I
107TH CONGRESS
2D SESSION
H. R. 5160
To promote corporate responsibility.
IN THE HOUSE OF REPRESENTATIVES
JULY 18, 2002
Mr. GEPHARDT (for himself, Mr. SHOWS, Mr. HOLDEN, Mr. PHELPS, Ms.
CARSON of Indiana, Mr. RANGEL, Mr. LAFALCE, Mr. CONYERS, Mr.
GEORGE MILLER of California, Mr. MATSUI, Ms. LEE, Mr. DICKS, Mr.
WAXMAN, Ms. SLAUGHTER, Mr. CARDIN, Mr. TIERNEY, Mr. LYNCH, Mr.
BONIOR, Mr. BARRETT of Wisconsin, and Mr. FRANK) introduced the fol-
lowing bill; which was referred to the Committee on Financial Services,
and in addition to the Committees on Ways and Means, the Judiciary,
and Education and the Workforce, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To promote corporate responsibility.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Business, Investors’, and Employees’ Bill of Rights Act
of 2002’’.
(b) TABLE OF CONTENTS.—The table of contents is
as follows:
Sec. 1. Short title and table of contents.
TITLE I—IMPOSING TOUGH CRIMINAL PENALTIES ON CORRUPT
CHIEF EXECUTIVE OFFICERS
Sec. 101. Criminal penalties for altering documents.
Sec. 102. Criminal penalties for defrauding shareholders of publicly traded
companies.
Sec. 103. Review of Federal sentencing guidelines for obstruction of justice and
extensive criminal fraud.
Sec. 104. Debts nondischargeable if incurred in violation of securities fraud
laws.
Sec. 105. Increased protection of employees wages under chapter 11 pro-
ceedings.
Sec. 106. Statute of limitations for securities fraud.
Sec. 107. Protection for employees of publicly traded companies who provide
evidence of fraud.
Sec. 108. Establishment of a Retirement Security Fraud Bureau.
Sec. 109. Criminal penalties for mail and wire fraud.
Sec. 110. Amendment to sentencing guidelines relating to certain white-collar
offenses.
Sec. 111. Temporary freeze authority for the Securities and Exchange Commis-
sion.
Sec. 112. Increased criminal penalties under Securities Exchange Act of 1934.
Sec. 113. Corporate responsibility for financial reports.
TITLE II—STOPPING OFFSHORE TAX HAVENS
Sec. 201. Prevention of corporate expatriation to avoid United States income
tax.
Sec. 202. Inclusion in income of certain deferred amounts of insiders of cor-
porations which expatriate to avoid United States income tax.
TITLE III—MAKING EXECUTIVES ACCOUNTABLE
Sec. 301. Performance-based compensation exception to $1,000,000 limitation
on deductible compensation not to apply in certain cases.
Sec. 302. Inclusion in gross income of funded deferred compensation of cor-
porate insiders if corporation funds defined contribution plan
with employer stock.
Sec. 303. Golden parachute excise tax to apply to deferred compensation paid
by corporation after major decline in stock value or corporation
declares bankruptcy.
Sec. 304. Governance practices to prohibit insider loans.
Sec. 305. Removal of unfit corporate officers.
Sec. 306. Disgorgement required.
Sec. 307. CEO and CFO accountability for disclosure.
Sec. 308. Increased compensation limit not to result in reduced benefits for the
nonhighly compensated.
Sec. 309. Matching contributions not taken into account for minimum contribu-
tion requirements under top-heavy plan rules.
TITLE IV—ASSURING THE INTEGRITY OF WALL STREET AND
RESTORING FAITH IN THE MARKETS
Subtitle A—Improving Corporate Governance and Providing Investors with
Honest Information
Sec. 401. Real-time disclosure of financial information.
Sec. 402. Improved transparency of corporate disclosures.
Sec. 403. Improvements in reporting on insider transactions and relationships.
Sec. 404. Analyst conflicts of interest.
Sec. 405. Independent directors and other corporate governance requirements.
Subtitle B—Strengthening Auditor Independence and Industry Oversight
CHAPTER 1—AUDITOR INDEPENDENCE
Sec. 411. Services outside the scope of practice of auditors.
Sec. 412. Preapproval requirements.
Sec. 413. Audit partner rotation.
Sec. 414. Auditor reports to audit committees.
Sec. 415. Conforming amendments.
Sec. 416. Conflicts of interest.
Sec. 417. Study of mandatory rotation of registered public accounting firms.
Sec. 418. Commission authority.
Sec. 419. Considerations by appropriate State regulatory authorities.
CHAPTER 2—INDUSTRY OVERSIGHT
Sec. 421. Auditor oversight.
Sec. 422. Improper influence on conduct of audits.
Sec. 423. Enhanced oversight of periodic disclosures by issuers.
Sec. 424. Retention of records.
Sec. 425. Authorization of appropriations of the Securities and Exchange Com-
mission.
Sec. 426. Enforcement of audit committee governance practices.
Sec. 427. Review of corporate governance practices.
Sec. 428. Study of enforcement actions.
Sec. 429. Study of credit rating agencies.
Sec. 430. Study of investment banks.
Sec. 431. Study of model rules for attorneys of issuers.
Subtitle C—General Provisions
Sec. 441. Enforcement authority.
Sec. 442. Exclusion for investment companies.
Sec. 443. Definitions.
TITLE V—ENHANCING PENSION PROTECTION FOR EMPLOYEES
Subtitle A—Improvements in Disclosure
Sec. 501. Pension benefit information.
Sec. 502. Immediate warning of excessive stock holdings.
Sec. 503. Additional fiduciary protections relating to lockdowns.
Sec. 504. Report to participants and beneficiaries of trades in employer securi-
ties.
Sec. 505. Provision to participants and beneficiaries of material investment in-
formation in accurate form.
Sec. 506. Enforcement of information and disclosure requirements.
Subtitle B—Diversification Requirements
Sec. 511. Freedom to make investment decisions with plan assets.
Sec. 512. Effective date of subtitle.
Subtitle C—Employee Representation
Sec. 521. Participation of participants in trusteeship of individual account
plans.
Subtitle D—Executive Parity
Sec. 531. Insider trades during pension fund blackout periods prohibited.
Subtitle E—Increased Accountability
Sec. 541. Bonding or insurance adequate to protect interest of participants and
beneficiaries.
Sec. 542. Liability for breach of fiduciary duty.
Sec. 543. Preservation of rights or claims.
Sec. 544. Office of Pension Participant Advocacy.
Sec. 545. Additional criminal penalties.
Sec. 546. Study regarding insurance system for individual account plans.
Subtitle F—Investment Advice for Participants and Beneficiaries
Sec. 551. Independent investment advice.
Sec. 552. Tax treatment of qualified retirement planning services.
Subtitle G—General Provisions
Sec. 561. General effective date of title.
Sec. 562. Plan amendments.
TITLE 
I—IMPOSING 
TOUGH
CRIMINAL 
PENALTIES 
ON
CORRUPT CHIEF EXECUTIVE
OFFICERS
SEC. 101. CRIMINAL PENALTIES FOR ALTERING DOCU-
MENTS.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by adding at the end the fol-
lowing:
‘‘§ 1519. Destruction, alteration, or falsification of
records in Federal investigations and
bankruptcy
‘‘Whoever knowingly alters, destroys, mutilates, con-
ceals, covers up, falsifies, or makes a false entry in any
record, document, or tangible object with the intent to im-
pede, obstruct, or influence the investigation or proper ad-
ministration 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,
imprisoned not more than 20 years, or both.
‘‘§ 1520. Destruction of corporate audit records
‘‘(a) Any accountant who conducts an audit of an
issuer of securities to which section 10A(a) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies,
shall maintain all documents (including electronic docu-
ments) sent, received, or created in connection with any
audit, review, or other engagement for such issuer for a
period of 20 years from the end of the fiscal period in
which the audit, review, or other engagement was con-
cluded.
‘‘(b) Whoever knowingly and willfully violates sub-
section (a) shall be fined under this title, imprisoned not
more than 5 years, or both.
‘‘(c) Nothing in this section shall be deemed to dimin-
ish or relieve any person of any other duty or obligation,
imposed by Federal or State law or regulation, to main-
tain, or refrain from destroying, any document.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 73 of title 18, United States
Code, is amended by adding at the end the following new
items:
‘‘1519. Destruction, alteration, or falsification of records in Federal investiga-
tions and bankruptcy.
‘‘1520. Destruction of corporate audit records.’’.
SEC. 102. CRIMINAL PENALTIES FOR DEFRAUDING SHARE-
HOLDERS OF PUBLICLY TRADED COMPANIES.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the fol-
lowing:
‘‘§ 1348. Securities fraud
‘‘Whoever knowingly executes, or attempts to execute,
a scheme or artifice—
‘‘(1) to defraud any person in connection with
any security registered under section 12 or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l,
78o(d)) or section 6 of the Securities Act of 1933
(15 U.S.C. 77f); or
‘‘(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any money
or property in connection with the purchase or sale
of any security registered under section 12 or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C.
78l, 78o(d)) or section 6 of the Securities Act of
1933 (15 U.S.C. 77f),
shall be fined under this title, or imprisoned not more than
25 years, or both.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 63 of title 18, United States
Code, is amended by adding at the end the following new
item:
‘‘1348. Securities fraud.’’.
SEC. 103. REVIEW OF FEDERAL SENTENCING GUIDELINES
FOR OBSTRUCTION OF JUSTICE AND EXTEN-
SIVE CRIMINAL FRAUD.
Pursuant to section 994 of title 28, United States
Code, and in accordance with this section, the United
States Sentencing Commission shall review and amend, as
appropriate, the Federal Sentencing Guidelines and re-
lated policy statements to ensure that—
(1) the guideline offense levels and enhance-
ments for an obstruction of justice offense are ade-
quate in cases where documents or other physical
evidence are actually destroyed or fabricated;
(2) the guideline offense levels and enhance-
ments for violations of section 1519 or 1520 of title
18, United States Code, as added by this Act, are
sufficient to deter and punish that activity;
(3) the guideline offense levels and enhance-
ments under United States Sentencing Guideline
2B1.1 (as in effect on the date of enactment of this
Act) are sufficient for a fraud offense when the
number of victims adversely involved is significantly
greater than 50; and
(4) a specific offense characteristic enhancing
sentencing is provided under United States Sen-
tencing Guideline 2B1.1 (as in effect on the date of
enactment of this Act) for a fraud offense that en-
dangers the solvency or financial security of 1 or
more victims.
SEC. 104. DEBTS NONDISCHARGEABLE IF INCURRED IN
VIOLATION OF SECURITIES FRAUD LAWS.
Section 523(a) of title 11, United States Code, is
amended—
(1) in paragraph (17), by striking ‘‘or’’ after
the semicolon;
(2) in paragraph (18), by striking the period at
the end and inserting ‘‘; or’’; and
(3) by adding at the end, the following:
‘‘(19) that—
‘‘(A) arises under a claim relating to—
‘‘(i) the violation of any of the Fed-
eral securities laws (as that term is defined
in section 3(a)(47) of the Securities Ex-
change 
Act 
of 
1934 
(15 
U.S.C.
78c(a)(47)), any State securities laws, or
any regulations or orders issued under
such Federal or State securities laws; or
‘‘(ii) common law fraud, deceit, or
manipulation in connection with the pur-
chase or sale of any security; and
‘‘(B) results, in relation to any claim de-
scribed in subparagraph (A), from—
‘‘(i) any judgment, order, consent
order, or decree entered in any Federal or
State judicial or administrative proceeding;
‘‘(ii) any settlement agreement en-
tered into by the debtor; or
‘‘(iii) any court or administrative
order for any damages, fine, penalty, cita-
tion, restitutionary payment, disgorgement
payment, attorney fee, cost, or other pay-
ment owed by the debtor.’’.
SEC. 105. INCREASED PROTECTION OF EMPLOYEES WAGES
UNDER CHAPTER 11 PROCEEDINGS.
Section 507(a) of title 11, United States Code, is
amended—
(1) in paragraph (3) by striking ‘‘90’’ and in-
serting ‘‘180’’, and
(2) in paragraphs (3) and (4) by striking
‘‘$4,000’’ each place it appears and inserting
‘‘$10,000’’.
SEC. 106. STATUTE OF LIMITATIONS FOR SECURITIES
FRAUD.
(a) IN GENERAL.—Section 1658 of title 28, United
States Code, is amended—
(1) by inserting ‘‘(a)’’ before ‘‘Except’’; and
(2) by adding at the end the following:
‘‘(b) Notwithstanding subsection (a), a private right
of action that involves a claim of fraud, deceit, manipula-
tion, or deliberate or reckless disregard of a regulatory re-
quirement concerning the securities laws, as defined in
section 3(a)(47) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(47)), may be brought not later than
the earlier of—
‘‘(1) 5 years after the date on which the alleged
violation occurred; or
‘‘(2) 3 years after the date on which the alleged
violation was discovered.’’.
(b) EFFECTIVE DATE.—The limitations period pro-
vided by section 1658(b) of title 28, United States Code,
as added by this section, shall apply to all proceedings ad-
dressed by this section that are commenced on or after
the date of enactment of this Act.
SEC. 107. PROTECTION FOR EMPLOYEES OF PUBLICLY
TRADED COMPANIES WHO PROVIDE EVI-
DENCE OF FRAUD.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by inserting after section 1514
the following:
‘‘§ 1514A. Civil action to protect against retaliation in
fraud cases
‘‘(a) WHISTLEBLOWER PROTECTION FOR EMPLOY-
EES OF PUBLICLY TRADED COMPANIES.—No company
with securities registered under section 6 of the Securities
Act of 1933 (15 U.S.C. 77f) or section 12 or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l,
78o(d)), or any officer, employee, contractor, subcon-
tractor, or agent of such company, may discharge, demote,
suspend, threaten, harass, or in any other manner dis-
criminate against an employee in the terms and conditions
of employment because of any lawful act done by the
employee—
‘‘(1) to provide information, cause information
to be provided, or otherwise assist in an investiga-
tion regarding any conduct which the employee rea-
sonably believes constitutes a violation of section
1341, 1343, 1344, or 1348, any rule or regulation
of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against
shareholders, when the information or assistance is
provided to or the investigation is conducted by—
‘‘(A) a Federal regulatory or law enforce-
ment agency;
‘‘(B) any Member of Congress or any com-
mittee of Congress; or
‘‘(C) a person with supervisory authority
over the employee (or such other person work-
ing for the employer who has the authority to
investigate, discover, or terminate misconduct);
or
‘‘(2) to file, cause to be filed, testify, participate
in, or otherwise assist in a proceeding filed or about
to be filed (with any knowledge of the employer) re-
lating to an alleged violation of section 1341, 1343,
1344, or 1348, any rule or regulation of the Securi-
ties and Exchange Commission, or any provision of
Federal law relating to fraud against shareholders.
‘‘(b) ELECTION OF ACTION.—
‘‘(1) IN GENERAL.—A person who alleges dis-
charge or other discrimination by any person in vio-
lation of subsection (a) may seek relief under sub-
section (c), by—
‘‘(A) filing a complaint with the Secretary
of Labor; or
‘‘(B) bringing an action at law or equity in
the appropriate district court of the United
States.
‘‘(2) PROCEDURE.—
‘‘(A) IN GENERAL.—An action under para-
graph (1)(A) shall be governed under the rules
and procedures set forth in section 42121(b) of
title 49, United States Code.
‘‘(B) 
EXCEPTION.—Notification 
made
under section 42121(b)(1) of title 49, United
States Code, shall be made to the person named
in the complaint and to the employer.
‘‘(C) BURDENS
OF
PROOF.—An action
brought under paragraph (1)(B) shall be gov-
erned by the legal burdens of proof set forth in
section 42121(b) of title 49, United States
Code.
‘‘(D) STATUTE OF LIMITATIONS.—An ac-
tion under paragraph (1) shall be commenced
not later than 180 days after the date on which
the violation occurs.
‘‘(c) REMEDIES.—
‘‘(1) IN GENERAL.—An employee prevailing in
any action under subsection (b)(1) (A) or (B) shall
be entitled to all relief necessary to make the em-
ployee whole.
‘‘(2) COMPENSATORY DAMAGES.—Relief for any
action under paragraph (1) shall include—
‘‘(A) reinstatement with the same seniority
status that the employee would have had, but
for the discrimination;
‘‘(B) 2 times the amount of back pay, with
interest; and
‘‘(C) compensation for any special damages
sustained as a result of the discrimination, in-
cluding litigation costs, expert witness fees, and
reasonable attorney fees.
‘‘(3) PUNITIVE DAMAGES.—
‘‘(A) IN GENERAL.—In a case in which the
finder of fact determines that the protected
conduct of the employee under subsection (a)
involved a substantial risk to the health, safety,
or welfare of shareholders of the employer or
the public, the finder of fact may award puni-
tive damages to the employee.
‘‘(B) 
FACTORS.—In 
determining 
the
amount, if any, to be awarded under this para-
graph, the finder of fact shall take into
account—
‘‘(i) the significance of the informa-
tion or assistance provided by the employee
under subsection (a) and the role of the
employee in advancing any investigation,
proceeding, congressional inquiry or action,
or internal remedial process, or in pro-
tecting the health, safety, or welfare of
shareholders of the employer or of the pub-
lic;
‘‘(ii) the nature and extent of both the
actual and potential discrimination to
which the employee was subjected as a re-
sult of the protected conduct of the em-
ployee under subsection (a); and
‘‘(iii) the nature and extent of the risk
to the health, safety, or welfare of share-
holders or the public under subparagraph
(A).
‘‘(d) RIGHTS RETAINED BY EMPLOYEE.—
‘‘(1) OTHER REMEDIES UNAFFECTED.—Noth-
ing in this section shall be deemed to diminish the
rights, privilege, or remedies of any employee under
any Federal or State law, or under any collective
bargaining agreement.
‘‘(2) VOLUNTARY
ADJUDICATION.—No em-
ployee may be compelled to adjudicate his or her
rights under this section pursuant to an arbitration
agreement.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 73 of title 18, United States
Code, is amended by inserting after the item relating to
section 1514 the following new item:
‘‘1514A. Civil action to protect against retaliation in fraud cases.’’.
SEC. 108. ESTABLISHMENT OF A RETIREMENT SECURITY
FRAUD BUREAU.
(a) IN GENERAL.—Part II of title 28, United States
Code, is amended by adding at the end the following:
‘‘CHAPTER 40A—RETIREMENT SECURITY
FRAUD BUREAU
‘‘§ 600. Retirement Security Fraud Bureau
‘‘(a) IN GENERAL.—The Attorney General shall es-
tablish a Retirement Security Fraud Bureau which shall
be a bureau in the Department of Justice.
‘‘(b) DIRECTOR.—
‘‘(1) APPOINTMENT.—The head of the Retire-
ment Security Fraud Bureau shall be the Director
who shall be appointed by the Attorney General.
‘‘(2) DUTIES
AND
POWERS.—The duties and
powers of the Director are as follows:
‘‘(A) Advise and make recommendations
on matters relating to pension and securities
fraud, in general, to the Assistant Attorney
General of the Criminal Division.
‘‘(B) Maintain a government-wide data ac-
cess service, with access, in accordance with ap-
plicable legal requirements, to the following:
‘‘(i) Information collected by the De-
partment of Justice, the Department of
Labor, the Department of the Treasury,
and the Securities and Exchange Commis-
sion on pension and securities fraud mat-
ters.
‘‘(ii) Other privately and publicly
available information on pension and secu-
rities fraud-related activities.
‘‘(C) Analyze and disseminate the available
data in accordance with applicable legal require-
ments, policies, and guidelines established by
the Attorney General to—
‘‘(i) identify possible criminal activity
to appropriate Federal, State, local, and
foreign law enforcement agencies;
‘‘(ii) support ongoing criminal pension
and securities fraud investigations;
‘‘(iii) determine emerging trends and
methods in pension and securities fraud
matters; and
‘‘(iv) support government initiatives
against pension and securities fraud-re-
lated activities.
‘‘(D) Furnish research, analytical, and in-
formational services to financial institutions, to
appropriate Federal regulatory agencies with
regard to financial institutions, and to appro-
priate Federal, State, local, and foreign law en-
forcement authorities, in accordance with poli-
cies and guidelines established by the Depart-
ment of Justice, in the interest of detection,
prevention, and prosecution of pension and se-
curities fraud-related crimes.
‘‘(E) Establish and maintain a special unit
dedicated to assisting Federal, State, local, and
foreign law enforcement and regulatory authori-
ties in combating pension and securities fraud.
‘‘(F) Such other duties and powers as the
Attorney General may delegate or prescribe.
‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated for the Retirement Se-
curity Fraud Bureau such sums as may be necessary for
fiscal years 2003, 2004, 2005, and 2006.’’.
(b) CLERICAL AMENDMENT.—The table of chapters
at the beginning of part II of title 28, United States Code,
is amended by adding at the end the following new item:
‘‘40A. Retirement Security Fraud Bureau ...............................
600’’.
SEC. 109. CRIMINAL PENALTIES FOR MAIL AND WIRE
FRAUD.
(a) MAIL FRAUD.—Section 1341 of title 18, United
States Code, is amended by striking ‘‘five years’’ and in-
serting ‘‘20 years’’.
(b) WIRE FRAUD.—Section 1343 of title 18, United
States Code, is amended by striking ‘‘five years’’ and in-
serting ‘‘20 years’’.
SEC. 110. AMENDMENT TO SENTENCING GUIDELINES RE-
LATING 
TO 
CERTAIN 
WHITE-COLLAR 
OF-
FENSES.
(a) DIRECTIVE
TO
THE
UNITED
STATES
SEN-
TENCING COMMISSION.—Pursuant to its authority under
section 994(p) of title 18, United States Code, and in ac-
cordance with this section, the United States Sentencing
Commission shall review and, as appropriate, amend the
Federal Sentencing Guidelines and related policy state-
ments to implement the provisions of this title.
(b) REQUIREMENTS.—In carrying out this section,
the Sentencing Commission shall—
(1) ensure that the sentencing guidelines and
policy statements reflect the serious nature of the of-
fenses and the penalties set forth in this title, the
growing incidence of serious fraud offenses which
are identified above, and the need to modify the sen-
tencing guidelines and policy statements to deter,
prevent, and punish such offenses;
(2) consider the extent to which the guidelines
and policy statements adequately address—
(A) whether the guideline offense levels
and enhancements for violations of the sections
amended by this title are sufficient to deter and
punish such offenses, and specifically, are ade-
quate in view of the statutory increases in pen-
alties contained in this title; and
(B) whether a specific offense char-
acteristic should be added in United States
Sentencing Guideline section 2B1.1 in order to
provide for stronger penalties for fraud when
the crime is committed by a corporate officer or
director;
(3) assure reasonable consistency with other
relevant directives and sentencing guidelines;
(4) account for any additional aggravating or
mitigating circumstances that might justify excep-
tions to the generally applicable sentencing ranges;
(5) make any necessary conforming changes to
the sentencing guidelines; and
(6) assure that the guidelines adequately meet
the purposes of sentencing as set forth in section
3553(a)(2) of title 18, United States Code.
SEC. 111. TEMPORARY FREEZE AUTHORITY FOR THE SECU-
RITIES AND EXCHANGE COMMISSION.
(a) IN GENERAL.—The Securities Exchange Act of
1934 is amended by inserting after section 21C(c)(2) (15
U.S.C. 78u–3(c)(2)) the following:
‘‘(3) TEMPORARY
FREEZE.—(A) Whenever,
during the course of a lawful investigation involving
possible violations of the Federal securities laws by
an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons,
agents, or employees, it shall appear to the Commis-
sion that it is likely that the issuer will make ex-
traordinary payments (whether compensation or oth-
erwise) to any of the foregoing persons, the Commis-
sion may petition a Federal district court for a tem-
porary order requiring the issuer to escrow, subject
to court supervision, those payments in an interest-
bearing account for 45 days. Such an order shall be
entered, if the court finds that the issuer is likely to
make such extraordinary payments, only after notice
and opportunity for a hearing, unless the court de-
termines that notice and hearing prior to entry of
the order would be impracticable or contrary to the
public interest. A temporary order shall become ef-
fective immediately and shall be served upon the
parties subject to it and, unless set aside, limited or
suspended by court of competent jurisdiction, shall
remain effective and enforceable for 45 days. The
period of the order may be extended by the court
upon good cause shown for not longer than 45 days,
provided that the combined period of the order not
exceed 90 days.
‘‘(B) If the individual affected by such order is
charged with violations of the Federal securities laws
by the expiration of the 45 days (or the expiration
of any extended period), the escrow would continue,
subject to court approval, until the conclusion of any
legal proceedings. The issuer and the affected direc-
tor, officer, partner, controlling person, agent or em-
ployee would have the right to petition the court for
review of the order. If the individual affected by
such order is not charged, the escrow will terminate
at the expiration of the 45 days (or the expiration
of any extended period), and the payments (with ac-
crued interest) returned to the issuer.’’.
(b) TECHNICAL AMENDMENT.—Section 21C(c)(2) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u–
3(c)(2)) is amended by striking ‘‘This’’ and inserting
‘‘Paragraph (1) of this’’.
SEC. 112. INCREASED CRIMINAL PENALTIES UNDER SECU-
RITIES EXCHANGE ACT OF 1934.
Section 32(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78ff(a)) is amended—
(1) by striking ‘‘$1,000,000, or imprisoned not
more than 10 years’’ and inserting ‘‘$5,000,000, or
imprisoned not more than 20 years’’; and
(2) by striking ‘‘$2,500,000’’ and inserting
‘‘$25,000,000’’.
SEC. 113. CORPORATE RESPONSIBILITY FOR FINANCIAL
REPORTS.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the fol-
lowing:
‘‘§ 1348. Failure of corporate officers to certify finan-
cial reports
‘‘(a) CERTIFICATION OF PERIODIC FINANCIAL RE-
PORTS.—Each periodic report containing financial state-
ments filed by an issuer with the Securities Exchange
Commission pursuant to section 13(a) or 15(d) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)) shall be accompanied by a written statement by
the chairman of the board, chief executive officer, and
chief financial officer (or equivalent thereof) of the issuer.
‘‘(b) CONTENT.—The statement required under sub-
section (a) shall certify the appropriateness of the finan-
cial statements and disclosures contained in the periodic
report or financial report, and that those financial state-
ments and disclosures fairly present, in all material re-
spects, the operations and financial condition of the issuer.
‘‘(c) CRIMINAL PENALTIES.—Notwithstanding any
other provision of law—
‘‘(1) any person who recklessly and knowingly
violates any provision of this section shall upon con-
viction be fined not more than $1,000,000, or im-
prisoned not more than 10 years, or both; or
‘‘(2) any person who willfully violates any provi-
sion of this section shall upon conviction be fined not
more than $5,000,000, or imprisoned not more than
20 years, or both.’’.
(b) TECHNICAL AND CONFORMING AMENDMENT.—
The section analysis for chapter 63 of title 18, United
States Code, is amended by adding at the end the fol-
lowing:
‘‘1348. Failure of corporate officers to certify financial reports.’’.
TITLE II—STOPPING OFFSHORE
TAX HAVENS
SEC. 201. PREVENTION OF CORPORATE EXPATRIATION TO
AVOID UNITED STATES INCOME TAX.
(a) IN GENERAL.—Paragraph (4) of section 7701(a)
of the Internal Revenue Code of 1986 (defining domestic)
is amended to read as follows:
‘‘(4) DOMESTIC.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘domestic’ when ap-
plied to a corporation or partnership means cre-
ated or organized in the United States or under
the law of the United States or of any State
unless, in the case of a partnership, the Sec-
retary provides otherwise by regulations.
‘‘(B) CERTAIN
CORPORATIONS
TREATED
AS DOMESTIC.—
‘‘(i) IN GENERAL.—The acquiring cor-
poration in a corporate expatriation trans-
action shall be treated as a domestic cor-
poration.
‘‘(ii) 
CORPORATE
EXPATRIATION
TRANSACTION.—For purposes of this sub-
paragraph, the term ‘corporate expatria-
tion transaction’ means any transaction
if—
‘‘(I) a nominally foreign corpora-
tion (referred to in this subparagraph
as the ‘acquiring corporation’) ac-
quires, as a result of such transaction,
directly or indirectly substantially all
of the properties held directly or indi-
rectly by a domestic corporation, and
‘‘(II) immediately after the trans-
action, more than 80 percent of the
stock (by vote or value) of the acquir-
ing corporation is held by former
shareholders of the domestic corpora-
tion by reason of holding stock in the
domestic corporation.
‘‘(iii) LOWER STOCK OWNERSHIP RE-
QUIREMENT
IN
CERTAIN
CASES.—Sub-
clause (II) of clause (ii) shall be applied by
substituting ‘50 percent’ for ‘80 percent’
with respect to any nominally foreign cor-
poration if—
‘‘(I) such corporation does not
have substantial business activities
(when compared to the total business
activities of the expanded affiliated
group) in the foreign country in which
or under the law of which the corpora-
tion is created or organized, and
‘‘(II) the stock of the corporation
is publicly traded and the principal
market for the public trading of such
stock is in the United States.
‘‘(iv) PARTNERSHIP TRANSACTIONS.—
The term ‘corporate expatriation trans-
action’ includes any transaction if—
‘‘(I) a nominally foreign corpora-
tion (referred to in this subparagraph
as the ‘acquiring corporation’) ac-
quires, as a result of such transaction,
directly or indirectly properties consti-
tuting a trade or business of a domes-
tic partnership,
‘‘(II) immediately after the trans-
action, more than 80 percent of the
stock (by vote or value) of the acquir-
ing corporation is held by former
partners of the domestic partnership
or related foreign partnerships (deter-
mined without regard to stock of the
acquiring corporation which is sold in
a public offering related to the trans-
action), and
‘‘(III) the acquiring corporation
meets the requirements of subclauses
(I) and (II) of clause (iii).
‘‘(v) SPECIAL RULES.—For purposes
of this subparagraph—
‘‘(I) a series of related trans-
actions shall be treated as 1 trans-
action, and
‘‘(II) stock held by members of
the expanded affiliated group which
includes the acquiring corporation
shall not be taken into account in de-
termining ownership.
‘‘(vi) OTHER DEFINITIONS.—For pur-
poses of this subparagraph—
‘‘(I) NOMINALLY FOREIGN COR-
PORATION.—The term ‘nominally for-
eign corporation’ means any corpora-
tion which would (but for this sub-
paragraph) be treated as a foreign
corporation.
‘‘(II) 
EXPANDED
AFFILIATED
GROUP.—The term ‘expanded affili-
ated group’ means an affiliated group
(as defined in section 1504(a) without
regard to section 1504(b)).
‘‘(III) RELATED FOREIGN PART-
NERSHIP.—A foreign partnership is
related to a domestic partnership if
they are under common control (with-
in the meaning of section 482), or
they shared the same trademark or
tradename.’’
(b) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendment made by
this section shall apply to corporate expatriation
transactions completed after September 11, 2001.
(2) SPECIAL RULE.—The amendment made by
this section shall also apply to corporate expatriation
transactions completed on or before September 11,
2001, but only with respect to taxable years of the
acquiring corporation beginning after December 31,
2003.
SEC. 202. INCLUSION IN INCOME OF CERTAIN DEFERRED
AMOUNTS OF INSIDERS OF CORPORATIONS
WHICH 
EXPATRIATE 
TO 
AVOID 
UNITED
STATES INCOME TAX.
(a) IN GENERAL.—Part II of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically included in gross income) is amended by
adding at the end the following new section:
‘‘SEC. 91. UNREALIZED GAIN ON STOCK OPTIONS OF INSID-
ERS OF CORPORATIONS WHICH EXPATRIATE
TO AVOID UNITED STATES INCOME TAX.
‘‘(a) IN GENERAL.—In the case of a corporate insider
of any expatriate corporation, the gross income of such
insider (for the taxable year during which such corpora-
tion becomes an expatriate corporation) shall include as
ordinary income the net unrealized built-in gain on options
held by such insider to acquire stock in such corporation
or in any member of the expanded affiliated group which
includes such corporation. Proper adjustments shall be
made in the amount of any gain or loss subsequently real-
ized with respect to such options for any amount included
in gross income under the preceding sentence.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) CORPORATE
INSIDER.—The term ‘cor-
porate insider’ means, with respect to a corporation,
any individual who is subject to the requirements of
section 16(a) of the Securities Exchange Act of
1934 with respect to such corporation.
‘‘(2) EXPATRIATE
CORPORATION.—The term
‘expatriate corporation’ means the acquiring cor-
poration which is treated as a domestic corporation
under section 7701(a)(4)(B).
‘‘(3) NET REALIZED BUILT-IN GAIN.—The term
‘net unrealized built-in gain’ means, with respect to
options to acquire stock in any corporation, the
amount which would be required to be included in
gross income were such options exercised.
‘‘(4) EXPANDED
AFFILIATED
GROUP.—The
term ‘expanded affiliated group’ means an affiliated
group (as defined in section 1504(a) without regard
to section 1504(b)).’’
(b) CLERICAL AMENDMENT.—The table of sections
for such part II is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 91. Unrealized gain on stock options of insiders of corpora-
tions which expatriate to avoid united states income
tax..’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to corporate expatria-
tion transactions completed after September 11, 2001,
and to taxable years ending after such date.
TITLE III—MAKING EXECUTIVES
ACCOUNTABLE
SEC. 301. PERFORMANCE-BASED COMPENSATION EXCEP-
TION TO $1,000,000 LIMITATION ON DEDUCT-
IBLE COMPENSATION NOT TO APPLY IN CER-
TAIN CASES.
(a) IN GENERAL.—Paragraph (4) of section 162(m)
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph:
‘‘(G) CERTAIN FACTORS NOT PERMITTED
TO BE TAKEN INTO ACCOUNT IN DETERMINING
WHETHER PERFORMANCE GOALS ARE MET.—
Subparagraph (C) shall not apply if, in deter-
mining whether the performance goals are met,
any of the following are taken into account:
‘‘(i) Cost savings as a result of
changes to any qualified employer plan (as
defined in section 4972(d)).
‘‘(ii) Excess assets of such a plan or
earnings thereon.
‘‘(iii) Any excess of the amount as-
sumed to be the return on the assets of
such a plan over the actual return on such
assets.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 302. INCLUSION IN GROSS INCOME OF FUNDED DE-
FERRED COMPENSATION OF CORPORATE IN-
SIDERS IF CORPORATION FUNDS DEFINED
CONTRIBUTION 
PLAN 
WITH 
EMPLOYER
STOCK.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new section:
‘‘SEC. 409A. DENIAL OF DEFERRAL FOR FUNDED DEFERRED
COMPENSATION OF CORPORATE INSIDERS IF
CORPORATION FUNDS DEFINED CONTRIBU-
TION PLAN WITH EMPLOYER STOCK.
‘‘(a) IN GENERAL.—If an employer maintains a de-
fined contribution plan to which employer contributions
are made in the form of employer stock and such employer
maintains a funded deferred compensation plan—
‘‘(1) compensation of any corporate insider
which is deferred under such funded deferred com-
pensation plan shall be included in the gross income
of the insider or beneficiary for the 1st taxable year
in which there is no substantial risk of forfeiture of
the rights to such compensation, and
‘‘(2) the tax treatment of any amount made
available under the plan to a corporate insider or
beneficiary shall be determined under section 72 (re-
lating to annuities, etc.).
‘‘(b) FUNDED DEFERRED COMPENSATION PLAN.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘funded deferred
compensation plan’ means any plan providing for the
deferral of compensation unless—
‘‘(A) the employee’s rights to the com-
pensation deferred under the plan are no great-
er than the rights of a general creditor of the
employer, and
‘‘(B) all amounts set aside (directly or in-
directly) for purposes of paying the deferred
compensation, and all income attributable to
such amounts, remain (until made available to
the participant or other beneficiary) solely the
property of the employer (without being re-
stricted to the provision of benefits under the
plan), and
‘‘(C) the amounts referred to in subpara-
graph (B) are available to satisfy the claims of
the employer’s general creditors at all times
(not merely after bankruptcy or insolvency).
Such term shall not include a qualified employer
plan.
‘‘(2) SPECIAL RULES.—
‘‘(A) EMPLOYEE’S RIGHTS.—A plan shall
be treated as failing to meet the requirements
of paragraph (1)(A) unless—
‘‘(i) the compensation deferred under
the plan is paid only upon separation from
service, death, or at a specified time (or
pursuant to a fixed schedule), and
‘‘(ii) the plan does not permit the ac-
celeration of the time such deferred com-
pensation is paid by reason of any event.
If the employer and employee agree to a modi-
fication of the plan that accelerates the time for
payment of any deferred compensation, then all
compensation previously deferred under the
plan shall be includible in gross income for the
taxable year during which such modification
takes effect and the taxpayer shall pay interest
at the underpayment rate on the underpay-
ments that would have occurred had the de-
ferred compensation been includible in gross in-
come when deferred.
‘‘(B) CREDITOR’S RIGHTS.—A plan shall
be treated as failing to meet the requirements
of paragraph (1)(B) with respect to amounts
set aside in a trust unless—
‘‘(i) the employee has no beneficial in-
terest in the trust,
‘‘(ii) assets in the trust are available
to satisfy claims of general creditors at all
times (not merely after bankruptcy or in-
solvency), and
‘‘(iii) there is no factor (such as the
location of the trust outside the United
States) that would make it more difficult
for general creditors to reach the assets in
the trust than it would be if the trust as-
sets were held directly by the employer in
the United States.
‘‘(c) CORPORATE INSIDER.—For purposes of this sec-
tion, the term ‘corporate insider’ means, with respect to
a corporation, any individual who is subject to the require-
ments of section 16(a) of the Securities Exchange Act of
1934 with respect to such corporation.
‘‘(d) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) PLAN INCLUDES ARRANGEMENTS, ETC.—
The term ‘plan’ includes any agreement or arrange-
ment.
‘‘(2) SUBSTANTIAL RISK OF FORFEITURE.—The
rights of a person to compensation are subject to a
substantial risk of forfeiture if such person’s rights
to such compensation are conditioned upon the fu-
ture performance of substantial services by any indi-
vidual.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such subpart A is amended by adding at the end the
following new item:
‘‘Sec. 409A. Denial of deferral for funded deferred compensation
of corporate insiders if corporation funds defined
contribution plan with employer stock.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts deferred after the date
of the enactment of this Act.
SEC. 303. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO
DEFERRED COMPENSATION PAID BY COR-
PORATION AFTER MAJOR DECLINE IN STOCK
VALUE OR CORPORATION DECLARES BANK-
RUPTCY.
(a) IN GENERAL.—Section 4999 of the Internal Rev-
enue Code of 1986 (relating to golden parachute pay-
ments) is amended by redesignating subsection (c) as sub-
section (d) and by inserting after subsection (b) the fol-
lowing new subsection:
‘‘(c) TAX TO APPLY TO DEFERRED COMPENSATION
PAID AFTER MAJOR STOCK VALUE DECLINE OR BANK-
RUPTCY.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘excess parachute payment’ includes
severance pay, and any other payment of deferred
compensation, which is received by a corporate in-
sider after the date that the insider ceases to be em-
ployed by the corporation if—
‘‘(A) there is at least a 75-percent decline
in the value of the stock in such corporation
during the 1-year period ending on such date,
or
‘‘(B) such corporation becomes a debtor in
a title 11 or similar case (as defined in section
368(a)(3)(A)) during the 180-day period begin-
ning 90 days before such date.
Such term shall not include any payment from a
qualified employer plan.
‘‘(2) CORPORATE
INSIDER.—For purposes of
paragraph (1), the term ‘corporate insider’ means,
with respect to a corporation, any individual who is
subject to the requirements of section 16(a) of the
Securities Exchange Act of 1934 with respect to
such corporation.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply with respect to cessations of em-
ployment after the date of the enactment of this Act.
SEC. 304. GOVERNANCE PRACTICES TO PROHIBIT INSIDER
LOANS.
(a) RULEMAKING REQUIRED.—
(1) PROHIBITED LOANS.—Every national secu-
rities exchange and national securities association
shall adopt rules, effective no later than 6 months
after the date of enactment of this Act, to require
that the qualitative listing standards concerning cor-
porate governance of the exchange or association
prohibit loans or other extensions of credit that in
the aggregate exceed $50,000 to any corporate in-
sider.
(2) DEFINITION OF CORPORATE INSIDER.—For
purposes of paragraph (1), the term ‘‘corporate in-
sider’’ with respect to any issuer means any person
who is a beneficial owner, officer, or director who is
required to file a statement under section 16 of the
Securities Exchange Act of 1934 (15 U.S.C. 78p)
with respect to ownership of the equity securities of
such issuer.
(3) OTHER
DEFINITIONS.—For purposes of
paragraph (1), the terms ‘‘national securities ex-
change’’ and ‘‘national securities association’’ have
the same meanings provided in section 3 of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78c).
(b) PROCEDURE.—The rules required by subsection
(a) of this section shall be adopted by any national securi-
ties exchange or national securities association pursuant
to section 19(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78s(b)). If the rules required by this section
have not been adopted by any national securities exchange
and national securities association and made effective by
9 months after the date of enactment of this Act, the Se-
curities and Exchange Commission shall initiate pro-
ceedings to add the rules required by this section to the
rules of such national securities exchange and national se-
curities association.
(c) NO ADVERSE INFERENCE.—Nothing in this sec-
tion shall be construed to alter, impair, limit, or abrogate
the Security and Exchange Commission’s power under
section 19(c) of the Securities Exchange Act of 1934 to
abrogate, add to, and delete from the rules of a self-regu-
latory organization (other than a registered clearing agen-
cy) as the Securities and Exchange Commission deems
necessary or appropriate.
SEC. 305. REMOVAL OF UNFIT CORPORATE OFFICERS.
(a) REMOVAL IN JUDICIAL PROCEEDINGS.—
(1) SECURITIES ACT OF 1933.—Section 20(e) of
the Securities Act of 1933 (15 U.S.C. 77t(e)) is
amended by striking ‘‘substantial unfitness’’ and in-
serting ‘‘unfitness’’.
(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21(d)(2) of the Securities Exchange Act of
1934 (15 U.S.C. 78u(d)(2)) is amended by striking
‘‘substantial unfitness’’ and inserting ‘‘unfitness’’.
(b) REMOVAL IN ADMINISTRATIVE PROCEEDINGS.—
(1) SECURITIES ACT OF 1933.—Section 8A of
the Securities Act of 1933 (15 U.S.C. 77h–1) is
amended by adding at the end the following new
subsection:
‘‘(f) AUTHORITY TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.—In any cease-
and-desist proceeding under subsection (a), the Commis-
sion may issue an order to prohibit, conditionally or un-
conditionally, and permanently or for such period of time
as it shall determine, any person who has violated section
17(a)(1) of this title from acting as an officer or director
of any issuer that has a class of securities registered pur-
suant to section 12 of the Securities Exchange Act of
1934 or that is required to file reports pursuant to section
15(d) of that Act if the person’s conduct demonstrates
unfitness to serve as an officer or director of any such
issuer.’’.
(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21C of the Securities Exchange Act of 1934 (15
U.S.C. 78u–3) is amended by adding at the end the
following new subsection:
‘‘(f) AUTHORITY TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.—In any cease-
and-desist proceeding under subsection (a), the Commis-
sion may issue an order to prohibit, conditionally or un-
conditionally, and permanently or for such period of time
as it shall determine, any person who has violated section
10(b) of this title or the rules or regulations thereunder
from acting as an officer or director of any issuer that
has a class of securities registered pursuant to section 12
of this title or that is required to file reports pursuant
to section 15(d) of this title if the person’s conduct dem-
onstrates unfitness to serve as an officer or director of
any such issuer.’’.
SEC. 306. DISGORGEMENT REQUIRED.
(a) ADMINISTRATIVE ACTIONS.—Within 30 days
after the date of enactment of this Act, the Securities and
Exchange Commission shall prescribe regulations to re-
quire disgorgement, in a proceeding pursuant to its au-
thority under section 21A, 21B, or 21C of the Securities
Exchange Act of 1934 (15 U.S.C. 78u–1, 78u–2, 78u–
3), of salaries, commissions, fees, bonuses, options, profits
from securities transactions, and losses avoided through
securities transactions obtained by an officer or director
of an issuer during or for a fiscal year or other reporting
period if such officer or director engaged in misconduct
resulting in, or made or caused to be made in, the filing
of a financial statement for such fiscal year or reporting
period which—
(1) was at the time, and in the light of the cir-
cumstances under which it was made, false or mis-
leading with respect to any material fact; or
(2) omitted to state a material fact necessary in
order to make the statements made, in the light of
the circumstances in which they were made, not mis-
leading,
(b) JUDICIAL PROCEEDINGS.—Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)) is
amended by adding at the end the following new para-
graph:
‘‘(5) ADDITIONAL
DISGORGEMENT
AUTHOR-
ITY.—In any action or proceeding brought or insti-
tuted by the Commission under the securities laws
against any person—
‘‘(A) for engaging in misconduct resulting
in, or making or causing to be made in, the fil-
ing of a financial statement which—
‘‘(i) was at the time, and in the light
of the circumstances under which it was
made, false or misleading with respect to
any material fact; or
‘‘(ii) omitted to state a material fact
necessary in order to make the statements
made, in the light of the circumstances in
which they were made, not misleading; or
‘‘(B) for engaging in, causing, or aiding
and abetting any other violation of the securi-
ties laws or the rules and regulations there-
under,
such person, in addition to being subject to any
other appropriate order, may be required to disgorge
any or all benefits received from any source in con-
nection with the conduct constituting, causing, or
aiding and abetting the violation, including (but not
limited to) salary, commissions, fees, bonuses, op-
tions, profits from securities transactions, and losses
avoided through securities transactions.’’.
SEC. 307. CEO AND CFO ACCOUNTABILITY FOR DISCLO-
SURE.
(a) REGULATIONS REQUIRED.—The Securities and
Exchange Commission shall by rule require, for each com-
pany filing periodic reports under section 13 or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m,
78o(d)), that the principal executive officer or officers and
the principal financial officer or officers, or persons per-
forming similar functions, certify in each annual or quar-
terly report filed or submitted under either such section
of such Act that—
(1) the signing officer has reviewed the report;
(2) based on the officer’s knowledge, the report
does not contain any untrue statement of a material
fact or omit to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which such statements were
made, not misleading;
(3) based on such officer’s knowledge, the fi-
nancial statements, and other financial information
included in the report, fairly present in all material
respects the financial condition and results of oper-
ations of the issuer as of, and for, the periods pre-
sented in the report;
(4) the signing officers—
(A) are responsible for establishing and
maintaining internal controls;
(B) have designed such internal controls to
ensure that material information relating to the
issuer and its consolidated subsidiaries is made
known to such officers by others within those
entities, particularly during the period in which
the periodic reports are being prepared;
(C) have evaluated the effectiveness of the
issuer’s internal controls as of a date within 90
days prior to the report; and
(D) have presented in the report their con-
clusions about the effectiveness of their internal
controls based on their evaluation as of that
date;
(5) the signing officers have disclosed to the
issuer’s auditors and the audit committee of the
board of directors (or persons fulfilling the equiva-
lent function)—
(A) all significant deficiencies in the design
or operation of internal controls which could ad-
versely affect the issuer’s ability to record, proc-
ess, summarize, and report financial data and
have identified for the issuer’s auditors any ma-
terial weaknesses in internal controls; and
(B) any fraud, whether or not material,
that involves management or other employees
who have a significant role in the issuer’s inter-
nal controls; and
(6) the signing officers have indicated in the re-
port whether or not there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to
the date of their evaluation, including any corrective
actions with regard to significant deficiencies and
material weaknesses.
(b) ENFORCEMENT.—A violation by any person of
this section, any rule or regulation of the Commission
issued under this section, shall be treated for all purposes
in the same manner as a violation of the Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.) or the rules
and regulations issued thereunder, consistent with the pro-
visions of this section, and any such person shall be sub-
ject to the same penalties, and to the same extent, as for
a violation of that Act or such rules or regulations.
(c) DEADLINE.—The rules required by subsection (a)
shall be effective not later than 30 days after the date
of enactment of this Act.
SEC. 308. INCREASED COMPENSATION LIMIT NOT TO RE-
SULT IN REDUCED BENEFITS FOR THE NON-
HIGHLY COMPENSATED.
(a) IN GENERAL.—Paragraph (17) of section 401(a)
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph:
‘‘(C) BENEFITS
MAY
NOT
DECREASE.—
Subparagraphs (A) and (B) shall be applied by
substituting ‘$150,000’ for ‘$200,000’ with re-
spect to a plan for any year if any employee’s
benefit under the plan would decrease were the
$200,000 amount used by the plan instead of
the $150,000 amount.’’
(b) DEDUCTION LIMITATION.—Subsection (l) of sec-
tion 404 of such Code is amended by adding at the end
the following new sentence: ‘‘The preceding sentences of
this subsection shall be applied by substituting ‘$150,000’
for ‘$200,000’ with respect to a plan for any year if any
employee’s benefit under the plan would decrease were the
$200,000 amount used by the plan instead of the
$150,000 amount.’’
(c) SIMPLIFIED EMPLOYEE PENSIONS.—Subsection
(k) of section 408 of such Code is amended by redesig-
nating paragraph (9) as paragraph (10) and by inserting
after paragraph (8) the following new paragraph:
‘‘(9) LOWER
COMPENSATION
LIMITATION
IF
BENEFITS
DECREASE.—Paragraphs 
(3)(C) 
and
(6)(D) shall be applied by substituting ‘$150,000’
for ‘$200,000’ with respect to a plan for any year
if any employee’s benefit under the plan would de-
crease were the $200,000 amount used by the plan
instead of the $150,000 amount.’’
(d) CERTAIN TAX-EXEMPT ORGANIZATIONS.—Para-
graph (7) of section 505(b) of such Code is amended by
adding at the end the following new sentence: ‘‘The pre-
ceding sentences of this subsection shall be applied by sub-
stituting ‘$150,000’ for ‘$200,000’ with respect to a plan
for any year if any employee’s benefit under the plan
would decrease were the $200,000 amount used by the
plan instead of the $150,000 amount.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after the date
of the enactment of this Act.
SEC. 309. MATCHING CONTRIBUTIONS NOT TAKEN INTO AC-
COUNT FOR MINIMUM CONTRIBUTION RE-
QUIREMENTS 
UNDER 
TOP-HEAVY 
PLAN
RULES.
(a) IN GENERAL.—Subparagraph (A) of section
416(c)(2) of the Internal Revenue Code of 1986 is amend-
ed by striking the last sentence.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after the date
of the enactment of this Act.
TITLE 
IV—ASSURING 
THE 
IN-
TEGRITY OF WALL STREET
AND RESTORING FAITH IN
THE MARKETS
Subtitle A—Improving Corporate
Governance and Providing In-
vestors with Honest Information
SEC. 401. REAL-TIME DISCLOSURE OF FINANCIAL INFOR-
MATION.
(a) REAL-TIME ISSUER DISCLOSURES REQUIRED.—
(1) OBLIGATIONS.—Every issuer of a security
registered under section 12 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78l) shall file with
the Commission and disclose to the public, on a
rapid and essentially contemporaneous basis, such
information concerning the financial condition or op-
erations of such issuer as the Commission deter-
mines by rule is necessary in the public interest and
for the protection of investors. Such rule shall—
(A) specify the events or circumstances
giving rise to the obligation to disclose or up-
date a disclosure;
(B) establish requirements regarding the
rapidity and timeliness of such disclosure;
(C) identify the means whereby the disclo-
sure required shall be made, which shall ensure
the broad, rapid, and accurate dissemination of
the information to the public via electronic or
other communications device;
(D) identify the content of the information
to be disclosed; and
(E) without limiting the Commission’s gen-
eral exemptive authority, specify any exemp-
tions or exceptions from such requirements.
(2) ENFORCEMENT.—The Commission shall
have exclusive authority to enforce this section and
any rule or regulation hereunder in civil proceedings.
(b) ELECTRONIC DISCLOSURE OF INSIDER TRANS-
ACTIONS.—
(1) DISCLOSURES OF TRADING.—The Commis-
sion shall, by rule, require—
(A) that a disclosure required by section
16 of the Securities Exchange Act of 1934 (15
U.S.C. 78p) of the sale of any securities of an
issuer, or any security futures product (as de-
fined in section 3(a)(56) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)(56))) or
any security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley
Act) that is based in whole or in part on the
securities of such issuer, by an officer or direc-
tor of the issuer of those securities, or by a ben-
eficial owner of such securities, shall be made
available electronically to the Commission and
to the issuer by such officer, director, or bene-
ficial owner before the end of the next business
day after the day on which the transaction oc-
curs;
(B) that the information in such disclosure
be made available electronically to the public by
the Commission, to the extent permitted under
applicable law, upon receipt, but in no case
later than the end of the next business day
after the day on which the disclosure is received
under subparagraph (A); and
(C) that, in any case in which the issuer
maintains a corporate website, such information
shall be made available by such issuer on that
website, before the end of the next business day
after the day on which the disclosure is received
by the Commission under subparagraph (A).
(2) TRANSACTIONS INCLUDED.—The rule pre-
scribed under paragraph (1) shall require the disclo-
sure of the following transactions:
(A) Direct or indirect sales or other trans-
fers of securities of the issuer (or any interest
therein) to the issuer or an affiliate of the
issuer.
(B) Loans or other extensions of credit ex-
tended to an officer, director, or other person
affiliated with the issuer on terms or conditions
not otherwise available to the public.
(3) OTHER FORMATS; FORMS.—In the rule pre-
scribed under paragraph (1), the Commission shall
provide that electronic filing and disclosure shall be
in lieu of any other format required for such disclo-
sures on the day before the date of enactment of this
subsection. The Commission shall revise such forms
and schedules required to be filed with the Commis-
sion pursuant to paragraph (1) as necessary to fa-
cilitate such electronic filing and disclosure.
SEC. 402. IMPROVED TRANSPARENCY OF CORPORATE DIS-
CLOSURES.
(a) MODIFICATION OF REGULATIONS REQUIRED.—
The Commission shall revise its regulations under the se-
curities laws pertaining to the disclosures required in peri-
odic financial reports and registration statements to re-
quire such reports to include adequate and appropriate
disclosure of—
(1) the issuer’s off-balance sheet transactions
and relationships with unconsolidated entities or
other persons, to the extent they are not disclosed in
the financial statements and are reasonably likely to
materially affect the liquidity or the availability of,
or requirements for, capital resources, or the finan-
cial condition or results of operations of the issuer;
and
(2) loans extended to officers, directors, or
other persons affiliated with the issuer on terms or
conditions that are not otherwise available to the
public.
(b) DEADLINE FOR RULEMAKING.—The Commission
shall—
(1) within 90 days after the date of enactment
of this Act, propose, and
(2) within 270 days after such date, prescribe,
the revisions to its regulations required by subsection (a).
(c) ANALYSIS REQUIRED.—
(1) TRANSPARENCY, COMPLETENESS, AND USE-
FULNESS OF FINANCIAL STATEMENTS.—The Com-
mission shall conduct an analysis of the extent to
which, consistent with the protection of investors
and the public interest, disclosure of additional or
reorganized information may be required to improve
the transparency, completeness, or usefulness of fi-
nancial statements and other corporate disclosures
filed under the securities laws.
(2) ALTERNATIVES
TO
BE
CONSIDERED.—In
conducting the analysis required by paragraph (1),
the Commission shall consider—
(A) requiring the identification of the key
accounting principles that are most important
to the issuer’s reported financial condition and
results of operation, and that require manage-
ment’s most difficult, subjective, or complex
judgments;
(B) requiring an explanation, where mate-
rial, of how different available accounting prin-
ciples applied, the judgments made in their ap-
plication, and the likelihood of materially dif-
ferent reported results if different assumptions
or conditions were to prevail;
(C) in the case of any issuer engaged in
the business of trading non-exchange traded
contracts, requiring an explanation of such
trading activities when such activities require
the issuer to account for contracts at fair value,
but for which a lack of market price quotations
necessitates the use of fair value estimation
techniques;
(D) establishing requirements relating to
the presentation of information in clear and un-
derstandable format and language; and
(E) requiring such other disclosures, in-
cluded in the financial statements or in other
disclosure by the issuer, as would in the Com-
mission’s view improve the transparency of such
issuer’s financial statements and other required
corporate disclosures.
(3) RULES REQUIRED.—If the Commission, on
the basis of the analysis required by this subsection,
determines that it is necessary in the public interest
or for the protection of investors and would improve
the transparency of issuer financial statements, the
Commission may prescribe rules reflecting the re-
sults of such analysis and the considerations re-
quired by paragraph (2). In prescribing such rules,
the Commission may seek to minimize the paper-
work and cost burden on the issuer consistent with
achieving the public interest and investor protection
purposes of such rules.
SEC. 403. IMPROVEMENTS IN REPORTING ON INSIDER
TRANSACTIONS AND RELATIONSHIPS.
(a) SPECIFIC OBJECTIVES.—The Commission shall
initiate a proceeding to propose changes in its rules and
regulations with respect to financial reporting to improve
the transparency and clarity of the information available
to investors and to require increased financial disclosure
with respect to the following:
(1) INSIDER
RELATIONSHIPS
AND
TRANS-
ACTIONS.—Relationships and transactions—
(A) between the issuer, affiliates of the
issuer, and officers, directors, or employees of
the issuer or such affiliates; and
(B) between officers, directors, employees,
or affiliates of the issuer and entities that are
not otherwise affiliated with the issuer,
to the extent such arrangement or transaction cre-
ates a conflict of interest for such persons. Such dis-
closure shall provide a description of such elements
of the transaction as are necessary for an under-
standing of the business purpose and economic sub-
stance of such transaction (including contingencies).
The disclosure shall provide sufficient information to
determine the effect on the issuer’s financial state-
ments and describe compensation arrangements of
interested parties to such transactions.
(2) RELATIONSHIPS WITH PHILANTHROPIC OR-
GANIZATIONS.—Relationships between the registrant
or any executive officer of the registrant and any
not-for-profit organization on whose board a director
or immediate family member serves or of which a di-
rector or immediate family member serves as an offi-
cer or in a similar capacity. Relationships that shall
be disclosed include contributions to the organization
in excess of $10,000 made by the registrant or any
executive officer in the last five years and any other
activity undertaken by the registrant or any execu-
tive officer that provides a material benefit to the or-
ganization. Material benefit includes lobbying.
(3) INSIDER-CONTROLLED
AFFILIATES.—Rela-
tionships in which the registrant or any executive of-
ficer exercises significant control over an entity in
which a director or immediate family member owns
an equity interest or to which a director or imme-
diate family member has extended credit. Significant
control should be defined with reference to the con-
tractual and governance arrangements between the
registrant or executive officer, as the case may be,
and the entity.
(4) JOINT OWNERSHIP.—Joint ownership by a
registrant or executive officer and a director or im-
mediate family member of any real or personal prop-
erty.
(5) PROVISION OF SERVICES BY RELATED PER-
SONS.—The provision of any professional services,
including legal, financial advisory or medical serv-
ices, by a director or immediate family member to
any executive officer of the registrant in the last five
years.
(b) DEADLINES.—The Commission shall complete
the rulemaking required by this section within 180 days
after the date of enactment of this Act.
SEC. 404. ANALYST CONFLICTS OF INTEREST.
Section 15 of the Securities Exchange Act of 1934
(15 U.S.C. 78o) is amended—
(1) in subsection (c), by adding at the end the
following new paragraph:
‘‘(9) ANALYST CONFLICTS OF INTEREST.—
‘‘(A) RULES
REQUIRED.—Except as the
Commission may otherwise provide pursuant to
section 36, no broker, dealer, or person associ-
ated with a broker or dealer shall violate such
rules as the Commission shall prescribe as nec-
essary and appropriate in the public interest
and for the protection of investors to prevent
conflicts of interest in the preparation and ren-
dering of equity security analyst recommenda-
tions. Such rules shall—
‘‘(i) prohibit equity research analysts
from holding any beneficial interest in any
equity security in any issuer covered by
such analyst;
‘‘(ii) require a broker or dealer to in-
clude a legend on the first page of each eq-
uity security research report that investors
should assume that the broker or dealer is
seeking or will seek investment banking or
other business from the company covered
by such report (hereinafter in this para-
graph referred to as the ‘covered com-
pany’);
‘‘(iii) require a broker or dealer to in-
clude on each equity security research re-
port a specific disclosure, on a percentage
basis, of the aggregate distribution, cal-
culated quarterly, of the intermediate-term
rating category used by the broker or deal-
er for—
‘‘(I) all stocks in the sector or in-
dustry group applicable to the covered
company;
‘‘(II) all stocks in the sector or
industry group applicable to the cov-
ered company for which, over the
prior 12 months, the broker or dealer
performed services in publicly an-
nounced equity underwritings and
merger and acquisition transactions
for which compensation was received
or to which the broker or dealer is en-
titled;
‘‘(III) all stocks covered by the
broker’s or dealer’s equity security re-
search; and
‘‘(IV) all stocks covered by the
broker’s or dealer’s equity security re-
search for which, over the prior 12
months, the broker or dealer per-
formed services in publicly announced
equity security underwriting or merg-
er and acquisition transactions for
which compensation was received or to
which the broker or dealer is entitled;
‘‘(iv) require a broker or dealer to
separate completely the evaluation and de-
termination of compensation for United
States-based equity research analysts from
the broker’s or dealer’s investment banking
business by—
‘‘(I) requiring that research ana-
lysts be compensated for only those
activities and services intended to ben-
efit the broker’s or dealer’s investor
clients;
‘‘(II) with respect to analyst com-
pensation, requiring the broker or
dealer to prohibit anyone responsible
for determining research analysts’
compensation from soliciting from any
analyst, or considering in determining
any analyst’s compensation, either
(aa) the amount of investment bank-
ing revenue received from clients cov-
ered by such analyst, or (bb) the ana-
lyst’s 
participation 
in 
investment
banking transactions, except to the
extent such activities and services are
intended to benefit investors, as spe-
cifically contemplated by subclause
(I);
‘‘(III) prohibiting research ana-
lysts from being evaluated by invest-
ment bankers for any work such ana-
lysts may do to generate investment
banking business, including participa-
tion in investment banking client so-
licitations;
‘‘(IV) 
prohibiting 
investment
bankers from communicating with re-
search analysts or with anyone re-
sponsible for determining analysts’
compensation for the purpose of cal-
culating or influencing an individual
analyst’s compensation; and
‘‘(V) prohibiting consideration of
any such input from investment bank-
ers by anyone responsible for deter-
mining research analysts’ compensa-
tion;
‘‘(v) require a broker or dealer to es-
tablish or designate a specific management
structure to have responsibility for deter-
mining research analyst compensation and
to evaluate analysts for compensation pur-
poses based primarily upon—
‘‘(I) quality of analysts’ research
and performance of their investment
recommendations;
‘‘(II) competitive compensation
factors;
‘‘(III) surveys and input from in-
vestor clients; and
‘‘(IV) surveys and input from the
broker’s or dealer’s institutional sales,
equity trading, and private client divi-
sions, but not from the investment
banking division;
‘‘(vi) require a broker or dealer to es-
tablish or designate a specific management
structure to supervise equity research rec-
ommendations for objectivity, integrity,
and a rigorous analytical framework in the
development of all recommendations;
‘‘(vii) require a broker or dealer to im-
plement a system to monitor electronic
communications between investment bank-
ers and equity security research analysts;
‘‘(viii) require that equity security re-
search analyst participation with invest-
ment bankers in solicitations for any po-
tential investment banking transaction be
approved in advance by the management
structure established under clause (v) and
be disclosed to the management structure
established under clause (vi);
‘‘(ix) require that each equity security
research report covering a particular com-
pany to disclose whether, within the prior
12 months, any equity security research
analyst covering such company has partici-
pated in a solicitation with or at the re-
quest of investment bankers for an invest-
ment banking transaction underwritten by
the broker or dealer;
‘‘(x) prohibit equity security analysts,
investment bankers, or any other employ-
ees of the broker or dealer from promising,
implying, offering, or communicating in
any way that a specific recommendation or
change of an existing recommendation will
be made in exchange for the awarding of
an investment banking transaction to the
broker or dealer;
‘‘(xi) prohibit equity security analysts
from changing any research recommenda-
tion because of the subject company’s deci-
sion not to retain the broker or dealers for
investment banking services;
‘‘(xii) require that the materials used
in connection with any solicitation for a
public equity underwriting by the broker or
dealer include a written disclosure that—
‘‘(I) the broker or dealer pro-
hibits employees from, directly or indi-
rectly, offering a favorable research
rating or specific price target, or of-
fering to change a rating or price tar-
get to a subject company as consider-
ation or inducement for the receipt of
business or for compensation; and
‘‘(II) equity security research an-
alysts are prohibited from being com-
pensated for involvement in invest-
ment banking transactions except to
the extent that such participation is
intended to benefit investor clients;
‘‘(xiii) require that, whenever a broker
or dealer terminates coverage of any
issuer, the broker or dealer publish a re-
port disclosing—
‘‘(I) the broker’s or dealer’s ter-
mination of coverage;
‘‘(II) the rationale for the deci-
sion to terminate coverage; and
‘‘(III) that, effective upon the
termination of coverage, the last rec-
ommendation issued for the particular
stock should not be relied upon going
forward;
‘‘(xiv) require a broker or dealer to
designate an employee or group of employ-
ees as a compliance monitor to ensure
compliance with the policies required by
this paragraph, and to be available to re-
search analysts to address issues of actual
or perceived undue influence or pressure
from investment banking or any other
source; and
‘‘(xv) otherwise prohibit conflicts of
interest in the preparation or rendering of
equity research analyst recommendations.
‘‘(B) CONSULTATION.—The Commission
shall consult periodically the securities commis-
sions (or any agency or office performing like
functions) of the States concerning the ade-
quacy of the requirements established under
this paragraph.’’.
SEC. 405. INDEPENDENT DIRECTORS AND OTHER COR-
PORATE GOVERNANCE REQUIREMENTS.
(a) IN GENERAL.—The Securities and Exchange
Commission shall by rule require each national securities
exchange and national securities association to adopt
rules, effective no later than 6 months after the date of
enactment of this Act, to require that the qualitative list-
ing standards concerning corporate governance of the ex-
change or association require that an issuer meet the fol-
lowing requirements:
(1) INDEPENDENT DIRECTORS.—
(A) MAJORITY REQUIREMENT.—An issuer
shall have a majority of independent directors.
(B) QUALIFICATION AS INDEPENDENT DI-
RECTOR.—
(i) No director may qualify as an
independent director unless the board of
directors affirmatively determines that the
director has no material relationship with
the issuer, either directly or as a partner,
shareholder, or officer of an organization
that has a close relationship with the
issuer.
(ii) No director who is a former em-
ployee of the issuer may qualify as an
independent director until 5 years after the
employment has ended.
(iii) No director who is, or in the past
5 years has been, affiliated with or em-
ployed by a present or former auditor of
the issuer (or of an affiliate) may qualify
as an independent director until 5 years
after the end of either the affiliation, the
employment, or the auditing relationship.
(iv) No director may qualify as an
independent director if such director is, or
in the past 5 years has been, part of an
interlocking directorate in which an execu-
tive officer of the issuer serves on the com-
pensation committee of another company
that employs the director.
(v) No director may qualify as an
independent director if an immediate fam-
ily member of such director would not
qualify as an independent director under
clauses (i) through (iv).
(2) NON-MANAGEMENT DIRECTORS.—The non-
management directors of an issuer shall meet at reg-
ularly scheduled executive sessions without manage-
ment, and such directors shall be required to des-
ignate who will preside at such sessions.
(3) NOMINATING
AND
CORPORATE
GOVERN-
ANCE COMMITTEE.—
(A) IN GENERAL.—An issuer shall have a
nominating and corporate governance com-
mittee composed entirely of independent direc-
tors.
(B) WRITTEN CHARTER.—The nominating
and corporate governance committee shall have
a written charter that specifies—
(i) the committee’s purpose, which, at
minimum, shall be to identify individuals
qualified to become board members, and to
select, or to recommend that the board se-
lect, the director nominees for the next an-
nual meeting of shareholders, and to de-
velop and recommend to the board a set of
corporate governance principles applicable
to the issuer;
(ii) the committee’s goals and respon-
sibilities, which shall reflect, at minimum,
the board’s criteria for selecting new direc-
tors, and oversight of the evaluation of the
board and management; and
(iii) the criteria for an annual per-
formance evaluation of the committee.
(4) COMPENSATION COMMITTEE.—
(A) IN GENERAL.—An issuer shall have a
compensation committee composed entirely of
independent directors.
(B) WRITTEN CHARTER.—The compensa-
tion committee shall have a written charter that
specifies—
(i) the committee’s purpose, which, at
minimum, shall be to discharge the board’s
responsibilities relating to compensation of
the issuer’s executives, and to produce an
annual report on executive compensation
for inclusion in the issuer’s proxy state-
ment, in accordance with applicable rules
and regulations;
(ii) the committee’s duties and re-
sponsibilities, which, at minimum, shall be
to review and improve corporate goals and
objectives relevant to executive compensa-
tion, evaluate the executives’ performance
in light of these goals and objectives, and
set the executive compensation level based
on this evaluation, and to make rec-
ommendations to the board with respect to
incentive-compensation plans and equity-
based plans; and
(iii) the criteria for an annual per-
formance evaluation of the compensation
committee.
(5) INDEPENDENCE REQUIREMENTS FOR MEM-
BERSHIP ON AUDIT COMMITTEE.—An issuer shall
implement the following additional requirements re-
garding audit committees:
(A) Director’s fees shall be the only com-
pensation that an audit committee member may
receive from the issuer.
(B) A director who is an independent di-
rector within the requirements of paragraph
(1), but who also holds 20 percent or more of
an issuer’s stock, or who is general partner,
controlling shareholder, or officer of any such
holder, shall not chair, or be a voting member
of, the audit committee.
(C) The audit committee chair shall have
accounting or related financial management ex-
pertise.
(6) INCREASED
AUTHORITY
AND
WRITTEN
CHARTER OF AUDIT COMMITTEE.—An issuer shall
grant to the audit committee the sole authority to
hire and fire independent auditors, and shall approve
any significant non-audit relationship of the issuer
with the independent auditors. The audit committee
shall have a written charter that specifies—
(A) the committee’s purpose, which, at
minimum, shall be—
(i) to assist board oversight of—
(I) the integrity of the issuer’s fi-
nancial statements;
(II) the issuer’s compliance with
legal and regulatory requirements;
(III) the independent auditor’s
qualifications and independence; and
(IV) audit function and inde-
pendent auditors; and
(ii) to prepare the report that the
Commission’s rules require be included in
the issuer’s annual proxy statement;
(B) the duties and responsibilities of the
audit committee, which, at minimum, shall be—
(i) to retain and terminate the issuer’s
independent auditors;
(ii) to obtain and review, on an an-
nual basis, a report by the independent
auditor describing the firm’s internal qual-
ity control standards and any material
issues raised by the most recent internal
quality control review, or peer review, of
the firm, or by any inquiry or investigation
by governmental or professional authori-
ties, within the preceding 5 years, respect-
ing one or more independent audits carried
out by the firm, and any steps to be taken
to deal with any such issues;
(iii) to examine all relationships be-
tween the independent auditor and the
issuer in order to assess the auditor’s inde-
pendence;
(iv) to discuss the audited financial
statements and quarterly financial state-
ments with management and the inde-
pendent auditor;
(v) to discuss earnings press releases,
as well as financial information and earn-
ings guidance provided to analysts and rat-
ing agencies;
(vi) to discuss policies with respect to
risk assessment and risk management;
(vii) to meet separately, on at least a
quarterly basis, with management, with in-
ternal auditors, and with independent audi-
tors;
(viii) to review with the independent
auditor any audit problems or difficulties
and management’s response;
(ix) to set clear hiring policies for em-
ployees or former employees of the inde-
pendent auditors; and
(x) to report regularly to the board of
directors on the performance of the duties
and responsibilities of the committee as
outlined in this subparagraph; and
(C) the criteria for an annual performance
evaluation of the audit committee.
(7) SHAREHOLDER CONTROL OF EQUITY-COM-
PENSATION PLANS.—An issuer shall provide share-
holders of the issuer the opportunity to vote on all
equity-compensation plans.
(8) CORPORATE
GOVERNANCE
GUIDELINES.—
An issuer shall adopt and disclose its corporate gov-
ernance guidelines. Such corporate governance
guidelines shall specify—
(A) director qualification standards;
(B) director responsibilities;
(C) director access to management and
independent advisers;
(D) director compensation;
(E) director orientation and continuing
education;
(F) management succession; and
(G) annual performance evaluation of the
board.
(9) CODE OF BUSINESS CONDUCT AND ETHICS
STANDARDS.—An issuer shall adopt and disclose a
code of business conduct and ethics standards for di-
rectors, officers, and employees which, at minimum,
includes standards on—
(A) conflicts of interest;
(B) use of corporate property, information,
or position for personal gain;
(C) confidentiality;
(D) issues of fair dealing with the issuer’s
customers, suppliers, competitors, and employ-
ees;
(E) protection and proper use of the
issuer’s assets;
(F) compliance with laws, rules, and regu-
lations (including insider trading laws); and
(G) methods of encouraging the reporting
of any illegal or unethical behavior.
Subtitle B—Strengthening Auditor
Independence 
and 
Industry
Oversight
Chapter 1—Auditor Independence
SEC. 411. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF
AUDITORS.
(a) PROHIBITED ACTIVITIES.—Section 10A of the
Securities Exchange Act of 1934 (15 U.S.C. 78j–1) is
amended by adding at the end the following:
‘‘(g) PROHIBITED ACTIVITIES.—It shall be unlawful
for a registered public accounting firm (and any associated
person of that firm, to the extent determined appropriate
by the Commission) that performs for any issuer any audit
required by this title or the rules of the Commission under
this title or the rules of the public regulatory organization
established under section 421, to provide to that issuer,
contemporaneously with the audit, any non-audit service,
including—
‘‘(1) bookkeeping or other services related to
the accounting records or financial statements of the
audit client;
‘‘(2) financial information systems design and
implementation;
‘‘(3) appraisal or valuation services, fairness
opinions, or contribution-in-kind reports;
‘‘(4) actuarial services;
‘‘(5) internal audit outsourcing services;
‘‘(6) management functions or human re-
sources;
‘‘(7) broker or dealer, investment adviser, or in-
vestment banking services;
‘‘(8) legal services and expert services unrelated
to the audit; and
‘‘(9) any other service that the public regu-
latory organization established under section 421 de-
termines, by regulation, is impermissible.
‘‘(h) PREAPPROVAL
REQUIRED
FOR
NON-AUDIT
SERVICES.—A registered public accounting firm may en-
gage in any non-audit service, including tax services, that
is not described in any of paragraphs (1) through (9) of
subsection (g) for an audit client, only if the activity is
approved in advance by the audit committee of the issuer,
in accordance with subsection (i).’’.
(b) EXEMPTION AUTHORITY.—The public regulatory
organization established under section 421 may, on a case
by case basis, exempt any person, issuer, public accounting
firm, or transaction from the prohibition on the provision
of services under section 10A(g) of the Securities Ex-
change Act of 1934 (as added by this section), to the ex-
tent that such exemption is necessary or appropriate in
the public interest and is consistent with the protection
of investors, and subject to review by the Commission in
the same manner as for rules of the public regulatory or-
ganization established under section 421 under section
107.
SEC. 412. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended
by adding at the end the following:
‘‘(i) PREAPPROVAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—
‘‘(A) AUDIT COMMITTEE ACTION.—All au-
diting services (which may entail providing com-
fort letters in connection with securities
underwritings) and non-audit services, other
than as provided in subparagraph (B), provided
to an issuer by the auditor of the issuer shall
be preapproved by the audit committee of the
issuer.
‘‘(B) 
DE
MINIMUS
EXCEPTION.—The
preapproval requirement under subparagraph
(A) is waived with respect to the provision of
non-audit services for an issuer, if—
‘‘(i) the aggregate amount of all such
non-audit services provided to the issuer
constitutes not more than 5 percent of the
total amount of revenues paid by the issuer
to its auditor;
‘‘(ii) such services were not recognized
by the issuer at the time of the engage-
ment to be non-audit services; and
‘‘(iii) such services are promptly
brought to the attention of the audit com-
mittee of the issuer and approved by the
audit committee prior to the completion of
the audit, by 1 or more members of the
audit committee who are members of the
board of directors to whom authority to
grant such approvals has been delegated by
the audit committee.
‘‘(2) DISCLOSURE TO INVESTORS.—Approval by
an audit committee of an issuer under this sub-
section of a non-audit service to be performed by the
auditor of the issuer shall be disclosed to investors
in periodic reports required by section 13(a).
‘‘(3) DELEGATION
AUTHORITY.—The audit
committee of an issuer may delegate to 1 or more
designated members of the audit committee who are
independent directors of the board of directors, the
authority to grant preapprovals required by this sub-
section. The decisions of any member to whom au-
thority is delegated under this paragraph to
preapprove an activity under this subsection shall be
presented to the full audit committee at each of its
scheduled meetings.
‘‘(4) APPROVAL
OF
AUDIT
SERVICES
FOR
OTHER PURPOSES.—In carrying out its duties under
subsection (m)(2), if the audit committee of an
issuer approves an audit service within the scope of
the engagement of the auditor, such audit service
shall be deemed to have been preapproved for pur-
poses of this subsection.’’.
SEC. 413. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended
by adding at the end the following:
‘‘(j) AUDIT PARTNER ROTATION.—It shall be unlaw-
ful for a registered public accounting firm to provide audit
services to an issuer if the lead audit partner (having pri-
mary responsibility for the audit) or the audit partner re-
sponsible for reviewing the audit that is assigned to per-
form those audit services has performed audit services for
that issuer in each of the 5 previous fiscal years of that
issuer.’’.
SEC. 414. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended
by adding at the end the following:
‘‘(k) REPORTS TO AUDIT COMMITTEES.—Each reg-
istered public accounting firm that performs for any issuer
any audit required by this title shall timely report to the
audit committee of the issuer—
‘‘(1) all critical accounting policies and prac-
tices to be used;
‘‘(2) all alternative treatments of financial in-
formation within generally accepted accounting prin-
ciples that have been discussed with management of-
ficials of the issuer, ramifications of the use of such
alternative disclosures and treatments, and the
treatment preferred by the registered public account-
ing firm; and
‘‘(3) other material written communications be-
tween the registered public accounting firm and the
management of the issuer, such as any management
letter or schedule of unadjusted differences.’’.
SEC. 415. CONFORMING AMENDMENTS.
(a) DEFINITIONS.—Section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)) is amended by
adding at the end the following:
‘‘(58) AUDIT
COMMITTEE.—The term ‘audit
committee’ means—
‘‘(A) a committee (or equivalent body) es-
tablished by and amongst the board of directors
of an issuer for the purpose of overseeing the
accounting and financial reporting processes of
the issuer and audits of the financial state-
ments of the issuer; and
‘‘(B) if no such committee exists with re-
spect to an issuer, the entire board of directors
of the issuer.
‘‘(59) 
REGISTERED
PUBLIC
ACCOUNTING
FIRM.—The term ‘registered public accounting firm’
has the same meaning as in section 3 of the Public
Company Accounting Reform and Investor Protec-
tion Act of 2002.’’.
(b) AUDITOR REQUIREMENTS.—Section 10A of the
Securities Exchange Act of 1934 (15 U.S.C. 78j–1) is
amended—
(1) by striking ‘‘an independent public account-
ant’’ each place that term appears and inserting ‘‘a
registered public accounting firm’’;
(2) by striking ‘‘the independent public ac-
countant’’ each place that term appears and insert-
ing ‘‘the registered public accounting firm’’;
(3) in subsection (c), by striking ‘‘No inde-
pendent public accountant’’ and inserting ‘‘No reg-
istered public accounting firm’’; and
(4) in subsection (b)—
(A) by striking ‘‘the accountant’’ each
place that term appears and inserting ‘‘the
firm’’;
(B) by striking ‘‘such accountant’’ each
place that term appears and inserting ‘‘such
firm’’; and
(C) in paragraph (4), by striking ‘‘the ac-
countant’s report’’ and inserting ‘‘the report of
the firm’’.
(c) OTHER REFERENCES.—The Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is amended—
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)),
by striking ‘‘independent public accountants’’ each
place that term appears and inserting ‘‘a registered
public accounting firm’’; and
(2) in subsections (e) and (i) of section 17 (15
U.S.C. 78q), by striking ‘‘an independent public ac-
countant’’ each place that term appears and insert-
ing ‘‘a registered public accounting firm’’.
SEC. 416. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended
by adding at the end the following:
‘‘(l) CONFLICTS OF INTEREST.—It shall be unlawful
for a registered public accounting firm to perform for an
issuer any audit service required by this title, if a chief
executive officer, controller, chief financial officer, chief
accounting officer or any person serving in an equivalent
position for the issuer was employed by that registered
independent public accounting firm and participated in
any capacity in the audit of that issuer during the 1-year
period preceding the date of the initiation of the audit.’’.
SEC. 417. STUDY OF MANDATORY ROTATION OF REG-
ISTERED PUBLIC ACCOUNTING FIRMS.
(a) STUDY AND REVIEW REQUIRED.—The Comp-
troller General of the United States shall conduct a study
and review of the potential effects of requiring the manda-
tory rotation of registered public accounting firms.
(b) REPORT REQUIRED.—Not later than 1 year after
the date of enactment of this Act, the Comptroller General
shall submit a report to the Committee on Banking, Hous-
ing, and Urban Affairs of the Senate and the Committee
on Financial Services of the House of Representatives on
the results of the study and review required by this sec-
tion.
(c) DEFINITION.—For purposes of this section, the
term ‘‘mandatory rotation’’ refers to the imposition of a
limit on the period of years in which a particular reg-
istered public accounting firm may be the auditor of
record for a particular issuer.
SEC. 418. COMMISSION AUTHORITY.
(a) COMMISSION REGULATIONS.—Not later than 180
days after the date of enactment of this Act, the Commis-
sion shall issue final regulations to carry out each of sub-
sections (g) through (l) of section 10A of the Securities
Exchange Act of 1934, as added by this title.
(b) AUDITOR INDEPENDENCE.—It shall be unlawful
for any registered public accounting firm (or an associated
person thereof, as applicable) to prepare or issue any audit
report with respect to any issuer, if the firm or associated
person engages in any activity with respect to that issuer
prohibited by any of subsections (g) through (l) of section
10A of the Securities Exchange Act of 1934, as added
by this title, or any rule or regulation of the Commission
or of the public regulatory organization established under
section 421 issued thereunder.
SEC. 419. CONSIDERATIONS BY APPROPRIATE STATE REGU-
LATORY AUTHORITIES.
It is the intention of this Act that, in supervising non-
registered public accounting firms and their associated
persons, appropriate State regulatory authorities should
make an independent determination of the proper stand-
ards applicable, particularly taking into consideration the
size and nature of the business of the accounting firms
they supervise. The standards applied by the public regu-
latory organization established under section 421 under
this Act should not be presumed to be applicable for pur-
poses of this section for small- and medium-sized nonreg-
istered public accounting firms.
Chapter 2—Industry Oversight
SEC. 421. AUDITOR OVERSIGHT.
(a) CERTIFIED FINANCIAL STATEMENT REQUIRE-
MENTS.—If a financial statement is required by the secu-
rities laws or any rule or regulation thereunder to be cer-
tified by an independent public or certified accountant, an
accountant shall not be considered to be qualified to cer-
tify such financial statement, and the Securities and Ex-
change Commission shall not accept a financial statement
certified by an accountant, unless such accountant—
(1) is subject to a system of review by a public
regulatory organization that complies with the re-
quirements of this section and the rules prescribed
by the Commission under this section; and
(2) has not been determined in the most recent
review completed under such system to be not quali-
fied to certify such a statement.
(b) ESTABLISHMENT OF PRO.—
(1) ESTABLISHMENT
REQUIRED.—Not later
than 90 days after the date of enactment of this sec-
tion, the Commission shall establish a public regu-
latory organization to perform the duties set forth in
this section.
(2) CHAIRMAN.—The Chairman of the public
regulatory organization shall be appointed by the
Commission for a term of 5 years.
(3) APPOINTMENT OF PUBLIC REGULATORY OR-
GANIZATION MEMBERS.—There shall be 6 additional
public regulatory organization members, who shall
be selected jointly by the Chairman of the public
regulatory organization and the Chairman of the
Commission.
(4) ACCOUNTANT MEMBERS.—Up to 2 of the
members may be present or former certified public
accountants, provided such members—
(A) are not currently in public practices;
(B) have not been a person associated with
a public accounting firm for a period of at least
3 years; and
(C) agree to not be a person associated
with a public accounting firm or to receive con-
sulting fees from a public accounting firm for
a period of 5 years after leaving the public reg-
ulatory organization.
(5) NOMINATIONS.—In making appointments of
members, the Chairman of the public regulatory or-
ganization and the Chairman of the Commission
shall consult with, and make appointments from
nominations received from—
(A) institutional investors;
(B) public employee pension plans;
(C) pension plans organized pursuant to
the Employee Retirement Income Security Act
of 1974; and
(D) pension plans organized pursuant to
the Taft-Hartley Act.
(6) TERMS.—The members of the public regu-
latory organization shall have terms of 4 years, ex-
cept that the Chairman of the public regulatory or-
ganization and the Chairman of the Commission
shall adopt procedures for staggering the initial
terms of the members first so appointed to provide
for a reasonable overlapping of the terms of office
of subsequently elected members.
(7) FULL-TIME
BASIS.—The members of the
public regulatory organization shall serve on a full-
time basis, severing all business ties with former
firms or employers prior to beginning service on the
public regulatory organization.
(8) RULES.—Following selection of the initial
members of the public regulatory organization, the
public regulatory organization shall propose and
adopt rules, which shall provide for—
(A) the operation and administration of
the public regulatory organization, including the
compensation of the members of the public reg-
ulatory organization, which shall be at a level
comparable to similar professional positions in
the private sector;
(B) the appointment and compensation of
such employees, attorneys, and consultants as
may be necessary or appropriate to carry out
the public regulatory organization’s functions
under this section;
(C) the registration of public accounting
firms with the public regulatory organization
pursuant to subsection (c); and
(D) the matters described in subsections
(d) and (e).
(9) FUNDING OF THE PUBLIC REGULATORY OR-
GANIZATION.—
(A) SELF-FINANCING.—The public regu-
latory organization shall establish rules for the
assessment and collection of fees sufficient to
recover the costs and expenses of the public
regulatory organization and to permit the pub-
lic regulatory organization to operate on a self-
financing basis.
(B) ASSESSMENT AND COLLECTION.—The
fees shall be assessed on issuers that file any fi-
nancial statements, reports, or other documents
with the Commission under the securities laws
that must be certified by a public accounting
firm. The fees shall be collected through the
public accounting firm that certifies such state-
ment, report, or document.
(C) PAYMENT A CONDITION OF REGISTRA-
TION.—The public regulatory organization shall
terminate or suspend the registration under
subsection (c) of any public accounting firm
that fails to collect and transmit a fee assessed
under this subsection.
(c) REGISTRATION WITH PUBLIC REGULATORY OR-
GANIZATION.—
(1) REGISTRATION
REQUIRED.—Beginning 1
year after the date on which all initial members of
the public regulatory organization have been selected
in accordance with subsection (b), it shall be unlaw-
ful for a public accounting firm to furnish an ac-
countant’s report on any financial statement, report,
or other document required to be filed with the
Commission under any Federal securities law, unless
such firm is registered with the public regulatory or-
ganization.
(2) APPLICATION FOR REGISTRATION.—A pub-
lic accounting firm may be registered under this
subsection by filing with the public regulatory orga-
nization an application for registration in such form
and containing such information as the public regu-
latory organization, by rule, may prescribe. Each ap-
plication shall include—
(A) the names of all clients of the public
accounting firm for which the firm furnishes ac-
countant’s reports on financial statements, re-
ports, or other documents filed with the Com-
mission;
(B) financial information of the public ac-
counting firm for its most recent fiscal year, in-
cluding its annual revenues from accounting
and auditing services, its assets, and its liabil-
ities;
(C) a statement of the public accounting
firm’s policies and procedures with respect to
quality control of its accounting and auditing
practice;
(D) information relating to criminal, civil,
or administrative actions or formal disciplinary
proceedings pending against such firm, or any
person associated with such firm, in connection
with an accountant’s report furnished by such
firm;
(E) a list of persons associated with the
public accounting firm who are certified public
accountants, including any State professional li-
cense or certification number for each such per-
son; and
(5) CONFIDENTIALITY.—The public regulatory
organization may, by rule, designate portions of the
filings required pursuant to paragraphs (2) and (3)
as privileged and confidential. This paragraph shall
be considered to be a statute described in section
552(b)(3)(B) of title 5, United States Code, for pur-
poses of that section 552.
(d) DUTIES REGARDING QUALITY CONTROL.—
(1) OBJECTIVES; 
ATTAINMENT.—The public
regulatory organization shall seek to promote a high
level of professional conduct among public account-
ing firms registered with the public regulatory orga-
nization, to improve the quality of audit services pro-
vided by such firms, and, in general, to protect in-
vestors and promote the public interest. The public
regulatory 
organization 
shall 
attain 
these
objectives—
(A) by establishing standards regarding
the performance of financial audits in accord-
ance with the requirements of paragraph (2);
(B) by the direct performance of quality
reviews and inspections of audits in accordance
with the requirements of paragraphs (3) and
(4); and
(C) by the supervision and oversight of
peer review organizations in accordance with
the requirements of paragraph (5).
(2) AUDIT QUALITY STANDARDS.—
(A) IN GENERAL.—The public regulatory
organization shall, by rule, establish quality
standards applicable to the conduct of audit
services provided by public accounting firms.
Such standards shall include—
(i) independence standards;
(ii) quality control standards;
(iii) professional and ethical stand-
ards; and
(iv) such other standards as the public
regulatory organization determines to be
necessary to carry out the objectives speci-
fied in paragraph (1).
(B) 
SPECIFIC
CONTENTS
OF
STAND-
ARDS.—In establishing the quality standards
required by subparagraph (A), the public regu-
latory organization shall also establish—
(i) procedures for the monitoring by
public accounting firms of their compliance
with professional ethical standards estab-
lished by the public regulatory organiza-
tion, including its independence from its
audit clients;
(ii) procedures for the assignment of
personnel to audit engagements;
(iii) procedures for consultation within
a public accounting firm or with other ac-
countants relating to accounting and audit-
ing questions;
(iv) procedures for the supervision of
audit work;
(v) procedures for the review of deci-
sions to accept and retain audit clients;
(vi) procedures for the internal inspec-
tion of the public accounting firms own
compliance with such policies and proce-
dures;
(vii) requirements for public account-
ing firms to prepare and maintain for a
period of no less than 7 years, audit work
papers and other information related to
any audit report, in sufficient detail to
support the conclusions reached in an
audit report issued by a public accounting
firm; and
(viii) procedures establishing ‘‘concur-
ring’’ or ‘‘second’’ partner review systems
for the evaluation and review of audit work
by a partner that is not in charge of the
conduct of the audit.
(3) DIRECT REVIEWS OF PUBLIC ACCOUNTING
FIRMS.—The public regulatory organization shall, by
rule, establish procedures for the conduct of a con-
tinuing program of inspections of each public ac-
counting firm registered with the public regulatory
organization to assess compliance by such firm, and
by persons associated with such firm, with applicable
provisions of this title, the securities laws, the rules
and regulations thereunder, the rules adopted by the
public regulatory organization, and professional
standards. Except as provided in paragraph (5), the
public regulatory organization shall annually inspect
each public accounting firm that audits more than
100 issuers on an ongoing annual basis, to the ex-
tent practicable, and all other public accounting
firms no less than at least once every 3 years. In
conducting such inspections, the public regulatory
organization shall, among other things, inspect se-
lected audit and review engagements. The review
shall include evaluations of the firm’s quality control
procedures and compliance with all legal and ethical
requirements. In connection with each review, the
public regulatory organization shall prepare a report
of its findings and such report, accompanied by any
letter of comments by the public regulatory organi-
zation or reviewer and any letter of response from
the firm under review, shall be made available to the
public. The public regulatory organization shall take
any appropriate disciplinary or remedial action
based on its findings after completion of such review
and an opportunity for a hearing.
(4) QUALITY
REVIEW
OF
INDIVIDUAL
AU-
DITS.—The public regulatory organization shall, by
rule, establish procedures for the conduct of direct
inspection and review of individual audits of issuers
and standards under which it will evaluate audit
service quality. A finding by the public regulatory
organization that an individual audit of an issuer did
or did not meet the standards of the public regu-
latory organization with respect to the quality of the
audit shall not be construed in any action arising
out of the securities laws as indicative of compliance
or noncompliance with the securities laws or with
any standard of liability arising thereunder.
100
(5) USE OF PROFESSIONAL PEER REVIEW OR-
GANIZATIONS.—
(A) OPTION TO UTILIZE PEER REVIEW OR-
GANIZATIONS.—The public regulatory organiza-
tion may, by rule, establish requirements for
the use of peer review organizations for the
purposes of conducting the continuing program
of inspections to assess compliance as required
by paragraph (3) of each public accounting firm
registered with the public regulatory organiza-
tion. Such rule shall provide for appropriate
oversight and supervision of such peer review
organization by the public regulatory organiza-
tion to ensure that such inspections meet the
requirements of such paragraph.
(B) PENALTIES.—If the public regulatory
organization establishes requirements for the
conduct of peer reviews under subparagraph
(A), the violation by a public accounting firm or
a person associated with such a firm of a rule
of the peer review organization to which the
firm belongs shall constitute grounds for—
(i) the imposition of disciplinary sanc-
tions by the public regulatory organization
pursuant to subsection (e); and
101
(ii) denial to the public accounting
firm or person associated with such firm of
the privilege of appearing or practicing be-
fore the Commission.
(6) CONFIDENTIALITY.—Except as otherwise
provided by this section, all reports, memoranda,
and other information provided to the public regu-
latory organization solely for purposes of paragraph
(3) or (4), or to a peer review organization certified
by the public regulatory organization, shall be con-
fidential, unless such confidentiality is expressly
waived by the person or entity that created or pro-
vided the information.
(e) DISCIPLINARY DUTIES OF PUBLIC REGULATORY
ORGANIZATION.—The public regulatory organization shall
have the following duties and powers:
(1) INVESTIGATIONS AND DISCIPLINARY PRO-
CEEDINGS.—The public regulatory organization shall
establish fair procedures for investigating and dis-
ciplining public accounting firms registered with the
public regulatory organization, and persons associ-
ated with such firms, for violations of the Federal
securities laws, the rules or regulations issued there-
under, the rules adopted by the public regulatory or-
ganization, or professional standards in connection
102
with the preparation of an accountant’s report on a
financial statement, report, or other document filed
with the Commission.
(2) INVESTIGATION PROCEDURES.—
(A) IN GENERAL.—The public regulatory
organization may conduct an investigation of
any act, practice, or omission by a public ac-
counting firm registered with the public regu-
latory organization, or by any person associated
with such firm, in connection with the prepara-
tion of an accountant’s report on a financial
statement, report, or other document filed with
the Commission that may violate any applicable
provision of the Federal securities laws, the
rules and regulations issued thereunder, the
rules adopted by the public regulatory organiza-
tion, or professional standards, whether such
act, practice, or omission is the subject of a
criminal, civil, or administrative action, or a
disciplinary proceeding, or otherwise is brought
to the attention of the public regulatory organi-
zation.
(B) POWERS OF PUBLIC REGULATORY OR-
GANIZATION.—For purposes of an investigation
under this paragraph, the public regulatory or-
103
ganization may, in addition to such other ac-
tions as the public regulatory organization de-
termines to be necessary or appropriate—
(i) require the testimony of any per-
son associated with a public accounting
firm registered with the public regulatory
organization, with respect to any matter
which the public regulatory organization
considers relevant or material to the inves-
tigation;
(ii) require the production of audit
workpapers and any other document or in-
formation in the possession of a public ac-
counting firm registered with the public
regulatory organization, or any person as-
sociated with such firm, wherever domi-
ciled, that the public regulatory organiza-
tion considers relevant or material to the
investigation, and may examine the books
and records of such firm to verify the ac-
curacy of any documents or information so
supplied; and
(iii) request the testimony of any per-
son and the production of any document in
the possession of any person, including a
104
client of a public accounting firm reg-
istered with the public regulatory organiza-
tion, that the public regulatory organiza-
tion considers relevant or material to the
investigation.
(C) SUSPENSION OR REVOCATION OF REG-
ISTRATION FOR NONCOMPLIANCE.—The refusal
of any person associated with a public account-
ing firm registered with the public regulatory
organization to testify, or the refusal of any
such person to produce documents or otherwise
cooperate with the public regulatory organiza-
tion, in connection with an investigation or
hearing under this section, shall be cause for
suspending or barring such person from associ-
ating with a public accounting firm registered
with the public regulatory organization, or such
other appropriate sanction authorized by para-
graph (3)(B) as the public regulatory organiza-
tion shall determine. The refusal of any public
accounting firm registered with the public regu-
latory organization to produce documents or
otherwise cooperate with the public regulatory
organization, in connection with an investiga-
tion or hearing under this section, shall be
108
curities laws, the rules or regulations issued
thereunder, the rules adopted by the public reg-
ulatory organization, or professional standards,
the public regulatory organization may impose
such disciplinary sanctions as it deems appro-
priate, including—
(i) temporary or permanent revocation
or suspension of registration under this
section;
(ii) limitation of activities, functions,
and operations;
(iii) fine;
(iv) censure;
(v) in the case of a person associated
with a public accounting firm, suspension
or bar from being associated with a public
accounting firm registered with the public
regulatory organization; and
(vi) any such other disciplinary sanc-
tion or remedial action as the public regu-
latory organization has established by rule
that the public regulatory organization de-
termines to be appropriate to prevent the
recurrence of the violation.
109
(C) STATEMENT
REQUIRED.—A deter-
mination by the public regulatory organization
to impose a disciplinary sanction shall be sup-
ported by a written statement by the public reg-
ulatory organization that shall be made avail-
able to the public and that sets forth—
(i) any act or practice in which the
public accounting firm or person associated
with such firm has been found to have en-
gaged, or which such firm or person has
been found to have omitted;
(ii) the specific provision of the Fed-
eral securities laws, the rules or regula-
tions issued thereunder, the rules adopted
by the public regulatory organization, or
professional standards which any such act,
practice, or omission is deemed to violate;
and
(iii) the sanction imposed and the rea-
sons therefor.
(D) PROHIBITION
ON
ASSOCIATION.—It
shall be unlawful—
(i) for any person as to whom a sus-
pension or bar is in effect willfully to be or
to become associated with a public ac-
110
counting firm registered with the public
regulatory organization, in connection with
the preparation of an accountant’s report
on any financial statement, report, or other
document filed with the Commission, with-
out the consent of the public regulatory or-
ganization or the Commission; and
(ii) for any public accounting firm
registered with the public regulatory orga-
nization to permit such a person to be-
come, or remain, associated with such firm
without the consent of the public regu-
latory organization or the Commission, if
such firm knew or, in the exercise of rea-
sonable care should have known, of such
suspension or bar.
(4) REPORTING OF SANCTIONS.—If the public
regulatory organization imposes a disciplinary sanc-
tion against a public accounting firm, or a person
associated with such firm, the public regulatory or-
ganization shall report such sanction to the Commis-
sion, to the appropriate State or foreign licensing
public regulatory organization or public regulatory
organizations with which such firm or such person
is licensed or certified to practice public accounting,
111
and to the public. The information reported shall
include—
(A) the name of the public accounting
firm, or person associated with such firm,
against whom the sanction is imposed;
(B) a description of the acts, practices, or
omissions upon which the sanction is based;
(C) the nature of the sanction; and
(D) such other information respecting the
circumstances of the disciplinary action (includ-
ing the name of any client of such firm affected
by such acts, practices, or omissions) as the
public regulatory organization deems appro-
priate.
(5) DISCOVERY AND ADMISSIBILITY OF PUBLIC
REGULATORY ORGANIZATION MATERIAL.—
(A) DISCOVERABILITY.—
(i) IN GENERAL.—Except as provided
in subparagraph (C), all reports, memo-
randa, and other information prepared,
collected, or received by the public regu-
latory organization, and the deliberations
and other proceedings of the public regu-
latory organization and its employees and
agents in connection with an investigation
112
or disciplinary proceeding under this sec-
tion shall not be subject to any form of
civil discovery, including demands for pro-
duction of documents and for testimony of
individuals, in connection with any pro-
ceeding in any State or Federal court, or
before any State or Federal administrative
agency. This subparagraph shall not apply
to any information provided to the public
regulatory organization that would have
been subject to discovery from the person
or entity that provided it to the public reg-
ulatory organization, but is no longer avail-
able from that person or entity.
(ii) EXEMPTION.—Submissions to the
public regulatory organization by or on be-
half of a public accounting firm or person
associated with such a firm or on behalf of
any other participant in a public regulatory
organization proceeding (other than a pub-
lic hearing), including documents gen-
erated by the public regulatory organiza-
tion itself, shall be exempt from discovery
to the same extent as the material de-
scribed in clause (i), whether in the posses-
113
sion of the public regulatory organization
or any other person, if such submission—
(I) is prepared specifically for the
purpose of the public regulatory orga-
nization proceeding; and
(II) addresses the merits of the
issues under investigation by the pub-
lic regulatory organization.
(iii) HEARINGS
PUBLIC.—Except as
otherwise ordered by the public regulatory
organization on its own motion or on the
motion of a party, all hearings under this
paragraph shall be open to the public.
(B) ADMISSIBILITY.—
(i) IN GENERAL.—Except as provided
in subparagraph (C), all reports, memo-
randa, and other information prepared,
collected, or received by the public regu-
latory organization, the deliberations and
other proceedings of the public regulatory
organization and its employees and agents
in connection with an investigation or dis-
ciplinary proceeding under this section, the
fact that an investigation or disciplinary
proceeding has been commenced, and the
114
public regulatory organization’s determina-
tion with respect to any investigation or
disciplinary proceeding shall be inadmis-
sible in any proceeding in any State or
Federal court or before any State or Fed-
eral administrative agency.
(ii) TREATMENT OF CERTAIN DOCU-
MENTS.—Submissions to the public regu-
latory organization by or on behalf of a
public accounting firm or person associated
with such a firm or on behalf of any other
participant in a public regulatory organiza-
tion proceeding, including documents gen-
erated by the public regulatory organiza-
tion itself, shall be inadmissible to the
same extent as the material described in
clause (i), if such submission—
(I) is prepared specifically for the
purpose of the public regulatory orga-
nization proceedings; and
(II) addresses the merits of the
issues under investigation by the pub-
lic regulatory organization.
(C) AVAILABILITY AND ADMISSIBILITY OF
INFORMATION.—
115
(i) IN GENERAL.—All information re-
ferred to in subparagraphs (A) and (B)
shall be—
(I) available to the Commission;
(II) available to any other Fed-
eral department or agency in connec-
tion with the exercise of its regulatory
authority to the extent that such in-
formation would be available to such
agency from the Commission as a re-
sult of a Commission enforcement in-
vestigation;
(III) available to Federal and
State authorities in connection with
any criminal investigation or pro-
ceeding;
(IV) admissible in any action
brought by the Commission or any
other Federal department or agency
pursuant to its regulatory authority,
to the extent that such information
would be available to such agency
from the Commission as a result of a
Commission enforcement investigation
and in any criminal action; and
116
(V) available to State licensing
public regulatory organizations to the
extent authorized in paragraph (6).
(ii) OTHER LIMITATIONS.—Any docu-
ments or other information provided to the
Commission or other authorities pursuant
to clause (i) shall be subject to the limita-
tions on discovery and admissibility set
forth in subparagraphs (A) and (B).
(6) PARTICIPATION BY STATE LICENSING PUB-
LIC REGULATORY ORGANIZATIONS.—
(A) NOTICE.—When the public regulatory
organization institutes an investigation pursu-
ant to paragraph (2)(A), it shall notify the
State licensing public regulatory organizations
in the States in which the public accounting
firm or person associated with such firm en-
gaged in the act or failure to act alleged to have
violated professional standards, of the pendency
of the investigation, and shall invite the State
licensing public regulatory organizations to par-
ticipate in the investigation.
(B) ACCEPTANCE BY STATE PUBLIC REGU-
LATORY
ORGANIZATION.—If a State licensing
public regulatory organization elects to join in
117
the investigation, its representatives shall par-
ticipate, pursuant to rules established by the
public regulatory organization, in investigating
the matter and in presenting the evidence justi-
fying the charges in any hearing pursuant to
paragraph (3)(A).
(C) STATE
SANCTIONS
PERMITTED.—If
the public regulatory organization or the Com-
mission imposes a sanction upon a public ac-
counting firm or person associated with such a
firm, and that determination either is not sub-
jected to judicial review or is upheld on judicial
review, a State licensing public regulatory orga-
nization may impose a sanction on the basis of
the public regulatory organization’s report pur-
suant to paragraph (4). Any sanction imposed
by the State licensing public regulatory organi-
zation under this clause shall be inadmissible in
any proceeding in any State or Federal court or
before any State or Federal administrative
agency.
(f) REVIEW AND APPROVAL OF RULES.—
(1) SUBMISSION, 
PUBLICATION, 
AND
COM-
MENT.—Each recognized public regulatory organiza-
tion shall file with the Commission, in accordance
118
with such rules as the Commission may prescribe,
copies of any proposed rule or any proposed change
in, addition to, or deletion from the rules of such
recognized public regulatory organization (herein-
after in this subsection collectively referred to as a
‘‘proposed rule change’’) accompanied by a concise
general statement of the basis and purpose of such
proposed rule change. The Commission shall, upon
the filing of any proposed rule change, publish notice
thereof together with the terms of substance of the
proposed rule change or a description of the subjects
and issues involved. The Commission shall give in-
terested persons an opportunity to submit written
data, views, and arguments concerning such pro-
posed rule change. No proposed rule change shall
take effect unless approved by the Commission or
otherwise permitted in accordance with the provi-
sions of this subsection.
(2) APPROVAL OR PROCEEDINGS.—Within 35
days of the date of publication of notice of the filing
of a proposed rule change in accordance with para-
graph (1) of this subsection, or within such longer
period as the Commission may designate up to 90
days of such date if it finds such longer period to
be appropriate and publishes its reasons for so find-
119
ing or as to which the recognized public regulatory
organization consents, the Commission shall—
(A) by order approve such proposed rule
change; or
(B) institute proceedings to determine
whether the proposed rule change should be dis-
approved. Such proceedings shall include notice
of the grounds for disapproval under consider-
ation and opportunity for hearing and be con-
cluded within 180 days of the date of publica-
tion of notice of the filing of the proposed rule
change. At the conclusion of such proceedings
the Commission, by order, shall approve or dis-
approve such proposed rule change. The Com-
mission may extend the time for conclusion of
such proceedings for up to 60 days if it finds
good cause for such extension and publishes its
reasons for so finding or for such longer period
as to which the recognized public regulatory or-
ganization consents.
(3) BASIS FOR APPROVAL OR DISAPPROVAL.—
The Commission shall approve a proposed rule
change of a recognized public regulatory organiza-
tion if it finds that such proposed rule change is
consistent with the requirements of this title and the
120
rules and regulations thereunder applicable to such
organization. The Commission shall disapprove a
proposed rule change of a recognized public regu-
latory organization if it does not make such finding.
The Commission shall not approve any proposed rule
change prior to the 30th day after the date of publi-
cation of notice of the filing thereof, unless the Com-
mission finds good cause for so doing and publishes
its reasons for so finding.
(4) RULES EFFECTIVE UPON FILING.—
(A) Notwithstanding the provisions of
paragraph (2) of this subsection, a proposed
rule change may take effect upon filing with the
Commission if designated by the recognized
public regulatory organization as (i) consti-
tuting a stated policy, practice, or interpreta-
tion with respect to the meaning, administra-
tion, or enforcement of an existing rule of the
recognized public regulatory organization, (ii)
establishing or changing a due, fee, or other
charge imposed by the recognized public regu-
latory organization, or (iii) concerned solely
with the administration of the recognized public
regulatory organization or other matters which
the Commission, by rule, consistent with the
121
public interest and the purposes of this sub-
section, may specify as outside the provisions of
such paragraph (2).
(B) Notwithstanding any other provision of
this subsection, a proposed rule change may be
put into effect summarily if it appears to the
Commission that such action is necessary for
the protection of investors, or otherwise in ac-
cordance with the purposes of this title. Any
proposed rule change so put into effect shall be
filed promptly thereafter in accordance with the
provisions of paragraph (1) of this subsection.
(C) Any proposed rule change of a recog-
nized public regulatory organization which has
taken effect pursuant to subparagraph (A) or
(B) of this paragraph may be enforced by such
organization to the extent it is not inconsistent
with the provisions of this title, the securities
laws, the rules and regulations thereunder, and
applicable Federal and State law. At any time
within 60 days of the date of filing of such a
proposed rule change in accordance with the
provisions of paragraph (1) of this subsection,
the Commission summarily may abrogate the
change in the rules of the recognized public reg-
122
ulatory organization made thereby and require
that the proposed rule change be refiled in ac-
cordance with the provisions of paragraph (1)
of this subsection and reviewed in accordance
with the provisions of paragraph (2) of this
subsection, if it appears to the Commission that
such action is necessary or appropriate in the
public interest, for the protection of investors,
or otherwise in furtherance of the purposes of
this title. Commission action pursuant to the
preceding sentence shall not affect the validity
or force of the rule change during the period it
was in effect, shall not be subject to court re-
view, and shall not be deemed to be ‘‘final agen-
cy action’’ for purposes of section 704 of title
5, United States Code.
(g) COMMISSION ACTION TO CHANGE RULES.—The
Commission, by rule, may abrogate, add to, and delete
from (hereinafter in this subsection collectively referred to
as ‘‘amend’’) the rules of a recognized public regulatory
organization as the Commission deems necessary or ap-
propriate to insure the fair administration of the recog-
nized public regulatory organization, to conform its rules
to requirements of this title, the securities laws, and the
rules and regulations thereunder applicable to such orga-
123
nization, or otherwise in furtherance of the purposes of
this title, in the following manner:
(1) The Commission shall notify the recognized
public regulatory organization and publish notice of
the proposed rulemaking in the Federal Register.
The notice shall include the text of the proposed
amendment to the rules of the recognized public reg-
ulatory organization and a statement of the Com-
mission’s reasons, including any pertinent facts, for
commencing such proposed rulemaking.
(2) The Commission shall give interested per-
sons an opportunity for the oral presentation of
data, views, and arguments, in addition to an oppor-
tunity to make written submissions. A transcript
shall be kept of any oral presentation.
(3) A rule adopted pursuant to this subsection
shall incorporate the text of the amendment to the
rules of the recognized public regulatory organiza-
tion and a statement of the Commission’s basis for
and purpose in so amending such rules. This state-
ment shall include an identification of any facts on
which the Commission considers its determination so
to amend the rules of the recognized public regu-
latory agency to be based, including the reasons for
124
the Commission’s conclusions as to any of such facts
which were disputed in the rulemaking.
(4)(A) Except as provided in paragraphs (1)
through (3) of this subsection, rulemaking under
this subsection shall be in accordance with the pro-
cedures specified in section 553 of title 5, United
States Code, for rulemaking not on the record.
(B) Nothing in this subsection shall be con-
strued to impair or limit the Commission’s power to
make, or to modify or alter the procedures the Com-
mission may follow in making, rules and regulations
pursuant to any other authority under the securities
laws.
(C) Any amendment to the rules of a recog-
nized public regulatory organization made by the
Commission pursuant to this subsection shall be con-
sidered for all purposes to be part of the rules of
such recognized public regulatory organization and
shall not be considered to be a rule of the Commis-
sion.
(h) COMMISSION OVERSIGHT OF THE PRO.—
(1) RECORDS
AND
EXAMINATIONS.—A public
regulatory organization shall make and keep for pre-
scribed periods such records, furnish such copies
thereof, and make and disseminate such reports as
125
the Commission, by rule, prescribes as necessary or
appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the pur-
poses of this title or the securities laws.
(2) ADDITIONAL DUTIES; SPECIAL REVIEWS.—
A public regulatory organization shall perform such
other duties or functions as the Commission, by rule
or order, determines are necessary or appropriate in
the public interest or for the protection of investors
and to carry out the purposes of this title and the
securities laws, including conducting a special review
of a particular public accounting firm’s quality con-
trol system or a special review of a particular aspect
of some or all public accounting firms’ quality con-
trol systems.
(3) ANNUAL REPORT; PROPOSED BUDGET.—
(A) SUBMISSION OF ANNUAL REPORT AND
BUDGET.—A public regulatory organization
shall submit an annual report and its proposed
budget to the Commission for review and ap-
proval, by order, at such times and in such
form as the Commission shall prescribe.
(B) CONTENTS
OF
ANNUAL
REPORT.—
Each annual report required by subparagraph
(A) shall include—
126
(i) a detailed description of the activi-
ties of the public regulatory organization;
(ii) the audited financial statements of
the public regulatory organization;
(iii) a detailed explanation of the fees
and charges imposed by the public regu-
latory 
organization 
under 
subsection
(b)(9); and
(iv) such other matters as the public
regulatory organization or the Commission
deems appropriate.
(C) TRANSMITTAL OF ANNUAL REPORT TO
CONGRESS.—The Commission shall transmit
each approved annual report received under
subparagraph (A) to the Committee on Finan-
cial Services of the United States House of
Representatives and the Committee on Bank-
ing, Housing, and Urban Affairs of the United
States Senate. At the same time it transmits a
public regulatory organization’s annual report
under this subparagraph, the Commission shall
include a written statement of its views of the
functioning and operations of the public regu-
latory organization.
127
(D) 
PUBLIC
AVAILABILITY.—Following
transmittal of each approved annual report
under subparagraph (C), the Commission and
the public regulatory organization shall make
the approved annual report publicly available.
(4) DISAPPROVAL OF ELECTION OF PRO MEM-
BER.—The Commission is authorized, by order, if in
its opinion such action is necessary or appropriate in
the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title
or the securities laws, to disapprove the election of
any member of a public regulatory organization if
the Commission determines, after notice and oppor-
tunity for hearing, that the person elected is unfit
to serve on the public regulatory organization.
(i) CLARIFICATION OF APPLICATION OF PRO AU-
THORITY.—The authority granted to any such organiza-
tion in this section shall only apply to the actions of ac-
countants related to the certification of financial state-
ments required by securities laws and not other actions
or actions for other clients of the accounting firm or any
accountant that does not certify financial statements for
publicly traded companies.
(j) DEADLINE FOR RULEMAKING.—The Commission
shall—