H. R. 3763—48
‘‘(C) requiring that a broker or dealer and persons
employed by a broker or dealer who are involved with
investment banking activities may not, directly or
indirectly, retaliate against or threaten to retaliate against
any securities analyst employed by that broker or dealer
or its affiliates as a result of an adverse, negative, or
otherwise unfavorable research report that may adversely
affect the present or prospective investment banking rela-
tionship of the broker or dealer with the issuer that is
the subject of the research report, except that such rules
may not limit the authority of a broker or dealer to dis-
cipline a securities analyst for causes other than such
research report in accordance with the policies and proce-
dures of the firm;
‘‘(2) to define periods during which brokers or dealers who
have participated, or are to participate, in a public offering
of securities as underwriters or dealers should not publish
or otherwise distribute research reports relating to such securi-
ties or to the issuer of such securities;
‘‘(3) to establish structural and institutional safeguards
within registered brokers or dealers to assure that securities
analysts are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of
those whose involvement in investment banking activities
might potentially bias their judgment or supervision; and
‘‘(4) to address such other issues as the Commission, or
such association or exchange, determines appropriate.
‘‘(b) DISCLOSURE.—The Commission, or upon the authorization
and direction of the Commission, a registered securities association
or national securities exchange, shall have adopted, not later than
1 year after the date of enactment of this section, rules reasonably
designed to require each securities analyst to disclose in public
appearances, and each registered broker or dealer to disclose in
each research report, as applicable, conflicts of interest that are
known or should have been known by the securities analyst or
the broker or dealer, to exist at the time of the appearance or
the date of distribution of the report, including—
‘‘(1) the extent to which the securities analyst has debt
or equity investments in the issuer that is the subject of the
appearance or research report;
‘‘(2) whether any compensation has been received by the
registered broker or dealer, or any affiliate thereof, including
the securities analyst, from the issuer that is the subject of
the appearance or research report, subject to such exemptions
as the Commission may determine appropriate and necessary
to prevent disclosure by virtue of this paragraph of material
non-public information regarding specific potential future
investment banking transactions of such issuer, as is appro-
priate in the public interest and consistent with the protection
of investors;
‘‘(3) whether an issuer, the securities of which are rec-
ommended in the appearance or research report, currently is,
or during the 1-year period preceding the date of the appearance
or date of distribution of the report has been, a client of the
registered broker or dealer, and if so, stating the types of
services provided to the issuer;
H. R. 3763—49
‘‘(4) whether the securities analyst received compensation
with respect to a research report, based upon (among any
other factors) the investment banking revenues (either gen-
erally or specifically earned from the issuer being analyzed)
of the registered broker or dealer; and
‘‘(5) such other disclosures of conflicts of interest that are
material to investors, research analysts, or the broker or dealer
as the Commission, or such association or exchange, determines
appropriate.
‘‘(c) DEFINITIONS.—In this section—
‘‘(1) the term ‘securities analyst’ means any associated per-
son of a registered broker or dealer that is principally respon-
sible for, and any associated person who reports directly or
indirectly to a securities analyst in connection with, the
preparation of the substance of a research report, whether
or not any such person has the job title of ‘securities analyst’;
and
‘‘(2) the term ‘research report’ means a written or electronic
communication that includes an analysis of equity securities
of individual companies or industries, and that provides
information reasonably sufficient upon which to base an invest-
ment decision.’’.
(b) ENFORCEMENT.—Section 21B(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u–2(a)) is amended by inserting ‘‘15D,’’
before ‘‘15B’’.
(c) COMMISSION AUTHORITY.—The Commission may promulgate
and amend its regulations, or direct a registered securities associa-
tion or national securities exchange to promulgate and amend its
rules, to carry out section 15D of the Securities Exchange Act
of 1934, as added by this section, as is necessary for the protection
of investors and in the public interest.
TITLE VI—COMMISSION RESOURCES
AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15 U.S.C.
78kk) is amended to read as follows:
‘‘SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
‘‘In addition to any other funds authorized to be appropriated
to the Commission, there are authorized to be appropriated to
carry out the functions, powers, and duties of the Commission,
$776,000,000 for fiscal year 2003, of which—
‘‘(1) $102,700,000 shall be available to fund additional com-
pensation, including salaries and benefits, as authorized in
the Investor and Capital Markets Fee Relief Act (Public Law
107–123; 115 Stat. 2390 et seq.);
‘‘(2) $108,400,000 shall be available for information tech-
nology, security enhancements, and recovery and mitigation
activities in light of the terrorist attacks of September 11,
2001; and
‘‘(3) $98,000,000 shall be available to add not fewer than
an additional 200 qualified professionals to provide enhanced
oversight of auditors and audit services required by the Federal
securities laws, and to improve Commission investigative and
H. R. 3763—50
disciplinary efforts with respect to such auditors and services,
as well as for additional professional support staff necessary
to strengthen the programs of the Commission involving Full
Disclosure and Prevention and Suppression of Fraud, risk
management, industry technology review, compliance, inspec-
tions, examinations, market regulation, and investment
management.’’.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by inserting after section 4B the following:
‘‘SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
‘‘(a) AUTHORITY TO CENSURE.—The Commission may censure
any person, or deny, temporarily or permanently, to any person
the privilege of appearing or practicing before the Commission
in any way, if that person is found by the Commission, after
notice and opportunity for hearing in the matter—
‘‘(1) not to possess the requisite qualifications to represent
others;
‘‘(2) to be lacking in character or integrity, or to have
engaged in unethical or improper professional conduct; or
‘‘(3) to have willfully violated, or willfully aided and abetted
the violation of, any provision of the securities laws or the
rules and regulations issued thereunder.
‘‘(b) DEFINITION.—With respect to any registered public
accounting firm or associated person, for purposes of this section,
the term ‘improper professional conduct’ means—
‘‘(1) intentional or knowing conduct, including reckless con-
duct, that results in a violation of applicable professional stand-
ards; and
‘‘(2) negligent conduct in the form of—
‘‘(A) a single instance of highly unreasonable conduct
that results in a violation of applicable professional stand-
ards in circumstances in which the registered public
accounting firm or associated person knows, or should
know, that heightened scrutiny is warranted; or
‘‘(B) repeated instances of unreasonable conduct, each
resulting in a violation of applicable professional standards,
that indicate a lack of competence to practice before the
Commission.’’.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK
BARS.
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended
by this Act, is amended by adding at the end the following:
‘‘(6) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM PARTICI-
PATING IN AN OFFERING OF PENNY STOCK.—
‘‘(A) IN GENERAL.—In any proceeding under paragraph (1)
against any person participating in, or, at the time of the
alleged misconduct who was participating in, an offering of
penny stock, the court may prohibit that person from partici-
pating in an offering of penny stock, conditionally or uncondi-
tionally, and permanently or for such period of time as the
court shall determine.
‘‘(B) DEFINITION.—For purposes of this paragraph, the term
‘person participating in an offering of penny stock’ includes
H. R. 3763—51
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term
to include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or
in part, conditionally or unconditionally, from inclusion in such
term.’’.
(b) SECURITIES ACT OF 1933.—Section 20 of the Securities Act
of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following:
‘‘(g) AUTHORITY
OF
A COURT TO PROHIBIT PERSONS FROM
PARTICIPATING IN AN OFFERING OF PENNY STOCK.—
‘‘(1) IN GENERAL.—In any proceeding under subsection (a)
against any person participating in, or, at the time of the
alleged misconduct, who was participating in, an offering of
penny stock, the court may prohibit that person from partici-
pating in an offering of penny stock, conditionally or uncondi-
tionally, and permanently or for such period of time as the
court shall determine.
‘‘(2) DEFINITION.—For purposes of this subsection, the term
‘person participating in an offering of penny stock’ includes
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term
to include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or
in part, conditionally or unconditionally, from inclusion in such
term.’’.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS
AND DEALERS.
(a) BROKERS AND DEALERS.—Section 15(b)(4) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended—
(1) by striking subparagraph (F) and inserting the fol-
lowing:
‘‘(F) is subject to any order of the Commission barring
or suspending the right of the person to be associated with
a broker or dealer;’’; and
(2) in subparagraph (G), by striking the period at the
end and inserting the following: ‘‘; or
‘‘(H) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that—
‘‘(i) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
H. R. 3763—52
‘‘(ii) constitutes a final order based on violations of
any laws or regulations that prohibit fraudulent, manipula-
tive, or deceptive conduct.’’.
(b) INVESTMENT ADVISERS.—Section 203(e) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—
(1) by striking paragraph (7) and inserting the following:
‘‘(7) is subject to any order of the Commission barring
or suspending the right of the person to be associated with
an investment adviser;’’;
(2) in paragraph (8), by striking the period at the end
and inserting ‘‘; or’’; and
(3) by adding at the end the following:
‘‘(9) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that—
‘‘(A) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
‘‘(B) constitutes a final order based on violations of
any laws or regulations that prohibit fraudulent, manipula-
tive, or deceptive conduct.’’.
(c) CONFORMING AMENDMENTS.—
(1) SECURITIES
EXCHANGE
ACT
OF
1934.—The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended—
(A) in section 3(a)(39)(F) (15 U.S.C. 78c(a)(39)(F))—
(i) by striking ‘‘or (G)’’ and inserting ‘‘(H), or (G)’’;
and
(ii) by inserting ‘‘, or is subject to an order or
finding,’’ before ‘‘enumerated’’;
(B) in each of section 15(b)(6)(A)(i) (15 U.S.C.
78o(b)(6)(A)(i)), paragraphs (2) and (4) of section 15B(c)
(15 U.S.C. 78o–4(c)), and subparagraphs (A) and (C) of
section 15C(c)(1) (15 U.S.C. 78o–5(c)(1))—
(i) by striking ‘‘or (G)’’ each place that term appears
and inserting ‘‘(H), or (G)’’; and
(ii) by striking ‘‘or omission’’ each place that term
appears, and inserting ‘‘, or is subject to an order
or finding,’’; and
(C) in each of paragraphs (3)(A) and (4)(C) of section
17A(c) (15 U.S.C. 78q–1(c))—
(i) by striking ‘‘or (G)’’ each place that term appears
and inserting ‘‘(H), or (G)’’; and
(ii) by inserting ‘‘, or is subject to an order or
finding,’’ before ‘‘enumerated’’ each place that term
appears.
(2) INVESTMENT ADVISERS ACT OF 1940.—Section 203(f) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b–3(f)) is
amended—
(A) by striking ‘‘or (8)’’ and inserting ‘‘(8), or (9)’’; and
(B) by inserting ‘‘or (3)’’ after ‘‘paragraph (2)’’.
H. R. 3763—53
TITLE VII—STUDIES AND REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF
PUBLIC ACCOUNTING FIRMS.
(a) STUDY REQUIRED.—The Comptroller General of the United
States shall conduct a study—
(1) to identify—
(A) the factors that have led to the consolidation of
public accounting firms since 1989 and the consequent
reduction in the number of firms capable of providing audit
services to large national and multi-national business
organizations that are subject to the securities laws;
(B) the present and future impact of the condition
described in subparagraph (A) on capital formation and
securities markets, both domestic and international; and
(C) solutions to any problems identified under subpara-
graph (B), including ways to increase competition and the
number of firms capable of providing audit services to
large national and multinational business organizations
that are subject to the securities laws;
(2) of the problems, if any, faced by business organizations
that have resulted from limited competition among public
accounting firms, including—
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among public accounting firms.
(b) CONSULTATION.—In planning and conducting the study
under this section, the Comptroller General shall consult with—
(1) the Commission;
(2) the regulatory agencies that perform functions similar
to the Commission within the other member countries of the
Group of Seven Industrialized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization that
the Comptroller General considers appropriate.
(c) REPORT REQUIRED.—Not later than 1 year after the date
of enactment of this Act, the Comptroller General shall submit
a report on the results of the study required by this section to
the Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the House
of Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT
RATING AGENCIES.
(a) STUDY REQUIRED.—
(1) IN GENERAL.—The Commission shall conduct a study
of the role and function of credit rating agencies in the operation
of the securities market.
(2) AREAS OF CONSIDERATION.—The study required by this
subsection shall examine—
(A) the role of credit rating agencies in the evaluation
of issuers of securities;
H. R. 3763—54
(B) the importance of that role to investors and the
functioning of the securities markets;
(C) any impediments to the accurate appraisal by credit
rating agencies of the financial resources and risks of
issuers of securities;
(D) any barriers to entry into the business of acting
as a credit rating agency, and any measures needed to
remove such barriers;
(E) any measures which may be required to improve
the dissemination of information concerning such resources
and risks when credit rating agencies announce credit
ratings; and
(F) any conflicts of interest in the operation of credit
rating agencies and measures to prevent such conflicts
or ameliorate the consequences of such conflicts.
(b) REPORT REQUIRED.—The Commission shall submit a report
on the study required by subsection (a) to the President, the Com-
mittee on Financial Services of the House of Representatives, and
the Committee on Banking, Housing, and Urban Affairs of the
Senate not later than 180 days after the date of enactment of
this Act.
SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.
(a) STUDY.—The Commission shall conduct a study to deter-
mine, based upon information for the period from January 1, 1998,
to December 31, 2001—
(1) the number of securities professionals, defined as public
accountants, public accounting firms, investment bankers,
investment advisers, brokers, dealers, attorneys, and other
securities professionals practicing before the Commission—
(A) who have been found to have aided and abetted
a violation of the Federal securities laws, including rules
or 
regulations 
promulgated 
thereunder 
(collectively
referred to in this section as ‘‘Federal securities laws’’),
but who have not been sanctioned, disciplined, or otherwise
penalized as a primary violator in any administrative
action or civil proceeding, including in any settlement of
such an action or proceeding (referred to in this section
as ‘‘aiders and abettors’’); and
(B) who have been found to have been primary violators
of the Federal securities laws;
(2) a description of the Federal securities laws violations
committed by aiders and abettors and by primary violators,
including—
(A) the specific provision of the Federal securities laws
violated;
(B) the specific sanctions and penalties imposed upon
such aiders and abettors and primary violators, including
the amount of any monetary penalties assessed upon and
collected from such persons;
(C) the occurrence of multiple violations by the same
person or persons, either as an aider or abettor or as
a primary violator; and
(D) whether, as to each such violator, disciplinary sanc-
tions have been imposed, including any censure, suspen-
sion, temporary bar, or permanent bar to practice before
the Commission; and
H. R. 3763—55
(3) the amount of disgorgement, restitution, or any other
fines or payments that the Commission has assessed upon
and collected from, aiders and abettors and from primary viola-
tors.
(b) REPORT.—A report based upon the study conducted pursuant
to subsection (a) shall be submitted to the Committee on Banking,
Housing, and Urban Affairs of the Senate, and the Committee
on Financial Services of the House of Representatives not later
than 6 months after the date of enactment of this Act.
SEC. 704. STUDY OF ENFORCEMENT ACTIONS.
(a) STUDY REQUIRED.—The Commission shall review and ana-
lyze all enforcement actions by the Commission involving violations
of reporting requirements imposed under the securities laws, and
restatements of financial statements, over the 5-year period pre-
ceding the date of enactment of this Act, to identify areas of
reporting that are most susceptible to fraud, inappropriate manipu-
lation, or inappropriate earnings management, such as revenue
recognition and the accounting treatment of off-balance sheet special
purpose entities.
(b) REPORT
REQUIRED.—The Commission shall report its
findings to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate, not later than 180 days after the
date of enactment of this Act, and shall use such findings to revise
its rules and regulations, as necessary. The report shall include
a discussion of regulatory or legislative steps that are recommended
or that may be necessary to address concerns identified in the
study.
SEC. 705. STUDY OF INVESTMENT BANKS.
(a) GAO STUDY.—The Comptroller General of the United States
shall conduct a study on whether investment banks and financial
advisers assisted public companies in manipulating their earnings
and obfuscating their true financial condition. The study should
address the rule of investment banks and financial advisers—
(1) in the collapse of the Enron Corporation, including
with respect to the design and implementation of derivatives
transactions, transactions involving special purpose vehicles,
and other financial arrangements that may have had the effect
of altering the company’s reported financial statements in ways
that obscured the true financial picture of the company;
(2) in the failure of Global Crossing, including with respect
to transactions involving swaps of fiberoptic cable capacity,
in the designing transactions that may have had the effect
of altering the company’s reported financial statements in ways
that obscured the true financial picture of the company; and
(3) generally, in creating and marketing transactions which
may have been designed solely to enable companies to manipu-
late revenue streams, obtain loans, or move liabilities off
balance sheets without altering the economic and business risks
faced by the companies or any other mechanism to obscure
a company’s financial picture.
(b) REPORT.—The Comptroller General shall report to Congress
not later than 180 days after the date of enactment of this Act
on the results of the study required by this section. The report
shall include a discussion of regulatory or legislative steps that
H. R. 3763—56
are recommended or that may be necessary to address concerns
identified in the study.
TITLE VIII—CORPORATE AND
CRIMINAL FRAUD ACCOUNTABILITY
SEC. 801. SHORT TITLE.
This title may be cited as the ‘‘Corporate and Criminal Fraud
Accountability Act of 2002’’.
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.
(a) IN GENERAL.—Chapter 73 of title 18, United States Code,
is amended by adding at the end the following:
‘‘§ 1519. Destruction, alteration, or falsification of records
in Federal investigations and bankruptcy
‘‘Whoever knowingly alters, destroys, mutilates, conceals, covers
up, falsifies, or makes a false entry in any record, document, or
tangible object with the intent to impede, obstruct, or influence
the investigation or proper administration of any matter within
the jurisdiction of any department or agency of the United States
or any case filed under title 11, or in relation to or contemplation
of any such matter or case, shall be fined under this title, impris-
oned not more than 20 years, or both.
‘‘§ 1520. Destruction of corporate audit records
‘‘(a)(1) Any accountant who conducts an audit of an issuer
of securities to which section 10A(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78j–1(a)) applies, shall maintain all audit
or review workpapers for a period of 5 years from the end of
the fiscal period in which the audit or review was concluded.
‘‘(2) The Securities and Exchange Commission shall promulgate,
within 180 days, after adequate notice and an opportunity for
comment, such rules and regulations, as are reasonably necessary,
relating to the retention of relevant records such as workpapers,
documents that form the basis of an audit or review, memoranda,
correspondence, communications, other documents, and records
(including electronic records) which are created, sent, or received
in connection with an audit or review and contain conclusions,
opinions, analyses, or financial data relating to such an audit or
review, which is conducted by any accountant who conducts an
audit of an issuer of securities to which section 10A(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies. The
Commission may, from time to time, amend or supplement the
rules and regulations that it is required to promulgate under this
section, after adequate notice and an opportunity for comment,
in order to ensure that such rules and regulations adequately
comport with the purposes of this section.
‘‘(b) Whoever knowingly and willfully violates subsection (a)(1),
or any rule or regulation promulgated by the Securities and
Exchange Commission under subsection (a)(2), shall be fined under
this title, imprisoned not more than 10 years, or both.
‘‘(c) Nothing in this section shall be deemed to diminish or
relieve any person of any other duty or obligation imposed by
Federal or State law or regulation to maintain, or refrain from
destroying, any document.’’.