[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3763 Reported in House (RH)]

                                                 Union Calendar No. 247
107th CONGRESS
  2d Session
                                H. R. 3763

                          [Report No. 107-414]

   To protect investors by improving the accuracy and reliability of 
  corporate disclosures made pursuant to the securities laws, and for 
                            other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 14, 2002

   Mr. Oxley (for himself, Mr. Baker, Mr. Boehner, Mrs. Roukema, Mr. 
 Bereuter, Mr. Bachus, Mrs. Kelly, Mr. Castle, Mr. Royce, Mr. Ney, Mr. 
  Gillmor, Mr. Cox, Mr. LaTourette, Mr. Manzullo, Mr. Jones of North 
Carolina, Mr. Ose, Mr. Green of Wisconsin, Mr. Toomey, Mr. Shadegg, Mr. 
 Fossella, Mr. Cantor, Ms. Hart, Mr. Ferguson, Mr. Rogers of Michigan, 
 and Mr. Tiberi) introduced the following bill; which was referred to 
                  the Committee on Financial Servcies

                             March 12, 2002

        Additional sponsors: Mr. Shays, Mr. Grucci, and Mr. King

                             April 9, 2002

                    Additional sponsor: Mrs. Biggert

                             April 22, 2002

       Additional sponsors: Mr. Portman and Mr. Weldon of Florida

                             April 22, 2002

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]
    [For text of introduced bill, see copy of bill as introduced on 
                           February 14, 2002]

_______________________________________________________________________

                                 A BILL


 
   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 ``Corporate and 
Auditing Accountability, Responsibility, and Transparency Act of 
2002''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Auditor oversight.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Real-time disclosure of financial information.
Sec. 5. Insider trades during pension fund blackout periods prohibited.
Sec. 6. Improved transparency of corporate disclosures.
Sec. 7. Improvements in reporting on insider transactions and 
                            relationships.
Sec. 8. Codes of conduct.
Sec. 9. Enhanced oversight of periodic disclosures by issuers.
Sec. 10. Retention of records.
Sec. 11. Commission authority to bar persons from serving as officers 
                            or directors.
Sec. 12. Disgorging insiders profits from trades prior to correction of 
                            erroneous financial statements.
Sec. 13. Securities and Exchange Commission authority to provide 
                            relief.
Sec. 14. Study of rules relating to analyst conflicts of interest.
Sec. 15. Review of corporate governance practices.
Sec. 16. Study of enforcement actions.
Sec. 17. Study of credit rating agencies.
Sec. 18. Study of investment banks and other financial institutions.
Sec. 19. Study of model rules for attorneys of issuers.
Sec. 20. Enforcement authority.
Sec. 21. Exclusion for investment companies.
Sec. 22. Definitions.

SEC. 2. AUDITOR OVERSIGHT.

    (a) Certified Financial Statement Requirements.--If a financial 
statement is required by the securities laws or any rule or regulation 
thereunder to be certified by an independent public or certified 
accountant, an accountant shall not be considered to be qualified to 
certify such financial statement, and the Securities and Exchange 
Commission shall not accept a financial statement certified by an 
accountant, unless such accountant--
            (1) is subject to a system of review by a public regulatory 
        organization that complies with the requirements of this 
        section and the rules prescribed by the Commission under this 
        section; and
            (2) has not been determined in the most recent review 
        completed under such system to be not qualified to certify such 
        a statement.
    (b) Establishment of PRO.--The Commission shall by rule establish 
the criteria by which a public regulatory organization may be 
recognized for purposes of this section. Such criteria shall include 
the following requirements:
            (1)(A) The board of such organization shall be comprised of 
        five members, three of whom shall be public members who are not 
        members of the accounting profession and two of whom shall be 
        persons licensed to practice public accounting and who have 
        recent experience in auditing public companies.
            (B) Each member of the board of such organization shall be 
        a person who meets such standards of financial literacy as are 
        determined by the Commission.
            (C) For purposes of this paragraph, a person shall not be 
        considered a member of the accounting profession if such person 
        has not worked in such profession for any of the last two years 
        prior to the date of such person's appointment to the board.
            (2) Such organization is so organized and has the 
        capacity--
                    (A) to be able to carry out the purposes of this 
                section and to comply, and to enforce compliance by 
                accountants and persons associated with accountants, 
                with the provisions of this Act, professional ethics 
                and competency standards, and the rules of the 
                organization;
                    (B) to perform a review of the work product 
                (including the quality thereof) of an accountant or a 
                person associated with an accountant; and
                    (C) to perform a review of any potential conflicts 
                of interest between an accountant (or a person 
                associated with an accountant) and the issuer, the 
                issuer's board of directors and committees thereof, 
                officers, and affiliates of such issuer, that may 
                result in an impairment of auditor independence.
            (3) Such organization shall have the authority to impose 
        sanctions, which, if there is a finding of knowing or 
        intentional misconduct, may include a determination that an 
        accountant is not qualified to certify a financial statement, 
        or any categories of financial statements, required by the 
        securities laws, or that a person associated with an accountant 
        is not qualified to participate in such certification, if, 
        after conducting a review and providing fair procedures and an 
        opportunity for a hearing, the organization finds that--
                    (A) such accountant or person associated with an 
                accountant has violated the standards of independence, 
                ethics, or competency in the profession;
                    (B) such accountant or person associated with an 
                accountant has been found by the Commission or a court 
                of competent jurisdiction to have violated the 
                securities laws or a rule or regulation thereunder 
                (provided in both cases that any applicable time period 
                for appeal has expired);
                    (C) an audit conducted by such accountant or any 
                person associated with an accountant has been 
                materially affected by an impairment of auditor 
                independence;
                    (D) such accountant or person associated with an 
                accountant has performed both auditing services and 
                consulting services in violation of the rules 
                prescribed by the Commission pursuant to subsection 
                (c); or
                    (E) such accountant or any person associated with 
                an accountant has impeded, obstructed, or otherwise not 
                cooperated in such review.
            (4) Any such organization shall disclose publicly, and make 
        available for public comment, proposed procedures and methods 
        for conducting such reviews.
            (5) Any such organization shall have in place procedures to 
        minimize and deter conflicts of interest involving the public 
        members of such organization, and have in place procedures to 
        resolve such conflicts.
            (6) Any such organization shall have in place procedures 
        for notifying the boards of accountancy of the States of the 
        results of reviews and evidence under paragraphs (2) and (3).
            (7) Any such organization shall have in place procedures 
        for notifying the Commission of any findings of such reviews, 
        including any findings regarding suspected violations of the 
        securities laws.
            (8) Any such organization shall consult with boards of 
        accountancy of the States.
            (9) Any such organization shall have in place a mechanism 
        to allow the organization to operate on a self-funded basis. 
        Such funding mechanism shall ensure that such organization is 
        not solely dependent upon members of the accounting profession 
        for such funding and operations.
            (10) Any such organization shall have the authority to 
        request, in a manner established by the Commission, that the 
        Commission, by subpoena or otherwise, compel the testimony of 
        witnesses or the production of any books, papers, 
        correspondence, memoranda, or other records relevant to any 
        accountant review proceeding or necessary or appropriate for 
        the organization to carry out its purposes. The Commission 
        shall comply with any such request from such an organization if 
        the Commission determines that compliance with the request 
        would assist the organization in its accountant review 
        proceeding or in carrying out its purposes, unless the 
        Commission determines that compliance would not be in the 
        public interest. The issuance and enforcement of a subpoena 
        requested under this paragraph shall be deemed to be made 
        pursuant to, and shall be made in accordance with, the 
        provisions of subsections (b) and (c) of section 21 of the 
        Securities and Exchange Act of 1934 (15 U.S.C. 78u(b)-(c)). For 
        purposes of taking evidence, the Commission in its discretion 
        may designate the Board, or any member thereof, as officers 
        pursuant to section 21(b) of such Act.
    (c) Prohibition on the Offer of Both Audit and Consulting 
Services.--
            (1) Modification of regulations required.--The Commission 
        shall revise its regulations pertaining to auditor independence 
        to require that an accountant shall not be considered 
        independent with respect to an audit client if the accountant 
        provides to the client the following nonaudit services, as such 
        terms are defined in such regulations as in effect on the date 
        of enactment of this Act, and subject to such conditions and 
        exemptions as the Commission shall prescribe:
                    (A) financial information system design or 
                implementation; or
                    (B) internal audit services.
            (2) Review of prohibited nonaudit services.--The Commission 
        is authorized to review the impact on the independence of 
        auditors of the scope of services provided by auditors to 
        issuers in order to determine whether the list of prohibited 
        nonaudit services under paragraph (1) shall be modified. In 
        conducting such review, the Commission shall consider the 
        impact of the provision of a service on an auditor's 
        independence where provision of the service creates a conflict 
        of interest with the audit client.
            (3) Additions by rule.--After conducting the review 
        required by paragraph (2) and at any other time, the Commission 
        may, by rule consistent with the protection of investors and 
        the public interest, modify the list of prohibited nonaudit 
        services under paragraph (1).
            (4) Report.--The Commission shall report to the Committee 
        on Financial Services of the House of Representatives and the 
        Committee on Banking, Housing, and Urban Affairs of the Senate 
        on its conduct of any reviews as 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.
            (5) Conforming revision.--The Commission shall revise its 
        regulations pertaining to accountant fee disclosure items, as 
        set forth in paragraphs (e)(1) through (e)(3) of item 9 from 
        Schedule 14A (17 CFR 240.14a-101), in light of paragraph (1) of 
        this subsection and after making a determination as to whether 
        such disclosures are necessary.
            (6) Deadline for rulemaking.--The Commission shall--
                    (A) within 90 days after the date of enactment of 
                this Act, propose, and
                    (B) within 270 days after such date, prescribe,
        the revisions to its regulations required by this subsection.
    (d) PRO Accountant Review Proceedings.--
            (1) Review proceeding findings.--Any findings made pursuant 
        to an accountant review conducted under this section that a 
        financial statement audited by such accountant and submitted to 
        the Commission may have been materially affected by an 
        impairment of auditor independence, or by a violation of 
        professional ethics and competency standards, shall be 
        submitted to the Commission. The Commission shall promptly 
        notify an issuer of any such finding that relates to the 
        financial statements of such issuer.
            (2) Confidential treatment of proceedings pending sec 
        review.--
                    (A) No disclosure.--Except as otherwise provided in 
                this section, but notwithstanding any other provision 
                of law, neither the Commission, a recognized public 
                regulatory organization, nor any other person shall 
                disclose any information concerning any accountant 
                review proceeding and the findings therein.
                    (B) Specific withholding not authorized.--Nothing 
                in this subsection shall--
                            (i) authorize a recognized public 
                        regulatory organization to withhold information 
                        from the Commission;
                            (ii) authorize such board or the Commission 
                        to withhold information concerning an 
                        accountant review proceeding from an accountant 
                        or person associated with an accountant that is 
                        the subject of such proceeding;
                            (iii) authorize the Commission to withhold 
                        information from Congress; or
                            (iv) prevent the Commission from complying 
                        with a request for information from any other 
                        Federal department or agency requesting 
                        information for purposes within the scope of 
                        its jurisdiction, or complying with an order of 
                        a court of the United States in an action 
                        brought by the United States or the Commission.
                    (C) Duration of withholding.--Neither the 
                Commission nor the recognized public regulatory 
                organization shall disclose the results of any such 
                finding until the completion of any review by the 
                Commission under subsections (e) and (f), or the 
                conclusion of the 30-day period for seeking review if 
                no motion seeking review is filed within such period.
                    (D) Treatment under foia.--For purposes of section 
                552 of title 5, United States Code, this subsection 
                shall be considered a statute described in subsection 
                (b)(3)(B) of such section 552.
            (3) Nonpreclusive effect of pro findings.--A finding by a 
        recognized public regulatory organization that an individual 
        audit of an issuer met or failed to meet any applicable 
        standard with respect to the quality of such audit shall not be 
        construed in any action arising out of the securities laws as 
        indicative of compliance or noncompliance with the securities 
        laws or with any standard of liability arising thereunder.
    (e) Review of Sanctions.--
            (1) Notice.--If any recognized public regulatory 
        organization--
                    (A) makes a finding with respect to or imposes any 
                final disciplinary sanction on any accountant;
                    (B) prohibits or limits any person in respect to 
                access to services offered by such organization; or
                    (C) makes a finding with respect to or imposes any 
                final disciplinary sanction on any person associated 
                with an accountant or bars any person from becoming 
                associated with an accountant,
        the recognized public regulatory organization shall promptly 
        submit notice thereof with the Commission. The notice shall be 
        in such form and contain such information as the Commission, by 
        rule, may prescribe as necessary or appropriate in furtherance 
        of the purposes of this section.
            (2) Review by commission.--Any action with respect to which 
        a recognized public regulatory organization is required by 
        paragraph (1) of this subsection to submit notice shall be 
        subject to review by the Commission, on its own motion, or upon 
        application by any person aggrieved thereby filed within 30 
        days after the date such notice was filed with the Commission 
        and received by such aggrieved person, or within such longer 
        period as the Commission may determine. Application to the 
        Commission for review, or the institution of review by the 
        Commission on its own motion, shall not operate as a stay of 
        such action unless the Commission otherwise orders, summarily 
        or after notice and opportunity for hearing on the question of 
        a stay (which hearing may consist solely of the submission of 
        affidavits or presentation of oral arguments). The Commission 
        shall establish for appropriate cases an expedited procedure 
        for consideration and determination of the question of a stay.
    (f) Conduct of Commission Review.--
            (1) Basis for action.--In any proceeding to review a final 
        disciplinary sanction imposed by a recognized public regulatory 
        organization on an accountant or a person associated with such 
        accountant, after notice and opportunity for hearing (which 
        hearing may consist solely of consideration of the record 
        before the recognized public regulatory organization and 
        opportunity for the presentation of supporting reasons to 
        affirm, modify, or set aside the sanction)--
                    (A) if the Commission finds that such accountant or 
                person associated with an accountant has engaged in 
                such acts or practices, or has omitted such acts, as 
                the recognized public regulatory organization has found 
                him to have engaged in or omitted, that such acts or 
                practices, or omissions to act, are in violation of 
                such provisions of this section, or of professional 
                ethics and competency standards, and that such 
                provisions are, and were applied in a manner, 
                consistent with the purposes of this section, the 
                Commission, by order, shall so declare and, as 
                appropriate, affirm the sanction imposed by the 
                recognized public regulatory organization, modify the 
                sanction in accordance with paragraph (2) of this 
                subsection, or remand to the recognized public 
                regulatory organization for further proceedings; or
                    (B) if the Commission does not make any such 
                finding, it shall, by order, set aside the sanction 
                imposed by the recognized public regulatory 
                organization and, if appropriate, remand to the 
                recognized public regulatory organization for further 
                proceedings.
            (2) Reduction of sanctions.--If the Commission, having due 
        regard for the public interest and the protection of investors, 
        finds after a proceeding in accordance with paragraph (1) of 
        this subsection that a sanction imposed by a recognized public 
        regulatory organization upon an accountant or person associated 
        with an accountant imposes any burden on competition not 
        necessary or appropriate in furtherance of the purposes of this 
        Act or is excessive or oppressive, the Commission may cancel, 
        reduce, or require the remission of such sanction.
    (g) Review and Approval of Rules.--
            (1) Submission, publication, and comment.--Each recognized 
        public regulatory organization shall file with the Commission, 
        in accordance with such rules as the Commission may prescribe, 
        copies of any proposed rule or any proposed change in, addition 
        to, or deletion from the rules of such recognized public 
        regulatory organization (hereinafter in this subsection 
        collectively referred to as a ``proposed rule change'') 
        accompanied by a concise general statement of the basis and 
        purpose of such proposed rule change. The Commission shall, 
        upon the filing of any proposed rule change, publish notice 
        thereof together with the terms of substance of the proposed 
        rule change or a description of the subjects and issues 
        involved. The Commission shall give interested persons an 
        opportunity to submit written data, views, and arguments 
        concerning such proposed rule change. No proposed rule change 
        shall take effect unless approved by the Commission or 
        otherwise permitted in accordance with the provisions of this 
        subsection.
            (2) Approval or proceedings.--Within 35 days of the date of 
        publication of notice of the filing of a proposed rule change 
        in accordance with paragraph (1) of this subsection, or within 
        such longer period as the Commission may designate up to 90 
        days of such date if it finds such longer period to be 
        appropriate and publishes its reasons for so finding or as to 
        which the recognized public regulatory organization consents, 
        the Commission shall--
                    (A) by order approve such proposed rule change; or
                    (B) institute proceedings to determine whether the 
                proposed rule change should be disapproved. Such 
                proceedings shall include notice of the grounds for 
                disapproval under consideration and opportunity for 
                hearing and be concluded within 180 days of the date of 
                publication of notice of the filing of the proposed 
                rule change. At the conclusion of such proceedings the 
                Commission, by order, shall approve or disapprove such 
                proposed rule change. The Commission may extend the 
                time for conclusion of such proceedings for up to 60 
                days if it finds good cause for such extension and 
                publishes its reasons for so finding or for such longer 
                period as to which the recognized public regulatory 
                organization consents.
            (3) Basis for approval or disapproval.--The Commission 
        shall approve a proposed rule change of a recognized public 
        regulatory organization if it finds that such proposed rule 
        change is consistent with the requirements of this Act and the 
        rules and regulations thereunder applicable to such 
        organization. The Commission shall disapprove a proposed rule 
        change of a recognized public regulatory organization if it 
        does not make such finding. The Commission shall not approve 
        any proposed rule change prior to the 30th day after the date 
        of publication of notice of the filing thereof, unless the 
        Commission finds good cause for so doing and publishes its 
        reasons for so finding.
            (4) Rules effective upon filing.--
                    (A) Notwithstanding the provisions of paragraph (2) 
                of this subsection, a proposed rule change may take 
                effect upon filing with the Commission if designated by 
                the recognized public regulatory organization as (i) 
                constituting a stated policy, practice, or 
                interpretation with respect to the meaning, 
                administration, or enforcement of an existing rule of 
                the recognized public regulatory organization, (ii) 
                establishing or changing a due, fee, or other charge 
                imposed by the recognized public regulatory 
                organization, or (iii) concerned solely with the 
                administration of the recognized public regulatory 
                organization or other matters which the Commission, by 
                rule, consistent with the public interest and the 
                purposes of this subsection, may specify as outside the 
                provisions of such paragraph (2).
                    (B) Notwithstanding any other provision of this 
                subsection, a proposed rule change may be put into 
                effect summarily if it appears to the Commission that 
                such action is necessary for the protection of 
                investors, or otherwise in accordance with the purposes 
                of this title. Any proposed rule change so put into 
                effect shall be filed promptly thereafter in accordance 
                with the provisions of paragraph (1) of this 
                subsection.
                    (C) Any proposed rule change of a recognized public 
                regulatory organization which has taken effect pursuant 
                to subparagraph (A) or (B) of this paragraph may be 
                enforced by such organization to the extent it is not 
                inconsistent with the provisions of this Act, the 
                securities laws, the rules and regulations thereunder, 
                and applicable Federal and State law. At any time 
                within 60 days of the date of filing of such a proposed 
                rule change in accordance with the provisions of 
                paragraph (1) of this subsection, the Commission 
                summarily may abrogate the change in the rules of the 
                recognized public regulatory organization made thereby 
                and require that the proposed rule change be refiled in 
                accordance with the provisions of paragraph (1) of this 
                subsection and reviewed in accordance with the 
                provisions of paragraph (2) of this subsection, if it 
                appears to the Commission that such action is necessary 
                or appropriate in the public interest, for the 
                protection of investors, or otherwise in furtherance of 
                the purposes of this Act. Commission action pursuant to 
                the preceding sentence shall not affect the validity or 
force of the rule change during the period it was in effect, shall not 
be subject to court review, and shall not be deemed to be ``final 
agency action'' for purposes of section 704 of title 5, United States 
Code.
    (h) Commission Action To Change Rules.--The Commission, by rule, 
may abrogate, add to, and delete from (hereinafter in this subsection 
collectively referred to as ``amend'') the rules of a recognized public 
regulatory organization as the Commission deems necessary or 
appropriate to insure the fair administration of the recognized public 
regulatory organization, to conform its rules to requirements of this 
Act, the securities laws, and the rules and regulations thereunder 
applicable to such organization, or otherwise in furtherance of the 
purposes of this Act, in the following manner:
            (1) The Commission shall notify the recognized public 
        regulatory organization and publish notice of the proposed 
        rulemaking in the Federal Register. The notice shall include 
        the text of the proposed amendment to the rules of the 
        recognized public regulatory organization and a statement of 
        the Commission's reasons, including any pertinent facts, for 
        commencing such proposed rulemaking.
            (2) The Commission shall give interested persons an 
        opportunity for the oral presentation of data, views, and 
        arguments, in addition to an opportunity to make written 
        submissions. A transcript shall be kept of any oral 
        presentation.
            (3) A rule adopted pursuant to this subsection shall 
        incorporate the text of the amendment to the rules of the 
        recognized public regulatory organization and a statement of 
        the Commission's basis for and purpose in so amending such 
        rules. This statement shall include an identification of any 
        facts on which the Commission considers its determination so to 
        amend the rules of the recognized public regulatory agency to 
        be based, including the reasons for the Commission's 
        conclusions as to any of such facts which were disputed in the 
        rulemaking.
            (4)(A) Except as provided in paragraphs (1) through (3) of 
        this subsection, rulemaking under this subsection shall be in 
        accordance with the procedures specified in section 553 of 
        title 5, United States Code, for rulemaking not on the record.
            (B) Nothing in this subsection shall be construed to impair 
        or limit the Commission's power to make, or to modify or alter 
        the procedures the Commission may follow in making, rules and 
        regulations pursuant to any other authority under the 
        securities laws.
            (C) Any amendment to the rules of a recognized public 
        regulatory organization made by the Commission pursuant to this 
        subsection shall be considered for all purposes to be part of 
        the rules of such recognized public regulatory organization and 
        shall not be considered to be a rule of the Commission.
    (i) Commission Oversight of the PRO.--
            (1) Records and examinations.--A public regulatory 
        organization shall make and keep for prescribed periods such 
        records, furnish such copies thereof, and make and disseminate 
        such reports as the Commission, by rule, prescribes 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.
            (2) Additional duties; special reviews.--A public 
        regulatory organization shall perform such other duties or 
        functions as the Commission, by rule or order, determines are 
        necessary or appropriate in the public interest or for the 
        protection of investors and to carry out the purposes of this 
        Act and the securities laws, including conducting a special 
        review of a particular public accounting firm's quality control 
        system or a special review of a particular aspect of some or 
        all public accounting firms' quality control systems.
            (3) Annual report; proposed budget.--
                    (A) Submission of annual report and budget.--A 
                public regulatory organization shall submit an annual 
                report and its proposed budget to the Commission for 
                review and approval, by order, at such times and in 
                such form as the Commission shall prescribe.
                    (B) Contents of annual report.--Each annual report 
                required by subparagraph (A) shall include--
                            (i) a detailed description of the 
                        activities of the public regulatory 
                        organization;
                            (ii) the audited financial statements of 
                        the public regulatory organization;
                            (iii) a detailed explanation of the fees 
                        and charges imposed by the public regulatory 
                        organization under subsection (b)(9); and
                            (iv) such other matters as the public 
                        regulatory organization or the Commission deems 
                        appropriate.
                    (C) Transmittal of annual report to congress.--The 
                Commission shall transmit each approved annual report 
                received under subparagraph (A) to the Committee on 
                Financial Services of the United States House of 
                Representatives and the Committee on Banking, Housing, 
                and Urban Affairs of the United States Senate. At the 
                same time it transmits a public regulatory 
                organization's annual report under this subparagraph, 
                the Commission shall include a written statement of its 
                views of the functioning and operations of the public 
                regulatory organization.
                    (D) Public availability.--Following transmittal of 
                each approved annual report under subparagraph (C), the 
                Commission and the public regulatory organization shall 
                make the approved annual report publicly available.
            (4) Disapproval of election of pro member.--The Commission 
        is authorized, by order, if in its opinion such action is 
        necessary or appropriate in the public interest, for the 
        protection of investors, or otherwise in furtherance of the 
        purposes of this Act or the securities laws, to disapprove the 
        election of any member of a public regulatory organization if 
        the Commission determines, after notice and opportunity for 
hearing, that the person elected is unfit to serve on the public 
regulatory organization.
    (j) Clarification of Application of PRO Authority.--The authority 
granted to any such organization in this section shall only apply to 
the actions of accountants related to the certification of financial 
statements required by securities laws and not other actions or actions 
for other clients of the accounting firm or any accountant that does 
not certify financial statements for publicly traded companies.
    (k) Deadline for Rulemaking.--The Commission shall--
            (1) within 90 days after the date of enactment of this Act, 
        propose, and
            (2) within 270 days after such date, prescribe,
rules to implement this section.
    (l) Effective Date; Transition Provisions.--
            (1) Effective date.--Except as provided in paragraph (2), 
        subsection (a) of this section shall be effective with respect 
        to any certified financial statement for any fiscal year that 
        ends more than one year after the Commission recognizes a 
        public regulatory organization pursuant to this section.
            (2) Delay in establishment of board.--If the Commission has 
        failed to recognize any public regulatory organization pursuant 
        to this section within one year after the date of enactment of 
        this Act, the Commission shall perform the duties of such 
        organization with respect to any certified financial statement 
        for any fiscal year that ends before one year after any such 
        board is recognized by the Commission.

SEC. 3. 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, director, or affiliated person of an 
issuer of any security registered under section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l) 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 such issuer for the purpose of rendering such 
financial statements materially misleading. In any civil proceeding, 
the Commission shall have exclusive authority to enforce this section 
and any rule or regulation hereunder.
    (b) 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 thereunder.
    (c) Deadline for Rulemaking.--The Commission shall--
            (1) within 90 days after the date of enactment of this Act, 
        propose, and
            (2) within 270 days after such date, prescribe,
the rules or regulations required by this section.

SEC. 4. REAL-TIME DISCLOSURE OF FINANCIAL INFORMATION.

    (a) Real-Time Issuer Disclosures Required.--
            (1) Obligations.--Every issuer of a security registered 
        under section 12 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78l) shall file with the Commission and disclose to the 
        public, on a rapid and essentially contemporaneous basis, such 
        information concerning the financial condition or operations of 
        such issuer as the Commission determines by rule is necessary 
        in the public interest and for the protection of investors. 
        Such rule shall--
                    (A) specify the events or circumstances giving rise 
                to the obligation to disclose or update a disclosure;
                    (B) establish requirements regarding the rapidity 
                and timeliness of such disclosure;
                    (C) identify the means whereby the disclosure 
                required shall be made, which shall ensure the broad, 
                rapid, and accurate dissemination of the information to 
                the public via electronic or other communications 
                device;
                    (D) identify the content of the information to be 
                disclosed; and
                    (E) without limiting the Commission's general 
                exemptive authority, specify any exemptions or 
                exceptions from such requirements.
            (2) Enforcement.--The Commission shall have exclusive 
        authority to enforce this section and any rule or regulation 
        hereunder in civil proceedings.
    (b) Electronic Disclosure of Insider Transactions.--
            (1) Disclosures of trading.--The Commission shall, by rule, 
        require--
                    (A) that a disclosure required by section 16 of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78p) of the 
                sale of any securities of an issuer, or any security 
                futures product (as defined in section 3(a)(56) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(56))) 
                or any security-based swap agreement (as defined in 
                section 206B of the Gramm-Leach-Bliley Act) that is 
                based in whole or in part on the securities of such 
                issuer, by an officer or director of the issuer of 
                those securities, or by a beneficial owner of such 
                securities, shall be made available electronically to 
                the Commission and to the issuer by such officer, 
                director, or beneficial owner before the end of the 
                next business day after the day on which the 
                transaction occurs;
                    (B) that the information in such disclosure be made 
                available electronically to the public by the 
                Commission, to the extent permitted under applicable 
                law, upon receipt, but in no case later than the end of 
                the next business day after the day on which the 
                disclosure is received under subparagraph (A); and
                    (C) that, in any case in which the issuer maintains 
                a corporate website, such information shall be made 
                available by such issuer on that website, before the 
                end of the next business day after the day on which the 
                disclosure is received by the Commission under 
                subparagraph (A).
            (2) Transactions included.--The rule prescribed under 
        paragraph (1) shall require the disclosure of the following 
        transactions:
                    (A) Direct or indirect sales or other transfers of 
                securities of the issuer (or any interest therein) to 
                the issuer or an affiliate of the issuer.
                    (B) Loans or other extensions of credit extended to 
                an officer, director, or other person affiliated with 
                the issuer on terms or conditions not otherwise 
                available to the public.
            (3) Other formats; forms.--In the rule prescribed under 
        paragraph (1), the Commission shall provide that electronic 
        filing and disclosure shall be in lieu of any other format 
        required for such disclosures on the day before the date of 
        enactment of this subsection. The Commission shall revise such 
        forms and schedules required to be filed with the Commission 
        pursuant to paragraph (1) as necessary to facilitate such 
        electronic filing and disclosure.

SEC. 5. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS PROHIBITED.

    (a) Prohibition.--It shall be unlawful for any 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 under section 12 of the Securities Exchange Act of 
1934 (15 U.S.C. 78l) or who is a director or an officer of the issuer 
of such security, directly or indirectly, to purchase (or otherwise 
acquire) or sell (or otherwise transfer) any equity security of any 
issuer (other than an exempted security), during any blackout period 
with respect to such equity security.
    (b) Remedy.--Any profit realized by such beneficial owner, 
director, or officer from any purchase (or other acquisition) or sale 
(or other transfer) in violation of this section shall inure to and be 
recoverable by the issuer irrespective of any intention on the part of 
such beneficial owner, director, or officer in entering into the 
transaction. Suit to recover such profit 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 shall fail or refuse to bring such suit within 60 
days after request or shall fail diligently to prosecute the same 
thereafter; but no such suit shall be brought more than 2 years after 
the date such profit was realized. This subsection shall not be 
construed to cover any transaction where such beneficial owner was not 
such both at the time of the purchase and sale, or the sale and 
purchase, of the security or security-based swap (as defined in section 
206B of the Gramm-Leach-Bliley Act) involved, or any transaction or 
transactions which the Commission by rules and regulations may exempt 
as not comprehended within the purposes of this subsection.
    (c) Rulemaking Permitted.--The Commission may issue rules to 
clarify the application of this subsection, to ensure adequate notice 
to all persons affected by this subsection, and to prevent evasion 
thereof.
    (d) Definition.--For purposes of this section, the term 
``beneficial owner'' has the meaning provided such term in rules or 
regulations issued by the Securities and Exchange Commission under 
section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p).

SEC. 6. IMPROVED TRANSPARENCY OF CORPORATE DISCLOSURES.

    (a) Modification of Regulations Required.--The Commission shall 
revise its regulations under the securities laws pertaining to the 
disclosures required in periodic financial reports and registration 
statements to require such reports to include adequate and appropriate 
disclosure of--
            (1) the issuer's off-balance sheet transactions and 
        relationships with unconsolidated entities or other persons, to 
        the extent they are not disclosed in the financial statements 
        and are reasonably likely to materially affect the liquidity or 
        the availability of, or requirements for, capital resources, or 
        the financial condition or results of operations of the issuer; 
        and
            (2) loans extended to officers, directors, or other persons 
        affiliated with the issuer on terms or conditions that are not 
        otherwise available to the public.
    (b) Deadline for Rulemaking.--The Commission shall--
            (1) within 90 days after the date of enactment of this Act, 
        propose, and
            (2) within 270 days after such date, prescribe,
the revisions to its regulations required by subsection (a).
    (c) Analysis Required.--
            (1) Transparency, completeness, and usefulness of financial 
        statements.--The Commission shall conduct an analysis of the 
        extent to which, consistent with the protection of investors 
        and the public interest, disclosure of additional or 
        reorganized information may be required to improve the 
        transparency, completeness, or usefulness of financial 
        statements and other corporate disclosures filed under the 
        securities laws.
            (2) Alternatives to be considered.--In conducting the 
        analysis required by paragraph (1), the Commission shall 
        consider--
                    (A) requiring the identification of the key 
                accounting principles that are most important to the 
                issuer's reported financial condition and results of 
                operation, and that require management's most 
                difficult, subjective, or complex judgments;
                    (B) requiring an explanation, where material, of 
                how different available accounting principles applied, 
                the judgments made in their application, and the 
                likelihood of materially different reported results if 
                different assumptions or conditions were to prevail;
                    (C) in the case of any issuer engaged in the 
                business of trading non-exchange traded contracts, 
                requiring an explanation of such trading activities 
                when such activities require the issuer to account for 
                contracts at fair value, but for which a lack of market 
                price quotations necessitates the use of fair value 
                estimation techniques;
                    (D) establishing requirements relating to the 
                presentation of information in clear and understandable 
                format and language; and
                    (E) requiring such other disclosures, included in 
                the financial statements or in other disclosure by the 
                issuer, as would in the Commission's view improve the 
                transparency of such issuer's financial statements and 
other required corporate disclosures.
            (3) Rules required.--If the Commission, on the basis of the 
        analysis required by this subsection, determines that it is 
        necessary in the public interest or for the protection of 
        investors and would improve the transparency of issuer 
        financial statements, the Commission may prescribe rules 
        reflecting the results of such analysis and the considerations 
        required by paragraph (2). In prescribing such rules, the 
        Commission may seek to minimize the paperwork and cost burden 
        on the issuer consistent with achieving the public interest and 
        investor protection purposes of such rules.

SEC. 7. IMPROVEMENTS IN REPORTING ON INSIDER TRANSACTIONS AND 
              RELATIONSHIPS.

    (a) Specific Objectives.--The Commission shall initiate a 
proceeding to propose changes in its rules and regulations with respect 
to financial reporting to improve the transparency and clarity of the 
information available to investors and to require increased financial 
disclosure with respect to the following:
            (1) Insider relationships and transactions.--Relationships 
        and transactions--
                    (A) between the issuer, affiliates of the issuer, 
                and officers, directors, or employees of the issuer or 
                such affiliates; and
                    (B) between officers, directors, employees, or 
                affiliates of the issuer and entities that are not 
                otherwise affiliated with the issuer,
        to the extent such arrangement or transaction creates a 
        conflict of interest for such persons. Such disclosure shall 
        provide a description of such elements of the transaction as 
        are necessary for an understanding of the business purpose and 
        economic substance of such transaction (including 
        contingencies). The disclosure shall provide sufficient 
        information to determine the effect on the issuer's financial 
        statements and describe compensation arrangements of interested 
        parties to such transactions.
            (2) Relationships with philanthropic organizations.--
        Relationships between the registrant or any executive officer 
        of the registrant and any not-for-profit organization on whose 
        board a director or immediate family member serves or of which 
        a director or immediate family member serves as an officer or 
        in a similar capacity. Relationships that shall be disclosed 
        include contributions to the organization in excess of $10,000 
        made by the registrant or any executive officer in the last 
        five years and any other activity undertaken by the registrant 
        or any executive officer that provides a material benefit to 
        the organization. Material benefit includes lobbying.
            (3) Insider-controlled affiliates.--Relationships in which 
        the registrant or any executive officer exercises significant 
        control over an entity in which a director or immediate family 
        member owns an equity interest or to which a director or 
        immediate family member has extended credit. Significant 
        control should be defined with reference to the contractual and 
        governance arrangements between the registrant or executive 
        officer, as the case may be, and the entity.
            (4) Joint ownership.--Joint ownership by a registrant or 
        executive officer and a director or immediate family member of 
        any real or personal property.
            (5) Provision of services by related persons.--The 
        provision of any professional services, including legal, 
        financial advisory or medical services, by a director or 
        immediate family member to any executive officer of the 
        registrant in the last five years.
    (b) Deadlines.--The Commission shall complete the rulemaking 
required by this section within 180 days after the date of enactment of 
this Act.

SEC. 8. CODES OF CONDUCT.

    (a) Rules Required.--Within 180 days after the date of enactment of 
this Act, the New York Stock Exchange, the American Stock Exchange and 
the Nasdaq Stock Market (or any successor to such entities), shall file 
with the Commission proposed rule changes that would prohibit the 
listing of any security issued by an issuer that has not adopted a 
senior financial officers code of ethics applicable to its principal 
financial officer, its comptroller or principal accounting officer, or 
persons performing similar functions that establishes such standards as 
are reasonably necessary to promote honest and ethical conduct, the 
avoidance of conflicts of interest, full, fair, accurate, timely and 
understandable disclosure in the issuer's periodic reports and 
compliance with applicable governmental rules and regulations. The 
Commission shall approve such proposed rule changes pursuant to the 
requirement of section 19(b)(2) of the Securities Act of 1934.
    (b) Other Exchanges.--The Commission, by rule or regulation, may 
require any other national securities exchange, to propose rule changes 
necessary to comply with the provisions of subsection (a) of this 
section if the Commission determines such action is necessary or 
appropriate in the public interest and consistent with the protection 
of investors.
    (c) Further Standards.--In addition to the requirements of 
subsections (a) and (b), the Commission may, by rule or regulation, 
prescribe further standards of conduct for senior financial officers as 
necessary or appropriate in the public interest and consistent with the 
protection of investors.
    (d) Changes in Codes of Conduct.--Within 180 days after the date of 
enactment of this Act, the Commission shall revise its regulations 
concerning matters requiring prompt disclosure on Form 8K to require 
the immediate disclosure, by means of such Form and by the Internet or 
other electronic means, by any issuer of any change in, or waiver of, 
the code of ethics of such issuer.

SEC. 9. ENHANCED OVERSIGHT OF PERIODIC DISCLOSURES BY ISSUERS.

    (a) Regular and Systematic Review.--The Securities and Exchange 
Commission shall review disclosures made by issuers pursuant to the 
Securities Exchange Act of 1934 (including reports filed on form 10-K) 
on a basis that is more regular and systematic than that in practice on 
the date of enactment on this Act. Such review shall include a review 
of an issuer's financial statements.
    (b) Risk Rating System.--For purposes of the reviews required by 
subsection (a), the Commission shall establish a risk rating system 
whereby issuers receive a risk rating by the Commission, which shall be 
used to determine the frequency of such reviews. In designing such a 
risk rating system the Commission shall consider, among other factors 
the following:
            (1) Emerging companies with disparities in price to earning 
        ratios.
            (2) Issuers with the largest market capitalization.
            (3) Issuers whose operations significantly impact any 
        material sector of the economy.
            (4) Systemic factors such as the effect on niche markets or 
        important subsectors of the economy.
            (5) Issuers that experience significant volatility in their 
        stock price as compared to other issuers.
            (6) Any other factor the Commission may consider relevant.
    (c) Minimum Review Period.--In no event shall an issuer be reviewed 
less than once every three years by the Commission.
    (d) Prohibition of Disclosure of Risk Rating.--Notwithstanding any 
other provision of law, the Commission shall not disclose the risk 
rating of any issuer described in subsection (b).

SEC. 10. RETENTION OF RECORDS.

    (a) Duty To Retain Records.--Any independent public or certified 
accountant who certifies a financial statement as required by the 
securities laws or any rule or regulation thereunder shall prepare and 
maintain for a period of no less than 7 years, final audit work papers 
and other information related to any accountants report on such 
financial statements in sufficient detail to support the opinion or 
assertion reached in such accountants report. The Commission may 
prescribe rules specifying the application and requirements of this 
section.
    (b) Accountant's Report.--For purposes of subsection (a), the term 
``accountant's report'' means a document in which an accountant 
identifies a financial statement and sets forth his opinion regarding 
such financial statement or an assertion that an opinion cannot be 
expressed.

SEC. 11. COMMISSION AUTHORITY TO BAR PERSONS FROM SERVING AS OFFICERS 
              OR DIRECTORS.

    (a) Commission Authority To Prohibit Persons From Serving as 
Officers or Directors.--Notwithstanding any other provision of the 
securities laws, in any cease-and-desist proceeding under section 8A(a) 
of the Securities Act of 1933 or section 21C(a) of the Securities and 
Exchange Act of 1934, the Commission may issue an order to prohibit, 
conditionally or unconditionally, permanently or for such period of 
time as it shall determine, any person who has violated section 
17(a)(1) of the Securities Act of 1933 or section 10(b) of the 
Securities Exchange Act of 1934 (or any rule or regulation 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 such Act if the person's conduct demonstrates substantial 
unfitness to serve as an officer or director of any such issuer.
    (b) Finding of Substantial Unfitness.--In making any determination 
that a person's conduct demonstrates substantial unfitness to serve as 
an officer or director of any such issuer, the Commission shall 
consider--
            (1) the severity of the persons conduct giving rise to the 
        violation, and the persons role or position when he engaged in 
        the violation;
            (2) the person's degree of scienter;
            (3) the person's economic gain as a result of the 
        violation; and
            (4) the likelihood that the conduct giving rise to the 
        violation, or similar conduct as defined in subsection (a), may 
        recur if the person is not so prohibited.
    (c) Automatic Stay Pending Appeal.--The enforcement of any 
Commission order pursuant to subsection (a) shall be stayed--
            (1) for a period of at least 60 days after the entry of any 
        such order or decision; and
            (2) upon the filing of a timely application for judicial 
        review of such order or decision, pending the entry of a final 
        order resolving the application for judicial review.

SEC. 12. DISGORGING INSIDERS PROFITS FROM TRADES PRIOR TO CORRECTION OF 
              ERRONEOUS FINANCIAL STATEMENTS.

    (a) Analysis Required.--The Commission shall conduct an analysis of 
whether, and under what conditions, any officer or director of an 
issuer should be required to disgorge profits gained, or losses 
avoided, in the sale of the securities of such issuer during the six 
month period immediately preceding the filing of a restated financial 
statement on the part of such issuer.
    (b) Disgorgement Rules Authorized.--If the Commission determines 
that imposing the requirement described in subsection (a) is necessary 
or appropriate in the public interest or for the protection investors, 
and would not unduly impair the operations of issuers or the orderly 
operation of the securities markets, the Commission shall prescribe a 
rule requiring the disgorgement of all profits gained or losses avoided 
in the sale of the securities of the issuer by any officer or director 
thereof. Such rule shall--
            (1) describe the conditions under which any officer or 
        director shall be required to disgorge profits, including what 
        constitutes a restatement for purposes of operation of the 
        rule;
            (2) establish exceptions and exemptions from such rule as 
        necessary to carry out the purposes of this section;
            (3) identify the scienter requirement that should be used 
        in order to determine to impose the requirement to disgorge; 
        and
            (4) specify that the enforcement of such rule shall lie 
        solely with the Commission, and that any profits so disgorged 
        shall inure to the issuer.
    (c) No Preemption of Other Law.--Unless otherwise specified by the 
Commission, in the case of any rule promulgated pursuant to subsection 
(b), such rule shall be in addition to, and shall not supersede or 
preempt, the Commission's authority to seek disgorgement under any 
other provision of law.

SEC. 13. SECURITIES AND EXCHANGE COMMISSION AUTHORITY TO PROVIDE 
              RELIEF.

    (a) Proceeds of Enron and Andersen Enforcement Actions.--If in any 
administrative or judicial proceeding brought by the Securities and 
Exchange Commission against--
            (1) the Enron Corporation, any subsidiary or affiliate of 
        such Corporation, or any officer, director, or principal 
        shareholder of such Corporation, subsidiary, or affiliate for 
        any violation of the securities laws; or
            (2) Arthur Andersen L.L.C., any subsidiary or affiliate of 
        Arthur Andersen L.L.C., or any general or limited partner of 
        Arthur Andersen L.L.C., or such subsidiary or affiliate, for 
        any violation of the securities laws with respect to any 
        services performed for or in relation to the Enron Corporation, 
        any subsidiary or affiliate of such Corporation, or any 
        officer, director, or principal shareholder of such 
        Corporation, subsidiary, or affiliate;
the Commission obtains an order providing for an accounting and 
disgorgement of funds, such disgorgement fund (including any addition 
to such fund required or permitted under this section) shall be 
allocated in accordance with the requirements of this section.
    (b) Priority for Former Enron Employees.--The Commission shall, by 
order, establish an allocation system for the disgorgement fund. Such 
system shall provide that, in allocating the disgorgement fund amount 
the victims of the securities laws violations described in subsection 
(a), the first priority shall be given to individuals who were employed 
by the Enron Corporation, or a subsidiary or affiliate of such 
Corporation, and who were participants in an individual account plan 
established by such Corporation, subsidiary, or affiliate. Such 
allocations among such individuals shall be in proportion to the extent 
to which the nonforfeitable accrued benefit of each such individual 
under the plan was invested in the securities of such Corporation, 
subsidiary, or affiliate.
    (c) Addition of Civil Penalties.--If, in any proceeding described 
in subsection (a), the Commission assesses and collects any civil 
penalty, the Commission shall, notwithstanding section 21(d)(3)(C)(i) 
or 21A(d)(1) of the Securities Exchange Act of 1934, or any other 
provision of the securities laws, be payable to the disgorgement fund.
    (d) 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 
the disgorgement fund. 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 (b).
    (e) Definitions.--As used in this section:
            (1) Disgorgement fund.--The term ``disgorgement fund'' 
        means a disgorgement fund established in any administrative or 
        judicial proceeding described in subsection (a).
            (2) Subsidiary or affiliate.--The term ``subsidiary or 
        affiliate'' when used in relation to a person means any entity 
        that controls, is controlled by, or is under common control 
        with such person.
            (3) Officer, director, or principal shareholder.--The term 
        ``officer, director, or principal shareholder'' when used in 
        relation to the Enron Corporation, or any subsidiary or 
        affiliate of such Corporation, means any person that is subject 
        to the requirements of section 16 of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78p) in relation to the Enron 
        Corporation, or any subsidiary or affiliate of such 
        Corporation.
            (4) Nonforfeitable; accrued benefit; individual account 
        plan.--The terms ``nonforfeitable'', ``accrued benefit'', and 
        ``individual account plan'' have the meanings provided such 
        terms, respectively, in paragraphs (19), (23), and (34) of 
        section 3 of the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1002(19), (23), (34)).

SEC. 14. STUDY OF RULES RELATING TO ANALYST CONFLICTS OF INTEREST.

    (a) Study and Review Required.--The Commission shall conduct a 
study and review of any final rules by any self-regulatory organization 
registered with the Commission related to matters involving equity 
research analysts conflicts of interest. Such study and report shall 
include a review of the effectiveness of such final rules in addressing 
matters relating to the objectivity and integrity of equity research 
analyst reports and recommendations.
    (b) Report Required.--The Commission shall submit a report to the 
Committee on Financial Services of the House of Representatives and the 
Committee on Banking, Housing, and Urban Affairs of the Senate on such 
study and review no later than 180 days after any such final rules by 
any self-regulatory organization registered with the Commission are 
delivered to the Commission. Such report shall include recommendations 
to the Congress, including any recommendations for additional self-
regulatory organization rulemaking regarding matters involving equity 
research analysts. The Commission shall annually submit an update on 
such review.

SEC. 15. REVIEW OF CORPORATE GOVERNANCE PRACTICES.

    (a) Study of Corporate Practices.--The Commission shall conduct a 
study and review of current corporate governance standards and 
practices to determine whether such standards and practices are serving 
the best interests of shareholders. Such study and review shall include 
an analysis of--
            (1) whether current standards and practices promote full 
        disclosure of relevant information to shareholders;
            (2) whether corporate codes of ethics are adequate to 
        protect shareholders, and to what extent deviations from such 
        codes are tolerated;
            (3) to what extent conflicts of interests are aggressively 
        reviewed, and whether adequate means for redressing such 
        conflicts exist;
            (4) to what extent sufficient legal protections exist or 
        should be adopted to ensure that any manager who attempts to 
        manipulate or unduly influence an audit will be subject to 
        appropriate sanction and liability, including liability to 
        investors or shareholders pursuing a private cause of action 
        for such manipulation or undue influence;
            (5) whether rules, standards, and practices relating to 
        determining whether independent directors are in fact 
        independent are adequate;
            (6) whether rules, standards, and practices relating to the 
        independence of directors serving on audit committees are 
        uniformly applied and adequate to protect investor interests;
            (7) whether the duties and responsibilities of audit 
        committees should be established by the Commission; and
            (8) what further or additional practices or standards might 
        best protect investors and promote the interests of 
        shareholders.
    (b) Participation of State Regulators.--In conducting the study 
required under subsection (a), the Commission shall seek the views of 
the securities and corporate regulators of the various States.
    (c) Report Required.--The Commission shall submit a report on the 
analysis required under subsection (a) as a part of the Commission's 
next annual report submitted after the date of enactment of this Act.

SEC. 16. 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 last five years 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 
within 180 days of 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. 17. STUDY OF CREDIT RATING AGENCIES.

    (a) Study Required.--The Commission shall conduct a study of the 
role and function of credit rating agencies in the operation of the 
securities market. Such study shall examine--
            (1) the role of the credit rating agencies in the 
        evaluation of issuers of securities;
            (2) the importance of that role to investors and the 
        functioning of the securities markets;
            (3) any impediments to the accurate appraisal by credit 
        rating agencies of the financial resources and risks of issuers 
        of securities;
            (4) any measures which may be required to improve the 
        dissemination of information concerning such resources and 
        risks when credit rating agencies announce credit ratings;
            (5) any barriers to entry into the business of acting as a 
        credit rating agency, and any measures needed to remove such 
        barriers; and
            (6) 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 
analysis 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 within 180 days 
after the date of enactment of this Act. 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. 18. STUDY OF INVESTMENT BANKS

    (a) GAO Study.--The Comptroller General shall conduct a study on 
the role played by investment banks and financial advisors in assisting 
public companies in manipulating their earnings and obfuscating their 
true financial condition. The study should address the role of the 
investment banks--
            (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 financing 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 fiber optic cable 
        capacity, in 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 
        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 General Accounting Office shall report to the 
Congress within 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.

SEC. 19. STUDY OF MODEL RULES FOR ATTORNEYS OF ISSUERS.

    (a) In General.--The Comptroller General shall conduct a study of 
the Model Rules of Professional Conduct promulgated by the American Bar 
Association and rules of professional conduct applicable to attorneys 
established by the Commission to determine--
            (1) whether such rules provide sufficient guidance to 
        attorneys representing corporate clients who are issuers 
        required to file periodic disclosures under section 13 or 15 of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o), as to 
        the ethical responsibilities of such attorneys to--
                    (A) warn clients of possible fraudulent or illegal 
                activities of such clients and possible consequences of 
                such activities;
                    (B) disclose such fraudulent or illegal activities 
                to appropriate regulatory or law enforcement 
                authorities; and
                    (C) manage potential conflicts of interests with 
                clients; and
            (2) whether such rules provide sufficient protection to 
        corporate shareholders, especially with regards to conflicts of 
        interest between attorneys and their corporate clients.
    (b) Report Required.--The Comptroller General shall report to the 
Committee on Financial Services of the House of Representatives and the 
Committee on Banking, Housing, and Urban Affairs of the Senate on the 
results of the study required by this section. Such report shall 
include any recommendations of the General Accounting Office with 
regards to--
            (1) possible changes to the Model Rules and the rules of 
        professional conduct applicable to attorneys established by the 
        Commission to provide increased protection to shareholders;
            (2) whether restrictions should be imposed to require that 
        an attorney, having represented a corporation or having been 
        employed by a firm which represented a corporation, may not be 
        employed as general counsel to that corporation until a certain 
        period of time has expired; and
            (3) regulatory or legislative steps that are recommended or 
        that may be necessary to address concerns identified in the 
        study.

SEC. 20. ENFORCEMENT AUTHORITY.

    For the purposes of enforcing and carrying out this Act, the 
Commission shall have all of the authorities granted to the Commission 
under the securities laws. Actions of the Commission under this Act, 
including actions on rules or regulations, shall be subject to review 
in the same manner as actions under the securities laws.

SEC. 21. EXCLUSION FOR INVESTMENT COMPANIES.

    Sections 4, 6, 9, and 15 of this Act shall not apply to an 
investment company registered under section 8 of the Investment Company 
Act of 1940 (15 U.S.C. 80a-8).

SEC. 22. DEFINITIONS.

    As used in this Act:
            (1) Blackout period.--The term ``blackout period'' with 
        respect to the equity securities of any issuer--
                    (A) means any period during which the ability of at 
                least fifty percent of the participants or 
                beneficiaries under all applicable individual account 
                plans maintained by the issuer to purchase (or 
                otherwise acquire) or sell (or otherwise transfer) an 
                interest in any equity of such issuer is suspended by 
                the issuer or a fiduciary of the plan; but
                    (B) does not include--
                            (i) a period in which the employees of an 
                        issuer may not allocate their interests in the 
                        individual account plan due to an express 
                        investment restriction--
                                    (I) incorporated into the 
                                individual account plan; and
                                    (II) timely disclosed to employees 
                                before joining 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 applicable individual 
                        account plan by reason of a corporate merger, 
                        acquisition, divestiture, or similar 
                        transaction.
            (2) Boards of accountancy of the states.--The term ``boards 
        of accountancy of the States'' means any organization or 
        association chartered or approved under the law of any State 
        with responsibility for the registration, supervision, or 
        regulation of accountants.
            (3) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (4) Individual account plan.--The term ``individual account 
        plan'' has the meaning provided such term in section 3(34) of 
        the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002(34)).
            (5) Issuer.--The term ``issuer'' shall have the meaning set 
        forth in section 2(a)(4) of the Securities Act of 1933 (15 
        U.S.C. 77b(a)(4)).
            (6) Person associated with an accountant.--The term 
        ``person associated with an accountant'' means any partner, 
        officer, director, or manager of such accountant (or any person 
        occupying a similar status or performing similar functions), 
        any person directly or indirectly controlling, controlled by, 
        or under common control with such accountant, or any employee 
        of such accountant who performs a supervisory role in the 
        auditing process.
            (7) Recognized public regulatory organization.--The term 
        ``recognized public regulatory organization'' means a public 
        regulatory organization that the Commission has recognized as 
        meeting the criteria established by the Commission under 
        subsection (b) of section 2.
            (8) Securities laws.--The term ``securities laws'' means 
        the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the 
        Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
        Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b et seq.), and 
        the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa 
        et seq.), notwithstanding any contrary provision of any such 
        Act.




                                                 Union Calendar No. 247

107th CONGRESS

  2d Session

                               H. R. 3763

                          [Report No. 107-414]

_______________________________________________________________________

                                 A BILL

   To protect investors by improving the accuracy and reliability of 
  corporate disclosures made pursuant to the securities laws, and for 
                            other purposes.

_______________________________________________________________________

                             April 22, 2002

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed