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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3258 Introduced in Senate (IS)]

111th CONGRESS
  2d Session
                                S. 3258

   To amend the securities laws to modernize and strengthen investor 
                  protection, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             April 26, 2010

   Mr. Reed 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 laws to modernize and strengthen investor 
                  protection, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Modernizing and Strengthening 
Investor Protection Act of 2010''.

SEC. 2. STRENGTHENING ENFORCEMENT BY THE COMMISSION.

    (a) Nationwide Service of Subpoenas.--
            (1) Securities act of 1933.--Section 22(a) of the 
        Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by 
        inserting after the second sentence the following: ``In any 
        action or proceeding instituted by the Commission under this 
        title in a United States district court for any judicial 
        district, a subpoena issued to compel the attendance of a 
        witness or the production of documents or tangible things (or 
        both) at a hearing or trial may be served at any place within 
        the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules of 
        Civil Procedure shall not apply to a subpoena issued under the 
        preceding sentence.''.
            (2) Securities exchange act of 1934.--Section 27 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78aa) is amended by 
        inserting after the third sentence the following: ``In any 
        action or proceeding instituted by the Commission under this 
        title in a United States district court for any judicial 
        district, a subpoena issued to compel the attendance of a 
        witness or the production of documents or tangible things (or 
        both) at a hearing or trial may be served at any place within 
        the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules of 
        Civil Procedure shall not apply to a subpoena issued under the 
        preceding sentence.''.
            (3) Investment company act of 1940.--Section 44 of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-43) is amended by 
        inserting after the fourth sentence the following: ``In any 
        action or proceeding instituted by the Commission under this 
        title in a United States district court for any judicial 
        district, a subpoena issued to compel the attendance of a 
        witness or the production of documents or tangible things (or 
        both) at a hearing or trial may be served at any place within 
        the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules of 
        Civil Procedure shall not apply to a subpoena issued under the 
        preceding sentence.''.
            (4) Investment advisers act of 1940.--Section 214 of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-14) is amended 
        by inserting after the third sentence the following: ``In any 
        action or proceeding instituted by the Commission under this 
        title in a United States district court for any judicial 
        district, a subpoena issued to compel the attendance of a 
        witness or the production of documents or tangible things (or 
        both) at a hearing or trial may be served at any place within 
        the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules of 
        Civil Procedure shall not apply to a subpoena issued under the 
        preceding sentence.''.
    (b) Authority To Impose Civil Penalties in Cease-and-Desist 
Proceedings.--
            (1) Under the securities act of 1933.--Section 8A of the 
        Securities Act of 1933 (15 U.S.C. 77h-1) is amended by adding 
        at the end the following new subsection:
    ``(g) Authority To Impose Money Penalties.--
            ``(1) Grounds.--In any cease-and-desist proceeding under 
        subsection (a), the Commission may impose a civil penalty on a 
        person if the Commission finds, on the record, after notice and 
        opportunity for hearing, that--
                    ``(A) such person--
                            ``(i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation issued under this title; or
                            ``(ii) is or was a cause of the violation 
                        of any provision of this title, or any rule or 
                        regulation thereunder; and
                    ``(B) such penalty is in the public interest.
            ``(2) Maximum amount of penalty.--
                    ``(A) First tier.--The maximum amount of a penalty 
                for each act or omission described in paragraph (1) 
                shall be $7,500 for a natural person or $75,000 for any 
                other person.
                    ``(B) Second tier.--Notwithstanding subparagraph 
                (A), the maximum amount of penalty for each such act or 
                omission shall be $75,000 for a natural person or 
                $375,000 for any other person, if the act or omission 
                described in paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless disregard of a 
                regulatory requirement.
                    ``(C) Third tier.--Notwithstanding subparagraphs 
                (A) and (B), the maximum amount of penalty for each 
                such act or omission shall be $150,000 for a natural 
                person or $725,000 for any other person, if--
                            ``(i) the act or omission described in 
                        paragraph (1) involved fraud, deceit, 
                        manipulation, or deliberate or reckless 
                        disregard of a regulatory requirement; and
                            ``(ii) such act or omission directly or 
                        indirectly resulted in--
                                    ``(I) substantial losses or created 
                                a significant risk of substantial 
                                losses to other persons; or
                                    ``(II) substantial pecuniary gain 
                                to the person who committed the act or 
                                omission.
            ``(3) Evidence concerning ability to pay.--In any 
        proceeding in which the Commission may impose a penalty under 
        this section, a respondent may present evidence of the ability 
        of the respondent to pay such penalty. The Commission may, in 
        its discretion, consider such evidence in determining whether 
        such penalty is in the public interest. Such evidence may 
        relate to the extent of the ability of the respondent to 
        continue in business and the collectability of a penalty, 
        taking into account any other claims of the United States or 
        third parties upon the assets of the respondent and the amount 
        of the assets of the respondent.''.
            (2) Under the securities exchange act of 1934.--Section 
        21B(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-
        2(a)) is amended--
                    (A) by striking the matter immediately following 
                paragraph (4);
                    (B) in the matter preceding paragraph (1), by 
                inserting after ``opportunity for hearing,'' the 
                following: ``that such penalty is in the public 
                interest and'';
                    (C) by redesignating paragraphs (1) through (4) as 
                subparagraphs (A) through (D), respectively, and 
                adjusting the subparagraph margins accordingly;
                    (D) by striking ``In any proceeding'' and inserting 
                the following:
            ``(1) In general.--In any proceeding''; and
                    (E) by adding at the end the following:
            ``(2) Cease-and-desist proceedings.--In any proceeding 
        instituted under section 21C against any person, the Commission 
        may impose a civil penalty, if the Commission finds, on the 
        record after notice and opportunity for hearing, that such 
        person--
                    ``(A) is violating or has violated any provision of 
                this title, or any rule or regulation issued under this 
                title; or
                    ``(B) is or was a cause of the violation of any 
                provision of this title, or any rule or regulation 
                issued under this title.''.
            (3) Under the investment company act of 1940.--Section 
        9(d)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-
        9(d)(1)) is amended--
                    (A) by striking the matter immediately following 
                subparagraph (C);
                    (B) in the matter preceding subparagraph (A), by 
                inserting after ``opportunity for hearing,'' the 
                following: ``that such penalty is in the public 
                interest, and'';
                    (C) by redesignating subparagraphs (A) through (C) 
                as clauses (i) through (iii), respectively, and 
                adjusting the clause margins accordingly;
                    (D) by striking ``In any proceeding'' and inserting 
                the following:
                    ``(A) In general.--In any proceeding''; and
                    (E) by adding at the end the following:
                    ``(B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection (f) 
                against any person, the Commission may impose a civil 
                penalty if the Commission finds, on the record, after 
                notice and opportunity for hearing, that such person--
                            ``(i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation issued under this title; or
                            ``(ii) is or was a cause of the violation 
                        of any provision of this title, or any rule or 
                        regulation issued under this title.''.
            (4) Under the investment advisers act of 1940.--Section 
        203(i)(1) of the Investment Advisers Act of 1940 (15 U.S.C. 
        80b-3(i)(1)) is amended--
                    (A) by striking the undesignated matter immediately 
                following subparagraph (D);
                    (B) in the matter preceding subparagraph (A), by 
                inserting after ``opportunity for hearing,'' the 
                following: ``that such penalty is in the public 
                interest and'';
                    (C) by redesignating subparagraphs (A) through (D) 
                as clauses (i) through (iv), respectively, and 
                adjusting the clause margins accordingly;
                    (D) by striking ``In any proceeding'' and inserting 
                the following:
                    ``(A) In general.--In any proceeding''; and
                    (E) by adding at the end the following new 
                subparagraph:
                    ``(B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection (k) 
                against any person, the Commission may impose a civil 
                penalty if the Commission finds, on the record, after 
                notice and opportunity for hearing, that such person--
                            ``(i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation issued under this title; or
                            ``(ii) is or was a cause of the violation 
                        of any provision of this title, or any rule or 
                        regulation issued under this title.''.
    (c) Formerly Associated Persons.--
            (1) Member or employee of the municipal securities 
        rulemaking board.--Section 15B(c)(8) of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78o-4(c)(8)) is amended by striking 
        ``any member or employee'' and inserting ``any person who is, 
        or at the time of the alleged violation or abuse was, a member 
        or employee''.
            (2) Person associated with a government securities broker 
        or dealer.--Section 15C(c) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78o-5(c)) is amended--
                    (A) in paragraph (1)(C), by striking ``any person 
                associated, or seeking to become associated,'' and 
                inserting ``any person who is, or at the time of the 
                alleged misconduct was, associated or seeking to become 
                associated''; and
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by inserting ``, 
                        seeking to become associated, or, at the time 
                        of the alleged misconduct, associated or 
                        seeking to become associated'' after ``any 
                        person associated''; and
                            (ii) in subparagraph (B), by inserting ``, 
                        seeking to become associated, or, at the time 
                        of the alleged misconduct, associated or 
                        seeking to become associated'' after ``any 
                        person associated''.
            (3) Person associated with a member of a national 
        securities exchange or registered securities association.--
        Section 21(a)(1) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78u(a)(1)) is amended, in the first sentence, by 
        inserting ``, or, as to any act or practice, or omission to 
        act, while associated with a member, formerly associated'' 
        after ``member or a person associated''.
            (4) Participant of a registered clearing agency.--Section 
        21(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
        78u(a)(1)) is amended, in the first sentence, by inserting 
        ``or, as to any act or practice, or omission to act, while a 
        participant, was a participant,'' after ``in which such person 
        is a participant,''.
            (5) Officer or director of a self-regulatory 
        organization.--Section 19(h)(4) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78s(h)(4)) is amended--
                    (A) by striking ``any officer or director'' and 
                inserting ``any person who is, or at the time of the 
                alleged misconduct was, an officer or director''; and
                    (B) by striking ``such officer or director'' and 
                inserting ``such person''.
            (6) Officer or director of an investment company.--Section 
        36(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
        35(a)) is amended--
                    (A) by striking ``a person serving or acting'' and 
                inserting ``a person who is, or at the time of the 
                alleged misconduct was, serving or acting''; and
                    (B) by striking ``such person so serves or acts'' 
                and inserting ``such person so serves or acts, or at 
                the time of the alleged misconduct, so served or 
                acted''.
            (7) Person associated with a public accounting firm.--
                    (A) Sarbanes-oxley act of 2002 amendment.--Section 
                2(a)(9) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
                7201(9)) is amended by adding at the end the following:
                    ``(C) Investigative and enforcement authority.--For 
                purposes of sections 3(c), 101(c), 105, and 107(c) and 
                the rules of the Board and Commission issued 
                thereunder, except to the extent specifically excepted 
                by such rules, the terms defined in subparagraph (A) 
                shall include any person associated, seeking to become 
                associated, or formerly associated with a public 
                accounting firm, except that--
                            ``(i) the authority to conduct an 
                        investigation of such person under section 
                        105(b) shall apply only with respect to any act 
                        or practice, or omission to act, by the person 
                        while such person was associated or seeking to 
                        become associated with a registered public 
                        accounting firm; and
                            ``(ii) the authority to commence a 
                        disciplinary proceeding under section 
                        105(c)(1), or impose sanctions under section 
                        105(c)(4), against such person shall apply only 
                        with respect to--
                                    ``(I) conduct occurring while such 
                                person was associated or seeking to 
                                become associated with a registered 
                                public accounting firm; or
                                    ``(II) non-cooperation, as 
                                described in section 105(b)(3), with 
                                respect to a demand in a Board 
                                investigation for testimony, documents, 
                                or other information relating to a 
                                period when such person was associated 
                                or seeking to become associated with a 
                                registered public accounting firm.''.
                    (B) Securities exchange act of 1934 amendment.--
                Section 21(a)(1) of the Securities Exchange Act of 1934 
                (15 U.S.C. 78u(a)(1)) is amended by striking ``or a 
                person associated with such a firm'' and inserting ``, 
                a person associated with such a firm, or, as to any 
                act, practice, or omission to act, while associated 
                with such firm, a person formerly associated with such 
                a firm''.
            (8) Supervisory personnel of an audit firm.--Section 
        105(c)(6) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
        7215(c)(6)) is amended--
                    (A) in subparagraph (A), by striking ``the 
                supervisory personnel'' and inserting ``any person who 
                is, or at the time of the alleged failure reasonably to 
                supervise was, a supervisory person''; and
                    (B) in subparagraph (B)--
                            (i) by striking ``No associated person'' 
                        and inserting ``No current or former 
                        supervisory person''; and
                            (ii) by striking ``any other person'' and 
                        inserting ``any associated person''.
            (9) Member of the public company accounting oversight 
        board.--Section 107(d)(3) of the Sarbanes-Oxley Act of 2002 (15 
        U.S.C. 7217(d)(3)) is amended by striking ``any member'' and 
        inserting ``any person who is, or at the time of the alleged 
        misconduct was, a member''.
    (d) Extraterritorial Jurisdiction of the Antifraud Provisions of 
the Federal Securities Laws.--
            (1) Under the securities act of 1933.--Section 22 of the 
        Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by adding 
        at the end the following new subsection:
    ``(c) Extraterritorial Jurisdiction.--The district courts of the 
United States and the United States courts of any Territory shall have 
jurisdiction of an action or proceeding brought or instituted by the 
Commission or the United States alleging a violation of section 17(a) 
involving--
            ``(1) conduct within the United States that constitutes 
        significant steps in furtherance of the violation, even if the 
        securities transaction occurs outside the United States and 
        involves only foreign investors; or
            ``(2) conduct occurring outside the United States that has 
        a foreseeable substantial effect within the United States.''.
            (2) Under the securities exchange act of 1934.--Section 27 
        of the Securities Exchange Act of 1934 (15 U.S.C. 78aa) is 
        amended--
                    (A) by striking ``The district'' and inserting the 
                following:
    ``(a) In General.--The district''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(b) Extraterritorial Jurisdiction.--The district courts of the 
United States and the United States courts of any Territory shall have 
jurisdiction of an action or proceeding brought or instituted by the 
Commission or the United States alleging a violation of the antifraud 
provisions of this title involving--
            ``(1) conduct within the United States that constitutes 
        significant steps in furtherance of the violation, even if the 
        securities transaction occurs outside the United States and 
        involves only foreign investors; or
            ``(2) conduct occurring outside the United States that has 
        a foreseeable substantial effect within the United States.''.
            (3) Under the investment advisers act of 1940.--Section 214 
        of the Investment Advisers Act of 1940 (15 U.S.C. 80b-14) is 
        amended--
                    (A) by striking ``The district'' and inserting the 
                following:
    ``(a) In General.--The district''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(b) Extraterritorial Jurisdiction.--The district courts of the 
United States and the United States courts of any Territory shall have 
jurisdiction of an action or proceeding brought or instituted by the 
Commission or the United States alleging a violation of section 206 
involving--
            ``(1) conduct within the United States that constitutes 
        significant steps in furtherance of the violation, even if the 
        violation is committed by a foreign adviser and involves only 
        foreign investors; or
            ``(2) conduct occurring outside the United States that has 
        a foreseeable substantial effect within the United States.''.
    (e) Control Person Liability Under the Securities Exchange Act of 
1934.--Section 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78t(a)) is amended by inserting after ``controlled person is liable'' 
the following: ``(including to the Commission in any action brought 
under paragraph (1) or (3) of section 21(d))''.
    (f) Aiding and Abetting Under the Securities Laws.--
            (1) Under the securities act of 1933.--Section 15 of the 
        Securities Act of 1933 (15 U.S.C. 77o) is amended--
                    (A) by striking ``Every person who'' and inserting 
                ``(a) Controlling Persons.--Every person who''; and
                    (B) by adding at the end the following:
    ``(b) Prosecution of Persons Who Aid and Abet Violations.--For 
purposes of any action brought by the Commission under subparagraph (b) 
or (d) of section 20, any person that knowingly or recklessly provides 
substantial assistance to another person in violation of a provision of 
this Act, or of any rule or regulation issued under this Act, shall be 
deemed to be in violation of such provision to the same extent as the 
person to whom such assistance is provided.''.
            (2) Under the investment company act of 1940.--Section 48 
        of the Investment Company Act of 1940 (15 U.S.C. 80a-48) is 
        amended by redesignating subsection (b) as subsection (c) and 
        inserting after subsection (a) the following:
    ``(b) For purposes of any action brought by the Commission under 
subsection (d) or (e) of section 42, any person that knowingly or 
recklessly provides substantial assistance to another person in 
violation of a provision of this Act, or of any rule or regulation 
issued under this Act, shall be deemed to be in violation of such 
provision to the same extent as the person to whom such assistance is 
provided.''.
            (3) Under the investment advisers act.--Section 209 of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is amended by 
        inserting at the end the following new subsection:
    ``(f) Aiding and Abetting.--For purposes of any action brought by 
the Commission under subsection (e), any person that knowingly or 
recklessly has aided, abetted, counseled, commanded, induced, or 
procured a violation of any provision of this Act, or of any rule, 
regulation, or order hereunder, shall be deemed to be in violation of 
such provision, rule, regulation, or order to the same extent as the 
person that committed such violation.''.
            (4) Under the securities exchange act of 1934.--Section 
        20(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78t(e)) 
        is amended by inserting ``or recklessly'' after ``knowingly''.

SEC. 3. ADDRESSING ISSUES REVEALED BY THE MADOFF FRAUD.

    (a) Revision to Recordkeeping Rule.--
            (1) Investment company act of 1940 amendments.--Section 31 
        of the Investment Company Act of 1940 (15 U.S.C. 80a-30) is 
        amended--
                    (A) in subsection (a)(1), by adding at the end the 
                following: ``Each person having custody or use of the 
                securities, deposits, or credits of a registered 
                investment company shall maintain and preserve all 
                records that relate to the custody or use by such 
                person of the securities, deposits, or credits of the 
                registered investment company for such period or 
                periods as the Commission, by rule or regulation, may 
                prescribe, as necessary or appropriate in the public 
                interest or for the protection of investors.''; and
                    (B) in subsection (b), by adding at the end the 
                following:
            ``(4) Records of persons with custody or use.--
                    ``(A) In general.--Records of persons having 
                custody or use of the securities, deposits, or credits 
                of a registered investment company that relate to such 
                custody or use, are subject at any time, or from time 
                to time, to such reasonable periodic, special, or other 
                examinations and other information and document 
                requests by representatives of the Commission, as the 
                Commission deems necessary or appropriate in the public 
                interest or for the protection of investors.
                    ``(B) Certain persons subject to other 
                regulation.--Any person that is subject to regulation 
                and examination by a Federal financial institution 
                regulatory agency (as such term is defined under 
                section 212(c)(2) of title 18, United States Code) may 
                satisfy any examination request, information request, 
                or document request described under subparagraph (A), 
                by providing to the Commission a detailed listing, in 
                writing, of the securities, deposits, or credits of the 
                registered investment company within the custody or use 
                of such person.''.
            (2) Investment advisers act of 1940 amendment.--Section 204 
        of the Investment Advisers Act of 1940 (15 U.S.C. 80b-4) is 
        amended by adding at the end the following new subsection:
    ``(d) Records of Persons With Custody or Use.--
            ``(1) In general.--Records of persons having custody or use 
        of the securities, deposits, or credits of a client, that 
        relate to such custody or use, are subject at any time, or from 
        time to time, to such reasonable periodic, special, or other 
        examinations and other information and document requests by 
        representatives of the Commission, as the Commission deems 
        necessary or appropriate in the public interest or for the 
        protection of investors.
            ``(2) Certain persons subject to other regulation.--Any 
        person that is subject to regulation and examination by a 
        Federal financial institution regulatory agency (as such term 
        is defined under section 212(c)(2) of title 18, United States 
        Code) may satisfy any examination request, information request, 
        or document request described under paragraph (1), by providing 
        the Commission with a detailed listing, in writing, of the 
        securities, deposits, or credits of the client within the 
        custody or use of such person.''.
    (b) Streamlined Hiring Authority for Market Specialists.--
            (1) Appointment authority.--Section 3114 of title 5, United 
        States Code, is amended by striking the section heading and all 
        that follows through the end of subsection (a) and inserting 
        the following:
``Sec. 3114. Appointment of candidates to certain positions in the 
              competitive service by the Securities and Exchange 
              Commission
    ``(a) Applicability.--This section applies with respect to any 
position of accountant, economist, and securities compliance examiner 
at the Commission that is in the competitive service, and any position 
at the Commission in the competitive service that requires specialized 
knowledge of financial and capital market formation or regulation, 
financial market structures or surveillance, or information 
technology.''.
            (2) Clerical amendment.--The table of sections for chapter 
        31 of title 5, United States Code, is amended by striking the 
        item relating to section 3114 and inserting the following:

``3114. Appointment of candidates to positions in the competitive 
                            service by the Securities and Exchange 
                            Commission.''.
            (3) Pay authority.--The Commission may set the rate of pay 
        for experts and consultants appointed under the authority of 
        section 3109 of title 5, United States Code, in the same manner 
        in which it sets the rate of pay for employees of the 
        Commission.
    (c) SIPC Reforms.--
            (1) Removing the distinction between claims for cash and 
        claims for securities.--The Securities Investor Protection Act 
        of 1970 (15 U.S.C. 78aaa et seq.) is amended--
                    (A) in section 8(e)(4)(B) (15 U.S.C. 78fff-
                2(e)(4)(B)), by striking ``for cash or securities'';
                    (B) in section 9(a) (15 U.S.C. 78fff-3(a))--
                            (i) by striking paragraph (1); and
                            (ii) by redesignating paragraphs (2) 
                        through (5) as paragraphs (1) through (4), 
                        respectively; and
                    (C) in section 16(2)(B) (15 U.S.C. 78lll(2)(B)), by 
                striking ``for cash or securities''.
            (2) Liquidation of a carrying broker-dealer.--Section 
        5(a)(3) of the Securities Investor Protection Act of 1970 (15 
        U.S.C. 78eee(a)(3)) is amended--
                    (A) by striking the undesignated matter immediately 
                following subparagraph (B);
                    (B) in subparagraph (A), by striking ``any member 
                of SIPC'' and inserting ``the member'';
                    (C) in subparagraph (B), by striking the comma at 
                the end and inserting a period;
                    (D) by striking ``If SIPC'' and inserting the 
                following:
                    ``(A) In general.--SIPC may, upon notice to a 
                member of SIPC, file an application for a protective 
                decree with any court of competent jurisdiction 
                specified in section 21(e) or 27 of the Securities 
                Exchange Act of 1934, except that no such application 
                shall be filed with respect to a member, the only 
                customers of which are persons whose claims could not 
                be satisfied by SIPC advances pursuant to section 9, if 
                SIPC''; and
                    (E) by adding at the end the following:
                    ``(B) Consent required.--No member of SIPC that has 
                a customer may enter into an insolvency, receivership, 
                or bankruptcy proceeding, under Federal or State law, 
                without the specific consent of SIPC.''.

SEC. 4. ENHANCED ABILITY OF COMMISSION TO OBTAIN NEEDED INFORMATION.

    (a)  Investment Company Examination.--Section 31(b)(1) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-30(b)(1)) is amended to 
read as follows:
            ``(1) In general.--The following records shall be subject, 
        at any time, or from time to time, to such reasonable periodic, 
        special, or other examinations by representatives of the 
        Commission as the Commission deems necessary or appropriate in 
        the public interest or for the protection of investors:
                    ``(A) All records of a registered investment 
                company.
                    ``(B) All records of a underwriter, broker, dealer, 
                or investment adviser that is a majority-owned 
                subsidiary of a registered investment company.
                    ``(C) All records required to be maintained and 
                preserved by a investment adviser that is not a 
                majority-owned subsidiary of a registered investment 
                company.
                    ``(D) All records required to be maintained and 
                preserved by a depositor of a registered investment 
                company.
                    ``(E) All records required to be maintained and 
                preserved by a principal underwriter for a registered 
                investment company (other than a closed-end 
                company).''.
    (b) Expanded Access to Grand Jury Information.--Chapter 215 of 
title 18, United States Code, is amended by adding at the end the 
following:
``Sec. 3323. Access to grand jury information
    ``(a) Disclosure.--
            ``(1) In general.--Upon motion of an attorney for the 
        government, a court may direct disclosure of matters occurring 
        before a grand jury during an investigation of conduct that may 
        constitute a violation of any provision of the securities laws 
        to the Securities and Exchange Commission for use in relation 
        to any matter within the jurisdiction of the Commission.
            ``(2) Substantial need required.--A court may issue an 
        order under paragraph (1) only upon a finding of a substantial 
        need in the public interest.
    ``(b) Use of Matter.--A person to whom a matter has been disclosed 
under this section shall not use such matter, other than for the 
purpose for which such disclosure was authorized.
    ``(c) Definitions.--As used in this section--
            ``(1) the terms `attorney for the government' and `grand 
        jury information' have the meanings given to those terms in 
        section 3322 of title 18, United States Code; and
            ``(2) the term `securities laws' has the same meaning as in 
        section 3(a)(47) of the Securities Exchange Act of 1934.''.
    (c) Enhanced Authority of the Securities and Exchange Commission To 
Conduct Surveillance and Risk Assessment.--
            (1) Securities exchange act of 1934.--Section 17(b) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78q(b)) is amended 
        by adding at the end the following:
            ``(5) Surveillance and risk assessment.--All persons 
        described in subsection (a) are subject, at any time, or from 
        time to time, to such reasonable periodic, special, or other 
        information and document requests by representatives of the 
        Commission as the Commission, by rule or order, deems necessary 
        or appropriate to conduct surveillance or risk assessments of 
        the securities markets, persons registered with the Commission 
        under this title, or otherwise in furtherance of the purposes 
        of this title.''.
            (2) Investment company act of 1940.--Section 31(b) of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-30(b)) is amended 
        by adding at the end the following:
            ``(5) Surveillance and risk assessment.--All persons 
        described in subsection (a) are subject at any time, or from 
        time to time, to such reasonable periodic, special, or other 
        information and document requests by representatives of the 
        Commission as the Commission, by rule or order, deems necessary 
        or appropriate to conduct surveillance or risk assessments of 
        the securities markets, persons registered with the Commission 
        under this title, or otherwise in furtherance of the purposes 
        of this title.''.
            (3) Document requests.--Section 204 of the Investment 
        Advisers Act of 1940 (15 U.S.C. 80b-4) is amended by adding at 
        the end the following:
    ``(e) Surveillance and Risk Assessment.--All persons described in 
subsection (a) are subject at any time, or from time to time, to such 
reasonable periodic, special, or other information and document 
requests by representatives of the Commission as the Commission, by 
rule or order, deems necessary or appropriate to conduct surveillance 
or risk assessments of the securities markets, persons registered with 
the Commission under this title, or otherwise in furtherance of the 
purposes of this title.''.
    (d) Protecting Confidentiality of Materials Submitted to the 
Commission.--
            (1) Securities exchange act of 1934.--Section 24 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78x) is amended--
                    (A) in subsection (d), by striking ``subsection 
                (e)'' and inserting ``subsection (f)'';
                    (B) by redesignating subsection (e) as subsection 
                (f); and
                    (C) by inserting after subsection (d) the 
                following:
    ``(e) Records Obtained From Registered Persons.--
            ``(1) In general.--Except as provided in subsection (f), 
        the Commission shall not be compelled to disclose records or 
        information obtained pursuant to section 17(b), or records or 
        information based upon or derived from such records or 
        information, if such records or information have been obtained 
        by the Commission for use in furtherance of the purposes of 
        this title, including surveillance, risk assessments, or other 
        regulatory and oversight activities.
            ``(2) Treatment of information.--For purposes of section 
        552 of title 5, United States Code, this subsection shall be 
        considered a statute described in subsection (b)(3)(B) of such 
        section 552. Collection of information pursuant to section 17 
        shall be an administrative action involving an agency against 
        specific individuals or agencies pursuant to section 3518(c)(1) 
        of title 44, United States Code.''.
            (2) Investment company act of 1940.--Section 31 of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-30) is amended--
                    (A) by striking subsection (c) and inserting the 
                following:
    ``(c) Limitations on Disclosure by Commission.--Notwithstanding any 
other provision of law, the Commission shall not be compelled to 
disclose any records or information provided to the Commission under 
this section, or records or information based upon or derived from such 
records or information, if such records or information have been 
obtained by the Commission for use in furtherance of the purposes of 
this title, including surveillance, risk assessments, or other 
regulatory and oversight activities. Nothing in this subsection 
authorizes the Commission to withhold information from the Congress or 
prevent the Commission from complying with a request for information 
from any other Federal department or agency requesting the information 
for purposes within the scope of jurisdiction of that department or 
agency, or complying with an order of a court of the United States in 
an action brought by the United States or the Commission. For purposes 
of section 552 of title 5, United States Code, this section shall be 
considered a statute described in subsection (b)(3)(B) of such section 
552. Collection of information pursuant to section 31 shall be an 
administrative action involving an agency against specific individuals 
or agencies pursuant to section 3518(c)(1) of title 44, United States 
Code.'';
                    (B) by striking subsection (d); and
                    (C) by redesignating subsections (e) and (f) as 
                subsections (d) and (e), respectively.
            (3) Investment advisers act of 1940.--Section 210 of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-10) is amended 
        by adding at the end the following:
    ``(d) Limitations on Disclosure by the Commission.--Notwithstanding 
any other provision of law, the Commission shall not be compelled to 
disclose any records or information provided to the Commission under 
this section, or records or information based upon or derived from such 
records or information, if such records or information have been 
obtained by the Commission for use in furtherance of the purposes of 
this title, including surveillance, risk assessments, or other 
regulatory and oversight activities. Nothing in this subsection 
authorizes the Commission to withhold information from the Congress or 
prevent the Commission from complying with a request for information 
from any other Federal department or agency requesting the information 
for purposes within the scope of jurisdiction of that department or 
agency, or complying with an order of a court of the United States in 
an action brought by the United States or the Commission. For purposes 
of section 552 of title 5, United States Code, this section shall be 
considered a statute described in subsection (b)(3)(B) of such section 
552. Collection of information pursuant to section 31 shall be an 
administrative action involving an agency against specific individuals 
or agencies pursuant to section 3518(c)(1) of title 44, United States 
Code.''.
    (e) Expansion of Audit Information To Be Produced and Exchanged.--
Section 106 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7216) is 
amended--
            (1) by striking subsection (b) and inserting the following:
    ``(b) Production of Documents.--
            ``(1) Production by foreign firms.--If a foreign public 
        accounting firm issues an audit report, performs audit work, 
        conducts interim reviews, or performs material services upon 
        which a registered public accounting firm relies in the conduct 
        of an audit or interim review, the foreign public accounting 
        firm shall--
                    ``(A) produce its audit work papers and all other 
                documents related to any such audit work or interim 
                review to the Commission or the Board; and
                    ``(B) be subject to the jurisdiction of the courts 
                of the United States for purposes of enforcement of any 
                request for such documents.
            ``(2) Other production.--Any registered public accounting 
        firm that relies, in whole or in part, on the work of a foreign 
        public accounting firm in issuing an audit report, performing 
        audit work, or conducting an interim review, shall--
                    ``(A) produce the audit work papers of the foreign 
                public accounting firm and all other documents related 
                to any such work in response to a request for 
                production by the Commission or the Board; and
                    ``(B) secure the agreement of any foreign public 
                accounting firm to such production, as a condition of 
                the reliance by the registered public accounting firm 
                on the work of that foreign public accounting firm.'';
            (2) by redesignating subsection (d) as subsection (g); and
            (3) by inserting after subsection (c) the following:
    ``(d) Service of Requests or Process.--
            ``(1) In general.--Any foreign public accounting firm that 
        performs work for a domestic registered public accounting firm 
        shall furnish to the domestic registered public accounting firm 
        a written irrevocable consent and power of attorney that 
        designates the domestic registered public accounting firm as an 
        agent upon whom may be served any process, pleadings, or other 
        papers in any action brought to enforce this section.
            ``(2) Specific audit work.--Any foreign public accounting 
        firm that issues an audit report, performs audit work, performs 
        interim reviews, or performs material services upon which a 
        registered public accounting firm relies in the conduct of an 
        audit or interim review, shall designate to the Commission or 
        the Board an agent in the United States upon whom may be served 
        any process, pleading, or other papers in any action brought to 
        enforce this section or any request by the Commission or the 
        Board under this section.
    ``(e) Sanctions.--A willful refusal to comply, in whole in or in 
part, with any request by the Commission or the Board under this 
section, shall be deemed a violation of this Act.
    ``(f) Other Means of Satisfying Production Obligations.--
Notwithstanding any other provisions of this section, the staff of the 
Commission or the Board may allow a foreign public accounting firm that 
is subject to this section to meet production obligations under this 
section through alternate means, such as through foreign counterparts 
of the Commission or the Board.''.
    (f) Sharing Privileged Information With Other Authorities.--Section 
24 of the Securities Exchange Act of 1934 (15 U.S.C. 78x) is amended--
            (1) in subsection (d), as amended by subsection (d)(1)(A), 
        by striking ``subsection (f)'' and inserting ``subsection 
        (g)'';
            (2) in subsection (e), as added by subsection (d)(1)(C), by 
        striking ``subsection (f)'' and inserting ``subsection (g)'';
            (3) by redesignating subsection (f) as subsection (g); and
            (4) by inserting after subsection (e) the following:
    ``(f) Sharing Privileged Information With Other Authorities.--
            ``(1) Privileged information provided by the commission.--
        The Commission shall not be deemed to have waived any privilege 
        applicable to any information by transferring that information 
        to or permitting that information to be used by--
                    ``(A) any agency (as defined in section 6 of title 
                18, United States Code);
                    ``(B) the Public Company Accounting Oversight 
                Board;
                    ``(C) any self-regulatory organization;
                    ``(D) any foreign securities authority;
                    ``(E) any foreign law enforcement authority; or
                    ``(F) any State securities or law enforcement 
                authority.
            ``(2) Nondisclosure of privileged information provided to 
        the commission.--The Commission shall not be compelled to 
        disclose privileged information obtained from any foreign 
        securities authority, or foreign law enforcement authority, if 
        the authority has in good faith determined and represented to 
        the Commission that the information is privileged.
            ``(3) Nonwaiver of privileged information provided to the 
        commission.--
                    ``(A) In general.--Federal agencies, State 
                securities and law enforcement authorities, self-
                regulatory organizations, and the Public Company 
                Accounting Oversight Board shall not be deemed to have 
                waived any privilege applicable to any information by 
                transferring that information to or permitting that 
                information to be used by the Commission.
                    ``(B) Exception.--The provisions of subparagraph 
                (A) shall not apply to a self-regulatory organization 
                or the Public Company Accounting Oversight Board with 
                respect to information used by the Commission in an 
                action against such organization.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) the term `privilege' includes any work-
                product privilege, attorney-client privilege, 
                governmental privilege, or other privilege recognized 
                under Federal, State, or foreign law;
                    ``(B) the term `foreign law enforcement authority' 
                means any foreign authority that is empowered under 
                foreign law to detect, investigate or prosecute 
                potential violations of law; and
                    ``(C) the term `State securities or law enforcement 
                authority' means the authority of any State or 
                territory that is empowered under State or territory 
                law to detect, investigate, or prosecute potential 
                violations of law.''.

SEC. 5. MODERNIZATION OF INVESTOR PROTECTIONS.

    (a) Municipal Securities.--Section 15B of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o-4) is amended--
            (1) by striking ``(b)(1) Not later'' and all that follows 
        through ``succeed such initial members.'' and inserting the 
        following:
    ``(b) Municipal Securities Rulemaking Board.--
            ``(1) Composition of the municipal securities rulemaking 
        board.--Not later than October 1, 2010, the Municipal 
        Securities Rulemaking Board (hereinafter in this section 
        referred to as the `Board'), shall--
                    ``(A) be composed of members who shall perform the 
                duties set forth in this section; and
                    ``(B) shall consist of--
                            ``(i) a majority of independent public 
                        representatives, at least 1 of whom shall be 
                        representative of investors in municipal 
                        securities and at least 1 of whom shall be 
                        representative of issuers of municipal 
                        securities (which members are hereinafter 
                        referred to as `public representatives');
                            ``(ii) at least 1 individual who is 
                        representative of municipal securities brokers 
                        and municipal securities dealers that are not 
                        banks or subsidiaries, departments or divisions 
                        of banks (which members are hereinafter 
                        referred to as `broker-dealer 
                        representatives'); and
                            ``(iii) at least 1 individual who is 
                        representative of municipal securities dealers 
                        that are banks or subsidiaries, departments or 
                        divisions of banks (which members are 
                        hereinafter referred to as `bank 
                        representatives').''; and
            (2) in paragraph (2), by amending subparagraph (B) to read 
        as follows:
            ``(B) establish fair procedures for the nomination and 
        election of members of the Board and assure fair representation 
        in such nominations and elections of municipal securities 
        brokers and municipal securities dealers. Such rules--
                    ``(i) shall establish requirements regarding the 
                independence of public representatives;
                    ``(ii) shall provide that the number of public 
                representatives of the Board shall at all times exceed 
                the total number of broker-dealer representatives and 
                bank representatives;
                    ``(iii) shall establish minimum knowledge, 
                experience, and other appropriate qualifications for 
                individuals to serve as public representatives, which 
                may include prior work experience in the securities, 
                municipal finance, or municipal securities industries;
                    ``(iv) shall specify the term members shall serve; 
                and
                    ``(v) may increase or decrease the number of 
                members which shall constitute the whole Board, except 
                that in no case may the number of members of the whole 
                Board be an even number.''.
    (b) Beneficial Ownership and Short-Swing Profit Reporting.--
            (1) Beneficial ownership reporting.--Section 13 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78m) is amended--
                    (A) in subsection (d)--
                            (i) in paragraph (1)--
                                    (I) by inserting after ``within ten 
                                days after such acquisition,'' the 
                                following: ``or within such shorter 
                                period as the Commission may establish, 
                                by rule,''; and
                                    (II) by striking ``send to the 
                                issuer of the security at its principal 
                                executive office, by registered or 
                                certified mail, send to each exchange 
                                on which the security is traded, and''; 
                                and
                            (ii) in paragraph (2)--
                                    (I) by striking ``in the statements 
                                to the issuer and the exchange, and''; 
                                and
                                    (II) by striking ``shall be 
                                transmitted to the issuer and the 
                                exchange and''; and
                    (B) in subsection (g)--
                            (i) in paragraph (1), by striking ``shall 
                        send to the issuer of the security and''; and
                            (ii) in paragraph (2)--
                                    (I) by striking ``sent to the 
                                issuer and''; and
                                    (II) by striking ``shall be 
                                transmitted to the issuer and''.
            (2) Short-swing profit reporting.--Section 16(a) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78p(a)) is amended--
                    (A) in paragraph (1), by striking ``(and, if such 
                security is registered on a national securities 
                exchange, also with the exchange)''; and
                    (B) in paragraph (2)(B), by inserting after 
                ``officer'' the following: ``, or within such shorter 
                period as the Commission may establish, by rule''.
    (c) Enhanced Application of Antifraud Provisions.--The Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended--
            (1) in section 9--
                    (A) by striking ``registered on a national 
                securities exchange'' each place that term appears and 
                inserting ``other than a government security'';
                    (B) in subsection (b), by striking ``by use of any 
                facility of a national securities exchange,''; and
                    (C) in subsection (c), by inserting after 
                ``unlawful for any'' the following: ``broker, dealer, 
                or'';
            (2) in section 10(a)(1), by striking ``registered on a 
        national securities exchange'' and inserting ``other than a 
        government security''; and
            (3) in section 15(c)(1)(A), by striking ``otherwise than on 
        a national securities exchange of which it is a member''.
    (d) Definition of ``Interested Person''.--Section 2(a)(19)(A) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)) is 
amended--
            (1) by striking clause (v) and inserting the following:
                            ``(v) any natural person who is a member of 
                        a class of persons who the Commission, by rule 
                        or regulation, determines are unlikely to 
                        exercise an appropriate degree of independence 
                        as a result of--
                                    ``(I) a material business or 
                                professional relationship with such 
                                company or any affiliated person of 
                                such company; or
                                    ``(II) a close familial 
                                relationship with any natural person 
                                who is an affiliated person of such 
                                company,'';
            (2) by striking clause (vi);
            (3) by redesignating clause (vii) as clause (vi); and
            (4) in clause (vi), as so redesignated, by striking ``two'' 
        and inserting ``5''.
    (e) Lost and Stolen Securities.--Section 17(f)(1) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q(f)(1)) is amended--
            (1) in subparagraph (A), by striking ``missing, lost, 
        counterfeit, or stolen securities'' and inserting ``securities 
        that are missing, lost, counterfeit, stolen, cancelled, or any 
        other category of securities as the Commission, by rule, may 
        prescribe''; and
            (2) in subparagraph (B), by striking ``or stolen'' and 
        inserting ``stolen, cancelled, or reported in such other manner 
        as the Commission, by rule, may prescribe''.
    (f) Fingerprinting.--Section 17(f)(2) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78q(f)(2)) is amended--
            (1) in the first sentence, by striking ``and registered 
        clearing agency,'' and inserting ``registered clearing agency, 
        registered securities information processor, national 
        securities exchange, and national securities association''; and
            (2) in the second sentence, by striking ``or clearing 
        agency,'' and inserting ``clearing agency, securities 
        information processor, national securities exchange, or 
        national securities association,''.

SEC. 6. COMMISSION ORGANIZATIONAL STUDY AND REFORM.

    (a) Study Required.--
            (1) In general.--Not later than 90 days after the date of 
        the enactment of this Act, the Securities and Exchange 
        Commission (in this section referred to as the ``Commission'') 
        shall hire an independent consultant of high caliber who has 
        expertise in organizational restructuring and the operations of 
        capital markets to examine the internal operations, structure, 
        funding, and the need for comprehensive reform of the 
        Commission, as well as the relationship of the Commission with 
        and the reliance by the Commission on self-regulatory 
        organizations and other entities relevant to the regulation of 
        securities and the protection of securities investors that are 
        under the oversight of the Commission.
            (2) Specific areas for study.--The study required under 
        paragraph (1) shall, at a minimum, include the study of--
                    (A) the possible elimination of unnecessary or 
                redundant units at the Commission;
                    (B) improving communications between offices and 
                divisions of the Commission;
                    (C) the need to put in place a clear chain-of-
                command structure, particularly for enforcement 
                examinations and compliance inspections;
                    (D) the effect of high-frequency trading and other 
                technological advances on the market and what the 
                Commission requires to monitor the effect of such 
                trading and advances on the market;
                    (E) the hiring authorities, workplace policies, and 
                personal practices of the Commission, including--
                            (i) whether there is a need to further 
                        streamline hiring authorities for those who are 
                        not lawyers, accountants, compliance examiners, 
                        or economists;
                            (ii) whether there is a need for further 
                        pay reforms;
                            (iii) the diversity of skill sets of 
                        Commission employees and whether the present 
                        skill set diversity efficiently and effectively 
                        fosters the mission of the Commission of 
                        investor protection; and
                            (iv) the application of civil service laws 
                        by the Commission;
                    (F) whether the oversight by the Commission of, and 
                reliance by the Commission on, self-regulatory 
                organizations promotes efficient and effective 
                governance for the securities markets; and
                    (G) whether adjusting the reliance by the 
                Commission on self-regulatory organizations is 
                necessary to promote more efficient and effective 
                governance for the securities markets.
    (b) Consultant Report.--Not later than 150 days after the 
independent consultant is retained under subsection (a), the 
independent consultant shall submit a report to the Commission and to 
Congress containing--
            (1) a detailed description of any findings and conclusions 
        made while carrying out the study required under subsection 
        (a)(1); and
            (2) recommendations for legislative, regulatory, or 
        administrative action that the independent consultant 
        determines appropriate to enable the Commission and other 
        entities on which the independent consultant reports to perform 
        the missions of the Commission, whether mandated by statute or 
        otherwise.
    (c) Commission Report.--Not later than 6 months after the date on 
which the consultant submits the report under subsection (b), and every 
6 months thereafter during the 2-year period following the date on 
which the consultant submits the report under subsection (b), the 
Commission shall submit a report to the Committee on Banking, Housing, 
and Urban Affairs of the Senate and the Committee on Financial Services 
of the House of Representatives describing the implementation by the 
Commission of the regulatory and administrative recommendations 
contained in the report of the independent consultant under subsection 
(b).
                                 <all>
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