SEC. 7. AUTHORITY TO CONTRACT WITH PRIVATE COUNSEL 
FOR LEGAL SERVICES TO COLLECT DELIN-
QUENT JUDGMENTS AND ORDERS. 
Subsection (b) of section 4 of the Securities Exchange 
Act of 1934 (15 U.S.C. 78d(b)) is amended— 
(1) in the subsection heading by striking ‘‘AND 
LEASING AUTHORITY.—’’ and inserting ‘‘, LEASING 
AUTHORITY, AND CONTRACTING AUTHORITY.—’’; and 
(2) by adding at the end of such subsection the 
following new paragraph: 
‘‘(4) CONTRACTING AUTHORITY.— 
‘‘(A) IN
GENERAL.—Notwithstanding any 
other provision of law, the Commission is au-
thorized to enter into contracts to retain private 
legal counsel to furnish legal services, including 
representation in litigation, negotiation, com-
promise, and settlement, in the case of any claim 
of indebtedness resulting from any judgment or 
order (either by litigation or settlement) obtained 
by the Commission in any judicial action or ad-
ministrative proceeding brought by or on behalf 
of the Commission. Private counsel retained 
under this paragraph may represent the Com-
mission in such debt collection matters to the 
same extent as the Commission may represent 
itself.
‘‘(B) TERMS
AND
CONDITIONS
OF
CON-
TRACT.—Each such contract shall include such 
terms and conditions as the Commission con-
siders necessary and appropriate, and shall in-
clude provisions specifying— 
‘‘(i) the amount of the fee to be paid to 
the private counsel under such contract or 
the method for calculating that fee; 
‘‘(ii) that the Commission retains the 
authority to represent itself, resolve a dis-
pute, compromise a claim, end collection ef-
forts, and refer a matter to other private 
counsel or to the Attorney General; and 
‘‘(iii) that the Commission may termi-
nate either the contract or the private coun-
sel’s representation of the Commission in 
particular cases for any reason, including 
for the convenience of the Commission. 
‘‘(C) PAYMENT OF FEES.—Notwithstanding 
section 3302(b) of title 31, United States Code, 
a contract under this paragraph may provide 
that fees and costs incurred by private counsel 
under such contracts are payable from the 
amounts recovered.
‘‘(D) COMPETITION REQUIREMENTS.—Noth-
ing in this paragraph shall relieve the Commis-
sion of the competition requirements set forth in 
title III of the Federal Property and Administra-
tive Services Act of 1949 (41 U.S.C. 251 et seq.). 
‘‘(E) COUNTERCLAIMS.—In any action to 
recover indebtedness which is brought on behalf 
of the Commission by private counsel retained 
under this paragraph, no counterclaim may be 
asserted against the Commission unless the coun-
terclaim is served directly on the Commission. 
Such service shall be made in accordance with 
the rules of procedure of the court in which the 
action is brought.’’. 
SEC. 8. FAIR ACT AMENDMENTS. 
(a) CIVIL PENALTIES.—Section 308(a) of the Sar-
banes-Oxley Act of 2002 (15 U.S.C. 7246(a)) is amended 
to read as follows; 
‘‘(a) CIVIL PENALTIES TO BE USED FOR THE RELIEF 
OF VICTIMS.—If in any judicial or administrative action 
brought by the Commission under the securities laws (as 
such term is defined in section 3(a)(47) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) the Commis-
sion obtains pursuant to such laws a civil penalty against 
any person, such civil penalty monies shall, on the motion
or at the direction of the Commission, be added to and be-
come part of a fund for the benefit of the victims of such 
violation.’’. 
(b) STUDY ON FEDERAL AND STATE SECURITIES CO-
ORDINATION, COOPERATION, AND COMMUNICATION.— 
(1) STUDY.—The Securities and Exchange Com-
mission shall seek to produce a joint study in co-
operation with an association of duly constituted rep-
resentatives of State governments whose primary as-
signment is the regulation of the securities business 
within those States, on improved coordination, co-
operation and communication between the Commis-
sion and State securities regulators. 
(2) SUBJECT OF STUDY.—If the association re-
ferred to in paragraph (1) agrees to participate in 
such a study, the study shall be prepared jointly by 
the Commission and the association, and shall be 
based on an initiative announced September 14, 
2003, between the Commission and the association 
aimed at improving coordination, cooperation, and 
communication between the Commission and State se-
curities regulators. 
(3) REPORT.—If the association referred to in 
paragraph (1) agrees to participate in such a study, 
the results of the study shall be jointly reported to the
Committee on Financial Services of the House of Rep-
resentatives and the Committee on Banking, Housing, 
and Urban Affairs of the Senate by September 14, 
2005, or 1 year after the date of enactment of this 
Act, whichever is later. 
(c) ADDITIONAL PROVISIONS.—Section 308 of the Sar-
banes-Oxley Act of 2002 (15 U.S.C. 7246) is further amend-
ed— 
(1) by redesignating subsections (c), (d), and (e) 
as subsections (e), (f), and (g), respectively; and 
(2) by inserting the following after subsection 
(b): 
‘‘(c) USE
OF
INVESTOR
RESTITUTION
FUND
BY 
STATES.—The Commission may allow a State that has re-
ceived penalty or disgorgement payments pursuant to an 
agreement or settlement with a broker or dealer or other 
party in an action concerning securities fraud to contribute 
those payments to a fund administered by the Commission 
for the purpose of making restitution payments to investors, 
whether or not the Commission was a party to the agree-
ment or settlement or had established such fund prior to 
the State’s contribution. The Commission shall have the au-
thority otherwise available to it under the securities laws 
with respect to the administration and distribution of such 
funds.
‘‘(d) UNDISTRIBUTED FUNDS TO BE USED FOR IN-
VESTOR EDUCATION.—In any judicial or administrative 
action in which a fund is created pursuant to subsection 
(a) or in which the Commission had obtained disgorgement, 
if the Commission determines (due to the size of the fund 
to be distributed, the number of investors, the nature of the 
underlying violation, or for other reasons) that it would be 
infeasible to distribute such fund or disgorgement to the vic-
tims of the violation, or if after distribution of the fund 
or disgorgement to victims there are excess monies remain-
ing, the Commission may move for an order in a judicial 
action, or may issue an order in an administrative pro-
ceeding, requiring that the undistributed amount of the 
fund or disgorgement be used for investor education pro-
grams administered by an established not-for-profit or gov-
ernmental organization whose purposes include investor 
education and financial literacy.’’. 
SEC. 9. REDUCTION OF EXCESSIVE DISTRIBUTION AND 
MARKETING FEES. 
Within 90 days after the date of enactment of this Act, 
the Securities and Exchange Commission shall, by rule or 
regulation under the Investment Company Act of 1940, pro-
hibit as unreasonable or deceptive any fee by a registered 
open-end investment company under a plan adopted pursu-
ant to rule 12b–1 of the Commission’s rules (17 CFR
270.12b–1) that continues to include any charges for ex-
penses for any activity after such company has been closed 
to new investors, other than shareholder servicing activities 
the costs of which are collected directly and transparently 
from the investor. 
SEC. 10. DISCLOSURE RESPONSIBILITIES AT CONTRACT RE-
NEWAL. 
Subsection (c) of section 15 of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–15(c)) is amended to read 
as follows: 
‘‘(c) PROCESS FOR CONTRACT RENEWAL.— 
‘‘(1) APPROVAL BY MAJORITY OF INDEPENDENT 
DIRECTORS.—In addition to the requirements of sub-
sections (a) and (b) of this section, it shall be unlaw-
ful for any registered investment company having a 
board of directors to enter into, renew, or perform 
any contract or agreement, written or oral, whereby 
a person undertakes regularly to serve or act as in-
vestment adviser of or principal underwriter for such 
company, unless the terms of such contract or agree-
ment and any renewal thereof have been approved by 
the vote of a majority of directors, who are not parties 
to such contract or agreement or interested persons of 
any such party, cast in person at a meeting called for 
the purpose of voting on such approval.
‘‘(2) INFORMATION DISCLOSURES AND EVALUA-
TIONS.— 
‘‘(A) IN GENERAL.—It shall be the duty of 
the directors of a registered investment company 
to request and evaluate, and the duty of an in-
vestment adviser or principal underwriter of 
such company to furnish, such information as 
may reasonably be necessary to evaluate the 
terms of any contract whereby a person under-
takes regularly to serve or act as investment ad-
viser or principal underwriter of such company. 
‘‘(B) INVESTMENT ADVISER DUTY.—In ad-
dition to the investment adviser’s duty under 
subparagraph (A), when entering into or renew-
ing a contract or agreement, it shall be the duty 
of the investment adviser— 
‘‘(i) to provide the independent direc-
tors of a registered investment company 
with all material information about any of 
its business practices, or the business prac-
tices of any of its affiliated persons, that 
may conflict with the best interests of the 
shareholders of the registered investment 
company; and
‘‘(ii) to specify and commit to imple-
ment procedures that are reasonably de-
signed to ensure services are provided in the 
best interests of such shareholders. 
‘‘(C) PRINCIPAL UNDERWRITER DUTY.—In 
addition to the principal underwriter’s duty 
under subparagraph (A), when entering into or 
renewing a contract or agreement, it shall be the 
duty of the principal underwriter— 
‘‘(i) to provide the independent direc-
tors of a registered investment company 
with all material information about any of 
its business practices that may conflict with 
the best interests of the shareholders of the 
registered investment company; and 
‘‘(ii) to specify and commit to imple-
ment procedures that are reasonably de-
signed to ensure services are provided in the 
best interests of such shareholders. 
‘‘(D) INDEPENDENT DIRECTORS DUTY.—In 
addition to the independent directors’ duty 
under subparagraph (A), it shall be the duty of 
the independent directors to determine whether 
the specified procedures of the investment adviser 
and the principal underwriter offer a reasonable
likelihood of protecting the best interests of the 
shareholders of the registered investment com-
pany. 
‘‘(3) LIMITATION ON CONSIDERATIONS.—It shall 
be unlawful for the directors of a registered invest-
ment company, in connection with their evaluation of 
the terms of any contract whereby a person under-
takes regularly to serve or act as investment adviser 
of such company, to take into account the purchase 
price or other consideration any person may have 
paid in connection with a transaction of the type re-
ferred to in paragraph (1), (3), or (4) of subsection 
(f).’’. 
SEC. 11. METHOD OF MAINTAINING BROKER/DEALER REG-
ISTRATION, DISCIPLINARY, AND OTHER DATA. 
Subsection (i) of section 15A of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o–3(i)) is amended to read 
as follows: 
‘‘(i) OBLIGATION TO MAINTAIN REGISTRATION, DIS-
CIPLINARY AND OTHER DATA.— 
‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO 
INQUIRIES.—A 
registered 
securities 
association 
shall—
‘‘(A) establish and maintain a system for 
collecting and retaining registration informa-
tion; 
‘‘(B) establish and maintain a toll-free tele-
phone listing, and a readily accessible electronic 
or other process, to receive and promptly respond 
to inquiries regarding— 
‘‘(i) registration information on its 
members and their associated persons; and 
‘‘(ii) registration information on the 
members and their associated persons of 
any registered national securities exchange 
that uses the system described in subpara-
graph (A) for the registration of its mem-
bers and their associated persons; and 
‘‘(C) adopt rules governing the process for 
making inquiries and the type, scope, and pres-
entation of information to be provided in re-
sponse to such inquiries in consultation with 
any registered national securities exchange pro-
viding information pursuant to subparagraph 
(B)(ii). 
‘‘(2) RECOVERY OF COSTS.—Such an association 
may charge persons making inquiries, other than in-
dividual investors, reasonable fees for responses to 
such inquiries. 
‘‘(3) PROCESS FOR DISPUTED INFORMATION.— 
Such an association shall adopt rules establishing an 
administrative process for disputing the accuracy of 
information provided in response to inquiries under 
this subsection in consultation with any registered 
national securities exchange providing information 
pursuant to paragraph (1)(B)(ii). 
‘‘(4) LIMITATION OF LIABILITY.—Such an asso-
ciation, or exchange reporting information to such an 
association, shall not have any liability to any person 
for any actions taken or omitted in good faith under 
this subsection. 
‘‘(5) DEFINITION.—For purposes of this sub-
section, the term ‘registration information’ means the 
information reported in connection with the registra-
tion or licensing of brokers and dealers and their as-
sociated persons, including disciplinary actions, regu-
latory, judicial, and arbitration proceedings, and 
other information required by law, or exchange or as-
sociation rule, and the source and status of such in-
formation. ’’.
SEC. 12. FILING DEPOSITORIES FOR INVESTMENT ADVIS-
ERS. 
(a) AMENDMENT.—Section 204 of the Investment Ad-
visers Act of 1940 (15 U.S.C. 80b–4) is amended— 
(1) by striking ‘‘Every investment’’ and insert-
ing the following: 
‘‘(a) IN GENERAL.—Every investment’’; and 
(2) by adding at the end the following: 
‘‘(b) FILING DEPOSITORIES.—The Commission may, 
by rule, require an investment adviser— 
‘‘(1) to file with the Commission any fee, appli-
cation, report, or notice required to be filed by this 
title or the rules issued under this title through any 
entity designated by the Commission for that purpose; 
and 
‘‘(2) to pay the reasonable costs associated with 
such filing and the establishment and maintenance of 
the systems required by subsection (c). 
‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFORMA-
TION.— 
‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO 
INQUIRIES.—The Commission shall require the entity 
designated by the Commission under subsection (b)(1) 
to establish and maintain a toll-free telephone listing, 
and a readily accessible electronic or other process, to 
receive and promptly respond to inquiries regarding
registration information (including disciplinary ac-
tions, regulatory, judicial, and arbitration pro-
ceedings, and other information required by law or 
rule to be reported) involving investment advisers and 
persons associated with investment advisers. 
‘‘(2) RECOVERY
OF
COSTS.—An entity des-
ignated by the Commission under subsection (b)(1) 
may charge persons making inquiries, other than in-
dividual investors, reasonable fees for responses to in-
quiries made under paragraph (1). 
‘‘(3) LIMITATION ON LIABILITY.—An entity des-
ignated by the Commission under subsection (b)(1) 
shall not have any liability to any person for any ac-
tions taken or omitted in good faith under this sub-
section.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 203A of the Investment Advisers Act 
of 1940 (15 U.S.C. 80b–3a) is amended— 
(A) by striking subsection (d); and 
(B) by redesignating subsection (e) as sub-
section (d). 
(2) Section 306 of the National Securities Mar-
kets Improvement Act of 1996 (15 U.S.C. 80b–10, 
note; Public Law 104–290; 110 Stat. 3439) is re-
pealed.
SEC. 13. LEAD INDEPENDENT DIRECTOR. 
Section 10(a) of the Investment Company Act of 1940 
(15 U.S.C. 80a–10(a)) is amended— 
(1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and 
(2) by adding at the end the following new para-
graph: 
‘‘(2) The board of directors of such a company shall 
select a lead independent director who is not an interested 
person and who shall (A) have authority to place items on 
the agenda for consideration, call meetings, and obtain out-
side advice on behalf of the independent directors, and (B) 
have such other authority as the Commission determines by 
rule to be necessary or useful. This paragraph shall not 
apply if the chairman of the board is an independent direc-
tor.’’. 
SEC. 14. ENHANCED OVERSIGHT OF PERIODIC DISCLO-
SURES BY ISSUERS. 
Within 1 year after the date of enactment of this Act, 
the Securities and Exchange Commission— 
(1) shall conduct a thorough review of the finan-
cial statements contained in the most recent periodic 
disclosures filed with the Commission by the largest 
250 reporting issuers, and as many other reporting 
issuers as the Commission finds appropriate;
(2) shall query such issuers with respect to any 
confusing, ambiguous, or unclear statement in such 
disclosures that would be of interest to investors; 
(3) shall require such issuers to respond fully to 
such queries, by such deadlines as the Commission 
may impose, and to clarify such statements as nec-
essary for the protection of investors; and 
(4) may require the issuer’s response to be ac-
companied by an auditor’s opinion as to— 
(A) whether that response sets forth the in-
formation presented in accordance with generally 
accepted accounting principles, and 
(B) whether the auditor reached that conclu-
sion after applying generally accepted auditing 
standards to the information presented in the re-
sponse. 
SEC. 15. SENSE OF CONGRESS. 
It is the sense of Congress that the Administrator of 
the Investor Education Fund of the 2003 Global Research 
Analyst Settlement should award— 
(1) $5,000,000 of the Investor Education Fund 
in the form of competitive grants to economic edu-
cation programs administered by national non-profit 
educational organizations whose primary purpose is 
improving the quality of minority and low-income