H. R. 1058—23
is entered in a private action shall be liable solely
for the portion of the judgment that corresponds to
the percentage of responsibility of that covered person,
as determined under paragraph (3).
‘‘(ii) RECOVERY BY AND COSTS OF COVERED PER-
SON.—In any case in which a contractual relationship
permits, a covered person that prevails in any private
action may recover the attorney’s fees and costs of
that covered person in connection with the action.
‘‘(3) DETERMINATION OF RESPONSIBILITY.—
‘‘(A) IN
GENERAL.—In any private action, the court
shall instruct the jury to answer special interrogatories,
or if there is no jury, shall make findings, with respect
to each covered person and each of the other persons
claimed by any of the parties to have caused or contributed
to the loss incurred by the plaintiff, including persons
who have entered into settlements with the plaintiff or
plaintiffs, concerning—
‘‘(i) whether such person violated the securities
laws;
‘‘(ii) the percentage of responsibility of such person,
measured as a percentage of the total fault of all
persons who caused or contributed to the loss incurred
by the plaintiff; and
‘‘(iii) whether such person knowingly committed
a violation of the securities laws.
‘‘(B) CONTENTS OF SPECIAL INTERROGATORIES OR FIND-
INGS.—The responses to interrogatories, or findings, as
appropriate, under subparagraph (A) shall specify the total
amount of damages that the plaintiff is entitled to recover
and the percentage of responsibility of each covered person
found to have caused or contributed to the loss incurred
by the plaintiff or plaintiffs.
‘‘(C) FACTORS FOR CONSIDERATION.—In determining the
percentage of responsibility under this paragraph, the trier
of fact shall consider—
‘‘(i) the nature of the conduct of each covered per-
son found to have caused or contributed to the loss
incurred by the plaintiff or plaintiffs; and
‘‘(ii) the nature and extent of the causal relation-
ship between the conduct of each such person and
the damages incurred by the plaintiff or plaintiffs.
‘‘(4) UNCOLLECTIBLE SHARE.—
‘‘(A) IN GENERAL.—Notwithstanding paragraph (2)(B),
upon motion made not later than 6 months after a final
judgment is entered in any private action, the court deter-
mines that all or part of the share of the judgment of
the covered person is not collectible against that covered
person, and is also not collectible against a covered person
described in paragraph (2)(A), each covered person
described in paragraph (2)(B) shall be liable for the
uncollectible share as follows:
‘‘(i) PERCENTAGE
OF
NET
WORTH.—Each covered
person shall be jointly and severally liable for the
uncollectible share if the plaintiff establishes that—
‘‘(I) the plaintiff is an individual whose
recoverable damages under the final judgment are
H. R. 1058—24
equal to more than 10 percent of the net worth
of the plaintiff; and
‘‘(II) the net worth of the plaintiff is equal
to less than $200,000.
‘‘(ii) OTHER PLAINTIFFS.—With respect to any plain-
tiff not described in subclauses (I) and (II) of clause
(i), each covered person shall be liable for the
uncollectible share in proportion to the percentage of
responsibility of that covered person, except that the
total liability of a covered person under this clause
may not exceed 50 percent of the proportionate share
of that covered person, as determined under paragraph
(3)(B).
‘‘(iii) NET WORTH.—For purposes of this subpara-
graph, net worth shall be determined as of the date
immediately preceding the date of the purchase or
sale (as applicable) by the plaintiff of the security
that is the subject of the action, and shall be equal
to the fair market value of assets, minus liabilities,
including the net value of the investments of the plain-
tiff in real and personal property (including personal
residences).
‘‘(B) OVERALL LIMIT.—In no case shall the total pay-
ments required pursuant to subparagraph (A) exceed the
amount of the uncollectible share.
‘‘(C) COVERED PERSONS SUBJECT TO CONTRIBUTION.—
A covered person against whom judgment is not collectible
shall be subject to contribution and to any continuing liabil-
ity to the plaintiff on the judgment.
‘‘(5) RIGHT OF CONTRIBUTION.—To the extent that a covered
person is required to make an additional payment pursuant
to paragraph (4), that covered person may recover contribu-
tion—
‘‘(A) from the covered person originally liable to make
the payment;
‘‘(B) from any covered person liable jointly and sever-
ally pursuant to paragraph (2)(A);
‘‘(C) from any covered person held proportionately lia-
ble pursuant to this paragraph who is liable to make the
same payment and has paid less than his or her propor-
tionate share of that payment; or
‘‘(D) from any other person responsible for the conduct
giving rise to the payment that would have been liable
to make the same payment.
‘‘(6) NONDISCLOSURE TO JURY.—The standard for allocation
of damages under paragraphs (2) and (3) and the procedure
for reallocation of uncollectible shares under paragraph (4)
shall not be disclosed to members of the jury.
‘‘(7) SETTLEMENT DISCHARGE.—
‘‘(A) IN GENERAL.—A covered person who settles any
private action at any time before final verdict or judgment
shall be discharged from all claims for contribution brought
by other persons. Upon entry of the settlement by the
court, the court shall enter a bar order constituting the
final discharge of all obligations to the plaintiff of the
settling covered person arising out of the action. The order
H. R. 1058—25
shall bar all future claims for contribution arising out
of the action—
‘‘(i) by any person against the settling covered
person; and
‘‘(ii) by the settling covered person against any
person, other than a person whose liability has been
extinguished by the settlement of the settling covered
person.
‘‘(B) REDUCTION.—If a covered person enters into a
settlement with the plaintiff prior to final verdict or judg-
ment, the verdict or judgment shall be reduced by the
greater of—
‘‘(i) an amount that corresponds to the percentage
of responsibility of that covered person; or
‘‘(ii) the amount paid to the plaintiff by that cov-
ered person.
‘‘(8) CONTRIBUTION.—A covered person who becomes jointly
and severally liable for damages in any private action may
recover contribution from any other person who, if joined in
the original action, would have been liable for the same dam-
ages. A claim for contribution shall be determined based on
the percentage of responsibility of the claimant and of each
person against whom a claim for contribution is made.
‘‘(9) STATUTE OF LIMITATIONS FOR CONTRIBUTION.—In any
private action determining liability, an action for contribution
shall be brought not later than 6 months after the entry of
a final, nonappealable judgment in the action, except that an
action for contribution brought by a covered person who was
required to make an additional payment pursuant to paragraph
(4) may be brought not later than 6 months after the date
on which such payment was made.
‘‘(10) DEFINITIONS.—For purposes of this subsection—
‘‘(A) a covered person ‘knowingly commits a violation
of the securities laws’—
‘‘(i) with respect to an action that is based on
an untrue statement of material fact or omission of
a material fact necessary to make the statement not
misleading, if—
‘‘(I) that covered person makes an untrue
statement of a material fact, with actual knowl-
edge that the representation is false, or omits to
state a fact necessary in order to make the state-
ment made not misleading, with actual knowledge
that, as a result of the omission, one of the mate-
rial representations of the covered person is false;
and
‘‘(II) persons are likely to reasonably rely on
that misrepresentation or omission; and
‘‘(ii) with respect to an action that is based on
any conduct that is not described in clause (i), if that
covered person engages in that conduct with actual
knowledge of the facts and circumstances that make
the conduct of that covered person a violation of the
securities laws;
‘‘(B) reckless conduct by a covered person shall not
be construed to constitute a knowing commission of a viola-
tion of the securities laws by that covered person;
H. R. 1058—26
‘‘(C) the term ‘covered person’ means—
‘‘(i) a defendant in any private action arising under
this title; or
‘‘(ii) a defendant in any private action arising
under section 11 of the Securities Act of 1933, who
is an outside director of the issuer of the securities
that are the subject of the action; and
‘‘(D) the term ‘outside director’ shall have the meaning
given such term by rule or regulation of the Commission.’’.
(b) AMENDMENTS TO THE SECURITIES ACT OF 1933.—Section
11(f) of the Securities Act of 1933 (12 U.S.C. 77k(f)) is amended—
(1) by striking ‘‘All’’ and inserting ‘‘(1) Except as provided
in paragraph (2), all’’; and
(2) by adding at the end the following new paragraph:
‘‘(2)(A) The liability of an outside director under subsection
(e) shall be determined in accordance with section 38 of the Securi-
ties Exchange Act of 1934.
‘‘(B) For purposes of this paragraph, the term ‘outside director’
shall have the meaning given such term by rule or regulation
of the Commission .’’.
SEC. 202. APPLICABILITY.
The amendments made by this title shall not affect or apply
to any private action arising under the securities laws commenced
before and pending on the date of enactment of this Act.
SEC. 203. RULE OF CONSTRUCTION.
Nothing in this Act or the amendments made by this Act
shall be deemed to create or ratify any implied private right of
action, or to prevent the Commission, by rule or regulation, from
restricting or otherwise regulating private actions under the Securi-
ties Exchange Act of 1934.
TITLE III—AUDITOR DISCLOSURE OF
CORPORATE FRAUD
SEC. 301. FRAUD DETECTION AND DISCLOSURE.
(a) IN GENERAL.—The Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended by inserting immediately after
section 10 the following new section:
‘‘SEC. 10A. AUDIT REQUIREMENTS.
‘‘(a) IN GENERAL.—Each audit required pursuant to this title
of the financial statements of an issuer by an independent public
accountant shall include, in accordance with generally accepted
auditing standards, as may be modified or supplemented from time
to time by the Commission—
‘‘(1) procedures designed to provide reasonable assurance
of detecting illegal acts that would have a direct and material
effect on the determination of financial statement amounts;
‘‘(2) procedures designed to identify related party trans-
actions that are material to the financial statements or other-
wise require disclosure therein; and
‘‘(3) an evaluation of whether there is substantial doubt
about the ability of the issuer to continue as a going concern
during the ensuing fiscal year.
H. R. 1058—27
‘‘(b) REQUIRED RESPONSE TO AUDIT DISCOVERIES.—
‘‘(1) INVESTIGATION AND REPORT TO MANAGEMENT.—If, in
the course of conducting an audit pursuant to this title to
which subsection (a) applies, the independent public accountant
detects or otherwise becomes aware of information indicating
that an illegal act (whether or not perceived to have a material
effect on the financial statements of the issuer) has or may
have occurred, the accountant shall, in accordance with gen-
erally accepted auditing standards, as may be modified or
supplemented from time to time by the Commission—
‘‘(A)(i) determine whether it is likely that an illegal
act has occurred; and
‘‘(ii) if so, determine and consider the possible effect
of the illegal act on the financial statements of the issuer,
including any contingent monetary effects, such as fines,
penalties, and damages; and
‘‘(B) as soon as practicable, inform the appropriate
level of the management of the issuer and assure that
the audit committee of the issuer, or the board of directors
of the issuer in the absence of such a committee, is ade-
quately informed with respect to illegal acts that have
been detected or have otherwise come to the attention
of such accountant in the course of the audit, unless the
illegal act is clearly inconsequential.
‘‘(2) RESPONSE TO FAILURE TO TAKE REMEDIAL ACTION.—
If, after determining that the audit committee of the board
of directors of the issuer, or the board of directors of the
issuer in the absence of an audit committee, is adequately
informed with respect to illegal acts that have been detected
or have otherwise come to the attention of the accountant
in the course of the audit of such accountant, the independent
public accountant concludes that—
‘‘(A) the illegal act has a material effect on the financial
statements of the issuer;
‘‘(B) the senior management has not taken, and the
board of directors has not caused senior management to
take, timely and appropriate remedial actions with respect
to the illegal act; and
‘‘(C) the failure to take remedial action is reasonably
expected to warrant departure from a standard report of
the auditor, when made, or warrant resignation from the
audit engagement;
the independent public accountant shall, as soon as practicable,
directly report its conclusions to the board of directors.
‘‘(3) NOTICE
TO
COMMISSION; RESPONSE
TO
FAILURE
TO
NOTIFY.—An issuer whose board of directors receives a report
under paragraph (2) shall inform the Commission by notice
not later than 1 business day after the receipt of such report
and shall furnish the independent public accountant making
such report with a copy of the notice furnished to the Commis-
sion. If the independent public accountant fails to receive a
copy of the notice before the expiration of the required 1-
business-day period, the independent public accountant shall—
‘‘(A) resign from the engagement; or
‘‘(B) furnish to the Commission a copy of its report
(or the documentation of any oral report given) not later
than 1 business day following such failure to receive notice.