PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 745

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 ‘‘SarbanesOxley 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.

15 USC 7201

note.

Sarbanes-Oxley

Act of 2002.

Corporate

responsibility.

July 30, 2002

[H.R. 3763]

116 STAT. 746 PUBLIC LAW 107–204—JULY 30, 2002

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

15 USC 7201.

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 747

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—

116 STAT. 748 PUBLIC LAW 107–204—JULY 30, 2002

(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)).

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 749

(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

15 USC 7202.

116 STAT. 750 PUBLIC LAW 107–204—JULY 30, 2002

(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,

15 USC 7211.

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 751

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

Deadline.

116 STAT. 752 PUBLIC LAW 107–204—JULY 30, 2002

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.

Contracts.

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 753

(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;

15 USC 7212.

Deadline.

116 STAT. 754 PUBLIC LAW 107–204—JULY 30, 2002

(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

Deadline.

PUBLIC LAW 107–204—JULY 30, 2002 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)—

15 USC 7213.

116 STAT. 756 PUBLIC LAW 107–204—JULY 30, 2002

(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

PUBLIC LAW 107–204—JULY 30, 2002 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

15 USC 7214.

116 STAT. 758 PUBLIC LAW 107–204—JULY 30, 2002

(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—

PUBLIC LAW 107–204—JULY 30, 2002 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.

Establishment.

15 USC 7215.

116 STAT. 760 PUBLIC LAW 107–204—JULY 30, 2002

(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;

Notification.

PUBLIC LAW 107–204—JULY 30, 2002 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 GrammLeach-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

116 STAT. 762 PUBLIC LAW 107–204—JULY 30, 2002

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.

PUBLIC LAW 107–204—JULY 30, 2002 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

116 STAT. 764 PUBLIC LAW 107–204—JULY 30, 2002

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

15 USC 7216.

PUBLIC LAW 107–204—JULY 30, 2002 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.

15 USC 7217.

116 STAT. 766 PUBLIC LAW 107–204—JULY 30, 2002

(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—

PUBLIC LAW 107–204—JULY 30, 2002 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

116 STAT. 768 PUBLIC LAW 107–204—JULY 30, 2002

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.

15 USC 7218.

PUBLIC LAW 107–204—JULY 30, 2002 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.—

15 USC 7219.

Regulations.

116 STAT. 770 PUBLIC LAW 107–204—JULY 30, 2002

(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

PUBLIC LAW 107–204—JULY 30, 2002 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;

116 STAT. 772 PUBLIC LAW 107–204—JULY 30, 2002

‘‘(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.

15 USC 7231.

PUBLIC LAW 107–204—JULY 30, 2002 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

116 STAT. 774 PUBLIC LAW 107–204—JULY 30, 2002

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

15 USC 78j–1.

PUBLIC LAW 107–204—JULY 30, 2002 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.—

15 USC 78j–1.

15 USC 7234.

Deadline.

15 USC 7233.

Deadline.

15 USC 7232.

116 STAT. 776 PUBLIC LAW 107–204—JULY 30, 2002

‘‘(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—

Deadline.

PUBLIC LAW 107–204—JULY 30, 2002 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.

15 USC 7241.

116 STAT. 778 PUBLIC LAW 107–204—JULY 30, 2002

(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.—

15 USC 7243.

15 USC 7242.

PUBLIC LAW 107–204—JULY 30, 2002 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

15 USC 7244.

116 STAT. 780 PUBLIC LAW 107–204—JULY 30, 2002

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:

PUBLIC LAW 107–204—JULY 30, 2002 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

116 STAT. 782 PUBLIC LAW 107–204—JULY 30, 2002

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

PUBLIC LAW 107–204—JULY 30, 2002 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.’’.

Regulations.

Deadlines.

116 STAT. 784 PUBLIC LAW 107–204—JULY 30, 2002

(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

15 USC 7246.

Deadline.

15 USC 7245.

PUBLIC LAW 107–204—JULY 30, 2002 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

15 USC 7261.

Deadline.

116 STAT. 786 PUBLIC LAW 107–204—JULY 30, 2002

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 offbalance 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;

Deadline.

Deadline.

Deadline.

Deadline.

Regulations.

PUBLIC LAW 107–204—JULY 30, 2002 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 offbalance 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

116 STAT. 788 PUBLIC LAW 107–204—JULY 30, 2002

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 securitybased 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 SarbanesOxley 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

Deadline.

Deadline.

PUBLIC LAW 107–204—JULY 30, 2002 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;

Regulations.

Regulations.

15 USC 7264.

15 USC 7263.

15 USC 7262.

15 USC 78p note.

Deadline.

116 STAT. 790 PUBLIC LAW 107–204—JULY 30, 2002

(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;

15 USC 7266.

15 USC 7265.

PUBLIC LAW 107–204—JULY 30, 2002 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

Deadline.

15 USC 78o–6.

116 STAT. 792 PUBLIC LAW 107–204—JULY 30, 2002

‘‘(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;

PUBLIC LAW 107–204—JULY 30, 2002 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

15 USC 78o–6

note.

116 STAT. 794 PUBLIC LAW 107–204—JULY 30, 2002

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

15 USC 78d–3.

PUBLIC LAW 107–204—JULY 30, 2002 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

116 STAT. 796 PUBLIC LAW 107–204—JULY 30, 2002

‘‘(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)’’.

PUBLIC LAW 107–204—JULY 30, 2002 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;

Deadline.

15 USC 7201

note.

116 STAT. 798 PUBLIC LAW 107–204—JULY 30, 2002

(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

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PUBLIC LAW 107–204—JULY 30, 2002 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

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116 STAT. 800 PUBLIC LAW 107–204—JULY 30, 2002

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:

‘‘§ 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.

‘‘§ 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.’’.

Regulations.

18 USC 1501

note.

Corporate and

Criminal Fraud

Accountability

Act of 2002.

PUBLIC LAW 107–204—JULY 30, 2002 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.

28 USC 1658

note.

28 USC 1658

note.

116 STAT. 802 PUBLIC LAW 107–204—JULY 30, 2002

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:

‘‘§ 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)),

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28 USC 994 note.

PUBLIC LAW 107–204—JULY 30, 2002 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.

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116 STAT. 804 PUBLIC LAW 107–204—JULY 30, 2002

‘‘(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:

‘‘§ 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’’.

18 USC 1341

note.

White-Collar

Crime Penalty

Enhancement

Act of 2002.

PUBLIC LAW 107–204—JULY 30, 2002 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:

‘‘§ 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;

28 USC 994 note.

116 STAT. 806 PUBLIC LAW 107–204—JULY 30, 2002

(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:

‘‘§ 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.’’.

PUBLIC LAW 107–204—JULY 30, 2002 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

15 USC 78a note.

Corporate Fraud

Accountability

Act of 2002.

116 STAT. 808 PUBLIC LAW 107–204—JULY 30, 2002

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

28 USC 994 note.

PUBLIC LAW 107–204—JULY 30, 2002 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:

Deadline.

116 STAT. 810 PUBLIC LAW 107–204—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.

Æ

‘‘(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.

Penalties.