[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3818 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 3818

   To protect investors by enhancing regulation of public auditors, 
 improving corporate governance, overhauling corporate disclosure made 
        pursuant to the securities laws, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 28, 2002

 Mr. LaFalce (for himself, Mr. Gephardt, Ms. Pelosi, Ms. DeLauro, Mr. 
  Conyers, Mr. Waxman, Mr. Frank, Mr. Kanjorski, Mrs. Maloney of New 
York, Mr. Gutierrez, Ms. Carson of Indiana, Mr. Meeks of New York, Ms. 
 Schakowsky, Mr. Gonzalez, Mrs. Jones of Ohio, Mr. Clay, Mr. Ford, Mr. 
   Israel, Mr. Hinchey, Ms. Slaughter, Mr. Lipinski, and Mr. Stupak) 
 introduced the following bill; which was referred to the Committee on 
                           Financial Services

_______________________________________________________________________

                                 A BILL


 
   To protect investors by enhancing regulation of public auditors, 
 improving corporate governance, overhauling corporate disclosure 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 ``Comprehensive 
Investor Protection Act of 2002''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Auditor independence.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Public Accounting Regulatory Board.
Sec. 5. Study on the improvement of corporate governance.
Sec. 6. Insider trades during pension fund blackout periods prohibited.
Sec. 7. Improvements in financial reporting.
Sec. 8. Creation of current disclosure reporting system.
Sec. 9. Enhanced oversight of periodic disclosures by issuers.
Sec. 10. Reauthorization of appropriations of the Securities and 
                            Exchange Commission.
Sec. 11. Electronic disclosure of affiliate transactions.
Sec. 12. Restoration of joint and several liability.
Sec. 13. Credit rating agencies.
Sec. 14. Restoration of aiding and abetting liability.
Sec. 15. Destruction of records.
Sec. 16. Analyst conflicts of interest.
Sec. 17. Definition of securities laws.

SEC. 2. AUDITOR INDEPENDENCE.

    (a) Auditor Independence Requirements.--The Securities Exchange Act 
of 1934 is amended by inserting after section 10A (15 U.S.C. 78j-1) the 
following new section:

``SEC. 10B. AUDITOR INDEPENDENCE.

    ``(a) Permitted Services for Audit Clients.--
            ``(1) Nonaudit services for audit clients prohibited.--
                    ``(A) Prohibition.--An accountant shall not be 
                considered to be independent for purposes of certifying 
                the financial statements or other documents of an 
                issuer required to be filed with the Commission under 
                the securities laws for any fiscal year of the issuer 
                if the accountant performs prohibited nonaudit services 
                for such issuer or an affiliate of such issuer during 
                such fiscal year.
                    ``(B) Periodic review of prohibited nonaudit 
                services.--The Commission shall periodically review the 
                impact on the independence of auditors of the scope of 
                services provided by auditors to audit clients in order 
                to determine whether additional services should be 
                added to the list of prohibited nonaudit services under 
                subsection (e)(11). In conducting such periodic 
                reviews, the Commission shall consider the impact of 
                the provision of a service on an auditor's independence 
                where provision of the service--
                            ``(i) creates a mutual or conflicting 
                        interest with the audit client;
                            ``(ii) results in the accounting firm 
                        auditing its own work;
                            ``(iii) results in an accountant or 
                        accounting firm functioning as management or an 
                        employee of the audit client; or
                            ``(iv) results in the accounting firm 
                        acting as an advocate for the audit client.
                    ``(C) Transition.--Until one year after the date of 
                enactment of this section, providing prohibited 
                nonaudit services to an audit client or an affiliate of 
                an audit client will not impair an accountant's 
                independence with respect to the audit client if--
                            ``(i) the prohibited nonaudit services are 
                        performed pursuant to a written contract in 
                        effect on or before such date of enactment; and
                            ``(ii) performing those services did not 
                        impair the auditor's independence under 
                        requirements of the Commission, the 
                        Independence Standards Board, or the accounting 
                        profession in the United States in effect on 
                        such date of enactment.
            ``(2) Audit committee approval of tax-related and nonaudit 
        services.--An accountant shall not be considered to be 
        independent for purposes of certifying the financial statements 
        or other documents of an issuer required to be filed with the 
        Commission under the securities laws for any fiscal year of the 
        issuer if, during such fiscal year, the accountant provides any 
        tax-related or nonaudit services that are not otherwise 
        prohibited under this section, unless the provision of such 
        tax-related or nonaudit services was approved in advance by the 
        audit committee or, in the absence of an audit committee, the 
        equivalent board committee or the entire board of directors. In 
        approving such services, the audit committee shall evaluate the 
        impact of the provision of such services on the independence of 
        the auditor.
    ``(b) Auditor Rotation.--
            ``(1) General rule.--Except as otherwise provided in this 
        subsection, an accountant shall not be considered to be 
        independent for purposes of certifying the financial statements 
        or other documents of an issuer required to be filed with the 
        Commission under the securities laws if the accountant has been 
        engaged to conduct an audit of such statements for more than 4 
        consecutive fiscal years of such issuer.
            ``(2) 4-year extension.--The accountant of the issuer may, 
        notwithstanding paragraph (1), be engaged to conduct an audit 
        for 4 additional consecutive fiscal years if the Public 
        Auditing Regulatory Board finds pursuant to section 13A(f)(4) 
        that the accountant may be considered to be independent 
        notwithstanding the extension of the engagement by the issuer 
        on the basis of a satisfactory review by the Board of the 
        accountant's audit with respect to such issuer during the 
preceding engagement under paragraph (1).
            ``(3) Audit partner rotation.--Any accountant that receives 
        an extension of an engagement under paragraph (2) shall not 
        designate the partner or officer who supervised or managed the 
        audit during the initial period under paragraph (1) to 
        supervise or manage the audit during any such extension, unless 
        that partner or officer has supervised or managed the audit for 
        2 years or less during that initial period. In no event shall a 
        partner or officer supervise or manage an audit of an issuer 
        for more than 4 consecutive years.
            ``(4) Treatment of audit engagements prior to enactment.--
        No fiscal year of an issuer that began before the date of 
        enactment of this section shall be counted towards the 4 
        consecutive fiscal year limitation contained in paragraph (1).
    ``(c) Auditor/Issuer Employment Restrictions.--Beginning on the 
date that is two years after the date of enactment of this section, an 
accountant shall not be considered to be independent for the purposes 
of certifying the financial statement or other documents of an issuer 
required to be filed with the Commission under the securities laws if--
            ``(1) the issuer employs any person who was employed by the 
        accountant and was assigned by such accountant or firm to 
        participate in the audit of the financial statements of such 
        issuer; or
            ``(2) the issuer employs any person as a chief executive 
        officer, chief financial officer, controller, principal 
        accounting officer, or equivalent position;
during the two years following the date on which such person ceased to 
be employed by such accountant.
    ``(d) Exemptions.--The Commission may, by rule, exempt from the 
requirements of this section audits of issuers that are small companies 
and accountants that are small audit firms, to the extent consistent 
with the public interest.
    ``(e) Definition of Prohibited Nonaudit Services.--For purposes of 
this section, the term `prohibited nonaudit services' includes the 
following:
            ``(1) Bookkeeping or other services related to the audit 
        client's accounting records or financial statements.--Any 
        service involving:
                    ``(A) maintaining or preparing the audit client's 
                or an affiliate of the audit client's accounting 
                records;
                    ``(B) preparing the audit client's or an affiliate 
                of the audit client's financial statements; or
                    ``(C) generating financial information to be 
                disclosed by the audit client or an affiliate of the 
                audit client to the public.
            ``(2) Financial information systems design and 
        implementation.--Designing or implementing a hardware or 
        software system used to generate information that is 
        significant to the audit client's financial statements taken as 
        a whole, not including services an accountant performs in 
        connection with the assessment, design, and implementation of 
        internal accounting controls and risk management controls.
            ``(3) Appraisal or valuation services, fairness opinions, 
        or contribution-in-kind reports.--Any appraisal or valuation 
        service for an audit client or an affiliate of an audit client, 
        or any service involving a fairness opinion or contribution-in-
        kind report where it is reasonably likely that, in performing 
        an audit in accordance with generally accepted auditing 
        standards, the results will be audited by the accountant.
            ``(4) Actuarial services.--Any advisory service involving 
        the determination of policy reserves and related accounts for 
        the audit client or an affiliate of an audit client, unless the 
        audit client or its affiliate uses its own actuaries or third-
        party actuaries to provide management with the primary 
        actuarial capabilities.
            ``(5) Internal audit outsourcing.--Internal audit services 
        for an audit client or an affiliate of an audit client, not 
        including nonrecurring evaluations of discrete items or 
        programs and operational internal audits unrelated to the 
        internal accounting controls, financial systems, or financial 
        statements.
            ``(6) Management functions.--Acting, temporarily or 
        permanently, as a director, officer, or employee of an audit 
        client or an affiliate of an audit client, or performing any 
        decision-making, supervisory, or ongoing monitoring function 
        for the audit client or affiliate of the audit client.
            ``(7) Human resources.--Recruiting, hiring, or designing 
        compensation packages for officers, directors, or managers of 
        the audit client or an affiliate of the audit client; advising 
        about the audit client's or affiliate of the audit client's 
        management or organizational structure; developing employee 
        evaluation programs; or conducting psychological or other 
        formal testing of employees.
            ``(8) Broker-dealer, investment adviser, or investment 
        banking services.--Acting as a securities professional, such as 
        a broker-dealer, promoter, underwriter, analyst of the audit 
        client's or an affiliate of the audit client's securities, 
        investment adviser, or in any capacity recommending the 
        purchase or sale of an audit client's or an affiliate of an 
        audit client's securities, or designing the audit client or an 
        affiliate of the audit client's system to comply with broker-
        dealer or investment adviser regulations.
            ``(9) Legal services.--Providing any service to an audit 
        client or an affiliate of an audit client that, in the 
        jurisdiction in which the service is provided, could be 
        provided only by someone licensed to practice law.
            ``(10) Expert services.--Rendering or supporting expert 
        opinions for an audit client or an affiliate of an audit client 
        in legal, administrative, or regulatory filings or proceedings.
            ``(11) Additions by rule.--Any other service that the 
        Commission identifies by rule, consistent with the protection 
of investors and the public interest, to be a nonaudit service.''.
    (b) National Securities Exchange Enforcement of Audit Committee 
Governance Practices.--Section 6(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78f(b)) is amended by adding at the end the following 
new paragraph:
            ``(10) The qualitative listing standards concerning 
        corporate governance of the exchange require that--
                    ``(A) an issuer's auditor is appointed by and 
                reports directly to the audit committee of the board of 
                directors or, in the absence of an audit committee, the 
                board committee performing equivalent functions or the 
                entire board of directors;
                    ``(B) the audit committee meet with the accountants 
                engaged to perform such audit on a regular basis, at 
                least quarterly;
                    ``(C) the audit committee provides the opportunity 
                to meet without the attendance at such meetings of any 
                officer, director, or other member of the issuer's 
                senior management;
                    ``(D) no director of an issuer may provide 
                consulting or expert services to the board of directors 
                of the issuer or to the issuer if such director 
                receives compensation for such services; and
                    ``(E) the issuer shall not provide charitable or 
                other contributions to any group affiliated with any 
                director while such director is serving on the board of 
                directors of the issuer.''.
    (c) Study of Additional Independence Requirements.--
            (1) Study required.--The Securities and Exchange Commission 
        shall conduct a study of the efficacy of imposing additional 
        independence restrictions relating to the provision of tax-
        related services by an accountant or an affiliate of an 
        accountant. In particular, the Commission shall study the 
        effect on independence of providing tax advisory work relating 
        to the treatment of tax-advantaged structures, securities, or 
        other arrangements which are substantially designed by the 
        auditor or an affiliate of an auditor. The Commission shall 
        also study the effect on, or the impairment of, an accountant's 
        independence relating to tax advice provided to an audit client 
        by its auditor to determine the tax or accounting treatment of 
        a proposed structure, security, or accounting item that the 
        auditor did not provide substantial assistance in designing.
            (2) Report Required.--The Commission shall submit a report 
        on the analysis required under paragraph (1) to the Committee 
        on Financial Services of the House of Representatives and the 
        Committee on Banking, Housing, and Urban Affairs of the Senate 
        no later than 180 days after the date of enactment of this Act.

SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

    Section 9 of the Securities Exchange Act of 1934 (15 U.S.C. 78i) is 
amended by adding at the end the following new subsection:
    ``(j) Improper Influence on Conduct of Audits.--It shall be 
unlawful in contravention of such rules and 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 to take any action to unduly or 
improperly 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.''.

SEC. 4. PUBLIC ACCOUNTING REGULATORY BOARD.

    The Securities Exchange Act of 1934 is amended by inserting 
immediately after section 13 (15 U.S.C. 78m) the following new section:

``SEC. 13A. PUBLIC ACCOUNTING REGULATORY BOARD.

    ``(a) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Public accounting firm.--The term `public accounting 
        firm' means a sole proprietorship, unincorporated association, 
        partnership, corporation, or other legal entity that is engaged 
        in the practice of public accounting.
            ``(2) Board.--The term `Board' means the Public Accounting 
        Regulatory Board established by the Commission pursuant to 
        subsection (b).
            ``(3) Accountant's report.--The term `accountant's report' 
        means a document in which a public accounting firm identifies a 
        financial statement, report, or other document and sets forth 
        the firm's opinion regarding such financial statement, report, 
        or other document, or an assertion that an opinion cannot be 
        expressed.
            ``(4) Person associated with a public accounting firm.--The 
        term `person associated with a public accounting firm' means a 
        natural person who--
                    ``(A) is a partner, shareholder, employee, or 
                individual proprietor of a public accounting firm, or 
                who shares in the profits of a public accounting firm; 
                and
                    ``(B) engages in any conduct or practice in 
                connection with the preparation of an accountant's 
                report on any financial statement, report, or other 
                document required to be filed with the Commission under 
                any securities law.
            ``(5) Professional standards.--The term `professional 
        standards' means generally accepted auditing standards, 
        generally accepted accounting principles, generally accepted 
        standards for attestation engagements, and any other standards 
        related to the preparation of financial statements or 
        accountant's reports promulgated by the Commission or a 
        standard-setting body recognized by the Board.
    ``(b) Establishment of Board.--Not later than 90 days after the 
date of enactment of this section, the Commission shall establish a 
Public Accounting Regulatory Board to perform the duties set forth in 
this section.
    ``(c) Membership of Board.--
            ``(1) Chairman.--The Chairman of the Board shall be 
        appointed jointly by the Commission and the Comptroller General 
of the United States for a term of five years.
            ``(2) Appointment of board members.--There shall be 6 
        additional Board members, who shall be selected by an 
        Appointment Committee comprised of the Chairman of the Board, 
        the Chairman of the Commission, and the Comptroller General of 
        the United States. Board members shall serve as representatives 
        of institutional investors and pension funds.
            ``(3) Accountant members.--Two of the members may be 
        present or former certified public accountants, provided such 
        members--
                    ``(A) are not currently in public practices;
                    ``(B) have not been associated with a public 
                accounting firm for a period of at least 3 years; and
                    ``(C) agree to not be associated with or to receive 
                consulting fees from a public accounting firm for a 
                period of five years after leaving the Board.
            ``(4) Nominations.--In making appointments of members, the 
        Appointment Committee shall consult with, and make appointments 
        from nominations received from--
                    ``(A) institutional investors;
                    ``(B) public employee pension plans;
                    ``(C) pension plans organized pursuant to the 
                Employee Retirement Income Security Act of 1974; and
                    ``(D) pension plans organized pursuant to the Taft-
                Hartley Act.
            ``(5) Terms.--The members of the Board appointed by the 
        Appointment Committee shall have terms of 4 years, except that 
        the members of the Appointing Committee shall adopt procedures 
        for staggering the initial terms of the members first so 
        appointed to provide for a reasonable overlapping of the terms 
        of office of subsequently elected members.
            ``(6) Full-time basis.--The members of the Board shall 
        serve on a full-time basis, severing all business ties with 
        former firms or employers prior to beginning service on the 
        Board.
            ``(7) Rules.--Following selection of the initial members of 
        the Board, the Board shall propose and adopt rules, which shall 
        provide for--
                    ``(A) the operation and administration of the 
                Board, including the compensation of the members of the 
                Board, which shall be at a level comparable to similar, 
                professional positions in the private sector;
                    ``(B) the appointment and compensation of such 
                employees, attorneys, and consultants as may be 
                necessary or appropriate to carry out the Board's 
                functions under this title;
                    ``(C) the registration of public accounting firms 
                with the Board pursuant to subsections (d) and (e); and
                    ``(D) the matters described in subsections (f) and 
                (g).
            ``(8) Administrative procedures act applicability.--Chapter 
        5 of title 5, United States Code, shall apply to the 
        proceedings of the Board, including proceedings to prescribe or 
        amend rules of the Board.
    ``(d) Funding of the Board.--
            ``(1) Self-financing.--The Board shall establish rules for 
        the assessment and collection of fees sufficient to recover the 
        costs and expenses of the Board and to permit the Board to 
        operate on a self-financing basis.
            ``(2) Assessment and collection.--The fees shall be 
        assessed on issuers that file any financial statements, 
        reports, or other documents with the Commission under the 
        securities laws that must be certified by a public accounting 
        firm. The fees shall be collected through the public accounting 
        firm that certifies such statement, report, or document.
            ``(3) Payment a condition of registration.--The Board shall 
        terminate or suspend the registration under subsection (e) of 
        any public accounting firm that fails to collect and transmit a 
        fee assessed under this subsection.
    ``(e) Registration With Board.--
            ``(1) Registration required.--Beginning 1 year after the 
        date on which all initial members of the Board have been 
        selected in accordance with subsection (c), it shall be 
        unlawful for a public accounting firm to furnish an 
        accountant's report on any financial statement, report, or 
        other document required to be filed with the Commission under 
        any Federal securities law, unless such firm is registered with 
        the Board.
            ``(2) Application for registration.--A public accounting 
        firm may be registered under this subsection by filing with the 
        Board an application for registration in such form and 
        containing such information as the Board, by rule, may 
        prescribe. Each application shall include--
                    ``(A) the names of all clients of the public 
                accounting firm for which the firm furnishes 
                accountant's reports on financial statements, reports, 
                or other documents filed with the Commission;
                    ``(B) financial information of the public 
                accounting firm for its most recent fiscal year, 
                including its annual revenues from accounting and 
                auditing services, its assets and its liabilities;
                    ``(C) a statement of the public accounting firm's 
                policies and procedures with respect to quality control 
                of its accounting and auditing practice;
                    ``(D) information relating to criminal, civil, or 
                administrative actions or formal disciplinary 
                proceedings pending against such firm, or any person 
                associated with such firm, in connection with an 
                accountant's report furnished by such firm;
                    ``(E) a list of persons associated with the public 
                accounting firm who are certified public accountants, 
                including any State professional license or 
                certification number for each such person; and
                    ``(F) such other information that is reasonably 
                related to the Board's responsibilities as the Board 
                considers necessary or appropriate.
            ``(3) Periodic reports.--Once in each year, or more 
        frequently as the Board, by rule, may prescribe, each public 
        accounting firm registered with the Board shall submit reports 
        to the Board updating the information contained in its 
        application for registration and containing such additional 
        information that is reasonably related to the Board's 
        responsibilities as the Board, by rule, may prescribe.
            ``(4) Exemptions.--The Commission, by rule or order, upon 
        its own motion or upon application, may conditionally or 
        unconditionally exempt any public accounting firm or any 
        accountant's report, or any class of public accounting firms or 
        any class of accountant's reports, from any provisions of this 
        section or the rules or regulations issued hereunder, if the 
        Commission finds that such exemption is consistent with the 
        public interest, the protection of investors, and the purposes 
        of this section.
            ``(5) Confidentiality.--The Board may, by rule, designate 
        portions of the filings required pursuant to paragraphs (2) and 
        (3) as privileged and confidential.
    ``(f) Duties Regarding Quality Control.--
            ``(1) Objectives; attainment.--The Board shall seek to 
        promote a high level of professional conduct among public 
        accounting firms registered with the Board, to improve the 
        quality of audit services provided by such firms, and, in 
        general, to protect investors and promote the public interest. 
        The Board shall attain these objectives--
                    ``(A) by establishing standards regarding the 
                performance of financial audits in accordance with the 
                requirements of paragraph (2);
                    ``(B) by the direct performance of quality reviews 
                and inspections of audits in accordance with the 
                requirements of paragraph (3); and
                    ``(C) if the Board make the determination required 
                by paragraph (4)(A), by the supervision and oversight 
                of peer review organizations in accordance with the 
                requirements of paragraph (4).
            ``(2) Audit quality standards.--
                    ``(A) In general.--The Board shall, by rule, 
                establish quality standards applicable to the conduct 
                of audit services provided by public accounting firms. 
                Such standards shall include--
                            ``(i) independence standards;
                            ``(ii) quality control standards;
                            ``(iii) professional and ethical standards; 
                        and
                            ``(iv) such other standards as the Board 
                        determines to be necessary to carry out the 
                        objectives specified in paragraph (1).
                    ``(B) Specific contents of standards.--In 
                establishing the quality standards required by 
                subparagraph (A), the Board shall also establish--
                            ``(i) procedures for the monitoring by 
                        public accounting firms of their compliance 
                        with professional ethical standards established 
                        by the Board, including its independence from 
                        its audit clients;
                            ``(ii) procedures for the assignment of 
                        personnel to audit engagements;
                            ``(iii) procedures for consultation within 
                        a public accounting firm or with other 
                        accountants relating to accounting and auditing 
                        questions;
                            ``(iv) procedures for the supervision of 
                        audit work;
                            ``(v) procedures for the review of 
                        decisions to accept and retain audit clients;
                            ``(vi) procedures for the internal 
                        inspection of the public accounting firms own 
                        compliance with such policies and procedures;
                            ``(vii) requirements for public accounting 
                        firms to prepare and maintain for a period of 
                        no less than seven years, audit work papers and 
                        other information related to any audit report, 
                        in sufficient detail to support the conclusions 
                        reached in an audit report issued by a public 
                        accounting firm; and
                            ``(viii) procedures establishing 
                        `concurring' or `second' partner review systems 
                        for the evaluation and review of audit work by 
                        a partner that is not in charge of the conduct 
                        of the audit.
            ``(3) Direct reviews of public accounting firms.--The Board 
        shall, by rule, establish procedures for the conduct of a 
        continuing program of inspections of each public accounting 
        firm registered with the Board to assess compliance by such 
        firm, and by persons associated with such firm, with applicable 
        provisions of this Act, the securities laws, the rules and 
        regulations thereunder, the rules adopted by the Board, and 
        professional standards. Except as provided in paragraph (5), 
        the Board shall annually inspect each public accounting firm 
        that audits more than one hundred issuers on an ongoing annual 
        basis, to the extent practicable, and all other public 
        accounting firms no less than at least once every three years. 
        In conducting such inspections, the Board shall, among other 
        things, inspect selected audit and review engagements. The 
        review shall include evaluations of the firms quality control 
        procedures and compliance with all legal and ethical 
        requirements. In connection with each review, the Board shall 
        prepare a report of its findings and such report, accompanied 
        by any letter of comments by the Board or reviewer and any 
        letter of response from the firm under review, shall be made 
        available to the public. The Board shall take any appropriate 
        disciplinary or remedial action based on its findings after 
        completion of such review.
            ``(4) Quality review of individual audits.--The Board 
        shall, by rule, establish procedures for the conduct of direct 
        inspection and review of individual audits of issuers and 
        standards under which it will evaluate audit service quality. 
The Board shall further establish the procedures and standards under 
which the Board shall approve any extension of an engagement provided 
to an accountant under section 10B(b)(2) on the basis of a satisfactory 
review of the accountant's audit during the preceding engagement. A 
finding by the Board that an individual audit of an issuer did or did 
not meet the standards of the Board with respect to the quality of the 
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.
            ``(5) Use of professional peer review organizations.--
                    ``(A) Option to utilize peer review 
                organizations.--The Board may by rule establish 
                requirements for the use of peer review organizations 
                for the purposes of conducting the continuing program 
                of inspections to assess compliance as required by 
                paragraph (3) of each public accounting firm registered 
                with the Board. Such rule shall provide for appropriate 
                oversight and supervision of such peer review 
                organization by the Board to ensure that such 
                inspections meet the requirements of such paragraph.
                    ``(B) Penalties.--If the Board establishes 
                requirements for the conduct of peer reviews under 
                subparagraph (A), the violation by a public accounting 
                firm or a person associated with such a firm of a rule 
                of the peer review organization to which the firm 
                belongs shall constitute grounds for--
                            ``(i) the imposition of disciplinary 
                        sanctions by the Board pursuant to subsection 
                        (g); and
                            ``(ii) denial to the public accounting firm 
                        or person associated with such firm of the 
                        privilege of appearing or practicing before the 
                        Commission.
            ``(6) Confidentiality.--Except as otherwise provided by 
        this section, all reports, memoranda, and other information 
        provided to the Board solely for purposes of paragraph (3) or 
        (4), or to a peer review organization certified by the Board, 
        shall be confidential and privileged, unless such 
        confidentiality and privilege are expressly waived by the 
        person or entity that created or provided the information.
    ``(g) Disciplinary Duties of Board.--The Board shall have the 
following duties and powers:
            ``(1) Investigations and disciplinary proceedings.--The 
        Board shall establish fair procedures for investigating and 
        disciplining public accounting firms registered with the Board, 
        and persons associated with such firms, for violations of the 
        Federal securities laws, the rules or regulations issued 
        thereunder, the rules adopted by the Board, or professional 
        standards in connection with the preparation of an accountant's 
        report on a financial statement, report, or other document 
        filed with the Commission.
            ``(2) Investigation procedures.--
                    ``(A) In general.--The Board may conduct an 
                investigation of any act, practice, or omission by a 
                public accounting firm registered with the Board, or by 
                any person associated with such firm, in connection 
                with the preparation of an accountant's report on a 
                financial statement, report, or other document filed 
                with the Commission that may violate any applicable 
                provision of the Federal securities laws, the rules and 
                regulations issued thereunder, the rules adopted by the 
                Board, or professional standards, whether such act, 
                practice, or omission is the subject of a criminal, 
                civil, or administrative action, or a disciplinary 
                proceeding, or otherwise is brought to the attention of 
                the Board.
                    ``(B) Powers of board.--For purposes of an 
                investigation under this paragraph, the Board may, in 
                addition to such other actions as the Board determines 
                to be necessary or appropriate--
                            ``(i) require the testimony of any person 
                        associated with a public accounting firm 
                        registered with the Board, with respect to any 
                        matter which the Board considers relevant or 
                        material to the investigation;
                            ``(ii) require the production of audit 
                        workpapers and any other document or 
                        information in the possession of a public 
                        accounting firm registered with the Board, or 
                        any person associated with such firm, wherever 
                        domiciled, that the Board considers relevant or 
                        material to the investigation, and may examine 
                        the books and records of such firm to verify 
                        the accuracy of any documents or information so 
                        supplied; and
                            ``(iii) request the testimony of any person 
                        and the production of any document in the 
                        possession of any person, including a client of 
                        a public accounting firm registered with the 
                        Board, that the Board considers relevant or 
                        material to the investigation.
                    ``(C) Suspension or revocation of registration for 
                noncompliance.--The refusal of any person associated 
                with a public accounting firm registered with the Board 
                to testify, or the refusal of any such person to 
                produce documents or otherwise cooperate with the 
                Board, in connection with an investigation under this 
                section, shall be cause for suspending or barring such 
                person from associating with a public accounting firm 
                registered with the Board, or such other appropriate 
                sanction as the Board shall determine. The refusal of 
                any public accounting firm registered with the Board to 
                produce documents or otherwise cooperate with the 
                Board, in connection with an investigation under this 
                section, shall be cause for the suspension or 
revocation of the registration of such firm, or such other appropriate 
sanction as the Board shall determine.
                    ``(D) Referral to commission.--
                            ``(i) In general.--If the Board is unable 
                        to conduct or complete an investigation under 
                        this section because of the refusal of any 
                        client of a public accounting firm registered 
                        with the Board, or any other person, to 
                        testify, produce documents, or otherwise 
                        cooperate with the Board in connection with 
                        such investigation, the Board shall report such 
                        refusal to the Commission.
                            ``(ii) Investigation.--The Commission may 
                        designate the Board or one or more officers of 
                        the Board who shall be empowered, in accordance 
                        with such procedures as the Commission may 
                        adopt, to subpoena witnesses, compel their 
                        attendance, and require the production of any 
                        books, papers, correspondence, memoranda, or 
                        other records relevant to any investigation by 
                        the Board. Attendance of witnesses and the 
                        production of any records may be required from 
                        any place in the United States or any State at 
                        any designated place of hearing. Enforcement of 
                        a subpoena issued by the Board, or an officer 
                        of the Board, pursuant to this subparagraph 
                        shall occur in the manner provided for in 
                        section 21(c). Examination of witnesses 
                        subpoenaed pursuant to this subparagraph shall 
                        be conducted before an officer authorized to 
                        administer oaths by the laws of the United 
                        States or of the place where the examination is 
                        held.
                            ``(iii) Referrals to commission.--The Board 
                        may refer any investigation to the Commission, 
                        as the Board deems appropriate.
                    ``(E) Immunity from civil liability.--An employee 
                of the Board engaged in carrying out an investigation 
                or disciplinary proceeding under this section shall be 
                immune from any civil liability arising out of such 
                investigation or disciplinary proceeding in the same 
                manner and to the same extent as an employee of the 
                Federal Government in similar circumstances.
            ``(3) Disciplinary procedures.--
                    ``(A) Decision to discipline.--In a proceeding by 
                the Board to determine whether a public accounting 
                firm, or a person associated with such firm, should be 
                disciplined, the Board shall bring specific charges, 
                notify such firm or person of the charges, give such 
                firm or person an opportunity to defend against such 
                charges, and keep a record of such actions.
                    ``(B) Sanctions.--If the Board finds that a public 
                accounting firm, or a person associated with such firm, 
                has engaged in any act, practice, or omission in 
                violation of the Federal securities laws, the rules or 
                regulations issued thereunder, the rules adopted by the 
                Board, or professional standards, the Board may impose 
                such disciplinary sanctions as it deems appropriate, 
                including--
                            ``(i) temporary or permanent revocation or 
                        suspension of registration under this section;
                            ``(ii) limitation of activities, functions, 
                        and operations;
                            ``(iii) fine;
                            ``(iv) censure;
                            ``(v) in the case of a person associated 
                        with a public accounting firm, suspension or 
                        bar from being associated with a public 
                        accounting firm registered with the Board; and
                            ``(vi) any other disciplinary sanction or 
                        remedial action that the Board determines to be 
                        appropriate to prevent the recurrence of the 
                        violation.
                    ``(C) Statement required.--A determination by the 
                Board to impose a disciplinary sanction shall be 
                supported by a written statement by the Board that 
                shall be made available to the public and that sets 
                forth--
                            ``(i) any act or practice in which the 
                        public accounting firm or person associated 
                        with such firm has been found to have engaged, 
                        or which such firm or person has been found to 
                        have omitted;
                            ``(ii) the specific provision of the 
                        Federal securities laws, the rules or 
                        regulations issued thereunder, the rules 
                        adopted by the Board, or professional standards 
                        which any such act, practice, or omission is 
                        deemed to violate; and
                            ``(iii) the sanction imposed and the 
                        reasons therefor.
                    ``(D) Prohibition on association.--It shall be 
                unlawful--
                            ``(i) for any person as to whom a 
                        suspension or bar is in effect willfully to be 
                        or to become associated with a public 
                        accounting firm registered with the Board, in 
                        connection with the preparation of an 
                        accountant's report on any financial statement, 
                        report, or other document filed with the 
                        Commission, without the consent of the Board or 
                        the Commission; and
                            ``(ii) for any public accounting firm 
                        registered with the Board to permit such a 
                        person to become, or remain, associated with 
                        such firm without the consent of the Board or 
                        the Commission, if such firm knew or, in the 
                        exercise of reasonable care should have known, 
                        of such suspension or bar.
            ``(4) Reporting of sanctions.--If the Board imposes a 
        disciplinary sanction against a public accounting firm, or a 
        person associated with such firm, the Board shall report such 
        sanction to the Commission (in accordance with subsection 
        (h)(3)(A)), to the appropriate State or foreign licensing board 
        or boards with which such firm or such person is licensed or 
        certified to practice public accounting, and to the public. The 
        information reported shall include--
                    ``(A) the name of the public accounting firm, or 
                person associated with such firm, against whom the 
                sanction is imposed;
                    ``(B) a description of the acts, practices, or 
                omissions upon which the sanction is based;
                    ``(C) the nature of the sanction; and
                    ``(D) such other information respecting the 
                circumstances of the disciplinary action (including the 
                name of any client of such firm affected by such acts, 
                practices, or omissions) as the Board deems 
                appropriate.
            ``(5) Discovery and admissibility of board material.--
                    ``(A) Discoverability.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), all reports, memoranda, and 
                        other information prepared, collected, or 
                        received by the Board, and the deliberations 
                        and other proceedings of the Board and its 
                        employees and agents in connection with an 
                        investigation or disciplinary proceeding under 
                        this section shall not be subject to any form 
                        of civil discovery, including demands for 
                        production of documents and for testimony of 
                        individuals, in connection with any proceeding 
                        in any State or Federal court, or before any 
                        State or Federal administrative agency. This 
                        subparagraph shall not apply to any information 
                        provided to the Board that would have been 
                        subject to discovery from the person or entity 
                        that provided it to the Board, but is no longer 
                        available from that person or entity.
                            ``(ii) Exemption.--Submissions to the Board 
                        by or on behalf of a public accounting firm or 
                        person associated with such a firm or on behalf 
                        of any other participant in a Board proceeding, 
                        including documents generated by the Board 
                        itself, shall be exempt from discovery to the 
                        same extent as the material described in clause 
                        (i), whether in the possession of the Board or 
                        any other person, if such submission--
                                    ``(I) is prepared specifically for 
                                the purpose of the Board proceeding; 
                                and
                                    ``(II) addresses the merits of the 
                                issues under investigation by the 
                                Board.
                            ``(iii) Hearings public.--Except as 
                        otherwise ordered by the Board on its own 
                        motion or on the motion of a party, all hearing 
                        under this paragraph shall be open to the 
                        public.
                    ``(B) Admissibility.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), all reports, memoranda, and 
                        other information prepared, collected, or 
                        received by the Board, the deliberations and 
                        other proceedings of the Board and its 
                        employees and agents in connection with an 
                        investigation or disciplinary proceeding under 
                        this section, the fact that an investigation or 
                        disciplinary proceeding has been commenced, and 
                        the Board's determination with respect to any 
                        investigation or disciplinary proceeding shall 
                        be inadmissible in any proceeding in any State 
or Federal court or before any State or Federal administrative agency.
                            ``(ii) Treatment of certain documents.--
                        Submissions to the Board by or on behalf of a 
                        public accounting firm or person associated 
                        with such a firm or on behalf of any other 
                        participant in a Board proceeding, including 
                        documents generated by the Board itself, shall 
                        be inadmissible to the same extent as the 
                        material described in clause (i), if such 
                        submission--
                                    ``(I) is prepared specifically for 
                                the purpose of the Board proceedings; 
                                and
                                    ``(II) addresses the merits of the 
                                issues under investigation by the 
                                Board.
                    ``(C) Availability and admissibility of 
                information.--
                            ``(i) In general.--All information referred 
                        to in subparagraphs (A) and (B) shall be--
                                    ``(I) available to the Commission 
                                and to any other Federal department or 
                                agency in connection with the exercise 
                                of its regulatory authority to the 
                                extent that such information would be 
                                available to such agency from the 
                                Commission as a result of a Commission 
                                enforcement investigation;
                                    ``(II) available to Federal and 
                                State authorities in connection with 
                                any criminal investigation or 
                                proceeding;
                                    ``(III) admissible in any action 
                                brought by the Commission or any other 
                                Federal department or agency pursuant 
                                to its regulatory authority, to the 
                                extent that such information would be 
                                available to such agency from the 
                                Commission as a result of a Commission 
                                enforcement investigation and in any 
                                criminal action; and
                                    ``(IV) available to State licensing 
                                boards to the extent authorized in 
                                paragraph (6).
                            ``(ii) Other limitations.--Any documents or 
                        other information provided to the Commission or 
                        other authorities pursuant to clause (i) shall 
                        be subject to the limitations on discovery and 
                        admissibility set forth in subparagraphs (A) 
                        and (B).
                    ``(D) Title 5 treatment.--This subsection shall be 
                considered to be a statute described in section 
                552(b)(3)(B) of title 5, United States Code, for 
                purposes of that section 552.
            ``(6) Participation by state licensing boards.--
                    ``(A) Notice.--When the Board institutes an 
                investigation pursuant to paragraph (2)(A), it shall 
                notify the State licensing boards in the States in 
                which the public accounting firm or person associated 
                with such firm engaged in the act or failure to act 
                alleged to have violated professional standards, of the 
                pendency of the investigation, and shall invite the 
                State licensing boards to participate in the 
                investigation.
                    ``(B) Acceptance by state board.--If a State 
                licensing board elects to join in the investigation, 
                its representatives shall participate, pursuant to 
                rules established by the Board, in investigating the 
                matter and in presenting the evidence justifying the 
                charges in any hearing pursuant to paragraph (3)(A).
                    ``(C) State sanctions permitted.--If the Board or 
                the Commission imposes a sanction upon a public 
                accounting firm or person associated with such a firm, 
                and that determination either is not subjected to 
                judicial review or is upheld on judicial review, a 
                State licensing board may impose a sanction on the 
                basis of the Board's report pursuant to paragraph (4). 
                Any sanction imposed by the State licensing board under 
                this clause shall be inadmissible in any proceeding in 
                any State or Federal court or before any State or 
                Federal administrative agency, except to the extent 
                provided in paragraph (5)(D).
    ``(h) Commission Oversight of the Board.--
            ``(1) Proposed rule changes.--
                    ``(A) In general.--The Board shall file with the 
                Commission, in accordance with such rules as the 
                Commission may prescribe, copies of any proposed rule 
                or any proposed change in, addition to, or deletion 
                from the rules of the Board (hereafter in this 
                subsection collectively referred to as a `proposed rule 
                change') accompanied by a concise general statement of 
                the basis and purpose of such proposed rule change. The 
                Commission shall, upon the filing of any proposed rule 
                change, publish notice thereof together with the terms 
                of substance of the proposed rule change or a 
                description of the subjects and issues involved. The 
                Commission shall give interested persons an opportunity 
                to submit written data, views, and arguments concerning 
                the proposed rule change. No proposed rule change shall 
                take effect unless approved by the Commission or 
                otherwise permitted in accordance with this subsection.
                    ``(B) Approval or disapproval.--
                            ``(i) In general.--Not later than 35 days 
                        after the date on which notice of the filing of 
                        a proposed rule change is published in 
                        accordance with subparagraph (A), or such 
                        longer period as the Commission may designate 
                        (not to exceed 90 days after such date, if it 
                        finds such longer period to be appropriate and 
                        publishes its reasons for such finding or as to 
                        which the Board consents) the Commission 
                        shall--
                                    ``(I) by order approve such 
                                proposed rule change; or
                                    ``(II) institute proceedings to 
                                determine whether the proposed rule 
                                change should be disapproved.
                            ``(ii) Disapproval proceedings.--
                        Proceedings for disapproval shall include 
                        notice of the grounds for disapproval under 
                        consideration and opportunity for hearing and 
                        shall be concluded not later than 180 days 
                        after the date of publication of notice of the 
                        filing of the proposed rule change. At the 
                        conclusion of the proceedings for disapproval, 
                        the Commission, by order, shall approve or 
                        disapprove such proposed rule change. The 
                        Commission may extend the time for conclusion 
                        of such proceedings for--
                                    ``(I) not more than 60 days, if the 
                                Commission finds good cause for such 
                                extension and publishes its reasons for 
                                such finding; or
                                    ``(II) such longer period to which 
                                the Board consents.
                            ``(iii) Approval.--The Commission shall 
                        approve a proposed rule change if it finds that 
                        such proposed rule change is consistent with 
                        the requirements of the securities laws, and 
                        the rules and regulations issued thereunder, 
                        applicable to the Board. The Commission shall 
                        disapprove a proposed rule change if it does 
                        not make such finding. The Commission shall not 
                        approve any proposed rule change prior to the 
                        expiration of the 30-day period beginning on 
                        the date on which notice of the filing of a 
                        proposed rule change is published in accordance 
                        with this subparagraph, unless the Commission 
                        finds good cause to do so and publishes its 
                        reasons for such finding.
                    ``(C) Effect of proposed rule change.--
                            ``(i) Effective date.--Notwithstanding 
                        subparagraph (B), a proposed rule change may 
                        take effect upon filing with the Commission if 
                        designated by the Board as--
                                    ``(I) constituting a stated policy, 
                                practice, or interpretation with 
                                respect to the meaning, administration, 
                                or enforcement of an existing rule of 
                                the Board;
                                    ``(II) establishing or changing a 
                                due, fee, or other charge imposed by 
                                the Board; or
                                    ``(III) concerned solely with the 
                                administration of the Board or other 
                                matters which the Commission, by rule, 
                                consistent with the public interest and 
                                the purposes of this subsection, may 
                                specify.
                            ``(ii) Summary effect.--Notwithstanding any 
                        other provision of this subsection, a proposed 
                        rule change may be put into effect summarily if 
                        it appears to the Commission that such action 
                        is necessary for the protection of investors. 
                        Any proposed rule change put into effect 
                        summarily shall be filed promptly thereafter in 
                        accordance with this paragraph.
                            ``(iii) Enforcement.--Any proposed rule 
                        change which has taken effect pursuant to 
                        clause (i) or (ii) may be enforced by the Board 
                        to the extent that it is not inconsistent with 
                        the securities laws, the rules and regulations 
                        issued thereunder, and applicable Federal and 
                        State law. During the 60-day period beginning 
                        on the date on which notice of the filing of a 
                        proposed rule change if filed in accordance 
                        with this paragraph, the Commission may 
                        summarily abrogate the change in the rules of 
                        the Board made thereby and require that the 
                        proposed rule change be refiled in accordance 
                        with subparagraph (A) and reviewed in 
                        accordance with subparagraph (B), if it appears 
                        to the Commission that such action is necessary 
                        or appropriate in the public interest, for the 
                        protection of investors, or otherwise in 
                        furtherance of the purposes of the securities 
                        laws. Commission action pursuant to the 
                        preceding sentence shall not affect the 
                        validity or force of the rule change during the 
                        period it was in effect and shall not be 
                        reviewable under section 25 of this Act nor 
                        deemed to be `final agency action' for purposes 
                        of section 704 of title 5, United States Code.
            ``(2) Amendment by commission of rules of the board.--The 
        Commission, by rule, may abrogate, add to, and delete from 
        (hereafter in this subsection collectively referred to as 
        `amend') the rules of the Board as the Commission deems 
        necessary or appropriate to ensure the fair administration of 
        the Board, to conform its rules to requirements of the 
        securities laws, and the rules and regulations issued 
        thereunder applicable to the Board, or otherwise in furtherance 
        of the purposes of the securities laws, in the following 
        manner:
                    ``(A) Publication of notice.--The Commission shall 
                notify the Board and publish notice of the proposed 
                rulemaking in the Federal Register. The notice shall 
                include the text of the proposed amendment to the rules 
                of the Board and a statement of the Commission's 
                reasons, including any pertinent facts, for commencing 
                such proposed rulemaking.
                    ``(B) Comments.--The Commission shall give 
                interested persons an opportunity for the oral 
                presentation of data, views, and arguments, in addition 
                to an opportunity to make written submissions. A 
                transcript shall be kept of any oral presentation.
                    ``(C) Incorporation.--A rule adopted pursuant to 
                this subsection shall incorporate the text of the 
                amendment to the rules of the Board and a statement of 
the Commission's basis for and purpose in so amending such rules. Such 
statement shall include an identification of any facts on which the 
Commission considers its determination to so amend the rules of the 
Board to be based, including the reasons for the Commission's 
conclusions as to any of the facts that were disputed in the 
rulemaking.
                    ``(D) Regulations.--
                            ``(i) Title 5 applicability.--Except as 
                        otherwise provided in this paragraph, 
                        rulemaking under this paragraph shall be in 
                        accordance with the procedures specified in 
                        section 553 of title 5, United States Code, for 
                        rulemaking not on the record.
                            ``(ii) Construction.--Nothing in this 
                        subsection shall be construed to impair or 
                        limit the Commission's power to make, modify, 
                        or alter the procedures the Commission may 
                        follow in making rules and regulations pursuant 
                        to any other authority under the securities 
                        laws.
                            ``(iii) Incorporation of amendments.--Any 
                        amendment to the rules of the Board made by the 
                        Commission pursuant to this subsection shall be 
                        considered for purposes of the securities laws 
                        to be part of the rules of the Board and shall 
                        not be considered to be a rule of the 
                        Commission.
            ``(3) Notice of disciplinary action taken by the board; 
        review of action by the commission.--
                    ``(A) Notice required.--If the Board imposes a 
                final disciplinary sanction on a public accounting firm 
                registered with the Board or on any person associated 
                with such a firm, the Board shall promptly file notice 
                thereof with the Commission. The notice shall be in 
                such form and contain such information as the 
                Commission, by rule, may prescribe as necessary or 
                appropriate in furtherance of the purposes of the 
                securities laws.
                    ``(B) Review.--An action with respect to which the 
                Board is required by subparagraph (A) to file notice 
                shall be subject to review by the Commission, on its 
                own motion, or upon application by any person aggrieved 
                thereby, filed not later than 30 days after the date on 
                which such notice is filed with the Commission and 
                received by such aggrieved person, or within such 
                longer period as the Commission may determine. 
                Application to the Commission for review, or the 
                institution of review by the Commission on its own 
                motion, shall not operate as a stay of such action 
                unless the Commission otherwise orders, summarily or 
                after notice and opportunity for hearing on the 
                question of a stay (which hearing may consist solely of 
                the submission of affidavits or presentation of oral 
                arguments). The Commission shall establish for 
                appropriate cases an expedited procedure for 
                consideration and determination of the question of a 
                stay.
            ``(4) Disposition of review; cancellation, reduction, or 
        remission of sanction.--
                    ``(A) In general.--In any proceeding to review a 
                final disciplinary sanction imposed by the Board on a 
                public accounting firm registered with the Board or a 
                person associated with such a firm, after notice and 
                opportunity for hearing (which hearing may consist 
                solely of consideration of the record before the Board 
                and opportunity for the presentation of supporting 
                reasons to affirm, modify, or set aside the sanction)--
                            ``(i) if the Commission finds that--
                                    ``(I) such firm or person 
                                associated with such a firm has engaged 
                                in such acts or practices, or has 
                                omitted such acts, as the Board has 
                                found them to have engaged in or 
                                omitted;
                                    ``(II) such acts, practices, or 
                                omissions, are in violation of such 
                                provisions of the securities laws, the 
                                rules or regulations issued thereunder, 
                                the rules adopted by the Board, or 
                                professional standards as have been 
                                specified in the determination of the 
                                Board; and
                                    ``(III) such provisions were 
                                applied in a manner consistent with the 
                                purposes of the securities laws;
                        the Commission, by order, shall so declare and, 
                        as appropriate, affirm the sanction imposed by 
                        the Board, modify the sanction in accordance 
                        with paragraph (2), or remand to the Board for 
                        further proceedings; or
                            ``(ii) if the Commission does not make the 
                        findings under clause (i), it shall, by order, 
                        set aside the sanction imposed by the Board 
                        and, if appropriate, remand to the Board for 
                        further proceedings.
                    ``(B) Cancellation, reduction, or remission of 
                sanction.--If the Commission, having due regard for the 
                public interest and the protection of investors, finds 
                after a proceeding in accordance with subparagraph (A) 
                that a sanction imposed by the Board upon a firm or 
                person associated with a firm imposes any burden on 
                competition not necessary or appropriate in furtherance 
                of the purposes of the securities laws or is excessive 
                or oppressive, the Commission may cancel, reduce, or 
                require the remission of such sanction.
            ``(5) Compliance with rules and regulations.--
                    ``(A) Duties of board.--The Board shall--
                            ``(i) comply with the securities laws, the 
                        rules and regulations issued thereunder, and 
                        its own rules; and
                            ``(ii) subject to subparagraph (B) and the 
                        rules thereunder, absent reasonable 
                        justification or excuse, enforce compliance 
                        with such provisions and with professional 
                        standards by public accounting firms registered 
                        with the Board and persons associated with such 
                        firms.
                    ``(B) Relief by commission.--The Commission, by 
                rule, consistent with the public interest, the 
                protection of investors, and the other purposes of the 
                securities laws, may relieve the Board of any 
                responsibility under this section to enforce compliance 
                with any specified provision of the securities laws, 
                the rules or regulations issued thereunder, or 
                professional standards by any public accounting firm 
                registered with the Board or person associated with 
                such a firm, or any class of such firms or persons 
                associated with such a firm.
    ``(i) Foreign Accounting Firms.--A foreign public accounting firm 
that furnishes accountant's reports on any financial statement, report, 
or other document required to be filed with the Commission under any 
Federal securities law shall, with respect to those reports, be subject 
to the provisions of this section in the same manner and to the same 
extent as a domestic public accounting firm. The Commission may, by 
rule, regulation, or order and as it deems consistent with the public 
interest and the protection of investors, either unconditionally or 
upon specified terms and conditions, exempt from one or more provisions 
of this section any foreign public accounting firm. Registration 
pursuant to this subsection shall not, by itself, provide a basis for 
subjecting foreign accounting firms to the jurisdiction of the Federal 
or State courts.
    ``(j) Commission Authority Not Impaired.--Nothing in this section 
shall be construed to impair or limit the Commission's authority--
            ``(1) over the accounting profession, accounting firms, or 
        any persons associated with such firms;
            ``(2) to set standards for accounting practices, derived 
        from other provisions of the securities laws or the rules or 
        regulations issued thereunder; or
            ``(3) to take, on its own initiative, legal, 
        administrative, or disciplinary action against any public 
        accounting firm registered with the Board or any person 
        associated with such a firm.''.

SEC. 5. STUDY ON THE IMPROVEMENT OF CORPORATE GOVERNANCE.

    (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 and independence 
        requirements are adequate to protect shareholders, and to what 
        extent deviations from such codes are tolerated;
            (3) the existing requirements for qualification of members 
        of the audit and finance committee of issuer boards to 
        determine whether such requirements are adequate to create a 
        board structure that assures the sufficiency of the issuer's 
        disclosure;
            (4) the extent to which conflicts of interests are 
        aggressively reviewed, including an assessment of whether the 
        current standards for determining a director to be independent 
        are adequate, and whether adequate means for redressing such 
        conflicts exist;
            (5) whether there are significant disincentives to serve as 
        an independent director and what are the necessary and 
        appropriate regulatory or legislative changes on the State and 
        Federal level to reduce or eliminate such disincentives; and
            (6) 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, 
and consult with, 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) to the Committee on Financial 
Services of the House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the Senate no later than 180 days after 
the date of enactment of this Act.

SEC. 6. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS PROHIBITED.

    Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) 
is amended by adding at the end the following new subsection:
    ``(h) Insider Trades During Pension Fund Blackout Periods 
Prohibited.--
            ``(1) Prohibition.--It shall be unlawful for any such 
        beneficial owner, director, or officer, 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.
            ``(2) 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 
        subsection 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.
            ``(3) 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.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) the term `blackout period' with respect to 
                the equity securities of any issuer--
                            ``(i) means any period during which the 
                        employees of such issuer are precluded from 
                        purchasing (or otherwise acquiring) or selling 
                        (or otherwise transferring) their interest in 
                        any equity security of such issuer held in an 
individual account plan of such issuer; but
                            ``(ii) does not include 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; and
                    ``(B) 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)).''.

SEC. 7. IMPROVEMENTS IN FINANCIAL REPORTING.

    (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) Off-balance sheet transactions.--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 statement and expose the 
        issuer to current or future possible liability, obligations, 
        expenses, or cash flow changes, or affect the recognition of 
        revenue, carrying value, or potential impairment of assets, 
        credit ratings, earnings, cash flows, or stock price.
            (2) Insider 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.
            (3) 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.
            (4) 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.
            (5) Joint ownership.--Joint ownership by a registrant or 
        executive officer and a director or immediate family member of 
        any real or personal property.
            (6) 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) General Objectives; Plain Language.--
            (1) Additional proceeding.--In addition to the proceeding 
        required by subsection (a), the Commission shall initiate a 
        proceeding--
                    (A) to require financial reports to present 
                financial information in plain language, to the maximum 
                extent possible; and
                    (B) to further improve the transparency and clarity 
                of the information available to investors, in light of 
                the analysis required by paragraph (2).
            (2) Analysis.--In order to determine what additional or 
        reorganized information should be disclosed to improve the 
        transparency of financial statements filed under the securities 
        laws, the Commission shall review and analyze all enforcement 
        actions by the Commission, and all restatements of financial 
        statements and other periodic filings with the Commission, over 
        the five years preceding such date of enactment to identify 
        areas of reporting that are most susceptible to fraud, 
        inappropriate manipulation, or inappropriate earnings 
        management.
            (3) Alternatives to be considered.--In conducting the 
        proceeding required by this subsection, the Commission shall 
        consider--
                    (A) requiring the identification of the key 
                accounting principles that are most important to the 
                issuer's reported financial condition or results of 
                operation;
                    (B) requiring an explanation, where material, of 
                how different available accounting principles would 
                lead to different presentations regarding financial 
                condition or results of operation; and
                    (C) requiring new or additional disclosure with 
                respect to--
                            (i) the methodology used by the issuer in 
                        establishing or maintaining reserves;
                            (ii) all officer and director affiliations 
                        with, and any compensation received by 
an officer or director from, any special purpose entities;
                            (iii) internal controls adopted to approve 
                        the creation of special purpose entities;
                            (iv) disclosing in detail any arrangements 
                        that would require the issuer to assume the 
                        debts incurred by a special purpose entity; and
                            (v) additional critical areas identified by 
                        the Commission in connection with earnings 
                        management; and
                    (D) reviewing issuer compliance with and 
                sufficiency of current rules and regulations relating 
                to revenue recognition.
    (c) Deadlines.--
            (1) In general.--Except as provided in paragraph (2), the 
        Commission shall complete the rulemaking required by this 
        section within 180 days after the date of enactment of this 
        Act.
            (2) Plain language.--The Commission shall complete the 
        rulemaking required by subsection (b)(1)(A) within one year 
        after the date of enactment of this Act.

SEC. 8. CREATION OF CURRENT DISCLOSURE REPORTING SYSTEM.

    Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) 
is amended by adding at the end the following new subsection:
    ``(i) Current Disclosure Reporting System.--
            ``(1) Rulemaking required.--The Commission shall, by rule 
        pursuant to this section, require issuers to provide timely 
        information with respect to significant events and trends in 
        the issuer's operations, and to consider the total mix of its 
        business and update its information and accounting systems to 
        provide for ongoing, current information that would disclose, 
        among other things--
                    ``(A) known and reliable financial information 
                throughout each fiscal quarter;
                    ``(B) to the extent possible, known trends in an 
                issuer's business that would be material to investors;
                    ``(C) assessments of developments during and 
                between fiscal quarters and the factors that may have 
                modified prior forecasts or otherwise changed 
                preliminary financial results that the issuer may have 
                provided;
                    ``(D) financial information on a business segments 
                basis; and
                    ``(E) updates to information previously disclosed, 
                whether disclosed in periodic reports under this 
                section, in previous disclosures under this subsection, 
                or otherwise.
            ``(2) Impact on foreign issuers.--In conducting the 
        rulemaking required by this subsection, the Commission shall 
        evaluate--
                    ``(A) the impact of requiring current disclosures 
                on foreign issuers; and
                    ``(B) the extent to which it is advisable to 
                provide reasonable exceptions to the reporting 
                requirements for foreign issuers, while at the same 
                time making the overall disclosure standards reasonably 
                consistent.
        Nothing in this paragraph shall be construed to require the 
        Commission to provide the exceptions described in subparagraph 
        (B).
            ``(3) Assess impact on regulation fd.--In conducting the 
        rulemaking required by this subsection, the Commission shall 
        assess the impact of requiring ongoing disclosures on, and need 
        for coordinating that requirement with, the requirements of 
        Regulation FD (17 CFR part 243).''.

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.

SEC. 10. REAUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES AND 
              EXCHANGE COMMISSION.

    Subsection (a) of section 35 of the Securities Exchange Act of 1934 
(15 U.S.C. 78kk(a)) is amended to read as follows:
    ``(a) In General.--In addition to any other funds authorized to be 
appropriated to the Securities and Exchange Commission, there are 
authorized to be appropriated to carry out the functions, powers, and 
duties of the Commission, $876,000,000 for fiscal year 2003, of which--
            ``(1) not less than $134,000,000 shall be available for the 
        Division of Corporate Finance and the Office of the Chief 
        Accountant; and
            ``(2) not less than $326,000,000 shall be available to the 
        Division of Enforcement.''.

SEC. 11. ELECTRONIC DISCLOSURE OF AFFILIATE TRANSACTIONS.

    (a) In General.--Except as specifically provided in this Act, and 
notwithstanding any other provision of law, any disclosure required by 
the securities laws or the rules and regulations thereunder of the 
purchase or sale of any securities by an officer or director or other 
affiliated person of the issuer of those securities shall--
            (1) include the disclosure of the purchase or sale of 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; and
            (2) be made available in electronic form--
                    (A) to the Commission by the affiliated person, 
                before the end of the calendar day on which the 
                transaction occurs;
                    (B) 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 business day on which 
                the disclosure is received under subparagraph (A); and
                    (C) in any case in which the issuer maintains a 
                corporate website that is accessible only internally, 
                on that internal website, before the end of the 
                calendar day on which the transaction occurs.
    (b) Other Formats.--The requirement of disclosures in electronic 
form under subsection (a)(2) shall, at the discretion of the 
Commission, be in lieu of any other format required for such 
disclosures on the day before the date of enactment of this Act.
    (c) Incorporated Definitions.--In this Act, the terms ``affiliated 
person'', ``Commission'', ``issuer'', and ``securities'' have the same 
meanings as in section 3 of the Securities Exchange Act of 1934.
    (d) Effective Date.--This section shall become effective 90 days 
after the date of enactment of this Act.

SEC. 12. RESTORATION OF JOINT AND SEVERAL LIABILITY.

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

SEC. 13. CREDIT RATING AGENCIES.

    (a) Study Required.--The Securities and Exchange 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; and
            (5) 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 and 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.

SEC. 14. RESTORATION OF AIDING AND ABETTING LIABILITY.

    (a) Securities Act of 1933.--Section 20 of the Securities Act of 
1933 (15 U.S.C. 77t) is amended by adding at the end the following new 
subsection:
    ``(g) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (b) and (d), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule or regulation 
hereunder, shall be deemed to violate such provision to the same extent 
as the person to whom such assistance is provided. No person shall be 
liable under this subsection based on an omission or failure to act 
unless such omission or failure constituted a breach of a duty owed by 
such person.''.
    (b) Securities Exchange Act of 1934.--Section 20(e) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78t(e)) is amended to read 
as follows:
    ``(e) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d)(1) and (d)(3) of section 21, or an action 
by a self-regulatory organization, or an express or implied private 
right of action under this title, any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule or regulation 
thereunder, shall be deemed to violate such provision and shall be 
liable to the same extent as the person to whom such assistance is 
provided. No person shall be liable under this subsection based on an 
omission or failure to act unless such omission or failure constituted 
a breach of a duty owed by such person.''.
    (c) Investment Company Act of 1940.--Section 42 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-41) is amended by adding at the end 
the following new subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d) and (e), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule, regulation, or 
order hereunder, shall be deemed to violate such provision to the same 
extent as the person to whom such assistance is provided. No person 
shall be liable under this subsection based on an omission or failure 
to act unless such omission or failure constituted a breach of a duty 
owed by such person.''.
    (d) Investment Advisers Act of 1940.--Section 209(d) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is amended--
            (1) in subsection (d)--
                    (A) by striking ``or that any person has aided, 
                abetted, counseled, commanded, induced, or procured, is 
                aiding, abetting, counseling, commanding, inducing, or 
                procuring, or is about to aid, abet, counsel, command, 
                induce, or procure such a violation,''; and
                    (B) by striking ``or in aiding, abetting, 
                counseling, commanding, inducing, or procuring any such 
                act or practice''; and
            (2) by adding at the end the following new subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d) and (e), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule, regulation, or 
order hereunder, shall be deemed to violate such provision to the same 
extent as the person to whom such assistance is provided. No person 
shall be liable under this subsection based on an omission or failure 
to act unless such omission or failure constituted a breach of duty 
owed by such person.''.

SEC. 15. DESTRUCTION OF RECORDS.

    (a) Audit Requirements.--Section 10A of the Securities Exchange Act 
of 1934 (15 U.S.C. 78j-1) is--
            (1) by redesignating subsections (e) and (f) as subsections 
        (f) and (g), respectively; and
            (2) by inserting after subsection (d) the following new 
        subsection:
    ``(e) Destruction of Records.--
            ``(1) Maintenance of records required.--Any accountant that 
        conducts an audit of an issuer pursuant to this title to which 
        subsection (a) applies shall maintain all documents (including 
        electronic documents) sent, received, or created in connection 
        with any audit, review, or other engagement for such issuer for 
        a period of 7 years from the end of the fiscal period in which 
        the engagement was concluded.
            ``(2) Penalty.--In addition to any other sanctions that may 
        be available, any person who knowingly and willfully violates 
        paragraph (1) shall be subject to fine and imprisonment to the 
        same extent as a person violating section 1512(b) of title 18, 
        United States Code.''.
    (b) Preservation of Records During Shareholder Litigation.--
            (1) Securities act of 1933.--Section 27(b)(2) of the 
        Securities Act of 1933 (15 U.S.C. 77z-1(b)(2)) is amended by 
        inserting ``, and the issuer of the securities that are the 
        subject of such action,'' after ``in the complaint''.
            (2) Securities exchange act of 1934.--Section 
        21D(b)(3)(C)(i) of the Securities Act of 1933 (15 U.S.C. 77z-
        1(b)(3)(C)(i)) is amended by inserting ``, and the issuer of 
        the securities that are the subject of such action,'' after 
        ``in the complaint''.
    (c) Statute of Limitations.--Title I of the Securities Exchange Act 
of 1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the 
following new section:

``SEC. 37. STATUTE OF LIMITATIONS.

    ``(a) In General.--Except as otherwise specifically provided in 
this title, and notwithstanding section 9(e), an implied private right 
of action arising under this title may be brought not later than the 
earlier of--
            ``(1) 5 years after the date on which the alleged violation 
        occurred; or
            ``(2) 3 years after the date on which the alleged violation 
        was discovered.
    ``(b) Effective Date.--The limitations period provided by this 
section shall apply to all proceedings commenced after the date of the 
enactment of the Comprehensive Investor Protection Act of 2002.''.

SEC. 16. ANALYST CONFLICTS OF INTEREST.

    (a) Study and Review Required.--The Securities and Exchange 
Commission shall conduct a study and review of any final rules by any 
self-regulatory organization registered with the Commission pursuant to 
section 19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) 
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 Securities and Exchange 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 pursuant to section 19 of the Securities 
Exchange Act of 1934 are approved by 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.
    (c) Additional Rules Required.--Unless the final rules reviewed by 
the Commission under subsections (a) and (b) contain the following 
provisions, the Commission shall, by rule--
            (1) prohibit equity research analysts from--
                    (A) holding any beneficial interest in any equity 
                security (as such term in defined in section 3(a)(11) 
                of the Securities Exchange Act of 1934 (15 U.S.C. 
                78c(a)(11)) in any issuer covered by such analyst; and
                    (B) receiving compensation based on the investment 
                banking revenues of the firm with which the analyst is 
                associated, or on the investment banking revenues of 
                such firm and its affiliates, except that this 
                prohibition shall not prohibit such an analyst from 
                receiving compensation based on the overall revenues of 
                such firm or of such firm and its affiliates; and
            (2) require such self-regulatory organizations--
                    (A) to establish criteria for evaluating analyst 
                research quality; and
                    (B) to require analyst compensation to be based 
                principally on the quality of the equity research 
                analyst's research.

SEC. 17. DEFINITION OF SECURITIES LAWS.

    As used in this Act (including in any amendment made by this Act), 
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.
                                 <all>