[Congressional Record (Bound Edition), Volume 148 (2002), Part 4]
[House]
[Pages 5498-5548]
[From the U.S. Government Publishing Office, www.gpo.gov]




CORPORATE AND AUDITING ACCOUNTABILITY, RESPONSIBILITY, AND TRANSPARENCY 
                              ACT OF 2002

  The SPEAKER pro tempore. Pursuant to House Resolution 395 and rule 
XVIII, the Chair declares the House in the Committee of the Whole House 
on the State of the Union for the consideration of the bill, H.R. 3763.

                              {time}  1105


                     In the Committee of the Whole

  Accordingly, the House resolved itself into the Committee of the 
Whole House on the State of the Union for the consideration of the bill 
(H.R. 3763) to protect investors by improving the accuracy and 
reliability of corporate disclosures made pursuant to the securities 
laws, and for other purposes, with Mr. Sweeney in the chair.
  The Clerk read the title of the bill.
  The CHAIRMAN. Pursuant to the rule, the bill is considered as having 
been read the first time.
  Under the rule, the gentleman from Ohio (Mr. Oxley) and the gentleman 
from Pennsylvania (Mr. Kanjorski) each will control 30 minutes.
  The Chair recognizes the gentleman from Ohio (Mr. Oxley).
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  Today, the House turns to H.R. 3763, the Corporate and Auditing 
Accountability, Responsibility, and Transparency Act. To my colleagues 
on both sides of the aisle, today we must act. We must act for our 
Nation's investors, retirees, and employees of publicly traded 
companies; and that covers a large majority of Americans.
  In recent months our struggling economy has absorbed a number of 
shocks. We have endured two large bankruptcies, Enron and Global 
Crossing. Thousands of jobs have been lost for hardworking employees. 
Billions of

[[Page 5499]]

dollars are gone from investment portfolios and retirement plans. 
Investor confidence has understandably wavered.
  Congress has examined these issues for 4 months. The Committee on 
Financial Services alone held seven hearings, took testimony from 33 
witnesses; and we are but one of many panels. We know now what 
happened, and we know what needs to be done. Now it is our 
responsibility to do something about it.
  We owe action to the American investor who faithfully puts away money 
every month in his IRA or his 401(k) plan. We owe action to the 
employees who lost their jobs, and we owe action to all of the American 
companies who are operating in good faith and working to grow.
  I would like to say a word of thanks to the President and his staff 
for all of the support and encouragement we have received throughout 
the process of drafting and moving this bill. His 10-point plan was 
very much on the same track as our bill, and the White House has helped 
us improve the bill every step of the way.
  I also want to say a word of thanks to the 16 Democrats who voted for 
the bill on final passage in the Committee on Financial Services. We 
appreciate their support for our sound legislative bipartisan product.
  President Bush has asked us to move on his plan; and clearly, this is 
a national priority. We need to encourage greater corporate 
responsibility. We need to strengthen and modernize our accounting 
oversight, and we need to make sure that investors have timely and 
clear information. There is a real urgency. We cannot undo the past, 
but we can help to prevent future Enrons and Global Crossings; and we 
ought to do just that today.
  In our zeal to act, we can easily do more harm than good. It is easy 
to do something extreme. We can easily smother American businesses with 
red tape. We can punish those who have done nothing wrong. We can 
damage the capital markets and the economy in the process.
  I say let us do the difficult thing. Let us accomplish something that 
is worthy, as the President has charged us, and CARTA strikes that 
balance. CARTA recognizes the need for corporate leaders to act 
responsibly and holds them accountable if they fail to do so.
  CARTA ensures the highest standards of auditor independence, ethics 
and confidence and establishes a public regulatory organization for 
accountants of publicly traded companies, something that has never been 
done before.
  CARTA improves corporate disclosures by requiring companies to 
provide the public with more information about their financial 
condition.
  CARTA makes important improvements in the area of corporate 
transparency, requiring that companies disclose to investors important 
company news on a real-time basis.
  CARTA also directs the SEC to require greater disclosure for off-
balance sheet transactions.
  I am confident that we are striking the right balance, particularly 
when it comes to the role of the Securities and Exchange Commission. 
CARTA gives the SEC the flexibility to deal with problems without 
legislating every time. Congress created the SEC precisely to deal with 
situations like this. We need to empower the SEC to act without tying 
its hands and within flexible statutory changes.
  Let us remember that a strong regulator is not one that is completely 
dictated to by Congress. A strong regulator has some say over his 
jurisdiction, some power and discretion to shape the capital markets; 
and I trust the SEC with this authority and so does our bill.
  CARTA makes it a crime for anybody to interfere with a corporate 
audit. It requires CEOs and other corporate insiders to disclose within 
48 hours when they sell company stock so that investors and employees 
and retirees know if a corporate officer is getting out. It prohibits 
insider sales of company stock while the employee retirement plan is 
locked down.
  Strengthening these areas of corporate responsibility, accounting 
oversight, and investor information is an important priority as our 
economy recovers. Let us show the American people that we can respond 
in a meaningful way to their very real economic concerns. Pass CARTA 
today.
  Mr. Chairman, I reserve the balance of my time.
  Mr. KANJORSKI. Mr. Chairman, I yield myself such time as I may need.
  Mr. Chairman, I rise to oppose H.R. 3763, the Corporate and Auditing 
Accountability, Responsibility, and Transparency Act. The dramatic 
collapse of Enron exposed many systemic problems to the intricate 
public-private network that monitors excess in our Nation's capital 
markets, including deficits and corporate governance and 
insufficiencies in audit independence and oversight.
  H.R. 3763 responds to these problems in a largely illusory and 
superficial way. It will not sufficiently restore public confidence in 
the integrity of our capital markets; and it will not significantly 
improve the protections for investments, pensions and savings of 
millions of hardworking Americans and retirees. For example, in the 
words of the Wall Street Journal, the bill ``punts'' an overhaul of the 
accounting industry to the Securities and Exchange Commission.
  Although H.R. 3763 creates a new organization to oversee accountants 
that audit public companies, much of the bill's language is simply too 
vague to ensure that essential standards for effective oversight will 
be met, giving the SEC near-total flexibility in establishing 
guidelines for the new oversight body.
  Given the importance of this oversight role, Congress should not 
delegate this task. We should create a strong auditor regulatory board 
with sufficient investigation and disciplinary powers.
  The legislation also preserves auditors' cozy relationships with 
their clients by not prohibiting consultant services that create 
conflicts of interest. Audits are supposed to be independent 
assessments on a company's finances conducted for the benefit of the 
investing public. When an auditor also receives a million dollars from 
the company for nonaudit services, common sense dictates that those 
nonaudit fees may influence the auditors' judgment in favor of the 
client.
  While H.R. 3763 partially bans two nonaudit services, it does not go 
far enough to eliminate the serious potential for undermining the 
independence of auditors. Additionally, H.R. 3763 protects corporate 
wrongdoers by actually making it more difficult to ban guilty officers 
and directors from serving in other public companies. In particular, 
the bill codifies high standards that the SEC complains significantly 
impedes its abilities to obtain officer and director bars in court. We 
must fix this problem.
  Finally, the bill prescribes studies, not legislative action, on some 
major issues raised by Enron, whether CEOs who misled investors about 
the financial health of their companies should surrender their bonuses 
and fat stock option and whether stock analysts are pitching stocks 
they do not believe in.
  In sum, Mr. Chairman, the Congress should not shirk its 
responsibility by delegating these urgent problems to the SEC or 
shunting them off to the oblivion of bureaucratic studies. We have an 
opportunity and a responsibility to restore integrity to capital 
markets. Quick fixes will not do the job.
  Ultimately, Mr. Chairman, we must work together on a bipartisan basis 
to develop an appropriate response to the collapse of Enron and the 
overabundance of earning restatements by our Nation's publicly traded 
companies. Although we have made improvements in the bill since its 
introduction, it will represent only superficial reform at best. 
Meaningful reform will require lengthy deliberation and a substantial 
strengthening of the bill before us today.
  Mr. Chairman, there is an old idea of lost opportunities. As the 
Congress addresses this serious problem today, we are missing an 
opportunity for Congress not to delegate its responsibility to the SEC 
or not to dodge its responsibility to the American public, but to

[[Page 5500]]

take time and effort and deliberation necessary to make a bill that 
will protect the investing public, will arm the regulatory agencies 
with the authority they need to ensure the protection of the investing 
public, and to significantly improve the confidence in the American 
market.

                              {time}  1115

  Just last night I had the occasion to speak with some members of the 
investing community, and they called to my attention that never in 
their experience in the last 25-30 years have they seen a loss of 
confidence in the capital markets of the United States as has recently 
been exposed in the last several months since the Enron collapse. The 
capital markets of the United States are the greatest in the world, but 
they are that way because the Congress at times of need and at times of 
over-abundance of activities and recklessness in the markets have stood 
tall to enact legislation to straighten the markets out and to send a 
signal to the investing public that the Congress will oversee and 
protect their interests as best can be had in a capitalist system.
  Today's legislation does not meet that mark. As the Wall Street 
Journal said, ``This bill punts.'' As The Washington Post said this 
morning, ``The chairman punts.'' I urge us to oppose this legislation 
at this time, and I encourage my colleagues to do the same.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 3 minutes to the 
gentleman from Michigan (Mr. Rogers), a valuable member of the 
committee.
  Mr. ROGERS of Michigan. Mr. Chairman, I rise today in support of the 
Corporate and Auditing Accountability, Responsibility, and Transparency 
Act of 2002, and I want to congratulate the chairman on this bill that 
was reported out of the Committee on Financial Services last week on a 
strong bipartisan vote under his leadership.
  This bill brings needed reforms and oversight to the accounting 
industry. It ensures that those with the greatest interest in ensuring 
that the information provided to the marketplace regarding public 
companies is accurate and complete and facilitates the fair and 
efficient functioning of the markets.
  Mr. Chairman, this is an important piece of legislation that does not 
create a new Federal bureaucracy funded by taxpayers; rather, it 
requires a new private sector oversight body to review the accounting 
firms that audit financial statements. This new body, called the Public 
Regulatory Organization, would have broad powers to discipline 
accountants that violate the most basic codes of ethics, standards of 
independence, and standards of competency.
  Mr. Chairman, this bill is necessary to restore the faith in our 
markets. This bill brings credibility and integrity to the process by 
protecting against conflicts of interest in the accounting industry. 
This piece of legislation is important because we need to act now. We 
need to pass this bill today. We need to give the SEC and this new PRO 
the tools to be up and running quickly to protect the future of 
investments in this country.
  Mr. Chairman, at this time I would like to have a colloquy with my 
good friend, the gentleman from Ohio (Mr. Oxley), the distinguished 
chairman of the Committee on Financial Services.
  Mr. OXLEY. Mr. Chairman, will the gentleman yield?
  Mr. ROGERS of Michigan. I yield to the gentleman from Ohio.
  Mr. OXLEY. Mr. Chairman, I thank the gentleman from Michigan and I 
want to commend him for his efforts on this bill, for his fight for the 
integrity of America's financial markets.
  The gentleman is right; we need to act quickly on this important 
issue. We are calling on our colleagues to take this opportunity to 
restore transparency and accountability to the audited financial 
statements of America's companies.
  Mr. ROGERS of Michigan. Reclaiming my time, Mr. Chairman, it is my 
understanding that this bill does not create a new Federal bureaucracy 
to oversee the accounting profession but, rather, creates a private 
sector regulator to do that job.
  Mr. OXLEY. Mr. Chairman, if the gentleman will continue to yield, 
that is correct. We are giving the SEC the tools to oversee this new 
PRO, but it is going to be funded by the private sector.
  Mr. ROGERS of Michigan. Mr. Chairman, I want to see that this PRO is 
up and running in an expeditious fashion. Does the PRO have the 
authority to contract for services with other private sector companies 
or regulators to make this happen as quickly as possible?
  Mr. OXLEY. That is correct. Under the legislation, the SEC or the PRO 
could consult or contract with private sector regulators and companies 
to get the necessary insight as well as the systems and processes to 
get this organization on its feet in a timely manner. I am confident 
the SEC and the PRO will take such measures as necessary to move with 
all deliberate speed.
  Mr. ROGERS of Michigan. Reclaiming my time once again, Mr. Chairman, 
I thank the distinguished chairman for clarifying this point and I 
thank him for his leadership on this very important bill.
  The CHAIRMAN. Without objection, the gentleman from New York (Mr. 
LaFalce) will control the time of the gentleman from Pennsylvania (Mr. 
Kanjorski).
  There was no objection.
  Mr. LaFALCE. Mr. Chairman, I yield myself 5 minutes.
  Mr. LaFALCE. Mr. Chairman, today we consider legislation to address 
the serious problems in our capital markets raised by the collapse of 
Enron, problems of corporate abuse, problems of accounting fraud, 
problems of earnings manipulation, and problems of analyst hype. All of 
these have destroyed public confidence in our markets and jeopardized 
the investments and retirement savings of millions of working 
Americans. Millions of working Americans have been robbed.
  Now, Enron provided a catalyst for our consideration of these issues, 
but it is not the first or even the most recent example of what has 
become a common phenomenon: earnings manipulation, deceptive 
accounting, and hyped analyst reports by some of our largest companies. 
Company after company has been found to have manipulated their 
accounting to present a picture to investors that did not match the 
reality.
  The tremendous growth in investigations opened by the SEC this year 
indicates the problem is getting worse and worse. The question we will 
debate today essentially is whether we are ready to recognize and make 
real changes to address the systemic weaknesses undermining our capital 
markets or not. The bill before us is cosmetic. The bill before us is a 
press release. Look at this morning's editorial in The Washington Post. 
It says, basically, that the bill takes a punt at the problem. Look at 
the editorial in yesterday's Wall Street Journal. It says, basically, 
the same thing. It chastised the accounting profession for its 
resistance to all efforts at reform. The Journal opined that ``The 
accountants may think that they have outsmarted everyone by sinking 
reforms along with Andersen. And they may be right. On the other hand, 
if there's another Enron out there, they may wish they'd taken Mr. 
Volcker's advice.''
  I think it is safe to say it is only a matter of time before the next 
Enron or Global Crossing appears, and today's bill will do nothing to 
prevent it.
  There are many areas in which the bill before us fails to provide 
true reform. First, it fails to establish a strong regulator to oversee 
the accounting profession, largely delegating decisions as to both its 
powers and duties and makeup to the SEC. You do not need a law to do 
that; the SEC could do that today. The bill provides virtually nothing.
  Secondly, the bill fails to limit in any way the nonaudit services 
that auditors can provide to their audit clients, not even going as far 
as the accounting industry has said it would go voluntarily to limit 
their conflicts of interest. The accounting industry has said they 
should and will go further than the bill goes, and they will not go far 
enough on their own voluntarily.
  As the Wall Street Journal said yesterday, the credibility of their 
audits

[[Page 5501]]

matter more than their ability to offer other services that let them 
live like investment bankers.
  And, third, the bill fails to effectively implement any of the 
measures proposed by President Bush himself to improve executive 
responsibility and improve the ability of the SEC to bar or seek 
disgorgement from executives. In some areas, it actually represents a 
step backwards, making it more difficult for the SEC to do its job, 
making it harder, rather than easier, for the SEC to bar officers or 
directors who have committed securities fraud from serving in other 
public companies.
  Fourth, the bill fails to make any improvements in the area of 
corporate governance of public companies by giving the audit committees 
of their boards of directors the authority they need over auditors to 
truly protect shareholder interest.
  And, fifth, and very importantly, it fails to include any measures to 
limit the incentives for securities analysts to serve as salesmen for 
their firms' investment banking business rather than being objective 
analysts. It fails to address the problem of research analysts being 
compensated based upon the business they are able to generate for the 
investment banking arm of their firms. It allows the continuance of 
research analysts being hucksters for the investment banking arms 
rather than owing a responsibility to give honest investment advice to 
the public at large.
  Now, I would like to have had a debate on these important issues on 
the floor individually, but the rule does not permit the offering of 
individual amendments. And, therefore, I will offer my substitute to 
accomplish that.
  Mr. Chairman, today we consider legislation to address the serious 
problems in our capital markets raised by the collapse of Enron--
problems of corporate abuse and accounting fraud that have destroyed 
public confidence in our markets and jeopardized the investments and 
retirement savings of millions of working Americans. While Enron has 
provided the catalyst for our consideration of these issues, it is not 
the first or even the most recent example of what has become a common 
phenomenon--earnings manipulation and deceptive accounting by our 
largest companies. Company after company has been found to have 
manipulated their accounting to present a picture to investors that did 
not match reality. The tremendous growth in investigations opened by 
the SEC this year indicates the problem is only getting worse.
  The question we will debate today essentially is whether we are ready 
to recognize and make real changes to address the systemic weaknesses 
undermining our capital markets. The bill before us does not represent 
real reform, as even the Wall Street Journal recognized in an editorial 
yesterday in which it chastised the accounting profession for its 
resistance to all efforts at reform. The Journal opined that ``[t]he 
accountants may think that they've outsmarted everyone by sinking 
reforms along with Andersen. And they may be right. On the other hand, 
if there's another Enron out there, they may wish they'd taken Mr. 
Volcker's advice.'' I think it's safe to say that it's only a matter of 
time before the next Enron or Global Crossing appears, and this bill 
will do nothing to prevent it.
  There are many areas in which the bill before us fails to provide 
true reform:
  First, it fails to establish a strong regulator to oversee the 
accounting profession, largely delegating decisions as to its powers 
and duties to the SEC. Without an explicit statutory mandate, the 
regulator will be subject to the intensive efforts of the accounting 
industry to avoid reform of any kind. Congress should give the new 
regulator effective disciplinary and investigative powers and clear 
authority to set standards for auditors of public companies, rather 
than just enforcing the standards set by the accounting industry 
bodies.
  Second, the bill fails to limit in any way the non-audit services 
that auditors can provide to their audit clients, not even going as far 
as the accounting industry has said it would go voluntarily to limit 
their conflicts of interest. As the Journal said yesterday, ``[t]he 
credibility of their audits matter more than their ability to offer 
other services that let them live like investment bankers.''
  Third, the bill fails to effectively implement any of the measures 
proposed by the President to improve executive responsibility and 
improve the ability of the SEC to bar or seek disgorgement from 
executives. In some areas, it represents a step backwards, making it 
more difficult for the SEC to do its job, making it harder, rather than 
easier, for the SEC to bar officers or directors who have committed 
securities fraud from serving in other public companies. Moreover, it 
fails to empower the SEC to require corporate wrong-doers to disgorge 
their bonuses and other compensation after committing securities fraud.
  Fourth, the bill fails to make any improvements to the corporate 
governance of public companies by giving the audit committees of their 
boards of directors the authority they need over auditors to truly 
protect shareholder interests.
  Fifth, it fails to include any measures to limit the incentives for 
securities analysts to serve as salesmen for their firms' investment 
banking business rather than objective analysts.
  I would like to have had a debate on these important issues on the 
floor today, but the rule does not permit me to offer amendments on 
these individual issues. I will offer a substitute, however, that cures 
many of the defects of the Republican bill. My substitute will: 
Establish a tough and credible overseer for the accounting industry; 
include effective limits on the two non-audit services included in the 
existing bill; provide corporate audit committees with authority over 
the full scope of a company's relationship with its auditor; hold 
executives responsible for the accuracy of their companies' financial 
statements; enable the SEC to seek disgorgement of bonuses and profits 
on options or to bar officers and directors who have committed 
wrongdoing from serving in other public companies; and finally, 
eliminate the conflicts that result in Wall Street analysts hyping the 
stocks of their investment banking clients.
  Mr. OXLEY. Mr. Chairman, I yield 3 minutes to the gentlewoman from 
New York (Mrs. Kelly), the chair of the Subcommittee on Oversight and 
Investigations.
  Mrs. KELLY. Mr. Chairman, I rise today in strong support for the 
Corporate Auditor Accountability, Responsibility, and Transparency Act, 
known as the CARTA Act. I thank my good friend, the gentleman from 
Ohio, for yielding me this time.
  This legislation represents the first positive step forward to 
restore public confidence to our Nation's accounting industry. Since 
the dramatic failures in both Global Crossing and Enron, we have heard 
from countless former employees and investors who have been harmed 
because of the lack of transparency, the lack of auditor independence, 
and the lack of timely and clear disclosures. CARTA takes substantive 
steps to address all of these issues, with a focused approach that will 
restore confidence in the industry.
  Let me be clear. The legislation is not the complete solution. There 
are many investigations which continue with the Securities and Exchange 
Commission, the Department of Justice, and the Department of Labor. As 
the appropriate agencies uncover new issues, we are going to continue 
our work to ensure that we act prudently, appropriately, and 
responsibly. As with the medical profession, though, our overriding 
goal has to be, first, do no harm. We must be focused in our work and 
make sure our response is effective, restores public confidence, and 
has a positive impact on the market.
  CARTA is reasonable and responsible. CARTA creates a new Public 
Regulatory Organization with real power to discipline accountants who 
violate the standards of ethics, competency, and independence. CARTA 
makes it a crime for any corporate official to mislead or coerce an 
accountant in the course of conducting an audit. CARTA requires real-
time disclosures of significant financial information to ensure that 
employees and investors know about important events as they happen, 
instead of when the quarterly report comes out.
  These are just a few of the significant reforms made in this 
legislation. CARTA is a strong reform. It gives greater authority to 
the Securities and Exchange Commission to act, and it is stronger 
authority than in the Democratic substitute. It takes significant steps 
to ensure accountants are truly independent and corporations are clear 
and honest in their statements.
  It is a bipartisan bill. It was supported in committee by both 
Democrats and Republicans. The committee vote on final passage of 49 to 
12 demonstrates that there is real agreement in the House that the 
provisions contained in this legislation will move us forward to our 
goal of restoring public

[[Page 5502]]

confidence in our accounting system and corporate disclosures.
  Mr. Chairman, I urge colleagues on both sides of the aisle to join us 
with the strong support of CARTA so we can prevent mistakes, 
misstatements, and obfuscations we witnessed in the failures of Global 
Crossing, Enron, and Arthur Andersen from being repeated and harming 
others.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentlewoman from 
Ohio (Mrs. Jones).
  Mrs. JONES of Ohio. Mr. Chairman, to my colleague, the gentleman from 
the great State of Ohio (Mr. Oxley), and to the ranking member, the 
gentleman from the great State of New York (Mr. LaFalce), I am pleased 
to have had an opportunity to serve on the Committee on Financial 
Services as we have debated this legislation. But what is clear to me 
is the American public expects us to do more than pass strong 
legislation that does not go far enough. I just want to put in the 
Record a copy of The Washington Post editorial that fully addresses 
many of the issues.
  Let me tell my colleagues a few things I am concerned about.

                              {time}  1130

  Mr. Chairman, I do not believe that this current legislation that is 
before the House of Representatives addresses the issue wherein the 
CEOs, like the CEO at Enron and Global Crossing, were able to take 
their 401(k) dollars out of the pot, and leave workers like Mrs. 
Linton, who I read about in the newspaper, stuck with not receiving any 
other dollars.
  Now, what we have not addressed, and I am not an SEC attorney, but I 
do know there is a piece or a rule that allows a CEO to put in place a 
plan to dispose of his assets in a particular company, as long as they 
have in place a plan to do so. We need to put in place a plan that 
would also allow workers to be able to access their dollars in the same 
fashion that CEOs do. Or if they are not able to do so, that the CEOs 
would be held accountable.
  Let me go to another point that I raised at the Enron hearings, which 
is with regard to the SEC. I have a lot of respect for the SEC and 
their chairman, Mr. Harvey Pitt; but the reality of the matter is that 
we should not leave our job to the SEC. We should give the SEC clear 
direction on what we want done, when we want it done, and how we want 
it done. For example, the records of Enron were not reviewed by the 
SEC. That presents a real problem for me and other Members as we review 
this process.
  Finally, I am worried about a private organization giving advice and 
counsel on many of these issues to the Congress. Let me just say that 
the Arthur Andersen relationship with Global Crossing, the CEO said 
that he thought that relationship was okay. If he thought it was okay, 
what does that say about other private industry people.
  The material previously referred to is as follows:

               [From the Washington Post, Apr. 24, 2002]

                            Mr. Oxley Punts

       The HOUSE is due to vote today on a package of post-Enron 
     reforms prepared by Rep. Michael Oxley (R-Ohio), chairman of 
     the Financial Services Committee. The bill is a troubling 
     sign of how easily the momentum for reform can be dissipated. 
     Though it purports to deal with many of the audit reforms 
     discussed during dozens of congressional hearings since 
     January, it actually pulls its punches. Democrats will get a 
     chance to offer some better provisions in the House today, 
     but nobody expects them to pass. It will be up to the Senate, 
     if it can ever terminate its interminable debates on energy, 
     to produce a stronger bill.
       The Oxley bill purports to set up a new regulatory board to 
     oversee and discipline auditors, which everybody agrees is 
     needed. But it would not give this body powers of subpoena, 
     which would undermine its authority; and it would allow 
     auditors to fill some of the board's positions, which could 
     undermine its independence. The details of the new board 
     would be left to the Securities and Exchange Commission, 
     which would have to decide among other things how the new 
     body would be funded. Given the SEC's vulnerability to 
     industry lobbying, there is a danger that the result will 
     fall short of what's needed.
       The Oxley bill takes other half-steps and side-steps. It 
     directs the SEC to prohibit auditors from performing certain 
     types of consulting services for their clients, but it stops 
     short of requiring an outright halt to consulting and the 
     conflicts of interest that ensue. The bill says nothing about 
     the revolving door between auditors and their clients--Enron, 
     for example, hired several Arthur Andersen auditors--even 
     though auditors who are angling for jobs from their customers 
     are unlikely to show much independence from them. The bill is 
     also silent on the rotation of audit firms. If an auditor 
     knew that, after a few years, a different outside auditor 
     would scrutinize its efforts, this would create a strong 
     incentive to keep the numbers honest.
       The Oxley bill does at least boost the SEC's budget 
     substantially, and it has the right mood music. But given the 
     outrage that Congress has expressed about the Enron scandal, 
     this is a weak effort. Just this week, Enron announced that 
     it had discovered a further $14 billion worth of assets in 
     its balance sheet that don't really exist after all, and it 
     confessed that a ``material portion'' of this overstatement 
     was due to accounting irregularities. This kind of confession 
     further undermines investors' trust in financial disclosures. 
     Congress needs to restore that trust with tough legislation. 
     Perhaps the Senate can deliver if the House won't.

  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentlewoman from 
New Jersey (Mrs. Roukema).
  Mrs. ROUKEMA. Mr. Chairman, I commend the gentleman from Ohio (Mr. 
Oxley) and the gentleman from Louisiana (Mr. Baker) for this 
legislation. This legislation has numerous provisions which provide and 
strengthen oversight of the accounting industry, what we have really 
learned from Enron and Global Crossing failures. But the specifics of 
these provisions have been properly outlined by the chairman, and I 
will not go into those again. However, I will stress one in particular, 
and that is it includes important safeguards for individuals who invest 
in the 401(k) plans. That is an excellent provision in this 
legislation.
  Mr. Chairman, I want to say to Members that there are some who argue 
that this bill does not go far enough. I will say to those critics that 
we must take care not to overreact to this situation and create greater 
problems than we have here. This bill represents a giant step in the 
right direction to reforming the system. We need to enact this 
legislation and let the regulatory process go forward. Clearly we 
should revisit this issue in the months ahead, but this bill does 
include sound, strong, unprecedented measures that I believe will go a 
long way in reforming the situation.
  A Member mentioned earlier Chairman Paul Volcker's oversight and 
activity in terms of the Andersen question. Clearly, Mr. Volcker's 
analysis will be helpful to us and significant in laying the groundwork 
for extended consideration in the future for whatever additional 
reforms we may need. Clearly, we must not overreact and create today 
further problems and create more loopholes.
  I want to commend Chairmen Oxley and Baker for their leadershiop on 
this legislation and urge my colleagues' support for the Corporate and 
Auditing Accountability, Responsibility and Transparency Act.
  We must return confidence back to the markets and to the accounting 
profession. Individual investors have to be certain that the 
information they are receiving is accurate and complete. Certainly the 
media and many in this Congress have been focused on the Enron 
bankruptcy--the largest in U.S. history--but Enron is merely a symptom 
of a larger problem.
  The current structure for regulation and oversight of the accounting 
industry consists of Federal and State regulators and a complex system 
of self-regulation by the industry itself. Although the SEC has broad 
authority to regulate all aspects of corporate accounting and the 
auditing of publicly-traded companies, the SEC historically has not 
directly regulated the industry because of a lack of resources. 
Instead, they have investigated and taken enforcement action in only 
the most egregious cases. Consequently, the most comprehensive 
supervision of accountants and auditors has been exercised by the 
industry's trade association, the American Institute of Certified 
Public Accountants, a voluntary organization funded entirely by the 
industry.
  H.R. 3763 includes numerous provisions to strengthen supervision and 
oversight of the accounting industry, increase standards of corporate 
responsibility, and improve the quality of corporate disclosure and the 
auditing of publicly-traded companies. The specifics of these 
provisions have been properly outlined by the Chairman.

[[Page 5503]]

  First, this legislation establishes a public regulatory organization 
(PRO) to oversee and review accounts that certify financial statements 
required under the securities law. This new board would be subject to 
direct SEC authority and supervision. In addition it makes it illegal--
subject to SEC civil penalties--for any corporate official to 
interfere, mislead, or coerce an accountant performing an audit of the 
company.
  Second, this legislation requires increased and meaningful 
disclosures, such as information about special purpose entities and 
other off-balance sheet transactions. It requires real-time disclosure 
of financial information and immediate disclosures by corporate 
insiders when they sell securities they own in their company.
  This legislation also includes important safeguards and protections 
for individuals who invest in 401(k) plans. The bill prohibits 
corporate executives from buying and selling company stock during 
``blackout'' periods when rank-and-file company employees are barred 
from doing so in their pension 401(k) plans and allows companies, and 
other shareholders to go to court to recover any profits made from such 
illegal transactions. The measure also establishes procedures under 
which the SEC may recover any profits gained, or losses avoided, by 
executives through stock trades in the six months prior to a company's 
restatement of earnings, if the executive had knowledge that the 
company's accounting was misleading.
  Finally, H.R. 3763 authorizes new resources and responsibilities for 
the SEC, requires the SEC to review the audited corporate financial 
reports of all publicly-traded companies at least every three years, 
and allows the SEC to ban corporate officers and directors whom the SEC 
finds guilty of violating securities law from serving in similar 
positions in other publicly-traded companies.
  There are some that may argue today that this bill does not go far 
enough--I would say to those critics that we must take care not to 
overreact to this situation--this bill represents a significant and 
proper first step. We need to enact this legislation--and let the 
regulatory process go forth. Clearly, we may have to revisit this issue 
in the months and years ahead, but this bill includes sound, strong and 
unprecedented measures that I believe will go a long way in addressing 
this current crisis.
  Clearly, Chairman Paul Volker's oversight and analysis will be 
significant in laying the way for extended consideration for additional 
reforms.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentlewoman from 
California (Ms. Lee).
  Ms. LEE. Mr. Chairman, I thank the ranking member, the gentleman from 
New York (Mr. LaFalce), for yielding me this time and for his 
leadership on these tough issues.
  Mr. Chairman, I rise today in strong opposition to H.R. 3763. This is 
another sham bill that purports to fix the very serious problems that 
have arisen from the Enron debacle, but instead it takes us backwards 
in protecting the American public. H.R. 3763 is supposed to impose 
tougher standards on auditors to prevent future Enrons where workers 
lost their pensions and investors lost money because Enron cooked its 
books. However, H.R. 3763 does nothing to protect employees and 
investors. It allows corporate auditors to continue to perform both 
auditing and consulting functions, which got Enron into this mess in 
the first place.
  The GOP bill puts investors and workers at greater risk than they are 
now. It does not hold corporate wrong-doers criminally accountable if 
they knowingly release misleading financial statements, and it does not 
increase oversight of the accounting industry.
  We need true reform. That is why I am supporting the LaFalce 
substitute which takes important steps to protect workers and 
investors. It would set up a seven-person board with members 
representing investors and pension funds. Some of them can be 
accountants; but others with important interests can also be included, 
unlike the Republican legislation which will only permit auditors and 
former auditors on the board. Workers and investors also deserve a seat 
at the table.
  The LaFalce substitute also bans auditors from consulting services 
that create conflicts of interest, requires CEOs to surrender their 
stock bonuses when they commit fraud, and makes it easier for SEC to 
remove corporate wrong-doers.
  Ken Lay and the other Enron executives do not deserve millions of 
dollars in payoffs when their workers have lost their future. We must 
hold companies accountable when they engage in fraud that jeopardizes 
the retirement security of our Nation's workers and our economy.
  The Republican legislation before us today does none of these things. 
The LaFalce substitute does. I urge my colleagues to vote ``yes'' on 
LaFalce and ``no'' on H.R. 3763.
  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentlewoman from 
Illinois (Mrs. Biggert), a valuable member of the Committee on 
Financial Services.
  Mrs. BIGGERT. Mr. Chairman, I rise today in strong support of H.R. 
3763. This is a good bill because it strikes the right balance between 
doing enough to prevent another Enron and Andersen debacle, but not so 
much as to overreact to it causing more harm. The last thing we want is 
to federalize the accounting industry and create a seat for the 
government on every corporate board from New York to San Francisco and 
back again.
  This is a good bill because it helps rebuild the confidence of the 
American people by restoring the integrity of the accounting industry. 
It increases corporate responsibility, reforms the accounting industry, 
and forces businesses to disclose much more financial information in 
real-time. Holding corporate officers responsible for their actions is 
a big part of the foundation of this bill. As President Bush said not 
long ago, our goal is better rules so that conflicts, suspicion, and 
broken faith can be avoided in the first place. That is what this bill 
does in several ways. For example, an amendment that I offered last 
week provides the SEC the administrative authority to bar persons 
accused of malfeasance from serving as officers or directors of public 
companies pending judicial appeal.
  Mr. Chairman, it is unfortunate that no one understands the concept 
of executive accountability or lack thereof better than the 500 
Andersen employees from my district. They ask, How on earth can the 
alleged sins of a handful of partners uproot the lives of so many 
innocent employees? One of them went further, asking me in a recent 
letter if one out of our 535 Congressmen and Senators gets in trouble, 
should you all be fired? I think we all get the point.
  And the point is that change is needed in the accounting industry, 
and H.R. 3763 is an important step in the right direction. With this 
legislation, we will avoid any more blanket charges to groups of 
accountants, and instead bring justice to the particular accountants at 
fault. Some have argued that the standard may prove to be unreasonably 
high or it goes too far. I respectfully disagree. H.R. 3763 empowers 
the SEC to take a bite out of corporate crime.
  Mr. Chairman, I encourage all of my colleagues to support this bill.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from 
California (Mr. Sherman).
  Mr. SHERMAN. Mr. Chairman, Enron not only cost its own shareholders 
tens of billions of dollars, but our markets would be selling at 
trillions of dollars more in net capitalization if investors around the 
world did not have to wonder whether the next Enron was right around 
the corner.
  All three of our institutions failed our investors. The SEC failed to 
even read the Enron financial statements, let alone demand 
clarification of their incomprehensible footnotes. And when the SEC 
reauthorization bill comes to this floor, it should come in regular 
order so that we can propose amendments to improve the SEC.
  The stock analysts and the auditors both failed as well; and they 
failed in part because the current system clouds their judgment with 
excessive conflicts of interest. The stock analysts are affected by the 
huge investment banking fees so that they now not only recommended 
Enron as an investment, but they recommend a hold or a buy on virtually 
every stock on the board.
  The auditors received not only their audit fee from their clients, 
but huge and unlimited fees for other services, sometimes five or 10 
times the fees they received for auditing; and this bill, while 
providing a list of services

[[Page 5504]]

that they are not to provide, does nothing to cap the total fee that 
they receive.
  We need to restore confidence in our markets. If Congress does its 
job, our capital markets will once again be the envy of the world. But 
we cannot do it just by passing this bill. The LaFalce substitute at 
least takes us further down the road toward reform; and then we need to 
do even more to deal with the SEC, the stock analysts, and the total 
amount of fees received by auditors for nonaudit services.
  Mr. OXLEY. Mr. Chairman, I yield 3 minutes to the gentlewoman from 
Pennsylvania (Ms. Hart), an outstanding member of our Committee on 
Financial Services.
  Ms. HART. Mr. Chairman, I rise in support of the CARTA bill as it 
stands. The Committee on Financial Services did an extensive amount of 
research on these issues, especially in light of the concerns raised by 
the Enron debacle. Several disturbing aspects about corporate 
disclosures in financial statements were made very clear during this 
process, but one of the most alarming was the unequal treatment of 
employees and what they were and were not allowed to do with company 
stock that they received in their retirement plans.
  I have here what will happen as a result of the CARTA bill. Pre-Enron 
there was little disclosure. Financial information was all in legal 
jargon. People could not really understand it. There was insider 
auditing, as we saw in the Enron case, deals made among the auditors 
with the company which were really not fair or right or a true 
representation of the actual financial situation of the company. Also, 
insider trading during blackouts, those executives were allowed to sell 
their stock; those regular people, the employees, unfortunately were 
not, and ended up losing a lot of money because of the deceit involved 
with the financial statements.
  Post-Enron, under the CARTA bill we have full disclosure. We also 
have something very important, and that is the financial information 
that all investors get in plain English. No more games. Under CARTA, 
plain English so that everybody understands exactly what is going on 
with the company.
  Also something extremely important, the independent audit versus the 
insider audit. We need to make sure that Americans have confidence in 
financial statements and invest wisely.
  It will also close the loophole on insider trading during blackouts. 
This is one of the most important things that was revealed to us during 
Enron, and one thing that this bill handles very well.
  America's investors have changed significantly. It is important for 
us to protect them and provide them with the information that they 
need. More than half of American families, that is 90 million people, 
invest in the stock market, including mutual funds, pensions, and 
401(k)s. This represents a growing trend. These people are investing in 
American companies that produce American jobs. In fact, a majority of 
these investors, 67 percent of them, are our average Americans with 
household income of $75,000 or less.
  Mr. Chairman, these are American families that we are talking about. 
We need to protect them with CARTA. According to the National Center 
for Employee Ownership, 10 million employees in the United States 
received stock options as part of their benefits in 2001. This is a 10-
fold increase over 1992. This bill protects those employees and those 
Americans. It protects those American jobs.

                              {time}  1145

  Finally, the benefits of the bipartisan corporate responsibility bill 
is greater confidence. Americans will continue to invest. We want them 
to invest. It is better for our future. There is more confidence for 
them to invest, there will be more corporate stability and the end 
result, which is what we all want, is more jobs and a stronger economy.
  Mr. LaFALCE. Mr. Chairman, I yield 2\1/2\ minutes to the 
distinguished gentleman from Texas (Mr. Bentsen).
  Mr. BENTSEN. Mr. Chairman, Enron, Global Crossing, the restatements 
at Xerox, Sunbeam and others are part of the corporate excesses that 
have occurred as a result of the exuberant nineties. The bill before us 
today, I believe, is a good start but, as I said earlier, is by no 
means a panacea and will not solve all the problems that existed or 
came about, but at least begins putting us in the right direction to 
hopefully restore some confidence to the markets. It does establish an 
oversight function of auditors of public companies. It amends the law 
to crack down on insider self-dealing, where you had corporate managers 
really treating public companies as private banks, and I am glad the 
committee adopted a few amendments I offered to deal with that. It 
continues the process of eliminating the conflict between independent 
auditors and the companies they audit.
  Some will say it does not go far enough, but at least it begins that 
process. It was strengthened by an amendment that the gentleman from 
North Carolina (Mr. Watt) and I offered and, quite frankly, the 
gentleman from New York's substitute strengthens that even further. It 
puts the Securities and Exchange Commission on notice and provides them 
with the resources, and it puts the Congress on notice that there needs 
to be stronger oversight of the players in the public markets. And it 
is quite a change from where the SEC was under the prior chairman, Mr. 
Levitt, who really did take a strong stance in trying to root out 
conflict of interest and, quite frankly, ran into some of his toughest 
opponents in the Congress as much as out on Wall Street.
  The committee should adopt the Capuano amendment, which I think 
strengthens the oversight board in ensuring that the makeup of that 
board is one that is truly independent. And while there are things in 
the substitute I like and things I do not like, the committee should 
adopt it. But what I think this bill does that is so terribly important 
is that it puts the Congress on record in saying that we will not 
tolerate abuses in the public market.
  Maybe we need to go further. Maybe we do not go far enough in the 
bill, and I do not think a lot of bills we pass here necessarily go far 
enough. I do not know that we know all the answers. But it also puts 
the regulators on notice and provides them with the resources to do the 
job they are entrusted to do. And if they do not, then the Congress 
should be willing to act again. Because if we do not restore confidence 
in the markets and ensure confidence in the markets, then we will raise 
the cost of capital to great expense to the general economy, and while 
we are concerned about the Enron employees, many of whom are my 
constituents, we as a Nation will suffer as well. I appreciate the 
start we are making today. I hope we can continue the process.
  Mr. OXLEY. Mr. Chairman, let me commend my friend, the able gentleman 
from Texas, for his good work on the committee and on the floor. The 
committee will certainly miss his excellent leadership and insights 
next year. I wanted to pass those remarks along.
  Mr. Chairman, I yield 4 minutes to the gentleman from Louisiana (Mr. 
Baker), the lead cosponsor of the CARTA legislation and the chairman of 
the Subcommittee on Capital Markets.
  Mr. BAKER. Mr. Chairman, I thank the gentleman for yielding me this 
time and wish to express my deep appreciation for his leadership in 
helping the committee construct what I think is one of the most 
significant reform pieces of legislation in financial markets in this 
Congress.
  In listening to the debate, many would assume that we have done 
nothing. In listening to the debate, many would assume there are those 
in the Congress who would like to sit on the board of every board of 
directors of every corporation in America, because that is the only way 
we could possibly have protection for individuals and consumers. In 
listening to the debate, one would believe that some think it is 
inappropriate for a corporation to make a profit. In the free 
enterprise system, it is clear, people invest, they work hard; if they 
convince consumers and they are successful and beat their

[[Page 5505]]

competition, at the end of the day we hope people make a profit. Some 
think profit is gained only by ill-conceived, manipulative, backdoor 
deals at the expense of working people. Where are we? This is America. 
We are taught if you work hard, invest, that it is okay to make a 
profit, and one day if you work hard you might be able to keep some of 
it. That was the basis of our tax relief program: You work hard, you 
pay your taxes to the Federal Government.
  Some say, ``Let's not give them their money back. They might spend 
it. We ought to keep it here in Washington and regulate them.'' Some 
people watch business and they say, ``If it's making a profit, let's 
first regulate it. If it's still making a profit, let's tax it. And if 
that doesn't stop it, let's sue it.'' I think we have had enough of 
that. This bill is about common sense. It is not lawful for a corporate 
executive to withhold material facts about the financial condition of 
his corporation. And we go further and say, if you do, there is a 
penalty to pay.
  We provide for auditing independence by saying the audit committee 
works for the shareholder and has an obligation to report the true and 
accurate financial condition of the corporation, or there are 
consequences.
  Some have suggested we are doing nothing with the analysts. Let me 
point out that last fall before the Enron matter became public 
knowledge, this committee, the Committee on Financial Services, was 
working on these sets of rules to provide new standards for analysts' 
conduct that go far beyond anything I have heard suggested in the 
debate in the committee today. We have taken action. We have taken 
action to preserve our free enterprise system, the ability to govern a 
corporation and make a profit, employ individuals and provide 
opportunities for millions of investors to participate in the dynamic 
growth of this economy.
  In 1995, no one could invest online. Today, there are over 800,000 
trades a day where working men and women take $100, $200, and invest it 
for their child's education, to purchase their first home, and maybe 
their retirement. That is the American way. Are these the large 
institutional investors who are making backroom deals with analysts and 
Wall Street CEOs? No, they are people who are working as we debate this 
bill this morning to try to make a few extra dollars to enhance the 
quality of their children's future.
  This bill makes sure that the financial statement they read, that the 
analyst recommendations they research on the Internet, that the 
corporate executives' representations about the future of corporate 
profitability are true and accurate. We cannot guarantee success. Of 
all the companies listed on the New York Exchange in the early 1900s, 
there is only one that is still listed there today. The dynamic free 
enterprise system is going to cause changes in our market that no one 
can predict and we cannot guarantee success or failure, but what this 
Congress can guarantee is that no one is misled or mistreated and all 
have equal opportunity.
  What shall we do? Some would say this bill is insufficient. At the 
end of this process, after all the amendments are considered and the 
gentleman from New York's motion to recommit is finally disposed of and 
defeated, as I hope it will be, you will have a decision to make. Do 
you vote for this bill on final passage or do you say ``no'' and turn 
your back on the most meaningful reform effort you will ever have?
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the distinguished 
gentlewoman from Oregon (Ms. Hooley).
  Ms. HOOLEY of Oregon. Mr. Chairman, I thank the ranking member for 
all of his hard work on this piece of legislation. I guess I am a 
little different from some of the speakers so far because I think that 
this legislation before us is an improvement over the current system. 
Is it perfect? No. Does it go far enough? Probably not. Will it prevent 
another Enron? Who knows? I do not think it is within the realm of 
possibility that we will ever be able to prevent people from being 
greedy and deceiving shareholders. Every single one of us knows that if 
this bill was introduced before the Enron scandal, it probably would 
have had a handful of cosponsors and probably never seen the light of 
day. But now we are being told that it is completely inadequate and 
does not do anything to address the problems that led to the collapse 
of Enron. I disagree.
  This is the bottom line. H.R. 3763 is going to strengthen our 
financial reporting system which in turn will strengthen our capital 
markets. It is a huge step in the right direction. However, that does 
not mean that this legislation is comprehensive or that it could not 
stand improvement. For example, it completely ignores the President's 
call for corporate governance reform. It simply calls for a study on 
whether CEOs who engage in fraud should surrender their stock options. 
The President does not think we need to study this matter. He has 
publicly stated that they should disgorge those earnings. The President 
also does not think corporate officers who engage in fraud should be 
permitted to serve on another board. But again H.R. 3763 is silent on 
this matter.
  Is this bill better than what we currently have? Yes. But I want to 
urge my colleagues on both sides of the aisle who truly want to protect 
the interests of investors to also support Ranking Member LaFalce's 
substitute.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 3 minutes to the 
gentleman from Alabama (Mr. Bachus), a subcommittee chair.
  Mr. BACHUS. I thank the gentleman for yielding me this time.
  Mr. Chairman, Members will recall that 2 years ago, the SEC proposed 
to limit auditors from doing several nonauditing functions for their 
clients, consulting work and other nonauditing services. When the SEC 
proposed that, they do what they always do, what this body has insisted 
they do, what they ought to do, that they put those proposals out for 
public comment, because all knowledge does not come from Washington. It 
is not all inside the Beltway. They made 10 specific proposals to ban 
nonauditing services. Consumer groups came in and testified before the 
Securities and Exchange Commission. Consumer groups came in and 
testified before Arthur Levitt and the SEC. Industry groups came in and 
testified. Over a 4- or 5-, 6-month period, they looked at the rules, 
they listened to witnesses, they refined the rules, they revised the 
rules. And in September, Arthur Levitt had this to say about that 
process of letting the public participate in how they are governed. He 
said this: ``Thanks to the thoughtful and constructive public input, we 
see ways to revise the proposed rules to avoid unintended consequences 
and to address other legitimate concerns.''
  There are unintended consequences when you propose a rule. There are 
other legitimate concerns that people have when you put a rule out 
there for public comment. As a result, Arthur Levitt said, ``We've gone 
through this process and we have got better rules, we have got more 
effective rules, we have got a good product.'' Basically that is what 
the bill that Chairman Baker and Chairman Oxley have put out for us, is 
the result of that process by Arthur Levitt, with public comment from 
consumer groups, labor groups and industry groups.
  Both bills ban these nonauditing services. Both of them ban them. But 
the difference is that the gentleman from New York (Mr. LaFalce) and, 
in fact, when I mentioned this in committee, the gentleman from New 
York said, ``I realize that's a major problem,'' but it is a problem 
that we still have in the substitute. The gentleman from New York went 
back and actually adopted the proposed rules, not the final rules as 
the base text has. He went back to the proposed rules, throw out all 
the comments by the consumer groups, throw out all the comments by the 
business groups, throw out all the comments by the labor organizations, 
throw out all the comments by those in the academic world. He goes back 
to the original proposed rules, like starting all over again. That is 
not what this place is all about. It is about including the public.
  Mr. LaFALCE. Mr. Chairman, I yield myself 30 seconds. The gentleman 
from Alabama (Mr. Bachus) was referring to

[[Page 5506]]

an amendment that was offered within the committee, but he is not 
referring at all to the provision that is in the substitute. So all his 
remarks were irrelevant to the provisions within the substitute.
  Mr. Chairman, I yield 3 minutes to the gentleman from Texas (Mr. 
Doggett).

                              {time}  1200

  Mr. DOGGETT. Mr. Chairman, a few months ago, one really could not 
turn on the television at night or open a newspaper without hearing 
about the plight of those who suffered in the Enron-Andersen debacle--
people whose tomorrow was stolen, many of them innocent, hard-working 
employees for the very companies that were engaged in these 
questionable deals. Even expert investors, including those at a public 
State retirement system in Austin, Texas, lost millions of dollars in 
Enron investments. Many people who were working to prepare their own 
tax returns saw that Enron was not paying much in the way of taxes; in 
fact, it apparently was not paying any taxes at all.
  There were two reactions to this debacle. There were some people, 
like the gentleman from New York (Mr. LaFalce) who said, how can we 
prevent something like this from happening again? What can we do? What 
is the best way? Certainly, it is challenging and complex, but what is 
the best way to be sure that more people do not suffer like this in the 
future?
  And then there was a second response, the response we normally hear 
in Washington from those special interest lobbyists: how can we keep 
the loopholes, the back doors, the exceptions, the special preferences 
and exemptions that we worked so diligently over the years to be sure 
that Congress gave us, how can we be sure we keep them in the future?
  In the face of this Enron-Andersen fiasco, those lobbyists, that 
second group, could not come with a straight face and say, ``do 
nothing.'' So their best avenue to thwart any meaningful reform was to 
say, ``do next to nothing,'' and we will call it ``something''; and 
that is precisely where we are today. The bill before us is ``next to 
nothing'' and it is being called ``something'' to blunt attempts to 
exact more far-reaching reform.
  As if that were not bad enough, there are some lobbyists who saw this 
Andersen-Enron crisis as an opportunity, an opportunity to get a little 
more. And so when we took up the pension bill a couple of weeks ago, 
the first response in this House to Enron, instead of doing something 
to help the employees, a little more discrimination was approved in 
favor of the executives at the top. Today, in this bill, instead of 
making it more difficult for corporate wrongdoers to assume a position 
of responsibility at another corporation, this bill makes it easier.
  When it comes to tax problems, the same accountants that are causing 
many of these problems, as Forbes magazine said a couple of years ago, 
they are the ``tax shelter hustlers,'' ``respectable accountants'' who 
are out peddling dicey corporate tax loopholes. And when today ends, 
they will still be able to do it. The analysts will still be able to 
think one thing and say another to those they advise to purchase stock. 
The accountants will still be held to a level of responsibility under 
this law that is less than even the modest changes President Bush 
proposed and less than what even the accountants agreed to do 
voluntarily.
  Many people in this country, many Americans, are absolutely amazed 
that Enron could have fallen apart last year like it did. This year, 
they will be similarly amazed that Congress did next to nothing about 
it.
  The CHAIRMAN. The Chair will advise Members that there are 5\1/2\ 
minutes remaining on both sides of the debate.
  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentleman from New 
Jersey (Mr. Ferguson), a new and valuable member of our committee.
  Mr. FERGUSON. Mr. Chairman, I want to commend the gentleman from Ohio 
(Mr. Oxley) for his great work on this legislation and for also working 
so closely with the major investigators: the Justice Department, the 
SEC, the Enron and Andersen internal teams, to achieve the goal that we 
have been able to achieve with this legislation. The committee has 
heard from a diverse group of witnesses representing a broad spectrum 
of views from across America regarding the securities markets and the 
government's role in protecting investors.
  The distinct differences in the testimony, including former SEC 
officials and the securities industry and a leading consumer 
organization and the accounting industry, have confirmed that the 
committee and the members on the committee have taken the necessary 
steps to improve the current regulatory system with this legislation, 
the CARTA legislation.
  This legislation is a product of a multitude of views and months of 
work by the committee to improve the public's confidence in our capital 
markets and to strengthen the overall financial system in the most 
appropriate manner. It is effective because it gets to the heart of the 
issues that will prevent future Enrons from happening in this country, 
without drowning our businesses in a sea of red tape.
  It is important that this legislation avoids the temptation to 
overreact and to over-legislate in a manner that is going to cripple 
the entire business community. In fact, the Federal Reserve Chairman, 
Alan Greenspan, recently testified that the Enron collapse has already 
generated a significant shift in corporate transparency and 
responsibility, highlighting the market's sometime ability to self-
correct. Clearly, over-legislating would be counterproductive and make 
it impossible for our markets to function properly.
  Clearly we need to legislate, and I think we have done that in this 
bill. But legislating should not be the end of the Congress's role in 
addressing these issues. The collapse of Enron represents a combination 
of irresponsible actions on the part of some decisionmakers with 
knowledge of the company's financial well-being, and a meltdown of the 
financial safeguards that we have used to identify problems at a stage 
when corrective action still might be possible. We have to continue to 
work directly with the private sector to instill a spirit of corporate 
responsibility. We must challenge America's business leaders to meet 
the highest standards of ethics and responsibility to their employees 
and their shareholders.
  There have been dozens of legislative measures introduced by both 
sides of the aisle to address these issues. It is time we put partisan 
wrangling aside and to move forward with the practical solutions that 
will actually help. We need to increase the American people's 
confidence in our capital markets, because by doing so, we will 
increase their confidence in our economy at a time when our economy 
needs to continue to grow.
  I urge my colleagues to support the CARTA legislation.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the very 
distinguished gentlewoman from California (Ms. Waters), the ranking 
member of the Subcommittee on Financial Institutions.
  Ms. WATERS. Mr. Chairman, I rise in opposition to H.R. 3763. I truly 
believe the gentleman from Ohio (Mr. Oxley), the chairman of the 
committee, had good intentions, and I appreciate that he accepted one 
of my amendments on the disgorgement fund at SEC. However, the bill 
simply does not respond to the outrageous and corrupt behavior of 
Enron, Arthur Andersen, Global Crossing, and perhaps many other 
corporations and Wall Street firms. What more harm to our citizens will 
we tolerate?
  This bill does not recognize the wake-up call we have been afforded. 
This bill will not prevent another Enron from happening. Unfortunately, 
there are major problems with the larger bill which does not offer 
strong enough protections to prevent what appears to be a growing 
number of unscrupulous corporate practices.
  Instead of instituting real accounting reforms, the Republican bill 
leaves the bulk of the work to the SEC, who can be pressured by the 
industry into issuing so-called reforms that are

[[Page 5507]]

meaningless. The Democratic substitute, however, creates a powerful new 
regulatory board with authority to set strict standards on auditors, 
with strong investigative and disciplinary powers, recognizing that 
years of the accounting industry's self-policing has failed.
  The Republican bill fails to ban consultant services that create 
conflicts of interest. The Democratic substitute ensures auditor 
independence by prohibiting consulting services that create conflicts 
of interest, and gives audit committees of corporate boards authority 
to hire and fire auditors. The Republican bill protects executive 
corporate wrongdoers by making it more difficult to bar guilty officers 
and directors from serving at other public companies. The Democratic 
substitute holds CEOs accountable for their financial statements and 
subjects them to criminal penalties for knowingly lying. It requires 
those who make false or misleading statements to surrender their stock 
bonuses, and it also bars guilty officers and directors from serving at 
other public companies.
  The Democratic substitute bars analysts from holding stock in the 
companies they cover and ending incentives to act as salesmen rather 
than objective experts.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 2 minutes to the 
gentleman from New York (Mr. Grucci), one of our outstanding freshman 
members of the committee.
  Mr. GRUCCI. Mr. Chairman, I thank the gentleman for yielding.
  First of all, I would like to thank the gentleman from Ohio (Mr. 
Oxley) and my colleagues on the Committee on Financial Services for 
their tireless effort to swiftly address this crisis.
  Mr. Chairman, the Enron debacle highlights the need for reform of our 
accounting and investment standards. However, any bill in response to 
this cannot go overboard in restricting our already self-regulating 
markets. For this purpose, I believe that this corporate responsibility 
bill strikes a solid balance, and I am in favor of its passage.
  First, the corporate responsibility bill creates a public regulatory 
organization to make sure accounting laws are followed and audits are 
done properly. This is a necessary, commonsense approach to restoring 
investors' faith. Next, the bill applies the same stock bailout period 
to corporate executives as it does to employee shareholders, as is only 
fair. Finally, it demands that executives disclose their stock trades 
faster so employees and analysts truly know what is going on inside the 
company.
  The beauty of the corporate responsibility bill is that it does not 
try to put the brakes on the wheels of our markets. Instead, it 
restores fairness and honesty to the system, while leaving its main 
tenets in place. It allows the investor to still be a master of his or 
her own destiny, but in a much safer environment. The self-regulating 
nature of our free enterprise system is left intact, and now it will be 
open to staying more clean.
  The era of corporate mystery must end. Either we can let the 
corporate responsibility bill take us on a path to transparency and 
legitimacy where rules are valued and fraud is exposed and prevented, 
or we can watch as more innocent Americans are deprived of their life 
savings by greed and callousness. Although the corporate responsibility 
bill was written as a response to recent events, it is commonsense 
legislation that should have been considered long ago, and I urge my 
colleagues to vote in favor of it.
  Mr. LaFALCE. Mr. Chairman, I yield myself the balance of the time 
remaining.
  Mr. Chairman, we have an enormous, enormous problem on our hands. 
Investors have lost hundreds of billions of dollars, and sometimes it 
may have been due to bad investment decisions they made, but an awful 
lot of the time it was due to earnings manipulation or analyst hype or 
corporate or accounting wrongdoing. We need to rise to the challenge. 
This bill just does not do that. We could say, well, if we gave it a 
test and somebody gets 50 percent of the answers right, we would say, 
well, pass them. I think we flunk them if that is as good as they could 
do, especially if they do a poor job on all of the important issues. I 
think the main bill does a very poor job on all of the important 
issues.
  Let us go to, for example, officers of corporations. What should we 
do about that? Well, the President has told us what he thinks should be 
done at a minimum. In President Bush's 10-point plan, proposal number 
3: ``CEOs should personally vouch for the veracity, timeliness and 
fairness of their company's public disclosures, including their 
financial statements.'' The Republican bill punts on that. It does not 
do anything on that. Our substitute legislatively codifies what 
President Bush asked for.
  What about boards of directors? Well, we have to make them more 
responsible. One way is to make sure that they are responsible for both 
the hiring and the firing of the auditors, so that the auditors then 
would be independent from the officers. The Republican bill does 
nothing on that. Our bill specifically says that it is a right and 
responsibility of the board of directors, the audit committee in 
particular, to perform that function.
  Something else that we need to do to deal with officers or directors 
is if they are proven unfit, we need to be able to bar them from 
serving as officers and directors on other publicly traded 
corporations, and the SEC has complained that they do not have that 
power. President Bush says, proposal number 5: ``CEOs or other officers 
who clearly abuse their power should lose their right to serve in any 
corporate leadership positions.''

                              {time}  1215

  The Republican bill codifies bad judicial law and makes it more 
difficult for the SEC to bar officers and directors. Our proposal 
adopts the reforms that have been advocated by the SEC, another 
fundamental threshold difference.
  What about auditors? Well, we need a regulatory organization. The 
Republican approach is to say to the SEC, ``Well, if you think there 
should be regulatory organization for accountants, then you should 
create one. It is discretionary on your part. You decide what powers 
they will have and you decide who shall serve.''
  We say that there shall be created an independent regulatory 
organization for accountants, we specify what their powers should be, 
and we also indicate the type of person who should be appointed: 
individuals who are representative of the pension plans of private 
employees, individuals who are representative of the pension plans of 
public employees, et cetera.
  And very importantly, with respect to research analysts, the 
Republican bill says, well, we ought to study that problem. We say, 
look, the SEC has studied it. The SEC has given report after report 
showing conflicts. The Attorney General of New York has come out with 
unbelievable revelations.
  On all other legislation, for example, Graham-Leach-Bliley, we 
created firewalls between banking, securities, and insurance. We need a 
firewall within securities firms with respect to the compensation that 
research analysts are given and the revenues that are generated for the 
investment arm of the firm. The quality of research should be the sole 
determinant of the compensation of research analysts. The Republican 
bill does nothing on that. We take meaningful action.
  Mr. OXLEY. Mr. Chairman, I yield myself the balance of my time.
  Mr. Chairman, this has been a worthwhile debate and I think does 
clearly point out some of the philosophical differences between at 
least a portion of the Democratic Party and the Republican approach.
  This committee acted. We are the only committee who have acted 
responsibly in this manner with moving legislation forward. We had the 
first hearing in December on the Enron debacle. We have had six 
subsequent hearings. We have had 33 witnesses. We had a markup that 
lasted over 2 days, for 11 hours. We debated this thoroughly.
  At the end of the process, at the end of the process in committee, 
over half of the Democrats on the committee

[[Page 5508]]

supported the final passage of this legislation to recommend it for a 
floor vote. That is a positive development. So I stand here today 
supporting the bipartisan legislation that came out of our committee, 
and I am very proud of that.
  My friend, the gentleman from New York (Mr. LaFalce), points out the 
alleged differences with the White House. Let me point out and read the 
statement of administrative policy for the Members.
  ``The administration supports House passage of H.R. 3763 as an 
important step toward improving corporate responsibility. The bill is 
consistent with the President's 10-point plan, and is guided by the 
core principles of providing better information to investors, making 
corporate officers more accountable, and developing a stronger, more 
independent audit system.''
  That is the statement of administration policy. They support this 
legislation. Let us support this bipartisan proposal as we move 
forward.
  Mr. BARR of Georgia. Mr. Chairman, I rise today in support of the 
Corporate Auditing and Accountability, Responsibility and Transparency 
Act (CARTA) of 2002, H.R. 3763. This legislation represents necessary--
but measured--response to the Enron and Global Crossing scandals.
  It is important Congress continues to respond efficiently and 
effectively to the concerns of American investors, retirees, and 
employees. The Financial Services Committee has worked hard in order to 
send this solid, bipartisan legislation to the House floor.
  I commend Chairman Michael Oxley for his continued efforts on this 
legislation. He has been dedicated to work with Members on both sides 
of the aisle, the industries and the administration in order to create 
a bill which would strike a reasonable balance.
  H.R. 3763 is a tough bill on auditor accountability and corporate 
transparency and addresses the weaknesses revealed in the bankruptcies 
by carefully strengthening the markets. In addition, H.R. 3763 will 
help to protect America's shareholders by providing better information 
to investors, making corporate officers more accountable, and 
developing a stronger, more independent audit system.
  Mr. Chairman, some may support the idea to create even more 
regulation and bureaucracy to prevent future collapses of major 
corporations like Enron or Global Crossing. However, the idea does not 
bear out. Neither Congress, nor the government should be in the 
position of handcuffing the private sector and how it does business.
  H.R. 3763 gives the Securities and Exchange Commission the tools to 
identify future criminal wrongdoing, without imposing such strict 
regulatory guidelines that it would take an act of Congress to give any 
flexibility. Such restrictions would hamstring the agency and 
businesses. Moreover, we could, in the end, wrap an endless stream of 
red tape around the capital markets. As we emerge from the most recent 
economic slowdown, it would be the height of irresponsibility by this 
Congress to dampen investment.
  I urge my colleagues to pass H.R. 3763 which would protect working 
families investing in their futures.
  Mr. BEREUTER. Mr. Chairman, this Member rises today to express his 
support for H.R. 3763, the Corporate and Auditing Accountability, 
Responsibility and Transparency Act of 2002. This bill, of which I am 
an original cosponsor, is necessary to protect investors by ensuring 
auditor independence in the accounting of publicly traded companies.
  This Member would express his appreciation to the distinguished 
gentleman from Ohio, Mr. Oxley, the chairman of the House Financial 
Services Committee, for introducing H.R. 3763. In addition, this Member 
would like to express his appreciation to the distinguished gentleman 
from Louisiana, Mr. Baker, the chairman of the Financial Services 
Subcommittee on Capital Markets, Insurance, and Government Sponsored 
Enterprises, for his efforts in getting this measure to the House floor 
for consideration.
  In large part, H.R. 3763 is a response to the grossly negligent 
activities by Arthur Andersen in their accounting audit of the Enron 
Corporation. For example, Arthur Andersen provided both consulting and 
auditing services to Enron, which certainly would appear to be an 
obvious conflict of interest. In addition, after the Securities and 
Exchange Commission, SEC, began investigating the Enron matter, Arthur 
Andersen nonetheless allegedly continued to destroy documents and e-
mails related to its audit of Enron.
  Therefore, H.R. 3763, among many things, would do the following:
  First, prohibit firms from offering the consulting services of 
financial information system design and internal audit services to 
companies that are externally auditing.
  Second, establish a new public regulatory board, the Public 
Regulatory Organizations PROs, to conduct oversight over the accounting 
industry. The PROs would be under the direct authority of the SEC. 
Currently, accountants are subject to partial oversight by their 
professional organization, the American Institute of Certified Public 
Accountants; the Federal Accounting Standards Board; and the State 
Boards of Accountancy, which license accountants. Under H.R. 3763, the 
power of these State boards is not diminished.
  Third, prohibit corporate executives from buying or selling company 
stock during any period where 401(k) plan participants are unable to 
buy or sell securities. This provision would address the particular 
actions of Enron corporate executives who sold their stock when 401(k) 
participants were prohibited from selling their shares of stock.
  Fourth, make it a crime for a corporate official to fraudulently 
influence, coerce, manipulate, or mislead an accountant performing an 
audit of a company.
  Fifth, require companies to make real-time disclosures of financial 
information that is important to investors, such as material changes in 
a company's financial condition.
  Sixth, require corporate executives to disclose when they sell 
securities they own in the company immediately. Current regulations 
allow corporate executives up to 40 days to make such disclosures.
  This Member would also like to note that while H.R. 3763 is certainly 
a step towards protecting investors in the future, he also hopes that 
the corporate executives at Enron and the relevant auditors at Arthur 
Andersen are punished in the proper manner for their grossly 
irresponsible, probably illegal, corporate behavior.
  In closing, this Member urges his colleagues to support H.R. 3763.
  Mrs. MINK of Hawaii. Mr. Chairman, H.R. 3763, the Corporate 
Accountability, Responsibility, and Transparency Act of 2002, does not 
go far enough to reform the accounting industry and strengthen 
corporate disclosure rules, which are critical to restoring investor 
confidence, which was shattered by the collapse of the Enron 
Corporation.
  The implosion of what was once the Nation's seventh largest company 
and dominant energy-trading enterprise proved that the integrity of the 
system of checks and balances that is supposed to prevent an Enron-like 
debacle has been compromised. The system's failure has devastated 
thousands of individuals and their families.
  Enron's employees, the vast majority of whom were unaware of the 
breadth and scope of the company's questionable financial dealings, 
lost not only their jobs but also much of their life savings. Enron's 
executives fared considerably better, cashing in $1.1 billion in stock, 
as they overstated the company's revenues and concealed much of its 
debt in off-balance-sheet partnerships.
  The employees of Arthur Andersen LLP, the auditing firm responsible 
for verifying the accuracy of Enron's books, have similarly been 
victimized by the actions of a relative handful of Anderson partners 
and personnel that chose to overlook Enron's fraudulent bookkeeping 
activities. Today, Arthur Andersen LLP faces huge civil lawsuits and is 
steadily losing clients, thereby causing many of its employees to 
become unemployed.
  In addition to the employees of Enron and Arthur Andersen, many 
thousands of investors that relied on the supposed independent advice 
of stock analysts were victimized by the Enron debacle. Because Wall 
Street investment companies reaped huge fees for brokering Enron's 
numerous deals, they continued to lavish praise on the company's stock, 
even after it nosedived in October 2001.
  While H.R. 3763 is intended to strengthen the independent auditing of 
publicly traded companies, it does not address actual accounting 
standards. For example, it is silent on the question of whether certain 
types of debt may be moved off a company's balance sheets, which, it 
cannot be stressed enough, was a hallmark of Enron's accounting 
machinations. The Democratic substitute to H.R. 3763 would: Require 
CEOs to certify the accuracy of their company's financial statements; 
allow the Securities and Exchange Commission to bar those guilty of 
wrongdoing from serving as corporate officers; prohibit auditors from 
performing consulting and auditing services for the same client; and 
prohibit analysts from owning stock in the companies on which they 
report.
  Investor confidence is the bedrock upon which our market system is 
built. Investors must have full confidence that business executives 
will look after the long-term interests of their companies, directors 
will look after the

[[Page 5509]]

interests of shareholders, auditors will verify the accuracy of 
financial statements, and analysts will offer sound investment advice. 
There is no question that investor confidence has been badly shaken, if 
not lost. If that confidence is to be fully restored, more than good 
intentions are required. It will require provisions with force and 
teeth. It will, in short, require the Democratic substitute. I strongly 
urge my colleagues to vote for it.
  Mr. CASTLE. Mr. Chairman, I rise today to express my strong support 
for the Corporate and Auditing Accountability, Responsibility, and 
Transparency Act. Americans should know that this is the second piece 
of legislation the House has passed to protect them from future 
``Enrons.'' Earlier this month, the House passed legislation to enhance 
pension protections and give employees more tools to diversify their 
retirement plans.
  This legislation is designed to enhance the independence of the 
accounting industry to make sure the stock markets and investors have a 
more accurate picture of a corporation's financial conditions so they 
can make wise and informed decisions on where to invest their money. In 
particular, the bill creates a new Public Regulatory Organization, PRO, 
to oversee the activities of accountant. The PRO would be subject to 
direct SEC authority. A majority of the PRO board members will be 
independent of the accounting industry to assure that the PRO itself is 
not ``captured'' by the very industry it is regulating.
  One of the other Enron-related problems this bill addresses is the 
failure to disclose the types of off-balance-sheet partnerships that 
Enron used to distort its financial condition. This bill requires 
prompt disclosure of these partnerships.
  This bill also reigns in corporate management sales of company stock. 
Among the most disturbing actions Enron executives took was to sell 
their company stock at the same time there was a blackout period on the 
employees 401(k) retirement plan. They were preserving their own assets 
at the same time their employees were losing their retirements as the 
Enron ship continued to sink. From now on, whenever employee stock 
trades are prohibited, corporate management stock trades will also be 
prohibited.
  Finally, while some have urged Congress to take further steps, I want 
to caution people that freezing additional reforms in legislation based 
upon our current understanding of the causes of these problems can lead 
to its own set of problems. In passing Gramm-Leach-Bliley a few years 
ago, Congress finally fixed some of the mistakes that were made in 
attempting to address the causes of the Great Depression. Critics 
should also note that this legislation calls on the SEC and other 
regulators to explore additional reforms. Congress will maintain active 
oversight of the SEC as they continue to develop sound ideas to prevent 
future Enrons.
  Mr. Chairman, again, I want to express my strong support for this 
bill and urge my colleagues on both sides of the aisle to join the 49 
bipartisan members of the House Financial Services Committee who 
reported this bill favorably to the House floor. This is a responsible 
step toward preventing future Enrons that does not punish the innocent.
  Mr. STARK. Mr. Chairman, I rise in opposition to H.R. 3763, the 
Corporate and Auditor Responsibility Act, because the bill does nothing 
to prevent another Enron debacle from occurring in the future.
  Enron's collapse has highlighted major gaps in our securities laws. 
These gaps jeopardize the retirement savings of millions of hard 
working Americans who have their retirement funds invested in 
securities. After the Enron collapse, the American people 
overwhelmingly called for strong measures to prevent such a debacle 
from happening again. They called on Congress to act, but this bill 
falls far short.
  This so-called ``Corporate and Auditor Responsibility Act'' is 
nothing more than a political document for Republicans to appear like 
they are protecting investors and workers when, in fact, they are 
protecting corporations and CEOs. H.R. 3763 would actually increase the 
likelihood of another Enron situation because it limits the SEC's 
authority to prohibit Enron's corporate officers and directors from 
serving in such positions in the future if they are found guilty of 
misconduct.
  What happened to the GOP mantra of holding executives accountable for 
corporate misconduct? H.R. 3763 fails miserably to hold CEOs even 
remotely accountable for their actions. Even President Bush thinks it 
makes sense to have a company's CEO certify the accuracy of their 
financial statements. This bill fails to take even that small step.
  The Enron scandal happened less than 6 months ago, yet my Republican 
colleagues have quickly forgotten some of its major components. While 
thousands of Enron employees were being told to invest their retirement 
savings in Enron securities, Enron's CEO sold millions of dollars worth 
of company stock. Corporate officers knew that hollow deals were taking 
place to prop up the stock price, and the employees had to pay the 
price.
  Shouldn't company CEOs be responsible for signing on the dotted line 
and verifying the company's books? Of course they should! Which makes 
it all the more unfathomable that the GOP would submit a bill without a 
provision to hold CEOs responsible for the veracity of their company's 
bottom line. Our Republican friends are basically saying to Ken Lay: 
feel free to get another CEO gig, create some new tax shelters for the 
company, prop up the stock price and then walk away with millions in 
personal profit. Today's bill does nothing to prevent that.
  In contrast, the Democratic substitute addresses the more egregious 
corporate misconduct issues.
  First and foremost, the Democratic substitute requires the CEO and 
chief financial officer (CFO) of publicly-traded companies to certify 
the accuracy and veracity of the company's financial statements. This 
is a reasonable first step to ensure that executives be held 
accountable for misleading investors and employees.
  Next, the Democratic substitute allows the Securities and Exchange 
Commission (SEC) to recover all executive compensation received 
(including salaries, commissions, fees, bonuses, and stock options) for 
any period during which the executive falsified a company's financial 
statements. The Republican bill only allows the SEC to recover stock 
transaction proceeds for the six months prior to a corporate 
restatement of earnings. Under the Republican bill, an executive making 
a $3 million salary, who falsifies company financial records, will be 
able to keep it. He can also keep hundreds of millions of dollars in 
stock option proceeds accumulated under falsified accounting from 
previous years.
  Finally, the Democratic substitute bill will empower the SEC to bar 
directors and officers found guilty of corporate misconduct from 
holding similar positions in the future. CEOs who mislead and defraud 
their investors and employees must not be allowed to return to similar 
positions. Without a strong provision such as this, incentives will 
continue to abound for CEOs to choose personal profit over corporate 
integrity.
  This Republican bill is another sham on the American public who 
expect Congress to pass effective legislation to restore corporate 
accountability. I urge my colleagues to vote for the Democratic 
substitute and no on the Republican bill.
  Mr. PAUL. Mr. Chairman, seldom in history have supporters of 
increased state power failed to take advantage of a real or perceived 
crisis to increase government interference in our economic and/or 
personal lives. Therefore we should not be surprised that the events 
surrounding the Enron bankruptcy are being used to justify the 
expansion of Federal regulatory power contained in H.R. 3763, the 
Corporate and Auditing Accountability, Responsibility, and Transparency 
Act of 2002 (CARTA).
  So ingrained is the idea that new Federal regulations will prevent 
future Enrons, that today's debate will largely be between CARTA's 
supporters and those who believe this bill does not provide enough 
Federal regulation and control. I would like to suggest that before 
Congress imposes new regulations on the accounting profession, perhaps 
we should consider whether the problems the regulations are designed to 
address were at least in part caused by prior government interventions 
into the market. Perhaps Congress could even consider the almost 
heretical idea that reducing Federal control of the markets is in the 
public's best interest. Congress should also consider whether the new 
regulations will have costs which might outweigh any (marginal) gains. 
Finally, Mr. Speaker, Congress should contemplate whether we actually 
have any constitutional authorization to impose these new regulations, 
instead of simply stretching the Commerce Clause to justify the program 
de jour.
  CARTA establishes a new bureaucracy with enhanced oversight authority 
of accounting firms, as well as the authority to impose new mandates on 
these firms. CARTA also imposes new regulations regarding investing in 
stocks and enhances the power of the Securities and Exchange Commission 
(SEC). However, Mr. Speaker, companies are already required by Federal 
law to comply with numerous mandates, including obtaining audited 
financial statements from certified accountants. These mandates have 
enriched accounting firms and may have given them market power beyond 
what they could obtain in a free market. These laws also give corrupt 
firms an opportunity to attempt to use political power to gain special 
treatment for Federal lawmakers

[[Page 5510]]

and regulators at the expense of their competitors and even, as alleged 
in the Enron case, their employees and investors.
  When Congress establishes a regulatory state it creates an 
opportunity for corruption. Unless CARTA eliminates original sin, it 
will not eliminate fraud. In fact, by creating a new bureaucracy and 
further politicizing the accounting profession, CARTA may create new 
opportunities for the unscrupulous to manipulate the system to their 
advantage.
  Even if CARTA transformed all (or at least all accountants) into 
angels, it could still harm individual investors. First, new 
regulations inevitably raise the overhead costs of investing. This will 
affect the entire economy as it lessens the capital available to 
businesses, thus leading to lower rates of economic growth and job 
creation. Meanwhile, individual investors will have less money for 
their retirement, their children's education, or to make a down payment 
on a new home.
  Government regulations also harm investors by inducing a sense of 
complacency. Investors are much less likely to invest prudently and ask 
tough questions of the companies they are investing in when they 
believe government regulations are protecting their investments. 
However, as mentioned above, government regulations are unable to 
prevent all fraudulent activity, much less prevent all instances of 
imprudent actions. In fact, as also pointed out above, complex 
regulations create opportunities for illicit actions by both the 
regulator and the regulated, Mr. Chairman, publicly held corporations 
already comply with massive amounts of SEC regulations, including the 
filing of quarterly reports that disclose minute details of assets and 
liabilities. If these disclosures rules failed to protect Enron 
investors, will more red tape really solve anything?
  In truth, investing carries risk, and it is not the role of the 
Federal Government to bail our every investor who loses money. In a 
true free market, investors are responsible for their own decisions, 
good or bad. This responsibility leads them to vigorously analyze 
companies before they invest, using independent financial analysts. In 
our heavily regulated environment, however, investors and analysts 
equate SEC compliance with reputability. The more we look to the 
government to protect us from investment mistakes, the less competition 
there if for truly independent evaluations of investment risk.
  Increased Federal interference in the market could also harm 
consumers by crippling innovative market mechanisms to hold corporate 
managers accountable to their shareholders. Ironically, Mr. Chairman, 
current SEC regulations make it difficult for shareholders to challenge 
management decisions. Thus government regulations encourage managers to 
disregard shareholder interests!
  Unfortunately, the Federal Government has a history of crippling 
market mechanisms to protect shareholders. As former Treasury official 
Bruce Bartlett pointed out in a recent Washington Times column, during 
the 1980s, so-called corporate raiders helped keep corporate management 
accountable to shareholders through devices such as the ``junk'' bond, 
which made corporate takeovers easier. Thanks to the corporate raiders, 
managers knew they had to be responsive to shareholders needs or they 
would become a potential target for a takeover.
  Unfortunately, the backlash against corporate raiders, led by 
demographic politicians and power-hungry bureaucrats eager to expand 
the financial police state, put an end to hostile takeovers. Bruce 
Bartlett, in the Washington Times column sited above, described the 
effects of this action on shareholders, ``Without the threat of a 
takeover, manaagers have been able to go back to ignoring shareholders, 
treating them like a nuisance, and giving themselves bloated salaries 
and perks, with little oversight from corporate boards. Now insulated 
from shareholders once again, managers could engage in unsound 
practices with little fear of punishment for failure.'' Ironically, the 
Federal power grab which killed the corporate raider may have set the 
stage for the Enron debacle, which is now being used as an excuse for 
yet another Federal power grab!
  If left alone by Congress, the market is perfectly capable of 
disciplining businesses who engage in unsound practices. After all, 
before the government intervened, Arthur Andersen and Enron had already 
begun to pay a stiff penalty, a penalty delivered by individual 
investors acting through the market. This shows that not only can the 
market deliver punishment, but it can also deliver this punishment 
swifter and more efficiently than the government. We cannot know what 
efficient means of disciplining companies would emerge from a market 
process but we can know they would be better at meeting the needs of 
investors than a top-down regulatory approach.
  Of course, while the supporters of increased regulation claim Enron 
as a failure of ``ravenous capitalism,'' the truth is Enron was a 
phenomenon of the mixed economy, rather than the operations of the free 
market. Enron provides a perfect example of the dangers of corporate 
subsidies. The company was (and is) one of the biggest beneficiaries of 
Export-Import (Ex-Im) Bank and Overseas Private Investment Corporation 
(OPIC) subsidies. These programs make risky loans to foreign 
governments and businesses for projects involving American companies. 
While they purport to help developing nations, Ex-Im and OPIC are in 
truth nothing more than naked subsidies for certain politically-favored 
American corporations, particularly corporations like Enron that lobby 
hard and give huge amounts of cash to both political parties. Rather 
than finding ways to exploit the Enron mess to expand Federal power, 
perhaps Congress should stop aiding corporations like Enron that pick 
the taxpayer's pockets through Ex-Im and OPIC.
  If nothing else, Mr. Chairman, Enron's success at obtaining State 
favors is another reason to think twice about expanding political 
control over the economy. After all, allegations have been raised that 
Enron used the same clout by which it received corporate welfare to 
obtain other ``favors'' from regulators and politicians, such as 
exemptions from regulations that applied to their competitors. This is 
not an uncommon phenomenon when one has a regulatory state, the result 
of which is that winners and losers are picked according to who has the 
most political clout.
  Congress should also examine the role the Federal Reserve played in 
the Enron situation. Few in Congress seem to understand how the Federal 
Reserve system artificially inflates stock prices and causes financial 
bubbles. Yet, what other explanation can there be when a company goes 
from a market value of more than $75 billion to virtually nothing in 
just a few months? The obvious truth is that Enron was never really 
worth anything near $75 billion, but the media focuses only on the 
possibility of deceptive practices by management, ignoring the primary 
cause of stock overvaluations: Fed expansion of money and credit.
  The Fed consistently increased the money supply (by printing dollars) 
throughout the 1990s, while simultaneously lowering interest rates. 
When dollars are plentiful, and interest rates are artificially low, 
the cost of borrowing becomes cheap. This is why so many Americans are 
more deeply in debt than ever before. This easy credit environment made 
it possible for Enron to secure hundreds of millions in 
uncollateralized loans, loans that now cannot be repaid. The cost of 
borrowing money, like the cost of everything else, should be 
established by the free market--not by government edict. Unfortunately, 
however, the trend toward overvaluation will continue until the Fed 
stops creating money out of thin air and stops keeping interest rates 
artificially low.
  Finally, Mr. Chairman, I would remind my colleagues that Congress has 
no constitutional authority to regulate the financial markets or the 
accounting profession. Instead, responsibility for enforcing laws 
against fraud are under the jurisdiction of the state and local 
governments. This decentralized approach actually reduces the 
opportunity for the type of corruption referred to above--after all, it 
is easier to corrupt one Federal official than 50 State Officials.
  In conclusion, the legislation before us today expands Federal power 
over the accounting profession and the financial markets. By creating 
new opportunities for unscrupulous actors to maneuver through the 
regulatory labyrinth, increasing the costs of investing, and preempting 
the market's ability to come up with creative ways to hold corporate 
officials accountable, this legislation harms the interests of 
individual workers and investors. Furthermore, this legislation exceeds 
the constitutional limits on Federal power, interfering in matters the 
10th amendment reserves to state and local law enforcement. I therefore 
urge my colleagues to reject this bill. Instead, Congress should focus 
on ending corporate welfare programs which provide taxpayer dollars to 
large politically-connected companies, and ending the misguided 
regulatory and monetary policies that helped create the Enron debacle.
  Mr. BLUMENAUER. Mr. Chairman, I rise today in support of H.R. 3763, 
the Corporate and Auditing Accountability and Responsibility Act. This 
bill moves policy in the direction necessary to strengthen corporate 
and auditor oversight needed to prevent future debacles that we have 
seen recently at Enron and Global Crossing, and in the past with the 
Savings and Loan catastrophe.
  These oversight failures have led to the loss of hundreds of billions 
of dollars of savings by innocent investors and employees. These losses 
have shattered the lives of families, including those in my district 
who are employed at Portland General Electric, which was purchased by 
Enron in 1997. Congress owes it to

[[Page 5511]]

the American public to put in place measures that will eliminate 
conflicts of interest, lack of independence, and special protections 
given to accountants and lawyers, which have all been critical factors 
leading to corporate and industry failures.
  Due to the severe impact that these corporate failures create, I urge 
the House to implement more significant reforms by passing the 
Democratic Substitute amendment, which:
  Creates an independent regulatory board that can set strict standards 
for auditor independence, with sweeping investigative and disciplinary 
powers over audit firms.
  Holds corporate CEOs accountable by requiring them to certify the 
accuracy of their financial statements and empowers the SEC to bar 
those guilty of wrongdoing from serving as corporate officers or 
directors at other companies.
  Prohibits auditors from doing consulting work for the same clients 
they are in charge of auditing, thereby insuring that auditors remain 
independent and are not subject to conflicts of interests.
  Bans analysts from owning stocks in the companies on which they 
report and prohibits their pay from being based on their investment 
firm's banking revenue.
  The Democratic approach ensures that our corporate leaders, financial 
statement auditors, and stock analysts have adequate independent 
oversight and regulations to fulfill their professional duties. 
However, I also support the underlying bill, H.R. 3763, which begins 
the process of putting in place the reforms needed to prevent future 
tragedies that are so devastating to the savings and lives of American 
workers and investors.
  Mr. SHOWS. Mr. Chairman, today I rise in favor of commonsense 
legislation that provides necessary reform for the auditing profession.
  The Corporate and Auditing Accountability, Responsibility, and 
Transparency Act (CAARTA) offers the appropriate framework for 
addressing the concerns raised by the Enron debacle and the revelation 
of improprieties by its auditor, Arthur Andersen.
  The consumers, employees, and investors affected by the demise of 
Enron due to unlawful misrepresentation of financial information 
deserve both answers and solutions so that confidence in accounting 
independence, objectivity, and integrity is restored. However, 
government should not overreact with prescriptive regulations. Instead, 
we should provide thoughtful and balanced measures that encourage sound 
auditing practices yet mandate compliance.
  Auditors must maintain an independent relationship with businesses 
whose books are under review. CAARTA establishes the appropriate 
guidelines for determining true auditor independence without treading 
the slippery slope of unnecessary and debilitating regulation. Small 
businesses throughout Mississippi rely on their local accountants to 
provide more than just auditing services. These businesses rely on 
advice and counsel for all types of accounting problems such as 
bookkeeping, payroll services budgeting, and income tax preparation. We 
must keep local accountants and small businesses in Rural America in 
mind when we legislate policy that might impact these relationships in 
the future.
  With these small businesses and local accountants in mind, I oppose 
any provision requiring auditors of publicly traded companies to meet a 
netcapital requirement of 50% of its annual audit revenue from publicly 
traded companies. I agree that auditors of SEC reporting companies 
ought to have enough capital and insurance to cover the liability they 
incur when an audit is performed; however, my concern remains with the 
small businesses and accountants in Rural America whose practices could 
eventually fall under the same requirement, devastating local, small-
town accountants and debilitating the services they currently provide.
  I support CAARTA's creation of a public regulatory organization (PRO) 
made up of both members of the public and members of the accounting 
profession. The American public and the accounting profession will be 
better served by this independent governmental body that is given the 
authority to sanction and discipline those accountants who violate 
codes of ethics, standards of independence and competency, or 
securities laws.
  As United States Comptroller General David Walker identified in his 
written testimony before the Financial Services committee on April 9, 
2002, the current self-regulatory system for auditors ``involves many 
players in a fragmented system that is not well coordinated, involves 
certain conflicts of interest, lacks effective communication, and has a 
discipline system that is largely perceived as being ineffective.'' Mr. 
Walker concluded, ``direct government intervention to statutorily 
create a new independent Federal government body to regulate the 
accounting profession is needed.'' I support this conclusion and the 
means and degree by which CAARTA creates a public regulatory board to 
address those concerns.
  There were two specific issues that I would have liked strengthened 
or included in this reform package: a stronger section providing for 
disgorgement of bonuses and other incentives and the inclusion of a 
requirement for CEOs and CFOs to be held accountable for their 
companies' financial statements. CEOs must not be allowed to profit 
from inaccurate and falsified financial statements. Bonuses and other 
incentive-based forms of compensation should be given back to the 
workers who lost their pensions and the consumers who lost their 
investments resulting from misconduct and erroneous accounting 
statements at the hands and direction of corporate executives. 
Furthermore, CEOs and CFOs must be responsible for a company's 
financial statement and certify its accuracy. This is a good business 
practice that is now, unfortunately, no longer the norm.
  We must restore confidence in the accounting profession by enacting 
legislation that ensures accurate and responsible financial disclosure. 
CAARTA represents commonsense reform, which makes a deliberate attempt 
to safeguard American workers, investors, and consumers.
  Mr. SHAYS. Mr. Chairman, I want to commend Chairman Mike Oxley and 
Chairman Richard Baker for their work on the legislation we are 
debating. The reforms contained in this accounting bill represent a 
balanced approach between industry and government oversight and I am 
pleased to support it.
  The Corporate and Auditing Accountability, Responsibility, and 
Transparency Act meets the tests for reform put forward by President 
Bush. It prohibits accounting firms from offering certain controversial 
consulting services to companies they're also auditing. And it 
establishes a new, public regulatory board to certify any accountant 
wishing to audit the financial statement required from public issuers 
of stock. This board will have enforcement powers and will be under the 
direction of the Securities and Exchange Commission.
  Under CAARTA, all publicly-traded companies will be responsible for 
ensuring that their accounting firms are in good standing and for 
having their financial statement certified by the regulatory board.
  Well, maybe I shouldn't be so quick to say ``all'' publicly-traded 
companies. You see, there are two giant private corporations that enjoy 
a very special privilege from the Federal government: they are 
completely exempt from our Federal securities laws.
  Mr. Chairman, these companies are Fannie Mae and Freddie Mac, and all 
the important improvements this legislation makes won't apply one iota 
to them.
  After studying the collapse of Enron and Global Crossing, the 
Financial Services Committee determined that a number of reforms were 
necessary to restore confidence in corporate America. These reforms 
build on the Securities Act of 1933 and the Securities Exchange Act of 
1934, the two landmark securities laws to which all publicly-traded 
companies, except Fannie and Freddie, must adhere.
  The reforms contained in this legislation will strengthen securities 
laws and accounting standards--except when it comes to Fannie and 
Freddie. This legislation improves transparency in our capital markets 
and protects investors--unless they're investing in Fannie Mae and 
Freddie Mac securities.
  What this legislation highlights is that we have two separate rules 
in corporate America: those that apply to Fannie and Freddie, and those 
that apply to every other publicly-traded company.
  The Financial Services Committee has had a number of hearings on the 
unfair advantages these two secondary mortgage companies have over the 
rest of the mortgage industry. With Chairman Oxley's support, I hope we 
can continue to ask Fannie Mae and Freddie Mac why they can't play by 
the same rules as all other companies and why they continue to seek 
exemptions from Federal laws designed to protect investors.
  The CHAIRMAN. All time for general debate has expired.
  Pursuant to the rule, the committee amendment in the nature of a 
substitute printed in the bill shall be considered as an original bill 
for the purpose of amendment under the 5-minute rule and shall be 
considered as read.
  The text of the committee amendment in the nature of a substitute is 
as follows:

                               H.R. 3763

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Corporate 
     and Auditing Accountability, Responsibility, and Transparency 
     Act of 2002''.

[[Page 5512]]

       (b) Table of Contents.--

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

     SEC. 2. AUDITOR OVERSIGHT.

       (a) Certified Financial Statement Requirements.--If a 
     financial statement is required by the securities laws or any 
     rule or regulation thereunder to be certified by an 
     independent public or certified accountant, an accountant 
     shall not be considered to be qualified to certify such 
     financial statement, and the Securities and Exchange 
     Commission shall not accept a financial statement certified 
     by an accountant, unless such accountant--
       (1) is subject to a system of review by a public regulatory 
     organization that complies with the requirements of this 
     section and the rules prescribed by the Commission under this 
     section; and
       (2) has not been determined in the most recent review 
     completed under such system to be not qualified to certify 
     such a statement.
       (b) Establishment of PRO.--The Commission shall by rule 
     establish the criteria by which a public regulatory 
     organization may be recognized for purposes of this section. 
     Such criteria shall include the following requirements:
       (1)(A) The board of such organization shall be comprised of 
     five members, three of whom shall be public members who are 
     not members of the accounting profession and two of whom 
     shall be persons licensed to practice public accounting and 
     who have recent experience in auditing public companies.
       (B) Each member of the board of such organization shall be 
     a person who meets such standards of financial literacy as 
     are determined by the Commission.
       (C) For purposes of this paragraph, a person shall not be 
     considered a member of the accounting profession if such 
     person has not worked in such profession for any of the last 
     two years prior to the date of such person's appointment to 
     the board.
       (2) Such organization is so organized and has the 
     capacity--
       (A) to be able to carry out the purposes of this section 
     and to comply, and to enforce compliance by accountants and 
     persons associated with accountants, with the provisions of 
     this Act, professional ethics and competency standards, and 
     the rules of the organization;
       (B) to perform a review of the work product (including the 
     quality thereof) of an accountant or a person associated with 
     an accountant; and
       (C) to perform a review of any potential conflicts of 
     interest between an accountant (or a person associated with 
     an accountant) and the issuer, the issuer's board of 
     directors and committees thereof, officers, and affiliates of 
     such issuer, that may result in an impairment of auditor 
     independence.
       (3) Such organization shall have the authority to impose 
     sanctions, which, if there is a finding of knowing or 
     intentional misconduct, may include a determination that an 
     accountant is not qualified to certify a financial statement, 
     or any categories of financial statements, required by the 
     securities laws, or that a person associated with an 
     accountant is not qualified to participate in such 
     certification, if, after conducting a review and providing 
     fair procedures and an opportunity for a hearing, the 
     organization finds that--
       (A) such accountant or person associated with an accountant 
     has violated the standards of independence, ethics, or 
     competency in the profession;
       (B) such accountant or person associated with an accountant 
     has been found by the Commission or a court of competent 
     jurisdiction to have violated the securities laws or a rule 
     or regulation thereunder (provided in both cases that any 
     applicable time period for appeal has expired);
       (C) an audit conducted by such accountant or any person 
     associated with an accountant has been materially affected by 
     an impairment of auditor independence;
       (D) such accountant or person associated with an accountant 
     has performed both auditing services and consulting services 
     in violation of the rules prescribed by the Commission 
     pursuant to subsection (c); or
       (E) such accountant or any person associated with an 
     accountant has impeded, obstructed, or otherwise not 
     cooperated in such review.
       (4) Any such organization shall disclose publicly, and make 
     available for public comment, proposed procedures and methods 
     for conducting such reviews.
       (5) Any such organization shall have in place procedures to 
     minimize and deter conflicts of interest involving the public 
     members of such organization, and have in place procedures to 
     resolve such conflicts.
       (6) Any such organization shall have in place procedures 
     for notifying the boards of accountancy of the States of the 
     results of reviews and evidence under paragraphs (2) and (3).
       (7) Any such organization shall have in place procedures 
     for notifying the Commission of any findings of such reviews, 
     including any findings regarding suspected violations of the 
     securities laws.
       (8) Any such organization shall consult with boards of 
     accountancy of the States.
       (9) Any such organization shall have in place a mechanism 
     to allow the organization to operate on a self-funded basis. 
     Such funding mechanism shall ensure that such organization is 
     not solely dependent upon members of the accounting 
     profession for such funding and operations.
       (10) Any such organization shall have the authority to 
     request, in a manner established by the Commission, that the 
     Commission, by subpoena or otherwise, compel the testimony of 
     witnesses or the production of any books, papers, 
     correspondence, memoranda, or other records relevant to any 
     accountant review proceeding or necessary or appropriate for 
     the organization to carry out its purposes. The Commission 
     shall comply with any such request from such an organization 
     if the Commission determines that compliance with the request 
     would assist the organization in its accountant review 
     proceeding or in carrying out its purposes, unless the 
     Commission determines that compliance would not be in the 
     public interest. The issuance and enforcement of a subpoena 
     requested under this paragraph shall be deemed to be made 
     pursuant to, and shall be made in accordance with, the 
     provisions of subsections (b) and (c) of section 21 of the 
     Securities and Exchange Act of 1934 (15 U.S.C. 78u(b)-(c)). 
     For purposes of taking evidence, the Commission in its 
     discretion may designate the Board, or any member thereof, as 
     officers pursuant to section 21(b) of such Act.
       (c) Prohibition on the Offer of Both Audit and Consulting 
     Services.--
       (1) Modification of regulations required.--The Commission 
     shall revise its regulations pertaining to auditor 
     independence to require that an accountant shall not be 
     considered independent with respect to an audit client if the 
     accountant provides to the client the following nonaudit 
     services, as such terms are defined in such regulations as in 
     effect on the date of enactment of this Act, and subject to 
     such conditions and exemptions as the Commission shall 
     prescribe:
       (A) financial information system design or implementation; 
     or
       (B) internal audit services.
       (2) Review of prohibited nonaudit services.--The Commission 
     is authorized to review the impact on the independence of 
     auditors of the scope of services provided by auditors to 
     issuers in order to determine whether the list of prohibited 
     nonaudit services under paragraph (1) shall be modified. In 
     conducting such review, the Commission shall consider the 
     impact of the provision of a service on an auditor's 
     independence where provision of the service creates a 
     conflict of interest with the audit client.
       (3) Additions by rule.--After conducting the review 
     required by paragraph (2) and at any other time, the 
     Commission may, by rule consistent with the protection of 
     investors and the public interest, modify the list of 
     prohibited nonaudit services under paragraph (1).
       (4) Report.--The Commission shall report to the Committee 
     on Financial Services of the House of Representatives and the 
     Committee on Banking, Housing, and Urban Affairs of the 
     Senate on its conduct of any reviews as required by this 
     section. The report shall include a discussion of regulatory 
     or legislative steps that are recommended or that may be 
     necessary to address concerns identified in the study.
       (5) Conforming revision.--The Commission shall revise its 
     regulations pertaining to accountant fee disclosure items, as 
     set forth in paragraphs (e)(1) through (e)(3) of item 9 from 
     Schedule 14A (17 CFR 240.14a-101), in light of paragraph (1) 
     of this subsection and after making a determination as to 
     whether such disclosures are necessary.
       (6) Deadline for rulemaking.--The Commission shall--
       (A) within 90 days after the date of enactment of this Act, 
     propose, and
       (B) within 270 days after such date, prescribe, the 
     revisions to its regulations required by this subsection.
       (d) PRO Accountant Review Proceedings.--
       (1) Review proceeding findings.--Any findings made 
     pursuant to an accountant review conducted under this section 
     that a financial statement audited by such accountant and 
     submitted to the Commission may have been materially affected 
     by an impairment of auditor independence, or by a violation 
     of professional ethics and competency standards, shall be 
     submitted to the Commission. The Commission shall promptly 
     notify an issuer of any such finding that relates to the 
     financial statements of such issuer.
       (2) Confidential treatment of proceedings pending sec 
     review.--

[[Page 5513]]

       (A) No disclosure.--Except as otherwise provided in this 
     section, but notwithstanding any other provision of law, 
     neither the Commission, a recognized public regulatory 
     organization, nor any other person shall disclose any 
     information concerning any accountant review proceeding and 
     the findings therein.
       (B) Specific withholding not authorized.--Nothing in this 
     subsection shall--
       (i) authorize a recognized public regulatory organization 
     to withhold information from the Commission;
       (ii) authorize such board or the Commission to withhold 
     information concerning an accountant review proceeding from 
     an accountant or person associated with an accountant that is 
     the subject of such proceeding;
       (iii) authorize the Commission to withhold information from 
     Congress; or
       (iv) prevent the Commission from complying with a request 
     for information from any other Federal department or agency 
     requesting information for purposes within the scope of its 
     jurisdiction, or complying with an order of a court of the 
     United States in an action brought by the United States or 
     the Commission.
       (C) Duration of withholding.--Neither the Commission nor 
     the recognized public regulatory organization shall disclose 
     the results of any such finding until the completion of any 
     review by the Commission under subsections (e) and (f), or 
     the conclusion of the 30-day period for seeking review if no 
     motion seeking review is filed within such period.
       (D) Treatment under foia.--For purposes of section 552 of 
     title 5, United States Code, this subsection shall be 
     considered a statute described in subsection (b)(3)(B) of 
     such section 552.
       (3) Nonpreclusive effect of pro findings.--A finding by a 
     recognized public regulatory organization that an individual 
     audit of an issuer met or failed to meet any applicable 
     standard with respect to the quality of such audit shall not 
     be construed in any action arising out of the securities laws 
     as indicative of compliance or noncompliance with the 
     securities laws or with any standard of liability arising 
     thereunder.
       (e) Review of Sanctions.--
       (1) Notice.--If any recognized public regulatory 
     organization--
       (A) makes a finding with respect to or imposes any final 
     disciplinary sanction on any accountant;
       (B) prohibits or limits any person in respect to access to 
     services offered by such organization; or
       (C) makes a finding with respect to or imposes any final 
     disciplinary sanction on any person associated with an 
     accountant or bars any person from becoming associated with 
     an accountant,

     the recognized public regulatory organization shall promptly 
     submit notice thereof with the Commission. The notice shall 
     be in such form and contain such information as the 
     Commission, by rule, may prescribe as necessary or 
     appropriate in furtherance of the purposes of this section.
       (2) Review by commission.--Any action with respect to which 
     a recognized public regulatory organization is required by 
     paragraph (1) of this subsection to submit notice shall be 
     subject to review by the Commission, on its own motion, or 
     upon application by any person aggrieved thereby filed within 
     30 days after the date such notice was filed with the 
     Commission and received by such aggrieved person, or within 
     such longer period as the Commission may determine. 
     Application to the Commission for review, or the institution 
     of review by the Commission on its own motion, shall not 
     operate as a stay of such action unless the Commission 
     otherwise orders, summarily or after notice and opportunity 
     for hearing on the question of a stay (which hearing may 
     consist solely of the submission of affidavits or 
     presentation of oral arguments). The Commission shall 
     establish for appropriate cases an expedited procedure for 
     consideration and determination of the question of a stay.
       (f) Conduct of Commission Review.--
       (1) Basis for action.--In any proceeding to review a final 
     disciplinary sanction imposed by a recognized public 
     regulatory organization on an accountant or a person 
     associated with such accountant, after notice and opportunity 
     for hearing (which hearing may consist solely of 
     consideration of the record before the recognized public 
     regulatory organization and opportunity for the presentation 
     of supporting reasons to affirm, modify, or set aside the 
     sanction)--
       (A) if the Commission finds that such accountant or person 
     associated with an accountant has engaged in such acts or 
     practices, or has omitted such acts, as the recognized public 
     regulatory organization has found him to have engaged in or 
     omitted, that such acts or practices, or omissions to act, 
     are in violation of such provisions of this section, or of 
     professional ethics and competency standards, and that such 
     provisions are, and were applied in a manner, consistent with 
     the purposes of this section, the Commission, by order, shall 
     so declare and, as appropriate, affirm the sanction imposed 
     by the recognized public regulatory organization, modify the 
     sanction in accordance with paragraph (2) of this subsection, 
     or remand to the recognized public regulatory organization 
     for further proceedings; or
       (B) if the Commission does not make any such finding, it 
     shall, by order, set aside the sanction imposed by the 
     recognized public regulatory organization and, if 
     appropriate, remand to the recognized public regulatory 
     organization for further proceedings.
       (2) Reduction of sanctions.--If the Commission, having due 
     regard for the public interest and the protection of 
     investors, finds after a proceeding in accordance with 
     paragraph (1) of this subsection that a sanction imposed by a 
     recognized public regulatory organization upon an accountant 
     or person associated with an accountant imposes any burden on 
     competition not necessary or appropriate in furtherance of 
     the purposes of this Act or is excessive or oppressive, the 
     Commission may cancel, reduce, or require the remission of 
     such sanction.
       (g) Review and Approval of Rules.--
       (1) Submission, publication, and comment.--Each recognized 
     public regulatory organization shall file with the 
     Commission, in accordance with such rules as the Commission 
     may prescribe, copies of any proposed rule or any proposed 
     change in, addition to, or deletion from the rules of such 
     recognized public regulatory organization (hereinafter in 
     this subsection collectively referred to as a ``proposed rule 
     change'') accompanied by a concise general statement of the 
     basis and purpose of such proposed rule change. The 
     Commission shall, upon the filing of any proposed rule 
     change, publish notice thereof together with the terms of 
     substance of the proposed rule change or a description of the 
     subjects and issues involved. The Commission shall give 
     interested persons an opportunity to submit written data, 
     views, and arguments concerning such proposed rule change. No 
     proposed rule change shall take effect unless approved by the 
     Commission or otherwise permitted in accordance with the 
     provisions of this subsection.
       (2) Approval or proceedings.--Within 35 days of the date of 
     publication of notice of the filing of a proposed rule change 
     in accordance with paragraph (1) of this subsection, or 
     within such longer period as the Commission may designate up 
     to 90 days of such date if it finds such longer period to be 
     appropriate and publishes its reasons for so finding or as to 
     which the recognized public regulatory organization consents, 
     the Commission shall--
       (A) by order approve such proposed rule change; or
       (B) institute proceedings to determine whether the proposed 
     rule change should be disapproved. Such proceedings shall 
     include notice of the grounds for disapproval under 
     consideration and opportunity for hearing and be concluded 
     within 180 days of the date of publication of notice of the 
     filing of the proposed rule change. At the conclusion of such 
     proceedings the Commission, by order, shall approve or 
     disapprove such proposed rule change. The Commission may 
     extend the time for conclusion of such proceedings for up to 
     60 days if it finds good cause for such extension and 
     publishes its reasons for so finding or for such longer 
     period as to which the recognized public regulatory 
     organization consents.
       (3) Basis for approval or disapproval.--The Commission 
     shall approve a proposed rule change of a recognized public 
     regulatory organization if it finds that such proposed rule 
     change is consistent with the requirements of this Act and 
     the rules and regulations thereunder applicable to such 
     organization. The Commission shall disapprove a proposed rule 
     change of a recognized public regulatory organization if it 
     does not make such finding. The Commission shall not approve 
     any proposed rule change prior to the 30th day after the date 
     of publication of notice of the filing thereof, unless the 
     Commission finds good cause for so doing and publishes its 
     reasons for so finding.
       (4) Rules effective upon filing.--
       (A) Notwithstanding the provisions of paragraph (2) of this 
     subsection, a proposed rule change may take effect upon 
     filing with the Commission if designated by the recognized 
     public regulatory organization as (i) constituting a stated 
     policy, practice, or interpretation with respect to the 
     meaning, administration, or enforcement of an existing rule 
     of the recognized public regulatory organization, (ii) 
     establishing or changing a due, fee, or other charge imposed 
     by the recognized public regulatory organization, or (iii) 
     concerned solely with the administration of the recognized 
     public regulatory organization or other matters which the 
     Commission, by rule, consistent with the public interest and 
     the purposes of this subsection, may specify as outside the 
     provisions of such paragraph (2).
       (B) Notwithstanding any other provision of this subsection, 
     a proposed rule change may be put into effect summarily if it 
     appears to the Commission that such action is necessary for 
     the protection of investors, or otherwise in accordance with 
     the purposes of this title. Any proposed rule change so put 
     into effect shall be filed promptly thereafter in accordance 
     with the provisions of paragraph (1) of this subsection.
       (C) Any proposed rule change of a recognized public 
     regulatory organization which has taken effect pursuant to 
     subparagraph (A) or (B) of this paragraph may be enforced by 
     such organization to the extent it is not inconsistent with 
     the provisions of this Act, the securities laws, the rules 
     and regulations thereunder, and applicable Federal and State 
     law. At any time within 60 days of the date of filing of such 
     a proposed rule change in accordance with the provisions of 
     paragraph (1) of this subsection, the Commission summarily 
     may abrogate the change in the rules of the recognized public 
     regulatory organization made thereby and require that the 
     proposed rule change be refiled in accordance with the 
     provisions of paragraph (1) of this subsection and reviewed 
     in accordance with the provisions of paragraph (2) of this 
     subsection, if it appears to the Commission that such action 
     is necessary or appropriate in the public interest, for the 
     protection of investors, or otherwise in

[[Page 5514]]

     furtherance of the purposes of this Act. Commission action 
     pursuant to the preceding sentence shall not affect the 
     validity or force of the rule change during the period it was 
     in effect, shall not be subject to court review, and shall 
     not be deemed to be ``final agency action'' for purposes of 
     section 704 of title 5, United States Code.
       (h) Commission Action To Change Rules.--The Commission, by 
     rule, may abrogate, add to, and delete from (hereinafter in 
     this subsection collectively referred to as ``amend'') the 
     rules of a recognized public regulatory organization as the 
     Commission deems necessary or appropriate to insure the fair 
     administration of the recognized public regulatory 
     organization, to conform its rules to requirements of this 
     Act, the securities laws, and the rules and regulations 
     thereunder applicable to such organization, or otherwise in 
     furtherance of the purposes of this Act, in the following 
     manner:
       (1) The Commission shall notify the recognized public 
     regulatory organization and publish notice of the proposed 
     rulemaking in the Federal Register. The notice shall include 
     the text of the proposed amendment to the rules of the 
     recognized public regulatory organization and a statement of 
     the Commission's reasons, including any pertinent facts, for 
     commencing such proposed rulemaking.
       (2) The Commission shall give interested persons an 
     opportunity for the oral presentation of data, views, and 
     arguments, in addition to an opportunity to make written 
     submissions. A transcript shall be kept of any oral 
     presentation.
       (3) A rule adopted pursuant to this subsection shall 
     incorporate the text of the amendment to the rules of the 
     recognized public regulatory organization and a statement of 
     the Commission's basis for and purpose in so amending such 
     rules. This statement shall include an identification of any 
     facts on which the Commission considers its determination so 
     to amend the rules of the recognized public regulatory agency 
     to be based, including the reasons for the Commission's 
     conclusions as to any of such facts which were disputed in 
     the rulemaking.
       (4)(A) Except as provided in paragraphs (1) through (3) of 
     this subsection, rulemaking under this subsection shall be in 
     accordance with the procedures specified in section 553 of 
     title 5, United States Code, for rulemaking not on the 
     record.
       (B) Nothing in this subsection shall be construed to impair 
     or limit the Commission's power to make, or to modify or 
     alter the procedures the Commission may follow in making, 
     rules and regulations pursuant to any other authority under 
     the securities laws.
       (C) Any amendment to the rules of a recognized public 
     regulatory organization made by the Commission pursuant to 
     this subsection shall be considered for all purposes to be 
     part of the rules of such recognized public regulatory 
     organization and shall not be considered to be a rule of the 
     Commission.
       (i) Commission Oversight of the PRO.--
       (1) Records and examinations.--A public regulatory 
     organization shall make and keep for prescribed periods such 
     records, furnish such copies thereof, and make and 
     disseminate such reports as the Commission, by rule, 
     prescribes as necessary or appropriate in the public 
     interest, for the protection of investors, or otherwise in 
     furtherance of the purposes of this Act or the securities 
     laws.
       (2) Additional duties; special reviews.--A public 
     regulatory organization shall perform such other duties or 
     functions as the Commission, by rule or order, determines are 
     necessary or appropriate in the public interest or for the 
     protection of investors and to carry out the purposes of this 
     Act and the securities laws, including conducting a special 
     review of a particular public accounting firm's quality 
     control system or a special review of a particular aspect of 
     some or all public accounting firms' quality control systems.
       (3) Annual report; proposed budget.--
       (A) Submission of annual report and budget.--A public 
     regulatory organization shall submit an annual report and its 
     proposed budget to the Commission for review and approval, by 
     order, at such times and in such form as the Commission shall 
     prescribe.
       (B) Contents of annual report.--Each annual report required 
     by subparagraph (A) shall include--
       (i) a detailed description of the activities of the public 
     regulatory organization;
       (ii) the audited financial statements of the public 
     regulatory organization;
       (iii) a detailed explanation of the fees and charges 
     imposed by the public regulatory organization under 
     subsection (b)(9); and
       (iv) such other matters as the public regulatory 
     organization or the Commission deems appropriate.
       (C) Transmittal of annual report to congress.--The 
     Commission shall transmit each approved annual report 
     received under subparagraph (A) to the Committee on Financial 
     Services of the United States House of Representatives and 
     the Committee on Banking, Housing, and Urban Affairs of the 
     United States Senate. At the same time it transmits a public 
     regulatory organization's annual report under this 
     subparagraph, the Commission shall include a written 
     statement of its views of the functioning and operations of 
     the public regulatory organization.
       (D) Public availability.--Following transmittal of each 
     approved annual report under subparagraph (C), the Commission 
     and the public regulatory organization shall make the 
     approved annual report publicly available.
       (4) Disapproval of election of pro member.--The Commission 
     is authorized, by order, if in its opinion such action is 
     necessary or appropriate in the public interest, for the 
     protection of investors, or otherwise in furtherance of the 
     purposes of this Act or the securities laws, to disapprove 
     the election of any member of a public regulatory 
     organization if the Commission determines, after notice and 
     opportunity for hearing, that the person elected is unfit to 
     serve on the public regulatory organization.
       (j) Clarification of Application of PRO Authority.--The 
     authority granted to any such organization in this section 
     shall only apply to the actions of accountants related to the 
     certification of financial statements required by securities 
     laws and not other actions or actions for other clients of 
     the accounting firm or any accountant that does not certify 
     financial statements for publicly traded companies.
       (k) Deadline for Rulemaking.--The Commission shall--
       (1) within 90 days after the date of enactment of this Act, 
     propose, and
       (2) within 270 days after such date, prescribe,
     rules to implement this section.
       (l) Effective Date; Transition Provisions.--
       (1) Effective date.--Except as provided in paragraph (2), 
     subsection (a) of this section shall be effective with 
     respect to any certified financial statement for any fiscal 
     year that ends more than one year after the Commission 
     recognizes a public regulatory organization pursuant to this 
     section.
       (2) Delay in establishment of board.--If the Commission has 
     failed to recognize any public regulatory organization 
     pursuant to this section within one year after the date of 
     enactment of this Act, the Commission shall perform the 
     duties of such organization with respect to any certified 
     financial statement for any fiscal year that ends before one 
     year after any such board is recognized by the Commission.

     SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

       (a) Rules To Prohibit.--It shall be unlawful in 
     contravention of such rules or regulations as the Commission 
     shall prescribe as necessary and appropriate in the public 
     interest or for the protection of investors for any officer, 
     director, or affiliated person of an issuer of any security 
     registered under section 12 of the Securities Exchange Act of 
     1934 (15 U.S.C. 78l) to take any action to fraudulently 
     influence, coerce, manipulate, or mislead any independent 
     public or certified accountant engaged in the performance of 
     an audit of the financial statements of such issuer for the 
     purpose of rendering such financial statements materially 
     misleading. In any civil proceeding, the Commission shall 
     have exclusive authority to enforce this section and any rule 
     or regulation hereunder.
       (b) No Preemption of Other Law.--The provisions of 
     subsection (a) shall be in addition to, and shall not 
     supersede or preempt, any other provision of law or any rule 
     or regulation thereunder.
       (c) Deadline for Rulemaking.--The Commission shall--
       (1) within 90 days after the date of enactment of this Act, 
     propose, and
       (2) within 270 days after such date, prescribe,
     the rules or regulations required by this section.

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

       (a) Real-Time Issuer Disclosures Required.--
       (1) Obligations.--Every issuer of a security registered 
     under section 12 of the Securities Exchange Act of 1934 (15 
     U.S.C. 78l) shall file with the Commission and disclose to 
     the public, on a rapid and essentially contemporaneous basis, 
     such information concerning the financial condition or 
     operations of such issuer as the Commission determines by 
     rule is necessary in the public interest and for the 
     protection of investors. Such rule shall--
       (A) specify the events or circumstances giving rise to the 
     obligation to disclose or update a disclosure;
       (B) establish requirements regarding the rapidity and 
     timeliness of such disclosure;
       (C) identify the means whereby the disclosure required 
     shall be made, which shall ensure the broad, rapid, and 
     accurate dissemination of the information to the public via 
     electronic or other communications device;
       (D) identify the content of the information to be 
     disclosed; and
       (E) without limiting the Commission's general exemptive 
     authority, specify any exemptions or exceptions from such 
     requirements.
       (2) Enforcement.--The Commission shall have exclusive 
     authority to enforce this section and any rule or regulation 
     hereunder in civil proceedings.
       (b) Electronic Disclosure of Insider Transactions.--
       (1) Disclosures of trading.--The Commission shall, by rule, 
     require--
       (A) that a disclosure required by section 16 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78p) of the sale 
     of any securities of an issuer, or any security futures 
     product (as defined in section 3(a)(56) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78c(a)(56))) or any security-
     based swap agreement (as defined in section 206B of the 
     Gramm-Leach-Bliley Act) that is based in whole or in part on 
     the securities of such issuer, by an officer or director of 
     the issuer of those securities, or by a beneficial owner of 
     such securities, shall be made available electronically to 
     the Commission and to the issuer by such officer, director, 
     or beneficial owner before the end of the next business day 
     after the day on which the transaction occurs;

[[Page 5515]]

       (B) that the information in such disclosure be made 
     available electronically to the public by the Commission, to 
     the extent permitted under applicable law, upon receipt, but 
     in no case later than the end of the next business day after 
     the day on which the disclosure is received under 
     subparagraph (A); and
       (C) that, in any case in which the issuer maintains a 
     corporate website, such information shall be made available 
     by such issuer on that website, before the end of the next 
     business day after the day on which the disclosure is 
     received by the Commission under subparagraph (A).
       (2) Transactions included.--The rule prescribed under 
     paragraph (1) shall require the disclosure of the following 
     transactions:
       (A) Direct or indirect sales or other transfers of 
     securities of the issuer (or any interest therein) to the 
     issuer or an affiliate of the issuer.
       (B) Loans or other extensions of credit extended to an 
     officer, director, or other person affiliated with the issuer 
     on terms or conditions not otherwise available to the public.
       (3) Other formats; forms.--In the rule prescribed under 
     paragraph (1), the Commission shall provide that electronic 
     filing and disclosure shall be in lieu of any other format 
     required for such disclosures on the day before the date of 
     enactment of this subsection. The Commission shall revise 
     such forms and schedules required to be filed with the 
     Commission pursuant to paragraph (1) as necessary to 
     facilitate such electronic filing and disclosure.

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

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

     SEC. 6. IMPROVED TRANSPARENCY OF CORPORATE DISCLOSURES.

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

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

       (a) Specific Objectives.--The Commission shall initiate a 
     proceeding to propose changes in its rules and regulations 
     with respect to financial reporting to improve the 
     transparency and clarity of the information available to 
     investors and to require increased financial disclosure with 
     respect to the following:
       (1) Insider relationships and transactions.--Relationships 
     and transactions--
       (A) between the issuer, affiliates of the issuer, and 
     officers, directors, or employees of the issuer or such 
     affiliates; and
       (B) between officers, directors, employees, or affiliates 
     of the issuer and entities that are not otherwise affiliated 
     with the issuer,

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

     SEC. 8. CODES OF CONDUCT.

       (a) Rules Required.--Within 180 days after the date of 
     enactment of this Act, the New York Stock Exchange, the 
     American Stock Exchange and the Nasdaq Stock Market (or any 
     successor to such entities), shall file with the Commission 
     proposed rule changes that would prohibit the listing of any 
     security issued by an issuer that has not adopted a senior 
     financial officers code of ethics applicable to its principal 
     financial officer, its comptroller or principal accounting 
     officer, or persons performing similar functions that 
     establishes such standards as are reasonably necessary to 
     promote honest and ethical conduct, the avoidance of 
     conflicts of interest,

[[Page 5516]]

     full, fair, accurate, timely and understandable disclosure in 
     the issuer's periodic reports and compliance with applicable 
     governmental rules and regulations. The Commission shall 
     approve such proposed rule changes pursuant to the 
     requirement of section 19(b)(2) of the Securities Act of 
     1934.
       (b) Other Exchanges.--The Commission, by rule or 
     regulation, may require any other national securities 
     exchange, to propose rule changes necessary to comply with 
     the provisions of subsection (a) of this section if the 
     Commission determines such action is necessary or appropriate 
     in the public interest and consistent with the protection of 
     investors.
       (c) Further Standards.--In addition to the requirements of 
     subsections (a) and (b), the Commission may, by rule or 
     regulation, prescribe further standards of conduct for senior 
     financial officers as necessary or appropriate in the public 
     interest and consistent with the protection of investors.
       (d) Changes in Codes of Conduct.--Within 180 days after the 
     date of enactment of this Act, the Commission shall revise 
     its regulations concerning matters requiring prompt 
     disclosure on Form 8K to require the immediate disclosure, by 
     means of such Form and by the Internet or other electronic 
     means, by any issuer of any change in, or waiver of, the code 
     of ethics of such issuer.

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

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

     SEC. 10. RETENTION OF RECORDS.

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

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

       (a) Commission Authority To Prohibit Persons From Serving 
     as Officers or Directors.--Notwithstanding any other 
     provision of the securities laws, in any cease-and-desist 
     proceeding under section 8A(a) of the Securities Act of 1933 
     or section 21C(a) of the Securities and Exchange Act of 1934, 
     the Commission may issue an order to prohibit, conditionally 
     or unconditionally, permanently or for such period of time as 
     it shall determine, any person who has violated section 
     17(a)(1) of the Securities Act of 1933 or section 10(b) of 
     the Securities Exchange Act of 1934 (or any rule or 
     regulation thereunder) from acting as an officer or director 
     of any issuer that has a class of securities registered 
     pursuant to section 12 of the Securities Exchange Act of 1934 
     or that is required to file reports pursuant to section 15(d) 
     of such Act if the person's conduct demonstrates substantial 
     unfitness to serve as an officer or director of any such 
     issuer.
       (b) Finding of Substantial Unfitness.--In making any 
     determination that a person's conduct demonstrates 
     substantial unfitness to serve as an officer or director of 
     any such issuer, the Commission shall consider--
       (1) the severity of the persons conduct giving rise to the 
     violation, and the persons role or position when he engaged 
     in the violation;
       (2) the person's degree of scienter;
       (3) the person's economic gain as a result of the 
     violation; and
       (4) the likelihood that the conduct giving rise to the 
     violation, or similar conduct as defined in subsection (a), 
     may recur if the person is not so prohibited.
       (c) Automatic Stay Pending Appeal.--The enforcement of any 
     Commission order pursuant to subsection (a) shall be stayed--
       (1) for a period of at least 60 days after the entry of any 
     such order or decision; and
       (2) upon the filing of a timely application for judicial 
     review of such order or decision, pending the entry of a 
     final order resolving the application for judicial review.

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

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

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

       (a) Proceeds of Enron and Andersen Enforcement Actions.--If 
     in any administrative or judicial proceeding brought by the 
     Securities and Exchange Commission against--
       (1) the Enron Corporation, any subsidiary or affiliate of 
     such Corporation, or any officer, director, or principal 
     shareholder of such Corporation, subsidiary, or affiliate for 
     any violation of the securities laws; or
       (2) Arthur Andersen L.L.C., any subsidiary or affiliate of 
     Arthur Andersen L.L.C., or any general or limited partner of 
     Arthur Andersen L.L.C., or such subsidiary or affiliate, for 
     any violation of the securities laws with respect to any 
     services performed for or in relation to the Enron 
     Corporation, any subsidiary or affiliate of such Corporation, 
     or any officer, director, or principal shareholder of such 
     Corporation, subsidiary, or affiliate;

     the Commission obtains an order providing for an accounting 
     and disgorgement of funds, such disgorgement fund (including 
     any addition to such fund required or permitted under this 
     section) shall be allocated in accordance with the 
     requirements of this section.
       (b) Priority for Former Enron Employees.--The Commission 
     shall, by order, establish an allocation system for the 
     disgorgement fund. Such system shall provide that, in 
     allocating the disgorgement fund amount the victims of the 
     securities laws violations described in subsection (a), the 
     first priority shall be given to individuals who were 
     employed by the Enron Corporation, or a subsidiary or 
     affiliate of such Corporation, and who were participants in 
     an individual account plan established by such Corporation, 
     subsidiary, or affiliate. Such allocations among such 
     individuals shall be in proportion to the extent to which the 
     nonforfeitable accrued benefit of each such individual under 
     the plan was invested in the securities of such Corporation, 
     subsidiary, or affiliate.
       (c) Addition of Civil Penalties.--If, in any proceeding 
     described in subsection (a), the Commission assesses and 
     collects any civil penalty, the Commission shall, 
     notwithstanding section 21(d)(3)(C)(i) or 21A(d)(1) of the 
     Securities Exchange Act of 1934, or any other provision of 
     the securities laws, be payable to the disgorgement fund.
       (d) Acceptance of Additional Donations.--The Commission is 
     authorized to accept, hold, administer, and utilize gifts, 
     bequests and devises of property, both real and personal, to 
     the United States for the disgorgement fund. Gifts, bequests, 
     and devises of money and proceeds from sales of other 
     property received as gifts, bequests, or devises shall be 
     deposited in the disgorgement fund and shall be available for 
     allocation in accordance with subsection (b).
       (e) Definitions.--As used in this section:
       (1) Disgorgement fund.--The term ``disgorgement fund'' 
     means a disgorgement fund established in any administrative 
     or judicial proceeding described in subsection (a).
       (2) Subsidiary or affiliate.--The term ``subsidiary or 
     affiliate'' when used in relation to a

[[Page 5517]]

     person means any entity that controls, is controlled by, or 
     is under common control with such person.
       (3) Officer, director, or principal shareholder.--The term 
     ``officer, director, or principal shareholder'' when used in 
     relation to the Enron Corporation, or any subsidiary or 
     affiliate of such Corporation, means any person that is 
     subject to the requirements of section 16 of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78p) in relation to the Enron 
     Corporation, or any subsidiary or affiliate of such 
     Corporation.
       (4) Nonforfeitable; accrued benefit; individual account 
     plan.--The terms ``nonforfeitable'', ``accrued benefit'', and 
     ``individual account plan'' have the meanings provided such 
     terms, respectively, in paragraphs (19), (23), and (34) of 
     section 3 of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1002(19), (23), (34)).

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

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

     SEC. 15. REVIEW OF CORPORATE GOVERNANCE PRACTICES.

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

     SEC. 16. STUDY OF ENFORCEMENT ACTIONS.

       (a) Study Required.--The Commission shall review and 
     analyze all enforcement actions by the Commission involving 
     violations of reporting requirements imposed under the 
     securities laws, and restatements of financial statements, 
     over the last five years to identify areas of reporting that 
     are most susceptible to fraud, inappropriate manipulation, or 
     inappropriate earnings management, such as revenue 
     recognition and the accounting treatment of off-balance sheet 
     special purpose entities.
       (b) Report Required.--The Commission shall report its 
     findings to the Committee on Financial Services of the House 
     of Representatives and the Committee on Banking, Housing, and 
     Urban Affairs of the Senate within 180 days of the date of 
     enactment of this Act and shall use such findings to revise 
     its rules and regulations, as necessary. The report shall 
     include a discussion of regulatory or legislative steps that 
     are recommended or that may be necessary to address concerns 
     identified in the study.

     SEC. 17. STUDY OF CREDIT RATING AGENCIES.

       (a) Study Required.--The Commission shall conduct a study 
     of the role and function of credit rating agencies in the 
     operation of the securities market. Such study shall 
     examine--
       (1) the role of the credit rating agencies in the 
     evaluation of issuers of securities;
       (2) the importance of that role to investors and the 
     functioning of the securities markets;
       (3) any impediments to the accurate appraisal by credit 
     rating agencies of the financial resources and risks of 
     issuers of securities;
       (4) any measures which may be required to improve the 
     dissemination of information concerning such resources and 
     risks when credit rating agencies announce credit ratings;
       (5) any barriers to entry into the business of acting as a 
     credit rating agency, and any measures needed to remove such 
     barriers; and
       (6) any conflicts of interest in the operation of credit 
     rating agencies and measures to prevent such conflicts or 
     ameliorate the consequences of such conflicts.
       (b) Report Required.--The Commission shall submit a report 
     on the analysis required by subsection (a) to the President, 
     the Committee on Financial Services of the House of 
     Representatives, and the Committee on Banking, Housing, and 
     Urban Affairs of the Senate within 180 days after the date of 
     enactment of this Act. The report shall include a discussion 
     of regulatory or legislative steps that are recommended or 
     that may be necessary to address concerns identified in the 
     study.

     SEC. 18. STUDY OF INVESTMENT BANKS

       (a) GAO Study.--The Comptroller General shall conduct a 
     study on the role played by investment banks and financial 
     advisors in assisting public companies in manipulating their 
     earnings and obfuscating their true financial condition. The 
     study should address the role of the investment banks--
       (1) in the collapse of the Enron Corporation, including 
     with respect to the design and implementation of derivatives 
     transactions, transactions involving special purpose 
     vehicles, and other financing arrangements that may have had 
     the effect of altering the company's reported financial 
     statements in ways that obscured the true financial picture 
     of the company;
       (2) in the failure of Global Crossing, including with 
     respect to transactions involving swaps of fiber optic cable 
     capacity, in designing transactions that may have had the 
     effect of altering the company's reported financial 
     statements in ways that obscured the true financial picture 
     of the company; and
       (3) generally, in creating and marketing transactions 
     designed solely to enable companies to manipulate revenue 
     streams, obtain loans, or move liabilities off balance sheets 
     without altering the economic and business risks faced by the 
     companies or any other mechanism to obscure a company's 
     financial picture.
       (b) Report.--The General Accounting Office shall report to 
     the Congress within 180 days after the date of enactment of 
     this Act on the results of the study required by this 
     section. The report shall include a discussion of regulatory 
     or legislative steps that are recommended or that may be 
     necessary to address concerns identified in the study.

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

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

     SEC. 20. ENFORCEMENT AUTHORITY.

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

     SEC. 21. EXCLUSION FOR INVESTMENT COMPANIES.

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

[[Page 5518]]

     SEC. 22. DEFINITIONS.

       As used in this Act:
       (1) Blackout period.--The term ``blackout period'' with 
     respect to the equity securities of any issuer--
       (A) means any period during which the ability of at least 
     fifty percent of the participants or beneficiaries under all 
     applicable individual account plans maintained by the issuer 
     to purchase (or otherwise acquire) or sell (or otherwise 
     transfer) an interest in any equity of such issuer is 
     suspended by the issuer or a fiduciary of the plan; but
       (B) does not include--
       (i) a period in which the employees of an issuer may not 
     allocate their interests in the individual account plan due 
     to an express investment restriction--

       (I) incorporated into the individual account plan; and
       (II) timely disclosed to employees before joining the 
     individual account plan or as a subsequent amendment to the 
     plan; or

       (ii) any suspension described in subparagraph (A) that is 
     imposed solely in connection with persons becoming 
     participants or beneficiaries, or ceasing to be participants 
     or beneficiaries, in an applicable individual account plan by 
     reason of a corporate merger, acquisition, divestiture, or 
     similar transaction.
       (2) Boards of accountancy of the states.--The term ``boards 
     of accountancy of the States'' means any organization or 
     association chartered or approved under the law of any State 
     with responsibility for the registration, supervision, or 
     regulation of accountants.
       (3) Commission.--The term ``Commission'' means the 
     Securities and Exchange Commission.
       (4) Individual account plan.--The term ``individual account 
     plan'' has the meaning provided such term in section 3(34) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1002(34)).
       (5) Issuer.--The term ``issuer'' shall have the meaning set 
     forth in section 2(a)(4) of the Securities Act of 1933 (15 
     U.S.C. 77b(a)(4)).
       (6) Person associated with an accountant.--The term 
     ``person associated with an accountant'' means any partner, 
     officer, director, or manager of such accountant (or any 
     person occupying a similar status or performing similar 
     functions), any person directly or indirectly controlling, 
     controlled by, or under common control with such accountant, 
     or any employee of such accountant who performs a supervisory 
     role in the auditing process.
       (7) Recognized public regulatory organization.--The term 
     ``recognized public regulatory organization'' means a public 
     regulatory organization that the Commission has recognized as 
     meeting the criteria established by the Commission under 
     subsection (b) of section 2.
       (8) Securities laws.--The term ``securities laws'' means 
     the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the 
     Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
     Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b et seq.), and 
     the Securities Investor Protection Act of 1970 (15 U.S.C. 
     78aaa et seq.), notwithstanding any contrary provision of any 
     such Act.

  The CHAIRMAN. No amendment to the committee amendment in the nature 
of a substitute is in order except those printed in House Report 107-
418. Each amendment may be offered only in the order printed in the 
report, by a Member designated in the report, shall be considered as 
read, shall be debatable for the time specified in the report, equally 
divided and controlled by the proponent and an opponent, shall not be 
subject to amendment, and shall not be subject to a demand for division 
of the question.
  It is now in order to consider amendment No. 1 printed in House 
Report 107-418.


                  Amendment No. 1 Offered by Mr. Oxley

  Mr. OXLEY. Mr. Chairman, I offer amendment No. 1 made in order 
pursuant to the rule.
  The CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 1 offered by Mr. Oxley:
       Page 9, line 24, strike ``study'' and insert ``reviews''.
       Page 11, line 10, insert ``or'' after ``review''.
       Page 11, line 17, strike ``board'' and insert 
     ``organization''.
       Page 33, line 7, strike ``Definition'' and insert 
     ``Definitions''; on line 8, strike ``term `beneficial owner' 
     has the meaning'' and insert ``terms `officer', `director', 
     and `beneficial owner' have the meanings''; and line 9, 
     strike ``term'' and insert ``terms''.
       Page 39, strike line 5 and all that follows through page 
     40, line 9; and on page 40, line 10, strike ``(d) Changes in 
     Codes of Conduct.--''.
       Page 42, lines 9 and 11, strike ``accountants report'' and 
     insert ``accountant's report''.
       Page 42, line 17, insert ``or her'' after ``his'', and 
     beginning on line 18, strike ``an opinion cannot be 
     expressed'' and insert ``he or she cannot express an 
     opinion''.
       Page 53, line 23, strike ``the role played by'' and insert 
     ``whether'', and on line 24, strike ``in assisting'' and 
     insert ``assisted''.
       Page 54, line 18, insert ``which may have been'' before 
     ``designed solely''.
       Page 57, line 9, insert ``7, 8,'' after ``6,''.

  The CHAIRMAN. Pursuant to House Resolution 395, the gentleman from 
Ohio (Mr. Oxley) and a Member opposed each will control 5 minutes.
  The Chair recognizes the gentleman from Ohio (Mr. Oxley).
  Mr. OXLEY. Mr. Chairman, I yield myself 5 minutes to explain the 
amendment.
  Mr. Chairman, this manager's amendment clarifies the language in a 
few portions of the legislation to give greater effect to the 
committee's intent in reporting out H.R. 3763.
  The amendment clarifies that certain terms used in the bill are meant 
to be consistent with how those terms are used in the securities laws. 
It also removes some language that the committee had adopted which 
would have required self-regulatory organizations to undertake specific 
rule-makings. Because this is not standard practice under the 
securities laws, that language was deleted, with the consent of its 
original sponsor, the gentlewoman from New York (Mrs. Maloney). 
However, important provisions relating to the requirement that issuers 
may make public any waiver of their code of ethics was retained.
  The amendment also clarifies a section directing the GAO to conduct a 
study of investment banks. The original sponsor of the language, the 
gentleman from New York (Mr. LaFalce) agrees with these changes, which 
were designed to ensure that the GAO study is fair, impartial, and 
accurate.
  Lastly, the amendment specifies that certain provisions of the bill 
are not designed to apply to investment companies that are currently 
registered with the SEC. Because these investment companies are already 
fully regulated by the SEC under the Investment Company Act of 1940, 
application of the noted provisions to them would be inappropriate.
  Mr. Chairman, these changes mostly fall within the realm of technical 
and conforming amendments. I know of no opposition to these amendments, 
and I certainly urge their adoption.
  Mr. Chairman, I reserve the balance of my time.
  Mr. CAPUANO. Mr. Chairman, I rise to claim the time on my side.
  The CHAIRMAN. The gentleman from Massachusetts (Mr. Capuano) is 
recognized for 5 minutes.
  Mr. CAPUANO. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, we have no objection to the manager's amendment.
  Mr. Chairman, I yield back the balance of my time.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 2 minutes to the 
gentleman from Virginia (Mr. Cantor).
  Mr. CANTOR. Mr. Chairman, I thank the gentleman for yielding time to 
me.
  Mr. Chairman, I rise in support of the manager's amendment and the 
underlying bill. Mr. Chairman, the aim of this legislation is to ensure 
a continued faith in our capital markets, and to allow America's 
families and the investing public to continue to benefit from the free 
flow of accurate information.
  This bill, the manager's amendment, provides a surgical strike 
approach to address the issues arising out of the Enron bankruptcy 
without hampering our markets' ability to thrive and the benefit they 
provide to America's families.
  We have heard discussion today on the floor, Mr. Chairman, about the 
issues that arose under the Enron bankruptcy: the issue about the 
blackout period, the fact that we ought not have employees blacked out 
while executives have the ability to sell company stock. That is 
addressed.
  We also have addressed in the bill the disclosure of off-balance-
sheet transactions, that they all must be disclosed.
  The other side speaks about the fact that certain specified nonaudit 
services are not prohibited under this legislation, but I would bring 
to the body's attention that there were 10 nonaudit services that the 
SEC proposed restrictions on. Of these ten, seven were prohibited by 
the SEC's final independent rules, and two, two of them, the financial 
systems work and internal auditing ability, are prohibited under the 
chairman's bill.

[[Page 5519]]

  The one remaining nonaudit service was expert services, which the SEC 
decided in its final rule should not be prohibited. Accordingly, Mr. 
Chairman, the other side is largely proposing redundant legislation 
that is already in place under existing rules, except for one.
  There is one major problem with the proposal coming from the other 
side. By adopting word for word the SEC's proposed rules, the other 
side would codify prohibitory and definitional language that the SEC, 
through notice and comment rule-making, has already determined to be 
unacceptable.
  Mr. Chairman, I urge adoption of the manager's amendment and the 
underlying bill.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 1 minute to the 
gentleman from Florida (Mr. Weldon).
  Mr. WELDON of Florida. Mr. Chairman, I thank the gentleman for 
yielding time to me.
  Enron was a great tragedy; it was a tragedy for the employees, for 
the investors, and it was a tragedy for the American public. It was a 
tragedy for our Nation.
  We clearly need legislation. We need legislation that will give 
investors better access to information necessary to judge a firm's 
performance, the financial risk, the condition of that company. We need 
legislation that will give investors prompt information that is 
critical to decide whether or not they should make an investment.
  We also need legislation that will deal with dishonest and 
unscrupulous CEOs, legislation that will bar them from serving as an 
officer of a company, that will force them to disclose critical 
information about what they are doing when they buy or sell stock in 
that company.
  This legislation before us addresses all of those issues. It would be 
a greater tragedy if we were, in this body, to introduce legislation 
that would create unnecessary and burdensome red tape for American 
industries, that would nationalize the accounting industry. It would be 
inappropriate for us to put forward legislation that would create 
ambiguous and difficult-to-understand standards.
  This is a good bill. I urge all colleagues on both sides of the aisle 
to support it. I commend the chairman and the subcommittee chairman who 
worked on this very important legislation.
  Mr. OXLEY. Mr. Chairman, I yield the final 30 seconds, with 
apologies, to my good friend, the gentleman from California (Mr. 
Royce).
  Mr. ROYCE. Mr. Chairman, I thank the gentleman for yielding time to 
me.
  Mr. Chairman, I will be brief. By creating an independent regulatory 
organization comprised of a majority of financial experts from outside 
of the accounting profession, this bill brings much needed reform and 
oversight to the status quo ante of self-regulation within the auditing 
profession.
  By requiring that CEOs and other corporate insiders disclose their 
trades in company stock within 48 hours, within 48 hours of making that 
trade, this bill will increase the speed and transparency of 
information disclosure necessary for the efficient operation of our 
capital markets.
  By preventing these same executives from unloading these shares 
during the lockdown of an employee pension account, it ensures that all 
stakeholders in a company are treated equitably and fairly, not as 
first- and second-class shareholders in equity.
  For these reasons, I urge support for the manager's amendment and for 
the underlying bill. I thank the chairman, the gentleman from Ohio (Mr. 
Oxley), for the Corporate and Auditing Accountability, Responsibility, 
Transparency Act of 2002.
  The CHAIRMAN. Does any Member rise in opposition?
  If not, the question is on the amendment offered by the gentleman 
from Ohio (Mr. Oxley).
  The amendment was agreed to.
  The CHAIRMAN. It is now in order to consider amendment No. 2 printed 
in House Report 107-418.


                 Amendment No. 2 Offered by Mr. Capuano

  Mr. CAPUANO. Mr. Chairman, I offer amendment No. 2.
  The CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 2 offered by Mr. Capuano:
       Page 3, beginning on line 21, strike paragraph (1) of 
     section 2(b) through page 4, line 9, and insert the 
     following:
       (1)(A) The board of such organization shall be comprised of 
     five members--
       (i) two of whom shall be persons who are licensed to 
     practice public accounting and who have recent experience in 
     auditing public companies;
       (ii) two of whom may be persons who are licensed to 
     practice public accounting, if such person has not worked in 
     the accounting profession for any of the last two years prior 
     to the date of such person's appointment to the board; and
       (iii) one of whom shall be a person who has never been 
     licensed to practice public accounting.
       (B) Each member of the board of such organization shall be 
     a person who meets such standards of financial literacy as 
     are determined by the Commission.

  The CHAIRMAN. Pursuant to House Resolution 395, the gentleman from 
Massachusetts (Mr. Capuano) and a Member in opposition each will 
control 10 minutes.
  The Chair recognizes the gentleman from Massachusetts (Mr. Capuano).
  Mr. CAPUANO. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, this amendment is relatively simple. It does one small 
item in the proposed bill which simply guarantees that one, only one of 
the five seats, will be someone who has never been licensed as an 
accountant.
  It simply is the best way that I could think of to guarantee that the 
general public has at least one voice at the table. The other four 
seats are just as submitted in the current draft; namely, two seats 
shall be people who are licensed to practice accounting, and two people 
may have a license to practice accounting, as long as they have not 
practiced in the last 2 years.
  It is exactly what the bill says, with the sole exception of one 
person who has never been licensed. I think that is the least we can do 
to guarantee the general public, the investing public, has at least one 
seat at the table without having been subject to practice for the last 
30 or 40 years.
  Mr. Chairman, I reserve the balance of my time.
  The CHAIRMAN. For what purpose does the gentleman from Ohio (Mr. 
Oxley) rise?
  Mr. OXLEY. Mr. Chairman, I claim the time in opposition to the 
amendment, though I am not opposed to the amendment.
  The CHAIRMAN. Without objection, the gentleman from Ohio (Mr. Oxley) 
is recognized for 10 minutes.
  There was no objection.
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, I thank my friend, the gentleman from Massachusetts 
(Mr. Capuano), a fine member of the Committee, for his good work on 
this amendment. I rise in strong support of it. By clarifying that at 
least two members of the five-member public reporting organization 
created by CARTA must be certified public accountants, the Capuano 
amendment recognizes the need for accounting expertise.
  Equally important, it guarantees that at least one member of the 
board, and potentially three, is not a CPA. That would guarantee a 
level of independence from the accounting profession that is absolutely 
essential to keeping our financial reporting system the best in the 
world.
  Mr. Chairman, I thank the gentleman and urge all Members to vote aye.

                              {time}  1230

  Mr. OXLEY. Mr. Chairman, I support the Capuano amendment.
  Mr. Chairman, I have no further speakers, and I yield back the 
balance of my time.
  Mr. CAPUANO. Mr. Chairman, I yield back the balance of my time.
  The CHAIRMAN. The question is on the amendment offered by the 
gentleman from Massachusetts (Mr. Capuano).
  The amendment was agreed to.
  The CHAIRMAN. It is now in order to consider Amendment No. 3 printed 
in House Report 107-418.


                 Amendment No. 3 Offered by Mr. Sherman

  Mr. SHERMAN. Mr. Chairman, I offer an amendment.

[[Page 5520]]

  The CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 3 offered by Mr. Sherman:
       In section 21 strike ``and 15'' amd insert ``and 16'' and 
     after section 13, insert the following new section (and 
     redesignate the succeeding sections and conform the table of 
     contents accordingly):

     SEC. 14. AUDITOR MINIMUM CAPITAL.

       (a) Regulation Required.--The Commission shall revise its 
     regulations pertaining to auditor independence to require 
     that an accountant shall not be considered independent unless 
     such accountant complies with such capital adequacy standards 
     as the Commission shall prescribe by regulation.
       (b) Minimum Standard.--The capital adequacy standards 
     established by the Commission pursuant to this section shall 
     require that the net capital of an accountant be equal to not 
     less than one-half of the annual audit revenue received by 
     such accountant from issuers registered with the Commission.
       (c) Treatment of capital and revenue.--For purposes of this 
     section--
       (1) net capital shall include the sum of capital, reserves, 
     and malpractice insurance available to the accountant for the 
     performance of audit functions; and
       (2) annual audit revenue shall include the sum of all audit 
     fees received by the accountant, but shall not include any 
     fees for non-audit services, as such terms are defined in 
     regulations of the Commission in effect on the date of 
     enactment of this Act.

  The CHAIRMAN. Pursuant to House Resolution 395, the gentleman from 
California (Mr. Sherman) and a Member opposed each will control 10 
minutes.
  The Chair recognizes the gentleman from California (Mr. Sherman).
  Mr. SHERMAN. Mr. Chairman, I yield myself such as I may consume.
  Mr. Chairman, I know there are others that would like to speak in 
favor of this amendment, but this whole process has gone more quickly 
than expected, so we will see if they can make it here to the floor.
  Mr. Chairman, the financial auditing system is the only one where the 
umpire is paid by one of the teams. That is to say, we have a situation 
where the auditor must make tough judgment calls, particularly as to 
how to apply generally accepted accounting principals which are not 
mechanical but, rather, require judgment. And the firm must make those 
judgments relative to the client, sometimes being the difference 
between whether the stock sells for $20 a share or $40 a share. The 
auditing firm must make that decision affecting the clients when they 
are being paid by that client.
  The one financial check on this is the fact that if the auditor does 
not make the right decision, but is rather negligent, they may be sued. 
The other check on this, of course, is the integrity and the 
professionalism of the individual auditors involved in the process. But 
our system, our capitalist system works well when we rely on the good 
spirit of people but also on financial incentives, financial checks and 
balances. Those financial checks and balances, however, ring hollow in 
the present system.
  Back when I was practicing--and, Mr. Chairman, that was a long time 
ago, I had hair when I was doing it, that tells us how long ago it 
was--we had general partnerships that were the Big Eight, now the Big 
Five accounting firms. That meant that every partner's personal assets 
were on the line if the firm committed malpractice. So of course the 
firms purchased malpractice insurance. And it meant that if an investor 
was hurt by malpractice, that that investor would at least get some 
compensation.
  Now our corporate laws have changed. There are professional 
corporations, limited liability companies, and limited liability 
partnerships.
  As a result, those investors hurt by auditor malpractice can only 
look to the assets of the firm. It makes sense that we make sure that 
there are at least some assets there so that investors hurt by 
accounting malpractice at least get some compensation.
  That is not the case at the present time. Arthur Andersen is supposed 
to be paying $217 million, not in relation to Enron, but in relation to 
the Baptist Foundation of Arizona audit in which they also committed 
malpractice. And now it looks like those investors are not going to be 
paid. It looks like the Enron investors are not going to get a penny 
from Arthur Andersen. Why? Because Arthur Andersen has virtually no 
malpractice insurance and virtually no reserves.
  Mr. Chairman, if you are going to drive your car, you might hurt 
somebody. And that is why every State in this Union requires you to 
have some sort of reserve or auto insurance. If you are going to 
operate a fleet of thousands of taxis, certainly you would have 
insurance, because driving down Main Street you might make a mistake 
and hurt somebody.
  Well, driving on Wall Street is also potentially dangerous. And those 
who drive down Wall Street and can cause billions of dollars of harm if 
they are not careful, should also have the same insurance required of 
every driver in this country. Wall Street is as dangerous for 
pedestrians as Main Street, and that is why I have proposed this 
amendment.
  I want to be very clear on what it does not do. It does not have an 
effect on the 99 percent of CPA firms that do not audit public 
companies. It has virtually no effect on the regional firms that do a 
very few SEC audits. It requires them to have such minimal capital 
reserves that if they just own their own computers, they meet the test. 
They probably would have malpractice insurance anyway.
  This bill affects the Big Five firms. It says that those firms that 
do 99.5 percent of all the SEC auditing have to have reserves or they 
have to have malpractice insurance. It ensures that if investors are 
hit on Wall Street, they will at least get some recompense. We provide 
that assurances to pedestrians. We ought to provide it to investors as 
well.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I claim the time in opposition to the 
amendment.
  The CHAIRMAN. The gentleman from Ohio (Mr. Oxley) is recognized for 
10 minutes.
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, the amendment before us requires audit firms to 
establish and maintain huge capital reserves, at least 50 percent of 
annual audit revenue. The Sherman amendment was offered in committee 
and defeated by an overwhelming margin of 49 to 9. Though well 
intentioned, it would establish a burdensome and wholly unprecedented 
requirement, expanding government's reach into the financing and 
structuring of audits firms. Minimum capital requirements would harm 
small audit firms in particular and would result in less stability for 
public companies, higher audit cost for public companies, lower profits 
for investors, and more speculative lawsuits. Clearly this is a case of 
using a sledgehammer to crack a nut.
  I urge all Members to oppose this amendment and support the base 
bill.
  Mr. Chairman, I reserve the balance of my time.
  Mr. SHERMAN. Mr. Chairman, how much time do I have remaining?
  The CHAIRMAN. The gentleman from California has 5 minutes remaining.
  Mr. SHERMAN. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, let me respond to the comments of our distinguished 
chairman.
  This is hardly a sledgehammer. Keep in mind that 20 years ago, every 
one of the accounting firms, big and small, had far more reserves 
available to those who were affected by accounting malpractice. Twenty, 
30 years ago, they were all general partnerships, so they had 
malpractice insurance. One of the reasons they had it is that the 
personal assets of every partner were on the line. The assets available 
to the creditors of Arthur Andersen 30 years ago would have been tens 
of billions of dollars, adjusted for inflation, talking about 2002 
dollars. Today we have an empty shell.
  I remind the House that when they ask poor people in each district 
who need to drive somewhere to work to earn the minimum wage, we insist 
they have liability insurance, because while we are concerned about 
their ability to

[[Page 5521]]

drive, we are also concerned that those who are hurt by negligence get 
at least something. And yet we turn to what will probably be the Big 
Four accounting firms, each with many billions of dollars of revenue, 
and say that they do not have to have any liability insurance.
  Is that a fair society? Do we really believe that driving down Wall 
Street is not as hazardous as driving down any street in America? 
Certainly all the automobile accidents in this country will not add up 
to the losses suffered by Enron investors. If we require those who 
drive to have insurance and we do not regard that as an undue burden on 
driving, how can we say that auditing publicly traded corporations, an 
activity engaged in by only five accounting firms for the most part, 
maybe two or three others, are we going to say that the five or eight 
or nine largest accounting firms in the country do not need any 
liability insurance? I do not think we should. I think at this time it 
is reasonable to say that if you are engaging in activity that only 
exists because the securities law requires it, if you are receiving 
billions of dollars in fees because publicly-traded companies are 
required by Federal law to have an audit, then you ought to have 
liability insurance.
  I will give another example. If a small plumbing contractor wishes to 
do the plumbing on a Federal building or a State construction project, 
surely we would require a completion bond or other insurance that the 
work will be done appropriately. How can we turn to individual drivers 
and say they must have insurance, the smallest companies who do 
construction work, and say they must have insurance, and then turn to 
the Big Four accounting firms and say they can walk away scot-free no 
matter what liability a court imposes on them? It is an illusory 
liability. The Enron investors will probably get nothing from Arthur 
Andersen.
  I do not think that is a fair system. I think instead it is 
reasonable to require that those who engage in activities which may 
make them liable to someone else have reasonable amounts of insurance. 
I want to repeat, this bill will affect only the Big Four or, today, 
Big Five accounting firms. It will have no effect on the 99 percent of 
firms who do no SEC auditing and will have no effect or virtually no 
effect on the four, five, or six other regional firms who may have a 
very few SEC audits. Only when a firm is deriving a very large 
percentage of its revenue from SEC audit does this bill have any 
effect.
  So I ask my colleagues to require that investors who are mamed on 
Wall Street at least be able to get some amounts of compensation, as 
they would if they were hurt walking across the street in their 
hometown.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I yield 3 minutes to the gentleman from 
Richmond, Virginia (Mr. Cantor).
  Mr. CANTOR. Mr. Chairman, I rise in opposition to the gentleman from 
California's (Mr. Sherman) amendment, and with all due respect, I beg 
to differ. We are not talking about insurance here. What we are talking 
about is a totally unprecedented and, in my opinion, unjustified 
expansion of government's reach into the financing and structuring of 
accounting firms.
  Let us address the first issue that the gentleman from Ohio (Mr. 
Oxley) made here, that this particular amendment would really 
contribute to the instability of any public company that was required 
to have audited financial statements. Just imagine if the auditing firm 
dipped below the required level of reserve while that firm was in the 
middle of an audit. That public company who is required to have the 
audited financial statements would be left in the lurch. There would be 
no other option in that firm than to go out and seek another accounting 
firm to restart the audit or pick up where the one that is now 
disqualified left off, thus adding to the cost of having audited 
financial statements. In addition, I think it would take away from the 
quality of the audit itself.
  Mr. Chairman, I would also say that in any other instance where the 
government requires a certain capital, minimum capital requirement, for 
instance the banking industry, there is some type of quasi-guarantee 
relationship that the government has and in some sense is the insurer 
of the industry. In this particular case, there is no relationship by 
the government to the auditing firm. In the case of the banks, the 
Government is there to provide some type of confidence to the 
depositors that their personal funds will be insured to a certain 
extent. Here there is no such relationship and, in fact, auditing firms 
are precluded from maintaining any deposits from individuals or from 
clients.
  Think about the effect that this amendment would have on small 
accounting firms. Many firms with reduced access to capital and costly 
insurance will be now precluded from seeking or acquiring business 
elsewhere. When we are talking about a firm having to have 50 percent 
of the annual audit fee in reserve, that is a tremendous financial and 
capital hurdle for most American businesses, not just to mention 
auditing firms. Such a requirement to have that type of reserve will 
certainly add to the cost of the financial audit, ultimately adding to 
the cost and taking away the benefit to the investors in that company.
  Mr. Chairman, I would say this amendment goes in the wrong direction 
and I urge my colleagues to oppose the amendment.

                              {time}  1245

  The CHAIRMAN. The Chair will advise Members that the gentleman from 
Ohio (Mr. Oxley) has 6 minutes remaining. The gentleman the California 
(Mr. Sherman) has 30 seconds remaining.
  Mr. SHERMAN. Mr. Chairman, I yield myself the remaining time.
  This bill will not adversely affect small accounting firms. It 
restores a system similar to what we had 30 years ago when every firm 
had malpractice insurance because the LLC and LLP structures had yet to 
be invented under State law. We in the Federal Government require that 
an audit be conducted because of the securities law, and we ought to 
require that those who will rely on those financial statements will get 
some compensation in the event that auditor malpractice takes place.
  State governments require insurance to drive a car. We ought to 
require insurance to drive on Wall Street.
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  Before yielding back, I would only reiterate the fact that we debated 
this in committee, the same amendment. The gentleman from California 
was able to get 9 votes in favor of his amendment, 49 against. I think 
the committee understood the issue and reacted accordingly.
  Ms. JACKSON-LEE of Texas. Mr. Chairman, I rise in support of the 
Sherman amendment to H.R. 3763, the Corporate and Auditing 
Accountability and Responsibility Act.
  This amendment would establish capital standards for accounting 
companies that audit publicly traded companies.
  This amendment would require the SEC to set capital standards at a 
level no lower than half of the firm's annual audit revenues. Moreover, 
it allows auditors to apply capital, reserves and malpractice insurance 
to meet this net capital requirement.
  Accounting firms that fail to maintain required levels of capital 
reserves would be prohibited from auditing publicly traded companies.
  As evidenced by the relationship between Enron and its auditor, 
Arthur Andersen, there are many flaws in the system that needs fixing. 
This amendment is another step in the right direction.
  It is very likely that because Arthur Andersen did not carry adequate 
malpractice insurance, the Enron shareholders, many of them former 
Enron employees, will not see any monetary compensation from their 
auditor. This amendment does not and will not hurt small accounting 
firms because nearly all SEC audits are done by the big five accounting 
firms.
  It is important to note that this amendment is being offered so that 
auditors of SEC reporting companies will to have enough capital and 
insurance to cover the liability they incur when they perform a large 
audit and would only affect auditors performing audits for companies 
required to file disclosures with the SEC.

[[Page 5522]]

  This is an important amendment and I urge you to support it.
  Mr. OXLEY. Mr. Chairman, I yield back the balance of my time.
  The CHAIRMAN. The question is on the amendment offered by the 
gentleman from California (Mr. Sherman).
  The amendment was rejected.
  The CHAIRMAN. It is now in order to consider amendment No. 4 printed 
in House Report 107-418.


 Amendment No. 4 in the Nature of a Substitute Offered by Mr. Kucinich

  Mr. KUCINICH. Mr. Chairman, I offer an amendment in the nature of a 
substitute.
  The CHAIRMAN. The Clerk will designate the amendment in the nature of 
a substitute.
  The text of the amendment in the nature of a substitute is as 
follows:

       Amendment No. 4 in the nature of a substitute offered by 
     Mr. Kucinich:
       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Investor, Shareholder, and 
     Employee Protection Act of 2002''.

     SEC. 2. FINDINGS.

       The Congress finds the following:
       (1) The failure of accounting firms to provide accurate 
     audits of its clients is not a new or isolated problem.
       (2) Accounting firms have been implicated in failed audits 
     that have cost investors billions of dollars when earnings 
     restatements sent stock prices tumbling.
       (3) Auditors have an inherent conflict of interest. They 
     are hired, and fired, by their audit clients.
       (4) This conflict of interest pressures auditors to sign 
     off on substandard financial statements rather than risk 
     losing a large client.
       (5) Auditing a public company for the benefit of small as 
     well as large investors requires independence.
       (6) Therefore the only truly independent audit is one by a 
     governmental agency.
       (7) The Federal Bureau of Audits, closely regulated by the 
     Commission, will provide honest audits of all publicly traded 
     companies.

     SEC. 3. ESTABLISHMENT OF BUREAU.

       (a) Establishment.--There is hereby established within the 
     Commission an independent regulatory agency to be known as 
     the Federal Bureau of Audits.
       (b) Function of the Bureau.--The Bureau shall conduct an 
     annual audit of the financial statements that are required be 
     submitted by reporting issuers and to be certified under the 
     securities laws or the rules or regulations thereunder.
       (c) Officers.--
       (1) Bureau Head.--The head of the Bureau shall be a 
     Director, who shall be appointed by the President, by and 
     with the advice and consent of the Senate.
       (2) Additional Officers.--There shall also be in the Bureau 
     a Deputy Director and an Inspector General, each of whom 
     shall be appointed by the President, by and with the advice 
     and consent of the Senate.
       (3) Terms.--The Director, Deputy Director, and Inspector 
     General shall be appointed for terms of 12 years, except 
     that--
       (A) the first term of office of the Deputy Director shall 
     be eight years; and
       (B) the first term of office of the Inspector General shall 
     be 4 years.
       (d) Independence.--Except as provided in sections 4 and 5, 
     in the performance of their functions, the officers, 
     employees, or other personnel of the Bureau shall not be 
     responsible to or subject to the supervision or direction of 
     any officer, employee, or agent of any other part of the 
     Commission.
       (e) Administrative Support.--The Commission shall provide 
     to the Bureau such support and facilities as the Director 
     determines it needs to carry out its functions.
       (f) Rules.--The Bureau is authorized to establish such 
     procedural and administrative rules as are necessary to the 
     exercise of its functions, but the Bureau may not establish 
     any auditing standards within the jurisdiction of the 
     Commission under sections 4 and 5.
       (g) Additional Authority.--In carrying out any of its 
     functions, the Bureau shall have the power to hold hearings, 
     sign and issue subpoenas, administer oaths, examine 
     witnesses, and receive evidence at any place in the United 
     States it may designate. The Bureau may, by one or more of 
     its officers or by such agents as it may designate, conduct 
     any hearing or other inquiry necessary or appropriate to its 
     functions, except that nothing in this subsection shall be 
     deemed to supersede the provisions of section 556 of title 5, 
     United States Code relating to hearing examiners.
       (h) Conflict of Interest Provisions.--A person previously 
     employed by the Bureau may not accept employment or 
     compensation from an issuer audited by the Bureau or an 
     accountant that provides audit related services to an issuer 
     audited by the Bureau for 10 years after the last day of 
     employment at the Bureau. Any current employee of the Bureau 
     shall be required to place all investments in a blind trust, 
     in accordance with regulations prescribed by the Commission. 
     The employees of the Bureau who conduct the audits shall be 
     exempt from the civil service pay system under section 4802 
     of title 5, United States Code, and shall be paid salaries 
     that are competitive with similar private sector employment.
       (i) Legal Representation.--Except as provided in section 
     518 of title 28, United States Code, relating to litigation 
     before the Supreme Court, attorneys designated by the 
     Director of the Bureau may appear for, and represent the 
     Bureau in, any civil action brought in connection with any 
     function carried out by the Bureau pursuant to this Act or as 
     otherwise authorized by law.

     SEC. 4. ASSUMPTION OF AUTHORITY BY COMMISSION OVER AUDITING 
                   STANDARDS.

       (a) Assumption of Authority.--Pursuant to its authority 
     under the securities laws to require the certification, in 
     accordance with the rules of the Commission, of financial 
     statements and other documents of reporting issuers of 
     securities, the Commission shall, by rule, establish and 
     revise as necessary auditing standards for audits of such 
     financial statements.
       (b) Incorporation of Current Standards.--In adopting 
     auditing standards under this section, the Commission shall 
     incorporate generally accepted auditing standards in effect 
     on the date of enactment of this Act, with such modifications 
     as the Commission determines are necessary and appropriate in 
     the public interest and for the protection of investors.
       (c) Additional Requirements for Rules.--The rules 
     prescribed by the Commission under subsection (a)--
       (1) shall be available for public comment for not less than 
     90 days;
       (2) shall be prescribed not less than 180 days after the 
     date of enactment of this Act; and
       (3) shall be effective on the first January 1 that occurs 
     after the end of such 180 days.

     SEC. 5. FEES FOR THE RECOVERY OF COSTS OF OPERATIONS.

       (a) In General.--The Commission shall in accordance with 
     this section assess and collect a fee on each reporting 
     issuer whose financial statements are audited by the Bureau. 
     This section applies as of the first fiscal year that begins 
     after the date of enactment of this Act (referred to in this 
     section as the `first applicable fiscal year').
       (b) Total Fee Revenues; Individual Fee Amounts.--The total 
     fee revenues collected under subsection (a) for a fiscal year 
     shall be the amounts appropriated under subsection (d)(2) for 
     such fiscal year. Individual fees shall be assessed by the 
     Commission on the basis of an estimate by the Commission of 
     the amount necessary to ensure that the sum of the fees 
     collected for such fiscal year equals the amount so 
     appropriated.
       (c) Fee Waiver or Reduction.--The Commission shall grant a 
     waiver from or a reduction of a fee assessed under subsection 
     (a) if the Commission finds that the fee to be paid will 
     exceed the anticipated present and future costs of the 
     operations of the Bureau.
       (d) Crediting and Availability of Fees.--
       (1) In general.--Fees collected for a fiscal year pursuant 
     to subsection (a) shall be credited to the appropriation 
     account for salaries and expenses of the Bureau and shall be 
     available until expended without fiscal year limitation.
       (2) Appropriations.--
       (A) First fiscal year.--For the first applicable fiscal 
     year, there shall be available for the salaries and expenses 
     of the Bureau $5,150,000,000.
       (B) Subsequent fiscal years.--For each of the four fiscal 
     years following the first applicable fiscal year, there shall 
     be available for the salaries and expenses of the Bureau an 
     amount equal to the amount made available by paragraph (1) 
     for the first applicable fiscal year, multiplied by the 
     adjustment factor for such fiscal year (as defined in 
     subsection (f)).
       (e) Collection of Unpaid Fees.--In any case where the 
     Commission does not receive payment of a fee assessed under 
     subsection (a) within 30 days after it is due, such fee shall 
     be treated as a claim of the United States Government subject 
     to subchapter II of chapter 37 of title 31, United States 
     Code.
       (f) Definition of Adjustment Factor.--For purposes of this 
     section, the term `adjustment factor' applicable to a fiscal 
     year is the lower of--
       (1) the Consumer Price Index for all urban consumers (all 
     items; United States city average) for April of the preceding 
     fiscal year divided by such Index for April of the first 
     applicable fiscal year; or
       (2) the total of discretionary budget authority provided 
     for programs in categories other than the defense category 
     for the immediately preceding fiscal year (as reported in the 
     Office of Management and Budget sequestration preview report, 
     if available, required under section 254(c) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985) divided by 
     such budget authority for the first applicable fiscal year 
     (as reported in the Office of Management and Budget final 
     sequestration report submitted for such year).

     For purposes of this subsection, the terms ``budget 
     authority'' and ``category'' have the meaning given such 
     terms in the Balanced

[[Page 5523]]

     Budget and Emergency Deficit Control Act of 1985.

     SEC. 5. DEFINITIONS.

       As used in this Act:
       (1) Commission.--The term ``Commission'' means the 
     Securities and Exchange Commission.
       (2) Securities laws.--The term ``securities laws'' means 
     the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the 
     Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
     Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b et seq.), and 
     the Securities Investor Protection Act of 1970 (15 U.S.C. 
     78aaa et seq.).
       (3) Reporting Issuer.--The term ``reporting issuer'' means 
     any registrant under section 12 of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78l) or any other issuer required to 
     file periodic reports under section 13 or 15 of such Act (15 
     U.S.C. 78m, 78o).

  The CHAIRMAN. Pursuant to House Resolution 395, the gentleman from 
Ohio (Mr. Kucinich) and a Member opposed each will control 10 minutes.
  The Chair recognizes the gentleman from Ohio (Mr. Kucinich).
  Mr. KUCINICH. Mr. Chairman, I yield myself such time as I may 
consume.
  Mr. Chairman, I include for the Record an article in the New Yorker 
entitled ``The Accountants' War,'' and it has many interesting details 
about the collapse of accounting responsibilities in this country. It 
says that Enron was forced to reveal that its profits had been off by 
about 20 percent over 3 years and that as early as 1997 Arthur Andersen 
had known that Enron was inflating its income, but when Enron declined 
to correct the numbers, Andersen certified them anyway.

                  [From the New Yorker, Apr. 22, 2002]

                          The Accountants' War

                            (By Jane Mayer)

       Nothing, it has been said, is duller than accounting--until 
     someone is defrauded. And after every modern financial 
     diseaster--the stock-market crash of 1929, the bankruptcy of 
     the Penn Central Railroad in 1970, the savings-and-loan 
     crisis of the eighties, and now the bankruptcy of the Enron 
     Corporation--investors have tended to ask the same question: 
     where were the auditors?
       Arthur Levitt, Jr., who was the chairman of the Securities 
     and Exchange Commission under President Bill Clinton, 
     believes that in the years leading up to Enron's collapse the 
     auditors were busy organizing themselves into a lobbying 
     force on Capitol Hill--one that has been singularly 
     effective. Levitt, who issued a series of warnings about the 
     accounting profession in those years, suggests that the aim 
     of the so-called Big Five accounting firms--
     PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, 
     K.P.M.G., and Arthur Andersen, Enron's auditor--was to weaken 
     federal oversight, block proposed reform and overpower the 
     federal regulators who stood in their way. ``They waged a war 
     against us, a total war,'' Levitt said.
       Some have portrayed Enron's crash and the woes of Arthur 
     Andersen simply as huge business failures. ``There are always 
     going to be bad apples,'' said Jay Velasquez, a former aide 
     to Senator Phil Gramm, who is now a Washington lobbyist for 
     the accounting profession, and who has fought increased 
     regulation. Barry Melancon, who heads the American Institute 
     of Certified Public Accountants, the profession's trade 
     group, which has three hundred and fifty thousand members, 
     fears that those who are trying to impose political solutions 
     will overreact. ``We live in a free-market system,'' Melancon 
     told me. ``Businesses fail. People are not infallible.''
       But Levitt casts the Enron story in starker terms. It is, 
     as he puts it, ``the story of the nineties''--a battle 
     between public and private interests that is being fought at 
     a time when there is more corporate money in politics than 
     ever before. ``This is about corporate greed,'' Levitt told 
     me. ``It is the result of two decades of erosion of business 
     ethics. It was the ultimate nexus of business and politics. 
     If there was ever an example where money and lobbying damaged 
     the public interest, this was clearly it.''
       Levitt, who is seventy-one and has silver hair, exhibits a 
     starchy correctness. He still seems bitter about his war with 
     the accounting trade, and called one adversary ``an oily 
     weasel'' and another ``a sly mongoose'' as he spoke about the 
     influence of money on politics. ``It used to be that if 
     industries had a problem they would try to work it out with 
     the regulatory authorities,'' he said, in his sleek office at 
     the Carlyle Group, in midtown Manhattan, surrounded by 
     mementos of years in public life. ``Now they bypass the 
     regulators completely, and go right to Congress.'' Their 
     campaign contributions lend them clout. ``It's almost 
     impossible to compete with the effect that money has on these 
     congressmen.'' Enron's campaign contributions and its 
     political power have received much attention, but two of the 
     top five accounting firms--Arthur Andersen and Deloitte--and 
     the accountants' trade association actually spent more during 
     the 2000 elections. ``The money was enormous,'' Levitt said. 
     ``Look at the end result.''
       Not many years ago, Levitt was considered a consummate Wall 
     Street insider, even an operator. In 1993, when President 
     Clinton picked him to run the Securities and Exchange 
     Commission, he was a centrist, a well-connected fundraiser 
     who had contributed to both parties. He had founded his own 
     lobbying organization, the American Business Conference, to 
     advocate the interests of small business on Capitol Hill. He 
     was also someone with a knack for cultivating famous and 
     powerful friends. In the nineteen-sixties, he joined a 
     successful start-up New York firm as a stockbroker, and he 
     eventually counted among his clients Leonard Bernstein, Aaron 
     Copland, and Kenneth Clark. Three of Levitt's original 
     partners were Sanford Weill, who became the chairman of 
     Citigroup; Arthur Carter, now the publisher of the New York 
     Observer; and Roger Berlind, who became a Broadway producer. 
     (Levitt had his own ties to Broadway; his aunt was Ethel 
     Merman). Levitt thrived, too, and by the late sixties he was 
     running Shearson Hayden Stone, which later became Shearson 
     Lehman Brothers.
       In 1977, after being asked to head a search committee for 
     the next leader of the American Stock Exchange, he got the 
     job himself. A few years later, he was thinking of investing 
     in The National Journal, a policy-oriented magazine in 
     Washington, when he learned of the publication's interest in 
     acquiring Roll Call, a struggling newspaper on Capitol Hill. 
     Levitt declined to invest in The National Journal but bought 
     Roll Call himself, for about five hundred thousand dollars. 
     Seven years later, he sold it for fifteen million dollars.
       At the same time, Levitt was drawn to public life. He had 
     grown up in a political household, the only son of Arthur 
     Levitt, Sr., a Democrat who for twenty-four years was the New 
     York State comptroller. Both his father and his mother, a 
     public-school teacher in Brooklyn, were dependent on public 
     pensions for their retirement, and they cared deeply about 
     the protection of small investors.
       When Levitt began his S.E.C. job, he acknowledged the 
     populist tradition of the Roosevelt Administration, which 
     created the S.E.C. in 1934, to insure the integrity of 
     American financial markets. The agency's new Web site carried 
     the motto of his most famous predecessor, William O. Douglas: 
     ``We are the investors' advocates.'' The S.E.C.'s basic 
     requirement was that all publicly traded companies register 
     with the agency and submit to annual independent audits. 
     Douglas liked to say that the S.E.C. was ``the shotgun behind 
     the door.'' But Levitt soon discovered that the agency's 
     arsenal was no match for the bull markets of the nineties. 
     The new economy spawned new accounting schemes that raised 
     concerns almost from the start.
       One early fight was over stock options. Many pointed out 
     that the accounting convention that kept these expenses, 
     unlike ordinary executive compensation, off the books was 
     deceptive. It meant that investors could not see a company's 
     real liabilities. Levitt recalls that when he took office the 
     first thing that Senators David Boren and Carl Levin, who 
     were both active in regulatory reform, told him was that he 
     ``had to do something about stock options.''
       Congress soon got involved in the stock-option fight, and 
     the politicization of accounting became more apparent than 
     ever. Supporters of Wall Street and Silicon Valley, including 
     many ordinarily pro-regulatory Democrats, fought against 
     changing the stock-option rules; one, for example, was 
     Senator Joseph Lieberman, of Connecticut, a state with a 
     large concentration of Fortune 500 companies, many of which 
     are campaign contributors. More surprising, the accounting 
     profession, rather than remaining neutral, joined forces with 
     its clients to fight the change. Together, they exerted 
     pressure on the organization that sets the rules for the 
     accounting business, the Financial Accounting Standards 
     Board, or F.A.S.B. ``This was a defining moment for me,'' 
     Levitt said. A lawyer who was with the S.E.C. at the time 
     says, ``The accountants were going beyond good accounting. 
     They were advocating a business position. They wanted to keep 
     their customers happy. It was quite unseemly.''
       At first, Levitt played a hesitant role. In what he now 
     regards as his ``biggest mistake'' at the commission, he, 
     too, urged the F.A.S.B. to back off. His rationale, he said, 
     was a fear that, if the board tried to resist the anti-
     regulatory feeling then sweeping Congress, it would be 
     crushed altogether. (Sarah Teslik, the executive director of 
     the Council of Institutional Investors, an advocate for 
     shareholders, is among those who argue that Levitt ``wasn't 
     the hero he makes himself out of be.'') Levitt told me that 
     the episode showed him that the accounting trade was 
     undergoing a cultural transformation. Instead of overseeing 
     corporate America, it was joining forces with it. ``The kind 
     of greed that produced Enron and Arthur Anderson was 
     symbolized by the way the companies dealt with stock 
     options,'' he said. ``I realized something was wrong.''
       Until the Second World War, the American accounting 
     industry has stayed close to its

[[Page 5524]]

     eighteenth-century roots in bookkeeping. But with the rise of 
     information technology the accounting firms branched into 
     consulting. During the nineteen-nineties, the Big Five 
     doubled their collective revenues, to $26.1 billion. Their 
     consulting practices, in particular, were hugely profitable, 
     and brought in three times as much revenue as auditing did, 
     according to a study soon to be published in The Accounting 
     Review. Auditors started coming under pressure to attract 
     non-audit business. At some firms, like Andersen, auditors 
     compensation depended upon their ability to sell other 
     services to clients; equity partners began to be paid like 
     investment bankers. Inevitably, there were conflicts between 
     the independent role required of an auditor and the applicant 
     role of a salesman trying to expand services.
       At Enron, for example, Andersen did consulting on taxes and 
     on internal auditing. Both projects threatened to put the 
     outside auditors in the awkward position of assessing their 
     own company's work. The relationship was further compromised 
     by the fact that Enron's management included many former 
     Andersen employees, among them the company's president, vice-
     president, and chief accounting officer. Auditors were thus 
     in the position of judging former colleagues--and prospective 
     bosses.
       More than a year ago, well before Enron's problems became 
     public, an internal e-mail revealed that fourteen top 
     Andersen partners had pointed out several of the financial 
     schemes that eventually contributed to Enron's fall. In a 
     discussion about retaining Enron as a client the partners 
     considered whether Enron's ``aggressive . . . transaction 
     structuring'' was too risky. It appears from the e-mail, 
     however, that the partners' concerns were outweighed by 
     possible future rewards. The e-mail noted that their fees 
     ``could reach $100 million per year.''
       ``If you get too friendly and too relaxed, you can wind up 
     nodding your head yes when you should be saying no,'' said 
     Charles Bowsher, a former head of the General Accounting 
     Office, who worked at Andersen for many years and has been 
     retained to help reform the firm. ``There's a lot of art in 
     addition to science in accounting.'' Bowsher says that ``most 
     fraud flourishes in gray areas.'' But James Cox, a professor 
     of corporate and securities law at Duke University, suggests 
     that Enron's accounting gimmickry was black-and-white. ``It 
     was not even close,'' he said. ``It was dead wrong.''
       Levitt said that, as the country's senior guardian of fair 
     markets, he watched the transformation of the accounting 
     profession with alarm. ``The brakes on the worst instincts of 
     the business community weren't working,'' he says. ``The 
     gatekeepers were letting down the gates.'' The number of 
     audit failures afflicting corporate America was increasing; 
     Lynn Turner, who served under Levitt as the chief accountant 
     at the S.E.C., estimates that investors lost a hundred 
     billion dollars owing to faulty, misleading, or fraudulent 
     audits in the six years preceding Enron's crash. Many of the 
     best-known corporations in the country were affected, among 
     them Cendant, W. R. Grace, Sunbeam, Xerox, Lucent, and Oxford 
     Health Plans. In fact, the number of publicly traded 
     companies forced to re-state their earnings went from three 
     in 1981 to a hundred and fifty-eight last year, according to 
     a doctoral thesis at New York University's Stern School of 
     Business. (Barry Melancon, of the American Institute of 
     Certified Public Accountants, calls concern over these 
     numbers misleading, noting that they represent ``fewer than 
     one per cent of the audits performed.'')
       Shareholder lawsuits against the accounting firms 
     proliferated. In response, the Big Five and their trade 
     association united as a political force. According to the 
     nonpartisan Center for Responsive Politics, between 1989 and 
     2001 accounting firms spent nearly thirty-nine million 
     dollars on political contributions. The contributions were 
     bipartisan, reaching more than half the current members of 
     the House and ninety-four of a hundred senators.
       By 1995, this investment had started to pay off. Congress 
     passed the Private Securities Litigation Reform Act, making 
     it harder for shareholders to sue businesses and their 
     auditors when the businesses failed. The legislation was 
     championed by the Speaker of the House, Newt Gingrich, as 
     part of his Contract with America. ``What we were after was 
     trying to get rid of the frivolous, merit-less cases,'' Mark 
     Gitenstein, a lawyer and lobbyist who helped shape the 
     legislation, said. ``We convinced Congress that you needed a 
     system that did a better job of screening the marginal cases 
     from the serious ones.'' The resulting legislation, Professor 
     Cox said, reversed ``eighty years of federal procedure.''
       At first, Levitt tried to fight the private-securities 
     bill, but when it became clear that the federal regulators 
     couldn't compete with the accountants' clout in Congress, he 
     looked for a compromise. ``It was a case where the industry 
     had more power that the regulators,'' he said. Then, as now, 
     there were approximately seventy-five lobbyists for every 
     member of the House and Senate; in the Gingrich era, they 
     were more integrated into the lawmaking process than ever 
     before. Jeffrey Peck, a former Democratic Senate aide who was 
     then the head of Arthur Andersen's Washington lobbying office 
     and is now an outside lobbyist for the firm, says that after 
     this fight there was ``really bad feeling'' between Levitt 
     and the profession. ``It was as if two people had gone out on 
     a first date and had a bad time,'' he says. ``But the rules 
     required them to keep dating.''
       Levitt told me that he has always been proud of his ability 
     to create consensus, and in the spring of 1996 he tried to 
     involve the profession in reforming itself. He urged the big 
     accounting firms to strengthen their oversight system and 
     toughen discipline for transgressors. He proposed giving 
     investors and other members of the public a bigger role. But, 
     he said, the accountants resisted, and progress was made only 
     after ``huge fights.''
       Rules governing auditors' independence hadn't been updated 
     in two decades. To examine the growing number of questions 
     about conflicts of interest, Levitt created a new board, 
     whose membership was divided between independent business 
     leaders and people from the accounting industry. ``They were 
     constantly deadlocked by differences of opinion,'' Levitt 
     said, and added, ``When I asked for support, I never got it. 
     I never heard in any speech they''--the accountants--``gave 
     the words `public interest.' They were so stilted, and terse, 
     and non-productive--I realized it was an industry that 
     completely lacked leadership.''.
       The accounting industry hired Harvey Pitt, who was known as 
     one of the smartest and most aggressive private-securities 
     lawyers in the country. Pitt responded to Levitt's call for 
     greater public oversight by arguing, in a lengthy white 
     paper, that the accounting firms were better off policing 
     themselves. ``The staff regarded his white paper as a kick in 
     the stomach, because it was so one-sided and 
     confrontational,'' Levitt said. One S.E.C. official recalls 
     that Pitt made the negotiations over the new board ``the most 
     horrible ever,'' and Lynn Turner says, ``It was doomed from 
     day one.''
       Pitt, who was appointed by President George W. Bush to 
     succeed Levitt as chairman of the S.E.C., said, ``There was a 
     lot of misperception about what the white paper said. For 
     some reason, early on people seemed to get in their mind that 
     I opposed what Levitt did,'' to reform accounting. ``I tried 
     to give him may own help on a personal basis.''
       In the summer of 1998, Levitt received a report about a 
     problem in Pricewaterhouse's Tampa office. According to the 
     report, nine executives there had made eighty investments in 
     companies that they were supposed to be auditing--a violation 
     of the most basic independence standards. Under the S.E.C.'s 
     direction, the firm initiated a company-wide investigation. 
     To the shame of the entire profession, it turned up more than 
     eight thousand such violations. The S.E.C. fined 
     Pricewaterhouse two and a half million dollars, and called 
     for an investigation into compliance with independence rules 
     at the rest of the Big Five firms; Levitt asked an 
     independent group, the Public Oversight Board, which had been 
     created after the Penn Central collapse, to undertake this 
     task.
       Levitt also took his battle public, in the fall of 1998, he 
     gave a speech that attacked the ``number game.'' He said, 
     ``Accounting is being perverted. Auditors who want to retain 
     their clients are under pressure not to stand in the way.'' 
     He explained, ``Auditors and analysts are participants in a 
     game of nods and winks. . . . I fear we are witnessing an 
     erosion in the quality of earnings, and therefore the quality 
     of financial reporting.'' In conclusion, he said, ``Today 
     American markets enjoy the confidence of the world. How many 
     half-truths and accounting sleights of hand will it take to 
     tarnish that faith?''
       The Public Oversight Board, made up of major business 
     figures, was supposed to act as the profession's conscience. 
     But in May, 2000, before its investigation could be 
     completed, the P.O.B.'s head, Charles Bowsher, received a 
     letter from officials at the American Institute of Certified 
     Public Accountants, which finances the board, announcing that 
     it would ``not approve nor authorize'' funding for further 
     investigations. Bowsher, who had himself been a high-ranking 
     officer with Arthur Andersen before becoming the head of the 
     General Accounting Office, says that he was shocked; the 
     industry was effectively stopping the investigation. Melvin 
     Laird, a former Secretary of Defense, who was the longest-
     serving member of the P.O.B., called it ``the worst incident 
     in my seventeen years.'' Barry Melancon, the head of the 
     trade association, defended the association's position. ``We 
     were never opposed to the concept,'' he told me, referring to 
     the investigation. ``We just felt the P.O.B. was undertaking 
     a project that it couldn't define.''
       At the same time, the S.E.C. was uncovering a huge case of 
     accounting fraud involving the garbage-disposal company Waste 
     Management: Arthur Andersen had put an unqualified seal of 
     approval on numbers that the government said it either knew 
     or should have known were misleading. As if in anticipation 
     of the revolving-door conflicts at Enron, practically ever 
     C.F.O. and C.A.O. in Waste Management's history had come from 
     Andersen, S.E.C. enforcement documents from the investigation 
     reveal something

[[Page 5525]]

     else: at least two of the partners who were singled out for 
     scrutiny by the S.E.C. re- mained in influential positions at 
     Andersen while being investigated, and both have now surfaced 
     in connection with the Enron affair. (One executive, Robert 
     Kutsenda, who was later barred by the S.E.C. from auditing 
     public companies for a year, was placed in charge of 
     redesigning the firm's policy on which documents to retain 
     and which to shred, an issue in the Enron case. Kutsenda and 
     Steve Samek, who was also investigated in the Waste 
     Management case but not publicly sanctioned, were among those 
     involved in the discussion of whether to retain Enron as a 
     client. None of the executives involved in the Waste 
     Management matter were fired by Andersen, which last year 
     agreed to pay a seven-million-dollar penalty to the S.E.C., 
     without admitting or denying guilt, after it was charged with 
     fraud. In addition, two of the Andersen partners targeted by 
     the S.E.C. in the fraud case now serve on the profession's 
     standard-setting board, the F.A.S.B.)
       By 2000, Levitt, faced with what he calls the Big Five's 
     ``fortress mentality,'' had initiated a series of meetings 
     with the firms at which he insisted that they needed to do 
     more to police themselves. Levitt's message, Turner told me, 
     was that the firms could either cooperate with an 
     investigation into their compliance with independence rules 
     or ``we'll issue the subpoenas tomorrow--take your pick.''
       In the spring of 2000, the S.E.C. announced that it planned 
     to draft new rules that would greatly restrict accountants' 
     ability to consult for the same companies they audited. 
     Arthur Andersen reportedly argued that this would cut its 
     market potential by forty per cent, and vowed to fight back. 
     A June meeting in Deloitte's New York headquarters with the 
     heads of the three firms who most vehemently opposed the new 
     rules ``was so icy you could have stored cold meat in that 
     room,'' Turner says. The heads of Andersen, Deloitte, and 
     K.P.M.G. joined Melancon on one side of a conference table. 
     (Price-waterhouse and Ernst & Young were more supportive of 
     Levitt, and didn't attend.) Levitt and two S.E.C. officials 
     were on the other. When Levitt made it clear that he intended 
     to move forward, Andersen's chief executive, Robert Grafton, 
     declared, ``This is war.''
       ``It was unbelievable, just unbelievable,'' Turner 
     recalled. ``They all went after Arthur. They made clear that 
     everything was fair game.'' Turner says that the attitude of 
     the firms was ``You know we're going to win anyway in the 
     end, so why not save us the expense, and give up now?''
       ``As soon as I left that meeting,'' Levitt told me, ``it 
     was clear the fight was going to Capitol Hill.'' Such clashes 
     over commercial interests are commonplace in Congress, but 
     ``this wasn't about legislation,'' he said. ``It was about 
     S.E.C. rule-making--we're supposed to be an independent 
     agency. I'd never seen anything like it at the S.E.C.''
       During this period, Levitt said, he got a letter from 
     Representative W.J. (Billy) Tauzin, of Louisiana, the 
     chairman of the House Energy and Commerce Committee, who has 
     received more than two hundred and eighty thousand dollars 
     from the accounting industry over the past decade. The letter 
     consisted of four pages of pointed questions. In a not very 
     veiled threat, Tauzin asked how many violations Levitt and 
     the other members of the S.E.C. would have if their stock 
     holdings were subjected to the independence rules being 
     proposed for the accountants. He also demanded that Levitt 
     produce proof that non-audit consulting undermines auditors' 
     accuracy. ``It was a shot across the bow from the industry,'' 
     Levitt says. ``They were saying, `If you go forward, expect a 
     lot of pain.'''
       In the following weeks, he said, Tauzin ``badgered me 
     relentlessly. He knew what the accountants were doing before 
     I did. He was working very closely with them. I don't mean to 
     sound cynical, but is it because he loves accountants?'' At 
     one point, relations between the two men grew so bad that 
     Levitt hung up on Tauzin, because he felt that ``his words 
     and his tone were threatening.''
       Tauzin was not alone. In the four weeks after Levitt 
     announced his intention to go through with the proposed new 
     rules, forty-six more congressmen wrote to him questioning 
     them. Data from the Center for Responsive Politics show that 
     in 2000 the accountants contributed more than ten million 
     dollars to political campaigns and spent $12.6 million on 
     federal lobbying. Arthur Andersen alone nearly doubled its 
     lobbying budget in the second half of the year, to $1.6 
     million. Among the lobbyists hired by the industry were Vic 
     Fazio, a former congressman; Jack Quinn, a former Clinton 
     White House counsel; Ed Gillespie, a former Bush campaign 
     adviser; Patrick Griffin, Clinton's former congressional 
     liaison; Dan Brouillette, a former aide to Tauzin who is now 
     an Assistant Energy Secretary; and a number of other former 
     Hill staff people.
       Now, however, Tauzin has joined in the public outrage 
     toward Enron and Andersen; in a House hearing that he 
     chaired, he called the case ``an old-fashioned example of 
     theft by insiders, and a failure of those responsible for 
     them to prevent that theft.'' He told me that money hadn't 
     influenced his earlier defense of the accountants. 
     ``Donations have never bought anybody any slack with this 
     committee,'' he said. ``I'm not saying that contributions 
     don't have the power to corrupt. They do. But I always assume 
     people contribute to me because they like the work I do.''
       By early fall of 2000, Levitt says, he began to hear 
     another kind of threat; lobbyists told him that if he didn't 
     back off there would be a push to cut the S.E.C.'s funding. 
     ``They were going to place a rider on our appropriations 
     budget,'' Levitt said, still sounding as if he could not 
     believe it. Jay Velasquez, a lobbyist for the accountants at 
     the time, confirmed this. ``You have to consider all your 
     options,'' he said. ``There is no doubt that the rider was a 
     consideration. In these battles, everything is on the 
     table.'' Henry Bonilla, a Texas Republican with an anti-
     regulatory temperament who is a member of the House 
     Appropriations Committee, was prepared to attach the rider. 
     Bowsher, the former G.A.O. head, says that such threats were 
     once unthinkable. ``In the old days, the S.E.C. was off 
     limits to that kind of pressure. It was a place the private 
     sector respected. Nobody, nobody, would have thought about 
     asking Congress to cut the budget.''
       Representative Tom Udall, a Democrat from New Mexico, says 
     that his staff urged him to sign a widely circulated letter 
     to Levitt opposing the proposed rules, because so many of his 
     colleagues had. ``There's sort of a herd mentality,'' he 
     said. He refused; he knew Levitt slightly, through mutual 
     friends in Santa Fe. ``Levitt was out to solve these things 
     before people realized there was a problem. That's the sign 
     of a leader. But the special interests have such a hold on 
     members of Congress that they were able to stop a lot of 
     things.''
       Levitt initiated a nationwide series of public hearings 
     about accounting abuses, fighting back as if he were involved 
     in a political campaign. Damon Silvers, an A.F.L.-C.I.O. 
     official who supported the S.E.C.'s position, recalls that 
     ``Levitt looked like a figure from some old movie--he was 
     sitting at a huge desk at the S.E.C. with a bank of phones, 
     talking on several lines at once.''
       But by then Levitt's eight-year term at the S.E.C. was 
     about to expire, and the accounting-industry supporters 
     developed a new strategy: they started to oppose the rule's 
     substance on procedural grounds, arguing that there hadn't 
     been enough time for public hearings. ``Of course, we knew 
     that by calling for more time it would mean the end of 
     Levitt,'' one lobbyist said.
       With the accounting firms threatening to take the S.E.C. to 
     court if he went ahead with the rules, Levitt tried to strike 
     a deal with the three firms who opposed him, at which point 
     the two firms who had previously supported him turned against 
     him. That night, one aide recalled, Levitt gave up. ``I lost 
     it,'' Levitt said.
       In the end, he kept negotiating, and the S.E.C. agreed to 
     let the firms continue to consult for the companies they 
     audited. But the firms agreed to disclose the details to 
     investors. ``I knew it wasn't enough, but I thought we'd be 
     overruled by Congress in one fashion or another,'' Levitt 
     said. ``The part of me that was insecure wanted a bird in the 
     hand.''
       Almost exactly a year later, Enron's outside auditor, 
     Arthur Andersen L.L.P., a company whose image had virtually 
     defined Midwestern probity, made an astonishing admission. 
     During the previous three years, when it had vouched for 
     Enron's financial statements, the company's net income had 
     actually been inflated by almost six hundred million dollars. 
     In a financial market where stocks plummet if corporate 
     earnings fall a penny short of projections, Enron was forced 
     to reveal that its profits had been off by about twenty per 
     cent over three years. As early as 1997, Andersen had known 
     that Enron was inflating its income. But when Enron declined 
     to correct the numbers Andersen certified them anyway. Within 
     six months, Enron had filed for bankruptcy and Andersen had 
     been indicted on charges of obstruction of justice for 
     destroying documents related to its Enron work. Investors 
     lost an estimated ninety-three billion dollars, a sum nearly 
     equal to the amount of the economic-stimulus package that 
     President Bush requested for the entire country. In the year 
     before Enron's crash, Andersen had collected a million 
     dollars a week from Enron for its expertise. More than half 
     of that, Andersen acknowledged, in compliance with the new 
     S.E.C. rule, was for non-auditing work.
       ``If these reforms had been in place earlier, we wouldn't 
     have had an Enron,'' Lynn Turner told me. He laughed, but the 
     laugh sounded a little forced as he spoke about Congress's 
     newfound interest in reform. ``Maybe the congressman were 
     listening more than I thought--we just weren't giving them 
     enough money,'' he said.
       Not long ago, Levitt was called to testify before Congress 
     about what went wrong at Arthur Andersen. ``It was a play 
     within a play,'' he told me. He said that he has little hope 
     for meaningful change in the profession, despite all the 
     bills under consideration, and despite commitments from 
     Harvey Pitt, his successor at the S.E.C. Before Enron 
     collapsed, Pitt promised the accountants ``kinder and 
     gentler'' treatment than Levitt had shown them, but he has 
     since sharpened his rhetoric and proposed a great many 
     reforms. Pitt told me that his work for

[[Page 5526]]

     the accountants has made him better able to persuade them to 
     change their ways because, ``to put it bluntly, I know where 
     the bodies are buried.'' But Pitt dismissed Levitt's 
     approach--separating auditing from consulting--as ``a 
     simplistic solution to a complex problem,'' and told me that 
     he thought it could prove counterproductive. ``A firm that 
     does only audits may be incompetent,'' he said.
       ``That's the same argument that the accountants put 
     forward,'' Levitt said with a sigh. ``I didn't accept it 
     then, and I accept it even less today. I have to conclude 
     it's specious. It's very sad. The Administration is missing a 
     glorious opportunity to reform this industry.''

  The failure of Arthur Andersen to provide an accurate audit of Enron 
for several years is not a new or isolated problem. All of the Big Five 
accounting firms have been implicated in failed audits that cost 
investors billions of dollars when earnings restatements sent stock 
tumbling. I have here a chart that shows how failed audits have cost 
investors billions, how a company named MicroStrategy with 
PricewaterhouseCoopers, the auditor, lost $10 billion, $10.4 billion in 
lost market capitalization; and the list is a pretty extensive list.
  For-profit private auditors have an inherent conflict of interest. 
They are hired and fired by their audit clients. If their draft audit 
does not please the firm they are auditing, they may lose future 
business unless they change their ways to please the firm.
  As a result, auditors have a strong incentive to sign-off on 
substandard financial statements rather than risk losing a client. The 
integrity and the independence of the audit is undermined by the 
profit-seeking motive of the private auditing firm.
  This amendment which I have brought before the House would ensure the 
independence of the audit, and I am offering a substitute amendment. 
Actually, this bill creates a Federal bureau of audits to regulate 
corporate America's books by auditing all publicly traded companies.
  Americans rely on the FBI to protect them from criminals and 
terrorists, but who protects the American shareholders from corporate 
criminals? The Enron scandal suggests that we need audit cops, the 
Federal bureau of audits. This is a conservative pro-free market 
amendment to the Corporate and Auditing Accountability, Responsibility, 
and Transparency Act because it guarantees shareholders accurate and 
partial information about their investments that requires an absolute 
separation between the auditors and companies they audit.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I rise to claim the time in opposition to 
the amendment.
  The CHAIRMAN. The gentleman from Ohio (Mr. Oxley) is recognized for 
10 minutes.
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  This amendment offered by my friend from Ohio would basically create 
a Federal bureau of audits. The Kucinich amendment would actually put 
the Federal Government in charge of auditing the 17,000 public 
companies in the United States, essentially nationalizing the 
accounting profession; and that is simply not a good idea. In fact, it 
is really quite dangerous.
  Overnight we would go from having the strongest capital market system 
in the world, with the best accounting, most integrity and most 
transparent disclosures to investors, to becoming the laughingstock of 
the global economy. Remember, this is the same Federal Government that 
cannot deliver a letter on time, cannot keep out illegal immigrants, 
and cannot buy a hammer for under $500.
  The amendment would create a massive bureaucracy that is almost 
unimaginable, produce truly disastrous results, reducing substantially 
the quality of public audits and financial disclosures to investors. 
America's nearly 100 million investors, and investors from all over the 
world for that matter, would no longer have confidence in the audited 
financial statements of our 17,000 public companies.
  It is not hyperbole to say this amendment would do great damage to 
our capital markets; but if my colleagues think the solution to the 
Enron problem is attacking with the creativity and efficiency of the 
DMV, then they should support this amendment. If they think, as I do, 
that a fair and balanced approach by experts is the best way to protect 
American investors, they should support the base bill and oppose this 
amendment.
  Mr. Chairman, I strongly urge all Members to vote ``no'' on this very 
dangerous proposal, and later I will tell my colleagues what I really 
think.
  Mr. Chairman, I reserve the balance of my time.
  Mr. KUCINICH. Mr. Chairman, I yield myself such time as I may 
consume.
  It is good to see my friend from Ohio's feelings about this, 
particularly in light of the fact that America's investors have lost 
over $100 billion in a system where people are allowed to profit where 
they cook the books.
  Mr. Chairman, I yield 2 minutes to the gentlewoman from Texas (Ms. 
Jackson-Lee), who knows firsthand from the constituents she represents 
in Texas what happens under this current system.
  Ms. JACKSON-LEE of Texas. Mr. Chairman, I thank the gentleman from 
Ohio (Mr. Kucinich) very much for his distinguished leadership on this 
issue, and I cannot thank the gentleman from New York (Mr. LaFalce) 
enough for the leadership he has given to this, and may I personally on 
the floor of the House thank him for the assistance he has given to ex-
Enron employees. We are very much appreciative of that.
  Let me announce to the House that right now we are in the midst of 
very, very intense negotiations to simply be able to provide a refund 
of the severance pay that is owed over 4,000 employees that was 
canceled out by the bankruptcy filing over the weekend; and the day 
after it was cancelled, 4,000 of my constituents and Houstonians were 
laid out into the street.
  I believe, unlike one of the journalists who suggested that those of 
us who represent Enron are trying to reconstruct ourselves, and I would 
like to take him on on that issue, I think what we are trying to do is 
to think out of the box and be able to respond to what the American 
people would like. They want some very strong legislation that answers 
these concerns, and that is why I am supporting the Brad Sherman 
amendment. I am supporting the LaFalce substitute, and I come to the 
floor for the gentleman from Ohio (Mr. Kucinich) because I believe that 
the previous announcement is incorrect.
  The American people want a strong oversight bureau such as the 
Federal bureau of audits within the SEC. One of the problems was the 
weakness of the SEC in dealing with the debacle that occurred. We are 
not castigating those hardworking employees that are now trying to 
rebuild Enron in another name and do its business selling gas, but what 
we are saying is because there was no one looking into the dark of 
night, turning the light bulb on and letting us know about these audits 
that were coming in, individuals who could divest themselves of their 
investments, independent individuals who are not consulting and 
auditing at the same time, not only did we bring a company down that we 
in Houston believe was a great corporate citizen, giving to all the 
charities around; but we have put a taint on corporate America.
  It is imperative that we pass the Kucinich amendment, the Sherman 
amendment, and the LaFalce substitute.
  Mr. Chairman, I rise today in support of the Kucinich substitute to 
H.R. 3763, the Corporate and Auditing Accountability and Responsibility 
Act.
  This substitute would create a new office, the Federal Bureau of 
Audits, within the SEC. This office would be responsible for performing 
annual audits on the financial statements of all publicly-traded 
companies and replaces the current system of private auditors.
  This new office would be afforded adequate powers to investigate, 
such as the power to hold hearings, issue subpoenas, administer oaths 
and examine witnesses. Moreover, Bureau employees would be required to 
place their investments in a blind trust and they would be prohibited 
from taking jobs or consulting fees from any company audited by the 
bureau for 10 years from the time they leave the agency.
  I believe that this substitute adequately addresses the relationship 
between audit firms

[[Page 5527]]

and companies that hire them. This Congress has witnessed and 
investigated in detail the conflict of interest that could occur in 
such a partnership.
  Moreover, it guarantees shareholders accurate, impartial information 
about their investments. Many of my constituents in the 18th 
Congressional District were employed by Enron and deceived by shady 
auditing practices. They are now jobless and it is the responsibility 
of this body to see that this never happens again.
  I urge my colleagues to vote for the Kucinich substitute.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 2 minutes to the 
gentlewoman from New York (Mrs. Kelly), the chairman of the 
Subcommittee on Oversight and Investigations of the Committee on 
Financial Services.
  Mrs. KELLY. Mr. Chairman, I rise in opposition to the amendment 
offered by the gentleman from Ohio (Mr. Kucinich). This amendment is 
not balanced. It goes too far, and I do not believe it would do 
anything but great harm to the businesses of this country.
  The free market is important, and it is important that we do not do 
things that will have unintended consequences and choke that free 
market. This amendment could do away with all accounting firms because, 
as the amendment states, and I quote, ``The only truly independent 
audit is one by a government agency.''
  As we heard, the amendment creates the Federal bureau of audits. I 
guess it is modeled after the FBI so I can see auditors storming into 
companies with their calculators drawn, demanding individuals to freeze 
and drop their pencils.
  The amendment seems to envision that the most efficient and effective 
auditor would be the U.S. Government. Somehow I just cannot agree with 
that, and I think this amendment is important for us to take a good 
look at for its unintended consequences.
  I think the author is looking to combine the same level of efficiency 
to accounting that HUD brought to housing, perhaps. I imagine that the 
author is looking for the effectiveness of the IRS in its customer 
service.
  Finally, with the accounting expertise of the Department of Defense 
with $100 hammers, I am sure our corporations will be in the best hands 
possible.
  This amendment does not understand, I think, the concepts of 
reasonable, responsive response from our government, and I think this 
amendment needs to be defeated. I urge Members on both sides of the 
aisle to think about this and join us in the opposition to the 
amendment.
  Mr. KUCINICH. Mr. Chairman, I yield myself such time as I may 
consume.
  I want to point out that Arthur Andersen not only participated in a 
fraud, it manipulated this Congress to ensure that the firm could 
participate in other frauds with deceptive company executives.
  Mr. Chairman, I yield 2 minutes to the gentleman from California (Mr. 
Filner).
  Mr. FILNER. Mr. Chairman, I thank the gentleman from Ohio (Mr. 
Kucinich) for yielding me the time.
  I rise in support of the Kucinich and Progressive Caucus substitute 
to H.R. 3763. This substitute restores integrity to investor-owned 
companies by ensuring that the investors and taxpayers and employees 
get an accurate assessment of a corporation.
  We know that the Enron debacle demonstrated how corrupting the so-
called free market is when corporate officials and auditing firms are 
intertwined. When we create the Federal bureau of audits we remove this 
corrupting influence, and appointments for 12 years remove the 
temptation of Congress to tamper with the watchdog duties.
  So let us remove the conflict of interest between corporations and 
auditing firms they can hire and fire. We can guarantee shareholders 
accurate and impartial information about their investments, and that is 
the true free market solution to this problem.
  The underlying bill is more than a no no bill. It is a no no no no no 
no no no no bill because does the bill help the SEC recover ill-gotten 
gains from corporate executives? No. Does it make CEOs responsible for 
their companies' public disclosures? No. Does it help the SEC send 
those who commit fraud to jail? No. Does it bar bad executives from 
serving in other companies? No. Does it make auditors independent? No. 
Does it ensure the oversight board is independent? No. Does it give the 
oversight board a clear mandate? No. Does it require auditors to be 
rotated? No. Does it close the revolving doors between accountants and 
their clients? No.
  The underlying bill could be termed the Ken Lay Protection Act. We 
can no longer have the fox guarding the hen house. The Kucinich 
amendment fixes the problem.

                              {time}  1300

  The CHAIRMAN. The Chair advises Members that the gentleman from Ohio 
(Mr. Oxley) has 6 minutes remaining and the gentleman from Ohio (Mr. 
Kucinich) has 2\1/2\ minutes remaining.
  Mr. OXLEY. Mr. Chairman, I would inquire of the Chair whether the 
gentleman from Ohio has further speakers.
  Mr. KUCINICH. Right here. I will be closing. Mr. Chairman, I have the 
right to close on this?
  The CHAIRMAN. The Chair will advise the Member that the gentleman 
from Ohio (Mr. Oxley) has the right to close.
  Mr. KUCINICH. Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentleman from 
Louisiana (Mr. Baker).
  Mr. BAKER. Mr. Chairman, I thank the gentleman for yielding me this 
time.
  The Kucinich amendment is an interesting one in its practical effect. 
We are going to create a government entity that is going to have the 
sole and specific authority to evaluate the financial condition of 
17,000 public corporations. Now, if anyone has tried to read a single 
financial statement and understand it and then evaluate its accuracy, 
one can pretty quickly determine that this is a responsibility beyond 
any magnitude that anyone could possibly comprehend.
  The amendment, I am sure, is based on a good-faith effort to be 
responsive to the Enron crisis, but this would be the crisis of all 
crises. We would have a complete inability to have a free flow of 
information from the corporation to their investors without this 
intervening government regulatory body giving its stamp of approval.
  I do not know how many of you have ever had any difficulty, let us 
say, with the IRS in trying to work through its maze of regulatory 
constraints and get a direct answer overnight on whether or not you are 
filing the form properly. This is like taking the IRS and sticking it 
in the corporate board room of every corporation in America. This will 
not work.
  I understand the gentleman's concerns and share those concerns. Many 
innocent third parties were harmed by the failure of Enron, Global 
Crossing, and perhaps others yet to be disclosed. And I feel for those 
individuals who likely will never get any of those funds back in their 
retirement accounts or who have lost their jobs. But let us make it 
clear, there are ongoing criminal investigations, and prosecutions 
certainly to follow, because under the simplest of rules, under rule 
10(b)5 of the SEC's regulations, there was fraud committed. People are 
going to jail.
  What we are trying to do is to create a manner in which a free flow 
of accurate information can be given to investors to make quality 
decisions. That is what the underlying bill will do.
  Mr. KUCINICH. Mr. Chairman, I yield myself 1 minute.
  Americans are urged to own a piece of the rock; invest in corporate 
America. We have gone from a psychology of owning a piece of the rock 
to owning a piece of the Brooklyn Bridge. Because what is happening is 
that investors are not being given accurate information by accountants 
who have an inherent conflict of interest.
  It is said the pen is mightier than the sword. Well, this pencil is 
mightier than the free market, apparently, because a pencil can change 
the nature of the free market by misstating earnings and then restating 
earnings and having the value of the stock drop. And then what happens 
to investors? Nothing. They lose it all.

[[Page 5528]]

  We need to take a stand here. A free market requires accurate 
information to operate efficiently. My amendment is the only amendment 
that guarantees accurate information for investors, and my amendment is 
profoundly conservative. It is totally dedicated to protecting and 
conserving the property of investors.
  Who is taking a stand here for the investors, to make sure that 
investors get information that is accurate and upon which they can make 
decisions on how they are going to spend their money?
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I understand I have the right to close and I 
plan to do so, and would so indicate to my friend.
  Mr. KUCINICH. How much time remains, Mr. Chairman?
  The CHAIRMAN. The gentleman from Ohio (Mr. Kucinich) has 1\1/2\ 
minutes remaining, the gentleman from Ohio (Mr. Oxley) has 4 minutes 
remaining.
  Mr. KUCINICH. Mr. Chairman, I continue to reserve the balance of my 
time, unless the gentleman is going to close right now.
  Mr. OXLEY. I am prepared to close.
  Mr. LaFALCE. Mr. Chairman, will the gentleman from Ohio yield me 1 
minute?
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 1 minute to the 
gentleman from New York (Mr. LaFalce).
  Mr. LaFALCE. Mr. Chairman, I want to commend the gentleman from Ohio 
(Mr. Kucinich) for his good-faith effort to deal with the problem, and 
if we were starting anew, I might well favor this approach.
  We do have examiners for our banks, our national banks and our State 
banks, and they work for the government. We do have examiners for our 
thrifts, and they work for the government. We do have examiners for our 
credit unions, and they work for the government. It works. And the 
reason we had examiners for the government is because we trusted them. 
We thought that they would be representing the public interest.
  We devised this system in an era when most people put almost all of 
their money in banks, in thrifts, in credit unions. That is no longer 
the case. Now, most people are putting most of their hard-earned money 
in publicly traded corporations.
  And while I suspect the amendment of the gentleman from Ohio (Mr. 
Kucinich) goes further than we can politically do at this juncture, I 
commend him for at least raising the issue.
  Mr. KUCINICH. Mr. Chairman, I yield myself the balance of my time.
  Let us go to middle America, where men and women who work hard all 
their lives to establish some kind of a financial nest egg put their 
faith not only in the market, but in this country, and invest in 
various corporate enterprises. Mr. and Mrs. Middle America are the 
backbone of this economy. They work, they help produce taxes for this 
country, and they help produce wealth that can continue to grow and 
make America the strong country which it is.
  What happens when they cannot have confidence that the earnings 
statements of the companies in which they are investing are real? What 
if there is no credibility for a market that one day goes up and the 
other day goes down because people are lying about their books?
  There is something that is at stake here that is much larger than 
this bill that is before the House for debate. And what is at stake 
here is the confidence that people need to have in our free market 
system. And the only way you can rescue that in a climate where the 
accounting industry has basically stolen a march on regulators is to 
retrieve the role of the government in assuring that people's 
investments are going to be protected.
  That is what this amendment is about. The free market economy again 
requires accurate information to operate efficiently. And so I ask all 
of my colleagues, where is your commitment to free markets today? Where 
will you stand when your constituents ask what happened to my 
investment; why did they lie to me; and why did you not do something 
about it?
  Mr. OXLEY. Mr. Chairman, I yield myself the balance of my time.
  I would welcome my friend from Ohio to the conservative ranks if I 
really thought this amendment was conservative in nature, but it is 
hardly that. This is a big government solution. It is a one-size-fits-
all solution. It is essentially the neutron bomb. I guess his message 
is, if you have lost faith in the free market, you need to have faith 
in big government.
  I do not think people are ready to make that leap. I think they 
understand intuitively, based on their investments, that they trust the 
free market, and they trust that our markets are the most open and 
efficient markets in the world, represented by the American 
marketplace. That is really the message.
  And, indeed, people have changed dramatically. Probably just a few 
years ago when I first came to Congress, two-thirds of people's savings 
were in bank accounts and only a third in equities. That is totally 
turned around now. We have become a Nation of investors from a Nation 
of savers, and that is a positive development. We have 46 million in 
401(k) plans that are invested in those accounts. We have over half of 
the households today invested in equities.
  We have the most robust market in the history of the world. Let us 
not change that. Let us not endanger that free market with the Kucinich 
amendment. I ask the Members to vote against the Kucinich amendment and 
for the underlying bill.
  Mr. Chairman, I yield back the balance of my time.
  The CHAIRMAN. All time has expired.
  The question is on the amendment in the nature of a substitute 
offered by the gentleman from Ohio (Mr. Kucinich).
  The question was taken; and the Chairman announced that the noes 
appeared to have it.


                             Recorded Vote

  Mr. KUCINICH. Mr. Chairman, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 39, 
noes 381, not voting 14, as follows:

                             [Roll No. 107]

                                AYES--39

     Abercrombie
     Baldwin
     Berkley
     Bonior
     Clayton
     Clyburn
     Conyers
     Davis (IL)
     Evans
     Filner
     Frank
     Green (TX)
     Gutierrez
     Hastings (FL)
     Hilliard
     Jackson (IL)
     Jackson-Lee (TX)
     Kaptur
     Kennedy (RI)
     Kucinich
     Lee
     Lewis (GA)
     McDermott
     McKinney
     Mink
     Olver
     Owens
     Pascrell
     Pastor
     Payne
     Roybal-Allard
     Sanders
     Schakowsky
     Solis
     Stark
     Thompson (MS)
     Waters
     Watson (CA)
     Woolsey

                               NOES--381

     Ackerman
     Aderholt
     Akin
     Allen
     Andrews
     Armey
     Baca
     Bachus
     Baird
     Baker
     Baldacci
     Ballenger
     Barcia
     Barr
     Barrett
     Bartlett
     Barton
     Bass
     Becerra
     Bentsen
     Bereuter
     Berman
     Berry
     Biggert
     Bilirakis
     Bishop
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bono
     Boozman
     Borski
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brady (TX)
     Brown (FL)
     Brown (OH)
     Brown (SC)
     Bryant
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Capps
     Capuano
     Cardin
     Carson (IN)
     Carson (OK)
     Castle
     Chabot
     Chambliss
     Clay
     Clement
     Coble
     Collins
     Combest
     Condit
     Cooksey
     Costello
     Cox
     Coyne
     Cramer
     Crane
     Crenshaw
     Crowley
     Cubin
     Culberson
     Cummings
     Cunningham
     Davis (CA)
     Davis (FL)
     Davis, Jo Ann
     Davis, Tom
     Deal
     DeFazio
     Delahunt
     DeLauro
     DeLay
     DeMint
     Deutsch
     Diaz-Balart
     Dicks
     Dingell
     Doggett
     Dooley
     Doolittle
     Doyle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Ehrlich
     Emerson
     Engel
     Eshoo
     Etheridge
     Everett
     Farr
     Fattah
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Ford
     Fossella
     Frelinghuysen
     Frost
     Gallegly
     Ganske
     Gekas
     Gephardt
     Gibbons
     Gillmor
     Gilman
     Gonzalez
     Goode
     Goodlatte
     Gordon
     Goss
     Graham
     Granger
     Graves
     Green (WI)
     Greenwood
     Grucci
     Gutknecht
     Hall (OH)

[[Page 5529]]


     Hall (TX)
     Hansen
     Harman
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hinchey
     Hinojosa
     Hobson
     Hoeffel
     Hoekstra
     Holden
     Holt
     Honda
     Hooley
     Horn
     Hostettler
     Hoyer
     Hulshof
     Hunter
     Hyde
     Inslee
     Isakson
     Israel
     Issa
     Istook
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson (IL)
     Johnson, E. B.
     Johnson, Sam
     Jones (NC)
     Jones (OH)
     Kanjorski
     Keller
     Kelly
     Kennedy (MN)
     Kerns
     Kildee
     Kilpatrick
     Kind (WI)
     King (NY)
     Kingston
     Kirk
     Kleczka
     Knollenberg
     Kolbe
     LaFalce
     LaHood
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Latham
     LaTourette
     Leach
     Levin
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     LoBiondo
     Lofgren
     Lowey
     Lucas (KY)
     Lucas (OK)
     Luther
     Lynch
     Maloney (CT)
     Maloney (NY)
     Manzullo
     Markey
     Mascara
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McCrery
     McGovern
     McHugh
     McInnis
     McIntyre
     McKeon
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Mica
     Millender-McDonald
     Miller, Dan
     Miller, Gary
     Miller, George
     Miller, Jeff
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Morella
     Murtha
     Myrick
     Nadler
     Napolitano
     Neal
     Nethercutt
     Ney
     Northup
     Norwood
     Nussle
     Oberstar
     Obey
     Ortiz
     Osborne
     Ose
     Otter
     Oxley
     Pallone
     Paul
     Pelosi
     Pence
     Peterson (MN)
     Peterson (PA)
     Petri
     Phelps
     Pickering
     Pitts
     Platts
     Pombo
     Pomeroy
     Portman
     Price (NC)
     Putnam
     Quinn
     Radanovich
     Rahall
     Ramstad
     Rangel
     Rehberg
     Reyes
     Reynolds
     Rivers
     Roemer
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Ross
     Rothman
     Roukema
     Royce
     Rush
     Ryan (WI)
     Ryun (KS)
     Sabo
     Sanchez
     Sandlin
     Sawyer
     Saxton
     Schaffer
     Schiff
     Schrock
     Scott
     Sensenbrenner
     Serrano
     Sessions
     Shadegg
     Shaw
     Shays
     Sherman
     Sherwood
     Shimkus
     Shows
     Shuster
     Simmons
     Simpson
     Skeen
     Skelton
     Slaughter
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Snyder
     Souder
     Spratt
     Stearns
     Stenholm
     Strickland
     Stump
     Stupak
     Sullivan
     Sununu
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Terry
     Thomas
     Thompson (CA)
     Thornberry
     Thurman
     Tiahrt
     Tiberi
     Tierney
     Toomey
     Towns
     Turner
     Udall (CO)
     Udall (NM)
     Upton
     Velazquez
     Visclosky
     Vitter
     Walden
     Walsh
     Wamp
     Watkins (OK)
     Watt (NC)
     Watts (OK)
     Waxman
     Weldon (FL)
     Weldon (PA)
     Weller
     Wexler
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Wu
     Wynn
     Young (AK)
     Young (FL)

                             NOT VOTING--14

     Blagojevich
     DeGette
     English
     Gilchrest
     Hart
     Houghton
     Pryce (OH)
     Regula
     Riley
     Rodriguez
     Smith (WA)
     Thune
     Traficant
     Weiner

                              {time}  1333

  Messrs. BACA, KINGSTON, SAXTON, Mrs. DAVIS of California, Messrs. 
CUMMINGS, GEORGE MILLER of California, BURR of North Carolina and Ms. 
CARSON of Indiana changed their vote from ``aye'' to ``no.''
  So the amendment in the nature of a substitute was rejected.
  The result of the vote was announced as above recorded.
  Stated against:
  Mr. ENGLISH. Mr. Speaker, on rollcall vote No. 107, I was unavoidably 
detained at an event with several of my colleagues and missed the vote. 
Had I been present, I would have voted ``no.''
  Mr. WEINER. Mr. Speaker, on Wednesday, April 24, 2002, I was 
unavoidably detained and missed rollcall vote No. 107. Had I been 
present, I would have voted ``no.''
  The CHAIRMAN. It is now in order to consider amendment No. 5 printed 
in House Report 107-418.


  Amendment in the Nature of a Substitute No. 5 Offered by Mr. LaFalce

  Mr. LaFALCE. Mr. Chairman, I offer an amendment in the nature of a 
substitute.
  The CHAIRMAN. The Clerk will designate the amendment in the nature of 
a substitute.
  The text of the amendment in the nature of a substitute is as 
follows:

       Amendment in the nature of a substitute No. 5 offered by 
     Mr. LaFalce:
       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Corporate 
     and Auditing Accountability, Responsibility, and Transparency 
     Act of 2002''.
       (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Auditor oversight.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Real-time disclosure of financial information.
Sec. 5. Insider trades during pension fund blackout periods prohibited.
Sec. 6. Improved transparency of corporate disclosures.
Sec. 7. Improvements in reporting on insider transactions and 
              relationships.
Sec. 8. Enhanced oversight of periodic disclosures by issuers.
Sec. 9. Retention of records.
Sec. 10. Removal of unfit corporate officers.
Sec. 11. Disgorgement required.
Sec. 12. CEO and CFO accountability for disclosure.
Sec. 13. Securities and Exchange Commission authority to provide 
              relief.
Sec. 14. Authorization of appropriations of the Securities and Exchange 
              Commission.
Sec. 15. Analyst conflicts of interest.
Sec. 16. Independent directors.
Sec. 17. Enforcement of audit committee governance practices.
Sec. 18. Review of corporate governance practices.
Sec. 19. Study of enforcement actions.
Sec. 20. Study of credit rating agencies.
Sec. 21. Study of investment banks
Sec. 22. Study of model rules for attorneys of issuers.
Sec. 23. Enforcement authority.
Sec. 24. Exclusion for investment companies.
Sec. 25. Definitions.

     SEC. 2. AUDITOR OVERSIGHT.

       (a) Certified Financial Statement Requirements.--If a 
     financial statement is required by the securities laws or any 
     rule or regulation thereunder to be certified by an 
     independent public or certified accountant, an accountant 
     shall not be considered to be qualified to certify such 
     financial statement, and the Securities and Exchange 
     Commission shall not accept a financial statement certified 
     by an accountant, unless such accountant--
       (1) is subject to a system of review by a public regulatory 
     organization that complies with the requirements of this 
     section and the rules prescribed by the Commission under this 
     section; and
       (2) has not been determined in the most recent review 
     completed under such system to be not qualified to certify 
     such a statement.
       (b) Establishment of PRO.--
       (1) Establishment required.--Not later than 90 days after 
     the date of enactment of this section, the Commission shall 
     establish a public regulatory organization to perform the 
     duties set forth in this section.
       (2) Chairman.--The Chairman of the public regulatory 
     organization shall be appointed by the Commission for a term 
     of 5 years.
       (3) Appointment of public regulatory organization 
     members.--There shall be 6 additional public regulatory 
     organization members, who shall be selected jointly by the 
     Chairman of the public regulatory organization and the 
     Chairman of the Commission.
       (4) Accountant members.--Up to 2 of the members may be 
     present or former certified public accountants, provided such 
     members--
       (A) are not currently in public practices;
       (B) have not been a person associated with a public 
     accounting firm for a period of at least 3 years; and
       (C) agree to not be a person associated with a public 
     accounting firm or to receive consulting fees from a public 
     accounting firm for a period of 5 years after leaving the 
     public regulatory organization.
       (5) Nominations.--In making appointments of members, the 
     Chairman of the public regulatory organization and the 
     Chairman of the Commission shall consult with, and make 
     appointments from nominations received from--
       (A) institutional investors;
       (B) public employee pension plans;
       (C) pension plans organized pursuant to the Employee 
     Retirement Income Security Act of 1974; and
       (D) pension plans organized pursuant to the Taft-Hartley 
     Act.
       (6) Terms.--The members of the public regulatory 
     organization shall have terms of 4 years, except that the 
     Chairman of the public regulatory organization and the 
     Chairman of the Commission shall adopt procedures for 
     staggering the initial terms of the members first so 
     appointed to provide for a reasonable overlapping of the 
     terms of office of subsequently elected members.
       (7) Full-time basis.--The members of the public regulatory 
     organization shall serve on a full-time basis, severing all 
     business ties with former firms or employers prior to 
     beginning service on the public regulatory organization.
       (8) Rules.--Following selection of the initial members of 
     the public regulatory organization, the public regulatory 
     organization shall propose and adopt rules, which shall 
     provide for--
       (A) the operation and administration of the public 
     regulatory organization, including the compensation of the 
     members of the public regulatory organization, which shall be 
     at a level comparable to similar professional positions in 
     the private sector;

[[Page 5530]]

       (B) the appointment and compensation of such employees, 
     attorneys, and consultants as may be necessary or appropriate 
     to carry out the public regulatory organization's functions 
     under this section;
       (C) the registration of public accounting firms with the 
     public regulatory organization pursuant to subsections (d); 
     and
       (D) the matters described in subsections (e) and (f).
       (9) Funding of the public regulatory organization.--
       (A) Self-financing.--The public regulatory organization 
     shall establish rules for the assessment and collection of 
     fees sufficient to recover the costs and expenses of the 
     public regulatory organization and to permit the public 
     regulatory organization to operate on a self-financing basis.
       (B) Assessment and collection.--The fees shall be assessed 
     on issuers that file any financial statements, reports, or 
     other documents with the Commission under the securities laws 
     that must be certified by a public accounting firm. The fees 
     shall be collected through the public accounting firm that 
     certifies such statement, report, or document.
       (C) Payment a condition of registration.--The public 
     regulatory organization shall terminate or suspend the 
     registration under subsection (d) of any public accounting 
     firm that fails to collect and transmit a fee assessed under 
     this subsection.
       (c) Prohibition on the Offer of Both Audit and Consulting 
     Services.--
       (1) Modification of regulations required.--The Commission 
     shall revise its regulations pertaining to auditor 
     independence to require that an accountant shall not be 
     considered independent with respect to an audit client if the 
     accountant provides to the client the following nonaudit 
     services, subject to such conditions and exemptions as the 
     Commission shall prescribe:
       (A) financial information system design or implementation; 
     or
       (B) internal audit services.
       (2) Audit committee approval of nonaudit services.--The 
     Commission shall revise its regulations pertaining to auditor 
     independence to require that--
       (A) an accountant shall not be considered to be independent 
     for purposes of certifying the financial statements or other 
     documents of an issuer required to be filed with the 
     Commission under the securities laws for any fiscal year of 
     the issuer if, during such fiscal year, the accountant 
     provides any nonaudit services unless the provision of such 
     nonaudit services was approved in advance by the audit 
     committee or, in the absence of an audit committee, the 
     equivalent board committee or the entire board of directors; 
     and
       (B) in approving such services, the audit committee shall 
     evaluate the impact of the provision of such services on the 
     independence of the auditor.
       (3) Review of prohibited nonaudit services.--The Commission 
     is authorized to review the impact on the independence of 
     auditors of the scope of services provided by auditors to 
     issuers in order to determine whether the list of prohibited 
     nonaudit services under paragraph (1) shall be modified. In 
     conducting such review, the Commission shall consider the 
     impact of the provision of a service on an auditor's 
     independence where provision of the service creates a 
     conflict of interest with the audit client.
       (4) Additions by rule.--After conducting the review 
     required by paragraph (3) and at any other time, the 
     Commission may, by rule consistent with the protection of 
     investors and the public interest, modify the list of 
     prohibited nonaudit services under paragraph (1).
       (5) Report.--The Commission shall report to the Committee 
     on Financial Services of the House of Representatives and the 
     Committee on Banking, Housing, and Urban Affairs of the 
     Senate on its conduct of any reviews as required by this 
     section. The report shall include a discussion of regulatory 
     or legislative steps that are recommended or that may be 
     necessary to address concerns identified in the study.
       (6) Definitions.--For purposes of this subsection:
       (A) Financial information system design or 
     implementation.--The term ``financial information systems 
     design or implementation'' means designing or implementing a 
     hardware or software system used to generate information that 
     is significant to the audit client's financial statements 
     taken as a whole, not including services an accountant 
     performs in connection with the assessment, design, and 
     implementation of internal accounting controls and risk 
     management controls.
       (B) Internal audit services.--The term ``internal audit 
     services'' means internal audit services for an audit client 
     or an affiliate of an audit client, not including 
     nonrecurring evaluations of discrete items or programs and 
     operational internal audits unrelated to the internal 
     accounting controls, financial systems, or financial 
     statements.
       (7) Deadline for rulemaking.--The Commission shall--
       (A) within 90 days after the date of enactment of this Act, 
     propose, and
       (B) within 270 days after such date, prescribe,
     the revisions to its regulations required by this subsection.
       (d) Registration With Public Regulatory Organization.--
       (1) Registration required.--Beginning 1 year after the date 
     on which all initial members of the public regulatory 
     organization have been selected in accordance with subsection 
     (b), it shall be unlawful for a public accounting firm to 
     furnish an accountant's report on any financial statement, 
     report, or other document required to be filed with the 
     Commission under any Federal securities law, unless such firm 
     is registered with the public regulatory organization.
       (2) Application for registration.--A public accounting firm 
     may be registered under this subsection by filing with the 
     public regulatory organization an application for 
     registration in such form and containing such information as 
     the public regulatory organization, by rule, may prescribe. 
     Each application shall include--
       (A) the names of all clients of the public accounting firm 
     for which the firm furnishes accountant's reports on 
     financial statements, reports, or other documents filed with 
     the Commission;
       (B) financial information of the public accounting firm for 
     its most recent fiscal year, including its annual revenues 
     from accounting and auditing services, its assets, and its 
     liabilities;
       (C) a statement of the public accounting firm's policies 
     and procedures with respect to quality control of its 
     accounting and auditing practice;
       (D) information relating to criminal, civil, or 
     administrative actions or formal disciplinary proceedings 
     pending against such firm, or any person associated with such 
     firm, in connection with an accountant's report furnished by 
     such firm;
       (E) a list of persons associated with the public accounting 
     firm who are certified public accountants, including any 
     State professional license or certification number for each 
     such person; and
       (F) such other information that is reasonably related to 
     the public regulatory organization's responsibilities as the 
     public regulatory organization considers necessary or 
     appropriate.
       (3) Periodic reports.--Once in each year, or more 
     frequently as the public regulatory organization, by rule, 
     may prescribe, each public accounting firm registered with 
     the public regulatory organization shall submit reports to 
     the public regulatory organization updating the information 
     contained in its application for registration and containing 
     such additional information that is reasonably related to the 
     public regulatory organization's responsibilities as the 
     public regulatory organization, by rule, may prescribe.
       (4) Exemptions.--The Commission, by rule or order, upon its 
     own motion or upon application, may conditionally or 
     unconditionally exempt any public accounting firm or any 
     accountant's report, or any class of public accounting firms 
     or any class of accountant's reports, from any provisions of 
     this section or the rules or regulations issued hereunder, if 
     the Commission finds that such exemption is consistent with 
     the public interest, the protection of investors, and the 
     purposes of this section.
       (5) Confidentiality.--The public regulatory organization 
     may, by rule, designate portions of the filings required 
     pursuant to paragraphs (2) and (3) as privileged and 
     confidential. This paragraph shall be considered to be a 
     statute described in section 552(b)(3)(B) of title 5, United 
     States Code, for purposes of that section 552.
       (e) Duties Regarding Quality Control.--
       (1) Objectives; attainment.--The public regulatory 
     organization shall seek to promote a high level of 
     professional conduct among public accounting firms registered 
     with the public regulatory organization, to improve the 
     quality of audit services provided by such firms, and, in 
     general, to protect investors and promote the public 
     interest. The public regulatory organization shall attain 
     these objectives--
       (A) by establishing standards regarding the performance of 
     financial audits in accordance with the requirements of 
     paragraph (2);
       (B) by the direct performance of quality reviews and 
     inspections of audits in accordance with the requirements of 
     paragraphs (3) and (4); and
       (C) by the supervision and oversight of peer review 
     organizations in accordance with the requirements of 
     paragraph (5).
       (2) Audit quality standards.--
       (A) In general.--The public regulatory organization shall, 
     by rule, establish quality standards applicable to the 
     conduct of audit services provided by public accounting 
     firms. Such standards shall include--
       (i) independence standards;
       (ii) quality control standards;
       (iii) professional and ethical standards; and
       (iv) such other standards as the public regulatory 
     organization determines to be necessary to carry out the 
     objectives specified in paragraph (1).
       (B) Specific contents of standards.--In establishing the 
     quality standards required by subparagraph (A), the public 
     regulatory organization shall also establish--
       (i) procedures for the monitoring by public accounting 
     firms of their compliance with professional ethical standards 
     established by the public regulatory organization, including 
     its independence from its audit clients;

[[Page 5531]]

       (ii) procedures for the assignment of personnel to audit 
     engagements;
       (iii) procedures for consultation within a public 
     accounting firm or with other accountants relating to 
     accounting and auditing questions;
       (iv) procedures for the supervision of audit work;
       (v) procedures for the review of decisions to accept and 
     retain audit clients;
       (vi) procedures for the internal inspection of the public 
     accounting firms own compliance with such policies and 
     procedures;
       (vii) requirements for public accounting firms to prepare 
     and maintain for a period of no less than 7 years, audit work 
     papers and other information related to any audit report, in 
     sufficient detail to support the conclusions reached in an 
     audit report issued by a public accounting firm; and
       (viii) procedures establishing ``concurring'' or ``second'' 
     partner review systems for the evaluation and review of audit 
     work by a partner that is not in charge of the conduct of the 
     audit.
       (3) Direct reviews of public accounting firms.--The public 
     regulatory organization shall, by rule, establish procedures 
     for the conduct of a continuing program of inspections of 
     each public accounting firm registered with the public 
     regulatory organization to assess compliance by such firm, 
     and by persons associated with such firm, with applicable 
     provisions of this Act, the securities laws, the rules and 
     regulations thereunder, the rules adopted by the public 
     regulatory organization, and professional standards. Except 
     as provided in paragraph (5), the public regulatory 
     organization shall annually inspect each public accounting 
     firm that audits more than 100 issuers on an ongoing annual 
     basis, to the extent practicable, and all other public 
     accounting firms no less than at least once every 3 years. In 
     conducting such inspections, the public regulatory 
     organization shall, among other things, inspect selected 
     audit and review engagements. The review shall include 
     evaluations of the firm's quality control procedures and 
     compliance with all legal and ethical requirements. In 
     connection with each review, the public regulatory 
     organization shall prepare a report of its findings and such 
     report, accompanied by any letter of comments by the public 
     regulatory organization or reviewer and any letter of 
     response from the firm under review, shall be made available 
     to the public. The public regulatory organization shall take 
     any appropriate disciplinary or remedial action based on its 
     findings after completion of such review and an opportunity 
     for a hearing.
       (4) Quality review of individual audits.--The public 
     regulatory organization shall, by rule, establish procedures 
     for the conduct of direct inspection and review of individual 
     audits of issuers and standards under which it will evaluate 
     audit service quality. A finding by the public regulatory 
     organization that an individual audit of an issuer did or did 
     not meet the standards of the public regulatory organization 
     with respect to the quality of the audit shall not be 
     construed in any action arising out of the securities laws as 
     indicative of compliance or noncompliance with the securities 
     laws or with any standard of liability arising thereunder.
       (5) Use of professional peer review organizations.--
       (A) Option to utilize peer review organizations.--The 
     public regulatory organization may, by rule, establish 
     requirements for the use of peer review organizations for the 
     purposes of conducting the continuing program of inspections 
     to assess compliance as required by paragraph (3) of each 
     public accounting firm registered with the public regulatory 
     organization. Such rule shall provide for appropriate 
     oversight and supervision of such peer review organization by 
     the public regulatory organization to ensure that such 
     inspections meet the requirements of such paragraph.
       (B) Penalties.--If the public regulatory organization 
     establishes requirements for the conduct of peer reviews 
     under subparagraph (A), the violation by a public accounting 
     firm or a person associated with such a firm of a rule of the 
     peer review organization to which the firm belongs shall 
     constitute grounds for--
       (i) the imposition of disciplinary sanctions by the public 
     regulatory organization pursuant to subsection (g); and
       (ii) denial to the public accounting firm or person 
     associated with such firm of the privilege of appearing or 
     practicing before the Commission.
       (6) Confidentiality.--Except as otherwise provided by this 
     section, all reports, memoranda, and other information 
     provided to the public regulatory organization solely for 
     purposes of paragraph (3) or (4), or to a peer review 
     organization certified by the public regulatory organization, 
     shall be confidential, unless such confidentiality is 
     expressly waived by the person or entity that created or 
     provided the information.
       (f) Disciplinary Duties of public regulatory 
     organization.--The public regulatory organization shall have 
     the following duties and powers:
       (1) Investigations and disciplinary proceedings.--The 
     public regulatory organization shall establish fair 
     procedures for investigating and disciplining public 
     accounting firms registered with the public regulatory 
     organization, and persons associated with such firms, for 
     violations of the Federal securities laws, the rules or 
     regulations issued thereunder, the rules adopted by the 
     public regulatory organization, or professional standards in 
     connection with the preparation of an accountant's report on 
     a financial statement, report, or other document filed with 
     the Commission.
       (2) Investigation procedures.--
       (A) In general.--The public regulatory organization may 
     conduct an investigation of any act, practice, or omission by 
     a public accounting firm registered with the public 
     regulatory organization, or by any person associated with 
     such firm, in connection with the preparation of an 
     accountant's report on a financial statement, report, or 
     other document filed with the Commission that may violate any 
     applicable provision of the Federal securities laws, the 
     rules and regulations issued thereunder, the rules adopted by 
     the public regulatory organization, or professional 
     standards, whether such act, practice, or omission is the 
     subject of a criminal, civil, or administrative action, or a 
     disciplinary proceeding, or otherwise is brought to the 
     attention of the public regulatory organization.
       (B) Powers of public regulatory organization.--For purposes 
     of an investigation under this paragraph, the public 
     regulatory organization may, in addition to such other 
     actions as the public regulatory organization determines to 
     be necessary or appropriate--
       (i) require the testimony of any person associated with a 
     public accounting firm registered with the public regulatory 
     organization, with respect to any matter which the public 
     regulatory organization considers relevant or material to the 
     investigation;
       (ii) require the production of audit workpapers and any 
     other document or information in the possession of a public 
     accounting firm registered with the public regulatory 
     organization, or any person associated with such firm, 
     wherever domiciled, that the public regulatory organization 
     considers relevant or material to the investigation, and may 
     examine the books and records of such firm to verify the 
     accuracy of any documents or information so supplied; and
       (iii) request the testimony of any person and the 
     production of any document in the possession of any person, 
     including a client of a public accounting firm registered 
     with the public regulatory organization, that the public 
     regulatory organization considers relevant or material to the 
     investigation.
       (C) Suspension or revocation of registration for 
     noncompliance.--The refusal of any person associated with a 
     public accounting firm registered with the public regulatory 
     organization to testify, or the refusal of any such person to 
     produce documents or otherwise cooperate with the public 
     regulatory organization, in connection with an investigation 
     or hearing under this section, shall be cause for suspending 
     or barring such person from associating with a public 
     accounting firm registered with the public regulatory 
     organization, or such other appropriate sanction authorized 
     by paragraph (3)(B) as the public regulatory organization 
     shall determine. The refusal of any public accounting firm 
     registered with the public regulatory organization to produce 
     documents or otherwise cooperate with the public regulatory 
     organization, in connection with an investigation or hearing 
     under this section, shall be cause for the suspension or 
     revocation of the registration of such firm, or such other 
     appropriate sanction authorized by paragraph (3)(B) as the 
     public regulatory organization shall determine.
       (D) Referral to commission.--
       (i) In general.--If the public regulatory organization is 
     unable to conduct or complete an investigation or hearing 
     under this section because of the refusal of any client of a 
     public accounting firm registered with the public regulatory 
     organization, or any other person, to testify, produce 
     documents, or otherwise cooperate with the public regulatory 
     organization in connection with such investigation, the 
     public regulatory organization shall report such refusal to 
     the Commission.
       (ii) Investigation.--The Commission may designate the 
     public regulatory organization or one or more officers of the 
     public regulatory organization who shall be empowered, in 
     accordance with such procedures as the Commission may adopt, 
     to subpoena witnesses, compel their attendance, and require 
     the production of any books, papers, correspondence, 
     memoranda, or other records relevant to any investigation by 
     the public regulatory organization. Attendance of witnesses 
     and the production of any records may be required from any 
     place in the United States or any State at any designated 
     place of hearing. Enforcement of a subpoena issued by the 
     public regulatory organization, or an officer of the public 
     regulatory organization, pursuant to this subparagraph shall 
     occur in the manner provided for in section 21(c). 
     Examination of witnesses subpoenaed pursuant to this 
     subparagraph shall be conducted before an officer authorized 
     to administer oaths by the laws of the United States or of 
     the place where the examination is held.

[[Page 5532]]

       (iii) Referrals to commission.--The public regulatory 
     organization may refer any investigation to the Commission, 
     as the public regulatory organization deems appropriate.
       (E) Immunity from civil liability.--An employee of the 
     public regulatory organization engaged in carrying out an 
     investigation or disciplinary proceeding under this section 
     shall be immune from any civil liability arising out of such 
     investigation or disciplinary proceeding in the same manner 
     and to the same extent as an employee of the Federal 
     Government in similar circumstances.
       (3) Disciplinary procedures.--
       (A) Decision to discipline.--In a proceeding by the public 
     regulatory organization to determine whether a public 
     accounting firm, or a person associated with such firm, 
     should be disciplined, the public regulatory organization 
     shall bring specific charges, notify such firm or person of 
     the charges, give such firm or person an opportunity to 
     defend against such charges, and keep a record of such 
     actions.
       (B) Sanctions.--If the public regulatory organization, 
     after conducting a review and providing an opportunity for a 
     hearing, finds that a public accounting firm, or a person 
     associated with such firm, has engaged in any act, practice, 
     or omission in violation of the Federal securities laws, the 
     rules or regulations issued thereunder, the rules adopted by 
     the public regulatory organization, or professional 
     standards, the public regulatory organization may impose such 
     disciplinary sanctions as it deems appropriate, including--
       (i) temporary or permanent revocation or suspension of 
     registration under this section;
       (ii) limitation of activities, functions, and operations;
       (iii) fine;
       (iv) censure;
       (v) in the case of a person associated with a public 
     accounting firm, suspension or bar from being associated with 
     a public accounting firm registered with the public 
     regulatory organization; and
       (vi) any such other disciplinary sanction or remedial 
     action as the public regulatory organization has established 
     by rule that the public regulatory organization determines to 
     be appropriate to prevent the recurrence of the violation.
       (C) Statement required.--A determination by the public 
     regulatory organization to impose a disciplinary sanction 
     shall be supported by a written statement by the public 
     regulatory organization that shall be made available to the 
     public and that sets forth--
       (i) any act or practice in which the public accounting firm 
     or person associated with such firm has been found to have 
     engaged, or which such firm or person has been found to have 
     omitted;
       (ii) the specific provision of the Federal securities laws, 
     the rules or regulations issued thereunder, the rules adopted 
     by the public regulatory organization, or professional 
     standards which any such act, practice, or omission is deemed 
     to violate; and
       (iii) the sanction imposed and the reasons therefor.
       (D) Prohibition on association.--It shall be unlawful--
       (i) for any person as to whom a suspension or bar is in 
     effect willfully to be or to become associated with a public 
     accounting firm registered with the public regulatory 
     organization, in connection with the preparation of an 
     accountant's report on any financial statement, report, or 
     other document filed with the Commission, without the consent 
     of the public regulatory organization or the Commission; and
       (ii) for any public accounting firm registered with the 
     public regulatory organization to permit such a person to 
     become, or remain, associated with such firm without the 
     consent of the public regulatory organization or the 
     Commission, if such firm knew or, in the exercise of 
     reasonable care should have known, of such suspension or bar.
       (4) Reporting of sanctions.--If the public regulatory 
     organization imposes a disciplinary sanction against a public 
     accounting firm, or a person associated with such firm, the 
     public regulatory organization shall report such sanction to 
     the Commission, to the appropriate State or foreign licensing 
     public regulatory organization or public regulatory 
     organizations with which such firm or such person is licensed 
     or certified to practice public accounting, and to the 
     public. The information reported shall include--
       (A) the name of the public accounting firm, or person 
     associated with such firm, against whom the sanction is 
     imposed;
       (B) a description of the acts, practices, or omissions upon 
     which the sanction is based;
       (C) the nature of the sanction; and
       (D) such other information respecting the circumstances of 
     the disciplinary action (including the name of any client of 
     such firm affected by such acts, practices, or omissions) as 
     the public regulatory organization deems appropriate.
       (5) Discovery and admissibility of public regulatory 
     organization material.--
       (A) Discoverability.--
       (i) In general.--Except as provided in subparagraph (C), 
     all reports, memoranda, and other information prepared, 
     collected, or received by the public regulatory organization, 
     and the deliberations and other proceedings of the public 
     regulatory organization and its employees and agents in 
     connection with an investigation or disciplinary proceeding 
     under this section shall not be subject to any form of civil 
     discovery, including demands for production of documents and 
     for testimony of individuals, in connection with any 
     proceeding in any State or Federal court, or before any State 
     or Federal administrative agency. This subparagraph shall not 
     apply to any information provided to the public regulatory 
     organization that would have been subject to discovery from 
     the person or entity that provided it to the public 
     regulatory organization, but is no longer available from that 
     person or entity.
       (ii) Exemption.--Submissions to the public regulatory 
     organization by or on behalf of a public accounting firm or 
     person associated with such a firm or on behalf of any other 
     participant in a public regulatory organization proceeding 
     (other than a public hearing), including documents generated 
     by the public regulatory organization itself, shall be exempt 
     from discovery to the same extent as the material described 
     in clause (i), whether in the possession of the public 
     regulatory organization or any other person, if such 
     submission--

       (I) is prepared specifically for the purpose of the public 
     regulatory organization proceeding; and
       (II) addresses the merits of the issues under investigation 
     by the public regulatory organization.

       (iii) Hearings public.--Except as otherwise ordered by the 
     public regulatory organization on its own motion or on the 
     motion of a party, all hearings under this paragraph shall be 
     open to the public.
       (B) Admissibility.--
       (i) In general.--Except as provided in subparagraph (C), 
     all reports, memoranda, and other information prepared, 
     collected, or received by the public regulatory organization, 
     the deliberations and other proceedings of the public 
     regulatory organization and its employees and agents in 
     connection with an investigation or disciplinary proceeding 
     under this section, the fact that an investigation or 
     disciplinary proceeding has been commenced, and the public 
     regulatory organization's determination with respect to any 
     investigation or disciplinary proceeding shall be 
     inadmissible in any proceeding in any State or Federal court 
     or before any State or Federal administrative agency.
       (ii) Treatment of certain documents.--Submissions to the 
     public regulatory organization by or on behalf of a public 
     accounting firm or person associated with such a firm or on 
     behalf of any other participant in a public regulatory 
     organization proceeding, including documents generated by the 
     public regulatory organization itself, shall be inadmissible 
     to the same extent as the material described in clause (i), 
     if such submission--

       (I) is prepared specifically for the purpose of the public 
     regulatory organization proceedings; and
       (II) addresses the merits of the issues under investigation 
     by the public regulatory organization.

       (C) Availability and admissibility of information.--
       (i) In general.--All information referred to in 
     subparagraphs (A) and (B) shall be--

       (I) available to the Commission;
       (II) available to any other Federal department or agency in 
     connection with the exercise of its regulatory authority to 
     the extent that such information would be available to such 
     agency from the Commission as a result of a Commission 
     enforcement investigation;
       (III) available to Federal and State authorities in 
     connection with any criminal investigation or proceeding;
       (IV) admissible in any action brought by the Commission or 
     any other Federal department or agency pursuant to its 
     regulatory authority, to the extent that such information 
     would be available to such agency from the Commission as a 
     result of a Commission enforcement investigation and in any 
     criminal action; and
       (V) available to State licensing public regulatory 
     organizations to the extent authorized in paragraph (6).

       (ii) Other limitations.--Any documents or other information 
     provided to the Commission or other authorities pursuant to 
     clause (i) shall be subject to the limitations on discovery 
     and admissibility set forth in subparagraphs (A) and (B).
       (6) Participation by state licensing public regulatory 
     organizations.--
       (A) Notice.--When the public regulatory organization 
     institutes an investigation pursuant to paragraph (2)(A), it 
     shall notify the State licensing public regulatory 
     organizations in the States in which the public accounting 
     firm or person associated with such firm engaged in the act 
     or failure to act alleged to have violated professional 
     standards, of the pendency of the investigation, and shall 
     invite the State licensing public regulatory organizations to 
     participate in the investigation.
       (B) Acceptance by state public regulatory organization.--If 
     a State licensing public regulatory organization elects to 
     join in the investigation, its representatives shall 
     participate, pursuant to rules established by the public 
     regulatory organization, in investigating the matter and in 
     presenting the evidence justifying the charges in any hearing 
     pursuant to paragraph (3)(A).

[[Page 5533]]

       (C) State sanctions permitted.--If the public regulatory 
     organization or the Commission imposes a sanction upon a 
     public accounting firm or person associated with such a firm, 
     and that determination either is not subjected to judicial 
     review or is upheld on judicial review, a State licensing 
     public regulatory organization may impose a sanction on the 
     basis of the public regulatory organization's report pursuant 
     to paragraph (4). Any sanction imposed by the State licensing 
     public regulatory organization under this clause shall be 
     inadmissible in any proceeding in any State or Federal court 
     or before any State or Federal administrative agency.
       (g) Review and Approval of Rules.--
       (1) Submission, publication, and comment.--Each recognized 
     public regulatory organization shall file with the 
     Commission, in accordance with such rules as the Commission 
     may prescribe, copies of any proposed rule or any proposed 
     change in, addition to, or deletion from the rules of such 
     recognized public regulatory organization (hereinafter in 
     this subsection collectively referred to as a ``proposed rule 
     change'') accompanied by a concise general statement of the 
     basis and purpose of such proposed rule change. The 
     Commission shall, upon the filing of any proposed rule 
     change, publish notice thereof together with the terms of 
     substance of the proposed rule change or a description of the 
     subjects and issues involved. The Commission shall give 
     interested persons an opportunity to submit written data, 
     views, and arguments concerning such proposed rule change. No 
     proposed rule change shall take effect unless approved by the 
     Commission or otherwise permitted in accordance with the 
     provisions of this subsection.
       (2) Approval or proceedings.--Within 35 days of the date of 
     publication of notice of the filing of a proposed rule change 
     in accordance with paragraph (1) of this subsection, or 
     within such longer period as the Commission may designate up 
     to 90 days of such date if it finds such longer period to be 
     appropriate and publishes its reasons for so finding or as to 
     which the recognized public regulatory organization consents, 
     the Commission shall--
       (A) by order approve such proposed rule change; or
       (B) institute proceedings to determine whether the proposed 
     rule change should be disapproved. Such proceedings shall 
     include notice of the grounds for disapproval under 
     consideration and opportunity for hearing and be concluded 
     within 180 days of the date of publication of notice of the 
     filing of the proposed rule change. At the conclusion of such 
     proceedings the Commission, by order, shall approve or 
     disapprove such proposed rule change. The Commission may 
     extend the time for conclusion of such proceedings for up to 
     60 days if it finds good cause for such extension and 
     publishes its reasons for so finding or for such longer 
     period as to which the recognized public regulatory 
     organization consents.
       (3) Basis for approval or disapproval.--The Commission 
     shall approve a proposed rule change of a recognized public 
     regulatory organization if it finds that such proposed rule 
     change is consistent with the requirements of this Act and 
     the rules and regulations thereunder applicable to such 
     organization. The Commission shall disapprove a proposed rule 
     change of a recognized public regulatory organization if it 
     does not make such finding. The Commission shall not approve 
     any proposed rule change prior to the 30th day after the date 
     of publication of notice of the filing thereof, unless the 
     Commission finds good cause for so doing and publishes its 
     reasons for so finding.
       (4) Rules effective upon filing.--
       (A) Notwithstanding the provisions of paragraph (2) of this 
     subsection, a proposed rule change may take effect upon 
     filing with the Commission if designated by the recognized 
     public regulatory organization as (i) constituting a stated 
     policy, practice, or interpretation with respect to the 
     meaning, administration, or enforcement of an existing rule 
     of the recognized public regulatory organization, (ii) 
     establishing or changing a due, fee, or other charge imposed 
     by the recognized public regulatory organization, or (iii) 
     concerned solely with the administration of the recognized 
     public regulatory organization or other matters which the 
     Commission, by rule, consistent with the public interest and 
     the purposes of this subsection, may specify as outside the 
     provisions of such paragraph (2).
       (B) Notwithstanding any other provision of this subsection, 
     a proposed rule change may be put into effect summarily if it 
     appears to the Commission that such action is necessary for 
     the protection of investors, or otherwise in accordance with 
     the purposes of this title. Any proposed rule change so put 
     into effect shall be filed promptly thereafter in accordance 
     with the provisions of paragraph (1) of this subsection.
       (C) Any proposed rule change of a recognized public 
     regulatory organization which has taken effect pursuant to 
     subparagraph (A) or (B) of this paragraph may be enforced by 
     such organization to the extent it is not inconsistent with 
     the provisions of this Act, the securities laws, the rules 
     and regulations thereunder, and applicable Federal and State 
     law. At any time within 60 days of the date of filing of such 
     a proposed rule change in accordance with the provisions of 
     paragraph (1) of this subsection, the Commission summarily 
     may abrogate the change in the rules of the recognized public 
     regulatory organization made thereby and require that the 
     proposed rule change be refiled in accordance with the 
     provisions of paragraph (1) of this subsection and reviewed 
     in accordance with the provisions of paragraph (2) of this 
     subsection, if it appears to the Commission that such action 
     is necessary or appropriate in the public interest, for the 
     protection of investors, or otherwise in furtherance of the 
     purposes of this Act. Commission action pursuant to the 
     preceding sentence shall not affect the validity or force of 
     the rule change during the period it was in effect, shall not 
     be subject to court review, and shall not be deemed to be 
     ``final agency action'' for purposes of section 704 of title 
     5, United States Code.
       (h) Commission Action To Change Rules.--The Commission, by 
     rule, may abrogate, add to, and delete from (hereinafter in 
     this subsection collectively referred to as ``amend'') the 
     rules of a recognized public regulatory organization as the 
     Commission deems necessary or appropriate to insure the fair 
     administration of the recognized public regulatory 
     organization, to conform its rules to requirements of this 
     Act, the securities laws, and the rules and regulations 
     thereunder applicable to such organization, or otherwise in 
     furtherance of the purposes of this Act, in the following 
     manner:
       (1) The Commission shall notify the recognized public 
     regulatory organization and publish notice of the proposed 
     rulemaking in the Federal Register. The notice shall include 
     the text of the proposed amendment to the rules of the 
     recognized public regulatory organization and a statement of 
     the Commission's reasons, including any pertinent facts, for 
     commencing such proposed rulemaking.
       (2) The Commission shall give interested persons an 
     opportunity for the oral presentation of data, views, and 
     arguments, in addition to an opportunity to make written 
     submissions. A transcript shall be kept of any oral 
     presentation.
       (3) A rule adopted pursuant to this subsection shall 
     incorporate the text of the amendment to the rules of the 
     recognized public regulatory organization and a statement of 
     the Commission's basis for and purpose in so amending such 
     rules. This statement shall include an identification of any 
     facts on which the Commission considers its determination so 
     to amend the rules of the recognized public regulatory agency 
     to be based, including the reasons for the Commission's 
     conclusions as to any of such facts which were disputed in 
     the rulemaking.
       (4)(A) Except as provided in paragraphs (1) through (3) of 
     this subsection, rulemaking under this subsection shall be in 
     accordance with the procedures specified in section 553 of 
     title 5, United States Code, for rulemaking not on the 
     record.
       (B) Nothing in this subsection shall be construed to impair 
     or limit the Commission's power to make, or to modify or 
     alter the procedures the Commission may follow in making, 
     rules and regulations pursuant to any other authority under 
     the securities laws.
       (C) Any amendment to the rules of a recognized public 
     regulatory organization made by the Commission pursuant to 
     this subsection shall be considered for all purposes to be 
     part of the rules of such recognized public regulatory 
     organization and shall not be considered to be a rule of the 
     Commission.
       (i) Commission Oversight of the PRO.--
       (1) Records and examinations.--A public regulatory 
     organization shall make and keep for prescribed periods such 
     records, furnish such copies thereof, and make and 
     disseminate such reports as the Commission, by rule, 
     prescribes as necessary or appropriate in the public 
     interest, for the protection of investors, or otherwise in 
     furtherance of the purposes of this Act or the securities 
     laws.
       (2) Additional duties; special reviews.--A public 
     regulatory organization shall perform such other duties or 
     functions as the Commission, by rule or order, determines are 
     necessary or appropriate in the public interest or for the 
     protection of investors and to carry out the purposes of this 
     Act and the securities laws, including conducting a special 
     review of a particular public accounting firm's quality 
     control system or a special review of a particular aspect of 
     some or all public accounting firms' quality control systems.
       (3) Annual report; proposed budget.--
       (A) Submission of annual report and budget.--A public 
     regulatory organization shall submit an annual report and its 
     proposed budget to the Commission for review and approval, by 
     order, at such times and in such form as the Commission shall 
     prescribe.
       (B) Contents of annual report.--Each annual report required 
     by subparagraph (A) shall include--
       (i) a detailed description of the activities of the public 
     regulatory organization;
       (ii) the audited financial statements of the public 
     regulatory organization;
       (iii) a detailed explanation of the fees and charges 
     imposed by the public regulatory organization under 
     subsection (b)(9); and
       (iv) such other matters as the public regulatory 
     organization or the Commission deems appropriate.

[[Page 5534]]

       (C) Transmittal of annual report to congress.--The 
     Commission shall transmit each approved annual report 
     received under subparagraph (A) to the Committee on Financial 
     Services of the United States House of Representatives and 
     the Committee on Banking, Housing, and Urban Affairs of the 
     United States Senate. At the same time it transmits a public 
     regulatory organization's annual report under this 
     subparagraph, the Commission shall include a written 
     statement of its views of the functioning and operations of 
     the public regulatory organization.
       (D) Public availability.--Following transmittal of each 
     approved annual report under subparagraph (C), the Commission 
     and the public regulatory organization shall make the 
     approved annual report publicly available.
       (4) Disapproval of election of pro member.--The Commission 
     is authorized, by order, if in its opinion such action is 
     necessary or appropriate in the public interest, for the 
     protection of investors, or otherwise in furtherance of the 
     purposes of this Act or the securities laws, to disapprove 
     the election of any member of a public regulatory 
     organization if the Commission determines, after notice and 
     opportunity for hearing, that the person elected is unfit to 
     serve on the public regulatory organization.
       (j) Clarification of Application of PRO Authority.--The 
     authority granted to any such organization in this section 
     shall only apply to the actions of accountants related to the 
     certification of financial statements required by securities 
     laws and not other actions or actions for other clients of 
     the accounting firm or any accountant that does not certify 
     financial statements for publicly traded companies.
       (k) Deadline for Rulemaking.--The Commission shall--
       (1) within 90 days after the date of enactment of this Act, 
     propose, and
       (2) within 270 days after such date, prescribe,
     rules to implement this section.
       (l) Effective Date; Transition Provisions.--
       (1) Effective date.--Except as provided in paragraph (2), 
     subsection (a) of this section shall be effective with 
     respect to any certified financial statement for any fiscal 
     year that ends more than one year after the Commission 
     recognizes a public regulatory organization pursuant to this 
     section.
       (2) Delay in establishment of board.--If the Commission has 
     failed to recognize any public regulatory organization 
     pursuant to this section within one year after the date of 
     enactment of this Act, the Commission shall perform the 
     duties of such organization with respect to any certified 
     financial statement for any fiscal year that ends before one 
     year after any such board is recognized by the Commission.

     SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

       (a) Rules To Prohibit.--It shall be unlawful in 
     contravention of such rules or regulations as the Commission 
     shall prescribe as necessary and appropriate in the public 
     interest or for the protection of investors for any officer, 
     director, or affiliated person of an issuer of any security 
     registered under section 12 of the Securities Exchange Act of 
     1934 (15 U.S.C. 78l) to take any action to fraudulently 
     influence, coerce, manipulate, or mislead any independent 
     public or certified accountant engaged in the performance of 
     an audit of the financial statements of such issuer for the 
     purpose of rendering such financial statements materially 
     misleading. In any civil proceeding, the Commission shall 
     have exclusive authority to enforce this section and any rule 
     or regulation hereunder.
       (b) No Preemption of Other Law.--The provisions of 
     subsection (a) shall be in addition to, and shall not 
     supersede or preempt, any other provision of law or any rule 
     or regulation thereunder.
       (c) Deadline for Rulemaking.--The Commission shall--
       (1) within 90 days after the date of enactment of this Act, 
     propose, and
       (2) within 270 days after such date, prescribe,
     the rules or regulations required by this section.

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

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

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

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

     SEC. 6. IMPROVED TRANSPARENCY OF CORPORATE DISCLOSURES.

       (a) Modification of Regulations Required.--The Commission 
     shall revise its

[[Page 5535]]

     regulations under the securities laws pertaining to the 
     disclosures required in periodic financial reports and 
     registration statements to require such reports to include 
     adequate and appropriate disclosure of--
       (1) the issuer's off-balance sheet transactions and 
     relationships with unconsolidated entities or other persons, 
     to the extent they are not disclosed in the financial 
     statements and are reasonably likely to materially affect the 
     liquidity or the availability of, or requirements for, 
     capital resources, or the financial condition or results of 
     operations of the issuer; and
       (2) loans extended to officers, directors, or other persons 
     affiliated with the issuer on terms or conditions that are 
     not otherwise available to the public.
       (b) Deadline for Rulemaking.--The Commission shall--
       (1) within 90 days after the date of enactment of this Act, 
     propose, and
       (2) within 270 days after such date, prescribe,

     the revisions to its regulations required by subsection (a).
       (c) Analysis Required.--
       (1) Transparency, completeness, and usefulness of financial 
     statements.--The Commission shall conduct an analysis of the 
     extent to which, consistent with the protection of investors 
     and the public interest, disclosure of additional or 
     reorganized information may be required to improve the 
     transparency, completeness, or usefulness of financial 
     statements and other corporate disclosures filed under the 
     securities laws.
       (2) Alternatives to be considered.--In conducting the 
     analysis required by paragraph (1), the Commission shall 
     consider--
       (A) requiring the identification of the key accounting 
     principles that are most important to the issuer's reported 
     financial condition and results of operation, and that 
     require management's most difficult, subjective, or complex 
     judgments;
       (B) requiring an explanation, where material, of how 
     different available accounting principles applied, the 
     judgments made in their application, and the likelihood of 
     materially different reported results if different 
     assumptions or conditions were to prevail;
       (C) in the case of any issuer engaged in the business of 
     trading non-exchange traded contracts, requiring an 
     explanation of such trading activities when such activities 
     require the issuer to account for contracts at fair value, 
     but for which a lack of market price quotations necessitates 
     the use of fair value estimation techniques;
       (D) establishing requirements relating to the presentation 
     of information in clear and understandable format and 
     language; and
       (E) requiring such other disclosures, included in the 
     financial statements or in other disclosure by the issuer, as 
     would in the Commission's view improve the transparency of 
     such issuer's financial statements and other required 
     corporate disclosures.
       (3) Rules required.--If the Commission, on the basis of the 
     analysis required by this subsection, determines that it is 
     necessary in the public interest or for the protection of 
     investors and would improve the transparency of issuer 
     financial statements, the Commission may prescribe rules 
     reflecting the results of such analysis and the 
     considerations required by paragraph (2). In prescribing such 
     rules, the Commission may seek to minimize the paperwork and 
     cost burden on the issuer consistent with achieving the 
     public interest and investor protection purposes of such 
     rules.

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

       (a) Specific Objectives.--The Commission shall initiate a 
     proceeding to propose changes in its rules and regulations 
     with respect to financial reporting to improve the 
     transparency and clarity of the information available to 
     investors and to require increased financial disclosure with 
     respect to the following:
       (1) Insider relationships and transactions.--Relationships 
     and transactions--
       (A) between the issuer, affiliates of the issuer, and 
     officers, directors, or employees of the issuer or such 
     affiliates; and
       (B) between officers, directors, employees, or affiliates 
     of the issuer and entities that are not otherwise affiliated 
     with the issuer,

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

     SEC. 8. ENHANCED OVERSIGHT OF PERIODIC DISCLOSURES BY 
                   ISSUERS.

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

     SEC. 9. RETENTION OF RECORDS.

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

     SEC. 10. REMOVAL OF UNFIT CORPORATE OFFICERS.

       (a) Removal in Judicial Proceedings.--
       (1) Securities act of 1933.--Section 20(e) of the 
     Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by 
     striking ``substantial unfitness'' and inserting 
     ``unfitness''.
       (2) Securities exchange act of 1934.--Section 21(d)(2) of 
     the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is 
     amended by striking ``substantial unfitness'' and inserting 
     ``unfitness''.
       (b) Removal in Administrative Proceedings.--
       (1) 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:
       ``(f) Authority To Prohibit Persons From Serving as 
     Officers or Directors.--In any cease-and-desist proceeding 
     under subsection (a), the Commission may issue an order to 
     prohibit, conditionally or unconditionally, and permanently 
     or for such period of time as it shall determine, any person 
     who has violated section 17(a)(1) of this title from acting 
     as an officer or director of any issuer that has a class of 
     securities registered pursuant to section 12 of the 
     Securities Exchange Act of 1934 or that is required to file 
     reports pursuant to section 15(d) of that Act if the person's 
     conduct demonstrates unfitness to serve as an officer or 
     director of any such issuer.''.

[[Page 5536]]

       (2) Securities exchange act of 1934.--Section 21C of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-3) is amended 
     by adding at the end the following new subsection:
       ``(f) Authority To Prohibit Persons From Serving as 
     Officers or Directors.--In any cease-and-desist proceeding 
     under subsection (a), the Commission may issue an order to 
     prohibit, conditionally or unconditionally, and permanently 
     or for such period of time as it shall determine, any person 
     who has violated section 10(b) of this title or the rules or 
     regulations thereunder from acting as an officer or director 
     of any issuer that has a class of securities registered 
     pursuant to section 12 of this title or that is required to 
     file reports pursuant to section 15(d) of this title if the 
     person's conduct demonstrates unfitness to serve as an 
     officer or director of any such issuer.''.

     SEC. 11. DISGORGEMENT REQUIRED.

       (a) Administrative Actions.--Within 30 days after the date 
     of enactment of this Act, the Securities and Exchange 
     Commission shall prescribe regulations to require 
     disgorgement, in a proceeding pursuant to its authority under 
     section 21A, 21B, or 21C (15 U.S.C. 78u-1, 78u-2, 78u-3), of 
     salaries, commissions, fees, bonuses, options, profits from 
     securities transactions, and losses avoided through 
     securities transactions obtained by an officer or director of 
     an issuer during or for a fiscal year or other reporting 
     period if such officer or director engaged in misconduct 
     resulting in, or made or caused to be made in, the filing of 
     a financial statement for such fiscal year or reporting 
     period which--
       (1) was at the time, and in the light of the circumstances 
     under which it was made, false or misleading with respect to 
     any material fact; or
       (2) omitted to state a material fact necessary in order to 
     make the statements made, in the light of the circumstances 
     in which they were made, not misleading,
       (b) Judicial Proceedings.--Section 21(d) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by adding 
     at the end the following new paragraph:
       ``(5) Additional disgorgement authority.--In any action or 
     proceeding brought or instituted by the Commission under the 
     securities laws against any person--
       ``(A) for engaging in misconduct resulting in, or making or 
     causing to be made in, the filing of a financial statement 
     which--
       ``(i) was at the time, and in the light of the 
     circumstances under which it was made, false or misleading 
     with respect to any material fact; or
       ``(ii) omitted to state a material fact necessary in order 
     to make the statements made, in the light of the 
     circumstances in which they were made, not misleading; or
       ``(B) for engaging in, causing, or aiding and abetting any 
     other violation of the securities laws or the rules and 
     regulations thereunder,

     such person, in addition to being subject to any other 
     appropriate order, may be required to disgorge any or all 
     benefits received from any source in connection with the 
     conduct constituting, causing, or aiding and abetting the 
     violation, including (but not limited to) salary, 
     commissions, fees, bonuses, options, profits from securities 
     transactions, and losses avoided through securities 
     transactions.''.

     SEC. 12. CEO AND CFO ACCOUNTABILITY FOR DISCLOSURE.

       (a) Regulations Required.--The Securities and Exchange 
     Commission shall by rule require, for each company filing 
     periodic reports under section 13 or 15(d) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the 
     principal executive officer or officers and the principal 
     financial officer or officers, or persons performing similar 
     functions, certify in each annual or quarterly report filed 
     or submitted under either such section of such Act that--
       (1) the signing officer has reviewed the report;
       (2) based on the officer's knowledge, the report does not 
     contain any untrue statement of a material fact or omit to 
     state a material fact necessary in order to make the 
     statements made, in light of the circumstances under which 
     such statements were made, not misleading;
       (3) based on such officer's knowledge, the financial 
     statements, and other financial information included in the 
     report, fairly present in all material respects the financial 
     condition and results of operations of the issuer as of, and 
     for, the periods presented in the report;
       (4) the signing officers--
       (A) are responsible for establishing and maintaining 
     internal controls;
       (B) have designed such internal controls to ensure that 
     material information relating to the issuer and its 
     consolidated subsidiaries is made known to such officers by 
     others within those entities, particularly during the period 
     in which the periodic reports are being prepared;
       (C) have evaluated the effectiveness of the issuer's 
     internal controls as of a date within 90 days prior to the 
     report; and
       (D) have presented in the report their conclusions about 
     the effectiveness of their internal controls based on their 
     evaluation as of that date;
       (5) the signing officers have disclosed to the issuer's 
     auditors and the audit committee of the board of directors 
     (or persons fulfilling the equivalent function)--
       (A) all significant deficiencies in the design or operation 
     of internal controls which could adversely affect the 
     issuer's ability to record, process, summarize, and report 
     financial data and have identified for the issuer's auditors 
     any material weaknesses in internal controls; and
       (B) any fraud, whether or not material, that involves 
     management or other employees who have a significant role in 
     the issuer's internal controls; and
       (6) the signing officers have indicated in the report 
     whether or not there were significant changes in internal 
     controls or in other factors that could significantly affect 
     internal controls subsequent to the date of their evaluation, 
     including any corrective actions with regard to significant 
     deficiencies and material weaknesses.
       (b) Deadline.--The rules required by subsection (a) shall 
     be effective not later than 30 days after the date of 
     enactment of this Act.

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

       (a) Proceeds of Enron and Andersen Enforcement Actions.--If 
     in any administrative or judicial proceeding brought by the 
     Securities and Exchange Commission against--
       (1) the Enron Corporation, any subsidiary or affiliate of 
     such Corporation, or any officer, director, or principal 
     shareholder of such Corporation, subsidiary, or affiliate for 
     any violation of the securities laws; or
       (2) Arthur Andersen L.L.C., any subsidiary or affiliate of 
     Arthur Andersen L.L.C., or any general or limited partner of 
     Arthur Andersen L.L.C., or such subsidiary or affiliate, for 
     any violation of the securities laws with respect to any 
     services performed for or in relation to the Enron 
     Corporation, any subsidiary or affiliate of such Corporation, 
     or any officer, director, or principal shareholder of such 
     Corporation, subsidiary, or affiliate;

     the Commission obtains an order providing for an accounting 
     and disgorgement of funds, such disgorgement fund (including 
     any addition to such fund required or permitted under this 
     section) shall be allocated in accordance with the 
     requirements of this section.
       (b) Priority for Former Enron Employees.--The Commission 
     shall, by order, establish an allocation system for the 
     disgorgement fund. Such system shall provide that, in 
     allocating the disgorgement fund amount the victims of the 
     securities laws violations described in subsection (a), the 
     first priority shall be given to individuals who were 
     employed by the Enron Corporation, or a subsidiary or 
     affiliate of such Corporation, and who were participants in 
     an individual account plan established by such Corporation, 
     subsidiary, or affiliate. Such allocations among such 
     individuals shall be in proportion to the extent to which the 
     nonforfeitable accrued benefit of each such individual under 
     the plan was invested in the securities of such Corporation, 
     subsidiary, or affiliate.
       (c) Addition of Civil Penalties.--If, in any proceeding 
     described in subsection (a), the Commission assesses and 
     collects any civil penalty, the Commission shall, 
     notwithstanding section 21(d)(3)(C)(i) or 21A(d)(1) of the 
     Securities Exchange Act of 1934, or any other provision of 
     the securities laws, be payable to the disgorgement fund.
       (d) Acceptance of Additional Donations.--The Commission is 
     authorized to accept, hold, administer, and utilize gifts, 
     bequests and devises of property, both real and personal, to 
     the United States for the disgorgement fund. Gifts, bequests, 
     and devises of money and proceeds from sales of other 
     property received as gifts, bequests, or devises shall be 
     deposited in the disgorgement fund and shall be available for 
     allocation in accordance with subsection (b).
       (e) Definitions.--As used in this section:
       (1) Disgorgement fund.--The term ``disgorgement fund'' 
     means a disgorgement fund established in any administrative 
     or judicial proceeding described in subsection (a).
       (2) Subsidiary or affiliate.--The term ``subsidiary or 
     affiliate'' when used in relation to a person means any 
     entity that controls, is controlled by, or is under common 
     control with such person.
       (3) Officer, director, or principal shareholder.--The term 
     ``officer, director, or principal shareholder'' when used in 
     relation to the Enron Corporation, or any subsidiary or 
     affiliate of such Corporation, means any person that is 
     subject to the requirements of section 16 of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78p) in relation to the Enron 
     Corporation, or any subsidiary or affiliate of such 
     Corporation.
       (4) Nonforfeitable; accrued benefit; individual account 
     plan.--The terms ``nonforfeitable'', ``accrued benefit'', and 
     ``individual account plan'' have the meanings provided such 
     terms, respectively, in paragraphs (19), (23), and (34) of 
     section 3 of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1002 (19), (23), (34)).

     SEC. 14. AUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES 
                   AND EXCHANGE COMMISSION.

       In addition to any other funds authorized to be 
     appropriated to the Securities and Exchange Commission, there 
     are authorized to

[[Page 5537]]

     be appropriated to carry out the functions, powers, and 
     duties of the Commission, $776,000,000 for fiscal year 2003, 
     of which--
       (1) not less that $134,000,000 shall be available for the 
     Division of Corporate Finance and for the Office of Chief 
     Accountant;
       (2) not less than $326,000,000 shall be available for the 
     Division of Enforcement; and
       (3) not less than $76,000,000 shall be available to 
     implement section 8 of the Investor and Capital Markets Fee 
     Relief Act, relating to pay comparability.

     SEC. 15. ANALYST CONFLICTS OF INTEREST.

       (a) Study and Review Required.--The Securities and Exchange 
     Commission shall conduct a study and review of any final 
     rules by any self-regulatory organization registered with the 
     Commission pursuant to section 19 of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78s) related to matters involving 
     equity research analysts conflicts of interest. Such study 
     and report shall include a review of the effectiveness of 
     such final rules in addressing matters relating to the 
     objectivity and integrity of equity research analyst reports 
     and recommendations.
       (b) Report Required.--The Securities and Exchange 
     Commission shall submit a report to the Committee on 
     Financial Services of the House of Representatives and the 
     Committee on Banking, Housing, and Urban Affairs of the 
     Senate on such study and review no later than 180 days after 
     any such final rules by any self-regulatory organization 
     registered with the Commission pursuant to section 19 of the 
     Securities Exchange Act of 1934 are approved by the 
     Commission. Such report shall include recommendations to the 
     Congress, including any recommendations for additional self-
     regulatory organization rulemaking regarding matters 
     involving equity research analysts. The Commission shall 
     annually submit an update on such review.
       (c) Additional Rules Required.--Unless the final rules 
     reviewed by the Commission under subsections (a) and (b) 
     contain the following provisions, the Commission shall, by 
     rule--
       (1) prohibit equity research analysts from--
       (A) holding any beneficial interest in any equity security 
     (as such term in defined in section 3(a)(11) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(11)) in any 
     issuer covered by such analyst; and
       (B) receiving compensation based on the investment banking 
     revenues of the firm with which the analyst is associated, or 
     on the investment banking revenues of such firm and its 
     affiliates, except that this prohibition shall not prohibit 
     such an analyst from receiving compensation based on the 
     overall revenues of such firm or of such firm and its 
     affiliates;
       (2) prohibit the investment banking department of such firm 
     from having any input in the compensation, hiring, firing, or 
     promotion of analysts; and
       (3) require such self-regulatory organizations--
       (A) to establish criteria for evaluating analyst research 
     quality; and
       (B) to require analyst compensation to be based principally 
     on the quality of the equity research analyst's research.

     SEC. 16. INDEPENDENT DIRECTORS.

       (a) Rulemaking Required.--The Commission shall adopt rules, 
     effective no later than 6 months after the date of enactment 
     of this Act, to require that the independent directors on the 
     board of directors of any issuer of securities registered 
     under section 12 of the Securities Exchange Act of 1934 (15 
     U.S.C. 78l) be nominated for election by a nominating 
     committee that is composed exclusively of other independent 
     directors of such issuer.
       (b) Independence.--The rules required by subsection (a) 
     shall require the same degree of independence for service on 
     the nominating committee of an issuer as is required for 
     purposes of service on the audit committee of an issuer by 
     the listing standards concerning corporate governance of the 
     exchange or association on which the securities of such 
     issuer are listed.

     SEC. 17. ENFORCEMENT OF AUDIT COMMITTEE GOVERNANCE PRACTICES.

       The Commission shall revise its regulations pertaining to 
     auditor independence to require that an accountant shall not 
     be considered to be independent for purposes of certifying 
     the financial statements or other documents of an issuer 
     required to be filed with the Commission under the securities 
     laws unless--
       (1) an issuer's auditor is appointed by and reports 
     directly to the audit committee of the board of directors or, 
     in the absence of an audit committee, the board committee 
     performing equivalent functions or the entire board of 
     directors;
       (2) the audit committee meets with the accountants engaged 
     to perform such audit on a regular basis, at least quarterly; 
     and
       (3) the audit committee is provided with the opportunity to 
     meet with such accountants without the attendance at such 
     meetings of any officer, director, or other member of the 
     issuer's senior management.

     SEC. 18. REVIEW OF CORPORATE GOVERNANCE PRACTICES.

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

     SEC. 19. STUDY OF ENFORCEMENT ACTIONS.

       (a) Study Required.--The Commission shall review and 
     analyze all enforcement actions by the Commission involving 
     violations of reporting requirements imposed under the 
     securities laws, and restatements of financial statements, 
     over the last five years to identify areas of reporting that 
     are most susceptible to fraud, inappropriate manipulation, or 
     inappropriate earnings management, such as revenue 
     recognition and the accounting treatment of off-balance sheet 
     special purpose entities.
       (b) Report Required.--The Commission shall report its 
     findings to the Committee on Financial Services of the House 
     of Representatives and the Committee on Banking, Housing, and 
     Urban Affairs of the Senate within 180 days of the date of 
     enactment of this Act and shall use such findings to revise 
     its rules and regulations, as necessary. The report shall 
     include a discussion of regulatory or legislative steps that 
     are recommended or that may be necessary to address concerns 
     identified in the study.

     SEC. 20. STUDY OF CREDIT RATING AGENCIES.

       (a) Study Required.--The Commission shall conduct a study 
     of the role and function of credit rating agencies in the 
     operation of the securities market. Such study shall 
     examine--
       (1) the role of the credit rating agencies in the 
     evaluation of issuers of securities;
       (2) the importance of that role to investors and the 
     functioning of the securities markets;
       (3) any impediments to the accurate appraisal by credit 
     rating agencies of the financial resources and risks of 
     issuers of securities;
       (4) any measures which may be required to improve the 
     dissemination of information concerning such resources and 
     risks when credit rating agencies announce credit ratings;
       (5) any barriers to entry into the business of acting as a 
     credit rating agency, and any measures needed to remove such 
     barriers; and
       (6) any conflicts of interest in the operation of credit 
     rating agencies and measures to prevent such conflicts or 
     ameliorate the consequences of such conflicts.
       (b) Report Required.--The Commission shall submit a report 
     on the analysis required by subsection (a) to the President, 
     the Committee on Financial Services of the House of 
     Representatives, and the Committee on Banking, Housing, and 
     Urban Affairs of the Senate within 180 days after the date of 
     enactment of this Act. The report shall include a discussion 
     of regulatory or legislative steps that are recommended or 
     that may be necessary to address concerns identified in the 
     study.

     SEC. 21. STUDY OF INVESTMENT BANKS.

       (a) GAO Study.--The Comptroller General shall conduct a 
     study on whether investment banks and financial advisors 
     assisted public companies in manipulating their earnings and 
     obfuscating their true financial condition. The study should 
     address the role of the investment banks--
       (1) in the collapse of the Enron Corporation, including 
     with respect to the design

[[Page 5538]]

     and implementation of derivatives transactions, transactions 
     involving special purpose vehicles, and other financing 
     arrangements that may have had the effect of altering the 
     company's reported financial statements in ways that obscured 
     the true financial picture of the company;
       (2) in the failure of Global Crossing, including with 
     respect to transactions involving swaps of fiber optic cable 
     capacity, in designing transactions that may have had the 
     effect of altering the company's reported financial 
     statements in ways that obscured the true financial picture 
     of the company; and
       (3) generally, in creating and marketing transactions which 
     may have been designed solely to enable companies to 
     manipulate revenue streams, obtain loans, or move liabilities 
     off balance sheets without altering the economic and business 
     risks faced by the companies or any other mechanism to 
     obscure a company's financial picture.
       (b) Report.--The General Accounting Office shall report to 
     the Congress within 180 days after the date of enactment of 
     this Act on the results of the study required by this 
     section. The report shall include a discussion of regulatory 
     or legislative steps that are recommended or that may be 
     necessary to address concerns identified in the study.

     SEC. 22. STUDY OF MODEL RULES FOR ATTORNEYS OF ISSUERS.

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

     SEC. 23. ENFORCEMENT AUTHORITY.

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

     SEC. 24. EXCLUSION FOR INVESTMENT COMPANIES.

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

     SEC. 25. DEFINITIONS.

       As used in this Act:
       (1) Blackout period.--The term ``blackout period'' with 
     respect to the equity securities of any issuer--
       (A) means any period during which the ability of at least 
     fifty percent of the participants or beneficiaries under all 
     applicable individual account plans maintained by the issuer 
     to purchase (or otherwise acquire) or sell (or otherwise 
     transfer) an interest in any equity of such issuer is 
     suspended by the issuer or a fiduciary of the plan; but
       (B) does not include--
       (i) a period in which the employees of an issuer may not 
     allocate their interests in the individual account plan due 
     to an express investment restriction--

       (I) incorporated into the individual account plan; and
       (II) timely disclosed to employees before joining the 
     individual account plan or as a subsequent amendment to the 
     plan; or

       (ii) any suspension described in subparagraph (A) that is 
     imposed solely in connection with persons becoming 
     participants or beneficiaries, or ceasing to be participants 
     or beneficiaries, in an applicable individual account plan by 
     reason of a corporate merger, acquisition, divestiture, or 
     similar transaction.
       (2) Boards of accountancy of the states.--The term ``boards 
     of accountancy of the States'' means any organization or 
     association chartered or approved under the law of any State 
     with responsibility for the registration, supervision, or 
     regulation of accountants.
       (3) Commission.--The term ``Commission'' means the 
     Securities and Exchange Commission.
       (4) Individual account plan.--The term ``individual account 
     plan'' has the meaning provided such term in section 3(34) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1002(34)).
       (5) Issuer.--The term ``issuer'' shall have the meaning set 
     forth in section 2(a)(4) of the Securities Act of 1933 (15 
     U.S.C. 77b(a)(4)).
       (6) Person associated with an accountant.--The term 
     ``person associated with an accountant'' means any partner, 
     officer, director, or manager of such accountant (or any 
     person occupying a similar status or performing similar 
     functions), any person directly or indirectly controlling, 
     controlled by, or under common control with such accountant, 
     or any employee of such accountant who performs a supervisory 
     role in the auditing process.
       (7) Public regulatory organization.--The term ``public 
     regulatory organization'' means the public regulatory 
     organization established by the Commission under subsection 
     (b) of section 2.
       (8) Securities laws.--The term ``securities laws'' means 
     the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the 
     Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
     Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b et seq.), and 
     the Securities Investor Protection Act of 1970 (15 U.S.C. 
     78aaa et seq.), notwithstanding any contrary provision of any 
     such Act.

  The CHAIRMAN. Pursuant to House Resolution 395, the gentleman from 
New York (Mr. LaFalce) and the gentleman from Ohio (Mr. Oxley) each 
will control 20 minutes.
  The Chair recognizes the gentleman from New York (Mr. LaFalce).
  Mr. LaFALCE. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, Members can vote against the substitute, and they can 
vote for final passage of the bill if they want. This will enable them 
to put a press release out to the public telling them that they have 
done something meaningful about the problem. This will also enable them 
to go to corporate America, to the accounting profession, to Wall 
Street and receive at the very least a pat on the back and they will 
tell them a job well done because they will be very pleased that an 
opportunity to enact meaningful reform has been passed and eluded and 
avoided by passage of the Republican bill. I hope we will not let this 
opportunity pass without meaningful reform.
  My substitute is the barest minimum of what is necessary to have 
meaningful reform. I say the barest minimum, because I wanted to try to 
attract as many votes as I possibly could. What do we do? First of all, 
with respect to auditing, we do a number of things. First of all, we 
say there shall be a PRO, a professional review organization. We do not 
make it permissive. We do not say it is something the SEC may do, 
whatever they want to, if they want to. Secondly, we spell out what its 
powers and responsibilities are. We make it a real organization with 
powers and responsibilities in the legislation. We do not leave it 
totally to the discretion of the SEC, which may or may not do 
something.
  And, third, we spell out the nature of the composition of this PRO. 
We do not want all accountants, and now through an amendment it will 
not be all accountants, but we do not want the Ken Lays of this world 
on that review authority, either. And so we spell out that it shall 
consist of representatives of groups such as pension plans of private 
employees, pension plans of public employees, et cetera. So what it 
shall do and who shall be on it are extremely important and there is a 
fundamental difference between the gentleman from Ohio's approach which 
the Washington Post this morning says punts on the issue and the 
approach that we would take.
  Secondly, who shall hire and who shall fire the auditors? We think 
that is an important issue. There has been

[[Page 5539]]

too close of a relation between the CEOs, the CFOs, and the auditors. 
It has been an incestuous relationship. We specify what virtually all 
good corporate governance individuals have been calling for now, a 
delineation of the rights and responsibilities of the boards of 
directors and most especially the audit committee. We say that the 
hiring and the firing of the auditors shall not be by the officers but 
by the audit committee of the board of directors. That is a very 
important provision. We also think that there should be a reasonable, 
but real, distinction between auditing and nonauditing functions.
  And so what we have done is taken the Republican version, not the 
version that I offered in committee that the gentleman from Alabama 
(Mr. Bachus) was referring to, and cleaned it up, took out the language 
that made it meaningless so that with the deletion of about one 
sentence, it can be meaningful; and that is all we have done on that 
score. Except, of course, saying that the board of directors, too, is 
the one that should be hiring and firing the auditors.
  President Bush has also called for a certain type of action. The 
Republican bill does nothing to effectuate what President Bush called 
for. Our substitute, as President Bush called for, requires CEOs and 
CFOs to certify the accuracy of their firm's financial statements. The 
Republican bill says nothing on it and, therefore, leaves it to the 
voluntary discretion of corporate America. That will not work.
  The substitute also requires corporate officers who falsify their 
financial statements to disgorge their compensation, including stock 
bonuses and other incentive pay for any period in which they falsified 
statements. The Republican bill does nothing on that score. It is 
absolutely outrageous that corporate officers are able to walk away 
with tens of millions of dollars or more in the past 2- or 3-year 
period that they have been engaging in fraudulent activity and 
misleading manipulation of their earnings statement at the expense of 
investors. The investors should be able to go after that and obtain 
redress from those officers and directors. The substitute does 
something about it, as President Bush wants. The main bill, the 
Republican bill, does nothing.
  Our substitute also empowers the SEC in an enforcement proceeding to 
bar officers and directors from serving as an officer or director of a 
public company if they are found guilty of wrongdoing and determined to 
be unfit. This too was proposed by the President. The SEC said that 
existing case law makes it virtually impossible for them to do this, to 
bar unfit officers and directors. And what have the Republicans done? 
They have taken that bad case law and codified it. In that respect the 
Republican bill is worse than the status quo.
  Finally, with respect to securities analysts, the research analysts, 
most individuals rely most heavily on the recommendations of Wall 
Street. Yet we regrettably have learned that there has been a terrible 
relationship between research analysts and the investment banking arms 
of the securities firms. Research analysts have been compensated in 
large part by the revenues they have been able to generate for the 
investment banking arm of the firm because there are no fire walls 
within those firms between the research analyst and the investment 
banking.
  The Republican bill has no fire walls whatsoever. Our substitute 
creates fire walls. That is what has been called for by the Attorney 
General of the State of New York, by the President of the AFL-CIO, et 
cetera. Our bill says that the research analysts' compensation shall in 
no way have any bearing to revenues that are generated by the 
investment banking portion of the securities firm. This is extremely 
important. What do the Republicans do? The Republicans say, Gee, that's 
an issue we ought to think about.
  If Members want to please corporate America, the officers, if they 
want to please the accounting firms, if they want to please Wall Street 
and be able to put out a piece of paper that says they have done 
something about it, it will be a wrong piece of paper, it will be a 
misleading piece of paper. They will be able to get a pat on the back 
from all those special interests, but they will not really be helping 
investors. Vote for the substitute. If the substitute passes, vote for 
final passage. If the substitute should go down, oppose this cosmetic 
approach that is being advanced to the floor today.
  Mr. Chairman, I rise to offer a substitute for H.R. 3763. As I 
described in detail earlier, the bill before us does virtually nothing 
to correct the systemic flaws in our financial reporting system. The 
substitute I offer will provide real reform to restore integrity to our 
financial markets and protect the savings and pensions plans of 
millions of Americans that remain threatened by future Enrons. My 
substitute will provide improvement and reform in several major areas.
  First, the substitute would create a powerful new regulatory board 
with the authority and responsibility to ensure that auditors will be 
truly independent and objective. My substitute provides for a regulator 
that: Sets audit and quality standards for auditors of public 
companies; possesses sweeping investigative and disciplinary powers 
over audit firms; and is controlled by a board comprised of public 
members and not the accounting history. This is a decidedly different 
approach from H.R. 3763, which punts decisions on almost all of the 
functions and powers of the regulator to the SEC. Only a regulator with 
explicit powers and duties, and a defined composition, such as the one 
I propose, will ensure that the abuses we witnessed in the Enron 
debacle will not be repeated.
  Second, while the Republican bill purports to prohibit auditors from 
providing their audit clients with two nonaudit services--financial 
reporting systems design and internal auditing--in reality, it 
prohibits nothing, merely codifying the limited restrictions in 
existing SEC rules. In contrast, my amendment modifies the definitions 
of these two services to actually ban these consulting services, which 
create significant conflicts of interest for auditors.
  Third, the substitute includes important corporate governance reforms 
that will ensure that the audit committees of public companies have the 
authority they need to better protect shareholder interests. The 
substitute ensures that audit committees, not management, are 
responsible for hiring and firing the auditors. It requires that audit 
committees approve any consulting services that auditors provide to an 
audit client. These provisions will ensure that auditors give their 
allegiance to shareholders, not to corporate management.
  Fourth, in a bipartisan spirit, we have taken three meritorious 
elements of President Bush's proposals on corporate responsibility and 
executive accountability and given them legislative substance and real 
teeth,unlike the provisions contained in H.R. 3763. Our substitute 
requires CEOs and CFOs to certify the accuracy of their firms' 
financial statements. Violation of this provision would carry with it 
the civil penalties provided for under the securities laws, and 
potentially criminal penalties for willful violations. The Republican 
bill contains no similar provision. It is essential that Congress 
require officers of public companies to stand behind their public 
disclosures. It is the minimum we should require.
  The substitute requires corporate officers who falsify their 
financial statements to disgorge their compensation, including stock 
bonuses and other incentive pay, for any period in which they falsified 
statements. Our amendment would empower the Securities and Exchange 
Commission, SEC, to seek such a disgorgement in an administrative 
proceeding, or in court. H.R. 3763 requires only a study of this issue, 
and limits the scope of any disgorgement actions by the SEC to 6 months 
prior to a restatement.
  The amendment would also empower the SEC in an enforcement proceeding 
to bar officers and directors from serving as an officer or director of 
a public company if they found guilty of wrongdoing and determined to 
be unfit. It would also remove judicial hurdles to seeking such a bar 
in court. H.R. 3763, however, makes obtaining director and officer bars 
more difficult, codifying the most restrictive judicial standard, a 
standard that the head of the SEC's Enforcement Division has stated 
publicly is almost impossible to meet. We must not codify a standard 
that makes it harder than ever for the SEC to obtain officer and 
director bars at a time when accounting fraud and earnings manipulation 
by corporate executive is at an all time high.
  Finally, my substitute seeks to ensure that stock analysts are truly 
independent and objective. The substitute achieves this by: Barring 
analysts from holding stock in the companies they cover; prohibiting 
analysts' pay from

[[Page 5540]]

being based on their firms' investment banking revenue; and barring 
their firm's investment banking department from having any input in to 
analysts' pay or promotion. The revelations brought to light by Eliot 
Spitzer, the NY State attorney general, in his investigations of major 
Wall street firms' analysts, confirm the need to address analysts' 
conflicts of interest. In urging the Financial Services Committee to 
adopt reforms, Attorney General Spitzer stated, ``[o]nly if the 
pernicious link between investment banking and research compensation is 
severed will the public receive the unbiased research it deserves and 
the public market's integrity be preserved.'' Unfortunately, as with 
other important topics in this legislation, the Republican bill 
requires only a study.
  The Democratic substitute is a strong reform bill that mandates tough 
corporate responsibility and strict accounting industry reforms. I urge 
Members to vote for the real reforms my substitute offers.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I yield myself 3 minutes. Mr. Chairman, as 
we have heard throughout this debate, H.R. 3763 is a tough bill which 
imposes much-needed reforms in the areas of auditor and corporate 
responsibility and accountability. The legislation ensures that 
investors in America's capital markets will know that they have access 
to accurate and understandable information regarding publicly traded 
companies.
  In the committee's hearings and debate on H.R. 3763, we had an 
opportunity to hear from a broad group of regulators, investors, and 
corporate employees. We were told by some that our proposal went too 
far. Others, not far enough. At the end of the day we decided to strike 
a balance, create a bill that is tough but fair, which punishes those 
who do wrong, while encouraging the vast number of America's honest and 
ethical companies to keep up the good work.
  During the debate on the bill, the committee had the opportunity to 
consider a similar substitute amendment to the one Ranking Member 
LaFalce is offering today. After a fair debate, the committee rejected 
the amendment by voice vote. The committee then adopted H.R. 3763 along 
bipartisan lines with a vote of 49 to 12 with more Members of the 
minority voting for the bill than against it. We should not overturn 
the bipartisan consensus reached by our committee. We should not reject 
the balanced approach taken by the members of the committee, both 
Republican and Democrat, which will make our markets stronger.

                              {time}  1345

  I commend the ranking member, the gentleman from New York (Mr. 
LaFalce) for his efforts throughout this process. In fact, many of his 
ideas were adopted by the committee. But his substitute amendment 
represents an honest difference of opinion between us.
  I do not believe we should micromanage the tough, new accountant 
regulatory body that we create. I do not believe we should preempt the 
laws of the States with regard to how corporations are governed, and I 
do not believe we should overturn the will of the committee when it 
adopted this legislation.
  The President supports H.R. 3763. This legislation represents the 
ideas he presented in his 10-point plan on corporate responsibility. 
Where the President requests legislation, we legislate. Where the plan 
urges that the regulators be given the freedom to act, we give them 
that freedom.
  Mr. Chairman, I urge my colleagues to support the President's plan. I 
urge my colleagues to support the bipartisan approach that the 
committee took in passing CARTA. I ask all of my colleagues to reject 
the LaFalce amendment and to pass H.R. 3763.
  Mr. Chairman, I reserve the balance of my time.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from 
Pennsylvania (Mr. Kanjorski), the distinguished ranking member of the 
Subcommittee on Capital Markets, who has done an outstanding job in 
this entire area and has shown tremendous leadership.
  Mr. KANJORSKI. Mr. Chairman, I thank the gentleman from New York for 
yielding me this time.
  Mr. Chairman, I rise in favor of the substitute amendment. I heard 
the chairman of the committee say that this is the embodiment of the 
President's plan. If it is, then it is an example of the President 
having spoken on one occasion as to what is necessary, and then seeing 
it reduced to legislation that does not comport with what the President 
indicated in his public appearances as to what he wanted us to do.
  This is opting out. When we have an opportunity to do something well, 
the underlying bill ignores or virtually sets aside any of the real 
reform and just plasters over the defects within the system. The 
substitute bill, although in my own opinion is maybe premature in 
itself but we are stuck with the rules of having to come here, I 
support the substitute because it at least puts meat on the bones. It 
says something to corporate America, that we are going to hold you 
responsible. We are going to hold corporate executives responsible when 
they put out statements that are fraudulent or grossly overstated. We 
are going to tell the accounting industry that they cannot have 
conflicts of interest and, if they do, there is a penalty to be had, 
and perhaps a loss of their business. We are going to say to Main 
Street America and the investors, that you can understand that 
corporate America plays by the same rules you do, and that they are 
fair and they are honest and they are straightforward; that they are 
not swindlers, that they are not tellers of untruth in order to 
encourage 50 percent of the American people to make investments in 
equities in our market today who are getting information that they 
cannot rely on. Not in all instances, not all corporations by a long 
shot, but enough that we see a need for remedial legislation.
  Instead, the underlying bill is an attempt to cover and do little or 
nothing. But in the substitute bill, we have substance, we have 
material that will correct some of the Enron problems, will give some 
form of integrity back to Wall Street and some sort of support to Main 
Street investors.
  Mr. Chairman, I urge my colleagues to support the substitute 
amendment and, if that fails, to vote ``no'' on the underlying bill.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 5 minutes to the 
gentleman from Pennsylvania (Mr. Toomey).
  Mr. TOOMEY. Mr. Chairman, I thank the gentleman for yielding me this 
time. I would start by observing that the Enron debacle is obviously 
devastating in many ways to many people. One of the most devastating 
ways is the way that collapse has shaken public confidence and really 
raised the question about financial reporting, even in the accounting 
profession, and the stability of our financial markets.
  This underlying bill is going to have several very significant and 
very positive effects. It is going to help investors make better 
informed investment decisions; there is no question about that. It is 
going to require greater disclosure. It is going to enhance audit 
quality and the quality of financial reporting. By doing those things, 
it is going to increase the confidence in our capital markets, our 
financial reporting system, and those effects can only be beneficial 
for our financial system and our economy and our economic growth.
  I would remind my colleagues that this bill passed our committee by a 
vote of 49 to 12. It was obviously supported by a bipartisan effort, 
and it takes some unprecedented measures. We take some very dramatic 
steps, one of which is the creation of the Public Regulatory 
Organization. This is going to be an organization that is going to be 
able, for the first time, to really discipline accountants that violate 
standards of ethics, competency, or independence, and it includes even 
disbarment. This is a major step in the regulation of the accounting 
profession, a dramatic departure from the traditional model in which 
this profession was entirely self-regulated.
  But I think that it is impossible for us to know today, here in this 
Chamber, all of the answers to all of the questions that that 
regulatory organization needs to address. That is why instead of 
specifying in great detail

[[Page 5541]]

every rule that we want them to promulgate, what we ought to do instead 
is set the broad parameters, and then give them the authority to carry 
this out, together with the regulators like the SEC, and that is what 
the underlying bill does.
  My main criticism of the substitute amendment is that it goes too far 
in trying to micromanage this process in spelling out in great detail 
rules that ought to be left to the SEC and to others.
  Mr Chairman, the ranking member does an outstanding job and does a 
lot of great work in our committee. Today's substitute differs from the 
substitute he offered in the committee; it is more similar to ours than 
the substitute offered in committee. Maybe in another few weeks we 
would see something quite similar to our bill. In fact, it is not 
enormously different. I do not think that the differences are that 
huge, but they are important, and they differ in the sense that I think 
the ranking member has gone too far in trying to specify details that 
ought to be left to others.
  Several have mentioned the President's principles that have been 
discussed. Let there be no question about it: The President supports 
this bill. The administration has issued a statement of their policy, 
and it clearly supports this bill.
  Let me look at a couple of the specifics in which the ranking member 
gets very specific. Disgorgement is one. But look at what we do with 
disgorgement. We take a very tough approach. It is unprecedented, the 
approach we take in this bill. If an officer or director sells stock in 
a company 6 months prior to a restatement, then the SEC can require the 
disgorgement of any profits that were earned or avoided losses. That is 
probably all we need to say about this. Let us let the specifics be 
developed by the SEC. Instead, in the substitute, basically, the SEC's 
rule is written for them. I do not think that is a good idea.
  With regard to analyst conflicts, again, this bill tries to 
micromanage how analyst conflicts should be addressed. But we have 
entities, the NASD, the New York Stock Exchange, they are already in 
the process of producing rules on how this is going to be governed. I 
think the ranking member, as well as other members on this committee, 
have had input on that rulemaking process. It is still under review. It 
is they who should be doing this job, not us.
  I think part of the problem with the substitute is an underlying 
failure to appreciate the ability of the marketplace to impose some 
discipline as well. But we have already seen how severely and 
appropriately investors have responded to companies who have even 
questionable accounting practices after this Enron debacle. It is not 
as though the investment community has not noticed and has not taken 
the precautions to demand certain greater disclosures and more 
transparency in financial reports and to punish companies that have 
engaged in perhaps dubious accounting principles, and that same kind of 
discipline is going to continue; it is going to continue with respect 
to analysts and other matters between the market's discipline.
  In this bill, the underlying bill that the majority is proposing, we 
take some unprecedented measures. I am very confident we are going to 
encourage a greater degree of honesty and transparency in financial 
statements. It is going to be extremely helpful. I would suggest to my 
colleagues that we reject the substitute, reject the micromanagement of 
what should be done by regulators who have the expertise in this area, 
and support the underlying bill.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentlewoman from 
New York City (Mrs. Maloney), the distinguished ranking minority member 
of the Subcommittee on Domestic Monetary Policy.
  Mrs. MALONEY of New York. Mr. Chairman, I thank the gentleman for 
yielding me this time, and I rise in strong support of the LaFalce 
substitute.
  The implosion of Enron is a scandal on a massive scale that demands a 
real response. Enron's failure has shaken the accounting industry, once 
again exposed the conflicts Wall Street analysts face in rating stocks, 
and ruined the lives of thousands of innocent employees and retirees.
  For financial markets to work, investors must be able to trust the 
information on which they base decisions. Auditors must not be under 
pressure to cook the books because their firm is chasing a consulting 
contract, and analysts must not have their compensation tied to 
investment banking deals.
  The LaFalce substitute best addresses each of these areas with 
concrete, real reforms. The Enron scandal has done serious, lasting 
damage to the reputation of the accounting industry. The majority of 
accountants, many of whom live in my district, are honest and hard-
working, but this scandal has revealed serious weaknesses in the 
industry's oversight structure, and only the substitute, the LaFalce 
substitute, directly spells out standards for a new accounting 
oversight board.
  We need a new accounting oversight board because the current 
structure has failed dramatically. There are 17,000 public companies in 
the United States, and we may be down to just 4 major accounting firms 
to audit financial statements. Therefore, we need stronger regulation.
  It is not enough for Congress to delegate regulation of the industry 
to the SEC. We owe it to the public to do the job ourselves and support 
the LaFalce substitute.
  Long after the con men of Enron fade from memory, the conflicts faced 
by accountants and analysts will still be in place unless Congress acts 
now.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 2 minutes to the 
gentlewoman from New York (Mrs. Kelly).
  Mrs. KELLY. Mr. Chairman, I rise in opposition to the substitute 
amendment offered by the gentleman from New York (Mr. LaFalce).
  The substitute makes clear the different philosophical positions from 
which we seek to address the problems of the accounting industry. While 
CARTA gives broad authority to the SEC to set up the new public 
regulatory organization, this substitute stipulates exactly how it is 
going to be set up, to what extent the powers will be, regardless of 
what the experts may think, especially the experts at the SEC. 
Unfortunately, I do not believe that most of these provisions would 
actually do anything to prevent future Enrons and Global Crossings. So 
I am thinking about what the American investors do. I think the 
American investors will only risk their savings based on truth and 
transparency in the market. No smart investor should be required to buy 
a ``pig in a poke.''
  This bill provides control without choking the free market. The 
reason the people put their money in the market is to make a good 
return on their money. Many Americans have saved for their retirement 
through pension funds and 401(k)s. This money is often invested in the 
markets, so the markets must function with transparency and truth if we 
expect our citizens to invest their future in the stock of American 
corporations and other investment vehicles that are offered in the 
markets.
  The CARTA act will ensure transparency and truth responsibly and 
appropriately. This substitute was defeated during committee 
consideration and does not enjoy the broad bipartisan support that the 
underlying bill enjoys. So I urge my colleagues on both sides of the 
aisle to join us in opposition to this amendment.
  Mr. LaFALCE. Mr. Chairman, I yield myself 10 seconds to advise the 
gentlewoman that this substitute was never offered in committee, and 
what was offered was defeated on a voice vote, not a recorded vote.
  Mr. Chairman, I yield 3 minutes to the gentleman from Michigan (Mr. 
Dingell), the distinguished dean of the House of Representatives, and 
the ranking member of the Committee on Energy and Commerce, who for so 
many years had jurisdiction over the field of securities.

                              {time}  1400

  Mr. DINGELL. Mr. Chairman, I rise in strong support of the amendment

[[Page 5542]]

and in opposition to the bill. I say to the sponsors of the 
legislation, shame. This is a piece of drivel. It is not a piece of 
legislation, it is a gift to the accounting industry and those who 
would steal from the American investing public.
  Look at the history: Enron, Global Crossing, Baptist Foundation of 
Arizona, Waste Management, Sunbeam, Xerox, Rite Aid, Microstrategy. 
Accountants and fat cat officers of corporations stole billions and 
lied to the American investing public. That is what happened, and that 
is what needs to be corrected, and that is not what is addressed here.
  The watchdogs in those cases and many others were asleep, or 
benefiting from their wrongdoing, or just plain blind. What is the 
response of the legislation to this outrage? The bill passes the buck 
to the SEC on every major issue, and avoids addressing important issues 
altogether by requiring that the SEC conduct studies.
  If Members like studies and they want to waste money, that is a fine 
way to do it. If they want to hurt the investing public, that is a fine 
way. Enron would have loved this legislation. Anderson would have found 
it to be splendid.
  I would be embarrassed to put a piece of legislation of this kind on 
the House floor. The LaFalce substitute ends the farcical self-
regulation by the accounting industry which is encouraged and fostered 
by the committee bill. It creates a strong regulatory board that sets 
strict standards for auditor independence and auditor quality, and it 
is a shame if the House does not accomplish this important reform 
today.
  The LaFalce substitute also requires executives to surrender ill-
gotten gains made as a result of financial frauds, and empowers the SEC 
to bar officers guilty of wrongdoing from serving with other companies 
so that they may steal again. I think that that is necessary. It also 
imposes strong penalties for lying, including criminal penalties.
  The committee bill actually makes it harder for the SEC to bar 
crooked executives from serving in other companies. On whose side are 
the authors of this legislation?
  Mr. Chairman, our financial markets run on confidence. Those on this 
side apparently do not know that. If the people have confidence, 
everybody makes lots of money. They do not run on money, and no 
confidence will exist, where there is stealing, dishonesty, false 
accounting, and the kinds of things which we have seen going on in the 
accounting industry.
  I would note that it is time that we deal with these things, and deal 
vigorously. The American public wants action. They do not trust the 
accounting, they do not trust the financial markets, and they want to 
see something in which they can have faith.
  Unless and until Members do something about the situation that the 
American public sees, again with the Enrons and the other corporations 
where this is going on, and about the Andersens, we are going to see no 
confidence in the securities markets, and we are going to find that the 
economy of this country is going to hurt.
  I say vote for the LaFalce amendment, vote against the committee 
bill. The committee bill is a sad, sorry, and repugnant joke. Vote for 
a piece of legislation that protects the American public. Vote for a 
piece of legislation that protects the investors of this Nation. Let us 
give confidence to the markets, instead of passing a sorry, silly 
charade like this.
  Mr. OXLEY. Mr. Chairman, I yield myself 30 seconds.
  Mr. Chairman, at least my friend, the gentleman from Michigan, has 
been consistent in his strong support for big government and lack of 
respect and recognition of the free market. So I congratulate him on 
his consistency, if nothing else.
  Mr. Chairman, I yield 3 minutes to the gentleman from Louisiana (Mr. 
Baker), the chairman of the Subcommittee on Capital Markets, Insurance, 
and Government Sponsored Enterprises.
  Mr. BAKER. Mr. Chairman, I thank the gentleman for yielding time to 
me.
  I would join him in recognizing the importance of the preceding 
speaker's remarks in characterizing the legislation now pending before 
the House, as in free enterprise, as buyer beware. We should carefully 
evaluate and analyze any representation made by some salesman as to his 
product.
  I think it is also an advisable warning to those listening to 
speeches by Members of Congress.
  Mr. Chairman, let me turn for a moment to the criticism of the bill 
with regard to analysts' conduct. Some would have us believe that this 
Congress has turned its back, protecting the Wall Street interests, 
walking away from the working families of America, letting the 
pillaging continue without restraint.
  They seem to fail to remember just last year this committee, with 
bipartisan help, spent hours in evaluating the approach to take in 
resolving inappropriate conduct by analysts on Wall Street.
  Let me explain. When a company wants to raise money on Wall Street, 
they have to hire a firm to go sell their stock. In order to sell that 
stock, they need to have a research department that says, is this a 
good investment or not? And investors rely on that research, 
understanding that the investment bank is separate from the research.
  Well, unfortunately, that has not always been the case. Apparently, 
in some limited instances, the research was held out by the investment 
bank sort of as a marketing tool, to say, if you give us a good 
research product, the investment bank gets the business, and huge 
profits were made.
  Here is the change: Research integrity is restored by having analyst 
independence from investment bankers. The investment banker cannot talk 
to the research analyst anymore. They have to be maintained in separate 
divisions of the business, and there are consequences if they do 
collude.
  It restricts the ties between analysts' compensation and investment 
banking transactions. If there is any connection, if there is, it must 
be stated publicly in a report for all to see, or else there is a 
violation of the law.
  It prohibits promising favorable research for the investment bank to 
get the work in compensation for the firm. So they cannot go out and 
use the research department information for the investment bank to go 
make the deal with the corporation. That is illegal. They cannot do it 
anymore.
  It limits analysts' own purchasing and trading of stocks on which 
they issue research, and prohibits trading against their 
recommendations. It would be wrong if I were an analyst to say, go buy, 
gobble it up, America, this is a great stock, and privately I was in 
the back room selling my own interest to protect my financial position. 
This prohibits such conduct, and there are penalties, including up to 
disbarment from the profession.
  We require potential conflicts of interest to be disclosed clearly. 
If we have missed something, if there is something inappropriate that 
an investor should know, they have a professional obligation to 
disclose it, and if they do not, there are penalties for that 
inappropriate conduct.
  We have taken action. We have stood up to Wall Street. We are 
protecting working families across this country. To vote against this 
bill would be in their disinterest.
  Mr. LaFALCE. Mr. Chairman, I yield 1 minute to the gentleman from 
Washington (Mr. Inslee), a member of the Committee.
  Mr. INSLEE. Mr. Chairman, I speak in favor of the substitute and 
against the bill. This Enron collapse really did rock underlying 
confidence in the American people, and I think all of us know that the 
American people want and expect a real guard dog around their life's 
savings, a bulldog, someone with teeth, vigilance.
  This bill, charitably, has all the attributes of a Chihuahua. It 
fails. It fails to do even what the President of the United States has 
suggested to require CEO accountability.
  It fails in dealing with board independence, to make sure that the 
board answers to stockholders and not management by preventing payments 
to the directors by management.

[[Page 5543]]

  It fails to address the separation of accounting services that even 
accounting companies have adopted on their own initiative.
  It fails and it is disappointing. It is going to disappoint the 
American people, but it will not surprise the American people that the 
Republican Party, who gave us an energy policy based on Enron, is 
giving us an accounting policy based on Arthur Andersen.
  Mr. LaFALCE. Mr. Chairman, I yield 1 minute to the distinguished 
gentleman from Texas (Mr. Bentsen), a member of the Committee.
  Mr. BENTSEN. Mr. Chairman, the underlying bill is not perfect, and I 
do not think the substitute is necessarily perfect, but there are 
certain pieces of the substitute that I think would make the underlying 
bill better.
  Number one, the substitute is stronger on the issue of scope of 
services for auditing firms. Originally, I thought the gentleman from 
New York (Mr. LaFalce) went too far in the committee.
  The language he has adopted would bolster the language that the 
gentleman from North Carolina (Mr. Watt) and I put in the bill that was 
accepted by the chairman, and I think that is very good in ensuring 
that the SEC is on the job and doing what it is supposed to do.
  Second of all, as the gentleman from Michigan (Mr. Dingell) pointed 
out, the substitute is much stronger on giving authority to the SEC to 
remove officers and directors who engage in misconduct in public 
companies, and I think that needs to be done.
  I have some concerns, as the gentleman from Louisiana (Mr. Baker) 
pointed out, about the analyst provisions. I think they go too far. But 
I think what the gentleman from New York (Mr. LaFalce) has put together 
in the substitute would add greatly to where we want this bill to go 
when it finally gets to the President's desk.
  For those reasons, I think I will support the substitute.
  Mr. LaFALCE. Mr. Chairman, I yield 1 minute and 15 seconds to the 
distinguished gentleman from Massachusetts (Mr. Markey).
  Mr. MARKEY. Mr. Chairman, I rise in support of the LaFalce substitute 
and in opposition to the underlying bill.
  Mr. Chairman, accounting is a boring profession. It is easier to 
watch grass grow than be an accountant, unless people want to engage in 
financial fraud. Then it is a fascinating subject, because it affects 
thousands or millions of people, and that is what happened in this 
country: Auditors decided they were going to be financiers at the same 
time. They were going to play both roles.
  They cannot do that, and this bill does not correct the fundamental, 
underlying problem that caused the Enron-Arthur Andersen scandal. It 
does not go nearly far enough to deal with the causes of the financial 
chicanery that have turned, overnight, people who thought they had 
their life's savings protected into those who are wondering about the 
future.
  Specifically, the public regulatory organization created by the bill 
is a joke. It is set up in such a way that it will be dominated and 
controlled by the accounting profession. It lacks the investigative and 
enforcement powers needed to be an effective regulatory agency. The SEC 
is not given the powers needed to properly oversee its operation.
  There is not a proper separation between the auditing and the 
consulting functions that led to the very core of the problems that 
were created that have defrauded millions of Americans out of their 
hard-won savings.
  Mr. OXLEY. Mr. Chairman, I yield 1 minute to the gentlewoman from 
Illinois (Mrs. Biggert).
  Mrs. BIGGERT. Mr. Chairman, I rise today in opposition to the 
amendment offered by the gentleman from New York (Mr. LaFalce), who 
earlier claimed that the underlying bill would make it harder for the 
SEC to ban officers and directors from serving on corporate boards.
  Quite the contrary. For the first time in history, H.R. 3763 will 
allow, through the administrative process, the SEC to provide greater 
oversight of corporate officers. Currently, the SEC must go to court to 
obtain such a ban. This change makes it easier, not harder, for the SEC 
to go after malfeasance. H.R. 3763 does not allow such a ban to be 
imposed without providing at least minimum standards for the SEC to 
consider.
  What we do in this bill is to provide the SEC with the tools it needs 
to tighten corporate oversight without giving the SEC carte blanche 
authority. We cannot, as someone suggests, grant the SEC unwarranted 
powers that would alter its appropriate role in maintaining the 
integrity of the capital markets, but we should give the SEC the 
ability to efficiently remove those who have no business serving as 
corporate officers.
  Mr. LaFALCE. Mr. Chairman, I yield 1 minute to the distinguished 
gentleman from the State of Washington (Mr. Baird).
  Mr. BAIRD. Mr. Chairman, I thank the ranking member for yielding time 
to me.
  Mr. Chairman, thousands of workers of Portland General Electric lost 
their entire life's savings when Enron collapsed. I praise the 
gentleman from New York (Mr. LaFalce) for introducing legislation that 
would have prevented that tragedy.
  I am particularly concerned about a provision in the Republican 
majority bill which does not allow State boards of accountancy to know 
if there have been irregularities and penalties imposed. Let me refer 
Members to a letter from James Caley, a CPA from Vancouver, Washington, 
who called for precisely such notification.
  Mr. Caley wrote, ``A system which encourages cooperation between 
State and Federal regulatory agencies increases the overall 
effectiveness of both entities, ensuring maximum protection to the 
public.'' State agencies need to know if there have been irregularities 
recognized by Federal entities. The Republican bill, the majority bill, 
does not provide that notification. The substitute of the gentleman 
from New York (Mr. LaFalce) does. I commend the gentleman for including 
that.

                              {time}  1415

  Mr. LaFALCE. Mr. Chairman, I yield myself the balance of my time.
  Mr. Chairman, I do not want individuals to kid themselves. If Members 
vote against this substitute or even if Members vote for the 
substitute, it goes down and then Members vote for final passage of 
this bill, Members are voting for basically a cover-up because we are 
not dealing in a fundamental way with the fundamental problems. We are 
not dealing with the problems of officers who either knowingly or 
through negligence engage in wrongdoing. We are not dealing with the 
problems of directors. We are not dealing with the problems of 
auditors. We are not dealing adequately with the problems of research 
of the securities firms.
  You are relying on two things basically in your bill, the SROs, the 
Self Regulatory Organizations. So let the officers and directors take 
care of themselves. Let the securities individuals take care of 
themselves. Let the accountants take care of themselves. And the magic 
of the marketplace, you say the marketplace will punish. The 
marketplace punishes investors. It does not punish the wrongdoers. You 
have got it wrong.
  Mr. OXLEY. Mr. Chairman, I yield myself the balance of my time.
  Mr. Chairman, we have had a good debate here today about competing 
ideas. We made some decisions about our direction and now it comes time 
to cast our vote.
  Today we are acting for America's employees, retirees and investors. 
At the same time, we recognize that every company in America is not an 
Enron, every company is not a Global Crossing. The vast majority of 
American companies are led and managed by good, hard-working citizens. 
They want to provide benefits and a good living for their employees and 
they want their companies to prosper and grow. Similarly, the vast 
majority of accountants are honest and trustworthy individuals who make 
an invaluable contribution to our financial systems.
  If we have learned anything in recent months, we have learned that we 
need

[[Page 5544]]

a strong and vibrant accounting community to give us that objective 
view of companies' financial conditions.
  We understand to overreact would make things worse, not better as 
Chairman Greenspan and Chairman Pitt both admonished in testimony 
before our committee. So we are not going to make life even more 
difficult for every American company that is just trying to come out of 
a slump. We will ask them to provide more and better information. We 
will ask them to take on some more corporate responsibility, and we 
will support the accounting industry with a solid and effective 
oversight organization, while strengthening the Securities and Exchange 
Commission.
  We will ensure that the new rules for analysts are working as they 
are intended, to provide higher-quality information for investors. We 
are going to review corporate governance practices to ensure that they 
adequately protect shareholders and employees. We will look at the 
credit reporting agencies to ensure they are free of conflicts of 
interest and provide accurate reports.
  CARTA really gets to the heart of what went wrong. CEOs and other 
corporate insiders will have to publicly reveal in 2 days when they 
sell their company stock, as compared with 60 days now. It will be a 
crime to try to interfere with an audit. And never again will employees 
be locked into owning company stock while the executives are selling.
  Mr. Chairman, today we have the chance to offer more than just talk. 
Today we have a chance to take a scandal and offer a real solution. 
Today, Mr. Chairman, we have an opportunity to pass a bipartisan 
product that came out of the Committee on Financial Services. Oppose 
the LaFalce substitute and pass CARTA.
  Ms. SCHAKOWSKY. Mr. Chairman, I am dismayed that the Republican 
leadership of this body has not responded to the widespread corruption 
in our financial markets. The Republican so called ``reforms'' bill 
will not protect investors and pension holders from conflicts of 
interest and corporate greed. By failing to enact meaningful reform we 
are failing the American people.
  We all know that if not for Enron's collapse we would not consider 
these important matters today. I am concerned that some want to 
characterize the Enron collapse as just a case of one bad actor in the 
market place. I disagree with that interpretation. Enron's collapse has 
systemic causes. Corporate board of directors, Wall Street analysts, 
and the big five accounting firms all have an economic incentive to 
provide biased analysis of large, profitable companies.
  Enron used its political ties to persuade the government to carry out 
its business plan. Just take a look at California, President Bush, his 
regulators, and congressional Republicans opposed price caps for 
consumers while Enron manipulated the market, causing the California 
energy crisis. Enron had incredible access to the White House. 
President Bush received over $736,000 throughout his career as an 
elected official. Vice President Cheney had at least six meetings with 
Enron officials while drafting the Administration's energy plan. 
Enron's economic and political power effectively muted people who were 
skeptical of the company's economic stability. Enron is not an isolated 
case and this is not only a business scandal it is also a political 
scandal.
  The fact of the matter is we do not have the laws and procedures in 
place to protect common investors. I have little doubt that corporate 
executives' greed and deception will victimize more people. We in 
Congress cannot simply rely on free market dogma. The American people 
deserve better than this sham of a reform bill.
  I am a member of the Financial Services Committee and I voted against 
final passage of this cosmetic excuse for a bill. I am dismayed to 
report that Republicans on the committee refused to even pass an 
amendment that called for CEO's and CFO's to certify financial 
statements. I think most Americans would be surprised to learn that 
this is not a requirement that already exists.
  Employees and pension managers must be involved in corporate decision 
making. Boards that are dominated by corporate executives are 
inherently flawed, a lesson we learned from Enron's collapse.
  Enron's collapse had a major impact on working families--many lost 
their life savings while Enron's executives gained millions. It is 
estimated that Illinois' state pension fund lost $25 million. That 
means that hard working teachers, police officers, and firefighters who 
worked for the public good may not be able to enjoy their hard-earned 
retirement. Back home in my home Chicago thousands of Andersen 
employees have, through no fault of their own, lost their jobs. For 
this reason, as well as many others, it is important that we do act in 
order to prevent those kinds of layoffs and to protect investors and 
pension holders from unfettered corporate greed. I hope that the final 
bill that is sent to the President's desk will make real reforms that 
will help prevent this from occurring, again.
  A real reform bill will:
  Make sure that our auditors are independent.
  Create a strong public regulatory body that does not have conflict of 
interest or financial ties to the industry being regulated.
  Ensure that investors have at least the same rights and receive the 
same treatment as corporate executives.
  Ensure those employees, investors and pension holders have access to 
pertinent information and participate in corporate decision making.
  Ensure that Enron executives cannot keep the money they stole from 
their employees and investors.
  Our ranking member, John LaFalce, has crafted an alternative that 
will accomplish these goals. Please join me in voting for his 
substitute.
  Mr. OXLEY. Mr. Chairman, I yield back the balance of my time.
  The CHAIRMAN. The question is on the amendment in the nature of a 
substitute offered by the gentleman from New York (Mr. LaFalce).
  The question was taken; and the Chairman announced that the noes 
appeared to have it.


                             Recorded Vote

  Mr. LaFALCE. Mr. Chairman, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 202, 
noes 219, not voting 13, as follows:

                             [Roll No. 108]

                               AYES--202

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baca
     Baird
     Baldacci
     Baldwin
     Barcia
     Barrett
     Becerra
     Bentsen
     Berkley
     Berman
     Berry
     Bishop
     Blumenauer
     Bonior
     Borski
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (FL)
     Brown (OH)
     Capps
     Capuano
     Cardin
     Carson (IN)
     Carson (OK)
     Clay
     Clayton
     Clement
     Clyburn
     Condit
     Conyers
     Costello
     Coyne
     Cramer
     Crowley
     Cummings
     Davis (CA)
     Davis (FL)
     Davis (IL)
     DeFazio
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley
     Doyle
     Edwards
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank
     Frost
     Gephardt
     Gonzalez
     Gordon
     Green (TX)
     Gutierrez
     Hall (OH)
     Hall (TX)
     Harman
     Hastings (FL)
     Hill
     Hilliard
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind (WI)
     Kleczka
     Kucinich
     LaFalce
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Luther
     Lynch
     Maloney (CT)
     Maloney (NY)
     Markey
     Mascara
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McInnis
     McIntyre
     McKinney
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Millender-McDonald
     Miller, George
     Mink
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal
     Oberstar
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Phelps
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rivers
     Ross
     Rothman
     Roybal-Allard
     Rush
     Sabo
     Sanchez
     Sanders
     Sandlin
     Sawyer
     Schakowsky
     Schiff
     Scott
     Serrano
     Sherman
     Skelton
     Slaughter
     Snyder
     Solis
     Spratt
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Thurman
     Tierney
     Towns
     Turner
     Udall (CO)
     Udall (NM)
     Velazquez
     Visclosky
     Waters
     Watson (CA)
     Watt (NC)
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NOES--219

     Aderholt
     Akin
     Armey
     Bachus
     Baker
     Ballenger
     Barr
     Bartlett
     Barton
     Bass
     Bereuter
     Biggert
     Bilirakis
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bono
     Boozman
     Brady (TX)
     Brown (SC)
     Bryant
     Burr
     Burton
     Buyer
     Callahan
     Calvert

[[Page 5545]]


     Camp
     Cannon
     Cantor
     Capito
     Castle
     Chabot
     Chambliss
     Coble
     Collins
     Combest
     Cooksey
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Deal
     DeLay
     DeMint
     Diaz-Balart
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Ehrlich
     Emerson
     English
     Everett
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Frelinghuysen
     Gallegly
     Ganske
     Gekas
     Gibbons
     Gillmor
     Gilman
     Goode
     Goodlatte
     Goss
     Graham
     Granger
     Graves
     Green (WI)
     Greenwood
     Grucci
     Gutknecht
     Hansen
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Herger
     Hilleary
     Hobson
     Hoekstra
     Horn
     Hostettler
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kerns
     King (NY)
     Kingston
     Kirk
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (KY)
     Lucas (OK)
     Manzullo
     McCrery
     McHugh
     McKeon
     Mica
     Miller, Dan
     Miller, Gary
     Miller, Jeff
     Moran (KS)
     Morella
     Myrick
     Nethercutt
     Ney
     Northup
     Norwood
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pence
     Peterson (MN)
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Reynolds
     Riley
     Roemer
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Roukema
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schaffer
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shows
     Shuster
     Simmons
     Simpson
     Skeen
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Souder
     Stearns
     Stump
     Sullivan
     Sununu
     Sweeney
     Tancredo
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Upton
     Vitter
     Walden
     Walsh
     Wamp
     Watkins (OK)
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)
     Young (FL)

                             NOT VOTING--13

     Blagojevich
     Davis, Tom
     DeGette
     Ferguson
     Gilchrest
     Houghton
     Obey
     Rodriguez
     Smith (WA)
     Stark
     Thune
     Traficant
     Watts (OK)

                              {time}  1440

  Mr. JOHNSON of Illinois and Mr. YOUNG of Alaska changed their vote 
from ``aye'' to ``no.''
  Messrs. UDALL of Colorado, McINNIS and BARCIA changed their vote from 
``no'' to ``aye.''
  So the amendment in the nature of a substitute was rejected.
  The result of the vote was announced as above recorded.
  Stated against:
  Mr. WATTS of Oklahoma. Mr. Chairman, on rollcall No. 108, I was 
inadvertently detained. Had I been present, I would have voted ``no.''
  Mr. FERGUSON. Mr. Chairman, on rollcall No. 108, I was unavoidably 
detained. Had I been present, I would have voted ``no.''
  The CHAIRMAN. There being no further amendments permitted under the 
rule, the question is on the committee amendment in the nature of a 
substitute, as amended.
  The amendment in the nature of a substitute, as amended, was agreed 
to.
  The CHAIRMAN. Under the rule, the Committee rises.
  Accordingly, the Committee rose; and the Speaker pro tempore (Mr. 
LaHood) having assumed the chair, Mr. Sweeney, Chairman of the 
Committee of the Whole House on the State of the Union, reported that 
that Committee, having had under consideration the bill (H.R. 3763) to 
protect investors by improving the accuracy and reliability of 
corporate disclosures made pursuant to the securities laws, and for 
other purposes, pursuant to House Resolution 395, he reported the bill 
back to the House with an amendment adopted by the Committee of the 
Whole.
  The SPEAKER pro tempore. Under the rule, the previous question is 
ordered.
  Is a separate vote demanded on any amendment to the committee 
amendment in the nature of a substitute adopted by the Committee of the 
Whole? If not, the question is on the amendment.
  The amendment was agreed to.
  The SPEAKER pro tempore. The question is on engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.


               Motion to Recommit Offered by Mr. LaFalce

  Mr. LaFALCE. Mr. Speaker, I offer a motion to recommit.
  The SPEAKER pro tempore. Is the gentleman opposed to the bill?
  Mr. LaFALCE. I am, Mr. Speaker.
  The SPEAKER pro tempore. The Clerk will report the motion to 
recommit.
  The Clerk read as follows:
       Mr. LaFalce moves to recommit the bill H.R. 3763 to the 
     Committee on Financial Services with instructions to report 
     the same back to the House forthwith with the following 
     amendment:

 Amendment to H.R. 3763, as Reported Offered by Mr. LaFalce of New York

                       (executive responsibility)

       Strike sections 11 and 12 and insert the following (and 
     redesignate the succeeding sections and conform the table of 
     contents accordingly):

     SEC. 11. REMOVAL OF UNFIT CORPORATE OFFICERS.

       (a) Removal in Judicial Proceedings.--
       (1) Securities act of 1933.--Section 20(e) of the 
     Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by 
     striking ``substantial unfitness'' and inserting 
     ``unfitness''.
       (2) Securities exchange act of 1934.--Section 21(d)(2) of 
     the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is 
     amended by striking ``substantial unfitness'' and inserting 
     ``unfitness''.
       (b) Removal in Administrative Proceedings.--
       (1) 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:
       ``(f) Authority To Prohibit Persons From Serving as 
     Officers or Directors.--In any cease-and-desist proceeding 
     under subsection (a), the Commission may issue an order to 
     prohibit, conditionally or unconditionally, and permanently 
     or for such period of time as it shall determine, any person 
     who has violated section 17(a)(1) of this title from acting 
     as an officer or director of any issuer that has a class of 
     securities registered pursuant to section 12 of the 
     Securities Exchange Act of 1934 or that is required to file 
     reports pursuant to section 15(d) of that Act if the person's 
     conduct demonstrates unfitness to serve as an officer or 
     director of any such issuer.''.
       (2) Securities exchange act of 1934.--Section 21C of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-3) is amended 
     by adding at the end the following new subsection:
       ``(f) Authority To Prohibit Persons From Serving as 
     Officers or Directors.--In any cease-and-desist proceeding 
     under subsection (a), the Commission may issue an order to 
     prohibit, conditionally or unconditionally, and permanently 
     or for such period of time as it shall determine, any person 
     who has violated section 10(b) of this title or the rules or 
     regulations thereunder from acting as an officer or director 
     of any issuer that has a class of securities registered 
     pursuant to section 12 of this title or that is required to 
     file reports pursuant to section 15(d) of this title if the 
     person's conduct demonstrates unfitness to serve as an 
     officer or director of any such issuer.''.

     SEC. 12. DISGORGEMENT REQUIRED.

       (a) Administrative Actions.--Within 30 days after the date 
     of enactment of this Act, the Securities and Exchange 
     Commission shall prescribe regulations to require 
     disgorgement, in a proceeding pursuant to its authority under 
     section 21A, 21B, or 21C of the Securities Exchange Act of 
     1934 (15 U.S.C. 78u-1, 78u-2, 78u-3), of salaries, 
     commissions, fees, bonuses, options, profits from securities 
     transactions, and losses avoided through securities 
     transactions obtained by an officer or director of an issuer 
     during or for a fiscal year or other reporting period if such 
     officer or director engaged in misconduct resulting in, or 
     made or caused to be made in, the filing of a financial 
     statement for such fiscal year or reporting period which--
       (1) was at the time, and in the light of the circumstances 
     under which it was made, false or misleading with respect to 
     any material fact; or
       (2) omitted to state a material fact necessary in order to 
     make the statements made, in the light of the circumstances 
     in which they were made, not misleading.
       (b) Judicial Proceedings.--Section 21(d) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by adding 
     at the end the following new paragraph:
       ``(5) Additional disgorgement authority.--In any action or 
     proceeding brought or instituted by the Commission under the 
     securities laws against any person--
       ``(A) for engaging in misconduct resulting in, or making or 
     causing to be made in, the filing of a financial statement 
     which--
       ``(i) was at the time, and in the light of the 
     circumstances under which it was made, false or misleading 
     with respect to any material fact; or
       ``(ii) omitted to state a material fact necessary in order 
     to make the statements made, in the light of the 
     circumstances in which they were made, not misleading; or

[[Page 5546]]

       ``(B) for engaging in, causing, or aiding and abetting any 
     other violation of the securities laws or the rules and 
     regulations thereunder,

     such person, in addition to being subject to any other 
     appropriate order, may be required to disgorge any or all 
     benefits received from any source in connection with the 
     conduct constituting, causing, or aiding and abetting the 
     violation, including (but not limited to) salary, 
     commissions, fees, bonuses, options, profits from securities 
     transactions, and losses avoided through securities 
     transactions.''.

     SEC. 13. CEO AND CFO ACCOUNTABILITY FOR DISCLOSURE.

       (a) Regulations Required.--The Securities and Exchange 
     Commission shall by rule require, for each company filing 
     periodic reports under section 13 or 15(d) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the 
     principal executive officer or officers and the principal 
     financial officer or officers, or persons performing similar 
     functions, certify in each annual or quarterly report filed 
     or submitted under either such section of such Act that--
       (1) the signing officer has reviewed the report;
       (2) based on the officer's knowledge, the report does not 
     contain any untrue statement of a material fact or omit to 
     state a material fact necessary in order to make the 
     statements made, in light of the circumstances under which 
     such statements were made, not misleading;
       (3) based on such officer's knowledge, the financial 
     statements, and other financial information included in the 
     report, fairly present in all material respects the financial 
     condition and results of operations of the issuer as of, and 
     for, the periods presented in the report;
       (4) the signing officers--
       (A) are responsible for establishing and maintaining 
     internal controls;
       (B) have designed such internal controls to ensure that 
     material information relating to the issuer and its 
     consolidated subsidiaries is made known to such officers by 
     others within those entities, particularly during the period 
     in which the periodic reports are being prepared;
       (C) have evaluated the effectiveness of the issuer's 
     internal controls as of a date within 90 days prior to the 
     report; and
       (D) have presented in the report their conclusions about 
     the effectiveness of their internal controls based on their 
     evaluation as of that date;
       (5) the signing officers have disclosed to the issuer's 
     auditors and the audit committee of the board of directors 
     (or persons fulfilling the equivalent function)--
       (A) all significant deficiencies in the design or operation 
     of internal controls which could adversely affect the 
     issuer's ability to record, process, summarize, and report 
     financial data and have identified for the issuer's auditors 
     any material weaknesses in internal controls; and
       (B) any fraud, whether or not material, that involves 
     management or other employees who have a significant role in 
     the issuer's internal controls; and
       (6) the signing officers have indicated in the report 
     whether or not there were significant changes in internal 
     controls or in other factors that could significantly affect 
     internal controls subsequent to the date of their evaluation, 
     including any corrective actions with regard to significant 
     deficiencies and material weaknesses.
       (b) Deadline.--The rules required by subsection (a) shall 
     be effective not later than 30 days after the date of 
     enactment of this Act.
       In section 21, strike ``and 15'' and insert ``and 16''.

  Mr. LaFALCE (during the reading). Mr. Speaker, I ask unanimous 
consent that the motion be considered as read and printed in the 
Record.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New York?
  There was no objection.
  The SPEAKER pro tempore. The gentleman from New York is recognized 
for 5 minutes on his motion to recommit.
  Mr. LaFALCE. Mr. Speaker, I am trying to make the motion to recommit 
easy to vote for and very difficult to vote against, and how am I doing 
this?
  First of all, I am taking the Republican bill that has been passed in 
its entirety with three exceptions, and the exceptions were all called 
for by President George Bush who offered a 10-point plan. Three of 
those points require, in my judgment, legislation.
  The Republican bill does nothing about it. The motion to recommit 
would report out the bill that the floor has just reported, but with 
the three separate addition. What are they? First of all, let me read 
from the President's proposal.
  The President in proposal Number 3 says, CEOs should personally vouch 
for the veracity, timeliness and fairness of their company's public 
disclosures, including their financial statements. CEOs would 
personally attest each quarter that the financial statements and 
company disclosures accurately and fairly disclose the information of 
which the CEO is aware that a reasonable investor should have to make 
an informed investment decision. The Republican version leaves it up to 
corporate America to do this or not do this. The motion to recommit 
legislatively codifies this Presidential recommendation.
  Secondly, the President said, CEOs or other officers should not be 
allowed to profit from erroneous financial statements. We codify that, 
too, and they say cannot profit from it and we could obtain their 
moneys back.

                              {time}  1445

  The motion to recommit also deals in a markedly different way from 
the Republican bill with respect to the surrendering of officer 
compensation, including stock bonuses and other incentive pay. The 
motion to recommit empowers the SEC, in either an administrative 
proceeding or in court, to seek such disgorgement.
  The Republican bill says that the SEC shall study the issue and then, 
if they make a determination that it is warranted, they can go back and 
seek disgorgement, but only for what took place in the past 6 months; 
and if something took place 7 months or so ago, they made $10 million, 
$20 million, and they are home free under the Republican bill. That is 
an absurdity.
  Vote for the motion to recommit.
  And then, third, I want to read to my colleagues from a speech given 
by the head of enforcement of President Bush's SEC just about a month 
or so ago. He is referring to judicially decreed tests that you have to 
adhere to before you can declare an officer or director unfit to serve 
at a future firm. And he says, ``These tests, which require, amongst 
other things, a showing that the misconduct at issue is likely to 
recur, has created an unreasonably high standard for obtaining a bar. 
The result has been, unbelievably, that in some cases courts have 
refused to impose permanent officer and director bars on individuals 
who have engaged in egregious, even criminal misconduct.''
  What do the Republicans do? They codify that test that the SEC 
denounces. We give the SEC the authority they have said they need in 
order to bar such individuals who are unfit from serving as future 
officers and directors.
  The only reason to vote against the motion to recommit is 
partisanship. We ought to transcend that, because we are taking the 
Republican bill and President Bush's recommendations which we have 
codified. Do not go home and say that you have passed something that is 
meaningful when corporate America and the accounting firms and Wall 
Street are going to give you a pat on the back for letting them escape 
once again.
  Mr. OXLEY. Mr. Speaker, I rise in strong opposition to the motion to 
recommit.
  Mr. BAKER. Mr. Speaker, will the gentleman yield?
  Mr. OXLEY. I yield to the gentleman from Louisiana, the chairman of 
the Subcommittee on Capital Markets, Insurance, and Government 
Sponsored Enterprises.
  Mr. BAKER. Mr. Speaker, I thank the gentleman for yielding to me.
  It was 1896, and the Dow Jones industrial average was constructed. 
Today, 106 years later, only one United States corporation remains in 
existence that was included in that publication of that first Dow Jones 
average.
  Capital markets, free markets, are difficult because of the enormous 
competition that exists to succeed, but it yields tremendous benefit 
for us all. Today, we are about a debate in how to best regulate those 
aberrant actors in the marketplace.
  Let it be understood, the vast majority of professionals who conduct 
their business in all sectors of the marketplace today, are that, 
professional. We are acting today to identify those few aberrant actors 
who have brought about great harms to innocent third parties. And act 
we shall.
  It is important to recognize that in constructing this regulatory or 
legislative oversight that we not go too far.

[[Page 5547]]

In evidence of the point, this bill came out of our committee by a 16-
to-12 vote by Democrat Members. They see it as reasonable. They see it 
as an appropriate first step.
  We have a higher obligation. All those working families today who 
struggle to make ends meet and invest either in their 401(k) by payroll 
deduction or by putting that $200 online investment through their 
computer at home expect fairness. That is what this bill is about: 
honest, transparent disclosure, so you can make informed decisions for 
your family to buy that first home, invest for your children's 
education, or for your own retirement.
  Inscribed on this wall behind us is an admonition to Members of the 
House that I read every day. ``Let us develop the resources of the 
land, call forth its powers, build up its institutions, promote all its 
great interests, and see whether we also in this hour, day, and 
generation may perform something worthy to be remembered.''
  Daniel Webster is telling us what our job is. Let us make a 
difference. Let us stand for the working people of America today. Let 
us not let the Wall Street interests take away people's future by 
disclosing inappropriate information. That is what this bill is about. 
It is about standing in the face of those who have abused their 
corporate and business opportunities to the disinterest of their 
employees and their investors.
  We can make a difference. Vote down the motion to recommit and pass 
this bill.
  Mr. OXLEY. Mr. Speaker, reclaiming my time, the first provision in 
the amendment which deals with removal of unfit corporate officers is 
more appropriately addressed in the underlying bill. CARTA, the bill 
before us, gives the SEC the authority to administratively bar 
directors and officers from serving in public companies. Under our 
legislation, the commission no longer would have to go to Federal Court 
to do this. The SEC must consider a number of factors, longstanding 
standards used by the courts, in order to make that determination. Our 
language is endorsed by the White House.
  CARTA also prevents corporate officers from profiting from erroneous 
financial statements. Our legislation was carefully crafted with the 
focus on bad actors. This language is also endorsed by the White House.
  On the issue of CEO certification, we are sympathetic to this well-
intentioned legislative provision, but it is important to note that the 
President never requested legislation to accomplish this objective. The 
SEC already has the authority to require certification and is currently 
considering whether to do so. The SEC is in the best position to decide 
whether and how such a requirement would operate. It would do more harm 
than good to legislatively mandate what such a rule would look like, 
and that is exactly what we were told by Chairman Greenspan and 
Chairman Pitt.
  Proponents say this is the President's plan. The fact is, nothing 
could be further from the truth. Let us be clear. The President 
endorses the underlying legislation, the CARTA legislation. If my 
friends want to advance the President's agenda, they should support the 
underlying bill and reject the motion.
  Oppose the motion to recommit. Pass this CARTA legislation, this 
historic legislation. It is in the best interest of the investing 
public and the United States.
  The SPEAKER pro tempore (Mr. Sweeney). Without objection, the 
previous question is ordered on the motion to recommit.
  There was no objection.
  The SPEAKER pro tempore. The question is on the motion to recommit.
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Mr. LaFALCE. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. Pursuant to clause 9 of rule XX, the Chair 
will reduce to 5 minutes the minimum time for any electronic vote on 
the question of passage.
  The vote was taken by electronic device, and there were--ayes 205, 
noes 222, not voting 7, as follows:

                             [Roll No. 109]

                               AYES--205

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baca
     Baird
     Baldacci
     Baldwin
     Barcia
     Barrett
     Becerra
     Bentsen
     Berkley
     Berman
     Berry
     Bishop
     Blumenauer
     Bonior
     Borski
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (FL)
     Brown (OH)
     Capps
     Capuano
     Cardin
     Carson (IN)
     Carson (OK)
     Clay
     Clayton
     Clement
     Clyburn
     Condit
     Conyers
     Costello
     Coyne
     Cramer
     Crowley
     Cummings
     Davis (CA)
     Davis (FL)
     Davis (IL)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley
     Doyle
     Edwards
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank
     Frost
     Gephardt
     Gonzalez
     Gordon
     Green (TX)
     Gutierrez
     Hall (OH)
     Hall (TX)
     Harman
     Hastings (FL)
     Hill
     Hilliard
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind (WI)
     Kleczka
     Kucinich
     LaFalce
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Luther
     Lynch
     Maloney (CT)
     Maloney (NY)
     Markey
     Mascara
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McIntyre
     McKinney
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Millender-McDonald
     Miller, George
     Mink
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Phelps
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rivers
     Roemer
     Ross
     Rothman
     Roybal-Allard
     Rush
     Sabo
     Sanchez
     Sanders
     Sandlin
     Sawyer
     Schakowsky
     Schiff
     Scott
     Serrano
     Sherman
     Skelton
     Slaughter
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Thurman
     Tierney
     Towns
     Turner
     Udall (CO)
     Udall (NM)
     Velazquez
     Visclosky
     Waters
     Watson (CA)
     Watt (NC)
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NOES--222

     Aderholt
     Akin
     Armey
     Bachus
     Baker
     Ballenger
     Barr
     Bartlett
     Barton
     Bass
     Bereuter
     Biggert
     Bilirakis
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bono
     Boozman
     Brady (TX)
     Brown (SC)
     Bryant
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Castle
     Chabot
     Chambliss
     Coble
     Collins
     Combest
     Cooksey
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Davis, Tom
     Deal
     DeLay
     DeMint
     Diaz-Balart
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Ehrlich
     Emerson
     English
     Everett
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Frelinghuysen
     Gallegly
     Ganske
     Gekas
     Gibbons
     Gillmor
     Gilman
     Goode
     Goodlatte
     Goss
     Graham
     Granger
     Graves
     Green (WI)
     Greenwood
     Grucci
     Gutknecht
     Hansen
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Herger
     Hilleary
     Hobson
     Hoekstra
     Horn
     Hostettler
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kerns
     King (NY)
     Kingston
     Kirk
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (KY)
     Lucas (OK)
     Manzullo
     McCrery
     McHugh
     McInnis
     McKeon
     Mica
     Miller, Dan
     Miller, Gary
     Miller, Jeff
     Moran (KS)
     Morella
     Myrick
     Nethercutt
     Ney
     Northup
     Norwood
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pence
     Peterson (MN)
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Reynolds
     Riley
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Roukema
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schaffer
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shows
     Shuster
     Simmons
     Simpson
     Skeen
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Souder
     Stearns
     Stump
     Sullivan
     Sununu

[[Page 5548]]


     Sweeney
     Tancredo
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Upton
     Vitter
     Walden
     Walsh
     Wamp
     Watkins (OK)
     Watts (OK)
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)
     Young (FL)

                             NOT VOTING--7

     Blagojevich
     Gilchrest
     Houghton
     Rodriguez
     Smith (WA)
     Thune
     Traficant

                              {time}  1513

  So the motion to recommit was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore (Mr. Sweeney). The question is on the passage 
of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.


                             Recorded Vote

  Mr. OXLEY. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. This will be a 5-minute vote.
  The vote was taken by electronic device, and there were--ayes 334, 
noes 90, not voting 10, as follows:

                             [Roll No. 110]

                               AYES--334

     Aderholt
     Akin
     Allen
     Andrews
     Armey
     Baca
     Bachus
     Baird
     Baker
     Baldacci
     Ballenger
     Barcia
     Barr
     Bartlett
     Barton
     Bass
     Bentsen
     Bereuter
     Berkley
     Berry
     Biggert
     Bilirakis
     Bishop
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bono
     Boozman
     Boswell
     Boucher
     Boyd
     Brady (TX)
     Brown (FL)
     Brown (SC)
     Bryant
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Capps
     Capuano
     Cardin
     Carson (OK)
     Castle
     Chabot
     Chambliss
     Clay
     Clement
     Coble
     Collins
     Combest
     Condit
     Cooksey
     Costello
     Cox
     Cramer
     Crane
     Crenshaw
     Crowley
     Cubin
     Culberson
     Cummings
     Cunningham
     Davis (CA)
     Davis (FL)
     Davis, Jo Ann
     Davis, Tom
     Deal
     DeLay
     DeMint
     Deutsch
     Diaz-Balart
     Dicks
     Dooley
     Doolittle
     Doyle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Ehrlich
     Emerson
     English
     Eshoo
     Etheridge
     Everett
     Farr
     Ferguson
     Fletcher
     Foley
     Forbes
     Ford
     Fossella
     Frelinghuysen
     Frost
     Gallegly
     Ganske
     Gekas
     Gibbons
     Gillmor
     Gilman
     Gonzalez
     Goode
     Goodlatte
     Gordon
     Goss
     Graham
     Granger
     Graves
     Green (TX)
     Green (WI)
     Greenwood
     Grucci
     Gutierrez
     Gutknecht
     Hall (OH)
     Hall (TX)
     Hansen
     Harman
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hilliard
     Hinojosa
     Hobson
     Hoeffel
     Hoekstra
     Holden
     Holt
     Hooley
     Horn
     Hostettler
     Hoyer
     Hulshof
     Hunter
     Hyde
     Inslee
     Isakson
     Israel
     Issa
     Istook
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson (IL)
     Johnson, E. B.
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kennedy (RI)
     Kerns
     Kind (WI)
     King (NY)
     Kingston
     Kirk
     Kleczka
     Knollenberg
     LaHood
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     LoBiondo
     Lofgren
     Lucas (KY)
     Lucas (OK)
     Luther
     Maloney (CT)
     Manzullo
     Mascara
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McCrery
     McHugh
     McInnis
     McIntyre
     McKeon
     Meeks (NY)
     Menendez
     Mica
     Millender-McDonald
     Miller, Dan
     Miller, Gary
     Miller, Jeff
     Moore
     Moran (KS)
     Moran (VA)
     Morella
     Myrick
     Napolitano
     Nethercutt
     Ney
     Northup
     Norwood
     Nussle
     Ortiz
     Osborne
     Ose
     Otter
     Oxley
     Pallone
     Pascrell
     Pastor
     Pence
     Peterson (MN)
     Peterson (PA)
     Petri
     Phelps
     Pickering
     Pitts
     Platts
     Pombo
     Pomeroy
     Portman
     Price (NC)
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Reyes
     Reynolds
     Riley
     Roemer
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Ross
     Rothman
     Roukema
     Royce
     Ryan (WI)
     Ryun (KS)
     Sanchez
     Sandlin
     Saxton
     Schaffer
     Schiff
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherman
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Skeen
     Skelton
     Smith (NJ)
     Smith (TX)
     Snyder
     Souder
     Spratt
     Stearns
     Stenholm
     Strickland
     Stump
     Stupak
     Sullivan
     Sununu
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Terry
     Thomas
     Thompson (CA)
     Thompson (MS)
     Thornberry
     Thurman
     Tiahrt
     Tiberi
     Toomey
     Towns
     Turner
     Udall (CO)
     Upton
     Velazquez
     Vitter
     Walden
     Walsh
     Wamp
     Watkins (OK)
     Watt (NC)
     Watts (OK)
     Weiner
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Wu
     Wynn
     Young (AK)
     Young (FL)

                                NOES--90

     Abercrombie
     Ackerman
     Baldwin
     Barrett
     Becerra
     Berman
     Bonior
     Borski
     Brady (PA)
     Brown (OH)
     Carson (IN)
     Clayton
     Clyburn
     Conyers
     Coyne
     Davis (IL)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Dingell
     Doggett
     Engel
     Evans
     Fattah
     Filner
     Flake
     Frank
     Gephardt
     Hastings (FL)
     Hinchey
     Honda
     Jackson (IL)
     Jackson-Lee (TX)
     Jones (OH)
     Kanjorski
     Kaptur
     Kildee
     Kilpatrick
     Kucinich
     LaFalce
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lowey
     Lynch
     Maloney (NY)
     Markey
     McDermott
     McGovern
     McKinney
     McNulty
     Meehan
     Meek (FL)
     Miller, George
     Mink
     Mollohan
     Murtha
     Nadler
     Neal
     Oberstar
     Obey
     Olver
     Owens
     Paul
     Payne
     Pelosi
     Rahall
     Rangel
     Rivers
     Roybal-Allard
     Rush
     Sabo
     Sanders
     Sawyer
     Schakowsky
     Scott
     Serrano
     Slaughter
     Solis
     Stark
     Tierney
     Udall (NM)
     Visclosky
     Waters
     Watson (CA)
     Waxman
     Wexler
     Woolsey

                             NOT VOTING--10

     Blagojevich
     Gilchrest
     Houghton
     Kolbe
     Rodriguez
     Shows
     Smith (MI)
     Smith (WA)
     Thune
     Traficant

                              {time}  1524

  Mr. NEAL of Massachusetts and Mr. RUSH changed their vote from 
``aye'' to ``no.''
  So the bill was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.

                          ____________________