(1) criteria that the Commission finds appro-
priate for the protection of investors by which for-
ward-looking statements concerning the future eco-
nomic performance of an issuer of securities reg-
istered under section 12 of the Securities Exchange
Act of 1934 will be deemed not to be in violation of
section 10(b) of that Act; and
(2) procedures by which courts shall timely dis-
miss claims against such issuers of securities based
on such forward-looking statements if such state-
ments are in accordance with any criteria under
paragraph (1).
(b) COMMISSION CONSIDERATIONS.—In developing
rules or legislative recommendations in accordance with
subsection (a), the Commission shall consider—
(1) appropriate limits to liability for forward-
looking statements;
(2) procedures for making a summary deter-
mination of the applicability of any Commission rule
for forward-looking statements early in a judicial
proceeding to limit protracted litigation and expan-
sive discovery;
(3) incorporating and reflecting the scienter re-
quirements applicable to implied private actions
under section 10(b); and
(4) providing clear guidance to issuers of secu-
rities and the judiciary.
(c) SECURITIES ACT AMENDMENT.—The Securities
and Exchange Act of 1934 (15 U.S.C. 78a et seq.), is
amended by adding at the end the following new section:
‘‘SEC. 39. APPLICATION OF SAFE HARBOR FOR FORWARD-
LOOKING STATEMENTS.
‘‘(a) IN GENERAL.—In any implied private action
arising under this title that alleges that a forward-looking
statement concerning the future economic performance of
an issuer registered under section 12 was materially false
or misleading, if a party making a motion in accordance
with subsection (b) requests a stay of discovery concerning
the claims or defenses of that party, the court shall grant
such a stay until it has ruled on any such motion.
‘‘(b) SUMMARY JUDGMENT MOTIONS.—Subsection
(a) shall apply to any motion for summary judgment made
by a defendant asserting that the forward-looking state-
ment was within the coverage of any rule which the Com-
mission may have adopted concerning such predictive
statements, if such motion is made not less than 60 days
after the plaintiff commences discovery in the action.
‘‘(c) DILATORY CONDUCT; DUPLICATIVE DISCOV-
ERY.—Notwithstanding subsection (a) or (b), the time
permitted for a plaintiff to conduct discovery under sub-
section (b) may be extended, or a stay of the proceedings
may be denied, if the court finds that—
‘‘(1) the defendant making a motion described
in subsection (b) engaged in dilatory or obstructive
conduct in taking or opposing any discovery; or
‘‘(2) a stay of discovery pending a ruling on a
motion under subsection (b) would be substantially
unfair to the plaintiff or other parties to the ac-
tion.’’.
SEC. 8. FRAUD DETECTION AND DISCLOSURE.
(a) IN GENERAL.—The Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) is amended by inserting im-
mediately after section 10 the following new section:
‘‘SEC. 10A. AUDIT REQUIREMENTS.
‘‘(a) IN GENERAL.—Each audit required pursuant to
this title of an issuer’s financial statements by an inde-
pendent public accountant shall include, in accordance
with generally accepted auditing standards, as may be
modified or supplemented from time to time by the Com-
mission—
‘‘(1) procedures designed to provide reasonable
assurance of detecting illegal acts that would have a
direct and material effect on the determination of fi-
nancial statement amounts;
‘‘(2) procedures designed to identify related
party transactions which are material to the finan-
cial statements or otherwise require disclosure there-
in; and
‘‘(3) an evaluation of whether there is substan-
tial doubt about the issuer’s ability to continue as a
going concern during the ensuing fiscal year.
‘‘(b) REQUIRED
RESPONSE
TO
AUDIT
DISCOV-
ERIES.—
‘‘(1) INVESTIGATION AND REPORT TO MANAGE-
MENT.—If, in the course of conducting an audit pur-
suant to this title to which subsection (a) applies,
the independent public accountant detects or other-
wise becomes aware of information indicating that
an illegal act (whether or not perceived to have a
material effect on the issuer’s financial statements)
has or may have occurred, the accountant shall, in
accordance with generally accepted auditing stand-
ards, 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 pos-
sible effect of the illegal act on the financial
statements of the issuer, including any contin-
gent monetary effects, such as fines, penalties,
and damages; and
‘‘(B) as soon as practicable, inform the ap-
propriate level of the issuer’s management and
assure that the issuer’s audit committee, or the
issuer’s board of directors in the absence of
such a committee, is adequately 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 REME-
DIAL ACTION.—If, having first assured itself that
the audit committee of the board of directors of the
issuer or the board (in the absence of an audit com-
mittee) is adequately informed with respect to illegal
acts that have been detected or have otherwise come
to the accountant’s attention in the course of such
accountant’s audit, the independent public account-
ant 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 auditor’s report, 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 di-
rectors 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 fur-
nished to the Commission. If the independent public
accountant fails to receive a copy of the notice be-
fore the expiration of the required 1-business-day pe-
riod, 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 re-
port given) not later than 1 business day follow-
ing such failure to receive notice.