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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 1976 Introduced in Senate (IS)]

103d CONGRESS
  2d Session
                                S. 1976

  To amend the Securities Exchange Act of 1934 to establish a filing 
deadline and to provide certain safeguards to ensure that the interests 
   of investors are well protected under the implied private action 
                         provisions of the Act.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

             March 24 (legislative day, February 22), 1994

 Mr. Dodd (for himself, Mr. Domenici, Ms. Mikulski, Mr. Johnston, and 
Mr. Faircloth) introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL

 
  To amend the Securities Exchange Act of 1934 to establish a filing 
deadline and to provide certain safeguards to ensure that the interests 
   of investors are well protected under the implied private action 
                         provisions of the Act.

    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 ``Private Securities 
Litigation Reform Act of 1994''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
                 TITLE I--PRIVATE SECURITIES LITIGATION

Sec. 101. Elimination of certain abusive practices.
Sec. 102. Alternative dispute resolution procedure; time limitation on 
                            private rights of action.
Sec. 103. Plaintiff steering committees.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Amendment to Racketeer Influenced and Corrupt Organizations 
                            Act.
                     TITLE II--FINANCIAL DISCLOSURE

Sec. 201. Safe harbor for forward-looking statements.
Sec. 202. Fraud detection and disclosure.
Sec. 203. Proportionate liability and joint and several liability.
Sec. 204. Public Auditing Self-Disciplinary Board.

                 TITLE I--PRIVATE SECURITIES LITIGATION

SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

    (a) Receipt for Referral Fees.--Section 15(c) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end 
the following new paragraph:
            ``(7) Receipt of referral fees.--No broker or dealer, or 
        person associated with a broker or dealer, may solicit or 
        accept remuneration for assisting an attorney in obtaining the 
        representation of any customer in any implied private action 
        arising under this title.''.
    (b) Prohibition on Attorneys' Fees Paid From Commission 
Disgorgement Funds.--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 
new paragraph:
            ``(4) Prohibition on attorneys' fees paid from commission 
        disgorgement funds.--Except as otherwise ordered by the court, 
        funds disgorged as the result of an action brought by the 
        Commission in Federal court, or of any Commission 
        administrative action, shall not be distributed as payment for 
        attorneys' fees or expenses incurred by private parties seeking 
        distribution of the disgorged funds.''.
    (c) Additional Provisions Applicable to Class Actions.--Section 21 
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by 
adding at the end the following new subsections:
    ``(i) Recovery by Named Plaintiffs in Class Actions.--In an implied 
private action arising under this title that is certified as a class 
action pursuant to the Federal Rules of Civil Procedure, the share of 
any final judgment or of any settlement that is awarded to class 
plaintiffs serving as the representative parties shall be calculated in 
the same manner as the shares of the final judgment or settlement 
awarded to all other members of the class. Nothing in this subsection 
shall be construed to limit the award to any representative parties of 
reasonable compensation, costs, and expenses (including lost wages) 
relating to the representation of the class.
    ``(j) Conflicts of Interest.--In an implied private action arising 
under this title that is certified as a class action pursuant to the 
Federal Rules of Civil Procedure, if a party is represented by an 
attorney who directly owns or otherwise has a beneficial interest in 
the securities that are the subject of the litigation, the court shall 
make a determination of whether such interest constitutes a conflict of 
interest sufficient to disqualify the attorney from representing the 
party.
    ``(k) Restrictions on Settlements Under Seal.--In an implied 
private action arising under this title that is certified as a class 
action pursuant to the Federal Rules of Civil Procedure, the terms and 
provisions of any settlement agreement between any of the parties shall 
not be filed under seal, except that on motion of any of the parties to 
the settlement, the court may order filing under seal for those 
portions of a settlement agreement as to which good cause is shown for 
such filing under seal. Good cause shall only exist if publication of a 
term or provision of a settlement agreement would cause direct and 
substantial harm to any person.
    ``(l) Restrictions on Payment of Attorneys' Fees From Settlement 
Funds.--In an implied private action arising under this title that is 
certified as a class action pursuant to the Federal Rules of Civil 
Procedure, attorneys' fees awarded by the court to counsel for the 
class shall be determined as a percentage of the amount of damages and 
prejudgment interest actually paid to the class as a result of the 
attorneys' efforts. In no event shall the amount awarded to counsel for 
the class exceed a reasonable percentage of the amount recovered by the 
class plus reasonable expenses.
    ``(m) Disclosure of Settlement Terms to Class Members.--In an 
implied private action arising under this title that is certified as a 
class action pursuant to the Federal Rules of Civil Procedure, a 
proposed settlement agreement that is published or otherwise 
disseminated to the class shall include the following statements, which 
shall not be admissible for purposes of any Federal or State judicial 
or administrative proceeding:
            ``(1) Statement of potential outcome of case.--
                    ``(A) Agreement on amount of damages and likelihood 
                of prevailing.--If the settling parties agree on the 
                amount of damages per share that would be recoverable 
                if the plaintiff prevailed on each claim alleged under 
                this title and the likelihood that the plaintiff would 
                prevail--
                            ``(i) a statement concerning the amount of 
                        such potential damages; and
                            ``(ii) a statement concerning the 
                        probability that the plaintiff would prevail on 
                        the claims alleged under this title and a brief 
                        explanation of the reasons for that conclusion.
                    ``(B) Disagreement on amount of damages or 
                likelihood of prevailing.--If the parties do not agree 
                on the amount of damages per share that would be 
                recoverable if the plaintiff prevailed on each claim 
                alleged under this title or on the likelihood that the 
                plaintiff would prevail on those claims, or both, a 
                statement from each settling party concerning the issue 
                or issues on which the parties disagree.
                    ``(C) Inadmissibility for certain purposes.--
                Statements made in accordance with subparagraphs (A) 
                and (B) shall not be admissible for purposes of any 
                Federal or State judicial or administrative proceeding.
            ``(2) Statement of attorneys' fees or costs sought.--If any 
        of the settling parties or their counsel intend to apply to the 
        court for an award of attorneys' fees or costs from any fund 
        established as part of the settlement, a statement indicating 
        which parties or counsel intend to make such an application, 
        the amount of fees and costs that will be sought, and a brief 
        explanation of the basis for the application.
            ``(3) Identification of representatives.--The name, 
        telephone number, and address of one or more representatives of 
        counsel for the plaintiff class who will be reasonably 
        available to answer questions from class members concerning any 
        matter contained in any notice of settlement published or 
        otherwise disseminated to class members.
            ``(4) Other information.--Such other information as may be 
        required by the court, or by any guardian ad litem or plaintiff 
        steering committee appointed by the court pursuant to section 
        38.
    ``(n) Special Verdicts.--In an implied private action arising under 
this title in which the plaintiff may recover money damages only on 
proof that a defendant acted with a particular state of mind, the court 
shall, when requested by a defendant, submit to the jury a written 
interrogatory on the issue of each such defendant's state of mind at 
the time the alleged violation occurred.
    ``(o) Named Plaintiff Threshold.--In an implied private action 
arising under this title, in order for a plaintiff or plaintiffs to 
obtain certification as representatives of a class of investors 
pursuant to the Federal Rules of Civil Procedure, the plaintiff or 
plaintiffs must show that they owned, in the aggregate, during the time 
period in which violations of this title are alleged to have occurred, 
not less than the lesser of--
            ``(1) 1 percent of the securities which are the subject of 
        the litigation; or
            ``(2) $10,000 (in market value) of such securities.''.

SEC. 102. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE; TIME LIMITATION ON 
              PRIVATE RIGHTS OF ACTION.

    (a) Recovery of Costs and Attorneys' Fees.--The Securities Exchange 
Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the 
following new section:

``SEC. 36. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.

    ``(a) In General.--
            ``(1) Offer to proceed.--Except as provided in paragraph 
        (2), in an implied private action arising under this title, any 
        party may, before the expiration of the period permitted for 
        answering the complaint, deliver to all other parties an offer 
        to proceed pursuant to any voluntary, nonbinding alternative 
        dispute resolution procedure established or recognized under 
        the rules of the court in which the action is maintained.
            ``(2) Plaintiff class actions.--In an implied private 
        action under this title which is brought as a plaintiff class 
        action, an offer under paragraph (1) shall be made not later 
        than 30 days after a guardian ad litem or plaintiff steering 
        committee is appointed by the court in accordance with section 
        38.
            ``(3) Response.--The recipient of an offer under paragraph 
        (1) or (2) shall file a written notice of acceptance or 
        rejection of the offer with the court not later than 10 days 
        after receipt of the offer. The court may, upon motion by any 
        party made prior to the expiration of such period, extend the 
        period for not more than 90 additional days, during which time 
        discovery may be permitted by the court.
            ``(4) Selection of type of alternative dispute 
        resolution.--For purposes of paragraphs (1) and (2), if the 
        rules of the court establish or recognize more than 1 type of 
        alternative dispute resolution, the parties may stipulate as to 
        the type of alternative dispute resolution to be applied. If 
        the parties are unable to so stipulate, the court shall issue 
        an order not later than 20 days after the date on which the 
        parties agree to the use of alternative dispute resolution, 
        specifying the type of alternative dispute resolution to be 
        applied.
            ``(5) Sanctions for dilatory or obstructive conduct.--If 
        the court finds that a party has engaged in dilatory or 
        obstructive conduct in taking or opposing any discovery allowed 
        during the response period described in paragraph (3), the 
        court may--
                    ``(A) extend the period to permit further discovery 
                from that party for a suitable period; and
                    ``(B) deny that party the opportunity to conduct 
                further discovery prior to the expiration of the 
                period.
    ``(b) Penalty for Unreasonable Litigation Position.--
            ``(1) Award of costs.--In an implied private action arising 
        under this title, upon motion of the prevailing party made 
        prior to final judgment, the court shall award costs, including 
        reasonable attorneys' fees, against a party or parties or their 
        attorneys, if--
                    ``(A) the party unreasonably refuses to proceed 
                pursuant to an alternative dispute resolution 
                procedure, or refuses to accept the result of an 
                alternative dispute resolution procedure;
                    ``(B) final judgment is entered against the party; 
                and
                    ``(C) the party asserted a claim or defense in the 
                action which was not substantially justified.
            ``(2) Determination of justification.--For purposes of 
        paragraph (1)(C), whether a position is `substantially 
        justified' shall be determined in the same manner as under 
        section 2412(d)(1)(B) of title 28, United States Code.
            ``(3) Limited use.--Fees and costs awarded under this 
        paragraph shall not be applied to any named plaintiff in any 
        action certified as a class action under the Federal Rules of 
        Civil Procedure if such plaintiff has never owned more than 
        $1,000,000 of the securities which are the subject of the 
        litigation.''.
    (b) Limitations Period for Implied Private Rights of Action.--The 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by 
adding at the end the following new section:

``SEC. 37. LIMITATIONS PERIOD FOR IMPLIED PRIVATE RIGHTS OF ACTION.

    ``(a) In General.--Except as otherwise provided in this title, an 
implied private right of action arising under this title shall be 
brought not later than the earlier of--
            ``(1) 5 years after the date on which the alleged violation 
        occurred; or
            ``(2) 2 years after the date on which the alleged violation 
        was discovered or should have been discovered through the 
        exercise of reasonable diligence.
    ``(b) Effective Date.--The limitations period provided by this 
section shall apply to all proceedings pending on or commenced after 
the date of enactment of this section.''.

SEC. 103. PLAINTIFF STEERING COMMITTEES.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by adding at the end the following new section:

``SEC. 38. GUARDIAN AD LITEM AND CLASS ACTION STEERING COMMITTEES.

    ``(a) Guardian Ad Litem.--Except as provided in subsection (b), not 
later than 10 days after certifying a plaintiff class in an implied 
private action brought under this title, the court shall appoint a 
guardian ad litem for the plaintiff class from a list or lists provided 
by the parties or their counsel. The guardian ad litem shall direct 
counsel for the class and perform such other functions as the court may 
specify. The court shall apportion the reasonable fees and expenses of 
the guardian ad litem among the parties. Court appointment of a 
guardian ad litem shall not be subject to interlocutory review.
    ``(b) Class Action Steering Committee.--Subsection (a) shall not 
apply if, not later than 10 days after certifying a plaintiff class, on 
its own motion or on motion of a member of the class, the court 
appoints a committee of class members to direct counsel for the class 
(hereafter in this section referred to as the `plaintiff steering 
committee') and to perform such other functions as the court may 
specify. Court appointment of a plaintiff steering committee shall not 
be subject to interlocutory review.
    ``(c) Membership of Plaintiff Steering Committee.--
            ``(1) Qualifications.--
                    ``(A) Number.--A plaintiff steering committee shall 
                consist of not less than 5 class members, willing to 
                serve, who the court believes will fairly represent the 
                class.
                    ``(B) Ownership interests.--Members of the 
                plaintiff steering committee shall have cumulatively 
                held during the class period not less than--
                            ``(i) the lesser of 5 percent of the 
                        securities which are the subject matter of the 
                        litigation or securities which are the subject 
                        matter of the litigation with a market value of 
                        $10,000,000; or
                            ``(ii) such smaller percentage or dollar 
                        amount as the court finds appropriate under the 
                        circumstances.
            ``(2) Named plaintiffs.--Class members who are named 
        plaintiffs in the litigation may serve on the plaintiff 
        steering committee, but shall not comprise a majority of the 
        committee.
            ``(3) Noncompensation of members.--Members of the plaintiff 
        steering committee shall serve without compensation, except 
        that any member may apply to the court for reimbursement of 
        reasonable out-of-pocket expenses from any common fund 
        established for the class.
            ``(4) Meetings.--The plaintiff steering committee shall 
        conduct its business at one or more previously scheduled 
        meetings of the committee at which a majority of its members 
        are present in person or by electronic communication. The 
        plaintiff steering committee shall decide all matters within 
        its authority by a majority vote of all members, except that 
        the committee may determine that decisions other than to accept 
        or reject a settlement offer or to employ or dismiss counsel 
        for the class may be delegated to one or more members of the 
        committee, or may be voted upon by committee members seriatim, 
        without a meeting.
            ``(5) Right of nonmembers to be heard.--A class member who 
        is not a member of the plaintiff steering committee may appear 
        and be heard by the court on any issue in the action, to the 
        same extent as any other party.
    ``(d) Functions of Guardian Ad Litem and Plaintiff Steering 
Committee.--
            ``(1) Direct counsel.--The authority of the guardian ad 
        litem or the plaintiff steering committee to direct counsel for 
        the class shall include all powers normally permitted to an 
        attorney's client in litigation, including the authority to 
        retain or dismiss counsel and to reject offers of settlement, 
        and the preliminary authority to accept an offer of settlement, 
        subject to the restrictions specified in paragraph (2). 
        Dismissal of counsel other than for cause shall not limit the 
        ability of counsel to enforce any contractual fee agreement or 
        to apply to the court for a fee award from any common fund 
        established for the class.
            ``(2) Settlement offers.--If a guardian ad litem or a 
        plaintiff steering committee gives preliminary approval to an 
        offer of settlement, the guardian ad litem or the plaintiff 
        steering committee may seek approval of the offer by a majority 
        of class members if the committee determines that the benefit 
        of seeking such approval outweighs the cost of soliciting the 
        approval of class members.
    ``(e) Immunity From Liability; Removal.--Any person serving as a 
guardian ad litem or as a member of a plaintiff steering committee 
shall be immune from any liability arising from such service. The court 
may remove a guardian ad litem or a member of a plaintiff steering 
committee for good cause shown.
    ``(f) Effect on Other Law.--This section does not affect any other 
provision of law concerning class actions or the authority of the court 
to give final approval to any offer of settlement.''.

SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by adding at the end the following new section:

``SEC. 39. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    ``(a) Intent.--In an implied private action arising under this 
title in which the plaintiff may recover money damages from a defendant 
only on proof that the defendant acted with some level of intent, the 
plaintiff's complaint shall allege specific facts demonstrating the 
state of mind of each defendant at the time the alleged violation 
occurred.
    ``(b) Misleading Statements and Omissions.--In an implied action 
arising under this title in which the plaintiff alleges that the 
defendant--
            ``(1) made an untrue statement of a material fact; or
            ``(2) omitted to state a material fact necessary in order 
        to make the statements made, in the light of the circumstances 
        in which they were made, not misleading;
the plaintiff shall specify each statement alleged to have been 
misleading, the reason or reasons why the statement is misleading, and, 
if an allegation regarding the statement or omission is made on 
information and belief, the plaintiff shall set forth all information 
on which that belief is formed.
    ``(c) Burden of Proof.--In an implied private action arising under 
this title based on a material misstatement or omission concerning a 
security, and in which the plaintiff claims to have bought or sold the 
security based on a reasonable belief that the market value of the 
security reflected all publicly available information, the plaintiff 
shall have the burden of proving that the misstatement or omission 
caused any loss incurred by the plaintiff.
    ``(d) Damages.--In an implied private action arising under this 
title based on a material misstatement or omission concerning a 
security, and in which the plaintiff claims to have bought or sold the 
security based on a reasonable belief that the market value of the 
security reflected all publicly available information, the plaintiff's 
damages shall not exceed the lesser of--
            ``(1) the difference between the price paid by the 
        plaintiff for the security and the market value of the security 
        immediately after dissemination to the market of information 
        which corrects the misstatement or omission; and
            ``(2) the difference between the price paid by the 
        plaintiff for the security and the price at which the plaintiff 
        sold the security after dissemination of information correcting 
        the misstatement or omission.''.

SEC. 105. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS 
              ACT.

    Section 1964(c) of title 18, United States Code, is amended by 
inserting ``, except that no person may bring an action under this 
provision if the racketeering activity, as defined in section 
1961(1)(D), involves fraud in the sale of securities'' before the 
period.

                     TITLE II--FINANCIAL DISCLOSURE

SEC. 201. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    (a) Consideration of Regulatory or Legislative Changes.--In 
consultation with investors and issuers of securities, the Securities 
and Exchange Commission shall consider adopting or amending its rules 
and regulations, or making legislative recommendations, concerning--
            (1) criteria that the Commission finds appropriate for the 
        protection of investors by which forward-looking statements 
        concerning the future economic performance of an issuer of 
        securities registered under section 12 of the Securities 
        Exchange Act of 1934 will be deemed not to be in violation of 
        section 10(b) of that Act; and
            (2) procedures by which courts shall timely dismiss claims 
        against such issuers of securities based on such forward-
        looking statements if such statements are in accordance with 
        any criteria under paragraph (1).
    (b) Commission Considerations.--In developing rules or legislative 
recommendations in accordance with subsection (a), the Commission shall 
consider--
            (1) appropriate limits to liability for forward-looking 
        statements;
            (2) procedures for making a summary determination of the 
        applicability of any Commission rule for forward-looking 
        statements early in a judicial proceeding to limit protracted 
        litigation and expansive discovery;
            (3) incorporating and reflecting the scienter requirements 
        applicable to implied private actions under section 10(b); and
            (4) providing clear guidance to issuers of securities and 
        the judiciary.
    (c) Securities Act Amendment.--The Securities and Exchange Act of 
1934 (15 U.S.C. 78a et seq.), is amended by adding at the end the 
following new section:

``SEC. 40. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) In General.--In any implied private action arising under this 
title that alleges that a forward-looking statement concerning the 
future economic performance of an issuer registered under section 12 
was materially false or misleading, if a party making a motion in 
accordance with subsection (b) requests a stay of discovery concerning 
the claims or defenses of that party, the court shall grant such a stay 
until it has ruled on any such motion.
    ``(b) Summary Judgment Motions.--Subsection (a) shall apply to any 
motion for summary judgment made by a defendant asserting that the 
forward-looking statement was within the coverage of any rule which the 
Commission may have adopted concerning such predictive statements, if 
such motion is made not less than 60 days after the plaintiff commences 
discovery in the action.
    ``(c) Dilatory Conduct; Duplicative Discovery.--Notwithstanding 
subsection (a) or (b), the time permitted for a plaintiff to conduct 
discovery under subsection (b) may be extended, or a stay of the 
proceedings may be denied, if the court finds that--
            ``(1) the defendant making a motion described in subsection 
        (b) engaged in dilatory or obstructive conduct in taking or 
        opposing any discovery; or
            ``(2) a stay of discovery pending a ruling on a motion 
        under subsection (b) would be substantially unfair to the 
        plaintiff or other parties to the action.''.

SEC. 202. FRAUD DETECTION AND DISCLOSURE.

    (a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting immediately after section 10 the 
following new section:

``SEC. 10A. AUDIT REQUIREMENTS.

    ``(a) In General.--Each audit required pursuant to this title of an 
issuer's financial statements by an independent public accountant shall 
include, in accordance with generally accepted auditing standards, as 
may be modified or supplemented from time to time by the Commission--
            ``(1) procedures designed to provide reasonable assurance 
        of detecting illegal acts that would have a direct and material 
        effect on the determination of financial statement amounts;
            ``(2) procedures designed to identify related party 
        transactions which are material to the financial statements or 
        otherwise require disclosure therein; and
            ``(3) an evaluation of whether there is substantial doubt 
        about the issuer's ability to continue as a going concern 
        during the ensuing fiscal year.
    ``(b) Required Response to Audit Discoveries.--
            ``(1) Investigation and report to management.--If, in the 
        course of conducting an audit pursuant to this title to which 
        subsection (a) applies, the independent public accountant 
        detects or otherwise becomes aware of information indicating 
        that an illegal act (whether or not perceived to have a 
        material effect on the issuer's financial statements) has or 
        may have occurred, the accountant shall, in accordance with 
        generally accepted auditing standards, as may be modified or 
        supplemented from time to time by the Commission--
                    ``(A)(i) determine whether it is likely that an 
                illegal act has occurred; and
                    ``(ii) if so, determine and consider the possible 
                effect of the illegal act on the financial statements 
                of the issuer, including any contingent monetary 
                effects, such as fines, penalties, and damages; and
                    ``(B) as soon as practicable, inform the 
                appropriate level of the issuer's management and assure 
                that the issuer's audit committee, or the issuer's 
                board of directors in the absence of such a committee, 
                is adequately informed with respect to illegal acts 
                that have been detected or have otherwise come to the 
                attention of such accountant in the course of the 
                audit, unless the illegal act is clearly 
                inconsequential.
            ``(2) Response to failure to take remedial action.--If, 
        having first assured itself that the audit committee of the 
        board of directors of the issuer or the board (in the absence 
        of an audit committee) is adequately informed with respect to 
        illegal acts that have been detected or have otherwise come to 
        the accountant's attention in the course of such accountant's 
        audit, the independent public accountant concludes that--
                    ``(A) the illegal act has a material effect on the 
                financial statements of the issuer;
                    ``(B) the senior management has not taken, and the 
                board of directors has not caused senior management to 
                take, timely and appropriate remedial actions with 
                respect to the illegal act; and
                    ``(C) the failure to take remedial action is 
                reasonably expected to warrant departure from a 
                standard auditor's report, when made, or warrant 
                resignation from the audit engagement;
        the independent public accountant shall, as soon as 
        practicable, directly report its conclusions to the board of 
        directors.
            ``(3) Notice to commission; response to failure to 
        notify.--An issuer whose board of directors receives a report 
        under paragraph (2) shall inform the Commission by notice not 
        later than 1 business day after the receipt of such report and 
        shall furnish the independent public accountant making such 
        report with a copy of the notice furnished to the Commission. 
        If the independent public accountant fails to receive a copy of 
        the notice before the expiration of the required 1-business-day 
        period, the independent public accountant shall--
                    ``(A) resign from the engagement; or
                    ``(B) furnish to the Commission a copy of its 
                report (or the documentation of any oral report given) 
                not later than 1 business day following such failure to 
                receive notice.
            ``(4) Report after resignation.--If an independent public 
        accountant resigns from an engagement under paragraph (3)(A), 
        the accountant shall, not later than 1 business day following 
        the failure by the issuer to notify the Commission under 
        paragraph (3), furnish to the Commission a copy of the 
        accountant's report (or the documentation of any oral report 
        given).
    ``(c) Auditor Liability Limitation.--No independent public 
accountant shall be liable in a private action for any finding, 
conclusion, or statement expressed in a report made pursuant to 
paragraph (3) or (4) of subsection (b), including any rules promulgated 
pursuant thereto.
    ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If the 
Commission finds, after notice and opportunity for hearing in a 
proceeding instituted pursuant to section 21C, that an independent 
public accountant has willfully violated paragraph (3) or (4) of 
subsection (b), the Commission may, in addition to entering an order 
under section 21C, impose a civil penalty against the independent 
public accountant and any other person that the Commission finds was a 
cause of such violation. The determination to impose a civil penalty 
and the amount of the penalty shall be governed by the standards set 
forth in section 21B.
    ``(e) Preservation of Existing Authority.--Except as provided in 
subsection (d), nothing in this section shall be held to limit or 
otherwise affect the authority of the Commission under this title.
    ``(f) Definition.--As used in this section, the term `illegal act' 
means an act or omission that violates any law, or any rule or 
regulation having the force of law.''.
    (b) Effective Dates.--With respect to any registrant that is 
required to file selected quarterly financial data pursuant to item 
302(a) of Regulation S-K of the Securities and Exchange Commission (17 
CFR 229.302(a)), the amendments made by subsection (a) shall apply to 
any annual report for any period beginning on or after January 1, 1994. 
With respect to any other registrant, the amendment shall apply for any 
period beginning on or after January 1, 1995.

SEC. 203. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL LIABILITY.

    (a) Securities Act Amendment.--The Securities and Exchange Act of 
1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the 
following new section:

``SEC. 41. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL LIABILITY IN 
              IMPLIED ACTIONS.

    ``(a) Applicability.--This section shall apply only to the 
allocation of damages among persons who are, or who may become, liable 
for damages in an implied private action arising under this title. 
Nothing in this section shall affect the standards for liability 
associated with an implied private action arising under this title.
    ``(b) Application of Joint and Several Liability.--
            ``(1) In general.--A person against whom a judgment is 
        entered in an implied private action arising under this title 
        shall be liable jointly and severally for any recoverable 
        damages on such judgment if the person is found to have--
                    ``(A) been a primary wrongdoer;
                    ``(B) committed knowing securities fraud; or
                    ``(C) controlled any primary wrongdoer or person 
                who committed knowing securities fraud.
            ``(2) Primary wrongdoer.--As used in this subsection--
                    ``(A) the term `primary wrongdoer' means--
                            ``(i) any--
                                    ``(I) issuer, registrant, 
                                purchaser, seller, or underwriter of 
                                securities;
                                    ``(II) marketmaker or specialist in 
                                securities; or
                                    ``(III) clearing agency, securities 
                                information processor, or government 
                                securities dealer;
                        if such person breached a direct statutory or 
                        regulatory obligation or if such person 
                        otherwise had a principal role in the conduct 
                        that is the basis for the implied right of 
                        action; or
                            ``(ii) any person who intentionally 
                        rendered substantial assistance to the 
                        fraudulent conduct of any person described in 
                        clause (i), with actual knowledge of such 
                        person's fraudulent conduct or fraudulent 
                        purpose, and with knowledge that such conduct 
                        was wrongful; and
                    ``(B) a defendant engages in `knowing securities 
                fraud' if such defendant--
                            ``(i) makes a material representation with 
                        actual knowledge that the representation is 
                        false, or omits to make a statement with actual 
                        knowledge that, as a result of the omission, 
                        one of the defendant's material representations 
                        is false and knows that other persons are 
                        likely to rely on that misrepresentation or 
                        omission, except that reckless conduct by the 
                        defendant shall not be construed to constitute 
                        `knowing securities fraud'; or
                            ``(ii) intentionally rendered substantial 
                        assistance to the fraudulent conduct of any 
                        person described in clause (i), with actual 
                        knowledge of such person's fraudulent conduct 
                        or fraudulent purpose, and with knowledge that 
                        such conduct was wrongful.
    ``(c) Determination of Responsibility.--In an implied private 
action in which more than 1 person contributed to a violation of this 
title, the court shall instruct the jury to answer special 
interrogatories, or if there is no jury, shall make findings, 
concerning the degree of responsibility of each person alleged to have 
caused or contributed to the violation of this title, including persons 
who have entered into settlements with the plaintiff. The 
interrogatories or findings shall specify the amount of damages the 
plaintiff is entitled to recover and the degree of responsibility, 
measured as a percentage of the total fault of all persons involved in 
the violation, of each person found to have caused or contributed to 
the damages incurred by the plaintiff or plaintiffs. In determining the 
degree of responsibility, the trier of fact shall consider--
            ``(1) the nature of the conduct of each person; and
            ``(2) the nature and extent of the causal relationship 
        between that conduct and the damage claimed by the plaintiff.
    ``(d) Application of Proportionate Liability.--Except as provided 
in subsection (b), the amount of liability of a person who is, or may 
through right of contribution become, liable for damages based on an 
implied private action arising under this title shall be determined as 
follows:
            ``(1) Degree of responsibility.--Except as provided in 
        paragraph (2), each liable party shall only be liable for the 
        portion of the judgment that corresponds to that party's degree 
        of responsibility, as determined under subsection (c).
            ``(2) Uncollectible shares.--If, upon motion made not later 
        than 6 months after a final judgment is entered, the court 
        determines that all or part of a defendant's share of the 
        obligation is uncollectible--
                    ``(A) the remaining defendants shall be jointly and 
                severally liable for the uncollectible share if the 
                plaintiff establishes that--
                            ``(i) the plaintiff is an individual whose 
                        recoverable damages under a final judgment are 
                        equal to more than 10 percent of the 
                        plaintiff's net financial worth; and
                            ``(ii) the plaintiff's net financial worth 
                        is less than $200,000; and
                    ``(B) the amount paid by each of the remaining 
                defendants to all other plaintiffs shall be, in total, 
                not more than the greater of--
                            ``(i) that remaining defendant's percentage 
                        of fault for the uncollectible share; or
                            ``(ii) 5 times--
                                    ``(I) the amount which the 
                                defendant gained from the conduct that 
                                gave rise to its liability; or
                                    ``(II) if a defendant did not 
                                obtain a direct financial gain from the 
                                conduct that gave rise to the liability 
                                and the conduct consisted of the 
                                provision of deficient services to an 
                                entity involved in the violation, the 
                                defendant's gross revenues received for 
                                the provision of all services to the 
                                other entity involved in the violation 
                                during the calendar years in which 
                                deficient services were provided.
            ``(3) Overall limit.--In no event shall the total payments 
        required pursuant to paragraph (2) exceed the amount of the 
        uncollectible share.
            ``(4) Defendants subject to contribution.--A defendant 
        whose liability is reallocated pursuant to paragraph (2) shall 
        be subject to contribution and to any continuing liability to 
        the plaintiff on the judgment.
            ``(5) Right of contribution.--To the extent that a 
        defendant is required to make an additional payment pursuant to 
        paragraph (2), that defendant may recover contribution--
                    ``(A) from the defendant originally liable to make 
                the payment;
                    ``(B) from any defendant liable jointly and 
                severally pursuant to subsection (b)(1);
                    ``(C) from any defendant held proportionately 
                liable pursuant to this subsection who is liable to 
                make the same payment and has paid less than his or her 
                proportionate share of that payment; or
                    ``(D) from any other person responsible for the 
                conduct giving rise to the payment who would have been 
                liable to make the same payment.
    ``(e) Nondisclosure to Jury.--The standard for allocation of 
damages under subsections (b)(1) and (c) and the procedure for 
reallocation of uncollectible shares under subsection (d)(2) shall not 
be disclosed to members of the jury.
    ``(f) Settlement Discharge.--
            ``(1) In general.--A defendant who settles an implied 
        private action brought under this title at any time before 
        verdict or judgment shall be discharged from all claims for 
        contribution brought by other persons. Upon entry of the 
        settlement by the court, the court shall enter a bar order 
        constituting the final discharge of all obligations to the 
        plaintiff of the settling defendant arising out of the action. 
        The order shall bar all future claims for contribution or 
        indemnity arising out of the action--
                    ``(A) by nonsettling persons against the settling 
                defendant; and
                    ``(B) by the settling defendant against any 
                nonsettling defendants.
            ``(2) Reduction.--If a person enters into a settlement with 
        the plaintiff prior to verdict or judgment, the verdict or 
        judgment shall be reduced by the greater of--
                    ``(A) an amount that corresponds to the degree of 
                responsibility of that person; or
                    ``(B) the amount paid to the plaintiff by that 
                person.
    ``(g) Contribution.--A person who becomes liable for damages in an 
implied private action arising under this title may recover 
contribution from any other person who, if joined in the original suit, 
would have been liable for the same damages. A claim for contribution 
shall be determined based on the degree of responsibility of the 
claimant and of each person against whom a claim for contribution is 
made.
    ``(h) Statute of Limitations for Contribution.--Once judgment has 
been entered in an implied private action arising under this title 
determining liability, an action for contribution must be brought not 
later than 6 months after the entry of a final, nonappealable judgment 
in the action, except that an action for contribution brought by a 
defendant who was required to make an additional payment pursuant to 
subsection (d)(2) may be brought not later than 6 months after the date 
on which such payment was made.''.
    (b) Effective Date.--Section 41 of the Securities Exchange Act of 
1934, as added by subsection (a), shall only apply to implied private 
actions commenced after the date of enactment of this Act.

SEC. 204. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting immediately after section 13 the following new 
section:

``SEC. 13A. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.

    ``(a) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Public accounting firm.--The term `public accounting 
        firm' means a sole proprietorship, unincorporated association, 
        partnership, corporation, or other legal entity that is engaged 
        in the practice of public accounting.
            ``(2) Board.--The term `Board' means the Public Auditing 
        Self-Disciplinary Board designated by the Commission pursuant 
        to subsection (b).
            ``(3) Accountant's report.--The term `accountant's report' 
        means a document in which a public accounting firm identifies a 
        financial statement, report, or other document and sets forth 
        the firm's opinion regarding such financial statement, report, 
        or other document, or an assertion that an opinion cannot be 
        expressed.
            ``(4) Person associated with a public accounting firm.--The 
        term `person associated with a public accounting firm' means a 
        natural person who--
                    ``(A) is a partner, shareholder, employee, or 
                individual proprietor of a public accounting firm, or 
                who shares in the profits of a public accounting firm; 
                and
                    ``(B) engages in any conduct or practice in 
                connection with the preparation of an accountant's 
                report on any financial statement, report, or other 
                document required to be filed with the Commission under 
                any securities law.
            ``(5) Professional standards.--The term `professional 
        standards' means generally accepted auditing standards, 
        generally accepted accounting principles, generally accepted 
        standards for attestation engagements, and any other standards 
        related to the preparation of financial statements or 
        accountant's reports promulgated by the Commission or a 
        standard-setting body recognized by the Board.
    ``(b) Establishment of Board.--
            ``(1) In general.--Not later than 90 days after the date of 
        enactment of this section, the Commission shall establish a 
        Public Auditing Self-Disciplinary Board to perform the duties 
        set forth in this section. The Commission shall designate an 
        entity to serve as the Board if the Commission finds that--
                    ``(A) such entity is sponsored by an existing 
                national organization of certified public accountants 
                that--
                            ``(i) is most representative of certified 
                        public accountants covered by this title; and
                            ``(ii) has demonstrated its commitment to 
                        improving the quality of practice before the 
                        Commission; and
                    ``(B) control over such entity is vested in the 
                members of the Board selected pursuant to subsection 
                (c).
            ``(2) Alternative election of members.--If the Commission 
        designates an entity to serve as the Board pursuant to 
        paragraph (1), the entity shall conduct the election of initial 
        Board members in accordance with subsection (c)(1)(B)(i).
    ``(c) Membership of Board.--
            ``(1) In general.--The Board shall be composed of 3 
        appointed members and 4 elected members, as follows:
                    ``(A) Appointed members.--Three members of the 
                Board shall be appointed in accordance with the 
                following:
                            ``(i) Initial appointments.--The Chairman 
                        of the Commission shall make the initial 
                        appointments, in consultation with the other 
                        members of the Commission, not later than 90 
                        days after the date of enactment of this 
                        section.
                            ``(ii) Subsequent appointments.--After the 
                        initial appointments under clause (i), members 
                        of the Board appointed to fill vacancies of 
                        appointed members of the Board shall be 
                        appointed in accordance with the rules adopted 
                        pursuant to paragraph (5). Such rules shall 
                        provide that such members shall be appointed by 
                        the Board, subject to the approval of the 
                        Commission.
                    ``(B) Elected members.--Four members, including the 
                member who shall serve as the chairperson of the Board, 
                shall be elected in accordance with the following:
                            ``(i) Initial election.--Not later than 120 
                        days after the date on which the Chairman of 
                        the Commission makes appointments under 
                        subparagraph (A)(i), an entity designated by 
                        the Commission pursuant to subsection (b) shall 
                        conduct an election of 4 initial elected 
                        members pursuant to interim election rules 
                        proposed by the entity and approved by the 3 
                        interim members of the Board and the 
                        Commission. If the Commission is unable to 
                        designate an entity meeting the criteria set 
                        forth in subsection (b)(1), the members of the 
                        Board appointed under subparagraph (A)(i) shall 
                        adopt interim rules, subject to approval by the 
                        Commission, providing for the election of the 4 
                        initial elected members. Such rules shall 
                        provide that such members of the Board shall be 
                        elected--
                                    ``(I) not later than 120 days after 
                                the date on which members are initially 
                                appointed under subparagraph (A)(i);
                                    ``(II) by persons who are 
                                associated with public accounting firms 
                                and who are certified public 
                                accountants under the laws of any 
                                State; and
                                    ``(III) subject to the approval of 
                                the Commission.
                            ``(ii) Subsequent elections.--After the 
                        initial elections under clause (i), members of 
                        the Board elected to fill vacancies of elected 
                        members of the Board shall be elected in 
                        accordance with the rules adopted pursuant to 
                        paragraph (5). Such rules shall provide that 
                        such members of the Board shall be elected--
                                    ``(I) by persons who are associated 
                                with public accounting firms and who 
                                are certified public accountants under 
                                the laws of any State; and
                                    ``(II) subject to the approval of 
                                the Commission.
            ``(2) Qualification.--Four members of the Board, including 
        the chairperson of the Board, shall be persons who have not 
        been associated with a public accounting firm during the 10-
        year period preceding appointment or election to the Board 
        under paragraph (1). Three members of the Board who are elected 
        shall be persons associated with a public accounting firm 
        registered with the Board.
            ``(3) Full-time basis.--The chairperson of the Board shall 
        serve on a full-time basis, severing all business ties with his 
        or her former firms or employers prior to beginning service on 
        the Board.
            ``(4) Terms.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), each member of the Board shall hold 
                office for a term of 4 years or until a successor is 
                appointed, whichever is later, except that any member 
                appointed to fill a vacancy occurring prior to the 
                expiration of the term for which such member's 
                predecessor was appointed shall be appointed for the 
                remainder of such term.
                    ``(B) Initial board members.--Beginning on the date 
                on which all members of the Board have been selected in 
                accordance with this subsection, the terms of office of 
                the initial Board members shall expire, as determined 
                by the Board, by lottery--
                            ``(i) for 1 member, 1 year after such date;
                            ``(ii) for 2 members, 2 years after such 
                        date;
                            ``(iii) for 2 members, 3 years after such 
                        date; and
                            ``(iv) for 2 members, 4 years after such 
                        date.
            ``(5) Rules.--Following selection of the 7 initial members 
        of the Board in accordance with subparagraphs (A)(i) and (B)(i) 
        of paragraph (1), the Board shall propose and adopt rules, 
        which shall provide for--
                    ``(A) the operation and administration of the 
                Board, including--
                            ``(i) the appointment of members in 
                        accordance with paragraph (1)(A)(ii);
                            ``(ii) the election of members in 
                        accordance with paragraph (1)(B)(ii); and
                            ``(iii) the compensation of the members of 
                        the Board;
                    ``(B) the appointment and compensation of such 
                employees, attorneys, and consultants as may be 
                necessary or appropriate to carry out the Board's 
                functions under this title;
                    ``(C) the registration of public accounting firms 
                with the Board pursuant to subsections (d) and (e); and
                    ``(D) the matters described in subsections (f) and 
                (g).
    ``(d) Registration and Annual Fees.--After the date on which all 
initial members of the Board have been selected in accordance with 
subsection (c), the Board shall assess and collect a registration fee 
and annual dues from each public accounting firm registered with the 
Board. Such fees and dues shall be assessed at a level sufficient to 
recover the costs and expenses of the Board and to permit the Board to 
operate on a self-financing basis. The amount of fees and dues for each 
public accounting firm shall be based upon--
            ``(1) the annual revenues of such firm from accounting and 
        auditing services;
            ``(2) the number of persons associated with the public 
        accounting firm;
            ``(3) the number of clients for which such firm furnishes 
        accountant's reports on financial statements, reports, or other 
        documents filed with the Commission; and
            ``(4) such other criteria as the Board may establish.
    ``(e) Registration With Board.--
            ``(1) Registration required.--Beginning 1 year after the 
        date on which all initial members of the Board have been 
        selected in accordance with subsection (c), it shall be 
        unlawful for a public accounting firm to furnish an 
        accountant's report on any financial statement, report, or 
        other document required to be filed with the Commission under 
        any Federal securities law, unless such firm is registered with 
        the Board.
            ``(2) Application for registration.--A public accounting 
        firm may be registered under this subsection by filing with the 
        Board an application for registration in such form and 
        containing such information as the Board, by rule, may 
        prescribe. Each application shall include--
                    ``(A) the names of all clients of the public 
                accounting firm for which the firm furnishes 
                accountant's reports on financial statements, reports, 
                or other documents filed with the Commission;
                    ``(B) financial information of the public 
                accounting firm for its most recent fiscal year, 
                including its annual revenues from accounting and 
                auditing services, its assets and its liabilities;
                    ``(C) a statement of the public accounting firm's 
                policies and procedures with respect to quality control 
                of its accounting and auditing practice;
                    ``(D) information relating to criminal, civil, or 
                administrative actions or formal disciplinary 
                proceedings pending against such firm, or any person 
                associated with such firm, in connection with an 
                accountant's report furnished by such firm;
                    ``(E) a list of persons associated with the public 
                accounting firm who are certified public accountants, 
                including any State professional license or 
                certification number for each such person; and
                    ``(F) such other information that is reasonably 
                related to the Board's responsibilities as the Board 
                considers necessary or appropriate.
            ``(3) Periodic reports.--Once in each year, or more 
        frequently as the Board, by rule, may prescribe, each public 
        accounting firm registered with the Board shall submit reports 
        to the Board updating the information contained in its 
        application for registration and containing such additional 
        information that is reasonably related to the Board's 
        responsibilities as the Board, by rule, may prescribe.
            ``(4) Exemptions.--The Commission, by rule or order, upon 
        its own motion or upon application, may conditionally or 
        unconditionally exempt any public accounting firm or any 
        accountant's report, or any class of public accounting firms or 
        any class of accountant's reports, from any provisions of this 
        section or the rules or regulations issued hereunder, if the 
        Commission finds that such exemption is consistent with the 
        public interest, the protection of investors, and the purposes 
        of this section.
            ``(5) Confidentiality.--The Board may, by rule, designate 
        portions of the filings required pursuant to paragraphs (2) and 
        (3) as privileged and confidential.
    ``(f) Duties of Board.--After the date on which all initial members 
of the Board have been selected in accordance with subsection (c), the 
Board shall have the following duties and powers:
            ``(1) Investigations and disciplinary proceedings.--The 
        Board shall establish fair procedures for investigating and 
        disciplining public accounting firms registered with the Board, 
        and persons associated with such firms, for violations of the 
        Federal securities laws, the rules or regulations issued 
        thereunder, the rules adopted by the Board, or professional 
        standards in connection with the preparation of an accountant's 
        report on a financial statement, report, or other document 
        filed with the Commission.
            ``(2) Investigation procedures.--
                    ``(A) In general.--The Board may conduct an 
                investigation of any act, practice, or omission by a 
                public accounting firm registered with the Board, or by 
                any person associated with such firm, in connection 
                with the preparation of an accountant's report on a 
                financial statement, report, or other document filed 
                with the Commission that may violate any applicable 
                provision of the Federal securities laws, the rules and 
                regulations issued thereunder, the rules adopted by the 
                Board, or professional standards, whether such act, 
                practice, or omission is the subject of a criminal, 
                civil, or administrative action, or a disciplinary 
                proceeding, or otherwise is brought to the attention of 
                the Board.
                    ``(B) Powers of board.--For purposes of an 
                investigation under this paragraph, the Board may, in 
                addition to such other actions as the Board determines 
                to be necessary or appropriate--
                            ``(i) require the testimony of any person 
                        associated with a public accounting firm 
                        registered with the Board, with respect to any 
                        matter which the Board considers relevant or 
                        material to the investigation;
                            ``(ii) require the production of audit 
                        workpapers and any other document or 
                        information in the possession of a public 
                        accounting firm registered with the Board, or 
                        any person associated with such firm, wherever 
                        domiciled, that the Board considers relevant or 
                        material to the investigation, and may examine 
                        the books and records of such firm to verify 
                        the accuracy of any documents or information so 
                        supplied; and
                            ``(iii) request the testimony of any person 
                        and the production of any document in the 
                        possession of any person, including a client of 
                        a public accounting firm registered with the 
                        Board, that the Board considers relevant or 
                        material to the investigation.
                    ``(C) Suspension or revocation of registration for 
                noncompliance.--The refusal of any person associated 
                with a public accounting firm registered with the Board 
                to testify, or the refusal of any such person to 
                produce documents or otherwise cooperate with the 
                Board, in connection with an investigation under this 
                section, shall be cause for suspending or barring such 
                person from associating with a public accounting firm 
                registered with the Board, or such other appropriate 
                sanction as the Board shall determine. The refusal of 
                any public accounting firm registered with the Board to 
                produce documents or otherwise cooperate with the 
                Board, in connection with an investigation under this 
                section, shall be cause for the suspension or 
                revocation of the registration of such firm, or such 
                other appropriate sanction as the Board shall 
                determine.
                    ``(D) Referral to commission.--
                            ``(i) In general.--If the Board is unable 
                        to conduct or complete an investigation under 
                        this section because of the refusal of any 
                        client of a public accounting firm registered 
                        with the Board, or any other person, to 
                        testify, produce documents, or otherwise 
                        cooperate with the Board in connection with 
                        such investigation, the Board shall report such 
                        refusal to the Commission.
                            ``(ii) Investigation.--The Commission may 
                        designate the Board or one or more officers of 
                        the Board who shall be empowered, in accordance 
                        with such procedures as the Commission may 
                        adopt, to subpoena witnesses, compel their 
                        attendance, and require the production of any 
                        books, papers, correspondence, memoranda, or 
                        other records relevant to any investigation by 
                        the Board. Attendance of witnesses and the 
                        production of any records may be required from 
                        any place in the United States or any State at 
                        any designated place of hearing. Enforcement of 
                        a subpoena issued by the Board, or an officer 
                        of the Board, pursuant to this subparagraph 
                        shall occur in the manner provided for in 
                        section 21(c). Examination of witnesses 
                        subpoenaed pursuant to this subparagraph shall 
                        be conducted before an officer authorized to 
                        administer oaths by the laws of the United 
                        States or of the place where the examination is 
                        held.
                            ``(iii) Referrals to commission.--The Board 
                        may refer any investigation to the Commission, 
                        as the Board deems appropriate.
                    ``(E) Immunity from civil liability.--An employee 
                of the Board engaged in carrying out an investigation 
                or disciplinary proceeding under this section shall be 
                immune from any civil liability arising out of such 
                investigation or disciplinary proceeding in the same 
                manner and to the same extent as an employee of the 
                Federal Government in similar circumstances.
            ``(3) Disciplinary procedures.--
                    ``(A) Decision to discipline.--In a proceeding by 
                the Board to determine whether a public accounting 
                firm, or a person associated with such firm, should be 
                disciplined, the Board shall bring specific charges, 
                notify such firm or person of the charges, give such 
                firm or person an opportunity to defend against such 
                charges, and keep a record of such actions.
                    ``(B) Sanctions.--If the Board finds that a public 
                accounting firm, or a person associated with such firm, 
                has engaged in any act, practice, or omission in 
                violation of the Federal securities laws, the rules or 
                regulations issued thereunder, the rules adopted by the 
                Board, or professional standards, the Board may impose 
                such disciplinary sanctions as it deems appropriate, 
                including--
                            ``(i) revocation or suspension of 
                        registration under this section;
                            ``(ii) limitation of activities, functions, 
                        and operations;
                            ``(iii) fine;
                            ``(iv) censure;
                            ``(v) in the case of a person associated 
                        with a public accounting firm, suspension or 
                        bar from being associated with a public 
                        accounting firm registered with the Board; and
                            ``(vi) any other disciplinary sanction that 
                        the Board determines to be appropriate.
                    ``(C) Statement required.--A determination by the 
                Board to impose a disciplinary sanction shall be 
                supported by a written statement by the Board setting 
                forth--
                            ``(i) any act or practice in which the 
                        public accounting firm or person associated 
                        with such firm has been found to have engaged, 
                        or which such firm or person has been found to 
                        have omitted;
                            ``(ii) the specific provision of the 
                        Federal securities laws, the rules or 
                        regulations issued thereunder, the rules 
                        adopted by the Board, or professional standards 
                        which any such act, practice, or omission is 
                        deemed to violate; and
                            ``(iii) the sanction imposed and the 
                        reasons therefor.
                    ``(D) Prohibition on association.--It shall be 
                unlawful--
                            ``(i) for any person as to whom a 
                        suspension or bar is in effect willfully to be 
                        or to become associated with a public 
                        accounting firm registered with the Board, in 
                        connection with the preparation of an 
                        accountant's report on any financial statement, 
                        report, or other document filed with the 
                        Commission, without the consent of the Board or 
                        the Commission; and
                            ``(ii) for any public accounting firm 
                        registered with the Board to permit such a 
                        person to become, or remain, associated with 
                        such firm without the consent of the Board or 
                        the Commission, if such firm knew or, in the 
                        exercise of reasonable care should have known, 
                        of such suspension or bar.
            ``(4) Reporting of sanctions.--If the Board imposes a 
        disciplinary sanction against a public accounting firm, or a 
        person associated with such firm, the Board shall report such 
        sanction to the Commission, to the appropriate State or foreign 
        licensing board or boards with which such firm or such person 
        is licensed or certified to practice public accounting, and to 
        the public. The information reported shall include--
                    ``(A) the name of the public accounting firm, or 
                person associated with such firm, against whom the 
                sanction is imposed;
                    ``(B) a description of the acts, practices, or 
                omissions upon which the sanction is based;
                    ``(C) the nature of the sanction; and
                    ``(D) such other information respecting the 
                circumstances of the disciplinary action (including the 
                name of any client of such firm affected by such acts, 
                practices, or omissions) as the Board deems 
                appropriate.
            ``(5) Discovery and admissibility of board material.--
                    ``(A) Discoverability.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), all reports, memoranda, and 
                        other information prepared, collected, or 
                        received by the Board, and the deliberations 
                        and other proceedings of the Board and its 
                        employees and agents in connection with an 
                        investigation or disciplinary proceeding under 
                        this section shall not be subject to any form 
                        of civil discovery, including demands for 
                        production of documents and for testimony of 
                        individuals, in connection with any proceeding 
                        in any State or Federal court, or before any 
                        State or Federal administrative agency. This 
                        subparagraph shall not apply to any information 
                        provided to the Board that would have been 
                        subject to discovery from the person or entity 
                        that provided it to the Board, but is no longer 
                        available from that person or entity.
                            ``(ii) Exemption.--Submissions to the Board 
                        by or on behalf of a public accounting firm or 
                        person associated with such a firm or on behalf 
                        of any other participant in a Board proceeding, 
                        including documents generated by the Board 
                        itself, shall be exempt from discovery to the 
                        same extent as the material described in clause 
                        (i), whether in the possession of the Board or 
                        any other person, if such submission--
                                    ``(I) is prepared specifically for 
                                the purpose of the Board proceeding; 
                                and
                                    ``(II) addresses the merits of the 
                                issues under investigation by the 
                                Board.
                            ``(iii) Construction.--Nothing in this 
                        subparagraph shall limit the authority of the 
                        Board to provide appropriate public access to 
                        disciplinary hearings of the Board, or to 
                        reports or memoranda received by the Board in 
                        connection with such proceedings.
                    ``(B) Admissibility.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), all reports, memoranda, and 
                        other information prepared, collected, or 
                        received by the Board, the deliberations and 
                        other proceedings of the Board and its 
                        employees and agents in connection with an 
                        investigation or disciplinary proceeding under 
                        this section, the fact that an investigation or 
                        disciplinary proceeding has been commenced, and 
                        the Board's determination with respect to any 
                        investigation or disciplinary proceeding shall 
                        be inadmissible in any proceeding in any State 
                        or Federal court or before any State or Federal 
                        administrative agency.
                            ``(ii) Treatment of certain documents.--
                        Submissions to the Board by or on behalf of a 
                        public accounting firm or person associated 
                        with such a firm or on behalf of any other 
                        participant in a Board proceeding, including 
                        documents generated by the Board itself, shall 
                        be inadmissible to the same extent as the 
                        material described in clause (i), if such 
                        submission--
                                    ``(I) is prepared specifically for 
                                the purpose of the Board proceedings; 
                                and
                                    ``(II) addresses the merits of the 
                                issues under investigation by the 
                                Board.
                    ``(C) Availability and admissibility of 
                information.--
                            ``(i) In general.--All information referred 
                        to in subparagraphs (A) and (B) shall be--
                                    ``(I) available to the Commission 
                                and to any other Federal department or 
                                agency in connection with the exercise 
                                of its regulatory authority to the 
                                extent that such information would be 
                                available to such agency from the 
                                Commission as a result of a Commission 
                                enforcement investigation;
                                    ``(II) available to Federal and 
                                State authorities in connection with 
                                any criminal investigation or 
                                proceeding;
                                    ``(III) admissible in any action 
                                brought by the Commission or any other 
                                Federal department or agency pursuant 
                                to its regulatory authority, to the 
                                extent that such information would be 
                                available to such agency from the 
                                Commission as a result of a Commission 
                                enforcement investigation and in any 
                                criminal action; and
                                    ``(IV) available to State licensing 
                                boards to the extent authorized in 
                                paragraph (6).
                            ``(ii) Other limitations.--Any documents or 
                        other information provided to the Commission or 
                        other authorities pursuant to clause (i) shall 
                        be subject to the limitations on discovery and 
                        admissibility set forth in subparagraphs (A) 
                        and (B).
                    ``(D) Title 5 treatment.--This subsection shall be 
                considered to be a statute described in section 
                552(b)(3)(B) of title 5, United States Code, for 
                purposes of that section 552.
            ``(6) Participation by state licensing boards.--
                    ``(A) Notice.--When the Board institutes an 
                investigation pursuant to paragraph (2)(A), it shall 
                notify the State licensing boards in the States in 
                which the public accounting firm or person associated 
                with such firm engaged in the act or failure to act 
                alleged to have violated professional standards, of the 
                pendancy of the investigation, and shall invite the 
                State licensing boards to participate in the 
                investigation.
                    ``(B) Acceptance by state board.--
                            ``(i) Participation.--If a State licensing 
                        board elects to join in the investigation, its 
                        representatives shall participate, pursuant to 
                        rules established by the Board, in 
                        investigating the matter and in presenting the 
                        evidence justifying the charges in any hearing 
                        pursuant to paragraph (3)(A).
                            ``(ii) Review.--In the event that the State 
                        licensing board disagrees with the Board's 
                        determination with respect to the matter under 
                        investigation, it may seek review of that 
                        determination by the Commission pursuant to 
                        procedures that the Commission shall specify by 
                        regulation.
                    ``(C) Prohibition on concurrent investigations.--A 
                State licensing board shall not institute its own 
                proceeding with respect to a matter referred to in 
                subparagraph (A) until after the Board's determination 
                has become final, including completion of all review by 
                the Commission and the courts.
                    ``(D) State sanctions permitted.--If the Board or 
                the Commission imposes a sanction upon a public 
                accounting firm or person associated with such a firm, 
                and that determination either is not subjected to 
                judicial review or is upheld on judicial review, a 
                State licensing board may impose a sanction on the 
                basis of the Board's report pursuant to paragraph (4). 
                Any sanction imposed by the State licensing board under 
                this clause shall be inadmissible in any proceeding in 
                any State or Federal court or before any State or 
                Federal administrative agency, except to the extent 
                provided in paragraph (5)(D).
                    ``(E) Sanctions not permitted.--If a sanction is 
                not imposed on a public accounting firm or person 
                associated with such a firm, and--
                            ``(i) a State licensing board elected to 
                        participate in an investigation referred to in 
                        subparagraph (A), the State licensing board may 
                        not impose a sanction with respect to the 
                        matter; and
                            ``(ii) a State licensing board elected not 
                        to participate in an investigation referred to 
                        in subparagraph (A), subparagraphs (A) and (B) 
                        of paragraph (5) shall apply with respect to 
                        any investigation or proceeding subsequently 
                        instituted by the State licensing board and, in 
                        particular, the State licensing board shall not 
                        have access to the record of the proceeding 
                        before the Board and that record shall be 
                        inadmissible in any proceeding before the State 
                        licensing board.
    ``(g) Additional Duties Regarding Quality Control.--After the date 
on which all initial members of the Board have been selected in 
accordance with subsection (c), the Board shall have the following 
duties and powers in addition to those set forth in subsection (f):
            ``(1) In general.--The Board shall seek to promote a high 
        level of professional conduct among public accounting firms 
        registered with the Board, to improve the quality of audit 
        services provided by such firms, and, in general, to protect 
        investors and promote the public interest.
            ``(2) Professional peer review organizations.--
                    ``(A) Membership requirement.--The Board shall 
                require each public accounting firm subject to the 
                disciplinary authority of the Board to be a member of a 
                professional peer review organization certified by the 
                Board pursuant to subparagraph (B).
                    ``(B) Criteria for certification.--The Board shall, 
                by rule, establish general criteria for the 
                certification of peer review organizations and shall 
                certify organizations that satisfy those criteria, or 
                such amended criteria as the Board may adopt. To be 
                certified, a peer review organization shall, at a 
                minimum--
                            ``(i) require a member public accounting 
                        firm to undergo peer review not less than once 
                        every 3 years and publish the results of the 
                        peer review; and
                            ``(ii) adopt standards that are acceptable 
                        to the Board relating to audit service quality 
                        control.
                    ``(C) Penalties.--Violation by a public accounting 
                firm or a person associated with such a firm of a rule 
                of the peer review organization to which the firm 
                belongs shall constitute grounds for--
                            ``(i) the imposition of disciplinary 
                        sanctions by the Board pursuant to subsection 
                        (f); and
                            ``(ii) denial to the public accounting firm 
                        or person associated with such firm of the 
                        privilege of appearing or practicing before the 
                        Commission.
            ``(3) Confidentiality.--Except as otherwise provided by 
        this section, all reports, memoranda, and other information 
        provided to the Board solely for purposes of paragraph (2), or 
        to a peer review organization certified by the Board, shall be 
        confidential and privileged, unless such confidentiality and 
        privilege are expressly waived by the person or entity that 
        created or provided the information.
    ``(h) Commission Oversight of the Board.--
            ``(1) Proposed rule changes.--
                    ``(A) In general.--The Board shall file with the 
                Commission, in accordance with such rules as the 
                Commission may prescribe, copies of any proposed rule 
                or any proposed change in, addition to, or deletion 
                from the rules of the Board (hereafter in this 
                subsection collectively referred to as a `proposed rule 
                change') accompanied by a concise general statement of 
                the basis and purpose of such proposed rule change. The 
                Commission shall, upon the filing of any proposed rule 
                change, publish notice thereof together with the terms 
                of substance of the proposed rule change or a 
                description of the subjects and issues involved. The 
                Commission shall give interested persons an opportunity 
                to submit written data, views, and arguments concerning 
                the proposed rule change. No proposed rule change shall 
                take effect unless approved by the Commission or 
                otherwise permitted in accordance with this subsection.
                    ``(B) Approval or disapproval.--
                            ``(i) In general.--Not later than 35 days 
                        after the date on which notice of the filing of 
                        a proposed rule change is published in 
                        accordance with subparagraph (A), or such 
                        longer period as the Commission may designate 
                        (not to exceed 90 days after such date, if it 
                        finds such longer period to be appropriate and 
                        publishes its reasons for such finding or as to 
                        which the Board consents) the Commission 
                        shall--
                                    ``(I) by order approve such 
                                proposed rule change; or
                                    ``(II) institute proceedings to 
                                determine whether the proposed rule 
                                change should be disapproved.
                            ``(ii) Disapproval proceedings.--
                        Proceedings for disapproval shall include 
                        notice of the grounds for disapproval under 
                        consideration and opportunity for hearing and 
                        shall be concluded not later than 180 days 
                        after the date of publication of notice of the 
                        filing of the proposed rule change. At the 
                        conclusion of the proceedings for disapproval, 
                        the Commission, by order, shall approve or 
                        disapprove such proposed rule change. The 
                        Commission may extend the time for conclusion 
                        of such proceedings for--
                                    ``(I) not more than 60 days, if the 
                                Commission finds good cause for such 
                                extension and publishes its reasons for 
                                such finding; or
                                    ``(II) such longer period to which 
                                the Board consents.
                            ``(iii) Approval.--The Commission shall 
                        approve a proposed rule change if it finds that 
                        such proposed rule change is consistent with 
                        the requirements of the Federal securities 
                        laws, and the rules and regulations issued 
                        thereunder, applicable to the Board. The 
                        Commission shall disapprove a proposed rule 
                        change if it does not make such finding. The 
                        Commission shall not approve any proposed rule 
                        change prior to the expiration of the 30-day 
                        period beginning on the date on which notice of 
                        the filing of a proposed rule change is 
                        published in accordance with this subparagraph, 
                        unless the Commission finds good cause to do so 
                        and publishes its reasons for such finding.
                    ``(C) Effect of proposed rule change.--
                            ``(i) Effective date.--Notwithstanding 
                        subparagraph (B), a proposed rule change may 
                        take effect upon filing with the Commission if 
                        designated by the Board as--
                                    ``(I) constituting a stated policy, 
                                practice, or interpretation with 
                                respect to the meaning, administration, 
                                or enforcement of an existing rule of 
                                the Board;
                                    ``(II) establishing or changing a 
                                due, fee, or other charge imposed by 
                                the Board; or
                                    ``(III) concerned solely with the 
                                administration of the Board or other 
                                matters which the Commission, by rule, 
                                consistent with the public interest and 
                                the purposes of this subsection, may 
                                specify.
                            ``(ii) Summary effect.--Notwithstanding any 
                        other provision of this subsection, a proposed 
                        rule change may be put into effect summarily if 
                        it appears to the Commission that such action 
                        is necessary for the protection of investors. 
                        Any proposed rule change put into effect 
                        summarily shall be filed promptly thereafter in 
                        accordance with this paragraph.
                            ``(iii) Enforcement.--Any proposed rule 
                        change which has taken effect pursuant to 
                        clause (i) or (ii) may be enforced by the Board 
                        to the extent that it is not inconsistent with 
                        the Federal securities laws, the rules and 
                        regulations issued thereunder, and applicable 
                        Federal and State law. During the 60-day period 
                        beginning on the date on which notice of the 
                        filing of a proposed rule change if filed in 
                        accordance with this paragraph, the Commission 
                        may summarily abrogate the change in the rules 
                        of the Board made thereby and require that the 
                        proposed rule change be refiled in accordance 
                        with subparagraph (A) and reviewed in 
                        accordance with subparagraph (B), if it appears 
                        to the Commission that such action is necessary 
                        or appropriate in the public interest, for the 
                        protection of investors, or otherwise in 
                        furtherance of the purposes of the Federal 
                        securities laws. Commission action pursuant to 
                        the preceding sentence shall not affect the 
                        validity or force of the rule change during the 
                        period it was in effect and shall not be 
                        reviewable under section 25 of this Act nor 
                        deemed to be `final agency action' for purposes 
                        of section 704 of title 5, United States Code.
            ``(2) Amendment by commission of rules of the board.--The 
        Commission, by rule, may abrogate, add to, and delete from 
        (hereafter in this subsection collectively referred to as 
        `amend') the rules of the Board as the Commission deems 
        necessary or appropriate to ensure the fair administration of 
        the Board, to conform its rules to requirements of the Federal 
        securities laws, and the rules and regulations issued 
        thereunder applicable to the Board, or otherwise in furtherance 
        of the purposes of the Federal securities laws, in the 
        following manner:
                    ``(A) Publication of notice.--The Commission shall 
                notify the Board and publish notice of the proposed 
                rulemaking in the Federal Register. The notice shall 
                include the text of the proposed amendment to the rules 
                of the Board and a statement of the Commission's 
                reasons, including any pertinent facts, for commencing 
                such proposed rulemaking.
                    ``(B) Comments.--The Commission shall give 
                interested persons an opportunity for the oral 
                presentation of data, views, and arguments, in addition 
                to an opportunity to make written submissions. A 
                transcript shall be kept of any oral presentation.
                    ``(C) Incorporation.--A rule adopted pursuant to 
                this subsection shall incorporate the text of the 
                amendment to the rules of the Board and a statement of 
                the Commission's basis for and purpose in so amending 
                such rules. Such statement shall include an 
                identification of any facts on which the Commission 
                considers its determination to so amend the rules of 
                the Board to be based, including the reasons for the 
                Commission's conclusions as to any of the facts that 
                were disputed in the rulemaking.
                    ``(D) Regulations.--
                            ``(i) Title 5 applicability.--Except as 
                        otherwise provided in this paragraph, 
                        rulemaking under this paragraph shall be in 
                        accordance with the procedures specified in 
                        section 553 of title 5, United States Code, for 
                        rulemaking not on the record.
                            ``(ii) Construction.--Nothing in this 
                        subsection shall be construed to impair or 
                        limit the Commission's power to make, modify, 
                        or alter the procedures the Commission may 
                        follow in making rules and regulations pursuant 
                        to any other authority under the Federal 
                        securities laws.
                            ``(iii) Incorporation of amendments.--Any 
                        amendment to the rules of the Board made by the 
                        Commission pursuant to this subsection shall be 
                        considered for purposes of the Federal 
                        securities laws to be part of the rules of the 
                        Board and shall not be considered to be a rule 
                        of the Commission.
            ``(3) Notice of disciplinary action taken by the board; 
        review of action by the commission.--
                    ``(A) Notice required.--If the Board imposes a 
                final disciplinary sanction on a public accounting firm 
                registered with the Board or on any person associated 
                with such a firm, the Board shall promptly file notice 
                thereof with the Commission. The notice shall be in 
                such form and contain such information as the 
                Commission, by rule, may prescribe as necessary or 
                appropriate in furtherance of the purposes of the 
                Federal securities laws.
                    ``(B) Review.--An action with respect to which the 
                Board is required by subparagraph (A) to file notice 
                shall be subject to review by the Commission, on its 
                own motion, or upon application by any person aggrieved 
                thereby, filed not later than 30 days after the date on 
                which such notice is filed with the Commission and 
                received by such aggrieved person, or within such 
                longer period as the Commission may determine. 
                Application to the Commission for review, or the 
                institution of review by the Commission on its own 
                motion, shall not operate as a stay of such action 
                unless the Commission otherwise 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). The Commission shall establish for 
                appropriate cases an expedited procedure for 
                consideration and determination of the question of a 
                stay.
            ``(4) Disposition of review; cancellation, reduction, or 
        remission of sanction.--
                    ``(A) In general.--In any proceeding to review a 
                final disciplinary sanction imposed by the Board on a 
                public accounting firm registered with the Board or a 
                person associated with such a firm, after notice and 
                opportunity for hearing (which hearing may consist 
                solely of consideration of the record before the Board 
                and opportunity for the presentation of supporting 
                reasons to affirm, modify, or set aside the sanction)--
                            ``(i) if the Commission finds that--
                                    ``(I) such firm or person 
                                associated with such a firm has engaged 
                                in such acts or practices, or has 
                                omitted such acts, as the Board has 
                                found them to have engaged in or 
                                omitted;
                                    ``(II) such acts, practices, or 
                                omissions, are in violation of such 
                                provisions of the Federal securities 
                                laws, the rules or regulations issued 
                                thereunder, the rules adopted by the 
                                Board, or professional standards as 
                                have been specified in the 
                                determination of the Board; and
                                    ``(III) such provisions were 
                                applied in a manner consistent with the 
                                purposes of the Federal securities 
                                laws;
                        the Commission, by order, shall so declare and, 
                        as appropriate, affirm the sanction imposed by 
                        the Board, modify the sanction in accordance 
                        with paragraph (2), or remand to the Board for 
                        further proceedings; or
                            ``(ii) if the Commission does not make the 
                        findings under clause (i), it shall, by order, 
                        set aside the sanction imposed by the Board 
                        and, if appropriate, remand to the Board for 
                        further proceedings.
                    ``(B) Cancellation, reduction, or remission of 
                sanction.--If the Commission, having due regard for the 
                public interest and the protection of investors, finds 
                after a proceeding in accordance with subparagraph (A) 
                that a sanction imposed by the Board upon a firm or 
                person associated with a firm imposes any burden on 
                competition not necessary or appropriate in furtherance 
                of the purposes of the Federal securities laws or is 
                excessive or oppressive, the Commission may cancel, 
                reduce, or require the remission of such sanction.
            ``(5) Compliance with rules and regulations.--
                    ``(A) Duties of board.--The Board shall--
                            ``(i) comply with the Federal securities 
                        laws, the rules and regulations issued 
                        thereunder, and its own rules; and
                            ``(ii) subject to subparagraph (B) and the 
                        rules thereunder, absent reasonable 
                        justification or excuse, enforce compliance 
                        with such provisions and with professional 
                        standards by public accounting firms registered 
                        with the Board and persons associated with such 
                        firms.
                    ``(B) Relief by commission.--The Commission, by 
                rule, consistent with the public interest, the 
                protection of investors, and the other purposes of the 
                Federal securities laws, may relieve the Board of any 
                responsibility under this section to enforce compliance 
                with any specified provision of the Federal securities 
                laws, the rules or regulations issued thereunder, or 
                professional standards by any public accounting firm 
                registered with the Board or person associated with 
                such a firm, or any class of such firms or persons 
                associated with such a firm.
            ``(6) Censure; other sanctions.--
                    ``(A) In general.--The Commission is authorized, by 
                order, if in its opinion such action is necessary or 
                appropriate in the public interest, for the protection 
                of investors, or otherwise in furtherance of the 
                purposes of the Federal securities laws, to 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 hearing, 
                that the Board has--
                            ``(i) violated or is unable to comply with 
                        any provision of the Federal securities laws, 
                        the rules or regulations issued thereunder, or 
                        its own rules; or
                            ``(ii) without reasonable justification or 
                        excuse, has failed to enforce compliance with 
                        any such provision or any professional standard 
                        by a public accounting firm registered with the 
                        Board or a person associated with such a firm.
                    ``(B) Removal from office.--The Commission is 
                authorized, by order, if in its opinion such action is 
                necessary or appropriate, in the public interest for 
                the protection of investors, or otherwise in 
                furtherance of the purposes of the Federal securities 
                laws, to remove from office or censure any member of 
                the Board, if the Commission finds, on the record after 
                notice and opportunity for hearing, that such member 
                has--
                            ``(i) willfully violated any provision of 
                        the Federal securities laws, the rules or 
                        regulations issued thereunder, or the rules of 
                        the Board;
                            ``(ii) willfully abused such member's 
                        authority; or
                            ``(iii) without reasonable justification or 
                        excuse, failed to enforce compliance with any 
                        such provision or any professional standard by 
                        any public accounting firm registered with the 
                        Board or any person associated with such a 
                        firm.
    ``(i) Foreign Accounting Firms.--A foreign public accounting firm 
that furnishes accountant's reports on any financial statement, report, 
or other document required to be filed with the Commission under any 
Federal securities law shall, with respect to those reports, be subject 
to the provisions of this section in the same manner and to the same 
extent as a domestic public accounting firm. The Commission may, by 
rule, regulation, or order and as it deems consistent with the public 
interest and the protection of investors, either unconditionally or 
upon specified terms and conditions, exempt from one or more provisions 
of this section any foreign public accounting firm. Registration 
pursuant to this subsection shall not, by itself, provide a basis for 
subjecting foreign accounting firms to the jurisdiction of the Federal 
or State courts.
    ``(j) Relationship With Antitrust Laws.--
            ``(1) Treatment under antitrust laws.--In no case shall the 
        Board, any member thereof, any public accounting firm 
        registered with the Board, or any person associated with such a 
        firm be subject to liability under any antitrust law for any 
        act of the Board or any failure to act by the Board.
            ``(2) Definition.--For purposes of this subsection, the 
        term `antitrust law' means the Federal Trade Commission Act and 
        each statute defined by section 4 thereof as `Antitrust Acts' 
        and all amendments to such Act and such statutes and any other 
        Federal Acts or State laws in pari materia.
    ``(k) Applicability of Auditing Principles.--Each audit required 
pursuant to this title of an issuer's financial statements by an 
independent public accountant shall be conducted in accordance with 
generally accepted auditing standards, as may be modified or 
supplemented from time-to-time by the Commission. The Commission may 
defer to professional standards promulgated by private organizations 
that are generally accepted by the accounting or auditing profession.
    ``(l) Commission Authority Not Impaired.--Nothing in this section 
shall be construed to impair or limit the Commission's authority--
            ``(1) over the accounting profession, accounting firms, or 
        any persons associated with such firms;
            ``(2) to set standards for accounting practices, derived 
        from other provisions of the Federal securities laws or the 
        rules or regulations issued thereunder; or
            ``(3) to take, on its own initiative, legal, 
        administrative, or disciplinary action against any public 
        accounting firm registered with the Board or any person 
        associated with such a firm.''.

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