[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 240 Reported in Senate (RS)]





                                                       Calendar No. 128

104th CONGRESS

  1st Session

                                 S. 240

                          [Report No. 104-98]

_______________________________________________________________________

                                 A BILL

  To amend the Securities Exchange Act of 1934 to establish a filing 
deadline and to provide certain safeguards to ensure that the interests 
   of investors are well protected under the implied private action 
                         provisions of the Act.

_______________________________________________________________________

                             June 19, 1995

                       Reported with an amendment





                                                       Calendar No. 128
104th CONGRESS
  1st Session
                                 S. 240

                          [Report No. 104-98]

  To amend the Securities Exchange Act of 1934 to establish a filing 
deadline and to provide certain safeguards to ensure that the interests 
   of investors are well protected under the implied private action 
                         provisions of the Act.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             January 18 (legislative day, January 10), 1995

   Mr. Domenici (for himself, Mr. Dodd, Mr. Hatch, Ms. Mikulski, Mr. 
   Bennett, Ms. Moseley-Braun, Mr. Lott, Mrs. Murray, Mr. Mack, Mr. 
Johnston, Mr. Faircloth, Mr. Conrad, Mr. Burns, Mr. Chafee, Mr. Gorton, 
Mr. Helms, Mr. Kyl, Mr. Thomas, Mrs. Hutchison, Mr. Santorum, Mr. Pell, 
Mr. McConnell, Mr. DeWine, Mr. Brown, Mr. Rockefeller, Mrs. Kassebaum, 
    Mr. Inhofe, Mr. Cochran, Mr. Lugar, Mr. Coats, Mr. Simpson, Mr. 
  Nickles, Mr. Thurmond, Mr. Hatfield, Mr. Kempthorne, Mr. Smith, Mr. 
  Frist, Mr. Grams, Mr. Gregg, Mr. Warner, Mr. Craig, Mr. Harkin, Mr. 
  Grassley, Mr. Murkowski, Mr. Abraham, Mr. Bingaman, Mr. Cohen, Mr. 
Baucus, Mr. Kerry, Mr. D'Amato, and Mr. Ford) introduced the following 
 bill; which was read twice and referred to the Committee on Banking, 
                       Housing, and Urban Affairs

                             June 19, 1995

               Reported by Mr. D'Amato, with an amendment
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 A BILL


 
  To amend the Securities Exchange Act of 1934 to establish a filing 
deadline and to provide certain safeguards to ensure that the interests 
   of investors are well protected under the implied private action 
                         provisions of the Act.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,
<DELETED>SECTION 1. SHORT TITLE; TABLE OF CONTENTS.</DELETED>

<DELETED>    (a) Short Title.--This Act may be cited as the ``Private 
Securities Litigation Reform Act of 1995''.</DELETED>
<DELETED>    (b) Table of Contents.--The table of contents for this Act 
is as follows:</DELETED>

<DELETED>Sec. 1. Short title; table of contents.
            <DELETED>TITLE I--PRIVATE SECURITIES LITIGATION

<DELETED>Sec. 101. Elimination of certain abusive practices.
<DELETED>Sec. 102. Alternative dispute resolution procedure; time 
                            limitation on private rights of action.
<DELETED>Sec. 103. Plaintiff steering committees.
<DELETED>Sec. 104. Requirements for securities fraud actions.
<DELETED>Sec. 105. Amendment to Racketeer Influenced and Corrupt 
                            Organizations Act.
                <DELETED>TITLE II--FINANCIAL DISCLOSURE

<DELETED>Sec. 201. Safe harbor for forward-looking statements.
<DELETED>Sec. 202. Fraud detection and disclosure.
<DELETED>Sec. 203. Proportionate liability and joint and several 
                            liability.
<DELETED>Sec. 204. Public Auditing Self-Disciplinary Board.
       <DELETED>TITLE I--PRIVATE SECURITIES LITIGATION</DELETED>

<DELETED>SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.</DELETED>

<DELETED>    (a) Receipt for Referral Fees.--Section 15(c) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding 
at the end the following new paragraph:</DELETED>
        <DELETED>    ``(7) Receipt of referral fees.--No broker or 
        dealer, or person associated with a broker or dealer, may 
        solicit or accept remuneration for assisting an attorney in 
        obtaining the representation of any customer in any implied 
        private action arising under this title.''.</DELETED>
<DELETED>    (b) Prohibition on Attorneys' Fees Paid From Commission 
Disgorgement Funds.--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 
new paragraph:</DELETED>
        <DELETED>    ``(4) Prohibition on attorneys' fees paid from 
        commission disgorgement funds.--Except as otherwise ordered by 
        the court, funds disgorged as the result of an action brought 
        by the Commission in Federal court, or of any Commission 
        administrative action, shall not be distributed as payment for 
        attorneys' fees or expenses incurred by private parties seeking 
        distribution of the disgorged funds.''.</DELETED>
<DELETED>    (c) Additional Provisions Applicable to Class Actions.--
Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is 
amended by adding at the end the following new subsections:</DELETED>
<DELETED>    ``(i) Recovery by Named Plaintiffs in Class Actions.--In 
an implied private action arising under this title that is certified as 
a class action pursuant to the Federal Rules of Civil Procedure, the 
share of any final judgment or of any settlement that is awarded to 
class plaintiffs serving as the representative parties shall be 
calculated in the same manner as the shares of the final judgment or 
settlement awarded to all other members of the class. Nothing in this 
subsection shall be construed to limit the award to any representative 
parties of reasonable compensation, costs, and expenses (including lost 
wages) relating to the representation of the class.</DELETED>
<DELETED>    ``(j) Conflicts of Interest.--In an implied private action 
arising under this title that is certified as a class action pursuant 
to the Federal Rules of Civil Procedure, if a party is represented by 
an attorney who directly owns or otherwise has a beneficial interest in 
the securities that are the subject of the litigation, the court shall 
make a determination of whether such interest constitutes a conflict of 
interest sufficient to disqualify the attorney from representing the 
party.</DELETED>
<DELETED>    ``(k) Restrictions on Settlements Under Seal.--In an 
implied private action arising under this title that is certified as a 
class action pursuant to the Federal Rules of Civil Procedure, the 
terms and provisions of any settlement agreement between any of the 
parties shall not be filed under seal, except that on motion of any of 
the parties to the settlement, the court may order filing under seal 
for those portions of a settlement agreement as to which good cause is 
shown for such filing under seal. Good cause shall only exist if 
publication of a term or provision of a settlement agreement would 
cause direct and substantial harm to any person.</DELETED>
<DELETED>    ``(l) Restrictions on Payment of Attorneys' Fees From 
Settlement Funds.--In an implied private action arising under this 
title that is certified as a class action pursuant to the Federal Rules 
of Civil Procedure, attorneys' fees awarded by the court to counsel for 
the class shall be determined as a percentage of the amount of damages 
and prejudgment interest actually paid to the</DELETED>
 class as a result of the attorneys' efforts. In no event shall the 
amount awarded to counsel for the class exceed a reasonable percentage 
of the amount recovered by the class plus reasonable 
expenses.</DELETED>
<DELETED>    ``(m) Disclosure of Settlement Terms to Class Members.--In 
an implied private action arising under this title that is certified as 
a class action pursuant to the Federal Rules of Civil Procedure, a 
proposed settlement agreement that is published or otherwise 
disseminated to the class shall include the following statements, which 
shall not be admissible for purposes of any Federal or State judicial 
or administrative proceeding:</DELETED>
        <DELETED>    ``(1) Statement of potential outcome of case.--
        </DELETED>
                <DELETED>    ``(A) Agreement on amount of damages and 
                likelihood of prevailing.--If the settling parties 
                agree on the amount of damages per share that would be 
                recoverable if the plaintiff prevailed on each claim 
                alleged under this title and the likelihood that the 
                plaintiff would prevail--</DELETED>
                        <DELETED>    ``(i) a statement concerning the 
                        amount of such potential damages; and</DELETED>
                        <DELETED>    ``(ii) a statement concerning the 
                        probability that the plaintiff would prevail on 
                        the claims alleged under this title and a brief 
                        explanation of the reasons for that 
                        conclusion.</DELETED>
                <DELETED>    ``(B) Disagreement on amount of damages or 
                likelihood of prevailing.--If the parties do not agree 
                on the amount of damages per share that would be 
                recoverable if the plaintiff prevailed on each claim 
                alleged under this title or on the likelihood that the 
                plaintiff would prevail on those claims, or both, a 
                statement from each settling party concerning the issue 
                or issues on which the parties disagree.</DELETED>
                <DELETED>    ``(C) Inadmissibility for certain 
                purposes.--Statements made in accordance with 
                subparagraphs (A) and (B) shall not be admissible for 
                purposes of any Federal or State judicial or 
                administrative proceeding.</DELETED>
        <DELETED>    ``(2) Statement of attorneys' fees or costs 
        sought.--If any of the settling parties or their counsel intend 
        to apply to the court for an award of attorneys' fees or costs 
        from any fund established as part of the settlement, a 
        statement indicating which parties or counsel intend to make 
        such an application, the amount of fees and costs that will be 
        sought, and a brief explanation of the basis for the 
        application.</DELETED>
        <DELETED>    ``(3) Identification of representatives.--The 
        name, telephone number, and address of one or more 
        representatives of counsel for the plaintiff class who will be 
        reasonably available to answer questions from class members 
        concerning any matter contained in any notice of settlement 
        published or otherwise disseminated to class members.</DELETED>
        <DELETED>    ``(4) Other information.--Such other information 
        as may be required by the court, or by any guardian ad litem or 
        plaintiff steering committee appointed by the court pursuant to 
        section 38.</DELETED>
<DELETED>    ``(n) Special Verdicts.--In an implied private action 
arising under this title in which the plaintiff may recover money 
damages only on proof that a defendant acted with a particular state of 
mind, the court shall, when requested by a defendant, submit to the 
jury a written interrogatory on the issue of each such defendant's 
state of mind at the time the alleged violation occurred.</DELETED>
<DELETED>    ``(o) Named Plaintiff Threshold.--In an implied private 
action arising under this title, in order for a plaintiff or plaintiffs 
to obtain certification as representatives of a class of investors 
pursuant to the Federal Rules of Civil Procedure, the plaintiff or 
plaintiffs must show that they owned, in the aggregate, during the time 
period in which violations of this title are alleged to have occurred, 
not less than the lesser of--</DELETED>
        <DELETED>    ``(1) 1 percent of the securities which are the 
        subject of the litigation; or</DELETED>
        <DELETED>    ``(2) $10,000 (in market value) of such 
        securities.''.</DELETED>

<DELETED>SEC. 102. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE; TIME 
              LIMITATION ON PRIVATE RIGHTS OF ACTION.</DELETED>

<DELETED>    (a) Recovery of Costs and Attorneys' Fees.--The Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at 
the end the following new section:</DELETED>

<DELETED>``SEC. 36. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.</DELETED>

<DELETED>    ``(a) In General.--</DELETED>
        <DELETED>    ``(1) Offer to proceed.--Except as provided in 
        paragraph (2), in an implied private action arising under this 
        title, any party may, before the expiration of the period 
        permitted for answering the complaint, deliver to all other 
        parties an offer to proceed pursuant to any voluntary, 
        nonbinding alternative dispute resolution procedure established 
        or</DELETED>
         recognized under the rules of the court in which the action is 
maintained.</DELETED>
        <DELETED>    ``(2) Plaintiff class actions.--In an implied 
        private action under this title which is brought as a plaintiff 
        class action, an offer under paragraph (1) shall be made not 
        later than 30 days after a guardian ad litem or plaintiff 
        steering committee is appointed by the court in accordance with 
        section 38.</DELETED>
        <DELETED>    ``(3) Response.--The recipient of an offer under 
        paragraph (1) or (2) shall file a written notice of acceptance 
        or rejection of the offer with the court not later than 10 days 
        after receipt of the offer. The court may, upon motion by any 
        party made prior to the expiration of such period, extend the 
        period for not more than 90 additional days, during which time 
        discovery may be permitted by the court.</DELETED>
        <DELETED>    ``(4) Selection of type of alternative dispute 
        resolution.--For purposes of paragraphs (1) and (2), if the 
        rules of the court establish or recognize more than 1 type of 
        alternative dispute resolution, the parties may stipulate as to 
        the type of alternative dispute resolution to be applied. If 
        the parties are unable to so stipulate, the court shall issue 
        an order not later than 20 days after the date on which the 
        parties agree to the use of alternative dispute resolution, 
        specifying the type of alternative dispute resolution to be 
        applied.</DELETED>
        <DELETED>    ``(5) Sanctions for dilatory or obstructive 
        conduct.--If the court finds that a party has engaged in 
        dilatory or obstructive conduct in taking or opposing any 
        discovery allowed during the response period described in 
        paragraph (3), the court may--</DELETED>
                <DELETED>    ``(A) extend the period to permit further 
                discovery from that party for a suitable period; 
                and</DELETED>
                <DELETED>    ``(B) deny that party the opportunity to 
                conduct further discovery prior to the expiration of 
                the period.</DELETED>
<DELETED>    ``(b) Penalty for Unreasonable Litigation Position.--
</DELETED>
        <DELETED>    ``(1) Award of costs.--In an implied private 
        action arising under this title, upon motion of the prevailing 
        party made prior to final judgment, the court shall award 
        costs, including reasonable attorneys' fees, against a party or 
        parties or their attorneys, if--</DELETED>
                <DELETED>    ``(A) the party unreasonably refuses to 
                proceed pursuant to an alternative dispute resolution 
                procedure, or refuses to accept the result of an 
                alternative dispute resolution procedure;</DELETED>
                <DELETED>    ``(B) final judgment is entered against 
                the party; and</DELETED>
                <DELETED>    ``(C) the party asserted a claim or 
                defense in the action which was not substantially 
                justified.</DELETED>
        <DELETED>    ``(2) Determination of justification.--For 
        purposes of paragraph (1)(C), whether a position is 
        `substantially justified' shall be determined in the same 
        manner as under section 2412(d)(1)(B) of title 28, United 
        States Code.</DELETED>
        <DELETED>    ``(3) Limited use.--Fees and costs awarded under 
        this paragraph shall not be applied to any named plaintiff in 
        any action certified as a class action under the Federal Rules 
        of Civil Procedure if such plaintiff has never owned more than 
        $1,000,000 of the securities which are the subject of the 
        litigation.''.</DELETED>
<DELETED>    (b) Limitations Period for Implied Private Rights of 
Action.--The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by adding at the end the following new section:</DELETED>

<DELETED>``SEC. 37. LIMITATIONS PERIOD FOR IMPLIED PRIVATE RIGHTS OF 
              ACTION.</DELETED>

<DELETED>    ``(a) In General.--Except as otherwise provided in this 
title, an implied private right of action arising under this title 
shall be brought not later than the earlier of--</DELETED>
        <DELETED>    ``(1) 5 years after the date on which the alleged 
        violation occurred; or</DELETED>
        <DELETED>    ``(2) 2 years after the date on which the alleged 
        violation was discovered or should have been discovered through 
        the exercise of reasonable diligence.</DELETED>
<DELETED>    ``(b) Effective Date.--The limitations period provided by 
this section shall apply to all proceedings pending on or commenced 
after the date of enactment of this section.''.</DELETED>

<DELETED>SEC. 103. PLAINTIFF STEERING COMMITTEES.</DELETED>

<DELETED>    The Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.) is amended by adding at the end the following new 
section:</DELETED>

<DELETED>``SEC. 38. GUARDIAN AD LITEM AND CLASS ACTION STEERING 
              COMMITTEES.</DELETED>

<DELETED>    ``(a) Guardian Ad Litem.--Except as provided in subsection 
(b), not later than 10 days after certifying a plaintiff class in an 
implied private action brought under this title, the court shall 
appoint a guardian ad litem for the plaintiff class from a list or 
lists provided by the parties or their counsel. The guardian ad litem 
shall direct counsel for the class and perform such other functions as 
the court may specify. The court shall apportion the reasonable fees 
and expenses of the guardian ad litem among the parties. Court 
appointment of a guardian ad litem shall not be subject to 
interlocutory review.</DELETED>
<DELETED>    ``(b) Class Action Steering Committee.--Subsection (a) 
shall not apply if, not later than 10 days after certifying a plaintiff 
class, on its own motion or on motion of a member of the class, the 
court appoints a committee of class members to direct counsel for the 
class (hereafter in this section referred to as the `plaintiff steering 
committee') and to perform such other functions as the court may 
specify. Court appointment of a plaintiff steering committee shall not 
be subject to interlocutory review.</DELETED>
<DELETED>    ``(c) Membership of Plaintiff Steering Committee.--
</DELETED>
        <DELETED>    ``(1) Qualifications.--</DELETED>
                <DELETED>    ``(A) Number.--A plaintiff steering 
                committee shall consist of not less than 5 class 
                members, willing to serve, who the court believes will 
                fairly represent the class.</DELETED>
                <DELETED>    ``(B) Ownership interests.--Members of the 
                plaintiff steering committee shall have cumulatively 
                held during the class period not less than--</DELETED>
                        <DELETED>    ``(i) the lesser of 5 percent of 
                        the securities which are the subject matter of 
                        the litigation or securities which are the 
                        subject matter of the litigation with a market 
                        value of $10,000,000; or</DELETED>
                        <DELETED>    ``(ii) such smaller percentage or 
                        dollar amount as the court finds appropriate 
                        under the circumstances.</DELETED>
        <DELETED>    ``(2) Named plaintiffs.--Class members who are 
        named plaintiffs in the litigation may serve on the plaintiff 
        steering committee, but shall not comprise a majority of the 
        committee.</DELETED>
        <DELETED>    ``(3) Noncompensation of members.--Members of the 
        plaintiff steering committee shall serve without compensation, 
        except that any member may apply to the court for reimbursement 
        of reasonable out-of-pocket expenses from any common fund 
        established for the class.</DELETED>
        <DELETED>    ``(4) Meetings.--The plaintiff steering committee 
        shall conduct its business at one or more previously scheduled 
        meetings of the committee at which a majority of its members 
        are present in person or by electronic communication. The 
        plaintiff steering committee shall decide all matters within 
        its authority by a majority vote of all members, except that 
        the committee may determine that decisions other than to accept 
        or reject a settlement offer or to employ or dismiss counsel 
        for the class may be delegated to one or more members of the 
        committee, or may be voted upon by committee members seriatim, 
        without a meeting.</DELETED>
        <DELETED>    ``(5) Right of nonmembers to be heard.--A class 
        member who is not a member of the plaintiff steering committee 
        may appear and be heard by the court on any issue in the 
        action, to the same extent as any other party.</DELETED>
<DELETED>    ``(d) Functions of Guardian Ad Litem and Plaintiff 
Steering Committee.--</DELETED>
        <DELETED>    ``(1) Direct counsel.--The authority of the 
        guardian ad litem or the plaintiff steering committee to direct 
        counsel for the class shall include all powers normally 
        permitted to an attorney's client in litigation, including the 
        authority to retain or dismiss counsel and to reject offers of 
        settlement, and the preliminary authority to accept an offer of 
        settlement, subject to the restrictions specified in paragraph 
        (2). Dismissal of counsel other than for cause shall not limit 
        the ability of counsel to enforce any contractual fee agreement 
        or to apply to the court for a fee award from any common fund 
        established for the class.</DELETED>
        <DELETED>    ``(2) Settlement offers.--If a guardian ad litem 
        or a plaintiff steering committee gives preliminary approval to 
        an offer of settlement, the guardian ad litem or the plaintiff 
        steering committee may seek approval of the offer by a majority 
        of class members if the committee determines that the benefit 
        of seeking such approval outweighs the cost of soliciting the 
        approval of class members.</DELETED>
<DELETED>    ``(e) Immunity From Liability; Removal.--Any person 
serving as a guardian ad litem or as a member of a plaintiff steering 
committee shall be immune from any liability arising from such service. 
The court may remove a guardian ad litem or a member of a plaintiff 
steering committee for good cause shown.</DELETED>
<DELETED>    ``(f) Effect on Other Law.--This section does not affect 
any other provision of law concerning class actions or the authority of 
the court to give final approval to any offer of 
settlement.''.</DELETED>

<DELETED>SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.</DELETED>

<DELETED>    The Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.) is amended by adding at the end the following new 
section:</DELETED>
<DELETED>``SEC. 39. REQUIREMENTS FOR SECURITIES FRAUD 
              ACTIONS.</DELETED>

<DELETED>    ``(a) Intent.--In an implied private action arising under 
this title in which the plaintiff may recover money damages from a 
defendant only on proof that the defendant acted with some level of 
intent, the plaintiff's complaint shall allege specific facts 
demonstrating the state of mind of each defendant at the time the 
alleged violation occurred.</DELETED>
<DELETED>    ``(b) Misleading Statements and Omissions.--In an implied 
action arising under this title in which the plaintiff alleges that the 
defendant--</DELETED>
        <DELETED>    ``(1) made an untrue statement of a material fact; 
        or</DELETED>
        <DELETED>    ``(2) omitted to state a material fact necessary 
        in order to make the statements made, in the light of the 
        circumstances in which they were made, not 
        misleading;</DELETED>
<DELETED>the plaintiff shall specify each statement alleged to have 
been misleading, the reason or reasons why the statement is misleading, 
and, if an allegation regarding the statement or omission is made on 
information and belief, the plaintiff shall set forth all information 
on which that belief is formed.</DELETED>
<DELETED>    ``(c) Burden of Proof.--In an implied private action 
arising under this title based on a material misstatement or omission 
concerning a security, and in which the plaintiff claims to have bought 
or sold the security based on a reasonable belief that the market value 
of the security reflected all publicly available information, the 
plaintiff shall have the burden of proving that the misstatement or 
omission caused any loss incurred by the plaintiff.</DELETED>
<DELETED>    ``(d) Damages.--In an implied private action arising under 
this title based on a material misstatement or omission concerning a 
security, and in which the plaintiff claims to have bought or sold the 
security based on a reasonable belief that the market value of the 
security reflected all publicly available information, the plaintiff's 
damages shall not exceed the lesser of--</DELETED>
        <DELETED>    ``(1) the difference between the price paid by the 
        plaintiff for the security and the market value of the security 
        immediately after dissemination to the market of information 
        which corrects the misstatement or omission; and</DELETED>
        <DELETED>    ``(2) the difference between the price paid by the 
        plaintiff for the security and the price at which the plaintiff 
        sold the security after dissemination of information correcting 
        the misstatement or omission.''.</DELETED>
<DELETED>SEC. 105. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT 
              ORGANIZATIONS ACT.</DELETED>

<DELETED>    Section 1964(c) of title 18, United States Code, is 
amended by inserting ``, except that no person may bring an action 
under this provision if the racketeering activity, as defined in 
section 1961(1)(D), involves fraud in the sale of securities'' before 
the period.</DELETED>

           <DELETED>TITLE II--FINANCIAL DISCLOSURE</DELETED>

<DELETED>SEC. 201. SAFE HARBOR FOR FORWARD-LOOKING 
              STATEMENTS.</DELETED>

<DELETED>    (a) Consideration of Regulatory or Legislative Changes.--
In consultation with investors and issuers of securities, the 
Securities and Exchange Commission shall consider adopting or amending 
its rules and regulations, or making legislative recommendations, 
concerning--</DELETED>
        <DELETED>    (1) criteria that the Commission finds appropriate 
        for the protection of investors by which forward-looking 
        statements concerning the future economic performance of an 
        issuer of securities registered under section 12 of the 
        Securities Exchange Act of 1934 will be deemed not to be in 
        violation of section 10(b) of that Act; and</DELETED>
        <DELETED>    (2) procedures by which courts shall timely 
        dismiss claims against such issuers of securities based on such 
        forward-looking statements if such statements are in accordance 
        with any criteria under paragraph (1).</DELETED>
<DELETED>    (b) Commission Considerations.--In developing rules or 
legislative recommendations in accordance with subsection (a), the 
Commission shall consider--</DELETED>
        <DELETED>    (1) appropriate limits to liability for forward-
        looking statements;</DELETED>
        <DELETED>    (2) procedures for making a summary determination 
        of the applicability of any Commission rule for forward-looking 
        statements early in a judicial proceeding to limit protracted 
        litigation and expansive discovery;</DELETED>
        <DELETED>    (3) incorporating and reflecting the scienter 
        requirements applicable to implied private actions under 
        section 10(b); and</DELETED>
        <DELETED>    (4) providing clear guidance to issuers of 
        securities and the judiciary.</DELETED>
<DELETED>    (c) Securities Act Amendment.--The Securities and Exchange 
Act of 1934 (15 U.S.C. 78a et seq.), is amended by adding at the end 
the following new section:</DELETED>

<DELETED>``SEC. 40. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING 
              STATEMENTS.</DELETED>

<DELETED>    ``(a) In General.--In any implied private action arising 
under this title that alleges that a forward-looking statement 
concerning the future economic performance of an issuer registered 
under section 12 was materially false or misleading, if a party making 
a motion in accordance with subsection (b) requests a stay of discovery 
concerning the claims or defenses of that party, the court shall grant 
such a stay until it has ruled on any such motion.</DELETED>
<DELETED>    ``(b) Summary Judgment Motions.--Subsection (a) shall 
apply to any motion for summary judgment made by a defendant asserting 
that the forward-looking statement was within the coverage of any rule 
which the Commission may have adopted concerning such predictive 
statements, if such motion is made not less than 60 days after the 
plaintiff commences discovery in the action.</DELETED>
<DELETED>    ``(c) Dilatory Conduct; Duplicative Discovery.--
Notwithstanding subsection (a) or (b), the time permitted for a 
plaintiff to conduct discovery under subsection (b) may be extended, or 
a stay of the proceedings may be denied, if the court finds that--
</DELETED>
        <DELETED>    ``(1) the defendant making a motion described in 
        subsection (b) engaged in dilatory or obstructive conduct in 
        taking or opposing any discovery; or</DELETED>
        <DELETED>    ``(2) a stay of discovery pending a ruling on a 
        motion under subsection (b) would be substantially unfair to 
        the plaintiff or other parties to the action.''.</DELETED>
<DELETED>SEC. 202. FRAUD DETECTION AND DISCLOSURE.</DELETED>

<DELETED>    (a) In General.--The Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.) is amended by inserting immediately after section 
10 the following new section:</DELETED>

<DELETED>``SEC. 10A. AUDIT REQUIREMENTS.</DELETED>

<DELETED>    ``(a) In General.--Each audit required pursuant to this 
title of an issuer's financial statements by an independent public 
accountant shall include, in accordance with generally accepted 
auditing standards, as may be modified or supplemented from time to 
time by the Commission--</DELETED>
        <DELETED>    ``(1) procedures designed to provide reasonable 
        assurance of detecting illegal acts that would have a direct 
        and material effect on the determination of financial statement 
        amounts;</DELETED>
        <DELETED>    ``(2) procedures designed to identify related 
        party transactions which are material to the financial 
        statements or otherwise require disclosure therein; 
        and</DELETED>
        <DELETED>    ``(3) an evaluation of whether there is 
        substantial doubt about the issuer's ability to continue as a 
        going concern during the ensuing fiscal year.</DELETED>
<DELETED>    ``(b) Required Response to Audit Discoveries.--</DELETED>
        <DELETED>    ``(1) Investigation and report to management.--If, 
        in the course of conducting an audit pursuant to this title to 
        which subsection (a) applies, the independent public accountant 
        detects or otherwise becomes aware of information indicating 
        that an illegal act (whether or not perceived to have a 
        material effect on the issuer's financial statements) has or 
        may have occurred, the accountant shall, in accordance with 
        generally accepted auditing standards, as may be modified or 
        supplemented from time to time by the Commission--</DELETED>
                <DELETED>    ``(A)(i) determine whether it is likely 
                that an illegal act has occurred; and</DELETED>
                <DELETED>    ``(ii) if so, determine and consider the 
                possible effect of the illegal act on the financial 
                statements of the issuer, including any contingent 
                monetary effects, such as fines, penalties, and 
                damages; and</DELETED>
                <DELETED>    ``(B) as soon as practicable, inform the 
                appropriate level of the issuer's management and assure 
                that the issuer's audit committee, or the issuer's 
                board of directors in the absence of such a committee, 
                is adequately informed with respect to illegal acts 
                that have been detected or have otherwise come to the 
                attention of such accountant in the course of the 
                audit, unless the illegal act is clearly 
                inconsequential.</DELETED>
        <DELETED>    ``(2) Response to failure to take remedial 
        action.--If, having first assured itself that the audit 
        committee of the board of directors of the issuer or the board 
        (in the absence of an audit committee) is adequately informed 
        with respect to illegal acts that have been detected or have 
        otherwise come to the accountant's attention in the course of 
        such accountant's audit, the independent public accountant 
        concludes that--</DELETED>
                <DELETED>    ``(A) the illegal act has a material 
                effect on the financial statements of the 
                issuer;</DELETED>
                <DELETED>    ``(B) the senior management has not taken, 
                and the board of directors has not caused senior 
                management to take, timely and appropriate remedial 
                actions with respect to the illegal act; and</DELETED>
                <DELETED>    ``(C) the failure to take remedial action 
                is reasonably expected to warrant departure from a 
                standard auditor's report, when made, or warrant 
                resignation from the audit engagement;</DELETED>
        <DELETED>the independent public accountant shall, as soon as 
        practicable, directly report its conclusions to the board of 
        directors.</DELETED>
        <DELETED>    ``(3) Notice to commission; response to failure to 
        notify.--An issuer whose board of directors receives a report 
        under paragraph (2) shall inform the Commission by notice not 
        later than 1 business day after the receipt of such report and 
        shall furnish the independent public accountant making such 
        report with a copy of the notice furnished to the Commission. 
        If the independent public accountant fails to receive a copy of 
        the notice before the expiration of the required 1-business-day 
        period, the independent public accountant shall--</DELETED>
                <DELETED>    ``(A) resign from the engagement; 
                or</DELETED>
                <DELETED>    ``(B) furnish to the Commission a copy of 
                its report (or the documentation of any oral report 
                given) not later than 1 business day following such 
                failure to receive notice.</DELETED>
        <DELETED>    ``(4) Report after resignation.--If an independent 
        public accountant resigns from an engagement under paragraph 
        (3)(A), the accountant shall, not later than 1 business day 
        following the failure by the issuer to notify the Commission 
        under paragraph (3), furnish to the Commission a copy of the 
        accountant's report (or the documentation of any oral report 
        given).</DELETED>
<DELETED>    ``(c) Auditor Liability Limitation.--No independent public 
accountant shall be liable in a private action for any finding, 
conclusion, or statement expressed in a report made pursuant to 
paragraph (3) or (4) of subsection (b), including any rules promulgated 
pursuant thereto.</DELETED>
<DELETED>    ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If 
the Commission finds, after notice and opportunity for hearing in a 
proceeding instituted pursuant to section 21C, that an independent 
public accountant has willfully violated paragraph (3) or (4) of 
subsection (b), the Commission may, in addition to entering an order 
under section 21C, impose a civil penalty against the independent 
public accountant and any other person that the Commission finds was a 
cause of such violation. The determination to impose a civil penalty 
and the amount of the penalty shall be governed by the standards set 
forth in section 21B.</DELETED>
<DELETED>    ``(e) Preservation of Existing Authority.--Except as 
provided in subsection (d), nothing in this section shall be held to 
limit or otherwise affect the authority of the Commission under this 
title.</DELETED>
<DELETED>    ``(f) Definition.--As used in this section, the term 
`illegal act' means an act or omission that violates any law, or any 
rule or regulation having the force of law.''.</DELETED>
<DELETED>    (b) Effective Dates.--With respect to any registrant that 
is required to file selected quarterly financial data pursuant to item 
302(a) of Regulation S-K of the Securities and Exchange Commission (17 
CFR 229.302(a)), the amendments made by subsection (a) shall apply to 
any annual report for any period beginning on or after January 1, 1994. 
With respect to any other registrant, the amendment shall apply for any 
period beginning on or after January 1, 1995.</DELETED>
<DELETED>SEC. 203. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL 
              LIABILITY.</DELETED>

<DELETED>    (a) Securities Act Amendment.--The Securities and Exchange 
Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the 
following new section:</DELETED>

<DELETED>``SEC. 41. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL 
              LIABILITY IN IMPLIED ACTIONS.</DELETED>

<DELETED>    ``(a) Applicability.--This section shall apply only to the 
allocation of damages among persons who are, or who may become, liable 
for damages in an implied private action arising under this title. 
Nothing in this section shall affect the standards for liability 
associated with an implied private action arising under this 
title.</DELETED>
<DELETED>    ``(b) Application of Joint and Several Liability.--
</DELETED>
        <DELETED>    ``(1) In general.--A person against whom a 
        judgment is entered in an implied private action arising under 
        this title shall be liable jointly and severally for any 
        recoverable damages on such judgment if the person is found to 
        have--</DELETED>
                <DELETED>    ``(A) been a primary wrongdoer;</DELETED>
                <DELETED>    ``(B) committed knowing securities fraud; 
                or</DELETED>
                <DELETED>    ``(C) controlled any primary wrongdoer or 
                person who committed knowing securities 
                fraud.</DELETED>
        <DELETED>    ``(2) Primary wrongdoer.--As used in this 
        subsection--</DELETED>
                <DELETED>    ``(A) the term `primary wrongdoer' means--
                </DELETED>
                        <DELETED>    ``(i) any--</DELETED>
                                <DELETED>    ``(I) issuer, registrant, 
                                purchaser, seller, or underwriter of 
                                securities;</DELETED>
                                <DELETED>    ``(II) marketmaker or 
                                specialist in securities; or</DELETED>
                                <DELETED>    ``(III) clearing agency, 
                                securities information processor, or 
                                government securities dealer;</DELETED>
                        <DELETED>if such person breached a direct 
                        statutory or regulatory obligation or if such 
                        person otherwise had a principal role in the 
                        conduct that is the basis for the implied right 
                        of action; or</DELETED>
                        <DELETED>    ``(ii) any person who 
                        intentionally rendered substantial assistance 
                        to the fraudulent conduct of any person 
                        described in clause (i), with actual knowledge 
                        of such person's fraudulent conduct or 
                        fraudulent purpose, and with knowledge that 
                        such conduct was wrongful; and</DELETED>
                <DELETED>    ``(B) a defendant engages in `knowing 
                securities fraud' if such defendant--</DELETED>
                        <DELETED>    ``(i) makes a material 
                        representation with actual knowledge that the 
                        representation is false, or omits to make a 
                        statement with actual knowledge that, as a 
                        result of the omission, one of the defendant's 
                        material representations is false and knows 
                        that other persons are likely to rely on that 
                        misrepresentation or omission, except that 
                        reckless conduct by the defendant shall not be 
                        construed to constitute `knowing securities 
                        fraud'; or</DELETED>
                        <DELETED>    ``(ii) intentionally rendered 
                        substantial assistance to the fraudulent 
                        conduct of any person described in clause (i), 
                        with actual knowledge of such person's 
                        fraudulent conduct or fraudulent purpose, and 
                        with knowledge that such conduct was 
                        wrongful.</DELETED>
<DELETED>    ``(c) Determination of Responsibility.--In an implied 
private action in which more than 1 person contributed to a violation 
of this title, the court shall instruct the jury to answer special 
interrogatories, or if there is no jury, shall make findings, 
concerning the degree of responsibility of each person alleged to have 
caused or contributed to the violation of this title, including persons 
who have entered into settlements with the plaintiff. The 
interrogatories or findings shall specify the amount of damages the 
plaintiff is entitled to recover and the degree of responsibility, 
measured as a percentage of the total fault of all persons involved in 
the violation, of each person found to have caused or contributed to 
the damages incurred by the plaintiff or plaintiffs. In determining the 
degree of responsibility, the trier of fact shall consider--</DELETED>
        <DELETED>    ``(1) the nature of the conduct of each person; 
        and</DELETED>
        <DELETED>    ``(2) the nature and extent of the causal 
        relationship between that conduct and the damage claimed by the 
        plaintiff.</DELETED>
<DELETED>    ``(d) Application of Proportionate Liability.--Except as 
provided in subsection (b), the amount of liability of a person who is, 
or may through right of contribution become, liable for damages based 
on an implied private action arising under this title shall be 
determined as follows:</DELETED>
        <DELETED>    ``(1) Degree of responsibility.--Except as 
        provided in paragraph (2), each liable party shall only be 
        liable for the portion of the judgment that corresponds to that 
        party's degree of responsibility, as determined under 
        subsection (c).</DELETED>
        <DELETED>    ``(2) Uncollectible shares.--If, upon motion made 
        not later than 6 months after a final judgment is entered, the 
        court determines that all or part of a defendant's share of the 
        obligation is uncollectible--</DELETED>
                <DELETED>    ``(A) the remaining defendants shall be 
                jointly and severally liable for the uncollectible 
                share if the plaintiff establishes that--</DELETED>
                        <DELETED>    ``(i) the plaintiff is an 
                        individual whose recoverable damages under a 
                        final judgment are equal to more than 10 
                        percent of the plaintiff's net financial worth; 
                        and</DELETED>
                        <DELETED>    ``(ii) the plaintiff's net 
                        financial worth is less than $200,000; 
                        and</DELETED>
                <DELETED>    ``(B) the amount paid by each of the 
                remaining defendants to all other plaintiffs shall be, 
                in total, not more than the greater of--</DELETED>
                        <DELETED>    ``(i) that remaining defendant's 
                        percentage of fault for the uncollectible 
                        share; or</DELETED>
                        <DELETED>    ``(ii) 5 times--</DELETED>
                                <DELETED>    ``(I) the amount which the 
                                defendant gained from the conduct that 
                                gave rise to its liability; 
                                or</DELETED>
                                <DELETED>    ``(II) if a defendant did 
                                not obtain a direct financial gain from 
                                the conduct that gave rise to the 
                                liability and the conduct consisted of 
                                the provision of deficient services to 
                                an entity involved in the violation, 
                                the defendant's gross revenues received 
                                for the provision of all services to 
                                the other entity involved in the 
                                violation during the calendar years in 
                                which deficient services were 
                                provided.</DELETED>
        <DELETED>    ``(3) Overall limit.--In no event shall the total 
        payments required pursuant to paragraph (2) exceed the amount 
        of the uncollectible share.</DELETED>
        <DELETED>    ``(4) Defendants subject to contribution.--A 
        defendant whose liability is reallocated pursuant to paragraph 
        (2) shall be subject to contribution and to any continuing 
        liability to the plaintiff on the judgment.</DELETED>
        <DELETED>    ``(5) Right of contribution.--To the extent that a 
        defendant is required to make an additional payment pursuant to 
        paragraph (2), that defendant may recover contribution--
        </DELETED>
                <DELETED>    ``(A) from the defendant originally liable 
                to make the payment;</DELETED>
                <DELETED>    ``(B) from any defendant liable jointly 
                and severally pursuant to subsection (b)(1);</DELETED>
                <DELETED>    ``(C) from any defendant held 
                proportionately liable pursuant to this subsection who 
                is liable to make the same payment and has paid less 
                than his or her proportionate share of that payment; 
                or</DELETED>
                <DELETED>    ``(D) from any other person responsible 
                for the conduct giving rise to the payment who would 
                have been liable to make the same payment.</DELETED>
<DELETED>    ``(e) Nondisclosure to Jury.--The standard for allocation 
of damages under subsections (b)(1) and (c) and the procedure for 
reallocation of uncollectible shares under subsection (d)(2) shall not 
be disclosed to members of the jury.</DELETED>
<DELETED>    ``(f) Settlement Discharge.--</DELETED>
        <DELETED>    ``(1) In general.--A defendant who settles an 
        implied private action brought under this title at any time 
        before verdict or judgment shall be discharged from all claims 
        for contribution brought by other persons. Upon entry of the 
        settlement by the court, the court shall enter a bar order 
        constituting the final discharge of all obligations to the 
        plaintiff of the settling defendant arising out of the action. 
        The order shall bar all future claims for contribution or 
        indemnity arising out of the action--</DELETED>
                <DELETED>    ``(A) by nonsettling persons against the 
                settling defendant; and</DELETED>
                <DELETED>    ``(B) by the settling defendant against 
                any nonsettling defendants.</DELETED>
        <DELETED>    ``(2) Reduction.--If a person enters into a 
        settlement with the plaintiff prior to verdict or judgment, the 
        verdict or judgment shall be reduced by the greater of--
        </DELETED>
                <DELETED>    ``(A) an amount that corresponds to the 
                degree of responsibility of that person; or</DELETED>
                <DELETED>    ``(B) the amount paid to the plaintiff by 
                that person.</DELETED>
<DELETED>    ``(g) Contribution.--A person who becomes liable for 
damages in an implied private action arising under this title may 
recover contribution from any other person who, if joined in the 
original suit, would have been liable for the same damages. A claim for 
contribution shall be determined based on the degree of responsibility 
of the claimant and of each person against whom a claim for 
contribution is made.</DELETED>
<DELETED>    ``(h) Statute of Limitations for Contribution.--Once 
judgment has been entered in an implied private action arising under 
this title determining liability, an action for contribution must be 
brought not later than 6 months after the entry of a final, 
nonappealable judgment in the action, except that an action for 
contribution brought by a defendant who was required to make an 
additional payment pursuant to subsection (d)(2) may be brought not 
later than 6 months after the date on which such payment was 
made.''.</DELETED>
<DELETED>    (b) Effective Date.--Section 41 of the Securities Exchange 
Act of 1934, as added by subsection (a), shall only apply to implied 
private actions commenced after the date of enactment of this 
Act.</DELETED>
<DELETED>SEC. 204. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.</DELETED>

<DELETED>    The Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.) is amended by inserting immediately after section 13 the 
following new section:</DELETED>

<DELETED>``SEC. 13A. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.</DELETED>

<DELETED>    ``(a) Definitions.--For purposes of this section, the 
following definitions shall apply:</DELETED>
        <DELETED>    ``(1) Public accounting firm.--The term `public 
        accounting firm' means a sole proprietorship, unincorporated 
        association, partnership, corporation, or other legal entity 
        that is engaged in the practice of public accounting.</DELETED>
        <DELETED>    ``(2) Board.--The term `Board' means the Public 
        Auditing Self-Disciplinary Board designated by the Commission 
        pursuant to subsection (b).</DELETED>
        <DELETED>    ``(3) Accountant's report.--The term `accountant's 
        report' means a document in which a public accounting firm 
        identifies a financial statement, report, or other document and 
        sets forth the firm's opinion regarding such financial 
        statement, report, or other document, or an assertion that an 
        opinion cannot be expressed.</DELETED>
        <DELETED>    ``(4) Person associated with a public accounting 
        firm.--The term `person associated with a public accounting 
        firm' means a natural person who--</DELETED>
                <DELETED>    ``(A) is a partner, shareholder, employee, 
                or individual proprietor of a public accounting firm, 
                or who shares in the profits of a public accounting 
                firm; and</DELETED>
                <DELETED>    ``(B) engages in any conduct or practice 
                in connection with the preparation of an accountant's 
                report on any financial statement, report, or other 
                document required to be filed with the Commission under 
                any securities law.</DELETED>
        <DELETED>    ``(5) Professional standards.--The term 
        `professional standards' means generally accepted auditing 
        standards, generally accepted accounting principles, generally 
        accepted standards for attestation engagements, and any other 
        standards related to the preparation of financial statements or 
        accountant's reports promulgated by the Commission or a 
        standard-setting body recognized by the Board.</DELETED>
<DELETED>    ``(b) Establishment of Board.--</DELETED>
        <DELETED>    ``(1) In general.--Not later than 90 days after 
        the date of enactment of this section, the Commission shall 
        establish a Public Auditing Self-Disciplinary Board to perform 
        the duties set forth in this section. The Commission shall 
        designate an entity to serve as the Board if the Commission 
        finds that--</DELETED>
                <DELETED>    ``(A) such entity is sponsored by an 
                existing national organization of certified public 
                accountants that--</DELETED>
                        <DELETED>    ``(i) is most representative of 
                        certified public accountants covered by this 
                        title; and</DELETED>
                        <DELETED>    ``(ii) has demonstrated its 
                        commitment to improving the quality of practice 
                        before the Commission; and</DELETED>
                <DELETED>    ``(B) control over such entity is vested 
                in the members of the Board selected pursuant to 
                subsection (c).</DELETED>
        <DELETED>    ``(2) Alternative election of members.--If the 
        Commission designates an entity to serve as the Board pursuant 
        to paragraph (1), the entity shall conduct the election of 
        initial Board members in accordance with subsection 
        (c)(1)(B)(i).</DELETED>
<DELETED>    ``(c) Membership of Board.--</DELETED>
        <DELETED>    ``(1) In general.--The Board shall be composed of 
        3 appointed members and 4 elected members, as 
        follows:</DELETED>
                <DELETED>    ``(A) Appointed members.--Three members of 
                the Board shall be appointed in accordance with the 
                following:</DELETED>
                        <DELETED>    ``(i) Initial appointments.--The 
                        Chairman of the Commission shall make the 
                        initial appointments, in consultation with the 
                        other members of the Commission, not later than 
                        90 days after the date of enactment of this 
                        section.</DELETED>
                        <DELETED>    ``(ii) Subsequent appointments.--
                        After the initial appointments under clause 
                        (i), members of the Board appointed to fill 
                        vacancies of appointed members of the Board 
                        shall be appointed in accordance with the rules 
                        adopted pursuant to paragraph (5). Such rules 
                        shall provide that such members shall be 
                        appointed by the Board, subject to the approval 
                        of the Commission.</DELETED>
                <DELETED>    ``(B) Elected members.--Four members, 
                including the member who shall serve as the chairperson 
                of the Board, shall be elected in accordance with the 
                following:</DELETED>
                        <DELETED>    ``(i) Initial election.--Not later 
                        than 120 days after the date on which the 
                        Chairman of the Commission makes appointments 
                        under subparagraph (A)(i), an entity designated 
                        by the Commission pursuant to subsection (b) 
                        shall conduct an election of 4 initial elected 
                        members pursuant to interim election rules 
                        proposed by the entity and approved by the 3 
                        interim members of the Board and the 
                        Commission. If the Commission is unable to 
                        designate an entity meeting the criteria set 
                        forth in subsection (b)(1), the members of the 
                        Board appointed under subparagraph (A)(i) shall 
                        adopt interim rules, subject to approval by the 
                        Commission, providing for the election of the 4 
                        initial elected members. Such rules shall 
                        provide that such members of the Board shall be 
                        elected--</DELETED>
                                <DELETED>    ``(I) not later than 120 
                                days after the date on which members 
                                are initially appointed under 
                                subparagraph (A)(i);</DELETED>
                                <DELETED>    ``(II) by persons who are 
                                associated with public accounting firms 
                                and who are certified public 
                                accountants under the laws of any 
                                State; and</DELETED>
                                <DELETED>    ``(III) subject to the 
                                approval of the Commission.</DELETED>
                        <DELETED>    ``(ii) Subsequent elections.--
                        After the initial elections under clause (i), 
                        members of the Board elected to fill vacancies 
                        of elected members of the Board shall be 
                        elected in accordance with the rules adopted 
                        pursuant to paragraph (5). Such rules shall 
                        provide that such members of the Board shall be 
                        elected--</DELETED>
                                <DELETED>    ``(I) by persons who are 
                                associated with public accounting firms 
                                and who are certified public 
                                accountants under the laws of any 
                                State; and</DELETED>
                                <DELETED>    ``(II) subject to the 
                                approval of the Commission.</DELETED>
        <DELETED>    ``(2) Qualification.--Four members of the Board, 
        including the chairperson of the Board, shall be persons who 
        have not been associated with a public accounting firm during 
        the 10-year period preceding appointment or election to the 
        Board under paragraph (1). Three members of the Board who are 
        elected shall be persons associated with a public accounting 
        firm registered with the Board.</DELETED>
        <DELETED>    ``(3) Full-time basis.--The chairperson of the 
        Board shall serve on a full-time basis, severing all business 
        ties with his or her former firms or employers prior to 
        beginning service on the Board.</DELETED>
        <DELETED>    ``(4) Terms.--</DELETED>
                <DELETED>    ``(A) In general.--Except as provided in 
                subparagraph (B), each member of the Board shall hold 
                office for a term of 4 years or until a successor is 
                appointed, whichever is later, except that any member 
                appointed to fill a vacancy occurring prior to the 
                expiration of the term for which such member's 
                predecessor was appointed shall be appointed for the 
                remainder of such term.</DELETED>
                <DELETED>    ``(B) Initial board members.--Beginning on 
                the date on which all members of the Board have been 
                selected in accordance with this subsection, the terms 
                of office of the initial Board members shall expire, as 
                determined by the Board, by lottery--</DELETED>
                        <DELETED>    ``(i) for 1 member, 1 year after 
                        such date;</DELETED>
                        <DELETED>    ``(ii) for 2 members, 2 years 
                        after such date;</DELETED>
                        <DELETED>    ``(iii) for 2 members, 3 years 
                        after such date; and</DELETED>
                        <DELETED>    ``(iv) for 2 members, 4 years 
                        after such date.</DELETED>
        <DELETED>    ``(5) Rules.--Following selection of the 7 initial 
        members of the Board in accordance with subparagraphs (A)(i) 
        and (B)(i) of paragraph (1), the Board shall propose and adopt 
        rules, which shall provide for--</DELETED>
                <DELETED>    ``(A) the operation and administration of 
                the Board, including--</DELETED>
                        <DELETED>    ``(i) the appointment of members 
                        in accordance with paragraph 
                        (1)(A)(ii);</DELETED>
                        <DELETED>    ``(ii) the election of members in 
                        accordance with paragraph (1)(B)(ii); 
                        and</DELETED>
                        <DELETED>    ``(iii) the compensation of the 
                        members of the Board;</DELETED>
                <DELETED>    ``(B) the appointment and compensation of 
                such employees, attorneys, and consultants as may be 
                necessary or appropriate to carry out the Board's 
                functions under this title;</DELETED>
                <DELETED>    ``(C) the registration of public 
                accounting firms with the Board pursuant to subsections 
                (d) and (e); and</DELETED>
                <DELETED>    ``(D) the matters described in subsections 
                (f) and (g).</DELETED>
<DELETED>    ``(d) Registration and Annual Fees.--After the date on 
which all initial members of the Board have been selected in accordance 
with subsection (c), the Board shall assess and collect a registration 
fee and annual dues from each public accounting firm registered with 
the Board. Such fees and dues shall be assessed at a level sufficient 
to recover the costs and expenses of the Board and to permit the Board 
to operate on a self-financing basis. The amount of fees and dues for 
each public accounting firm shall be based upon--</DELETED>
        <DELETED>    ``(1) the annual revenues of such firm from 
        accounting and auditing services;</DELETED>
        <DELETED>    ``(2) the number of persons associated with the 
        public accounting firm;</DELETED>
        <DELETED>    ``(3) the number of clients for which such firm 
        furnishes accountant's reports on financial statements, 
        reports, or other documents filed with the Commission; 
        and</DELETED>
        <DELETED>    ``(4) such other criteria as the Board may 
        establish.</DELETED>
<DELETED>    ``(e) Registration With Board.--</DELETED>
        <DELETED>    ``(1) Registration required.--Beginning 1 year 
        after the date on which all initial members of the Board have 
        been selected in accordance with subsection (c), it shall be 
        unlawful for a public accounting firm to furnish an 
        accountant's report on any financial statement, report, or 
        other document required to be filed with the Commission under 
        any Federal securities law, unless such firm is registered with 
        the Board.</DELETED>
        <DELETED>    ``(2) Application for registration.--A public 
        accounting firm may be registered under this subsection by 
        filing with the Board an application for registration in such 
        form and containing such information as the Board, by rule, may 
        prescribe. Each application shall include--</DELETED>
                <DELETED>    ``(A) the names of all clients of the 
                public accounting firm for which the firm furnishes 
                accountant's reports on financial statements, reports, 
                or other documents filed with the Commission;</DELETED>
                <DELETED>    ``(B) financial information of the public 
                accounting firm for its most recent fiscal year, 
                including its annual revenues from accounting and 
                auditing services, its assets and its 
                liabilities;</DELETED>
                <DELETED>    ``(C) a statement of the public accounting 
                firm's policies and procedures with respect to quality 
                control of its accounting and auditing 
                practice;</DELETED>
                <DELETED>    ``(D) information relating to criminal, 
                civil, or administrative actions or formal disciplinary 
                proceedings pending against such firm, or any person 
                associated with such firm, in connection with an 
                accountant's report furnished by such firm;</DELETED>
                <DELETED>    ``(E) a list of persons associated with 
                the public accounting firm who are certified public 
                accountants, including any State professional license 
                or certification number for each such person; 
                and</DELETED>
                <DELETED>    ``(F) such other information that is 
                reasonably related to the Board's responsibilities as 
                the Board considers necessary or appropriate.</DELETED>
        <DELETED>    ``(3) Periodic reports.--Once in each year, or 
        more frequently as the Board, by rule, may prescribe, each 
        public accounting firm registered with the Board shall submit 
        reports to the Board updating the information contained in its 
        application for registration and containing such additional 
        information that is reasonably related to the Board's 
        responsibilities as the Board, by rule, may 
        prescribe.</DELETED>
        <DELETED>    ``(4) Exemptions.--The Commission, by rule or 
        order, upon its own motion or upon application, may 
        conditionally or unconditionally exempt any public accounting 
        firm or any accountant's report, or any class of public 
        accounting firms or any class of accountant's reports, from any 
        provisions of this section or the rules or regulations issued 
        hereunder, if the Commission finds that such exemption is 
        consistent with the public interest, the protection of 
        investors, and the purposes of this section.</DELETED>
        <DELETED>    ``(5) Confidentiality.--The Board may, by rule, 
        designate portions of the filings required pursuant to 
        paragraphs (2) and (3) as privileged and 
        confidential.</DELETED>
<DELETED>    ``(f) Duties of Board.--After the date on which all 
initial members of the Board have been selected in accordance with 
subsection (c), the Board shall have the following duties and 
powers:</DELETED>
        <DELETED>    ``(1) Investigations and disciplinary 
        proceedings.--The Board shall establish fair procedures for 
        investigating and disciplining public accounting firms 
        registered with the Board, and persons associated with such 
        firms, for violations of the Federal securities laws, the rules 
        or regulations issued thereunder, the rules adopted by the 
        Board, or professional standards in connection with the 
        preparation of an accountant's report on a financial statement, 
        report, or other document filed with the Commission.</DELETED>
        <DELETED>    ``(2) Investigation procedures.--</DELETED>
                <DELETED>    ``(A) In general.--The Board may conduct 
                an investigation of any act, practice, or omission by a 
                public accounting firm registered with the Board, or by 
                any person associated with such firm, in connection 
                with the preparation of an accountant's report on a 
                financial statement, report, or other document filed 
                with the Commission that may violate any applicable 
                provision of the Federal securities laws, the rules and 
                regulations issued thereunder, the rules adopted by the 
                Board, or professional standards, whether such act, 
                practice, or omission is the subject of a criminal, 
                civil, or administrative action, or a disciplinary 
                proceeding, or otherwise is brought to the attention of 
                the Board.</DELETED>
                <DELETED>    ``(B) Powers of board.--For purposes of an 
                investigation under this paragraph, the Board may, in 
                addition to such other actions as the Board determines 
                to be necessary or appropriate--</DELETED>
                        <DELETED>    ``(i) require the testimony of any 
                        person associated with a public accounting firm 
                        registered with the Board, with respect to any 
                        matter which the Board considers relevant or 
                        material to the investigation;</DELETED>
                        <DELETED>    ``(ii) require the production of 
                        audit workpapers and any other document or 
                        information in the possession of a public 
                        accounting firm registered with the Board, or 
                        any person associated with such firm, wherever 
                        domiciled, that the Board considers relevant or 
                        material to the investigation, and may examine 
                        the books and records of such firm to verify 
                        the accuracy of any documents or information so 
                        supplied; and</DELETED>
                        <DELETED>    ``(iii) request the testimony of 
                        any person and the production of any document 
                        in the possession of any person, including a 
                        client of a public accounting firm registered 
                        with the Board, that the Board considers 
                        relevant or material to the 
                        investigation.</DELETED>
                <DELETED>    ``(C) Suspension or revocation of 
                registration for noncompliance.--The refusal of any 
                person associated with a public accounting firm 
                registered with the Board to testify, or the refusal of 
                any such person to produce documents or otherwise 
                cooperate with the Board, in connection with an 
                investigation under this section, shall be cause for 
                suspending or barring such person from associating with 
                a public accounting firm registered with the Board, or 
                such other appropriate sanction as the Board shall 
                determine. The refusal of any public accounting firm 
                registered with the Board to produce documents or 
                otherwise cooperate with the Board, in connection with 
                an investigation under this section, shall be cause for 
                the suspension or revocation of the registration of 
                such firm, or such other appropriate sanction as the 
                Board shall determine.</DELETED>
                <DELETED>    ``(D) Referral to commission.--</DELETED>
                        <DELETED>    ``(i) In general.--If the Board is 
                        unable to conduct or complete an investigation 
                        under this section because of the refusal of 
                        any client of a public accounting firm 
                        registered with the Board, or any other person, 
                        to testify, produce documents, or otherwise 
                        cooperate with the Board in connection with 
                        such investigation, the Board shall report such 
                        refusal to the Commission.</DELETED>
                        <DELETED>    ``(ii) Investigation.--The 
                        Commission may designate the Board or one or 
                        more officers of the Board who shall be 
                        empowered, in accordance with such procedures 
                        as the Commission may adopt, to subpoena 
                        witnesses, compel their attendance, and require 
                        the production of any books, papers, 
                        correspondence, memoranda, or other records 
                        relevant to any investigation by the Board. 
                        Attendance of witnesses and the production of 
                        any records may be required from any place in 
                        the United States or any State at any 
                        designated place of hearing. Enforcement of a 
                        subpoena issued by the Board, or an officer of 
                        the Board, pursuant to this subparagraph shall 
                        occur in the manner provided for in section 
                        21(c). Examination of witnesses subpoenaed 
                        pursuant to this subparagraph shall be 
                        conducted before an officer authorized to 
                        administer oaths by the laws of the United 
                        States or of the place where the examination is 
                        held.</DELETED>
                        <DELETED>    ``(iii) Referrals to commission.--
                        The Board may refer any investigation to the 
                        Commission, as the Board deems 
                        appropriate.</DELETED>
                <DELETED>    ``(E) Immunity from civil liability.--An 
                employee of the Board engaged in carrying out an 
                investigation or disciplinary proceeding under this 
                section shall be immune from any civil liability 
                arising out of such investigation or disciplinary 
                proceeding in the same manner and to the same extent as 
                an employee of the Federal Government in similar 
                circumstances.</DELETED>
        <DELETED>    ``(3) Disciplinary procedures.--</DELETED>
                <DELETED>    ``(A) Decision to discipline.--In a 
                proceeding by the Board to determine whether a public 
                accounting firm, or a person associated with such firm, 
                should be disciplined, the Board shall bring specific 
                charges, notify such firm or person of the charges, 
                give such firm or person an opportunity to defend 
                against such charges, and keep a record of such 
                actions.</DELETED>
                <DELETED>    ``(B) Sanctions.--If the Board finds that 
                a public accounting firm, or a person associated with 
                such firm, has engaged in any act, practice, or 
                omission in violation of the Federal securities laws, 
                the rules or regulations issued thereunder, the rules 
                adopted by the Board, or professional standards, the 
                Board may impose such disciplinary sanctions as it 
                deems appropriate, including--</DELETED>
                        <DELETED>    ``(i) revocation or suspension of 
                        registration under this section;</DELETED>
                        <DELETED>    ``(ii) limitation of activities, 
                        functions, and operations;</DELETED>
                        <DELETED>    ``(iii) fine;</DELETED>
                        <DELETED>    ``(iv) censure;</DELETED>
                        <DELETED>    ``(v) in the case of a person 
                        associated with a public accounting firm, 
                        suspension or bar from being associated with a 
                        public accounting firm registered with the 
                        Board; and</DELETED>
                        <DELETED>    ``(vi) any other disciplinary 
                        sanction that the Board determines to be 
                        appropriate.</DELETED>
                <DELETED>    ``(C) Statement required.--A determination 
                by the Board to impose a disciplinary sanction shall be 
                supported by a written statement by the Board setting 
                forth--</DELETED>
                        <DELETED>    ``(i) any act or practice in which 
                        the public accounting firm or person associated 
                        with such firm has been found to have engaged, 
                        or which such firm or person has been found to 
                        have omitted;</DELETED>
                        <DELETED>    ``(ii) the specific provision of 
                        the Federal securities laws, the rules or 
                        regulations issued thereunder, the rules 
                        adopted by the Board, or professional standards 
                        which any such act, practice, or omission is 
                        deemed to violate; and</DELETED>
                        <DELETED>    ``(iii) the sanction imposed and 
                        the reasons therefor.</DELETED>
                <DELETED>    ``(D) Prohibition on association.--It 
                shall be unlawful--</DELETED>
                        <DELETED>    ``(i) for any person as to whom a 
                        suspension or bar is in effect willfully to be 
                        or to become associated with a public 
                        accounting firm registered with the Board, in 
                        connection with the preparation of an 
                        accountant's report on any financial statement, 
                        report, or other document filed with the 
                        Commission, without the consent of the Board or 
                        the Commission; and</DELETED>
                        <DELETED>    ``(ii) for any public accounting 
                        firm registered with the Board to permit such a 
                        person to become, or remain, associated with 
                        such firm without the consent of the Board or 
                        the Commission, if such firm knew or, in the 
                        exercise of reasonable care should have known, 
                        of such suspension or bar.</DELETED>
        <DELETED>    ``(4) Reporting of sanctions.--If the Board 
        imposes a disciplinary sanction against a public accounting 
        firm, or a person associated with such firm, the Board shall 
        report such sanction to the Commission, to the appropriate 
        State or foreign licensing board or boards with which such firm 
        or such person is licensed or certified to practice public 
        accounting, and to the public. The information reported shall 
        include--</DELETED>
                <DELETED>    ``(A) the name of the public accounting 
                firm, or person associated with such firm, against whom 
                the sanction is imposed;</DELETED>
                <DELETED>    ``(B) a description of the acts, 
                practices, or omissions upon which the sanction is 
                based;</DELETED>
                <DELETED>    ``(C) the nature of the sanction; 
                and</DELETED>
                <DELETED>    ``(D) such other information respecting 
                the circumstances of the disciplinary action (including 
                the name of any client of such firm affected by such 
                acts, practices, or omissions) as the Board deems 
                appropriate.</DELETED>
        <DELETED>    ``(5) Discovery and admissibility of board 
        material.--</DELETED>
                <DELETED>    ``(A) Discoverability.--</DELETED>
                        <DELETED>    ``(i) In general.--Except as 
                        provided in subparagraph (C), all reports, 
                        memoranda, and other information prepared, 
                        collected, or received by the Board, and the 
                        deliberations and other proceedings of the 
                        Board and its employees and agents in 
                        connection with an investigation or 
                        disciplinary proceeding under this section 
                        shall not be subject to any form of civil 
                        discovery, including demands for production of 
                        documents and for testimony of individuals, in 
                        connection with any proceeding in any State or 
                        Federal court, or before any State or Federal 
                        administrative agency. This subparagraph shall 
                        not apply to any information provided to the 
                        Board that would have been subject to 
                        discovery</DELETED>
                         from the person or entity that provided it to 
the Board, but is no longer available from that person or 
entity.</DELETED>
                        <DELETED>    ``(ii) Exemption.--Submissions to 
                        the Board by or on behalf of a public 
                        accounting firm or person associated with such 
                        a firm or on behalf of any other participant in 
                        a Board proceeding, including documents 
                        generated by the Board itself, shall be exempt 
                        from discovery to the same extent as the 
                        material described in clause (i), whether in 
                        the possession of the Board or any other 
                        person, if such submission--</DELETED>
                                <DELETED>    ``(I) is prepared 
                                specifically for the purpose of the 
                                Board proceeding; and</DELETED>
                                <DELETED>    ``(II) addresses the 
                                merits of the issues under 
                                investigation by the Board.</DELETED>
                        <DELETED>    ``(iii) Construction.--Nothing in 
                        this subparagraph shall limit the authority of 
                        the Board to provide appropriate public access 
                        to disciplinary hearings of the Board, or to 
                        reports or memoranda received by the Board in 
                        connection with such proceedings.</DELETED>
                <DELETED>    ``(B) Admissibility.--</DELETED>
                        <DELETED>    ``(i) In general.--Except as 
                        provided in subparagraph (C), all reports, 
                        memoranda, and other information prepared, 
                        collected, or received by the Board, the 
                        deliberations and other proceedings of the 
                        Board and its employees and agents in 
                        connection with an investigation or 
                        disciplinary proceeding under this section, the 
                        fact that an investigation or disciplinary 
                        proceeding has been commenced, and the Board's 
                        determination with respect to any investigation 
                        or disciplinary proceeding shall be 
                        inadmissible in any proceeding in any State or 
                        Federal court or before any State or Federal 
                        administrative agency.</DELETED>
                        <DELETED>    ``(ii) Treatment of certain 
                        documents.--Submissions to the Board by or on 
                        behalf of a public accounting firm or person 
                        associated with such a firm or on behalf of any 
                        other participant in a Board proceeding, 
                        including documents generated by the Board 
                        itself, shall be inadmissible to the same 
                        extent as the material described in clause (i), 
                        if such submission--</DELETED>
                                <DELETED>    ``(I) is prepared 
                                specifically for the purpose of the 
                                Board proceedings; and</DELETED>
                                <DELETED>    ``(II) addresses the 
                                merits of the issues under 
                                investigation by the Board.</DELETED>
                <DELETED>    ``(C) Availability and admissibility of 
                information.--</DELETED>
                        <DELETED>    ``(i) In general.--All information 
                        referred to in subparagraphs (A) and (B) shall 
                        be--</DELETED>
                                <DELETED>    ``(I) available to the 
                                Commission and to any other Federal 
                                department or agency in connection with 
                                the exercise of its regulatory 
                                authority to the extent that such 
                                information would be available to such 
                                agency from the Commission as a result 
                                of a Commission enforcement 
                                investigation;</DELETED>
                                <DELETED>    ``(II) available to 
                                Federal and State authorities in 
                                connection with any criminal 
                                investigation or proceeding;</DELETED>
                                <DELETED>    ``(III) admissible in any 
                                action brought by the Commission or any 
                                other Federal department or agency 
                                pursuant to its regulatory authority, 
                                to the extent that such information 
                                would be available to such agency from 
                                the Commission as a result of a 
                                Commission enforcement investigation 
                                and in any criminal action; 
                                and</DELETED>
                                <DELETED>    ``(IV) available to State 
                                licensing boards to the extent 
                                authorized in paragraph (6).</DELETED>
                        <DELETED>    ``(ii) Other limitations.--Any 
                        documents or other information provided to the 
                        Commission or other authorities pursuant to 
                        clause (i) shall be subject to the limitations 
                        on discovery and admissibility set forth in 
                        subparagraphs (A) and (B).</DELETED>
                <DELETED>    ``(D) Title 5 treatment.--This subsection 
                shall be considered to be a statute described in 
                section 552(b)(3)(B) of title 5, United States Code, 
                for purposes of that section 552.</DELETED>
        <DELETED>    ``(6) Participation by state licensing boards.--
        </DELETED>
                <DELETED>    ``(A) Notice.--When the Board institutes 
                an investigation pursuant to paragraph (2)(A), it shall 
                notify the State licensing boards in the States in 
                which the public accounting firm or person associated 
                with such firm engaged in the act or failure to act 
                alleged to have violated professional standards, of the 
                pendancy of the investigation, and shall invite the 
                State licensing boards to participate in the 
                investigation.</DELETED>
                <DELETED>    ``(B) Acceptance by state board.--
                </DELETED>
                        <DELETED>    ``(i) Participation.--If a State 
                        licensing board elects to join in the 
                        investigation, its representatives shall 
                        participate, pursuant to rules established by 
                        the Board, in investigating the matter and in 
                        presenting the evidence justifying the charges 
                        in any hearing pursuant to paragraph 
                        (3)(A).</DELETED>
                        <DELETED>    ``(ii) Review.--In the event that 
                        the State licensing board disagrees with the 
                        Board's determination with respect to the 
                        matter under investigation, it may seek review 
                        of that determination by the Commission 
                        pursuant to procedures that the Commission 
                        shall specify by regulation.</DELETED>
                <DELETED>    ``(C) Prohibition on concurrent 
                investigations.--A State licensing board shall not 
                institute its own proceeding with respect to a matter 
                referred to in subparagraph (A) until after the Board's 
                determination has become final, including completion of 
                all review by the Commission and the courts.</DELETED>
                <DELETED>    ``(D) State sanctions permitted.--If the 
                Board or the Commission imposes a sanction upon a 
                public accounting firm or person associated with such a 
                firm, and that determination either is not subjected to 
                judicial review or is upheld on judicial review, a 
                State licensing board may impose a sanction on the 
                basis of the Board's report pursuant to paragraph (4). 
                Any sanction imposed by the State licensing board under 
                this clause shall be inadmissible in any proceeding in 
                any State or Federal court or before any State or 
                Federal administrative agency, except to the extent 
                provided in paragraph (5)(D).</DELETED>
                <DELETED>    ``(E) Sanctions not permitted.--If a 
                sanction is not imposed on a public accounting firm or 
                person associated with such a firm, and--</DELETED>
                        <DELETED>    ``(i) a State licensing board 
                        elected to participate in an investigation 
                        referred to in subparagraph (A), the State 
                        licensing board may not impose a sanction with 
                        respect to the matter; and</DELETED>
                        <DELETED>    ``(ii) a State licensing board 
                        elected not to participate in an investigation 
                        referred to in subparagraph (A), subparagraphs 
                        (A) and (B) of paragraph (5) shall apply with 
                        respect to any investigation or proceeding 
                        subsequently instituted by the State licensing 
                        board and, in particular, the State licensing 
                        board shall not have access to the record of 
                        the proceeding before the Board and that record 
                        shall be inadmissible in any proceeding before 
                        the State licensing board.</DELETED>
<DELETED>    ``(g) Additional Duties Regarding Quality Control.--After 
the date on which all initial members of the Board have been selected 
in accordance with subsection (c), the Board shall have the following 
duties and powers in addition to those set forth in subsection 
(f):</DELETED>
        <DELETED>    ``(1) In general.--The Board shall seek to promote 
        a high level of professional conduct among public accounting 
        firms registered with the Board, to improve the quality of 
        audit services provided by such firms, and, in general, to 
        protect investors and promote the public interest.</DELETED>
        <DELETED>    ``(2) Professional peer review organizations.--
        </DELETED>
                <DELETED>    ``(A) Membership requirement.--The Board 
                shall require each public accounting firm subject to 
                the disciplinary authority of the Board to be a member 
                of a professional peer review organization certified by 
                the Board pursuant to subparagraph (B).</DELETED>
                <DELETED>    ``(B) Criteria for certification.--The 
                Board shall, by rule, establish general criteria for 
                the certification of peer review organizations and 
                shall certify organizations that satisfy those 
                criteria, or such amended criteria as the Board may 
                adopt. To be certified, a peer review organization 
                shall, at a minimum--</DELETED>
                        <DELETED>    ``(i) require a member public 
                        accounting firm to undergo peer review not less 
                        than once every 3 years and publish the results 
                        of the peer review; and</DELETED>
                        <DELETED>    ``(ii) adopt standards that are 
                        acceptable to the Board relating to audit 
                        service quality control.</DELETED>
                <DELETED>    ``(C) Penalties.--Violation by a public 
                accounting firm or a person associated with such a firm 
                of a rule of the peer review organization to which the 
                firm belongs shall constitute grounds for--</DELETED>
                        <DELETED>    ``(i) the imposition of 
                        disciplinary sanctions by the Board pursuant to 
                        subsection (f); and</DELETED>
                        <DELETED>    ``(ii) denial to the public 
                        accounting firm or person associated with such 
                        firm of the privilege of appearing or 
                        practicing before the Commission.</DELETED>
        <DELETED>    ``(3) Confidentiality.--Except as otherwise 
        provided by this section, all reports, memoranda, and other 
        information provided to the Board solely for purposes of 
        paragraph (2), or to a peer review organization certified by 
        the Board, shall be confidential and privileged, unless such 
        confidentiality and privilege are expressly waived by the 
        person or entity that created or provided the 
        information.</DELETED>
<DELETED>    ``(h) Commission Oversight of the Board.--</DELETED>
        <DELETED>    ``(1) Proposed rule changes.--</DELETED>
                <DELETED>    ``(A) In general.--The Board shall file 
                with the Commission, in accordance with such rules as 
                the Commission may prescribe, copies of any proposed 
                rule or any proposed change in, addition to, or 
                deletion from the rules of the Board (hereafter in this 
                subsection collectively referred to as a `proposed rule 
                change') accompanied by a concise general statement of 
                the basis and purpose of such proposed rule change. The 
                Commission shall, upon the filing of any proposed rule 
                change, publish notice thereof together with the terms 
                of substance of the proposed rule change or a 
                description of the subjects and issues involved. The 
                Commission shall give interested persons an opportunity 
                to submit written data, views, and arguments concerning 
                the proposed rule change. No proposed rule change shall 
                take effect unless approved by the Commission or 
                otherwise permitted in accordance with this 
                subsection.</DELETED>
                <DELETED>    ``(B) Approval or disapproval.--</DELETED>
                        <DELETED>    ``(i) In general.--Not later than 
                        35 days after the date on which notice of the 
                        filing of a proposed rule change is published 
                        in accordance with subparagraph (A), or such 
                        longer period as the Commission may designate 
                        (not to exceed 90 days after such date, if it 
                        finds such longer period to be appropriate and 
                        publishes its reasons for such finding or as to 
                        which the Board consents) the Commission 
                        shall--</DELETED>
                                <DELETED>    ``(I) by order approve 
                                such proposed rule change; or</DELETED>
                                <DELETED>    ``(II) institute 
                                proceedings to determine whether the 
                                proposed rule change should be 
                                disapproved.</DELETED>
                        <DELETED>    ``(ii) Disapproval proceedings.--
                        Proceedings for disapproval shall include 
                        notice of the grounds for disapproval under 
                        consideration and opportunity for hearing and 
                        shall be concluded not later than 180 days 
                        after the date of publication of notice of the 
                        filing of the proposed rule change. At the 
                        conclusion of the proceedings for disapproval, 
                        the Commission, by order, shall approve or 
                        disapprove such proposed rule change. The 
                        Commission may extend the time for conclusion 
                        of such proceedings for--</DELETED>
                                <DELETED>    ``(I) not more than 60 
                                days, if the Commission finds good 
                                cause for such extension and publishes 
                                its reasons for such finding; 
                                or</DELETED>
                                <DELETED>    ``(II) such longer period 
                                to which the Board consents.</DELETED>
                        <DELETED>    ``(iii) Approval.--The Commission 
                        shall approve a proposed rule change if it 
                        finds that such proposed rule change is 
                        consistent with the requirements of the Federal 
                        securities laws, and the rules and regulations 
                        issued thereunder, applicable to the Board. The 
                        Commission shall disapprove a proposed rule 
                        change if it does not make such finding. The 
                        Commission shall not approve any proposed rule 
                        change prior to the expiration of the 30-day 
                        period beginning on the date on which notice of 
                        the filing of a proposed rule change is 
                        published in accordance with this subparagraph, 
                        unless the Commission finds good cause to do so 
                        and publishes its reasons for such 
                        finding.</DELETED>
                <DELETED>    ``(C) Effect of proposed rule change.--
                </DELETED>
                        <DELETED>    ``(i) Effective date.--
                        Notwithstanding subparagraph (B), a proposed 
                        rule change may take effect upon filing with 
                        the Commission if designated by the Board as--
                        </DELETED>
                                <DELETED>    ``(I) constituting a 
                                stated policy, practice, or 
                                interpretation with respect to the 
                                meaning, administration, or enforcement 
                                of an existing rule of the 
                                Board;</DELETED>
                                <DELETED>    ``(II) establishing or 
                                changing a due, fee, or other charge 
                                imposed by the Board; or</DELETED>
                                <DELETED>    ``(III) concerned solely 
                                with the administration of the Board or 
                                other matters which the Commission, by 
                                rule, consistent with the public 
                                interest and the purposes of this 
                                subsection, may specify.</DELETED>
                        <DELETED>    ``(ii) Summary effect.--
                        Notwithstanding any other provision of this 
                        subsection, a proposed rule change may be put 
                        into effect summarily if it appears to the 
                        Commission that such action is necessary for 
                        the protection of investors. Any proposed rule 
                        change put into effect summarily shall be filed 
                        promptly thereafter in accordance with this 
                        paragraph.</DELETED>
                        <DELETED>    ``(iii) Enforcement.--Any proposed 
                        rule change which has taken effect pursuant to 
                        clause (i) or (ii) may be enforced by the Board 
                        to the extent that it is not inconsistent with 
                        the Federal securities laws, the rules and 
                        regulations issued thereunder, and applicable 
                        Federal and State law. During the 60-day period 
                        beginning on the date on which notice of the 
                        filing of a proposed rule change if filed in 
                        accordance with this paragraph, the Commission 
                        may summarily abrogate the change in the rules 
                        of the Board made thereby and require that the 
                        proposed rule change be refiled in accordance 
                        with subparagraph (A) and reviewed in 
                        accordance with subparagraph (B), if it appears 
                        to the Commission that such action is necessary 
                        or appropriate in the public interest, for the 
                        protection of investors, or otherwise in 
                        furtherance of the purposes of the Federal 
                        securities laws. Commission action pursuant to 
                        the preceding sentence shall not affect the 
                        validity or force of the rule change during the 
                        period it was in effect and shall not be 
                        reviewable under section 25 of this Act nor 
                        deemed to be `final agency action' for purposes 
                        of section 704 of title 5, United States 
                        Code.</DELETED>
        <DELETED>    ``(2) Amendment by commission of rules of the 
        board.--The Commission, by rule, may abrogate, add to, and 
        delete from (hereafter in this subsection collectively referred 
        to as `amend') the rules of the Board as the Commission deems 
        necessary or appropriate to ensure the fair administration of 
        the Board, to conform its rules to requirements of the Federal 
        securities laws, and the rules and regulations issued 
        thereunder applicable to the Board, or otherwise in furtherance 
        of the purposes of the Federal securities laws, in the 
        following manner:</DELETED>
                <DELETED>    ``(A) Publication of notice.--The 
                Commission shall notify the Board and publish notice of 
                the proposed rulemaking in the Federal Register. The 
                notice shall include the text of the proposed amendment 
                to the rules of the Board and a statement of the 
                Commission's reasons, including any pertinent facts, 
                for commencing such proposed rulemaking.</DELETED>
                <DELETED>    ``(B) Comments.--The Commission shall give 
                interested persons an opportunity for the oral 
                presentation of data, views, and arguments, in addition 
                to an opportunity to make written submissions. A 
                transcript shall be kept of any oral 
                presentation.</DELETED>
                <DELETED>    ``(C) Incorporation.--A rule adopted 
                pursuant to this subsection shall incorporate the text 
                of the amendment to the rules of the Board and a 
                statement of the Commission's basis for and purpose in 
                so amending such rules. Such statement shall include an 
                identification of any facts on which the Commission 
                considers its determination to so amend the rules of 
                the Board to be based, including the reasons for the 
                Commission's conclusions as to any of the facts that 
                were disputed in the rulemaking.</DELETED>
                <DELETED>    ``(D) Regulations.--</DELETED>
                        <DELETED>    ``(i) Title 5 applicability.--
                        Except as otherwise provided in this paragraph, 
                        rulemaking under this paragraph shall be in 
                        accordance with the procedures specified in 
                        section 553 of title 5, United States Code, for 
                        rulemaking not on the record.</DELETED>
                        <DELETED>    ``(ii) Construction.--Nothing in 
                        this subsection shall be construed to impair or 
                        limit the Commission's power to make, modify, 
                        or alter the procedures the Commission may 
                        follow in making rules and regulations pursuant 
                        to any other authority under the Federal 
                        securities laws.</DELETED>
                        <DELETED>    ``(iii) Incorporation of 
                        amendments.--Any amendment to the rules of the 
                        Board made by the Commission pursuant to this 
                        subsection shall be considered for purposes of 
                        the Federal securities laws to be part of the 
                        rules of the Board and shall not be considered 
                        to be a rule of the Commission.</DELETED>
        <DELETED>    ``(3) Notice of disciplinary action taken by the 
        board; review of action by the commission.--</DELETED>
                <DELETED>    ``(A) Notice required.--If the Board 
                imposes a final disciplinary sanction on a public 
                accounting firm registered with the Board or on any 
                person associated with such a firm, the Board shall 
                promptly file notice thereof with the Commission. The 
                notice shall be in such form and contain such 
                information as the Commission, by rule, may prescribe 
                as necessary or appropriate in furtherance of the 
                purposes of the Federal securities laws.</DELETED>
                <DELETED>    ``(B) Review.--An action with respect to 
                which the Board is required by subparagraph (A) to file 
                notice shall be subject to review by the Commission, on 
                its own motion, or upon application by any person 
                aggrieved thereby, filed not later than 30 days after 
                the date on which such notice is filed with the 
                Commission and received by such aggrieved person, or 
                within such longer period as the Commission may 
                determine. Application to the Commission for review, or 
                the institution of review by the Commission on its own 
                motion, shall not operate as a stay of such action 
                unless the Commission otherwise 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). The Commission shall establish for 
                appropriate cases an expedited procedure for 
                consideration and determination of the question of a 
                stay.</DELETED>
        <DELETED>    ``(4) Disposition of review; cancellation, 
        reduction, or remission of sanction.--</DELETED>
                <DELETED>    ``(A) In general.--In any proceeding to 
                review a final disciplinary sanction imposed by the 
                Board on a public accounting firm registered with the 
                Board or a person associated with such a firm, after 
                notice and opportunity for hearing (which hearing may 
                consist solely of consideration of the record before 
                the Board and opportunity for the presentation of 
                supporting reasons to affirm, modify, or set aside the 
                sanction)--</DELETED>
                        <DELETED>    ``(i) if the Commission finds 
                        that--</DELETED>
                                <DELETED>    ``(I) such firm or person 
                                associated with such a firm has engaged 
                                in such acts or practices, or has 
                                omitted such acts, as the Board has 
                                found them to have engaged in or 
                                omitted;</DELETED>
                                <DELETED>    ``(II) such acts, 
                                practices, or omissions, are in 
                                violation of such provisions of the 
                                Federal securities laws, the rules or 
                                regulations issued thereunder, the 
                                rules adopted by the Board, or 
                                professional standards as have been 
                                specified in the determination of the 
                                Board; and</DELETED>
                                <DELETED>    ``(III) such provisions 
                                were applied in a manner consistent 
                                with the purposes of the Federal 
                                securities laws;</DELETED>
                        <DELETED>the Commission, by order, shall so 
                        declare and, as appropriate, affirm the 
                        sanction imposed by the Board, modify the 
                        sanction in accordance with paragraph (2), or 
                        remand to the Board for further proceedings; 
                        or</DELETED>
                        <DELETED>    ``(ii) if the Commission does not 
                        make the findings under clause (i), it shall, 
                        by order, set aside the sanction imposed by the 
                        Board and, if appropriate, remand to the Board 
                        for further proceedings.</DELETED>
                <DELETED>    ``(B) Cancellation, reduction, or 
                remission of sanction.--If the Commission, having due 
                regard for the public interest and the protection of 
                investors, finds after a proceeding in accordance with 
                subparagraph (A) that a sanction imposed by the Board 
                upon a firm or person associated with a firm imposes 
                any burden on competition not necessary or appropriate 
                in furtherance of the purposes of the Federal 
                securities laws or is excessive or oppressive, the 
                Commission may cancel, reduce, or require the remission 
                of such sanction.</DELETED>
        <DELETED>    ``(5) Compliance with rules and regulations.--
        </DELETED>
                <DELETED>    ``(A) Duties of board.--The Board shall--
                </DELETED>
                        <DELETED>    ``(i) comply with the Federal 
                        securities laws, the rules and regulations 
                        issued thereunder, and its own rules; 
                        and</DELETED>
                        <DELETED>    ``(ii) subject to subparagraph (B) 
                        and the rules thereunder, absent reasonable 
                        justification or excuse, enforce compliance 
                        with such provisions and with professional 
                        standards by public accounting firms registered 
                        with the Board and persons associated with such 
                        firms.</DELETED>
                <DELETED>    ``(B) Relief by commission.--The 
                Commission, by rule, consistent with the public 
                interest, the protection of investors, and the other 
                purposes of the Federal securities laws, may relieve 
                the Board of any responsibility under this section to 
                enforce compliance with any specified provision of the 
                Federal securities laws, the</DELETED>
                 rules or regulations issued thereunder, or 
professional standards by any public accounting firm registered with 
the Board or person associated with such a firm, or any class of such 
firms or persons associated with such a firm.</DELETED>
        <DELETED>    ``(6) Censure; other sanctions.--</DELETED>
                <DELETED>    ``(A) In general.--The Commission is 
                authorized, by order, if in its opinion such action is 
                necessary or appropriate in the public interest, for 
                the protection of investors, or otherwise in 
                furtherance of the purposes of the Federal securities 
                laws, to 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 hearing, that the Board has--</DELETED>
                        <DELETED>    ``(i) violated or is unable to 
                        comply with any provision of the Federal 
                        securities laws, the rules or regulations 
                        issued thereunder, or its own rules; 
                        or</DELETED>
                        <DELETED>    ``(ii) without reasonable 
                        justification or excuse, has failed to enforce 
                        compliance with any such provision or any 
                        professional standard by a public accounting 
                        firm registered with the Board or a person 
                        associated with such a firm.</DELETED>
                <DELETED>    ``(B) Removal from office.--The Commission 
                is authorized, by order, if in its opinion such action 
                is necessary or appropriate, in the public interest for 
                the protection of investors, or otherwise in 
                furtherance of the purposes of the Federal securities 
                laws, to remove from office or censure any member of 
                the Board, if the Commission finds, on the record after 
                notice and opportunity for hearing, that such member 
                has--</DELETED>
                        <DELETED>    ``(i) willfully violated any 
                        provision of the Federal securities laws, the 
                        rules or regulations issued thereunder, or the 
                        rules of the Board;</DELETED>
                        <DELETED>    ``(ii) willfully abused such 
                        member's authority; or</DELETED>
                        <DELETED>    ``(iii) without reasonable 
                        justification or excuse, failed to enforce 
                        compliance with any such provision or any 
                        professional standard by any public accounting 
                        firm registered with the Board or any person 
                        associated with such a firm.</DELETED>
<DELETED>    ``(i) Foreign Accounting Firms.--A foreign public 
accounting firm that furnishes accountant's reports on any financial 
statement, report, or other document required to be filed with the 
Commission under any Federal securities law shall, with respect to 
those reports, be subject to the provisions of this section in the same 
manner and to the same extent as a domestic public accounting firm. The 
Commission may, by rule, regulation, or order and as it deems 
consistent with the public interest and the protection of investors, 
either unconditionally or upon specified terms and conditions, exempt 
from one or more provisions of this section any foreign public 
accounting firm. Registration pursuant to this subsection shall not, by 
itself, provide a basis for subjecting foreign accounting firms to the 
jurisdiction of the Federal or State courts.</DELETED>
<DELETED>    ``(j) Relationship With Antitrust Laws.--</DELETED>
        <DELETED>    ``(1) Treatment under antitrust laws.--In no case 
        shall the Board, any member thereof, any public accounting firm 
        registered with the Board, or any person associated with such a 
        firm be subject to liability under any antitrust law for any 
        act of the Board or any failure to act by the Board.</DELETED>
        <DELETED>    ``(2) Definition.--For purposes of this 
        subsection, the term `antitrust law' means the Federal Trade 
        Commission Act and each statute defined by section 4 thereof as 
        `Antitrust Acts' and all amendments to such Act and such 
        statutes and any other Federal Acts or State laws in pari 
        materia.</DELETED>
<DELETED>    ``(k) Applicability of Auditing Principles.--Each audit 
required pursuant to this title of an issuer's financial statements by 
an independent public accountant shall be conducted in accordance with 
generally accepted auditing standards, as may be modified or 
supplemented from time-to-time by the Commission. The Commission may 
defer to professional standards promulgated by private organizations 
that are generally accepted by the accounting or auditing 
profession.</DELETED>
<DELETED>    ``(l) Commission Authority Not Impaired.--Nothing in this 
section shall be construed to impair or limit the Commission's 
authority--</DELETED>
        <DELETED>    ``(1) over the accounting profession, accounting 
        firms, or any persons associated with such firms;</DELETED>
        <DELETED>    ``(2) to set standards for accounting practices, 
        derived from other provisions of the Federal securities laws or 
        the rules or regulations issued thereunder; or</DELETED>
        <DELETED>    ``(3) to take, on its own initiative, legal, 
        administrative, or disciplinary action against any public 
        accounting firm registered with the Board or any person 
        associated with such a firm.''.</DELETED>
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Private Securities 
Litigation Reform Act of 1995''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

Sec. 101. Elimination of certain abusive practices.
Sec. 102. Securities class action reform.
Sec. 103. Sanctions for abusive litigation.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Safe harbor for forward-looking statements.
Sec. 106. Written interrogatories.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations 
                            Act.
Sec. 108. Authority of Commission to prosecute aiding and abetting.
Sec. 109. Loss causation.
Sec. 110. Applicability.
              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

Sec. 201. Limitation on damages.
Sec. 202. Proportionate liability.
Sec. 203. Applicability.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

Sec. 301. Fraud detection and disclosure.
                TITLE I--REDUCTION OF ABUSIVE LITIGATION

SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

    (a) Prohibition of Referral Fees.--Section 15(c) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end 
the following new paragraph:
            ``(8) Prohibition of referral fees.--No broker or dealer, 
        or person associated with a broker or dealer, may solicit or 
        accept, directly or indirectly, remuneration for assisting an 
        attorney in obtaining the representation of any person in any 
        private action arising under this title or under the Securities 
        Act of 1933.''.
    (b) Attorney Conflict of Interest.--
            (1) 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 new subsection:
    ``(f) Attorney Conflict of Interest.--In any private action arising 
under this title, if a plaintiff is represented by an attorney who 
directly owns or otherwise has a beneficial interest in the securities 
that are the subject of the litigation, the court shall make a 
determination of whether such ownership or other interest constitutes a 
conflict of interest sufficient to disqualify the attorney from 
representing the party.''.
            (2) Securities exchange act of 1934.--Section 21 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by 
        adding at the end the following new subsection:
    ``(i) Attorney Conflict of Interest.--In any private action arising 
under this title, if a plaintiff is represented by an attorney who 
directly owns or otherwise has a beneficial interest in the securities 
that are the subject of the litigation, the court shall make a 
determination of whether such ownership or other interest constitutes a 
conflict of interest sufficient to disqualify the attorney from 
representing the party.''.
    (c) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--
            (1) 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 new subsection:
    ``(g) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--Except as otherwise ordered by the court upon 
motion by the Commission, or, in the case of an administrative action, 
as otherwise ordered by the Commission, funds disgorged as the result 
of an action brought by the Commission in Federal court, or as a result 
of any Commission administrative action, shall not be distributed as 
payment for attorneys' fees or expenses incurred by private parties 
seeking distribution of the disgorged funds.''.
            (2) Securities exchange act of 1934.--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 new paragraph:
            ``(4) Prohibition of attorneys' fees paid from commission 
        disgorgement funds.--Except as otherwise ordered by the court 
        upon motion by the Commission, or, in the case of an 
        administrative action, as otherwise ordered by the Commission, 
        funds disgorged as the result of an action brought by the 
        Commission in Federal court, or as a result of any Commission 
        administrative action, shall not be distributed as payment for 
        attorneys' fees or expenses incurred by private parties seeking 
        distribution of the disgorged funds.''.

SEC. 102. SECURITIES CLASS ACTION REFORM.

    (a) Recovery Rules.--
            (1) 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 new subsection:
    ``(h) Recovery Rules for Private Class Actions.--
            ``(1) In general.--The rules contained in this subsection 
        shall apply in each private action arising under this title 
        that is brought as a plaintiff class action pursuant to the 
        Federal Rules of Civil Procedure.
            ``(2) Certification filed with complaints.--
                    ``(A) In general.--Each plaintiff seeking to serve 
                as a representative party on behalf of a class shall 
                provide a sworn certification, which shall be 
                personally signed by such plaintiff and filed with the 
                complaint, that--
                            ``(i) states that the plaintiff has 
                        reviewed the complaint and authorized its 
                        filing;
                            ``(ii) states that the plaintiff did not 
                        purchase the security that is the subject of 
                        the complaint at the direction of plaintiff's 
                        counsel or in order to participate in any 
                        private action arising under this title;
                            ``(iii) states that the plaintiff is 
                        willing to serve as a representative party on 
                        behalf of a class, including providing 
                        testimony at deposition and trial, if 
                        necessary;
                            ``(iv) sets forth all of the transactions 
                        of the plaintiff in the security that is the 
                        subject of the complaint during the class 
                        period specified in the complaint;
                            ``(v) identifies any action under this 
                        title, filed during the 3-year period preceding 
                        the date on which the certification is signed 
                        by the plaintiff, in which the plaintiff has 
                        sought to serve as a representative party on 
                        behalf of a class; and
                            ``(vi) states that the plaintiff will not 
                        accept any payment for serving as a 
                        representative party on behalf of a class 
                        beyond the plaintiff's pro rata share of any 
                        recovery, except as ordered or approved by the 
                        court in accordance with paragraph (3).
                    ``(B) Nonwaiver of attorney-client privilege.--The 
                certification filed pursuant to subparagraph (A) shall 
                not be construed to be a waiver of the attorney-client 
                privilege.
            ``(3) Recovery by plaintiffs.--The share of any final 
        judgment or of any settlement that is awarded to a 
        representative party serving on behalf of a class shall be 
        calculated in the same manner as the shares of the final 
        judgment or settlement awarded to all other members of the 
        class. Nothing in this paragraph shall be construed to limit 
        the award of reasonable costs and expenses (including lost 
        wages) directly relating to the representation of the class to 
        any representative party serving on behalf of the class.
            ``(4) Restrictions on settlements under seal.--The terms 
        and provisions of any settlement agreement of a class action 
        shall not be filed under seal, except that on motion of any 
        party to the settlement, the court may order filing under seal 
        for those portions of a settlement agreement as to which good 
        cause is shown for such filing under seal. For purposes of this 
        paragraph, good cause shall exist only if publication of a term 
        or provision of a settlement agreement would cause direct and 
        substantial harm to any party.
            ``(5) Restrictions on payment of attorneys' fees and 
        expenses.--Total attorneys' fees and expenses awarded by the 
        court to counsel for the plaintiff class shall not exceed a 
        reasonable percentage of the amount of damages and prejudgment 
        interest awarded to the class.
            ``(6) Disclosure of settlement terms to class members.--Any 
        proposed or final settlement agreement that is published or 
        otherwise disseminated to the class shall include each of the 
        following statements, along with a cover page summarizing the 
        information contained in such statements:
                    ``(A) Statement of plaintiff recovery.--The amount 
                of the settlement proposed to be distributed to the 
                parties to the action, determined in the aggregate and 
                on an average per share basis.
                    ``(B) Statement of potential outcome of case.--
                            ``(i) Agreement on amount of damages.--If 
                        the settling parties agree on the average 
                        amount of damages per share that would be 
                        recoverable if the plaintiff prevailed on each 
                        claim alleged under this title, a statement 
                        concerning the average amount of such potential 
                        damages per share.
                            ``(ii) Disagreement on amount of damages.--
                        If the parties do not agree on the average 
                        amount of damages per share that would be 
                        recoverable if the plaintiff prevailed on each 
                        claim alleged under this title, a statement 
                        from each settling party concerning the issue 
                        or issues on which the parties disagree.
                            ``(iii) Inadmissibility for certain 
                        purposes.--A statement made in accordance with 
                        clause (i) or (ii) concerning the amount of 
                        damages shall not be admissible in any Federal 
                        or State judicial action or administrative 
                        proceeding, other than an action or proceeding 
                        arising out of such statement.
                    ``(C) Statement of attorneys' fees or costs 
                sought.--If any of the settling parties or their 
                counsel intend to apply to the court for an award of 
                attorneys' fees or costs from any fund established as 
                part of the settlement, a statement indicating which 
                parties or counsel intend to make such an application, 
                the amount of fees and costs that will be sought 
                (including the amount of such fees and costs determined 
                on an average per share basis), and a brief explanation 
                supporting the fees and costs sought.
                    ``(D) Identification of lawyers' representatives.--
                The name, telephone number, and address of one or more 
                representatives of counsel for the plaintiff class who 
                will be reasonably available to answer questions from 
                class members concerning any matter contained in any 
                notice of settlement published or otherwise 
                disseminated to the class.
                    ``(E) Reasons for settlement.--A brief statement 
                explaining the reasons why the parties are proposing 
                the settlement.
                    ``(F) Other information.--Such other information as 
                may be required by the court.''.
            (2) Securities exchange act of 1934.--Section 21 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by 
        adding at the end the following new subsection:
    ``(j) Recovery Rules for Private Class Actions.--
            ``(1) In general.--The rules contained in this subsection 
        shall apply in each private action arising under this title 
        that is brought as a plaintiff class action pursuant to the 
        Federal Rules of Civil Procedure.
            ``(2) Certification filed with complaints.--
                    ``(A) In general.--Each plaintiff seeking to serve 
                as a representative party on behalf of a class shall 
                provide a sworn certification, which shall be 
                personally signed by such plaintiff and filed with the 
                complaint, that--
                            ``(i) states that the plaintiff has 
                        reviewed the complaint and authorized its 
                        filing;
                            ``(ii) states that the plaintiff did not 
                        purchase the security that is the subject of 
                        the complaint at the direction of plaintiff's 
                        counsel or in order to participate in any 
                        private action arising under this title;
                            ``(iii) states that the plaintiff is 
                        willing to serve as a representative party on 
                        behalf of a class, including providing 
                        testimony at deposition and trial, if 
                        necessary;
                            ``(iv) sets forth all of the transactions 
                        of the plaintiff in the security that is the 
                        subject of the complaint during the class 
                        period specified in the complaint;
                            ``(v) identifies any action under this 
                        title, filed during the 3-year period preceding 
                        the date on which the certification is signed 
                        by the plaintiff, in which the plaintiff has 
                        sought to serve as a representative party on 
                        behalf of a class; and
                            ``(vi) states that the plaintiff will not 
                        accept any payment for serving as a 
                        representative party on behalf of a class 
                        beyond the plaintiff's pro rata share of any 
                        recovery, except as ordered or approved by the 
                        court in accordance with paragraph (3).
                    ``(B) Nonwaiver of attorney-client privilege.--The 
                certification filed pursuant to subparagraph (A) shall 
                not be construed to be a waiver of the attorney-client 
                privilege.
            ``(3) Recovery by plaintiffs.--The share of any final 
        judgment or of any settlement that is awarded to a 
        representative party serving on behalf of a class shall be 
        calculated in the same manner as the shares of the final 
        judgment or settlement awarded to all other members of the 
        class. Nothing in this paragraph shall be construed to limit 
        the award to any representative party serving on behalf of a 
        class of reasonable costs and expenses (including lost wages) 
        directly relating to the representation of the class.
            ``(4) Restrictions on settlements under seal.--The terms 
        and provisions of any settlement agreement of a class action 
        shall not be filed under seal, except that on motion of any 
        party to the settlement, the court may order filing under seal 
        for those portions of a settlement agreement as to which good 
        cause is shown for such filing under seal. For purposes of this 
        paragraph, good cause shall exist only if publication of a term 
        or provision of a settlement agreement would cause direct and 
        substantial harm to any party.
            ``(5) Restrictions on payment of attorneys' fees and 
        expenses.--Total attorneys' fees and expenses awarded by the 
        court to counsel for the plaintiff class shall not exceed a 
        reasonable percentage of the amount of damages and prejudgment 
        interest awarded to the class.
            ``(6) Disclosure of settlement terms to class members.--Any 
        proposed or final settlement agreement that is published or 
        otherwise disseminated to the class shall include each of the 
        following statements, along with a cover page summarizing the 
        information contained in such statements:
                    ``(A) Statement of plaintiff recovery.--The amount 
                of the settlement proposed to be distributed to the 
                parties to the action, determined in the aggregate and 
                on an average per share basis.
                    ``(B) Statement of potential outcome of case.--
                            ``(i) Agreement on amount of damages.--If 
                        the settling parties agree on the average 
                        amount of damages per share that would be 
                        recoverable if the plaintiff prevailed on each 
                        claim alleged under this title, a statement 
                        concerning the average amount of such potential 
                        damages per share.
                            ``(ii) Disagreement on amount of damages.--
                        If the parties do not agree on the average 
                        amount of damages per share that would be 
                        recoverable if the plaintiff prevailed on each 
                        claim alleged under this title, a statement 
                        from each settling party concerning the issue 
                        or issues on which the parties disagree.
                            ``(iii) Inadmissibility for certain 
                        purposes.--A statement made in accordance with 
                        clause (i) or (ii) concerning the amount of 
                        damages shall not be admissible in any Federal 
                        or State judicial action or administrative 
                        proceeding, other than an action or proceeding 
                        arising out of such statement.
                    ``(C) Statement of attorneys' fees or costs 
                sought.--If any of the settling parties or their 
                counsel intend to apply to the court for an award of 
                attorneys' fees or costs from any fund established as 
                part of the settlement, a statement indicating which 
                parties or counsel intend to make such an application, 
                the amount of fees and costs that will be sought 
                (including the amount of such fees and costs determined 
                on an average per share basis), and a brief explanation 
                supporting the fees and costs sought.
                    ``(D) Identification of lawyers' representatives.--
                The name, telephone number, and address of one or more 
                representatives of counsel for the plaintiff class who 
                will be reasonably available to answer questions from 
                class members concerning any matter contained in any 
                notice of settlement published or otherwise 
                disseminated to the class.
                    ``(E) Reasons for settlement.--A brief statement 
                explaining the reasons why the parties are proposing 
                the settlement.
                    ``(F) Other information.--Such other information as 
                may be required by the court.''.
    (b) Appointment of Lead Plaintiff.--
            (1) 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 new subsection:
    ``(i) Procedures Governing Appointment of Lead Plaintiff in Class 
Actions.--
            ``(1) Early notice to class members.--
                    ``(A) In general.--In any private action arising 
                under this title that is brought on behalf of a class, 
                not later than 20 days after the date on which the 
                complaint is filed, the plaintiff or plaintiffs shall 
                cause to be published, in a widely circulated national 
                business-oriented publication or wire service, a notice 
                advising members of the purported plaintiff class--
                            ``(i) of the pendency of the action, the 
                        claims asserted therein, and the purported 
                        class period; and
                            ``(ii) that, not later than 60 days after 
                        the date on which the notice is published, any 
                        member of the purported class may move the 
                        court to serve as lead plaintiff of the 
                        purported class.
                    ``(B) Additional notices may be required under 
                federal rules.--Notice required under subparagraph (A) 
                shall be in addition to any notice required pursuant to 
                the Federal Rules of Civil Procedure.
            ``(2) Appointment of lead plaintiff.--
                    ``(A) In general.--Not later than 90 days after the 
                date on which a notice is published under paragraph 
                (1)(A), the court shall consider any motion made by a 
                purported class member in response to the notice, and 
                shall appoint as lead plaintiff the member or members 
                of the purported plaintiff class that the court 
                determines to be most capable of adequately 
                representing the interests of class members (hereafter 
                in this subsection referred to as the `most adequate 
                plaintiff') in accordance with this paragraph.
                    ``(B) Consolidated actions.--If more than one 
                action on behalf of a class asserting substantially the 
                same claim or claims arising under this title has been 
                filed, and any party has sought to consolidate those 
                actions for pretrial purposes or for trial, the court 
                shall not make the determination required by 
                subparagraph (A) until after the decision on the motion 
                to consolidate is rendered. As soon as practicable 
                after such decision is rendered, the court shall 
                appoint the most adequate plaintiff as lead plaintiff 
                for the consolidated actions in accordance with this 
                paragraph.
                    ``(C) Rebuttable presumption.--
                            ``(i) In general.--Subject to clause (ii), 
                        for purposes of subparagraph (A), the court 
                        shall adopt a presumption that the most 
                        adequate plaintiff in any private action 
                        arising under this title is the person or group 
                        of persons that--
                                    ``(I) has either filed the 
                                complaint or made a motion in response 
                                to a notice under paragraph (1)(A);
                                    ``(II) in the determination of the 
                                court, has the largest financial 
                                interest in the relief sought by the 
                                class; and
                                    ``(III) otherwise satisfies the 
                                requirements of Rule 23 of the Federal 
                                Rules of Civil Procedure.
                            ``(ii) Rebuttal evidence.--The presumption 
                        described in clause (i) may be rebutted only 
                        upon proof by a member of the purported 
                        plaintiff class that the presumptively most 
                        adequate plaintiff--
                                    ``(I) will not fairly and 
                                adequately protect the interests of the 
                                class; or
                                    ``(II) is subject to unique 
                                defenses that render such plaintiff 
                                incapable of adequately representing 
                                the class.
                            ``(iii) Discovery.--For purposes of clause 
                        (ii), discovery relating to whether a member or 
                        members of the purported plaintiff class is the 
                        most adequate plaintiff--
                                    ``(I) may not be conducted by any 
                                defendant; and
                                    ``(II) may be conducted by a 
                                plaintiff only if the plaintiff first 
                                demonstrates a reasonable basis for a 
                                finding that the presumptively most 
                                adequate plaintiff is incapable of 
                                adequately representing the class.
                    ``(D) Selection of lead counsel.--The most adequate 
                plaintiff shall, subject to the approval of the court, 
                select and retain counsel to represent the class.''.
            (2) Securities exchange act of 1934.--Section 21 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
        amended by adding at the end the following new subsection:
    ``(k) Procedures Governing Appointment of Lead Plaintiff in Class 
Actions.--
            ``(1) Early notice to class members.--
                    ``(A) In general.--In any private action arising 
                under this title that is brought on behalf of a class, 
                not later than 20 days after the date on which the 
                complaint is filed, the plaintiff or plaintiffs shall 
                cause to be published, in a widely circulated national 
                business-oriented publication or wire service, a notice 
                advising members of the purported plaintiff class--
                            ``(i) of the pendency of the action, the 
                        claims asserted therein, and the purported 
                        class period; and
                            ``(ii) that, not later than 60 days after 
                        the date on which the notice is published, any 
                        member of the purported class may move the 
                        court to serve as lead plaintiff of the 
                        purported class.
                    ``(B) Additional notices may be required under 
                federal rules.--Notice required under subparagraph (A) 
                shall be in addition to any notice required pursuant to 
                the Federal Rules of Civil Procedure.
            ``(2) Appointment of lead plaintiff.--
                    ``(A) In general.--Not later than 90 days after the 
                date on which a notice is published under paragraph 
                (1)(A), the court shall consider any motion made by a 
                purported class member in response to the notice, and 
                shall appoint as lead plaintiff the member or members 
                of the purported plaintiff class that the court 
                determines to be most capable of adequately 
                representing the interests of class members (hereafter 
                in this subsection referred to as the `most adequate 
                plaintiff') in accordance with this paragraph.
                    ``(B) Consolidated actions.--If more than one 
                action on behalf of a class asserting substantially the 
                same claim or claims arising under this title has been 
                filed, and any party has sought to consolidate those 
                actions for pretrial purposes or for trial, the court 
                shall not make the determination required by 
                subparagraph (A) until after the decision on the motion 
                to consolidate is rendered. As soon as practicable 
                after such decision is rendered, the court shall 
                appoint the most adequate plaintiff as lead plaintiff 
                for the consolidated actions in accordance with this 
                paragraph.
                    ``(C) Rebuttable presumption.--
                            ``(i) In general.--Subject to clause (ii), 
                        for purposes of subparagraph (A), the court 
                        shall adopt a presumption that the most 
                        adequate plaintiff in any private action 
                        arising under this title is the person or group 
                        of persons that--
                                    ``(I) has either filed the 
                                complaint or made a motion in response 
                                to a notice under paragraph (1)(A);
                                    ``(II) in the determination of the 
                                court, has the largest financial 
                                interest in the relief sought by the 
                                class; and
                                    ``(III) otherwise satisfies the 
                                requirements of Rule 23 of the Federal 
                                Rules of Civil Procedure.
                            ``(ii) Rebuttal evidence.--The presumption 
                        described in clause (i) may be rebutted only 
                        upon proof by a member of the purported 
                        plaintiff class that the presumptively most 
                        adequate plaintiff--
                                    ``(I) will not fairly and 
                                adequately protect the interests of the 
                                class; or
                                    ``(II) is subject to unique 
                                defenses that render such plaintiff 
                                incapable of adequately representing 
                                the class.
                            ``(iii) Discovery.--For purposes of clause 
                        (ii), discovery relating to whether a member or 
                        members of the purported plaintiff class is the 
                        most adequate plaintiff--
                                    ``(I) may not be conducted by any 
                                defendant; and
                                    ``(II) may be conducted by a 
                                plaintiff only if the plaintiff first 
                                demonstrates a reasonable basis for a 
                                finding that the presumptively most 
                                adequate plaintiff is incapable of 
                                adequately representing the class.
                    ``(D) Selection of lead counsel.--The most adequate 
                plaintiff shall, subject to the approval of the court, 
                select and retain counsel to represent the class.''.

SEC. 103. SANCTIONS FOR ABUSIVE LITIGATION.

    (a) 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 new 
subsection:
    ``(j) Sanctions for Abusive Litigation.--
            ``(1) Mandatory review by court.--In any private action 
        arising under this title, upon final adjudication of the 
        action, the court shall include in the record specific findings 
        regarding compliance by each party and each attorney 
        representing any party with each requirement of Rule 11(b) of 
        the Federal Rules of Civil Procedure.
            ``(2) Mandatory sanctions.--If the court makes a finding 
        under paragraph (1) that a party or attorney violated any 
        requirement of Rule 11(b) of the Federal Rules of Civil 
        Procedure, the court shall impose sanctions on such party or 
        attorney in accordance with Rule 11 of the Federal Rules of 
        Civil Procedure.
            ``(3) Presumption in favor of attorneys' fees and costs.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), for purposes of paragraph (2), the court shall 
                adopt a presumption that the appropriate sanction for 
                failure of the complaint to comply with any requirement 
                of Rule 11(b) of the Federal Rules of Civil Procedure 
                is an award to the opposing party of all of the 
                reasonable attorneys' fees and other expenses incurred 
                as a direct result of the violation.
                    ``(B) Rebuttal evidence.--The presumption described 
                in subparagraph (A) may be rebutted only upon proof by 
                the party or attorney against whom sanctions are to be 
                imposed that--
                            ``(i) the award of attorneys' fees and 
                        other expenses will impose an undue burden on 
                        that party or attorney; or
                            ``(ii) the violation of Rule 11(b) of the 
                        Federal Rules of Civil Procedure was de 
                        minimis.
                    ``(C) Sanctions.--If the party or attorney against 
                whom sanctions are to be imposed meets its burden under 
                subparagraph (B), the court shall award the sanctions 
                that the court deems appropriate pursuant to Rule 11 of 
                the Federal Rules of Civil Procedure.''.
    (b) Securities Exchange Act of 1934.--Section 21 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end 
the following new subsection:
    ``(l) Sanctions for Abusive Litigation.--
            ``(1) Mandatory review by court.--In any private action 
        arising under this title, upon final adjudication of the 
        action, the court shall include in the record specific findings 
        regarding compliance by each party and each attorney 
        representing any party with each requirement of Rule 11(b) of 
        the Federal Rules of Civil Procedure.
            ``(2) Mandatory sanctions.--If the court makes a finding 
        under paragraph (1) that a party or attorney violated any 
        requirement of Rule 11(b) of the Federal Rules of Civil 
        Procedure, the court shall impose sanctions in accordance with 
        Rule 11 of the Federal Rules of Civil Procedure on such party 
        or attorney.
            ``(3) Presumption in favor of attorneys' fees and costs.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), for purposes of paragraph (2), the court shall 
                adopt a presumption that the appropriate sanction for 
                failure of the complaint to comply with any requirement 
                of Rule 11(b) of the Federal Rules of Civil Procedure 
                is an award to the opposing party of all of the 
                reasonable attorneys' fees and other expenses incurred 
                as a direct result of the violation.
                    ``(B) Rebuttal evidence.--The presumption described 
                in subparagraph (A) may be rebutted only upon proof by 
                the party or attorney against whom sanctions are to be 
                imposed that--
                            ``(i) the award of attorneys' fees and 
                        other expenses will impose an undue burden on 
                        that party or attorney; or
                            ``(ii) the violation of Rule 11(b) of the 
                        Federal Rules of Civil Procedure was de 
                        minimis.
                    ``(C) Sanctions.--If the party or attorney against 
                whom sanctions are to be imposed meets its burden under 
                subparagraph (B), the court shall award the sanctions 
                that the court deems appropriate pursuant to Rule 11 of 
                the Federal Rules of Civil Procedure.''.

SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    (a) Securities Act of 1933.--
            (1) Stay of discovery.--Section 20 of the Securities Act of 
        1933 (15 U.S.C. 77t) is amended by adding at the end the 
        following new subsection:
    ``(k) Stay of Discovery.--In any private action arising under this 
title, during the pendency of any motion to dismiss, all discovery and 
other proceedings shall be stayed unless the court finds, upon the 
motion of any party, that particularized discovery is necessary to 
preserve evidence or to prevent undue prejudice to that party.''.
            (2) Preservation of evidence.--Section 20 of the Securities 
        Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the 
        following new subsection:
    ``(l) Preservation of Evidence.--It shall be unlawful for any 
person, upon receiving actual notice that a complaint has been filed in 
a private action arising under this title naming that person as a 
defendant and that describes the allegations contained in the 
complaint, to willfully destroy or otherwise alter any document, data 
compilation (including any electronically recorded or stored data), or 
tangible object that is in the custody or control of that person and 
that is relevant to the allegations.''.
    (b) Securities Exchange Act of 1934.--Title I of the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at 
the end the following new section:

``SEC. 36. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    ``(a) Misleading Statements and Omissions.--In any private action 
arising under this title in which the plaintiff alleges that the 
defendant--
            ``(1) made an untrue statement of a material fact; or
            ``(2) omitted to state a material fact necessary in order 
        to make the statements made, in the light of the circumstances 
        in which they were made, not misleading;
the complaint shall specify each statement alleged to have been 
misleading, the reason or reasons why the statement is misleading, and, 
if an allegation regarding the statement or omission is made on 
information and belief, the plaintiff shall set forth all information 
on which that belief is formed.
    ``(b) Required State of Mind.--In any private action arising under 
this title in which the plaintiff may recover money damages only on 
proof that the defendant acted with a particular state of mind, the 
plaintiff's complaint shall, with respect to each act or omission 
alleged to violate this title, specifically allege facts giving rise to 
a strong inference that the defendant acted with the required state of 
mind.
    ``(c) Motion To Dismiss; Stay of Discovery.--
            ``(1) Dismissal for failure to meet pleading 
        requirements.--In any private action arising under this title, 
        the court shall, on the motion of any defendant, dismiss the 
        complaint if the requirements of subsections (a) and (b) are 
        not met.
            ``(2) Stay of discovery.--In any private action arising 
        under this title, during the pendency of any motion to dismiss, 
        all discovery and other proceedings shall be stayed unless the 
        court finds upon the motion of any party that particularized 
        discovery is necessary to preserve evidence or to prevent undue 
        prejudice to that party.
            ``(3) Preservation of evidence.--It shall be unlawful for 
        any person, upon receiving actual notice that a complaint has 
        been filed in a private action arising under this title naming 
        that person as a defendant and that describes the allegations 
        contained in the complaint, to willfully destroy or otherwise 
        alter any document, data compilation (including any 
        electronically recorded or stored data), or tangible object 
        that is in the custody or control of that person and that is 
        relevant to the allegations.
    ``(d) Loss Causation.--In any private action arising under this 
title, the plaintiff shall have the burden of proving that the act or 
omission alleged to violate this title caused any loss incurred by the 
plaintiff. Damages arising from such loss may be mitigated upon a 
showing by the defendant that factors unrelated to such act or omission 
contributed to the loss.''.

SEC. 105. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    (a) Securities Act of 1933.--Title I of the Securities Act of 1933 
(15 U.S.C. 77a et seq.) is amended by inserting after section 13 the 
following new section:

``SEC. 13A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) Safe Harbor.--
            ``(1) In general.--In any private action arising under this 
        title that is based on a fraudulent statement, an issuer that 
        is subject to the reporting requirements of section 13(a) or 
        section 15(d) of the Securities Exchange Act of 1934, a person 
        acting on behalf of such issuer, or an outside reviewer 
        retained by such issuer, shall not be liable with respect to 
        any forward-looking statement, whether written or oral, if and 
        to the extent that the statement--
                    ``(A) projects, estimates, or describes future 
                events; and
                    ``(B) refers clearly (and, except as otherwise 
                provided by rule or regulation, proximately) to--
                            ``(i) such projections, estimates, or 
                        descriptions as forward-looking statements; and
                            ``(ii) the risk that actual results may 
                        differ materially from such projections, 
                        estimates, or descriptions.
            ``(2) Effect on other safe harbors.--The exemption from 
        liability provided for in paragraph (1) shall be in addition to 
        any exemption that the Commission may establish by rule or 
        regulation under subsection (e).
    ``(b) Definition of Forward-Looking Statement.--For purposes of 
this section, the term `forward-looking statement' means--
            ``(1) a statement containing a projection of revenues, 
        income (including income loss), earnings (including earnings 
        loss) per share, capital expenditures, dividends, capital 
        structure, or other financial items;
            ``(2) a statement of the plans and objectives of management 
        for future operations;
            ``(3) a statement of future economic performance contained 
        in a discussion and analysis of financial condition by the 
        management or in the results of operations included pursuant to 
        the rules and regulations of the Commission;
            ``(4) any disclosed statement of the assumptions underlying 
        or relating to any statement described in paragraph (1), (2), 
        or (3); or
            ``(5) a statement containing a projection or estimate of 
        such other items as may be specified by rule or regulation of 
        the Commission.
    ``(c) Exclusions.--The exemption from liability provided for in 
subsection (a) does not apply to a forward-looking statement that is--
            ``(1) knowingly made with the expectation, purpose, and 
        actual intent of misleading investors;
            ``(2) except to the extent otherwise specifically provided 
        by rule, regulation, or order of the Commission, made with 
        respect to the business or operations of the issuer, if the 
        issuer--
                    ``(A) has been, during the 3-year period preceding 
                the date on which the statement was first made, 
                convicted of any felony or misdemeanor described in 
                clauses (i) through (iv) of section 15(b)(4)(B), or has 
                been made the subject of a judicial or administrative 
                decree or order arising out of a governmental action 
                that--
                            ``(i) prohibits future violations of the 
                        anti-fraud provisions of the securities laws, 
                        as that term is defined in section 3 of the 
                        Securities Exchange Act of 1934;
                            ``(ii) requires that the issuer cease and 
                        desist from violating the anti-fraud provisions 
                        of the securities laws; or
                            ``(iii) determines that the issuer violated 
                        the anti-fraud provisions of the securities 
                        laws;
                    ``(B) makes the forward-looking statement in 
                connection with an offering of securities by a blank 
                check company, as that term is defined under the rules 
                or regulations of the Commission;
                    ``(C) issues penny stock, as that term is defined 
                in section 3(a)(51) of the Securities Exchange Act of 
                1934, and the rules, regulations, or orders issued 
                pursuant to that section;
                    ``(D) makes the forward-looking statement in 
                connection with a rollup transaction, as that term is 
                defined under the rules or regulations of the 
                Commission; or
                    ``(E) makes the forward-looking statement in 
                connection with a going private transaction, as that 
                term is defined under the rules or regulations of the 
                Commission issued pursuant to section 13(e) of the 
                Securities Exchange Act of 1934; or
            ``(3) except to the extent otherwise specifically provided 
        by rule or regulation of the Commission--
                    ``(A) included in a financial statement prepared in 
                accordance with generally accepted accounting 
                principles;
                    ``(B) contained in a registration statement of, or 
                otherwise issued by, an investment company, as that 
                term is defined in section 3(a) of the Investment 
                Company Act of 1940;
                    ``(C) made in connection with a tender offer;
                    ``(D) made by or in connection with an offering by 
                a partnership, limited liability corporation, or a 
                direct participation investment program, as those terms 
                are defined by rule or regulation of the Commission; or
                    ``(E) made in a disclosure of beneficial ownership 
                in a report required to be filed with the Commission 
                pursuant to section 13(d) of the Securities Exchange 
                Act of 1934.
    ``(d) Stay Pending Decision on Motion.--In any private action 
arising under this title, the court shall stay discovery during the 
pendency of any motion by a defendant (other than discovery that is 
specifically directed to the applicability of the exemption provided 
for in this section) for summary judgment that is based on the grounds 
that--
            ``(1) the statement or omission upon which the complaint is 
        based is a forward-looking statement within the meaning of this 
        section; and
            ``(2) the exemption provided for in this section precludes 
        a claim for relief.
    ``(e) Authority.--In addition to the exemption provided for in this 
section, the Commission may, by rule or regulation, provide exemptions 
from liability under any provision of this title, or of any rule or 
regulation issued under this title, that is based on a statement that 
includes or that is based on projections or other forward-looking 
information, if and to the extent that any such exemption is, as 
determined by the Commission, consistent with the public interest and 
the protection of investors.
    ``(f) Commission Disgorgement Actions.--
            ``(1) In general.--If the Commission, in any proceeding, 
        orders or obtains (by settlement, court order, or otherwise) a 
        payment of funds from a person who has violated this title 
        through means that included the utilization of a forward-
        looking statement, and if any portion of such funds is set 
        aside or otherwise held for or available to persons who 
        suffered losses in connection with such violation, no person 
        shall be precluded from participating in the distribution of, 
        or otherwise receiving, a portion of such funds by reason of 
        the application of this section.
            ``(2) Judgment for losses suffered.--In any action by the 
        Commission alleging a violation of this title in which the 
        defendant or respondent is alleged to have utilized a forward-
        looking statement in furtherance of such violation, the 
        Commission may, upon a sufficient showing, in addition to all 
        other remedies available to the Commission, obtain a judgment 
        for the payment of an amount equal to all losses suffered by 
        reason of the utilization of the forward-looking statement.
    ``(g) Effect on Other Authority of Commission.--Nothing in this 
section limits, either expressly or by implication, the authority of 
the Commission to exercise similar authority or to adopt similar rules 
and regulations with respect to forward-looking statements under any 
other statute under which the Commission exercises rulemaking 
authority.''.
    (b) Securities Exchange Act of 1934.--Title I of the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at 
the end the following new section:

``SEC. 37. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) Safe Harbor.--
            ``(1) In general.--In any private action arising under this 
        title that is based on a fraudulent statement, an issuer that 
        is subject to the reporting requirements of section 13(a) or 
        section 15(d) of the Securities Exchange Act of 1934, a person 
        acting on behalf of such issuer, or an outside reviewer 
        retained by such issuer, shall not be liable with respect to 
        any forward-looking statement, whether written or oral, if and 
        to the extent that the statement--
                    ``(A) projects, estimates, or describes future 
                events; and
                    ``(B) refers clearly (and, except as otherwise 
                provided by rule or regulation, proximately) to--
                            ``(i) such projections, estimates, or 
                        descriptions as forward-looking statements; and
                            ``(ii) the risk that actual results may 
                        differ materially from such projections, 
                        estimates, or descriptions.
            ``(2) Effect on other safe harbors.--The exemption from 
        liability provided for in paragraph (1) shall be in addition to 
        any exemption that the Commission may establish by rule or 
        regulation under subsection (e).
    ``(b) Definition of Forward-Looking Statement.--For purposes of 
this section, the term `forward-looking statement' means--
            ``(1) a statement containing a projection of revenues, 
        income (including income loss), earnings (including earnings 
        loss) per share, capital expenditures, dividends, capital 
        structure, or other financial items;
            ``(2) a statement of the plans and objectives of management 
        for future operations;
            ``(3) a statement of future economic performance contained 
        in a discussion and analysis of financial condition by the 
        management or in the results of operations included pursuant to 
        the rules and regulations of the Commission;
            ``(4) any disclosed statement of the assumptions underlying 
        or relating to any statement described in paragraph (1), (2), 
        or (3); or
            ``(5) a statement containing a projection or estimate of 
        such other items as may be specified by rule or regulation of 
        the Commission.
    ``(c) Exclusions.--The exemption from liability provided for in 
subsection (a) does not apply to a forward-looking statement that is--
            ``(1) knowingly made with the expectation, purpose, and 
        actual intent of misleading investors;
            ``(2) except to the extent otherwise specifically provided 
        by rule, regulation, or order of the Commission, made with 
        respect to the business or operations of the issuer, if the 
        issuer--
                    ``(A) has been, during the 3-year period preceding 
                the date on which the statement was first made, 
                convicted of any felony or misdemeanor described in 
                clauses (i) through (iv) of section 15(b)(4)(B), or has 
                been made the subject of a judicial or administrative 
                decree or order arising out of a governmental action 
                that--
                            ``(i) prohibits future violations of the 
                        anti-fraud provisions of the securities laws;
                            ``(ii) requires that the issuer cease and 
                        desist from violating the anti-fraud provisions 
                        of the securities laws; or
                            ``(iii) determines that the issuer violated 
                        the anti-fraud provisions of the securities 
                        laws;
                    ``(B) makes the forward-looking statement in 
                connection with an offering of securities by a blank 
                check company, as that term is defined under the rules 
                or regulations of the Commission;
                    ``(C) issues penny stock;
                    ``(D) makes the forward-looking statement in 
                connection with a rollup transaction, as that term is 
                defined under the rules or regulations of the 
                Commission; or
                    ``(E) makes the forward-looking statement in 
                connection with a going private transaction, as that 
                term is defined under the rules or regulations of the 
                Commission issued pursuant to section 13(e); or
            ``(3) except to the extent otherwise specifically provided 
        by rule or regulation of the Commission--
                    ``(A) included in financial statements prepared in 
                accordance with generally accepted accounting 
                principles;
                    ``(B) contained in a registration statement of, or 
                otherwise issued by, an investment company;
                    ``(C) made in connection with a tender offer;
                    ``(D) made by or in connection with an offering by 
                a partnership, limited liability corporation, or a 
                direct participation investment program, as those terms 
                are defined by rule or regulation of the Commission; or
                    ``(E) made in a disclosure of beneficial ownership 
                in a report required to be filed with the Commission 
                pursuant to section 13(d).
    ``(d) Stay Pending Decision on Motion.--In any private action 
arising under this title, the court shall stay discovery during the 
pendency of any motion by a defendant (other than discovery that is 
specifically directed to the applicability of the exemption provided 
for in this section) for summary judgment that is based on the grounds 
that--
            ``(1) the statement or omission upon which the complaint is 
        based is a forward-looking statement within the meaning of this 
        section; and
            ``(2) the exemption provided for in this section precludes 
        a claim for relief.
    ``(e) Authority.--In addition to the exemption provided for in this 
section, the Commission may, by rule or regulation, provide exemptions 
from liability under any provision of this title, or of any rule or 
regulation issued under this title, that is based on a statement that 
includes or that is based on projections or other forward-looking 
information, if and to the extent that any such exemption is, as 
determined by the Commission, consistent with the public interest and 
the protection of investors.
    ``(f) Commission Disgorgement Actions.--
            ``(1) In general.--If the Commission, in any proceeding, 
        orders or obtains (by settlement, court order, or otherwise) a 
        payment of funds from a person who has violated this title 
        through means that included the utilization of a forward-
        looking statement, and if any portion of such funds is set 
        aside or otherwise held for or available to persons who 
        suffered losses in connection with such violation, no person 
        shall be precluded from participating in the distribution of, 
        or otherwise receiving, a portion of such funds by reason of 
        the application of this section.
            ``(2) Judgment for losses suffered.--In any action by the 
        Commission alleging a violation of this title in which the 
        defendant or respondent is alleged to have utilized a forward-
        looking statement in furtherance of such violation, the 
        Commission may, upon a sufficient showing, in addition to all 
        other remedies available to the Commission, obtain a judgment 
        for the payment of an amount equal to all losses suffered by 
        reason of the utilization of the forward-looking statement.
    ``(g) Effect on Other Authority of Commission.--Nothing in this 
section limits, either expressly or by implication, the authority of 
the Commission to exercise similar authority or to adopt similar rules 
and regulations with respect to forward-looking statements under any 
other statute under which the Commission exercises rulemaking 
authority.''.
    (c) Investment Company Act of 1940.--Section 24 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-24) is amended by adding at the end 
the following new subsection:
    ``(g) Regulatory Authority for Forward-Looking Statements.--
            ``(1) In general.--The Commission shall review and, if 
        necessary to carry out the purposes of this title, promulgate 
        such rules and regulations as may be necessary to describe 
        conduct with respect to the making of forward-looking 
        statements that the Commission deems does not provide a basis 
        for liability in any private action arising under this title.
            ``(2) Requirements.--A rule or regulation promulgated under 
        paragraph (1) shall--
                    ``(A) include clear and objective guidance that the 
                Commission finds sufficient for the protection of 
                investors;
                    ``(B) prescribe such guidance with sufficient 
                particularity that compliance shall be readily 
                ascertainable by issuers prior to issuance of 
                securities; and
                    ``(C) provide that forward-looking statements that 
                are in compliance with such guidance and that concern 
                the future economic performance of an issuer of 
                securities registered under section 12 shall be deemed 
                not to be in violation of this title.
            ``(3) Effect on other authority of commission.--Nothing in 
        this subsection limits, either expressly or by implication, the 
        authority of the Commission to exercise similar authority or to 
        adopt similar rules and regulations with respect to forward-
        looking statements under any other statute under which the 
        Commission exercises rulemaking authority.''.

SEC. 106. WRITTEN INTERROGATORIES.

    (a) 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 new 
subsection:
    ``(m) Defendant's Right to Written Interrogatories.--In any private 
action arising under this title in which the plaintiff may recover 
money damages only on proof that a defendant acted with a particular 
state of mind, the court shall, when requested by a defendant, submit 
to the jury a written interrogatory on the issue of each such 
defendant's state of mind at the time the alleged violation 
occurred.''.
    (b) Securities Exchange Act of 1934.--Section 21 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end 
the following new subsection:
    ``(m) Defendant's Right to Written Interrogatories.--In any private 
action arising under this title in which the plaintiff may recover 
money damages, the court shall, when requested by a defendant, submit 
to the jury a written interrogatory on the issue of each such 
defendant's state of mind at the time the alleged violation 
occurred.''.

SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS 
              ACT.

    Section 1964(c) of title 18, United States Code, is amended by 
inserting before the period ``, except that no person may rely upon 
conduct that would have been actionable as fraud in the purchase or 
sale of securities to establish a violation of section 1962''.

SEC. 108. AUTHORITY OF COMMISSION TO PROSECUTE AIDING AND ABETTING.

    Section 20 of the Securities Exchange Act of 1934 (15 U.S.C. 78t) 
is amended--
            (1) by striking the section heading and inserting the 
        following:
    ``liability of controlling persons and persons who aid and abet 
                           violations''; and

            (2) by adding at the end the following new subsection:
    ``(e) Prosecution of Persons Who Aid and Abet Violations.--For 
purposes of any action brought by the Commission under paragraph (1) or 
(3) of section 21(d), any person that knowingly provides substantial 
assistance to another person in the violation of a provision of this 
title, or of any rule or regulation issued under this title, shall be--
            ``(1) deemed to be in violation of such provision; and
            ``(2) liable to the same extent as the person to whom such 
        assistance is provided.''.

SEC. 109. LOSS CAUSATION.

    Section 12 of the Securities Act of 1933 (15 U.S.C. 77l) is 
amended--
            (1) by inserting ``(a) In General.--'' before ``Any 
        person'';
            (2) by inserting ``, subject to subsection (b),'' after 
        ``shall be liable''; and
            (3) by adding at the end the following:
    ``(b) Loss Causation.--In an action described in subsection (a)(2), 
the liability of the person who offers or sells such security shall be 
limited to damages if that person proves that any portion or all of the 
amount recoverable under subsection (a)(2) represents other than the 
depreciation in value of the subject security resulting from such part 
of the prospectus or oral communication, with respect to which the 
liability of that person is asserted, not being true or omitting to 
state a material fact required to be stated therein or necessary to 
make the statement not misleading, and such portion or all of such 
amount shall not be recoverable.''.

SEC. 110. APPLICABILITY.

    The amendments made by this title shall not affect or apply to any 
private action arising under title I of the Securities Exchange Act of 
1934 or title I of the Securities Act of 1933 commenced before the date 
of enactment of this Act.

              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

SEC. 201. LIMITATION ON DAMAGES.

    Section 36 of the Securities Exchange Act of 1934, as added by 
section 104 of this Act, is amended by adding at the end the following 
new subsection:
    ``(e) Limitation on Damages.--
            ``(1) In general.--Except as provided in paragraph (2), in 
        any private action arising under this title, the plaintiff's 
        damages shall not exceed the difference between the purchase or 
        sale price paid or received, as appropriate, by the plaintiff 
        for the subject security and the value of that security, as 
        measured by the median trading price of that security, during 
        the 90-day period beginning on the date on which the 
        information correcting the misstatement or omission is 
        disseminated to the market.
            ``(2) Exception.--In any private action arising under this 
        title in which damages are sought, if the plaintiff sells or 
        repurchases the subject security prior to the expiration of the 
        90-day period described in paragraph (1), the plaintiff's 
        damages shall not exceed the difference between the purchase or 
        sale price paid or received, as appropriate, by the plaintiff 
        for the security and the median market value of the security 
        during the period beginning immediately after dissemination of 
        information correcting the misstatement or omission and ending 
        on the date on which the plaintiff sells or repurchases the 
        security.''.

SEC. 202. PROPORTIONATE LIABILITY.

    Title I of the Securities and Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by adding at the end the following new section:
``SEC. 38. PROPORTIONATE LIABILITY.

    ``(a) Applicability.--This section shall apply only to the 
allocation of damages among persons who are, or who may become, liable 
for damages in any private action arising under this title. Nothing in 
this section shall affect the standards for liability associated with 
any private action arising under this title.
    ``(b) Liability for Damages.--
            ``(1) Joint and several liability.--A person against whom a 
        judgment is entered in any private action arising under this 
        title shall be liable for damages jointly and severally only if 
        the trier of fact specifically determines that such person 
        committed knowing securities fraud.
            ``(2) Proportionate liability.--Except as provided in 
        paragraph (1), a person against whom a judgment is entered in 
        any private action arising under this title shall be liable 
        solely for the portion of the judgment that corresponds to that 
        person's degree of responsibility, as determined under 
        subsection (c).
            ``(3) Knowing securities fraud.--For purposes of this 
        section--
                    ``(A) a defendant engages in `knowing securities 
                fraud' if that defendant--
                            ``(i) makes a material representation with 
                        actual knowledge that the representation is 
                        false, or omits to make a statement with actual 
                        knowledge that, as a result of the omission, 
                        one of the material representations of the 
                        defendant is false; and
                            ``(ii) actually knows that persons are 
                        likely to rely on that misrepresentation or 
                        omission; and
                    ``(B) reckless conduct by the defendant shall not 
                be construed to constitute knowing securities fraud.
    ``(c) Determination of Responsibility.--
            ``(1) In general.--In any private action arising under this 
        title in which more than 1 person is alleged to have violated a 
        provision of this title, the court shall instruct the jury to 
        answer special interrogatories, or if there is no jury, shall 
        make findings, concerning--
                    ``(A) the percentage of responsibility of each of 
                the defendants and of each of the other persons alleged 
                by any of the parties to have caused or contributed to 
                the violation, including persons who have entered into 
                settlements with the plaintiff or plaintiffs, measured 
                as a percentage of the total fault of all persons who 
                caused or contributed to the violation; and
                    ``(B) whether such defendant committed knowing 
                securities fraud.
            ``(2) Contents of special interrogatories or findings.--The 
        responses to interrogatories, or findings, as appropriate, 
        under paragraph (1) shall specify the total amount of damages 
        that the plaintiff is entitled to recover and the percentage of 
        responsibility of each person found to have caused or 
        contributed to the damages sustained by the plaintiff or 
        plaintiffs.
            ``(3) Factors for consideration.--In determining the 
        percentage of responsibility under this subsection, the trier 
        of fact shall consider--
                    ``(A) the nature of the conduct of each person; and
                    ``(B) the nature and extent of the causal 
                relationship between that conduct and the damages 
                incurred by the plaintiff or plaintiffs.
    ``(d) Uncollectible Share.--
            ``(1) In general.--Notwithstanding subsection (b)(2), in 
        any private action arising under this title, if, upon motion 
        made not later than 6 months after a final judgment is entered, 
        the court determines that all or part of a defendant's share of 
        the judgment is not collectible against that defendant or 
        against a defendant described in subsection (b)(1), each 
        defendant described in subsection (b)(2) shall be liable for 
        the uncollectible share as follows:
                    ``(A) Percentage of net worth.--Each defendant 
                shall be jointly and severally liable for the 
                uncollectible share if the plaintiff establishes that--
                            ``(i) the plaintiff is an individual whose 
                        recoverable damages under the final judgment 
                        are equal to more than 10 percent of the net 
                        financial worth of the plaintiff; and
                            ``(ii) the net financial worth of the 
                        plaintiff is equal to less than $200,000.
                    ``(B) Other plaintiffs.--With respect to any 
                plaintiff not described in subparagraph (A), each 
                defendant shall be liable for the uncollectible share 
                in proportion to the percentage of responsibility of 
                that defendant, except that the total liability under 
                this subparagraph may not exceed 50 percent of the 
                proportionate share of that defendant, as determined 
                under subsection (c)(2).
            ``(2) Overall limit.--In no case shall the total payments 
        required pursuant to paragraph (1) exceed the amount of the 
        uncollectible share.
            ``(3) Defendants subject to contribution.--A defendant 
        against whom judgment is not collectible shall be subject to 
        contribution and to any continuing liability to the plaintiff 
        on the judgment.
    ``(e) Right of Contribution.--To the extent that a defendant is 
required to make an additional payment pursuant to subsection (d), that 
defendant may recover contribution--
            ``(1) from the defendant originally liable to make the 
        payment;
            ``(2) from any defendant liable jointly and severally 
        pursuant to subsection (b)(1);
            ``(3) from any defendant held proportionately liable 
        pursuant to this subsection who is liable to make the same 
        payment and has paid less than his or her proportionate share 
        of that payment; or
            ``(4) from any other person responsible for the conduct 
        giving rise to the payment that would have been liable to make 
        the same payment.
    ``(f) Nondisclosure to Jury.--The standard for allocation of 
damages under subsections (b) and (c) and the procedure for 
reallocation of uncollectible shares under subsection (d) shall not be 
disclosed to members of the jury.
    ``(g) Settlement Discharge.--
            ``(1) In general.--A defendant who settles any private 
        action arising under this title at any time before final 
        verdict or judgment shall be discharged from all claims for 
        contribution brought by other persons. Upon entry of the 
        settlement by the court, the court shall enter a bar order 
        constituting the final discharge of all obligations to the 
        plaintiff of the settling defendant arising out of the action. 
        The order shall bar all future claims for contribution arising 
        out of the action--
                    ``(A) by any person against the settling defendant; 
                and
                    ``(B) by the settling defendant against any person, 
                other than a person whose liability has been 
                extinguished by the settlement of the settling 
                defendant.
            ``(2) Reduction.--If a person enters into a settlement with 
        the plaintiff prior to final verdict or judgment, the verdict 
        or judgment shall be reduced by the greater of--
                    ``(A) an amount that corresponds to the percentage 
                of responsibility of that person; or
                    ``(B) the amount paid to the plaintiff by that 
                person.
    ``(h) Contribution.--A person who becomes liable for damages in any 
private action arising under this title may recover contribution from 
any other person who, if joined in the original action, would have been 
liable for the same damages. A claim for contribution shall be 
determined based on the percentage of responsibility of the claimant 
and of each person against whom a claim for contribution is made.
    ``(i) Statute of Limitations for Contribution.--Once judgment has 
been entered in any private action arising under this title determining 
liability, an action for contribution shall be brought not later than 6 
months after the entry of a final, nonappealable judgment in the 
action, except that an action for contribution brought by a defendant 
who was required to make an additional payment pursuant to subsection 
(d) may be brought not later than 6 months after the date on which such 
payment was made.''.

SEC. 203. APPLICABILITY.

    The amendments made by this title shall not affect or apply to any 
private action arising under title I of the Securities Exchange Act of 
1934 commenced before the date of enactment of this Act.
            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

SEC. 301. FRAUD DETECTION AND DISCLOSURE.

    (a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting immediately after section 10 the 
following new section:

``SEC. 10A. AUDIT REQUIREMENTS.

    ``(a) In General.--Each audit required pursuant to this title of 
the financial statements of an issuer by an independent public 
accountant shall include, in accordance with generally accepted 
auditing standards, as may be modified or supplemented from time to 
time by the Commission--
            ``(1) procedures designed to provide reasonable assurance 
        of detecting illegal acts that would have a direct and material 
        effect on the determination of financial statement amounts;
            ``(2) procedures designed to identify related party 
        transactions that are material to the financial statements or 
        otherwise require disclosure therein; and
            ``(3) an evaluation of whether there is substantial doubt 
        about the ability of the issuer to continue as a going concern 
        during the ensuing fiscal year.
    ``(b) Required Response To Audit Discoveries.--
            ``(1) Investigation and report to management.--If, in the 
        course of conducting an audit pursuant to this title to which 
        subsection (a) applies, the independent public accountant 
        detects or otherwise becomes aware of information indicating 
        that an illegal act (whether or not perceived to have a 
        material effect on the financial statements of the issuer) has 
        or may have occurred, the accountant shall, in accordance with 
        generally accepted auditing standards, as may be modified or 
        supplemented from time to time by the Commission--
                    ``(A)(i) determine whether it is likely that an 
                illegal act has occurred; and
                    ``(ii) if so, determine and consider the possible 
                effect of the illegal act on the financial statements 
                of the issuer, including any contingent monetary 
                effects, such as fines, penalties, and damages; and
                    ``(B) as soon as practicable, inform the 
                appropriate level of the management of the issuer and 
                assure that the audit committee of the issuer, or the 
                board of directors of the issuer in the absence of such 
                a committee, is adequately informed with respect to 
                illegal acts that have been detected or have otherwise 
                come to the attention of such accountant in the course 
                of the audit, unless the illegal act is clearly 
                inconsequential.
            ``(2) Response to failure to take remedial action.--If, 
        after determining that the audit committee of the board of 
        directors of the issuer, or the board of directors of the 
        issuer in the absence of an audit committee, is adequately 
        informed with respect to illegal acts that have been detected 
        or have otherwise come to the attention of the accountant in 
        the course of the audit of such accountant, the independent 
        public accountant concludes that--
                    ``(A) the illegal act has a material effect on the 
                financial statements of the issuer;
                    ``(B) the senior management has not taken, and the 
                board of directors has not caused senior management to 
                take, timely and appropriate remedial actions with 
                respect to the illegal act; and
                    ``(C) the failure to take remedial action is 
                reasonably expected to warrant departure from a 
                standard report of the auditor, when made, or warrant 
                resignation from the audit engagement;
        the independent public accountant shall, as soon as 
        practicable, directly report its conclusions to the board of 
        directors.
            ``(3) Notice to commission; response to failure to 
        notify.--An issuer whose board of directors receives a report 
        under paragraph (2) shall inform the Commission by notice not 
        later than 1 business day after the receipt of such report and 
        shall furnish the independent public accountant making such 
        report with a copy of the notice furnished to the Commission. 
        If the independent public accountant fails to receive a copy of 
        the notice before the expiration of the required 1-business-day 
        period, the independent public accountant shall--
                    ``(A) resign from the engagement; or
                    ``(B) furnish to the Commission a copy of its 
                report (or the documentation of any oral report given) 
                not later than 1 business day following such failure to 
                receive notice.
            ``(4) Report after resignation.--If an independent public 
        accountant resigns from an engagement under paragraph (3)(A), 
        the accountant shall, not later than 1 business day following 
        the failure by the issuer to notify the Commission under 
        paragraph (3), furnish to the Commission a copy of the 
        accountant's report (or the documentation of any oral report 
        given).
    ``(c) Auditor Liability Limitation.--No independent public 
accountant shall be liable in a private action for any finding, 
conclusion, or statement expressed in a report made pursuant to 
paragraph (3) or (4) of subsection (b), including any rule promulgated 
pursuant thereto.
    ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If the 
Commission finds, after notice and opportunity for hearing in a 
proceeding instituted pursuant to section 21C, that an independent 
public accountant has willfully violated paragraph (3) or (4) of 
subsection (b), the Commission may, in addition to entering an order 
under section 21C, impose a civil penalty against the independent 
public accountant and any other person that the Commission finds was a 
cause of such violation. The determination to impose a civil penalty 
and the amount of the penalty shall be governed by the standards set 
forth in section 21B.
    ``(e) Preservation of Existing Authority.--Except as provided in 
subsection (d), nothing in this section shall be held to limit or 
otherwise affect the authority of the Commission under this title.
    ``(f) Definition.--As used in this section, the term `illegal act' 
means an act or omission that violates any law, or any rule or 
regulation having the force of law.''.
    (b) Effective Dates.--The amendment made by subsection (a) shall 
apply to each annual report--
            (1) for any period beginning on or after January 1, 1996, 
        with respect to any registrant that is required to file 
        selected quarterly financial data pursuant to the rules or 
        regulations of the Securities and Exchange Commission; and
            (2) for any period beginning on or after January 1, 1997, 
        with respect to any other registrant.
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