[House Report 104-68]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     104-68
_______________________________________________________________________


 
      PROVIDING FOR THE CONSIDERATION OF H.R. 1058, THE SECURITIES 
                         LITIGATION REFORM ACT

                                _______


    March 6, 1995.--Referred to the House Calendar and ordered to be 
                                printed

_______________________________________________________________________


    Mr. Dreier, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 105]

    The Committee on Rules, having had under consideration 
House Resolution 105, by a rollcall vote of 9 yeas to 4 nays, 
report the same to the House with the recommendation that the 
resolution be adopted.

               brief summary of provisions of resolution

    The resolution provides for the consideration of H.R. 1058, 
the ``Securities Litigation Reform Act'' under a modified open 
rule. The rule provides for one hour of general debate divided 
equally between the chairman and ranking minority member of the 
Committee on Commerce.
    The rule makes in order H.R. 1058 for the purpose of 
amendment under the five minute rule, and the bill is 
considered as read, meaning it is open to amendment at any 
point. Priority in recognition may be accorded to Members who 
have pre-printed their amendments in the Congressional Record. 
The rule provides for a time limit of eight hours on the 
amendment process. The rule makes in order the amendment 
offered by Representative Wyden or a designee and the amendment 
offered by Representative Cox or a designee which are printed 
in the Committee on Rules report and the rule waives all points 
of order against the amendment for failure to comply with 
clause 7 of rule XVI. Finally, the rule provides for one motion 
to recommit.

                            committee votes

    Pursuant to clause 2(l)(2)(B) of House rule XI the results 
of each rollcall vote on an amendment or motion to report, 
together with the names of those voting for and against, are 
printed below:

                    rules committee rollcall no. 60

    Date: March 6, 1995.
    Measure: H.R. 1058, Securities Litigation Reform Act.
    Motion By: Mr. Moakley.
    Summary of Motion: Extend amendment time cap to 12-hours.
    Results: Rejected, 4 to 9.
    Vote By Members: Quillen--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                    rules committee rollcall no. 61

    Date: March 6, 1995.
    Measure: H.R. 1058, Securities Litigation Reform Act.
    Motion By: Mr. Frost.
    Summary of Motion: Extend amendment time cap to 12-hours, 
not counting time to debate Cox amendment.
    Results: Rejected, 4 to 9.
    Vote By Members: Quillen--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                    rules committee rollcall no. 62

    Date: March 6, 1995.
    Measure: H.R. 1058, Securities Litigation Reform Act.
    Motion By: Mr. Beilenson.
    Summary of Motion: Exclude from 8-hour time cap the time 
consumed on the Cox amendment.
    Results: Rejected, 4 to 9.
    Vote By Members: Quillen--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                    rules committee rollcall no. 63

    Date: March 6, 1995.
    Measure: H.R. 1058, Securities Litigation Reform Act.
    Motion By: Mr. Quillen.
    Summary of Motion: Report rule favorably to the House.
    Results: Adopted, 9 to 4.
    Vote By Members: Quillen--Yea; Dreier--Yea; Goss--Yea; 
Linder--Yea; Pryce--Yea; Diaz-Balart--Yea; McInnis--Yea; 
Waldholtz--Yea; Moakley--Nay; Beilenson--Nay; Frost--Nay; 
Hall--Nay; Solomon--Yea.

                  Amendments made in order by the rule

    (1) An amendment to be offered by Representative Wyden of 
Oregon or a designee:
  Page 28, after line 2, insert the following new section (and 
redesignate the succeeding sections and conform the table of 
contents accordingly):

SEC. 6. FINANCIAL FRAUD DETECTION AND DISCLOSURE.

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

``SEC. 13A. FRAUD DETECTION AND DISCLOSURE.

  ``(a) Audit Requirements.--Each audit required pursuant to 
this title of an issuer's financial statements by an 
independent public accountant shall include, in accordance with 
generally accepted auditing standards, as may be modified or 
supplemented from time to time by the Commission, the 
following:
          ``(1) procedures designed to provide reasonable 
        assurance of detecting illegal acts that would have a 
        direct and material effect on the determination of 
        financial statement amounts;
          ``(2) procedures designed to identify related party 
        transactions which are material to the financial 
        statements or otherwise require disclosure therein; and
          ``(3) an evaluation of whether there is substantial 
        doubt about the issuer's ability to continue as a going 
        concern over the ensuing fiscal year.
  ``(b) Required Response to Audit Discoveries.--
          ``(1) Investigation and report to management.--If, in 
        the course of conducting any audit pursuant to this 
        title to which subsection (a) applies, the independent 
        public accountant detects or otherwise becomes aware of 
        information indicating that an illegal act (whether or 
        not perceived to have a material effect on the issuer's 
        financial statements) has or may have occurred, the 
        accountant shall, in accordance with generally accepted 
        auditing standards, as may be modified or supplemented 
        from time to time by the Commission--
                  ``(A)(i) determine whether it is likely that 
                an illegal act has occurred, and (ii) if so, 
                determine and consider the possible effect of 
                the illegal act on the financial statements of 
                the issuer, including any contingent monetary 
                effects, such as fines, penalties, and damages; 
                and
                  ``(B) as soon as practicable inform the 
                appropriate level of the issuer's management 
                and assure that the issuer's audit committee, 
                or the issuer's board of directors in the 
                absence of such a committee, is adequately 
                informed with respect to illegal acts that have 
                been detected or otherwise come to the 
                attention of such accountant in the course of 
                the audit, unless the illegal act is clearly 
                inconsequential.
          ``(2) Response to failure to take remedial action.--
        If, having first assured itself that the audit 
        committee of the board of directors of the issuer or 
        the board (in the absence of an audit committee) is 
        adequately informed with respect to illegal acts that 
        have been detected or otherwise come to the 
        accountant's attention in the course of such 
        accountant's audit, the independent public accountant 
        concludes that--
                  ``(A) any such illegal act has a material 
                effect on the financial statements of the 
                issuer,
                  ``(B) senior management has not taken, and 
                the board of directors has not caused senior 
                management to take, timely and appropriate 
                remedial actions with respect to such illegal 
                act, and
                  ``(C) the failure to take remedial action is 
                reasonably expected to warrant departure from a 
                standard auditor's report, when made, or 
                warrant resignation from the audit engagement,
        the independent public accountant shall, as soon as 
        practicable, directly report its conclusions to the 
        board of directors.
          ``(3) Notice to commission; response to failure to 
        notify.--An issuer whose board of directors has 
        received a report pursuant to paragraph (2) shall 
        inform the Commission by notice within one business day 
        of receipt of such report and shall furnish the 
        independent public accountant making such report with a 
        copy of the notice furnished the Commission. If the 
        independent public accountant making such report shall 
        fail to receive a copy of such notice within the 
        required one-business-day period, the independent 
        public accountant shall--
                  ``(A) resign from the engagement; or
                  ``(B) furnish to the Commission a copy of its 
                report (or the documentation of any oral report 
                given) within the next business day following 
                such failure to receive notice.
          ``(4) Report after resignation.--An independent 
        public accountant electing resignation shall, within 
        the one business day following a failure by an issuer 
        to notify the Commission under paragraph (3), furnish 
        to the Commission a copy of the accountant's report (or 
        the documentation of any oral report given).
  ``(c) Auditor Liability Limitation.--No independent public 
accountant shall be liable in a private action for any finding, 
conclusion, or statement expressed in a report made pursuant to 
paragraph (3) or (4) of subsection (b), including any rules 
promulgated pursuant thereto.
  ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If 
the Commission finds, after notice and opportunity for hearing 
in a proceeding instituted pursuant to section 21C of this 
title, that an independent public accountant has willfully 
violated paragraph (3) or (4) of subsection (b) of this 
section, then the Commission may, in addition to entering an 
order under section 21C, impose a civil penalty against the 
independent public accountant and any other person that the 
Commission finds was a cause of such violation. The 
determination whether to impose a civil penalty, and the amount 
of any such penalty, shall be governed by the standards set 
forth in section 21B of this title.
  ``(e) Preservation of Existing Authority.--Except for 
subsection (d), nothing in this section limits or otherwise 
affects the authority of the Commission under this title.
  ``(f) Definitions.--As used in this section, the term 
`illegal act' means any action or omission to act that violates 
any law, or any rule or regulation having the force of law.''.
  (b) Effective Dates.--As to any registrant that is required 
to file selected quarterly financial data pursuant to item 
302(a) of Regulation S-K (17 CFR 229.302(a)) of the Securities 
and Exchange Commission, the amendments made by subsection (a) 
of this section shall apply to any annual report for any period 
beginning on or after January 1, 1996. As to any other 
registrant, such amendment shall apply for any period beginning 
on or after January 1, 1997.

    (2) An amendment to be offered by Representative Cox of 
California or a designee:
    Page 28, after line 2, insert the following new section 
(and redesignate the succeeding sections and conform the table 
of contents accordingly):

SEC. 6. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS 
                    ACT.

    Section 1964(c) of title 18, United States Code, is amended 
by inserting ``, except that no person may bring an action 
under this provision if the racketeering activity, as defined 
in section 1961(1)(D), involves conduct actionable as fraud in 
the purchase or sale of securities'' before the period.