[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3763 Enrolled Bill (ENR)]
H.R.3763
One Hundred Seventh Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Wednesday,
the twenty-third day of January, two thousand and two
An Act
To protect investors by improving the accuracy and reliability of
corporate disclosures made pursuant to the securities laws, 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; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Sarbanes-Oxley Act
of 2002''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Commission rules and enforcement.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec. 101. Establishment; administrative provisions.
Sec. 102. Registration with the Board.
Sec. 103. Auditing, quality control, and independence standards and
rules.
Sec. 104. Inspections of registered public accounting firms.
Sec. 105. Investigations and disciplinary proceedings.
Sec. 106. Foreign public accounting firms.
Sec. 107. Commission oversight of the Board.
Sec. 108. Accounting standards.
Sec. 109. Funding.
TITLE II--AUDITOR INDEPENDENCE
Sec. 201. Services outside the scope of practice of auditors.
Sec. 202. Preapproval requirements.
Sec. 203. Audit partner rotation.
Sec. 204. Auditor reports to audit committees.
Sec. 205. Conforming amendments.
Sec. 206. Conflicts of interest.
Sec. 207. Study of mandatory rotation of registered public accounting
firms.
Sec. 208. Commission authority.
Sec. 209. Considerations by appropriate State regulatory authorities.
TITLE III--CORPORATE RESPONSIBILITY
Sec. 301. Public company audit committees.
Sec. 302. Corporate responsibility for financial reports.
Sec. 303. Improper influence on conduct of audits.
Sec. 304. Forfeiture of certain bonuses and profits.
Sec. 305. Officer and director bars and penalties.
Sec. 306. Insider trades during pension fund blackout periods.
Sec. 307. Rules of professional responsibility for attorneys.
Sec. 308. Fair funds for investors.
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
Sec. 401. Disclosures in periodic reports.
Sec. 402. Enhanced conflict of interest provisions.
Sec. 403. Disclosures of transactions involving management and principal
stockholders.
Sec. 404. Management assessment of internal controls.
Sec. 405. Exemption.
Sec. 406. Code of ethics for senior financial officers.
Sec. 407. Disclosure of audit committee financial expert.
Sec. 408. Enhanced review of periodic disclosures by issuers.
Sec. 409. Real time issuer disclosures.
TITLE V--ANALYST CONFLICTS OF INTEREST
Sec. 501. Treatment of securities analysts by registered securities
associations and national securities exchanges.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
Sec. 601. Authorization of appropriations.
Sec. 602. Appearance and practice before the Commission.
Sec. 603. Federal court authority to impose penny stock bars.
Sec. 604. Qualifications of associated persons of brokers and dealers.
TITLE VII--STUDIES AND REPORTS
Sec. 701. GAO study and report regarding consolidation of public
accounting firms.
Sec. 702. Commission study and report regarding credit rating agencies.
Sec. 703. Study and report on violators and violations
Sec. 704. Study of enforcement actions.
Sec. 705. Study of investment banks.
TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
Sec. 801. Short title.
Sec. 802. Criminal penalties for altering documents.
Sec. 803. Debts nondischargeable if incurred in violation of securities
fraud laws.
Sec. 804. Statute of limitations for securities fraud.
Sec. 805. Review of Federal Sentencing Guidelines for obstruction of
justice and extensive criminal fraud.
Sec. 806. Protection for employees of publicly traded companies who
provide evidence of fraud.
Sec. 807. Criminal penalties for defrauding shareholders of publicly
traded companies.
TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
Sec. 901. Short title.
Sec. 902. Attempts and conspiracies to commit criminal fraud offenses.
Sec. 903. Criminal penalties for mail and wire fraud.
Sec. 904. Criminal penalties for violations of the Employee Retirement
Income Security Act of 1974.
Sec. 905. Amendment to sentencing guidelines relating to certain white-
collar offenses.
Sec. 906. Corporate responsibility for financial reports.
TITLE X--CORPORATE TAX RETURNS
Sec. 1001. Sense of the Senate regarding the signing of corporate tax
returns by chief executive officers.
TITLE XI--CORPORATE FRAUD AND ACCOUNTABILITY
Sec. 1101. Short title.
Sec. 1102. Tampering with a record or otherwise impeding an official
proceeding.
Sec. 1103. Temporary freeze authority for the Securities and Exchange
Commission.
Sec. 1104. Amendment to the Federal Sentencing Guidelines.
Sec. 1105. Authority of the Commission to prohibit persons from serving
as officers or directors.
Sec. 1106. Increased criminal penalties under Securities Exchange Act of
1934.
Sec. 1107. Retaliation against informants.
SEC. 2. DEFINITIONS.
(a) In General.--In this Act, the following definitions shall
apply:
(1) Appropriate state regulatory authority.--The term
``appropriate State regulatory authority'' means the State agency
or other authority responsible for the licensure or other
regulation of the practice of accounting in the State or States
having jurisdiction over a registered public accounting firm or
associated person thereof, with respect to the matter in question.
(2) Audit.--The term ``audit'' means an examination of the
financial statements of any issuer by an independent public
accounting firm in accordance with the rules of the Board or the
Commission (or, for the period preceding the adoption of applicable
rules of the Board under section 103, in accordance with then-
applicable generally accepted auditing and related standards for
such purposes), for the purpose of expressing an opinion on such
statements.
(3) Audit committee.--The term ``audit committee'' means--
(A) a committee (or equivalent body) established by and
amongst the board of directors of an issuer for the purpose of
overseeing the accounting and financial reporting processes of
the issuer and audits of the financial statements of the
issuer; and
(B) if no such committee exists with respect to an issuer,
the entire board of directors of the issuer.
(4) Audit report.--The term ``audit report'' means a document
or other record--
(A) prepared following an audit performed for purposes of
compliance by an issuer with the requirements of the securities
laws; and
(B) in which a public accounting firm either--
(i) sets forth the opinion of that firm regarding a
financial statement, report, or other document; or
(ii) asserts that no such opinion can be expressed.
(5) Board.--The term ``Board'' means the Public Company
Accounting Oversight Board established under section 101.
(6) Commission.--The term ``Commission'' means the Securities
and Exchange Commission.
(7) Issuer.--The term ``issuer'' means an issuer (as defined in
section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)),
the securities of which are registered under section 12 of that Act
(15 U.S.C. 78l), or that is required to file reports under section
15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration
statement that has not yet become effective under the Securities
Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.
(8) Non-audit services.--The term ``non-audit services'' means
any professional services provided to an issuer by a registered
public accounting firm, other than those provided to an issuer in
connection with an audit or a review of the financial statements of
an issuer.
(9) Person associated with a public accounting firm.--
(A) In general.--The terms ``person associated with a
public accounting firm'' (or with a ``registered public
accounting firm'') and ``associated person of a public
accounting firm'' (or of a ``registered public accounting
firm'') mean any individual proprietor, partner, shareholder,
principal, accountant, or other professional employee of a
public accounting firm, or any other independent contractor or
entity that, in connection with the preparation or issuance of
any audit report--
(i) shares in the profits of, or receives compensation
in any other form from, that firm; or
(ii) participates as agent or otherwise on behalf of
such accounting firm in any activity of that firm.
(B) Exemption authority.--The Board may, by rule, exempt
persons engaged only in ministerial tasks from the definition
in subparagraph (A), to the extent that the Board determines
that any such exemption is consistent with the purposes of this
Act, the public interest, or the protection of investors.
(10) Professional standards.--The term ``professional
standards'' means--
(A) accounting principles that are--
(i) established by the standard setting body described
in section 19(b) of the Securities Act of 1933, as amended
by this Act, or prescribed by the Commission under section
19(a) of that Act (15 U.S.C. 17a(s)) or section 13(b) of
the Securities Exchange Act of 1934 (15 U.S.C. 78a(m)); and
(ii) relevant to audit reports for particular issuers,
or dealt with in the quality control system of a particular
registered public accounting firm; and
(B) auditing standards, standards for attestation
engagements, quality control policies and procedures, ethical
and competency standards, and independence standards (including
rules implementing title II) that the Board or the Commission
determines--
(i) relate to the preparation or issuance of audit
reports for issuers; and
(ii) are established or adopted by the Board under
section 103(a), or are promulgated as rules of the
Commission.
(11) Public accounting firm.--The term ``public accounting
firm'' means--
(A) a proprietorship, partnership, incorporated
association, corporation, limited liability company, limited
liability partnership, or other legal entity that is engaged in
the practice of public accounting or preparing or issuing audit
reports; and
(B) to the extent so designated by the rules of the Board,
any associated person of any entity described in subparagraph
(A).
(12) Registered public accounting firm.--The term ``registered
public accounting firm'' means a public accounting firm registered
with the Board in accordance with this Act.
(13) Rules of the board.--The term ``rules of the Board'' means
the bylaws and rules of the Board (as submitted to, and approved,
modified, or amended by the Commission, in accordance with section
107), and those stated policies, practices, and interpretations of
the Board that the Commission, by rule, may deem to be rules of the
Board, as necessary or appropriate in the public interest or for
the protection of investors.
(14) Security.--The term ``security'' has the same meaning as
in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)).
(15) Securities laws.--The term ``securities laws'' means the
provisions of law referred to in section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as amended by this
Act, and includes the rules, regulations, and orders issued by the
Commission thereunder.
(16) State.--The term ``State'' means any State of the United
States, the District of Columbia, Puerto Rico, the Virgin Islands,
or any other territory or possession of the United States.
(b) Conforming Amendment.--Section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is amended by inserting
``the Sarbanes-Oxley Act of 2002,'' before ``the Public''.
SEC. 3. COMMISSION RULES AND ENFORCEMENT.
(a) Regulatory Action.--The Commission shall promulgate such rules
and regulations, as may be necessary or appropriate in the public
interest or for the protection of investors, and in furtherance of this
Act.
(b) Enforcement.--
(1) In general.--A violation by any person of this Act, any
rule or regulation of the Commission issued under this Act, or any
rule of the Board shall be treated for all purposes in the same
manner as a violation of the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) or the rules and regulations issued thereunder,
consistent with the provisions of this Act, and any such person
shall be subject to the same penalties, and to the same extent, as
for a violation of that Act or such rules or regulations.
(2) Investigations, injunctions, and prosecution of offenses.--
Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u)
is amended--
(A) in subsection (a)(1), by inserting ``the rules of the
Public Company Accounting Oversight Board, of which such person
is a registered public accounting firm or a person associated
with such a firm,'' after ``is a participant,'';
(B) in subsection (d)(1), by inserting ``the rules of the
Public Company Accounting Oversight Board, of which such person
is a registered public accounting firm or a person associated
with such a firm,'' after ``is a participant,'';
(C) in subsection (e), by inserting ``the rules of the
Public Company Accounting Oversight Board, of which such person
is a registered public accounting firm or a person associated
with such a firm,'' after ``is a participant,''; and
(D) in subsection (f), by inserting ``or the Public Company
Accounting Oversight Board'' after ``self-regulatory
organization'' each place that term appears.
(3) Cease-and-desist proceedings.--Section 21C(c)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is amended
by inserting ``registered public accounting firm (as defined in
section 2 of the Sarbanes-Oxley Act of 2002),'' after ``government
securities dealer,''.
(4) Enforcement by federal banking agencies.--Section 12(i) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l(i)) is amended
by--
(A) striking ``sections 12,'' each place it appears and
inserting ``sections 10A(m), 12,''; and
(B) striking ``and 16,'' each place it appears and
inserting ``and 16 of this Act, and sections 302, 303, 304,
306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act of
2002,''.
(c) Effect on Commission Authority.--Nothing in this Act or the
rules of the Board shall be construed to impair or limit--
(1) the authority of the Commission to regulate the accounting
profession, accounting firms, or persons associated with such firms
for purposes of enforcement of the securities laws;
(2) the authority of the Commission to set standards for
accounting or auditing practices or auditor independence, derived
from other provisions of the securities laws or the rules or
regulations thereunder, for purposes of the preparation and
issuance of any audit report, or otherwise under applicable law; or
(3) the ability of the Commission to take, on the initiative of
the Commission, legal, administrative, or disciplinary action
against any registered public accounting firm or any associated
person thereof.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
(a) Establishment of Board.--There is established the Public
Company Accounting Oversight Board, to oversee the audit of public
companies that are subject to the securities laws, and related matters,
in order to protect the interests of investors and further the public
interest in the preparation of informative, accurate, and independent
audit reports for companies the securities of which are sold to, and
held by and for, public investors. The Board shall be a body corporate,
operate as a nonprofit corporation, and have succession until dissolved
by an Act of Congress.
(b) Status.--The Board shall not be an agency or establishment of
the United States Government, and, except as otherwise provided in this
Act, shall be subject to, and have all the powers conferred upon a
nonprofit corporation by, the District of Columbia Nonprofit
Corporation Act. No member or person employed by, or agent for, the
Board shall be deemed to be an officer or employee of or agent for the
Federal Government by reason of such service.
(c) Duties of the Board.--The Board shall, subject to action by the
Commission under section 107, and once a determination is made by the
Commission under subsection (d) of this section--
(1) register public accounting firms that prepare audit reports
for issuers, in accordance with section 102;
(2) establish or adopt, or both, by rule, auditing, quality
control, ethics, independence, and other standards relating to the
preparation of audit reports for issuers, in accordance with
section 103;
(3) conduct inspections of registered public accounting firms,
in accordance with section 104 and the rules of the Board;
(4) conduct investigations and disciplinary proceedings
concerning, and impose appropriate sanctions where justified upon,
registered public accounting firms and associated persons of such
firms, in accordance with section 105;
(5) perform such other duties or functions as the Board (or the
Commission, by rule or order) determines are necessary or
appropriate to promote high professional standards among, and
improve the quality of audit services offered by, registered public
accounting firms and associated persons thereof, or otherwise to
carry out this Act, in order to protect investors, or to further
the public interest;
(6) enforce compliance with this Act, the rules of the Board,
professional standards, and the securities laws relating to the
preparation and issuance of audit reports and the obligations and
liabilities of accountants with respect thereto, by registered
public accounting firms and associated persons thereof; and
(7) set the budget and manage the operations of the Board and
the staff of the Board.
(d) Commission Determination.--The members of the Board shall take
such action (including hiring of staff, proposal of rules, and adoption
of initial and transitional auditing and other professional standards)
as may be necessary or appropriate to enable the Commission to
determine, not later than 270 days after the date of enactment of this
Act, that the Board is so organized and has the capacity to carry out
the requirements of this title, and to enforce compliance with this
title by registered public accounting firms and associated persons
thereof. The Commission shall be responsible, prior to the appointment
of the Board, for the planning for the establishment and administrative
transition to the Board's operation.
(e) Board Membership.--
(1) Composition.--The Board shall have 5 members, appointed
from among prominent individuals of integrity and reputation who
have a demonstrated commitment to the interests of investors and
the public, and an understanding of the responsibilities for and
nature of the financial disclosures required of issuers under the
securities laws and the obligations of accountants with respect to
the preparation and issuance of audit reports with respect to such
disclosures.
(2) Limitation.--Two members, and only 2 members, of the Board
shall be or have been certified public accountants pursuant to the
laws of 1 or more States, provided that, if 1 of those 2 members is
the chairperson, he or she may not have been a practicing certified
public accountant for at least 5 years prior to his or her
appointment to the Board.
(3) Full-time independent service.--Each member of the Board
shall serve on a full-time basis, and may not, concurrent with
service on the Board, be employed by any other person or engage in
any other professional or business activity. No member of the Board
may share in any of the profits of, or receive payments from, a
public accounting firm (or any other person, as determined by rule
of the Commission), other than fixed continuing payments, subject
to such conditions as the Commission may impose, under standard
arrangements for the retirement of members of public accounting
firms.
(4) Appointment of board members.--
(A) Initial board.--Not later than 90 days after the date
of enactment of this Act, the Commission, after consultation
with the Chairman of the Board of Governors of the Federal
Reserve System and the Secretary of the Treasury, shall appoint
the chairperson and other initial members of the Board, and
shall designate a term of service for each.
(B) Vacancies.--A vacancy on the Board shall not affect the
powers of the Board, but shall be filled in the same manner as
provided for appointments under this section.
(5) Term of service.--
(A) In general.--The term of service of each Board member
shall be 5 years, and until a successor is appointed, except
that--
(i) the terms of office of the initial Board members
(other than the chairperson) shall expire in annual
increments, 1 on each of the first 4 anniversaries of the
initial date of appointment; and
(ii) any Board member appointed to fill a vacancy
occurring before the expiration of the term for which the
predecessor was appointed shall be appointed only for the
remainder of that term.
(B) Term limitation.--No person may serve as a member of
the Board, or as chairperson of the Board, for more than 2
terms, whether or not such terms of service are consecutive.
(6) Removal from office.--A member of the Board may be removed
by the Commission from office, in accordance with section
107(d)(3), for good cause shown before the expiration of the term
of that member.
(f) Powers of the Board.--In addition to any authority granted to
the Board otherwise in this Act, the Board shall have the power,
subject to section 107--
(1) to sue and be sued, complain and defend, in its corporate
name and through its own counsel, with the approval of the
Commission, in any Federal, State, or other court;
(2) to conduct its operations and maintain offices, and to
exercise all other rights and powers authorized by this Act, in any
State, without regard to any qualification, licensing, or other
provision of law in effect in such State (or a political
subdivision thereof);
(3) to lease, purchase, accept gifts or donations of or
otherwise acquire, improve, use, sell, exchange, or convey, all of
or an interest in any property, wherever situated;
(4) to appoint such employees, accountants, attorneys, and
other agents as may be necessary or appropriate, and to determine
their qualifications, define their duties, and fix their salaries
or other compensation (at a level that is comparable to private
sector self-regulatory, accounting, technical, supervisory, or
other staff or management positions);
(5) to allocate, assess, and collect accounting support fees
established pursuant to section 109, for the Board, and other fees
and charges imposed under this title; and
(6) to enter into contracts, execute instruments, incur
liabilities, and do any and all other acts and things necessary,
appropriate, or incidental to the conduct of its operations and the
exercise of its obligations, rights, and powers imposed or granted
by this title.
(g) Rules of the Board.--The rules of the Board shall, subject to
the approval of the Commission--
(1) provide for the operation and administration of the Board,
the exercise of its authority, and the performance of its
responsibilities under this Act;
(2) permit, as the Board determines necessary or appropriate,
delegation by the Board of any of its functions to an individual
member or employee of the Board, or to a division of the Board,
including functions with respect to hearing, determining, ordering,
certifying, reporting, or otherwise acting as to any matter, except
that--
(A) the Board shall retain a discretionary right to review
any action pursuant to any such delegated function, upon its
own motion;
(B) a person shall be entitled to a review by the Board
with respect to any matter so delegated, and the decision of
the Board upon such review shall be deemed to be the action of
the Board for all purposes (including appeal or review
thereof); and
(C) if the right to exercise a review described in
subparagraph (A) is declined, or if no such review is sought
within the time stated in the rules of the Board, then the
action taken by the holder of such delegation shall for all
purposes, including appeal or review thereof, be deemed to be
the action of the Board;
(3) establish ethics rules and standards of conduct for Board
members and staff, including a bar on practice before the Board
(and the Commission, with respect to Board-related matters) of 1
year for former members of the Board, and appropriate periods (not
to exceed 1 year) for former staff of the Board; and
(4) provide as otherwise required by this Act.
(h) Annual Report to the Commission.--The Board shall submit an
annual report (including its audited financial statements) to the
Commission, and the Commission shall transmit a copy of that report to
the Committee on Banking, Housing, and Urban Affairs of the Senate, and
the Committee on Financial Services of the House of Representatives,
not later than 30 days after the date of receipt of that report by the
Commission.
SEC. 102. REGISTRATION WITH THE BOARD.
(a) Mandatory Registration.--Beginning 180 days after the date of
the determination of the Commission under section 101(d), it shall be
unlawful for any person that is not a registered public accounting firm
to prepare or issue, or to participate in the preparation or issuance
of, any audit report with respect to any issuer.
(b) Applications for Registration.--
(1) Form of application.--A public accounting firm shall use
such form as the Board may prescribe, by rule, to apply for
registration under this section.
(2) Contents of applications.--Each public accounting firm
shall submit, as part of its application for registration, in such
detail as the Board shall specify--
(A) the names of all issuers for which the firm prepared or
issued audit reports during the immediately preceding calendar
year, and for which the firm expects to prepare or issue audit
reports during the current calendar year;
(B) the annual fees received by the firm from each such
issuer for audit services, other accounting services, and non-
audit services, respectively;
(C) such other current financial information for the most
recently completed fiscal year of the firm as the Board may
reasonably request;
(D) a statement of the quality control policies of the firm
for its accounting and auditing practices;
(E) a list of all accountants associated with the firm who
participate in or contribute to the preparation of audit
reports, stating the license or certification number of each
such person, as well as the State license numbers of the firm
itself;
(F) information relating to criminal, civil, or
administrative actions or disciplinary proceedings pending
against the firm or any associated person of the firm in
connection with any audit report;
(G) copies of any periodic or annual disclosure filed by an
issuer with the Commission during the immediately preceding
calendar year which discloses accounting disagreements between
such issuer and the firm in connection with an audit report
furnished or prepared by the firm for such issuer; and
(H) such other information as the rules of the Board or the
Commission shall specify as necessary or appropriate in the
public interest or for the protection of investors.
(3) Consents.--Each application for registration under this
subsection shall include--
(A) a consent executed by the public accounting firm to
cooperation in and compliance with any request for testimony or
the production of documents made by the Board in the
furtherance of its authority and responsibilities under this
title (and an agreement to secure and enforce similar consents
from each of the associated persons of the public accounting
firm as a condition of their continued employment by or other
association with such firm); and
(B) a statement that such firm understands and agrees that
cooperation and compliance, as described in the consent
required by subparagraph (A), and the securing and enforcement
of such consents from its associated persons, in accordance
with the rules of the Board, shall be a condition to the
continuing effectiveness of the registration of the firm with
the Board.
(c) Action on Applications.--
(1) Timing.--The Board shall approve a completed application
for registration not later than 45 days after the date of receipt
of the application, in accordance with the rules of the Board,
unless the Board, prior to such date, issues a written notice of
disapproval to, or requests more information from, the prospective
registrant.
(2) Treatment.--A written notice of disapproval of a completed
application under paragraph (1) for registration shall be treated
as a disciplinary sanction for purposes of sections 105(d) and
107(c).
(d) Periodic Reports.--Each registered public accounting firm shall
submit an annual report to the Board, and may be required to report
more frequently, as necessary to update the information contained in
its application for registration under this section, and to provide to
the Board such additional information as the Board or the Commission
may specify, in accordance with subsection (b)(2).
(e) Public Availability.--Registration applications and annual
reports required by this subsection, or such portions of such
applications or reports as may be designated under rules of the Board,
shall be made available for public inspection, subject to rules of the
Board or the Commission, and to applicable laws relating to the
confidentiality of proprietary, personal, or other information
contained in such applications or reports, provided that, in all
events, the Board shall protect from public disclosure information
reasonably identified by the subject accounting firm as proprietary
information.
(f) Registration and Annual Fees.--The Board shall assess and
collect a registration fee and an annual fee from each registered
public accounting firm, in amounts that are sufficient to recover the
costs of processing and reviewing applications and annual reports.
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND
RULES.
(a) Auditing, Quality Control, and Ethics Standards.--
(1) In general.--The Board shall, by rule, establish,
including, to the extent it determines appropriate, through
adoption of standards proposed by 1 or more professional groups of
accountants designated pursuant to paragraph (3)(A) or advisory
groups convened pursuant to paragraph (4), and amend or otherwise
modify or alter, such auditing and related attestation standards,
such quality control standards, and such ethics standards to be
used by registered public accounting firms in the preparation and
issuance of audit reports, as required by this Act or the rules of
the Commission, or as may be necessary or appropriate in the public
interest or for the protection of investors.
(2) Rule requirements.--In carrying out paragraph (1), the
Board--
(A) shall include in the auditing standards that it adopts,
requirements that each registered public accounting firm
shall--
(i) prepare, and maintain for a period of not less than
7 years, audit work papers, and other information related
to any audit report, in sufficient detail to support the
conclusions reached in such report;
(ii) provide a concurring or second partner review and
approval of such audit report (and other related
information), and concurring approval in its issuance, by a
qualified person (as prescribed by the Board) associated
with the public accounting firm, other than the person in
charge of the audit, or by an independent reviewer (as
prescribed by the Board); and
(iii) describe in each audit report the scope of the
auditor's testing of the internal control structure and
procedures of the issuer, required by section 404(b), and
present (in such report or in a separate report)--
(I) the findings of the auditor from such testing;
(II) an evaluation of whether such internal control
structure and procedures--
(aa) include maintenance of records that in
reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the
issuer;
(bb) provide reasonable assurance that
transactions are recorded as necessary to permit
preparation of financial statements in accordance
with generally accepted accounting principles, and
that receipts and expenditures of the issuer are
being made only in accordance with authorizations
of management and directors of the issuer; and
(III) a description, at a minimum, of material
weaknesses in such internal controls, and of any
material noncompliance found on the basis of such
testing.
(B) shall include, in the quality control standards that it
adopts with respect to the issuance of audit reports,
requirements for every registered public accounting firm
relating to--
(i) monitoring of professional ethics and independence
from issuers on behalf of which the firm issues audit
reports;
(ii) consultation within such firm on accounting and
auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development, and advancement
of personnel;
(v) the acceptance and continuation of engagements;
(vi) internal inspection; and
(vii) such other requirements as the Board may
prescribe, subject to subsection (a)(1).
(3) Authority to adopt other standards.--
(A) In general.--In carrying out this subsection, the
Board--
(i) may adopt as its rules, subject to the terms of
section 107, any portion of any statement of auditing
standards or other professional standards that the Board
determines satisfy the requirements of paragraph (1), and
that were proposed by 1 or more professional groups of
accountants that shall be designated or recognized by the
Board, by rule, for such purpose, pursuant to this
paragraph or 1 or more advisory groups convened pursuant to
paragraph (4); and
(ii) notwithstanding clause (i), shall retain full
authority to modify, supplement, revise, or subsequently
amend, modify, or repeal, in whole or in part, any portion
of any statement described in clause (i).
(B) Initial and transitional standards.--The Board shall
adopt standards described in subparagraph (A)(i) as initial or
transitional standards, to the extent the Board determines
necessary, prior to a determination of the Commission under
section 101(d), and such standards shall be separately approved
by the Commission at the time of that determination, without
regard to the procedures required by section 107 that otherwise
would apply to the approval of rules of the Board.
(4) Advisory groups.--The Board shall convene, or authorize its
staff to convene, such expert advisory groups as may be
appropriate, which may include practicing accountants and other
experts, as well as representatives of other interested groups,
subject to such rules as the Board may prescribe to prevent
conflicts of interest, to make recommendations concerning the
content (including proposed drafts) of auditing, quality control,
ethics, independence, or other standards required to be established
under this section.
(b) Independence Standards and Rules.--The Board shall establish
such rules as may be necessary or appropriate in the public interest or
for the protection of investors, to implement, or as authorized under,
title II of this Act.
(c) Cooperation With Designated Professional Groups of Accountants
and Advisory Groups.--
(1) In general.--The Board shall cooperate on an ongoing basis
with professional groups of accountants designated under subsection
(a)(3)(A) and advisory groups convened under subsection (a)(4) in
the examination of the need for changes in any standards subject to
its authority under subsection (a), recommend issues for inclusion
on the agendas of such designated professional groups of
accountants or advisory groups, and take such other steps as it
deems appropriate to increase the effectiveness of the standard
setting process.
(2) Board responses.--The Board shall respond in a timely
fashion to requests from designated professional groups of
accountants and advisory groups referred to in paragraph (1) for
any changes in standards over which the Board has authority.
(d) Evaluation of Standard Setting Process.--The Board shall
include in the annual report required by section 101(h) the results of
its standard setting responsibilities during the period to which the
report relates, including a discussion of the work of the Board with
any designated professional groups of accountants and advisory groups
described in paragraphs (3)(A) and (4) of subsection (a), and its
pending issues agenda for future standard setting projects.
SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.
(a) In General.--The Board shall conduct a continuing program of
inspections to assess the degree of compliance of each registered
public accounting firm and associated persons of that firm with this
Act, the rules of the Board, the rules of the Commission, or
professional standards, in connection with its performance of audits,
issuance of audit reports, and related matters involving issuers.
(b) Inspection Frequency.--
(1) In general.--Subject to paragraph (2), inspections required
by this section shall be conducted--
(A) annually with respect to each registered public
accounting firm that regularly provides audit reports for more
than 100 issuers; and
(B) not less frequently than once every 3 years with
respect to each registered public accounting firm that
regularly provides audit reports for 100 or fewer issuers.
(2) Adjustments to schedules.--The Board may, by rule, adjust
the inspection schedules set under paragraph (1) if the Board finds
that different inspection schedules are consistent with the
purposes of this Act, the public interest, and the protection of
investors. The Board may conduct special inspections at the request
of the Commission or upon its own motion.
(c) Procedures.--The Board shall, in each inspection under this
section, and in accordance with its rules for such inspections--
(1) identify any act or practice or omission to act by the
registered public accounting firm, or by any associated person
thereof, revealed by such inspection that may be in violation of
this Act, the rules of the Board, the rules of the Commission, the
firm's own quality control policies, or professional standards;
(2) report any such act, practice, or omission, if appropriate,
to the Commission and each appropriate State regulatory authority;
and
(3) begin a formal investigation or take disciplinary action,
if appropriate, with respect to any such violation, in accordance
with this Act and the rules of the Board.
(d) Conduct of Inspections.--In conducting an inspection of a
registered public accounting firm under this section, the Board shall--
(1) inspect and review selected audit and review engagements of
the firm (which may include audit engagements that are the subject
of ongoing litigation or other controversy between the firm and 1
or more third parties), performed at various offices and by various
associated persons of the firm, as selected by the Board;
(2) evaluate the sufficiency of the quality control system of
the firm, and the manner of the documentation and communication of
that system by the firm; and
(3) perform such other testing of the audit, supervisory, and
quality control procedures of the firm as are necessary or
appropriate in light of the purpose of the inspection and the
responsibilities of the Board.
(e) Record Retention.--The rules of the Board may require the
retention by registered public accounting firms for inspection purposes
of records whose retention is not otherwise required by section 103 or
the rules issued thereunder.
(f) Procedures for Review.--The rules of the Board shall provide a
procedure for the review of and response to a draft inspection report
by the registered public accounting firm under inspection. The Board
shall take such action with respect to such response as it considers
appropriate (including revising the draft report or continuing or
supplementing its inspection activities before issuing a final report),
but the text of any such response, appropriately redacted to protect
information reasonably identified by the accounting firm as
confidential, shall be attached to and made part of the inspection
report.
(g) Report.--A written report of the findings of the Board for each
inspection under this section, subject to subsection (h), shall be--
(1) transmitted, in appropriate detail, to the Commission and
each appropriate State regulatory authority, accompanied by any
letter or comments by the Board or the inspector, and any letter of
response from the registered public accounting firm; and
(2) made available in appropriate detail to the public (subject
to section 105(b)(5)(A), and to the protection of such confidential
and proprietary information as the Board may determine to be
appropriate, or as may be required by law), except that no portions
of the inspection report that deal with criticisms of or potential
defects in the quality control systems of the firm under inspection
shall be made public if those criticisms or defects are addressed
by the firm, to the satisfaction of the Board, not later than 12
months after the date of the inspection report.
(h) Interim Commission Review.--
(1) Reviewable matters.--A registered public accounting firm
may seek review by the Commission, pursuant to such rules as the
Commission shall promulgate, if the firm--
(A) has provided the Board with a response, pursuant to
rules issued by the Board under subsection (f), to the
substance of particular items in a draft inspection report, and
disagrees with the assessments contained in any final report
prepared by the Board following such response; or
(B) disagrees with the determination of the Board that
criticisms or defects identified in an inspection report have
not been addressed to the satisfaction of the Board within 12
months of the date of the inspection report, for purposes of
subsection (g)(2).
(2) Treatment of review.--Any decision of the Commission with
respect to a review under paragraph (1) shall not be reviewable
under section 25 of the Securities Exchange Act of 1934 (15 U.S.C.
78y), or deemed to be ``final agency action'' for purposes of
section 704 of title 5, United States Code.
(3) Timing.--Review under paragraph (1) may be sought during
the 30-day period following the date of the event giving rise to
the review under subparagraph (A) or (B) of paragraph (1).
SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.
(a) In General.--The Board shall establish, by rule, subject to the
requirements of this section, fair procedures for the investigation and
disciplining of registered public accounting firms and associated
persons of such firms.
(b) Investigations.--
(1) Authority.--In accordance with the rules of the Board, the
Board may conduct an investigation of any act or practice, or
omission to act, by a registered public accounting firm, any
associated person of such firm, or both, that may violate any
provision of this Act, the rules of the Board, the provisions of
the securities laws relating to the preparation and issuance of
audit reports and the obligations and liabilities of accountants
with respect thereto, including the rules of the Commission issued
under this Act, or professional standards, regardless of how the
act, practice, or omission is brought to the attention of the
Board.
(2) Testimony and document production.--In addition to such
other actions as the Board determines to be necessary or
appropriate, the rules of the Board may--
(A) require the testimony of the firm or of any person
associated with a registered public accounting firm, with
respect to any matter that the Board considers relevant or
material to an investigation;
(B) require the production of audit work papers and any
other document or information in the possession of a registered
public accounting firm or any associated person thereof,
wherever domiciled, that the Board considers relevant or
material to the investigation, and may inspect the books and
records of such firm or associated person to verify the
accuracy of any documents or information supplied;
(C) request the testimony of, and production of any
document in the possession of, any other person, including any
client of a registered public accounting firm that the Board
considers relevant or material to an investigation under this
section, with appropriate notice, subject to the needs of the
investigation, as permitted under the rules of the Board; and
(D) provide for procedures to seek issuance by the
Commission, in a manner established by the Commission, of a
subpoena to require the testimony of, and production of any
document in the possession of, any person, including any client
of a registered public accounting firm, that the Board
considers relevant or material to an investigation under this
section.
(3) Noncooperation with investigations.--
(A) In general.--If a registered public accounting firm or
any associated person thereof refuses to testify, produce
documents, or otherwise cooperate with the Board in connection
with an investigation under this section, the Board may--
(i) suspend or bar such person from being associated
with a registered public accounting firm, or require the
registered public accounting firm to end such association;
(ii) suspend or revoke the registration of the public
accounting firm; and
(iii) invoke such other lesser sanctions as the Board
considers appropriate, and as specified by rule of the
Board.
(B) Procedure.--Any action taken by the Board under this
paragraph shall be subject to the terms of section 107(c).
(4) Coordination and referral of investigations.--
(A) Coordination.--The Board shall notify the Commission of
any pending Board investigation involving a potential violation
of the securities laws, and thereafter coordinate its work with
the work of the Commission's Division of Enforcement, as
necessary to protect an ongoing Commission investigation.
(B) Referral.--The Board may refer an investigation under
this section--
(i) to the Commission;
(ii) to any other Federal functional regulator (as
defined in section 509 of the Gramm-Leach-Bliley Act (15
U.S.C. 6809)), in the case of an investigation that
concerns an audit report for an institution that is subject
to the jurisdiction of such regulator; and
(iii) at the direction of the Commission, to--
(I) the Attorney General of the United States;
(II) the attorney general of 1 or more States; and
(III) the appropriate State regulatory authority.
(5) Use of documents.--
(A) Confidentiality.--Except as provided in subparagraph
(B), all documents and information prepared or received by or
specifically for the Board, and deliberations of the Board and
its employees and agents, in connection with an inspection
under section 104 or with an investigation under this section,
shall be confidential and privileged as an evidentiary matter
(and shall not be subject to civil discovery or other legal
process) in any proceeding in any Federal or State court or
administrative agency, and shall be exempt from disclosure, in
the hands of an agency or establishment of the Federal
Government, under the Freedom of Information Act (5 U.S.C.
552a), or otherwise, unless and until presented in connection
with a public proceeding or released in accordance with
subsection (c).
(B) Availability to government agencies.--Without the loss
of its status as confidential and privileged in the hands of
the Board, all information referred to in subparagraph (A)
may--
(i) be made available to the Commission; and
(ii) in the discretion of the Board, when determined by
the Board to be necessary to accomplish the purposes of
this Act or to protect investors, be made available to--
(I) the Attorney General of the United States;
(II) the appropriate Federal functional regulator
(as defined in section 509 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6809)), other than the Commission, with
respect to an audit report for an institution subject
to the jurisdiction of such regulator;
(III) State attorneys general in connection with
any criminal investigation; and
(IV) any appropriate State regulatory authority,
each of which shall maintain such information as confidential
and privileged.
(6) Immunity.--Any employee of the Board engaged in carrying
out an investigation under this Act shall be immune from any civil
liability arising out of such investigation in the same manner and
to the same extent as an employee of the Federal Government in
similar circumstances.
(c) Disciplinary Procedures.--
(1) Notification; recordkeeping.--The rules of the Board shall
provide that in any proceeding by the Board to determine whether a
registered public accounting firm, or an associated person thereof,
should be disciplined, the Board shall--
(A) bring specific charges with respect to the firm or
associated person;
(B) notify such firm or associated person of, and provide
to the firm or associated person an opportunity to defend
against, such charges; and
(C) keep a record of the proceedings.
(2) Public hearings.--Hearings under this section shall not be
public, unless otherwise ordered by the Board for good cause shown,
with the consent of the parties to such hearing.
(3) Supporting statement.--A determination by the Board to
impose a sanction under this subsection shall be supported by a
statement setting forth--
(A) each act or practice in which the registered public
accounting firm, or associated person, has engaged (or omitted
to engage), or that forms a basis for all or a part of such
sanction;
(B) the specific provision of this Act, the securities
laws, the rules of the Board, or professional standards which
the Board determines has been violated; and
(C) the sanction imposed, including a justification for
that sanction.
(4) Sanctions.--If the Board finds, based on all of the facts
and circumstances, that a registered public accounting firm or
associated person thereof has engaged in any act or practice, or
omitted to act, in violation of this Act, the rules of the Board,
the provisions of the securities laws relating to the preparation
and issuance of audit reports and the obligations and liabilities
of accountants with respect thereto, including the rules of the
Commission issued under this Act, or professional standards, the
Board may impose such disciplinary or remedial sanctions as it
determines appropriate, subject to applicable limitations under
paragraph (5), including--
(A) temporary suspension or permanent revocation of
registration under this title;
(B) temporary or permanent suspension or bar of a person
from further association with any registered public accounting
firm;
(C) temporary or permanent limitation on the activities,
functions, or operations of such firm or person (other than in
connection with required additional professional education or
training);
(D) a civil money penalty for each such violation, in an
amount equal to--
(i) not more than $100,000 for a natural person or
$2,000,000 for any other person; and
(ii) in any case to which paragraph (5) applies, not
more than $750,000 for a natural person or $15,000,000 for
any other person;
(E) censure;
(F) required additional professional education or training;
or
(G) any other appropriate sanction provided for in the
rules of the Board.
(5) Intentional or other knowing conduct.--The sanctions and
penalties described in subparagraphs (A) through (C) and (D)(ii) of
paragraph (4) shall only apply to--
(A) intentional or knowing conduct, including reckless
conduct, that results in violation of the applicable statutory,
regulatory, or professional standard; or
(B) repeated instances of negligent conduct, each resulting
in a violation of the applicable statutory, regulatory, or
professional standard.
(6) Failure to supervise.--
(A) In general.--The Board may impose sanctions under this
section on a registered accounting firm or upon the supervisory
personnel of such firm, if the Board finds that--
(i) the firm has failed reasonably to supervise an
associated person, either as required by the rules of the
Board relating to auditing or quality control standards, or
otherwise, with a view to preventing violations of this
Act, the rules of the Board, the provisions of the
securities laws relating to the preparation and issuance of
audit reports and the obligations and liabilities of
accountants with respect thereto, including the rules of
the Commission under this Act, or professional standards;
and
(ii) such associated person commits a violation of this
Act, or any of such rules, laws, or standards.
(B) Rule of construction.--No associated person of a
registered public accounting firm shall be deemed to have
failed reasonably to supervise any other person for purposes of
subparagraph (A), if--
(i) there have been established in and for that firm
procedures, and a system for applying such procedures, that
comply with applicable rules of the Board and that would
reasonably be expected to prevent and detect any such
violation by such associated person; and
(ii) such person has reasonably discharged the duties
and obligations incumbent upon that person by reason of
such procedures and system, and had no reasonable cause to
believe that such procedures and system were not being
complied with.
(7) Effect of suspension.--
(A) Association with a public accounting firm.--It shall be
unlawful for any person that is suspended or barred from being
associated with a registered public accounting firm under this
subsection willfully to become or remain associated with any
registered public accounting firm, or for any registered public
accounting firm that knew, or, in the exercise of reasonable
care should have known, of the suspension or bar, to permit
such an association, without the consent of the Board or the
Commission.
(B) Association with an issuer.--It shall be unlawful for
any person that is suspended or barred from being associated
with an issuer under this subsection willfully to become or
remain associated with any issuer in an accountancy or a
financial management capacity, and for any issuer that knew, or
in the exercise of reasonable care should have known, of such
suspension or bar, to permit such an association, without the
consent of the Board or the Commission.
(d) Reporting of Sanctions.--
(1) Recipients.--If the Board imposes a disciplinary sanction,
in accordance with this section, the Board shall report the
sanction to--
(A) the Commission;
(B) any appropriate State regulatory authority or any
foreign accountancy licensing board with which such firm or
person is licensed or certified; and
(C) the public (once any stay on the imposition of such
sanction has been lifted).
(2) Contents.--The information reported under paragraph (1)
shall include--
(A) the name of the sanctioned person;
(B) a description of the sanction and the basis for its
imposition; and
(C) such other information as the Board deems appropriate.
(e) Stay of Sanctions.--
(1) In general.--Application to the Commission for review, or
the institution by the Commission of review, of any disciplinary
action of the Board shall operate as a stay of any such
disciplinary action, unless and until the Commission orders
(summarily or after notice and opportunity for hearing on the
question of a stay, which hearing may consist solely of the
submission of affidavits or presentation of oral arguments) that no
such stay shall continue to operate.
(2) Expedited procedures.--The Commission shall establish for
appropriate cases an expedited procedure for consideration and
determination of the question of the duration of a stay pending
review of any disciplinary action of the Board under this
subsection.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) Applicability to Certain Foreign Firms.--
(1) In general.--Any foreign public accounting firm that
prepares or furnishes an audit report with respect to any issuer,
shall be subject to this Act and the rules of the Board and the
Commission issued under this Act, in the same manner and to the
same extent as a public accounting firm that is organized and
operates under the laws of the United States or any State, except
that registration pursuant to section 102 shall not by itself
provide a basis for subjecting such a foreign public accounting
firm to the jurisdiction of the Federal or State courts, other than
with respect to controversies between such firms and the Board.
(2) Board authority.--The Board may, by rule, determine that a
foreign public accounting firm (or a class of such firms) that does
not issue audit reports nonetheless plays such a substantial role
in the preparation and furnishing of such reports for particular
issuers, that it is necessary or appropriate, in light of the
purposes of this Act and in the public interest or for the
protection of investors, that such firm (or class of firms) should
be treated as a public accounting firm (or firms) for purposes of
registration under, and oversight by the Board in accordance with,
this title.
(b) Production of Audit Workpapers.--
(1) Consent by foreign firms.--If a foreign public accounting
firm issues an opinion or otherwise performs material services upon
which a registered public accounting firm relies in issuing all or
part of any audit report or any opinion contained in an audit
report, that foreign public accounting firm shall be deemed to have
consented--
(A) to produce its audit workpapers for the Board or the
Commission in connection with any investigation by either body
with respect to that audit report; and
(B) to be subject to the jurisdiction of the courts of the
United States for purposes of enforcement of any request for
production of such workpapers.
(2) Consent by domestic firms.--A registered public accounting
firm that relies upon the opinion of a foreign public accounting
firm, as described in paragraph (1), shall be deemed--
(A) to have consented to supplying the audit workpapers of
that foreign public accounting firm in response to a request
for production by the Board or the Commission; and
(B) to have secured the agreement of that foreign public
accounting firm to such production, as a condition of its
reliance on the opinion of that foreign public accounting firm.
(c) Exemption Authority.--The Commission, and the Board, subject to
the approval of the Commission, may, by rule, regulation, or order, and
as the Commission (or Board) determines necessary or appropriate in the
public interest or for the protection of investors, either
unconditionally or upon specified terms and conditions exempt any
foreign public accounting firm, or any class of such firms, from any
provision of this Act or the rules of the Board or the Commission
issued under this Act.
(d) Definition.--In this section, the term ``foreign public
accounting firm'' means a public accounting firm that is organized and
operates under the laws of a foreign government or political
subdivision thereof.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) General Oversight Responsibility.--The Commission shall have
oversight and enforcement authority over the Board, as provided in this
Act. The provisions of section 17(a)(1) of the Securities Exchange Act
of 1934 (15 U.S.C. 78q(a)(1)), and of section 17(b)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78q(b)(1)) shall apply to
the Board as fully as if the Board were a ``registered securities
association'' for purposes of those sections 17(a)(1) and 17(b)(1).
(b) Rules of the Board.--
(1) Definition.--In this section, the term ``proposed rule''
means any proposed rule of the Board, and any modification of any
such rule.
(2) Prior approval required.--No rule of the Board shall become
effective without prior approval of the Commission in accordance
with this section, other than as provided in section 103(a)(3)(B)
with respect to initial or transitional standards.
(3) Approval criteria.--The Commission shall approve a proposed
rule, if it finds that the rule is consistent with the requirements
of this Act and the securities laws, or is necessary or appropriate
in the public interest or for the protection of investors.
(4) Proposed rule procedures.--The provisions of paragraphs (1)
through (3) of section 19(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78s(b)) shall govern the proposed rules of the Board, as
fully as if the Board were a ``registered securities association''
for purposes of that section 19(b), except that, for purposes of
this paragraph--
(A) the phrase ``consistent with the requirements of this
title and the rules and regulations thereunder applicable to
such organization'' in section 19(b)(2) of that Act shall be
deemed to read ``consistent with the requirements of title I of
the Sarbanes-Oxley Act of 2002, and the rules and regulations
issued thereunder applicable to such organization, or as
necessary or appropriate in the public interest or for the
protection of investors''; and
(B) the phrase ``otherwise in furtherance of the purposes
of this title'' in section 19(b)(3)(C) of that Act shall be
deemed to read ``otherwise in furtherance of the purposes of
title I of the Sarbanes-Oxley Act of 2002''.
(5) Commission authority to amend rules of the board.--The
provisions of section 19(c) of the Securities Exchange Act of 1934
(15 U.S.C. 78s(c)) shall govern the abrogation, deletion, or
addition to portions of the rules of the Board by the Commission as
fully as if the Board were a ``registered securities association''
for purposes of that section 19(c), except that the phrase ``to
conform its rules to the requirements of this title and the rules
and regulations thereunder applicable to such organization, or
otherwise in furtherance of the purposes of this title'' in section
19(c) of that Act shall, for purposes of this paragraph, be deemed
to read ``to assure the fair administration of the Public Company
Accounting Oversight Board, conform the rules promulgated by that
Board to the requirements of title I of the Sarbanes-Oxley Act of
2002, or otherwise further the purposes of that Act, the securities
laws, and the rules and regulations thereunder applicable to that
Board''.
(c) Commission Review of Disciplinary Action Taken by the Board.--
(1) Notice of sanction.--The Board shall promptly file notice
with the Commission of any final sanction on any registered public
accounting firm or on any associated person thereof, in such form
and containing such information as the Commission, by rule, may
prescribe.
(2) Review of sanctions.--The provisions of sections 19(d)(2)
and 19(e)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78s
(d)(2) and (e)(1)) shall govern the review by the Commission of
final disciplinary sanctions imposed by the Board (including
sanctions imposed under section 105(b)(3) of this Act for
noncooperation in an investigation of the Board), as fully as if
the Board were a self-regulatory organization and the Commission
were the appropriate regulatory agency for such organization for
purposes of those sections 19(d)(2) and 19(e)(1), except that, for
purposes of this paragraph--
(A) section 105(e) of this Act (rather than that section
19(d)(2)) shall govern the extent to which application for, or
institution by the Commission on its own motion of, review of
any disciplinary action of the Board operates as a stay of such
action;
(B) references in that section 19(e)(1) to ``members'' of
such an organization shall be deemed to be references to
registered public accounting firms;
(C) the phrase ``consistent with the purposes of this
title'' in that section 19(e)(1) shall be deemed to read
``consistent with the purposes of this title and title I of the
Sarbanes-Oxley Act of 2002'';
(D) references to rules of the Municipal Securities
Rulemaking Board in that section 19(e)(1) shall not apply; and
(E) the reference to section 19(e)(2) of the Securities
Exchange Act of 1934 shall refer instead to section 107(c)(3)
of this Act.
(3) Commission modification authority.--The Commission may
enhance, modify, cancel, reduce, or require the remission of a
sanction imposed by the Board upon a registered public accounting
firm or associated person thereof, if the Commission, having due
regard for the public interest and the protection of investors,
finds, after a proceeding in accordance with this subsection, that
the sanction--
(A) is not necessary or appropriate in furtherance of this
Act or the securities laws; or
(B) is excessive, oppressive, inadequate, or otherwise not
appropriate to the finding or the basis on which the sanction
was imposed.
(d) Censure of the Board; Other Sanctions.--
(1) Rescission of board authority.--The Commission, by rule,
consistent with the public interest, the protection of investors,
and the other purposes of this Act and the securities laws, may
relieve the Board of any responsibility to enforce compliance with
any provision of this Act, the securities laws, the rules of the
Board, or professional standards.
(2) Censure of the board; limitations.--The Commission may, by
order, as it determines necessary or appropriate in the public
interest, for the protection of investors, or otherwise in
furtherance of the purposes of this Act or the securities laws,
censure or impose limitations upon the activities, functions, and
operations of the Board, if the Commission finds, on the record,
after notice and opportunity for a hearing, that the Board--
(A) has violated or is unable to comply with any provision
of this Act, the rules of the Board, or the securities laws; or
(B) without reasonable justification or excuse, has failed
to enforce compliance with any such provision or rule, or any
professional standard by a registered public accounting firm or
an associated person thereof.
(3) Censure of board members; removal from office.--The
Commission may, as necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of this Act or the securities laws, remove from office or
censure any member of the Board, if the Commission finds, on the
record, after notice and opportunity for a hearing, that such
member--
(A) has willfully violated any provision of this Act, the
rules of the Board, or the securities laws;
(B) has willfully abused the authority of that member; or
(C) without reasonable justification or excuse, has failed
to enforce compliance with any such provision or rule, or any
professional standard by any registered public accounting firm
or any associated person thereof.
SEC. 108. ACCOUNTING STANDARDS.
(a) Amendment to Securities Act of 1933.--Section 19 of the
Securities Act of 1933 (15 U.S.C. 77s) is amended--
(1) by redesignating subsections (b) and (c) as subsections (c)
and (d), respectively; and
(2) by inserting after subsection (a) the following:
``(b) Recognition of Accounting Standards.--
``(1) In general.--In carrying out its authority under
subsection (a) and under section 13(b) of the Securities Exchange
Act of 1934, the Commission may recognize, as `generally accepted'
for purposes of the securities laws, any accounting principles
established by a standard setting body--
``(A) that--
``(i) is organized as a private entity;
``(ii) has, for administrative and operational
purposes, a board of trustees (or equivalent body) serving
in the public interest, the majority of whom are not,
concurrent with their service on such board, and have not
been during the 2-year period preceding such service,
associated persons of any registered public accounting
firm;
``(iii) is funded as provided in section 109 of the
Sarbanes-Oxley Act of 2002;
``(iv) has adopted procedures to ensure prompt
consideration, by majority vote of its members, of changes
to accounting principles necessary to reflect emerging
accounting issues and changing business practices; and
``(v) considers, in adopting accounting principles, the
need to keep standards current in order to reflect changes
in the business environment, the extent to which
international convergence on high quality accounting
standards is necessary or appropriate in the public
interest and for the protection of investors; and
``(B) that the Commission determines has the capacity to
assist the Commission in fulfilling the requirements of
subsection (a) and section 13(b) of the Securities Exchange Act
of 1934, because, at a minimum, the standard setting body is
capable of improving the accuracy and effectiveness of
financial reporting and the protection of investors under the
securities laws.
``(2) Annual report.--A standard setting body described in
paragraph (1) shall submit an annual report to the Commission and
the public, containing audited financial statements of that
standard setting body.''.
(b) Commission Authority.--The Commission shall promulgate such
rules and regulations to carry out section 19(b) of the Securities Act
of 1933, as added by this section, as it deems necessary or appropriate
in the public interest or for the protection of investors.
(c) No Effect on Commission Powers.--Nothing in this Act, including
this section and the amendment made by this section, shall be construed
to impair or limit the authority of the Commission to establish
accounting principles or standards for purposes of enforcement of the
securities laws.
(d) Study and Report on Adopting Principles-Based Accounting.--
(1) Study.--
(A) In general.--The Commission shall conduct a study on
the adoption by the United States financial reporting system of
a principles-based accounting system.
(B) Study topics.--The study required by subparagraph (A)
shall include an examination of--
(i) the extent to which principles-based accounting and
financial reporting exists in the United States;
(ii) the length of time required for change from a
rules-based to a principles-based financial reporting
system;
(iii) the feasibility of and proposed methods by which
a principles-based system may be implemented; and
(iv) a thorough economic analysis of the implementation
of a principles-based system.
(2) Report.--Not later than 1 year after the date of enactment
of this Act, the Commission shall submit a report on the results of
the study required by paragraph (1) to the Committee on Banking,
Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives.
SEC. 109. FUNDING.
(a) In General.--The Board, and the standard setting body
designated pursuant to section 19(b) of the Securities Act of 1933, as
amended by section 108, shall be funded as provided in this section.
(b) Annual Budgets.--The Board and the standard setting body
referred to in subsection (a) shall each establish a budget for each
fiscal year, which shall be reviewed and approved according to their
respective internal procedures not less than 1 month prior to the
commencement of the fiscal year to which the budget pertains (or at the
beginning of the Board's first fiscal year, which may be a short fiscal
year). The budget of the Board shall be subject to approval by the
Commission. The budget for the first fiscal year of the Board shall be
prepared and approved promptly following the appointment of the initial
five Board members, to permit action by the Board of the organizational
tasks contemplated by section 101(d).
(c) Sources and Uses of Funds.--
(1) Recoverable budget expenses.--The budget of the Board
(reduced by any registration or annual fees received under section
102(e) for the year preceding the year for which the budget is
being computed), and all of the budget of the standard setting body
referred to in subsection (a), for each fiscal year of each of
those 2 entities, shall be payable from annual accounting support
fees, in accordance with subsections (d) and (e). Accounting
support fees and other receipts of the Board and of such standard-
setting body shall not be considered public monies of the United
States.
(2) Funds generated from the collection of monetary
penalties.--Subject to the availability in advance in an
appropriations Act, and notwithstanding subsection (i), all funds
collected by the Board as a result of the assessment of monetary
penalties shall be used to fund a merit scholarship program for
undergraduate and graduate students enrolled in accredited
accounting degree programs, which program is to be administered by
the Board or by an entity or agent identified by the Board.
(d) Annual Accounting Support Fee for the Board.--
(1) Establishment of fee.--The Board shall establish, with the
approval of the Commission, a reasonable annual accounting support
fee (or a formula for the computation thereof), as may be necessary
or appropriate to establish and maintain the Board. Such fee may
also cover costs incurred in the Board's first fiscal year (which
may be a short fiscal year), or may be levied separately with
respect to such short fiscal year.
(2) Assessments.--The rules of the Board under paragraph (1)
shall provide for the equitable allocation, assessment, and
collection by the Board (or an agent appointed by the Board) of the
fee established under paragraph (1), among issuers, in accordance
with subsection (g), allowing for differentiation among classes of
issuers, as appropriate.
(e) Annual Accounting Support Fee for Standard Setting Body.--The
annual accounting support fee for the standard setting body referred to
in subsection (a)--
(1) shall be allocated in accordance with subsection (g), and
assessed and collected against each issuer, on behalf of the
standard setting body, by 1 or more appropriate designated
collection agents, as may be necessary or appropriate to pay for
the budget and provide for the expenses of that standard setting
body, and to provide for an independent, stable source of funding
for such body, subject to review by the Commission; and
(2) may differentiate among different classes of issuers.
(f) Limitation on Fee.--The amount of fees collected under this
section for a fiscal year on behalf of the Board or the standards
setting body, as the case may be, shall not exceed the recoverable
budget expenses of the Board or body, respectively (which may include
operating, capital, and accrued items), referred to in subsection
(c)(1).
(g) Allocation of Accounting Support Fees Among Issuers.--Any
amount due from issuers (or a particular class of issuers) under this
section to fund the budget of the Board or the standard setting body
referred to in subsection (a) shall be allocated among and payable by
each issuer (or each issuer in a particular class, as applicable) in an
amount equal to the total of such amount, multiplied by a fraction--
(1) the numerator of which is the average monthly equity market
capitalization of the issuer for the 12-month period immediately
preceding the beginning of the fiscal year to which such budget
relates; and
(2) the denominator of which is the average monthly equity
market capitalization of all such issuers for such 12-month period.
(h) Conforming Amendments.--Section 13(b)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is amended--
(1) in subparagraph (A), by striking ``and'' at the end; and
(2) in subparagraph (B), by striking the period at the end and
inserting the following: ``; and
``(C) notwithstanding any other provision of law, pay the
allocable share of such issuer of a reasonable annual accounting
support fee or fees, determined in accordance with section 109 of
the Sarbanes-Oxley Act of 2002.''.
(i) Rule of Construction.--Nothing in this section shall be
construed to render either the Board, the standard setting body
referred to in subsection (a), or both, subject to procedures in
Congress to authorize or appropriate public funds, or to prevent such
organization from utilizing additional sources of revenue for its
activities, such as earnings from publication sales, provided that each
additional source of revenue shall not jeopardize, in the judgment of
the Commission, the actual and perceived independence of such
organization.
(j) Start-Up Expenses of the Board.--From the unexpended balances
of the appropriations to the Commission for fiscal year 2003, the
Secretary of the Treasury is authorized to advance to the Board not to
exceed the amount necessary to cover the expenses of the Board during
its first fiscal year (which may be a short fiscal year).
TITLE II--AUDITOR INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.
(a) Prohibited Activities.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended by adding at the end the
following:
``(g) Prohibited Activities.--Except as provided in subsection (h),
it shall be unlawful for a registered public accounting firm (and any
associated person of that firm, to the extent determined appropriate by
the Commission) that performs for any issuer any audit required by this
title or the rules of the Commission under this title or, beginning 180
days after the date of commencement of the operations of the Public
Company Accounting Oversight Board established under section 101 of the
Sarbanes-Oxley Act of 2002 (in this section referred to as the
`Board'), the rules of the Board, to provide to that issuer,
contemporaneously with the audit, any non-audit service, including--
``(1) bookkeeping or other services related to the accounting
records or financial statements of the audit client;
``(2) financial information systems design and implementation;
``(3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
``(4) actuarial services;
``(5) internal audit outsourcing services;
``(6) management functions or human resources;
``(7) broker or dealer, investment adviser, or investment
banking services;
``(8) legal services and expert services unrelated to the
audit; and
``(9) any other service that the Board determines, by
regulation, is impermissible.
``(h) Preapproval Required for Non-Audit Services.--A registered
public accounting firm may engage in any non-audit service, including
tax services, that is not described in any of paragraphs (1) through
(9) of subsection (g) for an audit client, only if the activity is
approved in advance by the audit committee of the issuer, in accordance
with subsection (i).''.
(b) Exemption Authority.--The Board may, on a case by case basis,
exempt any person, issuer, public accounting firm, or transaction from
the prohibition on the provision of services under section 10A(g) of
the Securities Exchange Act of 1934 (as added by this section), to the
extent that such exemption is necessary or appropriate in the public
interest and is consistent with the protection of investors, and
subject to review by the Commission in the same manner as for rules of
the Board under section 107.
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(i) Preapproval Requirements.--
``(1) In general.--
``(A) Audit committee action.--All auditing services (which
may entail providing comfort letters in connection with
securities underwritings or statutory audits required for
insurance companies for purposes of State law) and non-audit
services, other than as provided in subparagraph (B), provided
to an issuer by the auditor of the issuer shall be preapproved
by the audit committee of the issuer.
``(B) De minimus exception.--The preapproval requirement
under subparagraph (A) is waived with respect to the provision
of non-audit services for an issuer, if--
``(i) the aggregate amount of all such non-audit
services provided to the issuer constitutes not more than 5
percent of the total amount of revenues paid by the issuer
to its auditor during the fiscal year in which the nonaudit
services are provided;
``(ii) such services were not recognized by the issuer
at the time of the engagement to be non-audit services; and
``(iii) such services are promptly brought to the
attention of the audit committee of the issuer and approved
prior to the completion of the audit by the audit committee
or by 1 or more members of the audit committee who are
members of the board of directors to whom authority to
grant such approvals has been delegated by the audit
committee.
``(2) Disclosure to investors.--Approval by an audit committee
of an issuer under this subsection of a non-audit service to be
performed by the auditor of the issuer shall be disclosed to
investors in periodic reports required by section 13(a).
``(3) Delegation authority.--The audit committee of an issuer
may delegate to 1 or more designated members of the audit committee
who are independent directors of the board of directors, the
authority to grant preapprovals required by this subsection. The
decisions of any member to whom authority is delegated under this
paragraph to preapprove an activity under this subsection shall be
presented to the full audit committee at each of its scheduled
meetings.
``(4) Approval of audit services for other purposes.--In
carrying out its duties under subsection (m)(2), if the audit
committee of an issuer approves an audit service within the scope
of the engagement of the auditor, such audit service shall be
deemed to have been preapproved for purposes of this subsection.''.
SEC. 203. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(j) Audit Partner Rotation.--It shall be unlawful for a
registered public accounting firm to provide audit services to an
issuer if the lead (or coordinating) audit partner (having primary
responsibility for the audit), or the audit partner responsible for
reviewing the audit, has performed audit services for that issuer in
each of the 5 previous fiscal years of that issuer.''.
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(k) Reports to Audit Committees.--Each registered public
accounting firm that performs for any issuer any audit required by this
title shall timely report to the audit committee of the issuer--
``(1) all critical accounting policies and practices to be
used;
``(2) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management officials of the issuer, ramifications of
the use of such alternative disclosures and treatments, and the
treatment preferred by the registered public accounting firm; and
``(3) other material written communications between the
registered public accounting firm and the management of the issuer,
such as any management letter or schedule of unadjusted
differences.''.
SEC. 205. CONFORMING AMENDMENTS.
(a) Definitions.--Section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following:
``(58) Audit committee.--The term `audit committee' means--
``(A) a committee (or equivalent body) established by and
amongst the board of directors of an issuer for the purpose of
overseeing the accounting and financial reporting processes of
the issuer and audits of the financial statements of the
issuer; and
``(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
``(59) Registered public accounting firm.--The term `registered
public accounting firm' has the same meaning as in section 2 of the
Sarbanes-Oxley Act of 2002.''.
(b) Auditor Requirements.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended--
(1) by striking ``an independent public accountant'' each place
that term appears and inserting ``a registered public accounting
firm'';
(2) by striking ``the independent public accountant'' each
place that term appears and inserting ``the registered public
accounting firm'';
(3) in subsection (c), by striking ``No independent public
accountant'' and inserting ``No registered public accounting
firm''; and
(4) in subsection (b)--
(A) by striking ``the accountant'' each place that term
appears and inserting ``the firm'';
(B) by striking ``such accountant'' each place that term
appears and inserting ``such firm''; and
(C) in paragraph (4), by striking ``the accountant's
report'' and inserting ``the report of the firm''.
(c) Other References.--The Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended--
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking
``independent public accountants'' each place that term appears and
inserting ``a registered public accounting firm''; and
(2) in subsections (e) and (i) of section 17 (15 U.S.C. 78q),
by striking ``an independent public accountant'' each place that
term appears and inserting ``a registered public accounting firm''.
(d) Conforming Amendment.--Section 10A(f) of the Securities
Exchange Act of 1934 (15 U.S.C. 78k(f)) is amended--
(1) by striking ``Definition'' and inserting ``Definitions'';
and
(2) by adding at the end the following: ``As used in this
section, the term `issuer' means an issuer (as defined in section
3), the securities of which are registered under section 12, or
that is required to file reports pursuant to section 15(d), or that
files or has filed a registration statement that has not yet become
effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.),
and that it has not withdrawn.''.
SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(l) Conflicts of Interest.--It shall be unlawful for a registered
public accounting firm to perform for an issuer any audit service
required by this title, if a chief executive officer, controller, chief
financial officer, chief accounting officer, or any person serving in
an equivalent position for the issuer, was employed by that registered
independent public accounting firm and participated in any capacity in
the audit of that issuer during the 1-year period preceding the date of
the initiation of the audit.''.
SEC. 207. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC ACCOUNTING
FIRMS.
(a) Study and Review Required.--The Comptroller General of the
United States shall conduct a study and review of the potential effects
of requiring the mandatory rotation of registered public accounting
firms.
(b) Report Required.--Not later than 1 year after the date of
enactment of this Act, the Comptroller General shall submit a report to
the Committee on Banking, Housing, and Urban Affairs of the Senate and
the Committee on Financial Services of the House of Representatives on
the results of the study and review required by this section.
(c) Definition.--For purposes of this section, the term ``mandatory
rotation'' refers to the imposition of a limit on the period of years
in which a particular registered public accounting firm may be the
auditor of record for a particular issuer.
SEC. 208. COMMISSION AUTHORITY.
(a) Commission Regulations.--Not later than 180 days after the date
of enactment of this Act, the Commission shall issue final regulations
to carry out each of subsections (g) through (l) of section 10A of the
Securities Exchange Act of 1934, as added by this title.
(b) Auditor Independence.--It shall be unlawful for any registered
public accounting firm (or an associated person thereof, as applicable)
to prepare or issue any audit report with respect to any issuer, if the
firm or associated person engages in any activity with respect to that
issuer prohibited by any of subsections (g) through (l) of section 10A
of the Securities Exchange Act of 1934, as added by this title, or any
rule or regulation of the Commission or of the Board issued thereunder.
SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY AUTHORITIES.
In supervising nonregistered public accounting firms and their
associated persons, appropriate State regulatory authorities should
make an independent determination of the proper standards applicable,
particularly taking into consideration the size and nature of the
business of the accounting firms they supervise and the size and nature
of the business of the clients of those firms. The standards applied by
the Board under this Act should not be presumed to be applicable for
purposes of this section for small and medium sized nonregistered
public accounting firms.
TITLE III--CORPORATE RESPONSIBILITY
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78f)
is amended by adding at the end the following:
``(m) Standards Relating to Audit Committees.--
``(1) Commission rules.--
``(A) In general.--Effective not later than 270 days after
the date of enactment of this subsection, the Commission shall,
by rule, direct the national securities exchanges and national
securities associations to prohibit the listing of any security
of an issuer that is not in compliance with the requirements of
any portion of paragraphs (2) through (6).
``(B) Opportunity to cure defects.--The rules of the
Commission under subparagraph (A) shall provide for appropriate
procedures for an issuer to have an opportunity to cure any
defects that would be the basis for a prohibition under
subparagraph (A), before the imposition of such prohibition.
``(2) Responsibilities relating to registered public accounting
firms.--The audit committee of each issuer, in its capacity as a
committee of the board of directors, shall be directly responsible
for the appointment, compensation, and oversight of the work of any
registered public accounting firm employed by that issuer
(including resolution of disagreements between management and the
auditor regarding financial reporting) for the purpose of preparing
or issuing an audit report or related work, and each such
registered public accounting firm shall report directly to the
audit committee.
``(3) Independence.--
``(A) In general.--Each member of the audit committee of
the issuer shall be a member of the board of directors of the
issuer, and shall otherwise be independent.
``(B) Criteria.--In order to be considered to be
independent for purposes of this paragraph, a member of an
audit committee of an issuer may not, other than in his or her
capacity as a member of the audit committee, the board of
directors, or any other board committee--
``(i) accept any consulting, advisory, or other
compensatory fee from the issuer; or
``(ii) be an affiliated person of the issuer or any
subsidiary thereof.
``(C) Exemption authority.--The Commission may exempt from
the requirements of subparagraph (B) a particular relationship
with respect to audit committee members, as the Commission
determines appropriate in light of the circumstances.
``(4) Complaints.--Each audit committee shall establish
procedures for--
``(A) the receipt, retention, and treatment of complaints
received by the issuer regarding accounting, internal
accounting controls, or auditing matters; and
``(B) the confidential, anonymous submission by employees
of the issuer of concerns regarding questionable accounting or
auditing matters.
``(5) Authority to engage advisers.--Each audit committee shall
have the authority to engage independent counsel and other
advisers, as it determines necessary to carry out its duties.
``(6) Funding.--Each issuer shall provide for appropriate
funding, as determined by the audit committee, in its capacity as a
committee of the board of directors, for payment of compensation--
``(A) to the registered public accounting firm employed by
the issuer for the purpose of rendering or issuing an audit
report; and
``(B) to any advisers employed by the audit committee under
paragraph (5).''.
SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) Regulations Required.--The Commission shall, by rule, require,
for each company filing periodic reports under section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that
the principal executive officer or officers and the principal financial
officer or officers, or persons performing similar functions, certify
in each annual or quarterly report filed or submitted under either such
section of such Act that--
(1) the signing officer has reviewed the report;
(2) based on the officer's knowledge, the report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in
light of the circumstances under which such statements were made,
not misleading;
(3) based on such officer's knowledge, the financial
statements, and other financial information included in the report,
fairly present in all material respects the financial condition and
results of operations of the issuer as of, and for, the periods
presented in the report;
(4) the signing officers--
(A) are responsible for establishing and maintaining
internal controls;
(B) have designed such internal controls to ensure that
material information relating to the issuer and its
consolidated subsidiaries is made known to such officers by
others within those entities, particularly during the period in
which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer's
internal controls as of a date within 90 days prior to the
report; and
(D) have presented in the report their conclusions about
the effectiveness of their internal controls based on their
evaluation as of that date;
(5) the signing officers have disclosed to the issuer's
auditors and the audit committee of the board of directors (or
persons fulfilling the equivalent function)--
(A) all significant deficiencies in the design or operation
of internal controls which could adversely affect the issuer's
ability to record, process, summarize, and report financial
data and have identified for the issuer's auditors any material
weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the issuer's internal controls; and
(6) the signing officers have indicated in the report whether
or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
(b) Foreign Reincorporations Have No Effect.--Nothing in this
section 302 shall be interpreted or applied in any way to allow any
issuer to lessen the legal force of the statement required under this
section 302, by an issuer having reincorporated or having engaged in
any other transaction that resulted in the transfer of the corporate
domicile or offices of the issuer from inside the United States to
outside of the United States.
(c) Deadline.--The rules required by subsection (a) shall be
effective not later than 30 days after the date of enactment of this
Act.
SEC. 303. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) Rules To Prohibit.--It shall be unlawful, in contravention of
such rules or regulations as the Commission shall prescribe as
necessary and appropriate in the public interest or for the protection
of investors, for any officer or director of an issuer, or any other
person acting under the direction thereof, to take any action to
fraudulently influence, coerce, manipulate, or mislead any independent
public or certified accountant engaged in the performance of an audit
of the financial statements of that issuer for the purpose of rendering
such financial statements materially misleading.
(b) Enforcement.--In any civil proceeding, the Commission shall
have exclusive authority to enforce this section and any rule or
regulation issued under this section.
(c) No Preemption of Other Law.--The provisions of subsection (a)
shall be in addition to, and shall not supersede or preempt, any other
provision of law or any rule or regulation issued thereunder.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose the rules or regulations required by this section,
not later than 90 days after the date of enactment of this Act; and
(2) issue final rules or regulations required by this section,
not later than 270 days after that date of enactment.
SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.
(a) Additional Compensation Prior to Noncompliance With Commission
Financial Reporting Requirements.--If an issuer is required to prepare
an accounting restatement due to the material noncompliance of the
issuer, as a result of misconduct, with any financial reporting
requirement under the securities laws, the chief executive officer and
chief financial officer of the issuer shall reimburse the issuer for--
(1) any bonus or other incentive-based or equity-based
compensation received by that person from the issuer during the 12-
month period following the first public issuance or filing with the
Commission (whichever first occurs) of the financial document
embodying such financial reporting requirement; and
(2) any profits realized from the sale of securities of the
issuer during that 12-month period.
(b) Commission Exemption Authority.--The Commission may exempt any
person from the application of subsection (a), as it deems necessary
and appropriate.
SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.
(a) Unfitness Standard.--
(1) Securities exchange act of 1934.--Section 21(d)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is amended by
striking ``substantial unfitness'' and inserting ``unfitness''.
(2) Securities act of 1933.--Section 20(e) of the Securities
Act of 1933 (15 U.S.C. 77t(e)) is amended by striking ``substantial
unfitness'' and inserting ``unfitness''.
(b) Equitable Relief.--Section 21(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78u(d)) is amended by adding at the end the
following:
``(5) Equitable Relief.--In any action or proceeding brought or
instituted by the Commission under any provision of the securities
laws, the Commission may seek, and any Federal court may grant, any
equitable relief that may be appropriate or necessary for the benefit
of investors.''.
SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS.
(a) Prohibition of Insider Trading During Pension Fund Blackout
Periods.--
(1) In general.--Except to the extent otherwise provided by
rule of the Commission pursuant to paragraph (3), it shall be
unlawful for any director or executive officer of an issuer of any
equity security (other than an exempted security), directly or
indirectly, to purchase, sell, or otherwise acquire or transfer any
equity security of the issuer (other than an exempted security)
during any blackout period with respect to such equity security if
such director or officer acquires such equity security in
connection with his or her service or employment as a director or
executive officer.
(2) Remedy.--
(A) In general.--Any profit realized by a director or
executive officer referred to in paragraph (1) from any
purchase, sale, or other acquisition or transfer in violation
of this subsection shall inure to and be recoverable by the
issuer, irrespective of any intention on the part of such
director or executive officer in entering into the transaction.
(B) Actions to recover profits.--An action to recover
profits in accordance with this subsection may be instituted at
law or in equity in any court of competent jurisdiction by the
issuer, or by the owner of any security of the issuer in the
name and in behalf of the issuer if the issuer fails or refuses
to bring such action within 60 days after the date of request,
or fails diligently to prosecute the action thereafter, except
that no such suit shall be brought more than 2 years after the
date on which such profit was realized.
(3) Rulemaking Authorized.--The Commission shall, in
consultation with the Secretary of Labor, issue rules to clarify
the application of this subsection and to prevent evasion thereof.
Such rules shall provide for the application of the requirements of
paragraph (1) with respect to entities treated as a single employer
with respect to an issuer under section 414(b), (c), (m), or (o) of
the Internal Revenue Code of 1986 to the extent necessary to
clarify the application of such requirements and to prevent evasion
thereof. Such rules may also provide for appropriate exceptions
from the requirements of this subsection, including exceptions for
purchases pursuant to an automatic dividend reinvestment program or
purchases or sales made pursuant to an advance election.
(4) Blackout period.--For purposes of this subsection, the term
``blackout period'', with respect to the equity securities of any
issuer--
(A) means any period of more than 3 consecutive business
days during which the ability of not fewer than 50 percent of
the participants or beneficiaries under all individual account
plans maintained by the issuer to purchase, sell, or otherwise
acquire or transfer an interest in any equity of such issuer
held in such an individual account plan is temporarily
suspended by the issuer or by a fiduciary of the plan; and
(B) does not include, under regulations which shall be
prescribed by the Commission--
(i) a regularly scheduled period in which the
participants and beneficiaries may not purchase, sell, or
otherwise acquire or transfer an interest in any equity of
such issuer, if such period is--
(I) incorporated into the individual account plan;
and
(II) timely disclosed to employees before becoming
participants under the individual account plan or as a
subsequent amendment to the plan; or
(ii) any suspension described in subparagraph (A) that
is imposed solely in connection with persons becoming
participants or beneficiaries, or ceasing to be
participants or beneficiaries, in an individual account
plan by reason of a corporate merger, acquisition,
divestiture, or similar transaction involving the plan or
plan sponsor.
(5) Individual account plan.--For purposes of this subsection,
the term ``individual account plan'' has the meaning provided in
section 3(34) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002(34), except that such term shall not include a
one-participant retirement plan (within the meaning of section
101(i)(8)(B) of such Act (29 U.S.C. 1021(i)(8)(B))).
(6) Notice to directors, executive officers, and the
commission.--In any case in which a director or executive officer
is subject to the requirements of this subsection in connection
with a blackout period (as defined in paragraph (4)) with respect
to any equity securities, the issuer of such equity securities
shall timely notify such director or officer and the Securities and
Exchange Commission of such blackout period.
(b) Notice Requirements to Participants and Beneficiaries under
ERISA.--
(1) In general.--Section 101 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021) is amended by redesignating
the second subsection (h) as subsection (j), and by inserting after
the first subsection (h) the following new subsection:
``(i) Notice of Blackout Periods to Participant or Beneficiary
Under Individual Account Plan.--
``(1) Duties of plan administrator.--In advance of the
commencement of any blackout period with respect to an individual
account plan, the plan administrator shall notify the plan
participants and beneficiaries who are affected by such action in
accordance with this subsection.
``(2) Notice requirements.--
``(A) In general.--The notices described in paragraph (1)
shall be written in a manner calculated to be understood by the
average plan participant and shall include--
``(i) the reasons for the blackout period,
``(ii) an identification of the investments and other
rights affected,
``(iii) the expected beginning date and length of the
blackout period,
``(iv) in the case of investments affected, a statement
that the participant or beneficiary should evaluate the
appropriateness of their current investment decisions in
light of their inability to direct or diversify assets
credited to their accounts during the blackout period, and
``(v) such other matters as the Secretary may require
by regulation.
``(B) Notice to participants and beneficiaries.--Except as
otherwise provided in this subsection, notices described in
paragraph (1) shall be furnished to all participants and
beneficiaries under the plan to whom the blackout period
applies at least 30 days in advance of the blackout period.
``(C) Exception to 30-day notice requirement.--In any case
in which--
``(i) a deferral of the blackout period would violate
the requirements of subparagraph (A) or (B) of section
404(a)(1), and a fiduciary of the plan reasonably so
determines in writing, or
``(ii) the inability to provide the 30-day advance
notice is due to events that were unforeseeable or
circumstances beyond the reasonable control of the plan
administrator, and a fiduciary of the plan reasonably so
determines in writing,
subparagraph (B) shall not apply, and the notice shall be
furnished to all participants and beneficiaries under the plan
to whom the blackout period applies as soon as reasonably
possible under the circumstances unless such a notice in
advance of the termination of the blackout period is
impracticable.
``(D) Written notice.--The notice required to be provided
under this subsection shall be in writing, except that such
notice may be in electronic or other form to the extent that
such form is reasonably accessible to the recipient.
``(E) Notice to issuers of employer securities subject to
blackout period.--In the case of any blackout period in
connection with an individual account plan, the plan
administrator shall provide timely notice of such blackout
period to the issuer of any employer securities subject to such
blackout period.
``(3) Exception for blackout periods with limited
applicability.--In any case in which the blackout period applies
only to 1 or more participants or beneficiaries in connection with
a merger, acquisition, divestiture, or similar transaction
involving the plan or plan sponsor and occurs solely in connection
with becoming or ceasing to be a participant or beneficiary under
the plan by reason of such merger, acquisition, divestiture, or
transaction, the requirement of this subsection that the notice be
provided to all participants and beneficiaries shall be treated as
met if the notice required under paragraph (1) is provided to such
participants or beneficiaries to whom the blackout period applies
as soon as reasonably practicable.
``(4) Changes in length of blackout period.--If, following the
furnishing of the notice pursuant to this subsection, there is a
change in the beginning date or length of the blackout period
(specified in such notice pursuant to paragraph (2)(A)(iii)), the
administrator shall provide affected participants and beneficiaries
notice of the change as soon as reasonably practicable. In relation
to the extended blackout period, such notice shall meet the
requirements of paragraph (2)(D) and shall specify any material
change in the matters referred to in clauses (i) through (v) of
paragraph (2)(A).
``(5) Regulatory exceptions.--The Secretary may provide by
regulation for additional exceptions to the requirements of this
subsection which the Secretary determines are in the interests of
participants and beneficiaries.
``(6) Guidance and model notices.--The Secretary shall issue
guidance and model notices which meet the requirements of this
subsection.
``(7) Blackout period.--For purposes of this subsection--
``(A) In general.--The term `blackout period' means, in
connection with an individual account plan, any period for
which any ability of participants or beneficiaries under the
plan, which is otherwise available under the terms of such
plan, to direct or diversify assets credited to their accounts,
to obtain loans from the plan, or to obtain distributions from
the plan is temporarily suspended, limited, or restricted, if
such suspension, limitation, or restriction is for any period
of more than 3 consecutive business days.
``(B) Exclusions.--The term `blackout period' does not
include a suspension, limitation, or restriction--
``(i) which occurs by reason of the application of the
securities laws (as defined in section 3(a)(47) of the
Securities Exchange Act of 1934),
``(ii) which is a change to the plan which provides for
a regularly scheduled suspension, limitation, or
restriction which is disclosed to participants or
beneficiaries through any summary of material
modifications, any materials describing specific investment
alternatives under the plan, or any changes thereto, or
``(iii) which applies only to 1 or more individuals,
each of whom is the participant, an alternate payee (as
defined in section 206(d)(3)(K)), or any other beneficiary
pursuant to a qualified domestic relations order (as
defined in section 206(d)(3)(B)(i)).
``(8) Individual account plan.--
``(A) In general.--For purposes of this subsection, the
term `individual account plan' shall have the meaning provided
such term in section 3(34), except that such term shall not
include a one-participant retirement plan.
``(B) One-participant retirement plan.--For purposes of
subparagraph (A), the term `one-participant retirement plan'
means a retirement plan that--
``(i) on the first day of the plan year--
``(I) covered only the employer (and the employer's
spouse) and the employer owned the entire business
(whether or not incorporated), or
``(II) covered only one or more partners (and their
spouses) in a business partnership (including partners
in an S or C corporation (as defined in section 1361(a)
of the Internal Revenue Code of 1986)),
``(ii) meets the minimum coverage requirements of
section 410(b) of the Internal Revenue Code of 1986 (as in
effect on the date of the enactment of this paragraph)
without being combined with any other plan of the business
that covers the employees of the business,
``(iii) does not provide benefits to anyone except the
employer (and the employer's spouse) or the partners (and
their spouses),
``(iv) does not cover a business that is a member of an
affiliated service group, a controlled group of
corporations, or a group of businesses under common
control, and
``(v) does not cover a business that leases
employees.''.
(2) Issuance of initial guidance and model notice.--The
Secretary of Labor shall issue initial guidance and a model notice
pursuant to section 101(i)(6) of the Employee Retirement Income
Security Act of 1974 (as added by this subsection) not later than
January 1, 2003. Not later than 75 days after the date of the
enactment of this Act, the Secretary shall promulgate interim final
rules necessary to carry out the amendments made by this
subsection.
(3) Civil penalties for failure to provide notice.--Section 502
of such Act (29 U.S.C. 1132) is amended--
(A) in subsection (a)(6), by striking ``(5), or (6)'' and
inserting ``(5), (6), or (7)'';
(B) by redesignating paragraph (7) of subsection (c) as
paragraph (8); and
(C) by inserting after paragraph (6) of subsection (c) the
following new paragraph:
``(7) The Secretary may assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan
administrator's failure or refusal to provide notice to participants
and beneficiaries in accordance with section 101(i). For purposes of
this paragraph, each violation with respect to any single participant
or beneficiary shall be treated as a separate violation.''.
(3) Plan amendments.--If any amendment made by this subsection
requires an amendment to any plan, such plan amendment shall not be
required to be made before the first plan year beginning on or
after the effective date of this section, if--
(A) during the period after such amendment made by this
subsection takes effect and before such first plan year, the
plan is operated in good faith compliance with the requirements
of such amendment made by this subsection, and
(B) such plan amendment applies retroactively to the period
after such amendment made by this subsection takes effect and
before such first plan year.
(c) Effective Date.--The provisions of this section (including the
amendments made thereby) shall take effect 180 days after the date of
the enactment of this Act. Good faith compliance with the requirements
of such provisions in advance of the issuance of applicable regulations
thereunder shall be treated as compliance with such provisions.
SEC. 307. RULES OF PROFESSIONAL RESPONSIBILITY FOR ATTORNEYS.
Not later than 180 days after the date of enactment of this Act,
the Commission shall issue rules, in the public interest and for the
protection of investors, setting forth minimum standards of
professional conduct for attorneys appearing and practicing before the
Commission in any way in the representation of issuers, including a
rule--
(1) requiring an attorney to report evidence of a material
violation of securities law or breach of fiduciary duty or similar
violation by the company or any agent thereof, to the chief legal
counsel or the chief executive officer of the company (or the
equivalent thereof); and
(2) if the counsel or officer does not appropriately respond to
the evidence (adopting, as necessary, appropriate remedial measures
or sanctions with respect to the violation), requiring the attorney
to report the evidence to the audit committee of the board of
directors of the issuer or to another committee of the board of
directors comprised solely of directors not employed directly or
indirectly by the issuer, or to the board of directors.
SEC. 308. FAIR FUNDS FOR INVESTORS.
(a) Civil Penalties Added to Disgorgement Funds for the Relief of
Victims.--If in any judicial or administrative action brought by the
Commission under the securities laws (as such term is defined in
section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(47)) the Commission obtains an order requiring disgorgement
against any person for a violation of such laws or the rules or
regulations thereunder, or such person agrees in settlement of any such
action to such disgorgement, and the Commission also obtains pursuant
to such laws a civil penalty against such person, the amount of such
civil penalty shall, on the motion or at the direction of the
Commission, be added to and become part of the disgorgement fund for
the benefit of the victims of such violation.
(b) Acceptance of Additional Donations.--The Commission is
authorized to accept, hold, administer, and utilize gifts, bequests and
devises of property, both real and personal, to the United States for a
disgorgement fund described in subsection (a). Such gifts, bequests,
and devises of money and proceeds from sales of other property received
as gifts, bequests, or devises shall be deposited in the disgorgement
fund and shall be available for allocation in accordance with
subsection (a).
(c) Study Required.--
(1) Subject of study.--The Commission shall review and
analyze--
(A) enforcement actions by the Commission over the five
years preceding the date of the enactment of this Act that have
included proceedings to obtain civil penalties or disgorgements
to identify areas where such proceedings may be utilized to
efficiently, effectively, and fairly provide restitution for
injured investors; and
(B) other methods to more efficiently, effectively, and
fairly provide restitution to injured investors, including
methods to improve the collection rates for civil penalties and
disgorgements.
(2) Report Required.--The Commission shall report its findings
to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate within 180 days after of the date of the
enactment of this Act, and shall use such findings to revise its
rules and regulations as necessary. The report shall include a
discussion of regulatory or legislative actions that are
recommended or that may be necessary to address concerns identified
in the study.
(d) Conforming Amendments.--Each of the following provisions is
amended by inserting ``, except as otherwise provided in section 308 of
the Sarbanes-Oxley Act of 2002'' after ``Treasury of the United
States'':
(1) Section 21(d)(3)(C)(i) of the Securities Exchange Act of
1934 (15 U.S.C. 78u(d)(3)(C)(i)).
(2) Section 21A(d)(1) of such Act (15 U.S.C. 78u-1(d)(1)).
(3) Section 20(d)(3)(A) of the Securities Act of 1933 (15
U.S.C. 77t(d)(3)(A)).
(4) Section 42(e)(3)(A) of the Investment Company Act of 1940
(15 U.S.C. 80a-41(e)(3)(A)).
(5) Section 209(e)(3)(A) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-9(e)(3)(A)).
(e) Definition.--As used in this section, the term ``disgorgement
fund'' means a fund established in any administrative or judicial
proceeding described in subsection (a).
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
SEC. 401. DISCLOSURES IN PERIODIC REPORTS.
(a) Disclosures Required.--Section 13 of the Securities Exchange
Act of 1934 (15 U.S.C. 78m) is amended by adding at the end the
following:
``(i) Accuracy of Financial Reports.--Each financial report that
contains financial statements, and that is required to be prepared in
accordance with (or reconciled to) generally accepted accounting
principles under this title and filed with the Commission shall reflect
all material correcting adjustments that have been identified by a
registered public accounting firm in accordance with generally accepted
accounting principles and the rules and regulations of the Commission.
``(j) Off-Balance Sheet Transactions.--Not later than 180 days
after the date of enactment of the Sarbanes-Oxley Act of 2002, the
Commission shall issue final rules providing that each annual and
quarterly financial report required to be filed with the Commission
shall disclose all material off-balance sheet transactions,
arrangements, obligations (including contingent obligations), and other
relationships of the issuer with unconsolidated entities or other
persons, that may have a material current or future effect on financial
condition, changes in financial condition, results of operations,
liquidity, capital expenditures, capital resources, or significant
components of revenues or expenses.''.
(b) Commission Rules on Pro Forma Figures.--Not later than 180 days
after the date of enactment of the Sarbanes-Oxley Act fo 2002, the
Commission shall issue final rules providing that pro forma financial
information included in any periodic or other report filed with the
Commission pursuant to the securities laws, or in any public disclosure
or press or other release, shall be presented in a manner that--
(1) does not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the pro
forma financial information, in light of the circumstances under
which it is presented, not misleading; and
(2) reconciles it with the financial condition and results of
operations of the issuer under generally accepted accounting
principles.
(c) Study and Report on Special Purpose Entities.--
(1) Study required.--The Commission shall, not later than 1
year after the effective date of adoption of off-balance sheet
disclosure rules required by section 13(j) of the Securities
Exchange Act of 1934, as added by this section, complete a study of
filings by issuers and their disclosures to determine--
(A) the extent of off-balance sheet transactions, including
assets, liabilities, leases, losses, and the use of special
purpose entities; and
(B) whether generally accepted accounting rules result in
financial statements of issuers reflecting the economics of
such off-balance sheet transactions to investors in a
transparent fashion.
(2) Report and recommendations.--Not later than 6 months after
the date of completion of the study required by paragraph (1), the
Commission shall submit a report to the President, the Committee on
Banking, Housing, and Urban Affairs of the Senate, and the
Committee on Financial Services of the House of Representatives,
setting forth--
(A) the amount or an estimate of the amount of off-balance
sheet transactions, including assets, liabilities, leases, and
losses of, and the use of special purpose entities by, issuers
filing periodic reports pursuant to section 13 or 15 of the
Securities Exchange Act of 1934;
(B) the extent to which special purpose entities are used
to facilitate off-balance sheet transactions;
(C) whether generally accepted accounting principles or the
rules of the Commission result in financial statements of
issuers reflecting the economics of such transactions to
investors in a transparent fashion;
(D) whether generally accepted accounting principles
specifically result in the consolidation of special purpose
entities sponsored by an issuer in cases in which the issuer
has the majority of the risks and rewards of the special
purpose entity; and
(E) any recommendations of the Commission for improving the
transparency and quality of reporting off-balance sheet
transactions in the financial statements and disclosures
required to be filed by an issuer with the Commission.
SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.
(a) Prohibition on Personal Loans to Executives.--Section 13 of the
Securities Exchange Act of 1934 (15 U.S.C. 78m), as amended by this
Act, is amended by adding at the end the following:
``(k) Prohibition on Personal Loans to Executives.--
``(1) In general.--It shall be unlawful for any issuer (as
defined in section 2 of the Sarbanes-Oxley Act of 2002), directly
or indirectly, including through any subsidiary, to extend or
maintain credit, to arrange for the extension of credit, or to
renew an extension of credit, in the form of a personal loan to or
for any director or executive officer (or equivalent thereof) of
that issuer. An extension of credit maintained by the issuer on the
date of enactment of this subsection shall not be subject to the
provisions of this subsection, provided that there is no material
modification to any term of any such extension of credit or any
renewal of any such extension of credit on or after that date of
enactment.
``(2) Limitation.--Paragraph (1) does not preclude any home
improvement and manufactured home loans (as that term is defined in
section 5 of the Home Owners' Loan Act (12 U.S.C. 1464)), consumer
credit (as defined in section 103 of the Truth in Lending Act (15
U.S.C. 1602)), or any extension of credit under an open end credit
plan (as defined in section 103 of the Truth in Lending Act (15
U.S.C. 1602)), or a charge card (as defined in section 127(c)(4)(e)
of the Truth in Lending Act (15 U.S.C. 1637(c)(4)(e)), or any
extension of credit by a broker or dealer registered under section
15 of this title to an employee of that broker or dealer to buy,
trade, or carry securities, that is permitted under rules or
regulations of the Board of Governors of the Federal Reserve System
pursuant to section 7 of this title (other than an extension of
credit that would be used to purchase the stock of that issuer),
that is--
``(A) made or provided in the ordinary course of the
consumer credit business of such issuer;
``(B) of a type that is generally made available by such
issuer to the public; and
``(C) made by such issuer on market terms, or terms that
are no more favorable than those offered by the issuer to the
general public for such extensions of credit.
``(3) Rule of construction for certain loans.--Paragraph (1)
does not apply to any loan made or maintained by an insured
depository institution (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813)), if the loan is subject to
the insider lending restrictions of section 22(h) of the Federal
Reserve Act (12 U.S.C. 375b).''.
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND
PRINCIPAL STOCKHOLDERS.
(a) Amendment.--Section 16 of the Securities Exchange Act of 1934
(15 U.S.C. 78p) is amended by striking the heading of such section and
subsection (a) and inserting the following:
``SEC. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.
``(a) Disclosures Required.--
``(1) Directors, officers, and principal stockholders required
to file.--Every person who is directly or indirectly the beneficial
owner of more than 10 percent of any class of any equity security
(other than an exempted security) which is registered pursuant to
section 12, or who is a director or an officer of the issuer of
such security, shall file the statements required by this
subsection with the Commission (and, if such security is registered
on a national securities exchange, also with the exchange).
``(2) Time of filing.--The statements required by this
subsection shall be filed--
``(A) at the time of the registration of such security on a
national securities exchange or by the effective date of a
registration statement filed pursuant to section 12(g);
``(B) within 10 days after he or she becomes such
beneficial owner, director, or officer;
``(C) if there has been a change in such ownership, or if
such person shall have purchased or sold a security-based swap
agreement (as defined in section 206(b) of the Gramm-Leach-
Bliley Act (15 U.S.C. 78c note)) involving such equity
security, before the end of the second business day following
the day on which the subject transaction has been executed, or
at such other time as the Commission shall establish, by rule,
in any case in which the Commission determines that such 2-day
period is not feasible.
``(3) Contents of statements.--A statement filed--
``(A) under subparagraph (A) or (B) of paragraph (2) shall
contain a statement of the amount of all equity securities of
such issuer of which the filing person is the beneficial owner;
and
``(B) under subparagraph (C) of such paragraph shall
indicate ownership by the filing person at the date of filing,
any such changes in such ownership, and such purchases and
sales of the security-based swap agreements as have occurred
since the most recent such filing under such subparagraph.
``(4) Electronic filing and availability.--Beginning not later
than 1 year after the date of enactment of the Sarbanes-Oxley Act
of 2002--
``(A) a statement filed under subparagraph (C) of paragraph
(2) shall be filed electronically;
``(B) the Commission shall provide each such statement on a
publicly accessible Internet site not later than the end of the
business day following that filing; and
``(C) the issuer (if the issuer maintains a corporate
website) shall provide that statement on that corporate
website, not later than the end of the business day following
that filing.''.
(b) Effective Date.--The amendment made by this section shall be
effective 30 days after the date of the enactment of this Act.
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) Rules Required.--The Commission shall prescribe rules requiring
each annual report required by section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal
control report, which shall--
(1) state the responsibility of management for establishing and
maintaining an adequate internal control structure and procedures
for financial reporting; and
(2) contain an assessment, as of the end of the most recent
fiscal year of the issuer, of the effectiveness of the internal
control structure and procedures of the issuer for financial
reporting.
(b) Internal Control Evaluation and Reporting.--With respect to the
internal control assessment required by subsection (a), each registered
public accounting firm that prepares or issues the audit report for the
issuer shall attest to, and report on, the assessment made by the
management of the issuer. An attestation made under this subsection
shall be made in accordance with standards for attestation engagements
issued or adopted by the Board. Any such attestation shall not be the
subject of a separate engagement.
SEC. 405. EXEMPTION.
Nothing in section 401, 402, or 404, the amendments made by those
sections, or the rules of the Commission under those sections shall
apply to any investment company registered under section 8 of the
Investment Company Act of 1940 (15 U.S.C. 80a-8).
SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.
(a) Code of Ethics Disclosure.--The Commission shall issue rules to
require each issuer, together with periodic reports required pursuant
to section 13(a) or 15(d) of the Securities Exchange Act of 1934, to
disclose whether or not, and if not, the reason therefor, such issuer
has adopted a code of ethics for senior financial officers, applicable
to its principal financial officer and comptroller or principal
accounting officer, or persons performing similar functions.
(b) Changes in Codes of Ethics.--The Commission shall revise its
regulations concerning matters requiring prompt disclosure on Form 8-K
(or any successor thereto) to require the immediate disclosure, by
means of the filing of such form, dissemination by the Internet or by
other electronic means, by any issuer of any change in or waiver of the
code of ethics for senior financial officers.
(c) Definition.--In this section, the term ``code of ethics'' means
such standards as are reasonably necessary to promote--
(1) honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and
professional relationships;
(2) full, fair, accurate, timely, and understandable disclosure
in the periodic reports required to be filed by the issuer; and
(3) compliance with applicable governmental rules and
regulations.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not later than 90
days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later than
180 days after that date of enactment.
SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT.
(a) Rules Defining ``Financial Expert''.--The Commission shall
issue rules, as necessary or appropriate in the public interest and
consistent with the protection of investors, to require each issuer,
together with periodic reports required pursuant to sections 13(a) and
15(d) of the Securities Exchange Act of 1934, to disclose whether or
not, and if not, the reasons therefor, the audit committee of that
issuer is comprised of at least 1 member who is a financial expert, as
such term is defined by the Commission.
(b) Considerations.--In defining the term ``financial expert'' for
purposes of subsection (a), the Commission shall consider whether a
person has, through education and experience as a public accountant or
auditor or a principal financial officer, comptroller, or principal
accounting officer of an issuer, or from a position involving the
performance of similar functions--
(1) an understanding of generally accepted accounting
principles and financial statements;
(2) experience in--
(A) the preparation or auditing of financial statements of
generally comparable issuers; and
(B) the application of such principles in connection with
the accounting for estimates, accruals, and reserves;
(3) experience with internal accounting controls; and
(4) an understanding of audit committee functions.
(c) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not later than 90
days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later than
180 days after that date of enactment.
SEC. 408. ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS.
(a) Regular and Systematic Review.--The Commission shall review
disclosures made by issuers reporting under section 13(a) of the
Securities Exchange Act of 1934 (including reports filed on Form 10-K),
and which have a class of securities listed on a national securities
exchange or traded on an automated quotation facility of a national
securities association, on a regular and systematic basis for the
protection of investors. Such review shall include a review of an
issuer's financial statement.
(b) Review Criteria.--For purposes of scheduling the reviews
required by subsection (a), the Commission shall consider, among other
factors--
(1) issuers that have issued material restatements of financial
results;
(2) issuers that experience significant volatility in their
stock price as compared to other issuers;
(3) issuers with the largest market capitalization;
(4) emerging companies with disparities in price to earning
ratios;
(5) issuers whose operations significantly affect any material
sector of the economy; and
(6) any other factors that the Commission may consider
relevant.
(c) Minimum Review Period.--In no event shall an issuer required to
file reports under section 13(a) or 15(d) of the Securities Exchange
Act of 1934 be reviewed under this section less frequently than once
every 3 years.
SEC. 409. REAL TIME ISSUER DISCLOSURES.
Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m),
as amended by this Act, is amended by adding at the end the following:
``(l) Real Time Issuer Disclosures.--Each issuer reporting under
section 13(a) or 15(d) shall disclose to the public on a rapid and
current basis such additional information concerning material changes
in the financial condition or operations of the issuer, in plain
English, which may include trend and qualitative information and
graphic presentations, as the Commission determines, by rule, is
necessary or useful for the protection of investors and in the public
interest.''.
TITLE V--ANALYST CONFLICTS OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES
ASSOCIATIONS AND NATIONAL SECURITIES EXCHANGES.
(a) Rules Regarding Securities Analysts.--The Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after
section 15C the following new section:
``SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS.
``(a) Analyst Protections.--The Commission, or upon the
authorization and direction of the Commission, a registered securities
association or national securities exchange, shall have adopted, not
later than 1 year after the date of enactment of this section, rules
reasonably designed to address conflicts of interest that can arise
when securities analysts recommend equity securities in research
reports and public appearances, in order to improve the objectivity of
research and provide investors with more useful and reliable
information, including rules designed--
``(1) to foster greater public confidence in securities
research, and to protect the objectivity and independence of
securities analysts, by--
``(A) restricting the prepublication clearance or approval
of research reports by persons employed by the broker or dealer
who are engaged in investment banking activities, or persons
not directly responsible for investment research, other than
legal or compliance staff;
``(B) limiting the supervision and compensatory evaluation
of securities analysts to officials employed by the broker or
dealer who are not engaged in investment banking activities;
and
``(C) requiring that a broker or dealer and persons
employed by a broker or dealer who are involved with investment
banking activities may not, directly or indirectly, retaliate
against or threaten to retaliate against any securities analyst
employed by that broker or dealer or its affiliates as a result
of an adverse, negative, or otherwise unfavorable research
report that may adversely affect the present or prospective
investment banking relationship of the broker or dealer with
the issuer that is the subject of the research report, except
that such rules may not limit the authority of a broker or
dealer to discipline a securities analyst for causes other than
such research report in accordance with the policies and
procedures of the firm;
``(2) to define periods during which brokers or dealers who
have participated, or are to participate, in a public offering of
securities as underwriters or dealers should not publish or
otherwise distribute research reports relating to such securities
or to the issuer of such securities;
``(3) to establish structural and institutional safeguards
within registered brokers or dealers to assure that securities
analysts are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of those
whose involvement in investment banking activities might
potentially bias their judgment or supervision; and
``(4) to address such other issues as the Commission, or such
association or exchange, determines appropriate.
``(b) Disclosure.--The Commission, or upon the authorization and
direction of the Commission, a registered securities association or
national securities exchange, shall have adopted, not later than 1 year
after the date of enactment of this section, rules reasonably designed
to require each securities analyst to disclose in public appearances,
and each registered broker or dealer to disclose in each research
report, as applicable, conflicts of interest that are known or should
have been known by the securities analyst or the broker or dealer, to
exist at the time of the appearance or the date of distribution of the
report, including--
``(1) the extent to which the securities analyst has debt or
equity investments in the issuer that is the subject of the
appearance or research report;
``(2) whether any compensation has been received by the
registered broker or dealer, or any affiliate thereof, including
the securities analyst, from the issuer that is the subject of the
appearance or research report, subject to such exemptions as the
Commission may determine appropriate and necessary to prevent
disclosure by virtue of this paragraph of material non-public
information regarding specific potential future investment banking
transactions of such issuer, as is appropriate in the public
interest and consistent with the protection of investors;
``(3) whether an issuer, the securities of which are
recommended in the appearance or research report, currently is, or
during the 1-year period preceding the date of the appearance or
date of distribution of the report has been, a client of the
registered broker or dealer, and if so, stating the types of
services provided to the issuer;
``(4) whether the securities analyst received compensation with
respect to a research report, based upon (among any other factors)
the investment banking revenues (either generally or specifically
earned from the issuer being analyzed) of the registered broker or
dealer; and
``(5) such other disclosures of conflicts of interest that are
material to investors, research analysts, or the broker or dealer
as the Commission, or such association or exchange, determines
appropriate.
``(c) Definitions.--In this section--
``(1) the term `securities analyst' means any associated person
of a registered broker or dealer that is principally responsible
for, and any associated person who reports directly or indirectly
to a securities analyst in connection with, the preparation of the
substance of a research report, whether or not any such person has
the job title of `securities analyst'; and
``(2) the term `research report' means a written or electronic
communication that includes an analysis of equity securities of
individual companies or industries, and that provides information
reasonably sufficient upon which to base an investment decision.''.
(b) Enforcement.--Section 21B(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-2(a)) is amended by inserting ``15D,'' before
``15B''.
(c) Commission Authority.--The Commission may promulgate and amend
its regulations, or direct a registered securities association or
national securities exchange to promulgate and amend its rules, to
carry out section 15D of the Securities Exchange Act of 1934, as added
by this section, as is necessary for the protection of investors and in
the public interest.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15 U.S.C. 78kk)
is amended to read as follows:
``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
``In addition to any other funds authorized to be appropriated to
the Commission, there are authorized to be appropriated to carry out
the functions, powers, and duties of the Commission, $776,000,000 for
fiscal year 2003, of which--
``(1) $102,700,000 shall be available to fund additional
compensation, including salaries and benefits, as authorized in the
Investor and Capital Markets Fee Relief Act (Public Law 107-123;
115 Stat. 2390 et seq.);
``(2) $108,400,000 shall be available for information
technology, security enhancements, and recovery and mitigation
activities in light of the terrorist attacks of September 11, 2001;
and
``(3) $98,000,000 shall be available to add not fewer than an
additional 200 qualified professionals to provide enhanced
oversight of auditors and audit services required by the Federal
securities laws, and to improve Commission investigative and
disciplinary efforts with respect to such auditors and services, as
well as for additional professional support staff necessary to
strengthen the programs of the Commission involving Full Disclosure
and Prevention and Suppression of Fraud, risk management, industry
technology review, compliance, inspections, examinations, market
regulation, and investment management.''.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 4B the following:
``SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
``(a) Authority To Censure.--The Commission may censure any person,
or deny, temporarily or permanently, to any person the privilege of
appearing or practicing before the Commission in any way, if that
person is found by the Commission, after notice and opportunity for
hearing in the matter--
``(1) not to possess the requisite qualifications to represent
others;
``(2) to be lacking in character or integrity, or to have
engaged in unethical or improper professional conduct; or
``(3) to have willfully violated, or willfully aided and
abetted the violation of, any provision of the securities laws or
the rules and regulations issued thereunder.
``(b) Definition.--With respect to any registered public accounting
firm or associated person, for purposes of this section, the term
`improper professional conduct' means--
``(1) intentional or knowing conduct, including reckless
conduct, that results in a violation of applicable professional
standards; and
``(2) negligent conduct in the form of--
``(A) a single instance of highly unreasonable conduct that
results in a violation of applicable professional standards in
circumstances in which the registered public accounting firm or
associated person knows, or should know, that heightened
scrutiny is warranted; or
``(B) repeated instances of unreasonable conduct, each
resulting in a violation of applicable professional standards,
that indicate a lack of competence to practice before the
Commission.''.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK BARS.
(a) Securities Exchange Act of 1934.--Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended by this
Act, is amended by adding at the end the following:
``(6) Authority of a court to prohibit persons from participating
in an offering of penny stock.--
``(A) In general.--In any proceeding under paragraph (1)
against any person participating in, or, at the time of the alleged
misconduct who was participating in, an offering of penny stock,
the court may prohibit that person from participating in an
offering of penny stock, conditionally or unconditionally, and
permanently or for such period of time as the court shall
determine.
``(B) Definition.--For purposes of this paragraph, the term
`person participating in an offering of penny stock' includes any
person engaging in activities with a broker, dealer, or issuer for
purposes of issuing, trading, or inducing or attempting to induce
the purchase or sale of, any penny stock. The Commission may, by
rule or regulation, define such term to include other activities,
and may, by rule, regulation, or order, exempt any person or class
of persons, in whole or in part, conditionally or unconditionally,
from inclusion in such term.''.
(b) Securities Act of 1933.--Section 20 of the Securities Act of
1933 (15 U.S.C. 77t) is amended by adding at the end the following:
``(g) Authority of a Court To Prohibit Persons From Participating
in an Offering of Penny Stock.--
``(1) In general.--In any proceeding under subsection (a)
against any person participating in, or, at the time of the alleged
misconduct, who was participating in, an offering of penny stock,
the court may prohibit that person from participating in an
offering of penny stock, conditionally or unconditionally, and
permanently or for such period of time as the court shall
determine.
``(2) Definition.--For purposes of this subsection, the term
`person participating in an offering of penny stock' includes any
person engaging in activities with a broker, dealer, or issuer for
purposes of issuing, trading, or inducing or attempting to induce
the purchase or sale of, any penny stock. The Commission may, by
rule or regulation, define such term to include other activities,
and may, by rule, regulation, or order, exempt any person or class
of persons, in whole or in part, conditionally or unconditionally,
from inclusion in such term.''.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS AND DEALERS.
(a) Brokers and Dealers.--Section 15(b)(4) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended--
(1) by striking subparagraph (F) and inserting the following:
``(F) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a broker
or dealer;''; and
(2) in subparagraph (G), by striking the period at the end and
inserting the following: ``; or
``(H) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or any
agency or office performing like functions), an appropriate Federal
banking agency (as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q))), or the National Credit Union
Administration, that--
``(i) bars such person from association with an entity
regulated by such commission, authority, agency, or officer, or
from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
``(ii) constitutes a final order based on violations of any
laws or regulations that prohibit fraudulent, manipulative, or
deceptive conduct.''.
(b) Investment Advisers.--Section 203(e) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-3(e)) is amended--
(1) by striking paragraph (7) and inserting the following:
``(7) is subject to any order of the Commission barring or
suspending the right of the person to be associated with an
investment adviser;'';
(2) in paragraph (8), by striking the period at the end and
inserting ``; or''; and
(3) by adding at the end the following:
``(9) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or any
agency or office performing like functions), an appropriate Federal
banking agency (as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q))), or the National Credit Union
Administration, that--
``(A) bars such person from association with an entity
regulated by such commission, authority, agency, or officer, or
from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
``(B) constitutes a final order based on violations of any
laws or regulations that prohibit fraudulent, manipulative, or
deceptive conduct.''.
(c) Conforming Amendments.--
(1) Securities exchange act of 1934.--The Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is amended--
(A) in section 3(a)(39)(F) (15 U.S.C. 78c(a)(39)(F))--
(i) by striking ``or (G)'' and inserting ``(H), or
(G)''; and
(ii) by inserting ``, or is subject to an order or
finding,'' before ``enumerated'';
(B) in each of section 15(b)(6)(A)(i) (15 U.S.C.
78o(b)(6)(A)(i)), paragraphs (2) and (4) of section 15B(c) (15
U.S.C. 78o-4(c)), and subparagraphs (A) and (C) of section
15C(c)(1) (15 U.S.C. 78o-5(c)(1))--
(i) by striking ``or (G)'' each place that term appears
and inserting ``(H), or (G)''; and
(ii) by striking ``or omission'' each place that term
appears, and inserting ``, or is subject to an order or
finding,''; and
(C) in each of paragraphs (3)(A) and (4)(C) of section
17A(c) (15 U.S.C. 78q-1(c))--
(i) by striking ``or (G)'' each place that term appears
and inserting ``(H), or (G)''; and
(ii) by inserting ``, or is subject to an order or
finding,'' before ``enumerated'' each place that term
appears.
(2) Investment advisers act of 1940.--Section 203(f) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f)) is amended--
(A) by striking ``or (8)'' and inserting ``(8), or (9)'';
and
(B) by inserting ``or (3)'' after ``paragraph (2)''.
TITLE VII--STUDIES AND REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF PUBLIC
ACCOUNTING FIRMS.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study--
(1) to identify--
(A) the factors that have led to the consolidation of
public accounting firms since 1989 and the consequent reduction
in the number of firms capable of providing audit services to
large national and multi-national business organizations that
are subject to the securities laws;
(B) the present and future impact of the condition
described in subparagraph (A) on capital formation and
securities markets, both domestic and international; and
(C) solutions to any problems identified under subparagraph
(B), including ways to increase competition and the number of
firms capable of providing audit services to large national and
multinational business organizations that are subject to the
securities laws;
(2) of the problems, if any, faced by business organizations
that have resulted from limited competition among public accounting
firms, including--
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among public accounting firms.
(b) Consultation.--In planning and conducting the study under this
section, the Comptroller General shall consult with--
(1) the Commission;
(2) the regulatory agencies that perform functions similar to
the Commission within the other member countries of the Group of
Seven Industrialized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization that the
Comptroller General considers appropriate.
(c) Report Required.--Not later than 1 year after the date of
enactment of this Act, the Comptroller General shall submit a report on
the results of the study required by this section to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT RATING AGENCIES.
(a) Study Required.--
(1) In general.--The Commission shall conduct a study of the
role and function of credit rating agencies in the operation of the
securities market.
(2) Areas of consideration.--The study required by this
subsection shall examine--
(A) the role of credit rating agencies in the evaluation of
issuers of securities;
(B) the importance of that role to investors and the
functioning of the securities markets;
(C) any impediments to the accurate appraisal by credit
rating agencies of the financial resources and risks of issuers
of securities;
(D) any barriers to entry into the business of acting as a
credit rating agency, and any measures needed to remove such
barriers;
(E) any measures which may be required to improve the
dissemination of information concerning such resources and
risks when credit rating agencies announce credit ratings; and
(F) any conflicts of interest in the operation of credit
rating agencies and measures to prevent such conflicts or
ameliorate the consequences of such conflicts.
(b) Report Required.--The Commission shall submit a report on the
study required by subsection (a) to the President, the Committee on
Financial Services of the House of Representatives, and the Committee
on Banking, Housing, and Urban Affairs of the Senate not later than 180
days after the date of enactment of this Act.
SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.
(a) Study.--The Commission shall conduct a study to determine,
based upon information for the period from January 1, 1998, to December
31, 2001--
(1) the number of securities professionals, defined as public
accountants, public accounting firms, investment bankers,
investment advisers, brokers, dealers, attorneys, and other
securities professionals practicing before the Commission--
(A) who have been found to have aided and abetted a
violation of the Federal securities laws, including rules or
regulations promulgated thereunder (collectively referred to in
this section as ``Federal securities laws''), but who have not
been sanctioned, disciplined, or otherwise penalized as a
primary violator in any administrative action or civil
proceeding, including in any settlement of such an action or
proceeding (referred to in this section as ``aiders and
abettors''); and
(B) who have been found to have been primary violators of
the Federal securities laws;
(2) a description of the Federal securities laws violations
committed by aiders and abettors and by primary violators,
including--
(A) the specific provision of the Federal securities laws
violated;
(B) the specific sanctions and penalties imposed upon such
aiders and abettors and primary violators, including the amount
of any monetary penalties assessed upon and collected from such
persons;
(C) the occurrence of multiple violations by the same
person or persons, either as an aider or abettor or as a
primary violator; and
(D) whether, as to each such violator, disciplinary
sanctions have been imposed, including any censure, suspension,
temporary bar, or permanent bar to practice before the
Commission; and
(3) the amount of disgorgement, restitution, or any other fines
or payments that the Commission has assessed upon and collected
from, aiders and abettors and from primary violators.
(b) Report.--A report based upon the study conducted pursuant to
subsection (a) shall be submitted to the Committee on Banking, Housing,
and Urban Affairs of the Senate, and the Committee on Financial
Services of the House of Representatives not later than 6 months after
the date of enactment of this Act.
SEC. 704. STUDY OF ENFORCEMENT ACTIONS.
(a) Study Required.--The Commission shall review and analyze all
enforcement actions by the Commission involving violations of reporting
requirements imposed under the securities laws, and restatements of
financial statements, over the 5-year period preceding the date of
enactment of this Act, to identify areas of reporting that are most
susceptible to fraud, inappropriate manipulation, or inappropriate
earnings management, such as revenue recognition and the accounting
treatment of off-balance sheet special purpose entities.
(b) Report Required.--The Commission shall report its findings to
the Committee on Financial Services of the House of Representatives and
the Committee on Banking, Housing, and Urban Affairs of the Senate, not
later than 180 days after the date of enactment of this Act, and shall
use such findings to revise its rules and regulations, as necessary.
The report shall include a discussion of regulatory or legislative
steps that are recommended or that may be necessary to address concerns
identified in the study.
SEC. 705. STUDY OF INVESTMENT BANKS.
(a) GAO Study.--The Comptroller General of the United States shall
conduct a study on whether investment banks and financial advisers
assisted public companies in manipulating their earnings and
obfuscating their true financial condition. The study should address
the rule of investment banks and financial advisers--
(1) in the collapse of the Enron Corporation, including with
respect to the design and implementation of derivatives
transactions, transactions involving special purpose vehicles, and
other financial arrangements that may have had the effect of
altering the company's reported financial statements in ways that
obscured the true financial picture of the company;
(2) in the failure of Global Crossing, including with respect
to transactions involving swaps of fiberoptic cable capacity, in
the designing transactions that may have had the effect of altering
the company's reported financial statements in ways that obscured
the true financial picture of the company; and
(3) generally, in creating and marketing transactions which may
have been designed solely to enable companies to manipulate revenue
streams, obtain loans, or move liabilities off balance sheets
without altering the economic and business risks faced by the
companies or any other mechanism to obscure a company's financial
picture.
(b) Report.--The Comptroller General shall report to Congress not
later than 180 days after the date of enactment of this Act on the
results of the study required by this section. The report shall include
a discussion of regulatory or legislative steps that are recommended or
that may be necessary to address concerns identified in the study.
TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
SEC. 801. SHORT TITLE.
This title may be cited as the ``Corporate and Criminal Fraud
Accountability Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.
(a) In General.--Chapter 73 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 1519. Destruction, alteration, or falsification of records in
Federal investigations and bankruptcy
``Whoever knowingly alters, destroys, mutilates, conceals, covers
up, falsifies, or makes a false entry in any record, document, or
tangible object with the intent to impede, obstruct, or influence the
investigation or proper administration of any matter within the
jurisdiction of any department or agency of the United States or any
case filed under title 11, or in relation to or contemplation of any
such matter or case, shall be fined under this title, imprisoned not
more than 20 years, or both.
``Sec. 1520. Destruction of corporate audit records
``(a)(1) Any accountant who conducts an audit of an issuer of
securities to which section 10A(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78j-1(a)) applies, shall maintain all audit or review
workpapers for a period of 5 years from the end of the fiscal period in
which the audit or review was concluded.
``(2) The Securities and Exchange Commission shall promulgate,
within 180 days, after adequate notice and an opportunity for comment,
such rules and regulations, as are reasonably necessary, relating to
the retention of relevant records such as workpapers, documents that
form the basis of an audit or review, memoranda, correspondence,
communications, other documents, and records (including electronic
records) which are created, sent, or received in connection with an
audit or review and contain conclusions, opinions, analyses, or
financial data relating to such an audit or review, which is conducted
by any accountant who conducts an audit of an issuer of securities to
which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78j-1(a)) applies. The Commission may, from time to time, amend or
supplement the rules and regulations that it is required to promulgate
under this section, after adequate notice and an opportunity for
comment, in order to ensure that such rules and regulations adequately
comport with the purposes of this section.
``(b) Whoever knowingly and willfully violates subsection (a)(1),
or any rule or regulation promulgated by the Securities and Exchange
Commission under subsection (a)(2), shall be fined under this title,
imprisoned not more than 10 years, or both.
``(c) Nothing in this section shall be deemed to diminish or
relieve any person of any other duty or obligation imposed by Federal
or State law or regulation to maintain, or refrain from destroying, any
document.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 73 of title 18, United States Code, is amended by adding at the
end the following new items:
``1519. Destruction, alteration, or falsification of records in Federal
investigations and bankruptcy.
``1520. Destruction of corporate audit records.''.
SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION OF SECURITIES
FRAUD LAWS.
Section 523(a) of title 11, United States Code, is amended--
(1) in paragraph (17), by striking ``or'' after the semicolon;
(2) in paragraph (18), by striking the period at the end and
inserting ``; or''; and
(3) by adding at the end, the following:
``(19) that--
``(A) is for--
``(i) the violation of any of the Federal securities
laws (as that term is defined in section 3(a)(47) of the
Securities Exchange Act of 1934), any of the State
securities laws, or any regulation or order issued under
such Federal or State securities laws; or
``(ii) common law fraud, deceit, or manipulation in
connection with the purchase or sale of any security; and
``(B) results from--
``(i) any judgment, order, consent order, or decree
entered in any Federal or State judicial or administrative
proceeding;
``(ii) any settlement agreement entered into by the
debtor; or
``(iii) any court or administrative order for any
damages, fine, penalty, citation, restitutionary payment,
disgorgement payment, attorney fee, cost, or other payment
owed by the debtor.''.
SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.
(a) In General.--Section 1658 of title 28, United States Code, is
amended--
(1) by inserting ``(a)'' before ``Except''; and
(2) by adding at the end the following:
``(b) Notwithstanding subsection (a), a private right of action
that involves a claim of fraud, deceit, manipulation, or contrivance in
contravention of a regulatory requirement concerning the securities
laws, as defined in section 3(a)(47) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(47)), may be brought not later than the earlier
of--
``(1) 2 years after the discovery of the facts constituting the
violation; or
``(2) 5 years after such violation.''.
(b) Effective Date.--The limitations period provided by section
1658(b) of title 28, United States Code, as added by this section,
shall apply to all proceedings addressed by this section that are
commenced on or after the date of enactment of this Act.
(c) No Creation of Actions.--Nothing in this section shall create a
new, private right of action.
SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR OBSTRUCTION OF
JUSTICE AND EXTENSIVE CRIMINAL FRAUD.
(a) Enhancement of Fraud and Obstruction of Justice Sentences.--
Pursuant to section 994 of title 28, United States Code, and in
accordance with this section, the United States Sentencing Commission
shall review and amend, as appropriate, the Federal Sentencing
Guidelines and related policy statements to ensure that--
(1) the base offense level and existing enhancements contained
in United States Sentencing Guideline 2J1.2 relating to obstruction
of justice are sufficient to deter and punish that activity;
(2) the enhancements and specific offense characteristics
relating to obstruction of justice are adequate in cases where--
(A) the destruction, alteration, or fabrication of evidence
involves--
(i) a large amount of evidence, a large number of
participants, or is otherwise extensive;
(ii) the selection of evidence that is particularly
probative or essential to the investigation; or
(iii) more than minimal planning; or
(B) the offense involved abuse of a special skill or a
position of trust;
(3) the guideline offense levels and enhancements for
violations of section 1519 or 1520 of title 18, United States Code,
as added by this title, are sufficient to deter and punish that
activity;
(4) a specific offense characteristic enhancing sentencing is
provided under United States Sentencing Guideline 2B1.1 (as in
effect on the date of enactment of this Act) for a fraud offense
that endangers the solvency or financial security of a substantial
number of victims; and
(5) the guidelines that apply to organizations in United States
Sentencing Guidelines, chapter 8, are sufficient to deter and
punish organizational criminal misconduct.
(b) Emergency Authority and Deadline for Commission Action.--The
United States Sentencing Commission is requested to promulgate the
guidelines or amendments provided for under this section as soon as
practicable, and in any event not later than 180 days after the date of
enactment of this Act, in accordance with the prcedures set forth in
section 219(a) of the Sentencing Reform Act of 1987, as though the
authority under that Act had not expired.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO
PROVIDE EVIDENCE OF FRAUD.
(a) In General.--Chapter 73 of title 18, United States Code, is
amended by inserting after section 1514 the following:
``Sec. 1514A. Civil action to protect against retaliation in fraud
cases
``(a) Whistleblower Protection for Employees of Publicly Traded
Companies.--No company with a class of securities registered under
section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or
that is required to file reports under section 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee,
contractor, subcontractor, or agent of such company, may discharge,
demote, suspend, threaten, harass, or in any other manner discriminate
against an employee in the terms and conditions of employment because
of any lawful act done by the employee--
``(1) to provide information, cause information to be provided,
or otherwise assist in an investigation regarding any conduct which
the employee reasonably believes constitutes a violation of section
1341, 1343, 1344, or 1348, any rule or regulation of the Securities
and Exchange Commission, or any provision of Federal law relating
to fraud against shareholders, when the information or assistance
is provided to or the investigation is conducted by--
``(A) a Federal regulatory or law enforcement agency;
``(B) any Member of Congress or any committee of Congress;
or
``(C) a person with supervisory authority over the employee
(or such other person working for the employer who has the
authority to investigate, discover, or terminate misconduct);
or
``(2) to file, cause to be filed, testify, participate in, or
otherwise assist in a proceeding filed or about to be filed (with
any knowledge of the employer) relating to an alleged violation of
section 1341, 1343, 1344, or 1348, any rule or regulation of the
Securities and Exchange Commission, or any provision of Federal law
relating to fraud against shareholders.
``(b) Enforcement Action.--
``(1) In general.--A person who alleges discharge or other
discrimination by any person in violation of subsection (a) may
seek relief under subsection (c), by--
``(A) filing a complaint with the Secretary of Labor; or
``(B) if the Secretary has not issued a final decision
within 180 days of the filing of the complaint and there is no
showing that such delay is due to the bad faith of the
claimant, bringing an action at law or equity for de novo
review in the appropriate district court of the United States,
which shall have jurisdiction over such an action without
regard to the amount in controversy.
``(2) Procedure.--
``(A) In general.--An action under paragraph (1)(A) shall
be governed under the rules and procedures set forth in section
42121(b) of title 49, United States Code.
``(B) Exception.--Notification made under section
42121(b)(1) of title 49, United States Code, shall be made to
the person named in the complaint and to the employer.
``(C) Burdens of proof.--An action brought under paragraph
(1)(B) shall be governed by the legal burdens of proof set
forth in section 42121(b) of title 49, United States Code.
``(D) Statute of limitations.--An action under paragraph
(1) shall be commenced not later than 90 days after the date on
which the violation occurs.
``(c) Remedies.--
``(1) In general.--An employee prevailing in any action under
subsection (b)(1) shall be entitled to all relief necessary to make
the employee whole.
``(2) Compensatory damages.--Relief for any action under
paragraph (1) shall include--
``(A) reinstatement with the same seniority status that the
employee would have had, but for the discrimination;
``(B) the amount of back pay, with interest; and
``(C) compensation for any special damages sustained as a
result of the discrimination, including litigation costs,
expert witness fees, and reasonable attorney fees.
``(d) Rights Retained by Employee.--Nothing in this section shall
be deemed to diminish the rights, privileges, or remedies of any
employee under any Federal or State law, or under any collective
bargaining agreement.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 73 of title 18, United States Code, is amended by inserting
after the item relating to section 1514 the following new item:
``1514A. Civil action to protect against retaliation in fraud cases.''.
SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY
TRADED COMPANIES.
(a) In General.--Chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 1348. Securities fraud
``Whoever knowingly executes, or attempts to execute, a scheme or
artifice--
``(1) to defraud any person in connection with any security of
an issuer with a class of securities registered under section 12 of
the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is
required to file reports under section 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(d)); or
``(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any money or property in connection
with the purchase or sale of any security of an issuer with a class
of securities registered under section 12 of the Securities
Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file
reports under section 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than 25 years,
or both.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 63 of title 18, United States Code, is amended by adding at the
end the following new item:
``1348. Securities fraud.''.
TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 901. SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 902. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL FRAUD OFFENSES.
(a) In General.--Chapter 63 of title 18, United States Code, is
amended by inserting after section 1348 as added by this Act the
following:
``Sec. 1349. Attempt and conspiracy
``Any person who attempts or conspires to commit any offense under
this chapter shall be subject to the same penalties as those prescribed
for the offense, the commission of which was the object of the attempt
or conspiracy.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 63 of title 18, United States Code, is amended by adding at the
end the following new item:
``1349. Attempt and conspiracy.''.
SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States Code, is
amended by striking ``five'' and inserting ``20''.
(b) Wire Fraud.--Section 1343 of title 18, United States Code, is
amended by striking ``five'' and inserting ``20''.
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting ``$100,000'';
(2) by striking ``one year'' and inserting ``10 years''; and
(3) by striking ``$100,000'' and inserting ``$500,000''.
SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--Pursuant
to its authority under section 994(p) of title 18, United States Code,
and in accordance with this section, the United States Sentencing
Commission shall review and, as appropriate, amend the Federal
Sentencing Guidelines and related policy statements to implement the
provisions of this Act.
(b) Requirements.--In carrying out this section, the Sentencing
Commission shall--
(1) ensure that the sentencing guidelines and policy statements
reflect the serious nature of the offenses and the penalties set
forth in this Act, the growing incidence of serious fraud offenses
which are identified above, and the need to modify the sentencing
guidelines and policy statements to deter, prevent, and punish such
offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address whether the guideline offense levels
and enhancements for violations of the sections amended by this Act
are sufficient to deter and punish such offenses, and specifically,
are adequate in view of the statutory increases in penalties
contained in this Act;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes of
sentencing, as set forth in section 3553(a)(2) of title 18, United
States Code.
(c) Emergency Authority and Deadline for Commission Action.--The
United States Sentencing Commission is requested to promulgate the
guidelines or amendments provided for under this section as soon as
practicable, and in any event not later than 180 days after the date of
enactment of this Act, in accordance with the procedures set forth in
section 219(a) of the Sentencing Reform Act of 1987, as though the
authority under that Act had not expired.
SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States Code, is
amended by inserting after section 1349, as created by this Act, the
following:
``Sec. 1350. Failure of corporate officers to certify financial reports
(a) Certification of Periodic Financial Reports.--Each periodic
report containing financial statements filed by an issuer with the
Securities Exchange Commission pursuant to section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall
be accompanied by a written statement by the chief executive officer
and chief financial officer (or equivalent thereof) of the issuer.
``(b) Content.--The statement required under subsection (a) shall
certify that the periodic report containing the financial statements
fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act pf 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of
the issuer.
``(c) Criminal Penalties.--Whoever--
``(1) certifies any statement as set forth in subsections (a)
and (b) of this section knowing that the periodic report
accompanying the statement does not comport with all the
requirements set forth in this section shall be fined not more than
$1,000,000 or imprisoned not more than 10 years, or both; or
``(2) willfully certifies any statement as set forth in
subsections (a) and (b) of this section knowing that the periodic
report accompanying the statement does not comport with all the
requirements set forth in this section shall be fined not more than
$5,000,000, or imprisoned not more than 20 years, or both.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 63 of title 18, United States Code, is amended by adding at the
end the following:
``1350. Failure of corporate officers to certify financial reports.''.
TITLE X--CORPORATE TAX RETURNS
SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX
RETURNS BY CHIEF EXECUTIVE OFFICERS.
It is the sense of the Senate that the Federal income tax return of
a corporation should be signed by the chief executive officer of such
corporation.
TITLE XI--CORPORATE FRAUD ACCOUNTABILITY
SEC. 1101. SHORT TITLE.
This title may be cited as the ``Corporate Fraud Accountability Act
of 2002''.
SEC. 1102. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL
PROCEEDING.
Section 1512 of title 18, United States Code, is amended--
(1) by redesignating subsections (c) through (i) as subsections
(d) through (j), respectively; and
(2) by inserting after subsection (b) the following new
subsection:
``(c) Whoever corruptly--
``(1) alters, destroys, mutilates, or conceals a record,
document, or other object, or attempts to do so, with the intent to
impair the object's integrity or availability for use in an
official proceeding; or
``(2) otherwise obstructs, influences, or impedes any official
proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than 20 years,
or both.''.
SEC. 1103. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE
COMMISSION.
(a) In General.--Section 21C(c) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-3(c)) is amended by adding at the end the
following:
``(3) Temporary freeze.--
``(A) In general.--
``(i) Issuance of temporary order.--Whenever, during
the course of a lawful investigation involving possible
violations of the Federal securities laws by an issuer of
publicly traded securities or any of its directors,
officers, partners, controlling persons, agents, or
employees, it shall appear to the Commission that it is
likely that the issuer will make extraordinary payments
(whether compensation or otherwise) to any of the foregoing
persons, the Commission may petition a Federal district
court for a temporary order requiring the issuer to escrow,
subject to court supervision, those payments in an
interest-bearing account for 45 days.
``(ii) Standard.--A temporary order shall be entered
under clause (i), only after notice and opportunity for a
hearing, unless the court determines that notice and
hearing prior to entry of the order would be impracticable
or contrary to the public interest.
``(iii) Effective period.--A temporary order issued
under clause (i) shall--
``(I) become effective immediately;
``(II) be served upon the parties subject to it;
and
``(III) unless set aside, limited or suspended by a
court of competent jurisdiction, shall remain effective
and enforceable for 45 days.
``(iv) Extensions authorized.--The effective period of
an order under this subparagraph may be extended by the
court upon good cause shown for not longer than 45
additional days, provided that the combined period of the
order shall not exceed 90 days.
``(B) Process on Determination of violations.--
``(i) Violations charged.--If the issuer or other
person described in subparagraph (A) is charged with any
violation of the Federal securities laws before the
expiration of the effective period of a temporary order
under subparagraph (A) (including any applicable extension
period), the order shall remain in effect, subject to court
approval, until the conclusion of any legal proceedings
related thereto, and the affected issuer or other person,
shall have the right to petition the court for review of
the order.
``(ii) Violations not charged.--If the issuer or other
person described in subparagraph (A) is not charged with
any violation of the Federal securities laws before the
expiration of the effective period of a temporary order
under subparagraph (A) (including any applicable extension
period), the escrow shall terminate at the expiration of
the 45-day effective period (or the expiration of any
extension period, as applicable), and the disputed payments
(with accrued interest) shall be returned to the issuer or
other affected person.''.
(b) Technical Amendment.--Section 21C(c)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is amended by striking
``This'' and inserting ``paragraph (1)''.
SEC. 1104. AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.
(a) Request for Immediate Consideration by The United States
Sentencing Commission.--Pursuant to its authority under section 994(p)
of title 28, United States Code, and in accordance with this section,
the United States Sentencing Commission is requested to--
(1) promptly review the sentencing guidelines applicable to
securities and accounting fraud and related offenses;
(2) expeditiously consider the promulgation of new sentencing
guidelines or amendments to existing sentencing guidelines to
provide an enhancement for officers or directors of publicly traded
corporations who commit fraud and related offenses; and
(3) submit to Congress an explanation of actions taken by the
Sentencing Commission pursuant to paragraph (2) and any additional
policy recommendations the Sentencing Commission may have for
combating offenses described in paragraph (1).
(b) Considerations in Review.--In carrying out this section, the
Sentencing Commission is requested to--
(1) ensure that the sentencing guidelines and policy statements
reflect the serious nature of securities, pension, and accounting
fraud and the need for aggressive and appropriate law enforcement
action to prevent such offenses;
(2) assure reasonable consistency with other relevant
directives and with other guidelines;
(3) account for any aggravating or mitigating circumstances
that might justify exceptions, including circumstances for which
the sentencing guidelines currently provide sentencing
enhancements;
(4) ensure that guideline offense levels and enhancements for
an obstruction of justice offense are adequate in cases where
documents or other physical evidence are actually destroyed or
fabricated;
(5) ensure that the guideline offense levels and enhancements
under United States Sentencing Guideline 2B1.1 (as in effect on the
date of enactment of this Act) are sufficient for a fraud offense
when the number of victims adversely involved is significantly
greater than 50;
(6) make any necessary conforming changes to the sentencing
guidelines; and
(7) assure that the guidelines adequately meet the purposes of
sentencing as set forth in section 3553 (a)(2) of title 18, United
States Code.
(c) Emergency Authority and Deadline For Commission Action.--The
United States Sentencing Commission is requested to promulgate the
guidelines or amendments provided for under this section as soon as
practicable, and in any event not later than the 180 days after the
date of enactment of this Act, in accordance with the procedures sent
forth in section 21(a) of the Sentencing Reform Act of 1987, as though
the authority under that Act had not expired.
SEC. 1105. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING
AS OFFICERS OR DIRECTORS.
(a) Securities Exchange Act of 1934.--Section 21C of the Securities
Exchange Act of 1934 (15 U.S.C. 78u-3) is amended by adding at the end
the following:
``(f) Authority of the Commission to Prohibit Persons From Serving
as Officers or Directors.--In any cease-and-desist proceeding under
subsection (a), the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such period of
time as it shall determine, any person who has violated section 10(b)
or the rules or regulations thereunder, from acting as an officer or
director of any issuer that has a class of securities registered
pursuant to section 12, or that is required to file reports pursuant to
section 15(d), if the conduct of that person demonstrates unfitness to
serve as an officer or director of any such issuer.''.
(b) Securities Act of 1933.--Section 8A of the Securities Act of
1933 (15 U.S.C. 77h-1) is amended by adding at the end of the
following:
``(f) Authority of the Commission to Prohibit Persons From Serving
as Officers or Directors.--In any cease-and-desist proceeding under
subsection (a), the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such period of
time as it shall determine, any person who has violated section
17(a)(1) or the rules or regulations thereunder, from acting as an
officer or director of any issuer that has a class of securities
registered pursuant to section 12 of the Securities Exchange Act of
1934, or that is required to file reports pursuant to section 15(d) of
that Act, if the conduct of that person demonstrates unfitness to serve
as an officer or director of any such issuer.''.
SEC. 1106. INCREASED CRIMINAL PENALTIES UNDER SECURITIES EXCHANGE ACT
OF 1934.
Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78ff(a)) is amended--
(1) by striking ``$1,000,000, or imprisoned not more than 10
years'' and inserting ``$5,000,000, or imprisoned not more than 20
years''; and
(2) by striking ``$2,500,000'' and inserting ``$25,000,000''.
SEC. 1107. RETALIATION AGAINST INFORMANTS.
(a) In General.--Section 1513 of title 18, United States Code, is
amended by adding at the end the following:
``(e) Whoever knowingly, with the intent to retaliate, takes any
action harmful to any person, including interference with the lawful
employment or livelihood of any person, for providing to a law
enforcement officer any truthful information relating to the commission
or possible commission of any Federal offense, shall be fined under
this title or imprisoned not more than 10 years, or both.''.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.