[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2179 Reported in House (RH)]






                                                 Union Calendar No. 298
108th CONGRESS
  2d Session
                                H. R. 2179

                      [Report No. 108-475, Part I]

 To enhance the authority of the Securities and Exchange Commission to 
   investigate, punish, and deter securities laws violations, and to 
  improve its ability to return funds to defrauded investors, and for 
                            other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 21, 2003

Mr. Baker (for himself, Mr. Oxley, Mr. Tiberi, Mr. Ose, and Mrs. Kelly) 
 introduced the following bill; which was referred to the Committee on 
                           Financial Services

                             April 27, 2004

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

                              June 1, 2004

                Additional sponsor: Mr. Scott of Georgia

                              June 1, 2004

 The Committee on the Judiciary discharged; committed to the Committee 
 of the Whole House on the State of the Union and ordered to be printed
[For text of introduced bill, see copy of bill as introduced on May 21, 
                                 2003]

_______________________________________________________________________

                                 A BILL


 
 To enhance the authority of the Securities and Exchange Commission to 
   investigate, punish, and deter securities laws violations, and to 
  improve its ability to return funds to defrauded investors, and for 
                            other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Securities Fraud Deterrence and 
Investor Restitution Act of 2004''.

SEC. 2. RECOVERY BY COMMISSION OF SECURITIES LAW JUDGMENTS.

    (a) Amendment.--Title III of the Sarbanes-Oxley Act of 2002 is 
amended by adding after section 308 (15 U.S.C. 7246) the following new 
section:

``SEC. 309. RECOVERY OF SECURITIES LAW JUDGMENTS; REMOVAL OF STATE LAW 
              IMPEDIMENTS.

    ``(a) Removal of State Law Impediments.--The Commission's authority 
to enforce, collect upon, or otherwise satisfy in a Federal or State 
court a judgment or order obtained, either by litigation or settlement, 
in any judicial action or administrative proceeding under the 
securities laws against any person based upon an alleged fraudulent, 
deceptive, or manipulative act or practice in violation of such laws, 
or the rules and regulations thereunder, or against any gratuitous or 
fraudulent transferee, shall not be subject to--
            ``(1) a debtor's election to exempt property under State or 
        local law pursuant to section 3014(a)(2) of title 28, United 
        States Code; or
            ``(2) any homestead provision of any State constitution or 
        any other State law that exempts or protects property from 
        foreclosure, forced sale, or any other procedure to satisfy a 
        judgment or order under any process of court for the payment of 
        debts.
    ``(b) Definitions.--For purposes of subsection (a)--
            ``(1) a `gratuitous transferee' is any person to whom an 
        ownership interest in property is transferred without adequate 
        consideration; and
            ``(2) a `fraudulent transferee' is any person liable to the 
        Commission under applicable fraudulent transfer laws.''.
    (b) Conforming Amendment.--The table of contents in section 1(b) of 
the Sarbanes-Oxley Act of 2002 is amended by inserting after the item 
relating to section 308 the following:

``Sec. 309. Recovery of securities law judgments; removal of state law 
                            impediments.''.

SEC. 3. CIVIL ENFORCEMENT PROVISIONS.

    (a) Authority To Impose Civil Penalties in Cease and Desist 
Proceedings.--
            (1) Under the securities act of 1934.--Section 8A of the 
        Securities Act of 1933 (15 U.S.C. 77h-1) is amended by adding 
        at the end the following new subsection:
    ``(g) Authority To Impose Money Penalties.--
            ``(1) Grounds for imposing.--In any cease-and-desist 
        proceeding under subsection (a), the Commission may impose a 
        civil penalty on a person if it finds, on the record after 
        notice and opportunity for hearing, that--
                    ``(A) such person--
                            ``(i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation thereunder; or
                            ``(ii) is or was a cause of the violation 
                        of any provision of this title, or any rule or 
                        regulation thereunder; and
                    ``(B) such penalty is in the public interest.
            ``(2) Maximum amount of penalty.--
                    ``(A) First tier.--The maximum amount of penalty 
                for each act or omission described in paragraph (1) 
                shall be $100,000 for a natural person or $250,000 for 
                any other person.
                    ``(B) Second tier.--Notwithstanding paragraph (A), 
                the maximum amount of penalty for each such act or 
                omission shall be $500,000 for a natural person or 
                $1,000,000 for any other person if the act or omission 
                described in paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless disregard of a 
                regulatory requirement.
                    ``(C) Third tier.--Notwithstanding paragraphs (A) 
                and (B), the maximum amount of penalty for each such 
act or omission shall be $1,000,000 for a natural person or $2,000,000 
for any other person if--
                            ``(i) the act or omission described in 
                        paragraph (1) involved fraud, deceit, 
                        manipulation, or deliberate or reckless 
                        disregard of a regulatory requirement; and
                            ``(ii) such act or omission directly or 
                        indirectly resulted in substantial losses or 
                        created a significant risk of substantial 
                        losses to other persons or resulted in 
                        substantial pecuniary gain to the person who 
                        committed the act or omission.
            ``(3) Evidence concerning ability to pay.--In any 
        proceeding in which the Commission may impose a penalty under 
        this section, a respondent may present evidence of the 
        respondent's ability to pay such penalty. The Commission may, 
        in its discretion, consider such evidence in determining 
        whether such penalty is in the public interest. Such evidence 
        may relate to the extent of such person's ability to continue 
        in business and the collectability of a penalty, taking into 
        account any other claims of the United States or third parties 
        upon such person's assets and the amount of such person's 
        assets.''.
            (2) Under the securities exchange act of 1934.--Subsection 
        (a) of section 21B of the Securities Exchange Act of 1934 (15 
        U.S.C. 78u-2(a)) is amended--
                    (A) by striking ``(a) Commission Authority To 
                Assess Money Penalties.--In any proceeding'' and 
                inserting the following:
    ``(a) Commission Authority To Assess Money Penalties.--
            ``(1) In general.--In any proceeding'';
                    (B) by redesignating paragraphs (1) through (4) of 
                such subsection as subparagraphs (A) through (D), 
                respectively and moving such redesignated subparagraphs 
                and the matter following such subparagraphs 2 ems to 
                the right; and
                    (C) by adding at the end of such subsection the 
                following new paragraph:
            ``(2) Cease-and-desist proceedings.--In any proceeding 
        instituted pursuant to section 21C of this title against any 
        person, the Commission may impose a civil penalty if it finds, 
        on the record after notice and opportunity for hearing, that 
        such person--
                    ``(A) is violating or has violated any provision of 
                this title, or any rule or regulation thereunder; or
                    ``(B) is or was a cause of the violation of any 
                provision of this title, or any rule or regulation 
                thereunder.''.
            (3) Under the investment company act of 1940.--Paragraph 
        (1) of section 9(d) of the Investment Company Act of 1940 (15 
        U.S.C. 80a-9(d)(1))) is amended--
                    (A) by striking ``(1) Authority of commission.--In 
                any proceeding'' and inserting the following:
            ``(1) Authority of commission.--
                    ``(A) In general.--In any proceeding'';
                    (B) by redesignating subparagraphs (A) through (C) 
                of such paragraph as clauses (i) through (iii), 
                respectively and by moving such redesignated clauses 
                and the matter following such subparagraphs 2 ems to 
                the right; and
                    (C) by adding at the end of such paragraph the 
                following new subparagraph:
                    ``(B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection (f) 
                against any person, the Commission may impose a civil 
                penalty if it finds, on the record after notice and 
                opportunity for hearing, that such person--
                            ``(i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation thereunder; or
                            ``(ii) is or was a cause of the violation 
                        of any provision of this title, or any rule or 
                        regulation thereunder.''.
            (4) Under the investment advisers act of 1940.--Paragraph 
        (1) of section 203(i) of the Investment Advisers Act of 1940 
        (15 U.S.C. 80b-3(i)(1)) is amended--
                    (A) by striking ``(1) Authority of commission.--In 
                any proceeding'' and inserting the following:
            ``(1) Authority of commission.--
                    ``(A) In general.--In any proceeding'';
                    (B) by redesignating subparagraphs (A) through (D) 
                of such paragraph as clauses (i) through (iv), 
                respectively and moving such redesignated clauses and 
                the matter following such subparagraphs 2 ems to the 
                right; and
                    (C) by adding at the end of such paragraph the 
                following new subparagraph:
                    ``(B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection (k) 
                against any person, the Commission may impose a civil 
                penalty if it finds, on the record after notice and 
                opportunity for hearing, that such person--
                            ``(i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation thereunder; or
                            ``(ii) is or was a cause of the violation 
                        of any provision of this title, or any rule or 
                        regulation thereunder.''.
    (b) Increased Maximum Civil Money Penalties.--
            (1) Securities act of 1933.--Section 20(d)(2) of the 
        Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--
                    (A) in subparagraph (A)(i)--
                            (i) by striking ``$5,000'' and inserting 
                        ``$100,000''; and
                            (ii) by striking ``$50,000'' and inserting 
                        ``$250,000'';
                    (B) in subparagraph (B)(i)--
                            (i) by striking ``$50,000'' and inserting 
                        ``$500,000''; and
                            (ii) by striking ``$250,000'' and inserting 
                        ``$1,000,000''; and
                    (C) in subparagraph (C)(i)--
                            (i) by striking ``$100,000'' and inserting 
                        ``$1,000,000''; and
                            (ii) by striking ``$500,000'' and inserting 
                        ``$2,000,000''.
            (2) Securities exchange act of 1934.--
                    (A) Penalties.--Section 32 of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78ff) is amended--
                            (i) in subsection (b), by striking ``$100'' 
                        and inserting ``$10,000''; and
                            (ii) in subsection (c)--
                                    (I) in paragraph (1)(B), by 
                                striking ``$10,000'' and inserting 
                                ``$500,000''; and
                                    (II) in paragraph (2)(B), by 
                                striking ``$10,000'' and inserting 
                                ``$500,000''.
                    (B) Insider trading.--Section 21A(a)(3) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78u-1(a)(3)) 
                is amended by striking ``$1,000,000'' and inserting 
                ``$2,000,000''.
                    (C) Administrative proceedings.--Section 21B(b) of 
                the Securities Exchange Act of 1934 (15 U.S.C. 78u-
                2(b)) is amended--
                            (i) in paragraph (1)--
                                    (I) by striking ``$5,000'' and 
                                inserting ``$100,000''; and
                                    (II) by striking ``$50,000'' and 
                                inserting ``$250,000'';
                            (ii) in paragraph (2)--
                                    (I) by striking ``$50,000'' and 
                                inserting ``$500,000''; and
                                    (II) by striking ``$250,000'' and 
                                inserting ``$1,000,000''; and
                            (iii) in paragraph (3)--
                                    (I) by striking ``$100,000'' and 
                                inserting ``$1,000,000''; and
                                    (II) by striking ``$500,000'' and 
                                inserting ``$2,000,000''.
                    (D) Civil actions.--Section 21(d)(3)(B) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 
                78u(d)(3)(B)) is amended--
                            (i) in clause (i)(I)--
                                    (I) by striking ``$5,000'' and 
                                inserting ``$100,000''; and
                                    (II) by striking ``$50,000'' and 
                                inserting ``$250,000'';
                            (ii) in clause (ii)(I)--
                                    (I) by striking ``$50,000'' and 
                                inserting ``$500,000''; and
                                    (II) by striking ``$250,000'' and 
                                inserting ``$1,000,000''; and
                            (iii) in clause (iii)(I)--
                                    (I) by striking ``$100,000'' and 
                                inserting ``$1,000,000''; and
                                    (II) by striking ``$500,000'' and 
                                inserting ``$2,000,000''.
            (3) Investment company act of 1940.--
                    (A) Ineligibility.--Section 9(d)(2) of the 
                Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) 
                is amended--
                            (i) in subparagraph (A)--
                                    (I) by striking ``$5,000'' and 
                                inserting ``$100,000''; and
                                    (II) by striking ``$50,000'' and 
                                inserting ``$250,000'';
                            (ii) in subparagraph (B)--
                                    (I) by striking ``$50,000'' and 
                                inserting ``$500,000''; and
                                    (II) by striking ``$250,000'' and 
                                inserting ``$1,000,000''; and
                            (iii) in subparagraph (C)--
                                    (I) by striking ``$100,000'' and 
                                inserting ``$1,000,000''; and
                                    (II) by striking ``$500,000'' and 
                                inserting ``$2,000,000''.
                    (B) Enforcement of investment company act.--Section 
                42(e)(2) of the Investment Company Act of 1940 (15 
                U.S.C. 80a-41(e)(2)) is amended--
                            (i) in subparagraph (A)(i)--
                                    (I) by striking ``$5,000'' and 
                                inserting ``$100,000''; and
                                    (II) by striking ``$50,000'' and 
                                inserting ``$250,000'';
                            (ii) in subparagraph (B)(i)--
                                    (I) by striking ``$50,000'' and 
                                inserting ``$500,000''; and
                                    (II) by striking ``$250,000'' and 
                                inserting ``$1,000,000''; and
                            (iii) in subparagraph (C)(i)--
                                    (I) by striking ``$100,000'' and 
                                inserting ``$1,000,000''; and
                                    (II) by striking ``$500,000'' and 
                                inserting ``$2,000,000''.
            (4) Investment advisers act of 1940.--
                    (A) Registration.--Section 203(i)(2) of the 
                Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) 
                is amended--
                            (i) in subparagraph (A)--
                                    (I) by striking ``$5,000'' and 
                                inserting ``$100,000''; and
                                    (II) by striking ``$50,000'' and 
                                inserting ``$250,000'';
                            (ii) in subparagraph (B)--
                                    (I) by striking ``$50,000'' and 
                                inserting ``$500,000''; and
                                    (II) by striking ``$250,000'' and 
                                inserting ``$1,000,000''; and
                            (iii) in subparagraph (C)--
                                    (I) by striking ``$100,000'' and 
                                inserting ``$1,000,000''; and
                                    (II) by striking ``$500,000'' and 
                                inserting ``$2,000,000''.
                    (B) Enforcement of investment advisers act.--
                Section 209(e)(2) of the Investment Advisers Act of 
                1940 (15 U.S.C. 80b-9(e)(2)) is amended--
                            (i) in subparagraph (A)(i)--
                                    (I) by striking ``$5,000'' and 
                                inserting ``$100,000''; and
                                    (II) by striking ``$50,000'' and 
                                inserting ``$250,000'';
                            (ii) in subparagraph (B)(i)--
                                    (I) by striking ``$50,000'' and 
                                inserting ``$500,000''; and
                                    (II) by striking ``$250,000'' and 
                                inserting ``$1,000,000''; and
                            (iii) in subparagraph (C)(i)--
                                    (I) by striking ``$100,000'' and 
                                inserting ``$1,000,000''; and
                                    (II) by striking ``$500,000'' and 
                                inserting ``$2,000,000''.
    (c) Authority To Obtain Financial Records.--Section 21(h) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u(h)) is amended--
            (1) by striking paragraphs (2) through (8);
            (2) in paragraph (9), by striking ``(9)(A)'' and all that 
        follows through ``(B) The'' and inserting ``(3) The'';
            (3) by inserting after paragraph (1), the following:
            ``(2) Access to financial records.--
                    ``(A) In general.--Notwithstanding section 1105 or 
                1107 of the Right to Financial Privacy Act of 1978, the 
                Commission may obtain access to and copies of, or the 
                information contained in, financial records of any 
                person held by a financial institution, including the 
                financial records of a customer, without notice to that 
                person, when it acts pursuant to a subpoena authorized 
                by a formal order of investigation of the Commission 
                and issued under the securities laws or pursuant to an 
                administrative or judicial subpoena issued in a 
                proceeding or action to enforce the securities laws.
                    ``(B) Nondisclosure of requests.--If the Commission 
                so directs in its subpoena, no financial institution, 
                or officer, director, partner, employee, shareholder, 
                representative or agent of such financial institution, 
                shall, directly or indirectly, disclose that records 
                have been requested or provided in accordance with 
                subparagraph (A), if the Commission finds reason to 
                believe that such disclosure may--
                            ``(i) result in the transfer of assets or 
                        records outside the territorial limits of the 
                        United States;
                            ``(ii) result in improper conversion of 
                        investor assets;
                            ``(iii) impede the ability of the 
                        Commission to identify, trace, or freeze funds 
                        involved in any securities transaction;
                            ``(iv) endanger the life or physical safety 
                        of an individual;
                            ``(v) result in flight from prosecution;
                            ``(vi) result in destruction of or 
                        tampering with evidence;
                            ``(vii) result in intimidation of potential 
                        witnesses; or
                            ``(viii) otherwise seriously jeopardize an 
                        investigation or unduly delay a trial.
                    ``(C) Transfer of records to government 
                authorities.--The Commission may transfer financial 
                records or the information contained therein to any 
                government authority, if the Commission proceeds as a 
                transferring agency in accordance with section 1112 of 
                the Right to Financial Privacy Act of 1978 (12 U.S.C. 
                3412), except that a customer notice shall not be 
                required under subsection (b) or (c) of that section 
                1112, if the Commission determines that there is reason 
                to believe that such notification may result in or lead 
                to any of the factors identified under clauses (i) 
                through (viii) of subparagraph (B) of this 
                paragraph.'';
            (4) by striking paragraph (10); and
            (5) by redesignating paragraphs (11), (12), and (13) as 
        paragraphs (4), (5), and (6), respectively.

SEC. 4. AUTHORITY TO ACCEPT PRIVILEGED AND PROTECTED INFORMATION.

    Section 24 of the Securities Exchange Act of 1934 (15 U.S.C. 78x) 
is amended--
            (1) by redesignating subsection (e) as subsection (f); and
            (2) by inserting after subsection (d) the following new 
        subsection:
    ``(e) Authority To Accept Privileged and Protected Information.--
            ``(1) Authority.--Notwithstanding any other provision of 
        law, whenever the Commission or an appropriate regulatory 
        agency and any person agree in writing to terms pursuant to 
        which such person will produce or disclose to the Commission or 
        the appropriate regulatory agency any document or information 
        that is subject to any Federal or State law privilege, or to 
        the protection provided by the work product doctrine, such 
        production or disclosure shall not constitute a waiver of the 
        privilege or protection as to any person other than the 
        Commission or the appropriate regulatory agency to which the 
        document or information is provided.
            ``(2) Definition.--For purposes of this subsection, the 
        term `appropriate regulatory agency' means the Federal Deposit 
        Insurance Corporation, the Office of the Comptroller of the 
        Currency, the Office of Thrift Supervision, or the Board of 
        Governors of the Federal Reserve System.''.

SEC. 5. ACCESS TO GRAND JURY INFORMATION.

    (a) Amendment.--Title VI of the Sarbanes-Oxley Act of 2002 is 
amended by adding at the end thereof the following new section:

``SEC. 605. ACCESS TO GRAND JURY INFORMATION.

    ``(a) Disclosure of Certain Matters Occurring Before Grand Jury for 
Use in Enforcing Securities Laws.--
            ``(1) In general.--Upon motion of an attorney for the 
        government, a court may direct disclosure of matters occurring 
        before a grand jury during an investigation of conduct that may 
        constitute a violation of any provision of the securities laws 
        to identified personnel of the Commission for use in relation 
        to any matter within the jurisdiction of the Commission.
            ``(2) Finding of substantial need required.--A court may 
        issue an order under paragraph (1) only upon a finding of a 
        substantial need in the public interest.
    ``(b) Restricted Use of Information.--A person to whom a matter has 
been disclosed under this section shall not use such matter other than 
for the purpose for which such disclosure was authorized.
    ``(c) Definitions.--As used in this section, the terms `attorney 
for the government' and `grand jury information' have the meanings 
given to those terms in section 3322 of title 18, United States 
Code.''.
    (b) Conforming Amendment.--The table of contents in section 1(b) of 
the Sarbanes-Oxley Act of 2002 is amended by inserting after the item 
relating to section 604 the following:

``Sec. 605. Access to grand jury information.''.

SEC. 6. NATIONWIDE SERVICE OF PROCESS.

    (a) Securities Act of 1933.--Section 22(a) of the Securities Act of 
1933 (15 U.S.C. 77v(a)) is amended by inserting after the second 
sentence the following: ``In any action or proceeding instituted by the 
Commission under this title in a United States district court for any 
judicial district, subpoenas issued by or on behalf of such court to 
compel the attendance of witnesses or the production of documents or 
tangible things (or both) may be served in any other district. Such 
subpoenas may be served and enforced without application to the court 
or a showing of cause, notwithstanding the provisions of rule 45(b)(2), 
(c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal Rules of Civil 
Procedure.''.
    (b) Securities Exchange Act of 1934.--Section 27 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78aa) is amended by inserting after the 
second sentence the following: ``In any action or proceeding instituted 
by the Commission under this title in a United States district court 
for any judicial district, subpoenas issued by or on behalf of such 
court to compel the attendance of witnesses or the production of 
documents or tangible things (or both) may be served in any other 
district. Such subpoenas may be served and enforced without application 
to the court or a showing of cause, notwithstanding the provisions of 
rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal Rules 
of Civil Procedure.''.
    (c) Investment Company Act of 1940.--Section 44 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-43) is amended by inserting after 
the fourth sentence the following: ``In any action or proceeding 
instituted by the Commission under this title in a United States 
district court for any judicial district, subpoenas issued by or on 
behalf of such court to compel the attendance of witnesses or the 
production of documents or tangible things (or both) may be served in 
any other district. Such subpoenas may be served and enforced without 
application to the court or a showing of cause, notwithstanding the 
provisions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of the 
Federal Rules of Civil Procedure.''.
    (d) Investment Advisers Act of 1940.--Section 214 of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-14) is amended by inserting after 
the third sentence the following: ``In any action or proceeding 
instituted by the Commission under this title in a United States 
district court for any judicial district, subpoenas issued by or on 
behalf of such court to compel the attendance of witnesses or the 
production of documents or tangible things (or both) may be served in 
any other district. Such subpoenas may be served and enforced without 
application to the court or a showing of cause, notwithstanding the 
provisions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of the 
Federal Rules of Civil Procedure.''.

SEC. 7. AUTHORITY TO CONTRACT WITH PRIVATE COUNSEL FOR LEGAL SERVICES 
              TO COLLECT DELINQUENT JUDGMENTS AND ORDERS.

    Subsection (b) of section 4 of the Securities Exchange Act of 1934 
(15 U.S.C. 78d(b)) is amended--
            (1) in the subsection heading by striking ``and Leasing 
        Authority.--'' and inserting ``, Leasing Authority, and 
        Contracting Authority.--''; and
            (2) by adding at the end of such subsection the following 
        new paragraph:
            ``(4) Contracting authority.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, the Commission is authorized to enter 
                into contracts to retain private legal counsel to 
                furnish legal services, including representation in 
                litigation, negotiation, compromise, and settlement, in 
                the case of any claim of indebtedness resulting from 
                any judgment or order (either by litigation or 
                settlement) obtained by the Commission in any judicial 
                action or administrative proceeding brought by or on 
                behalf of the Commission. Private counsel retained 
                under this paragraph may represent the Commission in 
                such debt collection matters to the same extent as the 
                Commission may represent itself.
                    ``(B) Terms and conditions of contract.--Each such 
                contract shall include such terms and conditions as the 
                Commission considers necessary and appropriate, and 
                shall include provisions specifying--
                            ``(i) the amount of the fee to be paid to 
                        the private counsel under such contract or the 
                        method for calculating that fee;
                            ``(ii) that the Commission retains the 
                        authority to represent itself, resolve a 
                        dispute, compromise a claim, end collection 
                        efforts, and refer a matter to other private 
                        counsel or to the Attorney General; and
                            ``(iii) that the Commission may terminate 
                        either the contract or the private counsel's 
                        representation of the Commission in particular 
                        cases for any reason, including for the 
                        convenience of the Commission.
                    ``(C) Payment of fees.--Notwithstanding section 
                3302(b) of title 31, United States Code, a contract 
                under this paragraph may provide that fees and costs 
                incurred by private counsel under such contracts are 
                payable from the amounts recovered.
                    ``(D) Competition requirements.--Nothing in this 
                paragraph shall relieve the Commission of the 
                competition requirements set forth in title III of the 
Federal Property and Administrative Services Act of 1949 (41 U.S.C. 251 
et seq.).
                    ``(E) Counterclaims.--In any action to recover 
                indebtedness which is brought on behalf of the 
                Commission by private counsel retained under this 
                paragraph, no counterclaim may be asserted against the 
                Commission unless the counterclaim is served directly 
                on the Commission. Such service shall be made in 
                accordance with the rules of procedure of the court in 
                which the action is brought.''.

SEC. 8. FAIR ACT AMENDMENTS.

    (a) Civil Penalties.--Section 308(a) of the Sarbanes-Oxley Act of 
2002 (15 U.S.C. 7246(a)) is amended to read as follows;
    ``(a) Civil Penalties To Be Used for the Relief of Victims.--If in 
any judicial or administrative action brought by the Commission under 
the securities laws (as such term is defined in section 3(a)(47) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) the Commission 
obtains pursuant to such laws a civil penalty against any person, such 
civil penalty monies shall, on the motion or at the direction of the 
Commission, be added to and become part of a fund for the benefit of 
the victims of such violation.''.
    (b) Study on Federal and State Securities Coordination, 
Cooperation, and Communication.--
            (1) Study.--The Securities and Exchange Commission shall 
        seek to produce a joint study in cooperation with an 
        association of duly constituted representatives of State 
        governments whose primary assignment is the regulation of the 
        securities business within those States, on improved 
        coordination, cooperation and communication between the 
        Commission and State securities regulators.
            (2) Subject of study.--If the association referred to in 
        paragraph (1) agrees to participate in such a study, the study 
        shall be prepared jointly by the Commission and the 
        association, and shall be based on an initiative announced 
        September 14, 2003, between the Commission and the association 
        aimed at improving coordination, cooperation, and communication 
        between the Commission and State securities regulators.
            (3) Report.--If the association referred to in paragraph 
        (1) agrees to participate in such a study, the results of the 
        study shall be jointly reported to the Committee on Financial 
        Services of the House of Representatives and the Committee on 
        Banking, Housing, and Urban Affairs of the Senate by September 
        14, 2005, or 1 year after the date of enactment of this Act, 
        whichever is later.
    (c) Additional Provisions.--Section 308 of the Sarbanes-Oxley Act 
of 2002 (15 U.S.C. 7246) is further amended--
            (1) by redesignating subsections (c), (d), and (e) as 
        subsections (e), (f), and (g), respectively; and
            (2) by inserting the following after subsection (b):
    ``(c) Use of Investor Restitution Fund by States.--The Commission 
may allow a State that has received penalty or disgorgement payments 
pursuant to an agreement or settlement with a broker or dealer or other 
party in an action concerning securities fraud to contribute those 
payments to a fund administered by the Commission for the purpose of 
making restitution payments to investors, whether or not the Commission 
was a party to the agreement or settlement or had established such fund 
prior to the State's contribution. The Commission shall have the 
authority otherwise available to it under the securities laws with 
respect to the administration and distribution of such funds.
    ``(d) Undistributed Funds To Be Used for Investor Education.--In 
any judicial or administrative action in which a fund is created 
pursuant to subsection (a) or in which the Commission had obtained 
disgorgement, if the Commission determines (due to the size of the fund 
to be distributed, the number of investors, the nature of the 
underlying violation, or for other reasons) that it would be infeasible 
to distribute such fund or disgorgement to the victims of the 
violation, or if after distribution of the fund or disgorgement to 
victims there are excess monies remaining, the Commission may move for 
an order in a judicial action, or may issue an order in an 
administrative proceeding, requiring that the undistributed amount of 
the fund or disgorgement be used for investor education programs 
administered by an established not-for-profit or governmental 
organization whose purposes include investor education and financial 
literacy.''.

SEC. 9. REDUCTION OF EXCESSIVE DISTRIBUTION AND MARKETING FEES.

    Within 90 days after the date of enactment of this Act, the 
Securities and Exchange Commission shall, by rule or regulation under 
the Investment Company Act of 1940, prohibit as unreasonable or 
deceptive any fee by a registered open-end investment company under a 
plan adopted pursuant to rule 12b-1 of the Commission's rules (17 CFR 
270.12b-1) that continues to include any charges for expenses for any 
activity after such company has been closed to new investors, other 
than shareholder servicing activities the costs of which are collected 
directly and transparently from the investor.

SEC. 10. DISCLOSURE RESPONSIBILITIES AT CONTRACT RENEWAL.

    Subsection (c) of section 15 of the Investment Company Act of 1940 
(15 U.S.C. 80a-15(c)) is amended to read as follows:
    ``(c) Process for Contract Renewal.--
            ``(1) Approval by majority of independent directors.--In 
        addition to the requirements of subsections (a) and (b) of this 
        section, it shall be unlawful for any registered investment 
        company having a board of directors to enter into, renew, or 
        perform any contract or agreement, written or oral, whereby a 
        person undertakes regularly to serve or act as investment 
        adviser of or principal underwriter for such company, unless 
        the terms of such contract or agreement and any renewal thereof 
        have been approved by the vote of a majority of directors, who 
        are not parties to such contract or agreement or interested 
        persons of any such party, cast in person at a meeting called 
        for the purpose of voting on such approval.
            ``(2) Information disclosures and evaluations.--
                    ``(A) In general.--It shall be the duty of the 
                directors of a registered investment company to request 
                and evaluate, and the duty of an investment adviser or 
                principal underwriter of such company to furnish, such 
                information as may reasonably be necessary to evaluate 
                the terms of any contract whereby a person undertakes 
                regularly to serve or act as investment adviser or 
                principal underwriter of such company.
                    ``(B) Investment adviser duty.--In addition to the 
                investment adviser's duty under subparagraph (A), when 
                entering into or renewing a contract or agreement, it 
                shall be the duty of the investment adviser--
                            ``(i) to provide the independent directors 
                        of a registered investment company with all 
                        material information about any of its business 
                        practices, or the business practices of any of 
                        its affiliated persons, that may conflict with 
                        the best interests of the shareholders of the 
                        registered investment company; and
                            ``(ii) to specify and commit to implement 
                        procedures that are reasonably designed to 
                        ensure services are provided in the best 
                        interests of such shareholders.
                    ``(C) Principal underwriter duty.--In addition to 
                the principal underwriter's duty under subparagraph 
                (A), when entering into or renewing a contract or 
                agreement, it shall be the duty of the principal 
                underwriter--
                            ``(i) to provide the independent directors 
                        of a registered investment company with all 
                        material information about any of its business 
                        practices that may conflict with the best 
                        interests of the shareholders of the registered 
                        investment company; and
                            ``(ii) to specify and commit to implement 
                        procedures that are reasonably designed to 
                        ensure services are provided in the best 
                        interests of such shareholders.
                    ``(D) Independent directors duty.--In addition to 
                the independent directors' duty under subparagraph (A), 
                it shall be the duty of the independent directors to 
                determine whether the specified procedures of the 
                investment adviser and the principal underwriter offer 
                a reasonable likelihood of protecting the best 
                interests of the shareholders of the registered 
                investment company.
            ``(3) Limitation on considerations.--It shall be unlawful 
        for the directors of a registered investment company, in 
        connection with their evaluation of the terms of any contract 
        whereby a person undertakes regularly to serve or act as 
        investment adviser of such company, to take into account the 
        purchase price or other consideration any person may have paid 
        in connection with a transaction of the type referred to in 
        paragraph (1), (3), or (4) of subsection (f).''.

SEC. 11. METHOD OF MAINTAINING BROKER/DEALER REGISTRATION, 
              DISCIPLINARY, AND OTHER DATA.

    Subsection (i) of section 15A of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-3(i)) is amended to read as follows:
    ``(i) Obligation To Maintain Registration, Disciplinary and Other 
Data.--
            ``(1) Maintenance of system to respond to inquiries.--A 
        registered securities association shall--
                    ``(A) establish and maintain a system for 
                collecting and retaining registration information;
                    ``(B) establish and maintain a toll-free telephone 
                listing, and a readily accessible electronic or other 
                process, to receive and promptly respond to inquiries 
                regarding--
                            ``(i) registration information on its 
                        members and their associated persons; and
                            ``(ii) registration information on the 
                        members and their associated persons of any 
                        registered national securities exchange that 
                        uses the system described in subparagraph (A) 
                        for the registration of its members and their 
                        associated persons; and
                    ``(C) adopt rules governing the process for making 
                inquiries and the type, scope, and presentation of 
                information to be provided in response to such 
                inquiries in consultation with any registered national 
                securities exchange providing information pursuant to 
                subparagraph (B)(ii).
            ``(2) Recovery of costs.--Such an association may charge 
        persons making inquiries, other than individual investors, 
        reasonable fees for responses to such inquiries.
            ``(3) Process for disputed information.--Such an 
        association shall adopt rules establishing an administrative 
        process for disputing the accuracy of information provided in 
        response to inquiries under this subsection in consultation 
        with any registered national securities exchange providing 
        information pursuant to paragraph (1)(B)(ii).
            ``(4) Limitation of liability.--Such an association, or 
        exchange reporting information to such an association, shall 
        not have any liability to any person for any actions taken or 
        omitted in good faith under this subsection.
            ``(5) Definition.--For purposes of this subsection, the 
        term `registration information' means the information reported 
        in connection with the registration or licensing of brokers and 
        dealers and their associated persons, including disciplinary 
        actions, regulatory, judicial, and arbitration proceedings, and 
        other information required by law, or exchange or association 
        rule, and the source and status of such information. ''.

SEC. 12. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.

    (a) Amendment.--Section 204 of the Investment Advisers Act of 1940 
(15 U.S.C. 80b-4) is amended--
            (1) by striking ``Every investment'' and inserting the 
        following:
    ``(a) In General.--Every investment''; and
            (2) by adding at the end the following:
    ``(b) Filing Depositories.--The Commission may, by rule, require an 
investment adviser--
            ``(1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or the 
        rules issued under this title through any entity designated by 
        the Commission for that purpose; and
            ``(2) to pay the reasonable costs associated with such 
        filing and the establishment and maintenance of the systems 
        required by subsection (c).
    ``(c) Access to Disciplinary and Other Information.--
            ``(1) Maintenance of system to respond to inquiries.--The 
        Commission shall require the entity designated by the 
        Commission under subsection (b)(1) to establish and maintain a 
        toll-free telephone listing, and a readily accessible 
        electronic or other process, to receive and promptly respond to 
        inquiries regarding registration information (including 
        disciplinary actions, regulatory, judicial, and arbitration 
        proceedings, and other information required by law or rule to 
        be reported) involving investment advisers and persons 
        associated with investment advisers.
            ``(2) Recovery of costs.--An entity designated by the 
        Commission under subsection (b)(1) may charge persons making 
        inquiries, other than individual investors, reasonable fees for 
        responses to inquiries made under paragraph (1).
            ``(3) Limitation on liability.--An entity designated by the 
        Commission under subsection (b)(1) shall not have any liability 
        to any person for any actions taken or omitted in good faith 
        under this subsection.''.
    (b) Conforming Amendments.--
            (1) Section 203A of the Investment Advisers Act of 1940 (15 
        U.S.C. 80b-3a) is amended--
                    (A) by striking subsection (d); and
                    (B) by redesignating subsection (e) as subsection 
                (d).
            (2) Section 306 of the National Securities Markets 
        Improvement Act of 1996 (15 U.S.C. 80b-10, note; Public Law 
        104-290; 110 Stat. 3439) is repealed.

SEC. 13. LEAD INDEPENDENT DIRECTOR.

    Section 10(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
10(a)) is amended--
            (1) by inserting ``(1)'' after ``(a)''; and
            (2) by adding at the end the following new paragraph:
    ``(2) The board of directors of such a company shall select a lead 
independent director who is not an interested person and who shall (A) 
have authority to place items on the agenda for consideration, call 
meetings, and obtain outside advice on behalf of the independent 
directors, and (B) have such other authority as the Commission 
determines by rule to be necessary or useful. This paragraph shall not 
apply if the chairman of the board is an independent director.''.

SEC. 14. ENHANCED OVERSIGHT OF PERIODIC DISCLOSURES BY ISSUERS.

    Within 1 year after the date of enactment of this Act, the 
Securities and Exchange Commission--
            (1) shall conduct a thorough review of the financial 
        statements contained in the most recent periodic disclosures 
        filed with the Commission by the largest 250 reporting issuers, 
        and as many other reporting issuers as the Commission finds 
        appropriate;
            (2) shall query such issuers with respect to any confusing, 
        ambiguous, or unclear statement in such disclosures that would 
        be of interest to investors;
            (3) shall require such issuers to respond fully to such 
        queries, by such deadlines as the Commission may impose, and to 
        clarify such statements as necessary for the protection of 
        investors; and
            (4) may require the issuer's response to be accompanied by 
        an auditor's opinion as to--
                    (A) whether that response sets forth the 
                information presented in accordance with generally 
                accepted accounting principles, and
                    (B) whether the auditor reached that conclusion 
                after applying generally accepted auditing standards to 
                the information presented in the response.

SEC. 15. SENSE OF CONGRESS.

    It is the sense of Congress that the Administrator of the Investor 
Education Fund of the 2003 Global Research Analyst Settlement should 
award--
            (1) $5,000,000 of the Investor Education Fund in the form 
        of competitive grants to economic education programs 
        administered by national non-profit educational organizations 
        whose primary purpose is improving the quality of minority and 
        low-income individuals' understanding of personal finance and 
        economics; and
            (2) $5,000,000 of the Investor Education Fund in the form 
        of competitive grants to economic education programs 
        administered by national non-profit educational organizations 
        whose primary purpose is improving the quality of elementary 
        and secondary students' understanding of personal finance and 
        economics.




                                                 Union Calendar No. 298

108th CONGRESS

  2d Session

                               H. R. 2179

                      [Report No. 108-475, Part I]

_______________________________________________________________________

                                 A BILL

 To enhance the authority of the Securities and Exchange Commission to 
   investigate, punish, and deter securities laws violations, and to 
  improve its ability to return funds to defrauded investors, and for 
                            other purposes.

_______________________________________________________________________

                              June 1, 2004

 The Committee on the Judiciary discharged; committed to the Committee 
 of the Whole House on the State of the Union and ordered to be printed