as a member of the audit committee,
the board of directors, or any other board
committee--
``(i) accept any consulting,
advisory, or other compensatory fee
from the issuer; or
``(ii) be an affiliated person of
the issuer or any subsidiary thereof.
``(C) Exemption authority.--The Commission
may exempt from the requirements of
subparagraph (B) a particular relationship with
respect to audit committee members, as the
Commission determines appropriate in light of
the circumstances.
``(4) Complaints.--Each audit committee shall
establish procedures for--
``(A) the receipt, retention, and treatment
of complaints received by the issuer regarding
accounting, internal accounting controls, or
auditing matters; and
``(B) the confidential, anonymous
submission by employees of the issuer of
concerns regarding questionable accounting or
auditing matters.
``(5) Authority to engage advisers.--Each audit
committee shall have the authority to engage
independent counsel and other advisers, as it
determines necessary to carry out its duties.
``(6) Funding.--Each issuer shall provide for
appropriate funding, as determined by the audit
committee, in its capacity as a committee of the board
of directors, for payment of compensation--
``(A) to the registered public accounting
firm employed by the issuer for the purpose of
rendering or issuing an audit report; and
``(B) to any advisers employed by the audit
committee under paragraph (5).''.
SEC. 302. 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--
(1) the signing officer has reviewed the report;
(2) 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;
(3) 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;
(4) the signing officers--
(A) are responsible for establishing and
maintaining internal controls;
(B) 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;
(C) have evaluated the effectiveness of the
issuer's internal controls as of a date within
90 days prior to the report; and
(D) have presented in the report their
conclusions about the effectiveness of their
internal controls based on their evaluation as
of that date;
(5) 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)--
(A) 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
(B) any fraud, whether or not material,
that involves management or other employees who
have a significant role in the issuer's
internal controls; and
(6) 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 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, 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.
SEC. 303. 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--
(1) propose the rules or regulations required by
this section, not later than 90 days after the date of
enactment of this Act; and
(2) issue final rules or regulations required by
this section, not later than 270 days after that date
of enactment.
SEC. 304. 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--
(1) 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
(2) 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.
SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.
(a) Unfitness Standard.--
(1) Securities exchange act of 1934.--Section
21(d)(2) of the Securities Exchange Act of 1934 (15
U.S.C. 78u(d)(2)) is amended by striking ``substantial
unfitness'' and inserting ``unfitness''.
(2) Securities act of 1933.--Section 20(e) of the
Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by
striking ``substantial unfitness'' and inserting
``unfitness''.
(b) Equitable Relief.--Section 21(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by adding at
the end the following:
``(5) Equitable Relief.--In any action or proceeding
brought or instituted by the Commission under any provision of
the securities laws, the Commission may seek, and any Federal
court may grant, any equitable relief that may be appropriate
or necessary for the benefit of investors.''.
SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS.
(a) Prohibition of Insider Trading During Pension Fund
Blackout Periods.--
(1) 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.
(2) Remedy.--
(A) 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.
(B) 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.
(3) 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 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.
(4) Blackout period.--For purposes of this
subsection, the term ``blackout period'', with respect
to the equity securities of any issuer--
(A) 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
(B) does not include, under regulations
which shall be prescribed by the Commission--
(i) 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--
(I) incorporated into the
individual account plan; and
(II) timely disclosed to
employees before becoming
participants under the
individual account plan or as a
subsequent amendment to the
plan; or
(ii) 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.
(5) 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))).
(6) 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.--
(1) In general.--Section 101 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1021)
is amended by redesignating the second subsection (h)
as subsection (j), and by inserting after the first
subsection (h) the following new subsection:
``(i) Notice of Blackout Periods to Participant or
Beneficiary Under Individual Account Plan.--
``(1) Duties of plan administrator.--In advance of
the commencement of any blackout period with respect to
an individual account plan, the plan administrator
shall notify the plan participants and beneficiaries
who are affected by such action in accordance with this
subsection.
``(2) Notice requirements.--
``(A) In general.--The notices described in
paragraph (1) shall be written in a manner
calculated to be understood by the average plan
participant and shall include--
``(i) the reasons for the blackout
period,
``(ii) an identification of the
investments and other rights affected,
``(iii) the expected beginning date
and length of the blackout period,
``(iv) in the case of investments
affected, a statement that the
participant or beneficiary should
evaluate the appropriateness of their
current investment decisions in light
of their inability to direct or
diversify assets credited to their
accounts during the blackout period,
and
``(v) such other matters as the
Secretary may require by regulation.
``(B) Notice to participants and
beneficiaries.--Except as otherwise provided in
this subsection, notices described in paragraph
(1) shall be furnished to all participants and
beneficiaries under the plan to whom the
blackout period applies at least 30 days in
advance of the blackout period.
``(C) Exception to 30-day notice
requirement.--In any case in which--
``(i) a deferral of the blackout
period would violate the requirements
of subparagraph (A) or (B) of section
404(a)(1), and a fiduciary of the plan
reasonably so determines in writing, or
``(ii) the inability to provide the
30-day advance notice is due to events
that were unforeseeable or
circumstances beyond the reasonable
control of the plan administrator, and
a fiduciary of the plan reasonably so
determines in writing,
subparagraph (B) shall not apply, and the
notice shall be furnished to all participants
and beneficiaries under the plan to whom the
blackout period applies as soon as reasonably
possible under the circumstances unless such a
notice in advance of the termination of the
blackout period is impracticable.
``(D) Written notice.--The notice required
to be provided under this subsection shall be
in writing, except that such notice may be in
electronic or other form to the extent that
such form is reasonably accessible to the
recipient.
``(E) Notice to issuers of employer
securities subject to blackout period.--In the
case of any blackout period in connection with
an individual account plan, the plan
administrator shall provide timely notice of
such blackout period to the issuer of any
employer securities subject to such blackout
period.
``(3) Exception for blackout periods with limited
applicability.--In any case in which the blackout
period applies only to 1 or more participants or
beneficiaries in connection with a merger, acquisition,
divestiture, or similar transaction involving the plan
or plan sponsor and occurs solely in connection with
becoming or ceasing to be a participant or beneficiary
under the plan by reason of such merger, acquisition,
divestiture, or transaction, the requirement of this
subsection that the notice be provided to all
participants and beneficiaries shall be treated as met
if the notice required under paragraph (1) is provided
to such participants or beneficiaries to whom the
blackout period applies as soon as reasonably
practicable.
``(4) Changes in length of blackout period.--If,
following the furnishing of the notice pursuant to this
subsection, there is a change in the beginning date or
length of the blackout period (specified in such notice
pursuant to paragraph (2)(A)(iii)), the administrator
shall provide affected participants and beneficiaries
notice of the change as soon as reasonably practicable.
In relation to the extended blackout period, such
notice shall meet the requirements of paragraph (2)(D)
and shall specify any material change in the matters
referred to in clauses (i) through (v) of paragraph
(2)(A).
``(5) Regulatory exceptions.--The Secretary may
provide by regulation for additional exceptions to the
requirements of this subsection which the Secretary
determines are in the interests of participants and
beneficiaries.
``(6) Guidance and model notices.--The Secretary
shall issue guidance and model notices which meet the
requirements of this subsection.
``(7) Blackout period.--For purposes of this
subsection--
``(A) In general.--The term `blackout
period' means, in connection with an individual
account plan, any period for which any ability
of participants or beneficiaries under the
plan, which is otherwiseavailable under the
terms of such plan, to direct or diversify assets credited to their
accounts, to obtain loans from the plan, or to obtain distributions
from the plan is temporarily suspended, limited, or restricted, if such
suspension, limitation, or restriction is for any period of more than 3
consecutive business days.
``(B) Exclusions.--The term `blackout
period' does not include a suspension,
limitation, or restriction--
``(i) which occurs by reason of the
application of the securities laws (as
defined in section 3(a)(47) of the
Securities Exchange Act of 1934),
``(ii) which is a change to the
plan which provides for a regularly
scheduled suspension, limitation, or
restriction which is disclosed to
participants or beneficiaries through
any summary of material modifications,
any materials describing specific
investment alternatives under the plan,
or any changes thereto, or
``(iii) which applies only to 1 or
more individuals, each of whom is the
participant, an alternate payee (as
defined in section 206(d)(3)(K)), or
any other beneficiary pursuant to a
qualified domestic relations order (as
defined in section 206(d)(3)(B)(i)).
``(8) Individual account plan.--
``(A) In general.--For purposes of this
subsection, the term `individual account plan'
shall have the meaning provided such term in
section 3(34), except that such term shall not
include a one-participant retirement plan.
``(B) One-participant retirement plan.--For
purposes of subparagraph (A), the term `one-
participant retirement plan' means a retirement
plan that--
``(i) on the first day of the plan
year--
``(I) covered only the
employer (and the employer's
spouse) and the employer owned
the entire business (whether or
not incorporated), or
``(II) covered only one or
more partners (and their
spouses) in a business
partnership (including partners
in an S or C corporation (as
defined in section 1361(a) of
the Internal Revenue Code of
1986)),
``(ii) meets the minimum coverage
requirements of section 410(b) of the
Internal Revenue Code of 1986 (as in
effect on the date of the enactment of
this paragraph) without being combined
with any other plan of the business
that covers the employees of the
business,
``(iii) does not provide benefits
to anyone except the employer (and the
employer's spouse) or the partners (and
their spouses),
``(iv) does not cover a business
that is a member of an affiliated
service group, a controlled group of
corporations, or a group of businesses
under common control, and
``(v) does not cover a business
that leases employees.''.
(2) 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 (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, the Secretary shall
promulgate interim final rules necessary to carry out
the amendments made by this subsection.
(3) Civil penalties for failure to provide
notice.--Section 502 of such Act (29 U.S.C. 1132) is
amended--
(A) in subsection (a)(6), by striking
``(5), or (6)'' and inserting ``(5), (6), or
(7)'';
(B) by redesignating paragraph (7) of
subsection (c) as paragraph (8); and
(C) by inserting after paragraph (6) of
subsection (c) the following new paragraph:
``(7) The Secretary may assess a civil penalty against a
plan administrator of up to $100 a day from the date of the
plan administrator's failure or refusal to provide notice to
participants and beneficiaries in accordance with section
101(i). For purposes of this paragraph, each violation with
respect to any single participant or beneficiary shall be
treated as a separate violation.''.
(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--
(A) 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
(B) 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. 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.
SEC. 307. RULES OF PROFESSIONAL RESPONSIBILITY FOR ATTORNEYS.
Not later than 180 days after the date of enactment of this
Act, 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--
(1) 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
(2) 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.
SEC. 308. 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.--
(1) Subject of study.--The Commission shall review
and analyze--
(A) enforcement actions by the Commission
over the five years preceding the date of the
enactment of this Act 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
(B) 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.
(2) 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, 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) Conforming Amendments.--Each of the following
provisions is amended by inserting ``, except as otherwise
provided in section 308 of the Sarbanes-Oxley Act of 2002''
after ``Treasury of the United States'':
(1) Section 21(d)(3)(C)(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(C)(i)).
(2) Section 21A(d)(1) of such Act (15 U.S.C. 78u-
1(d)(1)).
(3) Section 20(d)(3)(A) of the Securities Act of
1933 (15 U.S.C. 77t(d)(3)(A)).
(4) Section 42(e)(3)(A) of the Investment Company
Act of 1940 (15 U.S.C. 80a-41(e)(3)(A)).
(5) Section 209(e)(3)(A) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-9(e)(3)(A)).
(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).
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
SEC. 401. DISCLOSURES IN PERIODIC REPORTS.
(a) Disclosures Required.--Section 13 of the Securities
Exchange Act of 1934 (15 U.S.C. 78m) is amended by adding at
the end the following:
``(i) Accuracy of Financial Reports.--Each financial report
that contains financial statements, and that is required to be
prepared in accordance with (or reconciled to) generally
accepted accounting principles under this title and filed with
the Commission shall reflect all material correcting
adjustments that have been identified by a registered public
accounting firm in accordance with generally accepted
accounting principles and the rules and regulations of the
Commission.
``(j) Off-Balance Sheet Transactions.--Not later than 180
days after the date of enactment of the Sarbanes-Oxley Act of
2002, the Commission shall issue final rules providing that
each annual and quarterly financial report required to be filed
with the Commission shall disclose all material off-balance
sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the issuer
with unconsolidated entities or other persons, that may have a
material current or future effect on financial condition,
changes in financial condition, results of operations,
liquidity, capital expenditures, capital resources, or
significant components of revenues or expenses.''.
(b) Commission Rules on Pro Forma Figures.--Not later than
180 days after the date of enactment of the Sarbanes-Oxley Act
fo 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--
(1) 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
(2) 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.--
(1) 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,
as added by this section, complete a study of filings
by issuers and their disclosures to determine--
(A) the extent of off-balance sheet
transactions, including assets, liabilities,
leases, losses, and the use of special purpose
entities; and
(B) 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.
(2) 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--
(A) 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;
(B) the extent to which special purpose
entities are used to facilitate off-balance
sheet transactions;
(C) 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;
(D) 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
(E) 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.
SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.
(a) Prohibition on Personal Loans to Executives.--Section
13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as
amended by this Act, is amended by adding at the end the
following:
``(k) Prohibition on Personal Loans to Executives.--
``(1) In general.--It shall be unlawful for any
issuer (as defined in section 2 of the Sarbanes-Oxley
Act of 2002), directly or indirectly, including through
any subsidiary, to extend or maintain credit, to
arrange for the extension of credit, or to renew an
extension of credit, in the form of a personal loan to
or for any director or executive officer (or equivalent
thereof) of that issuer. An extension of credit
maintained by the issuer on the date of enactment of
this subsection shall not be subject to the provisions
of this subsection, provided that there is no material
modification to any term of any such extension of
credit or any renewal of any such extension of credit
on or after that date of enactment.
``(2) Limitation.--Paragraph (1) does not preclude
any home improvement and manufactured home loans
(asthat term is defined in section 5 of the Home Owners' Loan Act (12
U.S.C. 1464)), consumer credit (as defined in section 103 of the Truth
in Lending Act (15 U.S.C. 1602)), or any extension of credit under an
open end credit plan (as defined in section 103 of the Truth in Lending
Act (15 U.S.C. 1602)), or a charge card (as defined in section
127(c)(4)(e) of the Truth in Lending Act (15 U.S.C. 1637(c)(4)(e)), or
any extension of credit by a broker or dealer registered under section
15 of this title to an employee of that broker or dealer to buy, trade,
or carry securities, that is permitted under rules or regulations of
the Board of Governors of the Federal Reserve System pursuant to
section 7 of this title (other than an extension of credit that would
be used to purchase the stock of that issuer), that is--
``(A) made or provided in the ordinary
course of the consumer credit business of such
issuer;
``(B) of a type that is generally made
available by such issuer to the public; and
``(C) made by such issuer on market terms,
or terms that are no more favorable than those
offered by the issuer to the general public for
such extensions of credit.
``(3) Rule of construction for certain loans.--
Paragraph (1) does not apply to any loan made or
maintained by an insured depository institution (as
defined in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813)), if the loan is subject to the
insider lending restrictions of section 22(h) of the
Federal Reserve Act (12 U.S.C. 375b).''.
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND
PRINCIPAL STOCKHOLDERS.
(a) Amendment.--Section 16 of the Securities Exchange Act
of 1934 (15 U.S.C. 78p) is amended by striking the heading of
such section and subsection (a) and inserting the following:
``SEC. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.
``(a) Disclosures Required.--
``(1) Directors, officers, and principal
stockholders required to file.--Every person who is
directly or indirectly the beneficial owner of more
than 10 percent of any class of any equity security
(other than an exempted security) which is registered
pursuant to section 12, or who is a director or an
officer of the issuer of such security, shall file the
statements required by this subsection with the
Commission (and, if such security is registered on a
national securities exchange, also with the exchange).
``(2) Time of filing.--The statements required by
this subsection shall be filed--
``(A) at the time of the registration of
such security on a national securities exchange
or by the effective date of a registration
statement filed pursuant to section 12(g);
``(B) within 10 days after he or she
becomes such beneficial owner, director, or
officer;
``(C) if there has been a change in such
ownership, or if such person shall have
purchased or sold a security-based swap
agreement (as defined in section 206(b) of the
Gramm-Leach-Bliley Act (15 U.S.C. 78c note))
involving such equity security, before the end
of the second business day following the day on
which the subject transaction has been
executed, or at such other time as the
Commission shall establish, by rule, in any
case in which the Commission determines that
such 2-day period is not feasible.
``(3) Contents of statements.--A statement filed--
``(A) under subparagraph (A) or (B) of
paragraph (2) shall contain a statement of the
amount of all equity securities of such issuer
of which the filing person is the beneficial
owner; and
``(B) under subparagraph (C) of such
paragraph shall indicate ownership by the
filing person at the date of filing, any such
changes in such ownership, and such purchases
and sales of the security-based swap agreements
as have occurred since the most recent such
filing under such subparagraph.
``(4) Electronic filing and availability.--
Beginning not later than 1 year after the date of
enactment of the Sarbanes-Oxley Act of 2002--
``(A) a statement filed under subparagraph
(C) of paragraph (2) shall be filed
electronically;
``(B) the Commission shall provide each
such statement on a publicly accessible
Internet site not later than the end of the
business day following that filing; and
``(C) the issuer (if the issuer maintains a
corporate website) shall provide that statement
on that corporate website, not later than the
end of the business day following that
filing.''.
(b) Effective Date.--The amendment made by this section
shall be effective 30 days after the date of the enactment of
this Act.
SEC. 404. 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--
(1) state the responsibility of management for
establishing and maintaining an adequate internal
control structure and procedures for financial
reporting; and
(2) 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.
SEC. 405. EXEMPTION.
Nothing in section 401, 402, or 404, 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).
SEC. 406. 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, 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--
(1) honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of
interest between personal and professional
relationships;
(2) full, fair, accurate, timely, and
understandable disclosure in the periodic reports
required to be filed by the issuer; and
(3) compliance with applicable governmental rules
and regulations.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not
later than 90 days after the date of enactment of this
Act; and
(2) issue final rules to implement this section,
not later than 180 days after that date of enactment.
SEC. 407. 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, 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--
(1) an understanding of generally accepted
accounting principles and financial statements;
(2) experience in--
(A) the preparation or auditing of
financial statements of generally comparable
issuers; and
(B) the application of such principles in
connection with the accounting for estimates,
accruals, and reserves;
(3) experience with internal accounting controls;
and
(4) an understanding of audit committee functions.
(c) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not
later than 90 days after the date of enactment of this
Act; and
(2) issue final rules to implement this section,
not later than 180 days after that date of enactment.
SEC. 408. 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 (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.
(b) Review Criteria.--For purposes of scheduling the
reviews required by subsection (a), the Commission shall
consider, among other factors--
(1) issuers that have issued material restatements
of financial results;
(2) issuers that experience significant volatility
in their stock price as compared to other issuers;
(3) issuers with the largest market capitalization;
(4) emerging companies with disparities in price to
earning ratios;
(5) issuers whose operations significantly affect
any material sector of the economy; and
(6) any other factors that the Commission may
consider relevant.
(c) Minimum Review Period.--In no event shall an issuer
required to file reports under section 13(a) or 15(d) of the
Securities Exchange Act of 1934 be reviewed under this section
less frequently than once every 3 years.
SEC. 409. REAL TIME ISSUER DISCLOSURES.
Section 13 of the Securities Exchange Act of 1934 (15
U.S.C. 78m), as amended by this Act, is amended by adding at
the end the following:
``(l) Real Time Issuer Disclosures.--Each issuer reporting
under section 13(a) or 15(d) shall disclose to the public on a
rapid and current basis such additional information concerning
material changes in the financial condition or operations of
the issuer, in plain English, which may include trend and
qualitative information and graphic presentations, as the
Commission determines, by rule, is necessary or useful for the
protection of investors and in the public interest.''.
TITLE V--ANALYST CONFLICTS OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES
ASSOCIATIONS AND NATIONAL SECURITIES EXCHANGES.
(a) Rules Regarding Securities Analysts.--The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting after section 15C the following new section:
``SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS.
``(a) Analyst Protections.--The Commission, or upon the
authorization and direction of the Commission, a registered
securities association or national securities exchange, shall
have adopted, not later than 1 year after the date of enactment
of this section, rules reasonably designed to address conflicts
of interest that can arise when securities analysts recommend
equity securities in research reports and public appearances,
in order to improve the objectivity of research and provide
investors with more useful and reliable information, including
rules designed--
``(1) to foster greater public confidence in
securities research, and to protect the objectivity and
independence of securities analysts, by--
``(A) restricting the prepublication
clearance or approval of research reports by
persons employed by the broker or dealer who
are engaged in investment banking activities,
or persons not directly responsible for
investment research, other than legal or
compliance staff;
``(B) limiting the supervision and
compensatory evaluation of securities analysts
to officials employed by the broker or dealer
who are not engaged in investment banking
activities; and
``(C) requiring that a broker or dealer and
persons employed by a broker or dealer who are
involved with investment banking activities may
not, directly or indirectly, retaliate against
or threaten to retaliate against any securities
analyst employed by that broker or dealer or
its affiliates as a result of an adverse,
negative, or otherwise unfavorable research
report that may adversely affect the present or
prospective investment banking relationship of
the broker or dealer with the issuer that is
the subject of the research report, except that
such rules may not limit the authority of a
broker or dealer to discipline a securities
analyst for causes other than such research
report in accordance with the policies and
procedures of the firm;
``(2) to define periods during which brokers or
dealers who have participated, or are to participate,
in a public offering of securities as underwriters or
dealers should not publish or otherwise distribute
research reports relating to such securities or to the
issuer of such securities;
``(3) to establish structural and institutional
safeguards within registered brokers or dealers to
assure that securities analysts are separated by
appropriate informational partitions within the firm
from the review, pressure, or oversight of those whose
involvement in investment banking activities might
potentially bias their judgment or supervision; and
``(4) to address such other issues as the
Commission, or such association or exchange, determines
appropriate.
``(b) Disclosure.--The Commission, or upon the
authorization and direction of the Commission, a registered
securities association or national securities exchange, shall
have adopted, not later than 1 year after the date of enactment
of this section, rules reasonably designed to require each
securities analyst to disclose in public appearances, and each
registered broker or dealer to disclose in each research
report, as applicable, conflicts of interest that are known or
should have been known by the securities analyst or the broker
or dealer, to exist at the time of the appearance or the date
of distribution of the report, including--
``(1) the extent to which the securities analyst
has debt or equity investments in the issuer that is
the subject of the appearance or research report;
``(2) whether any compensation has been received by
the registered broker or dealer, or any affiliate
thereof, including the securities analyst, from the
issuer that is the subject of the appearance or
research report, subject to such exemptions as the
Commission may determine appropriate and necessary to
prevent disclosure by virtue of this paragraph of
material non-public information regarding specific
potential future investment banking transactions of
such issuer, as is appropriate in the public interest
and consistent with the protection of investors;
``(3) whether an issuer, the securities of which
are recommended in the appearance or research report,
currently is, or during the 1-year period preceding the
date of the appearance or date of distribution of the
report has been, a client of the registered broker or
dealer, and if so, stating the types of services
provided to the issuer;
``(4) whether the securities analyst received
compensation with respect to a research report, based
upon (among any other factors) the investment banking
revenues (either generally or specifically earned from
the issuer being analyzed) of the registered broker or
dealer; and
``(5) such other disclosures of conflicts of
interest that are material to investors, research
analysts, or the broker or dealer as the Commission, or
such association or exchange, determines appropriate.
``(c) Definitions.--In this section--
``(1) the term `securities analyst' means any
associated person of a registered broker or dealer that
is principally responsible for, and any associated
person who reports directly or indirectly to a
securities analyst in connection with, the preparation
of the substance of a research report, whether or not
any such person has the job title of `securities
analyst'; and
``(2) the term `research report' means a written or
electronic communication that includes an analysis of
equity securities of individual companies or
industries, and that provides information reasonably
sufficient upon which to base an investment
decision.''.
(b) Enforcement.--Section 21B(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u-2(a)) is amended by inserting
``15D,'' before ``15B''.
(c) Commission Authority.--The Commission may promulgate
and amend its regulations, or direct a registered securities
association or national securities exchange to promulgate and
amend its rules, to carry out section 15D of the Securities
Exchange Act of 1934, as added by this section, as is necessary
for the protection of investors and in the public interest.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15
U.S.C. 78kk) is amended to read as follows:
``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
``In addition to any other funds authorized to be
appropriated to the Commission, there are authorized to be
appropriated to carry out the functions, powers, and duties of
the Commission, $776,000,000 for fiscal year 2003, of which--
``(1) $102,700,000 shall be available to fund
additional compensation, including salaries and
benefits, as authorized in the Investor and Capital
Markets Fee Relief Act (Public Law 107-123; 115 Stat.
2390 et seq.);
``(2) $108,400,000 shall be available for
information technology, security enhancements, and
recovery and mitigation activities in light of the
terrorist attacks of September 11, 2001; and
``(3) $98,000,000 shall be available to add not
fewer than an additional 200 qualified professionals to
provide enhanced oversight of auditors and audit
services required by the Federal securities laws, and
to improve Commission investigative and disciplinary
efforts with respect to such auditors and services, as
well as for additional professional support staff
necessary to strengthen the programs of the Commission
involving Full Disclosure and Prevention and
Suppression of Fraud, risk management, industry
technology review, compliance, inspections,
examinations, market regulation, and investment
management.''.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by inserting after section 4B the following:
``SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
``(a) Authority To Censure.--The Commission may censure any
person, or deny, temporarily or permanently, to any person the
privilege of appearing or practicing before the Commission in
any way, if that person is found by the Commission, after
notice and opportunity for hearing in the matter--
``(1) not to possess the requisite qualifications
to represent others;
``(2) to be lacking in character or integrity, or
to have engaged in unethical or improper professional
conduct; or
``(3) to have willfully violated, or willfully
aided and abetted the violation of, any provision of
the securities laws or the rules and regulations issued
thereunder.
``(b) Definition.--With respect to any registered public
accounting firm or associated person, for purposes of this
section, the term `improper professional conduct' means--
``(1) intentional or knowing conduct, including
reckless conduct, that results in a violation of
applicable professional standards; and
``(2) negligent conduct in the form of--
``(A) a single instance of highly
unreasonable conduct that results in a
violation of applicable professional standards
in circumstances in which the registered public
accounting firm or associated person knows, or
should know, that heightened scrutiny is
warranted; or
``(B) repeated instances of unreasonable
conduct, each resulting in a violation of
applicable professional standards, that
indicate a lack of competence to practice
before the Commission.''.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK BARS.
(a) Securities Exchange Act of 1934.--Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended
by this Act, is amended by adding at the end the following:
``(6) Authority of a court to prohibit persons from
participating in an offering of penny stock.--
``(A) In general.--In any proceeding under
paragraph (1) against any person participating in, or,
at the time of the alleged misconduct who was
participating in, an offering of penny stock, the court
may prohibit that person from participating in an
offering of penny stock, conditionally or
unconditionally, and permanently or for such period of
time as the court shall determine.
``(B) Definition.--For purposes of this paragraph,
the term `person participating in an offering of penny
stock' includes any person engaging in activities with
a broker, dealer, or issuer for purposes of issuing,
trading, or inducing or attempting to induce the
purchase or sale of, any penny stock. The Commission
may, by rule or regulation, define such term to include
other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole
or in part, conditionally or unconditionally, from
inclusion in such term.''.
(b) Securities Act of 1933.--Section 20 of the Securities
Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following:
``(g) Authority of a Court To Prohibit Persons From
Participating in an Offering of Penny Stock.--
``(1) In general.--In any proceeding under
subsection (a) against any person participating in, or,
at the time of the alleged misconduct, who was
participating in, an offering of penny stock, the court
may prohibit that person from participating in an
offering of penny stock, conditionally or
unconditionally, and permanently or for such period of
time as the court shall determine.
``(2) Definition.--For purposes of this subsection,
the term `person participating in an offering of penny
stock' includes any person engaging in activities with
a broker, dealer, or issuer for purposes of issuing,
trading, or inducing or attempting to induce the
purchase or sale of, any penny stock. The Commission
may, by rule or regulation, define such term to include
other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole
or in part, conditionally or unconditionally, from
inclusion in such term.''.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS AND DEALERS.
(a) Brokers and Dealers.--Section 15(b)(4) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended--
(1) by striking subparagraph (F) and inserting the
following:
``(F) is subject to any order of the Commission
barring or suspending the right of the person to be
associated with a broker or dealer;''; and
(2) in subparagraph (G), by striking the period at
the end and inserting the following: ``; or
``(H) is subject to any final order of a State
securities commission (or any agency or officer
performing like functions), State authority that
supervises or examines banks, savings associations, or
credit unions, State insurance commission (or any
agency or office performing like functions), an
appropriate Federal banking agency (as defined in
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813(q))), or the National Credit Union
Administration, that--
``(i) bars such person from association
with an entity regulated by such commission,
authority, agency, or officer, or from engaging
in the business of securities, insurance,
banking, savings association activities, or
credit union activities; or
``(ii) constitutes a final order based on
violations of any laws or regulations that
prohibit fraudulent, manipulative, or deceptive
conduct.''.
(b) Investment Advisers.--Section 203(e) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-3(e)) is amended--
(1) by striking paragraph (7) and inserting the
following:
``(7) is subject to any order of the Commission
barring or suspending the right of the person to be
associated with an investment adviser;'';
(2) in paragraph (8), by striking the period at the
end and inserting ``; or''; and
(3) by adding at the end the following:
``(9) is subject to any final order of a State
securities commission (or any agency or officer
performing like functions), State authority that
supervises or examines banks, savings associations, or
credit unions, State insurance commission (or any
agency or office performing like functions), an
appropriate Federal banking agency (as defined in
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813(q))), or the National Credit Union
Administration, that--
``(A) bars such person from association
with an entity regulated by such commission,
authority, agency, or officer, or from engaging
in the business of securities, insurance,
banking, savings association activities, or
credit union activities; or
``(B) constitutes a final order based on
violations of any laws or regulations that
prohibit fraudulent, manipulative, or deceptive
conduct.''.
(c) Conforming Amendments.--
(1) Securities exchange act of 1934.--The
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended--
(A) in section 3(a)(39)(F) (15 U.S.C.
78c(a)(39)(F))--
(i) by striking ``or (G)'' and
inserting ``(H), or (G)''; and
(ii) by inserting ``, or is subject
to an order or finding,'' before
``enumerated'';
(B) in each of section 15(b)(6)(A)(i) (15
U.S.C. 78o(b)(6)(A)(i)), paragraphs (2) and (4)
of section 15B(c) (15 U.S.C. 78o-4(c)), and
subparagraphs (A) and (C) of section 15C(c)(1)
(15 U.S.C. 78o-5(c)(1))--
(i) by striking ``or (G)'' each
place that term appears and inserting
``(H), or (G)''; and
(ii) by striking ``or omission''
each place that term appears, and
inserting ``, or is subject to an order
or finding,''; and
(C) in each of paragraphs (3)(A) and (4)(C)
of section 17A(c) (15 U.S.C. 78q-1(c))--
(i) by striking ``or (G)'' each
place that term appears and inserting
``(H), or (G)''; and
(ii) by inserting ``, or is subject
to an order or finding,'' before
``enumerated'' each place that term
appears.
(2) Investment advisers act of 1940.--Section
203(f) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3(f)) is amended--
(A) by striking ``or (8)'' and inserting
``(8), or (9)''; and
(B) by inserting ``or (3)'' after
``paragraph (2)''.
TITLE VII--STUDIES AND REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF PUBLIC
ACCOUNTING FIRMS.
(a) Study Required.--The Comptroller General of the United
States shall conduct a study--
(1) to identify--
(A) the factors that have led to the
consolidation of public accounting firms since
1989 and the consequent reduction in the number
of firms capable of providing audit services to
large national and multi-national business
organizations that are subject to the
securities laws;
(B) the present and future impact of the
condition described in subparagraph (A) on
capital formation and securities markets, both
domestic and international; and
(C) solutions to any problems identified
under subparagraph (B), including ways to
increase competition and the number of firms
capable of providing audit services to large
national and multinational business
organizations that are subject to the
securities laws;
(2) of the problems, if any, faced by business
organizations that have resulted from limited
competition among public accounting firms, including--
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State
regulations impede competition among public accounting
firms.
(b) Consultation.--In planning and conducting the study
under this section, the Comptroller General shall consult
with--
(1) the Commission;
(2) the regulatory agencies that perform functions
similar to the Commission within the other member
countries of the Group of Seven Industrialized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization
that the Comptroller General considers appropriate.
(c) Report Required.--Not later than 1 year after the date
of enactment of this Act, the Comptroller General shall submit
a report on the results of the study required by this section
to the Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the House of
Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT RATING AGENCIES.
(a) Study Required.--
(1) In general.--The Commission shall conduct a
study of the role and function of credit rating
agencies in the operation of the securities market.
(2) Areas of consideration.--The study required by
this subsection shall examine--
(A) the role of credit rating agencies in
the evaluation of issuers of securities;
(B) the importance of that role to
investors and the functioning of the securities
markets;
(C) any impediments to the accurate
appraisal by credit rating agencies of the
financial resources and risks of issuers of
securities;
(D) any barriers to entry into the business
of acting as a credit rating agency, and any
measures needed to remove such barriers;
(E) any measures which may be required to
improve the dissemination of information
concerning such resources and risks when credit
rating agencies announce credit ratings; and
(F) any conflicts of interest in the
operation of credit rating agencies and
measures to prevent such conflicts or
ameliorate the consequences of such conflicts.
(b) Report Required.--The Commission shall submit a report
on the study required by subsection (a) to the President, the
Committee on Financial Services of the House of
Representatives, and the Committee on Banking, Housing, and
Urban Affairs of the Senate not later than 180 days after the
date of enactment of this Act.
SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.
(a) Study.--The Commission shall conduct a study to
determine, based upon information for the period from January
1, 1998, to December 31, 2001--
(1) the number of securities professionals, defined
as public accountants, public accounting firms,
investment bankers, investment advisers, brokers,
dealers, attorneys, and other securities professionals
practicing before the Commission--
(A) who have been found to have aided and
abetted a violation of the Federal securities
laws, including rules or regulations
promulgated thereunder (collectively referred
to in this section as ``Federal securities
laws''), but who have not been sanctioned,
disciplined, or otherwise penalized as a
primary violator in any administrative action
or civil proceeding, including in any
settlement of such an action or proceeding
(referred to in this section as ``aiders and
abettors''); and
(B) who have been found to have been
primary violators of the Federal securities
laws;
(2) a description of the Federal securities laws
violations committed by aiders and abettors and by
primary violators, including--
(A) the specific provision of the Federal
securities laws violated;
(B) the specific sanctions and penalties
imposed upon such aiders and abettors and
primary violators, including the amount of any
monetary penalties assessed upon and collected
from such persons;
(C) the occurrence of multiple violations
by the same person or persons, either as an
aider or abettor or as a primary violator; and
(D) whether, as to each such violator,
disciplinary sanctions have been imposed,
including any censure, suspension, temporary
bar, or permanent bar to practice before the
Commission; and
(3) the amount of disgorgement, restitution, or any
other fines or payments that the Commission has
assessed upon and collected from, aiders and abettors
and from primary violators.
(b) Report.--A report based upon the study conducted
pursuant to subsection (a) shall be submitted 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 6 months after the date of enactment of this
Act.
SEC. 704. STUDY OF ENFORCEMENT ACTIONS.
(a) Study Required.--The Commission shall review and
analyze all enforcement actions by the Commission involving
violations of reporting requirements imposed under the
securities laws, and restatements of financial statements, over
the 5-year period preceding the date of enactment of this Act,
to identify areas of reporting that are most susceptible to
fraud, inappropriate manipulation, or inappropriate earnings
management, such as revenue recognition and the accounting
treatment of off-balance sheet special purpose entities.
(b) 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, not later than 180 days after the
date of enactment of this Act, and shall use such findings to
revise its rules and regulations, as necessary. The report
shall include a discussion of regulatory or legislative steps
that are recommended or that may be necessary to address
concerns identified in the study.
SEC. 705. STUDY OF INVESTMENT BANKS.
(a) GAO Study.--The Comptroller General of the United
States shall conduct a study on whether investment banks and
financial advisers assisted public companies in manipulating
their earnings and obfuscating their true financial condition.
The study should address the rule of investment banks and
financial advisers--
(1) in the collapse of the Enron Corporation,
including with respect to the design and implementation
of derivatives transactions, transactions involving
special purpose vehicles, and other financial
arrangements that may have had the effect of altering
the company's reported financial statements in ways
that obscured the true financial picture of the
company;
(2) in the failure of Global Crossing, including
with respect to transactions involving swaps of
fiberoptic cable capacity, in the designing
transactions that may have had the effect of altering
the company's reported financial statements in ways
that obscured the true financial picture of the
company; and
(3) generally, in creating and marketing
transactions which may have been designed solely to
enable companies to manipulate revenue streams, obtain
loans, or move liabilities off balance sheets without
altering the economic and business risks faced by the
companies or any other mechanism to obscure a company's
financial picture.
(b) Report.--The Comptroller General shall report to
Congress not later than 180 days after the date of enactment of
this Act on the results of the study required by this section.
The report shall include a discussion of regulatory or
legislative steps that are recommended or that may be necessary
to address concerns identified in the study.
TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
SEC. 801. SHORT TITLE.
This title may be cited as the ``Corporate and Criminal
Fraud Accountability Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.
(a) In General.--Chapter 73 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1519. Destruction, alteration, or falsification of records in
Federal investigations and bankruptcy
``Whoever knowingly alters, destroys, mutilates, conceals,
covers up, falsifies, or makes a false entry in any record,
document, or tangible object with the intent to impede,
obstruct, or influence the investigation or proper
administration of any matter within the jurisdiction of any
department or agency of the United States or any case filed
under title 11, or in relation to or contemplation of any such
matter or case, shall be fined under this title, imprisoned not
more than 20 years, or both.
``Sec. 1520. Destruction of corporate audit records
``(a)(1) Any accountant who conducts an audit of an issuer
of securities to which section 10A(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies, shall
maintain all audit or review workpapers for a period of 5 years
from the end of the fiscal period in which the audit or review
was concluded.
``(2) The Securities and Exchange Commission shall
promulgate, within 180 days, after adequate notice and an
opportunity for comment, such rules and regulations, as are
reasonably necessary, relating to the retention of relevant
records such as workpapers, documents that form the basis of an
audit or review, memoranda, correspondence, communications,
other documents, and records (including electronic records)
which are created, sent, or received in connection with an
audit or reviewand contain conclusions, opinions, analyses, or
financial data relating to such an audit or review, which is conducted
by any accountant who conducts an audit of an issuer of securities to
which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78j-1(a)) applies. The Commission may, from time to time, amend or
supplement the rules and regulations that it is required to promulgate
under this section, after adequate notice and an opportunity for
comment, in order to ensure that such rules and regulations adequately
comport with the purposes of this section.
``(b) Whoever knowingly and willfully violates subsection
(a)(1), or any rule or regulation promulgated by the Securities
and Exchange Commission under subsection (a)(2), shall be fined
under this title, imprisoned not more than 10 years, or both.
``(c) Nothing in this section shall be deemed to diminish
or relieve any person of any other duty or obligation imposed
by Federal or State law or regulation to maintain, or refrain
from destroying, any document.''.
(b) Clerical Amendment.--The table of sections at the
beginning of chapter 73 of title 18, United States Code, is
amended by adding at the end the following new items:
``1519. Destruction, alteration, or falsification of records in Federal
investigations and bankruptcy.
``1520. Destruction of corporate audit records.''.
SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION OF SECURITIES
FRAUD LAWS.
Section 523(a) of title 11, United States Code, is
amended--
(1) in paragraph (17), by striking ``or'' after the
semicolon;
(2) in paragraph (18), by striking the period at
the end and inserting ``; or''; and
(3) by adding at the end, the following:
``(19) that--
``(A) is for--
``(i) the violation of any of the
Federal securities laws (as that term
is defined in section 3(a)(47) of the
Securities Exchange Act of 1934), any
of the State securities laws, or any
regulation or order issued under such
Federal or State securities laws; or
``(ii) common law fraud, deceit, or
manipulation in connection with the
purchase or sale of any security; and
``(B) results from--
``(i) any judgment, order, consent
order, or decree entered in any Federal
or State judicial or administrative
proceeding;
``(ii) any settlement agreement
entered into by the debtor; or
``(iii) any court or administrative
order for any damages, fine, penalty,
citation, restitutionary payment,
disgorgement payment, attorney fee,
cost, or other payment owed by the
debtor.''.
SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.
(a) In General.--Section 1658 of title 28, United States
Code, is amended--
(1) by inserting ``(a)'' before ``Except''; and
(2) by adding at the end the following:
``(b) Notwithstanding subsection (a), a private right of
action that involves a claim of fraud, deceit, manipulation, or
contrivance in contravention of a regulatory requirement
concerning the securities laws, as defined in section 3(a)(47)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)),
may be brought not later than the earlier of--
``(1) 2 years after the discovery of the facts
constituting the violation; or
``(2) 5 years after such violation.''.
(b) Effective Date.--The limitations period provided by
section 1658(b) of title 28, United States Code, as added by
this section, shall apply to all proceedings addressed by this
section that are commenced on or after the date of enactment of
this Act.
(c) No Creation of Actions.--Nothing in this section shall
create a new, private right of action.
SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR OBSTRUCTION OF
JUSTICE AND EXTENSIVE CRIMINAL FRAUD.
(a) Enhancement of Fraud and Obstruction of Justice
Sentences.--Pursuant to section 994 of title 28, United States
Code, and in accordance with this section, the United States
Sentencing Commission shall review and amend, as appropriate,
the Federal Sentencing Guidelines and related policy statements
to ensure that--
(1) the base offense level and existing
enhancements contained in United States Sentencing
Guideline 2J1.2 relating to obstruction of justice are
sufficient to deter and punish that activity;
(2) the enhancements and specific offense
characteristics relating to obstruction of justice are
adequate in cases where--
(A) the destruction, alteration, or
fabrication of evidence involves--
(i) a large amount of evidence, a
large number of participants, or is
otherwise extensive;
(ii) the selection of evidence that
is particularly probative or essential
to the investigation; or
(iii) more than minimal planning;
or
(B) the offense involved abuse of a special
skill or a position of trust;
(3) the guideline offense levels and enhancements
for violations of section 1519 or 1520 of title 18,
United States Code, as added by this title, are
sufficient to deter and punish that activity;
(4) a specific offense characteristic enhancing
sentencing is provided under United States Sentencing
Guideline 2B1.1 (as in effect on the date of enactment
of this Act) for a fraud offense that endangers the
solvency or financial security of a substantial number
of victims; and
(5) the guidelines that apply to organizations in
United States Sentencing Guidelines, chapter 8, are
sufficient to deter and punish organizational criminal
misconduct.
(b) Emergency Authority and Deadline for Commission
Action.--The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than 180 days after the date of enactment of this Act, in
accordance with the prcedures set forth in section 219(a) of
the Sentencing Reform Act of 1987, as though the authority
under that Act had not expired.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO
PROVIDE EVIDENCE OF FRAUD.
(a) In General.--Chapter 73 of title 18, United States
Code, is amended by inserting after section 1514 the following:
``Sec. 1514A. Civil action to protect against retaliation in fraud
cases
``(a) Whistleblower Protection for Employees of Publicly
Traded Companies.--No company with a class of securities
registered under section 12 of the Securities Exchange Act of
1934 (15 U.S.C. 78l), or that is required to file reports under
section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78o(d)), or any officer, employee, contractor, subcontractor,
or agent of such company, may discharge, demote, suspend,
threaten, harass, or in any other manner discriminate against
an employee in the terms and conditions of employment because
of any lawful act done by the employee--
``(1) to provide information, cause information to
be provided, or otherwise assist in an investigation
regarding any conduct which the employee reasonably
believes constitutes a violation of section 1341, 1343,
1344, or 1348, any rule or regulation of the Securities
and Exchange Commission, or any provision of Federal
law relating to fraud against shareholders, when the
information or assistance is provided to or the
investigation is conducted by--
``(A) a Federal regulatory or law
enforcement agency;
``(B) any Member of Congress or any
committee of Congress; or
``(C) a person with supervisory authority
over the employee (or such other person working
for the employer who has the authority to
investigate, discover, or terminate
misconduct); or
``(2) to file, cause to be filed, testify,
participate in, or otherwise assist in a proceeding
filed or about to be filed (with any knowledge of the
employer) relating to an alleged violation of section
1341, 1343, 1344, or 1348, any rule or regulation of
the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against
shareholders.
``(b) Enforcement Action.--
``(1) In general.--A person who alleges discharge
or other discrimination by any person in violation of
subsection (a) may seek relief under subsection (c),
by--
``(A) filing a complaint with the Secretary
of Labor; or
``(B) if the Secretary has not issued a
final decision within 180 days of the filing of
the complaint and there is no showing that such
delay is due to the bad faith of the claimant,
bringing an action at law or equity for de novo
review in the appropriate district court of the
United States, which shall have jurisdiction
over such an action without regard to the
amount in controversy.
``(2) Procedure.--
``(A) In general.--An action under
paragraph (1)(A) shall be governed under the
rules and procedures set forth in section
42121(b) of title 49, United States Code.
``(B) Exception.--Notification made under
section 42121(b)(1) of title 49, United States
Code, shall be made to the person named in the
complaint and to the employer.
``(C) Burdens of proof.--An action brought
under paragraph (1)(B) shall be governed by the
legal burdens of proof set forth in section
42121(b) of title 49, United States Code.
``(D) Statute of limitations.--An action
under paragraph (1) shall be commenced not
later than 90 days after the date on which the
violation occurs.
``(c) Remedies.--
``(1) In general.--An employee prevailing in any
action under subsection (b)(1) shall be entitled to all
relief necessary to make the employee whole.
``(2) Compensatory damages.--Relief for any action
under paragraph (1) shall include--
``(A) reinstatement with the same seniority
status that the employee would have had, but
for the discrimination;
``(B) the amount of back pay, with
interest; and
``(C) compensation for any special damages
sustained as a result of the discrimination,
including litigation costs, expert witness
fees, and reasonable attorney fees.
``(d) Rights Retained by Employee.--Nothing in this section
shall be deemed to diminish the rights, privileges, or remedies
of any employee under any Federal or State law, or under any
collective bargaining agreement.''.
(b) Clerical Amendment.--The table of sections at the
beginning of chapter 73 of title 18, United States Code, is
amended by inserting after the item relating to section 1514
the following new item:
``1514A. Civil action to protect against retaliation in fraud cases.''.
SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY
TRADED COMPANIES.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1348. Securities fraud
``Whoever knowingly executes, or attempts to execute, a
scheme or artifice--
``(1) to defraud any person in connection with any
security of an issuer with a class of securities
registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) or that is required to file
reports under section 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(d)); or
``(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any money or
property in connection with the purchase or sale of any
security of an issuer with a class of securities
registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) or that is required to file
reports under section 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than 25
years, or both.''.
(b) Clerical Amendment.--The table of sections at the
beginning of chapter 63 of title 18, United States Code, is
amended by adding at the end the following new item:
``1348. Securities fraud.''.
TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 901. SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 902. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL FRAUD OFFENSES.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by inserting after section 1348 as added by
this Act the following:
``Sec. 1349. Attempt and conspiracy
``Any person who attempts or conspires to commit any
offense under this chapter shall be subject to the same
penalties as those prescribed for the offense, the commission
of which was the object of the attempt or conspiracy.
(b) Clerical Amendment.--The table of sections at the
beginning of chapter 63 of title 18, United States Code, is
amended by adding at the end the following new item:
``1349. Attempt and conspiracy.''.
SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States
Code, is amended by striking ``five'' and inserting ``20''.
(b) Wire Fraud.--Section 1343 of title 18, United States
Code, is amended by striking ``five'' and inserting ``20''.
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting
``$100,000'';
(2) by striking ``one year'' and inserting ``10
years''; and
(3) by striking ``$100,000'' and inserting
``$500,000''.
SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the
United States Sentencing Commission shall review and, as
appropriate, amend the Federal Sentencing Guidelines and
related policy statements to implement the provisions of this
Act.
(b) Requirements.--In carrying out this section, the
Sentencing Commission shall--
(1) ensure that the sentencing guidelines and
policy statements reflect the serious nature of the
offenses and the penalties set forth in this Act, the
growing incidence of serious fraud offenses which are
identified above, and the need to modify the sentencing
guidelines and policy statements to deter, prevent, and
punish such offenses;
(2) consider the extent to which the guidelines and
policy statements adequately address whether the
guideline offense levels and enhancements for
violations of the sections amended by this Act are
sufficient to deter andpunish such offenses, and
specifically, are adequate in view of the statutory increases in
penalties contained in this Act;
(3) assure reasonable consistency with other
relevant directives and sentencing guidelines;
(4) account for any additional aggravating or
mitigating circumstances that might justify exceptions
to the generally applicable sentencing ranges;
(5) make any necessary conforming changes to the
sentencing guidelines; and
(6) assure that the guidelines adequately meet the
purposes of sentencing, as set forth in section
3553(a)(2) of title 18, United States Code.
(c) Emergency Authority and Deadline for Commission
Action.--The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than 180 days after the date of enactment of this Act, in
accordance with the procedures set forth in section 219(a) of
the Sentencing Reform Act of 1987, as though the authority
under that Act had not expired.
SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by inserting after section 1349, as created by
this Act, the following:
``Sec. 1350. Failure of corporate officers to certify financial reports
(a) Certification of Periodic Financial Reports.--Each
periodic report containing financial statements filed by an
issuer with the Securities Exchange Commission pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written
statement by the chief executive officer and chief financial
officer (or equivalent thereof) of the issuer.
``(b) Content.--The statement required under subsection (a)
shall certify that the periodic report containing the financial
statements fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)) and that information contained in the
periodic report fairly presents, in all material respects, the
financial condition and results of operations of the issuer.
``(c) Criminal Penalties.--Whoever--
``(1) certifies any statement as set forth in
subsections (a) and (b) of this section knowing that
the periodic report accompanying the statement does not
comport with all the requirements set forth in this
section shall be fined not more than $1,000,000 or
imprisoned not more than 10 years, or both; or
``(2) willfully certifies any statement as set
forth in subsections (a) and (b) of this section
knowing that the periodic report accompanying the
statement does not comport with all the requirements
set forth in this section shall be fined not more than
$5,000,000, or imprisoned not more than 20 years, or
both.''.
(b) Clerical Amendment.--The table of sections at the
beginning of chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1350. Failure of corporate officers to certify financial reports.''.
TITLE X--CORPORATE TAX RETURNS
SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX
RETURNS BY CHIEF EXECUTIVE OFFICERS.
It is the sense of the Senate that the Federal income tax
return of a corporation should be signed by the chief executive
officer of such corporation.
TITLE XI--CORPORATE FRAUD ACCOUNTABILITY
SEC. 1101. SHORT TITLE.
This title may be cited as the ``Corporate Fraud
Accountability Act of 2002''.
SEC. 1102. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL
PROCEEDING.
Section 1512 of title 18, United States Code, is amended--
(1) by redesignating subsections (c) through (i) as
subsections (d) through (j), respectively; and
(2) by inserting after subsection (b) the following
new subsection:
``(c) Whoever corruptly--
``(1) alters, destroys, mutilates, or conceals a
record, document, or other object, or attempts to do
so, with the intent to impair the object's integrity or
availability for use in an official proceeding; or
``(2) otherwise obstructs, influences, or impedes
any official proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than 20
years, or both.''.
SEC. 1103. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE
COMMISSION.
(a) In General.--Section 21C(c) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u-3(c)) is amended by adding at the
end the following:
``(3) Temporary freeze.--
``(A) In general.--
``(i) Issuance of temporary
order.--Whenever, during the course of
a lawful investigation involving
possible violations of the Federal
securities laws by an issuer of
publicly traded securities or any of
its directors, officers, partners,
controlling persons, agents, or
employees, it shall appear to the
Commission that it is likely that the
issuer will make extraordinary payments
(whether compensation or otherwise) to
any of the foregoing persons, the
Commission may petition a Federal
district court for a temporary order
requiring the issuer to escrow, subject
to court supervision, those payments in
an interest-bearing account for 45
days.
``(ii) Standard.--A temporary order
shall be entered under clause (i), only
after notice and opportunity for a
hearing, unless the court determines
that notice and hearing prior to entry
of the order would be impracticable or
contrary to the public interest.
``(iii) Effective period.--A
temporary order issued under clause (i)
shall--
``(I) become effective
immediately;
``(II) be served upon the
parties subject to it; and
``(III) unless set aside,
limited or suspended by a court
of competent jurisdiction,
shall remain effective and
enforceable for 45 days.
``(iv) Extensions authorized.--The
effective period of an order under this
subparagraph may be extended by the
court upon good cause shown for not
longer than 45 additional days,
provided that the combined period of
the order shall not exceed 90 days.
``(B) Process on Determination of
violations.--
``(i) Violations charged.--If the
issuer or other person described in
subparagraph (A) is charged with any
violation of the Federal securities
laws before the expiration of the
effective period of a temporary order
under subparagraph (A) (including any
applicable extension period), the order
shall remain in effect, subject to
court approval, until the conclusion of
any legal proceedings related thereto,
and the affected issuer or other
person, shall have the right to
petition the court for review of the
order.
``(ii) Violations not charged.--If
the issuer or other person described in
subparagraph (A) is not charged with
any violation of the Federal securities
laws before the expiration of the
effective period of a temporary order
under subparagraph(A) (including any
applicable extension period), the escrow shall terminate at the
expiration of the 45-day effective period (or the expiration of any
extension period, as applicable), and the disputed payments (with
accrued interest) shall be returned to the issuer or other affected
person.''.
(b) Technical Amendment.--Section 21C(c)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
amended by striking ``This'' and inserting ``paragraph (1)''.
SEC. 1104. AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.
(a) Request for Immediate Consideration by The United
States Sentencing Commission.--Pursuant to its authority under
section 994(p) of title 28, United States Code, and in
accordance with this section, the United States Sentencing
Commission is requested to--
(1) promptly review the sentencing guidelines
applicable to securities and accounting fraud and
related offenses;
(2) expeditiously consider the promulgation of new
sentencing guidelines or amendments to existing
sentencing guidelines to provide an enhancement for
officers or directors of publicly traded corporations
who commit fraud and related offenses; and
(3) submit to Congress an explanation of actions
taken by the Sentencing Commission pursuant to
paragraph (2) and any additional policy recommendations
the Sentencing Commission may have for combating
offenses described in paragraph (1).
(b) Considerations in Review.--In carrying out this
section, the Sentencing Commission is requested to--
(1) ensure that the sentencing guidelines and
policy statements reflect the serious nature of
securities, pension, and accounting fraud and the need
for aggressive and appropriate law enforcement action
to prevent such offenses;
(2) assure reasonable consistency with other
relevant directives and with other guidelines;
(3) account for any aggravating or mitigating
circumstances that might justify exceptions, including
circumstances for which the sentencing guidelines
currently provide sentencing enhancements;
(4) ensure that guideline offense levels and
enhancements for an obstruction of justice offense are
adequate in cases where documents or other physical
evidence are actually destroyed or fabricated;
(5) ensure that the guideline offense levels and
enhancements under United States Sentencing Guideline
2B1.1 (as in effect on the date of enactment of this
Act) are sufficient for a fraud offense when the number
of victims adversely involved is significantly greater
than 50;
(6) make any necessary conforming changes to the
sentencing guidelines; and
(7) assure that the guidelines adequately meet the
purposes of sentencing as set forth in section
3553(a)(2) of title 18, United States Code.
(c) Emergency Authority and Deadline For Commission
Action.--The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than the 180 days after the date of enactment of this Act, in
accordance with the procedures sent forth in section 21(a) of
the Sentencing Reform Act of 1987, as though the authority
under that Act had not expired.
SEC. 1105. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING
AS OFFICERS OR DIRECTORS.
(a) Securities Exchange Act of 1934.--Section 21C of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3) is amended by
adding at the end the following:
``(f) Authority of the Commission To Prohibit Persons From
Serving as Officers or Directors.--In any cease-and-desist
proceeding under subsection (a), the Commission may issue an
order to prohibit, conditionally or unconditionally, and
permanently or for such period of time as it shall determine,
any person who has violated section 10(b) or the rules or
regulations thereunder, from acting as an officer or director
of any issuer that has a class of securities registered
pursuant to section 12, or that is required to file reports
pursuant to section 15(d), if the conduct of that person
demonstrates unfitness to serve as an officer or director of
any such issuer.''.
(b) Securities Act of 1933.--Section 8A of the Securities
Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end
of the following:
``(f) Authority of the Commission to Prohibit Persons From
Serving as Officers or Directors.--In any cease-and-desist
proceeding under subsection (a), the Commission may issue an
order to prohibit, conditionally or unconditionally, and
permanently or for such period of time as it shall determine,
any person who has violated section 17(a)(1) or the rules or
regulations thereunder, from acting as an officer or director
of any issuer that has a class of securities registered
pursuant to section 12 of the Securities Exchange Act of 1934,
or that is required to file reports pursuant to section 15(d)
of that Act, if the conduct of that person demonstrates
unfitness to serve as an officer or director of any such
issuer.''.
SEC. 1106. INCREASED CRIMINAL PENALTIES UNDER SECURITIES EXCHANGE ACT
OF 1934.
Section 32(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78ff(a)) is amended--
(1) by striking ``$1,000,000, or imprisoned not
more than 10 years'' and inserting ``$5,000,000, or
imprisoned not more than 20 years''; and
(2) by striking ``$2,500,000'' and inserting
``$25,000,000''.
SEC. 1107. RETALIATION AGAINST INFORMANTS.
(a) In General.--Section 1513 of title 18, United States
Code, is amended by adding at the end the following:
``(e) Whoever knowingly, with the intent to retaliate,
takes any action harmful to any person, including interference
with the lawful employment or livelihood of any person, for
providing to a law enforcement officer any truthful information
relating to the commission or possible commission of any
Federal offense, shall be fined under this title or imprisoned
not more than 10 years, or both.''.
And the Senate agree to the same.
From the Committee on Financial Services, for
consideration of the House bill and the Senate
amendments, and modifications committed to
conference:
Michael G. Oxley,
Richard H. Baker,
Ed Royce,
Robert W. Ney,
Sue W. Kelly,
Chris Cox,
John J. LaFalce,
Barney Frank,
Paul E. Kanjorski,
Maxine Waters,
Provided that Mr. Shows is appointed in lieu of
Ms. Waters for consideration of section 11 of
the House bill and section 305 of the Senate
amendment, and modifications committed to
conference:
Ronnie Shows,
From the Committee on Education and the
Workforce, for consideration of sections 306
and 904 of the Senate amendment, and
modifications committed to conference:
John Boehner,
Sam Johnson,
George Miller,
From the Committee on Energy and Commerce, for
consideration of sections 108 and 109 of the
Senate amendment, and modifications committed
to conference:
Billy Tauzin,
James Greenwood,
John D. Dingell,
From the Committee on the Judiciary, for
consideration of section 105 and titles VIII
and IX of the Senate amendment, and
modifications committed to conference:
F. James Sensenbrenner,
Lamar Smith,
John Conyers,
From the Committee on Ways and Means, for
consideration of section 109 of the Senate
amendment, and modifications committed to
conference:
William Thomas,
Jim McCrery,
Charles B. Rangel,
Managers on the Part of the House.
Paul Sarbanes,
Christopher Dodd,
Tim Johnson,
Jack Reed,
Patrick J. Leahy,
Richard C. Shelby,
Robert F. Bennett,
Michael B. Enzi,
Managers on the Part of the Senate.
JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE
The managers on the part of the House and the Senate at
the conference on the disagreeing votes of the two Houses on
the amendment of the Senate to the bill (H.R. 3763), to protect
investors by improving the accuracy and reliability of
corporate disclosures made pursuant to the securities laws, and
for other purposes, submit the following joint statement to the
House and the Senate in explanation of the effect of the action
agreed upon by the managers and recommended in the accompanying
conference report:
The Senate amendment struck all of the House bill after
the enacting clause and inserted a substitute text.
The House recedes from its disagreement to the amendment
of the Senate with an amendment that is a substitute for the
House bill and the Senate amendment. The differences between
the House bill, the Senate amendment, and the substitute agreed
to in conference are noted below, except for clerical
corrections, conforming changes made necessary by agreements
reached by the conferees, and minor drafting and clerical
changes.
The Managers on the part of the House and the Senate met
on July 19 and July 24, 2002 (the House chairing), and
reconciled the differences between the House bill and the
Senate amendment.
From the Committee on Financial Services, for
consideration of the House bill and the Senate
amendments, and modifications committed to
conference:
Michael G. Oxley,
Richard H. Baker,
Ed Royce,
Robert W. Ney,
Sue W. Kelly,
Chris Cox,
John J. LaFalce,
Barney Frank,
Paul E. Kanjorski,
Maxine Waters,
Provided that Mr. Shows is appointed in lieu of
Ms. Waters for consideration of section 11 of
the House bill and section 305 of the Senate
amendment, and modifications committed to
conference:
Ronnie Shows,
From the Committee on Education and the
Workforce, for consideration of sections 306
and 904 of the Senate amendment, and
modifications committed to conference:
John Boehner,
Sam Johnson,
George Miller,
From the Committee on Energy and Commerce, for
consideration of sections 108 and 109 of the
Senate amendment, and modifications committed
to conference:
Billy Tauzin,
James Greenwood,
John D. Dingell,
From the Committee on the Judiciary, for
consideration of section 105 and titles VIII
and IX of the Senate amendment, and
modifications committed to conference:
F. James Sensenbrenner,
Lamar Smith,
John Conyers,
From the Committee on Ways and Means, for
consideration of section 109 of the Senate
amendment, and modifications committed to
conference:
William Thomas,
Jim McCrery,
Charles B. Rangel,
Managers on the Part of the House.
Paul Sarbanes,
Christopher Dodd,
Tim Johnson,
Jack Reed,
Patrick J. Leahy,
Richard C. Shelby,
Robert F. Bennett,
Michael B. Enzi,
Managers on the Part of the Senate.