IB 

Union Calendar No. 298 

108TH CONGRESS 

2D SESSION H. R. 2179 

[Report No. 108–475, Part I] 

To enhance the authority of the Securities and Exchange Commission to 

investigate, punish, and deter securities laws violations, and to improve 

its ability to return funds to defrauded investors, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 21, 2003 

Mr. BAKER (for himself, Mr. OXLEY, Mr. TIBERI, Mr. OSE, and Mrs. KELLY) 

introduced the following bill; which was referred to the Committee on Financial Services 

APRIL 27, 2004 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

JUNE 1, 2004 

Additional sponsor: Mr. SCOTT of Georgia 

JUNE 1, 2004 

The Committee on the Judiciary discharged; committed to the Committee of 

the Whole House on the State of the Union and ordered to be printed 

[For text of introduced bill, see copy of bill as introduced on May 21, 2003] 

A BILL 

To enhance the authority of the Securities and Exchange 

Commission to investigate, punish, and deter securities 
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laws violations, and to improve its ability to return funds 

to defrauded investors, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Securities Fraud Deter5 rence and Investor Restitution Act of 2004’’. 

6 SEC. 2. RECOVERY BY COMMISSION OF SECURITIES LAW 

7 JUDGMENTS. 

8 (a) AMENDMENT.—Title III of the Sarbanes-Oxley Act 

9 of 2002 is amended by adding after section 308 (15 U.S.C. 

10 7246) the following new section: 

11 ‘‘SEC. 309. RECOVERY OF SECURITIES LAW JUDGMENTS; RE12 MOVAL OF STATE LAW IMPEDIMENTS. 

13 ‘‘(a) REMOVAL OF STATE LAW IMPEDIMENTS.—The 

14 Commission’s authority to enforce, collect upon, or other15 wise satisfy in a Federal or State court a judgment or order 

16 obtained, either by litigation or settlement, in any judicial 

17 action or administrative proceeding under the securities 

18 laws against any person based upon an alleged fraudulent, 

19 deceptive, or manipulative act or practice in violation of 

20 such laws, or the rules and regulations thereunder, or 

21 against any gratuitous or fraudulent transferee, shall not 

22 be subject to— 
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1 ‘‘(1) a debtor’s election to exempt property under 

2 State or local law pursuant to section 3014(a)(2) of 

3 title 28, United States Code; or 

4 ‘‘(2) any homestead provision of any State con5 stitution or any other State law that exempts or pro6 tects property from foreclosure, forced sale, or any 

7 other procedure to satisfy a judgment or order under 

8 any process of court for the payment of debts. 

9 ‘‘(b) DEFINITIONS.—For purposes of subsection (a)— 

10 ‘‘(1) a ‘gratuitous transferee’ is any person to 

11 whom an ownership interest in property is trans12 ferred without adequate consideration; and 

13 ‘‘(2) a ‘fraudulent transferee’ is any person liable 

14 to the Commission under applicable fraudulent trans15 fer laws.’’. 

16 (b) CONFORMING AMENDMENT.—The table of contents 

17 in section 1(b) of the Sarbanes-Oxley Act of 2002 is amend18 ed by inserting after the item relating to section 308 the 

19 following: 

‘‘Sec. 309. Recovery of securities law judgments; removal of state law impediments.’’. 

20 SEC. 3. CIVIL ENFORCEMENT PROVISIONS. 

21 (a) AUTHORITY TO IMPOSE CIVIL PENALTIES IN

22 CEASE AND DESIST PROCEEDINGS.— 

23 (1) UNDER THE SECURITIES ACT OF 1934.—Sec24 tion 8A of the Securities Act of 1933 (15 U.S.C. 77h– 
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1 1) is amended by adding at the end the following new 

2 subsection: 

3 ‘‘(g) AUTHORITY TO IMPOSE MONEY PENALTIES.— 

4 ‘‘(1) GROUNDS FOR IMPOSING.—In any cease5 and-desist proceeding under subsection (a), the Com6 mission may impose a civil penalty on a person if it 

7 finds, on the record after notice and opportunity for 

8 hearing, that— 

9 ‘‘(A) such person— 

10 ‘‘(i) is violating or has violated any 

11 provision of this title, or any rule or regula12 tion thereunder; or 

13 ‘‘(ii) is or was a cause of the violation 

14 of any provision of this title, or any rule or 

15 regulation thereunder; and 

16 ‘‘(B) such penalty is in the public interest. 

17 ‘‘(2) MAXIMUM AMOUNT OF PENALTY.— 

18 ‘‘(A) FIRST TIER.—The maximum amount 

19 of penalty for each act or omission described in 

20 paragraph (1) shall be $100,000 for a natural 

21 person or $250,000 for any other person. 

22 ‘‘(B) SECOND TIER.—Notwithstanding 

23 paragraph (A), the maximum amount of penalty 

24 for each such act or omission shall be $500,000 

25 for a natural person or $1,000,000 for any other 
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1 person if the act or omission described in para2 graph (1) involved fraud, deceit, manipulation, 

3 or deliberate or reckless disregard of a regulatory 

4 requirement. 

5 ‘‘(C) THIRD TIER.—Notwithstanding para6 graphs (A) and (B), the maximum amount of 

7 penalty for each such act or omission shall be 

8 $1,000,000 for a natural person or $2,000,000 for 

9 any other person if— 

10 ‘‘(i) the act or omission described in 

11 paragraph (1) involved fraud, deceit, ma12 nipulation, or deliberate or reckless dis13 regard of a regulatory requirement; and 

14 ‘‘(ii) such act or omission directly or 

15 indirectly resulted in substantial losses or 

16 created a significant risk of substantial 

17 losses to other persons or resulted in sub18 stantial pecuniary gain to the person who 

19 committed the act or omission. 

20 ‘‘(3) EVIDENCE CONCERNING ABILITY TO PAY.— 

21 In any proceeding in which the Commission may im22 pose a penalty under this section, a respondent may 

23 present evidence of the respondent’s ability to pay 

24 such penalty. The Commission may, in its discretion, 

25 consider such evidence in determining whether such 
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1 penalty is in the public interest. Such evidence may 

2 relate to the extent of such person’s ability to continue 

3 in business and the collectability of a penalty, taking 

4 into account any other claims of the United States or 

5 third parties upon such person’s assets and the 

6 amount of such person’s assets.’’. 

7 (2) UNDER THE SECURITIES EXCHANGE ACT OF

8 1934.—Subsection (a) of section 21B of the Securities 

9 Exchange Act of 1934 (15 U.S.C. 78u–2(a)) is 

10 amended— 

11 (A) by striking ‘‘(a) COMMISSION AUTHOR12 ITY TO ASSESS MONEY PENALTIES.—In any 

13 proceeding’’ and inserting the following: 

14 ‘‘(a) COMMISSION AUTHORITY TO ASSESS MONEY

15 PENALTIES.— 

16 ‘‘(1) IN GENERAL.—In any proceeding’’; 

17 (B) by redesignating paragraphs (1) 

18 through (4) of such subsection as subparagraphs 

19 (A) through (D), respectively and moving such 

20 redesignated subparagraphs and the matter fol21 lowing such subparagraphs 2 ems to the right; 

22 and 

23 (C) by adding at the end of such subsection 

24 the following new paragraph: 
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1 ‘‘(2) CEASE-AND-DESIST PROCEEDINGS.—In any 

2 proceeding instituted pursuant to section 21C of this 

3 title against any person, the Commission may impose 

4 a civil penalty if it finds, on the record after notice 

5 and opportunity for hearing, that such person— 

6 ‘‘(A) is violating or has violated any provi7 sion of this title, or any rule or regulation there8 under; or 

9 ‘‘(B) is or was a cause of the violation of 

10 any provision of this title, or any rule or regula11 tion thereunder.’’. 

12 (3) UNDER THE INVESTMENT COMPANY ACT OF

13 1940.—Paragraph (1) of section 9(d) of the Investment 

14 Company Act of 1940 (15 U.S.C. 80a–9(d)(1))) is 

15 amended— 

16 (A) by striking ‘‘(1) AUTHORITY OF COM17 MISSION.—In any proceeding’’ and inserting the 

18 following: 

19 ‘‘(1) AUTHORITY OF COMMISSION.— 

20 ‘‘(A) IN GENERAL.—In any proceeding’’; 

21 (B) by redesignating subparagraphs (A) 

22 through (C) of such paragraph as clauses (i) 

23 through (iii), respectively and by moving such 

24 redesignated clauses and the matter following 

25 such subparagraphs 2 ems to the right; and 
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1 (C) by adding at the end of such paragraph 

2 the following new subparagraph: 

3 ‘‘(B) CEASE-AND-DESIST PROCEEDINGS.— 

4 In any proceeding instituted pursuant to sub5 section (f) against any person, the Commission 

6 may impose a civil penalty if it finds, on the 

7 record after notice and opportunity for hearing, 

8 that such person— 

9 ‘‘(i) is violating or has violated any 

10 provision of this title, or any rule or regula11 tion thereunder; or 

12 ‘‘(ii) is or was a cause of the violation 

13 of any provision of this title, or any rule or 

14 regulation thereunder.’’. 

15 (4) UNDER THE INVESTMENT ADVISERS ACT OF

16 1940.—Paragraph (1) of section 203(i) of the Invest17 ment Advisers Act of 1940 (15 U.S.C. 80b–3(i)(1)) is 

18 amended— 

19 (A) by striking ‘‘(1) AUTHORITY OF COM20 MISSION.—In any proceeding’’ and inserting the 

21 following: 

22 ‘‘(1) AUTHORITY OF COMMISSION.— 

23 ‘‘(A) IN GENERAL.—In any proceeding’’; 

24 (B) by redesignating subparagraphs (A) 

25 through (D) of such paragraph as clauses (i) 
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1 through (iv), respectively and moving such redes2 ignated clauses and the matter following such 

3 subparagraphs 2 ems to the right; and 

4 (C) by adding at the end of such paragraph 

5 the following new subparagraph: 

6 ‘‘(B) CEASE-AND-DESIST PROCEEDINGS.— 

7 In any proceeding instituted pursuant to sub8 section (k) against any person, the Commission 

9 may impose a civil penalty if it finds, on the 

10 record after notice and opportunity for hearing, 

11 that such person— 

12 ‘‘(i) is violating or has violated any 

13 provision of this title, or any rule or regula14 tion thereunder; or 

15 ‘‘(ii) is or was a cause of the violation 

16 of any provision of this title, or any rule or 

17 regulation thereunder.’’. 

18 (b) INCREASED MAXIMUM CIVIL MONEY PENALTIES.— 

19 (1) SECURITIES ACT OF 1933.—Section 20(d)(2) 

20 of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is 

21 amended— 

22 (A) in subparagraph (A)(i)— 

23 (i) by striking ‘‘$5,000’’ and inserting 

24 ‘‘$100,000’’; and 
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1 (ii) by striking ‘‘$50,000’’ and insert2 ing ‘‘$250,000’’; 

3 (B) in subparagraph (B)(i)— 

4 (i) by striking ‘‘$50,000’’ and inserting 

5 ‘‘$500,000’’; and 

6 (ii) by striking ‘‘$250,000’’ and insert7 ing ‘‘$1,000,000’’; and 

8 (C) in subparagraph (C)(i)— 

9 (i) by striking ‘‘$100,000’’ and insert10 ing ‘‘$1,000,000’’; and 

11 (ii) by striking ‘‘$500,000’’ and insert12 ing ‘‘$2,000,000’’. 

13 (2) SECURITIES EXCHANGE ACT OF 1934.— 

14 (A) PENALTIES.—Section 32 of the Securi15 ties Exchange Act of 1934 (15 U.S.C. 78ff) is 

16 amended— 

17 (i) in subsection (b), by striking 

18 ‘‘$100’’ and inserting ‘‘$10,000’’; and 

19 (ii) in subsection (c)— 

20 (I) in paragraph (1)(B), by strik21 ing ‘‘$10,000’’ and inserting 

22 ‘‘$500,000’’; and 

23 (II) in paragraph (2)(B), by 

24 striking ‘‘$10,000’’ and inserting 

25 ‘‘$500,000’’. 
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1 (B) INSIDER TRADING.—Section 21A(a)(3) 

2 of the Securities Exchange Act of 1934 (15 

3 U.S.C. 78u–1(a)(3)) is amended by striking 

4 ‘‘$1,000,000’’ and inserting ‘‘$2,000,000’’. 

5 (C) ADMINISTRATIVE PROCEEDINGS.—Sec6 tion 21B(b) of the Securities Exchange Act of 

7 1934 (15 U.S.C. 78u–2(b)) is amended— 

8 (i) in paragraph (1)— 

9 (I) by striking ‘‘$5,000’’ and in10 serting ‘‘$100,000’’; and 

11 (II) by striking ‘‘$50,000’’ and in12 serting ‘‘$250,000’’; 

13 (ii) in paragraph (2)— 

14 (I) by striking ‘‘$50,000’’ and in15 serting ‘‘$500,000’’; and 

16 (II) by striking ‘‘$250,000’’ and 

17 inserting ‘‘$1,000,000’’; and 

18 (iii) in paragraph (3)— 

19 (I) by striking ‘‘$100,000’’ and 

20 inserting ‘‘$1,000,000’’; and 

21 (II) by striking ‘‘$500,000’’ and 

22 inserting ‘‘$2,000,000’’. 

23 (D) CIVIL ACTIONS.—Section 21(d)(3)(B) of 

24 the Securities Exchange Act of 1934 (15 U.S.C. 

25 78u(d)(3)(B)) is amended— 
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1 (i) in clause (i)(I)— 

2 (I) by striking ‘‘$5,000’’ and in3 serting ‘‘$100,000’’; and 

4 (II) by striking ‘‘$50,000’’ and in5 serting ‘‘$250,000’’; 

6 (ii) in clause (ii)(I)— 

7 (I) by striking ‘‘$50,000’’ and in8 serting ‘‘$500,000’’; and 

9 (II) by striking ‘‘$250,000’’ and 

10 inserting ‘‘$1,000,000’’; and 

11 (iii) in clause (iii)(I)— 

12 (I) by striking ‘‘$100,000’’ and 

13 inserting ‘‘$1,000,000’’; and 

14 (II) by striking ‘‘$500,000’’ and 

15 inserting ‘‘$2,000,000’’. 

16 (3) INVESTMENT COMPANY ACT OF 1940.— 

17 (A) INELIGIBILITY.—Section 9(d)(2) of the 

18 Investment Company Act of 1940 (15 U.S.C. 

19 80a–9(d)(2)) is amended— 

20 (i) in subparagraph (A)— 

21 (I) by striking ‘‘$5,000’’ and in22 serting ‘‘$100,000’’; and 

23 (II) by striking ‘‘$50,000’’ and in24 serting ‘‘$250,000’’; 

25 (ii) in subparagraph (B)— 
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1 (I) by striking ‘‘$50,000’’ and in2 serting ‘‘$500,000’’; and 

3 (II) by striking ‘‘$250,000’’ and 

4 inserting ‘‘$1,000,000’’; and 

5 (iii) in subparagraph (C)— 

6 (I) by striking ‘‘$100,000’’ and 

7 inserting ‘‘$1,000,000’’; and 

8 (II) by striking ‘‘$500,000’’ and 

9 inserting ‘‘$2,000,000’’. 

10 (B) ENFORCEMENT OF INVESTMENT COM11 PANY ACT.—Section 42(e)(2) of the Investment 

12 Company Act of 1940 (15 U.S.C. 80a–41(e)(2)) 

13 is amended— 

14 (i) in subparagraph (A)(i)— 

15 (I) by striking ‘‘$5,000’’ and in16 serting ‘‘$100,000’’; and 

17 (II) by striking ‘‘$50,000’’ and in18 serting ‘‘$250,000’’; 

19 (ii) in subparagraph (B)(i)— 

20 (I) by striking ‘‘$50,000’’ and in21 serting ‘‘$500,000’’; and 

22 (II) by striking ‘‘$250,000’’ and 

23 inserting ‘‘$1,000,000’’; and 

24 (iii) in subparagraph (C)(i)— 
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1 (I) by striking ‘‘$100,000’’ and 

2 inserting ‘‘$1,000,000’’; and 

3 (II) by striking ‘‘$500,000’’ and 

4 inserting ‘‘$2,000,000’’. 

5 (4) INVESTMENT ADVISERS ACT OF 1940.— 

6 (A) REGISTRATION.—Section 203(i)(2) of 

7 the Investment Advisers Act of 1940 (15 U.S.C. 

8 80b–3(i)(2)) is amended— 

9 (i) in subparagraph (A)— 

10 (I) by striking ‘‘$5,000’’ and in11 serting ‘‘$100,000’’; and 

12 (II) by striking ‘‘$50,000’’ and in13 serting ‘‘$250,000’’; 

14 (ii) in subparagraph (B)— 

15 (I) by striking ‘‘$50,000’’ and in16 serting ‘‘$500,000’’; and 

17 (II) by striking ‘‘$250,000’’ and 

18 inserting ‘‘$1,000,000’’; and 

19 (iii) in subparagraph (C)— 

20 (I) by striking ‘‘$100,000’’ and 

21 inserting ‘‘$1,000,000’’; and 

22 (II) by striking ‘‘$500,000’’ and 

23 inserting ‘‘$2,000,000’’. 

24 (B) ENFORCEMENT OF INVESTMENT ADVIS25 ERS ACT.—Section 209(e)(2) of the Investment 
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1 Advisers Act of 1940 (15 U.S.C. 80b–9(e)(2)) is 

2 amended— 

3 (i) in subparagraph (A)(i)— 

4 (I) by striking ‘‘$5,000’’ and in5 serting ‘‘$100,000’’; and 

6 (II) by striking ‘‘$50,000’’ and in7 serting ‘‘$250,000’’; 

8 (ii) in subparagraph (B)(i)— 

9 (I) by striking ‘‘$50,000’’ and in10 serting ‘‘$500,000’’; and 

11 (II) by striking ‘‘$250,000’’ and 

12 inserting ‘‘$1,000,000’’; and 

13 (iii) in subparagraph (C)(i)— 

14 (I) by striking ‘‘$100,000’’ and 

15 inserting ‘‘$1,000,000’’; and 

16 (II) by striking ‘‘$500,000’’ and 

17 inserting ‘‘$2,000,000’’. 

18 (c) AUTHORITY TO OBTAIN FINANCIAL RECORDS.— 

19 Section 21(h) of the Securities Exchange Act of 1934 (15 

20 U.S.C. 78u(h)) is amended— 

21 (1) by striking paragraphs (2) through (8); 

22 (2) in paragraph (9), by striking ‘‘(9)(A)’’ and 

23 all that follows through ‘‘(B) The’’ and inserting ‘‘(3) 

24 The’’; 
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1 (3) by inserting after paragraph (1), the fol2 lowing: 

3 ‘‘(2) ACCESS TO FINANCIAL RECORDS.— 

4 ‘‘(A) IN GENERAL.—Notwithstanding sec5 tion 1105 or 1107 of the Right to Financial Pri6 vacy Act of 1978, the Commission may obtain 

7 access to and copies of, or the information con8 tained in, financial records of any person held 

9 by a financial institution, including the finan10 cial records of a customer, without notice to that 

11 person, when it acts pursuant to a subpoena au12 thorized by a formal order of investigation of the 

13 Commission and issued under the securities laws 

14 or pursuant to an administrative or judicial 

15 subpoena issued in a proceeding or action to en16 force the securities laws. 

17 ‘‘(B) NONDISCLOSURE OF REQUESTS.—If 

18 the Commission so directs in its subpoena, no fi19 nancial institution, or officer, director, partner, 

20 employee, shareholder, representative or agent of 

21 such financial institution, shall, directly or indi22 rectly, disclose that records have been requested 

23 or provided in accordance with subparagraph 

24 (A), if the Commission finds reason to believe 

25 that such disclosure may— 
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1 ‘‘(i) result in the transfer of assets or 

2 records outside the territorial limits of the 

3 United States; 

4 ‘‘(ii) result in improper conversion of 

5 investor assets; 

6 ‘‘(iii) impede the ability of the Com7 mission to identify, trace, or freeze funds 

8 involved in any securities transaction; 

9 ‘‘(iv) endanger the life or physical safe10 ty of an individual; 

11 ‘‘(v) result in flight from prosecution; 

12 ‘‘(vi) result in destruction of or tam13 pering with evidence; 

14 ‘‘(vii) result in intimidation of poten15 tial witnesses; or 

16 ‘‘(viii) otherwise seriously jeopardize 

17 an investigation or unduly delay a trial. 

18 ‘‘(C) TRANSFER OF RECORDS TO GOVERN19 MENT AUTHORITIES.—The Commission may 

20 transfer financial records or the information 

21 contained therein to any government authority, 

22 if the Commission proceeds as a transferring 

23 agency in accordance with section 1112 of the 

24 Right to Financial Privacy Act of 1978 (12 

25 U.S.C. 3412), except that a customer notice shall 
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1 not be required under subsection (b) or (c) of 

2 that section 1112, if the Commission determines 

3 that there is reason to believe that such notifica4 tion may result in or lead to any of the factors 

5 identified under clauses (i) through (viii) of sub6 paragraph (B) of this paragraph.’’; 

7 (4) by striking paragraph (10); and 

8 (5) by redesignating paragraphs (11), (12), and 

9 (13) as paragraphs (4), (5), and (6), respectively. 

10 SEC. 4. AUTHORITY TO ACCEPT PRIVILEGED AND PRO11 TECTED INFORMATION. 

12 Section 24 of the Securities Exchange Act of 1934 (15 

13 U.S.C. 78x) is amended— 

14 (1) by redesignating subsection (e) as subsection 

15 (f); and 

16 (2) by inserting after subsection (d) the following 

17 new subsection: 

18 ‘‘(e) AUTHORITY TO ACCEPT PRIVILEGED AND PRO19 TECTED INFORMATION.— 

20 ‘‘(1) AUTHORITY.—Notwithstanding any other 

21 provision of law, whenever the Commission or an ap22 propriate regulatory agency and any person agree in 

23 writing to terms pursuant to which such person will 

24 produce or disclose to the Commission or the appro25 priate regulatory agency any document or informa-
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1 tion that is subject to any Federal or State law privi2 lege, or to the protection provided by the work product 

3 doctrine, such production or disclosure shall not con4 stitute a waiver of the privilege or protection as to 

5 any person other than the Commission or the appro6 priate regulatory agency to which the document or in7 formation is provided. 

8 ‘‘(2) DEFINITION.—For purposes of this sub9 section, the term ‘appropriate regulatory agency’ 

10 means the Federal Deposit Insurance Corporation, the 

11 Office of the Comptroller of the Currency, the Office 

12 of Thrift Supervision, or the Board of Governors of 

13 the Federal Reserve System.’’. 

14 SEC. 5. ACCESS TO GRAND JURY INFORMATION. 

15 (a) AMENDMENT.—Title VI of the Sarbanes-Oxley Act 

16 of 2002 is amended by adding at the end thereof the fol17 lowing new section: 

18 ‘‘SEC. 605. ACCESS TO GRAND JURY INFORMATION. 

19 ‘‘(a) DISCLOSURE OF CERTAIN MATTERS OCCURRING

20 BEFORE GRAND JURY FOR USE IN ENFORCING SECURITIES

21 LAWS.— 

22 ‘‘(1) IN GENERAL.—Upon motion of an attorney 

23 for the government, a court may direct disclosure of 

24 matters occurring before a grand jury during an in25 vestigation of conduct that may constitute a violation 
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1 of any provision of the securities laws to identified 

2 personnel of the Commission for use in relation to 

3 any matter within the jurisdiction of the Commission. 

4 ‘‘(2) FINDING OF SUBSTANTIAL NEED RE5 QUIRED.—A court may issue an order under para6 graph (1) only upon a finding of a substantial need 

7 in the public interest. 

8 ‘‘(b) RESTRICTED USE OF INFORMATION.—A person to 

9 whom a matter has been disclosed under this section shall 

10 not use such matter other than for the purpose for which 

11 such disclosure was authorized. 

12 ‘‘(c) DEFINITIONS.—As used in this section, the terms 

13 ‘attorney for the government’ and ‘grand jury information’ 

14 have the meanings given to those terms in section 3322 of 

15 title 18, United States Code.’’. 

16 (b) CONFORMING AMENDMENT.—The table of contents 

17 in section 1(b) of the Sarbanes-Oxley Act of 2002 is amend18 ed by inserting after the item relating to section 604 the 

19 following: 

‘‘Sec. 605. Access to grand jury information.’’. 

20 SEC. 6. NATIONWIDE SERVICE OF PROCESS. 

21 (a) SECURITIES ACT OF 1933.—Section 22(a) of the 

22 Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by 

23 inserting after the second sentence the following: ‘‘In any 

24 action or proceeding instituted by the Commission under 

25 this title in a United States district court for any judicial 
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1 district, subpoenas issued by or on behalf of such court to 

2 compel the attendance of witnesses or the production of doc3 uments or tangible things (or both) may be served in any 

4 other district. Such subpoenas may be served and enforced 

5 without application to the court or a showing of cause, not6 withstanding the provisions of rule 45(b)(2), (c)(3)(A)(ii), 

7 and (c)(3)(B)(iii) of the Federal Rules of Civil Procedure.’’. 

8 (b) SECURITIES EXCHANGE ACT OF 1934.—Section 27 

9 of the Securities Exchange Act of 1934 (15 U.S.C. 78aa) 

10 is amended by inserting after the second sentence the fol11 lowing: ‘‘In any action or proceeding instituted by the Com12 mission under this title in a United States district court 

13 for any judicial district, subpoenas issued by or on behalf 

14 of such court to compel the attendance of witnesses or the 

15 production of documents or tangible things (or both) may 

16 be served in any other district. Such subpoenas may be 

17 served and enforced without application to the court or a 

18 showing of cause, notwithstanding the provisions of rule 

19 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal 

20 Rules of Civil Procedure.’’. 

21 (c) INVESTMENT COMPANY ACT OF 1940.—Section 44 

22 of the Investment Company Act of 1940 (15 U.S.C. 80a– 

23 43) is amended by inserting after the fourth sentence the 

24 following: ‘‘In any action or proceeding instituted by the 

25 Commission under this title in a United States district 
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1 court for any judicial district, subpoenas issued by or on 

2 behalf of such court to compel the attendance of witnesses 

3 or the production of documents or tangible things (or both) 

4 may be served in any other district. Such subpoenas may 

5 be served and enforced without application to the court or 

6 a showing of cause, notwithstanding the provisions of rule 

7 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal 

8 Rules of Civil Procedure.’’. 

9 (d) INVESTMENT ADVISERS ACT OF 1940.—Section 

10 214 of the Investment Advisers Act of 1940 (15 U.S.C. 80b– 

11 14) is amended by inserting after the third sentence the fol12 lowing: ‘‘In any action or proceeding instituted by the Com13 mission under this title in a United States district court 

14 for any judicial district, subpoenas issued by or on behalf 

15 of such court to compel the attendance of witnesses or the 

16 production of documents or tangible things (or both) may 

17 be served in any other district. Such subpoenas may be 

18 served and enforced without application to the court or a 

19 showing of cause, notwithstanding the provisions of rule 

20 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal 

21 Rules of Civil Procedure.’’. 
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1 SEC. 7. AUTHORITY TO CONTRACT WITH PRIVATE COUNSEL 

2 FOR LEGAL SERVICES TO COLLECT DELIN3 QUENT JUDGMENTS AND ORDERS. 

4 Subsection (b) of section 4 of the Securities Exchange 

5 Act of 1934 (15 U.S.C. 78d(b)) is amended— 

6 (1) in the subsection heading by striking ‘‘AND

7 LEASING AUTHORITY.—’’ and inserting ‘‘, LEASING

8 AUTHORITY, AND CONTRACTING AUTHORITY.—’’; and 

9 (2) by adding at the end of such subsection the 

10 following new paragraph: 

11 ‘‘(4) CONTRACTING AUTHORITY.— 

12 ‘‘(A) IN GENERAL.—Notwithstanding any 

13 other provision of law, the Commission is au14 thorized to enter into contracts to retain private 

15 legal counsel to furnish legal services, including 

16 representation in litigation, negotiation, com17 promise, and settlement, in the case of any claim 

18 of indebtedness resulting from any judgment or 

19 order (either by litigation or settlement) obtained 

20 by the Commission in any judicial action or ad21 ministrative proceeding brought by or on behalf 

22 of the Commission. Private counsel retained 

23 under this paragraph may represent the Com24 mission in such debt collection matters to the 

25 same extent as the Commission may represent 

26 itself. 
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1 ‘‘(B) TERMS AND CONDITIONS OF CON2 TRACT.—Each such contract shall include such 

3 terms and conditions as the Commission con4 siders necessary and appropriate, and shall in5 clude provisions specifying— 

6 ‘‘(i) the amount of the fee to be paid to 

7 the private counsel under such contract or 

8 the method for calculating that fee; 

9 ‘‘(ii) that the Commission retains the 

10 authority to represent itself, resolve a dis11 pute, compromise a claim, end collection ef12 forts, and refer a matter to other private 

13 counsel or to the Attorney General; and 

14 ‘‘(iii) that the Commission may termi15 nate either the contract or the private coun16 sel’s representation of the Commission in 

17 particular cases for any reason, including 

18 for the convenience of the Commission. 

19 ‘‘(C) PAYMENT OF FEES.—Notwithstanding 

20 section 3302(b) of title 31, United States Code, 

21 a contract under this paragraph may provide 

22 that fees and costs incurred by private counsel 

23 under such contracts are payable from the 

24 amounts recovered. 
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1 ‘‘(D) COMPETITION REQUIREMENTS.—Noth2 ing in this paragraph shall relieve the Commis3 sion of the competition requirements set forth in 

4 title III of the Federal Property and Administra5 tive Services Act of 1949 (41 U.S.C. 251 et seq.). 

6 ‘‘(E) COUNTERCLAIMS.—In any action to 

7 recover indebtedness which is brought on behalf 

8 of the Commission by private counsel retained 

9 under this paragraph, no counterclaim may be 

10 asserted against the Commission unless the coun11 terclaim is served directly on the Commission. 

12 Such service shall be made in accordance with 

13 the rules of procedure of the court in which the 

14 action is brought.’’. 

15 SEC. 8. FAIR ACT AMENDMENTS. 

16 (a) CIVIL PENALTIES.—Section 308(a) of the Sar17 banes-Oxley Act of 2002 (15 U.S.C. 7246(a)) is amended 

18 to read as follows; 

19 ‘‘(a) CIVIL PENALTIES TO BE USED FOR THE RELIEF

20 OF VICTIMS.—If in any judicial or administrative action 

21 brought by the Commission under the securities laws (as 

22 such term is defined in section 3(a)(47) of the Securities 

23 Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) the Commis24 sion obtains pursuant to such laws a civil penalty against 

25 any person, such civil penalty monies shall, on the motion 
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1 or at the direction of the Commission, be added to and be2 come part of a fund for the benefit of the victims of such 

3 violation.’’. 

4 (b) STUDY ON FEDERAL AND STATE SECURITIES CO5 ORDINATION, COOPERATION, AND COMMUNICATION.— 

6 (1) STUDY.—The Securities and Exchange Com7 mission shall seek to produce a joint study in co8 operation with an association of duly constituted rep9 resentatives of State governments whose primary as10 signment is the regulation of the securities business 

11 within those States, on improved coordination, co12 operation and communication between the Commis13 sion and State securities regulators. 

14 (2) SUBJECT OF STUDY.—If the association re15 ferred to in paragraph (1) agrees to participate in 

16 such a study, the study shall be prepared jointly by 

17 the Commission and the association, and shall be 

18 based on an initiative announced September 14, 

19 2003, between the Commission and the association 

20 aimed at improving coordination, cooperation, and 

21 communication between the Commission and State se22 curities regulators. 

23 (3) REPORT.—If the association referred to in 

24 paragraph (1) agrees to participate in such a study, 

25 the results of the study shall be jointly reported to the 
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1 Committee on Financial Services of the House of Rep2 resentatives and the Committee on Banking, Housing, 

3 and Urban Affairs of the Senate by September 14, 

4 2005, or 1 year after the date of enactment of this 

5 Act, whichever is later. 

6 (c) ADDITIONAL PROVISIONS.—Section 308 of the Sar7 banes-Oxley Act of 2002 (15 U.S.C. 7246) is further amend8 ed— 

9 (1) by redesignating subsections (c), (d), and (e) 

10 as subsections (e), (f), and (g), respectively; and 

11 (2) by inserting the following after subsection 

12 (b): 

13 ‘‘(c) USE OF INVESTOR RESTITUTION FUND BY

14 STATES.—The Commission may allow a State that has re15 ceived penalty or disgorgement payments pursuant to an 

16 agreement or settlement with a broker or dealer or other 

17 party in an action concerning securities fraud to contribute 

18 those payments to a fund administered by the Commission 

19 for the purpose of making restitution payments to investors, 

20 whether or not the Commission was a party to the agree21 ment or settlement or had established such fund prior to 

22 the State’s contribution. The Commission shall have the au23 thority otherwise available to it under the securities laws 

24 with respect to the administration and distribution of such 

25 funds. 
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1 ‘‘(d) UNDISTRIBUTED FUNDS TO BE USED FOR IN2 VESTOR EDUCATION.—In any judicial or administrative 

3 action in which a fund is created pursuant to subsection 

4 (a) or in which the Commission had obtained disgorgement, 

5 if the Commission determines (due to the size of the fund 

6 to be distributed, the number of investors, the nature of the 

7 underlying violation, or for other reasons) that it would be 

8 infeasible to distribute such fund or disgorgement to the vic9 tims of the violation, or if after distribution of the fund 

10 or disgorgement to victims there are excess monies remain11 ing, the Commission may move for an order in a judicial 

12 action, or may issue an order in an administrative pro13 ceeding, requiring that the undistributed amount of the 

14 fund or disgorgement be used for investor education pro15 grams administered by an established not-for-profit or gov16 ernmental organization whose purposes include investor 

17 education and financial literacy.’’. 

18 SEC. 9. REDUCTION OF EXCESSIVE DISTRIBUTION AND 

19 MARKETING FEES. 

20 Within 90 days after the date of enactment of this Act, 

21 the Securities and Exchange Commission shall, by rule or 

22 regulation under the Investment Company Act of 1940, pro23 hibit as unreasonable or deceptive any fee by a registered 

24 open-end investment company under a plan adopted pursu25 ant to rule 12b–1 of the Commission’s rules (17 CFR 
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1 270.12b–1) that continues to include any charges for ex2 penses for any activity after such company has been closed 

3 to new investors, other than shareholder servicing activities 

4 the costs of which are collected directly and transparently 

5 from the investor. 

6 SEC. 10. DISCLOSURE RESPONSIBILITIES AT CONTRACT RE7 NEWAL. 

8 Subsection (c) of section 15 of the Investment Com9 pany Act of 1940 (15 U.S.C. 80a–15(c)) is amended to read 

10 as follows: 

11 ‘‘(c) PROCESS FOR CONTRACT RENEWAL.— 

12 ‘‘(1) APPROVAL BY MAJORITY OF INDEPENDENT

13 DIRECTORS.—In addition to the requirements of sub14 sections (a) and (b) of this section, it shall be unlaw15 ful for any registered investment company having a 

16 board of directors to enter into, renew, or perform 

17 any contract or agreement, written or oral, whereby 

18 a person undertakes regularly to serve or act as in19 vestment adviser of or principal underwriter for such 

20 company, unless the terms of such contract or agree21 ment and any renewal thereof have been approved by 

22 the vote of a majority of directors, who are not parties 

23 to such contract or agreement or interested persons of 

24 any such party, cast in person at a meeting called for 

25 the purpose of voting on such approval. 
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1 ‘‘(2) INFORMATION DISCLOSURES AND EVALUA2 TIONS.— 

3 ‘‘(A) IN GENERAL.—It shall be the duty of 

4 the directors of a registered investment company 

5 to request and evaluate, and the duty of an in6 vestment adviser or principal underwriter of 

7 such company to furnish, such information as 

8 may reasonably be necessary to evaluate the 

9 terms of any contract whereby a person under10 takes regularly to serve or act as investment ad11 viser or principal underwriter of such company. 

12 ‘‘(B) INVESTMENT ADVISER DUTY.—In ad13 dition to the investment adviser’s duty under 

14 subparagraph (A), when entering into or renew15 ing a contract or agreement, it shall be the duty 

16 of the investment adviser— 

17 ‘‘(i) to provide the independent direc18 tors of a registered investment company 

19 with all material information about any of 

20 its business practices, or the business prac21 tices of any of its affiliated persons, that 

22 may conflict with the best interests of the 

23 shareholders of the registered investment 

24 company; and 
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1 ‘‘(ii) to specify and commit to imple2 ment procedures that are reasonably de3 signed to ensure services are provided in the 

4 best interests of such shareholders. 

5 ‘‘(C) PRINCIPAL UNDERWRITER DUTY.—In 

6 addition to the principal underwriter’s duty 

7 under subparagraph (A), when entering into or 

8 renewing a contract or agreement, it shall be the 

9 duty of the principal underwriter— 

10 ‘‘(i) to provide the independent direc11 tors of a registered investment company 

12 with all material information about any of 

13 its business practices that may conflict with 

14 the best interests of the shareholders of the 

15 registered investment company; and 

16 ‘‘(ii) to specify and commit to imple17 ment procedures that are reasonably de18 signed to ensure services are provided in the 

19 best interests of such shareholders. 

20 ‘‘(D) INDEPENDENT DIRECTORS DUTY.—In 

21 addition to the independent directors’ duty 

22 under subparagraph (A), it shall be the duty of 

23 the independent directors to determine whether 

24 the specified procedures of the investment adviser 

25 and the principal underwriter offer a reasonable 
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1 likelihood of protecting the best interests of the 

2 shareholders of the registered investment com3 pany. 

4 ‘‘(3) LIMITATION ON CONSIDERATIONS.—It shall 

5 be unlawful for the directors of a registered invest6 ment company, in connection with their evaluation of 

7 the terms of any contract whereby a person under8 takes regularly to serve or act as investment adviser 

9 of such company, to take into account the purchase 

10 price or other consideration any person may have 

11 paid in connection with a transaction of the type re12 ferred to in paragraph (1), (3), or (4) of subsection 

13 (f).’’. 

14 SEC. 11. METHOD OF MAINTAINING BROKER/DEALER REG15 ISTRATION, DISCIPLINARY, AND OTHER DATA. 

16 Subsection (i) of section 15A of the Securities Ex17 change Act of 1934 (15 U.S.C. 78o–3(i)) is amended to read 

18 as follows: 

19 ‘‘(i) OBLIGATION TO MAINTAIN REGISTRATION, DIS20 CIPLINARY AND OTHER DATA.— 

21 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO

22 INQUIRIES.—A registered securities association 

23 shall— 
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1 ‘‘(A) establish and maintain a system for 

2 collecting and retaining registration informa3 tion; 

4 ‘‘(B) establish and maintain a toll-free tele5 phone listing, and a readily accessible electronic 

6 or other process, to receive and promptly respond 

7 to inquiries regarding— 

8 ‘‘(i) registration information on its 

9 members and their associated persons; and 

10 ‘‘(ii) registration information on the 

11 members and their associated persons of 

12 any registered national securities exchange 

13 that uses the system described in subpara14 graph (A) for the registration of its mem15 bers and their associated persons; and 

16 ‘‘(C) adopt rules governing the process for 

17 making inquiries and the type, scope, and pres18 entation of information to be provided in re19 sponse to such inquiries in consultation with 

20 any registered national securities exchange pro21 viding information pursuant to subparagraph 

22 (B)(ii). 

23 ‘‘(2) RECOVERY OF COSTS.—Such an association 

24 may charge persons making inquiries, other than in-
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1 dividual investors, reasonable fees for responses to 

2 such inquiries. 

3 ‘‘(3) PROCESS FOR DISPUTED INFORMATION.— 

4 Such an association shall adopt rules establishing an 

5 administrative process for disputing the accuracy of 

6 information provided in response to inquiries under 

7 this subsection in consultation with any registered 

8 national securities exchange providing information 

9 pursuant to paragraph (1)(B)(ii). 

10 ‘‘(4) LIMITATION OF LIABILITY.—Such an asso11 ciation, or exchange reporting information to such an 

12 association, shall not have any liability to any person 

13 for any actions taken or omitted in good faith under 

14 this subsection. 

15 ‘‘(5) DEFINITION.—For purposes of this sub16 section, the term ‘registration information’ means the 

17 information reported in connection with the registra18 tion or licensing of brokers and dealers and their as19 sociated persons, including disciplinary actions, regu20 latory, judicial, and arbitration proceedings, and 

21 other information required by law, or exchange or as22 sociation rule, and the source and status of such in23 formation. ’’. 
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1 SEC. 12. FILING DEPOSITORIES FOR INVESTMENT ADVIS2 ERS. 

3 (a) AMENDMENT.—Section 204 of the Investment Ad4 visers Act of 1940 (15 U.S.C. 80b–4) is amended— 

5 (1) by striking ‘‘Every investment’’ and insert6 ing the following: 

7 ‘‘(a) IN GENERAL.—Every investment’’; and 

8 (2) by adding at the end the following: 

9 ‘‘(b) FILING DEPOSITORIES.—The Commission may, 

10 by rule, require an investment adviser— 

11 ‘‘(1) to file with the Commission any fee, appli12 cation, report, or notice required to be filed by this 

13 title or the rules issued under this title through any 

14 entity designated by the Commission for that purpose; 

15 and 

16 ‘‘(2) to pay the reasonable costs associated with 

17 such filing and the establishment and maintenance of 

18 the systems required by subsection (c). 

19 ‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFORMA20 TION.— 

21 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO

22 INQUIRIES.—The Commission shall require the entity 

23 designated by the Commission under subsection (b)(1) 

24 to establish and maintain a toll-free telephone listing, 

25 and a readily accessible electronic or other process, to 

26 receive and promptly respond to inquiries regarding 
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1 registration information (including disciplinary ac2 tions, regulatory, judicial, and arbitration pro3 ceedings, and other information required by law or 

4 rule to be reported) involving investment advisers and 

5 persons associated with investment advisers. 

6 ‘‘(2) RECOVERY OF COSTS.—An entity des7 ignated by the Commission under subsection (b)(1) 

8 may charge persons making inquiries, other than in9 dividual investors, reasonable fees for responses to in10 quiries made under paragraph (1). 

11 ‘‘(3) LIMITATION ON LIABILITY.—An entity des12 ignated by the Commission under subsection (b)(1) 

13 shall not have any liability to any person for any ac14 tions taken or omitted in good faith under this sub15 section.’’. 

16 (b) CONFORMING AMENDMENTS.— 

17 (1) Section 203A of the Investment Advisers Act 

18 of 1940 (15 U.S.C. 80b–3a) is amended— 

19 (A) by striking subsection (d); and 

20 (B) by redesignating subsection (e) as sub21 section (d). 

22 (2) Section 306 of the National Securities Mar23 kets Improvement Act of 1996 (15 U.S.C. 80b–10, 

24 note; Public Law 104–290; 110 Stat. 3439) is re25 pealed. 
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1 SEC. 13. LEAD INDEPENDENT DIRECTOR. 

2 Section 10(a) of the Investment Company Act of 1940 

3 (15 U.S.C. 80a–10(a)) is amended— 

4 (1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and 

5 (2) by adding at the end the following new para6 graph: 

7 ‘‘(2) The board of directors of such a company shall 

8 select a lead independent director who is not an interested 

9 person and who shall (A) have authority to place items on 

10 the agenda for consideration, call meetings, and obtain out11 side advice on behalf of the independent directors, and (B) 

12 have such other authority as the Commission determines by 

13 rule to be necessary or useful. This paragraph shall not 

14 apply if the chairman of the board is an independent direc15 tor.’’. 

16 SEC. 14. ENHANCED OVERSIGHT OF PERIODIC DISCLO17 SURES BY ISSUERS. 

18 Within 1 year after the date of enactment of this Act, 

19 the Securities and Exchange Commission— 

20 (1) shall conduct a thorough review of the finan21 cial statements contained in the most recent periodic 

22 disclosures filed with the Commission by the largest 

23 250 reporting issuers, and as many other reporting 

24 issuers as the Commission finds appropriate; 
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1 (2) shall query such issuers with respect to any 

2 confusing, ambiguous, or unclear statement in such 

3 disclosures that would be of interest to investors; 

4 (3) shall require such issuers to respond fully to 

5 such queries, by such deadlines as the Commission 

6 may impose, and to clarify such statements as nec7 essary for the protection of investors; and 

8 (4) may require the issuer’s response to be ac9 companied by an auditor’s opinion as to— 

10 (A) whether that response sets forth the in11 formation presented in accordance with generally 

12 accepted accounting principles, and 

13 (B) whether the auditor reached that conclu14 sion after applying generally accepted auditing 

15 standards to the information presented in the re16 sponse. 

17 SEC. 15. SENSE OF CONGRESS. 

18 It is the sense of Congress that the Administrator of 

19 the Investor Education Fund of the 2003 Global Research 

20 Analyst Settlement should award— 

21 (1) $5,000,000 of the Investor Education Fund 

22 in the form of competitive grants to economic edu23 cation programs administered by national non-profit 

24 educational organizations whose primary purpose is 

25 improving the quality of minority and low-income 
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1 individuals’ understanding of personal finance and 

2 economics; and 

3 (2) $5,000,000 of the Investor Education Fund 

4 in the form of competitive grants to economic edu5 cation programs administered by national non-profit 

6 educational organizations whose primary purpose is 

7 improving the quality of elementary and secondary 

8 students’ understanding of personal finance and eco9 nomics. 
Union Calendar No. 298 

108TH CONGRESS 

2D SESSION H. R. 2179 

[Report No. 108–475, Part I] 

A BILL 

To enhance the authority of the Securities and Exand for other purposes. its ability to return funds to defrauded investors, deter securities laws violations, and to improve change Commission to investigate, punish, and 

JUNE 1, 2004 

The Committee on the Judiciary discharged; committed 

the Union and ordered to be printed to the Committee of the Whole House on the State of