[House Report 108-475]
[From the U.S. Government Publishing Office]



108th Congress                                            Rept. 108-475
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
    SECURITIES FRAUD DETERRENCE AND INVESTOR RESTITUTION ACT OF 2004

                                _______
                                

                 April 27, 2004.--Ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2179]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 2179) to enhance the authority of the Securities and 
Exchange Commission to investigate, punish, and deter 
securities laws violations, and to improve its ability to 
return funds to defrauded investors, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................    11
Background and Need for Legislation..............................    11
Hearings.........................................................    15
Committee Consideration..........................................    15
Committee Votes..................................................    15
Committee Oversight Findings.....................................    17
Performance Goals and Objectives.................................    17
New Budget Authority, Entitlement Authority, and Tax Expenditures    17
Committee Cost Estimate..........................................    17
Congressional Budget Office Estimate.............................    17
Federal Mandates Statement.......................................    22
Advisory Committee Statement.....................................    22
Constitutional Authority Statement...............................    22
Applicability to Legislative Branch..............................    22
Section-by-Section Analysis of the Legislation...................    22
Changes in Existing Law Made by the Bill, as Reported............    31
Dissenting Views.................................................    55

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

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

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

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

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

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

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

SEC. 3. CIVIL ENFORCEMENT PROVISIONS.

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

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

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

SEC. 5. ACCESS TO GRAND JURY INFORMATION.

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

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

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

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

SEC. 6. NATIONWIDE SERVICE OF PROCESS.

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

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

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

SEC. 8. FAIR ACT AMENDMENTS.

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

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

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

SEC. 10. DISCLOSURE RESPONSIBILITIES AT CONTRACT RENEWAL.

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

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

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

SEC. 12. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.

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

SEC. 13. LEAD INDEPENDENT DIRECTOR.

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

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

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

SEC. 15. SENSE OF CONGRESS.

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

                          Purpose and Summary

    In the wake of a period in which many corporate officers 
were abusing their leadership positions to enhance their 
personal well-being at the expense of investors and their own 
corporations, H.R. 2179, the Securities Fraud Deterrence and 
Investor Restitution Act of 2003, provides the Securities and 
Exchange Commission (SEC or Commission) with enhanced ability 
to assist in returning fines and disgorgement proceeds back to 
investors. H.R. 2179 strengthens the Commission's enforcement 
capabilities and assists defrauded investors by improving the 
Commission's ability to prosecute wrongdoers, collect money 
from them, and return it to injured investors. The underlying 
goal of the legislation is to restore public confidence in the 
securities markets.
    H.R. 2179 improves the SEC's ability to prosecute 
wrongdoers by granting the Commission additional authority to 
seek penalties in cease-and-desist proceedings. Currently, if 
the Commission finds cause to order a company or corporate 
officer to cease-and-desist from violating Federal securities 
laws and also seeks to impose a civil monetary penalty, two 
separate actions concerning the same facts must be filed. The 
bill improves the SEC's ability to collect money from 
wrongdoers--notwithstanding State homestead laws--by 
authorizing forced sales of property owned by a person against 
whom a judgment based on fraudulent conduct is obtained. Under 
current law, the Commission's staff must engage in protracted 
litigation to avoid State law exemptions. Finally, H.R. 2179 
allows the Commission to use any penalties paid as a result of 
Commission actions to compensate investors injured by 
defendants in such actions.

                  Background and Need for Legislation

    The Securities Fraud Deterrence and Investor Restitution 
Act of 2003 is an outgrowth of the Sarbanes-Oxley Act of 2002. 
Section 308(a) of that legislation established the Fair Fund, 
authorizing the SEC to take civil penalties collected in 
enforcement cases and add them to disgorgement funds for the 
benefit of victims of securities laws violations. The Fair Fund 
provision was a groundbreaking measure to help the Commission 
return more funds to defrauded investors. Section 308(c) of 
Sarbanes-Oxley required the Commission to review, analyze, and 
report to Congress on its enforcement actions over the past 
five years to identify how those proceedings may best be 
utilized to return monies to defrauded investors. While section 
308(a) has made available significantly more money for investor 
restitution, it was only a first step. In response to the 
Commission's report and subsequent testimony from the SEC 
before the Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises in February 2003, Chairmen 
Baker and Oxley introduced this legislation.
    H.R. 2179 includes numerous provisions that will greatly 
increase the Commission's ability to investigate and deter 
fraud, levy and collect fines and disgorgement funds, and 
provide for a significant increase in money available for 
return to injured investors. Currently, there are numerous 
State and Federal procedural impediments that interfere with 
the Commission's ability to perform these functions. H.R. 2179 
is common-sense, investor protection legislation that will 
reduce securities fraud violations, return money to defrauded 
investors, and help restore public confidence in the markets.
    The legislation significantly improves the Commission's 
ability to satisfy judgments against securities law violators 
by removing State law impediments when the SEC seeks to enforce 
judgments based on securities fraud claims. All States have 
statutes that exempt certain property from collection by 
creditors. The Commission has encountered cases where people 
commit serious acts of securities fraud, which cause enormous 
investor losses and lead to multi-million dollar judgments, but 
then use these State law exemptions to shelter their assets 
from collection of these judgments. For example, in certain 
States, debtors can shelter millions of dollars in their 
homesteads that might otherwise be available for collection by 
the Commission. By excluding SEC securities fraud judgments 
from these State law property exemptions, this provision will 
increase the deterrent value of SEC enforcement actions against 
wrongdoers who attempt to shield their ill-gotten gains behind 
State homestead laws. It will also increase the assets 
available for recovery by the SEC and allow more of the 
proceeds of fraud to be returned to injured investors, a goal 
consistent with the Fair Fund provision.
    H.R. 2179 would amend the Commission's existing 
administrative cease-and-desist authority to permit an 
imposition of civil monetary penalties in these proceedings, 
with a right of judicial review by a Federal court of appeals. 
Currently, the Commission must file two separate actions 
against the same entity or individual to obtain appropriate 
relief. By providing the Commission with authority to seek 
penalties in cease-and-desist proceedings, H.R. 2179 eliminates 
inefficiency and gives the Commission added flexibility to 
proceed administratively. In addition, the bill significantly 
increases the maximum fines imposed for violations of Federal 
securities laws to ensure meaningful penalties are assessed 
against wrongdoers.
    The SEC's ability to trace money and relationships quickly 
and effectively in its investigations of wrongdoing would also 
be enhanced by allowing the Commission to obtain bank records 
to help identify financial relationships or arrangements among 
persons or entities that may be relevant to securities 
violations. H.R. 2179 gives the SEC the discretion in cases in 
which it has already authorized a formal investigation to 
obtain bank records without providing notice to the customer. 
Current law generally requires the SEC to provide customers 
with notice and ten or fourteen days to contest the SEC's 
request. This enables wrongdoers to take steps to hide evidence 
and otherwise impede the Commission's investigative efforts. 
Elimination of this requirement prevents efforts to hinder SEC 
investigations.
    H.R. 2179 eliminates procedural hurdles faced by the 
Commission in the course of investigating and prosecuting 
securities fraud. The bill would give the Commission and 
banking regulators access to significant, otherwise 
unobtainable information by allowing (though not requiring) 
private parties to produce privileged or work-product protected 
documents to the Commission or appropriate banking regulator 
without waiving the privilege or protection as against any 
other party. The bill also allows the Department of Justice, 
subject to judicial approval in each case, to share grand jury 
information with the SEC in more circumstances than is 
currently permissible. In addition, the bill would provide 
nationwide service of subpoenas in civil actions brought by the 
SEC in the Federal courts to reduce costs and increase the 
effectiveness of Commission trial presentations. Furthermore, 
the SECwould have the express authority to contract with 
private collection attorneys to enhance the Commission's ability to 
recover more of the money owed by securities law violators.
    The bill expands the use of the Fair Fund provision to 
benefit investors by allowing any civil penalty monies obtained 
in a Commission action to be used for distribution to victims. 
The Commission is also authorized to use undistributed portions 
of disgorgement funds established under Sarbanes-Oxley for 
investor education. On occasion, it may be the case that it is 
not feasible to distribute all disgorgement funds to victims of 
a violation; for example, if the amount of money collected is 
small and the number of potential victims is large--as in a 
small insider trading case--the costs of distribution may be so 
great relative to the size of the fund that it is not 
economically practical to administer a disgorgement fund.
    In light of the widespread corporate scandals, closer 
cooperation between State and Federal regulators is imperative. 
H.R. 2179 requires the Commission to seek the cooperation of an 
association of State securities regulators to produce a joint 
study on strengthening the working relationship between State 
and Federal securities regulators. The study would be based on 
a previously announced initiative between the Commission and an 
organization of State securities administrators to improve the 
coordination, cooperation, and communication between State and 
Federal regulators.
    H.R. 2179 also institutes significant reforms to mutual 
fund industry practices. The legislation requires the SEC to 
adopt a rule to prohibit registered open-end investment 
companies that are closed to new investors from charging 12b-1 
fees to pay for any activity other than shareholder servicing. 
At their inception in 1980, 12b-1 fees were intended to assist 
small mutual funds to become financially viable by using 12b-1 
proceeds to cover their marketing and distribution costs and to 
help funds attract more assets. Today, 12b-1 fees are charged 
to investors in closed funds despite the fact that the fund is 
not seeking assets from new investors. An August 2003 Standard 
& Poor's study, which examined 15,000 funds, identified 139 
funds that have closed their doors to new investors but 
continue to charge the 12b-1 fees. The same study found that 
232 share classes closed to new investors were charging an 
average 12b-1 fee of 0.62 percent, while 74 funds were charging 
the regulatory maximum of 1 percent of the fund's net assets 
annually.
    In addition, the bill requires the fund's investment 
adviser and principal underwriter to disclose material 
information relating to conflicts of interest between the 
investment adviser's or principal underwriter's business 
practices and the interests of mutual fund shareholders prior 
to the approval of a contract for services with a mutual fund. 
Section 15(c) of the Investment Company Act requires that a 
fund's directors must request and evaluate information 
necessary to evaluate the terms of an advisory or underwriting 
contract. The legislation shifts the obligation from the 
directors to the service providers to provide independent 
directors information relevant to their decision regarding the 
approval of an advisory or underwriting contract. Fund boards 
cannot control what they do not know; requiring fund service 
providers to disclose information about potential conflicts of 
interest, rather than making fund directors guess the questions 
they should be asking, will better protect mutual fund 
investors from such conflicts. Finally, if a mutual fund 
company does not have an independent chairman leading its board 
of directors, H.R. 2179 directs the board to designate a lead 
independent director.
    H.R. 2179 also strengthens the tools available to investors 
to make more informed choices about their securities firms and 
brokers with whom they do business. Under Federal and State 
law, securities firms and brokers must provide information to 
regulators through a system operated by NASD. NASD currently 
maintains a toll-free telephone listing to receive inquiries 
regarding disciplinary actions involving its members and is 
required to respond to those inquiries in writing. H.R. 2179 
would require NASD to establish a system to collect and 
maintain registration information and to establish an easily 
accessible electronic process to respond to inquiries about 
registration information, so that investors can access 
information about their securities firms and brokers online. 
NASD also would be required to adopt rules addressing the 
process for making inquiries and responses, and addressing the 
establishment of an administrative process for disputes that 
may arise concerning the accuracy of information given in 
response to inquiries. As under current law, the association 
and exchanges would not be liable to any person for actions 
taken or omitted in good faith under this provision.
    This provision is important because informed investors are 
critical to market integrity and investor protection. Ready 
access to complete information about their securities firm and 
its brokers through NASD is critical to informing investors and 
building investor confidence. Investors have embraced the 
Internet as their preferred means of obtaining information 
about securities firms and brokers: of the over 2.5 million 
inquiries to NASD, 96 percent were through the Internet and 
only 4 percent were by telephone. Investors want and need 
online access to disclosure information to assist them in 
deciding whether to do business with a securities firm or 
broker.
    A provision in the bill builds on Section 408 of the 
Sarbanes-Oxley Act of 2002 and would enhance the Commission's 
review of the financial statements of the largest issuers. The 
provision requires the agency to conduct a thorough review of 
the financial statements contained in the most recent periodic 
disclosures filed by the 250 largest reporting issuers. 
Congress sought to enhance the review of periodic disclosures 
in the Sarbanes-Oxley Act by requiring the Commission to review 
each issuer's disclosures no less frequently than once every 
three years.
    The 2003 Global Research Analyst Settlement established a 
$52.5 million Investor Education Fund to develop and support 
programs to equip investors with the knowledge and skills to 
make informed decisions. H.R. 2179 includes a Sense of Congress 
that the administrator of the fund should award $5 million in 
competitive grants to programs administered by national non-
profit educational organizations whose primary purpose is 
improving the quality of minority and low income individuals' 
understanding of personal finance and economics. Five million 
dollars should be awarded in the form of competitive grants to 
programs administered by national non-profit educational 
organizations whose primary purpose is improving the quality of 
elementary and secondary students' understanding of personal 
finance and economics.

                                Hearings

    On June 5, 2003, the Subcommittee on Capital Markets, 
Insurance, and Government Sponsored Enterprises held a hearing 
on H.R. 2179. The following witnesses testified: Mr. Stephen M. 
Cutler, Director, Division of Enforcement, the U.S. Securities 
and Exchange Commission; Ms. Mary L. Schapiro, Vice Chairman 
and President, Regulatory Policy and Oversight, National 
Association of Securities Dealers; and Ms. Christine A. Bruenn, 
President, North American Securities Administrators 
Association, Inc.

                        Committee Consideration

    The Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises met in open session on July 
10, 2003 and approved H.R. 2179 for full Committee 
consideration, as amended, by a voice vote.
    The Committee on Financial Services met in open session on 
February 25, 2004 and ordered H.R. 2179 reported to the House, 
with an amendment, with a favorable recommendation, by a voice 
vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Oxley to report the bill to the House with a 
favorable recommendation was agreed to by a voice vote.
    The following amendment was considered by a record vote:
          An amendment to the amendment in the nature of a 
        substitute by Mr. Hensarling, No. 1g, regarding a 
        homestead exemption, was not agreed to by a record vote 
        of 18 yeas and 29 nays (Record vote No. FC-15).

                                              RECORD VOTE NO. FC-15
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley......................        X   ........  .........  Mr. Frank (MA)...  ........        X   .........
Mr. Leach......................        X   ........  .........  Mr. Kanjorski....  ........        X   .........
Mr. Bereuter...................        X   ........  .........  Ms. Waters.......  ........        X   .........
Mr. Baker......................  ........  ........  .........  Mr. Sanders*.....  ........        X   .........
Mr. Bachus.....................  ........  ........  .........  Mrs. Maloney.....  ........        X   .........
Mr. Castle.....................        X   ........  .........  Mr. Gutierrez....  ........        X   .........
Mr. King.......................        X   ........  .........  Ms. Velazquez....  ........        X   .........
Mr. Royce......................  ........        X   .........  Mr. Watt.........  ........        X   .........
Mr. Lucas (OK).................  ........        X   .........  Mr. Ackerman.....  ........        X   .........
Mr. Ney........................  ........  ........  .........  Ms. Hooley (OR)..  ........        X   .........
Mrs. Kelly.....................  ........        X   .........  Ms. Carson (IN)..  ........        X   .........
Mr. Paul.......................  ........  ........  .........  Mr. Sherman......  ........  ........  .........
Mr. Gillmor....................  ........  ........  .........  Mr. Meeks (NY)...  ........  ........  .........
Mr. Ryun (KS)..................        X   ........  .........  Ms. Lee..........  ........        X   .........
Mr. LaTourette.................  ........  ........  .........  Mr. Inslee.......  ........        X   .........
Mr. Manzullo...................  ........  ........  .........  Mr. Moore........  ........  ........  .........
Mr. Jones (NC).................  ........  ........  .........  Mr. Capuano......  ........        X   .........
Mr. Ose........................  ........  ........  .........  Mr. Ford.........  ........  ........  .........
Mrs. Biggert...................  ........  ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Green (WI).................  ........        X   .........  Mr. Lucas (KY)...        X   ........  .........
Mr. Toomey.....................  ........        X   .........  Mr. Crowley......  ........        X   .........
Mr. Shays......................  ........  ........  .........  Mr. Clay.........  ........        X   .........
Mr. Shadegg....................        X   ........  .........  Mr. Israel.......  ........  ........  .........
Mr. Fossella...................  ........  ........  .........  Mr. Ross.........  ........        X   .........
Mr. Gary G. Miller (CA)........  ........  ........  .........  Mrs. McCarthy      ........        X   .........
                                                                 (NY).
Ms. Hart.......................  ........        X   .........  Mr. Baca.........  ........        X   .........
Mrs. Capito....................  ........  ........  .........  Mr. Matheson.....  ........  ........  .........
Mr. Tiberi.....................  ........        X   .........  Mr. Lynch........  ........  ........  .........
Mr. Kennedy (MN)...............  ........  ........  .........  Mr. Miller (NC)..  ........        X   .........
Mr. Feeney.....................        X   ........  .........  Mr. Emanuel......  ........        X   .........
Mr. Hensarling.................        X   ........  .........  Mr. Scott (GA)...  ........        X   .........
Mr. Garrett (NJ)...............        X   ........  .........  Mr. Davis (AL)...  ........        X   .........
Mr. Murphy.....................        X   ........  .........  Mr. Bell.........        X   ........  .........
Ms. Ginny Brown-Waite (FL).....        X   ........  .........  .................  ........  ........  .........
Mr. Barrett (SC)...............        X   ........  .........  .................  ........  ........  .........
Ms. Harris.....................  ........  ........  .........  .................  ........  ........  .........
Mr. Renzi......................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.

    The following other amendments were also considered:
          An amendment in the nature of a substitute by Mr. 
        Oxley, No. 1, revising section 8(b) and making other 
        technical changes, was agreed to by a voice vote, as 
        amended.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Frank of Massachusetts, No. 1a, 
        requiring volunteer participation of association in an 
        SEC study, was agreed to by a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Castle, No. 1b, requiring a reduction 
        of excessive distribution and marketing fees, was 
        agreed to by a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Baker, No. 1c, requiring advisory fee 
        comparison of mutual fund shareholders and 
        institutional investors, was withdrawn.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Gillmor, No. 1d, requiring disclosure 
        responsibilities at contract renewal, was agreed to by 
        a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Shadegg, No. 1e, providing access to 
        regulatory data, was agreed to by a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Ms. Harris, No. 1f, providing a 
        limitation to property derived from proceeds of illegal 
        actions, was not agreed to by a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Ms. Harris, No. 1h, providing a 
        limitation to judicial actions only, was not agreed to 
        by a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Miller of North Carolina, No. 1i, 
        regarding a lead independent director, was agreed to by 
        a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The Securities and Exchange Commission will utilize the 
authorities granted under this legislation to better enforce 
the securities laws, improve investor protection, return 
disgorged funds to injured investors, and undertake such other 
actions as may be necessary to improve investor confidence in 
the securities markets.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that this 
legislation would result in no new budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 23, 2004.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2179, the 
Securities Fraud Deterrence and Investor Restitution Act of 
2004.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Melissa E. 
Zimmerman.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 2179--Securities Fraud Deterrence and Investor Restitution Act of 
        2004

    Summary: H.R. 2179 would increase the maximum amount of 
civil penalties assessed for violating securities laws and 
regulations and would direct the Securities and Exchange 
Commission (SEC) to use such penalty collections to compensate 
victims of such violations. The SEC also would be authorized to 
use those collections to compensate private debt collectors for 
collecting such penalties and could spend any remaining penalty 
collections on investor education programs. Finally, the bill 
would direct the SEC to make several amendments and updates to 
securities laws pertaining to the investment industry.
    CBO estimates that enacting S. 2179 would increase revenues 
by about $720 million in 2004, $15.1 billion over the 2004-2009 
period, and $29.5 billion over the 2004-2014 period; it would 
increase direct spending by about $1 billion in 2004, $17 
billion over the 2004-2009 period, and $33 billion over the 
2004-2014 period. The net budgetary impact of the bill would be 
a decrease in the deficit of about $460 million in 2004, a net 
increase in deficits of $320 million over the 2004-2009 period, 
and a net increase in deficits of about $1.9 billion over the 
2004-2014 period. Budget deficits would increase under H.R. 
2179 because penalties currently being collected by the SEC 
(but unspent under current law) would be spent under the bill. 
Implementing the bill would not have a significant effect on 
spending subject to appropriation.
    H.R. 2179 contains an intergovernmental mandate as defined 
in the Unfunded Mandates Reform Act (UMRA), but CBO estimates 
that the resulting costs would not be significant and would not 
exceed the threshold established in UMRA ($60 million in 2004, 
adjusted annually for inflation).
    H.R. 2179 would impose private-sector mandates as defined 
in UMRA on certain companies, associations, and individuals 
involved in the securities industry. Based on 
informationprovided by industry and government sources, CBO expects 
that the aggregate direct costs of complying with those mandates would 
fall below the annual threshold established by UMRA for private-sector 
mandates ($120 million in 2004, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2179 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            By fiscal year, in billions of dollars--
                                                                    ------------------------------------------------------------------------------------
                                                                        2004       2005     2006   2007   2008   2009   2010   2011   2012   2013   2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues.................................................        0.7        2.9    2.9    2.9    2.9    2.9    2.9    2.9    2.9    2.9    2.9

                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority.........................................        1.0        3.2    3.2    3.2    3.2    3.2    3.2    3.2    3.2    3.2    3.2
Estimated Outlays..................................................        0.3        2.4    3.2    3.2    3.2    3.2    3.2    3.2    3.2    3.2    3.2

                                                                   CHANGES IN DEFICITS

Estimated Net Increase In the Deficits.............................       -0.5       -0.5    0.3    0.3    0.3    0.3    0.3    0.3    0.3    0.3    0.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--Components may not sum to totals because of rounding.

    Basis of Estimate: CBO estimates that S. 2179 would 
increase the annual level of penalties imposed by the SEC 
approximately tenfold. The bill would authorize the SEC to 
spend all penalties collected under current law--as well as the 
new higher collections generated by the bill. Thus the net 
budgetary impact of the bill would be the spending of amounts 
collected under the current penalty structure. Under current 
law, these amounts are deposited in the Treasury and are not 
available for spending.
    CBO estimates that the net budgetary impact of the bill 
would be a decrease in the deficit of about $460 million in 
2004, a net increase in deficits of $320 million over the 2004-
2009 period, and a net increase in deficits of about $1.9 
billion over the 2004-2014 period.

Revenues

    Section 3 would increase maximum civil penalties for 
violations of the Securities Act of 1933, the Securities 
Exchange Act of 1934, the Investment Company Act of 1940, and 
the Investment Advisers Act of 1940. Such violations include 
insider trading and fraud and deceit in the offer, purchase, or 
sale of securities. According to the SEC, collections of such 
penalties were about $250 million in 2003 and about $230 
million for the first half of 2004. The bill would increase the 
maximum penalty by roughly tenfold, depending on the severity 
of the violation. For example, the maximum penalty for 
violations of the Securities Act of 1933 for individuals would 
increase from $100,000 to $1 million.
    Based on information regarding collections in 2003 and 2004 
provided by the SEC, CBO estimates that enacting S. 2179 would 
increase revenues by about $720 million in 2004, $15.1 billion 
over the 2004-2008 period, and $29.5 billion over the 2004-2014 
period. This estimate does not assume any significant decline 
in the number of violations. The increase in collections could 
be much higher or lower considering that the amount of 
penalties varies widely from year to year.

Direct Spending

    Section 8 of the S. 2179 would direct the SEC to place all 
civil penalties it collects into disgorgement funds to 
compensate victims of violations of securities laws and 
regulations. If the victim of a violation cannot be identified 
or located, or the amounts remaining are too small to merit 
distribution, the SEC could requests that the penalty 
collections be used to fund investor education programs 
administered by a nonprofit or government organization. In 
addition, section 7 of the bill would authorize the SEC to 
contract with private firms to collect penalties assessed for 
violations of securities laws and regulations and to compensate 
the private firms using the amounts they recover. Under current 
law, the SEC is not authorized to spend penalty collections.
    Based on information provided by the SEC, CBO estimates 
that enacting S. 2179 would increase direct spending for 
compensating victims, funding investor education, and 
compensating private debt collectors by more than the increase 
in penalty amounts that would occur under the bill. CBO 
estimates that spending would increase under the bill by about 
$1 billion in 2004, $17 billion over the 2004-2009 period, and 
$33 billion over the 2004-2014 period. The increase in spending 
could be much higher or lower considering that the amount of 
penalties collected varies widely from year to year.

Spending Subject to Appropriation

    Reviews of Financial Statements. Section 14 would require 
the SEC to review the most recent financial statements 
disclosed by the largest 250 reporting issuers. According to 
the SEC, the agency is already in the process of conducting 
financial reviews for several issuers and would not require 
significant additional resources to complete the review 
required by section 14. Therefore, CBO estimates that 
implementing this provision would not have a significant effect 
on spending subject to appropriation.
    Investment Industry Regulations. Several provisions in S. 
2179 would make changes to regulations involving the investment 
industry. In particular, the bill would affect rules with 
regard to mutual fund management, disclosure of potential 
conflicts of interest by financial professionals, and 
accessibility of information about registered securities 
associations. Based on information provided by the SEC, CBO 
estimates that implementing those changes would not have a 
significant effect on spending subject to appropriation.
    Estimated impact on state, local, and tribal governments: 
Section 2 would preempt laws in almost all states by allowing 
properties otherwise covered by homestead provisions to be 
seized by federal securities authorities. (Generally, state 
homestead exemptions protect a certain amount of property from 
seizure during a bankruptcy or other proceeding.) That 
preemption constitutes a mandate as defined in UMRA. Although 
states may incur some costs due to this provision, CBO 
estimates that such costs would fall significantly below the 
threshold established in UMRA ($60 million in 2004, adjusted 
annually for inflation) because most homestead exemptions 
protect very limited assets. Any costs incurred by states for 
participating in the federal and state cooperation study 
established in section 8 or contributing to the relief of 
victims fund would be voluntary.
    Estimated impact on the private sector: H.R. 2179 would 
impose private-sector mandates as defined in UMRA on certain 
companies, associations, and individuals involved in the 
securities industry. Based on information provided by industry 
and government sources, CBO expects that the aggregate direct 
costs of complying with those mandates would fall below the 
annual threshold established by UMRA for private-sector 
mandates ($120 million in 2004, adjusted annually for 
inflation).

Prohibition of Certain Distribution and Marketing Fees

    Under current law, the Securities and Exchange Commission 
rule 12b-1 allows mutual funds to assess fees on shareholders 
for fund marketing, distribution, and certain other costs. The 
bill would prohibit mutual fund companies from charging any 
fees under rule 12b-1, except fees for shareholder servicing 
activities, on mutual funds that are closed to new investors. 
Based on information from industry experts and government 
sources, CBO interprets the language of that provision to mean 
that while marketing and distribution fees would be prohibited, 
other fees could still be charged, although not under SEC rule 
12b-1. According to information from industry and government 
sources, about 150 mutual funds are closed to new investors, 
and such funds charge approximately $10 million to $15 million 
per year in marketing and distributing fees under rule 12b-1. 
The direct cost of the mandate would be the loss of those fees 
less the administrative cost to collect them. The cost of the 
mandate could be significantly higher, however, if the SEC 
interprets the language differently and prohibits funds from 
collecting other fees currently collected under rule 12b-1 in 
promulgating the rules and regulations for this provision.

Access to Information and Corporate Governance

    The bill would impose other private-sector mandates 
regarding additional disclosures, consumer information, and 
corporate governance. Based on information from industry and 
government sources, CBO estimates that the direct cost to 
comply with those mandates would be small. Those mandates 
would:
           Prohibit companies and individuals from 
        disclosing in certain instances that financial records 
        have been requested by the SEC;
           Require investment advisers and principal 
        underwriters to disclose certain material information 
        to the board of directors of a registered investment 
        company when entering into or renewing a contract or 
        agreement;
           Require a registered securities association 
        to establish and maintain a readily accessible 
        electronic or other process to respond to certain 
        inquiries regarding brokers, including information 
        about the registration and licensing of brokers, and 
        disciplinary actions;
           Require investment advisers to pay fees to 
        cover the cost of systems set up to respond to certain 
        inquiries regarding investment advisers if such a 
        system is established by the SEC; and
           Require the board of directors of a 
        registered investment company to select a lead 
        independent director, unless the chairman of the board 
        is an independent director.
    Estimate prepared by: Federal Costs: Melissa E. Zimmerman; 
Impact on State, Local, and Tribal Governments: Sarah Puro; and 
Impact on the Private Sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis. Robert Williams, Deputy Assistant 
Director for Tax Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section provides the short title of the legislation, 
the ``Securities Fraud Deterrence and Investor Restitution Act 
of 2004''.

Section 2. Recovery by Commission of Securities law judgments

    Section 2 amends the Sarbanes-Oxley Act in order to give 
the Commission greater ability to satisfy judgments against 
fraudsters by removing State law impediments when the SEC seeks 
to enforce judgments based on securities fraud claims.
    All States have statutes that exempt certain property from 
collection by creditors. The Commission has encountered cases 
where persons commit serious securities frauds, which cause 
enormous investor losses and lead to multi-million dollar 
judgments, but then use these State law exemptions to shelter 
their assets from collection of these judgments. For example, 
in certain States, debtors can shelter millions of dollars in 
their homesteads that might otherwise be available for 
collection by the Commission. By excluding SEC securities fraud 
judgments from such State law property exemptions, this 
provision will increase the deterrent value of SEC enforcement 
actions against wrongdoers who attempt to shield their ill-
gotten gains behind State homestead laws.
    Notably, this provision does not alter existing law on the 
validity or priority of liens in property that the SEC pursues 
to satisfy a judgment or order. The validity of any 
lienholders' rights or claims and their rights to take 
possession, in whole or in part, of the property or the 
proceeds from the sale of the property will continue to be 
determined in accordance with other applicable law. In sum, 
Section 2 will also increase the assets available for recovery 
by the SEC and allow more of the proceeds of fraud to be 
returned to injured investors, a goal consistent with the Fair 
Funds provision of the Sarbanes-Oxley Act.

Section 3. Civil enforcement provisions

    This provision contains several measures to strengthen the 
SEC's ability to investigate, punish and deter securities law 
violations.
    First, subsection (a) amends the Commission's existing 
administrative cease-and-desist authority to permit the 
Commission to impose civil money penalties in these 
proceedings, with a right of judicial review by a Federal court 
of appeals. Currently, the Commission has two means of seeking 
civil penalties: in administrative proceedings against entities 
and persons directly regulated by the Commission, such as 
broker-dealers or registered representatives; or in Federal 
court actions against any entity or person (whether or not 
directly regulated by the SEC). The Commission also has 
authority to seek remedies other than civil penalties against 
any entity or person in an administrative proceeding.
    The result of this patchwork is that in some circumstances 
the Commission must file two separate actions against the same 
entity or individual to obtain the appropriate array of relief. 
By granting the Commission authority to seek penalties in 
cease-and-desist proceedings, this section would eliminate 
inefficiency and give the Commission added flexibility to 
proceed administratively. The section also would ensure 
appropriate due process protections for subjects of 
administrative penalty proceedings by making the Commission's 
authority to seek penalties in this context coextensive with 
its authority to seek penalties in Federal court. As is the 
case when a Federal district court imposes a civil penalty in a 
Commission action, imposition of a civil penalty in an 
administrative cease-and-desist proceeding would be appealable 
to a Federal court of appeals.
    Second, subsection (b) significantly increases the maximum 
fines that the SEC and courts can impose for violations. 
Currently, the civil fine provisions contain maximum penalties 
ranging from $6,500 to $600,000 per violation. While these 
statutory maximums have been adjusted for inflation, the 
increases have not kept pace with the exponential growth of our 
capital markets over the past ten years, and have not had the 
desired deterrent effect on individual or corporate violators. 
In light of the massive securities frauds witnessed in recent 
years, an increase in the current maximum fines will help 
ensure that the SEC is able to impose meaningful penalties 
against wrongdoers.
    Third, subsection (c) contains an important provision to 
enhance the SEC's ability to trace money and relationships 
quickly and effectively in its investigations of wrongdoing. 
During its investigations, the SEC often seeks to obtain bank 
records to help identify financial relationships or 
arrangements among persons or entities that may be relevant to 
securities violations. Identifying those relationships or 
arrangements, and quickly identifying assets obtained or 
transferred in connection with possible unlawful activity, is 
critical to the SEC's ability to obtain orders freezing assets 
of wrongdoers. In many situations, the SEC could more 
effectively identify and preserve illegal proceeds if it could 
obtain relevant bank records without providing notice to the 
persons whose account records are sought.
    Current law, however, generally requires that the SEC 
provide those persons with notice and a substantial period (10 
or 14 days) to contest the SEC's request. Although current law 
permits the SEC to seek court authorization to obtain the 
relevant bank records without notifying the subject for up to 
90 days, important investigative objectives can be compromised 
by the inherent delay in obtaining the necessary court order.
    The legislation addresses both the notice and delay 
problems by giving the SEC the discretion--though only in those 
cases in which it has already authorized a formal 
investigation--to proceed without notice to the customer. The 
legislation also reiterates and strengthens the SEC's authority 
to require that financial institutions not compromise 
investigations by notifying customers that their bank records 
have been subpoenaed. This change will enhance the SEC's 
ability to investigate and take effective action quickly.

Section 4. Authority to accept privileged and protected information

    This provision enhances the Commission's access to 
significant, otherwise unobtainable information by allowing 
(though not requiring) private parties to produce privileged or 
work-product protected documents to the Commission without 
waiving the privilege or protection as against any other party.
    Voluntary production of information that is protected by 
the attorney-client privilege, other privileges, or the 
attorney work product doctrine greatly enhances the 
Commission's investigative efforts, and in some cases makes 
them more efficient. In many cases, private parties would be 
willing to share privileged information with the Commission if 
they could otherwise maintain the privileged and confidential 
nature of the document. For example, a company that retains 
outside counsel to conduct an internal investigation concerning 
possible violations may be willing to share the investigative 
report with the Commission. Under current law, however, a party 
who produces privileged or protected material to the Commission 
runs a very serious risk that a third party, such as an 
adversary in private litigation, could obtain that information 
by successfully arguing that production to the Commission 
waived the privilege or protection. This presents a substantial 
disincentive for anyone who might otherwise consider providing 
the Commission useful information that is subject to a 
privilege or protection.
    Section 4 minimizes that disincentive. It does not require 
anyone to produce privileged or protected material to the 
Commission, but it does allow parties who choose to produce 
such materials to do so without fear that their production to 
the Commission will be deemed to waive the privilege or 
protection as to anyone else. This provision provides that a 
person generally does not waive any applicable privilege, under 
Federal or State law, or any protection under the work product 
doctrine, when a person produces or discloses any information 
or document to the Commission or an appropriate regulatory 
agency subject to the terms of a written agreement. The 
production or disclosure of information or a document does not 
constitute a waiver of the privilege or protection as to any 
person other than the Commission or the appropriate regulatory 
agency to which the document or information is provided. The 
term ``appropriate regulatory agency'' means the four Federal 
banking agencies--the Federal Deposit Insurance Corporation 
(FDIC), the Office of the Comptroller of the Currency (OCC), 
the Office of Thrift Supervision (OTS), or the Board of 
Governors of the Federal Reserve System (Fed).
    The protections of a clear rule that a person will not lose 
any applicable privilege or protection that the person is 
entitled to assert will help ensure that these Federal 
functional regulators receive necessary information about the 
respective financial services providers that they regulate and 
that there is a free flow of information between the regulated 
entity and the Federal regulator. The provision does not 
authorize the Commission or an appropriate regulatory agency to 
obtain any information or document from any person that the 
agency is prohibited from obtaining under another provision of 
law and it does not relieve any person of liability for 
providing any information or document to the Commission or an 
appropriate regulatory agency that the person is prohibited 
from providing under other law.
    This provision does not in any manner limit or interfere 
with the authority that the Commission, the OCC, the FDIC, the 
Fed, or the OTS has under other law to obtain documents and 
information from the entities that these Federal functional 
regulators regulate and supervise. Moreover, this provision 
does not address whether a person would waive any applicable 
Federal or State privilege or protection by providing 
information or documents to a Federal functional regulator 
outside of a written agreement; such issues would continue to 
be governed by existing law.
    This provision also should assist the Commission's 
examination program by allowing registrants to preserve their 
privileges and protections as to third parties when they 
produce required records and reports to the Commission. Under 
the Commission's examination authority, and in particular its 
authority to examine ``all'' records of brokers, dealers, 
national securities exchanges, national securities 
associations, transfer agents, investment advisers and other 
entities registered under the Securities Exchange Act of 1934 
or the Investment Advisers Act of 1940, the Commission has the 
authority to require the production of records that might 
otherwise be privileged or subject to the protection provided 
by the work product doctrine. Section 4's amendment to Section 
24 of the Securities and Exchange Act would allow registrants 
to preserve their privileges and protections as to third 
parties notwithstanding the production of records to Commission 
examiners.

Section 5. Access to grand jury information

    Section 5 authorizes the Department of Justice, subject to 
judicial approval in each case, to share grand jury information 
with the SEC in more circumstances and at an earlier stage than 
is currently permissible.
    Under existing law, Federal Rule of Criminal Procedure 6(e) 
prohibits disclosure of ``matters occurring before the grand 
jury,'' unless that disclosure falls within one of the Rule's 
limited exceptions. Under those exceptions, the Commission may 
obtain grand jury information only in the rare case in which it 
can demonstrate that it has a ``particularized need'' for the 
information and that the information is sought ``preliminarily 
to or in connection with a judicial proceeding.''As a practical 
matter, these requirements severely limit the situations in which the 
Department of Justice can share with the Commission even the most 
critical information relevant to parallel investigations. In most 
cases, the Commission must conduct a separate, duplicative 
investigation to obtain the same information. This not only creates an 
inefficient use of government resources and substantial delay in 
Commission action, but burdens private parties and financial 
institutions who may have to provide essentially the same documents and 
testimony in multiple investigations.
    This section provides a narrow modification of the grand 
jury secrecy rule, in order to aid the Commission in its 
investigations and enhance the efficient use of law enforcement 
resources devoted to those investigations. It would authorize 
Department of Justice attorneys to seek court authorization to 
release limited grand jury information to Commission personnel 
for use in matters within the Commission's jurisdiction. It 
permits sharing of information only with regard to conduct that 
may constitute violations of the Federal securities laws, but 
lessens the burden in obtaining court approval for sharing that 
information. The court could approve the sharing of the 
information upon a showing of a ``substantial need in the 
public interest,'' rather than the higher ``particularized 
need'' standard. The public interest standard would allow the 
court to consider the protection of investors as a reason for 
permitting access to the grand jury material. Other factors the 
court could consider under this standard would include: (1) the 
burden or cost of duplicating the grand jury investigation; (2) 
the potential unavailability of witnesses; (3) the fact that 
the SEC already has a legitimate independent right to the same 
materials; (4) the avoidance of inefficiency or waste of 
resources; (5) the need to prevent ongoing violations of law; 
and (6) the expiration of an applicable statute of limitations. 
In addition, under this section the judicial proceeding 
requirement would not apply to the Commission, permitting 
information to be shared at an earlier stage in an 
investigation and in connection with an administrative 
proceeding.

Section 6. Nationwide service of process

    This provision provides for nationwide service of subpoenas 
in civil actions brought by the SEC in the Federal courts, 
which will reduce costs and increase the effectiveness of 
Commission trial presentations. Other Federal agencies with 
comparable missions have long had this nationwide service 
authority. The Commission currently has authority for 
nationwide service in administrative proceedings. For civil 
actions filed in Federal district court, however, the 
Commission does not have the ability to effect nationwide 
service of process for trial subpoenas on witnesses.
    Under existing law, the Commission issues trial subpoenas 
in Federal court actions pursuant to Rule 45 of the Federal 
Rules of Civil Procedure. That Rule provides that a subpoena 
may only be issued within the judicial district where the trial 
takes place or within a ``100-mile bulge'' from the courthouse. 
Witnesses in SEC cases are frequently located outside of the 
trial court's subpoena range. Unless such a witness volunteers 
to appear at trial, the SEC must first take the witness's 
deposition, and then use his or her written or videotaped 
deposition testimony at trial. Deposition testimony is more 
expensive, and less effective, than live testimony.
    By eliminating the application of Rule 45's geographical 
limitations to the SEC, this section will provide substantial 
advantages, including significant savings in the costs of 
creating and presenting videotaped deposition testimony, as 
well as significant savings in travel costs and SEC staff time 
due to the elimination of unnecessary depositions. It will also 
provide the benefits of live witnesses before the trial court.

Section 7. Authority to contract with private counsel for legal 
        services to collect delinquent judgments and orders

    This provision would give the SEC express authority to hire 
private counsel to provide legal services, including 
litigation, for the collection of unpaid debt owed by 
securities law violators.
    The SEC obtains judgments or orders for millions of dollars 
in disgorgement and penalties from violators each year, but 
many of these violators fail to pay the amounts they owe. The 
Commission takes steps, consistent with its existing authority, 
to try to collect these obligations. When, however, these 
efforts are unsuccessful, it does not have the express 
authority to then retain private debt collection counsel to 
pursue the matter further. By giving the SEC this express 
authority, modeled on a similar statutory provision applicable 
to the Department of Justice, section 7 enhances the 
Commission's ability to recover more of the money owed by 
securities law violators. Private collection attorneys have 
more familiarity with local procedures for debt collection. By 
hiring private attorneys with collection expertise, the 
Commission would not need to divert as many enforcement staff 
resources to collection efforts. This will allow SEC 
enforcement staff to focus more of its efforts on its primary 
functions of detecting, investigating, stopping, and 
prosecuting securities law violations.

Section 8. Fair Act amendments

    Section 8 contains several amendments to the Fair Funds 
provision of the Sarbanes-Oxley Act to provide for expanded use 
of Fair Funds to benefit investors. First, it amends the 
current Fair Funds provision to allow any civil penalty monies 
obtained in a Commission action to be used for distribution to 
victims. Currently, under the Fair Funds provision, the 
Commission is authorized to add penalty monies collected in its 
enforcement cases to disgorgement amounts to create funds for 
the benefit of victims of a securities law violation, if the 
penalty is collected from the same defendant who has been 
ordered to pay disgorgement. This section would expand the 
application of the Fair Funds provision to permit any penalty 
monies obtained by the Commission to be added to a fund for the 
benefit of victims of the violation.
    This section also amends the Fair Funds provision to 
provide that the Commission may allow a State that has received 
penalty or disgorgement payments pursuant to a settlement in a 
securities fraud action to contribute those payments to a fund 
administered by the Commission for the purpose of making 
restitution payments to investors. This provision will provide 
a mechanism by which a State could contribute monies obtained 
in a settlement of a securities fraud action to a fund for the 
benefit of investors administered by the Commission. In no 
event would a State be required to do so, and the contribution 
to the fund would be subject to the Commission's discretion. In 
many cases, however, it may be more efficient for a State to 
distribute monies to investors through such a fund administered 
by the Commission.
    Finally, section 8 adds a new provision to the Fair Funds 
provision to allow the SEC to require that undistributed 
portions of funds established for the benefit of victims be 
used for investor education. On occasion, it may not be 
feasible to distribute all monies in a fund created for the 
benefit of victims of a violation. For example, if the amount 
of money collected is small and the number of victims is 
large--as in a small insider trading case--the costs of 
distribution may be so great relative to the size of the fund 
that it is not economically practical to administer the fund. 
If the Commission determines, for this or any other reason, 
that distribution of a fund is not feasible, or if there are 
excess monies remaining after distribution, then the Commission 
may move for an order in a judicial action, or may issue an 
order in an administrative action, directing that the 
undistributed amount of the fund be used for investor education 
purposes. The Court or Commission order may provide for the use 
of these funds for programs administered by an established not-
for-profit or governmental organization whose purposes include 
investor education and financial literacy, and may provide for 
either direct payment of the monies to the investor education 
program, or for the appointment of a fund administrator to 
monitor use of the funds.
    Section 8 also requires the Commission to seek to produce 
in cooperation with an association of State securities 
regulators a joint study on strengthening the working 
relationship between State and Federal securities regulators. 
State and Federal securities regulators historically have 
worked in tandem on oversight of the securities industry. In 
light of recent corporate scandals, closer cooperation between 
State and Federal regulators has become even more imperative. 
The joint study would be based on a previously announced 
initiative between the Commission and the North American 
Securities Administrators Association to improve the 
coordination, cooperation and communication between State and 
Federal regulators. If the association of State securities 
regulators agrees to participate in the study, the results 
would be jointly reported to both the House Committee on 
Financial Services and the Senate Committee on Banking, Housing 
and Urban Affairs by September 14, 2005, or one year after the 
enactment of this legislation, whichever is later.

Section 9. Reduction of excessive distribution and marketing fees

    Section 9 requires the Commission, within 90 days of the 
bill's enactment, to adopt a rule to prohibit registered open-
end investment companies that are closed to new investors from 
charging fees under a 12b-1 plan to pay for any activity other 
than shareholder servicing.
    Section 12(b) of the Investment Company Act of 1940 makes 
it unlawful for a registered open-end investment company (fund) 
to act as a distributor of securities of which it is the 
issuer, except through an underwriter, in contravention of 
Commission regulations. Section 12(b) was intended to protect 
funds from bearing excessive sales and promotion expenses. Rule 
12b-1 permits funds to use their assets to pay distribution-
related costs. In order to rely on the rule, a fund must comply 
with certain conditions, including adopting ``a written plan 
describing all material aspects of the proposed financing of 
distribution'' that is approved by fund shareholders and fund 
directors.
    The Commission adopted the rule in 1980, when many funds 
were facing net redemptions of fund assets, and anticipated 
that 12b-1 fees would be used as temporary measures to 
replenish fund assets. Since then, many funds have adopted 12b-
1 plans and rely on 12b-1 fees to serve as a substitute for 
front-end sales charges and to compensate financial 
intermediaries for the services they provide to existing 
shareholder accounts. The provision would preclude funds that 
areclosed to new investors and, therefore, are not seeking 
additional assets, from continuing to collect 12b-1 fees.

Section 10. Disclosure responsibilities at contract renewal

    Section 10 requires the disclosure of material information 
relating to any conflict of interest between an investment 
adviser's and principal underwriter's business practices and 
the interests of the shareholders of a fund prior to the 
approval of a contract for services with the fund.
    Currently, under section 15(c) of the Investment Company 
Act of 1940, funds cannot enter into, renew or perform any 
contract with an investment adviser or principal underwriter 
unless the contract or renewal has been approved by an in-
person vote of a majority of independent directors at a meeting 
held for that purpose. The directors of a fund have a duty to 
request and evaluate, and the investment adviser has a duty to 
furnish, any information reasonably necessary to evaluate the 
terms of an investment advisory contract with the fund.
    Section 10 imposes the same duties on directors and 
principal underwriters with respect to an underwriting contract 
with the fund.
    In addition, section 10 specifies the duties of investment 
advisers, principal underwriters, and independent directors of 
a fund when negotiating a contract for services. It requires an 
investment adviser, when entering into or renewing a contract 
or agreement, to disclose to the independent directors material 
information concerning any business practices of the adviser, 
or of its affiliates, that may conflict with the best interests 
of the fund's shareholders. It also requires the investment 
adviser to specify and commit to implement procedures 
reasonably designed to ensure that its services are provided in 
the best interests of the fund's shareholders. Principal 
underwriters would have the same duties when entering into or 
renewing an underwriting contract with a fund.
    Finally, section 10 would require independent directors to 
determine whether the procedures specified by the investment 
adviser and the principal underwriter offer a reasonable 
likelihood of protecting the best interests of the fund's 
shareholders.

Section 11. Method of maintaining broker/dealer registration, 
        disciplinary and other data

    Section 11 amends section 15A(i) of the Securities Exchange 
Act of 1934, which requires a registered securities association 
to maintain a toll-free telephone listing to receive inquiries 
regarding disciplinary actions involving its members and their 
associated persons, and to respond to those inquiries in 
writing. The amended language would require a registered 
securities association to establish a system to collect and 
maintain registration information, and to establish an easily 
accessible electronic or other process (in addition to the 
toll-free telephone listing) to respond to inquiries about 
registration information.
    Registration information would be collected on the 
association's members and their associated persons, as well as 
the members and associated persons of any registered national 
securities exchange that uses the system for the registration 
of such persons. The association may charge persons making 
inquiries, other than an individual investor, reasonable fees 
for producing a response.
    The registered securities association, in consultation with 
the participating registered national securities exchanges, 
also would be required to adopt rules on the process for making 
inquiries and responses, and on the establishment of an 
administrative process for disputes that may arise concerning 
the accuracy of information given in responses to inquiries. As 
under current law, the association and participating exchanges 
would not be liable to any persons for actions taken or omitted 
in good faith under this provision.

Section 12. Filing depositories for investment advisers

    Section 12 reorganizes and codifies in the Investment 
Advisers Act of 1940 provisions of the National Securities 
Markets Improvement Act of 1996, in which Congress directed the 
Commission to establish an electronic filing system, and 
mandated the creation of a public disclosure program, for 
investment advisers. Pursuant to this directive, the Commission 
designated the NASD to operate the electronic filing system for 
investment advisers, which is called the Investment Adviser 
Registration Depository, and created an Internet-based public 
disclosure program containing investment adviser registration 
and disciplinary information.
    Section 12 codifies this arrangement, although it would 
require a toll-free telephone listing, as well as an electronic 
means, for receiving and responding to inquiries for 
registration information.
    The new provision recognizes that the NASD also operates 
the public disclosure program on behalf of the Commission and 
conforms the Investment Advisers Act provision to the terms of 
the Securities Exchange Act of 1934 so that the NASD has 
immunity from liability for actions taken in good faith in 
operating the investment adviser public disclosure program.

Section 13. Lead independent director

    This provision requires that if a registered open-end 
investment company does not have an independent chairperson 
leading its boardof directors, the board of directors must 
designate a lead independent director, i.e., a lead director who is not 
an ``interested person.'' A lead independent director would have 
authority to place items on the board's agenda, call meetings, and seek 
outside advice for the independent directors. The Commission, by rule, 
may give the lead independent director such additional authority as it 
determines to be necessary or useful.

Section 14. Enhanced oversight of periodic disclosures by issuers

    This provision enhances the Commission's review of the 
financial statements of the largest issuers. The Commission 
historically has conducted reviews of the financial statements 
and other periodic disclosures of issuers on a cyclical basis. 
Because of the large number of issuers and finite staff 
resources, however, the Commission could not review the 
financial statements of each issuer every year. In Section 408 
of the Sarbanes-Oxley Act of 2002, Congress sought to enhance 
the review of periodic disclosures by requiring the Commission 
to review each issuer's disclosures no less frequently than 
once every three years.
    Section 14 would further enhance the oversight of larger 
issuers by requiring the Commission, within one year of the 
date of enactment of the Act, to conduct a thorough review of 
the financial statements contained in the most recent periodic 
disclosures filed with the Commission by the largest 250 
reporting issuers, and as many other issuers as the Commission 
finds appropriate. The Commission also would be required to 
query these issuers about any unclear statement in their 
disclosures, and require issuers to respond fully to such 
queries.

Section 15. Sense of Congress

    The 2003 Global Research Analyst Settlement established a 
$52.5 million Investor Education Fund to develop and support 
programs designed to equip investors with the knowledge and 
skills necessary to make informed decisions. Section 15 
establishes the sense of Congress that the administrator of the 
fund should award $5 million in the form of competitive grants 
to programs administered by national non-profit educational 
organizations whose primary purpose is improving the quality of 
minority and low-income individuals' understanding of personal 
finance and economics. An additional $5 million should be 
awarded in the form of competitive grants to programs 
administered by national non-profit educational organizations 
whose primary purpose is improving the quality of elementary 
and secondary students' understanding of personal finance and 
economics.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                       SARBANES-OXLEY ACT OF 2002


SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Sarbanes-
Oxley Act of 2002''.
  (b) Table of Contents.--The table of contents for this Act is 
as follows:

Sec. 1. Short title; table of contents.
     * * * * * * *

                   TITLE III--CORPORATE RESPONSIBILITY

Sec. 301. Public company audit committees.
     * * * * * * *
Sec. 309. Recovery of securities law judgments; removal of state law 
          impediments.
     * * * * * * *

              TITLE VI--COMMISSION RESOURCES AND AUTHORITY

Sec. 601. Authorization of appropriations.
     * * * * * * *
Sec. 605. Access to grand jury information.

           *       *       *       *       *       *       *


TITLE III--CORPORATE RESPONSIBILITY

           *       *       *       *       *       *       *


SEC. 308. FAIR FUNDS FOR INVESTORS.

  [(a) Civil Penalties Added to Disgorgement Funds for the 
Relief of Victims.--If in any judicial or administrative action 
brought by the Commission under the securities laws (as such 
term is defined in section 3(a)(47) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)(47)) the Commission obtains an 
order requiring disgorgement against any person for a violation 
of such laws or the rules or regulations thereunder, or such 
person agrees in settlement of any such action to such 
disgorgement, and the Commission also obtains pursuant to such 
laws a civil penalty against such person, the amount of such 
civil penalty shall, on the motion or at the direction of the 
Commission, be added to and become part of the disgorgement 
fund for the benefit of the victims of such violation.]
  (a) Civil Penalties To Be Used for the Relief of Victims.--If 
in any judicial or administrative action brought by the 
Commission under the securities laws (as such term is defined 
in section 3(a)(47) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(47))) the Commission obtains pursuant to such 
laws a civil penalty against any person, such civil penalty 
monies shall, on the motion or at the direction of the 
Commission, be added to and become part of a fund for the 
benefit of the victims of such violation.

           *       *       *       *       *       *       *

  (c) Use of Investor Restitution Fund by States.--The 
Commission may allow a State that has received penalty or 
disgorgement payments pursuant to an agreement or settlement 
with a broker or dealer or other party in an action concerning 
securities fraud to contribute those payments to a fund 
administered by the Commission for the purpose of making 
restitution payments to investors, whether or not the 
Commission was a party to the agreement or settlement or had 
established such fund prior to the State's contribution. The 
Commission shall have the authority otherwise available to it 
under the securities laws with respect to the administration 
and distribution of such funds.
  (d) Undistributed Funds To Be Used for Investor Education.--
In any judicial or administrative action in which a fund is 
created pursuant to subsection (a) or in which the Commission 
had obtained disgorgement, if the Commission determines (due to 
the size of the fund to be distributed, the number of 
investors, the nature of the underlying violation, or for other 
reasons) that it would be infeasible to distribute such fund or 
disgorgement to the victims of the violation, or if after 
distribution of the fund or disgorgement to victims there are 
excess monies remaining, the Commission may move for an order 
in a judicial action, or may issue an order in an 
administrative proceeding, requiring that the undistributed 
amount of the fund or disgorgement be used for investor 
education programs administered by an established not-for-
profit or governmental organization whose purposes include 
investor education and financial literacy.

           *       *       *       *       *       *       *

  [(c)] (e) Study Required.--
          (1) Subject of study.--The Commission shall review 
        and analyze--
                  (A) * * *

           *       *       *       *       *       *       *

  [(d)] (f) Conforming Amendments.--Each of the following 
provisions is amended by inserting ``, except as otherwise 
provided in section 308 of the Sarbanes-Oxley Act of 2002'' 
after ``Treasury of the United States'':
          (1) * * *

           *       *       *       *       *       *       *

  [(e)] (g) Definition.--As used in this section, the term 
``disgorgement fund'' means a fund established in any 
administrative or judicial proceeding described in subsection 
(a).

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

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

           *       *       *       *       *       *       *


TITLE VI--COMMISSION RESOURCES AND AUTHORITY

           *       *       *       *       *       *       *


SEC. 605. ACCESS TO GRAND JURY INFORMATION.

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

           *       *       *       *       *       *       *

                              ----------                              


                         SECURITIES ACT OF 1933

TITLE I

           *       *       *       *       *       *       *


                      CEASE-AND-DESIST PROCEEDINGS

  Sec. 8A. (a) * * *

           *       *       *       *       *       *       *

  (g) Authority To Impose Money Penalties.--
          (1) Grounds for imposing.--In any cease-and-desist 
        proceeding under subsection (a), the Commission may 
        impose a civil penalty on a person if it finds, on the 
        record after notice and opportunity for hearing, that--
                  (A) such person--
                          (i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation thereunder; or
                          (ii) is or was a cause of the 
                        violation of any provision of this 
                        title, or any rule or regulation 
                        thereunder; and
                  (B) such penalty is in the public interest.
          (2) Maximum amount of penalty.--
                  (A) First tier.--The maximum amount of 
                penalty for each act or omission described in 
                paragraph (1) shall be $100,000 for a natural 
                person or $250,000 for any other person.
                  (B) Second tier.--Notwithstanding paragraph 
                (A), the maximum amount of penalty for each 
                such act or omission shall be $500,000 for a 
                natural person or $1,000,000 for any other 
                person if the act or omission described in 
                paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless 
                disregard of a regulatory requirement.
                  (C) Third tier.--Notwithstanding paragraphs 
                (A) and (B), the maximum amount of penalty for 
                each such act or omission shall be $1,000,000 
                for a natural person or $2,000,000 for any 
                other person if--
                          (i) the act or omission described in 
                        paragraph (1) involved fraud, deceit, 
                        manipulation, or deliberate or reckless 
                        disregard of a regulatory requirement; 
                        and
                          (ii) such act or omission directly or 
                        indirectly resulted in substantial 
                        losses or created a significant risk of 
                        substantial losses to other persons or 
                        resulted in substantial pecuniary gain 
                        to the person who committed the act or 
                        omission.
          (3) Evidence concerning ability to pay.--In any 
        proceeding in which the Commission may impose a penalty 
        under this section, a respondent may present evidence 
        of the respondent's ability to pay such penalty. The 
        Commission may, in its discretion, consider such 
        evidence in determining whether such penalty is in the 
        public interest. Such evidence may relate to the extent 
        of such person's ability to continue in business and 
        the collectability of a penalty, taking into account 
        any other claims of the United States or third parties 
        upon such person's assets and the amount of such 
        person's assets.

           *       *       *       *       *       *       *


                INJUNCTIONS AND PROSECUTION OF OFFENSES

  Sec. 20. (a) * * *

           *       *       *       *       *       *       *

  (d) Money Penalties in Civil Actions.--
          (1) * * *
          (2) Amount of penalty.--
                  (A) First tier.--The amount of the penalty 
                shall be determined by the court in light of 
                the facts and circumstances. For each 
                violation, the amount of the penalty shall not 
                exceed the greater of (i) [$5,000] $100,000 for 
                a natural person or [$50,000] $250,000 for any 
                other person, or (ii) the gross amount of 
                pecuniary gain to such defendant as a result of 
                the violation.
                  (B) Second tier.--Notwithstanding 
                subparagraph (A), the amount of penalty for 
                each such violation shall not exceed the 
                greater of (i) [$50,000] $500,000 for a natural 
                person or [$250,000] $1,000,000 for any other 
                person, or (ii) the gross amount of pecuniary 
                gain to such defendant as a result of the 
                violation, if the violation described in 
                paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless 
                disregard of a regulatory requirement.
                  (C) Third tier.--Notwithstanding 
                subparagraphs (A) and (B), the amount of 
                penalty for each such violation shall not 
                exceed the greater of (i) [$100,000] $1,000,000 
                for a natural person or [$500,000] $2,000,000 
                for any other person, or (ii) the gross amount 
                of pecuniary gain to such defendant as a result 
                of the violation, if--
                          (I) * * *

           *       *       *       *       *       *       *


                   JURISDICTION OF OFFENSES AND SUITS

  Sec. 22. (a) The district courts of the United States and 
United States courts of any Territory shall have jurisdiction 
of offenses and violations under this title and under the rules 
and regulations promulgated by the Commission in respect 
thereto, and, concurrent with State and Territorial courts, 
except as provided in section 16 with respect to covered class 
actions, of all suits in equity and actions at law brought to 
enforce any liability or duty created by this title. Any such 
suit or action may be brought in the district wherein the 
defendant is found or is an inhabitant or transacts business, 
or in the district where the offer or sale took place, if the 
defendant participated therein, and process in such cases may 
be served in any other district of which the defendant is an 
inhabitant or wherever the defendant may be found. In any 
action or proceeding instituted by the Commission under this 
title in a United States district court for any judicial 
district, subpoenas issued by or on behalf of such court to 
compel the attendance of witnesses or the production of 
documents or tangible things (or both) may be served in any 
other district. Such subpoenas may be served and enforced 
without application to the court or a showing of cause, 
notwithstanding the provisions of rule 45(b)(2), (c)(3)(A)(ii), 
and (c)(3)(B)(iii) of the Federal Rules of Civil Procedure. 
Judgments and decrees so rendered shall be subject to review as 
provided in sections 1254, 1291, 1292, and 1294 of title 28, 
United States Code. Except as provided in section 16(c), no 
case arising under this title and brought in any State court of 
competent jurisdiction shall be removed to any court of the 
United States. No costs shall be assessed for or against the 
Commission in any proceeding under this title brought by or 
against it in the Supreme Court or such other courts.

           *       *       *       *       *       *       *

                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934

TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *


                   SECURITIES AND EXCHANGE COMMISSION

  Sec. 4. (a) * * *
  (b) Appointment and Compensation of Staff [and Leasing 
Authority.--], Leasing Authority, and Contracting Authority.--
          (1) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


                   REGISTERED SECURITIES ASSOCIATIONS

  Sec. 15A. (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


        INVESTIGATIONS; INJUNCTIONS AND PROSECUTION OF OFFENSES

  Sec. 21. (a) * * *

           *       *       *       *       *       *       *

  (d)(1) * * *

           *       *       *       *       *       *       *

  (3) Money Penalties in Civil Actions.--
          (A) * * *
          (B) Amount of penalty.--
                  (i) First tier.--The amount of the penalty 
                shall be determined by the court in light of 
                the facts and circumstances. For each 
                violation, the amount of the penalty shall not 
                exceed the greater of (I) [$5,000] $100,000 for 
                a natural person or [$50,000] $250,000 for any 
                other person, or (II) the gross amount of 
                pecuniary gain to such defendant as a result of 
                the violation.
                  (ii) Second tier.--Notwithstanding clause 
                (i), the amount of penalty for each such 
                violation shall not exceed the greater of (I) 
                [$50,000] $500,000 for a natural person or 
                [$250,000] $1,000,000 for any other person, or 
                (II) the gross amount of pecuniary gain to such 
                defendant as a result of the violation, if the 
                violation described in subparagraph (A) 
                involved fraud, deceit, manipulation, or 
                deliberate or reckless disregard of a 
                regulatory requirement.
                  (iii) Third tier.--Notwithstanding clauses 
                (i) and (ii), the amount of penalty for each 
                such violation shall not exceed the greater of 
                (I) [$100,000] $1,000,000 for a natural person 
                or [$500,000] $2,000,000 for any other person, 
                or (II) the gross amount of pecuniary gain to 
                such defendant as a result of the violation, 
                if--
                          (aa) * * *

           *       *       *       *       *       *       *

  (h)(1) * * *
  [(2) Notwithstanding section 1105 or 1107 of the Right to 
Financial Privacy Act of 1978, the Commission may have access 
to and obtain copies of, or the information contained in 
financial records of a customer from a financial institution 
without prior notice to the customer upon an ex parte showing 
to an appropriate United States district court that the 
Commission seeks such financial records pursuant to a subpoena 
issued in conformity with the requirements of section 19(b) of 
the Securities Act of 1933, section 21(b) of the Securities 
Exchange Act of 1934, section 18(c) of the Public Utility 
Holding Company Act of 1935, section 42(b) of the Investment 
Company Act of 1940, or section 209(b) of the Investment 
Advisers Act of 1940, and that the Commission has reason to 
believe that--
          [(A) delay in obtaining access to such financial 
        records, or the required notice, will result in--
                  [(i) flight from prosecution;
                  [(ii) destruction of or tampering with 
                evidence;
                  [(iii) transfer of assets or records outside 
                the territorial limits of the United States;
                  [(iv) improper conversion of investor assets; 
                or
                  [(v) impeding the ability of the Commission 
                to identify or trace the source or disposition 
                of funds involved in any securities 
                transaction;
          [(B) such financial records are necessary to identify 
        or trace the record or beneficial ownership interest in 
        any security;
          [(C) the acts, practices or course of conduct under 
        investigation involve--
                  [(i) the dissemination of materially false or 
                misleading information concerning any security, 
                issuer, or market, or the failure to make 
                disclosures required under the securities laws, 
                which remain uncorrected; or
                  [(ii) a financial loss to investors or other 
                persons protected under the securities laws 
                which remains substantially uncompensated; or
          [(D) the acts, practices or course of conduct under 
        investigation--
                  [(i) involve significant financial 
                speculation in securities; or
                  [(ii) endanger the stability of any financial 
                or investment intermediary.
  [(3) Any application under paragraph (2) for a delay in 
notice shall be made with reasonable specificity.
  [(4)(A) Upon a showing described in paragraph (2), the 
presiding judge or magistrate shall enter an ex parte order 
granting the requested delay for a period not to exceed ninety 
days and an order prohibiting the financial institution 
involved from disclosing that records have been obtained or 
that a request for records has been made.
  [(B) Extensions of the period of delay of notice provided in 
subparagraph (A) of up to ninety days each may be granted by 
the court upon application, but only in accordance with this 
subsection or section 1109(a), (b)(1), or (b)(2) of the Right 
to Financial Privacy Act of 1978.
  [(C) Upon expiration of the period of delay of notification 
ordered under subparagraph (A) or (B), the customer shall be 
served with or mailed a copy of the subpena insofar as it 
applies to the customer together with the following notice 
which shall describe with reasonable specificity the nature of 
the investigation for which the Commission sought the financial 
records:
  [``Records or information concerning your transactions which 
are held by the financial institution named in the attached 
subpena were supplied to the Securities and Exchange Commission 
on (date). Notification was withheld pursuant to a 
determination by the (title of court so ordering) under section 
21(h) of the Securities Exchange Act of 1934 that (state 
reason). The purpose of the investigation or official 
proceeding was (state purpose).''
  [(5) Upon application by the Commission, all proceedings 
pursuant to paragraphs (2) and (4) shall be held in camera and 
the records thereof sealed until expiration of the period of 
delay or such other date as the presiding judge or magistrate 
may permit.
  [(6) The Commission shall compile an annual tabulation of the 
occasions on which the Commission used each separate 
subparagraph or clause of paragraph (2) of this subsection or 
the provisions of the Right to Financial Privacy Act of 1978 to 
obtain access to financial records of a customer and include it 
in its annual report to the Congress. Section 1121(b) of the 
Right to Financial Privacy Act of 1978 shall not apply with 
respect to the Commission.
  [(7)(A) Following the expiration of the period of delay of 
notification ordered by the court pursuant to paragraph (4) of 
this subsection, the customer may, upon motion, reopen the 
proceeding in the district court which issued the order. If the 
presiding judge or magistrate finds that the movant is the 
customer to whom the records obtained by the Commission 
pertain, and that the Commission has obtained financial records 
or information contained therein in violation of this 
subsection, other than paragraph (1), it may order that the 
customer be granted civil penalties against the Commission in 
an amount equal to the sum of--
          [(i) $100 without regard to the volume of records 
        involved;
          [(ii) any out-of-pocket damages sustained by the 
        customer as a direct result of the disclosure; and
          [(iii) if the violation is found to have been 
        willful, intentional, and without good faith, such 
        punitive damages as the court may allow, together with 
        the costs of the action and reasonable attorney's fees 
        as determined by the court.
  [(B) Upon a finding that the Commission has obtained 
financial records or information contained therein in violation 
of this subsection, other than paragraph (1), the court, in its 
discretion, may also or in the alternative issue injunctive 
relief to require the Commission to comply with this subsection 
with respect to any subpena which the Commission issues in the 
future for financial records of such customer for purposes of 
the same investigation.
  [(C) Whenever the court determines that the Commission has 
failed to comply with this subsection, other than paragraph 
(1), and the court finds that the circumstances raise questions 
of whether an officer or employee of the Commission acted in a 
willful and intentional manner and without good faith with 
respect to the violation, the Office of Personnel Management 
shall promptly initiate a proceeding to determine whether 
disciplinary action is warranted against the agent or employee 
who was primarily responsible for the violation. After 
investigating and considering the evidence submitted, the 
Office of Personnel Management shall submit its findings and 
recommendations to the Commission and shall send copies of the 
findings and recommendations to the officer or employee or his 
representative. The Commission shall take the corrective action 
that the Office of Personnel Management recommends.
  [(8) The relief described in paragraphs (7) and (10) shall be 
the only remedies or sanctions available to a customer for a 
violation of this subsection, other than paragraph (1), and 
nothing herein or in the Right to Financial Privacy Act of 1978 
shall be deemed to prohibit the use in any investigation or 
proceeding of financial records, or the information contained 
therein, obtained by a subpena issued by the Commission. In the 
case of an unsuccessful action under paragraph (7), the court 
shall award the costs of the action and attorney's fees to the 
Commission if the presiding judge or magistrate finds that the 
customer's claims were made in bad faith.]
          (2) Access to financial records.--
                  (A) In general.--Notwithstanding section 1105 
                or 1107 of the Right to Financial Privacy Act 
                of 1978, the Commission may obtain access to 
                and copies of, or the information contained in, 
                financial records of any person held by a 
                financial institution, including the financial 
                records of a customer, without notice to that 
                person, when it acts pursuant to a subpoena 
                authorized by a formal order of investigation 
                of the Commission and issued under the 
                securities laws or pursuant to an 
                administrative or judicial subpoena issued in a 
                proceeding or action to enforce the securities 
                laws.
                  (B) Nondisclosure of requests.--If the 
                Commission so directs in its subpoena, no 
                financial institution, or officer, director, 
                partner, employee, shareholder, representative 
                or agent of such financial institution, shall, 
                directly or indirectly, disclose that records 
                have been requested or provided in accordance 
                with subparagraph (A), if the Commission finds 
                reason to believe that such disclosure may--
                          (i) result in the transfer of assets 
                        or records outside the territorial 
                        limits of the United States;
                          (ii) result in improper conversion of 
                        investor assets;
                          (iii) impede the ability of the 
                        Commission to identify, trace, or 
                        freeze funds involved in any securities 
                        transaction;
                          (iv) endanger the life or physical 
                        safety of an individual;
                          (v) result in flight from 
                        prosecution;
                          (vi) result in destruction of or 
                        tampering with evidence;
                          (vii) result in intimidation of 
                        potential witnesses; or
                          (viii) otherwise seriously jeopardize 
                        an investigation or unduly delay a 
                        trial.
                  (C) Transfer of records to government 
                authorities.--The Commission may transfer 
                financial records or the information contained 
                therein to any government authority, if the 
                Commission proceeds as a transferring agency in 
                accordance with section 1112 of the Right to 
                Financial Privacy Act of 1978 (12 U.S.C. 3412), 
                except that a customer notice shall not be 
                required under subsection (b) or (c) of that 
                section 1112, if the Commission determines that 
                there is reason to believe that such 
                notification may result in or lead to any of 
                the factors identified under clauses (i) 
                through (viii) of subparagraph (B) of this 
                paragraph.
  [(9)(A) The Commission may transfer financial records or the 
information contained therein to any government authority if 
the Commission proceeds as a transferring agency in accordance 
with section 1112 of the Right to Financial Privacy Act of 
1978, except that the customer notice required under section 
1112(b) or (c) of such Act may be delayed upon a showing by the 
Commission, in accordance with the procedure set forth in 
paragraphs (4) and (5), that one or more of subparagraphs (A) 
through (D) of paragraph (2) apply.
  [(B) The] (3) The Commission may, without notice to the 
customer pursuant to section 1112 of the Right to Financial 
Privacy Act of 1978, transfer financial records or the 
information contained therein to a State securities agency or 
to the Department of Justice. Financial records or information 
transferred by the Commission to the Department of Justice or 
to a State securities agency pursuant to the provisions of this 
subparagraph may be disclosed or used only in an 
administrative, civil, or criminal action or investigation by 
the Department of Justice or the State securities agency which 
arises out of or relates to the acts, practices, or courses of 
conduct investigated by the Commission, except that if the 
Department of Justice or the State securities agency determines 
that the information should be disclosed or used for any other 
purpose, it may do so if it notifies the customer, except as 
otherwise provided in the Right to Financial Privacy Act of 
1978, within 30 days of its determination, or complies with the 
requirements of section 1109 of such Act regarding delay of 
notice.
  [(10) Any government authority violating paragraph (9) shall 
be subject to the procedures and penalties applicable to the 
Commission under paragraph (7)(A) with respect to a violation 
by the Commission in obtaining financial records.]
  [(11)] (4) Notwithstanding the provisions of this subsection, 
the Commission may obtain financial records from a financial 
institution or transfer such records in accordance with 
provisions of the Right to Financial Privacy Act of 1978.
  [(12)] (5) Nothing in this subsection shall enlarge or 
restrict any rights of a financial institution to challenge 
requests for records made by the Commission under existing law. 
Nothing in this subsection shall entitle a customer to assert 
any rights of a financial institution.
  [(13)] (6) Unless the context otherwise requires, all terms 
defined in the Right to Financial Privacy Act of 1978 which are 
common to this subsection shall have the same meaning as in 
such Act.
          * * * * * * *
                  civil penalties for insider trading
      Sec. 21A. (a) Authority To Impose Civil Penalties.--
          (1) * * *
          * * * * * * *
          (3) Amount of penalty for controlling person.--The 
        amount of the penalty which may be imposed on any 
        person who, at the time of the violation, directly or 
        indirectly controlled the person who committed such 
        violation, shall be determined by the court in light of 
        the facts and circumstances, but shall not exceed the 
        greater of [$1,000,000] $2,000,000, or three times the 
        amount of the profit gained or loss avoided as a result 
        of such controlled person's violation. If such 
        controlled person's violation was a violation by 
        communication, the profit gained or loss avoided as a 
        result of the violation shall, for purposes of this 
        paragraph only, be deemed to be limited to the profit 
        gained or loss avoided by the person or persons to whom 
        the controlled person directed such communication.
          * * * * * * *
              civil remedies in administrative proceedings
  Sec. 21B. [(a) Commission Authority To Assess Money 
Penalties.--In any proceeding]
  (a) Commission Authority To Assess Money Penalties.--
          (1) In general.--In any proceeding instituted 
        pursuant to sections 15(b)(4), 15(b)(6), 15D, 15B, 15C, 
        or 17A of this title against any person, the Commission 
        or the appropriate regulatory agency may impose a civil 
        penalty if it finds, on the record after notice and 
        opportunity for hearing, that such person--
                  [(1)] (A) has willfully violated any 
                provision of the Securities Act of 1933, the 
                Investment Company Act of 1940, the Investment 
                Advisers Act of 1940, or this title, or the 
                rules or regulations thereunder, or the rules 
                of the Municipal Securities Rulemaking Board;
                  [(2)] (B) has willfully aided, abetted, 
                counseled, commanded, induced, or procured such 
                a violation by any other person;
                  [(3)] (C) has willfully made or caused to be 
                made in any application for registration or 
                report required to be filed with the Commission 
                or with any other appropriate regulatory agency 
                under this title, or in any proceeding before 
                the Commission with respect to registration, 
                any statement which 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 has omitted to state in any 
                such application or report any material fact 
                which is required to be stated therein; or
                  [(4)] (D) has failed reasonably to supervise, 
                within the meaning of section 15(b)(4)(E) of 
                this title, with a view to preventing 
                violations of the provisions of such statutes, 
                rules and regulations, another person who 
                commits such a violation, if such other person 
                is subject to his supervision;
        and that such penalty is in the public interest.
          (2) Cease-and-desist proceedings.--In any proceeding 
        instituted pursuant to section 21C of this title 
        against any person, the Commission may impose a civil 
        penalty if it finds, on the record after notice and 
        opportunity for hearing, that such person--
                  (A) is violating or has violated any 
                provision of this title, or any rule or 
                regulation thereunder; or
                  (B) is or was a cause of the violation of any 
                provision of this title, or any rule or 
                regulation thereunder.
  (b) Maximum Amount of Penalty.--
          (1) First tier.--The maximum amount of penalty for 
        each act or omission described in subsection (a) shall 
        be [$5,000] $100,000 for a natural person or [$50,000] 
        $250,000 for any other person.
          (2) Second tier.--Notwithstanding paragraph (1), the 
        maximum amount of penalty for each such act or omission 
        shall be [$50,000] $500,000 for a natural person or 
        [$250,000] $1,000,000 for any other person if the act 
        or omission described in subsection (a) involved fraud, 
        deceit, manipulation, or deliberate or reckless 
        disregard of a regulatory requirement.
          (3) Third tier.--Notwithstanding paragraphs (1) and 
        (2), the maximum amount of penalty for each such act or 
        omission shall be [$100,000] $1,000,000 for a natural 
        person or [$500,000] $2,000,000 for any other person 
        if--
                  (A) * * *

           *       *       *       *       *       *       *


                   PUBLIC AVAILABILITY OF INFORMATION

  Sec. 24. (a) * * *

           *       *       *       *       *       *       *

  (e) Authority To Accept Privileged and Protected 
Information.--
          (1) Authority.--Notwithstanding any other provision 
        of law, whenever the Commission or an appropriate 
        regulatory agency and any person agree in writing to 
        terms pursuant to which such person will produce or 
        disclose to the Commission or the appropriate 
        regulatory agency any document or information that is 
        subject to any Federal or State law privilege, or to 
        the protection provided by the work product doctrine, 
        such production or disclosure shall not constitute a 
        waiver of the privilege or protection as to any person 
        other than the Commission or the appropriate regulatory 
        agency to which the document or information is 
        provided.
          (2) Definition.--For purposes of this subsection, the 
        term ``appropriate regulatory agency'' means the 
        Federal Deposit Insurance Corporation, the Office of 
        the Comptroller of the Currency, the Office of Thrift 
        Supervision, or the Board of Governors of the Federal 
        Reserve System.
  [(e)] (f) Savings Provisions.--Nothing in this section 
shall--
          (1) * * *

           *       *       *       *       *       *       *


                   JURISDICTION OF OFFENSES AND SUITS

  Sec. 27. The district courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have exclusive 
jurisdiction of violations of this title or the rules and 
regulations thereunder, and of all suits in equity and actions 
at law brought to enforce any liability or duty created by this 
title or the rules and regulations thereunder. Any criminal 
proceeding may be brought in the district wherein any act or 
transaction constituting the violation occurred. In any action 
or proceeding instituted by the Commission under this title in 
a United States district court for any judicial district, 
subpoenas issued by or on behalf of such court to compel the 
attendance of witnesses or the production of documents or 
tangible things (or both) may be served in any other district. 
Such subpoenas may be served and enforced without application 
to the court or a showing of cause, notwithstanding the 
provisions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) 
of the Federal Rules of Civil Procedure. Any suit or action to 
enforce any liability or duty created by this title or rules 
and regulations thereunder, or to enjoin any violation of such 
title or rules and regulations, may be brought in any such 
district or in the district wherein the defendant is found or 
is an inhabitant or transacts business, and process in such 
cases may be served in any other district of which the 
defendant is an inhabitant or wherever the defendant may be 
found. Judgments and decrees so rendered shall be subject to 
review as provided in sections 1254, 1291, 1292, and 1294 of 
title 28, United States Code. No costs shall be assessed for or 
against the Commission in any proceeding under this title 
brought by or against it in the Supreme Court or such other 
courts.

           *       *       *       *       *       *       *


                               PENALTIES

  Sec. 32. (a) * * *
      (b) Any issuer which fails to file information, 
documents, or reports required to be filed under subsection (d) 
of section 15 of this title or any rule or regulation 
thereunder shall forfeit to the United States the sum of [$100] 
$10,000 for each and every day such failure to file shall 
continue. Such forfeiture, which shall be in lieu of any 
criminal penalty for such failure to file which might be deemed 
to arise under subsection (a) of this section, shall be payable 
into the Treasury of the United States and shall be recoverable 
in a civil suit in the name of the United States.
  (c)(1)(A) * * *
      (B) Any issuer that violates subsection (a) or (g) of 
section 30A shall be subject to a civil penalty of not more 
than [$10,000] $500,000 imposed in an action brought by the 
Commission.
  (2)(A) * * *
  (B) Any officer, director, employee, or agent of an issuer, 
or stockholder acting on behalf of such issuer, who violates 
subsection (a) or (g) of section 30A of this title shall be 
subject to a civil penalty of not more than [$10,000] $500,000 
imposed in an action brought by the Commission.

           *       *       *       *       *       *       *

                              ----------                              


                     INVESTMENT COMPANY ACT OF 1940

TITLE I--INVESTMENT COMPANIES

           *       *       *       *       *       *       *


      INELIGIBILITY OF CERTAIN AFFILIATED PERSONS AND UNDERWRITERS

  Sec. 9. (a) * * *

           *       *       *       *       *       *       *

  (d) Money Penalties in Administrative Proceedings.--
          [(1) Authority of commission.--In any proceeding]
          (1) Authority of commission.--
                  (A) In general.--In any proceeding instituted 
                pursuant to subsection (b) against any person, 
                the Commission may impose a civil penalty if it 
                finds, on the record after notice and 
                opportunity for hearing, that such person--
                          [(A)] (i) has willfully violated any 
                        provision of the Securities Act of 
                        1933, the Securities Exchange Act of 
                        1934, the Investment Advisers Act of 
                        1940, or this title, or the rules or 
                        regulations thereunder;
                          [(B)] (ii) has willfully aided, 
                        abetted, counseled, commanded, induced, 
                        or procured such a violation by any 
                        other person; or
                          [(C)] (iii) has willfully made or 
                        caused to be made in any registration 
                        statement, application, or report 
                        required to be filed with the 
                        Commission under this title, any 
                        statement which 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 
                        has omitted to state in any such 
                        registration statement, application, or 
                        report any material fact which was 
                        required to be stated therein;
                and that such penalty is in the public 
                interest.
                  (B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection 
                (f) against any person, the Commission may 
                impose a civil penalty if it finds, on the 
                record after notice and opportunity for 
                hearing, that such person--
                          (i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation thereunder; or
                          (ii) is or was a cause of the 
                        violation of any provision of this 
                        title, or any rule or regulation 
                        thereunder.
          (2) Maximum amount of penalty.--
                  (A) First tier.--The maximum amount of 
                penalty for each act or omission described in 
                paragraph (1) shall be [$5,000] $100,000 for a 
                natural person or [$50,000] $250,000 for any 
                other person.
                  (B) Second tier.--Notwithstanding 
                subparagraph (A), the maximum amount of penalty 
                for each such act or omission shall be 
                [$50,000] $500,000 for a natural person or 
                [$250,000] $1,000,000 for any other person if 
                the act or omission described in paragraph (1) 
                involved fraud, deceit, manipulation, or 
                deliberate or reckless disregard of a 
                regulatory requirement.
                  (C) Third tier.--Notwithstanding 
                subparagraphs (A) and (B), the maximum amount 
                of penalty for each such act or omission shall 
                be [$100,000] $1,000,000 for a natural person 
                or [$500,000] $2,000,000 for any other person 
                if--
                          (i) * * *

           *       *       *       *       *       *       *


                       AFFILIATIONS OF DIRECTORS

  Sec. 10. (a)(1) No registered investment company shall have a 
board of directors more than 60 per centum of the members of 
which are persons who are interested persons of such registered 
company.
  (2) The board of directors of such a company shall select a 
lead independent director who is not an interested person and 
who shall (A) have authority to place items on the agenda for 
consideration, call meetings, and obtain outside advice on 
behalf of the independent directors, and (B) have such other 
authority as the Commission determines by rule to be necessary 
or useful. This paragraph shall not apply if the chairman of 
the board is an independent director.

           *       *       *       *       *       *       *


             INVESTMENT ADVISORY AND UNDERWRITING CONTRACTS

  Sec. 15. (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


                          ENFORCEMENT OF TITLE

  Sec. 42. (a) * * *

           *       *       *       *       *       *       *

  (e) Money Penalties in Civil Actions.--
          (1) * * *
          (2) Amount of penalty.--
                  (A) First tier.--The amount of the penalty 
                shall be determined by the court in light of 
                the facts and circumstances. For each 
                violation, the amount of the penalty shall not 
                exceed the greater of (i) [$5,000] $100,000 for 
                a natural person or [$50,000] $250,000 for any 
                other person, or (ii) the gross amount of 
                pecuniary gain to such defendant as a result of 
                the violation.
                  (B) Second tier.--Notwithstanding 
                subparagraph (A), the amount of penalty for 
                each such violation shall not exceed the 
                greater of (i) [$50,000] $500,000 for a natural 
                person or [$250,000] $1,000,000 for any other 
                person, or (ii) the gross amount of pecuniary 
                gain to such defendant as a result of the 
                violation, if the violation described in 
                paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless 
                disregard of a regulatory requirement.
                  (C) Third tier.--Notwithstanding 
                subparagraphs (A) and (B), the amount of 
                penalty for each such violation shall not 
                exceed the greater of (i) [$100,000] $1,000,000 
                for a natural person or [$500,000] $2,000,000 
                for any other person, or (ii) the gross amount 
                of pecuniary gain to such defendant as a result 
                of the violation, if--
                          (I) * * *

           *       *       *       *       *       *       *


                   JURISDICTION OF OFFENSES AND SUITS

  Sec. 44. The district courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have jurisdiction 
of violations of this title or the rules, regulations, or 
orders thereunder, and, concurrently with State and Territorial 
courts, of all suits in equity and actions at law brought to 
enforce any liability or duty created by, or to enjoin any 
violation of, this title or the rules, regulations, or orders 
thereunder. Any criminal proceeding may be brought in the 
district wherein any act or transaction constituting the 
violation occurred. A criminal proceeding based upon a 
violation of section 34, or upon a failure to file a report or 
other document required to be filed under this title, may be 
brought in the district wherein the defendant is an inhabitant 
or maintains his principal office or place of business. Any 
suit or action to enforce any liability or duty created by, or 
to enjoin any violation of, this title or rules, regulations, 
or orders thereunder, may be brought in any such district or in 
the district wherein the defendant is an inhabitant or 
transacts business, and process in such cases may be served in 
any district of which the defendant is an inhabitant or 
transacts business or wherever the defendant may be found. In 
any action or proceeding instituted by the Commission under 
this title in a United States district court for any judicial 
district, subpoenas issued by or on behalf of such court to 
compel the attendance of witnesses or the production of 
documents or tangible things (or both) may be served in any 
other district. Such subpoenas may be served and enforced 
without application to the court or a showing of cause, 
notwithstanding the provisions of rule 45(b)(2), (c)(3)(A)(ii), 
and (c)(3)(B)(iii) of the Federal Rules of Civil Procedure. 
Judgments and decrees so rendered shall be subject to review as 
provided in sections 1254, 1291, 1292, and 1294 of title 28, 
United States Code. No costs shall be assesssed for or against 
the Commission in any proceeding under this title brought by or 
against the Commission in any court. The Commission may 
intervene as a party in any action or suit to enforce any 
liability or duty created by, or to enjoin any noncompliance 
with, section 36(b) of this title at any stage of such action 
or suit prior to final judgment therein.

           *       *       *       *       *       *       *

                              ----------                              


                    INVESTMENT ADVISERS ACT OF 1940

TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *


                  REGISTRATION OF INVESTMENT ADVISERS

  Sec. 203. (a) * * *

           *       *       *       *       *       *       *

  (i) Money Penalties in Administrative Proceedings.--
          [(1) Authority of commission.--In any proceeding]
          (1) Authority of commission.--
                  (A) In general.--In any proceeding instituted 
                pursuant to subsection (e) or (f) against any 
                person, the Commission may impose a civil 
                penalty if it finds, on the record after notice 
                and opportunity for hearing, that such person--
                          [(A)] (i) has willfully violated any 
                        provision of the Securities Act of 
                        1933, the Securities Exchange Act of 
                        1934, the Investment Company Act of 
                        1940, or this title, or the rules or 
                        regulations thereunder;
                          [(B)] (ii) has willfully aided, 
                        abetted, counseled, commanded, induced, 
                        or procured such a violation by any 
                        other person;
                          [(C)] (iii) has willfully made or 
                        caused to be made in any application 
                        for registration or report required to 
                        be filed with the Commission under this 
                        title, or in any proceeding before the 
                        Commission with respect to 
                        registration, any statement which 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 has omitted to state 
                        in any such application or report any 
                        material fact which was required to be 
                        stated therein; or
                          [(D)] (iv) has failed reasonably to 
                        supervise, within the meaning of 
                        subsection (e)(6), with a view to 
                        preventing violations of the provisions 
                        of this title and the rules and 
                        regulations thereunder, another person 
                        who commits such a violation, if such 
                        other person is subject to his 
                        supervision;
                and that such penalty is in the public 
                interest.
                  (B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection 
                (k) against any person, the Commission may 
                impose a civil penalty if it finds, on the 
                record after notice and opportunity for 
                hearing, that such person--
                          (i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation thereunder; or
                          (ii) is or was a cause of the 
                        violation of any provision of this 
                        title, or any rule or regulation 
                        thereunder.
          (2) Maximum amount of penalty.--
                  (A) First tier.--The maximum amount of 
                penalty for each act or omission described in 
                paragraph (1) shall be [$5,000] $100,000 for a 
                natural person or [$50,000] $250,000 for any 
                other person.
                  (B) Second tier.--Notwithstanding 
                subparagraph (A), the maximum amount of penalty 
                for each such act or omission shall be 
                [$50,000] $500,000 for a natural person or 
                [$250,000] $1,000,000 for any other person if 
                the act or omission described in paragraph (1) 
                involved fraud, deceit, manipulation, or 
                deliberate or reckless disregard of a 
                regulatory requirement.
                  (C) Third tier.--Notwithstanding 
                subparagraphs (A) and (B), the maximum amount 
                of penalty for each such act or omission shall 
                be [$100,000] $1,000,000 for a natural person 
                or [$500,000] $2,000,000 for any other person 
                if--
                          (i) * * *

           *       *       *       *       *       *       *


SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

  (a) * * *

           *       *       *       *       *       *       *

  [(d) Filing Depositories.--The Commission may, by rule, 
require an investment adviser--
          [(1) to file with the Commission any fee, 
        application, report, or notice required by this title 
        or by the rules issued under this title through any 
        entity designated by the Commission for that purpose; 
        and
          [(2) to pay the reasonable costs associated with such 
        filing.]
  [(e)] (d) State Assistance.--Upon request of the securities 
commissioner (or any agency or officer performing like 
functions) of any State, the Commission may provide such 
training, technical 
assistance, or other reasonable assistance in connection with 
the regulation of investment advisers by the State.

                        ANNUAL AND OTHER REPORTS

  Sec. 204. [Every investment] (a) In General.--Every 
investment adviser who makes use of the mails or of any means 
or instrumentality of interstate commerce in connection with 
his or its business as an investment adviser (other than one 
specifically exempted from registration pursuant to section 
203(b) of this title), shall make and keep for prescribed 
periods such records (as defined in section 3(a)(37) of the 
Securities Exchange Act of 1934), furnish such copies thereof, 
and make and disseminate such reports as the Commission, by 
rule, may prescribe as necessary or appropriate in the public 
interest or for the protection of investors. All records (as so 
defined) of such investment advisers are subject at any time, 
or from time to time, to such reasonable periodic, special, or 
other examinations by representatives of the Commission as the 
Commission deems necessary or appropriate in the public 
interest or for the protection of investors.
  (b) Filing Depositories.--The Commission may, by rule, 
require an investment adviser--
          (1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or 
        the rules issued under this title through any entity 
        designated by the Commission for that purpose; and
          (2) to pay the reasonable costs associated with such 
        filing and the establishment and maintenance of the 
        systems required by subsection (c).
  (c) Access to Disciplinary and Other Information.--
          (1) Maintenance of system to respond to inquiries.--
        The Commission shall require the entity designated by 
        the Commission under subsection (b)(1) to establish and 
        maintain a toll-free telephone listing, and a readily 
        accessible electronic or other process, to receive and 
        promptly respond to inquiries regarding registration 
        information (including disciplinary actions, 
        regulatory, judicial, and arbitration proceedings, and 
        other information required by law or rule to be 
        reported) involving investment advisers and persons 
        associated with investment advisers.
          (2) Recovery of costs.--An entity designated by the 
        Commission under subsection (b)(1) may charge persons 
        making inquiries, other than individual investors, 
        reasonable fees for responses to inquiries made under 
        paragraph (1).
          (3) Limitation on liability.--An entity designated by 
        the Commission under subsection (b)(1) shall not have 
        any liability to any person for any actions taken or 
        omitted in good faith under this subsection.

           *       *       *       *       *       *       *


                          ENFORCEMENT OF TITLE

  Sec. 209. (a) * * *

           *       *       *       *       *       *       *

  (e) Money Penalties in Civil Actions.--
          (1) * * *
          (2) Amount of penalty.--
                  (A) First tier.--The amount of the penalty 
                shall be determined by the court in light of 
                the facts and circumstances. For each 
                violation, the amount of the penalty shall not 
                exceed the greater of (i) [$5,000] $100,000 for 
                a natural person or [$50,000] $250,000 for any 
                other person, or (ii) the gross amount of 
                pecuniary gain to such defendant as a result of 
                the violation.
                  (B) Second tier.--Notwithstanding 
                subparagraph (A), the amount of penalty for 
                each such violation shall not exceed the 
                greater of (i) [$50,000] $500,000 for a natural 
                person or [$250,000] $1,000,000 for any other 
                person, or (ii) the gross amount of pecuniary 
                gain to such defendant as a result of the 
                violation, if the violation described in 
                paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless 
                disregard of a regulatory requirement.
                  (C) Third tier.--Notwithstanding 
                subparagraphs (A) and (B), the amount of 
                penalty for each such violation shall not 
                exceed the greater of (i) [$100,000] $1,000,000 
                for a natural person or [$500,000] $2,000,000 
                for any other person, or (ii) the gross amount 
                of pecuniary gain to such defendant as a result 
                of the violation, if--
                          (I) * * *

           *       *       *       *       *       *       *


                   JURISDICTION OF OFFENSES AND SUITS

  Sec. 214. The district courts of the United States and the 
United States courts of any Territory or other place subject to 
the jurisdiction of the United States shall have jurisdiction 
of violations of this title or the rules, regulations, or 
orders thereunder, and, concurrently with State and Territorial 
courts, of all suits in equity and actions at law brought to 
enforce any liability or duty created by, or to enjoin any 
violation of this title or the rules, regulations, or orders 
thereunder. Any criminal proceeding may be brought in the 
district wherein any act or transaction constituting the 
violation occurred. Any suit or action to enforce any liability 
or duty created by, or to enjoin any violation of this title or 
rules, regulations, or orders thereunder, may be brought in any 
such district or in the district wherein the defendant is an 
inhabitant or transacts business, and process in such cases may 
be served in any district of which the defendant is an 
inhabitant or transacts business or wherever the defendant may 
be found. In any action or proceeding instituted by the 
Commission under this title in a United States district court 
for any judicial district, subpoenas issued by or on behalf of 
such court to compel the attendance of witnesses or the 
production of documents or tangible things (or both) may be 
served in any other district. Such subpoenas may be served and 
enforced without application to the court or a showing of 
cause, notwithstanding the provisions of rule 45(b)(2), 
(c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal Rules of Civil 
Procedure. Judgments and decrees so rendered shall be subject 
to review as provided in sections 1254, 1291, 1292, and 1294 of 
title 28, United States Code. No costs shall be assessed for or 
against the Commission in any proceeding under this title 
brought by or against the Commission in any court.

           *       *       *       *       *       *       *

                              ----------                              


NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996

           *       *       *       *       *       *       *


TITLE III--INVESTMENT ADVISERS SUPERVISION COORDINATION ACT

           *       *       *       *       *       *       *


[SEC. 306. INVESTOR ACCESS TO INFORMATION.

  [The Commission shall--
          [(1) provide for the establishment and maintenance of 
        a readily accessible telephonic or other electronic 
        process to receive inquiries regarding disciplinary 
        actions and proceedings involving investment advisers 
        and persons associated with investment advisers; and
          [(2) provide for prompt response to any inquiry 
        described in paragraph (1).]

           *       *       *       *       *       *       *


                            DISSENTING VIEWS

    The Committee on Financial Services should reject H.R. 
2179, the Securities Fraud Deterrence and Investor Restitution 
Act, because it tramples States' rights and exceeds Congress' 
constitutional authority by voiding State homestead laws. 
Homestead laws protect certain property from being taken from a 
property owner to settle that owner's debts. While one may 
legitimately be concerned about perpetrators of fraud misusing 
homestead laws, it is not the role of Congress to determine 
when homestead exemptions do, and do not, apply.
    Supporters of H.R. 2179 claim that voiding State homestead 
exemptions will increase the deterrent value of Securities and 
Exchange Commission (SEC) actions. However this claim assumes 
that it is proper for the federal government to prosecute 
fraud. In fact, prosecuting fraud is the responsibility of 
State and local governments. The Constitution only authorizes 
the Federal government to prosecute the crimes of treason, 
piracy, and counterfeiting. Authority over all other criminal 
matters is reserved to the States. Therefore, expanding Federal 
jurisdiction to cover securities fraud is a violation of the 
government's Constitutional limits. Congress should not use its 
usurpation of the States' authority to prosecute crimes of 
fraud as a justification for usurping the States' authority to 
pass laws providing homestead exemptions.
    In conclusion, Mr. Chairman, since H.R. 2179 intrudes on 
the State's Constitutionally protected authority to pass 
homestead exemption laws, I urge the Committee on Financial 
Services to reject this misguided, unconstitutional, bill.
                                                          Ron Paul.