II 

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. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Modernizing and 

5 Strengthening Investor Protection Act of 2010’’. 

6 SEC. 2. STRENGTHENING ENFORCEMENT BY THE COMMIS7 SION. 

8 (a) NATIONWIDE SERVICE OF SUBPOENAS.— 

9 (1) SECURITIES ACT OF 1933.—Section 22(a) of 

10 the Securities Act of 1933 (15 U.S.C. 77v(a)) is 


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1 amended by inserting after the second sentence the 

2 following: ‘‘In any action or proceeding instituted by 

3 the Commission under this title in a United States 

4 district court for any judicial district, a subpoena 

5 issued to compel the attendance of a witness or the 

6 production of documents or tangible things (or both) 

7 at a hearing or trial may be served at any place 

8 within the United States. Rule 45(c)(3)(A)(ii) of the 

9 Federal Rules of Civil Procedure shall not apply to 

10 a subpoena issued under the preceding sentence.’’. 

11 (2) SECURITIES EXCHANGE ACT OF 1934.—Sec12 tion 27 of the Securities Exchange Act of 1934 (15 

13 U.S.C. 78aa) is amended by inserting after the third 

14 sentence the following: ‘‘In any action or proceeding 

15 instituted by the Commission under this title in a 

16 United States district court for any judicial district, 

17 a subpoena issued to compel the attendance of a wit18 ness or the production of documents or tangible 

19 things (or both) at a hearing or trial may be served 

20 at any place within the United States. Rule 

21 45(c)(3)(A)(ii) of the Federal Rules of Civil Proce22 dure shall not apply to a subpoena issued under the 

23 preceding sentence.’’. 

24 (3) INVESTMENT COMPANY ACT OF 1940.—Sec25 tion 44 of the Investment Company Act of 1940 (15 


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1 U.S.C. 80a–43) is amended by inserting after the 

2 fourth sentence the following: ‘‘In any action or pro3 ceeding instituted by the Commission under this title 

4 in a United States district court for any judicial dis5 trict, a subpoena issued to compel the attendance of 

6 a witness or the production of documents or tangible 

7 things (or both) at a hearing or trial may be served 

8 at any place within the United States. Rule 

9 45(c)(3)(A)(ii) of the Federal Rules of Civil Proce10 dure shall not apply to a subpoena issued under the 

11 preceding sentence.’’. 

12 (4) INVESTMENT ADVISERS ACT OF 1940.—Sec13 tion 214 of the Investment Advisers Act of 1940 (15 

14 U.S.C. 80b–14) is amended by inserting after the 

15 third sentence the following: ‘‘In any action or pro16 ceeding instituted by the Commission under this title 

17 in a United States district court for any judicial dis18 trict, a subpoena issued to compel the attendance of 

19 a witness or the production of documents or tangible 

20 things (or both) at a hearing or trial may be served 

21 at any place within the United States. Rule 

22 45(c)(3)(A)(ii) of the Federal Rules of Civil Proce23 dure shall not apply to a subpoena issued under the 

24 preceding sentence.’’. 


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1 (b) AUTHORITY TO IMPOSE CIVIL PENALTIES IN

2 CEASE-AND-DESIST PROCEEDINGS.— 

3 (1) UNDER THE SECURITIES ACT OF 1933.— 

4 Section 8A of the Securities Act of 1933 (15 U.S.C. 

5 77h–1) is amended by adding at the end the fol6 lowing new subsection: 

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

8 ‘‘(1) GROUNDS.—In any cease-and-desist pro9 ceeding under subsection (a), the Commission may 

10 impose a civil penalty on a person if the Commission 

11 finds, on the record, after notice and opportunity for 

12 hearing, that— 

13 ‘‘(A) such person— 

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

15 provision of this title, or any rule or regu16 lation issued under this title; or 

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

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

19 regulation thereunder; and 

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

21 ‘‘(2) MAXIMUM AMOUNT OF PENALTY.— 

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

23 of a penalty for each act or omission described 

24 in paragraph (1) shall be $7,500 for a natural 

25 person or $75,000 for any other person. 


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1 ‘‘(B) SECOND TIER.—Notwithstanding 

2 subparagraph (A), the maximum amount of 

3 penalty for each such act or omission shall be 

4 $75,000 for a natural person or $375,000 for 

5 any other person, if the act or omission de6 scribed in paragraph (1) involved fraud, deceit, 

7 manipulation, or deliberate or reckless dis8 regard of a regulatory requirement. 

9 ‘‘(C) THIRD TIER.—Notwithstanding sub10 paragraphs (A) and (B), the maximum amount 

11 of penalty for each such act or omission shall 

12 be $150,000 for a natural person or $725,000 

13 for any other person, if— 

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

15 paragraph (1) involved fraud, deceit, ma16 nipulation, or deliberate or reckless dis17 regard of a regulatory requirement; and 

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

19 indirectly resulted in— 

20 ‘‘(I) substantial losses or created 

21 a significant risk of substantial losses 

22 to other persons; or 

23 ‘‘(II) substantial pecuniary gain 

24 to the person who committed the act 

25 or omission. 


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1 ‘‘(3) EVIDENCE CONCERNING ABILITY TO

2 PAY.—In any proceeding in which the Commission 

3 may impose a penalty under this section, a respond4 ent may present evidence of the ability of the re5 spondent to pay such penalty. The Commission may, 

6 in its discretion, consider such evidence in deter7 mining whether such penalty is in the public inter8 est. Such evidence may relate to the extent of the 

9 ability of the respondent to continue in business and 

10 the collectability of a penalty, taking into account 

11 any other claims of the United States or third par12 ties upon the assets of the respondent and the 

13 amount of the assets of the respondent.’’. 

14 (2) UNDER THE SECURITIES EXCHANGE ACT

15 OF 1934.—Section 21B(a) of the Securities Ex16 change Act of 1934 (15 U.S.C. 78u–2(a)) is amend17 ed— 

18 (A) by striking the matter immediately fol19 lowing paragraph (4); 

20 (B) in the matter preceding paragraph (1), 

21 by inserting after ‘‘opportunity for hearing,’’ 

22 the following: ‘‘that such penalty is in the pub23 lic interest and’’; 

24 (C) by redesignating paragraphs (1) 

25 through (4) as subparagraphs (A) through (D), 


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1 respectively, and adjusting the subparagraph 

2 margins accordingly; 

3 (D) by striking ‘‘In any proceeding’’ and 

4 inserting the following: 

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

6 (E) by adding at the end the following: 

7 ‘‘(2) CEASE-AND-DESIST PROCEEDINGS.—In 

8 any proceeding instituted under section 21C against 

9 any person, the Commission may impose a civil pen10 alty, if the Commission finds, on the record after no11 tice and opportunity for hearing, that such person— 

12 ‘‘(A) is violating or has violated any provi13 sion of this title, or any rule or regulation 

14 issued under this title; or 

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

16 any provision of this title, or any rule or regula17 tion issued under this title.’’. 

18 (3) UNDER THE INVESTMENT COMPANY ACT OF

19 1940.—Section 9(d)(1) of the Investment Company 

20 Act of 1940 (15 U.S.C. 80a–9(d)(1)) is amended— 

21 (A) by striking the matter immediately fol22 lowing subparagraph (C); 

23 (B) in the matter preceding subparagraph 

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1 ing,’’ the following: ‘‘that such penalty is in the 

2 public interest, and’’; 

3 (C) by redesignating subparagraphs (A) 

4 through (C) as clauses (i) through (iii), respec5 tively, and adjusting the clause margins accord6 ingly; 

7 (D) by striking ‘‘In any proceeding’’ and 

8 inserting the following: 

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

10 and 

11 (E) by adding at the end the following: 

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

13 In any proceeding instituted pursuant to sub14 section (f) against any person, the Commission 

15 may impose a civil penalty if the Commission 

16 finds, on the record, after notice and oppor17 tunity for hearing, that such person— 

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

19 provision of this title, or any rule or regu20 lation issued under this title; or 

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

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

23 regulation issued under this title.’’. 


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1 (4) UNDER THE INVESTMENT ADVISERS ACT OF

2 1940.—Section 203(i)(1) of the Investment Advisers 

3 Act of 1940 (15 U.S.C. 80b–3(i)(1)) is amended— 

4 (A) by striking the undesignated matter 

5 immediately following subparagraph (D); 

6 (B) in the matter preceding subparagraph 

7 (A), by inserting after ‘‘opportunity for hear8 ing,’’ the following: ‘‘that such penalty is in the 

9 public interest and’’; 

10 (C) by redesignating subparagraphs (A) 

11 through (D) as clauses (i) through (iv), respec12 tively, and adjusting the clause margins accord13 ingly; 

14 (D) by striking ‘‘In any proceeding’’ and 

15 inserting the following: 

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

17 and 

18 (E) by adding at the end the following new 

19 subparagraph: 

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

21 In any proceeding instituted pursuant to sub22 section (k) against any person, the Commission 

23 may impose a civil penalty if the Commission 

24 finds, on the record, after notice and oppor25 tunity for hearing, that such person— 


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

2 provision of this title, or any rule or regu3 lation issued under this title; or 

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

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

6 regulation issued under this title.’’. 

7 (c) FORMERLY ASSOCIATED PERSONS.— 

8 (1) MEMBER OR EMPLOYEE OF THE MUNICIPAL

9 SECURITIES RULEMAKING BOARD.—Section 

10 15B(c)(8) of the Securities Exchange Act of 1934 

11 (15 U.S.C. 78o–4(c)(8)) is amended by striking 

12 ‘‘any member or employee’’ and inserting ‘‘any per13 son who is, or at the time of the alleged violation or 

14 abuse was, a member or employee’’. 

15 (2) PERSON ASSOCIATED WITH A GOVERNMENT

16 SECURITIES BROKER OR DEALER.—Section 15C(c) 

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

18 78o–5(c)) is amended— 

19 (A) in paragraph (1)(C), by striking ‘‘any 

20 person associated, or seeking to become associ21 ated,’’ and inserting ‘‘any person who is, or at 

22 the time of the alleged misconduct was, associ23 ated or seeking to become associated’’; and 

24 (B) in paragraph (2)— 


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1 (i) in subparagraph (A), by inserting 

2 ‘‘, seeking to become associated, or, at the 

3 time of the alleged misconduct, associated 

4 or seeking to become associated’’ after 

5 ‘‘any person associated’’; and 

6 (ii) in subparagraph (B), by inserting 

7 ‘‘, seeking to become associated, or, at the 

8 time of the alleged misconduct, associated 

9 or seeking to become associated’’ after 

10 ‘‘any person associated’’. 

11 (3) PERSON ASSOCIATED WITH A MEMBER OF A

12 NATIONAL SECURITIES EXCHANGE OR REGISTERED

13 SECURITIES ASSOCIATION.—Section 21(a)(1) of the 

14 Securities Exchange Act of 1934 (15 U.S.C. 

15 78u(a)(1)) is amended, in the first sentence, by in16 serting ‘‘, or, as to any act or practice, or omission 

17 to act, while associated with a member, formerly as18 sociated’’ after ‘‘member or a person associated’’. 

19 (4) PARTICIPANT OF A REGISTERED CLEARING

20 AGENCY.—Section 21(a)(1) of the Securities Ex21 change Act of 1934 (15 U.S.C. 78u(a)(1)) is amend22 ed, in the first sentence, by inserting ‘‘or, as to any 

23 act or practice, or omission to act, while a partici24 pant, was a participant,’’ after ‘‘in which such per25 son is a participant,’’. 


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1 (5) OFFICER OR DIRECTOR OF A SELF-REGU2 LATORY ORGANIZATION.—Section 19(h)(4) of the 

3 Securities Exchange Act of 1934 (15 U.S.C. 

4 78s(h)(4)) is amended— 

5 (A) by striking ‘‘any officer or director’’ 

6 and inserting ‘‘any person who is, or at the 

7 time of the alleged misconduct was, an officer 

8 or director’’; and 

9 (B) by striking ‘‘such officer or director’’ 

10 and inserting ‘‘such person’’. 

11 (6) OFFICER OR DIRECTOR OF AN INVESTMENT

12 COMPANY.—Section 36(a) of the Investment Com13 pany Act of 1940 (15 U.S.C. 80a–35(a)) is amend14 ed— 

15 (A) by striking ‘‘a person serving or act16 ing’’ and inserting ‘‘a person who is, or at the 

17 time of the alleged misconduct was, serving or 

18 acting’’; and 

19 (B) by striking ‘‘such person so serves or 

20 acts’’ and inserting ‘‘such person so serves or 

21 acts, or at the time of the alleged misconduct, 

22 so served or acted’’. 

23 (7) PERSON ASSOCIATED WITH A PUBLIC AC24 COUNTING FIRM.— 


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1 (A) SARBANES-OXLEY ACT OF 2002 AMEND2 MENT.—Section 2(a)(9) of the Sarbanes-Oxley 

3 Act of 2002 (15 U.S.C. 7201(9)) is amended by 

4 adding at the end the following: 

5 ‘‘(C) INVESTIGATIVE AND ENFORCEMENT

6 AUTHORITY.—For purposes of sections 3(c), 

7 101(c), 105, and 107(c) and the rules of the 

8 Board and Commission issued thereunder, ex9 cept to the extent specifically excepted by such 

10 rules, the terms defined in subparagraph (A) 

11 shall include any person associated, seeking to 

12 become associated, or formerly associated with 

13 a public accounting firm, except that— 

14 ‘‘(i) the authority to conduct an inves15 tigation of such person under section 

16 105(b) shall apply only with respect to any 

17 act or practice, or omission to act, by the 

18 person while such person was associated or 

19 seeking to become associated with a reg20 istered public accounting firm; and 

21 ‘‘(ii) the authority to commence a dis22 ciplinary proceeding under section 

23 105(c)(1), or impose sanctions under sec24 tion 105(c)(4), against such person shall 

25 apply only with respect to— 


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1 ‘‘(I) conduct occurring while such 

2 person was associated or seeking to 

3 become associated with a registered 

4 public accounting firm; or 

5 ‘‘(II) non-cooperation, as de6 scribed in section 105(b)(3), with re7 spect to a demand in a Board inves8 tigation for testimony, documents, or 

9 other information relating to a period 

10 when such person was associated or 

11 seeking to become associated with a 

12 registered public accounting firm.’’. 

13 (B) SECURITIES EXCHANGE ACT OF 1934

14 AMENDMENT.—Section 21(a)(1) of the Securi15 ties Exchange Act of 1934 (15 U.S.C. 

16 78u(a)(1)) is amended by striking ‘‘or a person 

17 associated with such a firm’’ and inserting ‘‘, a 

18 person associated with such a firm, or, as to 

19 any act, practice, or omission to act, while asso20 ciated with such firm, a person formerly associ21 ated with such a firm’’. 

22 (8) SUPERVISORY PERSONNEL OF AN AUDIT

23 FIRM.—Section 105(c)(6) of the Sarbanes-Oxley Act 

24 of 2002 (15 U.S.C. 7215(c)(6)) is amended— 


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1 (A) in subparagraph (A), by striking ‘‘the 

2 supervisory personnel’’ and inserting ‘‘any per3 son who is, or at the time of the alleged failure 

4 reasonably to supervise was, a supervisory per5 son’’; and 

6 (B) in subparagraph (B)— 

7 (i) by striking ‘‘No associated person’’ 

8 and inserting ‘‘No current or former super9 visory person’’; and 

10 (ii) by striking ‘‘any other person’’ 

11 and inserting ‘‘any associated person’’. 

12 (9) MEMBER OF THE PUBLIC COMPANY AC13 COUNTING OVERSIGHT BOARD.—Section 107(d)(3) 

14 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 

15 7217(d)(3)) is amended by striking ‘‘any member’’ 

16 and inserting ‘‘any person who is, or at the time of 

17 the alleged misconduct was, a member’’. 

18 (d) EXTRATERRITORIAL JURISDICTION OF THE

19 ANTIFRAUD PROVISIONS OF THE FEDERAL SECURITIES

20 LAWS.— 

21 (1) UNDER THE SECURITIES ACT OF 1933.— 

22 Section 22 of the Securities Act of 1933 (15 U.S.C. 

23 77v(a)) is amended by adding at the end the fol24 lowing new subsection: 


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1 ‘‘(c) EXTRATERRITORIAL JURISDICTION.—The dis2 trict courts of the United States and the United States 

3 courts of any Territory shall have jurisdiction of an action 

4 or proceeding brought or instituted by the Commission or 

5 the United States alleging a violation of section 17(a) in6 volving— 

7 ‘‘(1) conduct within the United States that con8 stitutes significant steps in furtherance of the viola9 tion, even if the securities transaction occurs outside 

10 the United States and involves only foreign inves11 tors; or 

12 ‘‘(2) conduct occurring outside the United 

13 States that has a foreseeable substantial effect with14 in the United States.’’. 

15 (2) UNDER THE SECURITIES EXCHANGE ACT

16 OF 1934.—Section 27 of the Securities Exchange Act 

17 of 1934 (15 U.S.C. 78aa) is amended— 

18 (A) by striking ‘‘The district’’ and insert19 ing the following: 

20 ‘‘(a) IN GENERAL.—The district’’; and 

21 (B) by adding at the end the following new 

22 subsection: 

23 ‘‘(b) EXTRATERRITORIAL JURISDICTION.—The dis24 trict courts of the United States and the United States 

25 courts of any Territory shall have jurisdiction of an action 


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1 or proceeding brought or instituted by the Commission or 

2 the United States alleging a violation of the antifraud pro3 visions of this title involving— 

4 ‘‘(1) conduct within the United States that con5 stitutes significant steps in furtherance of the viola6 tion, even if the securities transaction occurs outside 

7 the United States and involves only foreign inves8 tors; or 

9 ‘‘(2) conduct occurring outside the United 

10 States that has a foreseeable substantial effect with11 in the United States.’’. 

12 (3) UNDER THE INVESTMENT ADVISERS ACT OF

13 1940.—Section 214 of the Investment Advisers Act 

14 of 1940 (15 U.S.C. 80b–14) is amended— 

15 (A) by striking ‘‘The district’’ and insert16 ing the following: 

17 ‘‘(a) IN GENERAL.—The district’’; and 

18 (B) by adding at the end the following new 

19 subsection: 

20 ‘‘(b) EXTRATERRITORIAL JURISDICTION.—The dis21 trict courts of the United States and the United States 

22 courts of any Territory shall have jurisdiction of an action 

23 or proceeding brought or instituted by the Commission or 

24 the United States alleging a violation of section 206 in25 volving— 


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1 ‘‘(1) conduct within the United States that con2 stitutes significant steps in furtherance of the viola3 tion, even if the violation is committed by a foreign 

4 adviser and involves only foreign investors; or 

5 ‘‘(2) conduct occurring outside the United 

6 States that has a foreseeable substantial effect with7 in the United States.’’. 

8 (e) CONTROL PERSON LIABILITY UNDER THE SECU9 RITIES EXCHANGE ACT OF 1934.—Section 20(a) of the 

10 Securities Exchange Act of 1934 (15 U.S.C. 78t(a)) is 

11 amended by inserting after ‘‘controlled person is liable’’ 

12 the following: ‘‘(including to the Commission in any action 

13 brought under paragraph (1) or (3) of section 21(d))’’. 

14 (f) AIDING AND ABETTING UNDER THE SECURITIES

15 LAWS.— 

16 (1) UNDER THE SECURITIES ACT OF 1933.— 

17 Section 15 of the Securities Act of 1933 (15 U.S.C. 

18 77o) is amended— 

19 (A) by striking ‘‘Every person who’’ and 

20 inserting ‘‘(a) CONTROLLING PERSONS.—Every 

21 person who’’; and 

22 (B) by adding at the end the following: 

23 ‘‘(b) PROSECUTION OF PERSONS WHO AID AND

24 ABET VIOLATIONS.—For purposes of any action brought 

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1 tion 20, any person that knowingly or recklessly provides 

2 substantial assistance to another person in violation of a 

3 provision of this Act, or of any rule or regulation issued 

4 under this Act, shall be deemed to be in violation of such 

5 provision to the same extent as the person to whom such 

6 assistance is provided.’’. 

7 (2) UNDER THE INVESTMENT COMPANY ACT OF

8 1940.—Section 48 of the Investment Company Act of 

9 1940 (15 U.S.C. 80a–48) is amended by redesig10 nating subsection (b) as subsection (c) and inserting 

11 after subsection (a) the following: 

12 ‘‘(b) For purposes of any action brought by the Com13 mission under subsection (d) or (e) of section 42, any per14 son that knowingly or recklessly provides substantial as15 sistance to another person in violation of a provision of 

16 this Act, or of any rule or regulation issued under this 

17 Act, shall be deemed to be in violation of such provision 

18 to the same extent as the person to whom such assistance 

19 is provided.’’. 

20 (3) UNDER THE INVESTMENT ADVISERS ACT.— 

21 Section 209 of the Investment Advisers Act of 1940 

22 (15 U.S.C. 80b–9) is amended by inserting at the 

23 end the following new subsection: 

24 ‘‘(f) AIDING AND ABETTING.—For purposes of any 

25 action brought by the Commission under subsection (e), 


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1 any person that knowingly or recklessly has aided, abetted, 

2 counseled, commanded, induced, or procured a violation 

3 of any provision of this Act, or of any rule, regulation, 

4 or order hereunder, shall be deemed to be in violation of 

5 such provision, rule, regulation, or order to the same ex6 tent as the person that committed such violation.’’. 

7 (4) UNDER THE SECURITIES EXCHANGE ACT

8 OF 1934.—Section 20(e) of the Securities Exchange 

9 Act of 1934 (15 U.S.C. 78t(e)) is amended by in10 serting ‘‘or recklessly’’ after ‘‘knowingly’’. 

11 SEC. 3. ADDRESSING ISSUES REVEALED BY THE MADOFF 

12 FRAUD. 

13 (a) REVISION TO RECORDKEEPING RULE.— 

14 (1) INVESTMENT COMPANY ACT OF 1940

15 AMENDMENTS.—Section 31 of the Investment Com16 pany Act of 1940 (15 U.S.C. 80a–30) is amended— 

17 (A) in subsection (a)(1), by adding at the 

18 end the following: ‘‘Each person having custody 

19 or use of the securities, deposits, or credits of 

20 a registered investment company shall maintain 

21 and preserve all records that relate to the cus22 tody or use by such person of the securities, de23 posits, or credits of the registered investment 

24 company for such period or periods as the Com25 mission, by rule or regulation, may prescribe, as 


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1 necessary or appropriate in the public interest 

2 or for the protection of investors.’’; and 

3 (B) in subsection (b), by adding at the end 

4 the following: 

5 ‘‘(4) RECORDS OF PERSONS WITH CUSTODY OR

6 USE.— 

7 ‘‘(A) IN GENERAL.—Records of persons 

8 having custody or use of the securities, depos9 its, or credits of a registered investment com10 pany that relate to such custody or use, are 

11 subject at any time, or from time to time, to 

12 such reasonable periodic, special, or other ex13 aminations and other information and docu14 ment requests by representatives of the Com15 mission, as the Commission deems necessary or 

16 appropriate in the public interest or for the pro17 tection of investors. 

18 ‘‘(B) CERTAIN PERSONS SUBJECT TO

19 OTHER REGULATION.—Any person that is sub20 ject to regulation and examination by a Federal 

21 financial institution regulatory agency (as such 

22 term is defined under section 212(c)(2) of title 

23 18, United States Code) may satisfy any exam24 ination request, information request, or docu25 ment request described under subparagraph 


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1 (A), by providing to the Commission a detailed 

2 listing, in writing, of the securities, deposits, or 

3 credits of the registered investment company 

4 within the custody or use of such person.’’. 

5 (2) INVESTMENT ADVISERS ACT OF 1940

6 AMENDMENT.—Section 204 of the Investment Advis7 ers Act of 1940 (15 U.S.C. 80b–4) is amended by 

8 adding at the end the following new subsection: 

9 ‘‘(d) RECORDS OF PERSONS WITH CUSTODY OR

10 USE.— 

11 ‘‘(1) IN GENERAL.—Records of persons having 

12 custody or use of the securities, deposits, or credits 

13 of a client, that relate to such custody or use, are 

14 subject at any time, or from time to time, to such 

15 reasonable periodic, special, or other examinations 

16 and other information and document requests by 

17 representatives of the Commission, as the Commis18 sion deems necessary or appropriate in the public in19 terest or for the protection of investors. 

20 ‘‘(2) CERTAIN PERSONS SUBJECT TO OTHER

21 REGULATION.—Any person that is subject to regula22 tion and examination by a Federal financial institu23 tion regulatory agency (as such term is defined 

24 under section 212(c)(2) of title 18, United States 

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1 tion request, or document request described under 

2 paragraph (1), by providing the Commission with a 

3 detailed listing, in writing, of the securities, deposits, 

4 or credits of the client within the custody or use of 

5 such person.’’. 

6 (b) STREAMLINED HIRING AUTHORITY FOR MARKET

7 SPECIALISTS.— 

8 (1) APPOINTMENT AUTHORITY.—Section 3114 

9 of title 5, United States Code, is amended by strik10 ing the section heading and all that follows through 

11 the end of subsection (a) and inserting the following: 

12 ‘‘§ 3114. Appointment of candidates to certain posi13 tions in the competitive service by the 

14 Securities and Exchange Commission 

15 ‘‘(a) APPLICABILITY.—This section applies with re16 spect to any position of accountant, economist, and securi17 ties compliance examiner at the Commission that is in the 

18 competitive service, and any position at the Commission 

19 in the competitive service that requires specialized knowl20 edge of financial and capital market formation or regula21 tion, financial market structures or surveillance, or infor22 mation technology.’’. 

23 (2) CLERICAL AMENDMENT.—The table of sec24 tions for chapter 31 of title 5, United States Code, 


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1 is amended by striking the item relating to section 

2 3114 and inserting the following: 

‘‘3114. Appointment of candidates to positions in the competitive service by the 

Securities and Exchange Commission.’’. 

3 (3) PAY AUTHORITY.—The Commission may set 

4 the rate of pay for experts and consultants ap5 pointed under the authority of section 3109 of title 

6 5, United States Code, in the same manner in which 

7 it sets the rate of pay for employees of the Commis8 sion. 

9 (c) SIPC REFORMS.— 

10 (1) REMOVING THE DISTINCTION BETWEEN

11 CLAIMS FOR CASH AND CLAIMS FOR SECURITIES.— 

12 The Securities Investor Protection Act of 1970 (15 

13 U.S.C. 78aaa et seq.) is amended— 

14 (A) in section 8(e)(4)(B) (15 U.S.C. 78fff– 

15 2(e)(4)(B)), by striking ‘‘for cash or securities’’; 

16 (B) in section 9(a) (15 U.S.C. 78fff– 

17 3(a))— 

18 (i) by striking paragraph (1); and 

19 (ii) by redesignating paragraphs (2) 

20 through (5) as paragraphs (1) through (4), 

21 respectively; and 

22 (C) in section 16(2)(B) (15 U.S.C. 

23 78lll(2)(B)), by striking ‘‘for cash or securi24 ties’’. 


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1 (2) LIQUIDATION OF A CARRYING BROKER2 DEALER.—Section 5(a)(3) of the Securities Investor 

3 Protection Act of 1970 (15 U.S.C. 78eee(a)(3)) is 

4 amended— 

5 (A) by striking the undesignated matter 

6 immediately following subparagraph (B); 

7 (B) in subparagraph (A), by striking ‘‘any 

8 member of SIPC’’ and inserting ‘‘the member’’; 

9 (C) in subparagraph (B), by striking the 

10 comma at the end and inserting a period; 

11 (D) by striking ‘‘If SIPC’’ and inserting 

12 the following: 

13 ‘‘(A) IN GENERAL.—SIPC may, upon no14 tice to a member of SIPC, file an application 

15 for a protective decree with any court of com16 petent jurisdiction specified in section 21(e) or 

17 27 of the Securities Exchange Act of 1934, ex18 cept that no such application shall be filed with 

19 respect to a member, the only customers of 

20 which are persons whose claims could not be 

21 satisfied by SIPC advances pursuant to section 

22 9, if SIPC’’; and 

23 (E) by adding at the end the following: 

24 ‘‘(B) CONSENT REQUIRED.—No member of 

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1 solvency, receivership, or bankruptcy pro2 ceeding, under Federal or State law, without 

3 the specific consent of SIPC.’’. 

4 SEC. 4. ENHANCED ABILITY OF COMMISSION TO OBTAIN 

5 NEEDED INFORMATION. 

6 (a) INVESTMENT COMPANY EXAMINATION.—Section 

7 31(b)(1) of the Investment Company Act of 1940 (15 

8 U.S.C. 80a–30(b)(1)) is amended to read as follows: 

9 ‘‘(1) IN GENERAL.—The following records shall 

10 be subject, at any time, or from time to time, to 

11 such reasonable periodic, special, or other examina12 tions by representatives of the Commission as the 

13 Commission deems necessary or appropriate in the 

14 public interest or for the protection of investors: 

15 ‘‘(A) All records of a registered investment 

16 company. 

17 ‘‘(B) All records of a underwriter, broker, 

18 dealer, or investment adviser that is a majority19 owned subsidiary of a registered investment 

20 company. 

21 ‘‘(C) All records required to be maintained 

22 and preserved by a investment adviser that is 

23 not a majority-owned subsidiary of a registered 

24 investment company. 


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1 ‘‘(D) All records required to be maintained 

2 and preserved by a depositor of a registered in3 vestment company. 

4 ‘‘(E) All records required to be maintained 

5 and preserved by a principal underwriter for a 

6 registered investment company (other than a 

7 closed-end company).’’. 

8 (b) EXPANDED ACCESS TO GRAND JURY INFORMA9 TION.—Chapter 215 of title 18, United States Code, is 

10 amended by adding at the end the following: 

11 ‘‘§ 3323. Access to grand jury information 

12 ‘‘(a) DISCLOSURE.— 

13 ‘‘(1) IN GENERAL.—Upon motion of an attor14 ney for the government, a court may direct disclo15 sure of matters occurring before a grand jury during 

16 an investigation of conduct that may constitute a 

17 violation of any provision of the securities laws to 

18 the Securities and Exchange Commission for use in 

19 relation to any matter within the jurisdiction of the 

20 Commission. 

21 ‘‘(2) SUBSTANTIAL NEED REQUIRED.—A court 

22 may issue an order under paragraph (1) only upon 

23 a finding of a substantial need in the public interest. 

24 ‘‘(b) USE OF MATTER.—A person to whom a matter 

25 has been disclosed under this section shall not use such 


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1 matter, other than for the purpose for which such disclo2 sure was authorized. 

3 ‘‘(c) DEFINITIONS.—As used in this section— 

4 ‘‘(1) the terms ‘attorney for the government’ 

5 and ‘grand jury information’ have the meanings 

6 given to those terms in section 3322 of title 18, 

7 United States Code; and 

8 ‘‘(2) the term ‘securities laws’ has the same 

9 meaning as in section 3(a)(47) of the Securities Ex10 change Act of 1934.’’. 

11 (c) ENHANCED AUTHORITY OF THE SECURITIES AND

12 EXCHANGE COMMISSION TO CONDUCT SURVEILLANCE

13 AND RISK ASSESSMENT.— 

14 (1) SECURITIES EXCHANGE ACT OF 1934.—Sec15 tion 17(b) of the Securities Exchange Act of 1934 

16 (15 U.S.C. 78q(b)) is amended by adding at the end 

17 the following: 

18 ‘‘(5) SURVEILLANCE AND RISK ASSESSMENT.— 

19 All persons described in subsection (a) are subject, 

20 at any time, or from time to time, to such reason21 able periodic, special, or other information and docu22 ment requests by representatives of the Commission 

23 as the Commission, by rule or order, deems nec24 essary or appropriate to conduct surveillance or risk 

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1 istered with the Commission under this title, or oth2 erwise in furtherance of the purposes of this title.’’. 

3 (2) INVESTMENT COMPANY ACT OF 1940.—Sec4 tion 31(b) of the Investment Company Act of 1940 

5 (15 U.S.C. 80a–30(b)) is amended by adding at the 

6 end the following: 

7 ‘‘(5) SURVEILLANCE AND RISK ASSESSMENT.— 

8 All persons described in subsection (a) are subject at 

9 any time, or from time to time, to such reasonable 

10 periodic, special, or other information and document 

11 requests by representatives of the Commission as the 

12 Commission, by rule or order, deems necessary or 

13 appropriate to conduct surveillance or risk assess14 ments of the securities markets, persons registered 

15 with the Commission under this title, or otherwise in 

16 furtherance of the purposes of this title.’’. 

17 (3) DOCUMENT REQUESTS.—Section 204 of the 

18 Investment Advisers Act of 1940 (15 U.S.C. 80b–4) 

19 is amended by adding at the end the following: 

20 ‘‘(e) SURVEILLANCE AND RISK ASSESSMENT.—All 

21 persons described in subsection (a) are subject at any 

22 time, or from time to time, to such reasonable periodic, 

23 special, or other information and document requests by 

24 representatives of the Commission as the Commission, by 

25 rule or order, deems necessary or appropriate to conduct 


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1 surveillance or risk assessments of the securities markets, 

2 persons registered with the Commission under this title, 

3 or otherwise in furtherance of the purposes of this title.’’. 

4 (d) PROTECTING CONFIDENTIALITY OF MATERIALS

5 SUBMITTED TO THE COMMISSION.— 

6 (1) SECURITIES EXCHANGE ACT OF 1934.—Sec7 tion 24 of the Securities Exchange Act of 1934 (15 

8 U.S.C. 78x) is amended— 

9 (A) in subsection (d), by striking ‘‘sub10 section (e)’’ and inserting ‘‘subsection (f)’’; 

11 (B) by redesignating subsection (e) as sub12 section (f); and 

13 (C) by inserting after subsection (d) the 

14 following: 

15 ‘‘(e) RECORDS OBTAINED FROM REGISTERED PER16 SONS.— 

17 ‘‘(1) IN GENERAL.—Except as provided in sub18 section (f), the Commission shall not be compelled to 

19 disclose records or information obtained pursuant to 

20 section 17(b), or records or information based upon 

21 or derived from such records or information, if such 

22 records or information have been obtained by the 

23 Commission for use in furtherance of the purposes 

24 of this title, including surveillance, risk assessments, 

25 or other regulatory and oversight activities. 


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1 ‘‘(2) TREATMENT OF INFORMATION.—For pur2 poses of section 552 of title 5, United States Code, 

3 this subsection shall be considered a statute de4 scribed in subsection (b)(3)(B) of such section 552. 

5 Collection of information pursuant to section 17 

6 shall be an administrative action involving an agency 

7 against specific individuals or agencies pursuant to 

8 section 3518(c)(1) of title 44, United States Code.’’. 

9 (2) INVESTMENT COMPANY ACT OF 1940.—Sec10 tion 31 of the Investment Company Act of 1940 (15 

11 U.S.C. 80a–30) is amended— 

12 (A) by striking subsection (c) and inserting 

13 the following: 

14 ‘‘(c) LIMITATIONS ON DISCLOSURE BY COMMIS15 SION.—Notwithstanding any other provision of law, the 

16 Commission shall not be compelled to disclose any records 

17 or information provided to the Commission under this sec18 tion, or records or information based upon or derived from 

19 such records or information, if such records or information 

20 have been obtained by the Commission for use in further21 ance of the purposes of this title, including surveillance, 

22 risk assessments, or other regulatory and oversight activi23 ties. Nothing in this subsection authorizes the Commission 

24 to withhold information from the Congress or prevent the 

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1 tion from any other Federal department or agency re2 questing the information for purposes within the scope of 

3 jurisdiction of that department or agency, or complying 

4 with an order of a court of the United States in an action 

5 brought by the United States or the Commission. For pur6 poses of section 552 of title 5, United States Code, this 

7 section shall be considered a statute described in sub8 section (b)(3)(B) of such section 552. Collection of infor9 mation pursuant to section 31 shall be an administrative 

10 action involving an agency against specific individuals or 

11 agencies pursuant to section 3518(c)(1) of title 44, United 

12 States Code.’’; 

13 (B) by striking subsection (d); and 

14 (C) by redesignating subsections (e) and 

15 (f) as subsections (d) and (e), respectively. 

16 (3) INVESTMENT ADVISERS ACT OF 1940.—Sec17 tion 210 of the Investment Advisers Act of 1940 (15 

18 U.S.C. 80b–10) is amended by adding at the end the 

19 following: 

20 ‘‘(d) LIMITATIONS ON DISCLOSURE BY THE COMMIS21 SION.—Notwithstanding any other provision of law, the 

22 Commission shall not be compelled to disclose any records 

23 or information provided to the Commission under this sec24 tion, or records or information based upon or derived from 

25 such records or information, if such records or information 


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1 have been obtained by the Commission for use in further2 ance of the purposes of this title, including surveillance, 

3 risk assessments, or other regulatory and oversight activi4 ties. Nothing in this subsection authorizes the Commission 

5 to withhold information from the Congress or prevent the 

6 Commission from complying with a request for informa7 tion from any other Federal department or agency re8 questing the information for purposes within the scope of 

9 jurisdiction of that department or agency, or complying 

10 with an order of a court of the United States in an action 

11 brought by the United States or the Commission. For pur12 poses of section 552 of title 5, United States Code, this 

13 section shall be considered a statute described in sub14 section (b)(3)(B) of such section 552. Collection of infor15 mation pursuant to section 31 shall be an administrative 

16 action involving an agency against specific individuals or 

17 agencies pursuant to section 3518(c)(1) of title 44, United 

18 States Code.’’. 

19 (e) EXPANSION OF AUDIT INFORMATION TO BE

20 PRODUCED AND EXCHANGED.—Section 106 of the Sar21 banes-Oxley Act of 2002 (15 U.S.C. 7216) is amended— 

22 (1) by striking subsection (b) and inserting the 

23 following: 

24 ‘‘(b) PRODUCTION OF DOCUMENTS.— 


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1 ‘‘(1) PRODUCTION BY FOREIGN FIRMS.—If a 

2 foreign public accounting firm issues an audit re3 port, performs audit work, conducts interim reviews, 

4 or performs material services upon which a reg5 istered public accounting firm relies in the conduct 

6 of an audit or interim review, the foreign public ac7 counting firm shall— 

8 ‘‘(A) produce its audit work papers and all 

9 other documents related to any such audit work 

10 or interim review to the Commission or the 

11 Board; and 

12 ‘‘(B) be subject to the jurisdiction of the 

13 courts of the United States for purposes of en14 forcement of any request for such documents. 

15 ‘‘(2) OTHER PRODUCTION.—Any registered 

16 public accounting firm that relies, in whole or in 

17 part, on the work of a foreign public accounting firm 

18 in issuing an audit report, performing audit work, or 

19 conducting an interim review, shall— 

20 ‘‘(A) produce the audit work papers of the 

21 foreign public accounting firm and all other 

22 documents related to any such work in response 

23 to a request for production by the Commission 

24 or the Board; and 


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1 ‘‘(B) secure the agreement of any foreign 

2 public accounting firm to such production, as a 

3 condition of the reliance by the registered public 

4 accounting firm on the work of that foreign 

5 public accounting firm.’’; 

6 (2) by redesignating subsection (d) as sub7 section (g); and 

8 (3) by inserting after subsection (c) the fol9 lowing: 

10 ‘‘(d) SERVICE OF REQUESTS OR PROCESS.— 

11 ‘‘(1) IN GENERAL.—Any foreign public account12 ing firm that performs work for a domestic reg13 istered public accounting firm shall furnish to the 

14 domestic registered public accounting firm a written 

15 irrevocable consent and power of attorney that des16 ignates the domestic registered public accounting 

17 firm as an agent upon whom may be served any 

18 process, pleadings, or other papers in any action 

19 brought to enforce this section. 

20 ‘‘(2) SPECIFIC AUDIT WORK.—Any foreign pub21 lic accounting firm that issues an audit report, per22 forms audit work, performs interim reviews, or per23 forms material services upon which a registered pub24 lic accounting firm relies in the conduct of an audit 

25 or interim review, shall designate to the Commission 


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1 or the Board an agent in the United States upon 

2 whom may be served any process, pleading, or other 

3 papers in any action brought to enforce this section 

4 or any request by the Commission or the Board 

5 under this section. 

6 ‘‘(e) SANCTIONS.—A willful refusal to comply, in 

7 whole in or in part, with any request by the Commission 

8 or the Board under this section, shall be deemed a viola9 tion of this Act. 

10 ‘‘(f) OTHER MEANS OF SATISFYING PRODUCTION

11 OBLIGATIONS.—Notwithstanding any other provisions of 

12 this section, the staff of the Commission or the Board may 

13 allow a foreign public accounting firm that is subject to 

14 this section to meet production obligations under this sec15 tion through alternate means, such as through foreign 

16 counterparts of the Commission or the Board.’’. 

17 (f) SHARING PRIVILEGED INFORMATION WITH

18 OTHER AUTHORITIES.—Section 24 of the Securities Ex19 change Act of 1934 (15 U.S.C. 78x) is amended— 

20 (1) in subsection (d), as amended by subsection 

21 (d)(1)(A), by striking ‘‘subsection (f)’’ and inserting 

22 ‘‘subsection (g)’’; 

23 (2) in subsection (e), as added by subsection 

24 (d)(1)(C), by striking ‘‘subsection (f)’’ and inserting 

25 ‘‘subsection (g)’’; 


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1 (3) by redesignating subsection (f) as sub2 section (g); and 

3 (4) by inserting after subsection (e) the fol4 lowing: 

5 ‘‘(f) SHARING PRIVILEGED INFORMATION WITH

6 OTHER AUTHORITIES.— 

7 ‘‘(1) PRIVILEGED INFORMATION PROVIDED BY

8 THE COMMISSION.—The Commission shall not be 

9 deemed to have waived any privilege applicable to 

10 any information by transferring that information to 

11 or permitting that information to be used by— 

12 ‘‘(A) any agency (as defined in section 6 of 

13 title 18, United States Code); 

14 ‘‘(B) the Public Company Accounting 

15 Oversight Board; 

16 ‘‘(C) any self-regulatory organization; 

17 ‘‘(D) any foreign securities authority; 

18 ‘‘(E) any foreign law enforcement author19 ity; or 

20 ‘‘(F) any State securities or law enforce21 ment authority. 

22 ‘‘(2) NONDISCLOSURE OF PRIVILEGED INFOR23 MATION PROVIDED TO THE COMMISSION.—The Com24 mission shall not be compelled to disclose privileged 

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1 thority, or foreign law enforcement authority, if the 

2 authority has in good faith determined and rep3 resented to the Commission that the information is 

4 privileged. 

5 ‘‘(3) NONWAIVER OF PRIVILEGED INFORMATION

6 PROVIDED TO THE COMMISSION.— 

7 ‘‘(A) IN GENERAL.—Federal agencies, 

8 State securities and law enforcement authori9 ties, self-regulatory organizations, and the Pub10 lic Company Accounting Oversight Board shall 

11 not be deemed to have waived any privilege ap12 plicable to any information by transferring that 

13 information to or permitting that information 

14 to be used by the Commission. 

15 ‘‘(B) EXCEPTION.—The provisions of sub16 paragraph (A) shall not apply to a self-regu17 latory organization or the Public Company Ac18 counting Oversight Board with respect to infor19 mation used by the Commission in an action 

20 against such organization. 

21 ‘‘(4) DEFINITIONS.—For purposes of this sub22 section— 

23 ‘‘(A) the term ‘privilege’ includes any 

24 work-product privilege, attorney-client privilege, 


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1 governmental privilege, or other privilege recog2 nized under Federal, State, or foreign law; 

3 ‘‘(B) the term ‘foreign law enforcement au4 thority’ means any foreign authority that is em5 powered under foreign law to detect, investigate 

6 or prosecute potential violations of law; and 

7 ‘‘(C) the term ‘State securities or law en8 forcement authority’ means the authority of any 

9 State or territory that is empowered under 

10 State or territory law to detect, investigate, or 

11 prosecute potential violations of law.’’. 

12 SEC. 5. MODERNIZATION OF INVESTOR PROTECTIONS. 

13 (a) MUNICIPAL SECURITIES.—Section 15B of the Se14 curities Exchange Act of 1934 (15 U.S.C. 78o–4) is 

15 amended— 

16 (1) by striking ‘‘(b)(1) Not later’’ and all that 

17 follows through ‘‘succeed such initial members.’’ and 

18 inserting the following: 

19 ‘‘(b) MUNICIPAL SECURITIES RULEMAKING

20 BOARD.— 

21 ‘‘(1) COMPOSITION OF THE MUNICIPAL SECURI22 TIES RULEMAKING BOARD.—Not later than October 

23 1, 2010, the Municipal Securities Rulemaking Board 

24 (hereinafter in this section referred to as the 

25 ‘Board’), shall— 


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1 ‘‘(A) be composed of members who shall 

2 perform the duties set forth in this section; and 

3 ‘‘(B) shall consist of— 

4 ‘‘(i) a majority of independent public 

5 representatives, at least 1 of whom shall be 

6 representative of investors in municipal se7 curities and at least 1 of whom shall be 

8 representative of issuers of municipal secu9 rities (which members are hereinafter re10 ferred to as ‘public representatives’); 

11 ‘‘(ii) at least 1 individual who is rep12 resentative of municipal securities brokers 

13 and municipal securities dealers that are 

14 not banks or subsidiaries, departments or 

15 divisions of banks (which members are 

16 hereinafter referred to as ‘broker-dealer 

17 representatives’); and 

18 ‘‘(iii) at least 1 individual who is rep19 resentative of municipal securities dealers 

20 that are banks or subsidiaries, depart21 ments or divisions of banks (which mem22 bers are hereinafter referred to as ‘bank 

23 representatives’).’’; and 

24 (2) in paragraph (2), by amending subpara25 graph (B) to read as follows: 


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1 ‘‘(B) establish fair procedures for the nomina2 tion and election of members of the Board and as3 sure fair representation in such nominations and 

4 elections of municipal securities brokers and munic5 ipal securities dealers. Such rules— 

6 ‘‘(i) shall establish requirements regarding 

7 the independence of public representatives; 

8 ‘‘(ii) shall provide that the number of pub9 lic representatives of the Board shall at all 

10 times exceed the total number of broker-dealer 

11 representatives and bank representatives; 

12 ‘‘(iii) shall establish minimum knowledge, 

13 experience, and other appropriate qualifications 

14 for individuals to serve as public representa15 tives, which may include prior work experience 

16 in the securities, municipal finance, or munic17 ipal securities industries; 

18 ‘‘(iv) shall specify the term members shall 

19 serve; and 

20 ‘‘(v) may increase or decrease the number 

21 of members which shall constitute the whole 

22 Board, except that in no case may the number 

23 of members of the whole Board be an even 

24 number.’’. 


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1 (b) BENEFICIAL OWNERSHIP AND SHORT-SWING

2 PROFIT REPORTING.— 

3 (1) BENEFICIAL OWNERSHIP REPORTING.—Sec4 tion 13 of the Securities Exchange Act of 1934 (15 

5 U.S.C. 78m) is amended— 

6 (A) in subsection (d)— 

7 (i) in paragraph (1)— 

8 (I) by inserting after ‘‘within ten 

9 days after such acquisition,’’ the fol10 lowing: ‘‘or within such shorter period 

11 as the Commission may establish, by 

12 rule,’’; and 

13 (II) by striking ‘‘send to the 

14 issuer of the security at its principal 

15 executive office, by registered or cer16 tified mail, send to each exchange on 

17 which the security is traded, and’’; 

18 and 

19 (ii) in paragraph (2)— 

20 (I) by striking ‘‘in the statements 

21 to the issuer and the exchange, and’’; 

22 and 

23 (II) by striking ‘‘shall be trans24 mitted to the issuer and the exchange 

25 and’’; and 


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1 (B) in subsection (g)— 

2 (i) in paragraph (1), by striking 

3 ‘‘shall send to the issuer of the security 

4 and’’; and 

5 (ii) in paragraph (2)— 

6 (I) by striking ‘‘sent to the issuer 

7 and’’; and 

8 (II) by striking ‘‘shall be trans9 mitted to the issuer and’’. 

10 (2) SHORT-SWING PROFIT REPORTING.—Sec11 tion 16(a) of the Securities Exchange Act of 1934 

12 (15 U.S.C. 78p(a)) is amended— 

13 (A) in paragraph (1), by striking ‘‘(and, if 

14 such security is registered on a national securi15 ties exchange, also with the exchange)’’; and 

16 (B) in paragraph (2)(B), by inserting after 

17 ‘‘officer’’ the following: ‘‘, or within such short18 er period as the Commission may establish, by 

19 rule’’. 

20 (c) ENHANCED APPLICATION OF ANTIFRAUD PROVI21 SIONS.—The Securities Exchange Act of 1934 (15 U.S.C. 

22 78a et seq.) is amended— 

23 (1) in section 9— 

24 (A) by striking ‘‘registered on a national 

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1 pears and inserting ‘‘other than a government 

2 security’’; 

3 (B) in subsection (b), by striking ‘‘by use 

4 of any facility of a national securities ex5 change,’’; and 

6 (C) in subsection (c), by inserting after 

7 ‘‘unlawful for any’’ the following: ‘‘broker, deal8 er, or’’; 

9 (2) in section 10(a)(1), by striking ‘‘registered 

10 on a national securities exchange’’ and inserting 

11 ‘‘other than a government security’’; and 

12 (3) in section 15(c)(1)(A), by striking ‘‘other13 wise than on a national securities exchange of which 

14 it is a member’’. 

15 (d) DEFINITION OF ‘‘INTERESTED PERSON’’.—Sec16 tion 2(a)(19)(A) of the Investment Company Act of 1940 

17 (15 U.S.C. 80a–2(a)(19)(A)) is amended— 

18 (1) by striking clause (v) and inserting the fol19 lowing: 

20 ‘‘(v) any natural person who is a 

21 member of a class of persons who the 

22 Commission, by rule or regulation, deter23 mines are unlikely to exercise an appro24 priate degree of independence as a result 

25 of— 


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1 ‘‘(I) a material business or pro2 fessional relationship with such com3 pany or any affiliated person of such 

4 company; or 

5 ‘‘(II) a close familial relationship 

6 with any natural person who is an af7 filiated person of such company,’’; 

8 (2) by striking clause (vi); 

9 (3) by redesignating clause (vii) as clause (vi); 

10 and 

11 (4) in clause (vi), as so redesignated, by strik12 ing ‘‘two’’ and inserting ‘‘5’’. 

13 (e) LOST AND STOLEN SECURITIES.—Section 

14 17(f)(1) of the Securities Exchange Act of 1934 (15 

15 U.S.C. 78q(f)(1)) is amended— 

16 (1) in subparagraph (A), by striking ‘‘missing, 

17 lost, counterfeit, or stolen securities’’ and inserting 

18 ‘‘securities that are missing, lost, counterfeit, stolen, 

19 cancelled, or any other category of securities as the 

20 Commission, by rule, may prescribe’’; and 

21 (2) in subparagraph (B), by striking ‘‘or sto22 len’’ and inserting ‘‘stolen, cancelled, or reported in 

23 such other manner as the Commission, by rule, may 

24 prescribe’’. 


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1 (f) FINGERPRINTING.—Section 17(f)(2) of the Secu2 rities Exchange Act of 1934 (15 U.S.C. 78q(f)(2)) is 

3 amended— 

4 (1) in the first sentence, by striking ‘‘and reg5 istered clearing agency,’’ and inserting ‘‘registered 

6 clearing agency, registered securities information 

7 processor, national securities exchange, and national 

8 securities association’’; and 

9 (2) in the second sentence, by striking ‘‘or 

10 clearing agency,’’ and inserting ‘‘clearing agency, se11 curities information processor, national securities ex12 change, or national securities association,’’. 

13 SEC. 6. COMMISSION ORGANIZATIONAL STUDY AND RE14 FORM. 

15 (a) STUDY REQUIRED.— 

16 (1) IN GENERAL.—Not later than 90 days after 

17 the date of the enactment of this Act, the Securities 

18 and Exchange Commission (in this section referred 

19 to as the ‘‘Commission’’) shall hire an independent 

20 consultant of high caliber who has expertise in orga21 nizational restructuring and the operations of capital 

22 markets to examine the internal operations, struc23 ture, funding, and the need for comprehensive re24 form of the Commission, as well as the relationship 

25 of the Commission with and the reliance by the 


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1 Commission on self-regulatory organizations and 

2 other entities relevant to the regulation of securities 

3 and the protection of securities investors that are 

4 under the oversight of the Commission. 

5 (2) SPECIFIC AREAS FOR STUDY.—The study 

6 required under paragraph (1) shall, at a minimum, 

7 include the study of— 

8 (A) the possible elimination of unnecessary 

9 or redundant units at the Commission; 

10 (B) improving communications between of11 fices and divisions of the Commission; 

12 (C) the need to put in place a clear chain13 of-command structure, particularly for enforce14 ment examinations and compliance inspections; 

15 (D) the effect of high-frequency trading 

16 and other technological advances on the market 

17 and what the Commission requires to monitor 

18 the effect of such trading and advances on the 

19 market; 

20 (E) the hiring authorities, workplace poli21 cies, and personal practices of the Commission, 

22 including— 

23 (i) whether there is a need to further 

24 streamline hiring authorities for those who 


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1 are not lawyers, accountants, compliance 

2 examiners, or economists; 

3 (ii) whether there is a need for further 

4 pay reforms; 

5 (iii) the diversity of skill sets of Com6 mission employees and whether the present 

7 skill set diversity efficiently and effectively 

8 fosters the mission of the Commission of 

9 investor protection; and 

10 (iv) the application of civil service 

11 laws by the Commission; 

12 (F) whether the oversight by the Commis13 sion of, and reliance by the Commission on, 

14 self-regulatory organizations promotes efficient 

15 and effective governance for the securities mar16 kets; and 

17 (G) whether adjusting the reliance by the 

18 Commission on self-regulatory organizations is 

19 necessary to promote more efficient and effec20 tive governance for the securities markets. 

21 (b) CONSULTANT REPORT.—Not later than 150 days 

22 after the independent consultant is retained under sub23 section (a), the independent consultant shall submit a re24 port to the Commission and to Congress containing— 


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1 (1) a detailed description of any findings and 

2 conclusions made while carrying out the study re3 quired under subsection (a)(1); and 

4 (2) recommendations for legislative, regulatory, 

5 or administrative action that the independent con6 sultant determines appropriate to enable the Com7 mission and other entities on which the independent 

8 consultant reports to perform the missions of the 

9 Commission, whether mandated by statute or other10 wise. 

11 (c) COMMISSION REPORT.—Not later than 6 months 

12 after the date on which the consultant submits the report 

13 under subsection (b), and every 6 months thereafter dur14 ing the 2-year period following the date on which the con15 sultant submits the report under subsection (b), the Com16 mission shall submit a report to the Committee on Bank17 ing, Housing, and Urban Affairs of the Senate and the 

18 Committee on Financial Services of the House of Rep19 resentatives describing the implementation by the Com20 mission of the regulatory and administrative recommenda21 tions contained in the report of the independent consultant 

22 under subsection (b). 

Æ 


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