[Congressional Record Volume 156, Number 59 (Monday, April 26, 2010)]
[Senate]
[Pages S2644-S2649]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED:
  S. 3258. A bill to amend the securities laws to modernize and 
strengthen investor protection, and for other purposes; to the 
Committee on Banking, Housing, and Urban Affairs.
  Mr. REED. Mr. President, the recent lawsuit by the Securities and 
Exchange Commission, SEC, against Goldman Sachs underscores that much 
still needs to be done to improve transparency and restore confidence 
in our financial system. Indeed, that is why we must have the debate on 
Wall Street reform. The nearly \1/2\ of all U.S. households that own 
securities deserve a strong cop on the beat that has the tools it needs 
to go after swindlers and scam artists, and pursue the difficult cases 
arising from our increasingly complex financial markets. Our economy's 
success depends in no small part on restoring confidence in our capital 
markets and a smoothly operating capital formation process.
  The bill I am introducing this afternoon, the Modernizing and 
Strengthening Investor Protection Act, would improve the ability of the 
SEC to protect investors by strengthening its ability to bring 
enforcement actions, addressing issues revealed by the recent Madoff 
fraud, and modernizing its ability to obtain critical information. In 
particular, it would enhance the ability of the SEC to hire market 
experts, strengthen oversight of fund custodians, modernize the SEC's 
ability to obtain information from the firms it oversees, and clarify 
and enhance SEC penalties and other authorities.
  This legislation mirrors a bill that Representative Kanjorski 
introduced and worked to include in the House version of Wall Street 
reform. I urge my colleagues to take a look at my legislation during 
the next few days, as I plan to introduce it as an amendment to the 
Wall Street reform bill that is about to be considered by the Senate.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3258

       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 ``Modernizing and 
     Strengthening Investor Protection Act of 2010''.

     SEC. 2. STRENGTHENING ENFORCEMENT BY THE COMMISSION.

       (a) Nationwide Service of Subpoenas.--
       (1) 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, a subpoena issued to compel the attendance of a 
     witness or the production of documents or tangible things (or 
     both) at a hearing or trial may be served at any place within 
     the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules 
     of Civil Procedure shall not apply to a subpoena issued under 
     the preceding sentence.''.
       (2) 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 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, a subpoena issued to compel the attendance of a 
     witness or the production of documents or tangible things (or 
     both) at a hearing or trial may be served at any place within 
     the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules 
     of Civil Procedure shall not apply to a subpoena issued under 
     the preceding sentence.''.
       (3) 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, a subpoena issued to compel the attendance of a 
     witness or the production of documents or tangible things (or 
     both) at a hearing or trial may be served at any place within 
     the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules 
     of Civil Procedure shall not apply to a subpoena issued under 
     the preceding sentence.''.
       (4) 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, a subpoena issued to compel the attendance of a 
     witness or the production of documents or tangible things (or 
     both) at a hearing or trial may be served at any place within 
     the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules 
     of Civil Procedure shall not apply to a subpoena issued under 
     the preceding sentence.''.
       (b) Authority to Impose Civil Penalties in Cease and Desist 
     Proceedings.--
       (1) Under the securities act of 1933.--Section 8A of the 
     Securities Act of 1933 (15 U.S.C. 77h-1) is amended by adding 
     at the end the following new subsection:
       ``(g) Authority to Impose Money Penalties.--
       ``(1) Grounds.--In any cease-and-desist proceeding under 
     subsection (a), the Commission may impose a civil penalty on 
     a person if the Commission 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 issued under this title; 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 a penalty for each 
     act or omission described in paragraph (1) shall be $7,500 
     for a natural person or $75,000 for any other person.
       ``(B) Second tier.--Notwithstanding subparagraph (A), the 
     maximum amount of penalty for each such act or omission shall 
     be $75,000 for a natural person or $375,000 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 subparagraphs (A) and 
     (B), the maximum amount of penalty for each such act or 
     omission shall be $150,000 for a natural person or $725,000 
     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--

       ``(I) substantial losses or created a significant risk of 
     substantial losses to other persons; or
       ``(II) 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

[[Page S2645]]

     of the ability of the respondent 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 the ability of the 
     respondent to continue in business and the collectability of 
     a penalty, taking into account any other claims of the United 
     States or third parties upon the assets of the respondent and 
     the amount of the assets of the respondent.''.
       (2) Under the securities exchange act of 1934.--Section 
     21B(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-
     2(a)) is amended--
       (A) by striking the matter immediately following paragraph 
     (4);
       (B) in the matter preceding paragraph (1), by inserting 
     after ``opportunity for hearing,'' the following: ``that such 
     penalty is in the public interest and'';
       (C) by redesignating paragraphs (1) through (4) as 
     subparagraphs (A) through (D), respectively, and adjusting 
     the subparagraph margins accordingly;
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(1) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(2) Cease-and-desist proceedings.--In any proceeding 
     instituted under section 21C against any person, the 
     Commission may impose a civil penalty, if the Commission 
     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 issued under this title; or
       ``(B) is or was a cause of the violation of any provision 
     of this title, or any rule or regulation issued under this 
     title.''.
       (3) Under the investment company act of 1940.--Section 
     9(d)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-
     9(d)(1)) is amended--
       (A) by striking the matter immediately following 
     subparagraph (C);
       (B) in the matter preceding subparagraph (A), by inserting 
     after ``opportunity for hearing,'' the following: ``that such 
     penalty is in the public interest, and'';
       (C) by redesignating subparagraphs (A) through (C) as 
     clauses (i) through (iii), respectively, and adjusting the 
     clause margins accordingly;
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Cease-and-desist proceedings.--In any proceeding 
     instituted pursuant to subsection (f) against any person, the 
     Commission may impose a civil penalty if the Commission 
     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 issued under this title; or
       ``(ii) is or was a cause of the violation of any provision 
     of this title, or any rule or regulation issued under this 
     title.''.
       (4) Under the investment advisers act of 1940.--Section 
     203(i)(1) of the Investment Advisers Act of 1940 (15 U.S.C. 
     80b-3(i)(1)) is amended--
       (A) by striking the undesignated matter immediately 
     following subparagraph (D);
       (B) in the matter preceding subparagraph (A), by inserting 
     after ``opportunity for hearing,'' the following: ``that such 
     penalty is in the public interest and'';
       (C) by redesignating subparagraphs (A) through (D) as 
     clauses (i) through (iv), respectively, and adjusting the 
     clause margins accordingly;
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end 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 the Commission 
     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 issued under this title; or
       ``(ii) is or was a cause of the violation of any provision 
     of this title, or any rule or regulation issued under this 
     title.''.
       (c) Formerly Associated Persons.--
       (1) Member or employee of the municipal securities 
     rulemaking board.--Section 15B(c)(8) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o-4(c)(8)) is amended by 
     striking ``any member or employee'' and inserting ``any 
     person who is, or at the time of the alleged violation or 
     abuse was, a member or employee''.
       (2) Person associated with a government securities broker 
     or dealer.--Section 15C(c) of the Securities Exchange Act of 
     1934 (15 U.S.C. 78o-5(c)) is amended--
       (A) in paragraph (1)(C), by striking ``any person 
     associated, or seeking to become associated,'' and inserting 
     ``any person who is, or at the time of the alleged misconduct 
     was, associated or seeking to become associated''; and
       (B) in paragraph (2)--
       (i) in subparagraph (A), by inserting ``, seeking to become 
     associated, or, at the time of the alleged misconduct, 
     associated or seeking to become associated'' after ``any 
     person associated''; and
       (ii) in subparagraph (B), by inserting ``, seeking to 
     become associated, or, at the time of the alleged misconduct, 
     associated or seeking to become associated'' after ``any 
     person associated''.
       (3) Person associated with a member of a national 
     securities exchange or registered securities association.--
     Section 21(a)(1) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78u(a)(1)) is amended, in the first sentence, by 
     inserting ``, or, as to any act or practice, or omission to 
     act, while associated with a member, formerly associated'' 
     after ``member or a person associated''.
       (4) Participant of a registered clearing agency.--Section 
     21(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78u(a)(1)) is amended, in the first sentence, by inserting 
     ``or, as to any act or practice, or omission to act, while a 
     participant, was a participant,'' after ``in which such 
     person is a participant,''.
       (5) Officer or director of a self-regulatory 
     organization.--Section 19(h)(4) of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78s(h)(4)) is amended--
       (A) by striking ``any officer or director'' and inserting 
     ``any person who is, or at the time of the alleged misconduct 
     was, an officer or director''; and
       (B) by striking ``such officer or director'' and inserting 
     ``such person''.
       (6) Officer or director of an investment company.--Section 
     36(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
     35(a)) is amended--
       (A) by striking ``a person serving or acting'' and 
     inserting ``a person who is, or at the time of the alleged 
     misconduct was, serving or acting''; and
       (B) by striking ``such person so serves or acts'' and 
     inserting ``such person so serves or acts, or at the time of 
     the alleged misconduct, so served or acted''.
       (7) Person associated with a public accounting firm.--
       (A) Sarbanes-oxley act of 2002 amendment.--Section 2(a)(9) 
     of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(9)) is 
     amended by adding at the end the following:
       ``(C) Investigative and enforcement authority.--For 
     purposes of sections 3(c), 101(c), 105, and 107(c) and the 
     rules of the Board and Commission issued thereunder, except 
     to the extent specifically excepted by such rules, the terms 
     defined in subparagraph (A) shall include any person 
     associated, seeking to become associated, or formerly 
     associated with a public accounting firm, except that--
       ``(i) the authority to conduct an investigation of such 
     person under section 105(b) shall apply only with respect to 
     any act or practice, or omission to act, by the person while 
     such person was associated or seeking to become associated 
     with a registered public accounting firm; and
       ``(ii) the authority to commence a disciplinary proceeding 
     under section 105(c)(1), or impose sanctions under section 
     105(c)(4), against such person shall apply only with respect 
     to--

       ``(I) conduct occurring while such person was associated or 
     seeking to become associated with a registered public 
     accounting firm; or
       ``(II) non-cooperation, as described in section 105(b)(3), 
     with respect to a demand in a Board investigation for 
     testimony, documents, or other information relating to a 
     period when such person was associated or seeking to become 
     associated with a registered public accounting firm.''.

       (B) Securities exchange act of 1934 amendment.--Section 
     21(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78u(a)(1)) is amended by striking ``or a person associated 
     with such a firm'' and inserting ``, a person associated with 
     such a firm, or, as to any act, practice, or omission to act, 
     while associated with such firm, a person formerly associated 
     with such a firm''.
       (8) Supervisory personnel of an audit firm.--Section 
     105(c)(6) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
     7215(c)(6)) is amended--
       (A) in subparagraph (A), by striking ``the supervisory 
     personnel'' and inserting ``any person who is, or at the time 
     of the alleged failure reasonably to supervise was, a 
     supervisory person''; and
       (B) in subparagraph (B)--
       (i) by striking ``No associated person'' and inserting ``No 
     current or former supervisory person''; and
       (ii) by striking ``any other person'' and inserting ``any 
     associated person''.
       (9) Member of the public company accounting oversight 
     board.--Section 107(d)(3) of the Sarbanes-Oxley Act of 2002 
     (15 U.S.C. 7217(d)(3)) is amended by striking ``any member'' 
     and inserting ``any person who is, or at the time of the 
     alleged misconduct was, a member''.
       (d) Extraterritorial Jurisdiction of the Antifraud 
     Provisions of the Federal Securities Laws.--
       (1) Under the securities act of 1933.--Section 22 of the 
     Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by 
     adding at the end the following new subsection:
       ``(c) Extraterritorial Jurisdiction.--The district courts 
     of the United States and the United States courts of any 
     Territory shall have jurisdiction of an action or proceeding 
     brought or instituted by the Commission or the United States 
     alleging a violation of section 17(a) involving--
       ``(1) conduct within the United States that constitutes 
     significant steps in furtherance of the violation, even if 
     the securities transaction occurs outside the United States 
     and involves only foreign investors; or
       ``(2) conduct occurring outside the United States that has 
     a foreseeable substantial effect within the United States.''.

[[Page S2646]]

       (2) Under the securities exchange act of 1934.--Section 27 
     of the Securities Exchange Act of 1934 (15 U.S.C. 78aa) is 
     amended--
       (A) by striking ``The district'' and inserting the 
     following:
       ``(a) In General.--The district''; and
       (B) by adding at the end the following new subsection:
       ``(b) Extraterritorial Jurisdiction.--The district courts 
     of the United States and the United States courts of any 
     Territory shall have jurisdiction of an action or proceeding 
     brought or instituted by the Commission or the United States 
     alleging a violation of the antifraud provisions of this 
     title involving--
       ``(1) conduct within the United States that constitutes 
     significant steps in furtherance of the violation, even if 
     the securities transaction occurs outside the United States 
     and involves only foreign investors; or
       ``(2) conduct occurring outside the United States that has 
     a foreseeable substantial effect within the United States.''.
       (3) Under the investment advisers act of 1940.--Section 214 
     of the Investment Advisers Act of 1940 (15 U.S.C. 80b-14) is 
     amended--
       (A) by striking ``The district'' and inserting the 
     following:
       ``(a) In General.--The district''; and
       (B) by adding at the end the following new subsection:
       ``(b) Extraterritorial Jurisdiction.--The district courts 
     of the United States and the United States courts of any 
     Territory shall have jurisdiction of an action or proceeding 
     brought or instituted by the Commission or the United States 
     alleging a violation of section 206 involving--
       ``(1) conduct within the United States that constitutes 
     significant steps in furtherance of the violation, even if 
     the violation is committed by a foreign adviser and involves 
     only foreign investors; or
       ``(2) conduct occurring outside the United States that has 
     a foreseeable substantial effect within the United States.''.
       (e) Control Person Liability Under the Securities Exchange 
     Act of 1934.--Section 20(a) of the Securities Exchange Act of 
     1934 (15 U.S.C. 78t(a)) is amended by inserting after 
     ``controlled person is liable'' the following: ``(including 
     to the Commission in any action brought under paragraph (1) 
     or (3) of section 21(d))''.
       (f) Aiding and Abetting Under the Securities Laws.--
       (1) Under the securities act of 1933.--Section 15 of the 
     Securities Act of 1933 (15 U.S.C. 77o) is amended--
       (A) by striking ``Every person who'' and inserting ``(a) 
     Controlling Persons.--Every person who''; and
       (B) by adding at the end the following:
       ``(b) Prosecution of Persons Who Aid and Abet Violations.--
     For purposes of any action brought by the Commission under 
     subparagraph (b) or (d) of section 20, any person that 
     knowingly or recklessly provides substantial assistance to 
     another person in violation of a provision of this Act, or of 
     any rule or regulation issued under this Act, shall be deemed 
     to be in violation of such provision to the same extent as 
     the person to whom such assistance is provided.''.
       (2) Under the investment company act of 1940.--Section 48 
     of the Investment Company Act of 1940 (15 U.S.C. 80a-48) is 
     amended by redesignating subsection (b) as subsection (c) and 
     inserting after subsection (a) the following:
       ``(b) For purposes of any action brought by the Commission 
     under subsection (d) or (e) of section 42, any person that 
     knowingly or recklessly provides substantial assistance to 
     another person in violation of a provision of this Act, or of 
     any rule or regulation issued under this Act, shall be deemed 
     to be in violation of such provision to the same extent as 
     the person to whom such assistance is provided.''.
       (3) Under the investment advisers act.--Section 209 of the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is amended 
     by inserting at the end the following new subsection:
       ``(f) Aiding and Abetting.--For purposes of any action 
     brought by the Commission under subsection (e), any person 
     that knowingly or recklessly has aided, abetted, counseled, 
     commanded, induced, or procured a violation of any provision 
     of this Act, or of any rule, regulation, or order hereunder, 
     shall be deemed to be in violation of such provision, rule, 
     regulation, or order to the same extent as the person that 
     committed such violation.''.
       (4) Under the securities exchange act of 1934.--Section 
     20(e) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78t(e)) is amended by inserting ``or recklessly'' after 
     ``knowingly''.

     SEC. 3. ADDRESSING ISSUES REVEALED BY THE MADOFF FRAUD.

       (a) Revision to Recordkeeping Rule.--
       (1) Investment company act of 1940 amendments.--Section 31 
     of the Investment Company Act of 1940 (15 U.S.C. 80a-30) is 
     amended--
       (A) in subsection (a)(1), by adding at the end the 
     following: ``Each person having custody or use of the 
     securities, deposits, or credits of a registered investment 
     company shall maintain and preserve all records that relate 
     to the custody or use by such person of the securities, 
     deposits, or credits of the registered investment company for 
     such period or periods as the Commission, by rule or 
     regulation, may prescribe, as necessary or appropriate in the 
     public interest or for the protection of investors.''; and
       (B) in subsection (b), by adding at the end the following:
       ``(4) Records of persons with custody or use.--
       ``(A) In general.--Records of persons having custody or use 
     of the securities, deposits, or credits of a registered 
     investment company that relate to such custody or use, are 
     subject at any time, or from time to time, to such reasonable 
     periodic, special, or other examinations and other 
     information and document requests by representatives of the 
     Commission, as the Commission deems necessary or appropriate 
     in the public interest or for the protection of investors.
       ``(B) Certain persons subject to other regulation.--Any 
     person that is subject to regulation and examination by a 
     Federal financial institution regulatory agency (as such term 
     is defined under section 212(c)(2) of title 18, United States 
     Code) may satisfy any examination request, information 
     request, or document request described under subparagraph 
     (A), by providing to the Commission a detailed listing, in 
     writing, of the securities, deposits, or credits of the 
     registered investment company within the custody or use of 
     such person.''.
       (2) Investment advisers act of 1940 amendment.--Section 204 
     of the Investment Advisers Act of 1940 (15 U.S.C. 80b-4) is 
     amended by adding at the end the following new subsection:
       ``(d) Records of Persons With Custody or Use.--
       ``(1) In general.--Records of persons having custody or use 
     of the securities, deposits, or credits of a client, that 
     relate to such custody or use, are subject at any time, or 
     from time to time, to such reasonable periodic, special, or 
     other examinations and other information and document 
     requests by representatives of the Commission, as the 
     Commission deems necessary or appropriate in the public 
     interest or for the protection of investors.
       ``(2) Certain persons subject to other regulation.--Any 
     person that is subject to regulation and examination by a 
     Federal financial institution regulatory agency (as such term 
     is defined under section 212(c)(2) of title 18, United States 
     Code) may satisfy any examination request, information 
     request, or document request described under paragraph (1), 
     by providing the Commission with a detailed listing, in 
     writing, of the securities, deposits, or credits of the 
     client within the custody or use of such person.''.
       (b) Streamlined Hiring Authority for Market Specialists.--
       (1) Appointment authority.--Section 3114 of title 5, United 
     States Code, is amended by striking the section heading and 
     all that follows through the end of subsection (a) and 
     inserting the following:

     ``Sec. 3114. Appointment of candidates to certain positions 
       in the competitive service by the Securities and Exchange 
       Commission

       ``(a) Applicability.--This section applies with respect to 
     any position of accountant, economist, and securities 
     compliance examiner at the Commission that is in the 
     competitive service, and any position at the Commission in 
     the competitive service that requires specialized knowledge 
     of financial and capital market formation or regulation, 
     financial market structures or surveillance, or information 
     technology.''.
       (2) Clerical amendment.--The table of sections for chapter 
     31 of title 5, United States Code, is amended by striking the 
     item relating to section 3114 and inserting the following:

``3114. Appointment of candidates to positions in the competitive 
              service by the Securities and Exchange Commission.''.

       (3) Pay authority.--The Commission may set the rate of pay 
     for experts and consultants appointed under the authority of 
     section 3109 of title 5, United States Code, in the same 
     manner in which it sets the rate of pay for employees of the 
     Commission.
       (c) SIPC Reforms.--
       (1) Removing the distinction between claims for cash and 
     claims for securities.--The Securities Investor Protection 
     Act of 1970 (15 U.S.C. 78aaa et seq.) is amended--
       (A) in section 8(e)(4)(B) (15 U.S.C. 78fff-2(e)(4)(B)), by 
     striking ``for cash or securities'';
       (B) in section 9(a) (15 U.S.C. 78fff-3(a))--
       (i) by striking paragraph (1); and
       (ii) by redesignating paragraphs (2) through (5) as 
     paragraphs (1) through (4), respectively; and
       (C) in section 16(2)(B) (15 U.S.C. 78lll(2)(B)), by 
     striking ``for cash or securities''.
       (2) Liquidation of a carrying broker-dealer.--Section 
     5(a)(3) of the Securities Investor Protection Act of 1970 (15 
     U.S.C. 78eee(a)(3)) is amended--
       (A) by striking the undesignated matter immediately 
     following subparagraph (B);
       (B) in subparagraph (A), by striking ``any member of SIPC'' 
     and inserting ``the member'';
       (C) in subparagraph (B), by striking the comma at the end 
     and inserting a period;
       (D) by striking ``If SIPC'' and inserting the following:
       ``(A) In general.--SIPC may, upon notice to a member of 
     SIPC, file an application for a protective decree with any 
     court of competent jurisdiction specified in section 21(e) or 
     27 of the Securities Exchange Act of 1934, except that no 
     such application shall be filed with respect to a member, the 
     only customers of which are persons whose claims could not be 
     satisfied by SIPC advances pursuant to section 9, if SIPC''; 
     and
       (E) by adding at the end the following:

[[Page S2647]]

       ``(B) Consent required.--No member of SIPC that has a 
     customer may enter into an insolvency, receivership, or 
     bankruptcy proceeding, under Federal or State law, without 
     the specific consent of SIPC.''.

     SEC. 4. ENHANCED ABILITY OF COMMISSION TO OBTAIN NEEDED 
                   INFORMATION.

       (a)  Investment Company Examination.--Section 31(b)(1) of 
     the Investment Company Act of 1940 (15 U.S.C. 80a-30(b)(1)) 
     is amended to read as follows:
       ``(1) In general.--The following records shall be subject, 
     at any time, or from time to time, to such reasonable 
     periodic, special, or other examinations by representatives 
     of the Commission as the Commission deems necessary or 
     appropriate in the public interest or for the protection of 
     investors:
       ``(A) All records of a registered investment company.
       ``(B) All records of a underwriter, broker, dealer, or 
     investment adviser that is a majority-owned subsidiary of a 
     registered investment company.
       ``(C) All records required to be maintained and preserved 
     by a investment adviser that is not a majority-owned 
     subsidiary of a registered investment company.
       ``(D) All records required to be maintained and preserved 
     by a depositor of a registered investment company.
       ``(E) All records required to be maintained and preserved 
     by a principal underwriter for a registered investment 
     company (other than a closed-end company).''.
       (b) Expanded Access to Grand Jury Information.--Chapter 215 
     of title 18, United States Code, is amended by adding at the 
     end the following:

     ``Sec. 3323. Access to grand jury information

       ``(a) Disclosure.--
       ``(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 the Securities and Exchange Commission 
     for use in relation to any matter within the jurisdiction of 
     the Commission.
       ``(2) 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) Use of Matter.--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--
       ``(1) 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; and
       ``(2) the term `securities laws' has the same meaning as in 
     section 3(a)(47) of the Securities Exchange Act of 1934.''.
       (c) Enhanced Authority of the Securities and Exchange 
     Commission to Conduct Surveillance and Risk Assessment.--
       (1) Securities exchange act of 1934.--Section 17(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78q(b)) is amended 
     by adding at the end the following:
       ``(5) Surveillance and risk assessment.--All persons 
     described in subsection (a) are subject, at any time, or from 
     time to time, to such reasonable periodic, special, or other 
     information and document requests by representatives of the 
     Commission as the Commission, by rule or order, deems 
     necessary or appropriate to conduct surveillance or risk 
     assessments of the securities markets, persons registered 
     with the Commission under this title, or otherwise in 
     furtherance of the purposes of this title.''.
       (2) Investment company act of 1940.--Section 31(b) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-30(b)) is 
     amended by adding at the end the following:
       ``(5) Surveillance and risk assessment.--All persons 
     described in subsection (a) are subject at any time, or from 
     time to time, to such reasonable periodic, special, or other 
     information and document requests by representatives of the 
     Commission as the Commission, by rule or order, deems 
     necessary or appropriate to conduct surveillance or risk 
     assessments of the securities markets, persons registered 
     with the Commission under this title, or otherwise in 
     furtherance of the purposes of this title.''.
       (3) Document requests.--Section 204 of the Investment 
     Advisers Act of 1940 (15 U.S.C. 80b-4) is amended by adding 
     at the end the following:
       ``(e) Surveillance and Risk Assessment.--All persons 
     described in subsection (a) are subject at any time, or from 
     time to time, to such reasonable periodic, special, or other 
     information and document requests by representatives of the 
     Commission as the Commission, by rule or order, deems 
     necessary or appropriate to conduct surveillance or risk 
     assessments of the securities markets, persons registered 
     with the Commission under this title, or otherwise in 
     furtherance of the purposes of this title.''.
       (d) Protecting Confidentiality of Materials Submitted to 
     the Commission.--
       (1) Securities exchange act of 1934.--Section 24 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78x) is amended--
       (A) in subsection (d), by striking ``subsection (e)'' and 
     inserting ``subsection (f)'';
       (B) by redesignating subsection (e) as subsection (f); and
       (C) by inserting after subsection (d) the following:
       ``(e) Records Obtained From Registered Persons.--
       ``(1) In general.--Except as provided in subsection (f), 
     the Commission shall not be compelled to disclose records or 
     information obtained pursuant to section 17(b), or records or 
     information based upon or derived from such records or 
     information, if such records or information have been 
     obtained by the Commission for use in furtherance of the 
     purposes of this title, including surveillance, risk 
     assessments, or other regulatory and oversight activities.
       ``(2) Treatment of information.--For purposes of section 
     552 of title 5, United States Code, this subsection shall be 
     considered a statute described in subsection (b)(3)(B) of 
     such section 552. Collection of information pursuant to 
     section 17 shall be an administrative action involving an 
     agency against specific individuals or agencies pursuant to 
     section 3518(c)(1) of title 44, United States Code.''.
       (2) Investment company act of 1940.--Section 31 of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-30) is 
     amended--
       (A) by striking subsection (c) and inserting the following:
       ``(c) Limitations on Disclosure by Commission.--
     Notwithstanding any other provision of law, the Commission 
     shall not be compelled to disclose any records or information 
     provided to the Commission under this section, or records or 
     information based upon or derived from such records or 
     information, if such records or information have been 
     obtained by the Commission for use in furtherance of the 
     purposes of this title, including surveillance, risk 
     assessments, or other regulatory and oversight activities. 
     Nothing in this subsection authorizes the Commission to 
     withhold information from the Congress or prevent the 
     Commission from complying with a request for information from 
     any other Federal department or agency requesting the 
     information for purposes within the scope of jurisdiction of 
     that department or agency, or complying with an order of a 
     court of the United States in an action brought by the United 
     States or the Commission. For purposes of section 552 of 
     title 5, United States Code, this section shall be considered 
     a statute described in subsection (b)(3)(B) of such section 
     552. Collection of information pursuant to section 31 shall 
     be an administrative action involving an agency against 
     specific individuals or agencies pursuant to section 
     3518(c)(1) of title 44, United States Code.'';
       (B) by striking subsection (d); and
       (C) by redesignating subsections (e) and (f) as subsections 
     (d) and (e), respectively.
       (3) Investment advisers act of 1940.--Section 210 of the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-10) is amended 
     by adding at the end the following:
       ``(d) Limitations on Disclosure by the Commission.--
     Notwithstanding any other provision of law, the Commission 
     shall not be compelled to disclose any records or information 
     provided to the Commission under this section, or records or 
     information based upon or derived from such records or 
     information, if such records or information have been 
     obtained by the Commission for use in furtherance of the 
     purposes of this title, including surveillance, risk 
     assessments, or other regulatory and oversight activities. 
     Nothing in this subsection authorizes the Commission to 
     withhold information from the Congress or prevent the 
     Commission from complying with a request for information from 
     any other Federal department or agency requesting the 
     information for purposes within the scope of jurisdiction of 
     that department or agency, or complying with an order of a 
     court of the United States in an action brought by the United 
     States or the Commission. For purposes of section 552 of 
     title 5, United States Code, this section shall be considered 
     a statute described in subsection (b)(3)(B) of such section 
     552. Collection of information pursuant to section 31 shall 
     be an administrative action involving an agency against 
     specific individuals or agencies pursuant to section 
     3518(c)(1) of title 44, United States Code.''.
       (e) Expansion of Audit Information to Be Produced and 
     Exchanged.--Section 106 of the Sarbanes-Oxley Act of 2002 (15 
     U.S.C. 7216) is amended--
       (1) by striking subsection (b) and inserting the following:
       ``(b) Production of Documents.--
       ``(1) Production by foreign firms.--If a foreign public 
     accounting firm issues an audit report, performs audit work, 
     conducts interim reviews, or performs material services upon 
     which a registered public accounting firm relies in the 
     conduct of an audit or interim review, the foreign public 
     accounting firm shall--
       ``(A) produce its audit work papers and all other documents 
     related to any such audit work or interim review to the 
     Commission or the Board; and
       ``(B) be subject to the jurisdiction of the courts of the 
     United States for purposes of enforcement of any request for 
     such documents.
       ``(2) Other production.--Any registered public accounting 
     firm that relies, in whole or in part, on the work of a 
     foreign public accounting firm in issuing an audit report, 
     performing audit work, or conducting an interim review, 
     shall--
       ``(A) produce the audit work papers of the foreign public 
     accounting firm and all other documents related to any such 
     work in response to a request for production by the 
     Commission or the Board; and
       ``(B) secure the agreement of any foreign public accounting 
     firm to such production, as a condition of the reliance by 
     the registered public accounting firm on the work of that 
     foreign public accounting firm.'';

[[Page S2648]]

       (2) by redesignating subsection (d) as subsection (g); and
       (3) by inserting after subsection (c) the following:
       ``(d) Service of Requests or Process.--
       ``(1) In general.--Any foreign public accounting firm that 
     performs work for a domestic registered public accounting 
     firm shall furnish to the domestic registered public 
     accounting firm a written irrevocable consent and power of 
     attorney that designates the domestic registered public 
     accounting firm as an agent upon whom may be served any 
     process, pleadings, or other papers in any action brought to 
     enforce this section.
       ``(2) Specific audit work.--Any foreign public accounting 
     firm that issues an audit report, performs audit work, 
     performs interim reviews, or performs material services upon 
     which a registered public accounting firm relies in the 
     conduct of an audit or interim review, shall designate to the 
     Commission or the Board an agent in the United States upon 
     whom may be served any process, pleading, or other papers in 
     any action brought to enforce this section or any request by 
     the Commission or the Board under this section.
       ``(e) Sanctions.--A willful refusal to comply, in whole in 
     or in part, with any request by the Commission or the Board 
     under this section, shall be deemed a violation of this Act.
       ``(f) Other Means of Satisfying Production Obligations.--
     Notwithstanding any other provisions of this section, the 
     staff of the Commission or the Board may allow a foreign 
     public accounting firm that is subject to this section to 
     meet production obligations under this section through 
     alternate means, such as through foreign counterparts of the 
     Commission or the Board.''.
       (f) Sharing Privileged Information With Other 
     Authorities.--Section 24 of the Securities Exchange Act of 
     1934 (15 U.S.C. 78x) is amended--
       (1) in subsection (d), as amended by subsection (d)(1)(A), 
     by striking ``subsection (f)'' and inserting ``subsection 
     (g)'';
       (2) in subsection (e), as added by subsection (d)(1)(C), by 
     striking ``subsection (f)'' and inserting ``subsection (g)'';
       (3) by redesignating subsection (f) as subsection (g); and
       (4) by inserting after subsection (e) the following:
       ``(f) Sharing Privileged Information With Other 
     Authorities.--
       ``(1) Privileged information provided by the commission.--
     The Commission shall not be deemed to have waived any 
     privilege applicable to any information by transferring that 
     information to or permitting that information to be used by--
       ``(A) any agency (as defined in section 6 of title 18, 
     United States Code);
       ``(B) the Public Company Accounting Oversight Board;
       ``(C) any self-regulatory organization;
       ``(D) any foreign securities authority;
       ``(E) any foreign law enforcement authority; or
       ``(F) any State securities or law enforcement authority.
       ``(2) Nondisclosure of privileged information provided to 
     the commission.--The Commission shall not be compelled to 
     disclose privileged information obtained from any foreign 
     securities authority, or foreign law enforcement authority, 
     if the authority has in good faith determined and represented 
     to the Commission that the information is privileged.
       ``(3) Nonwaiver of privileged information provided to the 
     commission.--
       ``(A) In general.--Federal agencies, State securities and 
     law enforcement authorities, self-regulatory organizations, 
     and the Public Company Accounting Oversight Board shall not 
     be deemed to have waived any privilege applicable to any 
     information by transferring that information to or permitting 
     that information to be used by the Commission.
       ``(B) Exception.--The provisions of subparagraph (A) shall 
     not apply to a self-regulatory organization or the Public 
     Company Accounting Oversight Board with respect to 
     information used by the Commission in an action against such 
     organization.
       ``(4) Definitions.--For purposes of this subsection--
       ``(A) the term `privilege' includes any work-product 
     privilege, attorney-client privilege, governmental privilege, 
     or other privilege recognized under Federal, State, or 
     foreign law;
       ``(B) the term `foreign law enforcement authority' means 
     any foreign authority that is empowered under foreign law to 
     detect, investigate or prosecute potential violations of law; 
     and
       ``(C) the term `State securities or law enforcement 
     authority' means the authority of any State or territory that 
     is empowered under State or territory law to detect, 
     investigate, or prosecute potential violations of law.''.

     SEC. 5. MODERNIZATION OF INVESTOR PROTECTIONS.

       (a) Municipal Securities.--Section 15B of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o-4) is amended--
       (1) by striking ``(b)(1) Not later'' and all that follows 
     through ``succeed such initial members.'' and inserting the 
     following:
       ``(b) Municipal Securities Rulemaking Board.--
       ``(1) Composition of the municipal securities rulemaking 
     board.--Not later than October 1, 2010, the Municipal 
     Securities Rulemaking Board (hereinafter in this section 
     referred to as the `Board'), shall--
       ``(A) be composed of members who shall perform the duties 
     set forth in this section; and
       ``(B) shall consist of--
       ``(i) a majority of independent public representatives, at 
     least 1 of whom shall be representative of investors in 
     municipal securities and at least 1 of whom shall be 
     representative of issuers of municipal securities (which 
     members are hereinafter referred to as `public 
     representatives');
       ``(ii) at least 1 individual who is representative of 
     municipal securities brokers and municipal securities dealers 
     that are not banks or subsidiaries, departments or divisions 
     of banks (which members are hereinafter referred to as 
     `broker-dealer representatives'); and
       ``(iii) at least 1 individual who is representative of 
     municipal securities dealers that are banks or subsidiaries, 
     departments or divisions of banks (which members are 
     hereinafter referred to as `bank representatives').''; and
       (2) in paragraph (2), by amending subparagraph (B) to read 
     as follows:
       ``(B) establish fair procedures for the nomination and 
     election of members of the Board and assure fair 
     representation in such nominations and elections of municipal 
     securities brokers and municipal securities dealers. Such 
     rules--
       ``(i) shall establish requirements regarding the 
     independence of public representatives;
       ``(ii) shall provide that the number of public 
     representatives of the Board shall at all times exceed the 
     total number of broker-dealer representatives and bank 
     representatives;
       ``(iii) shall establish minimum knowledge, experience, and 
     other appropriate qualifications for individuals to serve as 
     public representatives, which may include prior work 
     experience in the securities, municipal finance, or municipal 
     securities industries;
       ``(iv) shall specify the term members shall serve; and
       ``(v) may increase or decrease the number of members which 
     shall constitute the whole Board, except that in no case may 
     the number of members of the whole Board be an even 
     number.''.
       (b) Beneficial Ownership and Short-Swing Profit 
     Reporting.--
       (1) Beneficial ownership reporting.--Section 13 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78m) is amended--
       (A) in subsection (d)--
       (i) in paragraph (1)--

       (I) by inserting after ``within ten days after such 
     acquisition,'' the following: ``or within such shorter period 
     as the Commission may establish, by rule,''; and
       (II) by striking ``send to the issuer of the security at 
     its principal executive office, by registered or certified 
     mail, send to each exchange on which the security is traded, 
     and''; and

       (ii) in paragraph (2)--

       (I) by striking ``in the statements to the issuer and the 
     exchange, and''; and
       (II) by striking ``shall be transmitted to the issuer and 
     the exchange and''; and

       (B) in subsection (g)--
       (i) in paragraph (1), by striking ``shall send to the 
     issuer of the security and''; and
       (ii) in paragraph (2)--

       (I) by striking ``sent to the issuer and''; and
       (II) by striking ``shall be transmitted to the issuer 
     and''.

       (2) Short-swing profit reporting.--Section 16(a) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78p(a)) is 
     amended--
       (A) in paragraph (1), by striking ``(and, if such security 
     is registered on a national securities exchange, also with 
     the exchange)''; and
       (B) in paragraph (2)(B), by inserting after ``officer'' the 
     following: ``, or within such shorter period as the 
     Commission may establish, by rule''.
       (c) Enhanced Application of Antifraud Provisions.--The 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
     amended--
       (1) in section 9--
       (A) by striking ``registered on a national securities 
     exchange'' each place that term appears and inserting ``other 
     than a government security'';
       (B) in subsection (b), by striking ``by use of any facility 
     of a national securities exchange,''; and
       (C) in subsection (c), by inserting after ``unlawful for 
     any'' the following: ``broker, dealer, or'';
       (2) in section 10(a)(1), by striking ``registered on a 
     national securities exchange'' and inserting ``other than a 
     government security''; and
       (3) in section 15(c)(1)(A), by striking ``otherwise than on 
     a national securities exchange of which it is a member''.
       (d) Definition of ``Interested Person''.--Section 
     2(a)(19)(A) of the Investment Company Act of 1940 (15 U.S.C. 
     80a-2(a)(19)(A)) is amended--
       (1) by striking clause (v) and inserting the following:
       ``(v) any natural person who is a member of a class of 
     persons who the Commission, by rule or regulation, determines 
     are unlikely to exercise an appropriate degree of 
     independence as a result of--

       ``(I) a material business or professional relationship with 
     such company or any affiliated person of such company; or
       ``(II) a close familial relationship with any natural 
     person who is an affiliated person of such company,'';

       (2) by striking clause (vi);

[[Page S2649]]

       (3) by redesignating clause (vii) as clause (vi); and
       (4) in clause (vi), as so redesignated, by striking ``two'' 
     and inserting ``5''.
       (e) Lost and Stolen Securities.--Section 17(f)(1) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78q(f)(1)) is 
     amended--
       (1) in subparagraph (A), by striking ``missing, lost, 
     counterfeit, or stolen securities'' and inserting 
     ``securities that are missing, lost, counterfeit, stolen, 
     cancelled, or any other category of securities as the 
     Commission, by rule, may prescribe''; and
       (2) in subparagraph (B), by striking ``or stolen'' and 
     inserting ``stolen, cancelled, or reported in such other 
     manner as the Commission, by rule, may prescribe''.
       (f) Fingerprinting.--Section 17(f)(2) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78q(f)(2)) is amended--
       (1) in the first sentence, by striking ``and registered 
     clearing agency,'' and inserting ``registered clearing 
     agency, registered securities information processor, national 
     securities exchange, and national securities association''; 
     and
       (2) in the second sentence, by striking ``or clearing 
     agency,'' and inserting ``clearing agency, securities 
     information processor, national securities exchange, or 
     national securities association,''.

     SEC. 6. COMMISSION ORGANIZATIONAL STUDY AND REFORM.

       (a) Study Required.--
       (1) In general.--Not later than 90 days after the date of 
     the enactment of this Act, the Securities and Exchange 
     Commission (in this section referred to as the 
     ``Commission'') shall hire an independent consultant of high 
     caliber who has expertise in organizational restructuring and 
     the operations of capital markets to examine the internal 
     operations, structure, funding, and the need for 
     comprehensive reform of the Commission, as well as the 
     relationship of the Commission with and the reliance by the 
     Commission on self-regulatory organizations and other 
     entities relevant to the regulation of securities and the 
     protection of securities investors that are under the 
     oversight of the Commission.
       (2) Specific areas for study.--The study required under 
     paragraph (1) shall, at a minimum, include the study of--
       (A) the possible elimination of unnecessary or redundant 
     units at the Commission;
       (B) improving communications between offices and divisions 
     of the Commission;
       (C) the need to put in place a clear chain-of-command 
     structure, particularly for enforcement examinations and 
     compliance inspections;
       (D) the effect of high-frequency trading and other 
     technological advances on the market and what the Commission 
     requires to monitor the effect of such trading and advances 
     on the market;
       (E) the hiring authorities, workplace policies, and 
     personal practices of the Commission, including--
       (i) whether there is a need to further streamline hiring 
     authorities for those who are not lawyers, accountants, 
     compliance examiners, or economists;
       (ii) whether there is a need for further pay reforms;
       (iii) the diversity of skill sets of Commission employees 
     and whether the present skill set diversity efficiently and 
     effectively fosters the mission of the Commission of investor 
     protection; and
       (iv) the application of civil service laws by the 
     Commission;
       (F) whether the oversight by the Commission of, and 
     reliance by the Commission on, self-regulatory organizations 
     promotes efficient and effective governance for the 
     securities markets; and
       (G) whether adjusting the reliance by the Commission on 
     self-regulatory organizations is necessary to promote more 
     efficient and effective governance for the securities 
     markets.
       (b) Consultant Report.--Not later than 150 days after the 
     independent consultant is retained under subsection (a), the 
     independent consultant shall submit a report to the 
     Commission and to Congress containing--
       (1) a detailed description of any findings and conclusions 
     made while carrying out the study required under subsection 
     (a)(1); and
       (2) recommendations for legislative, regulatory, or 
     administrative action that the independent consultant 
     determines appropriate to enable the Commission and other 
     entities on which the independent consultant reports to 
     perform the missions of the Commission, whether mandated by 
     statute or otherwise.
       (c) Commission Report.--Not later than 6 months after the 
     date on which the consultant submits the report under 
     subsection (b), and every 6 months thereafter during the 2-
     year period following the date on which the consultant 
     submits the report under subsection (b), the Commission shall 
     submit a report to the Committee on Banking, Housing, and 
     Urban Affairs of the Senate and the Committee on Financial 
     Services of the House of Representatives describing the 
     implementation by the Commission of the regulatory and 
     administrative recommendations contained in the report of the 
     independent consultant under subsection (b).
                                 ______