[House Report 111-687]
[From the U.S. Government Publishing Office]
111th Congress Rept. 111-687
HOUSE OF REPRESENTATIVES
2d Session Part 1
======================================================================
INVESTOR PROTECTION ACT OF 2009
_______
December 16, 2010.--Ordered to be printed
_______
Mr. Frank of Massachusetts, from the Committee on Financial Services,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3817]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 3817) to provide the Securities and Exchange
Commission with additional authorities to protect investors
from violations of the securities laws, 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.............................................. 46
Background and Need for Legislation.............................. 47
Hearings......................................................... 55
Committee Consideration.......................................... 57
Committee Votes.................................................. 57
Committee Oversight Findings..................................... 66
Performance Goals and Objectives................................. 67
New Budget Authority, Entitlement Authority, and Tax Expenditures 67
Committee Cost Estimate.......................................... 67
Congressional Budget Office Estimate............................. 67
Federal Mandates Statement....................................... 72
Advisory Committee Statement..................................... 72
Constitutional Authority Statement............................... 72
Applicability to Legislative Branch.............................. 72
Earmark Identification........................................... 72
Section-by-Section Analysis of the Legislation................... 73
Changes in Existing Law Made by the Bill, as Reported............ 92
Dissenting Views................................................. 183
99-006
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 ``Investor Protection Act of 2009''.
SEC. 2. TABLE OF CONTENTS.
The table of contents for this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I--DISCLOSURE
Sec. 101. Investor Advisory Committee established.
Sec. 102. Clarification of the commission's authority to engage in
consumer testing.
Sec. 103. Establishment of a fiduciary duty for brokers, dealers, and
investment advisers, and harmonization of regulation.
Sec. 104. Commission study on disclosure to retail customers before
purchase of products or services.
Sec. 105. Beneficial ownership and short-swing profit reporting.
Sec. 106. Revision to recordkeeping rules.
Sec. 107. Study on enhancing investment advisor examinations.
Sec. 108. GAO study of financial planning.
TITLE II--ENFORCEMENT AND REMEDIES
Sec. 201. Authority to restrict mandatory pre-dispute arbitration.
Sec. 202. Comptroller General study to review securities arbitration
system.
Sec. 203. Whistleblower protection.
Sec. 204. Conforming amendments for whistleblower protection.
Sec. 205. Implementation and transition provisions for whistleblower
protections.
Sec. 206. Collateral bars.
Sec. 207. Aiding and abetting authority under the Securities Act and
the Investment Company Act.
Sec. 208. Authority to impose penalties for aiding and abetting
violations of the Investment Advisers Act.
Sec. 209. Deadline for completing examinations, inspections and
enforcement actions.
Sec. 210. Nationwide service of subpoenas.
Sec. 211. Authority to impose civil penalties in cease and desist
proceedings.
Sec. 212. Formerly associated persons.
Sec. 213. Sharing privileged information with other authorities.
Sec. 214. Expanded access to grand jury material.
Sec. 215. Aiding and abetting standard of knowledge satisfied by
recklessness.
Sec. 216. Extraterritorial jurisdiction of the antifraud provisions of
the Federal securities laws.
Sec. 217. Fidelity bonding.
Sec. 218. Enhanced SEC authority to conduct surveillance and risk
assessment.
Sec. 219. Investment company examinations.
Sec. 220. Control person liability under the Securities Exchange Act.
Sec. 221. Enhanced application of anti-fraud provisions.
Sec. 222. SEC Authority to Issue Rules on Proxy Access.
TITLE III--COMMISSION FUNDING AND ORGANIZATION
Sec. 301. Authorization of appropriations.
Sec. 302. Investment adviser regulation funding.
Sec. 303. Amendments to section 31 of the Securities Exchange Act of
1934.
Sec. 304. Commission organizational study and reform.
Sec. 305. Capital Markets Safety Board.
Sec. 306. Report on implementation of ``post-Madoff reforms''.
Sec. 307. Joint Advisory Committee.
TITLE IV--ADDITIONAL COMMISSION REFORMS
Sec. 401. Regulation of securities lending.
Sec. 402. Lost and stolen securities.
Sec. 403. Fingerprinting.
Sec. 404. Equal treatment of self-regulatory organization rules.
Sec. 405. Clarification that section 205 of the Investment Advisers Act
of 1940 does not apply to State-registered advisers.
Sec. 406. Conforming amendments for the repeal of the Public Utility
Holding Company Act of 1935.
Sec. 407. Promoting transparency in financial reporting.
Sec. 408. Unlawful margin lending.
Sec. 409. Protecting confidentiality of materials submitted to the
Commission.
Sec. 410. Technical corrections.
Sec. 411. Municipal securities.
Sec. 412. Interested person definition.
Sec. 413. Rulemaking authority to protect redeeming investors.
Sec. 414. Study on SEC revolving door.
Sec. 415. Study on internal control evaluation and reporting cost
burdens on smaller issuers.
Sec. 416. Analysis of rule regarding smaller reporting companies.
Sec. 417. Financial Reporting Forum.
Sec. 418. Investment advisers subject to State authorities.
Sec. 419. Custodial requirements.
Sec. 420. Ombudsman.
TITLE V--SECURITIES INVESTOR PROTECTION ACT AMENDMENTS
Sec. 501. Increasing the minimum assessment paid by SIPC members.
Sec. 502. Increasing the borrowing limit on treasury loans.
Sec. 503. Increasing the cash limit of protection.
Sec. 504. SIPC as trustee in SIPA liquidation proceedings.
Sec. 505. Insiders ineligible for SIPC advances.
Sec. 506. Eligibility for direct payment procedure.
Sec. 507. Increasing the fine for prohibited acts under SIPA.
Sec. 508. Penalty for misrepresentation of SIPC membership or
protection.
Sec. 509. Futures held in a portfolio margin securities account
protection.
Sec. 510. Study and report on the feasibility of risk-based assessments
SIPC members.
Sec. 511. Budgetary treatment of Commission loans to SIPC.
TITLE VI--SARBANES-OXLEY ACT AMENDMENTS
Sec. 601. Public Company Accounting Oversight Board oversight of
auditors of brokers and dealers.
Sec. 602. Foreign regulatory information sharing.
Sec. 603. Expansion of audit information to be produced and exchanged
with foreign counterparts.
Sec. 604. Conforming amendment related to registration.
Sec. 605. Fair fund amendments.
Sec. 606. Exemption for nonaccelerated filers.
Sec. 607. Whistleblower protection against retaliation by a subsidiary
of an issuer.
Sec. 608. Congressional access to information.
Sec. 609. Creation of ombudsman for the PCAOB.
Sec. 610. Auditing Oversight Board.
TITLE VII--SENIOR INVESTMENT PROTECTION
Sec. 701. Findings.
Sec. 702. Definitions.
Sec. 703. Grants to States for enhanced protection of seniors from
being mislead by false designations.
Sec. 704. Applications.
Sec. 705. Length of participation.
Sec. 706. Authorization of appropriations.
TITLE VIII--REGISTRATION OF MUNICIPAL FINANCIAL ADVISORS
Sec. 801. Municipal financial adviser registration requirement.
Sec. 802. Conforming amendments.
Sec. 803. Effective dates.
TITLE I--DISCLOSURE
SEC. 101. INVESTOR ADVISORY COMMITTEE ESTABLISHED.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding after section 4C the following new section:
``SEC. 4D. INVESTOR ADVISORY COMMITTEE.
``(a) Establishment and Purpose.--There is established an Investor
Advisory Committee (in this section referred to as the `Committee') to
advise and consult with the Commission on--
``(1) regulatory priorities and issues regarding new
products, trading strategies, fee structures and the
effectiveness of disclosures;
``(2) initiatives to protect investor interest; and
``(3) initiatives to promote investor confidence in the
integrity of the marketplace.
``(b) Membership.--
``(1) Appointment.--The Chairman of the Commission shall
appoint the members of the Committee, which members shall--
``(A) represent the interests of individual
investors;
``(B) represent the interests of institutional
investors; and
``(C) use a wide range of investment approaches.
``(2) Members not commission employees.--Members shall not be
considered employees or agents of the Commission solely because
of membership on the Committee.
``(c) Meetings.--The Committee shall meet from time to time at the
call of the Commission, but, at a minimum, shall meet at least twice
each year.
``(d) Compensation and Travel Expenses.--Members of the Committee who
are not full-time employees of the United States shall--
``(1) be entitled to receive compensation at a rate fixed by
the Commission while attending meetings of the Committee,
including travel time; and
``(2) be allowed travel expenses, including transportation
and subsistence, while away from their homes or regular places
of business.
``(e) Committee Findings.--Nothing in this section requires the
Commission to accept, agree, or act upon the findings or
recommendations of the Committee.
``(f) Authorization of Appropriations.--There is authorized to be
appropriated to the Commission such sums as are necessary for the
activities of the Committee.''.
SEC. 102. CLARIFICATION OF THE COMMISSION'S AUTHORITY TO ENGAGE IN
CONSUMER TESTING.
(a) Amendment to Securities Act of 1933.--Section 19 of the
Securities Act of 1933 (15 U.S.C. 77s) is amended by adding at the end
the following new subsection:
``(e) For the purposes of evaluating its rules and programs and for
considering, proposing, adopting, or engaging in rules or programs, the
Commission is authorized to gather information, communicate with
investors or other members of the public, and engage in such temporary
or experimental programs as the Commission in its discretion determines
is in the public interest or for the protection of investors. The
Commission may delegate to its staff some or all of the authority
conferred by this subsection.''.
(b) Amendment to Securities Exchange Act of 1934.--Section 23 of the
Securities Exchange Act of 1934 (15 U.S.C. 78w) is amended by
redesignating subsections (b), (c), and (d) as subsections (c), (d),
and (e), respectively, and inserting after subsection (a) the
following:
``(b) For the purposes of evaluating its rules and programs and for
considering proposing, adopting, or engaging in rules or programs, the
Commission is authorized to gather information, communicate with
investors or other members of the public, and engage in such temporary
or experimental programs as the Commission in its discretion determines
is in the public interest or for the protection of investors. The
Commission may delegate to its staff some or all of the authority
conferred by this subsection.''.
(c) Amendment to Investment Company Act of 1940.--Section 38 of the
Investment Company Act of 1940 (15 U.S.C. 80a-38) is amended by adding
at the end the following new subsection:
``(d) Gathering Information.--For the purposes of evaluating its
rules and programs and for considering proposing, adopting, or engaging
in rules or programs, the Commission is authorized to gather
information, communicate with investors or other members of the public,
and engage in such temporary or experimental programs as the Commission
in its discretion determines is in the public interest or for the
protection of investors. The Commission may delegate to its staff some
or all of the authority conferred by this subsection.''.
(d) Amendment to the Investment Advisers Act of 1940.--Section 211 of
the Investment Advisers Act of 1940 (15 U.S.C. 80b-11) is amended by
adding at the end the following new subsections:
``(e) For the purposes of evaluating its rules and programs and for
considering proposing, adopting, or engaging in rules or programs, the
Commission is authorized to gather information, communicate with
investors or other members of the public, and engage in such temporary
or experimental programs as the Commission in its discretion determines
is in the public interest or for the protection of investors. The
Commission may delegate to its staff some or all of the authority
conferred by this subsection.''.
SEC. 103. ESTABLISHMENT OF A FIDUCIARY DUTY FOR BROKERS, DEALERS, AND
INVESTMENT ADVISERS, AND HARMONIZATION OF
REGULATION.
(a) In General.--
(1) Securities exchange act of 1934.--Section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended--
(A) by redesignating the second subsection (i) as
subsection (j); and
(B) by adding at the end the following new
subsections:
``(k) Standard of Conduct.--
``(1) In general.--Notwithstanding any other provision of
this Act or the Investment Advisers Act of 1940, the Commission
shall promulgate rules to provide that, with respect to a
broker or dealer, when providing personalized investment advice
about securities to a retail customer (and such other customers
as the Commission may by rule provide), the standard of conduct
for such broker or dealer with respect to such customer shall
be the same as the standard of conduct applicable to an
investment adviser under the Investment Advisers Act of 1940.
The receipt of compensation based on commission or other
standard compensation for the sale of securities shall not, in
and of itself, be considered a violation of such standard
applied to a broker or dealer.
``(2) Disclosure of range of products offered.--Where a
broker or dealer sells only proprietary or other limited range
of products, as determined by the Commission, the Commission
shall by rule require that such broker or dealer provide notice
to each retail customer and obtain the consent or
acknowledgment of the customer. The sale of only proprietary or
other limited range of products by a broker or dealer shall
not, in and of itself, be considered a violation of the
standard set forth in paragraph (1).
``(3) Retail customer defined.--For purposes of this
subsection, the term `retail customer' means a natural person,
or the legal representative of such natural person, who--
``(A) receives personalized investment advice about
securities from a broker or dealer; and
``(B) uses such advice primarily for personal,
family, or household purposes.
``(l) Other Matters.--The Commission shall--
``(1) facilitate the provision of simple and clear
disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment advisers,
including any material conflicts of interest; and
``(2) examine and, where appropriate, promulgate rules
prohibiting or restricting certain sales practices, conflicts
of interest, and compensation schemes for brokers, dealers, and
investment advisers that the Commission deems contrary to the
public interest and the protection of investors.''.
(2) Investment advisers act of 1940.--Section 211 of the
Investment Advisers Act of 1940, as amended by section 102(d),
is further amended by adding at the end the following new
subsections:
``(f) Standard of Conduct.--
``(1) In general.--The Commission shall promulgate rules to
provide that the standard of conduct for all brokers, dealers,
and investment advisers, when providing personalized investment
advice about securities to retail customers (and such other
customers as the Commission may by rule provide), shall be to
act in the best interest of the customer without regard to the
financial or other interest of the broker, dealer, or
investment adviser providing the advice. In accordance with
such rules, any material conflicts of interest shall be
disclosed and may be consented to by the customer. Such rules
shall provide that such standard of conduct shall be no less
stringent than the standard applicable to investment advisers
under section 206(1) and (2) of this Act when providing
personalized investment advice about securities, except the
Commission shall not ascribe a meaning to the term `customer'
that would include an investor in a private fund managed by an
investment adviser, where such private fund has entered into an
advisory contract with such adviser. The receipt of
compensation based on commission or fees shall not, in and of
itself, be considered a violation of such standard applied to a
broker, dealer, or investment adviser.
``(2) Retail customer defined.--For purposes of this
subsection, the term `retail customer' means a natural person,
or the legal representative of such natural person, who--
``(A) receives personalized investment advice about
securities from a broker, dealer, or investment
adviser; and
``(B) uses such advice primarily for personal,
family, or household purposes.
``(g) Other Matters.--The Commission shall--
``(1) facilitate the provision of simple and clear
disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment advisers,
including any material conflicts of interest; and
``(2) examine and, where appropriate, promulgate rules
prohibiting or restricting certain sales practices, conflicts
of interest, and compensation schemes for brokers, dealers, and
investment advisers that the Commission deems contrary to the
public interest and the protection of investors.''.
(b) Harmonization of Enforcement.--
(1) Securities exchange act of 1934.--Section 15 of the
Securities Exchange Act of 1934, as amended by subsection
(a)(1), is further amended by adding at the end the following
new subsection:
``(m) Harmonization of Enforcement.--The enforcement authority of the
Commission with respect to violations of the standard of conduct
applicable to a broker or dealer providing personalized investment
advice about securities to a retail customer shall include--
``(1) the enforcement authority of the Commission with
respect to such violations provided under this Act, and
``(2) the enforcement authority of the Commission with
respect to violations of the standard of conduct applicable to
an investment advisor under the Investment Advisers Act of
1940, including the authority to impose sanctions for such
violations, and
the Commission shall seek to prosecute and sanction violators of the
standard of conduct applicable to a broker or dealer providing
personalized investment advice about securities to a retail customer
under this Act to same extent as the Commission prosecutes and
sanctions violators of the standard of conduct applicable to an
investment advisor under the Investment Advisers Act of 1940.''.
(2) Investment advisers act of 1940.--Section 211 of the
Investment Advisers Act of 1940, as amended by section (a)(2),
is further amended by adding at the end the following new
subsection:
``(h) Harmonization of Enforcement.--The enforcement authority of the
Commission with respect to violations of the standard of conduct
applicable to an investment adviser shall include--
``(1) the enforcement authority of the Commission with
respect to such violations provided under this Act, and
``(2) the enforcement authority of the Commission with
respect to violations of the standard of conduct applicable to
a broker or dealer providing personalized investment advice
about securities to a retail customer under the Securities
Exchange Act of 1934, including the authority to impose
sanctions for such violations, and
the Commission shall seek to prosecute and sanction violators of the
standard of conduct applicable to an investment advisor under this Act
to same extent as the Commission prosecutes and sanctions violators of
the standard of conduct applicable to a broker or dealer providing
personalized investment advice about securities to a retail customer
under the Securities Exchange Act of 1934.''.
SEC. 104. COMMISSION STUDY ON DISCLOSURE TO RETAIL CUSTOMERS BEFORE
PURCHASE OF PRODUCTS OR SERVICES.
(a) Study Required.--Prior to proposing any rules or regulations
pursuant to subsection (b)(1) regarding the manner in which investment
products or services are sold or provided in the United States to
retail customers or the information that must be provided to retail
customers prior to the purchase of such products or services, and
within 180 days after the date of the enactment of this Act, the
Securities and Exchange Commission shall publish a study that
examines--
(1) the nature of a ``retail customer'', taking into
consideration the definition in section 15(k) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o), as amended by section 103
of this Act;
(2) the range of products and services sold or provided to
retail customers, and the sellers or providers of such products
and services, that are within the Commission's jurisdiction;
(3) how such products and services are sold or provided to
retail customers, the fees charged for such products and
services, and the conflicts of interest that may arise during
the sales process or provision of services;
(4) information that retail customers should receive prior to
purchasing each product or service, and the appropriate person
or entity to provide such information; and
(5) ways to ensure that, where possible, reasonably similar
products and services are subject to similar regulatory
treatment, including with respect to information that must be
provided to retail customers prior to the purchase of such
products or services and how such information is provided.
(b) Rulemaking.--
(1) Notwithstanding any other provision of the Securities Act
of 1933 (15 U.S.C. 77a et seq.) or the Investment Company Act
of 1940 (15 U.S.C. 80a-1 et seq.), following completion of the
study required by subsection (a), the Commission is authorized
to promulgate rules to require that the appropriate persons or
entities provide designated documents or information to retail
customers prior to the purchase of identified investment
products or services. Any such rules shall--
(A) take into account the findings of the study
conducted pursuant to subsection (a);
(B) take into consideration, to the extent possible,
the need for such documents and information to be
consistent and comparable across investment products or
services sold or provided to retail customers; and
(C) reduce, to the extent possible, disruptions to
the purchase process for investment products and
services sold or provided to retail customers, by means
such as permitting required disclosures to be made via
the Internet.
(2) Notwithstanding paragraph (1), the Commission is
authorized to promulgate rules in connection with--
(A) the implementation of section 103; and
(B) disclosure to retail customers other than in
connection with the purchase of investment products or
services.
SEC. 105. BENEFICIAL OWNERSHIP AND SHORT-SWING PROFIT REPORTING.
(a) Beneficial Ownership Reporting.--Section 13 of the Securities
Exchange Act of 1934 (15 U.S.C. 78m) is amended--
(1) in subsection (d)(1)--
(A) by inserting after ``within ten days after such
acquisition'' the following: ``or within such shorter
time as the Commission may establish by rule''; and
(B) by striking ``send to the issuer of the security
at its principal executive office, by registered or
certified mail, send to each exchange where the
security is traded, and'';
(2) in subsection (d)(2)--
(A) by striking ``in the statements to the issuer and
the exchange, and''; and
(B) by striking ``shall be transmitted to the issuer
and the exchange and'';
(3) in subsection (g)(1), by striking ``shall send to the
issuer of the security and''; and
(4) in subsection (g)(2)--
(A) by striking ``sent to the issuer and''; and
(B) by striking ``shall be transmitted to the issuer
and''.
(b) Short-swing Profit Reporting.--Section 16(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78p(a)) is amended--
(1) in paragraph (1), by striking ``(and, if such security is
registered on a national securities exchange, also with the
exchange)''; and
(2) in paragraph (2)(B), by inserting after ``officer'' the
following: ``, or within such shorter time as the Commission
may establish by rule''.
SEC. 106. REVISION TO RECORDKEEPING RULES.
(a) Investment Company Act of 1940 Amendments.--Section 31 of the
Investment Company Act of 1940 (15 U.S.C. 80a-30) is amended--
(1) in subsection (a)(1), by adding at the end the following:
``Each person with custody or use of a registered investment
company's securities, deposits, or credits shall maintain and
preserve all records that relate to the person's custody or use
of the registered investment company's securities, deposits, or
credits for such period or periods as the Commission, by rules
and regulations, may prescribe as necessary or appropriate in
the public interest or for the protection of investors.''; and
(2) in subsection (b), by adding at the end the following new
paragraph:
``(4) Records of persons with custody or use.--
``(A) In general.--Notwithstanding paragraph (1),
records of persons with custody or use of a registered
investment company's securities, deposits, or credits,
that relate to such custody or use, are subject at any
time, or from time to time, to such reasonable
periodic, special, or other examinations and other
information and document requests by representatives of
the Commission as the Commission deems necessary or
appropriate in the public interest or for the
protection of investors.
``(B) Certain persons subject to other regulation.--
Persons subject to regulation and examination by a
Federal financial institution regulatory agency (as
such term is defined under section 212(c)(2) of title
18, United States Code) may satisfy any examination
request, information request, or document request
described under subparagraph (A), by providing the
Commission with a detailed listing, in writing, of the
registered investment company's securities, deposits,
or credits within such person's custody or use.''.
(b) Investment Advisers Act of 1940 Amendment.--Section 204 of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-4) is amended by adding
at the end the following new subsection:
``(d) Records of Persons With Custody or Use.--
``(1) In general.--Records of persons with custody or use of
a client's securities, deposits, or credits, that relate to
such custody or use, are subject at any time, or from time to
time, to such reasonable periodic, special, or other
examinations and other information and document requests by
representatives of the Commission as the Commission deems
necessary or appropriate in the public interest or for the
protection of investors.
``(2) Certain persons subject to other regulation.--Persons
subject to regulation and examination by a Federal financial
institution regulatory agency (as such term is defined under
section 212(c)(2) of title 18, United States Code) may satisfy
any examination request, information request, or document
request described under paragraph (1), by providing the
Commission with a detailed listing, in writing, of the client's
securities, deposits, or credits within such person's custody
or use.''.
SEC. 107. STUDY ON ENHANCING INVESTMENT ADVISOR EXAMINATIONS.
(a) Study Required.--
(1) In general.--The Commission shall review and analyze the
need for enhanced examination and enforcement resources for
investment advisers.
(2) Areas of consideration.--The study required by this
subsection shall examine--
(A) the number and frequency of examinations of
investment advisers by the Commission over the 5 years
preceding the date of the enactment of this Act;
(B) the extent to which having Congress authorize the
Commission to designate one or more self-regulatory
organizations to augment the Commission's efforts in
overseeing investment advisers would improve the
frequency of examinations of investment advisers; and
(C) current and potential approaches to examining the
investment advisory activities of dually registered
broker-dealers and investment advisers or affiliated
broker-dealers and investment advisers.
(b) Report Required.--The Commission shall report its findings to the
Committee on Financial Services of the House of Representatives and the
Committee on Banking, Housing, and Urban Affairs of the Senate, not
later than 180 days after the date of enactment of this Act, and shall
use such findings to revise its rules and regulations, as necessary.
The report shall include a discussion of regulatory or legislative
steps that are recommended or that may be necessary to address concerns
identified in the study.
SEC. 108. GAO STUDY OF FINANCIAL PLANNING.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study on the regulation and oversight of financial
planning. The study shall consider--
(1) the unique role of financial planners in providing
comprehensive advice in investment planning, income tax
planning, education planning, retirement planning, estate
planning, risk management, and other areas with respect to the
management of financial resources; and
(2) any gaps in the regulation of financial planners given
existing State and Federal regulation of financial planning
activities and the need to provide related consumer protections
for such financial planning activities.
(b) Report.--Not later than the end of the 180-day period beginning
on the date of the enactment of this Act, the Comptroller General of
the United States shall submit to the Congress a report containing the
findings and determinations made by the Comptroller General in carrying
out the study required under subsection (a), including recommendations
for the appropriate regulation of, or standards for, financial planners
as a profession and how such regulations or standards should be
established.
TITLE II--ENFORCEMENT AND REMEDIES
SEC. 201. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.
(a) Amendment to Securities Exchange Act of 1934.--Section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o), as amended by section
103, is further amended by adding at the end the following new
subsection:
``(n) Authority to Restrict Mandatory Pre-dispute Arbitration.--The
Commission, by rule, may prohibit, or impose conditions or limitations
on the use of, agreements that require customers or clients of any
broker, dealer, or municipal securities dealer to arbitrate any future
dispute between them arising under the Federal securities laws, the
rules and regulations thereunder, or the rules of a self-regulatory
organization if it finds that such prohibition, imposition of
conditions, or limitations are in the public interest and for the
protection of investors.''.
(b) Amendment to Investment Advisers Act of 1940.--Section 205 of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-5) is amended by adding
at the end the following new subsection:
``(f) Authority to Restrict Mandatory Pre-dispute Arbitration.--The
Commission, by rule, may prohibit, or impose conditions or limitations
on the use of, agreements that require customers or clients of any
investment adviser to arbitrate any future dispute between them arising
under the Federal securities laws, the rules and regulations
thereunder, or the rules of a self-regulatory organization if it finds
that such prohibition, imposition of conditions, or limitations are in
the public interest and for the protection of investors.''.
SEC. 202. COMPTROLLER GENERAL STUDY TO REVIEW SECURITIES ARBITRATION
SYSTEM.
(a) Study.--The Comptroller General of the United States shall
conduct a study to review--
(1) the costs to parties of an arbitration proceeding using
the arbitration system operated by the Financial Industry
Regulatory Authority and overseen by the Securities and
Exchange Commission as compared to litigation;
(2) the percentage of recovery of the total amount of a claim
in an arbitration proceeding using the arbitration system
operated by the Financial Industry Regulatory Authority and
overseen by the Securities and Exchange Commission; and
(3) other additional issues as may be raised during the
course of the study conducted under this subsection.
(b) Report.--Not later than 1 year after the date of enactment of
this Act, the Comptroller General of the United States shall submit to
the Committee on Financial Services of the House of Representatives and
the Committee on Banking, Housing, and Urban Affairs of the Senate a
report on the results of the study required by subsection (a),
including in such report recommendations for improvements to the
arbitration system referenced in such subsection.
SEC. 203. WHISTLEBLOWER PROTECTION.
(a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by adding after section 21E the following new
section:
``SEC. 21F. SECURITIES WHISTLEBLOWER INCENTIVES AND PROTECTION.
``(a) In General.--In any judicial or administrative action brought
by the Commission under the securities laws that results in monetary
sanctions exceeding $1,000,000, the Commission, under regulations
prescribed by the Commission and subject to subsection (b), may pay an
award or awards not exceeding an amount equal to 30 percent, in total,
of the monetary sanctions imposed in the action or related actions to
one or more whistleblowers who voluntarily provided original
information to the Commission that led to the successful enforcement of
the action. Any amount payable under the preceding sentence shall be
paid from the fund described in subsection (f).
``(b) Determination of Amount of Award; Denial of Award.--
``(1) Determination of amount of award.--The determination of
the amount of an award, within the limit specified in
subsection (a), shall be in the sole discretion of the
Commission. The Commission may take into account the
significance of the whistleblower's information to the success
of the judicial or administrative action described in
subsection (a), the degree of assistance provided by the
whistleblower and any legal representative of the whistleblower
in such action, the Commission's programmatic interest in
deterring violations of the securities laws by making awards to
whistleblowers who provide information that leads to the
successful enforcement of such laws, and such additional
factors as the Commission may establish by rules or
regulations.
``(2) Denial of award.--No award under subsection (a) shall
be made--
``(A) to any whistleblower who is, or was at the time
he or she acquired the original information submitted
to the Commission, a member, officer, or employee of
any appropriate regulatory agency, the Department of
Justice, the Public Company Accounting Oversight Board,
or a self-regulatory organization;
``(B) to any whistleblower who is convicted of a
criminal violation related to the judicial or
administrative action for which the whistleblower
otherwise could receive an award under this section; or
``(C) to any whistleblower who fails to submit
information to the Commission in such form as the
Commission may, by rule, require.
``(c) Representation.--
``(1) Permitted representation.--Any whistleblower who makes
a claim for an award under subsection (a) may be represented by
counsel.
``(2) Required representation.--Any whistleblower who makes a
claim for an award under subsection (a) must be represented by
counsel if the whistleblower submits the information upon which
the claim is based anonymously. Prior to the payment of an
award, the whistleblower must disclose his or her identity and
provide such other information as the Commission may require.
``(d) No Contract Necessary.--No contract with the Commission is
necessary for any whistleblower to receive an award under subsection
(a), unless the Commission, by rule or regulation, so requires.
``(e) Appeals.--Any determinations under this section, including
whether, to whom, or in what amounts to make awards, shall be in the
sole discretion of the Commission, and any such determinations shall be
final and not subject to judicial review.
``(f) Investor Protection Fund.--
``(1) Fund established.--There is established in the Treasury
of the United States a fund to be known as the `Securities and
Exchange Commission Investor Protection Fund' (referred to in
this section as the `Fund').
``(2) Use of fund.--The Fund shall be available to the
Commission, without further appropriation or fiscal year
limitation, for the following purposes:
``(A) Paying awards to whistleblowers as provided in
subsection (a).
``(B) Funding investor education initiatives designed
to help investors protect themselves against securities
fraud or other violations of the securities laws, or
the rules and regulations thereunder.
``(3) Deposits and credits.--There shall be deposited into or
credited to the Fund--
``(A) any monetary sanction collected by the
Commission in any judicial or administrative action
brought by the Commission under the securities laws
that is not added to a disgorgement fund or other fund
pursuant to section 308 of the Sarbanes-Oxley Act of
2002 or otherwise distributed to victims of a violation
of the securities laws, or the rules and regulations
thereunder, underlying such action, unless the balance
of the Fund at the time the monetary sanction is
collected exceeds $100,000,000;
``(B) any monetary sanction added to a disgorgement
fund or other fund pursuant to section 308 of the
Sarbanes-Oxley Act of 2002 that is not distributed to
the victims for whom the disgorgement fund or other
fund was established, unless the balance of the Fund at
the time the determination is made not to distribute
the monetary sanction to such victims exceeds
$100,000,000; and
``(C) all income from investments made under
paragraph (4).
``(4) Investments.--
``(A) Amounts in fund may be invested.--The
Commission may request the Secretary of the Treasury to
invest the portion of the Fund that is not, in the
Commission's judgment, required to meet the current
needs of the Fund.
``(B) Eligible investments.--Investments shall be
made by the Secretary of the Treasury in obligations of
the United States or obligations that are guaranteed as
to principal and interest by the United States, with
maturities suitable to the needs of the Fund as
determined by the Commission.
``(C) Interest and proceeds credited.--The interest
on, and the proceeds from the sale or redemption of,
any obligations held in the Fund shall be credited to,
and form a part of, the Fund.
``(5) Reports to congress.--Not later than October 30 of each
year, the Commission shall transmit to the Committee on
Banking, Housing, and Urban Affairs of the Senate, and the
Committee on Financial Services of the House of Representatives
a report on--
``(A) the Commission's whistleblower award program
under this section, including a description of the
number of awards that were granted and the types of
cases in which awards were granted during the preceding
fiscal year;
``(B) investor education initiatives described in
paragraph (2)(B) that were funded by the Fund during
the preceding fiscal year;
``(C) the balance of the Fund at the beginning of the
preceding fiscal year;
``(D) the amounts deposited into or credited to the
Fund during the preceding fiscal year;
``(E) the amount of earnings on investments of
amounts in the Fund during the preceding fiscal year;
``(F) the amount paid from the Fund during the
preceding fiscal year to whistleblowers pursuant to
subsection (a);
``(G) the amount paid from the Fund during the
preceding fiscal year for investor education
initiatives described in paragraph (1)(B);
``(H) the balance of the Fund at the end of the
preceding fiscal year; and
``(I) a complete set of audited financial statements,
including a balance sheet, income statement, and cash
flow analysis.
``(g) Protection of Whistleblowers.--
``(1) Prohibition against retaliation.--
``(A) In general.--No employer may discharge, demote,
suspend, threaten, harass, or in any other manner
discriminate against an employee, contractor, or agent
in the terms and conditions of employment because of
any lawful act done by the employee, contractor, or
agent in providing information to the Commission in
accordance with subsection (a), or in assisting in any
investigation or judicial or administrative action of
the Commission based upon or related to such
information.
``(B) Enforcement.--
``(i) Cause of action.--An individual who
alleges discharge or other discrimination in
violation of subparagraph (A) may bring an
action under this subsection in the appropriate
district court of the United States for the
relief provided in subparagraph (C).
``(ii) Subpoenas.--A subpoena requiring the
attendance of a witness at a trial or hearing
conducted under this section may be served at
any place in the United States.
``(iii) Statute of limitations.--An action
under this subsection may not be brought more
than 6 years after the date on which the
violation of subparagraph (A) occurred, or more
than 3 years after the date when facts material
to the right of action are known or reasonably
should have been known by the employee alleging
a violation of subparagraph (A), but in no
event after 10 years after the date on which
the violation occurs.
``(C) Relief.--An employee, contractor, or agent
prevailing in any action brought under subparagraph (B)
shall be entitled to all relief necessary to make that
employee, contractor, or agent whole, including
reinstatement with the same seniority status that the
employee, contractor, or agent would have had, but for
the discrimination, 2 times the amount of back pay,
with interest, and compensation for any special damages
sustained as a result of the discrimination, including
litigation costs, expert witness fees, and reasonable
attorneys' fees.
``(2) Confidentiality.--
``(A) In general.--Except as provided in subparagraph
(B), all information provided to the Commission by a
whistleblower shall be confidential and privileged as
an evidentiary matter (and shall not be subject to
civil discovery or other legal process) in any
proceeding in any Federal or State court or
administrative agency, and shall be exempt from
disclosure, in the hands of an agency or establishment
of the Federal Government, under the Freedom of
Information Act (5 U.S.C. 552), or otherwise, unless
and until required to be disclosed to a defendant or
respondent in connection with a proceeding instituted
by the Commission or any entity described in
subparagraph (B). For purposes of section 552 of title
5, United States Code, this paragraph shall be
considered a statute described in subsection (b)(3)(B)
of such section 552. Nothing herein is intended to
limit the Attorney General's ability to present such
evidence to a grand jury or to share such evidence with
potential witnesses or defendants in the course of an
ongoing criminal investigation.
``(B) Availability to government agencies.--Without
the loss of its status as confidential and privileged
in the hands of the Commission, all information
referred to in subparagraph (A) may, in the discretion
of the Commission, when determined by the Commission to
be necessary to accomplish the purposes of this Act and
protect investors, be made available to--
``(i) the Attorney General of the United
States,
``(ii) an appropriate regulatory authority,
``(iii) a self-regulatory organization,
``(iv) the Public Company Accounting
Oversight Board,
``(v) State attorneys general in connection
with any criminal investigation, and
``(vi) any appropriate State regulatory
authority,
each of which shall maintain such information as
confidential and privileged, in accordance with the
requirements in subparagraph (A).
``(3) Rights retained.--Nothing in this section shall be
deemed to diminish the rights, privileges, or remedies of any
whistleblower under any Federal or State law, or under any
collective bargaining agreement.
``(h) Provision of False Information.--Any whistleblower who
knowingly and willfully makes any false, fictitious, or fraudulent
statement or representation, or makes or uses any false writing or
document knowing the same to contain any false, fictitious, or
fraudulent statement or entry, shall not be entitled to an award under
this section and shall be subject to prosecution under section 1001 of
title 18, United States Code.
``(i) Rulemaking Authority.--The Commission shall have the authority
to issue such rules and regulations as may be necessary or appropriate
to implement the provisions of this section.
``(j) Definitions.--For purposes of this section, the following terms
have the following meanings:
``(1) Original information.--The term `original information'
means information that--
``(A) is based on the direct and independent
knowledge or analysis of a whistleblower;
``(B) is not known to the Commission from any other
source, unless the whistleblower is the initial source
of the information; and
``(C) is not based on allegations in a judicial or
administrative hearing, in a governmental report,
hearing, audit, or investigation, or from the news
media, unless the whistleblower is the initial source
of the information that resulted in the judicial or
administrative hearing, governmental report, hearing,
audit, or investigation, or the news media's report on
the allegations.
``(2) Monetary sanctions.--The term `monetary sanctions',
when used with respect to any judicial or administrative
action, means any monies, including but not limited to
penalties, disgorgement, and interest, ordered to be paid, and
any monies deposited into a disgorgement fund or other fund
pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002
(15 U.S.C. 7246(b)), as a result of such action or any
settlement of such action.
``(3) Related action.--The term `related action', when used
with respect to any judicial or administrative action brought
by the Commission under the securities laws, means any judicial
or administrative action brought by an entity described in
subsection (g)(2)(B) that is based upon the same original
information provided by a whistleblower pursuant to subsection
(a) that led to the successful enforcement of the Commission
action.
``(4) Whistleblower.--The term `whistleblower' means an
individual, or two or more individuals acting jointly, who
submit information to the Commission as provided in this
section.''.
(b) Administration and Enforcement.--The Securities and Exchange
Commission shall establish a separate office within the Commission to
administer and enforce the provisions of section 21F of the Securities
Exchange Act of 1934, as added by subsection (a). Such office shall
report annually to Congress on its activities, whistleblower
complaints, and the response of the Commission to such complaints.
SEC. 204. CONFORMING AMENDMENTS FOR WHISTLEBLOWER PROTECTION.
(a) In General.--Each of the following provisions is amended by
inserting ``and section 21F of the Securities Exchange Act of 1934''
after ``the Sarbanes-Oxley Act of 2002'':
(1) Section 20(d)(3)(A) of the Securities Act of 1933 (15
U.S.C. 77t(d)(3)(A)).
(2) Section 42(e)(3)(A) of the Investment Company Act of 1940
(15 U.S.C. 80a-41(e)(3)(A)).
(3) Section 209(e)(3)(A) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-9(e)(3)(A)).
(b) Securities Exchange Act.--The Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended--
(1) in section 21(d)(3)(C)(i) (15 U.S.C. 78u(d)(3)(C)(i)), by
inserting ``and section 21F of this title'' after ``the
Sarbanes-Oxley Act of 2002'';
(2) in section 21A(d)(1) (15 U.S.C. 78u-1(d)(1))--
(A) by striking ``(subject to subsection (e))''; and
(B) by inserting ``and section 21F of this title''
after ``the Sarbanes-Oxley Act of 2002''; and
(3) in section 21A, by striking subsection (e) and
redesignating subsections (f) and (g) as subsection (e) and
(f), respectively.
SEC. 205. IMPLEMENTATION AND TRANSITION PROVISIONS FOR WHISTLEBLOWER
PROTECTIONS.
(a) Implementing Rules.--The Securities and Exchange Commission shall
issue final regulations implementing the provisions of section 21F of
the Securities Exchange Act of 1934, as added by this title, no later
than 270 days after the date of enactment of this Act.
(b) Original Information.--Information submitted to the Commission by
a whistleblower in accordance with regulations implementing the
provisions of section 21F of the Securities Exchange Act of 1934, as
added by this title, shall not lose its status as original information,
as defined in subsection (i)(1) of such section, solely because the
whistleblower submitted such information prior to the effective date of
such regulations, provided such information was submitted after the
date of enactment of this Act, or related to insider trading violations
for which a bounty could have been paid at the time such information
was submitted.
(c) Awards.--A whistleblower may receive an award pursuant to section
21F of the Securities Exchange Act of 1934, as added by this title,
regardless of whether any violation of a provision of the securities
laws, or a rule or regulation thereunder, underlying the judicial or
administrative action upon which the award is based occurred prior to
the date of enactment of this Act.
SEC. 206. COLLATERAL BARS.
(a) Section 15 of the Securities Exchange Act of 1934.--Section
15(b)(6)(A) of the Securities Exchange Act of 1934 (15 U.S.C.
78o(b)(6)(A)) is amended by striking ``12 months, or bar such person
from being associated with a broker or dealer,'' and inserting ``12
months, or bar any such person from being associated with a broker,
dealer, investment adviser, municipal securities dealer, transfer
agent, or nationally recognized statistical rating organization,''.
(b) Section 15B of the Securities Exchange Act of 1934.--Section
15B(c)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
4(c)(4)) is amended by striking ``twelve months or bar any such person
from being associated with a municipal securities dealer,'' and
inserting ``12 months or bar any such person from being associated with
a broker, dealer, investment adviser, municipal securities dealer,
transfer agent, or nationally recognized statistical rating
organization,''.
(c) Section 17A of the Securities Exchange Act of 1934.--Section
17A(c)(4)(C) of the Securities Exchange Act of 1934 (15 U.S.C. 78q-
1(c)(4)(C)) is amended by striking ``twelve months or bar any such
person from being associated with the transfer agent,'' and inserting
``12 months or bar any such person from being associated with any
transfer agent, broker, dealer, investment adviser, municipal
securities dealer, or nationally recognized statistical rating
organization,''.
(d) Section 203 of the Investment Advisers Act of 1940.--Section
203(f) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f)) is
amended by striking ``twelve months or bar any such person from being
associated with an investment adviser,'' and inserting ``12 months or
bar any such person from being associated with an investment adviser,
broker, dealer, municipal securities dealer, transfer agent, or
nationally recognized statistical rating organization,''.
SEC. 207. AIDING AND ABETTING AUTHORITY UNDER THE SECURITIES ACT AND
THE INVESTMENT COMPANY ACT.
(a) Under the Securities Act of 1933.--Section 15 of the Securities
Act of 1933 (15 U.S.C. 77o) is amended--
(1) by striking ``Every person who'' and inserting ``(a)
Controlling Persons.--Every person who''; and
(2) by adding at the end the following:
``(b) Prosecution of Persons Who Aid and Abet Violations.--For
purposes of any action brought by the Commission under subparagraph (b)
or (d) of section 20, any person that knowingly or recklessly provides
substantial assistance to another person in violation of a provision of
this Act, or of any rule or regulation issued under this Act, shall be
deemed to be in violation of such provision to the same extent as the
person to whom such assistance is provided.''.
(c) Under the Investment Company Act of 1940.--Section 48 of the
Investment Company Act of 1940 (15 U.S.C. 80a-48) is amended by
redesignating subsection (b) as subsection (c) and inserting after
subsection (a) the following:
``(b) For purposes of any action brought by the Commission under
subsection (d) or (e) of section 42, any person that knowingly or
recklessly provides substantial assistance to another person in
violation of a provision of this Act, or of any rule or regulation
issued under this Act, shall be deemed to be in violation of such
provision to the same extent as the person to whom such assistance is
provided.''.
SEC. 208. AUTHORITY TO IMPOSE PENALTIES FOR AIDING AND ABETTING
VIOLATIONS OF THE INVESTMENT ADVISERS ACT.
Section 209 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-9)
is amended by inserting at the end the following new subsections:
``(f) Aiding and Abetting.--For purposes of any action brought by the
Commission under subsection (e), any person that knowingly or
recklessly has aided, abetted, counseled, commanded, induced, or
procured a violation of any provision of this Act, or of any rule,
regulation, or order hereunder, shall be deemed to be in violation of
such provision, rule, regulation, or order to the same extent as the
person that committed such violation.
``(g) Enforcement by National Securities Associations.--The
Commission may permit or require a national securities association
registered under the Securities Exchange Act of 1934 to enforce
compliance by its members and persons associated with its members with
the provisions of this Act, the rules and regulations thereunder, and
to adopt such rules (subject to any rule or order of the Commission
pursuant to the Securities Exchange Act of 1934) as the association may
deem necessary and in the public interest to further the purposes of
this Act.''.
SEC. 209. DEADLINE FOR COMPLETING EXAMINATIONS, INSPECTIONS AND
ENFORCEMENT ACTIONS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 4D (as added by section 101) the
following new section:
``SEC. 4E. DEADLINE FOR COMPLETING ENFORCEMENT INVESTIGATIONS AND
COMPLIANCE EXAMINATIONS AND INSPECTIONS.
``(a) Enforcement Investigations.--
``(1) In general.--Not later than 180 days after the date on
which Commission staff provide a written Wells notification to
any person, the Commission staff shall either file an action
against such person or provide notice to the Director of the
Division of Enforcement of its intent to not file an action.
``(2) Exceptions for certain complex actions.--
Notwithstanding paragraph (1), if the head of any division or
office within the Commission or his designee determines that a
particular enforcement investigation is sufficiently complex
such that a determination regarding the filing of an action
against a person cannot be completed within the deadline
specified in paragraph (1), the head of any division or office
within the Commission or his designee may, after providing
notice to the Chairman of the Commission, extend such deadline
as needed for one additional 180-day period. If after the
additional 180-day period the head of any division or office
within the Commission or his designee determines that a
particular enforcement investigation is sufficiently complex
such that a determination regarding the filing of an action
against a person cannot be completed within the additional 180-
day period, the head of any division or office within the
Commission or his designee may, after providing notice to and
receiving approval of the Commission, extend such deadline as
needed for one or more additional successive 180-day periods.
``(b) Compliance Examinations and Inspections.--
``(1) In general.--Not later than 180 days after the date on
which Commission staff completes the on-site portion of its
compliance examination or inspection or receives all records
requested from the entity being examined or inspected,
whichever is later, Commission staff shall provide the entity
being examined or inspected with written notification
indicating either that the examination or inspection has
concluded without findings or that the staff requests the
entity undertake corrective action.
``(2) Exception for certain complex actions.--Notwithstanding
paragraph (1), if the head of any division or office within the
Commission or his designee determines that a particular
compliance examination or inspection is sufficiently complex
such that a determination regarding concluding the examination
or inspection or regarding the staff requests the entity
undertake corrective action cannot be completed within the
deadline specified in paragraph (1), the head of any division
or office within the Commission or his designee may, after
providing notice to the Chairman of the Commission, extend such
deadline as needed for one additional 180-day period.''.
SEC. 210. NATIONWIDE SERVICE OF SUBPOENAS.
(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 to compel the attendance of
witnesses or the production of documents or tangible things (or both)
at a hearing or trial may be served at any place within the United
States.''.
(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
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 to compel the attendance of
witnesses or the production of documents or tangible things (or both)
at a hearing or trial may be served at any place within the United
States.''.
(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 to compel
the attendance of witnesses or the production of documents or tangible
things (or both) at a hearing or trial may be served at any place
within the United States.''.
(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 to compel
the attendance of witnesses or the production of documents or tangible
things (or both) at a hearing or trial may be served at any place
within the United States.''.
SEC. 211. AUTHORITY TO IMPOSE CIVIL PENALTIES IN CEASE AND DESIST
PROCEEDINGS.
(a) Under the Securities Act of 1933.--Section 8A of the Securities
Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end the
following new subsection:
``(g) Authority to Impose Money Penalties.--
``(1) Grounds 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 $7,500 for a natural person or $75,000 for any other
person.
``(B) Second tier.--Notwithstanding paragraph (A),
the maximum amount of penalty for each such act or
omission shall be $75,000 for a natural person or
$375,000 for any other person if the act or omission
described in paragraph (1) involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a
regulatory requirement.
``(C) Third tier.--Notwithstanding paragraphs (A) and
(B), the maximum amount of penalty for each such act or
omission shall be $150,000 for a natural person or
$725,000 for any other person if--
``(i) the act or omission described in
paragraph (1) involved fraud, deceit,
manipulation, or deliberate or reckless
disregard of a regulatory requirement; and
``(ii) such act or omission directly or
indirectly resulted in 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.''.
(b) 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--
(1) 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'';
(2) 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
(3) 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.''.
(c) 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--
(1) by striking ``(1) Authority of commission.--In any
proceeding'' and inserting the following:
``(1) Authority of commission.--
``(A) In general.--In any proceeding'';
(2) 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
(3) 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.''.
(d) 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--
(1) by striking ``(1) Authority of commission.--In any
proceeding'' and inserting the following:
``(1) Authority of commission.--
``(A) In general.--In any proceeding'';
(2) 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
(3) 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.''.
SEC. 212. FORMERLY ASSOCIATED PERSONS.
(a) Member or Employee of the Municipal Securities Rulemaking
Board.--Section 15B(c)(8) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-4(c)(8)) is amended by striking ``any member or employee''
and inserting ``any person who is, or at the time of the alleged
misconduct was, a member or employee''.
(b) Person Associated With a Government Securities Broker or
Dealer.--Section 15C of the Securities Exchange Act of 1934 (15 U.S.C.
78o-5) is amended--
(1) in subsection (c)(1)(C), by striking ``or seeking to
become associated,'' and inserting ``seeking to become
associated, or, at the time of the alleged misconduct,
associated or seeking to become associated'';
(2) in subsection (c)(2)(A), by inserting ``, seeking to
become associated, or, at the time of the alleged misconduct,
associated or seeking to become associated'' after ``any person
associated''; and
(3) in subsection (c)(2)(B), by inserting ``, seeking to
become associated, or, at the time of the alleged misconduct,
associated or seeking to become associated'' after ``any person
associated''.
(c) Person Associated With a Member of a National Securities Exchange
or Registered Securities Association.--Section 21(a)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(a)(1)) is amended by
inserting ``, or, as to any act or practice, or omission to act, while
associated with a member, formerly associated'' after ``member or a
person associated''.
(d) Participant of a Registered Clearing Agency.--Section 21(a)(1) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u(a)(1)) is amended by
inserting ``or, as to any act or practice, or omission to act, while a
participant, was a participant,'' after ``in which such person is a
participant,''.
(e) Officer or Director of a Self-regulatory Organization.--Section
19(h)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78s(h)(4))
is amended--
(1) by striking ``any officer or director'' and inserting
``any person who is, or at the time of the alleged misconduct
was, an officer or director''; and
(2) by striking ``such officer or director'' and inserting
``such person''.
(f) Officer or Director of an Investment Company.--Section 36(a) of
the Investment Company Act of 1940 (15 U.S.C. 80a-35(a)) is amended--
(1) by striking ``a person serving or acting'' and inserting
``a person who is, or at the time of the alleged misconduct
was, serving or acting''; and
(2) by striking ``such person so serves or acts'' and
inserting ``such person so serves or acts, or at the time of
the alleged misconduct, so served or acted''.
(g) Person Associated With a Public Accounting Firm.--
(1) Sarbanes-oxley act of 2002 amendment.--Section 2(a)(9) of
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(9)) is amended
by adding at the end the following new subparagraph:
``(C) Investigative and enforcement authority.--For
purposes of the provisions of sections 3(c), 101(c),
105, and 107(c) and Board or Commission rules
thereunder, except to the extent specifically excepted
by such rules, the terms defined in subparagraph (A)
shall include any person associated, seeking to become
associated, or formerly associated with a public
accounting firm, except--
``(i) the authority to conduct an
investigation of such person under section
105(b) shall apply only with respect to any act
or practice, or omission to act, while such
person was associated or seeking to become
associated with a registered public accounting
firm; and
``(ii) the authority to commence a proceeding
under section 105(c)(1), or impose disciplinary
sanctions under section 105(c)(4), against such
person shall apply only on--
``(I) the basis of conduct occurring
while such person was associated or
seeking to become associated with a
registered public accounting firm; or
``(II) non-cooperation as described
in section 105(b)(3) with respect to a
demand in a Board investigation for
testimony, documents, or other
information relating to a period when
such person was associated or seeking
to become associated with a registered
public accounting firm.''.
(2) Securities exchange act of 1934 amendment.--Section
21(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C.
78u(a)(1)) is amended by striking ``or a person associated with
such a firm'' and inserting ``, a person associated with such a
firm, or, as to any act, practice, or omission to act while
associated with such firm, a person formerly associated with
such a firm''.
(h) Supervisory Personnel of an Audit Firm.--Section 105(c)(6) of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7215(c)(6)) is amended--
(1) in subparagraph (A), by striking ``the supervisory
personnel'' and inserting ``any person who is, or at the time
of the alleged failure reasonably to supervise was, a
supervisory person''; and
(2) in subparagraph (B)--
(A) by striking ``No associated person'' and
inserting ``No current or former supervisory person'';
and
(B) by striking ``any other person'' and inserting
``any associated person''.
(i) Member of the Public Company Accounting Oversight Board.--Section
107(d)(3) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7217(d)(3)) is
amended by striking ``any member'' and inserting ``any person who is,
or at the time of the alleged misconduct was, a member''.
SEC. 213. SHARING PRIVILEGED INFORMATION WITH OTHER AUTHORITIES.
Section 24 of the Securities Exchange Act of 1934 (15 U.S.C. 78x) is
amended--
(1) by redesignating subsections (d) and (e) as subsections
(e) and (f), respectively;
(2) in subsection (e), as redesignated, by striking ``as
provided in subsection (e)'' and inserting ``as provided in
subsection (f)''; and
(3) by inserting after subsection (c) the following new
subsection:
``(d) Sharing Privileged Information With Other Authorities.--
``(1) Privileged information provided by the commission.--The
Commission shall not be deemed to have waived any privilege
applicable to any information by transferring that information
to or permitting that information to be used by--
``(A) any agency (as defined in section 6 of title
18, United States Code);
``(B) any foreign securities authority;
``(C) the Public Company Accounting Oversight Board;
``(D) any self-regulatory organization;
``(E) any foreign law enforcement authority; or
``(F) any State securities or law enforcement
authority.
``(2) Non-disclosure of privileged information provided to
the commission.--Except as provided in subsection (f), the
Commission shall not be compelled to disclose privileged
information obtained from any foreign securities authority, or
foreign law enforcement authority, if the authority has in good
faith determined and represented to the Commission that the
information is privileged.
``(3) Non-waiver of privileged information provided to the
commission.--
``(A) In general.--Federal agencies, State securities
and law enforcement authorities, self-regulatory
organizations, and the Public Company Accounting
Oversight Board shall not be deemed to have waived any
privilege applicable to any information by transferring
that information to or permitting that information to
be used by the Commission.
``(B) Exception with respect to certain actions.--The
provisions of subparagraph (A) shall not apply to a
self-regulatory organization or the Public Company
Accounting Oversight Board with respect to information
used by the Commission in an action against such
organization.
``(4) Definitions.--For purposes of this subsection:
``(A) The term `privilege' includes any work-product
privilege, attorney-client privilege, governmental
privilege, or other privilege recognized under Federal,
foreign, or State law.
``(B) The term `foreign law enforcement authority'
means any foreign authority that is empowered under
foreign law to detect, investigate or prosecute
potential violations of law.
``(C) The term `State securities or law enforcement
authority' means the authority of any State or
territory that is empowered under State or territory
law to detect, investigate or prosecute potential
violations of law.''.
SEC. 214. EXPANDED ACCESS TO GRAND JURY MATERIAL.
(a) In General.--Title VI of the Sarbanes-Oxley Act of 2002 is
amended by adding at the end the following new section:
``SEC. 605. ACCESS TO GRAND JURY INFORMATION.
``(a) Disclosure.--
``(1) In general.--Upon motion of an attorney for the
government, a court may direct disclosure of matters occurring
before a grand jury during an investigation of conduct that may
constitute a violation of any provision of the securities laws
to the Commission for use in relation to any matter within the
jurisdiction of the Commission.
``(2) Substantial need required.--A court may issue an order
under paragraph (1) only upon a finding of a substantial need
in the public interest.
``(b) Use of Matter.--A person to whom a matter has been disclosed
under this section shall not use such matter other than for the purpose
for which such disclosure was authorized.
``(c) Definitions.--As used in this section, 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. 215. AIDING AND ABETTING STANDARD OF KNOWLEDGE SATISFIED BY
RECKLESSNESS.
Section 20(e) of the Securities Exchange Act of 1934 (15 U.S.C.
78t(e)) is amended by inserting ``or recklessly'' after ``knowingly''.
SEC. 216. EXTRATERRITORIAL JURISDICTION OF THE ANTIFRAUD PROVISIONS OF
THE FEDERAL SECURITIES LAWS.
(a) Under the Securities Act of 1933.--Section 22 of the Securities
Act of 1933 (15 U.S.C. 77v(a)) is amended by adding at the end the
following new subsection:
``(c) Extraterritorial Jurisdiction.--The jurisdiction of the
district courts of the United States and the United States courts of
any Territory described under subsection (a) includes violations of
section 17(a), and all suits in equity and actions at law under that
section, involving--
``(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even if the
securities transaction occurs outside the United States and
involves only foreign investors; or
``(2) conduct occurring outside the United States that has a
foreseeable substantial effect within the United States.''.
(b) Under the Securities Exchange Act of 1934.--Section 27 of the
Securities Exchange Act of 1934 (15 U.S.C. 78aa) is amended--
(1) by striking ``The district'' and inserting the following:
``(a) In General.--The district''; and
(2) by inserting at the end the following new subsection:
``(b) Extraterritorial Jurisdiction.--The jurisdiction of 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 described under subsection (a) includes violations of the
antifraud provisions of this title, and all suits in equity and actions
at law under those provisions, involving--
``(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even if the
securities transaction occurs outside the United States and
involves only foreign investors; or
``(2) conduct occurring outside the United States that has a
foreseeable substantial effect within the United States.''.
(c) Under the Investment Advisers Act of 1940.--Section 214 of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-14) is amended--
(1) by striking ``The district'' and inserting the following:
``(a) In General.--The district''; and
(2) by inserting at the end the following new subsection:
``(b) Extraterritorial Jurisdiction.--The jurisdiction of 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 described under subsection (a) includes violations of section
206, and all suits in equity and actions at law under that section,
involving--
``(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even if the
violation is committed by a foreign adviser and involves only
foreign investors; or
``(2) conduct occurring outside the United States that has a
foreseeable substantial effect within the United States.''.
SEC. 217. FIDELITY BONDING.
Section 17(g) of the Investment Company Act of 1940 (15 U.S.C. 80a-
17(g)) is amended to read as follows:
``(g) Fidelity Bonding.--
``(1) In general.--The Commission is authorized to require
that a registered management company provide and maintain a
fidelity bond against loss as to any officer or employee who
has access to securities or funds of the company, either
directly or through authority to draw upon such funds or to
direct generally the disposition of such securities (unless the
officer or employee has such access solely through his position
as an officer or employee of a bank), in such form and amount
as the Commission may prescribe by rule, regulation, or order
for the protection of investors.
``(2) Definitions.--For purposes of this subsection:
``(A) Management company.--The term `management
company' has the meaning given such term under section
4 of the Investment Company Act of 1940.
``(B) Officer or employee.--The term `officer or
employee' means--
``(i) any officer or employee of the
management company; and;
``(ii) any officer or employee of any
investment adviser to the management company,
or of any affiliated company of any such
investment adviser, as the Commission may
prescribe by rule, regulation, or order for the
protection of investors.
``(C) Other definitions.--The terms `affiliated
company' and `investment adviser' shall have the
meaning given such terms under section 2 of the
Investment Company Act of 1940.''.
SEC. 218. ENHANCED SEC AUTHORITY TO CONDUCT SURVEILLANCE AND RISK
ASSESSMENT.
(a) Securities Exchange Act of 1934 Amendments.--Section 17(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78q(b)) is amended by adding
at the end the following new paragraph:
``(5) Surveillance and risk assessment.--All persons
described in subsection (a) of this section are subject at any
time, or from time to time, to such reasonable periodic,
special, or other information and document requests by
representatives of the Commission as the Commission by rule or
order deems necessary or appropriate to conduct surveillance or
risk assessments of the securities markets, persons registered
with the Commission under this title, or otherwise in
furtherance of the purposes of this title.''.
(b) Investment Company Act of 1940 Amendments.--Section 31(b) of the
Investment Company Act of 1940 (15 U.S.C. 80a-30(b)), as amended by
section 106(a)(2), is further amended by adding at the end the
following new paragraph:
``(5) Surveillance and risk assessment.--All persons
described in paragraph (1) are subject at any time, or from
time to time, to such reasonable periodic, special, or other
information and document requests by representatives of the
Commission as the Commission by rule or order deems necessary
or appropriate to conduct surveillance or risk assessments of
the securities markets, persons registered with the Commission
under this title, or otherwise in furtherance of the purposes
of this title.''.
(c) Investment Advisers Act of 1940 Amendments.--Section 204 of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-4), as amended by
section 106(b), is further amended by adding at the end the following
new subsection:
``(e) Surveillance and Risk Assessment.--All persons described in
subsection (a) are subject at any time, or from time to time, to such
reasonable periodic, special, or other information and document
requests by representatives of the Commission as the Commission by rule
or order deems necessary or appropriate to conduct surveillance or risk
assessments of the securities markets, persons registered with the
Commission under this title, or otherwise in furtherance of the
purposes of this title.''.
SEC. 219. INVESTMENT COMPANY EXAMINATIONS.
Section 31(b)(1) of the Investment Company Act of 1940 (15 U.S.C.
80a-30) is amended to read as follows:
``(1) In general.--All records of each registered investment
company, and each underwriter, broker, dealer, or investment
adviser that is a majority-owned subsidiary of such a company,
shall be subject at any time, or from time to time, to such
reasonable periodic, special, or other examinations by
representatives of the Commission as the Commission deems
necessary or appropriate in the public interest or for the
protection of investors.''.
SEC. 220. CONTROL PERSON LIABILITY UNDER THE SECURITIES EXCHANGE ACT.
Section 20(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78t(a)) is amended by inserting after ``controlled person is liable,''
the following: ``including to the Commission in any action brought
under paragraph (1) or (3) of section 21(d),''.
SEC. 221. ENHANCED APPLICATION OF ANTI-FRAUD PROVISIONS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended--
(1) in section 9--
(A) by striking ``registered on a national securities
exchange'' each place it appears and inserting ``other
than a government security'';
(B) in subsection (b), by striking ``by use of any
facility of a national securities exchange,''; and
(C) in subsection (c), by inserting after ``unlawful
for any'' the following: ``broker, dealer, or'';
(2) in section 10(a)(1), by striking ``registered on a
national securities exchange'' and inserting ``other than a
government security''; and
(3) in section 15(c)(1)(A), by striking ``otherwise than on a
national securities exchange of which it is a member''.
SEC. 222. SEC AUTHORITY TO ISSUE RULES ON PROXY ACCESS.
Section 14(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78n(a)) is amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end the following:
``(2) The authority of the Commission to prescribe rules and
regulations under paragraph (1) includes rules and regulations that
require the inclusion and set procedures relating to the inclusion, in
a solicitation of a proxy or consent or authorization by or on behalf
of an issuer, of a nominee or nominees submitted by shareholders to
serve on the issuer's board of directors.''.
TITLE III--COMMISSION FUNDING AND ORGANIZATION
SEC. 301. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15 U.S.C. 78kk) is
amended to read as follows:
``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
``In addition to any other funds authorized to be appropriated to the
Commission, there are authorized to be appropriated to carry out the
functions, powers, and duties of the Commission--
``(1) for fiscal year 2010, $1,115,000,000;
``(2) for fiscal year 2011, $1,300,000,000;
``(3) for fiscal year 2012, $1,500,000,000;
``(4) for fiscal year 2013, $1,750,000,000;
``(5) for fiscal year 2014, $2,000,000,000; and
``(6) for fiscal year 2015, $2,250,000,000.''.
SEC. 302. INVESTMENT ADVISER REGULATION FUNDING.
Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3)
is amended by adding at the end the following new subsection:
``(l) Annual Assessment.--
``(1) In general.--The Commission shall, in accordance with
this subsection, promulgate rules pursuant to which it may
collect from investment advisers required to register with the
Commission under this title, fees designed to help recover the
cost of inspections and examinations of registered investment
advisers conducted by the Commission pursuant to this title.
``(2) Fee payment required.--An investment adviser shall, at
the time of registration with the Commission, and each fiscal
year thereafter during which such adviser is so registered, pay
to the Commission a fair and reasonable fee determined by the
Commission. In determining such fee, the Commission shall
consider objective factors such as--
``(A) the investment adviser's size;
``(B) the number of clients of the investment
adviser;
``(C) the types of clients of the investment adviser;
and
``(D) such other relevant factors as the Commission
determines to be appropriate.
``(3) Amount and use of fees.--
``(A) Minimum aggregate amount.--The aggregate amount
of fees determined by the Commission under this
subsection for any fiscal year shall be greater than
the amount the Commission spent on inspections and
examinations of registered investment advisers during
the 2009 fiscal year.
``(B) Excess fees.--The Commission may retain any
excess fees collected under this subsection during a
fiscal year for application towards the costs of
inspections and examinations of investment advisers in
future fiscal years.
``(4) Review and adjustment of fees.--The Commission may
review fee rates established pursuant to this section before
the end of any fiscal year and make any appropriate adjustments
prior to collecting any such fee in the following fiscal year.
``(5) Penalty fee.--The Commission shall prescribe by rule or
regulation an additional fee to be assessed as a penalty for
late payment of fees required by this subsection.
``(6) Judicial review.--Increases or decreases in fees made
pursuant to this section shall not be subject to judicial
review.''.
SEC. 303. AMENDMENTS TO SECTION 31 OF THE SECURITIES EXCHANGE ACT OF
1934.
Section 31 of the Securities Exchange Act of 1934 (15 U.S.C. 78ee) is
amended--
(1) in subsection (e)(2), by striking ``September 30'' and
inserting ``September 25'';
(2) in subsection (g), by striking ``April 30'' and inserting
``August 31''; and
(3) in subsection (j)(2)--
(A) by striking ``5 months'' and inserting ``4
months''; and
(B) by striking ``(including fees collected during
such 5-month period and assessments collected under
subsection (d))'' and inserting ``(including fees
estimated to be collected under subsections (b) and (c)
prior to the effective date of the uniform adjusted
rate and assessments estimated to be collected under
subsection (d))''.
SEC. 304. COMMISSION ORGANIZATIONAL STUDY AND REFORM.
(a) Study Required.--
(1) In general.--Not later than the end of the 90-day period
beginning on the date of the enactment of this Act, the
Securities and Exchange Commission (hereinafter in this section
referred to as the ``SEC'') shall hire an independent
consultant of high caliber and with expertise in organizational
restructuring and the operations of capital markets to examine
the internal operations, structure, funding, and the need for
comprehensive reform of the SEC, as well as the SEC's
relationship with the reliance on self-regulatory organizations
and other entities relevant to the regulation of securities and
the protection of securities investors that are under the SEC's
oversight.
(2) Specific areas for study.--The study required under
paragraph (1) shall, at a minimum, include the study of--
(A) the possible elimination of unnecessary or
redundant units at the SEC;
(B) improving communications between SEC offices and
divisions;
(C) the need to put in place a clear chain-of-command
structure, particularly for enforcement examinations
and compliance inspections;
(D) the effect of high-frequency trading and other
technological advances on the market and what the SEC
requires to monitor the effect of such trading and
advances on the market;
(E) the SEC's hiring authorities, workplace policies,
and personal practices, including--
(i) whether there is a need to further
streamline hiring authorities for those who are
not lawyers, accountants, compliance examiners,
or economists;
(ii) whether there is a need for further pay
reforms;
(iii) the diversity of skill sets of SEC
employees and whether the present skill set
diversity efficiently and effectively fosters
the SEC's mission of investor protection; and
(iv) the application of civil service laws by
the SEC;
(F) whether the SEC's oversight and reliance on self-
regulatory organizations promotes efficient and
effective governance for the securities markets; and
(G) whether adjusting the SEC's reliance on self-
regulatory organizations is necessary to promote more
efficient and effective governance for the securities
markets.
(b) Consultant Report.--Not later than the end of the 150-day period
after being retained, the independent consultant hired pursuant to
subsection (a)(1) shall issue a report to the SEC and the Congress
containing--
(1) a detailed description of any findings and conclusions
made while carrying out the study required under subsection
(a)(1);
(2) recommendations for legislative, regulatory, or
administrative action that the consultant determines
appropriate to enable the SEC and other entities on which it
reports to perform their statutorily or otherwise mandated
missions.
(c) SEC Report.--Not later than the end of the 6-month period
beginning on the date the consultant issues the report under subsection
(b), and every 6-months thereafter during the 2-year period following
the date on which the consultant issues such report, the SEC shall
issue a report to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate describing the SEC's implementation of the
regulatory and administrative recommendations contained in the
consultant's report.
SEC. 305. CAPITAL MARKETS SAFETY BOARD.
There is established within the Securities and Exchange Commission an
office to be known as the Capital Markets Safety Board whose purpose
shall be to conduct investigations, at the direction of the Commission,
of failed institutions registered with the Commission, to determine
what caused such institutions to fail. Upon the conclusion of an
investigation, the Board shall make available on the Commission's
website a report of its findings, including recommendations regarding
how others can avoid similar mistakes. No information that may
compromise an ongoing Federal investigation shall be made available in
any such report.
SEC. 306. REPORT ON IMPLEMENTATION OF ``POST-MADOFF REFORMS''.
(a) In General.--Not later than 6 months after the date of the
enactment of this Act, the Securities and Exchange Commission shall
provide to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate a report describing the implementation of reforms
outlined by the Commission in the wake of the discovery of fraud by
Bernie Madoff.
(b) Contents of Report.--The report required by subsection (a) shall
include an analysis of--
(1) how many of the post-Madoff reforms have been implemented
and to what extent; and
(2) whether there is overlap between any of the Commission's
reform proposals and those recommended by the Inspector General
of the Commission.
(c) Publication of Report.--The Commission and the Committees
referred to in subsection (a) shall publish the report required by such
subsection on their Web sites.
SEC. 307. JOINT ADVISORY COMMITTEE.
The Securities and Exchange Commission and the Commodities Futures
Trading Commission may jointly form and operate a joint advisory
committee composed of members of each Commission and industry experts
and participants. The purposes of such an advisory committee include--
(1) considering and developing solutions to emerging and
ongoing issues of common interest in the futures and securities
markets;
(2) identifying emerging regulatory risks and assess and
quantify their implications for investors and other market
participants, and provide recommendations for solutions;
(3) serving as a vehicle for discussion and communication on
regulatory issues of mutual concerns affecting each Commission,
the regulated markets, and the industry generally; and
(4) reporting regularly to each Commission and to Congress on
its activities.
TITLE IV--ADDITIONAL COMMISSION REFORMS
SEC. 401. REGULATION OF SECURITIES LENDING.
Section 10 of the Securities Exchange Act of 1934 (15 U.S.C. 78j) is
amended by adding at the end the following new subsection:
``(c)(1) To effect, accept, or facilitate a transaction involving the
loan or borrowing of securities in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
``(2) Nothing in paragraph (1) shall be construed to limit the
authority of an appropriate Federal banking agency (as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))),
the National Credit Union Administration, or any other Federal
department or agency identified under law as having a systemic risk
responsibility from prescribing rules or regulations to impose
restrictions on transactions involving the loan or borrowing of
securities in order to protect the safety and soundness of a financial
institution or to protect the financial system from systemic risk.''.
SEC. 402. LOST AND STOLEN SECURITIES.
Section 17(f)(1) of the Securities Exchange Act of 1934 (15 U.S.C.
78q(f)(1)) is amended--
(1) in subparagraph (A), by striking ``missing, lost,
counterfeit, or stolen securities'' and inserting ``securities
that are missing, lost, counterfeit, stolen, cancelled, or any
other category of securities as the Commission, by rule, may
prescribe''; and
(2) in subparagraph (B), by striking ``or stolen'' and
inserting ``stolen, cancelled, or reported in such other manner
as the Commission, by rule, may prescribe''.
SEC. 403. FINGERPRINTING.
Section 17(f)(2) of the Securities Exchange Act of 1934 (15 U.S.C.
78q(f)(2)) is amended--
(1) by striking ``and registered clearing agency,'' and
inserting ``registered clearing agency, registered securities
information processor, national securities exchange, and
national securities association''; and
(2) by striking ``or clearing agency,'' and inserting
``clearing agency, securities information processor, national
securities exchange, or national securities association,''.
SEC. 404. EQUAL TREATMENT OF SELF-REGULATORY ORGANIZATION RULES.
Section 29(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78cc(a)) is amended by striking ``an exchange required thereby'' and
inserting ``a self-regulatory organization,''.
SEC. 405. CLARIFICATION THAT SECTION 205 OF THE INVESTMENT ADVISERS ACT
OF 1940 DOES NOT APPLY TO STATE-REGISTERED
ADVISERS.
Section 205(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
5(a)) is amended--
(1) by striking ``, unless exempt from registration pursuant
to section 203(b),'' and inserting ``registered or required to
be registered with the Commission'';
(2) by striking ``make use of the mails or any means or
instrumentality of interstate commerce, directly or indirectly,
to''; and
(3) by striking ``to'' after ``in any way''.
SEC. 406. CONFORMING AMENDMENTS FOR THE REPEAL OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935.
(a) Securities Exchange Act of 1934.--The Securities Exchange Act of
1934 (15 U.S.C. 78 et seq.) is amended--
(1) in section 3(a)(47) (15 U.S.C. 78c(a)(47)), by striking
``the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a
et seq.),''; and
(2) in section 12(k) (15 U.S.C. 78l(k)), by amending
paragraph (7) to read as follows:
``(7) Definition.--For purposes of this subsection, the term
`emergency' means--
``(A) a major market disturbance characterized by or
constituting--
``(i) sudden and excessive fluctuations of
securities prices generally, or a substantial
threat thereof, that threaten fair and orderly
markets; or
``(ii) a substantial disruption of the safe
or efficient operation of the national system
for clearance and settlement of transactions in
securities, or a substantial threat thereof; or
``(B) a major disturbance that substantially
disrupts, or threatens to substantially disrupt--
``(i) the functioning of securities markets,
investment companies, or any other significant
portion or segment of the securities markets;
or
``(ii) the transmission or processing of
securities transactions.''.
(3) in section 21(h)(2) (15 U.S.C. 78u(h)(2)), by striking
``section 18(c) of the Public Utility Holding Company Act of
1935,''.
(b) Trust Indenture Act of 1939.--The Trust Indenture Act of 1939 (15
U.S.C. 77aaa et seq.) is amended--
(1) in section 303 (15 U.S.C. 77ccc), by amending paragraph
(17) to read as follows:
``(17) The terms `Securities Act of 1933' and `Securities
Exchange Act of 1934' shall be deemed to refer, respectively,
to such Acts, as amended, whether amended prior to or after the
enactment of this title.'';
(2) in section 308 (15 U.S.C. 77hhh), by striking
``Securities Act of 1933, the Securities Exchange Act of 1934,
or the Public Utility Holding Company Act of 1935'' each place
it appears and inserting ``Securities Act of 1933 or the
Securities Exchange Act of 1934'';
(3) in section 310 (15 U.S.C. 77jjj), by striking subsection
(c);
(4) in section 311 (15 U.S.C. 77kkk) by striking subsection
(c);
(5) in section 323(b) (15 U.S.C. 77www(b)), by striking
``Securities Act of 1933, or the Securities Exchange Act of
1934, or the Public Utility Holding Company Act of 1935'' and
inserting ``Securities Act of 1933 or the Securities Exchange
Act of 1934''; and
(6) in section 326 (15 U.S.C. 77zzz), by striking
``Securities Act of 1933, or the Securities Exchange Act of
1934, or the Public Utility Holding Company Act of 1935,'' and
inserting ``Securities Act of 1933 or the Securities Exchange
Act of 1934''.
(c) Investment Company Act of 1940.--The Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) is amended--
(1) in section 2(a)(44) (15 U.S.C. 80a-2(a)(44)), by striking
```Public Utility Holding Company Act of 1935','';
(2) in section 3(c) (15 U.S.C. 80a-3(c)), by amending
paragraph (8) to read as follows:
``(8) [Repealed]'';
(3) in section 38(b) (15 U.S.C. 80a-37(b)), by striking ``the
Public Utility Holding Company Act of 1935,''; and
(4) in section 50 (15 U.S.C. 80a-49), by striking ``the
Public Utility Holding Company Act of 1935,''.
(d) Investment Advisers Act of 1940.--Section 202(a)(21) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(21)) is amended by
striking ```Public Utility Holding Company Act of 1935',''.
SEC. 407. PROMOTING TRANSPARENCY IN FINANCIAL REPORTING.
(a) Findings.--Congress finds the following:
(1) Transparent and clear financial reporting is integral to
the continued growth and strength of our capital markets and
the confidence of investors.
(2) The increasing detail and volume of accounting, auditing,
and reporting guidance pose a major challenge.
(3) The complexity of accounting and auditing standards in
the United States has added to the costs and effort involved in
financial reporting.
(b) Testimony Required on Reducing Complexity in Financial
Reporting.--The Securities and Exchange Commission, the Public Company
Accounting Oversight Board, and the standard setting body designated
pursuant to section 19(b) of the Securities Act of 1933 shall annually
provide oral testimony by their respective Chairpersons or a designee
of the Chairperson, beginning in 2010, and for 5 years thereafter, to
the Committee on Financial Services of the House of Representatives on
their efforts to reduce the complexity in financial reporting to
provide more accurate and clear financial information to investors,
including--
(1) reassessing complex and outdated accounting standards;
(2) improving the understandability, consistency, and overall
usability of the existing accounting and auditing literature;
(3) developing principles-based accounting standards;
(4) encouraging the use and acceptance of interactive data;
and
(5) promoting disclosures in ``plain English''.
SEC. 408. UNLAWFUL MARGIN LENDING.
Section 7(c)(1)(A) of the Securities Exchange Act of 1934 (15 U.S.C.
78g(c)(1)(A)) is amended by striking ``; and'' and inserting ``; or''.
SEC. 409. PROTECTING CONFIDENTIALITY OF MATERIALS SUBMITTED TO THE
COMMISSION.
(a) Securities Exchange Act of 1934.--Section 17(j) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(j)) is amended to read as follows:
``(j) Authority To Limit Disclosure of Information.--
``(1) In general.--Notwithstanding any other provision of
law, the Commission shall not be compelled to disclose any
information, documents, records, or reports that relate to an
examination, surveillance, or risk assessment of a person
subject to or described in this section, including subsection
(i)(5)(A), or the financial or operational condition of such
persons, or any information supplied to the Commission by any
domestic or foreign regulatory agency or self-regulatory
organization that relates to the financial or operational
condition of such persons, of any associated person of such
persons, or any affiliate of an investment bank holding
company.
``(2) Certain exceptions.--Nothing in this subsection shall
authorize the Commission to withhold information from the
Congress, prevent the Commission from complying with a request
for information from any other Federal department or agency,
the Public Company Accounting Oversight Board, or any self-
regulatory organization requesting the information for purposes
within the scope of its jurisdiction, or prevent the Commission
from complying with an order of a court of the United States in
an action brought by the United States or the Commission
against a person subject to or described in this section to
produce information, documents, records, or reports relating
directly to the examination, surveillance, or risk assessment
of that person or the financial or operational condition of
that person or an associated or affiliated person of that
person.
``(3) Treatment under section 552 of title 5, united states
code.--For purposes of section 552 of title 5, United States
Code, this subsection shall be considered a statute described
in subsection (b)(3)(B) of that section.
``(4) Certain information to be confidential.--In prescribing
regulations to carry out the requirements of this subsection,
the Commission shall designate information described in or
obtained pursuant to subparagraphs (A), (B), and (C) of
subsection (i)(3) as confidential information for purposes of
section 24(b)(2) of this title.''.
(b) Investment Company Act of 1940.--Section 31(b) of the Investment
Company Act of 1940 (15 U.S.C. 80a-30(b)), as amended by sections
106(a)(2) and 218(b)(4), is further amended by adding at the end the
following new paragraph:
``(6) Confidentiality.--
``(A) In general.--Notwithstanding any other
provision of law, the Commission shall not be compelled
to disclose any information, documents, records, or
reports that relate to an examination, surveillance, or
risk assessment of a person subject to or described in
this section.
``(B) Certain exceptions.--Nothing in this subsection
shall authorize the Commission to withhold information
from the Congress, prevent the Commission from
complying with a request for information from any other
Federal department or agency, or the Public Company
Accounting Oversight Board requesting the information
for purposes within the scope of its jurisdiction, or
prevent the Commission from complying with an order of
a court of the United States in an action brought by
the United States or the Commission against a person
subject to or described in this section to produce
information, documents, records, or reports relating
directly to the examination of that person or the
financial or operational condition of that person or an
associated or affiliated person of that person.
``(C) Treatment under section 552 of title 5, united
states code.--For purposes of section 552 of title 5,
United States Code, this subsection shall be considered
a statute described in subsection (b)(3)(B) of that
section.''.
(c) Investment Advisers Act of 1940.--Section 204 of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-4), as amended by sections 106(b)
and 218(c), is further amended by adding at the end the following new
subsection:
``(f) Confidentiality.--
``(1) In general.--Notwithstanding any other provision of
law, the Commission shall not be compelled to disclose any
information, documents, records, or reports that relate to an
examination of a person subject to or described in this
section.
``(2) Certain exceptions.--Nothing in this subsection shall
authorize the Commission to withhold information from Congress,
prevent the Commission from complying with a request for
information from any other Federal department or agency, the
Public Company Accounting Oversight Board, or a self-regulatory
organization requesting the information for purposes within the
scope of its jurisdiction, or prevent the Commission from
complying with an order of a court of the United States in an
action brought by the United States or the Commission against a
person subject to or described in this section to produce
information, documents, records, or reports relating directly
to the examination of that person or the financial or
operational condition of that person or an associated or
affiliated person of that person.
``(3) Treatment under section 552 of title 5, united states
code.--For purposes of section 552 of title 5, United States
Code, this subsection shall be considered a statute described
in subsection (b)(3)(B) of that section.''.
SEC. 410. TECHNICAL CORRECTIONS.
(a) Securities Act of 1933.--The Securities Act of 1933 (15 U.S.C.
77a et seq.) is amended--
(1) in section 3(a)(4) (15 U.S.C. 77c(a)(4)), by striking
``individual;'' and inserting ``individual,'';
(2) in the matter following paragraph (5) of section 11(a),
by striking ``earning statement'' and inserting ``earnings
statement''.
(3) in section 18(b)(1)(C) (15 U.S.C. 77r(b)(1)(C)), by
striking ``is a security'' and inserting ``a security'';
(4) in section 18(c)(2)(B)(i) (15 U.S.C. 77r(c)(2)(B)(i)), by
striking ``State, or'' and inserting ``State or'';
(5) in section 19(d)(6)(A) (15 U.S.C. 77s(d)(6)(A)), by
striking ``in paragraph (1) of (3)'' and inserting ``in
paragraph (1) or (3)''; and
(6) in section 27A(c)(1)(B)(ii) (15 U.S.C. 77z-
2(c)(1)(B)(ii)), by striking ``business entity;'' and inserting
``business entity,''.
(b) Securities Exchange Act of 1934.--The Securities Exchange Act of
1934 (15 U.S.C. 78 et seq.) is amended--
(1) in section 2(1)(a) (15 U.S.C. 78b(1)(a)), by striking
``affected'' and inserting ``effected'';
(2) in section 3(a)(55)(A) (15 U.S.C. 78c(a)(55)(A)), by
striking ``section 3(a)(12) of the Securities Exchange Act of
1934'' and inserting ``section 3(a)(12) of this Act'';
(3) in section 3(g) (15 U.S.C. 78c(g)), by striking
``company, account person, or entity'' and inserting ``company,
account, person, or entity'';
(4) in section 10A(i)(1)(B)(i) (15 U.S.C. 78j-1(i)(1)(B)(i)),
by striking ``nonaudit'' and inserting ``non-audit'';
(5) in section 13(b)(1) (15 U.S.C. 78m(b)(1)), by striking
``earning statement'' and inserting ``earnings statement'';
(6) in section 15(b)(1) (15 U.S.C. 78o(b)(1))--
(A) by striking the sentence beginning ``The order
granting'' and ending ``from such membership.'' in
subparagraph (B); and
(B) by inserting such sentence in the matter
following such subparagraph after ``are satisfied.'';
(7) in section 15C(a)(2) (15 U.S.C. 78o-5(a)(2))--
(A) by redesignating clauses (i) and (ii) as
subparagraphs (A) and (B), respectively;
(B) by striking the sentence beginning ``The order
granting'' and ending ``from such membership.'' in such
subparagraph (B), as redesignated; and
(C) by inserting such sentence in the matter
following such redesignated subparagraph after ``are
satisfied.'';
(8) in section 16(a)(2)(C) (15 U.S.C. 78p(a)(2)(C)), by
striking ``section 206(b)'' and inserting ``section 206B'';
(9) in section 17(b)(1)(B) (15 U.S.C. 78q(b)(1)(B)), by
striking ``15A(k) gives'' and inserting ``15A(k), give''; and
(10) in section 21C(c)(2) (15 U.S.C. 78u-3(c)(2)), by
striking ``paragraph (1) subsection'' and inserting ``Paragraph
(1)''.
(c) Trust Indenture Act of 1939.--The Trust Indenture Act of 1939 (15
U.S.C. 77aaa et seq.) is amended--
(1) in section 304(b) (15 U.S.C. 77ddd(b)), by striking
``section 2 of such Act'' and inserting ``section 2(a) of such
Act'';
(2) in section 313(a)(4) (15 U.S.C. 77mmm(a)(4)) by striking
``subsection (b) of section 311'' and inserting ``section
311(b)''; and
(3) in section 317(a)(1) (15 U.S.C. 77qqq(a)(1)), by striking
``(1),'' and inserting ``(1)''.
(d) Investment Company Act of 1940.--The Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) is amended--
(1) in section 2(a)(19)(B) (15 U.S.C. 80a-2(a)(19)(B)) by
striking ``clause (vi)'' both places it appears in the last two
sentences and inserting ``clause (vii)'';
(2) in section 9(b)(4)(B) (15 U.S.C. 80a-9(b)(4)(B)), by
inserting ``or'' after the semicolon at the end;
(3) in section 12(d)(1)(J) (15 U.S.C. 80a-12(d)(1)(J)), by
striking ``any provision of this subsection'' and inserting
``any provision of this paragraph'';
(4) in section 13(a)(3) (15 U.S.C. 80a-13(a)(3)), by
inserting ``or'' after the semicolon at the end;
(5) in section 17(f)(4) (15 U.S.C. 80a-17(f)(4)), by striking
``No such member'' and inserting ``No member of a national
securities exchange'';
(6) in section 17(f)(6) (15 U.S.C. 80a-17(f)(6)), by striking
``company may serve'' and inserting ``company, may serve''; and
(7) in section 61(a)(3)(B)(iii) (15 U.S.C. 80a-
60(a)(3)(B)(iii))--
(A) by striking ``paragraph (1) of section 205'' and
inserting ``section 205(a)(1)''; and
(B) by striking ``clause (A) or (B) of that section''
and inserting ``section 205(b)(1) or (2)''.
(e) Investment Advisers Act of 1940.--The Investment Advisers Act of
1940 (15 U.S.C. 80b-1 et seq.) is amended--
(1) in each of the following sections, by striking
``principal business office'' or ``principal place of
business'' (whichever and wherever it appears) and inserting
``principal office and place of business'': sections
203(c)(1)(A), 203(k)(4)(B), 213(a), 222(b), and 222(c) (15
U.S.C. 80b-3(c)(1)(A), 80b-3(k)(4)(B), 80b-13(a), 80b-18a(b),
and 80b-18a(c)); and
(2) in section 206(3) (15 U.S.C. 80b-6(3)), by inserting
``or'' after the semicolon at the end.
SEC. 411. MUNICIPAL SECURITIES.
Section 15B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
4(b)) is amended--
(1) by amending paragraph (1) to read as follows: (1) Not
later than October 1, 2010, the Municipal Securities Rulemaking
Board (hereinafter in this section referred to as the `Board'),
shall be composed of members which shall perform the duties set
forth in this section and shall consist of--
``(A) a majority of independent public
representatives, at least one of whom shall be
representative of investors in municipal securities and
at least one of whom shall be representative of issuers
of municipal securities (which members are hereinafter
referred to as `public representatives');
``(B) at least one individual who is representative
of municipal securities brokers and municipal
securities dealers which are not banks or subsidiaries
or departments or divisions of banks (which members are
hereinafter referred to as `broker-dealer
representatives'); and
``(C) at least one individual who is representative
of municipal securities dealers which are banks or
subsidiaries or departments or divisions of banks
(which members are hereinafter referred to as `bank
representatives').''; and
(2) by amending paragraph (2)(B) to read as follows:
``(B) Establish fair procedures for the nomination and
election of members of the Board and assure fair representation
in such nominations and elections of municipal securities
brokers and municipal securities dealers. Such rules--
``(i) shall establish requirements regarding the
independence of public representatives;
``(ii) shall provide that the number of public
representatives of the Board shall at all times exceed
the total number of broker-dealer representatives and
bank representatives;
``(iii) shall establish minimum knowledge,
experience, and other appropriate qualifications for
individuals to serve as public representatives, which
may include, among other things, prior work experience
in the securities, municipal finance, or municipal
securities industries;
``(iv) shall specify the term members shall serve;
and
``(v) may increase or decrease the number of members
which shall constitute the whole Board, but in no case
may such number be an even number.''.
SEC. 412. INTERESTED PERSON DEFINITION.
Section 2(a)(19)(A) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(19)(A)) is amended--
(1) by striking clauses (v) and (vi);
(2) by inserting after clause (iv) the following new clause:
``(v) any natural person who is a member of a
class of persons who the Commission, by rule or
regulation, determines are unlikely to exercise
an appropriate degree of independence as a
result of--
``(I) a material business or
professional relationship with such
company or any affiliated person of
such company; or
``(II) a close familial relationship
with any natural person who is an
affiliated person of such company;'';
(3) by redesignating clause (vii) as clause (vi); and
(4) in clause (vi), as redesignated, by striking ``two
completed fiscal years'' and inserting ``five completed fiscal
years''.
SEC. 413. RULEMAKING AUTHORITY TO PROTECT REDEEMING INVESTORS.
Section 22(e) of the Investment Company Act of 1940 (15 U.S.C. 80a-
22(e)) is amended by adding at the end the following: ``The Commission
may, by rules and regulations, limit the extent to which a registered
open-end investment company may own, hold, or invest in illiquid
securities or other illiquid property.''.
SEC. 414. STUDY ON SEC REVOLVING DOOR.
(a) Government Accountability Office Study.--The Comptroller General
of the United States shall conduct a study that will--
(1) review the number of employees who leave the Securities
and Exchange Commission to work for financial institutions
regulated by such Commission;
(2) determine how many employees who leave the Securities and
Exchange Commission worked on cases that involved financial
institutions regulated by such Commission;
(3) review the length of time employees work for the
Securities and Exchange Commission before leaving to be
employed by financial institutions regulated by such
Commission;
(4) review existing internal controls and make
recommendations on strengthening such controls to ensure that
employees of the Securities and Exchange Commission who are
later employed by financial institutions did not assist such
institutions in violating any rules or regulations of the
Commission during the course of their employment with such
Commission;
(5) determine if greater post-employment restrictions are
necessary to prevent employees of the Securities and Exchange
Commission from being employed by financial institutions after
employment with such Commission;
(6) determine if the volume of employees of the Securities
and Exchange Commission who are later employed by financial
institutions has led to inefficiencies in enforcement;
(7) determine if employees of the Securities and Exchange
Commission who are later employed by financial institutions
have engaged in information sharing or assisted such
institutions in circumventing Federal rules and regulations
while employed by such Commission;
(8) review any information that may address the volume of
employees of the Securities and Exchange Commission who are
later employed by financial institutions, and make
recommendations to Congress; and
(9) review other additional issues as may be raised during
the course of the study conducted under this subsection.
(b) Report.--Not later than 1 year after the date of the enactment of
this Act, the Comptroller General of the United States shall submit to
the Committee on Financial Services of the House of Representatives and
the Committee on Banking, Housing, and Urban Affairs of the Senate a
report on the results of the study required by subsection (a).
SEC. 415. STUDY ON INTERNAL CONTROL EVALUATION AND REPORTING COST
BURDENS ON SMALLER ISSUERS.
(a) Study Required.--The Government Accountability Office and the
Securities and Exchange Commission shall each conduct a study
evaluating the costs and benefits of complying with section 404(b) of
the Sarbanes-Oxley Act of 2002 (15 U.S.C. Sec. 7262(b)) on issuers who
are not accelerated or large accelerated filers as defined by
Commission Rule 12b-2. The study shall--
(1) include recommendations, administrative reforms, and
legislative proposals on implementation steps that could be
taken to reduce compliance burdens on these issuers; and
(2) determine the efficacy of the Securities and Exchange
Commission's measures to limit the cost of compliance on
smaller issuers.
(b) Reports Required.--On or before June 1, 2010, the Government
Accountability Office and the Securities and Exchange Commission shall
submit separate reports to Congress containing the findings and
conclusions of the studies required under subsection (a), together with
such recommendations for regulatory, legislative, or administrative
action as may be appropriate.
(c) Effective Date Contingent on Reports.--Requirements under section
404(b) of the Sarbanes-Oxley Act of 2002 on issuers described under
subsection (a) shall not become effective until the results of the
report are delivered, but in no case before June 1, 2011.
SECTION 416. ANALYSIS OF RULE REGARDING SMALLER REPORTING COMPANIES.
(a) Findings.--Congress finds the following:
(1) Many small businesses in cutting-edge technology sectors
require significant capital investment to develop new
technologies related to clean energy, drug treatments for
terminal diseases and food production in hunger-stricken areas
of the World.
(2) Many technology companies conducting research do not meet
the definition of ``smaller reporting company'' under the
Securities and Exchange Commission's Rule 12b-2 due to
unusually high public floats despite low or zero revenue.
(3) The Final Report of the Advisory Committee on Smaller
Public Companies to the Securities and Exchange Commission
recommended that a company with a market capitalization of less
than about $787,000,000 be considered a smallcap company and
that the Commission provide exemptions from section 404(b) of
the Sarbanes-Oxley Act to companies with less than $250,000,000
in annual revenues.
(b) Study of Using Revenue as Criteria to Define Smaller Reporting
Company.--The Securities and Exchange Commission shall conduct a study
of the inclusion of revenue as a criteria used in defining smaller
reporting company as defined under the Commission's Rule 12b-2 to
account for smaller public companies with public floats less than
$700,000,000 and revenues less than $250,000,000. Not later than 180
days after the date of enactment of this Act, the Commission shall
provide the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing and Urban Affairs
of the Senate a report of the findings of the study.
SEC. 417. FINANCIAL REPORTING FORUM.
(a) Establishment.--There is hereby established a Financial Reporting
Forum (hereinafter referred to as the ``Forum''), which shall consist
of--
(1) the Chairman of the Securities Exchange Commission
(hereinafter referred to as the ``SEC'');
(2) the head of the Financial Accounting Standards Board;
(3) the Chairman of the Public Company Accounting Oversight
Board;
(4) the head of each appropriate Federal banking agency, as
such term is defined under section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q));
(5) the Administrator of the National Credit Union
Administration;
(6) the Secretary of the Treasury;
(7) a representative of a non-financial institution,
appointed by the SEC;
(8) a representative of a financial institution, appointed by
the SEC;
(9) a representative of auditors, appointed by the SEC; and
(10) a representative of investors, appointed by the SEC.
(b) Meetings.--The Forum shall meet no less often than quarterly.
(c) Duties.--The Forum shall meet to discuss immediate and long-term
issues critical to financial reporting.
(d) Reporting.--The Forum shall issue an annual report to the
Congress detailing any determinations or findings made by the Forum
during the previous year, including any legislative recommendations the
Forum may have related to financial reporting matters.
SEC. 418. INVESTMENT ADVISERS SUBJECT TO STATE AUTHORITIES.
Section 203A(a) of the Investment Advisers Act of 1940 (15 U.S.C.
80b-3a(a)) is amended--
(1) by redesignating paragraph (2) as paragraph (3); and
(2) by inserting after paragraph (1) the following new
paragraph:
``(2) Treatment of certain mid-sized investment advisers.--
Notwithstanding paragraph (1), an investment adviser that--
``(A) is regulated and examined, or required to be
regulated and examined, by a State; and
``(B) has assets under management between--
``(i) the amount specified under subparagraph
(A) of paragraph (1), as such amount may have
been adjusted by the Commission pursuant to
that subparagraph, and
``(ii) $100,000,000, or such higher amount as
the Commission may, by rule, deem appropriate
in accordance with the purposes of this title,
shall register with, and be subject to examination
by, such State. The Commission shall publish a list of
the States that regulate and examine, or require
regulation and examination of, investment advisers to
which the requirements of this paragraph apply.''.
SEC. 419. CUSTODIAL REQUIREMENTS.
Not later than 180 days after the date of the enactment of this Act,
the Securities and Exchange Commission shall adopt a rule pursuant to
its authority under section 211(a) of the Investment Advisers Act of
1940 making it unlawful under section 206(4) of such Act for an
investment adviser registered under the Act to have custody of funds or
securities of a client the value of which exceeds $10,000,000, subject
to such exception the Commission determines in such rule are in the
public interest and consistent with the protection of investors,
unless--
(1) the funds and securities are maintained with a qualified
custodian either in a separate account for each client under
the client's name, or in accounts that contain only client
funds and securities under the name of the investment adviser
as agent or trustee for the client; and
(2) the qualified custodian does not directly or indirectly
provide investment advice with respect to such funds or
securities.
SEC. 420. OMBUDSMAN.
(a) Appointment.--Not later than 180 days after the date of the
enactment of this Act, the Chairman of the Securities and Exchange
Commission shall appoint an Ombudsman who shall report directly to the
Chairman.
(b) Duties.--The Ombudsman appointed under subsection (a) shall--
(1) act as a liaison between the Commission and any affected
person with respect to any problem such person may have in
dealing with the Commission resulting from the regulatory
activities of the Commission;
(2) review and make recommendations regarding Commission
policies and procedures to encourage persons to present
questions to the Commission regarding compliance with Federal
securities laws; and
(3) maintain confidentiality of communications between such
persons and the Ombudsman.
(c) Limitation.--In carrying out the duties under subsection (b), the
Ombudsman shall utilize personnel of the Commission to the extent
practicable. Nothing in this section shall be construed as replacing,
altering, or diminishing the activities of any ombudsman or similar
office in any other agency.
(d) Report.--Each year, the Ombudsman shall submit a report to the
Commission for inclusion in the annual report that describes the
activities and evaluates the effectiveness of the Ombudsman during the
preceding year. In that report, the Ombudsman shall include solicited
comments and evaluations from registrants in regards to the
effectiveness of the Ombudsman.
TITLE V--SECURITIES INVESTOR PROTECTION ACT AMENDMENTS
SEC. 501. INCREASING THE MINIMUM ASSESSMENT PAID BY SIPC MEMBERS.
Section 4(d)(1)(C) of the Securities Investor Protection Act of 1970
(15 U.S.C. 78ddd(d)(1)(C)) is amended by striking ``$150 per annum''
and inserting the following: ``0.02 percent of the gross revenues from
the securities business of such member of SIPC''.
SEC. 502. INCREASING THE BORROWING LIMIT ON TREASURY LOANS.
Section 4(h) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78ddd(h)) is amended by striking ``of not to exceed
$1,000,000,000'' and inserting ``the lesser of $2,500,000,000 or the
target amount of the SIPC Fund specified in the bylaws of SIPC''.
SEC. 503. INCREASING THE CASH LIMIT OF PROTECTION.
Section 9 of the Securities Investor Protection Act of 1970 (15
U.S.C. 78fff-3) is amended--
(1) in subsection (a)(1), by striking ``$100,000 for each
such customer'' and inserting ``the standard maximum cash
advance amount for each such customer, as determined in
accordance with subsection (d)''; and
(2) by adding the following new subsections:
``(d) Standard Maximum Cash Advance Amount Defined.--For purposes of
this section, the term `standard maximum cash advance amount' means
$250,000, as such amount may be adjusted after March 31, 2010, as
provided under subsection (e).
``(e) Inflation Adjustment.--
``(1) In general.--No later than April 1, 2010, and every 5
years thereafter, and subject to the approval of the Commission
as provided under section 3(e)(2), the Board of Directors of
SIPC shall determine whether an inflation adjustment to the
standard maximum cash advance amount is appropriate. If the
Board of Directors of SIPC determines such an adjustment is
appropriate, then the standard maximum cash advance amount
shall be an amount equal to--
``(A) $250,000 multiplied by,
``(B) the ratio of the annual value of the Personal
Consumption Expenditures Chain-Type Price Index (or any
successor index thereto), published by the Department
of Commerce, for the calendar year preceding the year
in which such determination is made, to the published
annual value of such index for the calendar year
preceding the year in which this subsection was
enacted.
The index values used in calculations under this paragraph
shall be, as of the date of the calculation, the values most
recently published by the Department of Commerce.
``(2) Rounding.--If the standard maximum cash advance amount
determined under paragraph (1) for any period is not a multiple
of $10,000, the amount so determined shall be rounded down to
the nearest $10,000.
``(3) Publication and report to the congress.--Not later than
April 5 of any calendar year in which a determination is
required to be made under paragraph (1)--
``(A) the Commission shall publish in the Federal
Register the standard maximum cash advance amount; and
``(B) the Board of Directors of SIPC shall submit a
report to the Congress containing stating the standard
maximum cash advance amount.
``(4) Implementation period.--Any adjustment to the standard
maximum cash advance amount shall take effect on January 1 of
the year immediately succeeding the calendar year in which such
adjustment is made.
``(5) Inflation adjustment considerations.--In making any
determination under paragraph (1) to increase the standard
maximum cash advance amount, the Board of Directors of SIPC
shall consider--
``(A) the overall state of the fund and the economic
conditions affecting members of SIPC;
``(B) the potential problems affecting members of
SIPC; and
``(C) such other factors as the Board of Directors of
SIPC may determine appropriate.''.
SEC. 504. SIPC AS TRUSTEE IN SIPA LIQUIDATION PROCEEDINGS.
Section 5(b)(3) of the Securities Investor Protection Act of 1970
(15 U.S.C. 78eee(b)(3)) is amended--
(1) by striking ``SIPC has determined that the liabilities of
the debtor to unsecured general creditors and to subordinated
lenders appear to aggregate less than $750,000 and that''; and
(2) by striking ``five hundred'' and inserting ``five
thousand''.
SEC. 505. INSIDERS INELIGIBLE FOR SIPC ADVANCES.
Section 9(a)(4) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78fff-3(a)(4)) is amended by inserting ``an insider,'' after
``or net profits of the debtor,''.
SEC. 506. ELIGIBILITY FOR DIRECT PAYMENT PROCEDURE.
Section 10(a)(4) of the Securities Investor Protection Act of 1970
(15 U.S.C. 78fff-4(a)(4)) is amended by striking ``$250,000'' and
inserting ``$850,000''.
SEC. 507. INCREASING THE FINE FOR PROHIBITED ACTS UNDER SIPA.
Section 14(c) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78jjj(c)) is amended--
(1) in paragraph (1), by striking ``$50,000'' and inserting
``$250,000''; and
(2) in paragraph (2), by striking ``$50,000'' and inserting
``$250,000''.
SEC. 508. PENALTY FOR MISREPRESENTATION OF SIPC MEMBERSHIP OR
PROTECTION.
Section 14 of the Securities Investor Protection Act of 1970 (15
U.S.C. 78jjj) is amended by adding at the end the following new
subsection:
``(d) Misrepresentation of SIPC Membership or Protection.--
``(1) In general.--Any person who falsely represents by any
means (including, without limitation, through the Internet or
any other medium of mass communication), with actual knowledge
of the falsity of the representation and with an intent to
deceive or cause injury to another, that such person, or
another person, is a member of SIPC or that any person or
account is protected or is eligible for protection under this
Act or by SIPC, shall be liable for any damages caused thereby
and shall be fined not more than $250,000 or imprisoned for not
more than five years.
``(2) Internet service providers.--Any Internet service
provider that, on or through a system or network controlled or
operated by the Internet service provider, transmits, routes,
provides connections for, or stores any material containing any
misrepresentation of the kind prohibited in paragraph (1) shall
be liable for any damages caused thereby, including damages
suffered by SIPC, if the Internet service provider--
``(A) has actual knowledge that the material contains
a misrepresentation of the kind prohibited in paragraph
(1), or
``(B) in the absence of actual knowledge, is aware of
facts or circumstances from which it is apparent that
the material contains a misrepresentation of the kind
prohibited in paragraph (1), and
upon obtaining such knowledge or awareness, fails to act
expeditiously to remove, or disable access to, the material.
``(3) Injunctions.--Any court having jurisdiction of a civil
action arising under this Act may grant temporary injunctions
and final injunctions on such terms as the court deems
reasonable to prevent or restrain any violation of paragraph
(1) or (2). Any such injunction may be served anywhere in the
United States on the person enjoined, shall be operative
throughout the United States, and shall be enforceable, by
proceedings in contempt or otherwise, by any United States
court having jurisdiction over that person. The clerk of the
court granting the injunction shall, when requested by any
other court in which enforcement of the injunction is sought,
transmit promptly to the other court a certified copy of all
papers in the case on file in such clerk's office.''.
SEC. 509. FUTURES HELD IN A PORTFOLIO MARGIN SECURITIES ACCOUNT
PROTECTION.
(a) SIPC Advances.--Section 9(a)(1) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78fff-3(a)(1)) is amended by
inserting ``or options on futures contracts'' after ``claim for
securities''.
(b) Definitions.--Section 16 of such Act (15 U.S.C. 78lll) is
amended--
(1) by amending paragraph (2) to read as follows:
``(2) Customer.--
``(A) In general.--The term `customer' of a debtor
means any person (including any person with whom the
debtor deals as principal or agent) who has a claim on
account of securities received, acquired, or held by
the debtor in the ordinary course of its business as a
broker or dealer from or for the securities accounts of
such person for safekeeping, with a view to sale, to
cover consummated sales, pursuant to purchases, as
collateral, security, or for purposes of effecting
transfer. The term `customer' includes any person who
has a claim against the debtor arising out of sales or
conversions of such securities.
``(B) Included persons.--The term `customer'
includes--
``(i) any person who has deposited cash with
the debtor for the purpose of purchasing
securities; and
``(ii) any person who has a claim against the
debtor for, or a claim against the debtor
arising out of sales or conversions of, cash,
securities, futures contracts, or options on
futures contracts received, acquired, or held
in a portfolio margining account carried as a
securities account pursuant to a portfolio
margining program approved by the Commission.
``(C) Excluded persons.--The term `customer' does not
include--
``(i) any person to the extent that the claim
of such person arises out of transactions with
a foreign subsidiary of a member of SIPC;
``(ii) any person to the extent that such
person has a claim for cash or securities which
by contract, agreement, or understanding, or by
operation of law, is part of the capital of the
debtor, or is subordinated to the claims of any
or all creditors of the debtor, notwithstanding
that some ground exists for declaring such
contract, agreement, or understanding void or
voidable in a suit between the claimant and the
debtor; or
``(iii) any person to the extent such person
has a claim relating to any open repurchase or
open reverse repurchase agreement.
For purposes of this paragraph, the term `repurchase
agreement' means the sale of a security at a specified
price with a simultaneous agreement or obligation to
repurchase the security at a specified price on a
specified future date.'';
(2) in paragraph (4), by inserting after the first sentence
the following new sentence: ``In the case of portfolio
margining accounts of customers that are carried as securities
accounts pursuant to a portfolio margining program approved by
the Commission, such term shall also include futures contracts
and options on futures contracts received, acquired, or held by
or for the account of a debtor from or for such accounts, and
the proceeds thereof.'';
(3) in paragraph (9), by inserting before ``Such term'' in
the matter following subparagraph (L) the following: ``The term
includes revenues earned by a broker or dealer in connection
with transactions in customers' portfolio margining accounts
carried as securities accounts pursuant to a portfolio
margining program approved by the Commission.''; and
(4) in paragraph (11)--
(A) by amending subparagraph (A) to read as follows:
``(A) calculating the sum which would have been owed
by the debtor to such customer if the debtor had
liquidated, by sale or purchase on the filing date--
``(i) all securities positions of such
customer (other than customer name securities
reclaimed by such customer); and
``(ii) all positions in futures contracts and
options on futures contracts held in a
portfolio margining account carried as a
securities account pursuant to a portfolio
margining program approved by the Commission;
minus''; and
(B) by inserting before ``In determining'' in the
matter following subparagraph (C) the following: ``A
claim for a commodity futures contract received,
acquired, or held in a portfolio margining account
pursuant to a portfolio margining program approved by
the Commission, or a claim for a security futures
contract, shall be deemed to be a claim for the mark-
to-market (variation) payments due with respect to such
contract as of the filing date, and such claim shall be
treated as a claim for cash.''.
SEC. 510. STUDY AND REPORT ON THE FEASIBILITY OF RISK-BASED ASSESSMENTS
FOR SIPC MEMBERS.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study on whether the Securities Investor Protection
Corporation (hereafter in this section referred to as ``SIPC'') should
be required to impose assessments, on its member brokers and dealers,
based on risk for the purpose of adequately maintaining the SIPC Fund.
(b) Content.--The Comptroller General in conducting this study
shall--
(1) identify and examine available approaches, including
modeling, to measure broker and dealer operational risk;
(2) analyze whether the available approaches to measure
broker and dealer operational risk can be used in managing the
aggregate risk to the SIPC Fund;
(3) explore whether objective measures like the volume of
assets of the SIPC member, previous enforcement and compliance
actions taken by regulatory bodies against the SIPC member, or
the number of years the SIPC member has been in operation,
among other factors, can be used to assess the probability the
fund will incur a loss with respect to the SIPC member;
(4) examine the impact that risk-based assessments could have
on large and small brokers and dealers; and
(5) examine the impact that risk-based assessments could have
on institutional and retail brokers and dealers.
(c) Consultation.--The Comptroller General in planning and conducting
this study shall consult with the Securities and Exchange Commission,
the Federal Deposit Insurance Corporation, SIPC, the Financial Industry
Regulatory Authority, and any other public or private sector
organization that the Comptroller General considers appropriate.
(d) Report Required.--Not later than one year after the date of
enactment of this Act, the Comptroller general shall submit a report of
the results of the study required by this section to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives.
SEC. 511. BUDGETARY TREATMENT OF COMMISSION LOANS TO SIPC.
Section 4(g) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78ddd(g)) is amended by adding at the end the following: ``Any
loan made by the Commission to SIPC under this subsection shall not be
considered to result in a new direct loan obligation or a new loan
guarantee commitment for purposes of section 504 of the Federal Credit
Reform Act of 1990.''.
TITLE VI--SARBANES-OXLEY ACT AMENDMENTS
SEC. 601. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD OVERSIGHT OF
AUDITORS OF BROKERS AND DEALERS.
(a) Definitions.--(1) Title I of the Sarbanes-Oxley Act of 2002 is
amended by adding at the end the following new section:
``SEC. 110. DEFINITIONS.
``For the purposes of this title, and notwithstanding section 2:
``(1) Audit.--The term `audit' means an examination of the
financial statements, reports, documents, procedures or
controls, or notices, of any issuer, broker, or dealer by an
independent public accounting firm in accordance with the rules
of the Board or the Commission (or, for the period preceding
the adoption of applicable rules of the Board under section
103, in accordance with then-applicable generally accepted
auditing and related standards for such purposes), for the
purpose of expressing an opinion on such financial statements,
reports, documents, procedures or controls, or notices.
``(2) Audit report.--The term `audit report' means a
document, report, notice, or other record--
``(A) prepared following an audit performed for
purposes of compliance by an issuer, broker, or dealer
with the requirements of the securities laws; and
``(B) in which a public accounting firm either--
``(i) sets forth the opinion of that firm
regarding a financial statement, report,
notice, other document, procedures, or
controls; or
``(ii) asserts that no such opinion can be
expressed.
``(3) Professional standards.--The term `professional
standards' means--
``(A) accounting principles that are--
``(i) established by the standard setting
body described in section 19(b) of the
Securities Act of 1933, as amended by this Act,
or prescribed by the Commission under section
19(a) of that Act (15 U.S.C. 17a(s)) or section
13(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78a(m)); and
``(ii) relevant to audit reports for
particular issuers, brokers, or dealers, or
dealt with in the quality control system of a
particular registered public accounting firm;
and
``(B) auditing standards, standards for attestation
engagements, quality control policies and procedures,
ethical and competency standards, and independence
standards (including rules implementing title II) that
the Board or the Commission determines--
``(i) relate to the preparation or issuance
of audit reports for issuers, brokers, or
dealers; and
``(ii) are established or adopted by the
Board under section 103(a), or are promulgated
as rules of the Commission.
``(4) Broker.--The term `broker' means a broker (as such term
is defined in section 3(a)(4) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(4))) that is required to file a balance
sheet, income statement, or other financial statement under
section 17(e)(1)(A) of such Act (15 U.S.C. 78q(e)(1)(A)), where
such balance sheet, income statement, or financial statement is
required to be certified by a registered public accounting
firm.
``(5) Dealer.--The term `dealer' means a dealer (as such term
is defined in section 3(a)(5) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(5))) that is required to file a balance
sheet, income statement, or other financial statement under
section 17(e)(1)(A) of such Act (15 U.S.C. 78q(e)(1)(A)), where
such balance sheet, income statement, or financial statement is
required to be certified by a registered public accounting
firm.
``(6) Self-regulatory organization.--The term `self-
regulatory organization' has the same meaning as in section
3(a)(26) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(26)).''.
(2) The table of sections in section 1(b) of such Act is amended, by
inserting after the item relating to section 109 the following new
item:
``Sec. 110. Definitions.''.
(b) Establishment and Administration of the Public Company Accounting
Oversight Board.--Section 101 of such Act is amended--
(1) by striking ``issuers'' each place it appears and
inserting ``issuers, brokers, and dealers'';
(2) in subsection (a), by striking ``public companies'' and
inserting ``companies''; and
(3) in subsection (a), by striking ``for companies the
securities of which are sold to, and held by and for, public
investors''.
(c) Registration With the Board.--Section 102 of such Act is
amended--
(1) in subsection (a), by striking ``Beginning 180 days after
the date of the determination of the Commission under section
101(d), it'' and inserting ``It'';
(2) in subsections (a) and (b)(2)(G), by striking ``issuer''
each place it appears and inserting ``issuer, broker, or
dealer''; and
(3) in subsection (b)(2)(A), by striking ``issuers'' and
inserting ``issuers, brokers, and dealers''.
(d) Auditing and Independence.--Section 103(a) of such Act is
amended--
(1) in paragraph (1), by striking ``and such ethics
standards'' and inserting ``such ethics standards, and such
independence standards'';
(2) in paragraph (2)(A)(iii), by striking ``describe in each
audit report'' and inserting ``in each audit report for an
issuer, describe''; and
(3) in paragraph (2)(B)(i), by striking ``issuers'' and
inserting ``issuers, brokers, and dealers''.
(e) Inspections of Registered Public Accounting Firms.--Section 104
of such Act is amended--
(1) in subsection (a), by striking ``issuers'' and inserting
``issuers, brokers, and dealers'';
(2) in subsection (b)(1)(A)--
(A) by striking ``audit reports'' and inserting
``audit reports on annual financial statements''; and
(B) by striking ``and'';
(3) in subsection (b)(1)(B)--
(A) by striking ``audit reports'' and inserting
``audit reports on annual financial statements''; and
(B) by striking the period at the end and inserting
``; and''; and
(4) by adding at the end of subsection (b)(1) the following
new subparagraph:
``(C) with respect to each registered public
accounting firm that regularly provides audit reports
and is not described under subparagraph (A) or (B), on
a basis to be determined by the Board, by rule,
consistent with the public interest and protection of
investors.''.
(f) Investigations and Disciplinary Proceedings.--Section
105(c)(7)(B) of such Act is amended--
(1) in the subparagraph heading, by inserting ``, broker, or
dealer'' after ``issuer'';
(2) by striking ``any issuer'' each place it appears and
inserting ``any issuer, broker, or dealer''; and
(3) by striking ``an issuer under this subsection'' and
inserting ``a registered public accounting firm under this
subsection''.
(g) Foreign Public Accounting Firms.--Section 106 of such Act is
amended--
(1) in subsection (a)(1), by striking ``issuer'' and
inserting ``issuer, broker, or dealer''; and
(2) in subsection (a)(2), by striking ``issuers'' and
inserting ``issuers, brokers, or dealers''.
(h) Funding.--Section 109 of such Act is amended--
(1) in subsection (c)(2), by striking ``subsection (i)'' and
inserting ``subsection (j)'';
(2) in subsection (d)(2), by striking ``allowing for
differentiation among classes of issuers, as appropriate'' and
inserting ``and among brokers and dealers in accordance with
subsection (h), and allowing for differentiation among classes
of issuers and brokers and dealers, as appropriate'';
(3) in subsection (d), by inserting at the end the following
new paragraph:
``(3) Brokers and dealers.--The rules of the Board under
paragraph (1) shall provide that the allocation, assessment,
and collection by the Board (or an agent appointed by the
Board) of the fee established under paragraph (1) with respect
to brokers and dealers shall not begin until the first day of
the first full fiscal year beginning after the date of the
enactment of this paragraph.'';
(4) by redesignating subsections (h), (i), and (j) as
subsections (i), (j), and (k), respectively; and
(5) by inserting after subsection (g) the following new
subsection:
``(h) Allocation of Accounting Support Fees Among Brokers and
Dealers.--
``(1) In general.--Any amount due from brokers and dealers
(or a particular class of such brokers and dealers) under this
section to fund the budget of the Board shall be allocated
among and payable by such brokers and dealers (or such brokers
and dealers in a particular class, as applicable). A broker or
dealer's allocation shall be in proportion to the broker or
dealer's net capital compared to the total net capital of all
brokers and dealer, in accordance with the rules of the Board.
``(2) Obligation to pay.--Every broker or dealer shall pay
the share of a reasonable annual accounting support fee or fees
allocated to such broker or dealer under this section.''.
(i) Referral of Investigations to a Self-regulatory Organization.--
Section 105(b)(4)(B) of the Sarbanes-Oxley Act of 2002 is amended--
(1) by redesignating clauses (ii) and (iii) as clauses (iii)
and (iv), respectively; and
(2) by inserting after clause (i) the following new clause:
``(ii) to a self-regulatory organization, in
the case of an investigation that concerns an
audit report for a broker or dealer that is
subject to the jurisdiction of such self-
regulatory organization;''.
(j) Use of Documents Related to an Inspection or Investigation.--
Section 105(b)(5)(B)(ii) of such Act is amended--
(1) in subclause (III), by striking ``and'';
(2) in subclause (IV), by striking the comma and inserting
``; and''; and
(3) by inserting after subclause (IV) the following new
subclause:
``(V) a self-regulatory organization,
with respect to an audit report for a
broker or dealer that is subject to the
jurisdiction of such self-regulatory
organization,''.
SEC. 602. FOREIGN REGULATORY INFORMATION SHARING.
(a) Definition.--Section 2(a) of the Sarbanes-Oxley Act of 2002 (15
U.S.C. 7201(a)) is amended by inserting after paragraph (16) the
following:
``(17) Foreign auditor oversight authority.--The term
`foreign auditor oversight authority' means any governmental
body or other entity empowered by a foreign government to
conduct inspections of public accounting firms or otherwise to
administer or enforce laws related to the regulation of public
accounting firms.''.
(b) Availability To Share Information.--Section 105(b)(5) of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7215(b)(5)) is amended by adding
at the end the following:
``(C) Availability to foreign oversight
authorities.--When in the Board's discretion it is
necessary to accomplish the purposes of this Act or to
protect investors, and without the loss of its status
as confidential and privileged in the hands of the
Board, all information referred to in subparagraph (A)
that relates to a public accounting firm within the
inspection authority, or other regulatory or law
enforcement jurisdiction, of a foreign auditor
oversight authority may be made available to the
foreign auditor oversight authority if the foreign
auditor oversight authority provides such assurances of
confidentiality as the Board determines appropriate.''.
(c) Conforming Amendment.--Section 105(b)(5)(A) of the Sarbanes-Oxley
Act of 2002 (15 U.S.C. 7215(b)(5)(A)) is amended by striking
``subparagraph (B)'' and inserting ``subparagraphs (B) and (C)''.
SEC. 603. EXPANSION OF AUDIT INFORMATION TO BE PRODUCED AND EXCHANGED
WITH FOREIGN COUNTERPARTS.
Section 106 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7216) is
amended--
(1) by amending subsection (b) to read as follows:
``(b) Production of Documents.--
``(1) Production by foreign firms.--If a foreign public
accounting firm issues an audit report, performs audit work,
conducts interim reviews, or performs material services upon
which a registered public accounting firm relies in the conduct
of an audit or interim review, the foreign public accounting
firm shall produce its audit work papers and all other
documents related to any such audit work or interim review to
the Commission or the Board when requested by the Commission or
the Board and the foreign public accounting firm shall be
subject to the jurisdiction of the courts of the United States
for purposes of enforcement of any request of such documents.
``(2) Other production.--Any registered public accounting
firm that relies, in whole or in part, on the work of a foreign
public accounting firm in issuing an audit report, performing
audit work, or conducting an interim review, shall--
``(A) produce the foreign public accounting firm's
audit work papers and all other documents related to
any such work in response to a request for production
by the Commission or the Board; and
``(B) secure the agreement of any foreign public
accounting firm to such production, as a condition of
its reliance on the work of that foreign public
accounting firm.'';
(2) by redesignating subsection (d) as subsection (g); and
(3) by inserting after subsection (c) the following new
subsections:
``(d) Service of Requests or Process.--Any foreign public accounting
firm that performs work for a domestic registered public accounting
firm shall furnish to the domestic firm a written irrevocable consent
and power of attorney that designates the domestic firm as an agent
upon whom may be served any process, pleadings, or other papers in any
action brought to enforce this section. Any foreign public accounting
firm that issues an audit report, performs audit work, performs interim
reviews, or performs other material services upon which a registered
public accounting firm relies in the conduct of an audit or interim
review, shall designate to the Commission or the Board an agent in the
United States upon whom may be served any process, pleading, or other
papers in any action brought to enforce this section or any request by
the Commission or the Board under this section.
``(e) Sanctions.--A willful refusal to comply, in whole in or in
part, with any request by the Commission or the Board under this
section, shall be a violation of this Act.
``(f) Other Means of Satisfying Production Obligations.--
Notwithstanding any other provision of this section, the staff of the
Commission or Board may allow foreign public accounting firms subject
to this section to meet production obligations under this section
though alternate means, such as through foreign counterparts of the
Commission or Board.''.
SEC. 604. CONFORMING AMENDMENT RELATED TO REGISTRATION.
Section 102(b)(3)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S. Code
7212(b)(3)(A)) is amended by striking ``by the Board'' and inserting
``by the Commission or the Board''.
SEC. 605. FAIR FUND AMENDMENTS.
Section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(a)) is
amended--
(1) by amending subsection (a) 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 a civil penalty against any person for a violation of such laws
or the rules and regulations thereunder, or such person agrees in
settlement of any such action to such civil penalty, the amount of such
civil penalty or settlement shall, on the motion or at the direction of
the Commission, be added to and become part of a disgorgement fund or
other fund established for the benefit of the victims of such
violation.'';
(2) in subsection (b), by--
(A) striking ``for a disgorgement fund described in
subsection (a)'' and inserting ``for a disgorgement
fund or other fund described in subsection (a)''; and
(B) striking ``in the disgorgement fund'' and
inserting ``in such fund''; and
(3) by striking subsection (e).
SEC. 606. EXEMPTION FOR NONACCELERATED FILERS.
(a) Exemption.--Section 404 of the Sarbanes-Oxley Act of 2002 is
amended by adding at the end the following:
``(c) Exemption for Smaller Issuers.--Subsection (b) shall not apply
with respect to any audit report prepared for an issuer that is not an
accelerated filer within the meaning Rule 12b-2 of the Commission (17
C.F.R. 240.12b-2).''.
(b) Study.--The Securities and Exchange Commission and the
Comptroller General shall jointly conduct a study to determine how the
Commission could reduce the burden of complying with section 404(b) of
the Sarbanes-Oxley Act of 2002 for companies whose market
capitalization is between $75,000,000 and $250,000,000 for the relevant
reporting period while maintaining investor protections for such
companies. The study shall also consider whether any such methods of
reducing the compliance burden or a complete exemption for such
companies from compliance with such section would encourage companies
to list on exchanges in the United States in their initial public
offerings. Not later than 180 days after the date of the enactment of
this Act, the Commission and the Comptroller General shall transmit a
report of such study to Congress.
SEC. 607. WHISTLEBLOWER PROTECTION AGAINST RETALIATION BY A SUBSIDIARY
OF AN ISSUER.
Section 1514A(a) of title 18, United States Code, is amended by
inserting ``including any subsidiary or affiliate whose financial
information is included in the consolidated financial statements of
such company,'' after ``(15 U.S.C. 78o(d)),''.
SEC. 608. CONGRESSIONAL ACCESS TO INFORMATION.
Section 101 of the Sarbanes-Oxley Act of 2002 is amended by adding at
the end the following:
``(i) Congressional Access to Information.--Nothing in this section
shall--
``(1) affect the Boards obligations, if any, to provide
access to records under the Right to Financial Privacy Act; or
``(2) authorize the Board to withhold information from
Congress or prevent the Board from complying with an order of a
court of the United States in an action commenced by the United
States or the Board.''.
SEC. 609. CREATION OF OMBUDSMAN FOR THE PCAOB.
(a) Ombudsman.--Title I of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7211 et seq.), as amended by section 601(a)(1), is further amended by
adding at the end the following new section:
``SEC. 111. OMBUDSMAN.
``(a) Establishment Required.--Not later than 180 days after the date
of enactment of the Investor Protection Act, the Board shall appoint an
ombudsman for the Board. The Ombudsman shall report directly to the
Chairman.
``(b) Duties of Ombudsman.--The ombudsman appointed in accordance
with subsection (a) for the Board shall--
``(1) act as a liaison between the Board and--
``(A) any registered public accounting firm or issuer
with respect to issues or disputes concerning the
preparation or issuance of any audit report with
respect to that issuer; and
``(B) any affected registered public accounting firm
or issuer with respect to--
``(i) any problem such firm or issuer may
have in dealing with the Board resulting from
the regulatory activities of the Board,
particularly with regard to the implementation
of section 404; and
``(ii) issues caused by the relationships of
registered public accounting firms and issuers
generally; and
``(2) assure that safeguards exist to encourage complainants
to come forward and to preserve confidentiality; and
``(3) carry out such activities, and any other activities
assigned by the Board, in accordance with guidelines prescribed
by the Board.''.
(b) Conforming Amendment.--The table of sections in section 1(b) of
such Act is amended, by inserting after the item relating to section
110 (as added by section 601(a)(2)) the following new item:
``Sec. 111. Ombudsman.''.
SEC. 610. AUDITING OVERSIGHT BOARD.
The Sarbanes-Oxley Act of 2002 is amended--
(1) in section 2(a)(5), by striking ``Public Company
Accounting Oversight Board'' and inserting ``Auditing Oversight
Board'';
(2) in section 101(a), by striking ``Public Company
Accounting Oversight Board'' and inserting ``Auditing Oversight
Board''; and
(3) in the heading of title I, by striking ``PUBLIC COMPANY
ACCOUNTING OVERSIGHT BOARD'' and inserting ``AUDITING OVERSIGHT
BOARD''.
TITLE VII--SENIOR INVESTMENT PROTECTION
SEC. 701. FINDINGS.
Congress finds that--
(1) many seniors are targeted by salespersons and advisers
using misleading certifications and professional designations;
(2) many certifications and professional designations used by
salespersons and advisers represent limited training or
expertise, and may in fact be of no value with respect to
advising seniors on financial and estate planning matters, and
far too often, such designations are obtained simply by
attending a weekend seminar and passing an open book, multiple
choice test;
(3) many seniors have lost their life savings because
salespersons and advisers holding a misleading designation have
steered them toward products that were unsuitable for them,
given their retirement needs and life expectancies;
(4) seniors have a right to clearly know whether they are
working with a qualified adviser who understands the products
and is working in their best interest or a self-interested
salesperson or adviser advocating particular products; and
(5) many existing State laws and enforcement measures
addressing the use of certifications, professional
designations, and suitability standards in selling financial
products to seniors are inadequate to protect senior investors
from salespersons and advisers using such designations.
SEC. 702. DEFINITIONS.
For purposes of this title:
(1) Misleading designation.--The term ``misleading
designation''--
(A) means the use of a purported certification,
professional designation, or other credential, that
indicates or implies that a salesperson or adviser has
special certification or training in advising or
servicing seniors; and
(B) does not include any legitimate certification,
professional designation, license, or other credential,
if--
(i) it has been offered by an academic
institution having regional accreditation; or
(ii) it meets the standards for
certifications, licenses, and professional
designations outlined by the North American
Securities Administrators Association (in this
title referred to as the ``NASAA'') Model Rule
on the Use of Senior-Specific Certifications
and Professional Designations, as in effect on
the date of the enactment of this Act, or any
successor thereto, or it was issued by or
obtained from any State.
(2) Financial product.--The term ``financial product'' means
securities, insurance products (including insurance products
which pay a return, whether fixed or variable), and bank and
loan products.
(3) Misleading or fraudulent marketing.--The term
``misleading or fraudulent marketing'' means the use of a
misleading designation when selling to or advising a senior
about the sale of a financial product.
(4) Senior.--The term ``senior'' means any individual who has
attained the age of 62 years or more.
(5) State.--The term ``State'' means each of the 50 States,
the District of Columbia, and the unincorporated territories of
Puerto Rico and the U.S. Virgin Islands.
SEC. 703. GRANTS TO STATES FOR ENHANCED PROTECTION OF SENIORS FROM
BEING MISLEAD BY FALSE DESIGNATIONS.
(a) Grant Program.--The Securities and Exchange Commission (in this
title referred to as the ``Commission'')--
(1) shall establish a program in accordance with this title
to provide grants to States--
(A) to investigate and prosecute misleading and
fraudulent marketing practices; or
(B) to develop educational materials and training
aimed at reducing misleading and fraudulent marketing
of financial products toward seniors; and
(2) may establish such performance objectives, reporting
requirements, and application procedures for States and State
agencies receiving grants under this title as the Commission
determines are necessary to carry out and assess the
effectiveness of the program under this title.
(b) Use of Grant Amounts.--A grant under this title may be used
(including through subgrants) by the State or the appropriate State
agency designated by the State--
(1) to fund additional staff to identify, investigate, and
prosecute (through civil, administrative, or criminal
enforcement actions) cases involving misleading or fraudulent
marketing of financial products to seniors;
(2) to fund technology, equipment, and training for
regulators, prosecutors, and law enforcement in order to
identify salespersons and advisers who target seniors through
the use of misleading designations;
(3) to fund technology, equipment, and training for
prosecutors to increase the successful prosecution of those
targeting seniors with the use of misleading designations;
(4) to provide educational materials and training to
regulators on the appropriateness of the use of designations by
salespersons and advisers of financial products;
(5) to provide educational materials and training to seniors
to increase their awareness and understanding of designations;
and
(6) to develop comprehensive plans to combat misleading or
fraudulent marketing of financial products to seniors.
(c) Grant Requirements.--
(1) Maximum.--The amount of a grant under this title may not
exceed $500,000 per fiscal year per State, if all requirements
of paragraphs (2), (3), (4), and (5) are met. Such amount shall
be limited to $100,000 per fiscal year per State in any case in
which the State meets the requirements of--
(A) paragraphs (2) and (3), but not each of
paragraphs (4) and (5); or
(B) paragraphs (4) and (5), but not each of
paragraphs (2) and (3).
(2) Standard designation rules for securities.--A State shall
have adopted rules on the appropriate use of designations in
the offer or sale of securities or investment advice, which
shall meet or exceed the minimum requirements of the NASAA
Model Rule on the Use of Senior-Specific Certifications and
Professional Designations, as in effect on the date of the
enactment of this Act, or any successor thereto.
(3) Suitability rules for securities.--A State shall have
adopted standard rules on the suitability requirements in the
sale of securities, which shall, to the extent practicable,
conform to the minimum requirements on suitability imposed by
self-regulatory organization rules under the securities laws
(as defined in section 3 of the Securities Exchange Act of
1934).
(4) Standard designation rules for insurance products.--A
State shall have adopted standard rules on the appropriate use
of designations in the sale of insurance products, which shall,
to the extent practicable, conform to the minimum requirements
of the National Association of Insurance Commissioners Model
Regulation on the Use of Senior-Specific Certifications and
Professional Designations in the Sale of Life Insurance and
Annuities, as in effect on the date of the enactment of this
Act, or any successor thereto.
(5) Suitability and supervision rules for annuity products.--
(A) In general.--A State shall have adopted rules
governing insurer supervision of, suitability of, and
insurer and insurance producer conduct relating to, the
sale of annuity products, including fixed and index
annuities.
(B) Annuity products criteria.--The rules required by
subparagraph (A) shall, to the extent practicable,
provide--
(i) that insurers, and insurance producers
are responsible for, and liable for penalties
for, the suitability of each recommended
annuity transaction;
(ii) that insurers and insurance producers
are required to apply a standard for
determining the suitability of each recommended
annuity transaction, including fixed and index
annuities, that is at least as protective of
the interests of the consumer as rule 2821(b)
of the Financial Industry Regulatory Authority
(in this paragraph referred to as ``FINRA''),
as in effect on the date of the enactment of
this Act, or any successor to such rule;
(iii) that insurers and insurance producers
are required to maintain a process for review
of the suitability, and approval or
disapproval, of each recommended annuity
transaction that is at least as protective of
the interests of the consumer as the principal
review required under rule 2821(c) of FINRA, as
in effect on the date of the enactment of this
Act, or any successor to such rule;
(iv) that insurers and insurance producers
are required to maintain processes for the
supervision of direct annuity sales and
insurance producer-recommended annuity sales
(including procedures for the insurer to obtain
and confirm consumer suitability information
and for the insurer to confirm consumer
understanding of the annuity transaction) that
are at least as protective of the interests of
the consumer as member broker and dealer
supervision requirements of FINRA, as in effect
on the date of the enactment of this Act, or
any successor to such requirements;
(v) that insurers are required to verify that
each insurance producer successfully completes,
and each insurance producer is required to
receive, training designed to ensure that the
insurance producer is competent to recommend
each class of annuity;
(vi) that insurers are required to verify
that insurance producers receive, and insurance
producers are required to receive, training
regarding the features of each offered annuity
product, to an extent that is at least as
protective of the interests of the consumer as
the FINRA firm element training requirements,
as in effect on the date of the enactment of
this Act, or any successor to such
requirements;
(vii) for coordination of such rules with the
rules of FINRA governing member brokers,
dealers, and security representatives, to the
extent appropriate, consistent with protecting
the interests of consumers, for State insurance
regulators to rely on, or to avoid duplication
of FINRA rules; and
(viii) for exemption from such rules only if
such exemption is consistent with the
protection of consumers.
SEC. 704. APPLICATIONS.
To be eligible for a grant under this title, the State or appropriate
State agency shall submit to the Commission a proposal to use the grant
money to protect seniors from misleading or fraudulent marketing
techniques in the offer and sale of financial products, which
application shall--
(1) identify the scope of the problem;
(2) describe how the proposed program will help to protect
seniors from misleading or fraudulent marketing in the sale of
financial products, including, at a minimum--
(A) by proactively identifying senior victims of
misleading and fraudulent marketing in the offer and
sale of financial products;
(B) how the proposed program can assist in the
investigation and prosecution of those using misleading
or fraudulent marketing in the offer and sale of
financial products to seniors; and
(C) how the proposed program can help discourage and
reduce future cases of misleading or fraudulent
marketing in the offer and sale of financial products
to seniors; and
(3) describe how the proposed program is to be integrated
with other existing State efforts.
SEC. 705. LENGTH OF PARTICIPATION.
A State receiving a grant under this title shall be provided
assistance funds for a period of 3 years, after which the State may
reapply for additional funding.
SEC. 706. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated to carry out this title,
$8,000,000 for each of the fiscal years 2011 through 2015.
TITLE VIII--REGISTRATION OF MUNICIPAL FINANCIAL ADVISORS
SEC. 801. MUNICIPAL FINANCIAL ADVISER REGISTRATION REQUIREMENT.
(a) In General.--The Securities Exchange Act of 1934 is amended by
inserting after section 15E (15 U.S.C. 78o-7) the following new
section:
``SEC. 15F. MUNICIPAL FINANCIAL ADVISER REGISTRATION REQUIREMENT.
``(a)(1)(A) It shall be unlawful for any person to make use of the
mails or any means or instrumentality of interstate commerce to act as
a municipal financial adviser unless such person is registered as a
municipal financial adviser in accordance with subsection (b).
``(B) Subparagraph (A) shall not apply to a natural person associated
with a municipal financial adviser, as long as such adviser is
registered in accordance with subsection (b) and is not a natural
person.
``(2) The Commission, by rule or order, as it deems consistent with
the public interest and the protection of investors, may conditionally
or unconditionally exempt from paragraph (1) of this section any
municipal financial adviser or class of municipal financial advisers
specified in such rule or order.
``(b)(1) A municipal financial adviser may be registered by filing
with the Commission an application for registration in such form and
containing such information and documents concerning such municipal
financial adviser and any persons associated with such municipal
financial adviser as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the protection
of investors. Within 45 days of the date of the filing of such
application (or within such longer period as to which the applicant
consents), the Commission shall--
``(A) by order grant registration, or
``(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within 120 days of the date of
the filing of the application for registration. At the
conclusion of such proceedings, the Commission, by order, shall
grant or deny such registration. The Commission may extend the
time for conclusion of such proceedings for up to 90 days if it
finds good cause for such extension and publishes its reasons
for so finding or for such longer period as to which the
applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied. The
Commission shall deny such registration if it does not make
such a finding or if it finds that if the applicant were so
registered, its registration would be subject to suspension or
revocation under paragraph (4).
``(2) An application for registration of a municipal financial
adviser to be formed or organized may be made by a municipal financial
adviser to which the municipal financial adviser to be formed or
organized is to be the successor. Such application, in such form as the
Commission, by rule, may prescribe, shall contain such information and
documents concerning the applicant, the successor, and any persons
associated with the applicant or the successor, as the Commission, by
rule, may prescribe as necessary or appropriate in the public interest
or for the protection of investors. The grant or denial of registration
to such an applicant shall be in accordance with the procedures set
forth in paragraph (1) of this subsection. If the Commission grants
such registration, the registration shall terminate on the 45th day
after the effective date thereof, unless prior thereto the successor
shall, in accordance with such rules and regulations as the Commission
may prescribe, adopt the application for registration as its own.
``(3) Any provision of this title (other than section 5 and
subsection (a) of this section) which prohibits any act, practice, or
course of business if the mails or any means or instrumentality of
interstate commerce is used in connection therewith shall also prohibit
any such act, practice, or course of business by any registered
municipal financial adviser or any person acting on behalf of such a
municipal financial adviser, irrespective of any use of the mails or
any means or instrumentality of interstate commerce in connection
therewith.
``(4) The Commission, by order, shall censure, place limitations on
the activities, functions, or operations of, suspend for a period not
exceeding 12 months, or revoke the registration of any municipal
financial adviser if it finds, on the record after notice and
opportunity for hearing, that such censure, placing of limitations,
suspension, or revocation is in the public interest and that such
municipal financial adviser, whether prior or subsequent to becoming
such, or any person associated with such municipal financial adviser,
whether prior or subsequent to becoming so associated--
``(A) 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;
``(B) has been convicted within 10 years preceding the filing
of any application for registration or at any time thereafter
of any felony or misdemeanor or of a substantially equivalent
crime by a foreign court of competent jurisdiction which the
Commission finds--
``(i) involves the purchase or sale of any security,
the taking of a false oath, the making of a false
report, bribery, perjury, burglary, any substantially
equivalent activity however denominated by the laws of
the relevant foreign government, or conspiracy to
commit any such offense;
``(ii) arises out of the conduct of the business of a
municipal financial adviser, broker, dealer, municipal
securities dealer, government securities broker,
government securities dealer, investment adviser, bank,
insurance company, fiduciary, transfer agent,
nationally recognized statistical rating organization,
foreign person performing a function substantially
equivalent to any of the above, or entity or person
required to be registered under the Commodity Exchange
Act (7 U.S.C. 1 et seq.) or any substantially
equivalent foreign statute or regulation;
``(iii) involves the larceny, theft, robbery,
extortion, forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent conversion, or
misappropriation of funds, or securities, or
substantially equivalent activity however denominated
by the laws of the relevant foreign government; or
``(iv) involves the violation of section 152, 1341,
1342, or 1343 or chapter 25 or 47 of title 18, or a
violation of a substantially equivalent foreign
statute;
``(C) is permanently or temporarily enjoined by order,
judgment, or decree of any court of competent jurisdiction from
acting as a municipal financial adviser, investment adviser,
underwriter, broker, dealer, municipal securities dealer,
government securities broker, government securities dealer,
transfer agent, nationally recognized statistical rating
organization, foreign person performing a function
substantially equivalent to any of the above, or entity or
person required to be registered under the Commodity Exchange
Act or any substantially equivalent foreign statute or
regulation, or as an affiliated person or employee of any
investment company, bank, insurance company, foreign entity
substantially equivalent to any of the above, or entity or
person required to be registered under the Commodity Exchange
Act or any substantially equivalent foreign statute or
regulation or from engaging in or continuing any conduct or
practice in connection with any such activity, or in connection
with the purchase or sale of any security;
``(D) has willfully violated any provision of the Securities
Act of 1933, the Investment Advisers Act of 1940, the
Investment Company Act of 1940, the Commodity Exchange Act,
this title, the rules or regulations under any of such
statutes, or is unable to comply with any such provision;
``(E) has willfully aided, abetted, counseled, commanded,
induced, or procured the violation by any other person of any
provision of the Securities Act of 1933, the Investment
Advisers Act of 1940, the Investment Company Act of 1940, the
Commodity Exchange Act, this title, the rules or regulations
under any of such statutes, or has failed reasonably to
supervise, 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. For the purposes of this
subparagraph, no person shall be deemed to have failed
reasonably to supervise any other person, if--
``(i) there have been established procedures, and a
system for applying such procedures, which would
reasonably be expected to prevent and detect, insofar
as practicable, any such violation by such other
person, and
``(ii) such person has reasonably discharged the
duties and obligations incumbent upon him by reason of
such procedures and system without reasonable cause to
believe that such procedures and system were not being
complied with;
``(F) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
municipal financial adviser;
``(G) has been found by a foreign financial regulatory
authority to have--
``(i) made or caused to be made in any application
for registration or report required to be filed with a
foreign financial regulatory authority, or in any
proceeding before a foreign financial regulatory
authority with respect to registration, any statement
that 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 application or report to the
foreign financial regulatory authority any material
fact that is required to be stated therein;
``(ii) violated any foreign statute or regulation
regarding transactions in securities, or contracts of
sale of a commodity for future delivery, traded on or
subject to the rules of a contract market or any board
of trade; or
``(iii) aided, abetted, counseled, commanded,
induced, or procured the violation by any person of any
provision of any statutory provisions enacted by a
foreign government, or rules or regulations thereunder,
empowering a foreign financial regulatory authority
regarding transactions in securities, or contracts of
sale of a commodity for future delivery, traded on or
subject to the rules of a contract market or any board
of trade, or has been found, by a foreign financial
regulatory authority, to have failed reasonably to
supervise, with a view to preventing violations of such
statutory provisions, rules, and regulations, another
person who commits such a violation, if such other
person is subject to his supervision; or
``(H) is subject to any final order of a State securities
commission (or any agency or officer performing like
functions), State authority that supervises or examines banks,
savings associations, or credit unions, State insurance
commission (or any agency or office performing like functions),
an appropriate Federal banking agency (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or
the National Credit Union Administration, that--
``(i) bars such person from association with an
entity regulated by such commission, authority, agency,
or officer, or from engaging in the business of
securities, insurance, banking, savings association
activities, or credit union activities; or
``(ii) constitutes a final order based on violations
of any laws or regulations that prohibit fraudulent,
manipulative, or deceptive conduct.
``(5) Pending final determination whether any registration under this
subsection shall be revoked, the Commission, by order, may suspend such
registration, if such suspension appears to the Commission, after
notice and opportunity for hearing, to be necessary or appropriate in
the public interest or for the protection of investors. Any registered
municipal financial adviser may, upon such terms and conditions as the
Commission deems necessary or appropriate in the public interest or for
the protection of investors, withdraw from registration by filing a
written notice of withdrawal with the Commission. If the Commission
finds that any registered municipal financial adviser is no longer in
existence or has ceased to do business as a municipal financial
adviser, the Commission, by order, shall cancel the registration of
such municipal financial adviser.
``(6)(A) With respect to any person who is associated, who is seeking
to become associated, or, at the time of the alleged misconduct, who
was associated or was seeking to become associated with a municipal
financial adviser, the Commission, by order, shall censure, place
limitations on the activities or functions of such person, or suspend
for a period not exceeding 12 months, or bar such person from being
associated with a municipal financial adviser, if the Commission finds,
on the record after notice and opportunity for a hearing, that such
censure, placing of limitations, suspension, or bar is in the public
interest and that such person--
``(i) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), or (E)
of paragraph (4) of this subsection;
``(ii) has been convicted of any offense specified in
subparagraph (B) of such paragraph (4) within 10 years of the
commencement of the proceedings under this paragraph; or
``(iii) is enjoined from any action, conduct, or practice
specified in subparagraph (C) of such paragraph (4).
``(B) It shall be unlawful--
``(i) for any person as to whom an order under subparagraph
(A) is in effect, without the consent of the Commission,
willfully to become, or to be, associated with a municipal
financial adviser in contravention of such order; or
``(ii) for any municipal financial adviser to permit such a
person, without the consent of the Commission, to become or
remain, a person associated with the municipal financial
adviser in contravention of such order, if such municipal
financial adviser knew, or in the exercise of reasonable care
should have known, of such order.
``(7) No registered municipal financial adviser shall act as such
unless it meets such standards of operational capability and such
municipal financial adviser and all natural persons associated with
such municipal financial adviser meet such standards of training,
experience, competence, and such other qualifications as the Commission
finds necessary or appropriate in the public interest or for the
protection of investors. The Commission shall establish such standards
by rules and regulations, which may--
``(A) specify that all or any portion of such standards shall
be applicable to any class of municipal financial advisers and
persons associated with municipal financial advisers;
``(B) require persons in any such class to pass tests
prescribed in accordance with such rules and regulations, which
tests shall, with respect to any class of partners, officers,
or supervisory employees (which latter term may be defined by
the Commission's rules and regulations) engaged in the
management of the municipal financial adviser, include
questions relating to bookkeeping, accounting, supervision of
employees, maintenance of records, and other appropriate
matters; and
``(C) provide that persons in any such class other than
municipal financial advisers and partners, officers, and
supervisory employees of municipal financial advisers, may be
qualified solely on the basis of compliance with such standards
of training and such other qualifications as the Commission
finds appropriate.
The Commission, by rule, may prescribe reasonable fees and charges to
defray its costs in carrying out this paragraph, including, but not
limited to, fees for any test administered by it or under its
direction.
``(c)(1)(A) No municipal financial adviser shall make use of the
mails or any means or instrumentality of interstate commerce in
connection with which such municipal financial adviser engages in any
fraudulent, deceptive, or manipulative act or practice or violates such
rules and regulations regarding conflicts of interest or fair
practices, including but not limited to rules and regulations related
to political contributions, as the Commission shall prescribe in the
public interest or for the protection of investors or to maintain fair
and orderly markets.
``(B) The Commission shall, for the purposes of this paragraph as the
Commission finds necessary or appropriate in the public interest or for
the protection of investors, by rules and regulations define, and
prescribe means reasonably designed to prevent, such acts and practices
as are fraudulent, deceptive, or manipulative.
``(2) If the Commission finds, after notice and opportunity for a
hearing, that any person subject to the provisions of this section or
any rule or regulation thereunder has failed to comply with any such
provision, rule, or regulation in any material respect, the Commission
may publish its findings and issue an order requiring such person, and
any person who was a cause of the failure to comply due to an act or
omission the person knew or should have known would contribute to the
failure to comply, to comply, or to take steps to effect compliance,
with such provision or such rule or regulation thereunder upon such
terms and conditions and within such time as the Commission may specify
in such order.
``(d) Every registered municipal financial adviser shall establish,
maintain, and enforce written policies and procedures reasonably
designed, taking into consideration the nature of such municipal
financial adviser's business, to prevent the misuse in violation of
this title, or the rules or regulations thereunder, of material,
nonpublic information by such municipal financial adviser or any person
associated with such municipal financial adviser. The Commission, as it
deems necessary or appropriate in the public interest or for the
protection of investors, shall adopt rules or regulations to require
specific policies or procedures reasonably designed to prevent misuse
in violation of this title (or the rules or regulations thereunder) of
material, nonpublic information.
``(e) A municipal financial adviser and any person associated with
such municipal financial adviser shall be deemed to have a fiduciary
duty to any municipal securities issuer for whom such municipal
financial adviser acts as a municipal financial adviser. A municipal
financial adviser may not engage in any act, practice, or course of
business which is not consistent with a municipal financial adviser's
fiduciary duty. The Commission shall, for the purposes of this
paragraph, by rules and regulations define, and prescribe means
reasonably designed to prevent, such acts, practices, and courses of
business as are not consistent with a municipal financial adviser's
fiduciary duty to its clients.''.
(b) Definition.--Section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)) is amended by adding at the end the following new
paragraphs:
``(65) Municipal financial adviser.--
``(A) The term `municipal financial adviser' means a
person who, for compensation, engages in the business
of--
``(i) providing advice to a municipal
securities issuer with respect to--
``(I) the issuance or proposed
issuance of securities, including any
remarketing of municipal securities
directly or indirectly by or on behalf
of a municipal securities issuer;
``(II) the investment of proceeds
from securities issued by such
municipal securities issuer;
``(III) the hedging of any risks
associated with subclauses (I) or (II),
including advice as to swap agreements
(as defined in section 206A of the
Gramm-Leach-Bliley Act regardless of
whether the counterparties constitute
eligible contract participants); or
``(IV) preparation of disclosure
documents in connection with the
issuance, proposed issuance, or
previous issuance of securities issued
by a municipal securities issuer,
including, without limitation, official
statements and documents prepared in
connection with a written agreement or
contract for the benefit of holders of
such securities described in section
240.15c2-12 of title 17, Code of
Federal Regulations;
``(ii) assisting a municipal securities
issuer in selecting or negotiating guaranteed
investment contracts or other investment
products; or
``(iii) assisting any municipal securities
issuer in the primary offering of securities
not involving a public offering.
``(B) Such term does not include--
``(i) an attorney, if the attorney is
offering advice or providing services that are
of a traditional legal nature;
``(ii) a nationally recognized statistical
rating organization to the extent it is
involved in the process of developing credit
ratings;
``(iii) a registered broker-dealer when
acting as an underwriter, as such term is
defined in section 2(a)(11) of the Securities
Act of 1933 (15 U.S.C. section 77b(a)(11)); or
``(iv) a State or any political subdivision
thereof.
``(66) Municipal securities issuer.--The term `municipal
securities issuer' means--
``(A) any entity that has the ability to issue a
security the interest on which is excludable from gross
income under section 103 of the Internal Revenue Code
of 1986 and the regulations thereunder; or
``(B) any person who receives the proceeds generated
from the issuance of municipal securities.
``(67) Person associated with a municipal financial adviser;
associated person of a municipal financial adviser.--The term
`person associated with a municipal financial adviser' or
`associated person of a municipal financial adviser' means any
partner, officer, director, or branch manager of such municipal
financial adviser (or any person occupying a similar status or
performing similar functions), any person directly or
indirectly controlling, controlled by, or under common control
with such municipal financial adviser, or any employee of such
municipal financial adviser, except that any person associated
with a municipal financial adviser whose functions are solely
clerical or ministerial shall not be included in the meaning of
such term for purposes of section 15F(b) (other than paragraph
(6) thereof).''.
SEC. 802. CONFORMING AMENDMENTS.
(a) Securities Exchange Act of 1934.--The Securities Exchange Act of
1934 is amended--
(1) in section 15(b)(4)(B)(ii) (15 U.S.C. 78o(b)(4)(B)(ii)),
by inserting ``municipal finance adviser,'' after ``nationally
recognized statistical rating organization,'';
(2) in section 15(b)(4)(C) (15 U.S.C. 78o(b)(4)(C)), by
inserting ``municipal finance adviser,'' after ``nationally
recognized statistical rating organization,''; and
(3) in section 17(a)(1) (15 U.S.C. 78q(a)(1)), by inserting
``registered municipal financial adviser,'' after ``nationally
recognized statistical rating organization,''.
(b) Investment Company Act of 1940.--The Investment Company Act of
1940 is amended--
(1) in section 2(a) (15 U.S.C. 80a-2(a)), by inserting at the
end the following new paragraph:
``(54) The term `municipal finance adviser' has the same
meaning as in section 3 of the Securities Exchange Act of
1934.'';
(2) in section 9(a)(1) (15 U.S.C. 80a-9(a)(1)), by inserting
``municipal finance adviser,'' after ``credit rating agency,'';
and
(3) in section 9(a)(2) (15 U.S.C. 80a-9(a)(2)), by inserting
``municipal finance adviser,'' after ``credit rating agency,''.
(c) Investment Advisers Act of 1940.--The Investment Advisers Act of
1940 is amended--
(1) in section 202(a) (15 U.S.C. 80b-2(a)), by inserting at
the end the following new paragraph:
``(29) The term `municipal finance adviser' has the same
meaning as in section 3 of the Securities Exchange Act of
1934.'';
(2) in section 203(e)(2)(B) (15 U.S.C. 80b-3(e)(2)(B)), by
inserting ``municipal finance adviser,'' after ``credit rating
agency,''; and
(3) in section 203(e)(4) (15 U.S.C. 80b-3(e)(4)) is amended
by inserting ``municipal finance adviser,'' after ``credit
rating agency,''.
SEC. 803. EFFECTIVE DATES.
(a) In General.--The amendments made by this title shall take effect
30 days after the date of the enactment of this Act.
(b) Effective Date and Requirements for Regulations.--Notwithstanding
subsection (a), the Securities and Exchange Commission shall, within
120 days after the date of the enactment of this Act, publish for
notice and public comment such regulations as are initially required to
implement this title, and shall take final action with respect to such
regulations not later than 270 days after the date of enactment of this
Act.
(c) Registration Date.--No person may continue to act as a municipal
financial adviser, as such term is defined in section 3(a)(65) of the
Securities Exchange Act of 1934 (as added by this title), after 30 days
after the date the regulations described in subsection (b) become
effective unless such person has been registered as required by the
amendment made by section 701 of this title.
Purpose and Summary
H.R. 3817, the Investor Protection Act of 2009, generally
aims to strengthen the oversight of U.S. securities markets,
close regulatory loopholes, and better safeguard investors.
Among its key reforms, the bill establishes a common fiduciary
standard to apply to both broker-dealers and investment
advisers in order to ensure that securities professionals place
customers' interests first when offering investment advice. The
legislation also provides the U.S. Securities and Exchange
Commission (SEC) with the authority to restrict mandatory pre-
dispute arbitration clauses in securities contracts.
Additionally, H.R. 3817 enhances the SEC's enforcement
powers, remedies, and rulemaking authorities in a number of
ways. Principally, the bill establishes a whistleblower bounty
program to reward individuals whose tips about securities
wrongdoing lead to successful enforcement actions by the SEC.
The bill also facilitates the ability of the SEC to bring
actions against those individuals who aid and abet securities
fraud.
H.R. 3817 further clarifies the ability of the SEC to issue
rules regarding the nomination by shareholders of individuals
to serve on the boards of public companies. These provisions
regarding proxy access will enhance democratic participation in
corporate governance.
Moreover, H.R. 3817 modifies the SEC's funding and
structure. In this regard, the legislation doubles the SEC's
authorized budget over five years and provides a new funding
stream to support the agency's operations via assessments on
investor advisers. The bill also provides for an expeditious,
independent, comprehensive study of the securities regulatory
regime by a high caliber body with expertise in organizational
restructuring to identify reforms and ensure that the SEC and
other regulatory entities put in place further improvements
designed to provide superior investor protection.
H.R. 3817 additionally contains numerous reforms not only
aimed at revising and bolstering the authorities of the
Securities Investor Protection Corporation (SIPC), but also
improving the effectiveness of the Public Company Accounting
Oversight Board (PCAOB), especially its ability to take
enforcement actions against the auditors of broker-dealers and
its capacity to coordinate with foreign regulatory bodies. The
bill further amends the Sarbanes-Oxley Act to improve
whistleblower protections and to exempt public companies with
less than $75 million in market capitalization from the law's
external audit of internal control requirements, as well.
Finally, H.R. 3817 creates a grant program to provide
funding to the States for the enhanced protection of senior
citizens from securities fraudsters. The legislation also
requires the registration of municipal financial advisers to
safeguard a sizable segment of the U.S. securities markets.
Background and Need for Legislation
During the 110th Congress, the Financial Services Committee
developed H.R. 6513, the Securities Act of 2008. The House
ultimately passed the bipartisan investor protection package in
September 2008, but the bill did not become law.
The financial crisis that erupted in late 2008 further
exposed vulnerabilities in the U.S. regulatory system and
highlighted the lack of adequate safeguards for investors in
the global capital markets. Without sufficient protections,
investors lost confidence, and confidence among investors is
the predicate for a healthy, functional securities marketplace.
The massive Madoff and Stanford Financial investment fraud
schemes that also came to light during the height of the crisis
exhibited, in large part at least, the need to improve investor
protection. They also demonstrated deficiencies in the existing
securities regulatory structure. The freezing up of the
auction-rate securities markets and ``breaking the buck'' by a
prominent money-market fund provided two other, if less
extreme, examples of problematic securities regulation.
In response, the House Financial Services Committee worked
in the 111th Congress to reconsider and augment the reforms
contained in H.R. 6513 from the 110th Congress. This product
became known as the Investor Protection Act, which Congressman
Paul E. Kanjorski, the Chairman of the Financial Services
Subcommittee on Capital Markets, Insurance, and Government
Sponsored Enterprises, introduced as H.R. 3817 on October 15,
2009.
In general, H.R. 3817 addresses many recently identified
investor protection problems by reforming the SEC to strengthen
and update its powers, better safeguard investors, and
efficiently and effectively regulate the capital markets. By
doubling the SEC's authorized funding and providing dozens of
new enforcement powers and regulatory authorities, the bill
enhances the SEC's effectiveness and provides the agency with
the tools needed to police today's complex securities markets.
In addition to the specific statutory reforms included in
H.R. 3817, the legislation provides for an expeditious,
independent, comprehensive study of the securities regulatory
regime by a high caliber body. This study will identify
organizational reforms in order to ensure that the SEC and the
other regulatory entities that monitor our securities markets
put in place further improvements designed to ensure superior
investor protection.
H.R. 3817 also builds on the reforms previously passed by
the House as part of H.R. 6513 in the 110th Congress. In
addition to incorporating the vast majority of the provisions
of H.R. 6513, H.R. 3817 includes reforms proposed by the Obama
Administration as part of its comprehensive white paper
entitled Financial Regulatory Reform: A New Foundation. H.R.
3817 also contains numerous reforms first recommended by the
SEC, the PCAOB, and SIPC, among others.
Among its chief reforms, H.R. 3817 establishes that every
financial intermediary who provides investment advice to
customers will have a fiduciary duty to the investor. Through
this harmonized standard of care, both broker-dealers and
investment advisers will place customers' interests first.
Regulators and practitioners have become increasingly
concerned that investors are confused by the legal distinction
between broker-dealers and investment advisers. The two groups
owe investors different standards of care, even though their
services and marketing have become increasingly
indistinguishable to retail investors.
In September 2006, the SEC commissioned a study by the RAND
Corporation on the state of regulation for the investment
advisory and brokerage industries. The RAND study found that
this marketplace had become ``very heterogeneous'' in terms of
the size, services and dual affiliations of many broker-dealers
and investment advisers. The report also determined that a
small number of extremely large firms, providing a full range
of services, dominate the market.
Moreover, the study concluded that investors do not fully
understand the distinction between broker-dealers and
investment advisers, including the duties they owe customers,
the titles they use, the services they offer, and their
compensation schemes. Even after the RAND study presented
investors with plain language explanations of the distinct
legal duties owed to customers by these two securities
professional groups, focus-group participants could not
understand the differences between the varying standards of
care. Furthermore, even after investors learned that current
laws held investment advisers to a higher standard of care,
investors expressed doubt that any actual difference existed in
practice.
But under the law, the distinction is very real. On the one
hand, investment advisers owe a fiduciary duty to their
customers, the highest duty available under the law and one
that requires them to completely subordinate their personal
interests to those of their clients. On the other hand, broker-
dealers remain subject to a ``suitability'' requirement, a
lower standard of care, when advising customers.
A suitability standard allows broker-dealers to consider
factors besides the client's best interests when offering
investment advice. Unlike an investment adviser, who must
recommend the best possible investment alternative, regardless
of fees, the broker-dealer may recommend the security that
generates the highest fee for the broker-dealer, if the
security is ``suitable'' for the individual's investment goals,
even if another security would better serve the needs of the
customer. Moreover, the law does not subject a broker-dealer to
an ongoing duty to disclose these conflicts of interest.
Because of investor confusion and because the two
professions have increasingly become interlinked, many investor
advocates and securities regulators have contended that when
brokerages give personalized advice to a customer they should
face the same accountability that the fiduciary standard
imposes on investment advisers. In October 2009, for example,
the Financial Services Committee received testimony on this
subject from Texas State Securities Commissioner Denise Voigt
Crawford. Commissioner Crawford's statement echoes the RAND
study's findings, noting that:
The migration of stockbrokers into the advisory arena
through the marketing of brokers as ``trusted
advisers'' and ``financial advisors'' over the years
has fueled confusion among investors as to the services
provided by stockbrokers and investment advisers as
well as the level of protection.
Additionally, Commissioner Crawford observed the importance
of imposing on broker-dealers the traditional fiduciary duty
emanating from the 1963 U.S. Supreme Court case known as SEC v.
Capital Gains Research Bureau. A traditional fiduciary duty
includes an affirmative duty of care, loyalty and honesty; an
affirmative duty to act in good faith; and a duty to act in the
best interests of the client.
Commissioner Crawford also testified that several groups
had proposed variations on this traditional duty, but she
warned that these proposals ``would potentially supplant
longstanding principles of fiduciary law embodied in decades of
common law'' and might not require the up-front disclosures
mandated by a traditional fiduciary standard. H.R. 3817 seeks
to respect this existing body of case law in imposing a
fiduciary duty standard on broker-dealers without altering the
existing fiduciary standards of investment advisers.
The RAND study further raised an important issue regarding
field testing and outreach to investors. The RAND study
obtained very precise results about investors' understanding of
the brokerage and investment advisory businesses. It achieved
these results by surveying more than 600 U.S households and
conducting a number of focus groups.
RAND also field tested plain language disclosures to assess
whether they improved investor knowledge. Importantly, RAND
learned that disclosures they deemed as ``plain language'' did
not clarify investor understanding. Such field testing is an
integral part of social science research, program design, and
market assessment, but the SEC does not practice it. H.R. 3817
works to address this situation by clarifying the SEC's
authority to engage in consumer testing.
For too long, securities industry practices have deprived
investors of a choice when seeking dispute settlement, too. In
particular, pre-dispute mandatory arbitration clauses inserted
into contracts have limited the ability of defrauded investors
to seek redress. Brokerage firms contend that arbitration is
fair and efficient as a dispute resolution mechanism.
Critics of mandatory arbitration clauses, however, maintain
that the brokerage firms hold powerful advantages over
investors. Brokerages often hide mandatory arbitration clauses
in dense contract language. Moreover, arbitration settlements
generally remain secret, preventing other investors from
learning about the performance of a particular brokerage firm.
If arbitration truly offers investors the opportunity to
efficiently and fairly settle disputes, then investors will
choose that option. But investors should also have the choice
to pursue remedies in court, should they view that option as
superior to arbitration. For these reasons, H.R. 3817 provides
the SEC with the authority to limit, prohibit or place
conditions on mandatory arbitration clauses in securities
contracts.
A myriad of problems presently confronts the SEC, perhaps
none more urgent than the need for adequate resources. SEC
Chairman Mary L. Schapiro and others have repeatedly stressed
the need to increase the funding to ensure that the agency has
the ability to keep pace with technological advances in the
securities markets, hire staff with industry expertise, and
fulfill one of its core missions: the protection of investors.
To assist the agency in accomplishing these goals and
achieving its other objectives, H.R. 3817 doubles the SEC's
authorized funding from $1.115 billion in FY 2010 to $2.25
billion in FY 2015. Together these authorized amounts will
provide the SEC with nearly $10 billion in funding over six
years.
Many have documented the need for increased SEC funding. A
report in March 2009 by the Government Accountability Office,
for example, noted that SEC enforcement staff felt insufficient
funding impeded their ability to effectively oversee the
securities industry. In particular, the report notes that:
. . . both management and staff said resource
challenges have delayed cases, reduced the number of
cases that can be brought, and potentially undermined
the quality of some cases. Specifically, investigative
attorneys cited the low level of administrative,
paralegal, and information technology support, and
unavailability of specialized services and expertise,
as challenges to bringing actions.
In May 2009, Mr. Robert Khuzami, the Director of the SEC
Division of Enforcement, also testified before the U.S. Senate
Banking, Housing, and Urban Affairs Subcommittee on Securities,
Insurance, and Investment. In his testimony, Mr. Khuzami
offered the following assessment of the agency's resource
needs:
In today's markets, the SEC oversees more than 30,000
registrants, including more than 12,000 public
companies, 4,600 mutual fund families, 11,000
investment advisers, 600 transfer agents, and 5,500
broker dealers. In fiscal year 2008, the Enforcement
Division received more than 700,000 complaints, tips
and referrals regarding potential violations of the
federal securities laws. Yet, our entire Enforcement
staff nationwide--including lawyers, accountants,
information technology staff, and support staff--is
just above 1,100.
If, as is contemplated by H.R. 3818, the Private Fund
Investment Advisers Registration Act of 2009, advisers to
private pools of capital also register with the SEC, the SEC
could become responsible for the oversight of several thousand
more registrants. H.R. 3817 ensures that the SEC will have the
funding it needs to handle this increase in responsibilities.
On October 6, 2009, the Financial Services Committee
further received testimony from Mr. Richard Ketchum, the
Chairman and Chief Executive Officer of the Financial Industry
Regulatory Authority (FINRA), a self-regulatory organization.
Mr. Ketchum noted that of more than 11,000 federally registered
investment advisory firms, the SEC projected that it would
examine only 9 percent in 2009 and 2010. By comparison, FINRA
and the SEC, which share oversight duties for brokerages, will
together examine 55 percent of nearly 5,000 registered broker-
dealer firms on average during the same timeframe.
When combined, these statistics begin to explain, but not
forgive, the failure of the SEC to aggressively investigate and
uncover the massive fraud perpetrated by Mr. Bernard L. Madoff.
They also raise concerns that the SEC, the government's chief
securities regulator, has fewer resources than even FINRA, a
front-line self-funded securities regulatory entity that the
SEC oversees.
Currently, broker-dealers pay a fee to FINRA to support
their inspections and examinations, with the SEC providing
backstop regulatory oversight and enforcement for this
securities profession. The SEC, however, can assess no similar
fee to support its direct examinations of investment advisers.
To address this inequity and to increase the SEC's available
resources, H.R. 3817 establishes a new funding stream for the
agency through fees paid by investment advisers.
In addition to increasing its funding, H.R. 3817 vests the
SEC with increased enforcement authorities to address long-
standing concerns about the agency's powers. For example, many
market analysts have noted that the SEC should have the
authority to impose collateral bars on individuals in order to
prevent wrongdoers in one sector of the securities industry
from entering another sector.
A 1999 appellate decision for the D.C. Circuit, Teicher v.
SEC, rejected the SEC authority to impose collateral bars in
certain circumstances. Since then, administrative law judges
have become reluctant to issue them at all. Yet, especially in
light of the extreme blurring of the brokerage and investment
advisory industries, many contend that the SEC should have the
power to bar actors who violate the law in one area of the
industry from participating in other areas. H.R. 3817 provides
the SEC with clear authority to do so.
By addressing the SEC's extra-territorial jurisdiction,
H.R. 3817 further acknowledges the global nature of securities
frauds and Ponzi schemes. Without clear statutory guidance, the
courts have developed and employed two separate tests to
determine the question of jurisdiction in such cases: the
conduct test and the effects test.
H.R. 3817 seeks to settle conflicts and confusion about
which tests courts should use when considering extra-
territorial jurisdiction in securities matters by providing the
SEC with the broadest authority to prosecute actions truly
international in scope. It achieves this goal by codifying both
the conduct and the effects tests. Together, these tests will
provide one national standard for protecting investors.
The Investor Protection Act also recognizes the need for
greater flexibility for regulators to obtain and share
information in today's increasingly complex global securities
markets. With H.R. 3817, the SEC will have broader authority to
collect information from and coordinate with foreign regulatory
bodies about securities law violations.
While the entire financial crisis has brought to light
weaknesses in the present system for securities regulation,
perhaps no case has highlighted the problems of our existing
investor protection framework as the massive Madoff fraud.
Federal authorities arrested Mr. Madoff in December 2008 for
perpetrating the largest investment fraud in history. Estimates
of investor losses vary, but Mr. Madoff ultimately pleaded
guilty in March 2009 to 11 charges of defrauding investors out
of almost $65 billion over 20 years in a Ponzi scheme. For
these transgressions, Mr. Madoff received a 150-year prison
sentence.
Mr. Madoff's victims included pension funds, charities,
wealthy investors, and large investment and asset management
firms. They also included dozens of foreign financial
institutions, such as commercial banks, investment banks,
private banks, brokerages, hedge funds, insurers, and other
financial services providers.
In perpetrating his landmark fraud, Mr. Madoff worked with
others, as well. A top aide and his longtime independent
auditor have both already pleaded guilty to charges related to
the deception.
Whereas the Big Four accounting firms audit most large
investment firms, Mr. Madoff's firm used a relatively obscure,
small auditor to review the company's financial statements. The
three-person auditing practice had not registered with the
PCAOB as a result of a series of exemptions granted by the SEC
after the enactment of the Sarbanes-Oxley Act.
Moreover, Mr. Harry Markopolos's regular communications
with the SEC should have alerted the agency that Mr. Madoff's
activities deserved closer scrutiny. The whistleblower first
contacted the SEC in 2000 about his concerns. In late 2005, Mr.
Markopolos sent the SEC a 19-page report entitled ``The World's
Largest Hedge Fund is a Fraud.''
As reported by the Wall Street Journal on December 18,
2008, this document ``presented a series of 29 `red flags,'
ranging from in-depth mathematical calculations that purported
to show the Madoff investment strategy couldn't work, to little
more than rumor or innuendo--such as claims that a group of
Arab investors were barred from using a major accounting firm
to examine Mr. Madoff's books.'' Mr. Markopolos concluded that
Mr. Madoff could only be engaged in one of two illegal
practices--front-running or a Ponzi scheme. The SEC,
unfortunately, failed to carefully examine Mr. Markopolos's
conclusions.
On the heels of the Madoff revelations, in early 2009,
allegations of another massive fraud arose. Stanford Financial
Group and its owner, Mr. Allen Stanford, now stand accused of
engaging in an $8 billion fraud to produce consistently above-
market returns. The case has not yet been adjudicated, and Mr.
Stanford has pleaded not guilty to fraud, conspiracy, and
obstruction of justice charges. Nevertheless, this financial
scam negatively affected the fortunes of numerous investors.
In addition to suffering sizable losses resulting from the
Madoff and Stanford Financial frauds, investors experienced
considerable setbacks as a result of purchasing securities
backed by abusive and problematic mortgages. Together, these
developments highlight shortcomings in the current system for
investor protection regulation and the need for greater
disclosures and accountability.
To fix the problems exposed by the Madoff scandal, the
Stanford Financial fraud, and the meltdown of the mortgage-
backed securities markets, H.R. 3817 takes a number of steps.
For example, the bill closes a legal loophole in the Sarbanes-
Oxley Act by giving the PCAOB the explicit power to investigate
or examine the auditors of all broker-dealers. In granting this
new power, the bill provides flexibility to the PCAOB to
differentiate among classes of broker-dealers.
Because the SEC had failed to uncover the Madoff Ponzi
scheme, despite having received a number of tips from several
different sources as to the fraud's existence, H.R. 3817
creates a bounty program to reward individuals whose tips lead
to successful enforcement actions by the SEC. After conducting
his review of the Madoff fraud, SEC Inspector General H. David
Kotz agreed with both the whistleblower protections and the
PCAOB broker-dealer auditor fix contained in H.R. 3817.
Mr. Kotz further recommended changes to the law regarding
the custody of records. Accordingly, H.R. 3817 improves
statutory custody requirements. These changes will help to make
it more difficult for fraudsters to misappropriate investors'
securities.
H.R. 3817 also refines and makes improvements to the
Securities Investor Protection Act. The Bernard L. Madoff
Investment Securities and Lehman Brothers liquidations have
placed a severe burden on the available resources of SIPC. To
address this potential shortfall and protect against other such
episodes in the future, the bill increases from $1 billion to
$2.5 billion the borrowing authority at the Treasury Department
for SIPC and raises the minimum assessments paid by SIPC
members.
Among other things, H.R. 3817 also imposes both civil and
criminal liability for false representation that an account has
SIPC coverage. Moreover, H.R. 3817 enhances investor protection
by providing SIPC coverage for futures held in portfolio margin
accounts and increases SIPC's cash advance limits to bring them
in line with the protection provided by the Federal Deposit
Insurance Corporation.
In addition, the bill aims to protect senior citizens from
less than scrupulous financial advisors who prey on the elderly
by touting misleading or fraudulent ``senior'' designations and
specializations. Too often these deceptive titles can be
obtained online and require little or no training to acquire.
In response, the bill creates a new grant program
administered by the SEC to assist the States in their efforts
to protect seniors from misleading financial advisor
designations and improve investor protections. The grants will
provide the States with incentives to improve their own rules
regulating the use of senior designations by encouraging them
to adopt the North American Securities Administrators
Association's and National Association of Insurance
Commissioners' new model rules on the use of senior
designations and suitability standards.
The grants are designed to give the States the flexibility
to use funds for a wide variety of senior investor protection
efforts, including hiring additional staff to investigate and
prosecute cases. The States may also use the grants to fund new
technology, equipment and training for regulators, prosecutors
and law enforcement, as well as to provide educational
materials to increase awareness and understanding of
designations.
The financial crisis also laid bare problems in the $2.8
trillion municipal bond market in the United States and showed
that municipal financial advisors needed better oversight. SEC
Office of Municipal Securities Chief Martha Mahan Haines made
clear the need for Congress to act when she stated during a May
2009 hearing of the Financial Services Committee: ``The impact
on the functioning of this market . . . from poor advice . . .
or misleading disclosure documents prepared by unqualified
municipal financial advisers, participation by financial
advisors with conflicts of interest or those engaged in pay-to-
play activities can indirectly affect the daily lives of
Americans.''
H.R. 3817 therefore extends regulation to the financial
advisers of municipalities. In particular, the bill would bring
professional standards to an area of public finance that
currently lacks formal rules. Specifically, H.R. 3817
establishes a requirement and sets out the terms under which
municipal financial advisers will register with the SEC. The
bill also prohibits municipal financial advisers from engaging
in certain transactions and establishes a fiduciary duty for
these securities professionals.
In sum, H.R. 3817 responds to the financial crisis by
putting in place more than six dozen reforms aimed overall at
improving investor protection. These safeguards include
establishing a fiduciary duty for broker-dealers, creating a
whistleblower bounty program to reward tipsters, and
restricting the use of mandatory arbitration clauses in
securities contracts. The bill also enhances oversight of the
auditors of broker-dealers and of municipal financial advisers.
H.R. 3817 further ensures that SIPC will have the resources
it needs to compensate defrauded investors and updates
provisions that have remained unchanged for more than three
decades. Finally, the bill enhances the SEC's resources and
effectiveness by doubling the agency's authorized funding over
five years, creating a new funding stream to support its
activities, and forcing a top-to-bottom study of its
operations. Together these reforms will better protect
investors in the future.
Hearings
The Financial Services Committee has reviewed the
extraordinary investment fraud perpetrated by Mr. Madoff on two
occasions. The Committee first met in a proceeding entitled
Assessing the Madoff Ponzi Scheme and the Need for Regulatory
Reform on January 5, 2009, and the following individuals
participated:
Panel One
Mr. H. David Kotz, Inspector General, SEC
Mr. Stephen P. Harbeck, President, SIPC
Panel Two
Mr. Allan Goldstein, a retiree and investor with
Bernard L. Madoff Investment Securities
Ms. Tamar Frankel, Professor of Law and Michaels
Faculty Research Scholar, Boston University School of Law
Mr. Leon Metzger, adjunct faculty member at
Columbia University, Cornell University, New York University,
and Yale University
The Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises subsequently held a hearing
entitled Assessing the Madoff Ponzi Scheme and Regulatory
Failures on February 4, 2009. The following witnesses
testified:
Panel One
Mr. Harry Markopolos, an independent financial
fraud investigator for institutional investors and others
seeking forensic accounting expertise, as well as a Chartered
Financial Analyst and Certified Fraud Examiner
Panel Two
Ms. Linda Thomsen, Director, Division of
Enforcement, SEC
Mr. Andrew J. Donohue, Director, Division of
Investor Management, SEC
Mr. Erik Sirri, Director, Division of Trading and
Markets, SEC
Mr. Andy Vollmer, Acting General Counsel, SEC
Ms. Lori A. Richards, Director, Office of
Compliance Inspections and Examinations, SEC
Mr. Stephen Luparello, Interim Chief Executive
Officer, FINRA
Also, the Financial Services Committee held a hearing
entitled Federal and State Enforcement of Financial Consumer
and Investor Protection Laws on March 20, 2009. The following
people participated:
Panel One
The Honorable Elizabeth A. Duke, Governor, Board
of Governors of the Federal Reserve System
The Honorable John C. Dugan, Comptroller, Office
of the Comptroller of the Currency
The Honorable Elisse B. Walter, Commissioner, SEC
The Honorable Martin J. Gruenberg, Vice Chairman,
Federal Deposit Insurance Corporation
Mr. Scott Polakoff, Acting Director, Office of
Thrift Supervision
Ms. Rita Glavin, Acting Assistant Attorney
General, Criminal Division, U.S. Department of Justice
Mr. John Pistole, Deputy Director, Federal Bureau
of Investigations
Panel Two
The Honorable William Francis Galvin, Secretary of
the Commonwealth of Massachusetts
The Honorable Lisa Madigan, Attorney General,
State of Illinois
Ms. Sarah Bloom Raskin, Commissioner, Maryland
Office of Financial Regulation
Mr. James B. Ropp, Securities Commissioner,
Delaware Department of Justice
Mr. Merle D. Sharick, Mortgage Asset Research
Institute
Subsequently, the Financial Services Committee held a
hearing entitled Legislative Proposals to Improve the
Efficiency and Oversight of Municipal Finance on May 21, 2009.
Witnesses testifying included:
Panel One
Ms. Martha Mahan Haines, Chief, Office of
Municipal Securities, SEC
Mr. Bill Apgar, Senior Advisor to the Secretary,
U.S. Department of Housing and Urban Development
Mr. David W. Wilcox, Deputy Director, Division of
Research and Statistics, Board of Governors of the Federal
Reserve System
The Honorable Thomas C. Leppert, Mayor of Dallas,
Texas on behalf of the U.S. Conference of Mayors
Mr. Ben Watkins, Director of State of Florida
Division of Bond Finance, State Board of Administration
Panel Two
Mr. Michael J. Marz, Vice Chairman, First
Southwest Company on behalf of the Regional Bond Dealers
Association
Ms. Laura Levenstein, Senior Managing Director,
Moody's Investors Service
Mr. Keith Curry, PFM Group, Managing Director
Mr. Alan B. Ispass, PE, BCEE, Vice President and
Global Director of Utility Management Solutions, CH2M Hill
Mr. Sean W. McCarthy, President and Chief
Operating Officer, Financial Security Assurance, Inc.
Mr. Bernard Beal, Chief Executive Officer, MR Beal
& Company on behalf of the Securities Industry and Financial
Markets Association
Ms. Mary Jo Ochson, CFA, Senior Vice President,
Chief Investment Officer for the Tax-Exempt Money Market and
Municipal Bond Investment Groups and Senior Portfolio Manager,
The Federated Funds
Mr. Mike Allen, Chief Financial Officer, Winona
Health on behalf of Healthcare Financial Management Association
Mr. Sean Egan, Managing Director, Egan-Jones
Ratings Company
The Capital Markets Subcommittee additionally convened a
hearing entitled SEC Oversight: Current State and Agenda on
July 14, 2009. The Honorable Mary L. Schapiro, Chairman of the
SEC, testified during the proceedings.
Finally, the Financial Services Committee held a hearing
entitled Capital Markets Regulatory Reform: Strengthening
Investor Protection, Enhancing Oversight of Private Pools of
Capital, and Creating a National Insurance Office on October 6,
2009. The first panel discussed investor protection issues, and
the following witnesses testified on that panel:
Ms. Denise Voigt Crawford, Texas Securities
Commissioner, Securities Administrators Board, on behalf of the
North American Securities Administrators Association
Mr. Richard Ketchum, Chairman and CEO, FINRA
Mr. Mercer E. Bullard, Founder and President, Fund
Democracy, Inc.
Mr. John Taft, Head of Wealth Management, RBC
Wealth Management, on behalf of Securities Industry and
Financial Markets Association
Mr. David G. Tittsworth, Executive Director,
Investment Adviser Association
Mr. Bruce W. Maisel, Vice President and Managing
Counsel, General Counsel's Office, Thrivent Financial for
Lutherans, on behalf of the American Council of Life Insurers
Committee Consideration
The Committee on Financial Services met in open session on
October 28 and November 3, 2009, and on November 4, 2009,
ordered H.R. 3817, Investor Protection Act of 2009, favorably
reported to the House by a record vote of 41 yeas and 28 nays.
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. Frank to report the bill, as amended, to the
House with a favorable recommendation was agreed to by a record
vote of 41 yeas and 28 nays (Record vote no. FC-88). The names
of Members voting for and against follow:
RECORD VOTE NO. FC-88
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... X ........ ......... Mr. Bachus....... ........ X .........
Mr. Kanjorski.................. X ........ ......... Mr. Castle....... ........ X .........
Ms. Waters..................... X ........ ......... Mr. King (NY).... ........ X .........
Mrs. Maloney................... X ........ ......... Mr. Royce........ ........ X .........
Mr. Gutierrez.................. X ........ ......... Mr. Lucas........ ........ X .........
Ms. Velazquez.................. X ........ ......... Mr. Paul......... ........ X .........
Mr. Watt....................... X ........ ......... Mr. Manzullo..... ........ X .........
Mr. Ackerman................... X ........ ......... Mr. Jones........ ........ X .........
Mr. Sherman.................... X ........ ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... X ........ ......... Mr. Miller (CA).. ........ X .........
Mr. Moore (KS)................. X ........ ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... X ........ ......... Mr. Hensarling... ........ X .........
Mr. Hinojosa................... X ........ ......... Mr. Garrett (NJ). ........ X .........
Mr. Clay....................... X ........ ......... Mr. Barrett (SC). ........ X .........
Mrs. McCarthy.................. X ........ ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... X ........ ......... Mr. Neugebauer... ........ X .........
Mr. Lynch...................... X ........ ......... Mr. Price (GA)... ........ X .........
Mr. Miller (NC)................ X ........ ......... Mr. McHenry...... ........ X .........
Mr. Scott...................... X ........ ......... Mr. Campbell..... ........ X .........
Mr. Green...................... X ........ ......... Mr. Putnam....... ........ X .........
Mr. Cleaver.................... X ........ ......... Mrs. Bachmann.... ........ X .........
Ms. Bean....................... X ........ ......... Mr. Marchant..... ........ X .........
Ms. Moore (WI)................. X ........ ......... Mr. McCotter..... ........ X .........
Mr. Hodes...................... X ........ ......... Mr. McCarthy..... ........ X .........
Mr. Ellison.................... X ........ ......... Mr. Posey........ ........ X .........
Mr. Klein...................... X ........ ......... Ms. Jenkins...... ........ X .........
Mr. Wilson..................... X ........ ......... Mr. Lee.......... ........ X .........
Mr. Perlmutter................. ........ ........ ......... Mr. Paulsen...... ........ X .........
Mr. Donnelly................... X ........ ......... Mr. Lance........ ........ X .........
Mr. Foster..................... X ........ ......... ................. ........ ........ .........
Mr. Carson..................... X ........ ......... ................. ........ ........ .........
Ms. Speier..................... X ........ ......... ................. ........ ........ .........
Mr. Childers................... X ........ ......... ................. ........ ........ .........
Mr. Minnick.................... X ........ ......... ................. ........ ........ .........
Mr. Adler...................... X ........ ......... ................. ........ ........ .........
Ms. Kilroy..................... X ........ ......... ................. ........ ........ .........
Mr. Driehaus................... X ........ ......... ................. ........ ........ .........
Ms. Kosmas..................... X ........ ......... ................. ........ ........ .........
Mr. Grayson.................... X ........ ......... ................. ........ ........ .........
Mr. Himes...................... X ........ ......... ................. ........ ........ .........
Mr. Peters..................... X ........ ......... ................. ........ ........ .........
Mr. Maffei..................... X ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
During consideration of the bill, the following amendments
were disposed of by record votes. The names of Members voting
for and against follow:
An amendment by Mr. Price, no. 6, striking section 201
(authority to restrict mandatory pre-dispute arbitration), was
not agreed to by a record vote of 27 yeas and 38 nays (Record
vote no. FC-80):
RECORD VOTE NO. FC-80
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ X ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ ........ ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... X ........ .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. ........ ........ .........
Mr. Moore (KS)................. ........ ........ ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ ........ ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ ........ ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ X ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X ......... ................. ........ ........
Mr. Carson..................... ........ X ......... ................. ........ ........ .........
Ms. Speier..................... ........ X ......... ................. ........ ........ .........
Mr. Childers................... ........ X ......... ................. ........ ........ .........
Mr. Minnick.................... ........ X ......... ................. ........ ........ .........
Mr. Adler...................... ........ X ......... ................. ........ ........ .........
Ms. Kilroy..................... ........ X ......... ................. ........ ........ .........
Mr. Driehaus................... ........ X ......... ................. ........ ........ .........
Ms. Kosmas..................... ........ X ......... ................. ........ ........ .........
Mr. Grayson.................... ........ X ......... ................. ........ ........ .........
Mr. Himes...................... ........ X ......... ................. ........ ........ .........
Mr. Peters..................... ........ X ......... ................. ........ ........ .........
Mr. Maffei..................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mrs. Maloney (and Mr. Garrett), no. 9,
regarding a study on internal control evaluation and reporting
cost burdens on smaller issuers, was agreed to by a record vote
of 57 yeas and 12 nays (Record vote no. FC-81):
RECORD VOTE NO. FC-81
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. X ........ ......... Mr. Castle....... X ........ .........
Ms. Waters..................... X ........ ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... X ........ ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. X ........ ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... X ........ ......... Mrs. Biggert..... X ........ .........
Mr. Meeks...................... X ........ ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. X ........ ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... X ........ ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... X ........ ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ ........ ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... X ........ ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... X ........ ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ X ........ ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... X ........ ......... Mr. Campbell..... X ........ .........
Mr. Green...................... X ........ ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... X ........ ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... X ........ ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. X ........ ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... X ........ ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... X ........ ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... X ........ ......... Mr. Lance........ X ........ .........
Mr. Foster..................... X ........ ......... ................. ........ ........ .........
Mr. Carson..................... ........ X ......... ................. ........ ........ .........
Ms. Speier..................... X ........ ......... ................. ........ ........ .........
Mr. Childers................... X ........ ......... ................. ........ ........ .........
Mr. Minnick.................... X ........ ......... ................. ........ ........ .........
Mr. Adler...................... X ........ ......... ................. ........ ........ .........
Ms. Kilroy..................... ........ X ......... ................. ........ ........ .........
Mr. Driehaus................... X ........ ......... ................. ........ ........ .........
Ms. Kosmas..................... X ........ ......... ................. ........ ........ .........
Mr. Grayson.................... ........ X ......... ................. ........ ........ .........
Mr. Himes...................... ........ X ......... ................. ........ ........ .........
Mr. Peters..................... X ........ ......... ................. ........ ........ .........
Mr. Maffei..................... X ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Lee, no. 12, regarding grandfathering
of existing agreements, was not agreed to by a record vote of
29 yeas and 40 nays (Record vote no. FC-82):
RECORD VOTE NO. FC-82
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ X ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... X ........ .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... X ........ ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ X ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ X ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ ........ ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X .........
Mr. Carson..................... ........ X .........
Ms. Speier..................... ........ X .........
Mr. Childers................... ........ X .........
Mr. Minnick.................... ........ X .........
Mr. Adler...................... ........ X .........
Ms. Kilroy..................... ........ X .........
Mr. Driehaus................... ........ X .........
Ms. Kosmas..................... ........ X .........
Mr. Grayson.................... ........ X .........
Mr. Himes...................... ........ X .........
Mr. Peters..................... ........ X .........
Mr. Maffei..................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Neugebauer (and Mr. Garrett), no. 27,
revising the SEC budget, was not agreed to by a record vote of
28 yeas and 41 nays (Record vote no. FC-83):
RECORD VOTE NO. FC-83
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ X ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... X ........ .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell.... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam...... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant.... X ........ .........
Ms. Moore (WI)................. ........ X ......... Mr. McCotter.... X ........ .........
Mr. Hodes...................... ........ X ......... Mr. McCarthy.... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey....... X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins..... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee......... X ........ .........
Mr. Perlmutter................. ........ ........ ......... Mr. Paulsen..... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance....... X ........ .........
Mr. Foster..................... ........ X ......... ................. ........ ........ .........
Mr. Carson..................... ........ X ......... ................. ........ ........ .........
Ms. Speier..................... ........ X ......... ................. ........ ........ .........
Mr. Childers................... ........ X ......... ................. ........ ........ .........
Mr. Minnick.................... ........ X ......... ................. ........ ........ .........
Mr. Adler...................... ........ X ......... ................. ........ ........ .........
Ms. Kilroy..................... ........ X ......... ................. ........ ........ .........
Mr. Driehaus................... ........ X ......... ................. ........ ........ .........
Ms. Kosmas..................... ........ X ......... ................. ........ ........ .........
Mr. Grayson.................... ........ X ......... ................. ........ ........ .........
Mr. Himes...................... ........ X ......... ................. ........ ........ .........
Mr. Peters..................... ........ X ......... ................. ........ ........ .........
Mr. Maffei..................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment by Ms. Waters (and Mr. Peters), no. 34,
regarding SEC authority to issue rules on proxy access, was
agreed to by a record vote of 39 yeas and 30 nays (Record vote
no. FC-84):
RECORD VOTE NO. FC-84
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... X ........ ......... Mr. Bachus....... ........ X .........
Mr. Kanjorski.................. X ........ ......... Mr. Castle....... ........ X .........
Ms. Waters..................... X ........ ......... Mr. King (NY)... ........ X .........
Mrs. Maloney................... X ........ ......... Mr. Royce....... ........ X .........
Mr. Gutierrez.................. X ........ ......... Mr. Lucas....... ........ X .........
Ms. Velazquez.................. X ........ ......... Mr. Paul........ ........ X .........
Mr. Watt....................... X ........ ......... Mr. Manzullo.... ........ X .........
Mr. Ackerman................... X ........ ......... Mr. Jones....... ........ X .........
Mr. Sherman.................... X ........ ......... Mrs. Biggert.... ........ X .........
Mr. Meeks...................... X ........ ......... Mr. Miller (CA). ........ X .........
Mr. Moore (KS)................. X ........ ......... Mrs. Capito..... ........ X .........
Mr. Capuano.................... X ........ ......... Mr. Hensarling.. ........ X .........
Mr. Hinojosa................... X ........ ......... Mr. Garrett (NJ) ........ X .........
Mr. Clay....................... X ........ ......... Mr. Barrett (SC) ........ X .........
Mrs. McCarthy.................. X ........ ......... Mr. Gerlach..... ........ ........ .........
Mr. Baca....................... X ........ ......... Mr. Neugebauer.. ........ X .........
Mr. Lynch...................... X ........ ......... Mr. Price (GA).. ........ X .........
Mr. Miller (NC)................ X ........ ......... Mr. McHenry..... ........ X .........
Mr. Scott...................... X ........ ......... Mr. Campbell.... ........ X .........
Mr. Green...................... X ........ ......... Mr. Putnam...... ........ X .........
Mr. Cleaver.................... X ........ ......... Mrs. Bachmann... ........ X .........
Ms. Bean....................... X ........ ......... Mr. Marchant.... ........ X .........
Ms. Moore (WI)................. X ........ ......... Mr. McCotter.... ........ X .........
Mr. Hodes...................... X ........ ......... Mr. McCarthy.... ........ X .........
Mr. Ellison.................... X ........ ......... Mr. Posey....... ........ X .........
Mr. Klein...................... X ........ ......... Ms. Jenkins..... ........ X .........
Mr. Wilson..................... X ........ ......... Mr. Lee......... ........ X .........
Mr. Perlmutter................. ........ ........ ......... Mr. Paulsen...... ........ X .........
Mr. Donnelly................... X ........ ......... Mr. Lance....... ........ X .........
Mr. Foster..................... X ........ ......... Mr. Childers..... ........ X .........
Mr. Carson..................... X ........ ......... Mr. Minnick...... ........ X .........
Ms. Speier..................... X ........ ......... ................. ........ ........ .........
Mr. Adler...................... X ........ ......... ................. ........ ........ .........
Ms. Kilroy..................... X ........ ......... ................. ........ ........ .........
Mr. Driehaus................... X ........ ......... ................. ........ ........ .........
Ms. Kosmas..................... X ........ ......... ................. ........ ........ .........
Mr. Grayson.................... X ........ ......... ................. ........ ........ .........
Mr. Himes...................... X ........ ......... ................. ........ ........ .........
Mr. Peters..................... X ........ ......... ................. ........ ........ .........
Mr. Maffei..................... X ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Garrett, no. 42, regarding clearing
services, was not agreed to by a record vote of 26 yeas and 43
nays (Record vote no. FC-85):
RECORD VOTE NO. FC-85
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... ........ X .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ X ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ X ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ X ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X ......... ................. ........ ........ .........
Mr. Carson..................... ........ X ......... ................. ........ ........ .........
Ms. Speier..................... ........ X ......... ................. ........ ........ .........
Mr. Childers................... ........ X ......... ................. ........ ........ .........
Mr. Minnick.................... ........ X ......... ................. ........ ........ .........
Mr. Adler...................... ........ X ......... ................. ........ ........ .........
Ms. Kilroy..................... ........ X ......... ................. ........ ........ .........
Mr. Driehaus................... ........ X ......... ................. ........ ........ .........
Ms. Kosmas..................... ........ X ......... ................. ........ ........ .........
Mr. Grayson.................... ........ X ......... ................. ........ ........ .........
Mr. Himes...................... ........ X ......... ................. ........ ........ .........
Mr. Peters..................... ........ X ......... ................. ........ ........ .........
Mr. Maffei..................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Garrett (and Mr. Adler), no. 44,
regarding exemption for non-accelerated filers, was agreed to
by a record vote of 37 yeas and 32 nays (Record vote no. FC-
86):
RECORD VOTE NO. FC-86
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ X ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... X ........ .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... X ........ ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ X ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ X ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ ........ ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... X ........ ......... ................. ........ ........ .........
Mr. Carson..................... ........ X ......... ................. ........ ........ .........
Ms. Speier..................... ........ X ......... ................. ........ ........ .........
Mr. Childers................... X ........ ......... ................. ........ ........ .........
Mr. Minnick.................... X ........ ......... ................. ........ ........ .........
Mr. Adler...................... X ........ ......... ................. ........ ........ .........
Ms. Kilroy..................... ........ X ......... ................. ........ ........ .........
Mr. Driehaus................... X ........ ......... ................. ........ ........ .........
Ms. Kosmas..................... X ........ ......... ................. ........ ........ .........
Mr. Grayson.................... ........ X ......... ................. ........ ........ .........
Mr. Himes...................... ........ X ......... ................. ........ ........ .........
Mr. Peters..................... X ........ ......... ................. ........ ........ .........
Mr. Maffei..................... X ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Lee, no. 45, regarding prohibition of
certain contingency-based attorney fee agreements relating to
pre-existing agreements, was not agreed to by a record vote of
27 yeas, 41 nays, and 1 present (Record vote no. FC-87):
RECORD VOTE NO. FC-87
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ X ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ X ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ ........ X
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). X ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... X ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ X ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ X ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ ........ ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X ......... ................. ........ ........ .........
Mr. Carson..................... ........ X ......... ................. ........ ........ .........
Ms. Speier..................... ........ X ......... ................. ........ ........ .........
Mr. Childers................... ........ X ......... ................. ........ ........ .........
Mr. Minnick.................... ........ X ......... ................. ........ ........ .........
Mr. Adler...................... ........ X ......... ................. ........ ........ .........
Ms. Kilroy..................... ........ X ......... ................. ........ ........ .........
Mr. Driehaus................... ........ X ......... ................. ........ ........ .........
Ms. Kosmas..................... ........ X ......... ................. ........ ........ .........
Mr. Grayson.................... ........ X ......... ................. ........ ........ .........
Mr. Himes...................... ........ X ......... ................. ........ ........ .........
Mr. Peters..................... ........ X ......... ................. ........ ........ .........
Mr. Maffei..................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
The following other amendments were also considered by the
Committee:
An amendment by Mr. Frank (and Mr. Kanjorski), no. 1, a
managers amendment, was agreed to by voice vote, as amended. An
amendment by Mr. Maffei, no. 1a, to the amendment, was agreed
to by voice vote. An amendment by Mr. Hensarling, no. 1b, to
the amendment, was offered and withdrawn.
An amendment by Mr. Castle (and Ms. Speier), no. 2, a study
on SEC revolving door, was agreed to by voice vote.
An amendment by Mr. Hodes, no. 3, regarding senior
investment protection, was agreed to, as modified, by voice
vote.
An amendment by Mr. Campbell, no. 4, regarding nationwide
service of subpenas, was agreed to by voice vote.
An amendment by Mr. Driehaus, no. 5, regarding registration
of municipal financial advisors, was agreed to by voice vote.
An amendment by Mr. Perlmutter, no. 7, regarding a study of
high-frequency trading, was agreed to by voice vote.
An amendment by Mr. Adler, no. 8, regarding exemption for
smaller companies from attestation requirements, was offered, a
record vote was ordered, and the amendment was withdrawn by
unanimous consent.
An amendment by Mr. Neugebauer, no. 10, regarding a
Comptroller General study to review the securities arbitration
system, was agreed to, as modified, by voice vote.
An amendment by Ms. Kilroy, no. 11, regarding additional
responsibilities to secure delivery of dividends, interest, and
other valuable property rights, was offered and withdrawn.
An amendment by Mr. Miller (CA), no. 13, regarding a
financial reporting forum, was agreed to by voice vote.
An amendment by Mrs. McCarthy (NY), no. 14, regarding a
study on enhancing investment advisor examinations, was agreed
to by voice vote.
An amendment by Mr. Posey, no. 15, regarding authority to
contract for collection of delinquent judgments and orders, was
not agreed to by voice vote.
An amendment by Mr. Perlmutter, no. 16, regarding a study
on disclosure to retail customers before purchase of products
or services, was agreed to by voice vote.
An amendment by Mr. Campbell, no. 17, regarding biannual
rather than quarterly reporting, was offered and withdrawn.
An amendment by Mr. Klein, no. 18, regarding a
clarification of liquidation proceedings, was offered and
withdrawn.
An amendment by Mr. Royce, no. 19, regarding an SEC
administration and enforcement office, was agreed to by voice
vote.
An amendment by Mr. Royce, no. 20, establishing a Capital
Markets Safety Board, was agreed to by voice vote.
An amendment by Mr. Ellison, no. 21, a securities
clarification, was agreed to by voice vote.
An amendment by Mr. Ellison, no. 22, a fiduciary duty
clarification, was offered and withdrawn.
An amendment by Mr. McCarthy (CA), no. 23, a report on
implementation of reforms, was agreed to by voice vote.
An amendment by Mr. McCarthy (CA), no. 24, regarding the
organization and conduct of the divisions and offices of the
SEC, was offered and withdrawn.
An amendment by Mr. Frank, no. 25, regarding investment
advisers subject to state authorities, was agreed to by voice
vote.
An amendment by Mr. Maffei (and Mr. Ellison), no. 26,
regarding higher SIPC payouts with respect to pension plans,
was offered and withdrawn.
An amendment by Mr. Foster, no. 28, regarding custodial
requirements, was agreed to by voice vote.
An amendment by Mr. Putnam, no. 29, regarding congressional
access to information, was agreed to, as modified, by voice
vote.
An amendment by Mr. Capuano, no. 30, regarding a GAO study
of financial planning, was agreed to by voice vote.
An amendment by Mr. Bachus, no. 31, regarding national
securities association enforcement, was agreed to by voice
vote.
An amendment by Mr. Capuano (and Mr. Garrett), no. 32,
regarding an analysis of rule regarding smaller reporting
companies, was agreed to by voice vote.
An amendment by Mrs. Jenkins (and Mr. Garrett), no. 33,
creating an ombudsman for the PCAOB, was agreed to by voice
vote.
An amendment by Mr. McCarthy (CA), no. 35, creating an
ombudsman for the SEC, was agreed to by voice vote.
An amendment by Mr. Meeks (and Mr. Posey), no. 36,
streamlining SEC filing procedures, was offered and withdrawn.
An amendment by Mr. Bachus, no. 37, regarding the
definition of ``customer'', was agreed to by voice vote.
An amendment by Mr. Campbell (and Mr. Peters), no. 38, a
clarification of the standard of conduct with respect to
Commission and fee-base compensation, was agreed to by voice
vote.
An amendment by Mrs. Bachmann, no. 39, regarding the
effective date, was offered and withdrawn.
An amendment by Mrs. Bachmann, no. 40, regarding
Presidential appointment of PCAOB members, was offered and
withdrawn.
An amendment by Mr. Miller (CA), no. 41, regarding a joint
SEC-CFTC advisory committee, was agreed to by voice vote.
An amendment by Mr. Garrett, no. 43, regarding the Auditing
Oversight Board, was agreed to by voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held hearings 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:
H.R. 3817 aims to improve investor protection by enhancing
the powers, increasing the funding, and augmenting the
operations of the U.S. Securities and Exchange Commission. H.R.
3817 also makes refinements to the laws governing the Public
Company Accounting Oversight Board and the Securities Investor
Protection Corporation with the goal of improving those
entities' abilities to better protect the interests of
investors.
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 adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
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 for H.R. 4173 as
introduced on December 2, 2009, title V of which incorporated
H.R. 3817 as reported, pursuant to section 402 of the
Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, December 4, 2009.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office (CBO)
and the Joint Committee on Taxation (JCT) have reviewed H.R.
4173, the Wall Street Reform and Consumer Protection Act of
2009, as introduced on December 2, 2009. As summarized in the
enclosed table, CBO and JCT estimate that enacting H.R. 4173
would increase revenues by $4.9 billion over the 2010-2019
period and would increase direct spending by $9.4 billion over
that 10-year period. In total, CBO estimates that enacting the
legislation would increase budget deficits by $10.7 billion
over the 2010-2014 period and by $4.5 billion over the 2010-
2019 period. CBO has not completed an estimate of the bill's
impact on spending subject to appropriation.
The direct spending and revenue impacts of H.R. 4173 stem
from provisions in titles I, IV, and V. Those budgetary impacts
are briefly described below.
TITLE I--FINANCIAL STABILITY IMPROVEMENT ACT
CBO and JCT estimate that the provisions in title I would
increase revenues by $4.4 billion over the 2010-2019 period and
increase direct spending by $7.4 billion over the same period.
The net effect of enacting this title would be an increase in
budget deficits of $3.0 billion over the 2010-2019 period. Much
of that net cost would occur because income from the fees
collected under this title would be partially offset by a loss
of revenue from income and payroll taxes. Title I includes four
subtitles that would affect direct spending and revenues; each
is described below.
Subtitle B would establish new standards, procedures, and
programs for identifying and addressing potential risks to the
financial or economic stability of the United States. CBO
estimates that implementing this subtitle would increase direct
spending by $1.1 billion and increase revenues by $0.6 billion
over the 2010-2019 period. Most of the estimated costs of this
subtitle would result from provisions that would expand the
scope and modify the terms of the Federal Deposit Insurance
Corporation's (FDIC's) authority to guarantee obligations of
solvent depository institutions and financial companies during
a financial crises. While the probability of such events is
small, potential losses from such guarantees could be
significant. For this estimate, CBO assumes that the FDIC would
eventually recover any costs through fees on participants and,
as necessary, compulsory assessments (which are classified as
revenues) on very large financial institutions. The FDIC's
authority to provide guarantees would expire on December 31,
2013.
Subtitle C would revise the regulatory regime for thrift
associations, transferring functions now performed by the
Office of Thrift Supervision (OTS) to other regulatory
agencies. CBO estimates that enacting those provisions would
increase direct spending by $0.5 billion and reduce revenues by
$0.3 billion over the 2010-2019 period. Most of the estimated
costs of this subtitle would result from provisions that would
authorize the Office of the Comptroller of Currency to enter
into agreements without regard to existing laws governing the
disposition of real or personal property; allow for the
expenditure of unobligated funds held by the OTS; and transfer
oversight of thrift holding companies to the Federal Reserve,
which unlike the OTS does not charge fees to cover its
supervision costs.
Subtitle D would direct the Federal Reserve to assess fees
on bank holding companies with total assets of $10 billion or
more to defray the cost of examining those firms. CBO estimates
that the Federal Reserve would collect about $0.4 billion over
the 2010-2019 period to offset those costs. That collection
would increase revenues remitted to the Treasury by the Federal
Reserve. (This provision would not apply to thrift holding
companies, which would come under the Federal Reserve's
supervision in subtitle C.)
Subtitle G would create new government mechanisms for
dissolving systemically important firms that are in default or
in danger of default. CBO estimates that implementing these
provisions would increase direct spending by $5.7 billion and
increase revenues by $3.7 billion over the next 10 years. Under
conditions outlined in the bill, the FDIC would be appointed as
receiver and would be authorized to enter into various
arrangements necessary to liquidate such firms, including
organizing bridge banks that would be exempt from federal and
state taxation. Under this bill, the FDIC's obligations for
this purpose would be capped at $150 billion. Those funds could
be derived from assessments on certain large financial firms
(which are classified in the budget as revenues) or amounts
borrowed from the Treasury. Under the bill, any amounts
borrowed through the Treasury would be repaid from proceeds
from asset sales, warrants, or future assessments on private
firms. The FDIC's authority to obligate or borrow funds for
such activities would expire on December 31, 2013. CBO expects
that the probability of such receivership activities would be
small and that spending for losses and working capital would
eventually be offset by recoveries and assessments.
TITLE IV--CONSUMER FINANCIAL PROTECTION ACT
Title IV of H.R. 4173 is identical to H.R. 3126, the
Consumer Financial Protection Agency Act of 2009, as ordered
reported by the House Committee on Financial Services on
October 22, 2009. On December 3, 2009, CBO transmitted a cost
estimate for H.R. 3126 to the Congress. As detailed in that
cost estimate, the provisions of title IV of H.R. 4173 would
increase direct spending by $0.6 billion over the 2010-2019
period and decrease revenues by $0.5 billion over the same
period. In total, those changes would increase budget deficits
by about $1.1 billion over the 2010-2019 period. This net
deficit impact would result for a number of reasons:
The Department of the Treasury would incur costs
that would not be subject to appropriation and would not be
offset by fees;
The Federal Reserve would incur additional costs
that would decrease the revenues they would remit to the
Treasury;
While the Consumer Financial Protection Agency
would be authorized to spend all of the fees they collect under
the bill, those fees would be partially offset by a loss of
receipts from income and payroll taxes; and
Federal banking regulators would not be able to
offset all of the costs they would incur under title IV because
the bill would impose a cap on the fees they are otherwise
authorized to collect under current law.
TITLE V--CAPITAL MARKETS
CBO estimates that title V would increase direct spending
by $1.4 billion over the 2010-2019 period and increase revenues
by about $1.0 billion over the same 10-year period. The net
effect of this title would be an increase in the federal
deficit of about $0.4 billion over the 10-year period.
The bill would increase fees to support examination
activities by both the Securities and Exchange Commission (SEC)
and the Public Companies Accounting Oversight Board (PCAOB),
which would be recorded in the budget as revenues. This title
also would raise the amount that the Securities Investor
Protection Corporation (SIPC) would be authorized to borrow
from the SEC; under current law, SIPC may borrow up to $1
billion from the SEC--the bill would raise that to about $2.5
billion. From fees collected from brokers and dealers of
securities under current law, SIPC may make payments to
investors that are harmed when a brokerage firm fails and
customer assets are missing. CBO estimates that there is a
small probability (about 10 percent) that SIPC would exercise
the new borrowing authority over the next 10 years. CBO
estimates that the net effect of the new borrowing authority
would increase direct spending by about $0.7 billion over the
2010-2019 period. Other provisions of the bill, including
spending for awards to individuals who report violations of
securities laws to the SEC and additional costs of the PCAOB,
would increase direct spending by about $0.7 billion over the
2010-2019 period.
Intergovernmental and private-sector impact: H.R. 4173
includes a number of intergovernmental and private-sector
mandates, as defined in the Unfunded Mandates Reform Act (UMRA)
that CBO previously identified in its cost estimates for H.R.
3269, the Corporate and Financial Institution Compensation
Fairness Act of 2009; H.R. 3795, the Over-the-Counter
Derivatives Markets Act of 2009; and H.R. 3818, the Private
Fund Investment Advisers Registration Act of 2009. In addition,
H.R. 4173 would preempt state laws and would impose
intergovernmental and private-sector mandates on entities that
conduct financial activities and credit rating agencies.
Because the costs of complying with some of the mandates
would depend on the regulations to be established under the
bill, CBO cannot determine whether the aggregate costs of the
intergovernmental mandates would exceed the annual threshold
established in UMRA ($69 million in 2009, adjusted annually for
inflation). CBO estimates that the total costs of the private-
sector mandates in the bill would well exceed the annual
threshold established in UMRA ($139 million in 2009, adjusted
annually for inflation).
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Susan
Willie and Kathleen Gramp (for federal spending), Barbara
Edwards (for federal revenues), Elizabeth Cove Delisle (for
intergovernmental mandates), and Sam Wice, Paige Piper/Bach,
and Brian Prest (for private-sector mandates).
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure.
ESTIMATED CHANGES IN REVENUES AND DIRECT SPENDING RESULTING FROM H.R. 4173, THE WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2009, AS INTRODUCED ON
DECEMBER 2, 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in billions of dollars--
-----------------------------------------------------------------------------------------------------
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-2014 2010-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Title I--Financial Stability Improvement Act
Subtitle B--Prudential Regulation............. 0 0 0 * 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.6
Subtitle C--Improvements to Supervision of * * * * * * * * * -0.1 -0.1 -0.3
Federal Depository Institutions..............
Subtitle D--Improvements to Regulation of Bank 0 * * * * * * 0.1 0.1 0.1 0.1 0.4
Holding Companies............................
Subtitle G--Enhanced Dissolution Authority.... 0 0 0.2 0.4 0.5 0.5 0.5 0.5 0.6 0.5 1.1 3.7
Total Title I--Financial Stability 0 0 0.2 0.4 0.6 0.6 0.6 0.7 0.7 0.6 1.2 4.4
Improvement Act..........................
Title IV--Consumer Financial Protection Agency Act 0 0 -0.3 -0.2 -0.1 * * * * * -0.6 -0.5
Title V--Capital Markets.......................... 0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.4 1.0
-----------------------------------------------------------------------------------------------------
Total Changes in Revenues\2\.............. 0 0.1 * 0.3 0.6 0.7 0.7 0.8 0.8 0.7 1.0 4.9
CHANGES IN DIRECT SPENDING
Title I--Financial Stability Improvement Act
Subtitle B--Prudential Regulation
Estimated Budget Authority................ 0 0.6 0.9 0.6 0 -0.4 -0.3 -0.2 -0.1 0 2.1 1.1
Estimated Outlays......................... 0 0.6 0.9 0.6 0 -0.4 -0.3 -0.2 -0.1 0 2.1 1.1
Subtitle C--Improvements to Supervision of
Federal Depository Institutions
Estimated Budget Authority................ 0 * * * 0.1 0.1 0.1 0.1 0.1 0.1 0.3 0.6
Estimated Outlays......................... 0 * * * 0.1 0.1 0.1 0.1 * * 0.1 0.5
Subtitle G--Enhanced Dissolution Authority
Estimated Budget Authority................ 0.2 2.2 3.7 2.6 0.5 -1.5 -1.3 -0.5 -0.2 -0.1 9.2 5.7
Estimated Outlays......................... 0.2 2.2 3.7 2.6 0.5 -1.5 -1.3 -0.5 -0.2 -0.1 9.2 5.7
Total Title I--Financial Stability Improvement Act
Estimated Budget Authority.................... 0.2 2.9 4.7 3.2 0.5 -1.8 -1.5 -0.6 -0.2 0 11.5 7.4
Estimated Outlays............................. 0.2 2.9 4.7 3.2 0.5 -1.8 -1.5 -0.6 -0.2 * 11.5 7.4
Title IV--Consumer Financial Protection Agency Act
Estimated Budget Authority.................... * * -0.2 -0.1 * 0.1 0.2 0.2 0.2 0.2 -0.3 0.6
Estimated Outlays............................. * * -0.2 -0.1 * 0.1 0.2 0.2 0.2 0.2 -0.3 0.6
Title V--Capital Markets
Estimated Budget Authority.................... * 0.1 0.1 0.1 0.3 0.2 0.2 0.2 0.1 0.1 0.5 1.4
Estimated Outlays............................. * 0.1 0.1 0.1 0.3 0.2 0.2 0.2 0.1 0.1 0.5 1.4
Total Changes in Direct Spending..............
Estimated Budget Authority................ 0.2 3.0 4.6 3.2 0.9 -1.5 -1.1 -0.2 0.1 0.3 11.9 9.5
Estimated Outlays......................... 0.2 3.0 4.6 3.2 0.8 -1.5 -1.1 -0.2 0.1 0.3 11.7 9.4
IMPACT OF CHANGES IN REVENUES AND DIRECT SPENDING ON THE DEFICIT
Net Effect on the Deficitb........................ 0.2 2.9 4.6 2.9 0.2 -2.2 -1.8 -1.0 -0.9 -0.4 10.7 4.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\H.R. 4173 could affect federal tax receipts under the Internal Revenue Code. However, there are a number of uncertainties regarding potential effects
of the use of a bridge financial company by the Federal Deposit Insurance Corporation on the tax attributes of a failed financial institution. It is
not possible to determine whether the use of a bridge financial company would provide a tax result that is more or less favorable than bankruptcy,
which is the current-law alternative. For this reason at this point, the staff of the Joint Committee on Taxation is not able to estimate the changes
in tax revenue that would result from the bill.
\b\Positive numbers indicate increases in deficits; negative numbers indicate the opposite.
Notes: * = between -$50 million and $50 million. Components may not sum to totals because of rounding.
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
Section 101 of this legislation establishes an Investor
Advisory Committee to advise and consult with the SEC and
section 307 establishes a joint advisory committee to assist
the SEC and CFTC, both being advisory committees as defined by
section 3 of the Federal Advisory Committee Act. The Committee
finds pursuant to section 5 of the Federal Advisory Committee
Act that none of the functions of the proposed advisory
committees are being or could be performed by one or more
agencies or by an advisory committee already in existence, or
by enlarging the mandate of an existing advisory committee. The
Committee also determines that these committees have a clearly
defined purpose, fairly balanced membership, and meets all of
the other requirements of section 5(b) of the Federal Advisory
Committee Act.
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.
Earmark Identification
H.R. 3817 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1. Short title
The section designates the short title of the legislation
as the ``Investor Protection Act of 2009''.
Section 2. Table of contents
The section provides a table of contents for the bill.
TITLE I--DISCLOSURE
Section 101. Investor Advisory Committee established
The U.S. Securities and Exchange Commission (SEC) has
recently administratively established an Investor Advisory
Committee to advise on the SEC's regulatory priorities,
including issues concerning new products, trading strategies,
fee structures, and the effectiveness of disclosure;
initiatives to protect investor interest; and initiatives to
promote investor confidence in the integrity of the
marketplace. The section codifies the Investor Advisory
Committee.
The membership on the Investor Advisory Committee consists
of individuals representing the interests of individual and
institutional investors who use a wide range of investment
approaches. The advisory panel must meet at least twice
annually, and its members will receive compensation for
participation in meetings and travel expenses. The section
authorizes funding, as is necessary, to support the work of the
Investor Advisory Committee, as well.
Section 102. Clarification of the Commission's authority to engage in
consumer testing
This section clarifies the SEC's authority to gather
information (e.g., through focus groups), communicate with
investors or other members of the public (e.g., through
telephonic or written surveys), and engage in temporary
experimental programs (e.g., pilot programs to ``field test''
disclosures) in order to inform the agency's rulemaking and
other policy functions. The section confers this power under
the four principal securities laws administered by the SEC: the
Securities Act of 1933, the Securities Exchange Act of 1934,
the Investment Company Act of 1940, and the Investment Advisers
Act of 1940. The section represents an endorsement of the
benefits that can accrue from field testing, consumer outreach
and testing of disclosures to individual investors.
Section 103. Establishment of a fiduciary duty for brokers, dealers and
investment advisers, and harmonization of regulation
Section 103 requires the SEC to write rules to establish a
fiduciary duty for brokers and dealers harmonizing the standard
of conduct for brokers and dealers with that of investment
advisers when giving personalized investment advice about
securities to retail customers (and such other customers as the
SEC provides). The section amends the Securities Exchange Act
of 1934 (Exchange Act) and the Investment Advisers Act of 1940
(Advisers Act).
In this section, the Exchange Act is amended with a new
subsection within section 15. The new section authorizes the
SEC to write rules for brokers and dealers to establish a
fiduciary duty that is the same standard applicable to
investment advisers under the Advisers Act. The section also
states that compensation, by commission or other standard forms
of compensation, is not to be considered a violation of the
standard applied to the broker or dealer.
This section directs the SEC to establish rules under the
Exchange Act for the disclosure and consent by a retail
customer when a broker or dealer sells only proprietary
products or a limited range of products. The practice of
selling proprietary or a limited basket of products will not be
considered a violation of the established fiduciary duty. The
SEC shall take into consideration in rulemaking the
preservation of proprietary product channels and limited
offerings by brokers and dealers when providing personalized
investment advice. This is consistent with standards and
practices for investment advisers, which also may advise on and
sell a limited range of products.
Under this section, it is intended for the SEC when writing
rules to remain mindful of the range of activities conducted by
brokers and dealers and the varying methods of compensation.
The SEC shall prescribe rules that are inclusive of, address
and preserve the different activities and compensation models
of brokers and dealers. This range of activities should not
prohibit brokers and dealers from acting in the best interests
of customers when they give personalized investment advice
about securities.
Additionally, while rules under this section will require
that a broker or dealer act in the best interest of a customer
in providing investment advice, the section does not indicate
that a broker or dealer that provides advice in one setting or
on a limited basis, such as a telephonic advice line or
responding to a client request for limited advice, has
established a relationship of duty and trust and a fiduciary
obligation for all purposes and all accounts if the
professional does not otherwise provide ongoing advice to the
customer, as with a discount broker.
Section 103 also amends the Advisers Act by adding a new
subsection to Section 211. The subsection directs the SEC to
write rules on the standard of care such that ``the standard of
conduct for all brokers, dealers and investment advisers, when
providing personalized investment advice about securities shall
be to act in the best interest of a customer without regard to
the financial or other interest of the broker, dealer, of
investment adviser providing the advice.''
This section enables the SEC through rulemaking proceedings
to enhance this fiduciary duty, as necessary. As industry and
markets evolve, the SEC should be able to evolve application
and interpretation of the rules. As stated in the language of
the provision, ``such rules shall provide that such standard of
conduct shall be no less stringent than the standard applicable
to investment advisers under Section 206(1) and (2) of this
Act.'' The section purposefully neither defines nor employs the
terminology ``fiduciary duty'' in statute to avoid confusion as
to what is the standard of conduct under the Advisers Act.
Additionally, while the rulemaking required by this section
requires the SEC to address only retail customers, it does not
change the existing standard of care by investment advisers to
non-retail customers.
The section references the Advisers Act, Sections 206(1)
and 206(2), to direct the SEC to the source of the standard of
conduct applicable currently to investment advisers. The
relevant case law emanating from these sections of the Advisers
Act is chiefly outlined in the Supreme Court case, SEC v.
Capital Gains Research Bureau, 375 U.S. 180 (1963), and forms
the basis, in addition to SEC administrative rulings, for
accepted industry practice for investment advisers. The
Committee aims to apply the current state of law to brokers and
dealers and does not intend to undermine or dilute this
fiduciary standard and market practice for investment advisers.
This section further defines ``retail customer'' and gives
the SEC rulemaking authority to extend rules to other types of
customers in both the Exchange Act and the Advisers Act.
Investment advisers have a fiduciary duty to all customers,
including but not limited to retail customers. Direction to the
SEC under this section is not intended to alter the duty to the
range of customers that investment advisers' currently serve.
This section also stipulates that the SEC cannot define an
investor in a private fund where the investment adviser is
contracted to the private fund as a ``retail customer'' for the
purpose of such rules. This language ensures that the fiduciary
duty of an investment adviser to a private fund is owed to the
fund, not to each individual investor in the private fund.
Further, this section prevents the mere receipt of
compensation--whether in the form of fees for investment
advisers or commissions for broker-dealers--from being
considered a violation of the required standard of care.
This section further codifies in both the Exchange Act and
the Advisers Act that the SEC shall facilitate the disclosure
of conflicts of interest, including material conflicts of
interest, to customers for a broker, dealer, and investment
adviser. These disclosures should be enhanced, clear, simple
and easy to understand for a wide range of investors. Such
disclosures should include the roles and duties of the
intermediaries such that investors can make informed decisions
and preserve the choice of the customer.
This section additionally directs the SEC in both the
Exchange Act and the Advisers Act to conduct an examination of
sales practices, conflicts of interest and compensation schemes
of brokers, dealers and investment advisers. The SEC shall
write rules prohibiting or restricting these provisions should
they be deemed contrary to the public interest or investor
protection.
In addition to harmonizing the fiduciary duty of brokers,
dealers, and investment advisers under the Exchange Act and the
Advisers Act, this section harmonizes the enforcement authority
of the SEC with respect to violations by brokers, dealers, and
investment advisers. This section is intended to bring equal
sanctions and prosecution to brokers, dealers, and investment
advisers who violate their standard of conduct set forth in
this title.
Section 104. Commission study on disclosure to retail customers before
purchase of products or services
Within 180 days of enactment, this section requires the SEC
to perform a study of the nature and range of products sold to
retail customers. The study must also examine how products are
sold to customers and what information retail customers should
receive prior to purchasing such products and services. The
study will additionally examine ways to ensure that, where
possible, reasonably similar products and services are subject
to similar regulatory treatment. After completing the study,
the SEC may propose rules or regulations relating to the
subject matter contained in the study.
Section 105. Beneficial ownership and short swing profit reporting
This section provides the SEC with the authority to adopt
rules to shorten reporting timeframes and help the markets
receive more timely information concerning substantial
ownership interests in issuers. This change is important for
purposes of obtaining more accurate pricing of listed
securities.
Section 106. Revision to recordkeeping rules
The Madoff scandal highlighted the need for better
recordkeeping and third-party custody. This section would
expand the scope of records to be maintained and subject to
examination by the SEC under both the Investment Company Act of
1940 and the Investment Advisers Act of 1940 to custodians or
others who have custody or use of the investment company's or
the investment adviser's clients' securities, deposits, or
credits.
Section 107. Study on enhancing investment adviser examinations
This section calls for the SEC, within 180 days of
enactment, to examine the need to enhance and improve the
oversight of investment advisers. The study must include a
discussion of needed or recommended regulatory or legislative
steps necessary to implement changes identified by the SEC. The
SEC shall also examine the potential need for designating one
or more self-regulatory organizations to augment its oversight
of investment advisers. The SEC must report its findings to the
House and Senate and use such findings to revise its rules and
regulations as necessary.
Section 108. GAO study of financial planning
Within 180 days of enactment, this section requires the
Comptroller General to conduct a study on the unique role of
financial planners in offering investment planning and other
services to individuals. The study by the Government
Accountability Office (GAO) must also examine potential
regulatory gaps in this field. The GAO must report to Congress,
including recommendations for registration or standards for
financial planners.
TITLE II--ENFORCEMENT AND REMEDIES
Section 201. Authority to restrict mandatory pre-dispute arbitration
This section allows the SEC to issue rules under the
Securities Exchange Act of 1934 and the Investment Advisers Act
of 1940 to prohibit, or impose conditions or limitations on the
use of pre-dispute agreements requiring arbitration between a
broker, dealer, or municipal securities dealer and its
customers. In developing such rules, it is intended that the
SEC will review arbitration practices and establish that the
reforms are in the public interest and for the protection of
investors.
Section 202. Comptroller General study to review securities arbitration
system
This section requires the GAO to conduct a study on
securities arbitration issues, including costs and benefits.
The Comptroller General has one year after enactment to submit
a report to Congress.
Section 203. Whistleblower protection
The section provides the SEC with the authority to
establish an Investor Protection Fund, using funds collected in
enforcement actions not otherwise distributed to investors, to
pay whistleblowers for information that leads to enforcement
actions resulting in significant financial awards. The SEC
currently has such authority to compensate sources in insider
trading cases, and this provision would extend the SEC's power
to compensate other tipsters who bring substantial evidence of
other securities law violations. The SEC may also use the
Investor Protection Fund to pay for investor education
initiatives designed to help investors protect themselves
against securities fraud or other violations of the securities
laws. Any whistleblower who knowingly and willfully makes any
false, fictitious, or fraudulent statement or representation,
or makes or uses any false writing or document knowing the same
to contain any false, fictitious, or fraudulent statement or
entry, shall not be entitled to an award under this section and
shall be subject to criminal prosecution.
Section 204. Conforming amendments for whistleblower protection
This section makes conforming changes to existing
securities laws to account for the whistleblower bounty program
established in section 203 of the bill.
Section 205. Implementation and transition provisions for whistleblower
protections
The SEC must issue final rules and regulations to implement
the new whistleblower bounty program within 270 days of
enactment. The provisions also allow sources who submit tips
before the date of enactment to receive rewards under the new
program.
Section 206. Collateral bars
Generally, this section authorizes the SEC to impose
collateral bars against regulated persons. As a result, the SEC
would have the power to bar a regulated person who violates the
securities laws in one part of the industry (e.g., a broker-
dealer who misappropriates customer funds) from access to
customer funds in another part of the securities industry
(e.g., an investment adviser). By expressly empowering the SEC
under the Securities Exchange Act of 1934 and the Investment
Advisers Act of 1940 to impose broad prophylactic relief in one
action in the first instance, this section will enable the SEC
to more effectively protect investors and the markets while
more efficiently using SEC resources.
Section 207. Aiding and abetting authority under the Securities Act and
the Investment Company Act
The Securities Exchange Act of 1934 and the Investment
Advisers Act of 1940 presently permit the SEC to bring actions
for aiding and abetting violations of those statutes in civil
enforcement actions. This section provides the SEC with the
power to bring similar actions for aiding and abetting
violations of the Securities Act of 1933 and the Investment
Company Act of 1940. In addition, the section clarifies that
the knowledge requirement to bring an aiding and abetting claim
can be satisfied by recklessness.
Section 208. Authority to impose penalties for aiding and abetting
violations of the Investment Advisers Act
This section would clarify that the Investment Advisers Act
of 1940 expressly permits the imposition of penalties on those
individuals who aid and abet securities fraud.
Section 209. Deadline for completing examinations, inspections and
enforcement actions
This section generally requires the SEC to complete
enforcement investigations within 180 days after staff provides
a written Wells notice to any person. The section contains
exceptions for complex actions to permit 180-day extensions
after notice to the Chairman for the initial extension and
after notice to and approval by the Commission for subsequent
extensions.
For compliance examinations and inspections, the SEC has
180 days after the staff completes the on-site portion of its
compliance examination or inspection or receives all records
requested from the entity being examined or inspected,
whichever is later, to request the entity to undertake
corrective action or conclude the examination or inspection
without findings. For complex cases, the SEC may extend the
examination or inspection for one additional 180-day period
after providing notice to the Chairman.
Section 210. Nationwide service of subpoenas
The SEC currently has nationwide service of process in
administrative proceedings. This section enhances the SEC's
enforcement program by providing the SEC with the ability to
make nationwide service of process available in civil actions
filed in Federal courts. Nationwide service of process would
produce a number of substantial advantages, including a
significant savings in terms of travel costs and staff time.
The changes apply to the Securities Act of 1933, the Securities
Exchange Act of 1934, the Investment Company Act of 1940, and
the Investment Advisers Act of 1940.
Section 211. Authority to impose civil penalties in cease and desist
proceedings
This section streamlines the SEC's existing enforcement
authorities by permitting the SEC to seek civil money penalties
in cease-and-desist proceedings under Federal securities laws.
The section provides appropriate due process protections by
making the SEC's authority in administrative penalty
proceedings 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 SEC action, administrative civil
money penalties would be subject to review by a Federal appeals
court.
Section 212. Formerly associated persons
Many provisions of the Federal securities laws that
authorize the sanctioning of a person who engages in misconduct
while associated with a regulated or supervised entity
explicitly provide that such power exists even if the person is
no longer associated with that entity. Several provisions,
however, do not explicitly address this issue. As such, this
section amends those provisions of the Federal securities laws
that do not explicitly address this issue to make it clear that
the SEC, or in applicable cases the Public Company Accounting
Oversight Board, may sanction or discipline persons who engage
in misconduct while associated with a regulated or supervised
entity even if they are no longer associated with that entity.
Section 213. Sharing privileged information with other authorities
This section allows the SEC to share information with
domestic and foreign regulators and law enforcement agencies
engaged in the investigation and prosecution of violations of
applicable securities laws without waiving any privileges the
SEC may have with respect to such information. The language is
modeled on a provision in the Federal Deposit Insurance Act
that enables the Federal bank regulatory agencies to share
information with other regulators without waiving their
privileges with respect to such information.
Section 214. Expanded access to grand jury material
Modeled on Section 964 of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 providing banking
and thrift regulators with access to grand jury information,
the section authorizes government attorneys to seek court
authorization to release certain limited grand jury information
to SEC personnel for use in matters within the SEC's
jurisdiction.
Under existing law, the SEC may access grand jury
information only in the rare case in which the agency 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, the ``particularized need'' standard and the
required nexus with an ongoing or imminent judicial proceeding
severely limit the situations in which the U.S. Department of
Justice can share with the SEC even the most critical
information relevant to parallel investigations.
In most cases, the SEC must therefore conduct a separate,
duplicative investigation to obtain the same information. This
both entails an inefficient use of government resources and
frequently burdens private parties and financial institutions
with the need to provide essentially the same documents and
testimony in multiple investigations. The need for the SEC to
conduct a separate investigation also can result in substantial
delays. A narrow modification of the ``grand jury secrecy
rule'', consistent with provisions already in place for Federal
banking regulators, would aid the SEC in its investigations and
would greatly enhance the efficient use of the law enforcement
resources devoted to those investigations.
The section also permits sharing of information only with
regard to conduct that may constitute violations of the Federal
securities laws. With regard to that information, however, the
section lessens the burden in obtaining court approval. With
this legislation, 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. In addition, under the section the judicial
proceeding requirement does not apply to the SEC, permitting
information to be shared at an earlier stage in an
investigation and in connection with an administrative
proceeding.
Section 215. Aiding and abetting standards of knowledge satisfied by
recklessness
The current law for determining aiding and abetting
violations and the scope of primary liability remains
unsettled, resulting in challenges for the SEC in charging
people who play substantial roles in fraud cases. Specifically,
the Securities Exchange Act of 1934 provides that the SEC can
prosecute people for ``knowingly'' aiding and abetting
violations of that law. A growing number of courts, however,
have held that knowingly means actual knowledge, rather than
recklessness, resulting in a standard that is higher for aiding
and abetting violations than for the primary violation (which,
for a fraud violation, would include recklessness).
The section corrects this discrepancy by clarifying that
recklessness is sufficient for bringing an aiding and abetting
action. As a result, the standard for aiding and abetting and
the primary violation would become the same, and the SEC would
no longer find itself at a disadvantage in charging someone as
an aider and abettor rather than a primary violator.
Section 216. Extraterritorial jurisdiction of the anti-fraud provisions
of the Federal securities laws
This section addresses the authority of the SEC and the
United States to bring civil and criminal law enforcement
proceedings involving transnational securities frauds--i.e.,
securities frauds in which not all of the fraudulent conduct
occurs within the United States and not all of the wrongdoers
are located domestically. Courts have previously ruled that
Federal securities laws are silent as to their transnational
reach, so two court tests--the conduct test and the effects
test--have emerged for making such determinations and different
courts apply different tests. This section would codify the
SEC's authority to bring proceedings under both the conduct and
the effects tests developed by the courts regardless of the
jurisdiction of the proceedings. As a result, the bill creates
a single national standard for protecting investors affected by
transnational frauds.
Section 217. Fidelity bonding
The section provides the SEC with the power to require that
registered management companies provide and maintain a bond
against loss as to any officer or employee who has access to
securities or funds of the company either directly or through
the authority to draw upon such funds or to direct generally
the disposition of such securities.
Section 218. Enhanced SEC authority to conduct surveillance and risk
assessment
This section amends the Securities Exchange Act of 1934,
the Investment Company Act of 1940, and the Investment Advisers
Act of 1940 to subject registered individuals and firms at any
time, or from time to time, to such reasonable periodic,
special, or other information and document requests as the SEC
by rule or order deems necessary or appropriate to conduct
surveillance or risk assessments of the securities markets.
Section 219. Investment company examinations
Since 1975 the SEC has had the authority to examine ``all''
records of broker-dealers and other persons registered under
the Securities Exchange Act of 1934, as well as ``all'' records
of advisers registered under the Investment Advisers Act of
1940. The SEC's authority to examine registered investment
companies, however, has remained limited to ``required''
records. This section changes the authority under the
Investment Companies Act of 1940 to apply to ``all'' records.
By fixing this statutory anomaly, the SEC would gain a better
understanding of the operations of investment companies.
Section 220. Control person liability under the Securities Exchange Act
The SEC had for many years relied on Section 20(a) of the
Securities Exchange Act of 1934, which imposes joint-and-
several liability on control persons unless they can establish
an affirmative defense. Two recent court decisions, however,
have concluded that the provision is available only to private
parties. This section makes it clear that the SEC may once
again impose joint-and-several liability on control persons
unless they can establish an affirmative defense.
Section 221. Enhanced application of anti-fraud provisions
Several of the anti-fraud provisions in the Securities
Exchange Act of 1934 apply only to those transactions that
involve securities registered on an exchange. In today's
trading environment, however, the same standards should apply
to all transactions whether they involve securities registered
on an exchange.
This section therefore broadens the SEC's authority to
apply the law's anti-fraud provisions to transactions not
conducted on exchanges. Significantly, the amendments extend
the SEC's existing rulemaking authority to cover short sales in
the over-the-counter markets and of non-equity securities.
Additionally, the section extends the SEC's anti-fraud
rulemaking power to cover all options on securities.
Section 222. SEC authority to issue rules on proxy access
This section provides the SEC with the clear authority to
issue regulations regarding the nomination of directors by
shareholders to serve on a company's board of directors,
thereby further democratizing corporate governance.
TITLE III--COMMISSION FUNDING AND ORGANIZATION
Section 301. Authorization of appropriations
Under this section, the SEC's authorized funding level
doubles over a 5-year period, going from $1.115 billion in FY
2010 to $2.25 billion in FY 2015. This enhanced funding
authorization will allow the SEC to improve its enforcement
programs and obtain the tools needed to better protect
investors, hire staff with industry experience, and police
today's complex markets.
Section 302. Investment adviser regulation funding
This section grants the SEC rulemaking authority to create
a new user fee paid by investment advisers to support the SEC's
work related to the inspection and examination of investment
advisers. Broker-dealers presently pay fees to the Financial
Industry Regulatory Authority (FINRA), a self-regulatory
organization, to cover the costs of their primary regulator,
but investment advisers do not pay such fees to the SEC, which
serves as their front-line regulator.
Section 303. Amendments to section 31 of the Securities Exchange Act of
1934
This section makes several technical changes to section 31
of the Securities Exchange Act of 1934 to improve the
collection of the fees assessed on securities transactions that
presently help to offset the costs of the SEC's operations.
Section 304. Commission organizational study and reform
The failures to detect the Madoff and Stanford Financial
frauds demonstrated deep deficiencies and flaws in our existing
securities regulatory structure. The section therefore requires
an expeditious, independent, comprehensive study of the present
structure of securities regulation by a high-caliber entity
with expertise in organizational change. The study will
identify structural and operational reforms, and offer
administrative and regulatory recommendations designed to
identify further modifications aimed at enhancing investor
protection at the SEC, FINRA, and other self-regulatory
organizations. The SEC must hire the independent consultant
within 90 days of enactment, and the consultant must complete
its work within 150 days after being retained.
Not later than the end of the 6-month period beginning on
the date the consultant releases the organizational reform
study, the SEC shall issue a report to the House Financial
Services Committee and the Senate Banking Committee about what
steps the agency is taking to implement the report's
recommendations and reorganize securities regulation. The SEC
shall continue via reports to update the two congressional
panels on its progress every 6 months for 2 years after the
issuance of the initial organizational reform study.
Section 305. Capital Markets Safety Board
This section creates within the SEC a Capital Markets
Safety Board to investigate how institutions in the securities
industry failed. After completing its investigations, the Board
must publish on the SEC's website its findings and
recommendations on how other firms can avoid similar mistakes.
Section 306. Report on implementation of ``post-Madoff reforms''
Under this section, the SEC must publish within 6 months of
enactment a report outlining how the agency has implemented its
post-Madoff reforms and whether an overlap exists between those
reforms and the post-Madoff recommendations made by the SEC
Inspector General.
Section 307. Joint Advisory Committee
This section permits the SEC and the Commodity Futures
Trading Commission (CFTC) to establish a joint advisory
committee--on which members of each Commission and industry
experts can sit--to examine areas of common interest, identify
emerging regulatory risks and provide solutions, and regularly
report its findings to the SEC, the CFTC, and Congress.
TITLE IV--ADDITIONAL COMMISSION REFORMS
Section 401. Regulation of securities lending
The securities lending program of American International
Group contributed greatly to the company's need to seek aid
from the Federal government. Securities lending and borrowing
therefore have the potential to harm investors. In response,
this section clarifies the SEC's authority to regulate stock
loans and borrowing. Such rules will enhance market
transparency, limit collateral risk exposures, and limit
conflicts of interest in the securities lending process.
The section further ensures that nothing in the new power
shall be construed to limit the ability of other Federal
financial regulators to issue rules to impose restrictions on
the lending or borrowing of securities in order to protect the
solvency of a financial institution under their jurisdiction or
against systemic risk.
Section 402. Lost and stolen securities
The section expands the scope of securities that must be
reported to the SEC or its designee under the Lost and Stolen
Securities Program, to include cancelled, missing or
counterfeit securities certificates.
Section 403. Fingerprinting
This section requires fingerprinting for the personnel of
registered securities information processors, national
securities exchanges, and national securities associations.
This change would bring these new entities in line with the
organizations already listed in the Securities Exchange Act of
1934. This reform also ensures that these entities are aware of
whether their personnel have criminal backgrounds and
facilitates governmental efforts to combat terrorism financing.
Section 404. Equal treatment of self-regulatory organization rules
Section 29(a) of the Securities Exchange Act of 1934 voids
any condition, stipulation, or provision binding any person to
waive compliance with any provision of the law, any rule or
regulation thereunder, or any rule of an exchange. This section
extends this safeguard to the rules of other self-regulatory
organizations--specifically registered securities associations
(e.g., FINRA) and registered clearing agencies.
This change is consistent with provisions of the law that
encourage allocation of self-regulatory responsibilities among
self-regulatory organizations to avoid overlapping and
duplicative regulation. The change is particularly important
now that FINRA has taken over the regulation of New York Stock
Exchange's members' conduct in relation to customers.
Section 405. Clarification that section 205 of the Investment Advisers
Act of 1940 does not apply to State-registered advisers
As part of the National Securities Markets Improvements Act
of 1996, Congress determined that the SEC should regulate
larger investment advisers while States should oversee smaller
investment advisers. This section eliminates any remaining
application of Federal law to investment adviser firms that the
States now exclusively regulate.
Section 406. Conforming amendments for the repeal of the Public Utility
Holding Company Act of 1935
In 2005, Congress repealed the Public Utility Holding
Company Act of 1935 but failed to remove all associated
references in Federal securities laws. This section amends the
following statutes to make conforming amendments resulting from
the 2005 repeal of the Public Utility Holding Company Act: the
Securities Exchange Act of 1934, the Trust Indenture Act of
1939, the Investment Company Act of 1940, and the Investment
Advisers Act of 1940.
Section 407. Promoting transparency in financial reporting
This section requires the SEC, the Financial Accounting
Standards Board, and the Public Company Accounting Oversight
Board to provide oral testimony by their respective
chairpersons (or a designee), beginning in 2010, and annually
for 5 years, to the House Committee on Financial Services.
Testimony at these hearings will address efforts to reduce the
complexity in financial reporting in order to provide more
accurate and clearer financial information to investors.
Section 408. Unlawful margin lending
The Capital Markets Efficiency Act of 1996 amended Section
7(c) of the Exchange Act, in part, by replacing the period that
concluded the predecessor provision of Subsection 7(c)(1)(A)
with a semicolon and an ``and''. This section changes the
``and'' to an ``or'' in order to clarify that a violation of
either prong remains sufficient to establish a cause of action
for improper margin lending. This technical fix would match the
statutory language to existing SEC policy interpretations that
provide that the two clauses operate independently.
Section 409. Protecting confidentiality of materials submitted to the
Commission
This section amends the Securities Exchange Act of 1934,
the Investment Company Act of 1940, and the Investment Advisers
Act of 1940 to protect the confidentiality of other sensitive
business records and information obtained by SEC staff during
the supervisory process. The section also protects the
confidentiality of sensitive business records and information
that the staff obtains during examinations of investment
companies and investment advisers.
Section 410. Technical corrections
This section makes numerous technical corrections to the
Securities Act of 1933, the Securities Exchange Act of 1934,
the Trust Indenture Act of 1939, the Investment Company Act of
1940, and the Investment Advisers Act of 1940.
Section 411. Municipal securities
In recent years, the composition of the governing bodies of
most self-regulatory organizations has become more independent.
Consistent with these changes, this section gives the SEC
greater flexibility in determining the make-up of the Municipal
Securities Rulemaking Board (a statutorily mandated self-
regulatory organization), director independence, and how the
board functions.
Section 412. Interested person definition
This section amends the Investment Company Act of 1940 to
include in the definition of an interested person of an
investment company any person whom the SEC finds would be
unlikely to exercise an appropriate degree of independence
because of (1) a material business or professional relationship
with the company or any affiliated person of the company or (2)
a close familial relationship with any affiliated person of the
company. As a result of these changes, the SEC will have the
authority the agency needs to ensure that these individuals and
other conflicted persons cannot claim to act as independent
watchdogs for mutual fund shareholders.
Section 413. Rulemaking authority to protect redeeming investors
This section provides the SEC with express authority to
limit mutual funds' investments in illiquid securities. During
the height of the financial crisis, the illiquidity of short-
term debt threatened to cause the per share net asset values of
many money market funds to drop below a dollar when they were
unable to sell previously liquid securities at their carrying
value. As a result of these market conditions, Reserve Primary
Fund ``broke the buck,'' and only government intervention
averted similar situations at other money market funds. While
the SEC's longstanding illiquid investment limits have worked
reasonably well, the section will remove any doubt about the
SEC's authority to impose such restrictions.
Section 414. Study on SEC revolving door
This section requires the GAO to perform a study within one
year of enactment about concerns related to SEC employees going
on to work for entities they once regulated.
Section 415. Study on internal control evaluation and reporting cost
burdens on smaller issuers
This section requires the SEC and the GAO to each conduct a
study evaluating the costs and benefits of complying with
section 404(b) of the Sarbanes-Oxley Act for non-accelerated
issuers. Non-accelerated issuers are publicly traded companies
that have a market capitalization of $75 million or less. The
report will provide reform recommendations on reducing
compliance burdens.
Section 416. Analysis of rule regarding smaller reporting companies
In light of the fact that certain companies' revenues and
market capitalizations do not precisely reflect the nature of
those companies, especially in the biotechnology industry, this
section requires the SEC to conduct a study on the inclusion of
revenue as a criteria used in defining smaller reporting
companies under Rule 12b-2, established pursuant to the
Sarbanes-Oxley Act.
Section 417. Financial Reporting Forum
This section establishes a Financial Reporting Forum
comprised of the SEC Chairman, the head of the Financial
Accounting Standards Board, the Chairman of the Public Company
Accounting Oversight Board, the heads of other Federal
financial regulators, and appointed representatives with an
interest in accounting issues to meet quarterly to discuss
issues critical to immediate and long-term financial reporting.
The Financial Reporting Forum shall annually report its
findings to Congress.
Section 418. Investment advisers subject to State authorities
This section clarifies the regulatory treatment of certain
investment advisers. Generally, the provision requires
investment advisers with $100 million or less in assets under
management, or such higher figure as the SEC may by rule deem
appropriate, to register with State securities regulators.
Section 419. Custodial requirements
This section prohibits registered investment advisers from
maintaining custody of client assets in excess of $10 million
dollars, unless the assets are kept by a qualified custodian,
maintained in separate accounts under the client's names, or
retained in an account of which the investment adviser is the
trustee. The qualified custodian cannot, directly or
indirectly, provide investment advice to the funds it holds in
custody. The change comes in response to the Madoff scandal.
Section 420. Ombudsman
The section creates the position of an ombudsman at the
SEC. Within 180 days after enactment, the SEC Chairman will
appoint the ombudsman who will report directly to the Chairman.
The ombudsman will serve as a liaison between the SEC and any
affected person with respect to any problem such person may
have in dealing with the SEC resulting from the regulatory
activities of the SEC. The ombudsman will have a number of
duties, including issuing reports to the SEC annually.
TITLE V--SECURITIES INVESTOR PROTECTION ACT AMENDMENTS
Section 501. Increasing the minimum assessment paid by SIPC members
This section updates the Securities Investor Protection Act
(SIPA) to increase the minimum assessments paid by members of
the Securities Investor Protection Corporation (SIPC) to the
SIPC Fund. Currently, SIPA provides that the minimum assessment
of a SIPC member shall not exceed $150 per year, regardless of
the size of the SIPC member. This limit was imposed when SIPA
was first enacted in 1970 and has never been adjusted to
reflect either inflation or the substantial growth of the
securities industry. The section strikes this current minimum
assessment level and sets a new minimum assessment at 2 basis
points of a SIPC member's gross revenues.
Section 502. Increasing the borrowing limit on Treasury loans
The liquidations of Bernard L. Madoff Investment Securities
and Lehman Brothers have significantly decreased and may
eventually deplete the SIPC Fund's available reserves. This
section therefore provides that, in the event that the SIPC
Fund is or may reasonably appear to be insufficient to satisfy
its statutory requirements, the SEC is authorized to make loans
to the SIPC Fund by issuing notes or other obligations to the
Secretary of the Treasury. Congress imposed the current
borrowing limit of $1 billion at the time of SIPA's enactment
in 1970 and has never adjusted the figure to reflect either
inflation or the substantial growth of the securities industry.
This section increases the SEC's authority to issue notes or
other obligations to $2.5 billion.
Section 503. Increasing the cash limit of protection
This section raises the maximum cash advance amount to
$250,000 and authorizes SIPC, subject to the approval of the
SEC, to make inflationary adjustments every 5 years to that
amount starting in 2010. Since the establishment of SIPC in
1970, Congress has generally increased the SIPC cash advance
amount each time it has increased the amount of Federal Deposit
Insurance Corporation (FDIC) coverage. Consistent with changes
to FDIC coverage levels made in 2005, this section brings SIPC
and FDIC coverage back in line and provides a commensurate
level of protection for the clients of securities brokerage
firms as the customers of depository institutions.
Section 504. SIPC as trustee in SIPA liquidation proceedings
Under current law, SIPC must designate an outside trustee
for the liquidation of a failed SIPC member when the failed
firm's liabilities to unsecured general creditors and to
subordinated lenders exceed $750,000 and where the failed firm
appears to have more than 500 customers. Experience has shown
that administration expenses are substantially reduced when
SIPC personnel perform the liquidation functions, with equal
benefit to customers as when an outside trustee is appointed.
Accordingly, this section permits SIPC to designate itself as
trustee for the liquidation of a failed SIPC member regardless
of the size of the firm's liabilities to unsecured general
creditors and where the failed firm appears to have less than
5,000 customers.
Section 505. Insiders ineligible for SIPC advances
The section adds ``insiders'' (as defined under the
Bankruptcy Code) to the class of customers ineligible for SIPC
advances. This statutory change would thus conform the
treatment of an insider's claims filed in a stockbroker
liquidation under the Bankruptcy Code and in a SIPA liquidation
proceeding.
Section 506. Eligibility for direct payment procedure
This section allows SIPC to use the direct payment
procedure to resolve the failure of small firms with total
claims of all customers up to an aggregate of $850,000. The
direct payment procedure enables SIPC to quickly, and
inexpensively, resolve the failure of small brokerage firms
without the need to use the more time-consuming and expensive
procedures applicable in a judicial liquidation proceeding.
Current law limits the use of the direct payment procedure to
cases in which all customer claims of an affected SIPC member
aggregate to less than $250,000. Congress imposed this limit
when adding the direct payment procedure to SIPA in 1978, and
the figure has remained unadjusted since then.
Section 507. Increasing the fine for prohibited acts under SIPA
SIPA currently identifies and prescribes criminal penalties
up to $50,000 for several prohibited acts and for fraudulent
conversion. The maximum penalty amount has remained constant
since the enactment of the provisions concerning prohibited
acts and fraudulent conversions, more than three decades ago.
This section quintuples the maximum fine under SIPA to
$250,000.
Section 508. Penalty for misrepresentation of SIPC membership or
protection
This section adds false advertising and misrepresentation
regarding SIPC membership or protection to the list of
prohibited acts under SIPA. This section also prescribes civil
liability for damages caused by such misrepresentations and
criminal liability in the form of a fine up to $250,000 or
imprisonment up to 5 years. Finally, this section extends civil
liability to Internet service providers who knowingly transmit
such misrepresentations and provides for court jurisdiction to
issue injunctions.
Section 509. Futures held in a portfolio margin securities account
protection
Under SIPA, claims of securities customers take priority
over claims of general creditors. SIPC insurance, however, does
not extend to futures positions, other than securities futures.
This section extends SIPC insurance to futures positions
held in a customer's portfolio margining account under a
program approved by the SEC. This amendment addresses the
possibility that current law would treat a portfolio margining
customer as a general creditor with respect to the proceeds
from such customer's futures positions, while the same
portfolio margining customer would have priority for their
securities holdings in the case of insolvency of their broker-
dealer. This uneven treatment, along with the Commodity
Exchange Act (CEA) requirement that futures be held in a
segregated account, prevents customers from including related
futures products in their portfolio margining securities
accounts. These obstacles preclude those customers from taking
full advantage of the efficiencies created from hedging related
positions in a single account.
This section would become fully operative when the CFTC
provides exemptive relief from the CEA's requirements regarding
segregation of customer funds. This section neither amends the
CEA nor limits the CFTC's discretion in granting exemptive
relief.
Section 510. Study and report on the feasibility of risk-based
assessments for SIPC members
This section directs the Comptroller General to conduct and
complete a study within one year of enactment to determine
whether SIPC could levy risk-based premiums on SIPC members.
The GAO must consult with the SEC, FINRA, SIPC, FDIC, and any
other entity it deems relevant in carrying out this study.
Section 511. Budgetary treatment of Commission loans to SIPC
This section clarifies that SIPC is a budgetary entity as
defined by the Federal Credit Reform Act, codifying a recent
Office of Management and Budget determination to this effect.
This provision would neither affect the status of SIPC staff as
non-government employees nor subject SIPC to Federal
procurement law. It would, however, require an accounting of
SIPC expenses and revenues in monthly statements issued by the
U.S. Treasury. This clarification is needed because, for the
first time, SIPC may need to borrow money from the SEC as a
result of the Madoff fraud and other insolvencies.
TITLE VI--SARBANES-OXLEY ACT AMENDMENTS
Section 601. Public Company Accounting Oversight Board oversight of
auditors of brokers and dealers
The $65 billion Madoff Ponzi scheme revealed a loophole in
Federal securities laws with respect to the oversight of the
auditors of broker-dealers. This section closes this loophole
by providing the Public Company Accounting Oversight Board
(PCAOB) with oversight authorities over the auditors of
brokers-dealers, not just the requirement that such auditors
register with the PCAOB.
Like public companies, brokers-dealers would pay an
accounting support fee in proportion to the broker-dealer's net
capital compared to the total net capital of all brokers and
dealers. The section also authorizes the PCAOB to refer
investigations to FINRA or other defined self-regulatory
organizations and share relevant information with them. The
section further allows the PCAOB to differentiate amongst
different types of broker-dealers to allow for the scaling and
scoping of registered auditor reviews commensurate with the
activities and size of the broker-dealer.
Section 602. Foreign regulatory information sharing
This section allows the PCAOB to share information with
foreign regulatory and law enforcement agencies engaged in the
investigation and prosecution of violations of applicable
accounting and auditing laws without waiving any privileges
with respect to such information. This statutory change will
resolve international conflicts that have impaired the PCAOB's
ability to fulfill its statutory obligation to inspect non-U.S.
registered accounting firms.
Section 603. Expansion of audit information to be produced and
exchanged with foreign counterparts
This section enhances the ability of the SEC and the PCAOB
to access the audit work of foreign public accounting firms
when the foreign public accounting firm performs audit work,
conducts interim reviews, or performs other material services
upon which a registered public accounting firm relies in the
conduct of an audit or interim review.
Section 604. Conforming amendment related to registration
This section changes the Sarbanes-Oxley Act so that the SEC
has authority--in addition to the PCAOB--regarding applications
for registration.
Section 605. Fair Fund amendments
This section increases the money available to compensate
defrauded investors by revising the Fair Fund provisions to
permit the SEC to use penalties obtained from a securities
fraudster to recompense victims of the fraud even if the SEC
does not obtain an order requiring the fraudster to disgorge
ill-gotten gains. In some cases, a defendant may engage in a
securities law violation that harms investors, but the SEC
cannot obtain disgorgement from the defendant because the
defendant did not personally benefit from the violation.
Section 606. Exemption for non-accelerated filers
This section exempts non-accelerated filers, which are
those public companies with less than $75 million in market
capitalization, from the external audit of internal controls
requirements contained in section 404 of the Sarbanes-Oxley
Act. The provision also calls for a joint study by the SEC and
the GAO to determine ways the section 404 compliance burdens
for companies whose public float falls between $75 and $250
million can be further reduced.
Section 607. Whistleblower protection against retaliation by a
subsidiary of an issuer
This section creates additional protections for
whistleblowers who report securities fraud and other
wrongdoing. Currently, the statute could be read as providing a
remedy only for retaliation by the issuer, and not by the
subsidiaries or affiliates of an issuer. This section would
eliminate a defense now raised in a substantial number of
actions brought by whistleblowers and apply the whistleblower
protections under the Sarbanes-Oxley Act to both issuers and
their subsidiaries and affiliates.
Section 608. Congressional access to information
This section clarifies that the PCAOB may not withhold
information from Congress.
Section 609. Creation of ombudsman for the PCAOB
This section creates an ombudsman for the PCAOB, who will
be appointed by the Board within 180 days of enactment and who
will report directly to the PCAOB Chairman. The ombudsman will
serve as a liaison between the Board and registered accounting
firms and issuers. The ombudsman will also assure that
safeguards exist to encourage complaints to come forward and
carry out other duties assigned by the Board.
Section 610. Auditing Oversight Board
This section changes the name of the Public Company
Accounting Oversight Board to the Auditing Oversight Board to
reflect the entity's actual responsibilities, especially in
light of the changes made by section 601 of the bill.
TITLE VII--SENIOR INVESTMENT PROTECTION
Section 701. Findings
This section provides congressional findings that seniors
are targeted by unscrupulous salespersons using misleading
designations and that seniors have a right to know whether they
are working with qualified advisers who understand the products
they are offering.
Section 702. Definitions
This section defines the terms ``misleading designation'',
``financial product'', and ``misleading or fraudulent
marketing'', among others.
Section 703. Grants to States for enhanced protection of seniors from
being mislead by false designations
This section requires the SEC to establish a program
providing grants to the States to investigate and prosecute
misleading and fraudulent marketing practices and to educate
seniors to reduce the occurrence of those practices. The
section also lays out how the States can use the grants and the
minimum amounts of the grants. The section additionally
explains in detail how State designation rules for securities,
and State suitability rules for securities and annuities, will
function within the grant program.
Section 704. Applications
This section establishes how States will apply to the SEC
for grants. The application must identify the scope of the
problem, and describe how the proposal protects seniors from
misleading or fraudulent marketing in the sale of financial
products.
Section 705. Length of participation
States obtaining grants under this title can receive
assistance for three years, after which they may reapply for
funding.
Section 706. Authorization of appropriations
To carry out the program created under this title, this
section authorizes $8 million for each of the fiscal years 2011
through 2015.
TITLE VIII--REGISTRATION OF MUNICIPAL FINANCIAL ADVISERS
Section 801. Municipal financial adviser registration requirements
This section requires municipal financial advisers not
currently regulated under existing securities laws to register
with the SEC. The section sets forth professional standards for
this area of public finance. It further spells out the terms
under which municipal financial advisers must register with the
SEC and defines a municipal financial adviser. The section also
defines prohibited transactions for municipal financial
advisers and creates a fiduciary duty toward their clients.
Section 802. Conforming amendments
This section amends relevant securities laws to reflect the
changes made in this title.
Section 803. Effective dates
This section makes these amendments effective 30 days after
enactment. The SEC, however, has until 120 days after the
enactment to publish for notice and public comment regulations
necessary to effectuate the title. The SEC must take final
action on the rules within 270 days after enactment.
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):
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
NECESSITY FOR REGULATION AS PROVIDED IN THIS TITLE
Sec. 2. For the reasons hereinafter enumerated, transactions
in securities as commonly conducted upon securities exchanges
and over-the-counter markets are affected with a national
public interest which makes it necessary to provide for
regulation and control of such transactions and of practices
and matters related thereto, including transactions by
officers, directors, and principal security holders, to require
appropriate reports, to remove impediments to and perfect the
mechanisms of a national market system for securities and a
national system for the clearance and settlement of securities
transactions and the safeguarding of securities and funds
related thereto, and to impose requirements necessary to make
such regulation and control reasonably complete and effective,
in order to protect interstate commerce, the national credit,
the Federal taxing power, to protect and make more effective
the national banking system and Federal Reserve System, and to
insure the maintenance of fair and honest markets in such
transactions:
(1) Such transactions (a) are carried on in large volume by
the public generally and in large part originate outside the
States in which the exchanges and over-the-counter markets are
located and/or are [affected] effected by means of the mails
and instrumentalities of interstate commerce; (b) constitute an
important part of the current of interstate commerce; (c)
involve in large part the securities of issuers engaged in
interstate commerce; (d) involve the use of credit, directly
affect the financing of trade, industry, and transportation in
interstate commerce, and directly affect and influence the
volume of interstate commerce; and affect the national credit.
* * * * * * *
DEFINITIONS AND APPLICATION OF TITLE
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(47) The term ``securities laws'' means the
Securities Act of 1933 (15 U.S.C. 78a et seq.), the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), the Sarbanes-Oxley Act of 2002, [the Public
Utility Holding Company Act of 1935 (15 U.S.C. 79a et
seq.),] the Trust Indenture Act of 1939 (15 U.S.C.
77aaa et seq.), the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.), the Investment Advisers Act of
1940 (15 U.S.C. 80b et seq.), and the Securities
Investor Protection Act of 1970 (15 U.S.C. 78aaa et
seq.).
* * * * * * *
(55)(A) The term ``security future'' means a contract
of sale for future delivery of a single security or of
a narrow-based security index, including any interest
therein or based on the value thereof, except an
exempted security under [section 3(a)(12) of the
Securities Exchange Act of 1934] section 3(a)(12) of
this Act as in effect on the date of the enactment of
the Futures Trading Act of 1982 (other than any
municipal security as defined in section 3(a)(29) as in
effect on the date of the enactment of the Futures
Trading Act of 1982). The term ``security future'' does
not include any agreement, contract, or transaction
excluded from the Commodity Exchange Act under section
2(c), 2(d), 2(f), or 2(g) of the Commodity Exchange Act
(as in effect on the date of the enactment of the
Commodity Futures Modernization Act of 2000) or title
IV of the Commodity Futures Modernization Act of 2000.
* * * * * * *
(65) Municipal financial adviser.--
(A) The term ``municipal financial adviser''
means a person who, for compensation, engages
in the business of--
(i) providing advice to a municipal
securities issuer with respect to--
(I) the issuance or proposed
issuance of securities,
including any remarketing of
municipal securities directly
or indirectly by or on behalf
of a municipal securities
issuer;
(II) the investment of
proceeds from securities issued
by such municipal securities
issuer;
(III) the hedging of any
risks associated with
subclauses (I) or (II),
including advice as to swap
agreements (as defined in
section 206A of the Gramm-
Leach-Bliley Act regardless of
whether the counterparties
constitute eligible contract
participants); or
(IV) preparation of
disclosure documents in
connection with the issuance,
proposed issuance, or previous
issuance of securities issued
by a municipal securities
issuer, including, without
limitation, official statements
and documents prepared in
connection with a written
agreement or contract for the
benefit of holders of such
securities described in section
240.15c2-12 of title 17, Code
of Federal Regulations;
(ii) assisting a municipal securities
issuer in selecting or negotiating
guaranteed investment contracts or
other investment products; or
(iii) assisting any municipal
securities issuer in the primary
offering of securities not involving a
public offering.
(B) Such term does not include--
(i) an attorney, if the attorney is
offering advice or providing services
that are of a traditional legal nature;
(ii) a nationally recognized
statistical rating organization to the
extent it is involved in the process of
developing credit ratings;
(iii) a registered broker-dealer when
acting as an underwriter, as such term
is defined in section 2(a)(11) of the
Securities Act of 1933 (15 U.S.C.
section 77b(a)(11)); or
(iv) a State or any political
subdivision thereof.
(66) Municipal securities issuer.--The term
``municipal securities issuer'' means--
(A) any entity that has the ability to issue
a security the interest on which is excludable
from gross income under section 103 of the
Internal Revenue Code of 1986 and the
regulations thereunder; or
(B) any person who receives the proceeds
generated from the issuance of municipal
securities.
(67) Person associated with a municipal financial
adviser; associated person of a municipal financial
adviser.--The term ``person associated with a municipal
financial adviser'' or ``associated person of a
municipal financial adviser'' means any partner,
officer, director, or branch manager of such municipal
financial adviser (or any person occupying a similar
status or performing similar functions), any person
directly or indirectly controlling, controlled by, or
under common control with such municipal financial
adviser, or any employee of such municipal financial
adviser, except that any person associated with a
municipal financial adviser whose functions are solely
clerical or ministerial shall not be included in the
meaning of such term for purposes of section 15F(b)
(other than paragraph (6) thereof).
* * * * * * *
(g) Church Plans.--No church plan described in section 414(e)
of the Internal Revenue Code of 1986, no person or entity
eligible to establish and maintain such a plan under the
Internal Revenue Code of 1986, no company or account that is
excluded from the definition of an investment company under
section 3(c)(14) of the Investment Company Act of 1940, and no
trustee, director, officer or employee of or volunteer for such
plan, [company, account person, or entity] company, account,
person, or entity, acting within the scope of that person's
employment or activities with respect to such plan, shall be
deemed to be a ``broker'', ``dealer'', ``municipal securities
broker'', ``municipal securities dealer'', ``government
securities broker'', ``government securities dealer'',
``clearing agency'', or ``transfer agent'' for purposes of this
title--
(1) * * *
* * * * * * *
SEC. 4D. INVESTOR ADVISORY COMMITTEE.
(a) Establishment and Purpose.--There is established an
Investor Advisory Committee (in this section referred to as the
``Committee'') to advise and consult with the Commission on--
(1) regulatory priorities and issues regarding new
products, trading strategies, fee structures and the
effectiveness of disclosures;
(2) initiatives to protect investor interest; and
(3) initiatives to promote investor confidence in the
integrity of the marketplace.
(b) Membership.--
(1) Appointment.--The Chairman of the Commission
shall appoint the members of the Committee, which
members shall--
(A) represent the interests of individual
investors;
(B) represent the interests of institutional
investors; and
(C) use a wide range of investment
approaches.
(2) Members not commission employees.--Members shall
not be considered employees or agents of the Commission
solely because of membership on the Committee.
(c) Meetings.--The Committee shall meet from time to time at
the call of the Commission, but, at a minimum, shall meet at
least twice each year.
(d) Compensation and Travel Expenses.--Members of the
Committee who are not full-time employees of the United States
shall--
(1) be entitled to receive compensation at a rate
fixed by the Commission while attending meetings of the
Committee, including travel time; and
(2) be allowed travel expenses, including
transportation and subsistence, while away from their
homes or regular places of business.
(e) Committee Findings.--Nothing in this section requires the
Commission to accept, agree, or act upon the findings or
recommendations of the Committee.
(f) Authorization of Appropriations.--There is authorized to
be appropriated to the Commission such sums as are necessary
for the activities of the Committee.
SEC. 4E. DEADLINE FOR COMPLETING ENFORCEMENT INVESTIGATIONS AND
COMPLIANCE EXAMINATIONS AND INSPECTIONS.
(a) Enforcement Investigations.--
(1) In general.--Not later than 180 days after the
date on which Commission staff provide a written Wells
notification to any person, the Commission staff shall
either file an action against such person or provide
notice to the Director of the Division of Enforcement
of its intent to not file an action.
(2) Exceptions for certain complex actions.--
Notwithstanding paragraph (1), if the head of any
division or office within the Commission or his
designee determines that a particular enforcement
investigation is sufficiently complex such that a
determination regarding the filing of an action against
a person cannot be completed within the deadline
specified in paragraph (1), the head of any division or
office within the Commission or his designee may, after
providing notice to the Chairman of the Commission,
extend such deadline as needed for one additional 180-
day period. If after the additional 180-day period the
head of any division or office within the Commission or
his designee determines that a particular enforcement
investigation is sufficiently complex such that a
determination regarding the filing of an action against
a person cannot be completed within the additional 180-
day period, the head of any division or office within
the Commission or his designee may, after providing
notice to and receiving approval of the Commission,
extend such deadline as needed for one or more
additional successive 180-day periods.
(b) Compliance Examinations and Inspections.--
(1) In general.--Not later than 180 days after the
date on which Commission staff completes the on-site
portion of its compliance examination or inspection or
receives all records requested from the entity being
examined or inspected, whichever is later, Commission
staff shall provide the entity being examined or
inspected with written notification indicating either
that the examination or inspection has concluded
without findings or that the staff requests the entity
undertake corrective action.
(2) Exception for certain complex actions.--
Notwithstanding paragraph (1), if the head of any
division or office within the Commission or his
designee determines that a particular compliance
examination or inspection is sufficiently complex such
that a determination regarding concluding the
examination or inspection or regarding the staff
requests the entity undertake corrective action cannot
be completed within the deadline specified in paragraph
(1), the head of any division or office within the
Commission or his designee may, after providing notice
to the Chairman of the Commission, extend such deadline
as needed for one additional 180-day period.
* * * * * * *
MARGIN REQUIREMENTS
Sec. 7. (a) * * *
* * * * * * *
(c) Unlawful Credit Extension to Customers.--
(1) Prohibition.--It shall be unlawful for any member
of a national securities exchange or any broker or
dealer, directly or indirectly, to extend or maintain
credit or arrange for the extension or maintenance of
credit to or for any customer--
(A) on any security (other than an exempted
security), except as provided in paragraph (2),
in contravention of the rules and regulations
which the Board of Governors of the Federal
Reserve System (hereafter in this section
referred to as the ``Board'') shall prescribe
under subsections (a) and (b); [and] or
* * * * * * *
PROHIBITION AGAINST MANIPULATION OF SECURITY PRICES
Sec. 9. (a) It shall be unlawful for any person, directly or
indirectly, by the use of the mails or any means or
instrumentality of interstate commerce, or of any facility of
any national securities exchange, or for any member of a
national securities exchange--
(1) For the purpose of creating a false or misleading
appearance of active trading in any security [registered on a
national securities exchange] other than a government security,
or a false or misleading appearance with respect to the market
for any such security, (A) to effect any transaction in such
security which involves no change in the beneficial ownership
thereof, or (B) to enter an order or orders for the purchase of
such security with the knowledge that an order or orders of
substantially the same size, at substantially the same time,
and at substantially the same price, for the sale of any such
security, has been or will be entered by or for the same or
different parties, or (C) to enter any order or orders for the
sale of any such security with the knowledge that an order or
orders of substantially the same size, at substantially the
same time, and at substantially the same price, for the
purchase of such security, has been or will be entered by or
for the same or different parties.
(2) To effect, alone or with one or more other persons, a
series of transactions in any security [registered on a
national securities exchange] other than a government security
or in connection with any security-based swap agreement (as
defined in section 206B of the Gramm-Leach-Bliley Act) with
respect to such security creating actual or apparent active
trading in such security, or raising or depressing the price of
such security, for the purpose of inducing the purchase or sale
of such security by others.
(3) If a dealer or broker, or other person selling or
offering for sale or purchasing or offering to purchase the
security or a security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) with respect to
such security, to induce the purchase or sale of any security
[registered on a national securities exchange] other than a
government security or any security-based swap agreement (as
defined in section 206B of the Gramm-Leach-Bliley Act) with
respect to such security by the circulation or dissemination in
the ordinary course of business of information to the effect
that the price of any such security will or is likely to rise
or fall because of market operations of any one or more persons
conducted for the purpose of raising or depressing the price of
such security.
(4) If a dealer or broker, or the person selling or offering
for sale or purchasing or offering to purchase the security or
a security-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) with respect to such security, to
make, regarding any security [registered on a national
securities exchange] other than a government security or any
security-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) with respect to such security, for
the purpose of inducing the purchase or sale of such security
or such security-based swap agreement, 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, and which he knew or had reasonable ground to believe was
so false or misleading.
(5) For a consideration, received directly or indirectly from
a dealer or broker, or other person selling or offering for
sale or purchasing or offering to purchase the security or a
security-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) with respect to such security, to
induce the purchase of any security [registered on a national
securities exchange] other than a government security or any
security-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) with respect to such security by
the circulation or dissemination of information to the effect
that the price of any such security will or is likely to rise
or fall because of the market operations of any one or more
persons conducted for the purpose of raising or depressing the
price of such security.
(6) To effect either alone or with one or more other persons
any series of transactions for the purchase and/or sale of any
security [registered on a national securities exchange] other
than a government security for the purpose of pegging, fixing,
or stabilizing the price of such security in contravention of
such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the
protection of investors.
(b) It shall be unlawful for any person to effect, [by use of
any facility of a national securities exchange,] in
contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public
interest or for the protection of investors--
(1) * * *
* * * * * * *
(c) It shall be unlawful for any broker, dealer, or member of
a national securities exchange directly or indirectly to
endorse or guarantee the performance of any put, call,
straddle, option, or privilege in relation to any security
[registered on a national securities exchange] other than a
government security, in contravention of such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.
* * * * * * *
REGULATION OF THE USE OF MANIPULATIVE AND DECEPTIVE DEVICES
Sec. 10. It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of
interstate commerce or of the mails, or of any facility of any
national securities exchange--
(a)(1) To effect a short sale, or to use or employ
any stop-loss order in connection with the purchase or
sale, of any security [registered on a national
securities exchange] other than a government security,
in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
* * * * * * *
(c)(1) To effect, accept, or facilitate a transaction
involving the loan or borrowing of securities in contravention
of such rules and regulations as the Commission may prescribe
as necessary or appropriate in the public interest or for the
protection of investors.
(2) Nothing in paragraph (1) shall be construed to limit the
authority of an appropriate Federal banking agency (as defined
in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813(q))), the National Credit Union Administration, or any
other Federal department or agency identified under law as
having a systemic risk responsibility from prescribing rules or
regulations to impose restrictions on transactions involving
the loan or borrowing of securities in order to protect the
safety and soundness of a financial institution or to protect
the financial system from systemic risk.
SEC. 10A. AUDIT REQUIREMENTS.
(a) * * *
* * * * * * *
(i) Preapproval Requirements.--
(1) In general.--
(A) * * *
(B) De minimus exception.--The preapproval
requirement under subparagraph (A) is waived
with respect to the provision of non-audit
services for an issuer, if--
(i) the aggregate amount of all such
non-audit services provided to the
issuer constitutes not more than 5
percent of the total amount of revenues
paid by the issuer to its auditor
during the fiscal year in which the
[nonaudit] non-audit services are
provided;
* * * * * * *
REGISTRATION REQUIREMENTS FOR SECURITIES
Sec. 12. (a) * * *
* * * * * * *
(k) Trading Suspensions; Emergency Authority.--
(1) * * *
* * * * * * *
[(7) Definitions.--For purposes of this subsection--
[(A) the term ``emergency'' means--
[(i) a major market disturbance
characterized by or constituting--
[(I) sudden and excessive
fluctuations of securities
prices generally, or a
substantial threat thereof,
that threaten fair and orderly
markets; or
[(II) a substantial
disruption of the safe or
efficient operation of the
national system for clearance
and settlement of transactions
in securities, or a substantial
threat thereof; or
[(ii) a major disturbance that
substantially disrupts, or threatens to
substantially disrupt--
[(I) the functioning of
securities markets, investment
companies, or any other
significant portion or segment
of the securities markets; or
[(II) the transmission or
processing of securities
transactions; and
[(B) notwithstanding section 3(a)(47), the
term ``securities laws'' does not include the
Public Utility Holding Company Act of 1935.]
(7) Definition.--For purposes of this subsection, the
term ``emergency'' means--
(A) a major market disturbance characterized
by or constituting--
(i) sudden and excessive fluctuations
of securities prices generally, or a
substantial threat thereof, that
threaten fair and orderly markets; or
(ii) a substantial disruption of the
safe or efficient operation of the
national system for clearance and
settlement of transactions in
securities, or a substantial threat
thereof; or
(B) a major disturbance that substantially
disrupts, or threatens to substantially
disrupt--
(i) the functioning of securities
markets, investment companies, or any
other significant portion or segment of
the securities markets; or
(ii) the transmission or processing
of securities transactions.
* * * * * * *
PERIODICAL AND OTHER REPORTS
Sec. 13. (a) * * *
(b)(1) The Commission may prescribe, in regard to reports
made pursuant to this title, the form or forms in which the
required information shall be set forth, the items or details
to be shown in the balance sheet and the [earning statement]
earnings statement, and the methods to be followed in the
preparation of reports, in the appraisal or valuation of assets
and liabilities, in the determination of depreciation and
depletion, in the differentiation of recurring and nonrecurring
income, in the differentiation of investment and operating
income, and in the preparation, where the Commission deems it
necessary or desirable, of separate and/or consolidated balance
sheets or income accounts of any person directly or indirectly
controlling or controlled by the issuer, or any person under
direct or indirect common control with the issuer; but in the
case of the reports of any person whose methods of accounting
are prescribed under the provisions of any law of the United
States, or any rule or regulation thereunder, the rules and
regulations of the Commission with respect to reports shall not
be inconsistent with the requirements imposed by such law or
rule or regulation in respect of the same subject matter
(except that such rules and regulations of the Commission may
be inconsistent with such requirements to the extent that the
Commission determines that the public interest or the
protection of investors so requires).
* * * * * * *
(d)(1) Any person who, after acquiring directly or indirectly
the beneficial ownership of any equity security of a class
which is registered pursuant to section 12 of this title, or
any equity security of an insurance company which would have
been required to be so registered except for the exemption
contained in section 12(g)(2)(G) of this title, or any equity
security issued by a closed-end investment company registered
under the Investment Company Act of 1940 or any equity security
issued by a Native Corporation pursuant to section 37(d)(6) of
the Alaska Native Claims Settlement Act, is directly or
indirectly the beneficial owner of more than 5 per centum of
such class shall, within ten days after such acquisition or
within such shorter time as the Commission may establish by
rule, [send to the issuer of the security at its principal
executive office, by registered or certified mail, send to each
exchange where the security is traded, and] file with the
Commission, a statement containing such of the following
information, and such additional information, as the Commission
may by rules and regulations, prescribe as necessary or
appropriate in the public interest or for the protection of
investors--
(A) * * *
* * * * * * *
(2) If any material change occurs in the facts set forth [in
the statements to the issuer and the exchange, and] in the
statement filed with the Commission, an amendment [shall be
transmitted to the issuer and the exchange and] shall be filed
with the Commission, in accordance with such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.
* * * * * * *
(g)(1) Any person who is directly or indirectly the
beneficial owner of more than 5 per centum of any security of a
class described in subsection (d)(1) of this section [shall
send to the issuer of the security and] shall file with the
Commission a statement setting forth, in such form and at such
time as the Commission may, by rule, prescribe--
(A) * * *
* * * * * * *
(2) If any material change occurs in the facts set forth in
the statement [sent to the issuer and] filed with the
Commission, an amendment [shall be transmitted to the issuer
and] shall be filed with the Commission, in accordance with
such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the
protection of investors.
* * * * * * *
PROXIES
Sec. 14. (a)(1) It shall be unlawful for any person, by the
use of the mails or by any means or instrumentality of
interstate commerce or of any facility of a national securities
exchange or otherwise, in contravention of such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of
investors, to solicit or to permit the use of his name to
solicit any proxy or consent or authorization in respect of any
security (other than an exempted security) registered pursuant
to section 12 of this title.
(2) The authority of the Commission to prescribe rules and
regulations under paragraph (1) includes rules and regulations
that require the inclusion and set procedures relating to the
inclusion, in a solicitation of a proxy or consent or
authorization by or on behalf of an issuer, of a nominee or
nominees submitted by shareholders to serve on the issuer's
board of directors.
* * * * * * *
REGISTRATION AND REGULATION OF BROKERS AND DEALERS
Sec. 15. (a) * * *
(b)(1) A broker or dealer may be registered by filing with
the Commission an application for registration in such form and
containing such information and documents concerning such
broker or dealer and any persons associated with such broker or
dealer as the Commission, by rule, may prescribe as necessary
or appropriate in the public interest or for the protection of
investors. Within forty-five days of the date of the filing of
such application (or within such longer period as to which the
applicant consents), the Commission shall--
(A) * * *
(B) institute proceedings to determine whether
registration should be denied. Such proceedings shall
include notice of the grounds for denial under
consideration and opportunity for hearing and shall be
concluded within one hundred twenty days of the date of
the filing of the application for registration. At the
conclusion of such proceedings, the Commission, by
order, shall grant or deny such registration. [The
order granting registration shall not be effective
until such broker or dealer has become a member of a
registered securities association, or until such broker
or dealer has become a member of a national securities
exchange if such broker or dealer effects transactions
solely on that exchange, unless the Commission has
exempted such broker or dealer, by rule or order, from
such membership.] The Commission may extend the time
for conclusion of such proceedings for up to ninety
days if it finds good cause for such extension and
publishes its reasons for so finding or for such longer
period as to which the applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied. The
order granting registration shall not be effective until such
broker or dealer has become a member of a registered securities
association, or until such broker or dealer has become a member
of a national securities exchange if such broker or dealer
effects transactions solely on that exchange, unless the
Commission has exempted such broker or dealer, by rule or
order, from such membership. The Commission shall deny such
registration if it does not make such a finding or if it finds
that if the applicant were so registered, its registration
would be subject to suspension or revocation under paragraph
(4) of this subsection.
* * * * * * *
(4) The Commission, by order, shall censure, place
limitations on the activities, functions, or operations of,
suspend for a period not exceeding twelve months, or revoke the
registration of any broker or dealer if it finds, on the record
after notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or revocation is in the
public interest and that such broker or dealer, whether prior
or subsequent to becoming such, or any person associated with
such broker or dealer, whether prior or subsequent to becoming
so associated--
(A) * * *
(B) has been convicted within ten years preceding the
filing of any application for registration or at any
time thereafter of any felony or misdemeanor or of a
substantially equivalent crime by a foreign court of
competent jurisdiction which the Commission finds--
(i) * * *
(ii) arises out of the conduct of the
business of a broker, dealer, municipal
securities dealer, government securities
broker, government securities dealer,
investment adviser, bank, insurance company,
fiduciary, transfer agent, nationally
recognized statistical rating organization,
municipal finance adviser, foreign person
performing a function substantially equivalent
to any of the above, or entity or person
required to be registered under the Commodity
Exchange Act (7 U.S.C. 1 et seq.) or any
substantially equivalent foreign statute or
regulation;
* * * * * * *
(C) is permanently or temporarily enjoined by order,
judgment, or decree of any court of competent
jurisdiction from acting as an investment adviser,
underwriter, broker, dealer, municipal securities
dealer, government securities broker, government
securities dealer, transfer agent, nationally
recognized statistical rating organization, municipal
finance adviser, foreign person performing a function
substantially equivalent to any of the above, or entity
or person required to be registered under the Commodity
Exchange Act or any substantially equivalent foreign
statute or regulation, or as an affiliated person or
employee of any investment company, bank, insurance
company, foreign entity substantially equivalent to any
of the above, or entity or person required to be
registered under the Commodity Exchange Act or any
substantially equivalent foreign statute or regulation,
or from engaging in or continuing any conduct or
practice in connection with any such activity, or in
connection with the purchase or sale of any security.
* * * * * * *
(6)(A) With respect to any person who is associated, who is
seeking to become associated, or, at the time of the alleged
misconduct, who was associated or was seeking to become
associated with a broker or dealer, or any person
participating, or, at the time of the alleged misconduct, who
was participating, in an offering of any penny stock, the
Commission, by order, shall censure, place limitations on the
activities or functions of such person, or suspend for a period
not exceeding [12 months, or bar such person from being
associated with a broker or dealer,] 12 months, or bar any such
person from being associated with a broker, dealer, investment
adviser, municipal securities dealer, transfer agent, or
nationally recognized statistical rating organization, or from
participating in an offering of penny stock, if the Commission
finds, on the record after notice and opportunity for a
hearing, that such censure, placing of limitations, suspension,
or bar is in the public interest and that such person--
(i) * * *
* * * * * * *
(c)(1)(A) No broker or dealer shall make use of the mails or
any means or instrumentality of interstate commerce to effect
any transaction in, or to induce or attempt to induce the
purchase or sale of, any security (other than commercial paper,
bankers' acceptances, or commercial bills) [otherwise than on a
national securities exchange of which it is a member], or any
security-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act), by means of any manipulative,
deceptive, or other fraudulent device or contrivance.
* * * * * * *
[(i)] (j) The authority of the Commission under this section
with respect to security-based swap agreements (as defined in
section 206B of the Gramm-Leach-Bliley Act) shall be subject to
the restrictions and limitations of section 3A(b) of this
title.
(k) Standard of Conduct.--
(1) In general.--Notwithstanding any other provision
of this Act or the Investment Advisers Act of 1940, the
Commission shall promulgate rules to provide that, with
respect to a broker or dealer, when providing
personalized investment advice about securities to a
retail customer (and such other customers as the
Commission may by rule provide), the standard of
conduct for such broker or dealer with respect to such
customer shall be the same as the standard of conduct
applicable to an investment adviser under the
Investment Advisers Act of 1940. The receipt of
compensation based on commission or other standard
compensation for the sale of securities shall not, in
and of itself, be considered a violation of such
standard applied to a broker or dealer.
(2) Disclosure of range of products offered.--Where a
broker or dealer sells only proprietary or other
limited range of products, as determined by the
Commission, the Commission shall by rule require that
such broker or dealer provide notice to each retail
customer and obtain the consent or acknowledgment of
the customer. The sale of only proprietary or other
limited range of products by a broker or dealer shall
not, in and of itself, be considered a violation of the
standard set forth in paragraph (1).
(3) Retail customer defined.--For purposes of this
subsection, the term ``retail customer'' means a
natural person, or the legal representative of such
natural person, who--
(A) receives personalized investment advice
about securities from a broker or dealer; and
(B) uses such advice primarily for personal,
family, or household purposes.
(l) Other Matters.--The Commission shall--
(1) facilitate the provision of simple and clear
disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment
advisers, including any material conflicts of interest;
and
(2) examine and, where appropriate, promulgate rules
prohibiting or restricting certain sales practices,
conflicts of interest, and compensation schemes for
brokers, dealers, and investment advisers that the
Commission deems contrary to the public interest and
the protection of investors.
(m) Harmonization of Enforcement.--The enforcement authority
of the Commission with respect to violations of the standard of
conduct applicable to a broker or dealer providing personalized
investment advice about securities to a retail customer shall
include--
(1) the enforcement authority of the Commission with
respect to such violations provided under this Act, and
(2) the enforcement authority of the Commission with
respect to violations of the standard of conduct
applicable to an investment advisor under the
Investment Advisers Act of 1940, including the
authority to impose sanctions for such violations, and
the Commission shall seek to prosecute and sanction violators
of the standard of conduct applicable to a broker or dealer
providing personalized investment advice about securities to a
retail customer under this Act to same extent as the Commission
prosecutes and sanctions violators of the standard of conduct
applicable to an investment advisor under the Investment
Advisers Act of 1940.
(n) Authority to Restrict Mandatory Pre-Dispute
Arbitration.--The Commission, by rule, may prohibit, or impose
conditions or limitations on the use of, agreements that
require customers or clients of any broker, dealer, or
municipal securities dealer to arbitrate any future dispute
between them arising under the Federal securities laws, the
rules and regulations thereunder, or the rules of a self-
regulatory organization if it finds that such prohibition,
imposition of conditions, or limitations are in the public
interest and for the protection of investors.
* * * * * * *
MUNICIPAL SECURITIES
Sec. 15B. (a) * * *
(b)[(1) Not later than one hundred twenty days after the date
of enactment of the Securities Acts Amendments of 1975, the
Commission shall establish a Municipal Securities Rulemaking
Board (hereinafter in this section referred to as the
``Board''), to be composed initially of fifteen members
appointed by the Commission, which shall perform the duties set
forth in this section. The initial members of the Board shall
serve as members for a term of two years, and shall consist of
(A) five individuals who are not associated with any broker,
dealer, or municipal securities dealer (other than by reason of
being under common control with, or indirectly controlling, any
broker or dealer which is not a municipal securities broker or
municipal securities dealer), at least one of whom shall be
representative of investors in municipal securities, and at
least one of whom shall be representative of issuers of
municipal securities (which members are hereinafter referred to
as ``public representatives''); (B) five individuals who are
associated with and representative of municipal securities
brokers and municipal securities dealers which are not banks or
subsidiaries or departments or divisions of banks (which
members are hereinafter referred to as ``broker-dealer
representatives''); and (C) five individuals who are associated
with and representative of municipal securities dealers which
are banks or subsidiaries or departments or divisions of banks
(which members are hereinafter referred to as ``bank
representatives''). Prior to the expiration of the terms of
office of the initial members of the Board, an election shall
be held under rules adopted by the Board (pursuant to
subsection (b)(2)(B) of this section) of the members to succeed
such initial members.] (1) Not later than October 1, 2010, the
Municipal Securities Rulemaking Board (hereinafter in this
section referred to as the ``Board''), shall be composed of
members which shall perform the duties set forth in this
section and shall consist of--
(A) a majority of independent public representatives, at
least one of whom shall be representative of investors in
municipal securities and at least one of whom shall be
representative of issuers of municipal securities (which
members are hereinafter referred to as ``public
representatives'');
(B) at least one individual who is representative of
municipal securities brokers and municipal securities dealers
which are not banks or subsidiaries or departments or divisions
of banks (which members are hereinafter referred to as
``broker-dealer representatives''); and
(C) at least one individual who is representative of
municipal securities dealers which are banks or subsidiaries or
departments or divisions of banks (which members are
hereinafter referred to as ``bank representatives'').
(2) The Board shall propose and adopt rules to effect the
purposes of this title with respect to transactions in
municipal securities effected by brokers, dealers, and
municipal securities dealers. (Such rules are hereinafter
collectively referred to in this title as ``rules of the
Board''.) The rules of the Board, as a minimum, shall:
(A) * * *
[(B) establish fair procedures for the nomination and
election of members of the Board and assure fair
representation in such nominations and elections of
municipal securities brokers and municipal securities
dealers. Such rules shall provide that the membership
of the Board shall at all times be equally divided
among public representatives, broker-dealer
representatives, and bank representatives, and that the
public representatives shall be subject to approval by
the Commission to assure that no one of them is
associated with any broker, dealer, or municipal
securities dealer (other than by reason of being under
common control with, or indirectly controlling, any
broker or dealer which is not a municipal securities
broker or municipal securities dealer) and that at
least one is representative of investors in municipal
securities and at least one is representative of
issuers of municipal securities. Such rules shall also
specify the term members shall serve and may increase
the number of members which shall constitute the whole
Board provided that such number is an odd number.]
(B) Establish fair procedures for the nomination and election
of members of the Board and assure fair representation in such
nominations and elections of municipal securities brokers and
municipal securities dealers. Such rules--
(i) shall establish requirements regarding the independence
of public representatives;
(ii) shall provide that the number of public representatives
of the Board shall at all times exceed the total number of
broker-dealer representatives and bank representatives;
(iii) shall establish minimum knowledge, experience, and
other appropriate qualifications for individuals to serve as
public representatives, which may include, among other things,
prior work experience in the securities, municipal finance, or
municipal securities industries;
(iv) shall specify the term members shall serve; and
(v) may increase or decrease the number of members which
shall constitute the whole Board, but in no case may such
number be an even number.
* * * * * * *
(c)(1) * * *
* * * * * * *
(4) The Commission, by order, shall censure or place
limitations on the activities or functions of any person
associated, seeking to become associated, or, at the time of
the alleged misconduct, associated or seeking to become
associated with a municipal securities dealer, or suspend for a
period not exceeding [twelve months or bar any such person from
being associated with a municipal securities dealer,] 12 months
or bar any such person from being associated with a broker,
dealer, investment adviser, municipal securities dealer,
transfer agent, or nationally recognized statistical rating
organization, if the Commission finds, on the record after
notice and opportunity for hearing, that such censure, placing
of limitations, suspension, or bar is in the public interest
and that such person has committed any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), (E),
(H), or (G) of paragraph (4) of section 15(b) of this title,
has been convicted of any offense specified in subparagraph (B)
of such paragraph (4) within 10 years of the commencement of
the proceedings under this paragraph, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
such paragraph (4). It shall be unlawful for any person as to
whom an order entered pursuant to this paragraph or paragraph
(5) of this subsection suspending or barring him from being
associated with a municipal securities dealer is in effect
willfully to become, or to be, associated with a municipal
securities dealer without the consent of the Commission, and it
shall be unlawful for any municipal securities dealer to permit
such a person to become, or remain, a person associated with
him without the consent of the Commission, if such municipal
securities dealer knew, or, in the exercise of reasonable care
should have known, of such order.
* * * * * * *
(8) The Commission is authorized, by order, if in its opinion
such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise, in furtherance
of the purposes of this title, to remove from office or censure
[any member or employee] any person who is, or at the time of
the alleged misconduct was, a member or employee of the Board,
who, the Commission finds, on the record after notice and
opportunity for hearing, has willfully (A) violated any
provision of this title, the rules and regulations thereunder,
or the rules of the Board or (B) abused his authority.
* * * * * * *
GOVERNMENT SECURITIES BROKERS AND DEALERS
Sec. 15C. (a)(1) * * *
(2) A government securities broker or a government securities
dealer subject to the registration requirement of paragraph
(1)(A) of this subsection may be registered by filing with the
Commission an application for registration in such form and
containing such information and documents concerning such
government securities broker or government securities dealer
and any persons associated with such government securities
broker or government securities dealer as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors. Within 45 days of
the date of filing of such application (or within such longer
period as to which the applicant consents), the Commission
shall--
[(i)] (A) by order grant registration, or
[(ii)] (B) institute proceedings to determine whether
registration should be denied. Such proceedings shall
include notice of the grounds for denial under
consideration and opportunity for hearing and shall be
concluded within 120 days of the date of the filing of
the application for registration. At the conclusion of
such proceedings, the Commission, by order, shall grant
or deny such registration. [The order granting
registration shall not be effective until such
government securities broker or government securities
dealer has become a member of a national securities
exchange registered under section 6 of this title, or a
securities association registered under section 15A of
this title, unless the Commission has exempted such
government securities broker or government securities
dealer, by rule or order, from such membership.] The
Commission may extend the time for the conclusion of
such proceedings for up to 90 days if it finds good
cause for such extension and publishes its reasons for
so finding or for such longer period as to which the
applicant consents.
The Commission shall grant the registration of a government
securities broker or a government securities dealer if the
Commission finds that the requirements of this section are
satisfied. The order granting registration shall not be
effective until such government securities broker or government
securities dealer has become a member of a national securities
exchange registered under section 6 of this title, or a
securities association registered under section 15A of this
title, unless the Commission has exempted such government
securities broker or government securities dealer, by rule or
order, from such membership. The Commission shall deny such
registration if it does not make such a finding or if it finds
that if the applicant were so registered, its registration
would be subject to suspension or revocation under subsection
(c) of this section.
* * * * * * *
(c)(1) With respect to any government securities broker or
government securities dealer registered or required to register
under subsection (a)(1)(A) of this section--
(A) * * *
* * * * * * *
(C) The Commission, by order, shall censure or place
limitations on the activities or functions of any
person associated, [or seeking to become associated,]
seeking to become associated, or, at the time of the
alleged misconduct, associated or seeking to become
associated with a government securities broker or
government securities dealer registered or required to
register under subsection (a)(1)(A) of this section or
suspend for a period not exceeding 12 months or bar any
such person from being associated with such a
government securities broker or government securities
dealer, if the Commission finds, on the record after
notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or bar is in the
public interest and that such person has committed or
omitted any act, or is subject to an order or finding,
enumerated in subparagraph (A), (D), (E), (H), or (G)
of paragraph (4) of section 15(b) of this title, has
been convicted of any offense specified in subparagraph
(B) of such paragraph (4) within 10 years of the
commencement of the proceedings under this paragraph,
or is enjoined from any action, conduct, or practice
specified in subparagraph (C) of such paragraph (4).
(2)(A) With respect to any government securities broker or
government securities dealer which is not registered or
required to register under subsection (a)(1)(A) of this
section, the appropriate regulatory agency for such government
securities broker or government securities dealer may, in the
manner and for the reasons specified in paragraph (1)(A) of
this subsection, censure, place limitations on the activities,
functions, or operations of, suspend for a period not exceeding
12 months, or bar from acting as a government securities broker
or government securities dealer any such government securities
broker or government securities dealer, and may sanction any
person associated, seeking to become associated, or, at the
time of the alleged misconduct, associated or seeking to become
associated with such government securities broker or government
securities dealer in the manner and for the reasons specified
in paragraph (1)(C) of this subsection.
(B) In addition, where applicable, such appropriate
regulatory agency may, in accordance with section 8 of the
Federal Deposit Insurance Act (12 U.S.C. 1818), section 5 of
the Home Owners' Loan Act of 1933 (12 U.S.C. 1464), or section
407 of the National Housing Act (12 U.S.C. 1730), enforce
compliance by such government securities broker or government
securities dealer or any person associated, seeking to become
associated, or, at the time of the alleged misconduct,
associated or seeking to become associated with such government
securities broker or government securities dealer with the
provisions of this section and the rules thereunder.
* * * * * * *
SEC. 15F. MUNICIPAL FINANCIAL ADVISER REGISTRATION REQUIREMENT.
(a)(1)(A) It shall be unlawful for any person to make use of
the mails or any means or instrumentality of interstate
commerce to act as a municipal financial adviser unless such
person is registered as a municipal financial adviser in
accordance with subsection (b).
(B) Subparagraph (A) shall not apply to a natural person
associated with a municipal financial adviser, as long as such
adviser is registered in accordance with subsection (b) and is
not a natural person.
(2) The Commission, by rule or order, as it deems consistent
with the public interest and the protection of investors, may
conditionally or unconditionally exempt from paragraph (1) of
this section any municipal financial adviser or class of
municipal financial advisers specified in such rule or order.
(b)(1) A municipal financial adviser may be registered by
filing with the Commission an application for registration in
such form and containing such information and documents
concerning such municipal financial adviser and any persons
associated with such municipal financial adviser as the
Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
Within 45 days of the date of the filing of such application
(or within such longer period as to which the applicant
consents), the Commission shall--
(A) by order grant registration, or
(B) institute proceedings to determine whether
registration should be denied. Such proceedings shall
include notice of the grounds for denial under
consideration and opportunity for hearing and shall be
concluded within 120 days of the date of the filing of
the application for registration. At the conclusion of
such proceedings, the Commission, by order, shall grant
or deny such registration. The Commission may extend
the time for conclusion of such proceedings for up to
90 days if it finds good cause for such extension and
publishes its reasons for so finding or for such longer
period as to which the applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied. The
Commission shall deny such registration if it does not make
such a finding or if it finds that if the applicant were so
registered, its registration would be subject to suspension or
revocation under paragraph (4).
(2) An application for registration of a municipal financial
adviser to be formed or organized may be made by a municipal
financial adviser to which the municipal financial adviser to
be formed or organized is to be the successor. Such
application, in such form as the Commission, by rule, may
prescribe, shall contain such information and documents
concerning the applicant, the successor, and any persons
associated with the applicant or the successor, as the
Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors. The
grant or denial of registration to such an applicant shall be
in accordance with the procedures set forth in paragraph (1) of
this subsection. If the Commission grants such registration,
the registration shall terminate on the 45th day after the
effective date thereof, unless prior thereto the successor
shall, in accordance with such rules and regulations as the
Commission may prescribe, adopt the application for
registration as its own.
(3) Any provision of this title (other than section 5 and
subsection (a) of this section) which prohibits any act,
practice, or course of business if the mails or any means or
instrumentality of interstate commerce is used in connection
therewith shall also prohibit any such act, practice, or course
of business by any registered municipal financial adviser or
any person acting on behalf of such a municipal financial
adviser, irrespective of any use of the mails or any means or
instrumentality of interstate commerce in connection therewith.
(4) The Commission, by order, shall censure, place
limitations on the activities, functions, or operations of,
suspend for a period not exceeding 12 months, or revoke the
registration of any municipal financial adviser if it finds, on
the record after notice and opportunity for hearing, that such
censure, placing of limitations, suspension, or revocation is
in the public interest and that such municipal financial
adviser, whether prior or subsequent to becoming such, or any
person associated with such municipal financial adviser,
whether prior or subsequent to becoming so associated--
(A) 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;
(B) has been convicted within 10 years preceding the
filing of any application for registration or at any
time thereafter of any felony or misdemeanor or of a
substantially equivalent crime by a foreign court of
competent jurisdiction which the Commission finds--
(i) involves the purchase or sale of any
security, the taking of a false oath, the
making of a false report, bribery, perjury,
burglary, any substantially equivalent activity
however denominated by the laws of the relevant
foreign government, or conspiracy to commit any
such offense;
(ii) arises out of the conduct of the
business of a municipal financial adviser,
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, investment adviser, bank,
insurance company, fiduciary, transfer agent,
nationally recognized statistical rating
organization, foreign person performing a
function substantially equivalent to any of the
above, or entity or person required to be
registered under the Commodity Exchange Act (7
U.S.C. 1 et seq.) or any substantially
equivalent foreign statute or regulation;
(iii) involves the larceny, theft, robbery,
extortion, forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent
conversion, or misappropriation of funds, or
securities, or substantially equivalent
activity however denominated by the laws of the
relevant foreign government; or
(iv) involves the violation of section 152,
1341, 1342, or 1343 or chapter 25 or 47 of
title 18, or a violation of a substantially
equivalent foreign statute;
(C) is permanently or temporarily enjoined by order,
judgment, or decree of any court of competent
jurisdiction from acting as a municipal financial
adviser, investment adviser, underwriter, broker,
dealer, municipal securities dealer, government
securities broker, government securities dealer,
transfer agent, nationally recognized statistical
rating organization, foreign person performing a
function substantially equivalent to any of the above,
or entity or person required to be registered under the
Commodity Exchange Act or any substantially equivalent
foreign statute or regulation, or as an affiliated
person or employee of any investment company, bank,
insurance company, foreign entity substantially
equivalent to any of the above, or entity or person
required to be registered under the Commodity Exchange
Act or any substantially equivalent foreign statute or
regulation or from engaging in or continuing any
conduct or practice in connection with any such
activity, or in connection with the purchase or sale of
any security;
(D) has willfully violated any provision of the
Securities Act of 1933, the Investment Advisers Act of
1940, the Investment Company Act of 1940, the Commodity
Exchange Act, this title, the rules or regulations
under any of such statutes, or is unable to comply with
any such provision;
(E) has willfully aided, abetted, counseled,
commanded, induced, or procured the violation by any
other person of any provision of the Securities Act of
1933, the Investment Advisers Act of 1940, the
Investment Company Act of 1940, the Commodity Exchange
Act, this title, the rules or regulations under any of
such statutes, or has failed reasonably to supervise,
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. For the purposes
of this subparagraph, no person shall be deemed to have
failed reasonably to supervise any other person, if--
(i) there have been established procedures,
and a system for applying such procedures,
which would reasonably be expected to prevent
and detect, insofar as practicable, any such
violation by such other person, and
(ii) such person has reasonably discharged
the duties and obligations incumbent upon him
by reason of such procedures and system without
reasonable cause to believe that such
procedures and system were not being complied
with;
(F) is subject to any order of the Commission barring
or suspending the right of the person to be associated
with a municipal financial adviser;
(G) has been found by a foreign financial regulatory
authority to have--
(i) made or caused to be made in any
application for registration or report required
to be filed with a foreign financial regulatory
authority, or in any proceeding before a
foreign financial regulatory authority with
respect to registration, any statement that 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 application or
report to the foreign financial regulatory
authority any material fact that is required to
be stated therein;
(ii) violated any foreign statute or
regulation regarding transactions in
securities, or contracts of sale of a commodity
for future delivery, traded on or subject to
the rules of a contract market or any board of
trade; or
(iii) aided, abetted, counseled, commanded,
induced, or procured the violation by any
person of any provision of any statutory
provisions enacted by a foreign government, or
rules or regulations thereunder, empowering a
foreign financial regulatory authority
regarding transactions in securities, or
contracts of sale of a commodity for future
delivery, traded on or subject to the rules of
a contract market or any board of trade, or has
been found, by a foreign financial regulatory
authority, to have failed reasonably to
supervise, with a view to preventing violations
of such statutory provisions, rules, and
regulations, another person who commits such a
violation, if such other person is subject to
his supervision; or
(H) is subject to any final order of a State
securities commission (or any agency or officer
performing like functions), State authority that
supervises or examines banks, savings associations, or
credit unions, State insurance commission (or any
agency or office performing like functions), an
appropriate Federal banking agency (as defined in
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813(q))), or the National Credit Union
Administration, that--
(i) bars such person from association with an
entity regulated by such commission, authority,
agency, or officer, or from engaging in the
business of securities, insurance, banking,
savings association activities, or credit union
activities; or
(ii) constitutes a final order based on
violations of any laws or regulations that
prohibit fraudulent, manipulative, or deceptive
conduct.
(5) Pending final determination whether any registration
under this subsection shall be revoked, the Commission, by
order, may suspend such registration, if such suspension
appears to the Commission, after notice and opportunity for
hearing, to be necessary or appropriate in the public interest
or for the protection of investors. Any registered municipal
financial adviser may, upon such terms and conditions as the
Commission deems necessary or appropriate in the public
interest or for the protection of investors, withdraw from
registration by filing a written notice of withdrawal with the
Commission. If the Commission finds that any registered
municipal financial adviser is no longer in existence or has
ceased to do business as a municipal financial adviser, the
Commission, by order, shall cancel the registration of such
municipal financial adviser.
(6)(A) With respect to any person who is associated, who is
seeking to become associated, or, at the time of the alleged
misconduct, who was associated or was seeking to become
associated with a municipal financial adviser, the Commission,
by order, shall censure, place limitations on the activities or
functions of such person, or suspend for a period not exceeding
12 months, or bar such person from being associated with a
municipal financial adviser, if the Commission finds, on the
record after notice and opportunity for a hearing, that such
censure, placing of limitations, suspension, or bar is in the
public interest and that such person--
(i) has committed or omitted any act, or is subject
to an order or finding, enumerated in subparagraph (A),
(D), or (E) of paragraph (4) of this subsection;
(ii) has been convicted of any offense specified in
subparagraph (B) of such paragraph (4) within 10 years
of the commencement of the proceedings under this
paragraph; or
(iii) is enjoined from any action, conduct, or
practice specified in subparagraph (C) of such
paragraph (4).
(B) It shall be unlawful--
(i) for any person as to whom an order under
subparagraph (A) is in effect, without the consent of
the Commission, willfully to become, or to be,
associated with a municipal financial adviser in
contravention of such order; or
(ii) for any municipal financial adviser to permit
such a person, without the consent of the Commission,
to become or remain, a person associated with the
municipal financial adviser in contravention of such
order, if such municipal financial adviser knew, or in
the exercise of reasonable care should have known, of
such order.
(7) No registered municipal financial adviser shall act as
such unless it meets such standards of operational capability
and such municipal financial adviser and all natural persons
associated with such municipal financial adviser meet such
standards of training, experience, competence, and such other
qualifications as the Commission finds necessary or appropriate
in the public interest or for the protection of investors. The
Commission shall establish such standards by rules and
regulations, which may--
(A) specify that all or any portion of such standards
shall be applicable to any class of municipal financial
advisers and persons associated with municipal
financial advisers;
(B) require persons in any such class to pass tests
prescribed in accordance with such rules and
regulations, which tests shall, with respect to any
class of partners, officers, or supervisory employees
(which latter term may be defined by the Commission's
rules and regulations) engaged in the management of the
municipal financial adviser, include questions relating
to bookkeeping, accounting, supervision of employees,
maintenance of records, and other appropriate matters;
and
(C) provide that persons in any such class other than
municipal financial advisers and partners, officers,
and supervisory employees of municipal financial
advisers, may be qualified solely on the basis of
compliance with such standards of training and such
other qualifications as the Commission finds
appropriate.
The Commission, by rule, may prescribe reasonable fees and
charges to defray its costs in carrying out this paragraph,
including, but not limited to, fees for any test administered
by it or under its direction.
(c)(1)(A) No municipal financial adviser shall make use of
the mails or any means or instrumentality of interstate
commerce in connection with which such municipal financial
adviser engages in any fraudulent, deceptive, or manipulative
act or practice or violates such rules and regulations
regarding conflicts of interest or fair practices, including
but not limited to rules and regulations related to political
contributions, as the Commission shall prescribe in the public
interest or for the protection of investors or to maintain fair
and orderly markets.
(B) The Commission shall, for the purposes of this paragraph
as the Commission finds necessary or appropriate in the public
interest or for the protection of investors, by rules and
regulations define, and prescribe means reasonably designed to
prevent, such acts and practices as are fraudulent, deceptive,
or manipulative.
(2) If the Commission finds, after notice and opportunity for
a hearing, that any person subject to the provisions of this
section or any rule or regulation thereunder has failed to
comply with any such provision, rule, or regulation in any
material respect, the Commission may publish its findings and
issue an order requiring such person, and any person who was a
cause of the failure to comply due to an act or omission the
person knew or should have known would contribute to the
failure to comply, to comply, or to take steps to effect
compliance, with such provision or such rule or regulation
thereunder upon such terms and conditions and within such time
as the Commission may specify in such order.
(d) Every registered municipal financial adviser shall
establish, maintain, and enforce written policies and
procedures reasonably designed, taking into consideration the
nature of such municipal financial adviser's business, to
prevent the misuse in violation of this title, or the rules or
regulations thereunder, of material, nonpublic information by
such municipal financial adviser or any person associated with
such municipal financial adviser. The Commission, as it deems
necessary or appropriate in the public interest or for the
protection of investors, shall adopt rules or regulations to
require specific policies or procedures reasonably designed to
prevent misuse in violation of this title (or the rules or
regulations thereunder) of material, nonpublic information.
(e) A municipal financial adviser and any person associated
with such municipal financial adviser shall be deemed to have a
fiduciary duty to any municipal securities issuer for whom such
municipal financial adviser acts as a municipal financial
adviser. A municipal financial adviser may not engage in any
act, practice, or course of business which is not consistent
with a municipal financial adviser's fiduciary duty. The
Commission shall, for the purposes of this paragraph, by rules
and regulations define, and prescribe means reasonably designed
to prevent, such acts, practices, and courses of business as
are not consistent with a municipal financial adviser's
fiduciary duty to its clients.
SEC. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.
(a) Disclosures Required.--
(1) Directors, officers, and principal stockholders
required to file.--Every person who is directly or
indirectly the beneficial owner of more than 10 percent
of any class of any equity security (other than an
exempted security) which is registered pursuant to
section 12, or who is a director or an officer of the
issuer of such security, shall file the statements
required by this subsection with the Commission [(and,
if such security is registered on a national securities
exchange, also with the exchange)].
(2) Time of filing.--The statements required by this
subsection shall be filed--
(A) * * *
(B) within 10 days after he or she becomes
such beneficial owner, director, or officer, or
within such shorter time as the Commission may
establish by rule;
(C) if there has been a change in such
ownership, or if such person shall have
purchased or sold a security-based swap
agreement (as defined in [section 206(b)]
section 206B of the Gramm-Leach-Bliley Act (15
U.S.C. 78c note)) involving such equity
security, before the end of the second business
day following the day on which the subject
transaction has been executed, or at such other
time as the Commission shall establish, by
rule, in any case in which the Commission
determines that such 2-day period is not
feasible.
* * * * * * *
ACCOUNTS AND RECORDS, EXAMINATIONS OF EXCHANGES, MEMBERS, AND OTHERS
Sec. 17. (a)(1) Every national securities exchange, member
thereof, broker or dealer who transacts a business in
securities through the medium of any such member, registered
securities association, registered broker or dealer, registered
municipal securities dealer, registered securities information
processor, registered transfer agent, nationally recognized
statistical rating organization, registered municipal financial
adviser, and registered clearing agency and the Municipal
Securities Rulemaking Board shall make and keep for prescribed
periods such records, furnish such copies thereof, and make and
disseminate such reports as the Commission, by rule, prescribes
as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the
purposes of this title. Any report that a nationally recognized
statistical rating organization is required by Commission rules
under this paragraph to make and disseminate to the Commission
shall be deemed furnished to the Commission.
* * * * * * *
(b) Records Subject to Examination.--
(1) Procedures for cooperation with other agencies.--
All records of persons described in subsection (a) of
this section are subject at any time, or from time to
time, to such reasonable periodic, special, or other
examinations by representatives of the Commission and
the appropriate regulatory agency for such persons as
the Commission or the appropriate regulatory agency for
such persons deems necessary or appropriate in the
public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title:
Provided, however, That the Commission shall, prior to
conducting any such examination of a--
(A) * * *
(B) broker or dealer registered pursuant to
section 15(b)(11), exchange registered pursuant
to section 6(g), or national securities
association registered pursuant to section
[15A(k) gives] 15A(k), give notice to the
Commodity Futures Trading Commission of such
proposed examination and consults with the
Commodity Futures Trading Commission concerning
the feasibility and desirability of
coordinating such examination with examinations
conducted by the Commodity Futures Trading
Commission in order to avoid unnecessary
regulatory duplication or undue regulatory
burdens for such broker or dealer or exchange.
* * * * * * *
(5) Surveillance and risk assessment.--All persons
described in subsection (a) of this section are subject
at any time, or from time to time, to such reasonable
periodic, special, or other information and document
requests by representatives of the Commission as the
Commission by rule or order deems necessary or
appropriate to conduct surveillance or risk assessments
of the securities markets, persons registered with the
Commission under this title, or otherwise in
furtherance of the purposes of this title.
* * * * * * *
(f)(1) Every national securities exchange, member thereof,
registered securities association, broker, dealer, municipal
securities dealer, government securities broker, government
securities dealer, registered transfer agent, registered
clearing agency, participant therein, member of the Federal
Reserve System, and bank whose deposits are insured by the
Federal Deposit Insurance Corporation shall--
(A) report to the Commission or other person
designated by the Commission and, in the case of
securities issued pursuant to chapter 31 of title 31,
United States Code, to the Secretary of the Treasury
such information about [missing, lost, counterfeit, or
stolen securities] securities that are missing, lost,
counterfeit, stolen, cancelled, or any other category
of securities as the Commission, by rule, may
prescribe, in such form and within such time as the
Commission, by rule, determines is necessary or
appropriate in the public interest or for the
protection of investors; such information shall be
available on request for a reasonable fee, to any such
exchange, member, association, broker, dealer,
municipal securities dealer, transfer agent, clearing
agency, participant, member of the Federal Reserve
System, or insured bank, and such other persons as the
Commission, by rule, designates; and
(B) make such inquiry with respect to information
reported pursuant to this subsection as the Commission,
by rule, prescribes as necessary or appropriate in the
public interest or for the protection of investors, to
determine whether securities in their custody or
control, for which they are responsible, or in which
they are effecting, clearing, or settling a transaction
have been reported as missing, lost, counterfeit, [or
stolen] stolen, cancelled, or reported in such other
manner as the Commission, by rule, may prescribe.
(2) Every member of a national securities exchange, broker,
dealer, registered transfer agent, [and registered clearing
agency,] registered clearing agency, registered securities
information processor, national securities exchange, and
national securities association shall require that each of its
partners, directors, officers, and employees be fingerprinted
and shall submit such fingerprints, or cause the same to be
submitted, to the Attorney General of the United States for
identification and appropriate processing. The Commission, by
rule, may exempt from the provisions of this paragraph upon
specified terms, conditions, and periods, any class of
partners, directors, officers, or employees of any such member,
broker, dealer, transfer agent, [or clearing agency,] clearing
agency, securities information processor, national securities
exchange, or national securities association, if the Commission
finds that such action is not inconsistent with the public
interest or the protection of investors. Notwithstanding any
other provision of law, in providing identification and
processing functions, the Attorney General shall provide the
Commission and self-regulatory organizations designated by the
Commission with access to all criminal history record
information.
* * * * * * *
[(j) Authority To Limit Disclosure of Information.--
Notwithstanding any other provision of law, the Commission
shall not be compelled to disclose any information required to
be reported under subsection (h) or (i) or any information
supplied to the Commission by any domestic or foreign
regulatory agency that relates to the financial or operational
condition of any associated person of a broker or dealer,
investment bank holding company, or any affiliate of an
investment bank holding company. Nothing in this subsection
shall authorize the Commission to withhold information from
Congress, or prevent the Commission from complying with a
request for information from any other Federal department or
agency or any self-regulatory organization requesting the
information for purposes within the scope of its jurisdiction,
or complying with an order of a court of the United States in
an action brought by the United States or the Commission. For
purposes of section 552 of title 5, United States Code, this
subsection shall be considered a statute described in
subsection (b)(3)(B) of such section 552. In prescribing
regulations to carry out the requirements of this subsection,
the Commission shall designate information described in or
obtained pursuant to subparagraphs (A), (B), and (C) of
subsection (i)(5) as confidential information for purposes of
section 24(b)(2) of this title.]
(j) Authority To Limit Disclosure of Information.--
(1) In general.--Notwithstanding any other provision
of law, the Commission shall not be compelled to
disclose any information, documents, records, or
reports that relate to an examination, surveillance, or
risk assessment of a person subject to or described in
this section, including subsection (i)(5)(A), or the
financial or operational condition of such persons, or
any information supplied to the Commission by any
domestic or foreign regulatory agency or self-
regulatory organization that relates to the financial
or operational condition of such persons, of any
associated person of such persons, or any affiliate of
an investment bank holding company.
(2) Certain exceptions.--Nothing in this subsection
shall authorize the Commission to withhold information
from the Congress, prevent the Commission from
complying with a request for information from any other
Federal department or agency, the Public Company
Accounting Oversight Board, or any self-regulatory
organization requesting the information for purposes
within the scope of its jurisdiction, or prevent the
Commission from complying with an order of a court of
the United States in an action brought by the United
States or the Commission against a person subject to or
described in this section to produce information,
documents, records, or reports relating directly to the
examination, surveillance, or risk assessment of that
person or the financial or operational condition of
that person or an associated or affiliated person of
that person.
(3) Treatment under section 552 of title 5, united
states code.--For purposes of section 552 of title 5,
United States Code, this subsection shall be considered
a statute described in subsection (b)(3)(B) of that
section.
(4) Certain information to be confidential.--In
prescribing regulations to carry out the requirements
of this subsection, the Commission shall designate
information described in or obtained pursuant to
subparagraphs (A), (B), and (C) of subsection (i)(3) as
confidential information for purposes of section
24(b)(2) of this title.
* * * * * * *
NATIONAL SYSTEM FOR CLEARANCE AND SETTLEMENT OF SECURITIES TRANSACTIONS
Sec. 17A. (a) * * *
* * * * * * *
(c)(1) * * *
* * * * * * *
(4)(A) * * *
* * * * * * *
(C) The appropriate regulatory agency for a transfer agent,
by order, shall censure or place limitations on the activities
or functions of any person associated, seeking to become
associated, or, at the time of the alleged misconduct,
associated or seeking to become associated with the transfer
agent, or suspend for a period not exceeding [twelve months or
bar any such person from being associated with the transfer
agent,] 12 months or bar any such person from being associated
with any transfer agent, broker, dealer, investment adviser,
municipal securities dealer, or nationally recognized
statistical rating organization, if the appropriate regulatory
agency finds, on the record after notice and opportunity for
hearing, that such censure, placing of limitations, suspension,
or bar is in the public interest and that such person has
committed or omitted any act, or is subject to an order or
finding, enumerated in subparagraph (A), (D), (E), (H), or (G)
or paragraph (4) of section 15(b) of this title, has been
convicted of any offense specified in subparagraph (B) of such
paragraph (4) within ten years of the commencement of the
proceedings under this paragraph, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
such paragraph (4). It shall be unlawful for any person as to
whom such an order suspending or barring him from being
associated with a transfer agent is in effect willfully to
become, or to be, associated with a transfer agent without the
consent of the appropriate regulatory agency that entered the
order and the appropriate regulatory agency for that transfer
agent. It shall be unlawful for any transfer agent to permit
such a person to become, or remain, a person associated with it
without the consent of such appropriate regulatory agencies, if
the transfer agent knew, or in the exercise of reasonable care
should have known, of such order. The Commission may establish,
by rule, procedures by which a transfer agent reasonably can
determine whether a person associated or seeking to become
associated with it is subject to any such order, and may
require, by rule, that any transfer agent comply with such
procedures.
* * * * * * *
REGISTRATION, RESPONSIBILITIES, AND OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
Sec. 19. (a) * * *
* * * * * * *
(h)(1) * * *
* * * * * * *
(4) The appropriate regulatory agency for a self-regulatory
organization is authorized, by order, if in its opinion such
action is necessary or appropriate in the public interest, for
the protection of investors, or otherwise in furtherance of the
purposes of this title, to remove from office or censure [any
officer or director] any person who is, or at the time of the
alleged misconduct was, an officer or director of such self-
regulatory organization, if such appropriate regulatory agency
finds, on the record after notice and opportunity for hearing,
that [such officer or director] such person has willfully
violated any provision of this title, the rules or regulations
thereunder, or the rules of such self-regulatory organization,
willfully abused his authority, or without reasonable
justification or excuse has failed to enforce compliance--
(A) * * *
* * * * * * *
LIABILITY OF CONTROLLING PERSONS AND PERSONS WHO AID AND ABET
VIOLATIONS
Sec. 20. (a) Every person who, directly or indirectly,
controls any person liable under any provision of this title or
of any rule or regulation thereunder shall also be liable
jointly and severally with and to the same extent as such
controlled person to any person to whom such controlled person
is liable, including to the Commission in any action brought
under paragraph (1) or (3) of section 21(d), unless the
controlling person acted in good faith and did not directly or
indirectly induce the act or acts constituting the violation or
cause of action.
* * * * * * *
(e) Prosecution of Persons Who Aid and Abet Violations.--For
purposes of any action brought by the Commission under
paragraph (1) or (3) of section 21(d), any person that
knowingly or recklessly provides substantial assistance to
another person in violation of a provision of this title, or of
any rule or regulation issued under this title, shall be deemed
to be in violation of such provision to the same extent as the
person to whom such assistance is provided.
* * * * * * *
INVESTIGATIONS; INJUNCTIONS AND PROSECUTION OF OFFENSES
Sec. 21. (a)(1) The Commission may, in its discretion, make
such investigations as it deems necessary to determine whether
any person has violated, is violating, or is about to violate
any provision of this title, the rules or regulations
thereunder, the rules of a national securities exchange or
registered securities association of which such person is a
member or a person associated, or, as to any act or practice,
or omission to act, while associated with a member, formerly
associated with a member, the rules of a registered clearing
agency in which such person is a participant, or, as to any act
or practice, or omission to act, while a participant, was a
participant, the rules of the Public Company Accounting
Oversight Board, of which such person is a registered public
accounting firm [or a person associated with such a firm], a
person associated with such a firm, or, as to any act,
practice, or omission to act while associated with such firm, a
person formerly associated with such a firm, or the rules of
the Municipal Securities Rulemaking Board, and may require or
permit any person to file with it a statement in writing, under
oath or otherwise as the Commission shall determine, as to all
the facts and circumstances concerning the matter to be
investigated. The Commission is authorized in its discretion,
to publish information concerning any such violations, and to
investigate any facts, conditions, practices, or matters which
it may deem necessary or proper to aid in the enforcement of
such provisions, in the prescribing of rules and regulations
under this title, or in securing information to serve as a
basis for recommending further legislation concerning the
matters to which this title relates.
* * * * * * *
(d)(1) * * *
* * * * * * *
(3) Money penalties in civil actions.--
(A) * * *
* * * * * * *
(C) Procedures for collection.--
(i) Payment of penalty to treasury.--A
penalty imposed under this section shall be
payable into the Treasury of the United States,
except as otherwise provided in section 308 of
the Sarbanes-Oxley Act of 2002 and section 21F
of this title.
* * * * * * *
(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) * * *
* * * * * * *
CIVIL PENALTIES FOR INSIDER TRADING
Sec. 21A. (a) * * *
* * * * * * *
(d) Procedures for Collection.--
(1) Payment of penalty to treasury.--A penalty
imposed under this section shall [(subject to
subsection (e))] be payable into the Treasury of the
United States, except as otherwise provided in section
308 of the Sarbanes-Oxley Act of 2002 and section 21F
of this title.
* * * * * * *
[(e) Authority To Award Bounties to Informants.--
Notwithstanding the provisions of subsection (d)(1), there
shall be paid from amounts imposed as a penalty under this
section and recovered by the Commission or the Attorney
General, such sums, not to exceed 10 percent of such amounts,
as the Commission deems appropriate, to the person or persons
who provide information leading to the imposition of such
penalty. Any determinations under this subsection, including
whether, to whom, or in what amount to make payments, shall be
in the sole discretion of the Commission, except that no such
payment shall be made to any member, officer, or employee of
any appropriate regulatory agency, the Department of Justice,
or a self-regulatory organization. Any such determination shall
be final and not subject to judicial review.]
[(f)] (e) Definition.--For purposes of this section, ``profit
gained'' or ``loss avoided'' is the difference between the
purchase or sale price of the security and the value of that
security as measured by the trading price of the security a
reasonable period after public dissemination of the nonpublic
information.
[(g)] (f) The authority of the Commission under this section
with respect to security-based swap agreements (as defined in
section 206B of the Gramm-Leach-Bliley Act) shall be subject to
the restrictions and limitations of section 3A(b) of this
title.
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,
15E, 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.
CEASE-AND-DESIST PROCEEDINGS
Sec. 21C. (a) * * *
* * * * * * *
(c) Temporary Order.--
(1) * * *
(2) Applicability.--[paragraph (1)
subsection]Paragraph (1) shall apply only to a
respondent that acts, or, at the time of the alleged
misconduct acted, as a broker, dealer, investment
adviser, investment company, municipal securities
dealer, government securities broker, government
securities dealer, registered public accounting firm
(as defined in section 2 of the Sarbanes-Oxley Act of
2002), or transfer agent, or is, or was at the time of
the alleged misconduct, an associated person of, or a
person seeking to become associated with, any of the
foregoing.
* * * * * * *
SEC. 21F. SECURITIES WHISTLEBLOWER INCENTIVES AND PROTECTION.
(a) In General.--In any judicial or administrative action
brought by the Commission under the securities laws that
results in monetary sanctions exceeding $1,000,000, the
Commission, under regulations prescribed by the Commission and
subject to subsection (b), may pay an award or awards not
exceeding an amount equal to 30 percent, in total, of the
monetary sanctions imposed in the action or related actions to
one or more whistleblowers who voluntarily provided original
information to the Commission that led to the successful
enforcement of the action. Any amount payable under the
preceding sentence shall be paid from the fund described in
subsection (f).
(b) Determination of Amount of Award; Denial of Award.--
(1) Determination of amount of award.--The
determination of the amount of an award, within the
limit specified in subsection (a), shall be in the sole
discretion of the Commission. The Commission may take
into account the significance of the whistleblower's
information to the success of the judicial or
administrative action described in subsection (a), the
degree of assistance provided by the whistleblower and
any legal representative of the whistleblower in such
action, the Commission's programmatic interest in
deterring violations of the securities laws by making
awards to whistleblowers who provide information that
leads to the successful enforcement of such laws, and
such additional factors as the Commission may establish
by rules or regulations.
(2) Denial of award.--No award under subsection (a)
shall be made--
(A) to any whistleblower who is, or was at
the time he or she acquired the original
information submitted to the Commission, a
member, officer, or employee of any appropriate
regulatory agency, the Department of Justice,
the Public Company Accounting Oversight Board,
or a self-regulatory organization;
(B) to any whistleblower who is convicted of
a criminal violation related to the judicial or
administrative action for which the
whistleblower otherwise could receive an award
under this section; or
(C) to any whistleblower who fails to submit
information to the Commission in such form as
the Commission may, by rule, require.
(c) Representation.--
(1) Permitted representation.--Any whistleblower who
makes a claim for an award under subsection (a) may be
represented by counsel.
(2) Required representation.--Any whistleblower who
makes a claim for an award under subsection (a) must be
represented by counsel if the whistleblower submits the
information upon which the claim is based anonymously.
Prior to the payment of an award, the whistleblower
must disclose his or her identity and provide such
other information as the Commission may require.
(d) No Contract Necessary.--No contract with the Commission
is necessary for any whistleblower to receive an award under
subsection (a), unless the Commission, by rule or regulation,
so requires.
(e) Appeals.--Any determinations under this section,
including whether, to whom, or in what amounts to make awards,
shall be in the sole discretion of the Commission, and any such
determinations shall be final and not subject to judicial
review.
(f) Investor Protection Fund.--
(1) Fund established.--There is established in the
Treasury of the United States a fund to be known as the
``Securities and Exchange Commission Investor
Protection Fund'' (referred to in this section as the
``Fund'').
(2) Use of fund.--The Fund shall be available to the
Commission, without further appropriation or fiscal
year limitation, for the following purposes:
(A) Paying awards to whistleblowers as
provided in subsection (a).
(B) Funding investor education initiatives
designed to help investors protect themselves
against securities fraud or other violations of
the securities laws, or the rules and
regulations thereunder.
(3) Deposits and credits.--There shall be deposited
into or credited to the Fund--
(A) any monetary sanction collected by the
Commission in any judicial or administrative
action brought by the Commission under the
securities laws that is not added to a
disgorgement fund or other fund pursuant to
section 308 of the Sarbanes-Oxley Act of 2002
or otherwise distributed to victims of a
violation of the securities laws, or the rules
and regulations thereunder, underlying such
action, unless the balance of the Fund at the
time the monetary sanction is collected exceeds
$100,000,000;
(B) any monetary sanction added to a
disgorgement fund or other fund pursuant to
section 308 of the Sarbanes-Oxley Act of 2002
that is not distributed to the victims for whom
the disgorgement fund or other fund was
established, unless the balance of the Fund at
the time the determination is made not to
distribute the monetary sanction to such
victims exceeds $100,000,000; and
(C) all income from investments made under
paragraph (4).
(4) Investments.--
(A) Amounts in fund may be invested.--The
Commission may request the Secretary of the
Treasury to invest the portion of the Fund that
is not, in the Commission's judgment, required
to meet the current needs of the Fund.
(B) Eligible investments.--Investments shall
be made by the Secretary of the Treasury in
obligations of the United States or obligations
that are guaranteed as to principal and
interest by the United States, with maturities
suitable to the needs of the Fund as determined
by the Commission.
(C) Interest and proceeds credited.--The
interest on, and the proceeds from the sale or
redemption of, any obligations held in the Fund
shall be credited to, and form a part of, the
Fund.
(5) Reports to congress.--Not later than October 30
of each year, the Commission shall transmit to the
Committee on Banking, Housing, and Urban Affairs of the
Senate, and the Committee on Financial Services of the
House of Representatives a report on--
(A) the Commission's whistleblower award
program under this section, including a
description of the number of awards that were
granted and the types of cases in which awards
were granted during the preceding fiscal year;
(B) investor education initiatives described
in paragraph (2)(B) that were funded by the
Fund during the preceding fiscal year;
(C) the balance of the Fund at the beginning
of the preceding fiscal year;
(D) the amounts deposited into or credited to
the Fund during the preceding fiscal year;
(E) the amount of earnings on investments of
amounts in the Fund during the preceding fiscal
year;
(F) the amount paid from the Fund during the
preceding fiscal year to whistleblowers
pursuant to subsection (a);
(G) the amount paid from the Fund during the
preceding fiscal year for investor education
initiatives described in paragraph (1)(B);
(H) the balance of the Fund at the end of the
preceding fiscal year; and
(I) a complete set of audited financial
statements, including a balance sheet, income
statement, and cash flow analysis.
(g) Protection of Whistleblowers.--
(1) Prohibition against retaliation.--
(A) In general.--No employer may discharge,
demote, suspend, threaten, harass, or in any
other manner discriminate against an employee,
contractor, or agent in the terms and
conditions of employment because of any lawful
act done by the employee, contractor, or agent
in providing information to the Commission in
accordance with subsection (a), or in assisting
in any investigation or judicial or
administrative action of the Commission based
upon or related to such information.
(B) Enforcement.--
(i) Cause of action.--An individual
who alleges discharge or other
discrimination in violation of
subparagraph (A) may bring an action
under this subsection in the
appropriate district court of the
United States for the relief provided
in subparagraph (C).
(ii) Subpoenas.--A subpoena requiring
the attendance of a witness at a trial
or hearing conducted under this section
may be served at any place in the
United States.
(iii) Statute of limitations.--An
action under this subsection may not be
brought more than 6 years after the
date on which the violation of
subparagraph (A) occurred, or more than
3 years after the date when facts
material to the right of action are
known or reasonably should have been
known by the employee alleging a
violation of subparagraph (A), but in
no event after 10 years after the date
on which the violation occurs.
(C) Relief.--An employee, contractor, or
agent prevailing in any action brought under
subparagraph (B) shall be entitled to all
relief necessary to make that employee,
contractor, or agent whole, including
reinstatement with the same seniority status
that the employee, contractor, or agent would
have had, but for the discrimination, 2 times
the amount of back pay, with interest, and
compensation for any special damages sustained
as a result of the discrimination, including
litigation costs, expert witness fees, and
reasonable attorneys' fees.
(2) Confidentiality.--
(A) In general.--Except as provided in
subparagraph (B), all information provided to
the Commission by a whistleblower shall be
confidential and privileged as an evidentiary
matter (and shall not be subject to civil
discovery or other legal process) in any
proceeding in any Federal or State court or
administrative agency, and shall be exempt from
disclosure, in the hands of an agency or
establishment of the Federal Government, under
the Freedom of Information Act (5 U.S.C. 552),
or otherwise, unless and until required to be
disclosed to a defendant or respondent in
connection with a proceeding instituted by the
Commission or any entity described in
subparagraph (B). For purposes of section 552
of title 5, United States Code, this paragraph
shall be considered a statute described in
subsection (b)(3)(B) of such section 552.
Nothing herein is intended to limit the
Attorney General's ability to present such
evidence to a grand jury or to share such
evidence with potential witnesses or defendants
in the course of an ongoing criminal
investigation.
(B) Availability to government agencies.--
Without the loss of its status as confidential
and privileged in the hands of the Commission,
all information referred to in subparagraph (A)
may, in the discretion of the Commission, when
determined by the Commission to be necessary to
accomplish the purposes of this Act and protect
investors, be made available to--
(i) the Attorney General of the
United States,
(ii) an appropriate regulatory
authority,
(iii) a self-regulatory organization,
(iv) the Public Company Accounting
Oversight Board,
(v) State attorneys general in
connection with any criminal
investigation, and
(vi) any appropriate State regulatory
authority,
each of which shall maintain such information
as confidential and privileged, in accordance
with the requirements in subparagraph (A).
(3) Rights retained.--Nothing in this section shall
be deemed to diminish the rights, privileges, or
remedies of any whistleblower under any Federal or
State law, or under any collective bargaining
agreement.
(h) Provision of False Information.--Any whistleblower who
knowingly and willfully makes any false, fictitious, or
fraudulent statement or representation, or makes or uses any
false writing or document knowing the same to contain any
false, fictitious, or fraudulent statement or entry, shall not
be entitled to an award under this section and shall be subject
to prosecution under section 1001 of title 18, United States
Code.
(i) Rulemaking Authority.--The Commission shall have the
authority to issue such rules and regulations as may be
necessary or appropriate to implement the provisions of this
section.
(j) Definitions.--For purposes of this section, the following
terms have the following meanings:
(1) Original information.--The term ``original
information'' means information that--
(A) is based on the direct and independent
knowledge or analysis of a whistleblower;
(B) is not known to the Commission from any
other source, unless the whistleblower is the
initial source of the information; and
(C) is not based on allegations in a judicial
or administrative hearing, in a governmental
report, hearing, audit, or investigation, or
from the news media, unless the whistleblower
is the initial source of the information that
resulted in the judicial or administrative
hearing, governmental report, hearing, audit,
or investigation, or the news media's report on
the allegations.
(2) Monetary sanctions.--The term ``monetary
sanctions'', when used with respect to any judicial or
administrative action, means any monies, including but
not limited to penalties, disgorgement, and interest,
ordered to be paid, and any monies deposited into a
disgorgement fund or other fund pursuant to section
308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7246(b)), as a result of such action or any settlement
of such action.
(3) Related action.--The term ``related action'',
when used with respect to any judicial or
administrative action brought by the Commission under
the securities laws, means any judicial or
administrative action brought by an entity described in
subsection (g)(2)(B) that is based upon the same
original information provided by a whistleblower
pursuant to subsection (a) that led to the successful
enforcement of the Commission action.
(4) Whistleblower.--The term ``whistleblower'' means
an individual, or two or more individuals acting
jointly, who submit information to the Commission as
provided in this section.
* * * * * * *
RULES, REGULATIONS, AND ORDERS; ANNUAL REPORTS
Sec. 23. (a) * * *
(b) For the purposes of evaluating its rules and programs and
for considering proposing, adopting, or engaging in rules or
programs, the Commission is authorized to gather information,
communicate with investors or other members of the public, and
engage in such temporary or experimental programs as the
Commission in its discretion determines is in the public
interest or for the protection of investors. The Commission may
delegate to its staff some or all of the authority conferred by
this subsection.
[(b)] (c)(1) * * *
* * * * * * *
[(c)] (d) The Commission, by rule, shall prescribe the
procedure applicable to every case pursuant to this title of
adjudication (as defined in section 551 of title 5, United
States Code) not required to be determined on the record after
notice and opportunity for hearing. Such rules shall, as a
minimum, provide that prompt notice shall be given of any
adverse action or final disposition and that such notice and
the entry of any order shall be accompanied by a statement of
written reasons.
[(d)] (e) Cease-and-Desist Procedures.--Within 1 year after
the date of enactment of this subsection, the Commission shall
establish regulations providing for the expeditious conduct of
hearings and rendering of decisions under section 21C of this
title, section 8A of the Securities Act of 1933, section 9(f)
of the Investment Company Act of 1940, and section 203(k) of
the Investment Advisers Act of 1940.
PUBLIC AVAILABILITY OF INFORMATION
Sec. 24. (a) * * *
* * * * * * *
(d) Sharing Privileged Information With Other Authorities.--
(1) Privileged information provided by the
commission.--The Commission shall not be deemed to have
waived any privilege applicable to any information by
transferring that information to or permitting that
information to be used by--
(A) any agency (as defined in section 6 of
title 18, United States Code);
(B) any foreign securities authority;
(C) the Public Company Accounting Oversight
Board;
(D) any self-regulatory organization;
(E) any foreign law enforcement authority; or
(F) any State securities or law enforcement
authority.
(2) Non-disclosure of privileged information provided
to the commission.--Except as provided in subsection
(f), the Commission shall not be compelled to disclose
privileged information obtained from any foreign
securities authority, or foreign law enforcement
authority, if the authority has in good faith
determined and represented to the Commission that the
information is privileged.
(3) Non-waiver of privileged information provided to
the commission.--
(A) In general.--Federal agencies, State
securities and law enforcement authorities,
self-regulatory organizations, and the Public
Company Accounting Oversight Board shall not be
deemed to have waived any privilege applicable
to any information by transferring that
information to or permitting that information
to be used by the Commission.
(B) Exception with respect to certain
actions.--The provisions of subparagraph (A)
shall not apply to a self-regulatory
organization or the Public Company Accounting
Oversight Board with respect to information
used by the Commission in an action against
such organization.
(4) Definitions.--For purposes of this subsection:
(A) The term ``privilege'' includes any work-
product privilege, attorney-client privilege,
governmental privilege, or other privilege
recognized under Federal, foreign, or State
law.
(B) The term ``foreign law enforcement
authority'' means any foreign authority that is
empowered under foreign law to detect,
investigate or prosecute potential violations
of law.
(C) The term ``State securities or law
enforcement authority'' means the authority of
any State or territory that is empowered under
State or territory law to detect, investigate
or prosecute potential violations of law.
[(d)] (e) Records Obtained From Foreign Securities
Authorities.--Except [as provided in subsection (e)] as
provided in subsection (f), the Commission shall not be
compelled to disclose records obtained from a foreign
securities authority if (1) the foreign securities authority
has in good faith determined and represented to the Commission
that public disclosure of such records would violate the laws
applicable to that foreign securities authority, and (2) the
Commission obtains such records pursuant to (A) such procedure
as the Commission may authorize for use in connection with the
administration or enforcement of the securities laws, or (B) a
memorandum of understanding. For purposes of section 552 of
title 5, United States Code, this subsection shall be
considered a statute described in subsection (b)(3)(B) of such
section 552.
[(e)] (f) Savings Provisions.--Nothing in this section
shall--
(1) * * *
* * * * * * *
JURISDICTION OF OFFENSES AND SUITS
Sec. 27. [The district]
(a) In General.--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. 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. In any action or proceeding instituted
by the Commission under this title in a United States district
court for any judicial district, subpoenas issued to compel the
attendance of witnesses or the production of documents or
tangible things (or both) at a hearing or trial may be served
at any place within the United States. 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.
(b) Extraterritorial Jurisdiction.--The jurisdiction of 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 described under subsection
(a) includes violations of the antifraud provisions of this
title, and all suits in equity and actions at law under those
provisions, involving--
(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even
if the securities transaction occurs outside the United
States and involves only foreign investors; or
(2) conduct occurring outside the United States that
has a foreseeable substantial effect within the United
States.
* * * * * * *
VALIDITY OF CONTRACTS
Sec. 29. (a) Any condition, stipulation, or provision binding
any person to waive compliance with any provision of this title
or of any rule or regulation thereunder, or of any rule of [an
exchange required thereby] a self-regulatory organization,
shall be void.
* * * * * * *
SEC. 31. TRANSACTION FEES.
(a) * * *
* * * * * * *
(e) Dates for Payments.--The fees and assessments required by
subsections (b), (c), and (d) of this section shall be paid--
(1) * * *
(2) on or before [September 30] September 25, with
respect to transactions and sales occurring during the
period beginning on the preceding January 1 and ending
at the close of the preceding August 31.
* * * * * * *
(g) Publication.--The Commission shall publish in the Federal
Register notices of the fee or assessment rates applicable
under this section for each fiscal year not later than [April
30] August 31 of the fiscal year preceding the fiscal year to
which such rate applies, together with any estimates or
projections on which such fees are based.
* * * * * * *
(j) Recapture of Projection Windfalls for Further Rate
Reductions.--
(1) * * *
(2) Mid-year adjustment.--For each of the fiscal
years 2002 through 2011, the Commission shall
determine, by March 1 of such fiscal year, whether,
based on the actual aggregate dollar volume of sales
during the first [5 months] 4 months of such fiscal
year, the baseline estimate of the aggregate dollar
volume of sales used under paragraph (1) for such
fiscal year (or $48,800,000,000,000 in the case of
fiscal year 2002) is reasonably likely to be 10 percent
(or more) greater or less than the actual aggregate
dollar volume of sales for such fiscal year. If the
Commission so determines, the Commission shall by
order, no later than such March 1, adjust each of the
rates applicable under subsections (b) and (c) for such
fiscal year to a uniform adjusted rate that, when
applied to the revised estimate of the aggregate dollar
amount of sales for the remainder of such fiscal year,
is reasonably likely to produce aggregate fee
collections under this section [(including fees
collected during such 5-month period and assessments
collected under subsection (d))] (including fees
estimated to be collected under subsections (b) and (c)
prior to the effective date of the uniform adjusted
rate and assessments estimated to be collected under
subsection (d)) that are equal to the target offsetting
collection amount for such fiscal year. In making such
revised estimate, the Commission shall, after
consultation with the Congressional Budget Office and
the Office of Management and Budget, use the same
methodology required by subsection (l)(2).
* * * * * * *
[SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
[In addition to any other funds authorized to be appropriated
to the Commission, there are authorized to be appropriated to
carry out the functions, powers, and duties of the Commission,
$776,000,000 for fiscal year 2003, of which--
[(1) $102,700,000 shall be available to fund
additional compensation, including salaries and
benefits, as authorized in the Investor and Capital
Markets Fee Relief Act (Public Law 107-123; 115 Stat.
2390 et seq.);
[(2) $108,400,000 shall be available for information
technology, security enhancements, and recovery and
mitigation activities in light of the terrorist attacks
of September 11, 2001; and
[(3) $98,000,000 shall be available to add not fewer
than an additional 200 qualified professionals to
provide enhanced oversight of auditors and audit
services required by the Federal securities laws, and
to improve Commission investigative and disciplinary
efforts with respect to such auditors and services, as
well as for additional professional support staff
necessary to strengthen the programs of the Commission
involving Full Disclosure and Prevention and
Suppression of Fraud, risk management, industry
technology review, compliance, inspections,
examinations, market regulation, and investment
management.]
SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
In addition to any other funds authorized to be appropriated
to the Commission, there are authorized to be appropriated to
carry out the functions, powers, and duties of the Commission--
(1) for fiscal year 2010, $1,115,000,000;
(2) for fiscal year 2011, $1,300,000,000;
(3) for fiscal year 2012, $1,500,000,000;
(4) for fiscal year 2013, $1,750,000,000;
(5) for fiscal year 2014, $2,000,000,000; and
(6) for fiscal year 2015, $2,250,000,000.
* * * * * * *
----------
SECURITIES ACT OF 1933
TITLE I--SHORT TITLE
Section 1. This title may be cited as the ``Securities Act of
1933''.
* * * * * * *
EXEMPTED SECURITIES
Sec. 3. (a) Except as hereinafter expressly provided, the
provisions of this title shall not apply to any of the
following classes of securities:
(1) * * *
* * * * * * *
(4) Any security issued by a person organized and
operated exclusively for religious, educational,
benevolent, fraternal, charitable, or reformatory
purposes and not for pecuniary profit, and no part of
the net earnings of which inures to the benefit of any
person, private stockholder, or [individual;]
individual, or any security of a fund that is excluded
from the definition of an investment company under
section 3(c)(10)(B) of the Investment Company Act of
1940;
* * * * * * *
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 $7,500 for a natural
person or $75,000 for any other person.
(B) Second tier.--Notwithstanding paragraph
(A), the maximum amount of penalty for each
such act or omission shall be $75,000 for a
natural person or $375,000 for any other person
if the act or omission described in paragraph
(1) involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a
regulatory requirement.
(C) Third tier.--Notwithstanding paragraphs
(A) and (B), the maximum amount of penalty for
each such act or omission shall be $150,000 for
a natural person or $725,000 for any other
person if--
(i) the act or omission described in
paragraph (1) involved fraud, deceit,
manipulation, or deliberate or reckless
disregard of a regulatory requirement;
and
(ii) such act or omission directly or
indirectly resulted in 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.
CIVIL LIABILITIES ON ACCOUNT OF FALSE REGISTRATION STATEMENT
Sec. 11. (a) In case any part of the registration statement,
when such part became effective, contained an untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, any person acquiring such security
(unless it is proved that at the time of such acquisition he
knew of such untruth or omission) may, either at law or in
equity, in any court of competent jurisdiction, sue--
(1) * * *
* * * * * * *
If such person acquired the security after the issuer has made
generally available to its security holders an [earning
statement] earnings statement covering a period of at least
twelve months beginning after the effective date of the
registration statement, then the right of recovery under this
subsection shall be conditioned on proof that such person
acquired the security relying upon such untrue statement in the
registration statement or relying upon the registration
statement and not knowing of such omission, but such reliance
may be established without proof of the reading of the
registration statement by such person.
* * * * * * *
LIABILITY OF CONTROLLING PERSONS
Sec. 15. [Every person who] (a) Controlling persons.--Every
person who, by or through stock ownership, agency, or
otherwise, or who, pursuant to or in connection with an
agreement or understanding with one or more other persons by or
through stock ownership, agency, or otherwise, controls any
person liable under section 11 or 12, shall also be liable
jointly and severally with and to the same extent as such
controlled person to any person to whom such controlled person
is liable, unless the controlling person had no knowledge of or
reasonable ground to believe in the existence of the facts by
reason of which the liability of the controlled person is
alleged to exist.
(b) Prosecution of Persons Who Aid and Abet Violations.--For
purposes of any action brought by the Commission under
subparagraph (b) or (d) of section 20, any person that
knowingly or recklessly provides substantial assistance to
another person in violation of a provision of this Act, or of
any rule or regulation issued under this Act, shall be deemed
to be in violation of such provision to the same extent as the
person to whom such assistance is provided.
* * * * * * *
SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.
(a) * * *
(b) Covered Securities.--For purposes of this section, the
following are covered securities:
(1) Exclusive federal registration of nationally
traded securities.--A security is a covered security if
such security is--
(A) * * *
* * * * * * *
(C) [is a security] a security of the same
issuer that is equal in seniority or that is a
senior security to a security described in
subparagraph (A) or (B).
* * * * * * *
(c) Preservation of Authority.--
(1) * * *
(2) Preservation of filing requirements.--
(A) * * *
(B) Preservation of fees.--
(i) In general.--Until otherwise
provided by law, rule, regulation, or
order, or other administrative action
of any [State, or] State or any
political subdivision thereof, adopted
after the date of enactment of the
National Securities Markets Improvement
Act of 1996, filing or registration
fees with respect to securities or
securities transactions shall continue
to be collected in amounts determined
pursuant to State law as in effect on
the day before such date.
* * * * * * *
SPECIAL POWERS OF COMMISSION
Sec. 19. (a) * * *
* * * * * * *
(d)(1) * * *
* * * * * * *
(6) Notwithstanding any other provision of law, neither the
Commission nor any other person shall be required to establish
any procedures not specifically required by the securities
laws, as that term is defined in section 3(a)(47) of the
Securities Exchange Act of 1934, or by chapter 5 of title 5,
United States Code, in connection with cooperation,
coordination, or consultation with--
(A) any association referred to [in paragraph (1) of
(3)] in paragraph (1) or (3) or any conference or
meeting referred to in paragraph (4), while such
association, conference, or meeting is carrying out
activities in furtherance of the provisions of this
subsection; or
* * * * * * *
(e) For the purposes of evaluating its rules and programs and
for considering, proposing, adopting, or engaging in rules or
programs, the Commission is authorized to gather information,
communicate with investors or other members of the public, and
engage in such temporary or experimental programs as the
Commission in its discretion determines is in the public
interest or for the protection of investors. The Commission may
delegate to its staff some or all of the authority conferred by
this subsection.
INJUNCTIONS AND PROSECUTION OF OFFENSES
Sec. 20. (a) * * *
* * * * * * *
(d) Money Penalties in Civil Actions.--
(1) * * *
* * * * * * *
(3) Procedures for collection.--
(A) Payment of penalty to treasury.--A
penalty imposed under this section shall be
payable into the Treasury of the United States,
except as otherwise provided in section 308 of
the Sarbanes-Oxley Act of 2002 and section 21F
of the Securities Exchange Act of 1934.
* * * * * * *
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 to compel the attendance of
witnesses or the production of documents or tangible things (or
both) at a hearing or trial may be served at any place within
the United States. 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.
* * * * * * *
(c) Extraterritorial Jurisdiction.--The jurisdiction of the
district courts of the United States and the United States
courts of any Territory described under subsection (a) includes
violations of section 17(a), and all suits in equity and
actions at law under that section, involving--
(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even
if the securities transaction occurs outside the United
States and involves only foreign investors; or
(2) conduct occurring outside the United States that
has a foreseeable substantial effect within the United
States.
* * * * * * *
SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
(a) * * *
* * * * * * *
(c) Safe Harbor.--
(1) In general.--Except as provided in subsection
(b), in any private action arising under this title
that is based on an untrue statement of a material fact
or omission of a material fact necessary to make the
statement not misleading, a person referred to in
subsection (a) shall not be liable with respect to any
forward-looking statement, whether written or oral, if
and to the extent that--
(A) * * *
(B) the plaintiff fails to prove that the
forward-looking statement--
(i) * * *
(ii) if made by a [business entity;]
business entity, was--
(I) * * *
* * * * * * *
----------
INVESTMENT COMPANY ACT OF 1940
TITLE I--INVESTMENT COMPANIES
* * * * * * *
GENERAL DEFINITIONS
Sec. 2. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(19) ``Interested person'' of another person means--
(A) when used with respect to an investment company--
(i) * * *
* * * * * * *
[(v) any person or any affiliated person of a person
(other than a registered investment company) that, at
any time during the 6-month period preceding the date
of the determination of whether that person or
affiliated person is an interested person, has executed
any portfolio transactions for, engaged in any
principal transactions with, or distributed shares
for--
[(I) the investment company;
[(II) any other investment company having the
same investment adviser as such investment
company or holding itself out to investors as a
related company for purposes of investment or
investor services; or
[(III) any account over which the investment
company's investment adviser has brokerage
placement discretion,
[(vi) any person or any affiliated person of a person
(other than a registered investment company) that, at
any time during the 6-month period preceding the date
of the determination of whether that person or
affiliated person is an interested person, has loaned
money or other property to--
[(I) the investment company;
[(II) any other investment company having the
same investment adviser as such investment
company or holding itself out to investors as a
related company for purposes of investment or
investor services; or
[(III) any account for which the investment
company's investment adviser has borrowing
authority,]
(v) any natural person who is a member of a class of
persons who the Commission, by rule or regulation,
determines are unlikely to exercise an appropriate
degree of independence as a result of--
(I) a material business or professional
relationship with such company or any
affiliated person of such company; or
(II) a close familial relationship with any
natural person who is an affiliated person of
such company;
[(vii)] (vi) any natural person whom the Commission
by order shall have determined to be an interested
person by reason of having had, at any time since the
beginning of the last [two] five completed fiscal years
of such company, a material business or professional
relationship with such company or with the principal
executive officer of such company or with any other
investment company having the same investment adviser
or principal underwriter or with the principal
executive officer of such other investment company:
Provided, That no person shall be deemed to be an interested
person of an investment company solely by reason of (aa) his
being a member of its board of directors or advisory board or
an owner of its securities, or (bb) his membership in the
immediate family of any person specified in clause (aa) of this
proviso; and
(B) when used with respect to an investment
adviser of or principal underwriter for any
investment company--
(i) * * *
* * * * * * *
For the purposes of this paragraph (19),
``member of the immediate family'' means any
parent, spouse of a parent, child, spouse of a
child, spouse, brother, or sister, and includes
step and adoptive relationships. The Commission
may modify or revoke any order issued under
clause [(vi)] (vii) of subparagaph (A) or (B)
of this paragraph whenever it finds that such
order is no longer consistent with the facts.
No order issued pursuant to clause [(vi)] (vii)
of subparagraph (A) or (B) of this paragraph
shall become effective until at least sixty
days after the entry thereof, and no such order
shall affect the status of any person for the
purposes of this title or for any other purpose
for any period prior to the effective date of
such order.
* * * * * * *
(44) ``Securities Act of 1933'', ``Securities
Exchange Act of 1934'', [``Public Utility Holding
Company Act of 1935'',] and ``Trust Indenture Act of
1939'' means those Acts, respectively, as heretofore or
hereafter amended.
* * * * * * *
(54) The term ``municipal finance adviser'' has the
same meaning as in section 3 of the Securities Exchange
Act of 1934.
* * * * * * *
DEFINITION OF INVESTMENT COMPANY
Sec. 3. (a) * * *
* * * * * * *
(c) Notwithstanding subsection (a), none of the following
persons is an investment company within the meaning of this
title:
(1) * * *
* * * * * * *
[(8) Any company subject to regulation under the
Public Utility Holding Company Act of 1935.]
(8) [Repealed]
* * * * * * *
INELIGIBILITY OF CERTAIN AFFILIATED PERSONS AND UNDERWRITERS
Sec. 9. (a) It shall be unlawful for any of the following
persons to serve or act in the capacity of employee, officer,
director, member of an advisory board, investment adviser, or
depositor of any registered investment company, or principal
underwriter for any registered open-end company, registered
unit investment trust, or registered face-amount certificate
company:
(1) any person who within 10 years has been convicted
of any felony or misdemeanor involving the purchase or
sale of any security or arising out of such person's
conduct as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government
securities broker, government securities dealer, bank,
transfer agent, credit rating agency, municipal finance
adviser, or entity or person required to be registered
under the Commodity Exchange Act, or as an affiliated
person, salesman, or employee of any investment
company, bank, insurance company, or entity or person
required to be registered under the Commodity Exchange
Act;
(2) any person who, by reason of any misconduct, is
permanently or temporarily enjoined by order, judgment,
or decree of any court of competent jurisdiction from
acting as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government
securities broker, government securities dealer, bank,
transfer agent, credit rating agency, municipal finance
adviser, or entity or person required to be registered
under the Commodity Exchange Act, or as an affiliated
person, salesman, or employee of any investment
company, bank, insurance company, or entity or person
required to be registered under the Commodity Exchange
Act, or from engaging in or continuing any conduct or
practice in connection with any such activity or in
connection with the purchase or sale of any security;
or
* * * * * * *
(b) The Commission may, after notice and opportunity for
hearing, by order prohibit, conditionally or unconditionally,
either permanently or for such period of time as it in its
discretion shall deem appropriate in the public interest, any
person from serving or acting as an employee, officer,
director, member of an advisory board, investment adviser or
depositor of, or principal underwriter for, a registered
investment company or affiliated person of such investment
adviser, depositor, or principal underwriter, if such person--
(1) * * *
* * * * * * *
(4) has been found by a foreign financial regulatory
authority to have--
(A) * * *
(B) violated any foreign statute or
regulation regarding transactions in securities
or contracts of sale of a commodity for future
delivery traded on or subject to the rules of a
contract market or any board of trade; or
* * * * * * *
(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.
* * * * * * *
FUNCTIONS AND ACTIVITIES OF INVESTMENT COMPANIES
Sec. 12. (a) * * *
* * * * * * *
(d)(1)(A) * * *
* * * * * * *
(J) The Commission, by rule or regulation, upon its own
motion or by order upon application, may conditionally or
unconditionally exempt any person, security, or transaction, or
any class or classes of persons, securities, or transactions
from [any provision of this subsection] any provision of this
paragraph, if and to the extent that such exemption is
consistent with the public interest and the protection of
investors.
* * * * * * *
CHANGES IN INVESTMENT POLICY
Sec. 13. (a) No registered investment company shall, unless
authorized by the vote of a majority of its outstanding voting
securities--
(1) * * *
* * * * * * *
(3) deviate from its policy in respect of
concentration of investments in any particular industry
or group of industries as recited in its registration
statement, deviate from any investment policy which is
changeable only if authorized by shareholder vote, or
deviate from any policy recited in its registration
statement pursuant to section 8(b)(3); or
* * * * * * *
TRANSACTIONS OF CERTAIN AFFILIATED PERSONS AND UNDERWRITERS
Sec. 17. (a) * * *
* * * * * * *
(f) Custody of Securities.--
(1) * * *
* * * * * * *
(4) [No such member] No member of a national
securities exchange which trades in securities for its
own account may act as custodian except in accordance
with rules and regulations prescribed by the Commission
for the protection of investors.
* * * * * * *
(6) The Commission may, after consultation with and
taking into consideration the views of the Federal
banking agencies (as defined in section 3 of the
Federal Deposit Insurance Act), adopt rules and
regulations, and issue orders, consistent with the
protection of investors, prescribing the conditions
under which a bank, or an affiliated person of a bank,
either of which is an affiliated person, promoter,
organizer, or sponsor of, or principal underwriter for,
a registered management [company may serve] company,
may serve as custodian of that registered management
company.
[(g) The Commission is authorized to require by rules and
regulations or orders for the protection of investors that any
officer or employee of a registered management investment
company who may singly, or jointly with others, have access to
securities or funds of any registered company, either directly
or through authority to draw upon such funds or to direct
generally the disposition of such securities (unless the
officer or employee has such access solely through his position
as an officer or employee of a bank) be bonded by a reputable
fidelity insurance company against larceny and embezzlement in
such reasonable minimum amounts as the Commission may
prescribe.]
(g) Fidelity Bonding.--
(1) In general.--The Commission is authorized to
require that a registered management company provide
and maintain a fidelity bond against loss as to any
officer or employee who has access to securities or
funds of the company, either directly or through
authority to draw upon such funds or to direct
generally the disposition of such securities (unless
the officer or employee has such access solely through
his position as an officer or employee of a bank), in
such form and amount as the Commission may prescribe by
rule, regulation, or order for the protection of
investors.
(2) Definitions.--For purposes of this subsection:
(A) Management company.--The term
``management company'' has the meaning given
such term under section 4 of the Investment
Company Act of 1940.
(B) Officer or employee.--The term ``officer
or employee'' means--
(i) any officer or employee of the
management company; and;
(ii) any officer or employee of any
investment adviser to the management
company, or of any affiliated company
of any such investment adviser, as the
Commission may prescribe by rule,
regulation, or order for the protection
of investors.
(C) Other definitions.--The terms
``affiliated company'' and ``investment
adviser'' shall have the meaning given such
terms under section 2 of the Investment Company
Act of 1940.
* * * * * * *
DISTRIBUTION, REDEMPTION, AND REPURCHASE OF REDEEMABLE SECURITIES
Sec. 22. (a) * * *
* * * * * * *
(e) No registered investment company shall suspend the right
of redemption, or postpone the date of payment or satisfaction
upon redemption of any redeemable security in accordance with
its terms for more than seven days after the tender of such
security to the company or its agent designated for that
purpose for redemption, except--
(1) * * *
* * * * * * *
The Commission shall by rules and regulations determine the
conditions under which (i) trading shall be deemed to be
restricted and (ii) an emergency shall be deemed to exist
within the meaning of this subsection. The Commission may, by
rules and regulations, limit the extent to which a registered
open-end investment company may own, hold, or invest in
illiquid securities or other illiquid property.
* * * * * * *
ACCOUNTS AND RECORDS
Sec. 31. (a) Maintenance of Records.--
(1) In general.--Each registered investment company,
and each underwriter, broker, dealer, or investment
adviser that is a majority-owned subsidiary of such a
company, shall maintain and preserve such records (as
defined in section 3(a)(37) of the Securities Exchange
Act of 1934) for such period or periods as the
Commission, by rules and regulations, may prescribe as
necessary or appropriate in the public interest or for
the protection of investors. Each investment adviser
that is not a majority-owned subsidiary of, and each
depositor of any registered investment company, and
each principal underwriter for any registered
investment company other than a closed-end company,
shall maintain and preserve for such period or periods
as the Commission shall prescribe by rules and
regulations, such records as are necessary or
appropriate to record such person's transactions with
such registered company. Each person with custody or
use of a registered investment company's securities,
deposits, or credits shall maintain and preserve all
records that relate to the person's custody or use of
the registered investment company's securities,
deposits, or credits for such period or periods as the
Commission, by rules and regulations, may prescribe as
necessary or appropriate in the public interest or for
the protection of investors.
* * * * * * *
(b) Examinations of Records.--
[(1) In general.--All records required to be
maintained and preserved in accordance with subsection
(a) shall be subject at any time and from time to time
to such reasonable periodic, special, and other
examinations by the Commission, or any member or
representative thereof, as the Commission may
prescribe.]
(1) In general.--All records of each registered
investment company, and each underwriter, broker,
dealer, or investment adviser that is a majority-owned
subsidiary of such a company, shall be subject at any
time, or from time to time, to such reasonable
periodic, special, or other examinations by
representatives of the Commission as the Commission
deems necessary or appropriate in the public interest
or for the protection of investors.
* * * * * * *
(4) Records of persons with custody or use.--
(A) In general.--Notwithstanding paragraph
(1), records of persons with custody or use of
a registered investment company's securities,
deposits, or credits, that relate to such
custody or use, are subject at any time, or
from time to time, to such reasonable periodic,
special, or other examinations and other
information and document requests by
representatives of the Commission as the
Commission deems necessary or appropriate in
the public interest or for the protection of
investors.
(B) Certain persons subject to other
regulation.--Persons subject to regulation and
examination by a Federal financial institution
regulatory agency (as such term is defined
under section 212(c)(2) of title 18, United
States Code) may satisfy any examination
request, information request, or document
request described under subparagraph (A), by
providing the Commission with a detailed
listing, in writing, of the registered
investment company's securities, deposits, or
credits within such person's custody or use.
(5) Surveillance and risk assessment.--All persons
described in paragraph (1) are subject at any time, or
from time to time, to such reasonable periodic,
special, or other information and document requests by
representatives of the Commission as the Commission by
rule or order deems necessary or appropriate to conduct
surveillance or risk assessments of the securities
markets, persons registered with the Commission under
this title, or otherwise in furtherance of the purposes
of this title.
(6) Confidentiality.--
(A) In general.--Notwithstanding any other
provision of law, the Commission shall not be
compelled to disclose any information,
documents, records, or reports that relate to
an examination, surveillance, or risk
assessment of a person subject to or described
in this section.
(B) Certain exceptions.--Nothing in this
subsection shall authorize the Commission to
withhold information from the Congress, prevent
the Commission from complying with a request
for information from any other Federal
department or agency, or the Public Company
Accounting Oversight Board requesting the
information for purposes within the scope of
its jurisdiction, or prevent the Commission
from complying with an order of a court of the
United States in an action brought by the
United States or the Commission against a
person subject to or described in this section
to produce information, documents, records, or
reports relating directly to the examination of
that person or the financial or operational
condition of that person or an associated or
affiliated person of that person.
(C) Treatment under section 552 of title 5,
united states code.--For purposes of section
552 of title 5, United States Code, this
subsection shall be considered a statute
described in subsection (b)(3)(B) of that
section.
* * * * * * *
BREACH OF FIDUCIARY DUTY
Sec. 36. (a) The Commission is authorized to bring an action
in the proper district court of the United States, or in the
United States court of any territory or other place subject to
the jurisdiction of the United States, alleging that [a person
serving or acting] a person who is, or at the time of the
alleged misconduct was, serving or acting in one or more of the
following capacities has engaged within five years of the
commencement of the action or is about to engage in any act or
practice constituting a breach of fiduciary duty involving
personal misconduct in respect of any registered investment
company for which [such person so serves or acts] such person
so serves or acts, or at the time of the alleged misconduct, so
served or acted--
(1) * * *
* * * * * * *
RULES, REGULATIONS, AND ORDERS; GENERAL POWERS OF COMMISSION
Sec. 38. (a) * * *
(b) The Commission, by such rules and regulations or order as
it deems necessary or appropriate in the public interest or for
the protection of investors, may authorize the filing of any
information or documents required to be filed with the
Commission under this title, title II of this Act, the
Securities Act of 1933, the Securities Exchange Act of 1934,
[the Public Utility Holding Company Act of 1935,] or the Trust
Indenture Act of 1939, by incorporating by reference any
information or documents theretofore or concurrently filed with
the Commission under this title or any of such Acts.
* * * * * * *
(d) Gathering Information.--For the purposes of evaluating
its rules and programs and for considering proposing, adopting,
or engaging in rules or programs, the Commission is authorized
to gather information, communicate with investors or other
members of the public, and engage in such temporary or
experimental programs as the Commission in its discretion
determines is in the public interest or for the protection of
investors. The Commission may delegate to its staff some or all
of the authority conferred by this subsection.
* * * * * * *
ENFORCEMENT OF TITLE
Sec. 42. (a) * * *
* * * * * * *
(e) Money Penalties in Civil Actions.--
(1) * * *
* * * * * * *
(3) Procedures for collection.--
(A) Payment of penalty to treasury.--A
penalty imposed under this section shall be
payable into the Treasury of the United States,
except as otherwise provided in section 308 of
the Sarbanes-Oxley Act of 2002 and section 21F
of the Securities Exchange Act of 1934.
* * * * * * *
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 to compel the attendance of
witnesses or the production of documents or tangible things (or
both) at a hearing or trial may be served at any place within
the United States. 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.
* * * * * * *
LIABILITY OF CONTROLLING PERSONS; PREVENTING COMPLIANCE WITH TITLE
Sec. 48. (a) * * *
(b) For purposes of any action brought by the Commission
under subsection (d) or (e) of section 42, any person that
knowingly or recklessly provides substantial assistance to
another person in violation of a provision of this Act, or of
any rule or regulation issued under this Act, shall be deemed
to be in violation of such provision to the same extent as the
person to whom such assistance is provided.
[(b)] (c) It shall be unlawful for any person without just
cause to hinder, delay, or obstruct the making, filing, or
keeping of any information, document, report, record, or
account required to be made, filed, or kept under any provision
of this title or any rule, regulation, or order thereunder.
* * * * * * *
EFFECT ON EXISTING LAW
Sec. 50. Except where specific provision is made to the
contrary, nothing in this title shall affect (1) the
jurisdiction of the Commission under the Securities Act of
1933, the Securities Exchange Act of 1934, [the Public Utility
Holding Company Act of 1935,] the Trust Indenture Act of 1939,
or title II of this Act, over any person, security, or
transaction, or (2) the rights, obligations, duties, or
liabilities of any person under such Acts; nor shall anything
in this title affect the jurisdiction of any other commission,
board, agency, or officer of the United States or of any State
or political subdivision of any State, over any person,
security, or transaction, insofar as such jurisdiction does not
conflict with any provision of this title or of any rule,
regulation, or order hereunder.
* * * * * * *
CAPITAL STRUCTURE
Sec. 61. (a) Notwithstanding the exemption set forth in
section 6(f), section 18 shall apply to a business development
company to the same extent as if it were a registered closed-
end investment company, except as follows:
(1) * * *
* * * * * * *
(3) Notwithstanding section 18(d)--
(A) * * *
(B) a business development company may issue,
to its directors, officers, employees, and
general partners, warrants, options, and rights
to purchase voting securities of such company
pursuant to an executive compensation plan,
if--
(i) * * *
* * * * * * *
(iii) no investment adviser of such
business development company receives
any compensation described in
[paragraph (1) of section 205] section
205(a)(1) of title II of this Act,
except to the extent permitted by
[clause (A) or (B) of that section]
section 205(b)(1) or (2); and
* * * * * * *
----------
INVESTMENT ADVISERS ACT OF 1940
TITLE II--INVESTMENT ADVISERS
* * * * * * *
DEFINITIONS
Sec. 202. (a) When used in this title, unless the context
otherwise requires, the following definitions shall apply:
(1) * * *
* * * * * * *
(21) ``Securities Act of 1933'', ``Securities
Exchange Act of 1934'', [``Public Utility Holding
Company Act of 1935'',] and ``Trust Indenture Act of
1939'', mean those Acts, respectively, as heretofore or
hereafter amended.
* * * * * * *
(29) The term ``municipal finance adviser'' has the
same meaning as in section 3 of the Securities Exchange
Act of 1934.
* * * * * * *
REGISTRATION OF INVESTMENT ADVISERS
Sec. 203. (a) * * *
* * * * * * *
(c)(1) An investment adviser, or any person who presently
contemplates becoming an investment adviser, may be registered
by filing with the Commission an application for registration
in such form and containing such of the following information
and documents as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the
protection of investors:
(A) the name and form of organization under which the
investment adviser engages or intends to engage in
business; the name of the State or other sovereign
power under which such investment adviser is organized;
the location of his or its [principal business office]
principal office and place of business and branch
offices, if any; the names and addresses of his or its
partners, officers, directors, and persons performing
similar functions or, if such an investment adviser be
an individual, of such individual; and the number of
his or its employees;
* * * * * * *
(e) The Commission, by order, shall censure, place
limitations on the activities, functions, or operations of,
suspend for a period not exceeding twelve months, or revoke the
registration of any investment adviser if it finds, on the
record after notice and opportunity for hearing, that such
censure, placing of limitations, suspension, or revocation is
in the public interest and that such investment adviser, or any
person associated with such investment adviser, whether prior
to or subsequent to becoming so associated--
(1) * * *
(2) has been convicted within ten years preceding the
filing of any application for registration or at any
time thereafter of any felony or misdemeanor or of a
substantially equivalent crime by a foreign court of
competent jurisdiction which the Commission finds--
(A) * * *
(B) arises out of the conduct of the business
of a broker, dealer, municipal securities
dealer, investment adviser, bank, insurance
company, government securities broker,
government securities dealer, fiduciary,
transfer agent, credit rating agency, municipal
finance adviser, foreign person performing a
function substantially equivalent to any of the
above, or entity or person required to be
registered under the Commodity Exchange Act or
any substantially equivalent statute or
regulation;
* * * * * * *
(4) is permanently or temporarily enjoined by order,
judgment, or decree of any court of competent
jurisdiction, including any foreign court of competent
jurisdiction, from acting as an investment adviser,
underwriter, broker, dealer, municipal securities
dealer, government securities broker, government
securities dealer, transfer agent, credit rating
agency, municipal finance adviser, foreign person
performing a function substantially equivalent to any
of the above, or entity or person required to be
registered under the Commodity Exchange Act or any
substantially equivalent statute or regulation, or as
an affiliated person or employee of any investment
company, bank, insurance company, foreign entity
substantially equivalent to any of the above, or entity
or person required to be registered under the Commodity
Exchange Act or any substantially equivalent statute or
regulation, or from engaging in or continuing any
conduct or practice in connection with any such
activity, or in connection with the purchase or sale of
any security.
* * * * * * *
(f) The Commission, by order, shall censure or place
limitations on the activities of any person associated, seeking
to become associated, or, at the time of the alleged
misconduct, associated or seeking to become associated with an
investment adviser, or suspend for a period not exceeding
[twelve months or bar any such person from being associated
with an investment adviser,] 12 months or bar any such person
from being associated with an investment adviser, broker,
dealer, municipal securities dealer, transfer agent, or
nationally recognized statistical rating organization, if the
Commission finds, on the record after notice and opportunity
for hearing, that such censure, placing of limitations,
suspension, or bar is in the public interest and that such
person has committed or omitted any act or omission enumerated
in paragraph (1), (5), (6), (8), or (9) of subsection (e) or
has been convicted of any offense specified in paragraph (2) or
(3) of subsection (e) within ten years of the commencement of
the proceedings under this subsection, or is enjoined from any
action, conduct, or practice specified in paragraph (4) of
subsection (e). It shall be unlawful for any person as to whom
such an order suspending or barring him from being associated
with an investment adviser is in effect willfully to become, or
to be, associated with an investment adviser without the
consent of the Commission, and it shall be unlawful for any
investment adviser to permit such a person to become, or
remain, a person associated with him without the consent of the
Commission, if such investment adviser knew, or in the exercise
of reasonable care, should have known, of such order.
* * * * * * *
(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.
* * * * * * *
(k) Cease-and-Desist Proceedings.--
(1) * * *
* * * * * * *
(4) Review of temporary orders.--
(A) * * *
(B) Judicial review.--Within--
(i) 10 days after the date the
respondent was served with a temporary
cease-and-desist order entered with a
prior Commission hearing, or
(ii) 10 days after the Commission
renders a decision on an application
and hearing under subparagraph (A),
with respect to any temporary cease-
and-desist order entered without a
prior Commission hearing,
the respondent may apply to the United States
district court for the district in which the
respondent resides or has its [principal place
of business] principal office and place of
business, or for the District of Columbia, for
an order setting aside, limiting, or suspending
the effectiveness or enforcement of the order,
and the court shall have jurisdiction to enter
such an order. A respondent served with a
temporary cease-and-desist order entered
without a prior Commission hearing may not
apply to the court except after hearing and
decision by the Commission on the respondent's
application under subparagraph (A) of this
paragraph.
* * * * * * *
(l) Annual Assessment.--
(1) In general.--The Commission shall, in accordance
with this subsection, promulgate rules pursuant to
which it may collect from investment advisers required
to register with the Commission under this title, fees
designed to help recover the cost of inspections and
examinations of registered investment advisers
conducted by the Commission pursuant to this title.
(2) Fee payment required.--An investment adviser
shall, at the time of registration with the Commission,
and each fiscal year thereafter during which such
adviser is so registered, pay to the Commission a fair
and reasonable fee determined by the Commission. In
determining such fee, the Commission shall consider
objective factors such as--
(A) the investment adviser's size;
(B) the number of clients of the investment
adviser;
(C) the types of clients of the investment
adviser; and
(D) such other relevant factors as the
Commission determines to be appropriate.
(3) Amount and use of fees.--
(A) Minimum aggregate amount.--The aggregate
amount of fees determined by the Commission
under this subsection for any fiscal year shall
be greater than the amount the Commission spent
on inspections and examinations of registered
investment advisers during the 2009 fiscal
year.
(B) Excess fees.--The Commission may retain
any excess fees collected under this subsection
during a fiscal year for application towards
the costs of inspections and examinations of
investment advisers in future fiscal years.
(4) Review and adjustment of fees.--The Commission
may review fee rates established pursuant to this
section before the end of any fiscal year and make any
appropriate adjustments prior to collecting any such
fee in the following fiscal year.
(5) Penalty fee.--The Commission shall prescribe by
rule or regulation an additional fee to be assessed as
a penalty for late payment of fees required by this
subsection.
(6) Judicial review.--Increases or decreases in fees
made pursuant to this section shall not be subject to
judicial review.
SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.
(a) Advisers Subject to State Authorities.--
(1) * * *
(2) Treatment of certain mid-sized investment
advisers.--Notwithstanding paragraph (1), an investment
adviser that--
(A) is regulated and examined, or required to
be regulated and examined, by a State; and
(B) has assets under management between--
(i) the amount specified under
subparagraph (A) of paragraph (1), as
such amount may have been adjusted by
the Commission pursuant to that
subparagraph, and
(ii) $100,000,000, or such higher
amount as the Commission may, by rule,
deem appropriate in accordance with the
purposes of this title,
shall register with, and be subject to
examination by, such State. The Commission
shall publish a list of the States that
regulate and examine, or require regulation and
examination of, investment advisers to which
the requirements of this paragraph apply.
[(2)] (3) Definition.--For purposes of this
subsection, the term ``assets under management'' means
the securities portfolios with respect to which an
investment adviser provides continuous and regular
supervisory or management services.
* * * * * * *
ANNUAL AND OTHER REPORTS
Sec. 204. (a) * * *
* * * * * * *
(d) Records of Persons With Custody or Use.--
(1) In general.--Records of persons with custody or
use of a client's securities, deposits, or credits,
that relate to such custody or use, are subject at any
time, or from time to time, to such reasonable
periodic, special, or other examinations and other
information and document requests by representatives of
the Commission as the Commission deems necessary or
appropriate in the public interest or for the
protection of investors.
(2) Certain persons subject to other regulation.--
Persons subject to regulation and examination by a
Federal financial institution regulatory agency (as
such term is defined under section 212(c)(2) of title
18, United States Code) may satisfy any examination
request, information request, or document request
described under paragraph (1), by providing the
Commission with a detailed listing, in writing, of the
client's securities, deposits, or credits within such
person's custody or use.
(e) Surveillance and Risk Assessment.--All persons described
in subsection (a) are subject at any time, or from time to
time, to such reasonable periodic, special, or other
information and document requests by representatives of the
Commission as the Commission by rule or order deems necessary
or appropriate to conduct surveillance or risk assessments of
the securities markets, persons registered with the Commission
under this title, or otherwise in furtherance of the purposes
of this title.
(f) Confidentiality.--
(1) In general.--Notwithstanding any other provision
of law, the Commission shall not be compelled to
disclose any information, documents, records, or
reports that relate to an examination of a person
subject to or described in this section.
(2) Certain exceptions.--Nothing in this subsection
shall authorize the Commission to withhold information
from Congress, prevent the Commission from complying
with a request for information from any other Federal
department or agency, the Public Company Accounting
Oversight Board, or a self-regulatory organization
requesting the information for purposes within the
scope of its jurisdiction, or prevent the Commission
from complying with an order of a court of the United
States in an action brought by the United States or the
Commission against a person subject to or described in
this section to produce information, documents,
records, or reports relating directly to the
examination of that person or the financial or
operational condition of that person or an associated
or affiliated person of that person.
(3) Treatment under section 552 of title 5, united
states code.--For purposes of section 552 of title 5,
United States Code, this subsection shall be considered
a statute described in subsection (b)(3)(B) of that
section.
* * * * * * *
INVESTMENT ADVISORY CONTRACTS
Sec. 205. (a) No investment adviser[, unless exempt from
registration pursuant to section 203(b),] registered or
required to be registered with the Commission shall [make use
of the mails or any means or instrumentality of interstate
commerce, directly or indirectly, to] enter into, extend, or
renew any investment advisory contract, or in any way [to]
perform any investment advisory contract entered into,
extended, or renewed on or after the effective date of this
title, if such contract--
(1) * * *
* * * * * * *
(f) Authority to Restrict Mandatory Pre-Dispute
Arbitration.--The Commission, by rule, may prohibit, or impose
conditions or limitations on the use of, agreements that
require customers or clients of any investment adviser to
arbitrate any future dispute between them arising under the
Federal securities laws, the rules and regulations thereunder,
or the rules of a self-regulatory organization if it finds that
such prohibition, imposition of conditions, or limitations are
in the public interest and for the protection of investors.
PROHIBITED TRANSACTIONS BY REGISTERED INVESTMENT ADVISERS
Sec. 206. It shall be unlawful for any investment adviser, by
use of the mails or any means or instrumentality of interstate
commerce, directly or indirectly--
(1) * * *
* * * * * * *
(3) acting as principal for his own account,
knowingly to sell any security to or purchase any
security from a client, or acting as broker for a
person other than such client, knowingly to effect any
sale or purchase of any security for the account of
such client, without disclosing to such client in
writing before the completion of such transaction the
capacity in which he is acting and obtaining the
consent of the client to such transaction. The
prohibitions of this paragraph (3) shall not apply to
any transaction with a customer of a broker or dealer
if such broker or dealer is not acting as an investment
adviser in relation to such transaction; or
* * * * * * *
ENFORCEMENT OF TITLE
Sec. 209. (a) * * *
* * * * * * *
(e) Money Penalties in Civil Actions.--
(1) * * *
* * * * * * *
(3) Procedures for collection.--
(A) Payment of penalty to treasury.--A
penalty imposed under this section shall be
payable into the Treasury of the United States,
except as otherwise provided in section 308 of
the Sarbanes-Oxley Act of 2002 and section 21F
of the Securities Exchange Act of 1934.
* * * * * * *
(f) Aiding and Abetting.--For purposes of any action brought
by the Commission under subsection (e), any person that
knowingly or recklessly has aided, abetted, counseled,
commanded, induced, or procured a violation of any provision of
this Act, or of any rule, regulation, or order hereunder, shall
be deemed to be in violation of such provision, rule,
regulation, or order to the same extent as the person that
committed such violation.
(g) Enforcement by National Securities Associations.--The
Commission may permit or require a national securities
association registered under the Securities Exchange Act of
1934 to enforce compliance by its members and persons
associated with its members with the provisions of this Act,
the rules and regulations thereunder, and to adopt such rules
(subject to any rule or order of the Commission pursuant to the
Securities Exchange Act of 1934) as the association may deem
necessary and in the public interest to further the purposes of
this Act.
* * * * * * *
RULES, REGULATIONS, AND ORDERS
Sec. 211. (a) * * *
* * * * * * *
(e) For the purposes of evaluating its rules and programs and
for considering proposing, adopting, or engaging in rules or
programs, the Commission is authorized to gather information,
communicate with investors or other members of the public, and
engage in such temporary or experimental programs as the
Commission in its discretion determines is in the public
interest or for the protection of investors. The Commission may
delegate to its staff some or all of the authority conferred by
this subsection.
(f) Standard of Conduct.--
(1) In general.--The Commission shall promulgate
rules to provide that the standard of conduct for all
brokers, dealers, and investment advisers, when
providing personalized investment advice about
securities to retail customers (and such other
customers as the Commission may by rule provide), shall
be to act in the best interest of the customer without
regard to the financial or other interest of the
broker, dealer, or investment adviser providing the
advice. In accordance with such rules, any material
conflicts of interest shall be disclosed and may be
consented to by the customer. Such rules shall provide
that such standard of conduct shall be no less
stringent than the standard applicable to investment
advisers under section 206(1) and (2) of this Act when
providing personalized investment advice about
securities, except the Commission shall not ascribe a
meaning to the term ``customer'' that would include an
investor in a private fund managed by an investment
adviser, where such private fund has entered into an
advisory contract with such adviser. The receipt of
compensation based on commission or fees shall not, in
and of itself, be considered a violation of such
standard applied to a broker, dealer, or investment
adviser.
(2) Retail customer defined.--For purposes of this
subsection, the term ``retail customer'' means a
natural person, or the legal representative of such
natural person, who--
(A) receives personalized investment advice
about securities from a broker, dealer, or
investment adviser; and
(B) uses such advice primarily for personal,
family, or household purposes.
(g) Other Matters.--The Commission shall--
(1) facilitate the provision of simple and clear
disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment
advisers, including any material conflicts of interest;
and
(2) examine and, where appropriate, promulgate rules
prohibiting or restricting certain sales practices,
conflicts of interest, and compensation schemes for
brokers, dealers, and investment advisers that the
Commission deems contrary to the public interest and
the protection of investors.
(h) Harmonization of Enforcement.--The enforcement authority
of the Commission with respect to violations of the standard of
conduct applicable to an investment adviser shall include--
(1) the enforcement authority of the Commission with
respect to such violations provided under this Act, and
(2) the enforcement authority of the Commission with
respect to violations of the standard of conduct
applicable to a broker or dealer providing personalized
investment advice about securities to a retail customer
under the Securities Exchange Act of 1934, including
the authority to impose sanctions for such violations,
and
the Commission shall seek to prosecute and sanction violators
of the standard of conduct applicable to an investment advisor
under this Act to same extent as the Commission prosecutes and
sanctions violators of the standard of conduct applicable to a
broker or dealer providing personalized investment advice about
securities to a retail customer under the Securities Exchange
Act of 1934.
* * * * * * *
COURT REVIEW OF ORDERS
Sec. 213. (a) Any person or party aggrieved by an order
issued by the Commission under this title may obtain a review
of such order in the court of appeals of the United States
within any circuit wherein such person resides or has his
[principal place of business] principal office and place of
business, or in the United States Court of Appeals for the
District of Columbia, by filing in such court, within sixty
days after the entry of such order, a written petition praying
that the order of the Commission be modified or set aside in
whole or in part. A copy of such petition shall be forthwith
transmitted by the clerk of the court to any member of the
Commission, or any officer thereof designated by the Commission
for that purpose, and thereupon the Commission shall file in
the court the record upon which the order complained of was
entered, as provided in section 2112 of title 28, United States
Code. Upon the filing of such petition such court shall have
jurisdiction, which upon the filing of the record shall be
exclusive, to affirm, modify, or set aside such order, in whole
or in part. No objection to the order of the Commission shall
be considered by the court unless such objection shall have
been urged before the Commission or unless there were
reasonable grounds for failure so to do. The findings of the
Commission as to the facts, if supported by substantial
evidence, shall be conclusive. If application is made to the
court for leave to adduce additional evidence, and it is shown
to the satisfaction of the court that such additional evidence
is material and that there were reasonable grounds for failure
to adduce such evidence in the proceeding before the
Commission, the court may order such additional evidence to be
taken before the Commission and to be adduced upon the hearing
in such manner and upon such terms and conditions as to the
court may seem proper. The Commission may modify its findings
as to the facts by reason of the additional evidence so taken,
and it shall file with the court such modified or new findings,
which, if supported by substantial evidence, shall be
conclusive, and its recommendation, if any, for the
modification or setting aside of the original order. The
judgment and decree of the court affirming, modifying, or
setting aside, in whole or in part, any such order of the
Commission shall be final, subject to review by the Supreme
Court of the United States upon certiorari or certification as
provided in section 1254 of title 28, United States Code.
* * * * * * *
JURISDICTION OF OFFENSES AND SUITS
Sec. 214. [The district]
(a) In General.--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 to compel the
attendance of witnesses or the production of documents or
tangible things (or both) at a hearing or trial may be served
at any place within the United States. 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.
(b) Extraterritorial Jurisdiction.--The jurisdiction of 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 described under subsection
(a) includes violations of section 206, and all suits in equity
and actions at law under that section, involving--
(1) conduct within the United States that constitutes
significant steps in furtherance of the violation, even
if the violation is committed by a foreign adviser and
involves only foreign investors; or
(2) conduct occurring outside the United States that
has a foreseeable substantial effect within the United
States.
* * * * * * *
SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.
(a) * * *
(b) Dual Compliance Purposes.--No State may enforce any law
or regulation that would require an investment adviser to
maintain any books or records in addition to those required
under the laws of the State in which it maintains its
[principal place of business] principal office and place of
business, if the investment adviser--
(1) is registered or licensed as such in the State in
which it maintains its [principal place of business]
principal office and place of business; and
(2) is in compliance with the applicable books and
records requirements of the State in which it maintains
its [principal place of business] principal office and
place of business.
(c) Limitation on Capital and Bond Requirements.--No State
may enforce any law or regulation that would require an
investment adviser to maintain a higher minimum net capital or
to post any bond in addition to any that is required under the
laws of the State in which it maintains its [principal place of
business] principal office and place of business, if the
investment adviser--
(1) is registered or licensed as such in the State in
which it maintains its [principal place of business]
principal office and place of business; and
(2) is in compliance with the applicable net capital
or bonding requirements of the State in which it
maintains its [principal place of business] principal
office and place of business.
* * * * * * *
----------
SARBANES-OXLEY ACT OF 2002
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) * * *
(b) Table of Contents.--The table of contents for this Act is
as follows:
* * * * * * *
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
* * * * * * *
Sec. 110. Definitions.
Sec. 111. Ombudsman.
* * * * * * *
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
* * * * * * *
Sec. 605. Access to grand jury information.
SEC. 2. DEFINITIONS.
(a) In General.--In this Act, the following definitions shall
apply:
(1) * * *
* * * * * * *
(5) Board.--The term ``Board'' means the [Public
Company Accounting Oversight Board] Auditing Oversight
Board established under section 101.
* * * * * * *
(9) Person associated with a public accounting
firm.--
(A) * * *
* * * * * * *
(C) Investigative and enforcement
authority.--For purposes of the provisions of
sections 3(c), 101(c), 105, and 107(c) and
Board or Commission rules thereunder, except to
the extent specifically excepted by such rules,
the terms defined in subparagraph (A) shall
include any person associated, seeking to
become associated, or formerly associated with
a public accounting firm, except--
(i) the authority to conduct an
investigation of such person under
section 105(b) shall apply only with
respect to any act or practice, or
omission to act, while such person was
associated or seeking to become
associated with a registered public
accounting firm; and
(ii) the authority to commence a
proceeding under section 105(c)(1), or
impose disciplinary sanctions under
section 105(c)(4), against such person
shall apply only on--
(I) the basis of conduct
occurring while such person was
associated or seeking to become
associated with a registered
public accounting firm; or
(II) non-cooperation as
described in section 105(b)(3)
with respect to a demand in a
Board investigation for
testimony, documents, or other
information relating to a
period when such person was
associated or seeking to become
associated with a registered
public accounting firm.
* * * * * * *
(17) Foreign auditor oversight authority.--The term
``foreign auditor oversight authority'' means any
governmental body or other entity empowered by a
foreign government to conduct inspections of public
accounting firms or otherwise to administer or enforce
laws related to the regulation of public accounting
firms.
* * * * * * *
TITLE I--[PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD] AUDITING OVERSIGHT
BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
(a) Establishment of Board.--There is established the [Public
Company Accounting Oversight Board] Auditing Oversight Board,
to oversee the audit of [public companies] companies that are
subject to the securities laws, and related matters, in order
to protect the interests of investors and further the public
interest in the preparation of informative, accurate, and
independent audit reports [for companies the securities of
which are sold to, and held by and for, public investors]. The
Board shall be a body corporate, operate as a nonprofit
corporation, and have succession until dissolved by an Act of
Congress.
* * * * * * *
(c) Duties of the Board.--The Board shall, subject to action
by the Commission under section 107, and once a determination
is made by the Commission under subsection (d) of this
section--
(1) register public accounting firms that prepare
audit reports for [issuers] issuers, brokers, and
dealers, in accordance with section 102;
(2) establish or adopt, or both, by rule, auditing,
quality control, ethics, independence, and other
standards relating to the preparation of audit reports
for [issuers] issuers, brokers, and dealers, in
accordance with section 103;
* * * * * * *
(e) Board Membership.--
(1) Composition.--The Board shall have 5 members,
appointed from among prominent individuals of integrity
and reputation who have a demonstrated commitment to
the interests of investors and the public, and an
understanding of the responsibilities for and nature of
the financial disclosures required of [issuers]
issuers, brokers, and dealers under the securities laws
and the obligations of accountants with respect to the
preparation and issuance of audit reports with respect
to such disclosures.
* * * * * * *
(i) Congressional Access to Information.--Nothing in this
section shall--
(1) affect the Board's obligations, if any, to
provide access to records under the Right to Financial
Privacy Act; or
(2) authorize the Board to withhold information from
Congress or prevent the Board from complying with an
order of a court of the United States in an action
commenced by the United States or the Board.
SEC. 102. REGISTRATION WITH THE BOARD.
(a) Mandatory Registration.--[Beginning 180 days after the
date of the determination of the Commission under section
101(d), it] It shall be unlawful for any person that is not a
registered public accounting firm to prepare or issue, or to
participate in the preparation or issuance of, any audit report
with respect to any [issuer] issuer, broker, or dealer.
(b) Applications for Registration.--
(1) * * *
(2) Contents of applications.--Each public accounting
firm shall submit, as part of its application for
registration, in such detail as the Board shall
specify--
(A) the names of all [issuers] issuers,
brokers, and dealers for which the firm
prepared or issued audit reports during the
immediately preceding calendar year, and for
which the firm expects to prepare or issue
audit reports during the current calendar year;
* * * * * * *
(G) copies of any periodic or annual
disclosure filed by an [issuer] issuer, broker,
or dealer with the Commission during the
immediately preceding calendar year which
discloses accounting disagreements between such
[issuer] issuer, broker, or dealer and the firm
in connection with an audit report furnished or
prepared by the firm for such [issuer] issuer,
broker, or dealer; and
* * * * * * *
(3) Consents.--Each application for registration
under this subsection shall include--
(A) a consent executed by the public
accounting firm to cooperation in and
compliance with any request for testimony or
the production of documents made [by the Board]
by the Commission or the Board in the
furtherance of its authority and
responsibilities under this title (and an
agreement to secure and enforce similar
consents from each of the associated persons of
the public accounting firm as a condition of
their continued employment by or other
association with such firm); and
* * * * * * *
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND
RULES.
(a) Auditing, Quality Control, and Ethics Standards.--
(1) In general.--The Board shall, by rule, establish,
including, to the extent it determines appropriate,
through adoption of standards proposed by 1 or more
professional groups of accountants designated pursuant
to paragraph (3)(A) or advisory groups convened
pursuant to paragraph (4), and amend or otherwise
modify or alter, such auditing and related attestation
standards, such quality control standards, [and such
ethics standards] such ethics standards, and such
independence standards to be used by registered public
accounting firms in the preparation and issuance of
audit reports, as required by this Act or the rules of
the Commission, or as may be necessary or appropriate
in the public interest or for the protection of
investors.
(2) Rule requirements.--In carrying out paragraph
(1), the Board--
(A) shall include in the auditing standards
that it adopts, requirements that each
registered public accounting firm shall--
(i) * * *
* * * * * * *
(iii) [describe in each audit report]
in each audit report for an issuer,
describe the scope of the auditor's
testing of the internal control
structure and procedures of the issuer,
required by section 404(b), and present
(in such report or in a separate
report)--
(I) * * *
* * * * * * *
(B) shall include, in the quality control
standards that it adopts with respect to the
issuance of audit reports, requirements for
every registered public accounting firm
relating to--
(i) monitoring of professional ethics
and independence from [issuers]
issuers, brokers, and dealers on behalf
of which the firm issues audit reports;
* * * * * * *
SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.
(a) In General.--The Board shall conduct a continuing program
of inspections to assess the degree of compliance of each
registered public accounting firm and associated persons of
that firm with this Act, the rules of the Board, the rules of
the Commission, or professional standards, in connection with
its performance of audits, issuance of audit reports, and
related matters involving [issuers] issuers, brokers, and
dealers.
(b) Inspection Frequency.--
(1) In general.--Subject to paragraph (2),
inspections required by this section shall be
conducted--
(A) annually with respect to each registered
public accounting firm that regularly provides
[audit reports] audit reports on annual
financial statements for more than 100 issuers;
[and]
(B) not less frequently than once every 3
years with respect to each registered public
accounting firm that regularly provides [audit
reports] audit reports on annual financial
statements for 100 or fewer issuers[.]; and
(C) with respect to each registered public
accounting firm that regularly provides audit
reports and is not described under subparagraph
(A) or (B), on a basis to be determined by the
Board, by rule, consistent with the public
interest and protection of investors.
* * * * * * *
SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.
(a) * * *
(b) Investigations.--
(1) * * *
* * * * * * *
(4) Coordination and referral of investigations.--
(A) * * *
(B) Referral.--The Board may refer an
investigation under this section--
(i) * * *
(ii) to a self-regulatory
organization, in the case of an
investigation that concerns an audit
report for a broker or dealer that is
subject to the jurisdiction of such
self-regulatory organization;
[(ii)] (iii) to any other Federal
functional regulator (as defined in
section 509 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6809)), in the case of
an investigation that concerns an audit
report for an institution that is
subject to the jurisdiction of such
regulator; and
[(iii)] (iv) at the direction of the
Commission, to--
(I) * * *
* * * * * * *
(5) Use of documents.--
(A) Confidentiality.--Except as provided in
[subparagraph (B)] subparagraphs (B) and (C),
all documents and information prepared or
received by or specifically for the Board, and
deliberations of the Board and its employees
and agents, in connection with an inspection
under section 104 or with an investigation
under this section, shall be confidential and
privileged as an evidentiary matter (and shall
not be subject to civil discovery or other
legal process) in any proceeding in any Federal
or State court or administrative agency, and
shall be exempt from disclosure, in the hands
of an agency or establishment of the Federal
Government, under the Freedom of Information
Act (5 U.S.C. 552a), or otherwise, unless and
until presented in connection with a public
proceeding or released in accordance with
subsection (c).
(B) Availability to government agencies.--
Without the loss of its status as confidential
and privileged in the hands of the Board, all
information referred to in subparagraph (A)
may--
(i) * * *
(ii) in the discretion of the Board,
when determined by the Board to be
necessary to accomplish the purposes of
this Act or to protect investors, be
made available to--
(I) * * *
* * * * * * *
(III) State attorneys general
in connection with any criminal
investigation; [and]
(IV) any appropriate State
regulatory authority[,]; and
(V) a self-regulatory
organization, with respect to
an audit report for a broker or
dealer that is subject to the
jurisdiction of such self-
regulatory organization,
each of which shall maintain such information
as confidential and privileged.
(C) Availability to foreign oversight
authorities.--When in the Board's discretion it
is necessary to accomplish the purposes of this
Act or to protect investors, and without the
loss of its status as confidential and
privileged in the hands of the Board, all
information referred to in subparagraph (A)
that relates to a public accounting firm within
the inspection authority, or other regulatory
or law enforcement jurisdiction, of a foreign
auditor oversight authority may be made
available to the foreign auditor oversight
authority if the foreign auditor oversight
authority provides such assurances of
confidentiality as the Board determines
appropriate.
* * * * * * *
(c) Disciplinary Procedures.--
(1) * * *
* * * * * * *
(6) Failure to supervise.--
(A) In general.--The Board may impose
sanctions under this section on a registered
accounting firm or upon [the supervisory
personnel] any person who is, or at the time of
the alleged failure reasonably to supervise
was, a supervisory person of such firm, if the
Board finds that--
(i) * * *
* * * * * * *
(B) Rule of construction.--[No associated
person] No current or former supervisory person
of a registered public accounting firm shall be
deemed to have failed reasonably to supervise
[any other person] any associated person for
purposes of subparagraph (A), if--
(i) * * *
* * * * * * *
(7) Effect of suspension.--
(A) * * *
(B) Association with an issuer, broker, or
dealer.--It shall be unlawful for any person
that is suspended or barred from being
associated with [an issuer under this
subsection] a registered public accounting firm
under this subsection willfully to become or
remain associated with [any issuer] any issuer,
broker, or dealer in an accountancy or a
financial management capacity, and for [any
issuer] any issuer, broker, or dealer that
knew, or in the exercise of reasonable care
should have known, of such suspension or bar,
to permit such an association, without the
consent of the Board or the Commission.
* * * * * * *
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) Applicability to Certain Foreign Firms.--
(1) In general.--Any foreign public accounting firm
that prepares or furnishes an audit report with respect
to any [issuer] issuer, broker, or dealer, shall be
subject to this Act and the rules of the Board and the
Commission issued under this Act, in the same manner
and to the same extent as a public accounting firm that
is organized and operates under the laws of the United
States or any State, except that registration pursuant
to section 102 shall not by itself provide a basis for
subjecting such a foreign public accounting firm to the
jurisdiction of the Federal or State courts, other than
with respect to controversies between such firms and
the Board.
(2) Board authority.--The Board may, by rule,
determine that a foreign public accounting firm (or a
class of such firms) that does not issue audit reports
nonetheless plays such a substantial role in the
preparation and furnishing of such reports for
particular [issuers] issuers, brokers, or dealers, that
it is necessary or appropriate, in light of the
purposes of this Act and in the public interest or for
the protection of investors, that such firm (or class
of firms) should be treated as a public accounting firm
(or firms) for purposes of registration under, and
oversight by the Board in accordance with, this title.
[(b) Production of Audit Workpapers.--
[(1) Consent by foreign firms.--If a foreign public
accounting firm issues an opinion or otherwise performs
material services upon which a registered public
accounting firm relies in issuing all or part of any
audit report or any opinion contained in an audit
report, that foreign public accounting firm shall be
deemed to have consented--
[(A) to produce its audit workpapers for the
Board or the Commission in connection with any
investigation by either body with respect to
that audit report; and
[(B) to be subject to the jurisdiction of the
courts of the United States for purposes of
enforcement of any request for production of
such workpapers.
[(2) Consent by domestic firms.--A registered public
accounting firm that relies upon the opinion of a
foreign public accounting firm, as described in
paragraph (1), shall be deemed--
[(A) to have consented to supplying the audit
workpapers of that foreign public accounting
firm in response to a request for production by
the Board or the Commission; and
[(B) to have secured the agreement of that
foreign public accounting firm to such
production, as a condition of its reliance on
the opinion of that foreign public accounting
firm.]
(b) Production of Documents.--
(1) Production by foreign firms.--If a foreign public
accounting firm issues an audit report, performs audit
work, conducts interim reviews, or performs material
services upon which a registered public accounting firm
relies in the conduct of an audit or interim review,
the foreign public accounting firm shall produce its
audit work papers and all other documents related to
any such audit work or interim review to the Commission
or the Board when requested by the Commission or the
Board and the foreign public accounting firm shall be
subject to the jurisdiction of the courts of the United
States for purposes of enforcement of any request of
such documents.
(2) Other production.--Any registered public
accounting firm that relies, in whole or in part, on
the work of a foreign public accounting firm in issuing
an audit report, performing audit work, or conducting
an interim review, shall--
(A) produce the foreign public accounting
firm's audit work papers and all other
documents related to any such work in response
to a request for production by the Commission
or the Board; and
(B) secure the agreement of any foreign
public accounting firm to such production, as a
condition of its reliance on the work of that
foreign public accounting firm.
* * * * * * *
(d) Service of Requests or Process.--Any foreign public
accounting firm that performs work for a domestic registered
public accounting firm shall furnish to the domestic firm a
written irrevocable consent and power of attorney that
designates the domestic firm as an agent upon whom may be
served any process, pleadings, or other papers in any action
brought to enforce this section. Any foreign public accounting
firm that issues an audit report, performs audit work, performs
interim reviews, or performs other material services upon which
a registered public accounting firm relies in the conduct of an
audit or interim review, shall designate to the Commission or
the Board an agent in the United States upon whom may be served
any process, pleading, or other papers in any action brought to
enforce this section or any request by the Commission or the
Board under this section.
(e) Sanctions.--A willful refusal to comply, in whole in or
in part, with any request by the Commission or the Board under
this section, shall be a violation of this Act.
(f) Other Means of Satisfying Production Obligations.--
Notwithstanding any other provision of this section, the staff
of the Commission or Board may allow foreign public accounting
firms subject to this section to meet production obligations
under this section though alternate means, such as through
foreign counterparts of the Commission or Board.
[(d)] (g) Definition.--In this section, the term ``foreign
public accounting firm'' means a public accounting firm that is
organized and operates under the laws of a foreign government
or political subdivision thereof.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) * * *
* * * * * * *
(d) Censure of the Board; Other Sanctions.--
(1) * * *
* * * * * * *
(3) Censure of board members; removal from office.--
The Commission may, as necessary or appropriate in the
public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this Act or
the securities laws, remove from office or censure [any
member] any person who is, or at the time of the
alleged misconduct was, a member of the Board, if the
Commission finds, on the record, after notice and
opportunity for a hearing, that such member--
(A) * * *
* * * * * * *
SEC. 109. FUNDING.
(a) * * *
* * * * * * *
(c) Sources and Uses of Funds.--
(1) * * *
(2) Funds generated from the collection of monetary
penalties.--Subject to the availability in advance in
an appropriations Act, and notwithstanding [subsection
(i)] subsection (j), all funds collected by the Board
as a result of the assessment of monetary penalties
shall be used to fund a merit scholarship program for
undergraduate and graduate students enrolled in
accredited accounting degree programs, which program is
to be administered by the Board or by an entity or
agent identified by the Board.
(d) Annual Accounting Support Fee for the Board.--
(1) * * *
(2) Assessments.--The rules of the Board under
paragraph (1) shall provide for the equitable
allocation, assessment, and collection by the Board (or
an agent appointed by the Board) of the fee established
under paragraph (1), among issuers, in accordance with
subsection (g), [allowing for differentiation among
classes of issuers, as appropriate] and among brokers
and dealers in accordance with subsection (h), and
allowing for differentiation among classes of issuers
and brokers and dealers, as appropriate.
(3) Brokers and dealers.--The rules of the Board
under paragraph (1) shall provide that the allocation,
assessment, and collection by the Board (or an agent
appointed by the Board) of the fee established under
paragraph (1) with respect to brokers and dealers shall
not begin until the first day of the first full fiscal
year beginning after the date of the enactment of this
paragraph.
* * * * * * *
(h) Allocation of Accounting Support Fees Among Brokers and
Dealers.--
(1) In general.--Any amount due from brokers and
dealers (or a particular class of such brokers and
dealers) under this section to fund the budget of the
Board shall be allocated among and payable by such
brokers and dealers (or such brokers and dealers in a
particular class, as applicable). A broker or dealer's
allocation shall be in proportion to the broker or
dealer's net capital compared to the total net capital
of all brokers and dealer, in accordance with the rules
of the Board.
(2) Obligation to pay.--Every broker or dealer shall
pay the share of a reasonable annual accounting support
fee or fees allocated to such broker or dealer under
this section.
[(h)] (i) Conforming Amendments.--Section 13(b)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is
amended--
(1) * * *
* * * * * * *
[(i)] (j) Rule of Construction.--Nothing in this section
shall be construed to render either the Board, the standard
setting body referred to in subsection (a), or both, subject to
procedures in Congress to authorize or appropriate public
funds, or to prevent such organization from utilizing
additional sources of revenue for its activities, such as
earnings from publication sales, provided that each additional
source of revenue shall not jeopardize, in the judgment of the
Commission, the actual and perceived independence of such
organization.
[(j)] (k) Start-Up Expenses of the Board.--From the
unexpended balances of the appropriations to the Commission for
fiscal year 2003, the Secretary of the Treasury is authorized
to advance to the Board not to exceed the amount necessary to
cover the expenses of the Board during its first fiscal year
(which may be a short fiscal year).
SEC. 110. DEFINITIONS.
For the purposes of this title, and notwithstanding section
2:
(1) Audit.--The term ``audit'' means an examination
of the financial statements, reports, documents,
procedures or controls, or notices, of any issuer,
broker, or dealer by an independent public accounting
firm in accordance with the rules of the Board or the
Commission (or, for the period preceding the adoption
of applicable rules of the Board under section 103, in
accordance with then-applicable generally accepted
auditing and related standards for such purposes), for
the purpose of expressing an opinion on such financial
statements, reports, documents, procedures or controls,
or notices.
(2) Audit report.--The term ``audit report'' means a
document, report, notice, or other record--
(A) prepared following an audit performed for
purposes of compliance by an issuer, broker, or dealer
with the requirements of the securities laws; and
(B) in which a public accounting firm either--
(i) sets forth the opinion of that
firm regarding a financial statement,
report, notice, other document,
procedures, or controls; or
(ii) asserts that no such opinion can
be expressed.
(3) Professional standards.--The term ``professional
standards'' means--
(A) accounting principles that are--
(i) established by the standard
setting body described in section 19(b)
of the Securities Act of 1933, as
amended by this Act, or prescribed by
the Commission under section 19(a) of
that Act (15 U.S.C. 17a(s)) or section
13(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78a(m)); and
(ii) relevant to audit reports for
particular issuers, brokers, or
dealers, or dealt with in the quality
control system of a particular
registered public accounting firm; and
(B) auditing standards, standards for
attestation engagements, quality control
policies and procedures, ethical and competency
standards, and independence standards
(including rules implementing title II) that
the Board or the Commission determines--
(i) relate to the preparation or
issuance of audit reports for issuers,
brokers, or dealers; and
(ii) are established or adopted by
the Board under section 103(a), or are
promulgated as rules of the Commission.
(4) Broker.--The term ``broker'' means a broker (as
such term is defined in section 3(a)(4) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)))
that is required to file a balance sheet, income
statement, or other financial statement under section
17(e)(1)(A) of such Act (15 U.S.C. 78q(e)(1)(A)), where
such balance sheet, income statement, or financial
statement is required to be certified by a registered
public accounting firm.
(5) Dealer.--The term ``dealer'' means a dealer (as
such term is defined in section 3(a)(5) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)))
that is required to file a balance sheet, income
statement, or other financial statement under section
17(e)(1)(A) of such Act (15 U.S.C. 78q(e)(1)(A)), where
such balance sheet, income statement, or financial
statement is required to be certified by a registered
public accounting firm.
(6) Self-regulatory organization.--The term ``self-
regulatory organization'' has the same meaning as in
section 3(a)(26) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(26)).
SEC. 111. OMBUDSMAN.
(a) Establishment Required.--Not later than 180 days after
the date of enactment of the Investor Protection Act, the Board
shall appoint an ombudsman for the Board. The Ombudsman shall
report directly to the Chairman.
(b) Duties of Ombudsman.--The ombudsman appointed in
accordance with subsection (a) for the Board shall--
(1) act as a liaison between the Board and--
(A) any registered public accounting firm or
issuer with respect to issues or disputes
concerning the preparation or issuance of any
audit report with respect to that issuer; and
(B) any affected registered public accounting
firm or issuer with respect to--
(i) any problem such firm or issuer
may have in dealing with the Board
resulting from the regulatory
activities of the Board, particularly
with regard to the implementation of
section 404; and
(ii) issues caused by the
relationships of registered public
accounting firms and issuers generally;
and
(2) assure that safeguards exist to encourage
complainants to come forward and to preserve
confidentiality; and
(3) carry out such activities, and any other
activities assigned by the Board, in accordance with
guidelines prescribed by the Board.
* * * * * * *
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 a civil penalty
against any person for a violation of such laws or the rules
and regulations thereunder, or such person agrees in settlement
of any such action to such civil penalty, the amount of such
civil penalty or settlement shall, on the motion or at the
direction of the Commission, be added to and become part of a
disgorgement fund or other fund established for the benefit of
the victims of such violation.
(b) Acceptance of Additional Donations.--The Commission is
authorized to accept, hold, administer, and utilize gifts,
bequests and devises of property, both real and personal, to
the United States [for a disgorgement fund described in
subsection (a)] for a disgorgement fund or other fund described
in subsection (a). Such gifts, bequests, and devises of money
and proceeds from sales of other property received as gifts,
bequests, or devises shall be deposited [in the disgorgement
fund] in such fund and shall be available for allocation in
accordance with subsection (a).
[(e) 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. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(A) * * *.--
* * * * * * *
(c) Exemption for Smaller Issuers.--Subsection (b) shall not
apply with respect to any audit report prepared for an issuer
that is not an accelerated filer within the meaning Rule 12b-2
of the Commission (17 C.F.R. 240.12b-2).
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
* * * * * * *
SEC. 605. ACCESS TO GRAND JURY INFORMATION.
(a) Disclosure.--
(1) In general.--Upon motion of an attorney for the
government, a court may direct disclosure of matters
occurring before a grand jury during an investigation
of conduct that may constitute a violation of any
provision of the securities laws to the Commission for
use in relation to any matter within the jurisdiction
of the Commission.
(2) Substantial need required.--A court may issue an
order under paragraph (1) only upon a finding of a
substantial need in the public interest.
(b) Use of Matter.--A person to whom a matter has been
disclosed under this section shall not use such matter other
than for the purpose for which such disclosure was authorized.
(c) Definitions.--As used in this section, 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.
* * * * * * *
----------
TRUST INDENTURE ACT OF 1939
* * * * * * *
TITLE III--SHORT TITLE
* * * * * * *
DEFINITIONS
Sec. 303. When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
[(17) The terms ``Securities Act of 1933'',
``Securities Exchange Act of 1934'', and ``Public
Utility Holding Company Act of 1935'' shall be deemed
to refer, respectively, to such Acts, as amended,
whether amended prior to or after the enactment of this
title.]
(17) The terms ``Securities Act of 1933'' and
``Securities Exchange Act of 1934'' shall be deemed to
refer, respectively, to such Acts, as amended, whether
amended prior to or after the enactment of this title.
* * * * * * *
EXEMPTED SECURITIES AND TRANSACTIONS
Sec. 304. (a) * * *
(b) The provisions of sections 305 and 306 shall not apply
(1) to any of the transactions exempted from the provisions of
section 5 of the Securities Act of 1933 by section 4 thereof,
or (2) to any transaction which would be so exempted but for
the last sentence of paragraph (11) of [section 2 of such Act]
section 2(a) of such Act.
* * * * * * *
INTEGRATION OF PROCEDURE WITH SECURITIES ACT AND OTHER ACTS
Sec. 308. (a) The Commission, by such rules and regulations
or orders as it deems necessary or appropriate in the public
interest or for the protection of investors, shall authorize
the filing of any information or documents required to be filed
with the Commission under this title, or under the [Securities
Act of 1933, the Securities Exchange Act of 1934, or the Public
Utility Holding Company Act of 1935] Securities Act of 1933 or
the Securities Exchange Act of 1934, by incorporating by
reference any information or documents on file with the
Commission under this title or under any such Act.
(b) The Commission, by such rules and regulations or orders
as it deems necessary or appropriate in the public interest or
for the protection of investors, shall provide for the
consolidation of applications, reports, and proceedings under
this title with registration statements, applications, reports,
and proceedings under the [Securities Act of 1933, the
Securities Exchange Act of 1934, or the Public Utility Holding
Company Act of 1935] Securities Act of 1933 or the Securities
Exchange Act of 1934.
* * * * * * *
ELIGIBILITY AND DISQUALIFICATION OF TRUSTEE
Sec. 310. (a) * * *
* * * * * * *
[(c) Applicability of Section.--The Public Utility Holding
Company Act of 1935 shall not be held to establish or authorize
the establishment of any standards regarding the eligibility
and qualifications of any trustee or prospective trustee under
an indenture to be qualified under this title, or regarding the
provisions to be included in any such indenture with respect to
the eligibility and qualifications of the trustee thereunder,
other than those established by the provisions of this
section.]
PREFERENTIAL COLLECTION OF CLAIMS AGAINST OBLIGOR
Sec. 311. (a) * * *
* * * * * * *
[(c) In the exercise by the Commission of any jurisdiction
under the Public Utility Holding Company Act of 1935 regarding
the issue or sale, by any registered holding company or a
subsidiary company thereof, of any security of such issuer or
seller or of any other company to a person which is trustee
under an indenture or indentures of such issuer or seller or
other company, or of a subsidiary or associate company or
affiliate of such issuer or seller or other company (whether or
not such indenture or indentures are qualified or to be
qualified under this title), the fact that such trustee will
thereby become a creditor, directly or indirectly, of any of
the foregoing shall not constitute a ground for the Commission
taking adverse action with respect to any application or
declaration, or limiting the scope of any rule or regulation
which would otherwise permit such transaction to take effect;
but in any case in which such trustee is trustee under an
indenture of the company of which it will thereby become a
creditor, or of any subsidiary company thereof, this subsection
shall not prevent the Commission from requiring (if such
requirement would be authorized under the provisions of the
Public Utility Holding Company Act of 1935) that such trustee,
as such, shall effectively and irrevocably agree in writing,
for the benefit of the holders from time to time of the
securities from time to time outstanding under such indenture,
to be bound by the provisions of this section, subsection (c)
of section 315, and, in case of default (as such term is
defined in such indenture), subsection (d) of section 315, as
fully as though such provisions were included in such
indenture. For the purposes of this subsection the terms
``registered holding company'', ``subsidiary company'',
``associate company'', and ``affiliate'' shall have the
respective meanings assigned to such terms in section 2(a) of
the Public Utility Holding Company Act of 1935.]
* * * * * * *
REPORTS BY INDENTURE TRUSTEE
Sec. 313. (a) The indenture trustee shall transmit to the
indenture security holders as hereinafter provided, at stated
intervals of not more than 12 months, a brief report with
respect to any of the following events which may have occurred
within the previous 12 months (but if no such event has
occurred within such period no report need be transmitted):--
(1) * * *
* * * * * * *
(4) any change to the amount, interest rate, and
maturity date of all other indebtedness owing to it in
its individual capacity, on the date of such report, by
the obligor upon the indenture securities, with a brief
description of any property held as collateral security
therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in
paragraphs (2), (3), (4), or (6) of [subsection (b) of
section 311] section 311(b);
* * * * * * *
SPECIAL POWERS OF TRUSTEE; DUTIES OF PAYING AGENTS
Sec. 317. (a) The indenture trustee shall be authorized--
(1) [,] in the case of a default in payment of the
principal of any indenture security, when and as the
same shall become due and payable, or in the case of a
default in payment of the interest on any such
security, when and as the same shall become due and
payable and the continuance of such default for such
period as may be prescribed in such indenture, to
recover judgment, in its own name and as trustee of an
express trust, against the obligor upon the indenture
securities for the whole amount of such principal and
interest remaining unpaid; and
* * * * * * *
LIABILITY FOR MISLEADING STATEMENTS
Sec. 323. (a) * * *
(b) The rights and remedies provided by this title shall be
in addition to any and all other rights and remedies that may
exist under the [Securities Act of 1933, or the Securities
Exchange Act of 1934, or the Public Utility Holding Company Act
of 1935] Securities Act of 1933 or the Securities Exchange Act
of 1934, or otherwise at law or in equity; but no person
permitted to maintain a suit for damages under the provisions
of this title shall recover, through satisfaction of judgment
in one or more actions, a total amount in excess of his actual
damages on account of the act complained of.
* * * * * * *
EFFECT ON EXISTING LAW
Sec. 326. Except as otherwise expressly provided, nothing in
this title shall affect (1) the jurisdiction of the Commission
under the [Securities Act of 1933, or the Securities Exchange
Act of 1934, or the Public Utility Holding Company Act of
1935,] Securities Act of 1933 or the Securities Exchange Act of
1934 over any person, security, or contract, or (2) the rights,
obligations, duties, or liabilities of any person under such
Acts; nor shall anything in this title affect the jurisdiction
of any other commission, board, agency, or officer of the
United States or of any State or political subdivision of any
State, over any person or security, insofar as such
jurisdiction does not conflict with any provision of this title
or any rule, regulation, or order thereunder.
* * * * * * *
----------
SECURITIES INVESTOR PROTECTION ACT OF 1970
* * * * * * *
SEC. 4. SIPC FUND.
(a) * * *
* * * * * * *
(d) Requirements Respecting Assessments and Lines of
Credit.--
(1) Assessments.--
(A) * * *
* * * * * * *
(C) Minimum assessment.--The minimum
assessment imposed upon each member of SIPC
shall be $25 per annum through the year ending
December 31, 1979, and thereafter shall be the
amount from time to time set by SIPC bylaw, but
in no event shall the minimum assessment be
greater than [$150 per annum] 0.02 percent of
the gross revenues from the securities business
of such member of SIPC.
* * * * * * *
(g) SEC Loans to SIPC.--In the event that the fund is or may
reasonably appear to be insufficient for the purposes of this
Act, the Commission is authorized to make loans to SIPC. At the
time of application for, and as a condition to, any such loan,
SIPC shall file with the Commission a statement with respect to
the anticipated use of the proceeds of the loan. If the
Commission determines that such loan is necessary for the
protection of customers of brokers or dealers and the
maintenance of confidence in the United States securities
markets and that SIPC has submitted a plan which provides as
reasonable an assurance of prompt repayment as may be feasible
under the circumstances, then the Commission shall so certify
to the Secretary of the Treasury, and issue notes or other
obligations to the Secretary of the Treasury pursuant to
subsection (h). If the Commission determines that the amount or
time for payment of the assessments pursuant to such plan would
not satisfactorily provide for the repayment of such loan, it
may, by rules and regulations, impose upon the purchasers of
equity securities in transactions on national securities
exchanges and in the over-the-counter markets a transaction fee
in such amount as at any time or from time to time it may
determine to be appropriate, but not exceeding one-fiftieth of
1 per centum of the purchase price of the securities. No such
fee shall be imposed on a transaction (as defined by rules or
regulations of the Commission) of less than $5,000. For the
purposes of the next preceding sentence, (1) the fee shall be
based upon the total dollar amount of each purchase; (2) the
fee shall not apply to any purchase on a national securities
exchange or in an over-the-counter market by or for the account
of a broker or dealer registered under section 15(b) of the
1934 Act unless such purchase is for an investment account of
such broker or dealer (and for this purpose any transfer from a
trading account to an investment account shall be deemed a
purchase at fair market value); and (3) the Commission may, by
rule, exempt any transaction in the over-the-counter markets or
on any national securities exchange where necessary to provide
for the assessment of fees on purchasers in transactions in
such markets and exchanges on a comparable basis. Such fee
shall be collected by the broker or dealer effecting the
transaction for or with the purchaser, or by such other person
as provided by the Commission by rule, and shall be paid to
SIPC in the same manner as assessments imposed pursuant to
subsection (c) but without regard to the limits on such
assessments, or in such other manner as the Commission may by
rule provide. Any loan made by the Commission to SIPC under
this subsection shall not be considered to result in a new
direct loan obligation or a new loan guarantee commitment for
purposes of section 504 of the Federal Credit Reform Act of
1990.
(h) SEC Notes Issued to Treasury.--To enable the Commission
to make loans under subsection (g), the Commission is
authorized to issue to the Secretary of the Treasury notes or
other obligations in an aggregate amount [of not to exceed
$1,000,000,000] the lesser of $2,500,000,000 or the target
amount of the SIPC Fund specified in the bylaws of SIPC, in
such forms and denominations, bearing such maturities, and
subject to such terms and conditions, as may be prescribed by
the Secretary of the Treasury. Such notes or other obligations
shall bear interest at a rate determined by the Secretary of
the Treasury, taking into consideration the current average
market yield on outstanding marketable obligations of the
United States of comparable maturities during the month
preceding the issuance of the notes or other obligations. The
Secretary of the Treasury may reduce the interest rate if he
determines such reduction to be in the national interest. The
Secretary of the Treasury is authorized and directed to
purchase any notes and other obligations issued hereunder and
for that purpose he is authorized to use as a public debt
transaction the proceeds from the sale of any securities issued
under the Second Liberty Bond Act, as amended, and the purposes
for which securities may be issued under that Act, as amended,
are extended to include any purchase of such notes and
obligations. The Secretary of the Treasury may at any time sell
any of the notes or other obligations acquired by him under
this subsection. All redemptions, purchases, and sales by the
Secretary of the Treasury of such notes or other obligations
shall be treated as public debt transactions of the United
States.
* * * * * * *
SEC. 5. PROTECTION OF CUSTOMERS.
(a) * * *
(b) Court Action.--
(1) * * *
* * * * * * *
(3) Appointment of trustee and attorney.--If the
court issues a protective decree under paragraph (1),
such court shall forthwith appoint, as trustee for the
liquidation of the business of the debtor and as
attorney for the trustee, such persons as SIPC, in its
sole discretion, specifies. The persons appointed as
trustee and as attorney for the trustee may be
associated with the same firm. SIPC may, in its sole
discretion, specify itself or one of its employees as
trustee in any case in which [SIPC has determined that
the liabilities of the debtor to unsecured general
creditors and to subordinated lenders appear to
aggregate less than $750,000 and that] there appear to
be fewer than [five hundred] five thousand customers of
such debtor. No person may be appointed to serve as
trustee or attorney for the trustee if such person is
not disinterested within the meaning of paragraph (6),
except that for any specified purpose other than to
represent a trustee in conducting a liquidation
proceeding, the trustee may, with the approval of SIPC
and the court, employ an attorney who is not
disinterested. A trustee appointed under this paragraph
shall qualify by filing a bond in the manner prescribed
by section 322 of title 11 of the United States Code,
except that neither SIPC nor any employee of SIPC shall
be required to file a bond when appointed as trustee.
* * * * * * *
SEC. 9. SIPC ADVANCES.
(a) Advances for Customers' Claims.--In order to provide for
prompt payment and satisfaction of net equity claims of
customers of the debtor, SIPC shall advance to the trustee such
moneys, not to exceed $500,000 for each customer, as may be
required to pay or otherwise satisfy claims for the amount by
which the net equity of each customer exceeds his ratable share
of customer property, except that--
(1) if all or any portion of the net equity claim of
a customer in excess of his ratable share of customer
property is a claim for cash, as distinct from a claim
for securities or options on futures contracts, the
amount advanced to satisfy such claim for cash shall
not exceed [$100,000 for each such customer] the
standard maximum cash advance amount for each such
customer, as determined in accordance with subsection
(d);
* * * * * * *
(4) no advance shall be made by SIPC to the trustee
to pay or otherwise satisfy, directly or indirectly,
any net equity claim of a customer who is a general
partner, officer, or director of the debtor, a
beneficial owner of five per centum or more of any
class of equity security of the debtor (other than a
nonconvertible stock having fixed preferential dividend
and liquidation rights), a limited partner with a
participation of five per centum or more in the net
assets or net profits of the debtor, an insider, or a
person who, directly or indirectly and through
agreement or otherwise, exercised or had the power to
exercise a controlling influence over the management or
policies of the debtor; and
* * * * * * *
(d) Standard Maximum Cash Advance Amount Defined.--For
purposes of this section, the term ``standard maximum cash
advance amount'' means $250,000, as such amount may be adjusted
after March 31, 2010, as provided under subsection (e).
(e) Inflation Adjustment.--
(1) In general.--No later than April 1, 2010, and
every 5 years thereafter, and subject to the approval
of the Commission as provided under section 3(e)(2),
the Board of Directors of SIPC shall determine whether
an inflation adjustment to the standard maximum cash
advance amount is appropriate. If the Board of
Directors of SIPC determines such an adjustment is
appropriate, then the standard maximum cash advance
amount shall be an amount equal to--
(A) $250,000 multiplied by,
(B) the ratio of the annual value of the
Personal Consumption Expenditures Chain-Type
Price Index (or any successor index thereto),
published by the Department of Commerce, for
the calendar year preceding the year in which
such determination is made, to the published
annual value of such index for the calendar
year preceding the year in which this
subsection was enacted.
The index values used in calculations under this
paragraph shall be, as of the date of the calculation,
the values most recently published by the Department of
Commerce.
(2) Rounding.--If the standard maximum cash advance
amount determined under paragraph (1) for any period is
not a multiple of $10,000, the amount so determined
shall be rounded down to the nearest $10,000.
(3) Publication and report to the congress.--Not
later than April 5 of any calendar year in which a
determination is required to be made under paragraph
(1)--
(A) the Commission shall publish in the
Federal Register the standard maximum cash
advance amount; and
(B) the Board of Directors of SIPC shall
submit a report to the Congress containing
stating the standard maximum cash advance
amount.
(4) Implementation period.--Any adjustment to the
standard maximum cash advance amount shall take effect
on January 1 of the year immediately succeeding the
calendar year in which such adjustment is made.
(5) Inflation adjustment considerations.--In making
any determination under paragraph (1) to increase the
standard maximum cash advance amount, the Board of
Directors of SIPC shall consider--
(A) the overall state of the fund and the
economic conditions affecting members of SIPC;
(B) the potential problems affecting members
of SIPC; and
(C) such other factors as the Board of
Directors of SIPC may determine appropriate.
SEC. 10. DIRECT PAYMENT PROCEDURE.
(a) Determination Regarding Direct Payments.--If SIPC
determines that--
(1) * * *
* * * * * * *
(4) the claims of all customers of the member
aggregate less than [$250,000] $850,000;
* * * * * * *
SIPC may, in its discretion, use the direct payment procedure
set forth in this section in lieu of instituting a liquidation
proceeding with respect to such member.
* * * * * * *
SEC. 14. PROHIBITED ACTS.
(a) * * *
* * * * * * *
(c) Concealment of Assets; False Statements or Claims.--
(1) Specific prohibited acts.--Any person who,
directly or indirectly, in connection with or in
contemplation of any liquidation proceeding or direct
payment procedure--
(A) * * *
* * * * * * *
shall be fined not more than [$50,000] $250,000 or
imprisoned for not more than five years, or both.
(2) Fraudulent conversion.--Any person who, directly
or indirectly steals, embezzles, or fraudulently, or
with intent to defeat this Act, abstracts or converts
to his own use or to the use of another any of the
moneys, securities, or other assets of SIPC, or
otherwise defrauds or attempts to defraud SIPC or a
trustee by any means, shall be fined not more than
[$50,000] $250,000 or imprisoned not more than five
years, or both.
(d) Misrepresentation of SIPC Membership or Protection.--
(1) In general.--Any person who falsely represents by
any means (including, without limitation, through the
Internet or any other medium of mass communication),
with actual knowledge of the falsity of the
representation and with an intent to deceive or cause
injury to another, that such person, or another person,
is a member of SIPC or that any person or account is
protected or is eligible for protection under this Act
or by SIPC, shall be liable for any damages caused
thereby and shall be fined not more than $250,000 or
imprisoned for not more than five years.
(2) Internet service providers.--Any Internet service
provider that, on or through a system or network
controlled or operated by the Internet service
provider, transmits, routes, provides connections for,
or stores any material containing any misrepresentation
of the kind prohibited in paragraph (1) shall be liable
for any damages caused thereby, including damages
suffered by SIPC, if the Internet service provider--
(A) has actual knowledge that the material
contains a misrepresentation of the kind
prohibited in paragraph (1), or
(B) in the absence of actual knowledge, is
aware of facts or circumstances from which it
is apparent that the material contains a
misrepresentation of the kind prohibited in
paragraph (1), and
upon obtaining such knowledge or awareness, fails to
act expeditiously to remove, or disable access to, the
material.
(3) Injunctions.--Any court having jurisdiction of a
civil action arising under this Act may grant temporary
injunctions and final injunctions on such terms as the
court deems reasonable to prevent or restrain any
violation of paragraph (1) or (2). Any such injunction
may be served anywhere in the United States on the
person enjoined, shall be operative throughout the
United States, and shall be enforceable, by proceedings
in contempt or otherwise, by any United States court
having jurisdiction over that person. The clerk of the
court granting the injunction shall, when requested by
any other court in which enforcement of the injunction
is sought, transmit promptly to the other court a
certified copy of all papers in the case on file in
such clerk's office.
* * * * * * *
SEC. 16. DEFINITIONS.
For purposes of this Act, including the application of the
Bankruptcy Act to a liquidation proceeding:
(1) * * *
[(2) Customer.--The term ``customer'' of a debtor
means any person (including any person with whom the
debtor deals as principal or agent) who has a claim on
account of securities received, acquired, or held by
the debtor in the ordinary course of its business as a
broker or dealer from or for the securities accounts of
such person for safekeeping, with a view to sale, to
cover consummated sales, pursuant to purchases, as
collateral, security, or for purposes of effecting
transfer. The term ``customer'' includes any person who
has a claim against the debtor arising out of sales or
conversions of such securities, and any person who has
deposited cash with the debtor for the purpose of
purchasing securities, but does not include--
[(A) any person to the extent that the claim
of such person arises out of transactions with
a foreign subsidiary of a member of SIPC; or
[(B) any person to the extent that such
person has a claim for cash or securities which
by contract, agreement, or understanding, or by
operation of law, is part of the capital of the
debtor, or is subordinated to the claims of any
or all creditors of the debtor, notwithstanding
that some ground exists for declaring such
contract, agreement, or understanding void or
voidable in a suit between the claimant and the
debtor.]
(2) Customer.--
(A) In general.--The term ``customer'' of a
debtor means any person (including any person
with whom the debtor deals as principal or
agent) who has a claim on account of securities
received, acquired, or held by the debtor in
the ordinary course of its business as a broker
or dealer from or for the securities accounts
of such person for safekeeping, with a view to
sale, to cover consummated sales, pursuant to
purchases, as collateral, security, or for
purposes of effecting transfer. The term
``customer'' includes any person who has a
claim against the debtor arising out of sales
or conversions of such securities.
(B) Included persons.--The term ``customer''
includes--
(i) any person who has deposited cash
with the debtor for the purpose of
purchasing securities; and
(ii) any person who has a claim
against the debtor for, or a claim
against the debtor arising out of sales
or conversions of, cash, securities,
futures contracts, or options on
futures contracts received, acquired,
or held in a portfolio margining
account carried as a securities account
pursuant to a portfolio margining
program approved by the Commission.
(C) Excluded persons.--The term ``customer''
does not include--
(i) any person to the extent that the
claim of such person arises out of
transactions with a foreign subsidiary
of a member of SIPC;
(ii) any person to the extent that
such person has a claim for cash or
securities which by contract,
agreement, or understanding, or by
operation of law, is part of the
capital of the debtor, or is
subordinated to the claims of any or
all creditors of the debtor,
notwithstanding that some ground exists
for declaring such contract, agreement,
or understanding void or voidable in a
suit between the claimant and the
debtor; or
(iii) any person to the extent such
person has a claim relating to any open
repurchase or open reverse repurchase
agreement.
For purposes of this paragraph, the term
``repurchase agreement'' means the sale of a
security at a specified price with a
simultaneous agreement or obligation to
repurchase the security at a specified price on
a specified future date.
* * * * * * *
(4) Customer property.--The term ``customer
property'' means cash and securities (except customer
name securities delivered to the customer) at any time
received, acquired, or held by or for the account of a
debtor from or for the securities accounts of a
customer, and the proceeds of any such property
transferred by the debtor, including property
unlawfully converted. In the case of portfolio
margining accounts of customers that are carried as
securities accounts pursuant to a portfolio margining
program approved by the Commission, such term shall
also include futures contracts and options on futures
contracts received, acquired, or held by or for the
account of a debtor from or for such accounts, and the
proceeds thereof. The term ``customer property''
includes--
(A) * * *
* * * * * * *
(9) Gross revenues from the securities business.--The
term ``gross revenues from the securities business''
means the sum of (but without duplication)--
(A) * * *
* * * * * * *
The term includes revenues earned by a broker or dealer
in connection with transactions in customers' portfolio
margining accounts carried as securities accounts
pursuant to a portfolio margining program approved by
the Commission. Such term does not include revenues
received by a broker or dealer in connection with the
distribution of shares of a registered open end
investment company or unit investment trust or revenues
derived by a broker or dealer from the sale of variable
annuities or from the conduct of the business of
insurance.
* * * * * * *
(11) Net equity.--The term ``net equity'' means the
dollar amount of the account or accounts of a customer,
to be determined by--
[(A) calculating the sum which would have
been owed by the debtor to such customer if the
debtor had liquidated, by sale or purchase on
the filing date, all securities positions of
such customer (other than customer name
securities reclaimed by such customer); minus]
(A) calculating the sum which would have been
owed by the debtor to such customer if the
debtor had liquidated, by sale or purchase on
the filing date--
(i) all securities positions of such
customer (other than customer name
securities reclaimed by such customer);
and
(ii) all positions in futures
contracts and options on futures
contracts held in a portfolio margining
account carried as a securities account
pursuant to a portfolio margining
program approved by the Commission;
minus
* * * * * * *
A claim for a commodity futures contract received,
acquired, or held in a portfolio margining account
pursuant to a portfolio margining program approved by
the Commission, or a claim for a security futures
contract, shall be deemed to be a claim for the mark-
to-market (variation) payments due with respect to such
contract as of the filing date, and such claim shall be
treated as a claim for cash. In determining net equity
under this paragraph, accounts held by a customer in
separate capacities shall be deemed to be accounts of
separate customers.
* * * * * * *
----------
TITLE 18, UNITED STATES CODE
PART I--CRIMES
* * * * * * *
CHAPTER 73--OBSTRUCTION OF JUSTICE
* * * * * * *
Sec. 1514A. Civil action to protect against retaliation in fraud cases
(a) Whistleblower Protection for Employees of Publicly Traded
Companies.--No company with a class of securities registered
under section 12 of the Securities Exchange Act of 1934 (15
U.S.C. 78l), or that is required to file reports under section
15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78o(d)), including any subsidiary or affiliate whose financial
information is included in the consolidated financial
statements of such company, or any officer, employee,
contractor, subcontractor, or agent of such company, may
discharge, demote, suspend, threaten, harass, or in any other
manner discriminate against an employee in the terms and
conditions of employment because of any lawful act done by the
employee--
(1) * * *
* * * * * * *
DISSENTING VIEWS
The catastrophic failures of several large, complex
financial institutions and the massive financial frauds carried
out by Bernard Madoff and others on Wall Street provide clear
evidence that our current capital markets regulatory and
enforcement structure is in need of repair. H.R. 3817, the
Investor Protection Act of 2009, incorporates several key
provisions from the Republican Financial Regulatory Reform plan
(H.R. 3310), giving the Securities and Exchange Commission
(SEC) enhanced enforcement powers and providing victims of
financial fraud additional relief. These provisions will
enhance investor protection, modernize our capital markets and
begin to restore investor confidence in the SEC. Additionally,
the legislation contains provisions sponsored by
Representatives Kevin McCarthy, Chris Lee, and Lynn Jenkins
that have already passed the House this year. These provisions
would close regulatory loopholes that prevent the SEC from
filing enforcement actions against formerly associated persons,
make needed technical corrections to securities laws, and
promote transparency in financial reporting. The bill also
includes the provisions of H.R. 2873, introduced by
Representative John Campbell and passed by the House on
December 2, 2009, to provide the SEC with increased enforcement
powers.
However, Committee Republicans have serious concerns
regarding other provisions of H.R. 3817 that will have
potentially harmful consequences for U.S. capital markets.
Republicans also object to the Committee's hurried
consideration of this far-reaching legislation.
The Committee held only a single legislative hearing on
H.R. 3817, which addressed only three of the Investor
Protection Act's more than sixty sections in any detail.
Additionally, the Committee did not receive any testimony
regarding Title VI of the bill, which would amend the Sarbanes-
Oxley Act (SOX) for the first time since the law's enactment
seven years ago. The former Chairman of the Public Company
Accounting Oversight Board (PCAOB), Mark Olson, wrote to the
Majority requesting the changes contained in Title VI, however,
the Committee never elicited testimony from the PCAOB on the
need for these SOX amendments. While Titles V and VI raise
important policy considerations that are worthy of attention,
the Committee has failed to conduct any oversight of the
Securities Investor Protection Corporation (outside of the
Madoff Ponzi scheme), the PCAOB--whose existing authorities are
expanded in Title VI--or the Sarbanes-Oxley Act since 2006,
when Republicans were in the majority. Furthermore, the U.S.
Supreme Court has scheduled oral arguments in the case of Free
Enterprise Fund v. Public Company Accounting Oversight Board
for December 7, 2009. This important case is expected to
determine the constitutionality of both the PCAOB and Sarbanes-
Oxley. It seems premature to significantly amend the statute
until the Supreme Court decides its constitutionality. Again,
no testimony was ever received by the Committee regarding this
important Constitutional concern.
The useful reforms contained in H.R. 3817 are overshadowed
by the bill's failure to fundamentally reform the SEC, whose
shortcomings were exposed by the Madoff scandal and by the
spectacular collapse of Bear Stearns and Lehman Brothers, both
of which operated under the SEC's regulatory purview. The bill
dramatically increases the SEC's taxing authority but does
little to reform the agency's outdated, ineffective, and siloed
structure. The recent SEC Inspector General's report detailing
the massive failure by the SEC staff to detect the Madoff Ponzi
scheme is the best evidence for SEC reform. The Office of
Compliance, Inspections and Examinations (OCIE) needs to be
eliminated and its functions returned to the divisions from
which it was created. Instead of eliminating OCIE, which
completely missed the Madoff Ponzi scheme, the SEC created a
new division that will further entrench the SEC's stovepipe
operational structure. H.R. 3817 does nothing to address this
continuing problem with the agency.
Unfortunately, H.R. 3817 would restrict the ability of
investors to effectively resolve their disputes by granting the
SEC the authority to ban pre-dispute arbitration agreements.
Arbitration, an alternative to expensive and protracted
litigation, uses neutral third parties to settle differences
between parties to a controversy. Arbitration produces much
faster results for parties seeking damages, as awards must be
paid within 30 days of the date of the arbitration ruling,
unless a party seeks judicial review. The SEC oversees the
arbitration programs administered by securities industry self-
regulatory organizations (SROs). H.R. 3817 would give the SEC
the power to prohibit or restrict the use of contractual
agreements that contain mandatory arbitration clauses to settle
any disputes. If enacted, this mandate will result in extended
and costly litigation and additional costs for all investors.
Its primary beneficiaries will be members of the trial bar, not
individual investors. An amendment offered by Representative
Lee of New York that would preserve existing contracts with
arbitration clauses received unanimous Republican support, but
was rejected by the Majority by a vote of 40-29.
In addition, the Majority's legislation fails to recognize
the complexities of the broker-dealer business model and seeks
to impose a ``one-size-fits-all'' standard on the brokerage
industry in an effort to harmonize the duty of care between
broker-dealers and investment advisers. Once again, the
Committee received no evidence that the existing broker-dealer
suitability standard was a cause of the financial crisis,
however, the Majority decided to eliminate a standard that has
served investors well for 75 years. Requiring broker-dealers
and investment advisers to be held to the same fiduciary
standard could place providers of commission-based investment
products at a competitive disadvantage versus fee-based
products and subject them to increased litigation. The result
could be fewer investment options for investors who cannot
afford to pay upfront fees for financial advice.
The Committee also adopted an ill-considered amendment
offered by Representative Waters which will inject the SEC into
regulating and overseeing corporate board elections for all
public companies. There have been significant changes in
corporate governance since the adoption of the Sarbanes-Oxley
Act, including the adoption of majority voting in uncontested
director elections, which has resulted in greater board
accountability. The Waters amendment takes the SEC away from
its core mission of protecting investors. States are already
enhancing shareholder rights. For example, Delaware has enacted
legislation clarifying the authority of companies and their
shareholders to adopt proxy access and proxy reimbursement
bylaws and North Dakota has created a state proxy access right.
These state actions allow shareholders to choose whether proxy
access is appropriate and, if it is, to delineate specific
details such as ownership thresholds and holding periods. The
amendment would undermine 150 years of corporate governance
that has served our capital markets well.
The Committee on Financial Services ordered H.R. 3817
reported on a party-line vote. Republicans believe that the
House should reject this ill-considered legislation and send it
back to the Committee on Financial Services for a more thorough
review of its potentially harmful impact on investors of the
U.S. capital markets.
Spencer Bachus.
Kenny Marchant.
Scott Garrett.
Randy Neugebauer.
Adam H. Putnam.
Erik Paulsen.
Christopher John Lee.