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Public Law 107-204
107th Congress
An Act
To protect investors by improving the accuracy and reliability of
corporate disclosures made pursuant to the securities laws, and for
other purposes. <>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress <> assembled,
SECTION 1. SHORT <> TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the "Sarbanes-Oxley Act
of 2002".
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Commission rules and enforcement.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec. 101. Establishment; administrative provisions.
Sec. 102. Registration with the Board.
Sec. 103. Auditing, quality control, and independence standards and
rules.
Sec. 104. Inspections of registered public accounting firms.
Sec. 105. Investigations and disciplinary proceedings.
Sec. 106. Foreign public accounting firms.
Sec. 107. Commission oversight of the Board.
Sec. 108. Accounting standards.
Sec. 109. Funding.
TITLE II--AUDITOR INDEPENDENCE
Sec. 201. Services outside the scope of practice of auditors.
Sec. 202. Preapproval requirements.
Sec. 203. Audit partner rotation.
Sec. 204. Auditor reports to audit committees.
Sec. 205. Conforming amendments.
Sec. 206. Conflicts of interest.
Sec. 207. Study of mandatory rotation of registered public accounting
firms.
Sec. 208. Commission authority.
Sec. 209. Considerations by appropriate State regulatory authorities.
TITLE III--CORPORATE RESPONSIBILITY
Sec. 301. Public company audit committees.
Sec. 302. Corporate responsibility for financial reports.
Sec. 303. Improper influence on conduct of audits.
Sec. 304. Forfeiture of certain bonuses and profits.
Sec. 305. Officer and director bars and penalties.
Sec. 306. Insider trades during pension fund blackout periods.
Sec. 307. Rules of professional responsibility for attorneys.
Sec. 308. Fair funds for investors.
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
Sec. 401. Disclosures in periodic reports.
Sec. 402. Enhanced conflict of interest provisions.
Sec. 403. Disclosures of transactions involving management and principal
stockholders.
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Sec. 404. Management assessment of internal controls.
Sec. 405. Exemption.
Sec. 406. Code of ethics for senior financial officers.
Sec. 407. Disclosure of audit committee financial expert.
Sec. 408. Enhanced review of periodic disclosures by issuers.
Sec. 409. Real time issuer disclosures.
TITLE V--ANALYST CONFLICTS OF INTEREST
Sec. 501. Treatment of securities analysts by registered securities
associations and national securities exchanges.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
Sec. 601. Authorization of appropriations.
Sec. 602. Appearance and practice before the Commission.
Sec. 603. Federal court authority to impose penny stock bars.
Sec. 604. Qualifications of associated persons of brokers and dealers.
TITLE VII--STUDIES AND REPORTS
Sec. 701. GAO study and report regarding consolidation of public
accounting firms.
Sec. 702. Commission study and report regarding credit rating agencies.
Sec. 703. Study and report on violators and violations
Sec. 704. Study of enforcement actions.
Sec. 705. Study of investment banks.
TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
Sec. 801. Short title.
Sec. 802. Criminal penalties for altering documents.
Sec. 803. Debts nondischargeable if incurred in violation of securities
fraud laws.
Sec. 804. Statute of limitations for securities fraud.
Sec. 805. Review of Federal Sentencing Guidelines for obstruction of
justice and extensive criminal fraud.
Sec. 806. Protection for employees of publicly traded companies who
provide evidence of fraud.
Sec. 807. Criminal penalties for defrauding shareholders of publicly
traded companies.
TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
Sec. 901. Short title.
Sec. 902. Attempts and conspiracies to commit criminal fraud offenses.
Sec. 903. Criminal penalties for mail and wire fraud.
Sec. 904. Criminal penalties for violations of the Employee Retirement
Income Security Act of 1974.
Sec. 905. Amendment to sentencing guidelines relating to certain white-
collar offenses.
Sec. 906. Corporate responsibility for financial reports.
TITLE X--CORPORATE TAX RETURNS
Sec. 1001. Sense of the Senate regarding the signing of corporate tax
returns by chief executive officers.
TITLE XI--CORPORATE FRAUD AND ACCOUNTABILITY
Sec. 1101. Short title.
Sec. 1102. Tampering with a record or otherwise impeding an official
proceeding.
Sec. 1103. Temporary freeze authority for the Securities and Exchange
Commission.
Sec. 1104. Amendment to the Federal Sentencing Guidelines.
Sec. 1105. Authority of the Commission to prohibit persons from serving
as officers or directors.
Sec. 1106. Increased criminal penalties under Securities Exchange Act of
1934.
Sec. 1107. Retaliation <> against informants.
SEC. 2. <> DEFINITIONS.
(a) In General.--In this Act, the following definitions shall apply:
(1) Appropriate state regulatory authority.--The term
"appropriate State regulatory authority" means the State
agency or other authority responsible for the licensure or other
regulation of the practice of accounting in the State or States
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having jurisdiction over a registered public accounting firm or
associated person thereof, with respect to the matter in
question.
(2) Audit.--The term "audit" means an examination of the
financial statements of any issuer 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 statements.
(3) Audit committee.--The term "audit committee" means--
(A) a committee (or equivalent body) established by
and amongst the board of directors of an issuer for the
purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the
financial statements of the issuer; and
(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
(4) Audit report.--The term "audit report" means a
document or other record--
(A) prepared following an audit performed for
purposes of compliance by an issuer 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, or other
document; or
(ii) asserts that no such opinion can be
expressed.
(5) Board.--The term "Board" means the Public Company
Accounting Oversight Board established under section 101.
(6) Commission.--The term "Commission" means the
Securities and Exchange Commission.
(7) Issuer.--The term "issuer" means an issuer (as defined
in section 3 of the Securities Exchange Act of 1934 (15 U.S.C.
78c)), the securities of which are registered under section 12
of that Act (15 U.S.C. 78l), or that is required to file reports
under section 15(d) (15 U.S.C. 78o(d)), or that files or has
filed a registration statement that has not yet become effective
under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and
that it has not withdrawn.
(8) Non-audit services.--The term "non-audit services"
means any professional services provided to an issuer by a
registered public accounting firm, other than those provided to
an issuer in connection with an audit or a review of the
financial statements of an issuer.
(9) Person associated with a public accounting firm.--
(A) In general.--The terms "person associated with
a public accounting firm" (or with a "registered
public accounting firm") and "associated person of a
public accounting firm" (or of a "registered public
accounting firm") mean any individual proprietor,
partner, shareholder, principal, accountant, or other
professional employee of a public accounting firm, or
any other independent contractor or entity that, in
connection with the preparation or issuance of any audit
report--
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(i) shares in the profits of, or receives
compensation in any other form from, that firm; or
(ii) participates as agent or otherwise on
behalf of such accounting firm in any activity of
that firm.
(B) Exemption authority.--The Board may, by rule,
exempt persons engaged only in ministerial tasks from
the definition in subparagraph (A), to the extent that
the Board determines that any such exemption is
consistent with the purposes of this Act, the public
interest, or the protection of investors.
(10) 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, 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; and
(ii) are established or adopted by the Board
under section 103(a), or are promulgated as rules
of the Commission.
(11) Public accounting firm.--The term "public accounting
firm" means--
(A) a proprietorship, partnership, incorporated
association, corporation, limited liability company,
limited liability partnership, or other legal entity
that is engaged in the practice of public accounting or
preparing or issuing audit reports; and
(B) to the extent so designated by the rules of the
Board, any associated person of any entity described in
subparagraph (A).
(12) Registered public accounting firm.--The term
"registered public accounting firm" means a public accounting
firm registered with the Board in accordance with this Act.
(13) Rules of the board.--The term "rules of the Board"
means the bylaws and rules of the Board (as submitted to, and
approved, modified, or amended by the Commission, in accordance
with section 107), and those stated policies, practices, and
interpretations of the Board that the Commission, by rule, may
deem to be rules of the Board, as necessary or appropriate in
the public interest or for the protection of investors.
(14) Security.--The term "security" has the same meaning
as in section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)).
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(15) Securities laws.--The term "securities laws" means
the provisions of law referred to in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as
amended by this Act, and includes the rules, regulations, and
orders issued by the Commission thereunder.
(16) State.--The term "State" means any State of the
United States, the District of Columbia, Puerto Rico, the Virgin
Islands, or any other territory or possession of the United
States.
(b) Conforming Amendment.--Section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is amended by inserting
"the Sarbanes-Oxley Act of 2002," before "the Public".
SEC. 3. <> COMMISSION RULES AND ENFORCEMENT.
(a) Regulatory Action.--The Commission shall promulgate such rules
and regulations, as may be necessary or appropriate in the public
interest or for the protection of investors, and in furtherance of this
Act.
(b) Enforcement.--
(1) In general.--A violation by any person of this Act, any
rule or regulation of the Commission issued under this Act, or
any rule of the Board shall be treated for all purposes in the
same manner as a violation of the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) or the rules and regulations issued
thereunder, consistent with the provisions of this Act, and any
such person shall be subject to the same penalties, and to the
same extent, as for a violation of that Act or such rules or
regulations.
(2) Investigations, injunctions, and prosecution of
offenses.--Section 21 of the Securities Exchange Act of 1934 (15
U.S.C. 78u) is amended--
(A) in subsection (a)(1), by inserting "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," after "is a
participant,";
(B) in subsection (d)(1), by inserting "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," after "is a
participant,";
(C) in subsection (e), by inserting "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," after "is a
participant,"; and
(D) in subsection (f), by inserting "or the Public
Company Accounting Oversight Board" after "self-
regulatory organization" each place that term appears.
(3) Cease-and-desist proceedings.--Section 21C(c)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
amended by inserting "registered public accounting firm (as
defined in section 2 of the Sarbanes-Oxley Act of 2002)," after
"government securities dealer,".
(4) Enforcement by federal banking agencies.--Section 12(i)
of the Securities Exchange Act of 1934 (15 U.S.C. 78l(i)) is
amended by--
(A) striking "sections 12," each place it appears
and inserting "sections 10A(m), 12,"; and
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(B) striking "and 16," each place it appears and
inserting "and 16 of this Act, and sections 302, 303,
304, 306, 401(b), 404, 406, and 407 of the Sarbanes-
Oxley Act of 2002,".
(c) Effect on Commission Authority.--Nothing in this Act or the
rules of the Board shall be construed to impair or limit--
(1) the authority of the Commission to regulate the
accounting profession, accounting firms, or persons associated
with such firms for purposes of enforcement of the securities
laws;
(2) the authority of the Commission to set standards for
accounting or auditing practices or auditor independence,
derived from other provisions of the securities laws or the
rules or regulations thereunder, for purposes of the preparation
and issuance of any audit report, or otherwise under applicable
law; or
(3) the ability of the Commission to take, on the initiative
of the Commission, legal, administrative, or disciplinary action
against any registered public accounting firm or any associated
person thereof.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
SEC. 101. <> ESTABLISHMENT; ADMINISTRATIVE
PROVISIONS.
(a) Establishment of Board.--There is established the Public Company
Accounting Oversight Board, to oversee the audit of public 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.
(b) Status.--The Board shall not be an agency or establishment of
the United States Government, and, except as otherwise provided in this
Act, shall be subject to, and have all the powers conferred upon a
nonprofit corporation by, the District of Columbia Nonprofit Corporation
Act. No member or person employed by, or agent for, the Board shall be
deemed to be an officer or employee of or agent for the Federal
Government by reason of such service.
(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, 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, in accordance with
section 103;
(3) conduct inspections of registered public accounting
firms, in accordance with section 104 and the rules of the
Board;
(4) conduct investigations and disciplinary proceedings
concerning, and impose appropriate sanctions where justified
upon,
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registered public accounting firms and associated persons of
such firms, in accordance with section 105;
(5) perform such other duties or functions as the Board (or
the Commission, by rule or order) determines are necessary or
appropriate to promote high professional standards among, and
improve the quality of audit services offered by, registered
public accounting firms and associated persons thereof, or
otherwise to carry out this Act, in order to protect investors,
or to further the public interest;
(6) enforce compliance with this Act, the rules of the
Board, professional standards, and the securities laws relating
to the preparation and issuance of audit reports and the
obligations and liabilities of accountants with respect thereto,
by registered public accounting firms and associated persons
thereof; and
(7) set the budget and manage the operations of the Board
and the staff of the Board.
(d) Commission Determination.--The members of the Board shall take
such action (including hiring of staff, proposal of rules, and adoption
of initial and transitional auditing and other professional standards)
as may be necessary or appropriate to enable the Commission to
determine, not later than 270 days after the date of enactment of this
Act, that the Board is so organized and has the capacity to carry out
the requirements of this title, and to enforce compliance with this
title by registered public accounting firms and associated persons
thereof. The Commission shall be responsible, prior to the appointment
of the Board, for the planning for the establishment and administrative
transition to the Board's operation.
(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 under
the securities laws and the obligations of accountants with
respect to the preparation and issuance of audit reports with
respect to such disclosures.
(2) Limitation.--Two members, and only 2 members, of the
Board shall be or have been certified public accountants
pursuant to the laws of 1 or more States, provided that, if 1 of
those 2 members is the chairperson, he or she may not have been
a practicing certified public accountant for at least 5 years
prior to his or her appointment to the Board.
(3) Full-time independent service.--Each member of the Board
shall serve on a full-time basis, and may not, concurrent with
service on the Board, be employed by any other person or engage
in any other professional or business activity. No member of the
Board may share in any of the profits of, or receive payments
from, a public accounting firm (or any other person, as
determined by rule of the Commission), other than fixed
continuing payments, subject to such conditions as the
Commission may impose, under standard arrangements for the
retirement of members of public accounting firms.
(4) Appointment of board members.--
(A) Initial board.--Not <> later
than 90 days after the date of enactment of this Act,
the Commission, after consultation with the Chairman of
the Board of Governors
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of the Federal Reserve System and the Secretary of the
Treasury, shall appoint the chairperson and other
initial members of the Board, and shall designate a term
of service for each.
(B) Vacancies.--A vacancy on the Board shall not
affect the powers of the Board, but shall be filled in
the same manner as provided for appointments under this
section.
(5) Term of service.--
(A) In general.--The term of service of each Board
member shall be 5 years, and until a successor is
appointed, except that--
(i) the terms of office of the initial Board
members (other than the chairperson) shall expire
in annual increments, 1 on each of the first 4
anniversaries of the initial date of appointment;
and
(ii) any Board member appointed to fill a
vacancy occurring before the expiration of the
term for which the predecessor was appointed shall
be appointed only for the remainder of that term.
(B) Term limitation.--No person may serve as a
member of the Board, or as chairperson of the Board, for
more than 2 terms, whether or not such terms of service
are consecutive.
(6) Removal from office.--A member of the Board may be
removed by the Commission from office, in accordance with
section 107(d)(3), for good cause shown before the expiration of
the term of that member.
(f) Powers of the Board.--In addition to any authority granted to
the Board otherwise in this Act, the Board shall have the power, subject
to section 107--
(1) to sue and be sued, complain and defend, in its
corporate name and through its own counsel, with the approval of
the Commission, in any Federal, State, or other court;
(2) to conduct its operations and maintain offices, and to
exercise all other rights and powers authorized by this Act, in
any State, without regard to any qualification, licensing, or
other provision of law in effect in such State (or a political
subdivision thereof);
(3) to lease, purchase, accept gifts or donations of or
otherwise acquire, improve, use, sell, exchange, or convey, all
of or an interest in any property, wherever situated;
(4) to appoint such employees, accountants, attorneys, and
other agents as may be necessary or appropriate, and to
determine their qualifications, define their duties, and fix
their salaries or other compensation (at a level that is
comparable to private sector self-regulatory, accounting,
technical, supervisory, or other staff or management positions);
(5) to allocate, assess, and collect accounting support fees
established pursuant to section 109, for the Board, and other
fees and charges imposed under this title; and
(6) to <> enter into contracts, execute
instruments, incur liabilities, and do any and all other acts
and things necessary, appropriate, or incidental to the conduct
of its operations and the exercise of its obligations, rights,
and powers imposed or granted by this title.
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(g) Rules of the Board.--The rules of the Board shall, subject to
the approval of the Commission--
(1) provide for the operation and administration of the
Board, the exercise of its authority, and the performance of its
responsibilities under this Act;
(2) permit, as the Board determines necessary or
appropriate, delegation by the Board of any of its functions to
an individual member or employee of the Board, or to a division
of the Board, including functions with respect to hearing,
determining, ordering, certifying, reporting, or otherwise
acting as to any matter, except that--
(A) the Board shall retain a discretionary right to
review any action pursuant to any such delegated
function, upon its own motion;
(B) a person shall be entitled to a review by the
Board with respect to any matter so delegated, and the
decision of the Board upon such review shall be deemed
to be the action of the Board for all purposes
(including appeal or review thereof); and
(C) if the right to exercise a review described in
subparagraph (A) is declined, or if no such review is
sought within the time stated in the rules of the Board,
then the action taken by the holder of such delegation
shall for all purposes, including appeal or review
thereof, be deemed to be the action of the Board;
(3) establish ethics rules and standards of conduct for
Board members and staff, including a bar on practice before the
Board (and the Commission, with respect to Board-related
matters) of 1 year for former members of the Board, and
appropriate periods (not to exceed 1 year) for former staff of
the Board; and
(4) provide as otherwise required by this Act.
(h) Annual Report <> to the Commission.--The Board
shall submit an annual report (including its audited financial
statements) to the Commission, and the Commission shall transmit a copy
of that report to the Committee on Banking, Housing, and Urban Affairs
of the Senate, and the Committee on Financial Services of the House of
Representatives, not later than 30 days after the date of receipt of
that report by the Commission.
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 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.
(b) Applications for Registration.--
(1) Form of application.--A public accounting firm shall use
such form as the Board may prescribe, by rule, to apply for
registration under this section.
(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 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;
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(B) the annual fees received by the firm from each
such issuer for audit services, other accounting
services, and non-audit services, respectively;
(C) such other current financial information for the
most recently completed fiscal year of the firm as the
Board may reasonably request;
(D) a statement of the quality control policies of
the firm for its accounting and auditing practices;
(E) a list of all accountants associated with the
firm who participate in or contribute to the preparation
of audit reports, stating the license or certification
number of each such person, as well as the State license
numbers of the firm itself;
(F) information relating to criminal, civil, or
administrative actions or disciplinary proceedings
pending against the firm or any associated person of the
firm in connection with any audit report;
(G) copies of any periodic or annual disclosure
filed by an issuer with the Commission during the
immediately preceding calendar year which discloses
accounting disagreements between such issuer and the
firm in connection with an audit report furnished or
prepared by the firm for such issuer; and
(H) such other information as the rules of the Board
or the Commission shall specify as necessary or
appropriate in the public interest or for the protection
of investors.
(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 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
(B) a statement that such firm understands and
agrees that cooperation and compliance, as described in
the consent required by subparagraph (A), and the
securing and enforcement of such consents from its
associated persons, in accordance with the rules of the
Board, shall be a condition to the continuing
effectiveness of the registration of the firm with the
Board.
(c) Action on Applications.--
(1) Timing.--The <> Board shall approve a
completed application for registration not later than 45 days
after the date of receipt of the application, in accordance with
the rules of the Board, unless the Board, prior to such date,
issues a written notice of disapproval to, or requests more
information from, the prospective registrant.
(2) Treatment.--A written notice of disapproval of a
completed application under paragraph (1) for registration shall
be treated as a disciplinary sanction for purposes of sections
105(d) and 107(c).
(d) Periodic Reports.--Each registered public accounting firm shall
submit an annual report to the Board, and may be required
[[Page 116 STAT. 755]]
to report more frequently, as necessary to update the information
contained in its application for registration under this section, and to
provide to the Board such additional information as the Board or the
Commission may specify, in accordance with subsection (b)(2).
(e) Public Availability.--Registration applications and annual
reports required by this subsection, or such portions of such
applications or reports as may be designated under rules of the Board,
shall be made available for public inspection, subject to rules of the
Board or the Commission, and to applicable laws relating to the
confidentiality of proprietary, personal, or other information contained
in such applications or reports, provided that, in all events, the Board
shall protect from public disclosure information reasonably identified
by the subject accounting firm as proprietary information.
(f) Registration and Annual Fees.--The Board shall assess and
collect a registration fee and an annual fee from each registered public
accounting firm, in amounts that are sufficient to recover the costs of
processing and reviewing applications and annual reports.
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 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) prepare, and maintain for a period of not
less than 7 years, audit work papers, and other
information related to any audit report, in
sufficient detail to support the conclusions
reached in such report;
(ii) provide a concurring or second partner
review and approval of such audit report (and
other related information), and concurring
approval in its issuance, by a qualified person
(as prescribed by the Board) associated with the
public accounting firm, other than the person in
charge of the audit, or by an independent reviewer
(as prescribed by the Board); and
(iii) describe in each audit report 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)--
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(I) the findings of the auditor from
such testing;
(II) an evaluation of whether such
internal control structure and
procedures--
(aa) include maintenance of
records that in reasonable
detail accurately and fairly
reflect the transactions and
dispositions of the assets of
the issuer;
(bb) provide reasonable
assurance that transactions are
recorded as necessary to permit
preparation of financial
statements in accordance with
generally accepted accounting
principles, and that receipts
and expenditures of the issuer
are being made only in
accordance with authorizations
of management and directors of
the issuer; and
(III) a description, at a minimum,
of material weaknesses in such internal
controls, and of any material
noncompliance found on the basis of such
testing.
(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 on behalf of which the
firm issues audit reports;
(ii) consultation within such firm on
accounting and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development, and
advancement of personnel;
(v) the acceptance and continuation of
engagements;
(vi) internal inspection; and
(vii) such other requirements as the Board may
prescribe, subject to subsection (a)(1).
(3) Authority to adopt other standards.--
(A) In general.--In carrying out this subsection,
the Board--
(i) may adopt as its rules, subject to the
terms of section 107, any portion of any statement
of auditing standards or other professional
standards that the Board determines satisfy the
requirements of paragraph (1), and that were
proposed by 1 or more professional groups of
accountants that shall be designated or recognized
by the Board, by rule, for such purpose, pursuant
to this paragraph or 1 or more advisory groups
convened pursuant to paragraph (4); and
(ii) notwithstanding clause (i), shall retain
full authority to modify, supplement, revise, or
subsequently amend, modify, or repeal, in whole or
in part, any portion of any statement described in
clause (i).
(B) Initial and transitional standards.--The Board
shall adopt standards described in subparagraph (A)(i)
as initial or transitional standards, to the extent the
Board determines necessary, prior to a determination of
the
[[Page 116 STAT. 757]]
Commission under section 101(d), and such standards
shall be separately approved by the Commission at the
time of that determination, without regard to the
procedures required by section 107 that otherwise would
apply to the approval of rules of the Board.
(4) Advisory groups.--The Board shall convene, or authorize
its staff to convene, such expert advisory groups as may be
appropriate, which may include practicing accountants and other
experts, as well as representatives of other interested groups,
subject to such rules as the Board may prescribe to prevent
conflicts of interest, to make recommendations concerning the
content (including proposed drafts) of auditing, quality
control, ethics, independence, or other standards required to be
established under this section.
(b) Independence Standards and Rules.--The Board shall establish
such rules as may be necessary or appropriate in the public interest or
for the protection of investors, to implement, or as authorized under,
title II of this Act.
(c) Cooperation With Designated Professional Groups of Accountants
and Advisory Groups.--
(1) In general.--The Board shall cooperate on an ongoing
basis with professional groups of accountants designated under
subsection (a)(3)(A) and advisory groups convened under
subsection (a)(4) in the examination of the need for changes in
any standards subject to its authority under subsection (a),
recommend issues for inclusion on the agendas of such designated
professional groups of accountants or advisory groups, and take
such other steps as it deems appropriate to increase the
effectiveness of the standard setting process.
(2) Board responses.--The Board shall respond in a timely
fashion to requests from designated professional groups of
accountants and advisory groups referred to in paragraph (1) for
any changes in standards over which the Board has authority.
(d) Evaluation of Standard Setting Process.--The Board shall include
in the annual report required by section 101(h) the results of its
standard setting responsibilities during the period to which the report
relates, including a discussion of the work of the Board with any
designated professional groups of accountants and advisory groups
described in paragraphs (3)(A) and (4) of subsection (a), and its
pending issues agenda for future standard setting projects.
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.
(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
for more than 100 issuers; and
[[Page 116 STAT. 758]]
(B) not less frequently than once every 3 years with
respect to each registered public accounting firm that
regularly provides audit reports for 100 or fewer
issuers.
(2) Adjustments to schedules.--The Board may, by rule,
adjust the inspection schedules set under paragraph (1) if the
Board finds that different inspection schedules are consistent
with the purposes of this Act, the public interest, and the
protection of investors. The Board may conduct special
inspections at the request of the Commission or upon its own
motion.
(c) Procedures.--The Board shall, in each inspection under this
section, and in accordance with its rules for such inspections--
(1) identify any act or practice or omission to act by the
registered public accounting firm, or by any associated person
thereof, revealed by such inspection that may be in violation of
this Act, the rules of the Board, the rules of the Commission,
the firm's own quality control policies, or professional
standards;
(2) report any such act, practice, or omission, if
appropriate, to the Commission and each appropriate State
regulatory authority; and
(3) begin a formal investigation or take disciplinary
action, if appropriate, with respect to any such violation, in
accordance with this Act and the rules of the Board.
(d) Conduct of Inspections.--In conducting an inspection of a
registered public accounting firm under this section, the Board shall--
(1) inspect and review selected audit and review engagements
of the firm (which may include audit engagements that are the
subject of ongoing litigation or other controversy between the
firm and 1 or more third parties), performed at various offices
and by various associated persons of the firm, as selected by
the Board;
(2) evaluate the sufficiency of the quality control system
of the firm, and the manner of the documentation and
communication of that system by the firm; and
(3) perform such other testing of the audit, supervisory,
and quality control procedures of the firm as are necessary or
appropriate in light of the purpose of the inspection and the
responsibilities of the Board.
(e) Record Retention.--The rules of the Board may require the
retention by registered public accounting firms for inspection purposes
of records whose retention is not otherwise required by section 103 or
the rules issued thereunder.
(f) Procedures for Review.--The rules of the Board shall provide a
procedure for the review of and response to a draft inspection report by
the registered public accounting firm under inspection. The Board shall
take such action with respect to such response as it considers
appropriate (including revising the draft report or continuing or
supplementing its inspection activities before issuing a final report),
but the text of any such response, appropriately redacted to protect
information reasonably identified by the accounting firm as
confidential, shall be attached to and made part of the inspection
report.
(g) Report.--A written report of the findings of the Board for each
inspection under this section, subject to subsection (h), shall be--
[[Page 116 STAT. 759]]
(1) transmitted, in appropriate detail, to the Commission
and each appropriate State regulatory authority, accompanied by
any letter or comments by the Board or the inspector, and any
letter of response from the registered public accounting firm;
and
(2) made available in appropriate detail to the public
(subject to section 105(b)(5)(A), and to the protection of such
confidential and proprietary information as the Board may
determine to be appropriate, or as may be required by law),
except that no portions of the inspection report that deal with
criticisms of or potential defects in the quality control
systems of the firm under inspection shall be made public if
those criticisms or defects are addressed by the firm, to the
satisfaction of the Board, not later than 12 months after the
date of the inspection report.
(h) Interim Commission Review.--
(1) Reviewable matters.--A registered public accounting firm
may seek review by the Commission, pursuant to such rules as the
Commission shall promulgate, if the firm--
(A) has provided the Board with a response, pursuant
to rules issued by the Board under subsection (f), to
the substance of particular items in a draft inspection
report, and disagrees with the assessments contained in
any final report prepared by the Board following such
response; or
(B) disagrees with the determination of the Board
that criticisms or defects identified in an inspection
report have not been addressed to the satisfaction of
the Board within 12 months of the date of the inspection
report, for purposes of subsection (g)(2).
(2) Treatment of review.--Any decision of the Commission
with respect to a review under paragraph (1) shall not be
reviewable under section 25 of the Securities Exchange Act of
1934 (15 U.S.C. 78y), or deemed to be "final agency action"
for purposes of section 704 of title 5, United States Code.
(3) Timing.--Review under paragraph (1) may be sought during
the 30-day period following the date of the event giving rise to
the review under subparagraph (A) or (B) of paragraph (1).
SEC. 105. <> INVESTIGATIONS AND DISCIPLINARY
PROCEEDINGS.
(a) In General.--The <> Board shall establish,
by rule, subject to the requirements of this section, fair procedures
for the investigation and disciplining of registered public accounting
firms and associated persons of such firms.
(b) Investigations.--
(1) Authority.--In accordance with the rules of the Board,
the Board may conduct an investigation of any act or practice,
or omission to act, by a registered public accounting firm, any
associated person of such firm, or both, that may violate any
provision of this Act, the rules of the Board, the provisions of
the securities laws relating to the preparation and issuance of
audit reports and the obligations and liabilities of accountants
with respect thereto, including the rules of the Commission
issued under this Act, or professional standards, regardless of
how the act, practice, or omission is brought to the attention
of the Board.
[[Page 116 STAT. 760]]
(2) Testimony and document production.--In addition to such
other actions as the Board determines to be necessary or
appropriate, the rules of the Board may--
(A) require the testimony of the firm or of any
person associated with a registered public accounting
firm, with respect to any matter that the Board
considers relevant or material to an investigation;
(B) require the production of audit work papers and
any other document or information in the possession of a
registered public accounting firm or any associated
person thereof, wherever domiciled, that the Board
considers relevant or material to the investigation, and
may inspect the books and records of such firm or
associated person to verify the accuracy of any
documents or information supplied;
(C) request the testimony of, and production of any
document in the possession of, any other person,
including any client of a registered public accounting
firm that the Board considers relevant or material to an
investigation under this section, with appropriate
notice, subject to the needs of the investigation, as
permitted under the rules of the Board; and
(D) provide for procedures to seek issuance by the
Commission, in a manner established by the Commission,
of a subpoena to require the testimony of, and
production of any document in the possession of, any
person, including any client of a registered public
accounting firm, that the Board considers relevant or
material to an investigation under this section.
(3) Noncooperation with investigations.--
(A) In general.--If a registered public accounting
firm or any associated person thereof refuses to
testify, produce documents, or otherwise cooperate with
the Board in connection with an investigation under this
section, the Board may--
(i) suspend or bar such person from being
associated with a registered public accounting
firm, or require the registered public accounting
firm to end such association;
(ii) suspend or revoke the registration of the
public accounting firm; and
(iii) invoke such other lesser sanctions as
the Board considers appropriate, and as specified
by rule of the Board.
(B) Procedure.--Any action taken by the Board under
this paragraph shall be subject to the terms of section
107(c).
(4) Coordination and referral of investigations.--
(A) Coordination.--The <> Board
shall notify the Commission of any pending Board
investigation involving a potential violation of the
securities laws, and thereafter coordinate its work with
the work of the Commission's Division of Enforcement, as
necessary to protect an ongoing Commission
investigation.
(B) Referral.--The Board may refer an investigation
under this section--
(i) to the Commission;
[[Page 116 STAT. 761]]
(ii) 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) at the direction of the Commission, to--
(I) the Attorney General of the
United States;
(II) the attorney general of 1 or
more States; and
(III) the appropriate State
regulatory authority.
(5) Use of documents.--
(A) Confidentiality.--Except as provided in
subparagraph (B), 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) be made available to the Commission; and
(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) the Attorney General of the
United States;
(II) the appropriate Federal
functional regulator (as defined in
section 509 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6809)), other than the
Commission, with respect to an audit
report for an institution subject to the
jurisdiction of such regulator;
(III) State attorneys general in
connection with any criminal
investigation; and
(IV) any appropriate State
regulatory authority,
each of which shall maintain such information as
confidential and privileged.
(6) Immunity.--Any employee of the Board engaged in carrying
out an investigation under this Act shall be immune from any
civil liability arising out of such investigation in the same
manner and to the same extent as an employee of the Federal
Government in similar circumstances.
(c) Disciplinary Procedures.--
(1) Notification; recordkeeping.--The rules of the Board
shall provide that in any proceeding by the Board to determine
[[Page 116 STAT. 762]]
whether a registered public accounting firm, or an associated
person thereof, should be disciplined, the Board shall--
(A) bring specific charges with respect to the firm
or associated person;
(B) notify such firm or associated person of, and
provide to the firm or associated person an opportunity
to defend against, such charges; and
(C) keep a record of the proceedings.
(2) Public hearings.--Hearings under this section shall not
be public, unless otherwise ordered by the Board for good cause
shown, with the consent of the parties to such hearing.
(3) Supporting statement.--A determination by the Board to
impose a sanction under this subsection shall be supported by a
statement setting forth--
(A) each act or practice in which the registered
public accounting firm, or associated person, has
engaged (or omitted to engage), or that forms a basis
for all or a part of such sanction;
(B) the specific provision of this Act, the
securities laws, the rules of the Board, or professional
standards which the Board determines has been violated;
and
(C) the sanction imposed, including a justification
for that sanction.
(4) Sanctions.--If the Board finds, based on all of the
facts and circumstances, that a registered public accounting
firm or associated person thereof has engaged in any act or
practice, or omitted to act, in violation of this Act, the rules
of the Board, the provisions of the securities laws relating to
the preparation and issuance of audit reports and the
obligations and liabilities of accountants with respect thereto,
including the rules of the Commission issued under this Act, or
professional standards, the Board may impose such disciplinary
or remedial sanctions as it determines appropriate, subject to
applicable limitations under paragraph (5), including--
(A) temporary suspension or permanent revocation of
registration under this title;
(B) temporary or permanent suspension or bar of a
person from further association with any registered
public accounting firm;
(C) temporary or permanent limitation on the
activities, functions, or operations of such firm or
person (other than in connection with required
additional professional education or training);
(D) a civil money penalty for each such violation,
in an amount equal to--
(i) not more than $100,000 for a natural
person or $2,000,000 for any other person; and
(ii) in any case to which paragraph (5)
applies, not more than $750,000 for a natural
person or $15,000,000 for any other person;
(E) censure;
(F) required additional professional education or
training; or
(G) any other appropriate sanction provided for in
the rules of the Board.
[[Page 116 STAT. 763]]
(5) Intentional or other knowing conduct.--The sanctions and
penalties described in subparagraphs (A) through (C) and (D)(ii)
of paragraph (4) shall only apply to--
(A) intentional or knowing conduct, including
reckless conduct, that results in violation of the
applicable statutory, regulatory, or professional
standard; or
(B) repeated instances of negligent conduct, each
resulting in a violation of the applicable statutory,
regulatory, or professional standard.
(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 of such firm, if the
Board finds that--
(i) the firm has failed reasonably to
supervise an associated person, either as required
by the rules of the Board relating to auditing or
quality control standards, or otherwise, with a
view to preventing violations of this Act, the
rules of the Board, the provisions of the
securities laws relating to the preparation and
issuance of audit reports and the obligations and
liabilities of accountants with respect thereto,
including the rules of the Commission under this
Act, or professional standards; and
(ii) such associated person commits a
violation of this Act, or any of such rules, laws,
or standards.
(B) Rule of construction.--No associated person of a
registered public accounting firm shall be deemed to
have failed reasonably to supervise any other person for
purposes of subparagraph (A), if--
(i) there have been established in and for
that firm procedures, and a system for applying
such procedures, that comply with applicable rules
of the Board and that would reasonably be expected
to prevent and detect any such violation by such
associated person; and
(ii) such person has reasonably discharged the
duties and obligations incumbent upon that person
by reason of such procedures and system, and had
no reasonable cause to believe that such
procedures and system were not being complied
with.
(7) Effect of suspension.--
(A) Association with a public accounting firm.--It
shall be unlawful for any person that is suspended or
barred from being associated with a registered public
accounting firm under this subsection willfully to
become or remain associated with any registered public
accounting firm, or for any registered public accounting
firm that knew, or, in the exercise of reasonable care
should have known, of the suspension or bar, to permit
such an association, without the consent of the Board or
the Commission.
(B) Association with an issuer.--It shall be
unlawful for any person that is suspended or barred from
being associated with an issuer under this subsection
willfully to become or remain associated with any issuer
in an accountancy or a financial management capacity,
and for any issuer that knew, or in the exercise of
reasonable
[[Page 116 STAT. 764]]
care should have known, of such suspension or bar, to
permit such an association, without the consent of the
Board or the Commission.
(d) Reporting of Sanctions.--
(1) Recipients.--If the Board imposes a disciplinary
sanction, in accordance with this section, the Board shall
report the sanction to--
(A) the Commission;
(B) any appropriate State regulatory authority or
any foreign accountancy licensing board with which such
firm or person is licensed or certified; and
(C) the public (once any stay on the imposition of
such sanction has been lifted).
(2) Contents.--The information reported under paragraph (1)
shall include--
(A) the name of the sanctioned person;
(B) a description of the sanction and the basis for
its imposition; and
(C) such other information as the Board deems
appropriate.
(e) Stay of Sanctions.--
(1) In general.--Application to the Commission for review,
or the institution by the Commission of review, of any
disciplinary action of the Board shall operate as a stay of any
such disciplinary action, unless and until the Commission orders
(summarily or after notice and opportunity for hearing on the
question of a stay, which hearing may consist solely of the
submission of affidavits or presentation of oral arguments) that
no such stay shall continue to operate.
(2) Expedited procedures.--The Commission shall establish
for appropriate cases an expedited procedure for consideration
and determination of the question of the duration of a stay
pending review of any disciplinary action of the Board under
this subsection.
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, 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, 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
[[Page 116 STAT. 765]]
(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.
(c) Exemption Authority.--The Commission, and the Board, subject to
the approval of the Commission, may, by rule, regulation, or order, and
as the Commission (or Board) determines necessary or appropriate in the
public interest or for the protection of investors, either
unconditionally or upon specified terms and conditions exempt any
foreign public accounting firm, or any class of such firms, from any
provision of this Act or the rules of the Board or the Commission issued
under this Act.
(d) 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) General Oversight Responsibility.--The Commission shall have
oversight and enforcement authority over the Board, as provided in this
Act. The provisions of section 17(a)(1) of the Securities Exchange Act
of 1934 (15 U.S.C. 78q(a)(1)), and of section 17(b)(1) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(b)(1)) shall apply to the Board as
fully as if the Board were a "registered securities association" for
purposes of those sections 17(a)(1) and 17(b)(1).
(b) Rules of the Board.--
(1) Definition.--In this section, the term "proposed rule"
means any proposed rule of the Board, and any modification of
any such rule.
(2) Prior approval required.--No rule of the Board shall
become effective without prior approval of the Commission in
accordance with this section, other than as provided in section
103(a)(3)(B) with respect to initial or transitional standards.
[[Page 116 STAT. 766]]
(3) Approval criteria.--The Commission shall approve a
proposed rule, if it finds that the rule is consistent with the
requirements of this Act and the securities laws, or is
necessary or appropriate in the public interest or for the
protection of investors.
(4) Proposed rule procedures.--The provisions of paragraphs
(1) through (3) of section 19(b) of the Securities Exchange Act
of 1934 (15 U.S.C. 78s(b)) shall govern the proposed rules of
the Board, as fully as if the Board were a "registered
securities association" for purposes of that section 19(b),
except that, for purposes of this paragraph--
(A) the phrase "consistent with the requirements of
this title and the rules and regulations thereunder
applicable to such organization" in section 19(b)(2) of
that Act shall be deemed to read "consistent with the
requirements of title I of the Sarbanes-Oxley Act of
2002, and the rules and regulations issued thereunder
applicable to such organization, or as necessary or
appropriate in the public interest or for the protection
of investors"; and
(B) the phrase "otherwise in furtherance of the
purposes of this title" in section 19(b)(3)(C) of that
Act shall be deemed to read "otherwise in furtherance
of the purposes of title I of the Sarbanes-Oxley Act of
2002".
(5) Commission authority to amend rules of the board.--The
provisions of section 19(c) of the Securities Exchange Act of
1934 (15 U.S.C. 78s(c)) shall govern the abrogation, deletion,
or addition to portions of the rules of the Board by the
Commission as fully as if the Board were a "registered
securities association" for purposes of that section 19(c),
except that the phrase "to conform its rules to the
requirements of this title and the rules and regulations
thereunder applicable to such organization, or otherwise in
furtherance of the purposes of this title" in section 19(c) of
that Act shall, for purposes of this paragraph, be deemed to
read "to assure the fair administration of the Public Company
Accounting Oversight Board, conform the rules promulgated by
that Board to the requirements of title I of the Sarbanes-Oxley
Act of 2002, or otherwise further the purposes of that Act, the
securities laws, and the rules and regulations thereunder
applicable to that Board".
(c) Commission Review of Disciplinary Action Taken by the Board.--
(1) Notice of sanction.--The Board shall promptly file
notice with the Commission of any final sanction on any
registered public accounting firm or on any associated person
thereof, in such form and containing such information as the
Commission, by rule, may prescribe.
(2) Review of sanctions.--The provisions of sections
19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934 (15
U.S.C. 78s (d)(2) and (e)(1)) shall govern the review by the
Commission of final disciplinary sanctions imposed by the Board
(including sanctions imposed under section 105(b)(3) of this Act
for noncooperation in an investigation of the Board), as fully
as if the Board were a self-regulatory organization and the
Commission were the appropriate regulatory agency for such
organization for purposes of those sections 19(d)(2) and
19(e)(1), except that, for purposes of this paragraph--
[[Page 116 STAT. 767]]
(A) section 105(e) of this Act (rather than that
section 19(d)(2)) shall govern the extent to which
application for, or institution by the Commission on its
own motion of, review of any disciplinary action of the
Board operates as a stay of such action;
(B) references in that section 19(e)(1) to
"members" of such an organization shall be deemed to
be references to registered public accounting firms;
(C) the phrase "consistent with the purposes of
this title" in that section 19(e)(1) shall be deemed to
read "consistent with the purposes of this title and
title I of the Sarbanes-Oxley Act of 2002";
(D) references to rules of the Municipal Securities
Rulemaking Board in that section 19(e)(1) shall not
apply; and
(E) the reference to section 19(e)(2) of the
Securities Exchange Act of 1934 shall refer instead to
section 107(c)(3) of this Act.
(3) Commission modification authority.--The Commission may
enhance, modify, cancel, reduce, or require the remission of a
sanction imposed by the Board upon a registered public
accounting firm or associated person thereof, if the Commission,
having due regard for the public interest and the protection of
investors, finds, after a proceeding in accordance with this
subsection, that the sanction--
(A) is not necessary or appropriate in furtherance
of this Act or the securities laws; or
(B) is excessive, oppressive, inadequate, or
otherwise not appropriate to the finding or the basis on
which the sanction was imposed.
(d) Censure of the Board; Other Sanctions.--
(1) Rescission of board authority.--The Commission, by rule,
consistent with the public interest, the protection of
investors, and the other purposes of this Act and the securities
laws, may relieve the Board of any responsibility to enforce
compliance with any provision of this Act, the securities laws,
the rules of the Board, or professional standards.
(2) Censure of the board; limitations.--The Commission may,
by order, as it determines 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, censure or impose limitations upon the activities,
functions, and operations of the Board, if the Commission finds,
on the record, after notice and opportunity for a hearing, that
the Board--
(A) has violated or is unable to comply with any
provision of this Act, the rules of the Board, or the
securities laws; or
(B) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by a registered
public accounting firm or an associated person thereof.
(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
[[Page 116 STAT. 768]]
from office or censure any member of the Board, if the
Commission finds, on the record, after notice and opportunity
for a hearing, that such member--
(A) has willfully violated any provision of this
Act, the rules of the Board, or the securities laws;
(B) has willfully abused the authority of that
member; or
(C) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by any registered
public accounting firm or any associated person thereof.
SEC. 108. ACCOUNTING <> STANDARDS.
(a) Amendment to Securities Act of 1933.--Section 19 of the
Securities Act of 1933 (15 U.S.C. 77s) is amended--
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively; and
(2) by inserting after subsection (a) the following:
"(b) Recognition of Accounting Standards.--
"(1) In general.--In carrying out its authority under
subsection (a) and under section 13(b) of the Securities
Exchange Act of 1934, the Commission may recognize, as
'generally accepted' for purposes of the securities laws, any
accounting principles established by a standard setting body--
"(A) that--
"(i) is organized as a private entity;
"(ii) has, for administrative and operational
purposes, a board of trustees (or equivalent body)
serving in the public interest, the majority of
whom are not, concurrent with their service on
such board, and have not been during the 2-year
period preceding such service, associated persons
of any registered public accounting firm;
"(iii) is funded as provided in section 109
of the Sarbanes-Oxley Act of 2002;
"(iv) has adopted procedures to ensure prompt
consideration, by majority vote of its members, of
changes to accounting principles necessary to
reflect emerging accounting issues and changing
business practices; and
"(v) considers, in adopting accounting
principles, the need to keep standards current in
order to reflect changes in the business
environment, the extent to which international
convergence on high quality accounting standards
is necessary or appropriate in the public interest
and for the protection of investors; and
"(B) that the Commission determines has the
capacity to assist the Commission in fulfilling the
requirements of subsection (a) and section 13(b) of the
Securities Exchange Act of 1934, because, at a minimum,
the standard setting body is capable of improving the
accuracy and effectiveness of financial reporting and
the protection of investors under the securities laws.
[[Page 116 STAT. 769]]
"(2) Annual report.--A standard setting body described in
paragraph (1) shall submit an annual report to the Commission
and the public, containing audited financial statements of that
standard setting body.".
(b) Commission Authority.--The <> Commission
shall promulgate such rules and regulations to carry out section 19(b)
of the Securities Act of 1933, as added by this section, as it deems
necessary or appropriate in the public interest or for the protection of
investors.
(c) No Effect on Commission Powers.--Nothing in this Act, including
this section and the amendment made by this section, shall be construed
to impair or limit the authority of the Commission to establish
accounting principles or standards for purposes of enforcement of the
securities laws.
(d) Study and Report on Adopting Principles-Based Accounting.--
(1) Study.--
(A) In general.--The Commission shall conduct a
study on the adoption by the United States financial
reporting system of a principles-based accounting
system.
(B) Study topics.--The study required by
subparagraph (A) shall include an examination of--
(i) the extent to which principles-based
accounting and financial reporting exists in the
United States;
(ii) the length of time required for change
from a rules-based to a principles-based financial
reporting system;
(iii) the feasibility of and proposed methods
by which a principles-based system may be
implemented; and
(iv) a thorough economic analysis of the
implementation of a principles-based system.
(2) Report.--Not later than 1 year after the date of
enactment of this Act, the Commission shall submit a report on
the results of the study required by paragraph (1) to the
Committee on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Financial Services of the House of
Representatives.
SEC. 109. <> FUNDING.
(a) In General.--The Board, and the standard setting body designated
pursuant to section 19(b) of the Securities Act of 1933, as amended by
section 108, shall be funded as provided in this section.
(b) Annual Budgets.--The Board and the standard setting body
referred to in subsection (a) shall each establish a budget for each
fiscal year, which shall be reviewed and approved according to their
respective internal procedures not less than 1 month prior to the
commencement of the fiscal year to which the budget pertains (or at the
beginning of the Board's first fiscal year, which may be a short fiscal
year). The budget of the Board shall be subject to approval by the
Commission. The budget for the first fiscal year of the Board shall be
prepared and approved promptly following the appointment of the initial
five Board members, to permit action by the Board of the organizational
tasks contemplated by section 101(d).
(c) Sources and Uses of Funds.--
[[Page 116 STAT. 770]]
(1) Recoverable budget expenses.--The budget of the Board
(reduced by any registration or annual fees received under
section 102(e) for the year preceding the year for which the
budget is being computed), and all of the budget of the standard
setting body referred to in subsection (a), for each fiscal year
of each of those 2 entities, shall be payable from annual
accounting support fees, in accordance with subsections (d) and
(e). Accounting support fees and other receipts of the Board and
of such standard-setting body shall not be considered public
monies of the United States.
(2) Funds generated from the collection of monetary
penalties.--Subject to the availability in advance in an
appropriations Act, and notwithstanding subsection (i), 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) Establishment of fee.--The Board shall establish, with
the approval of the Commission, a reasonable annual accounting
support fee (or a formula for the computation thereof), as may
be necessary or appropriate to establish and maintain the Board.
Such fee may also cover costs incurred in the Board's first
fiscal year (which may be a short fiscal year), or may be levied
separately with respect to such short fiscal year.
(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.
(e) Annual Accounting Support Fee for Standard Setting Body.--The
annual accounting support fee for the standard setting body referred to
in subsection (a)--
(1) shall be allocated in accordance with subsection (g),
and assessed and collected against each issuer, on behalf of the
standard setting body, by 1 or more appropriate designated
collection agents, as may be necessary or appropriate to pay for
the budget and provide for the expenses of that standard setting
body, and to provide for an independent, stable source of
funding for such body, subject to review by the Commission; and
(2) may differentiate among different classes of issuers.
(f) Limitation on Fee.--The amount of fees collected under this
section for a fiscal year on behalf of the Board or the standards
setting body, as the case may be, shall not exceed the recoverable
budget expenses of the Board or body, respectively (which may include
operating, capital, and accrued items), referred to in subsection
(c)(1).
(g) Allocation of Accounting Support Fees Among Issuers.--Any amount
due from issuers (or a particular class of issuers) under this section
to fund the budget of the Board or the standard setting body referred to
in subsection (a) shall be allocated among and payable by each issuer
(or each issuer in
[[Page 116 STAT. 771]]
a particular class, as applicable) in an amount equal to the total of
such amount, multiplied by a fraction--
(1) the numerator of which is the average monthly equity
market capitalization of the issuer for the 12-month period
immediately preceding the beginning of the fiscal year to which
such budget relates; and
(2) the denominator of which is the average monthly equity
market capitalization of all such issuers for such 12-month
period.
(h) Conforming Amendments.--Section 13(b)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is amended--
(1) in subparagraph (A), by striking "and" at the end; and
(2) in subparagraph (B), by striking the period at the end
and inserting the following: "; and
"(C) notwithstanding any other provision of law, pay the
allocable share of such issuer of a reasonable annual accounting
support fee or fees, determined in accordance with section 109
of the Sarbanes-Oxley Act of 2002.".
(i) 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) 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).
TITLE II--AUDITOR INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.
(a) Prohibited Activities.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended by adding at the end the
following:
"(g) Prohibited Activities.--Except as provided in subsection (h),
it shall be unlawful for a registered public accounting firm (and any
associated person of that firm, to the extent determined appropriate by
the Commission) that performs for any issuer any audit required by this
title or the rules of the Commission under this title or, beginning 180
days after the date of commencement of the operations of the Public
Company Accounting Oversight Board established under section 101 of the
Sarbanes-Oxley Act of 2002 (in this section referred to as the 'Board'),
the rules of the Board, to provide to that issuer, contemporaneously
with the audit, any non-audit service, including--
"(1) bookkeeping or other services related to the
accounting records or financial statements of the audit client;
"(2) financial information systems design and
implementation;
[[Page 116 STAT. 772]]
"(3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
"(4) actuarial services;
"(5) internal audit outsourcing services;
"(6) management functions or human resources;
"(7) broker or dealer, investment adviser, or investment
banking services;
"(8) legal services and expert services unrelated to the
audit; and
"(9) any other service that the Board determines, by
regulation, is impermissible.
"(h) Preapproval Required for Non-Audit Services.--A registered
public accounting firm may engage in any non-audit service, including
tax services, that is not described in any of paragraphs (1) through (9)
of subsection (g) for an audit client, only if the activity is approved
in advance by the audit committee of the issuer, in accordance with
subsection (i).".
(b) Exemption <> Authority.--The Board may, on a
case by case basis, exempt any person, issuer, public accounting firm,
or transaction from the prohibition on the provision of services under
section 10A(g) of the Securities Exchange Act of 1934 (as added by this
section), to the extent that such exemption is necessary or appropriate
in the public interest and is consistent with the protection of
investors, and subject to review by the Commission in the same manner as
for rules of the Board under section 107.
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
"(i) Preapproval Requirements.--
"(1) In general.--
"(A) Audit committee action.--All auditing services
(which may entail providing comfort letters in
connection with securities underwritings or statutory
audits required for insurance companies for purposes of
State law) and non-audit services, other than as
provided in subparagraph (B), provided to an issuer by
the auditor of the issuer shall be preapproved by the
audit committee of the issuer.
"(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 services are
provided;
"(ii) such services were not recognized by
the issuer at the time of the engagement to be
non-audit services; and
"(iii) such services are promptly brought to
the attention of the audit committee of the issuer
and approved prior to the completion of the audit
by the audit committee or by 1 or more members of
the audit committee who are members of the board
of directors to whom authority to grant such
approvals has been delegated by the audit
committee.
[[Page 116 STAT. 773]]
"(2) Disclosure to investors.--Approval by an audit
committee of an issuer under this subsection of a non-audit
service to be performed by the auditor of the issuer shall be
disclosed to investors in periodic reports required by section
13(a).
"(3) Delegation authority.--The audit committee of an
issuer may delegate to 1 or more designated members of the audit
committee who are independent directors of the board of
directors, the authority to grant preapprovals required by this
subsection. The decisions of any member to whom authority is
delegated under this paragraph to preapprove an activity under
this subsection shall be presented to the full audit committee
at each of its scheduled meetings.
"(4) Approval of audit services for other purposes.--In
carrying out its duties under subsection (m)(2), if the audit
committee of an issuer approves an audit service within the
scope of the engagement of the auditor, such audit service shall
be deemed to have been preapproved for purposes of this
subsection.".
SEC. 203. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
"(j) Audit Partner Rotation.--It shall be unlawful for a registered
public accounting firm to provide audit services to an issuer if the
lead (or coordinating) audit partner (having primary responsibility for
the audit), or the audit partner responsible for reviewing the audit,
has performed audit services for that issuer in each of the 5 previous
fiscal years of that issuer.".
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
"(k) Reports to Audit Committees.--Each registered public
accounting firm that performs for any issuer any audit required by this
title shall timely report to the audit committee of the issuer--
"(1) all critical accounting policies and practices to be
used;
"(2) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management officials of the issuer, ramifications
of the use of such alternative disclosures and treatments, and
the treatment preferred by the registered public accounting
firm; and
"(3) other material written communications between the
registered public accounting firm and the management of the
issuer, such as any management letter or schedule of unadjusted
differences.".
SEC. 205. CONFORMING AMENDMENTS.
(a) Definitions.--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:
"(58) Audit committee.--The term 'audit committee' means--
"(A) a committee (or equivalent body) established
by and amongst the board of directors of an issuer for
the
[[Page 116 STAT. 774]]
purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the
financial statements of the issuer; and
"(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
"(59) Registered public accounting firm.--The term
'registered public accounting firm' has the same meaning as in
section 2 of the Sarbanes-Oxley Act of 2002.".
(b) Auditor Requirements.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended--
(1) by striking "an independent public accountant" each
place that term appears and inserting "a registered public
accounting firm";
(2) by striking "the independent public accountant" each
place that term appears and inserting "the registered public
accounting firm";
(3) in subsection (c), by striking "No independent public
accountant" and inserting "No registered public accounting
firm"; and
(4) in subsection (b)--
(A) by striking "the accountant" each place that
term appears and inserting "the firm";
(B) by striking "such accountant" each place that
term appears and inserting "such firm"; and
(C) in paragraph (4), by striking "the accountant's
report" and inserting "the report of the firm".
(c) Other References.--The Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended--
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking
"independent public accountants" each place that term appears
and inserting "a registered public accounting firm"; and
(2) in subsections (e) and (i) of section 17 (15 U.S.C.
78q), by striking "an independent public accountant" each
place that term appears and inserting "a registered public
accounting firm".
(d) Conforming Amendment.--Section 10A(f) of the Securities Exchange
Act of 1934 (15 U.S.C. 78k(f)) <> is amended--
(1) by striking "Definition" and inserting
"Definitions"; and
(2) by adding at the end the following: "As used in this
section, the term 'issuer' means an issuer (as defined in
section 3), the securities of which are registered under section
12, or that is required to file reports pursuant to section
15(d), or that files or has filed a registration statement that
has not yet become effective under the Securities Act of 1933
(15 U.S.C. 77a et seq.), and that it has not withdrawn.".
SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
"(l) Conflicts of Interest.--It shall be unlawful for a registered
public accounting firm to perform for an issuer any audit service
required by this title, if a chief executive officer, controller, chief
financial officer, chief accounting officer, or any person serving in an
equivalent position for the issuer, was employed by that registered
independent public accounting firm and participated in
[[Page 116 STAT. 775]]
any capacity in the audit of that issuer during the 1-year period
preceding the date of the initiation of the audit.".
SEC. 207. <> STUDY OF MANDATORY ROTATION OF
REGISTERED PUBLIC ACCOUNTING FIRMS.
(a) Study and Review Required.--The Comptroller General of the
United States shall conduct a study and review of the potential effects
of requiring the mandatory rotation of registered public accounting
firms.
(b) Report Required.--Not <> later than 1 year
after the date of enactment of this Act, the Comptroller General shall
submit a report to the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the House of
Representatives on the results of the study and review required by this
section.
(c) Definition.--For purposes of this section, the term "mandatory
rotation" refers to the imposition of a limit on the period of years in
which a particular registered public accounting firm may be the auditor
of record for a particular issuer.
SEC. 208. <> COMMISSION AUTHORITY.
(a) Commission Regulations.-- <> Not later than 180
days after the date of enactment of this Act, the Commission shall issue
final regulations to carry out each of subsections (g) through (l) of
section 10A of the Securities Exchange Act of 1934, as added by this
title.
(b) Auditor Independence.--It shall be unlawful for any registered
public accounting firm (or an associated person thereof, as applicable)
to prepare or issue any audit report with respect to any issuer, if the
firm or associated person engages in any activity with respect to that
issuer prohibited by any of subsections (g) through (l) of section 10A
of the Securities Exchange Act of 1934, as added by this title, or any
rule or regulation of the Commission or of the Board issued thereunder.
SEC. 209. <> CONSIDERATIONS BY APPROPRIATE STATE
REGULATORY AUTHORITIES.
In supervising nonregistered public accounting firms and their
associated persons, appropriate State regulatory authorities should make
an independent determination of the proper standards applicable,
particularly taking into consideration the size and nature of the
business of the accounting firms they supervise and the size and nature
of the business of the clients of those firms. The standards applied by
the Board under this Act should not be presumed to be applicable for
purposes of this section for small and medium sized nonregistered public
accounting firms.
TITLE III--CORPORATE RESPONSIBILITY
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78f)
is amended <> by adding at the end the following:
"(m) Standards Relating to Audit Committees.--
"(1) Commission rules.--
[[Page 116 STAT. 776]]
"(A) In general.--Effective <> not
later than 270 days after the date of enactment of this
subsection, the Commission shall, by rule, direct the
national securities exchanges and national securities
associations to prohibit the listing of any security of
an issuer that is not in compliance with the
requirements of any portion of paragraphs (2) through
(6).
"(B) Opportunity to cure defects.--The rules of the
Commission under subparagraph (A) shall provide for
appropriate procedures for an issuer to have an
opportunity to cure any defects that would be the basis
for a prohibition under subparagraph (A), before the
imposition of such prohibition.
"(2) Responsibilities relating to registered public
accounting firms.--The audit committee of each issuer, in its
capacity as a committee of the board of directors, shall be
directly responsible for the appointment, compensation, and
oversight of the work of any registered public accounting firm
employed by that issuer (including resolution of disagreements
between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit
report or related work, and each such registered public
accounting firm shall report directly to the audit committee.
"(3) Independence.--
"(A) In general.--Each member of the audit
committee of the issuer shall be a member of the board
of directors of the issuer, and shall otherwise be
independent.
"(B) Criteria.--In order to be considered to be
independent for purposes of this paragraph, a member of
an audit committee of an issuer may not, other than in
his or her capacity as a member of the audit committee,
the board of directors, or any other board committee--
"(i) accept any consulting, advisory, or
other compensatory fee from the issuer; or
"(ii) be an affiliated person of the issuer
or any subsidiary thereof.
"(C) Exemption authority.--The Commission may
exempt from the requirements of subparagraph (B) a
particular relationship with respect to audit committee
members, as the Commission determines appropriate in
light of the circumstances.
"(4) Complaints.--Each audit committee shall establish
procedures for--
"(A) the receipt, retention, and treatment of
complaints received by the issuer regarding accounting,
internal accounting controls, or auditing matters; and
"(B) the confidential, anonymous submission by
employees of the issuer of concerns regarding
questionable accounting or auditing matters.
"(5) Authority to engage advisers.--Each audit committee
shall have the authority to engage independent counsel and other
advisers, as it determines necessary to carry out its duties.
"(6) Funding.--Each issuer shall provide for appropriate
funding, as determined by the audit committee, in its capacity
as a committee of the board of directors, for payment of
compensation--
[[Page 116 STAT. 777]]
"(A) to the registered public accounting firm
employed by the issuer for the purpose of rendering or
issuing an audit report; and
"(B) to any advisers employed by the audit
committee under paragraph (5).".
SEC. 302. <> CORPORATE RESPONSIBILITY FOR FINANCIAL
REPORTS.
(a) Regulations Required.--The Commission shall, by rule, require,
for each company filing periodic reports under section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the
principal executive officer or officers and the principal financial
officer or officers, or persons performing similar functions, certify in
each annual or quarterly report filed or submitted under either such
section of such Act that--
(1) the signing officer has reviewed the report;
(2) based on the officer's knowledge, the report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made,
in light of the circumstances under which such statements were
made, not misleading;
(3) based on such officer's knowledge, the financial
statements, and other financial information included in the
report, fairly present in all material respects the financial
condition and results of operations of the issuer as of, and
for, the periods presented in the report;
(4) the signing officers--
(A) are responsible for establishing and maintaining
internal controls;
(B) have designed such internal controls to ensure
that material information relating to the issuer and its
consolidated subsidiaries is made known to such officers
by others within those entities, particularly during the
period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer's
internal controls as of a date within 90 days prior to
the report; and
(D) have presented in the report their conclusions
about the effectiveness of their internal controls based
on their evaluation as of that date;
(5) the signing officers have disclosed to the issuer's
auditors and the audit committee of the board of directors (or
persons fulfilling the equivalent function)--
(A) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the issuer's ability to record, process,
summarize, and report financial data and have identified
for the issuer's auditors any material weaknesses in
internal controls; and
(B) any fraud, whether or not material, that
involves management or other employees who have a
significant role in the issuer's internal controls; and
(6) the signing officers have indicated in the report
whether or not there were significant changes in internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
[[Page 116 STAT. 778]]
(b) Foreign Reincorporations Have No Effect.--Nothing in this
section 302 shall be interpreted or applied in any way to allow any
issuer to lessen the legal force of the statement required under this
section 302, by an issuer having reincorporated or having engaged in any
other transaction that resulted in the transfer of the corporate
domicile or offices of the issuer from inside the United States to
outside of the United States.
(c) Deadline.--The rules required by subsection (a) shall be
effective not later than 30 days after the date of enactment of this
Act.
SEC. 303. <> IMPROPER INFLUENCE ON CONDUCT OF
AUDITS.
(a) Rules To Prohibit.--It shall be unlawful, in contravention of
such rules or regulations as the Commission shall prescribe as necessary
and appropriate in the public interest or for the protection of
investors, for any officer or director of an issuer, or any other person
acting under the direction thereof, to take any action to fraudulently
influence, coerce, manipulate, or mislead any independent public or
certified accountant engaged in the performance of an audit of the
financial statements of that issuer for the purpose of rendering such
financial statements materially misleading.
(b) Enforcement.--In any civil proceeding, the Commission shall have
exclusive authority to enforce this section and any rule or regulation
issued under this section.
(c) No Preemption of Other Law.--The provisions of subsection (a)
shall be in addition to, and shall not supersede or preempt, any other
provision of law or any rule or regulation issued thereunder.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose the rules or regulations required by this
section, not later than 90 days after the date of enactment of
this Act; and
(2) issue final rules or regulations required by this
section, not later than 270 days after that date of enactment.
SEC. 304. <> FORFEITURE OF CERTAIN BONUSES AND
PROFITS.
(a) Additional Compensation Prior to Noncompliance With Commission
Financial Reporting Requirements.--If an issuer is required to prepare
an accounting restatement due to the material noncompliance of the
issuer, as a result of misconduct, with any financial reporting
requirement under the securities laws, the chief executive officer and
chief financial officer of the issuer shall reimburse the issuer for--
(1) any bonus or other incentive-based or equity-based
compensation received by that person from the issuer during the
12-month period following the first public issuance or filing
with the Commission (whichever first occurs) of the financial
document embodying such financial reporting requirement; and
(2) any profits realized from the sale of securities of the
issuer during that 12-month period.
(b) Commission Exemption Authority.--The Commission may exempt any
person from the application of subsection (a), as it deems necessary and
appropriate.
SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.
(a) Unfitness Standard.--
[[Page 116 STAT. 779]]
(1) Securities exchange act of 1934.--Section 21(d)(2) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is
amended by striking "substantial unfitness" and inserting
"unfitness".
(2) Securities act of 1933.--Section 20(e) of the Securities
Act of 1933 (15 U.S.C. 77t(e)) is amended by striking
"substantial unfitness" and inserting "unfitness".
(b) Equitable Relief.--Section 21(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78u(d)) is amended by adding at the end the
following:
"(5) Equitable Relief.--In any action or proceeding brought or
instituted by the Commission under any provision of the securities laws,
the Commission may seek, and any Federal court may grant, any equitable
relief that may be appropriate or necessary for the benefit of
investors.".
SEC. 306. <> INSIDER TRADES DURING PENSION FUND
BLACKOUT PERIODS.
(a) Prohibition of Insider Trading During Pension Fund Blackout
Periods.--
(1) In general.--Except to the extent otherwise provided by
rule of the Commission pursuant to paragraph (3), it shall be
unlawful for any director or executive officer of an issuer of
any equity security (other than an exempted security), directly
or indirectly, to purchase, sell, or otherwise acquire or
transfer any equity security of the issuer (other than an
exempted security) during any blackout period with respect to
such equity security if such director or officer acquires such
equity security in connection with his or her service or
employment as a director or executive officer.
(2) Remedy.--
(A) In general.--Any profit realized by a director
or executive officer referred to in paragraph (1) from
any purchase, sale, or other acquisition or transfer in
violation of this subsection shall inure to and be
recoverable by the issuer, irrespective of any intention
on the part of such director or executive officer in
entering into the transaction.
(B) Actions to recover profits.--An action to
recover profits in accordance with this subsection may
be instituted at law or in equity in any court of
competent jurisdiction by the issuer, or by the owner of
any security of the issuer in the name and in behalf of
the issuer if the issuer fails or refuses to bring such
action within 60 days after the date of request, or
fails diligently to prosecute the action thereafter,
except that no such suit shall be brought more than 2
years after the date on which such profit was realized.
(3) Rulemaking Authorized.--The Commission shall, in
consultation with the Secretary of Labor, issue rules to clarify
the application of this subsection and to prevent evasion
thereof. Such rules shall provide for the application of the
requirements of paragraph (1) with respect to entities treated
as a single employer with respect to an issuer under section
414(b), (c), (m), or (o) of the Internal Revenue Code of 1986 to
the extent necessary to clarify the application of such
requirements and to prevent evasion thereof. Such rules may also
provide for
[[Page 116 STAT. 780]]
appropriate exceptions from the requirements of this subsection,
including exceptions for purchases pursuant to an automatic
dividend reinvestment program or purchases or sales made
pursuant to an advance election.
(4) Blackout period.--For purposes of this subsection, the
term "blackout period", with respect to the equity securities
of any issuer--
(A) means any period of more than 3 consecutive
business days during which the ability of not fewer than
50 percent of the participants or beneficiaries under
all individual account plans maintained by the issuer to
purchase, sell, or otherwise acquire or transfer an
interest in any equity of such issuer held in such an
individual account plan is temporarily suspended by the
issuer or by a fiduciary of the plan; and
(B) does not include, under regulations which shall
be prescribed by the Commission--
(i) a regularly scheduled period in which the
participants and beneficiaries may not purchase,
sell, or otherwise acquire or transfer an interest
in any equity of such issuer, if such period is--
(I) incorporated into the individual
account plan; and
(II) timely disclosed to employees
before becoming participants under the
individual account plan or as a
subsequent amendment to the plan; or
(ii) any suspension described in subparagraph
(A) that is imposed solely in connection with
persons becoming participants or beneficiaries, or
ceasing to be participants or beneficiaries, in an
individual account plan by reason of a corporate
merger, acquisition, divestiture, or similar
transaction involving the plan or plan sponsor.
(5) Individual account plan.--For purposes of this
subsection, the term "individual account plan" has the meaning
provided in section 3(34) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(34), except that such term
shall not include a one-participant retirement plan (within the
meaning of section 101(i)(8)(B) of such Act (29 U.S.C.
1021(i)(8)(B))).
(6) Notice to directors, executive officers, and the
commission.--In any case in which a director or executive
officer is subject to the requirements of this subsection in
connection with a blackout period (as defined in paragraph (4))
with respect to any equity securities, the issuer of such equity
securities shall timely notify such director or officer and the
Securities and Exchange Commission of such blackout period.
(b) Notice Requirements to Participants and Beneficiaries under
ERISA.--
(1) In general.--Section 101 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1021) is amended by
redesignating the second subsection (h) as subsection (j), and
by inserting after the first subsection (h) the following new
subsection:
[[Page 116 STAT. 781]]
"(i) Notice of Blackout Periods to Participant or Beneficiary Under
Individual Account Plan.--
"(1) Duties of plan administrator.--In advance of the
commencement of any blackout period with respect to an
individual account plan, the plan administrator shall notify the
plan participants and beneficiaries who are affected by such
action in accordance with this subsection.
"(2) Notice requirements.--
"(A) In general.--The notices described in
paragraph (1) shall be written in a manner calculated to
be understood by the average plan participant and shall
include--
"(i) the reasons for the blackout period,
"(ii) an identification of the investments
and other rights affected,
"(iii) the expected beginning date and length
of the blackout period,
"(iv) in the case of investments affected, a
statement that the participant or beneficiary
should evaluate the appropriateness of their
current investment decisions in light of their
inability to direct or diversify assets credited
to their accounts during the blackout period, and
"(v) such other matters as the Secretary may
require by regulation.
"(B) Notice to participants and beneficiaries.--
Except as otherwise provided in this subsection, notices
described in paragraph (1) shall be furnished to all
participants and beneficiaries under the plan to whom
the blackout period applies at least 30 days in advance
of the blackout period.
"(C) Exception to 30-day notice requirement.--In
any case in which--
"(i) a deferral of the blackout period would
violate the requirements of subparagraph (A) or
(B) of section 404(a)(1), and a fiduciary of the
plan reasonably so determines in writing, or
"(ii) the inability to provide the 30-day
advance notice is due to events that were
unforeseeable or circumstances beyond the
reasonable control of the plan administrator, and
a fiduciary of the plan reasonably so determines
in writing,
subparagraph (B) shall not apply, and the notice shall
be furnished to all participants and beneficiaries under
the plan to whom the blackout period applies as soon as
reasonably possible under the circumstances unless such
a notice in advance of the termination of the blackout
period is impracticable.
"(D) Written notice.--The notice required to be
provided under this subsection shall be in writing,
except that such notice may be in electronic or other
form to the extent that such form is reasonably
accessible to the recipient.
"(E) Notice to issuers of employer securities
subject to blackout period.--In the case of any blackout
period in connection with an individual account plan,
the plan administrator shall provide timely notice of
such
[[Page 116 STAT. 782]]
blackout period to the issuer of any employer securities
subject to such blackout period.
"(3) Exception for blackout periods with limited
applicability.--In any case in which the blackout period applies
only to 1 or more participants or beneficiaries in connection
with a merger, acquisition, divestiture, or similar transaction
involving the plan or plan sponsor and occurs solely in
connection with becoming or ceasing to be a participant or
beneficiary under the plan by reason of such merger,
acquisition, divestiture, or transaction, the requirement of
this subsection that the notice be provided to all participants
and beneficiaries shall be treated as met if the notice required
under paragraph (1) is provided to such participants or
beneficiaries to whom the blackout period applies as soon as
reasonably practicable.
"(4) Changes in length of blackout period.--If, following
the furnishing of the notice pursuant to this subsection, there
is a change in the beginning date or length of the blackout
period (specified in such notice pursuant to paragraph
(2)(A)(iii)), the administrator shall provide affected
participants and beneficiaries notice of the change as soon as
reasonably practicable. In relation to the extended blackout
period, such notice shall meet the requirements of paragraph
(2)(D) and shall specify any material change in the matters
referred to in clauses (i) through (v) of paragraph (2)(A).
"(5) Regulatory exceptions.--The Secretary may provide by
regulation for additional exceptions to the requirements of this
subsection which the Secretary determines are in the interests
of participants and beneficiaries.
"(6) Guidance and model notices.--The Secretary shall issue
guidance and model notices which meet the requirements of this
subsection.
"(7) Blackout period.--For purposes of this subsection--
"(A) In general.--The term 'blackout period' means,
in connection with an individual account plan, any
period for which any ability of participants or
beneficiaries under the plan, which is otherwise
available under the terms of such plan, to direct or
diversify assets credited to their accounts, to obtain
loans from the plan, or to obtain distributions from the
plan is temporarily suspended, limited, or restricted,
if such suspension, limitation, or restriction is for
any period of more than 3 consecutive business days.
"(B) Exclusions.--The term 'blackout period' does
not include a suspension, limitation, or restriction--
"(i) which occurs by reason of the
application of the securities laws (as defined in
section 3(a)(47) of the Securities Exchange Act of
1934),
"(ii) which is a change to the plan which
provides for a regularly scheduled suspension,
limitation, or restriction which is disclosed to
participants or beneficiaries through any summary
of material modifications, any materials
describing specific investment alternatives under
the plan, or any changes thereto, or
"(iii) which applies only to 1 or more
individuals, each of whom is the participant, an
alternate payee
[[Page 116 STAT. 783]]
(as defined in section 206(d)(3)(K)), or any other
beneficiary pursuant to a qualified domestic
relations order (as defined in section
206(d)(3)(B)(i)).
"(8) Individual account plan.--
"(A) In general.--For purposes of this subsection,
the term 'individual account plan' shall have the
meaning provided such term in section 3(34), except that
such term shall not include a one-participant retirement
plan.
"(B) One-participant retirement plan.--For purposes
of subparagraph (A), the term 'one-participant
retirement plan' means a retirement plan that--
"(i) on the first day of the plan year--
"(I) covered only the employer (and
the employer's spouse) and the employer
owned the entire business (whether or
not incorporated), or
"(II) covered only one or more
partners (and their spouses) in a
business partnership (including partners
in an S or C corporation (as defined in
section 1361(a) of the Internal Revenue
Code of 1986)),
"(ii) meets the minimum coverage requirements
of section 410(b) of the Internal Revenue Code of
1986 (as in effect on the date of the enactment of
this paragraph) without being combined with any
other plan of the business that covers the
employees of the business,
"(iii) does not provide benefits to anyone
except the employer (and the employer's spouse) or
the partners (and their spouses),
"(iv) does not cover a business that is a
member of an affiliated service group, a
controlled group of corporations, or a group of
businesses under common control, and
"(v) does not cover a business that leases
employees.".
(2) Issuance <> of initial guidance and
model notice.--The Secretary of Labor shall issue initial
guidance and a model notice pursuant to section 101(i)(6) of the
Employee Retirement Income Security Act of 1974 (as added by
this subsection) not later than January 1,
2003. <> Not later than 75 days after the
date of the enactment of this Act, the Secretary shall
promulgate interim final rules necessary to carry out the
amendments made by this subsection.
(3) Civil penalties for failure to provide notice.--Section
502 of such Act (29 U.S.C. 1132) is amended--
(A) in subsection (a)(6), by striking "(5), or
(6)" and inserting "(5), (6), or (7)";
(B) by redesignating paragraph (7) of subsection (c)
as paragraph (8); and
(C) by inserting after paragraph (6) of subsection
(c) the following new paragraph:
"(7) The Secretary may assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan
administrator's failure or refusal to provide notice to participants and
beneficiaries in accordance with section 101(i). For purposes of this
paragraph, each violation with respect to any single participant or
beneficiary shall be treated as a separate violation.".
[[Page 116 STAT. 784]]
(3) Plan amendments.--If any amendment made by this
subsection requires an amendment to any plan, such plan
amendment shall not be required to be made before the first plan
year beginning on or after the effective date of this section,
if--
(A) during the period after such amendment made by
this subsection takes effect and before such first plan
year, the plan is operated in good faith compliance with
the requirements of such amendment made by this
subsection, and
(B) such plan amendment applies retroactively to the
period after such amendment made by this subsection
takes effect and before such first plan year.
(c) Effective Date.--The provisions of this section (including the
amendments made thereby) shall take effect 180 days after the date of
the enactment of this Act. Good faith compliance with the requirements
of such provisions in advance of the issuance of applicable regulations
thereunder shall be treated as compliance with such provisions.
SEC. 307. <> RULES OF PROFESSIONAL RESPONSIBILITY
FOR ATTORNEYS.
Not <> later than 180 days after the date of
enactment of this Act, the Commission shall issue rules, in the public
interest and for the protection of investors, setting forth minimum
standards of professional conduct for attorneys appearing and practicing
before the Commission in any way in the representation of issuers,
including a rule--
(1) requiring an attorney to report evidence of a material
violation of securities law or breach of fiduciary duty or
similar violation by the company or any agent thereof, to the
chief legal counsel or the chief executive officer of the
company (or the equivalent thereof); and
(2) if the counsel or officer does not appropriately respond
to the evidence (adopting, as necessary, appropriate remedial
measures or sanctions with respect to the violation), requiring
the attorney to report the evidence to the audit committee of
the board of directors of the issuer or to another committee of
the board of directors comprised solely of directors not
employed directly or indirectly by the issuer, or to the board
of directors.
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.
(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
[[Page 116 STAT. 785]]
States for a disgorgement 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 and shall be available for allocation in accordance
with subsection (a).
(c) Study Required.--
(1) Subject of study.--The Commission shall review and
analyze--
(A) enforcement actions by the Commission over the
five years preceding the date of the enactment of this
Act that have included proceedings to obtain civil
penalties or disgorgements to identify areas where such
proceedings may be utilized to efficiently, effectively,
and fairly provide restitution for injured investors;
and
(B) other methods to more efficiently, effectively,
and fairly provide restitution to injured investors,
including methods to improve the collection rates for
civil penalties and disgorgements.
(2) Report Required.--The <> Commission
shall report its findings to the Committee on Financial Services
of the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate within 180 days after
of the date of the 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
actions that are recommended or that may be necessary to address
concerns identified in the study.
(d) Conforming Amendments.--Each of the following provisions is
amended by inserting ", except as otherwise provided in section 308 of
the Sarbanes-Oxley Act of 2002" after "Treasury of the United
States":
(1) Section 21(d)(3)(C)(i) of the Securities Exchange Act of
1934 (15 U.S.C. 78u(d)(3)(C)(i)).
(2) Section 21A(d)(1) of such Act (15 U.S.C. 78u-1(d)(1)).
(3) Section 20(d)(3)(A) of the Securities Act of 1933 (15
U.S.C. 77t(d)(3)(A)).
(4) Section 42(e)(3)(A) of the Investment Company Act of
1940 (15 U.S.C. 80a-41(e)(3)(A)).
(5) Section 209(e)(3)(A) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-9(e)(3)(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).
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
SEC. 401. DISCLOSURES <> IN PERIODIC REPORTS.
(a) Disclosures Required.--Section 13 of the Securities Exchange Act
of 1934 (15 U.S.C. 78m) is amended by adding at the end the following:
"(i) Accuracy of Financial Reports.--Each financial report that
contains financial statements, and that is required to be prepared in
accordance with (or reconciled to) generally accepted accounting
principles under this title and filed with the Commission shall reflect
all material correcting adjustments that have been
[[Page 116 STAT. 786]]
identified by a registered public accounting firm in accordance with
generally accepted accounting principles and the rules and regulations
of the Commission.
"(j) Off-Balance Sheet Transactions.--
Not <> later than 180 days after the date
of enactment of the Sarbanes-Oxley Act of 2002, the Commission shall
issue final rules providing that each annual and quarterly financial
report required to be filed with the Commission shall disclose all
material off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships of the
issuer with unconsolidated entities or other persons, that may have a
material current or future effect on financial condition, changes in
financial condition, results of operations, liquidity, capital
expenditures, capital resources, or significant components of revenues
or expenses.".
(b) Commission Rules on Pro Forma Figures.--
Not <> later than 180 days after the date of enactment
of the Sarbanes-Oxley Act fo 2002, the Commission shall issue final
rules providing that pro forma financial information included in any
periodic or other report filed with the Commission pursuant to the
securities laws, or in any public disclosure or press or other release,
shall be presented in a manner that--
(1) does not contain an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
pro forma financial information, in light of the circumstances
under which it is presented, not misleading; and
(2) reconciles it with the financial condition and results
of operations of the issuer under generally accepted accounting
principles.
(c) Study and Report on Special Purpose Entities.--
(1) Study required.--The <> Commission
shall, not later than 1 year after the effective date of
adoption of off-balance sheet disclosure rules required by
section 13(j) of the Securities Exchange Act of 1934, as added
by this section, complete a study of filings by issuers and
their disclosures to determine--
(A) the extent of off-balance sheet transactions,
including assets, liabilities, leases, losses, and the
use of special purpose entities; and
(B) whether generally accepted accounting rules
result in financial statements of issuers reflecting the
economics of such off-balance sheet transactions to
investors in a transparent fashion.
(2) Report and recommendations.--
Not <> later than 6 months after the date of
completion of the study required by paragraph (1), the
Commission shall submit a report to the President, the Committee
on Banking, Housing, and Urban Affairs of the Senate, and the
Committee on Financial Services of the House of Representatives,
setting forth--
(A) the amount or an estimate of the amount of off-
balance sheet transactions, including assets,
liabilities, leases, and losses of, and the use of
special purpose entities by, issuers filing periodic
reports pursuant to section 13 or 15 of the Securities
Exchange Act of 1934;
(B) the extent to which special purpose entities are
used to facilitate off-balance sheet transactions;
[[Page 116 STAT. 787]]
(C) whether generally accepted accounting principles
or the rules of the Commission result in financial
statements of issuers reflecting the economics of such
transactions to investors in a transparent fashion;
(D) whether generally accepted accounting principles
specifically result in the consolidation of special
purpose entities sponsored by an issuer in cases in
which the issuer has the majority of the risks and
rewards of the special purpose entity; and
(E) any recommendations of the Commission for
improving the transparency and quality of reporting off-
balance sheet transactions in the financial statements
and disclosures required to be filed by an issuer with
the Commission.
SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.
(a) Prohibition on Personal Loans to Executives.--Section 13 of the
Securities Exchange Act of 1934 (15 U.S.C. 78m), as amended by this Act,
is amended by adding at the end the following:
"(k) Prohibition on Personal Loans to Executives.--
"(1) In general.--It shall be unlawful for any issuer (as
defined in section 2 of the Sarbanes-Oxley Act of 2002),
directly or indirectly, including through any subsidiary, to
extend or maintain credit, to arrange for the extension of
credit, or to renew an extension of credit, in the form of a
personal loan to or for any director or executive officer (or
equivalent thereof) of that issuer. An extension of credit
maintained by the issuer on the date of enactment of this
subsection shall not be subject to the provisions of this
subsection, provided that there is no material modification to
any term of any such extension of credit or any renewal of any
such extension of credit on or after that date of enactment.
"(2) Limitation.--Paragraph (1) does not preclude any home
improvement and manufactured home loans (as that term is defined
in section 5 of the Home Owners' Loan Act (12 U.S.C. 1464)),
consumer credit (as defined in section 103 of the Truth in
Lending Act (15 U.S.C. 1602)), or any extension of credit under
an open end credit plan (as defined in section 103 of the Truth
in Lending Act (15 U.S.C. 1602)), or a charge card (as defined
in section 127(c)(4)(e) of the Truth in Lending Act (15 U.S.C.
1637(c)(4)(e)), or any extension of credit by a broker or dealer
registered under section 15 of this title to an employee of that
broker or dealer to buy, trade, or carry securities, that is
permitted under rules or regulations of the Board of Governors
of the Federal Reserve System pursuant to section 7 of this
title (other than an extension of credit that would be used to
purchase the stock of that issuer), that is--
"(A) made or provided in the ordinary course of the
consumer credit business of such issuer;
"(B) of a type that is generally made available by
such issuer to the public; and
"(C) made by such issuer on market terms, or terms
that are no more favorable than those offered by the
issuer to the general public for such extensions of
credit.
"(3) Rule of construction for certain loans.--Paragraph (1)
does not apply to any loan made or maintained
[[Page 116 STAT. 788]]
by an insured depository institution (as defined in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813)), if the loan
is subject to the insider lending restrictions of section 22(h)
of the Federal Reserve Act (12 U.S.C. 375b).".
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND PRINCIPAL
STOCKHOLDERS.
(a) Amendment.--Section 16 of the Securities Exchange Act of 1934
(15 U.S.C. 78p) is amended by striking the heading of such section and
subsection (a) and inserting the following:
"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) at the time of the registration of such
security on a national securities exchange or by the
effective date of a registration statement filed
pursuant to section 12(g);
"(B) within 10 days after he or she becomes such
beneficial owner, director, or officer;
"(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) 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.
"(3) Contents of statements.--A statement filed--
"(A) under subparagraph (A) or (B) of paragraph (2)
shall contain a statement of the amount of all equity
securities of such issuer of which the filing person is
the beneficial owner; and
"(B) under subparagraph (C) of such paragraph shall
indicate ownership by the filing person at the date of
filing, any such changes in such ownership, and such
purchases and sales of the security-based swap
agreements as have occurred since the most recent such
filing under such subparagraph.
"(4) Electronic filing and availability.--
Beginning <> not later than 1 year after the
date of enactment of the Sarbanes-Oxley Act of 2002--
"(A) a statement filed under subparagraph (C) of
paragraph (2) shall be filed electronically;
"(B) <> the Commission shall
provide each such statement on a publicly accessible
Internet site not later than the end of the business day
following that filing; and
[[Page 116 STAT. 789]]
"(C) <> the issuer (if the issuer
maintains a corporate website) shall provide that
statement on that corporate website, not later than the
end of the business day following that filing.".
(b) Effective Date.--The <> amendment made
by this section shall be effective 30 days after the date of the
enactment of this Act.
SEC. 404. MANAGEMENT <> ASSESSMENT OF INTERNAL
CONTROLS.
(a) Rules Required.--The Commission shall prescribe rules requiring
each annual report required by section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal
control report, which shall--
(1) state the responsibility of management for establishing
and maintaining an adequate internal control structure and
procedures for financial reporting; and
(2) contain an assessment, as of the end of the most recent
fiscal year of the issuer, of the effectiveness of the internal
control structure and procedures of the issuer for financial
reporting.
(b) Internal Control Evaluation and Reporting.--With respect to the
internal control assessment required by subsection (a), each registered
public accounting firm that prepares or issues the audit report for the
issuer shall attest to, and report on, the assessment made by the
management of the issuer. An attestation made under this subsection
shall be made in accordance with standards for attestation engagements
issued or adopted by the Board. Any such attestation shall not be the
subject of a separate engagement.
SEC. 405. <> EXEMPTION.
Nothing in section 401, 402, or 404, the amendments made by those
sections, or the rules of the Commission under those sections shall
apply to any investment company registered under section 8 of the
Investment Company Act of 1940 (15 U.S.C. 80a-8).
SEC. 406. CODE OF <> ETHICS FOR SENIOR FINANCIAL
OFFICERS.
(a) Code of Ethics Disclosure.--
The <> Commission shall issue rules to require each
issuer, together with periodic reports required pursuant to section
13(a) or 15(d) of the Securities Exchange Act of 1934, to disclose
whether or not, and if not, the reason therefor, such issuer has adopted
a code of ethics for senior financial officers, applicable to its
principal financial officer and comptroller or principal accounting
officer, or persons performing similar functions.
(b) Changes in Codes of Ethics.--
The <> Commission shall revise its regulations
concerning matters requiring prompt disclosure on Form 8-K (or any
successor thereto) to require the immediate disclosure, by means of the
filing of such form, dissemination by the Internet or by other
electronic means, by any issuer of any change in or waiver of the code
of ethics for senior financial officers.
(c) Definition.--In this section, the term "code of ethics" means
such standards as are reasonably necessary to promote--
(1) honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between
personal and professional relationships;
[[Page 116 STAT. 790]]
(2) full, fair, accurate, timely, and understandable
disclosure in the periodic reports required to be filed by the
issuer; and
(3) compliance with applicable governmental rules and
regulations.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
SEC. 407. DISCLOSURE <> OF AUDIT COMMITTEE FINANCIAL
EXPERT.
(a) Rules Defining "Financial Expert".--The Commission shall issue
rules, as necessary or appropriate in the public interest and consistent
with the protection of investors, to require each issuer, together with
periodic reports required pursuant to sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, to disclose whether or not, and if not,
the reasons therefor, the audit committee of that issuer is comprised of
at least 1 member who is a financial expert, as such term is defined by
the Commission.
(b) Considerations.--In defining the term "financial expert" for
purposes of subsection (a), the Commission shall consider whether a
person has, through education and experience as a public accountant or
auditor or a principal financial officer, comptroller, or principal
accounting officer of an issuer, or from a position involving the
performance of similar functions--
(1) an understanding of generally accepted accounting
principles and financial statements;
(2) experience in--
(A) the preparation or auditing of financial
statements of generally comparable issuers; and
(B) the application of such principles in connection
with the accounting for estimates, accruals, and
reserves;
(3) experience with internal accounting controls; and
(4) an understanding of audit committee functions.
(c) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
SEC. 408. <> ENHANCED REVIEW OF PERIODIC DISCLOSURES
BY ISSUERS.
(a) Regular and Systematic Review.--The Commission shall review
disclosures made by issuers reporting under section 13(a) of the
Securities Exchange Act of 1934 (including reports filed on Form 10-K),
and which have a class of securities listed on a national securities
exchange or traded on an automated quotation facility of a national
securities association, on a regular and systematic basis for the
protection of investors. Such review shall include a review of an
issuer's financial statement.
(b) Review Criteria.--For purposes of scheduling the reviews
required by subsection (a), the Commission shall consider, among other
factors--
(1) issuers that have issued material restatements of
financial results;
(2) issuers that experience significant volatility in their
stock price as compared to other issuers;
(3) issuers with the largest market capitalization;
[[Page 116 STAT. 791]]
(4) emerging companies with disparities in price to earning
ratios;
(5) issuers whose operations significantly affect any
material sector of the economy; and
(6) any other factors that the Commission may consider
relevant.
(c) Minimum Review Period.--In no event shall an issuer required to
file reports under section 13(a) or 15(d) of the Securities Exchange Act
of 1934 be reviewed under this section less frequently than once every 3
years.
SEC. 409. REAL TIME ISSUER DISCLOSURES.
Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m),
as amended by this Act, is amended by adding at the end the following:
"(l) Real Time Issuer Disclosures.--Each issuer reporting under
section 13(a) or 15(d) shall disclose to the public on a rapid and
current basis such additional information concerning material changes in
the financial condition or operations of the issuer, in plain English,
which may include trend and qualitative information and graphic
presentations, as the Commission determines, by rule, is necessary or
useful for the protection of investors and in the public interest.".
TITLE V--ANALYST CONFLICTS OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES
ASSOCIATIONS AND NATIONAL SECURITIES EXCHANGES.
(a) Rules Regarding Securities Analysts.--The Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after
section 15C the following new section:
"SEC. 15D. <> SECURITIES ANALYSTS AND RESEARCH
REPORTS.
"(a) Analyst Protections.--The <> Commission, or
upon the authorization and direction of the Commission, a registered
securities association or national securities exchange, shall have
adopted, not later than 1 year after the date of enactment of this
section, rules reasonably designed to address conflicts of interest that
can arise when securities analysts recommend equity securities in
research reports and public appearances, in order to improve the
objectivity of research and provide investors with more useful and
reliable information, including rules designed--
"(1) to foster greater public confidence in securities
research, and to protect the objectivity and independence of
securities analysts, by--
"(A) restricting the prepublication clearance or
approval of research reports by persons employed by the
broker or dealer who are engaged in investment banking
activities, or persons not directly responsible for
investment research, other than legal or compliance
staff;
"(B) limiting the supervision and compensatory
evaluation of securities analysts to officials employed
by the broker or dealer who are not engaged in
investment banking activities; and
[[Page 116 STAT. 792]]
"(C) requiring that a broker or dealer and persons
employed by a broker or dealer who are involved with
investment banking activities may not, directly or
indirectly, retaliate against or threaten to retaliate
against any securities analyst employed by that broker
or dealer or its affiliates as a result of an adverse,
negative, or otherwise unfavorable research report that
may adversely affect the present or prospective
investment banking relationship of the broker or dealer
with the issuer that is the subject of the research
report, except that such rules may not limit the
authority of a broker or dealer to discipline a
securities analyst for causes other than such research
report in accordance with the policies and procedures of
the firm;
"(2) to define periods during which brokers or dealers who
have participated, or are to participate, in a public offering
of securities as underwriters or dealers should not publish or
otherwise distribute research reports relating to such
securities or to the issuer of such securities;
"(3) to establish structural and institutional safeguards
within registered brokers or dealers to assure that securities
analysts are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of those
whose involvement in investment banking activities might
potentially bias their judgment or supervision; and
"(4) to address such other issues as the Commission, or
such association or exchange, determines appropriate.
"(b) Disclosure.--The Commission, or upon the authorization and
direction of the Commission, a registered securities association or
national securities exchange, shall have adopted, not later than 1 year
after the date of enactment of this section, rules reasonably designed
to require each securities analyst to disclose in public appearances,
and each registered broker or dealer to disclose in each research
report, as applicable, conflicts of interest that are known or should
have been known by the securities analyst or the broker or dealer, to
exist at the time of the appearance or the date of distribution of the
report, including--
"(1) the extent to which the securities analyst has debt or
equity investments in the issuer that is the subject of the
appearance or research report;
"(2) whether any compensation has been received by the
registered broker or dealer, or any affiliate thereof, including
the securities analyst, from the issuer that is the subject of
the appearance or research report, subject to such exemptions as
the Commission may determine appropriate and necessary to
prevent disclosure by virtue of this paragraph of material non-
public information regarding specific potential future
investment banking transactions of such issuer, as is
appropriate in the public interest and consistent with the
protection of investors;
"(3) whether an issuer, the securities of which are
recommended in the appearance or research report, currently is,
or during the 1-year period preceding the date of the appearance
or date of distribution of the report has been, a client of the
registered broker or dealer, and if so, stating the types of
services provided to the issuer;
[[Page 116 STAT. 793]]
"(4) whether the securities analyst received compensation
with respect to a research report, based upon (among any other
factors) the investment banking revenues (either generally or
specifically earned from the issuer being analyzed) of the
registered broker or dealer; and
"(5) such other disclosures of conflicts of interest that
are material to investors, research analysts, or the broker or
dealer as the Commission, or such association or exchange,
determines appropriate.
"(c) Definitions.--In this section--
"(1) the term 'securities analyst' means any associated
person of a registered broker or dealer that is principally
responsible for, and any associated person who reports directly
or indirectly to a securities analyst in connection with, the
preparation of the substance of a research report, whether or
not any such person has the job title of 'securities analyst';
and
"(2) the term 'research report' means a written or
electronic communication that includes an analysis of equity
securities of individual companies or industries, and that
provides information reasonably sufficient upon which to base an
investment decision.".
(b) Enforcement.--Section 21B(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-2(a)) is amended by inserting "15D," before
"15B".
(c) Commission Authority.--The <> Commission may promulgate and amend its regulations, or direct a
registered securities association or national securities exchange to
promulgate and amend its rules, to carry out section 15D of the
Securities Exchange Act of 1934, as added by this section, as is
necessary for the protection of investors and in the public interest.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
SEC. 601. 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, $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
[[Page 116 STAT. 794]]
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. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 4B the following:
"SEC. 4C. <> APPEARANCE AND PRACTICE BEFORE THE
COMMISSION.
"(a) Authority To Censure.--The Commission may censure any person,
or deny, temporarily or permanently, to any person the privilege of
appearing or practicing before the Commission in any way, if that person
is found by the Commission, after notice and opportunity for hearing in
the matter--
"(1) not to possess the requisite qualifications to
represent others;
"(2) to be lacking in character or integrity, or to have
engaged in unethical or improper professional conduct; or
"(3) to have willfully violated, or willfully aided and
abetted the violation of, any provision of the securities laws
or the rules and regulations issued thereunder.
"(b) Definition.--With respect to any registered public accounting
firm or associated person, for purposes of this section, the term
'improper professional conduct' means--
"(1) intentional or knowing conduct, including reckless
conduct, that results in a violation of applicable professional
standards; and
"(2) negligent conduct in the form of--
"(A) a single instance of highly unreasonable
conduct that results in a violation of applicable
professional standards in circumstances in which the
registered public accounting firm or associated person
knows, or should know, that heightened scrutiny is
warranted; or
"(B) repeated instances of unreasonable conduct,
each resulting in a violation of applicable professional
standards, that indicate a lack of competence to
practice before the Commission.".
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK BARS.
(a) Securities Exchange Act of 1934.--Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended by this
Act, is amended by adding at the end the following:
"(6) Authority of a court to prohibit persons from participating in
an offering of penny stock.--
"(A) In general.--In any proceeding under paragraph (1)
against any person participating in, or, at the time of the
alleged misconduct who was participating in, an offering of
penny stock, the court may prohibit that person from
participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as
the court shall determine.
"(B) Definition.--For purposes of this paragraph, the term
'person participating in an offering of penny stock' includes
[[Page 116 STAT. 795]]
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term to
include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or in
part, conditionally or unconditionally, from inclusion in such
term.".
(b) Securities Act of 1933.--Section 20 of the Securities Act of
1933 (15 U.S.C. 77t) is amended by adding at the end the following:
"(g) Authority of a Court To Prohibit Persons From Participating in
an Offering of Penny Stock.--
"(1) In general.--In any proceeding under subsection (a)
against any person participating in, or, at the time of the
alleged misconduct, who was participating in, an offering of
penny stock, the court may prohibit that person from
participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as
the court shall determine.
"(2) Definition.--For purposes of this subsection, the term
'person participating in an offering of penny stock' includes
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term to
include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or in
part, conditionally or unconditionally, from inclusion in such
term.".
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS AND DEALERS.
(a) Brokers and Dealers.--Section 15(b)(4) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended--
(1) by striking subparagraph (F) and inserting the
following:
"(F) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
broker or dealer;"; and
(2) in subparagraph (G), by striking the period at the end
and inserting the following: "; 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
[[Page 116 STAT. 796]]
"(ii) constitutes a final order based on violations
of any laws or regulations that prohibit fraudulent,
manipulative, or deceptive conduct.".
(b) Investment Advisers.--Section 203(e) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-3(e)) is amended--
(1) by striking paragraph (7) and inserting the following:
"(7) is subject to any order of the Commission barring or
suspending the right of the person to be associated with an
investment adviser;";
(2) in paragraph (8), by striking the period at the end and
inserting "; or"; and
(3) by adding at the end the following:
"(9) 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--
"(A) 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
"(B) constitutes a final order based on violations
of any laws or regulations that prohibit fraudulent,
manipulative, or deceptive conduct.".
(c) Conforming Amendments.--
(1) Securities exchange act of 1934.--The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended--
(A) in section 3(a)(39)(F) (15 U.S.C.
78c(a)(39)(F))--
(i) by striking "or (G)" and inserting
"(H), or (G)"; and
(ii) by inserting ", or is subject to an
order or finding," before "enumerated";
(B) in each of section 15(b)(6)(A)(i) (15 U.S.C.
78o(b)(6)(A)(i)), paragraphs (2) and (4) of section
15B(c) (15 U.S.C. 78o-4(c)), and subparagraphs (A) and
(C) of section 15C(c)(1) (15 U.S.C. 78o-5(c)(1))--
(i) by striking "or (G)" each place that
term appears and inserting "(H), or (G)"; and
(ii) by striking "or omission" each place
that term appears, and inserting ", or is subject
to an order or finding,"; and
(C) in each of paragraphs (3)(A) and (4)(C) of
section 17A(c) (15 U.S.C. 78q-1(c))--
(i) by striking "or (G)" each place that
term appears and inserting "(H), or (G)"; and
(ii) by inserting ", or is subject to an
order or finding," before "enumerated" each
place that term appears.
(2) Investment advisers act of 1940.--Section 203(f) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f)) is
amended--
(A) by striking "or (8)" and inserting "(8), or
(9)"; and
(B) by inserting "or (3)" after "paragraph (2)".
[[Page 116 STAT. 797]]
TITLE VII--STUDIES AND REPORTS
SEC. 701. <> GAO STUDY AND REPORT REGARDING
CONSOLIDATION OF PUBLIC ACCOUNTING FIRMS.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study--
(1) to identify--
(A) the factors that have led to the consolidation
of public accounting firms since 1989 and the consequent
reduction in the number of firms capable of providing
audit services to large national and multi-national
business organizations that are subject to the
securities laws;
(B) the present and future impact of the condition
described in subparagraph (A) on capital formation and
securities markets, both domestic and international; and
(C) solutions to any problems identified under
subparagraph (B), including ways to increase competition
and the number of firms capable of providing audit
services to large national and multinational business
organizations that are subject to the securities laws;
(2) of the problems, if any, faced by business organizations
that have resulted from limited competition among public
accounting firms, including--
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among public accounting firms.
(b) Consultation.--In planning and conducting the study under this
section, the Comptroller General shall consult with--
(1) the Commission;
(2) the regulatory agencies that perform functions similar
to the Commission within the other member countries of the Group
of Seven Industrialized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization that the
Comptroller General considers appropriate.
(c) Report Required.--Not <> later than 1 year
after the date of enactment of this Act, the Comptroller General shall
submit a report on 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. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT RATING AGENCIES.
(a) Study Required.--
(1) In general.--The Commission shall conduct a study of the
role and function of credit rating agencies in the operation of
the securities market.
(2) Areas of consideration.--The study required by this
subsection shall examine--
(A) the role of credit rating agencies in the
evaluation of issuers of securities;
[[Page 116 STAT. 798]]
(B) the importance of that role to investors and the
functioning of the securities markets;
(C) any impediments to the accurate appraisal by
credit rating agencies of the financial resources and
risks of issuers of securities;
(D) any barriers to entry into the business of
acting as a credit rating agency, and any measures
needed to remove such barriers;
(E) any measures which may be required to improve
the dissemination of information concerning such
resources and risks when credit rating agencies announce
credit ratings; and
(F) any conflicts of interest in the operation of
credit rating agencies and measures to prevent such
conflicts or ameliorate the consequences of such
conflicts.
(b) Report Required.--The <> Commission shall
submit a report on the study required by subsection (a) to the
President, the Committee on Financial Services of the House of
Representatives, and the Committee on Banking, Housing, and Urban
Affairs of the Senate not later than 180 days after the date of
enactment of this Act.
SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.
(a) Study.--The Commission shall conduct a study to determine, based
upon information for the period from January 1, 1998, to December 31,
2001--
(1) the number of securities professionals, defined as
public accountants, public accounting firms, investment bankers,
investment advisers, brokers, dealers, attorneys, and other
securities professionals practicing before the Commission--
(A) who have been found to have aided and abetted a
violation of the Federal securities laws, including
rules or regulations promulgated thereunder
(collectively referred to in this section as "Federal
securities laws"), but who have not been sanctioned,
disciplined, or otherwise penalized as a primary
violator in any administrative action or civil
proceeding, including in any settlement of such an
action or proceeding (referred to in this section as
"aiders and abettors"); and
(B) who have been found to have been primary
violators of the Federal securities laws;
(2) a description of the Federal securities laws violations
committed by aiders and abettors and by primary violators,
including--
(A) the specific provision of the Federal securities
laws violated;
(B) the specific sanctions and penalties imposed
upon such aiders and abettors and primary violators,
including the amount of any monetary penalties assessed
upon and collected from such persons;
(C) the occurrence of multiple violations by the
same person or persons, either as an aider or abettor or
as a primary violator; and
(D) whether, as to each such violator, disciplinary
sanctions have been imposed, including any censure,
suspension, temporary bar, or permanent bar to practice
before the Commission; and
[[Page 116 STAT. 799]]
(3) the amount of disgorgement, restitution, or any other
fines or payments that the Commission has assessed upon and
collected from, aiders and abettors and from primary violators.
(b) Report.--A report based upon the study conducted pursuant to
subsection (a) shall be submitted to the Committee on Banking, Housing,
and Urban Affairs of the Senate, and the Committee on Financial Services
of the House of Representatives not later than 6 months after the date
of enactment of this Act.
SEC. 704. STUDY OF ENFORCEMENT ACTIONS.
(a) Study Required.--The Commission shall review and analyze all
enforcement actions by the Commission involving violations of reporting
requirements imposed under the securities laws, and restatements of
financial statements, over the 5-year period preceding the date of
enactment of this Act, to identify areas of reporting that are most
susceptible to fraud, inappropriate manipulation, or inappropriate
earnings management, such as revenue recognition and the accounting
treatment of off-balance sheet special purpose entities.
(b) Report <> Required.--The Commission shall
report its findings to the Committee on Financial Services of the House
of Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate, 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. 705. STUDY OF INVESTMENT BANKS.
(a) GAO Study.--The Comptroller General of the United States shall
conduct a study on whether investment banks and financial advisers
assisted public companies in manipulating their earnings and obfuscating
their true financial condition. The study should address the rule of
investment banks and financial advisers--
(1) in the collapse of the Enron Corporation, including with
respect to the design and implementation of derivatives
transactions, transactions involving special purpose vehicles,
and other financial arrangements that may have had the effect of
altering the company's reported financial statements in ways
that obscured the true financial picture of the company;
(2) in the failure of Global Crossing, including with
respect to transactions involving swaps of fiberoptic cable
capacity, in the designing transactions that may have had the
effect of altering the company's reported financial statements
in ways that obscured the true financial picture of the company;
and
(3) generally, in creating and marketing transactions which
may have been designed solely to enable companies to manipulate
revenue streams, obtain loans, or move liabilities off balance
sheets without altering the economic and business risks faced by
the companies or any other mechanism to obscure a company's
financial picture.
(b) Report.--The <> Comptroller General shall
report to Congress not later than 180 days after the date of enactment
of this Act on the results of the study required by this section. The
report shall include a discussion of regulatory or legislative steps
that
[[Page 116 STAT. 800]]
are recommended or that may be necessary to address concerns identified
in the study.
TITLE VIII--CORPORATE <> AND CRIMINAL FRAUD ACCOUNTABILITY
SEC. 801. <> SHORT TITLE.
This title may be cited as the "Corporate and Criminal Fraud
Accountability Act of 2002".
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.
(a) In General.--Chapter 73 of title 18, United States Code, is
amended by adding at the end the following:
"Sec. 1519. Destruction, alteration, or falsification of records in
Federal investigations and bankruptcy
"Whoever knowingly alters, destroys, mutilates, conceals, covers
up, falsifies, or makes a false entry in any record, document, or
tangible object with the intent to impede, obstruct, or influence the
investigation or proper administration of any matter within the
jurisdiction of any department or agency of the United States or any
case filed under title 11, or in relation to or contemplation of any
such matter or case, shall be fined under this title, imprisoned not
more than 20 years, or both.
"Sec. 1520. Destruction of corporate audit records
"(a)(1) Any accountant who conducts an audit of an issuer of
securities to which section 10A(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78j-1(a)) applies, shall maintain all audit or review
workpapers for a period of 5 years from the end of the fiscal period in
which the audit or review was concluded.
"(2) <> The Securities and Exchange Commission
shall promulgate, within 180 days, after adequate notice and an
opportunity for comment, such rules and regulations, as are reasonably
necessary, relating to the retention of relevant records such as
workpapers, documents that form the basis of an audit or review,
memoranda, correspondence, communications, other documents, and records
(including electronic records) which are created, sent, or received in
connection with an audit or review and contain conclusions, opinions,
analyses, or financial data relating to such an audit or review, which
is conducted by any accountant who conducts an audit of an issuer of
securities to which section 10A(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78j-1(a)) applies. The Commission may, from time to
time, amend or supplement the rules and regulations that it is required
to promulgate under this section, after adequate notice and an
opportunity for comment, in order to ensure that such rules and
regulations adequately comport with the purposes of this section.
"(b) Whoever knowingly and willfully violates subsection (a)(1), or
any rule or regulation promulgated by the Securities and Exchange
Commission under subsection (a)(2), shall be fined under this title,
imprisoned not more than 10 years, or both.
"(c) Nothing in this section shall be deemed to diminish or relieve
any person of any other duty or obligation imposed by Federal or State
law or regulation to maintain, or refrain from destroying, any
document.".
[[Page 116 STAT. 801]]
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 73 of title 18, United States Code, is amended by adding at the
end the following new items:
"1519. Destruction, alteration, or falsification of records in Federal
investigations and bankruptcy.
"1520. Destruction of corporate audit records.".
SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION OF SECURITIES
FRAUD LAWS.
Section 523(a) of title 11, United States Code, is amended--
(1) in paragraph (17), by striking "or" after the
semicolon;
(2) in paragraph (18), by striking the period at the end and
inserting "; or"; and
(3) by adding at the end, the following:
"(19) that--
"(A) is for--
"(i) the violation of any of the Federal
securities laws (as that term is defined in
section 3(a)(47) of the Securities Exchange Act of
1934), any of the State securities laws, or any
regulation or order issued under such Federal or
State securities laws; or
"(ii) common law fraud, deceit, or
manipulation in connection with the purchase or
sale of any security; and
"(B) results from--
"(i) any judgment, order, consent order, or
decree entered in any Federal or State judicial or
administrative proceeding;
"(ii) any settlement agreement entered into
by the debtor; or
"(iii) any court or administrative order for
any damages, fine, penalty, citation,
restitutionary payment, disgorgement payment,
attorney fee, cost, or other payment owed by the
debtor.".
SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.
(a) In General.--Section 1658 of title 28, United States Code, is
amended--
(1) by inserting "(a)" before "Except"; and
(2) by adding at the end the following:
"(b) Notwithstanding subsection (a), a private right of action that
involves a claim of fraud, deceit, manipulation, or contrivance in
contravention of a regulatory requirement concerning the securities
laws, as defined in section 3(a)(47) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(47)), may be brought not later than the earlier
of--
"(1) 2 years after the discovery of the facts constituting
the violation; or
"(2) 5 years after such violation.".
(b) Effective <> Date.--The limitations
period provided by section 1658(b) of title 28, United States Code, as
added by this section, shall apply to all proceedings addressed by this
section that are commenced on or after the date of enactment of this
Act.
(c) <> No Creation of Actions.--Nothing in
this section shall create a new, private right of action.
[[Page 116 STAT. 802]]
SEC. 805. <> REVIEW OF FEDERAL SENTENCING
GUIDELINES FOR OBSTRUCTION OF JUSTICE AND EXTENSIVE CRIMINAL
FRAUD.
(a) Enhancement of Fraud and Obstruction of Justice Sentences.--
Pursuant to section 994 of title 28, United States Code, and in
accordance with this section, the United States Sentencing Commission
shall review and amend, as appropriate, the Federal Sentencing
Guidelines and related policy statements to ensure that--
(1) the base offense level and existing enhancements
contained in United States Sentencing Guideline 2J1.2 relating
to obstruction of justice are sufficient to deter and punish
that activity;
(2) the enhancements and specific offense characteristics
relating to obstruction of justice are adequate in cases where--
(A) the destruction, alteration, or fabrication of
evidence involves--
(i) a large amount of evidence, a large number
of participants, or is otherwise extensive;
(ii) the selection of evidence that is
particularly probative or essential to the
investigation; or
(iii) more than minimal planning; or
(B) the offense involved abuse of a special skill or
a position of trust;
(3) the guideline offense levels and enhancements for
violations of section 1519 or 1520 of title 18, United States
Code, as added by this title, are sufficient to deter and punish
that activity;
(4) a specific offense characteristic enhancing sentencing
is provided under United States Sentencing Guideline 2B1.1 (as
in effect on the date of enactment of this Act) for a fraud
offense that endangers the solvency or financial security of a
substantial number of victims; and
(5) the guidelines that apply to organizations in United
States Sentencing Guidelines, chapter 8, are sufficient to deter
and punish organizational criminal misconduct.
(b) Emergency Authority and Deadline for Commission Action.--The
United <> States Sentencing Commission is requested to
promulgate the guidelines or amendments provided for under this section
as soon as practicable, and in any event not later than 180 days after
the date of enactment of this Act, in accordance with the prcedures set
forth in section 219(a) of the Sentencing Reform Act of 1987, as though
the authority under that Act had not expired.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO
PROVIDE EVIDENCE OF FRAUD.
(a) In General.--Chapter 73 of title 18, United States Code, is
amended by inserting after section 1514 the following:
"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)),
[[Page 116 STAT. 803]]
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) to provide information, cause information to be
provided, or otherwise assist in an investigation regarding any
conduct which the employee reasonably believes constitutes a
violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against shareholders,
when the information or assistance is provided to or the
investigation is conducted by--
"(A) a Federal regulatory or law enforcement
agency;
"(B) any Member of Congress or any committee of
Congress; or
"(C) a person with supervisory authority over the
employee (or such other person working for the employer
who has the authority to investigate, discover, or
terminate misconduct); or
"(2) to file, cause to be filed, testify, participate in,
or otherwise assist in a proceeding filed or about to be filed
(with any knowledge of the employer) relating to an alleged
violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against shareholders.
"(b) Enforcement Action.--
"(1) In general.--A person who alleges discharge or other
discrimination by any person in violation of subsection (a) may
seek relief under subsection (c), by--
"(A) filing a complaint with the Secretary of
Labor; or
"(B) if the Secretary has not issued a final
decision within 180 days of the filing of the complaint
and there is no showing that such delay is due to the
bad faith of the claimant, bringing an action at law or
equity for de novo review in the appropriate district
court of the United States, which shall have
jurisdiction over such an action without regard to the
amount in controversy.
"(2) Procedure.--
"(A) In general.--An action under paragraph (1)(A)
shall be governed under the rules and procedures set
forth in section 42121(b) of title 49, United States
Code.
"(B) Exception.--Notification made under section
42121(b)(1) of title 49, United States Code, shall be
made to the person named in the complaint and to the
employer.
"(C) Burdens of proof.--An action brought under
paragraph (1)(B) shall be governed by the legal burdens
of proof set forth in section 42121(b) of title 49,
United States Code.
"(D) <> Statute of limitations.--
An action under paragraph (1) shall be commenced not
later than 90 days after the date on which the violation
occurs.
"(c) Remedies.--
"(1) In general.--An employee prevailing in any action
under subsection (b)(1) shall be entitled to all relief
necessary to make the employee whole.
[[Page 116 STAT. 804]]
"(2) Compensatory damages.--Relief for any action under
paragraph (1) shall include--
"(A) reinstatement with the same seniority status
that the employee would have had, but for the
discrimination;
"(B) the amount of back pay, with interest; and
"(C) compensation for any special damages sustained
as a result of the discrimination, including litigation
costs, expert witness fees, and reasonable attorney
fees.
"(d) Rights Retained by Employee.--Nothing in this section shall be
deemed to diminish the rights, privileges, or remedies of any employee
under any Federal or State law, or under any collective bargaining
agreement.".
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 73 of title 18, United States Code, is amended by inserting
after the item relating to section 1514 the following new item:
"1514A. Civil action to protect against retaliation in fraud cases.".
SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY
TRADED COMPANIES.
(a) In General.--Chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
"Sec. 1348. Securities fraud
"Whoever knowingly executes, or attempts to execute, a scheme or
artifice--
"(1) to defraud any person in connection with any security
of an issuer 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)); or
"(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any money or property in
connection with the purchase or sale of any security of an
issuer 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));
shall be fined under this title, or imprisoned not more than 25 years,
or both.".
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 63 of title 18, United States Code, is amended by adding at the
end the following new item:
"1348. Securities fraud.".
TITLE IX--WHITE-COLLAR <> CRIME PENALTY ENHANCEMENTS
SEC. 901. <> SHORT TITLE.
This title may be cited as the "White-Collar Crime Penalty
Enhancement Act of 2002".
[[Page 116 STAT. 805]]
SEC. 902. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL FRAUD OFFENSES.
(a) In General.--Chapter 63 of title 18, United States Code, is
amended by inserting after section 1348 as added by this Act the
following:
"Sec. 1349. Attempt and conspiracy
"Any person who attempts or conspires to commit any offense under
this chapter shall be subject to the same penalties as those prescribed
for the offense, the commission of which was the object of the attempt
or conspiracy.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 63 of title 18, United States Code, is amended by adding at the
end the following new item:
"1349. Attempt and conspiracy.".
SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States Code, is
amended by striking "five" and inserting "20".
(b) Wire Fraud.--Section 1343 of title 18, United States Code, is
amended by striking "five" and inserting "20".
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1131) is amended--
(1) by striking "$5,000" and inserting "$100,000";
(2) by striking "one year" and inserting "10 years"; and
(3) by striking "$100,000" and inserting "$500,000".
SEC. 905. <> AMENDMENT TO SENTENCING GUIDELINES
RELATING TO CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--Pursuant
to its authority under section 994(p) of title 18, United States Code,
and in accordance with this section, the United States Sentencing
Commission shall review and, as appropriate, amend the Federal
Sentencing Guidelines and related policy statements to implement the
provisions of this Act.
(b) Requirements.--In carrying out this section, the Sentencing
Commission shall--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of the offenses and the
penalties set forth in this Act, the growing incidence of
serious fraud offenses which are identified above, and the need
to modify the sentencing guidelines and policy statements to
deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address whether the guideline offense
levels and enhancements for violations of the sections amended
by this Act are sufficient to deter and punish such offenses,
and specifically, are adequate in view of the statutory
increases in penalties contained in this Act;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
[[Page 116 STAT. 806]]
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing, as set forth in section 3553(a)(2) of title 18,
United States Code.
(c) Emergency Authority and Deadline for Commission Action.--The
United States Sentencing Commission is requested to promulgate the
guidelines or amendments provided for under this section as soon as
practicable, and in any event not later than 180 days after the date of
enactment of this Act, in accordance with the procedures set forth in
section 219(a) of the Sentencing Reform Act of 1987, as though the
authority under that Act had not expired.
SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States Code, is
amended by inserting after section 1349, as created by this Act, the
following:
"Sec. 1350. Failure of corporate officers to certify financial reports
(a) Certification of Periodic Financial Reports.--Each periodic
report containing financial statements filed by an issuer with the
Securities Exchange Commission pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall be
accompanied by a written statement by the chief executive officer and
chief financial officer (or equivalent thereof) of the issuer.
"(b) Content.--The statement required under subsection (a) shall
certify that the periodic report containing the financial statements
fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act pf 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of
the issuer.
"(c) Criminal Penalties.--Whoever--
"(1) certifies any statement as set forth in subsections
(a) and (b) of this section knowing that the periodic report
accompanying the statement does not comport with all the
requirements set forth in this section shall be fined not more
than $1,000,000 or imprisoned not more than 10 years, or both;
or
"(2) willfully certifies any statement as set forth in
subsections (a) and (b) of this section knowing that the
periodic report accompanying the statement does not comport with
all the requirements set forth in this section shall be fined
not more than $5,000,000, or imprisoned not more than 20 years,
or both.".
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 63 of title 18, United States Code, is amended by adding at the
end the following:
"1350. Failure of corporate officers to certify financial reports.".
[[Page 116 STAT. 807]]
TITLE X--CORPORATE TAX RETURNS
SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX
RETURNS BY CHIEF EXECUTIVE OFFICERS.
It is the sense of the Senate that the Federal income tax return of
a corporation should be signed by the chief executive officer of such
corporation.
TITLE XI--CORPORATE <> FRAUD ACCOUNTABILITY
SEC. 1101. <> SHORT TITLE.
This title may be cited as the "Corporate Fraud Accountability Act
of 2002".
SEC. 1102. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL
PROCEEDING.
Section 1512 of title 18, United States Code, is amended--
(1) by redesignating subsections (c) through (i) as
subsections (d) through (j), respectively; and
(2) by inserting after subsection (b) the following new
subsection:
"(c) Whoever corruptly--
"(1) alters, destroys, mutilates, or conceals a record,
document, or other object, or attempts to do so, with the intent
to impair the object's integrity or availability for use in an
official proceeding; or
"(2) otherwise obstructs, influences, or impedes any
official proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than 20 years, or
both.".
SEC. 1103. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE
COMMISSION.
(a) In General.--Section 21C(c) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-3(c)) is amended by adding at the end the following:
"(3) Temporary freeze.--
"(A) In general.--
"(i) Issuance of temporary order.--Whenever,
during the course of a lawful investigation
involving possible violations of the Federal
securities laws by an issuer of publicly traded
securities or any of its directors, officers,
partners, controlling persons, agents, or
employees, it shall appear to the Commission that
it is likely that the issuer will make
extraordinary payments (whether compensation or
otherwise) to any of the foregoing persons, the
Commission may petition a Federal district court
for a temporary order requiring the issuer to
escrow, subject to court supervision, those
payments in an interest-bearing account for 45
days.
"(ii) Standard.--A temporary order shall be
entered under clause (i), only after notice and
opportunity for a hearing, unless the court
determines that
[[Page 116 STAT. 808]]
notice and hearing prior to entry of the order
would be impracticable or contrary to the public
interest.
"(iii) Effective period.--A temporary order
issued under clause (i) shall--
"(I) become effective immediately;
"(II) be served upon the parties
subject to it; and
"(III) unless set aside, limited or
suspended by a court of competent
jurisdiction, shall remain effective and
enforceable for 45 days.
"(iv) Extensions authorized.--The effective
period of an order under this subparagraph may be
extended by the court upon good cause shown for
not longer than 45 additional days, provided that
the combined period of the order shall not exceed
90 days.
"(B) Process on Determination of violations.--
"(i) Violations charged.--If the issuer or
other person described in subparagraph (A) is
charged with any violation of the Federal
securities laws before the expiration of the
effective period of a temporary order under
subparagraph (A) (including any applicable
extension period), the order shall remain in
effect, subject to court approval, until the
conclusion of any legal proceedings related
thereto, and the affected issuer or other person,
shall have the right to petition the court for
review of the order.
"(ii) Violations not charged.--If the issuer
or other person described in subparagraph (A) is
not charged with any violation of the Federal
securities laws before the expiration of the
effective period of a temporary order under
subparagraph (A) (including any applicable
extension period), the escrow shall terminate at
the expiration of the 45-day effective period (or
the expiration of any extension period, as
applicable), and the disputed payments (with
accrued interest) shall be returned to the issuer
or other affected person.".
(b) Technical Amendment.--Section 21C(c)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is amended by striking
"This" and inserting "paragraph (1)".
SEC. 1104. <> AMENDMENT TO THE FEDERAL
SENTENCING GUIDELINES.
(a) Request for Immediate Consideration by The United States
Sentencing Commission.--Pursuant to its authority under section 994(p)
of title 28, United States Code, and in accordance with this section,
the United States Sentencing Commission is requested to--
(1) promptly review the sentencing guidelines applicable to
securities and accounting fraud and related offenses;
(2) expeditiously consider the promulgation of new
sentencing guidelines or amendments to existing sentencing
guidelines to provide an enhancement for officers or directors
of publicly traded corporations who commit fraud and related
offenses; and
(3) submit to Congress an explanation of actions taken by
the Sentencing Commission pursuant to paragraph (2) and
[[Page 116 STAT. 809]]
any additional policy recommendations the Sentencing Commission
may have for combating offenses described in paragraph (1).
(b) Considerations in Review.--In carrying out this section, the
Sentencing Commission is requested to--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of securities, pension,
and accounting fraud and the need for aggressive and appropriate
law enforcement action to prevent such offenses;
(2) assure reasonable consistency with other relevant
directives and with other guidelines;
(3) account for any aggravating or mitigating circumstances
that might justify exceptions, including circumstances for which
the sentencing guidelines currently provide sentencing
enhancements;
(4) ensure that guideline offense levels and enhancements
for an obstruction of justice offense are adequate in cases
where documents or other physical evidence are actually
destroyed or fabricated;
(5) ensure that the guideline offense levels and
enhancements under United States Sentencing Guideline 2B1.1 (as
in effect on the date of enactment of this Act) are sufficient
for a fraud offense when the number of victims adversely
involved is significantly greater than 50;
(6) make any necessary conforming changes to the sentencing
guidelines; and
(7) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553 (a)(2) of title 18,
United States Code.
(c) Emergency Authority and Deadline For Commission Action.--The
United <> States Sentencing Commission is requested to
promulgate the guidelines or amendments provided for under this section
as soon as practicable, and in any event not later than the 180 days
after the date of enactment of this Act, in accordance with the
procedures sent forth in section 21(a) of the Sentencing Reform Act of
1987, as though the authority under that Act had not expired.
SEC. 1105. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING
AS OFFICERS OR DIRECTORS.
(a) Securities Exchange Act of 1934.--Section 21C of the Securities
Exchange Act of 1934 (15 U.S.C. 78u-3) is amended by adding at the end
the following:
"(f) Authority of the Commission to Prohibit Persons From Serving
as Officers or Directors.--In any cease-and-desist proceeding under
subsection (a), the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such period of
time as it shall determine, any person who has violated section 10(b) or
the rules or regulations thereunder, from acting as an officer or
director of any issuer that has a class of securities registered
pursuant to section 12, or that is required to file reports pursuant to
section 15(d), if the conduct of that person demonstrates unfitness to
serve as an officer or director of any such issuer.".
(b) 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 of the following:
[[Page 116 STAT. 810]]
"(f) Authority of the Commission to Prohibit Persons From Serving
as Officers or Directors.--In any cease-and-desist proceeding under
subsection (a), the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such period of
time as it shall determine, any person who has violated section 17(a)(1)
or the rules or regulations thereunder, from acting as an officer or
director of any issuer that has a class of securities registered
pursuant to section 12 of the Securities Exchange Act of 1934, or that
is required to file reports pursuant to section 15(d) of that Act, if
the conduct of that person demonstrates unfitness to serve as an officer
or director of any such issuer.".
SEC. 1106. INCREASED CRIMINAL PENALTIES UNDER SECURITIES EXCHANGE ACT OF
1934.
Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78ff(a)) is amended--
(1) by striking "$1,000,000, or imprisoned not more than 10
years" and inserting "$5,000,000, or imprisoned not more than
20 years"; and
(2) by striking "$2,500,000" and inserting
"$25,000,000".
SEC. 1107. RETALIATION AGAINST INFORMANTS.
(a) In General.--Section 1513 of title 18, United States Code, is
amended by adding at the end the following:
"(e) <> Whoever knowingly, with the intent to
retaliate, takes any action harmful to any person, including
interference with the lawful employment or livelihood of any person, for
providing to a law enforcement officer any truthful information relating
to the commission or possible commission of any Federal offense, shall
be fined under this title or imprisoned not more than 10 years, or
both.".
Approved July 30, 2002.
LEGISLATIVE HISTORY--H.R. 3763 (S. 2673):
---------------------------------------------------------------------------
HOUSE REPORTS: Nos. 107-414 (Comm. on Financial Services) and 107-610
(Comm. of Conference).
SENATE REPORTS: No. 107-205 accompanying S. 2673 (Comm. on Banking,
Housing, and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 148 (2002):
Apr. 24, considered and passed House.
July 15, considered and passed Senate, amended, in lieu of
S. 2673.
July 25, House and Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 38 (2002):
July 30, Presidential remarks and statement.
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