[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3617 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 3617

   To withdraw certain benefits of the Private Securities Litigation 
  Reform Act from auditors that perform non-audit functions, and for 
                            other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 23, 2002

  Mr. Markey introduced the following bill; which was referred to the 
                    Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
   To withdraw certain benefits of the Private Securities Litigation 
  Reform Act from auditors that perform non-audit functions, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Accountability for Accountants Act 
of 2002''.

SEC. 2. RESTORATION OF JOINT AND SEVERAL LIABILITY.

    (a) Amendment.--Subparagraph (A) of section 21D(f)(2) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u-4(f)(2)(A)) is amended 
to read as follows:
                    ``(A) Joint and several liability.--Any covered 
                person against whom a final judgment is entered in a 
                private action shall be liable for damages jointly and 
                severally only if the trier of fact specifically 
                determines that--
                            ``(i) such covered person knowingly 
                        committed a violation of the securities laws;
                            ``(ii) the covered person was the auditor 
                        of the financial statements of the issuer of 
                        the securities that are the subject of the 
                        class action and such auditor failed to comply 
                        with section 10A by failing to detect and 
                        report an illegal act of such issuer that is 
                        the basis of such class action;
                            ``(iii) the covered person was the auditor 
                        of the financial statements of such issuer and 
                        such auditor performed any non-audit functions 
                        for such issuer during the fiscal year in which 
                        an alleged violation of the securities laws 
                        occurred; or
                            ``(iv) the issuer of such securities is 
                        insolvent.''.
    (b) Uncollectable Shares.--Section 21D(f)(4) of such Act is amended 
by adding at the end the following new subparagraph:
                    ``(D) Inapplicability to insolvency cases.--The 
                provisions of this paragraph shall not apply in any 
                case in which the trier of fact determines that the 
                issuer of the securities that are the subject of the 
                class action is insolvent under paragraph 
                (2)(A)(iv).''.
    (c) Disclosure to Juries.--Section 21D(f) of such Act is further 
amended--
            (1) by striking paragraph (6); and
            (2) by redesignating paragraphs (7) through (10) as 
        paragraphs (6) through (9), respectively.
    (d) Definition.--Section 21D(f)(9) of such Act (as redesignated by 
subsection (c)(2) of this section) is amended--
            (1) by striking ``and'' at then end of subparagraph (C);
            (2) by striking the period at the end of subparagraph (D) 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(E) an auditor shall be considered to have 
                performed `non-audit functions for an issuer' if such 
                auditor received any compensation for services from 
                such issuer for a fiscal year that did not qualify to 
                be treated as audit fees for such fiscal year for 
                purposes of item 9(e)(1) of the schedule 14A of such 
                issuer.''.
    (e) Prevention of Stays of Discovery.--
            (1) Section 21D(b)(3) of such Act is amended by adding at 
        the end the following new subparagraph:
                    ``(E) Inapplicability to action against auditors.--
                In any private action arising under this title against 
                the auditor of the financial statements of the issuer 
                of the securities that are the subject of such action, 
                discovery and other proceedings shall not be stayed 
                pursuant to this paragraph.''.
            (2) Section 27(b) of the Securities Act of 1933 (15 U.S.C. 
        77z-1(b)) is amended by adding at the end the following new 
        paragraph:
            ``(5) Inapplicability to action against auditors.--In any 
        private action arising under this title against the auditor of 
        the financial statements of the issuer of the securities that 
        are the subject of such action, discovery and other proceedings 
        shall not be stayed pursuant to this subsection.''.

SEC. 3. RESTORATION OF AIDING AND ABETTING LIABILITY.

    (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:
    ``(g) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (b) and (d), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule or regulation 
hereunder, shall be deemed to violate such provision to the same extent 
as the person to whom such assistance is provided. No person shall be 
liable under this subsection based on an omission or failure to act 
unless such omission or failure constituted a breach of a duty owed by 
such person.''.
    (b) Securities Exchange Act of 1934.--Section 20(e) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78t(e)) is amended to read 
as follows:
    ``(e) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d)(1) and (d)(3) of section 21, or an action 
by a self-regulatory organization, or an express or implied private 
right of action under this title, any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule or regulation 
thereunder, shall be deemed to violate such provision and shall be 
liable to the same extent as the person to whom such assistance is 
provided. No person shall be liable under this subsection based on an 
omission or failure to act unless such omission or failure constituted 
a breach of a duty owed by such person.''.
    (c) Investment Company Act of 1940.--Section 42 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-41) is amended by adding at the end 
the following new subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d) and (e), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule, regulation, or 
order hereunder, shall be deemed to violate such provision to the same 
extent as the person to whom such assistance is provided. No person 
shall be liable under this subsection based on an omission or failure 
to act unless such omission or failure constituted a breach of a duty 
owed by such person.''.
    (d) Investment Advisers Act of 1940.--Section 209(d) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is amended--
            (1) in subsection (d)--
                    (A) by striking ``or that any person has aided, 
                abetted, counseled, commanded, induced, or procured, is 
                aiding, abetting, counseling, commanding, inducing, or 
                procuring, or is about to aid, abet, counsel, command, 
                induce, or procure such a violation,''; and
                    (B) by striking ``or in aiding, abetting, 
                counseling, commanding, inducing, or procuring any such 
                act or practice''; and
            (2) by adding at the end the following new subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d) and (e), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule, regulation, or 
order hereunder, shall be deemed to violate such provision to the same 
extent as the person to whom such assistance is provided. No person 
shall be liable under this subsection based on an omission or failure 
to act unless such omission or failure constituted a breach of duty 
owed by such person.''.

SEC. 4. DESTRUCTION OF RECORDS; SEPARATION OF FUNCTIONS.

    (a) Audit Requirements.--Section 10A of the Securities Exchange Act 
of 1934 (15 U.S.C. 78j-1) is amended--
            (1) by redesignating subsections (e) and (f) as subsections 
        (g) and (h), respectively; and
            (2) by inserting after subsection (d) the following new 
        subsections:
    ``(e) Destruction of Records.--
            ``(1) Maintenance of records required.--Any accountant that 
        conducts an audit of an issuer pursuant to this title to which 
        subsection (a) applies shall maintain all documents (including 
        electronic documents) sent, received, or created in connection 
        with any audit, review, or other engagement for such issuer for 
        a period of four years from the end of the fiscal period in 
        which the engagement was concluded.
            ``(2) Penalty.--In addition to any other sanctions that may 
        be available, any person who knowingly and willfully violates 
        paragraph (1) shall be subject to fine and imprisonment to the 
        same extent as a person violating section 1512(b) of title 18, 
        United States Code.
    ``(f) Consideration of Separation of Audit and Non-Audit 
Functions.--
            ``(1) Consideration required.--Any accountant that conducts 
        an audit of an issuer pursuant to this title to which 
        subsection (a) applies shall, within 60 days after the date of 
        enactment of the Accountability for Accountants Act of 2002, 
        initiate a review of--
                    ``(A) whether that accountant should divest itself 
                of any interests in non-audit businesses in light of 
                the inherent potential conflicts of interest in 
                providing both audit and non-audit services to an 
                issuer; or
                    ``(B) whether the accountant should cease providing 
                non-audit services to those companies whose financial 
                statements it audits.
            ``(2) Reports.--Each accountant to which paragraph (1) 
        applies shall report to the Commission within 12 months after 
        such date of enactment on whether such accountant has decided 
        to either divest its non-audit services, or to cease providing 
        non-audit services to audit clients. The Commission shall 
        submit a report to Congress on the reports received under the 
        preceding sentence.''.
    (b) Preservation of Records During Shareholder Litigation.--
            (1) Securities act of 1933.--Section 27(b)(2) of the 
        Securities Act of 1933 (15 U.S.C. 77z-1(b)(2)) is amended by 
        inserting ``, and the issuer of the securities that are the 
        subject of such action,'' after ``in the complaint''.
            (2) Securities exchange act of 1934.--Section 
        21D(b)(3)(C)(i) of the Securities Act of 1933 (15 U.S.C. 77z-
        1(b)(3)(C)(i)) is amended by inserting ``, and the issuer of 
        the securities that are the subject of such action,'' after 
        ``in the complaint''.
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