107TH CONGRESS
2D SESSION
H. R. 5118
AN ACT
To provide for enhanced penalties for accounting
and auditing improprieties at publicly traded
companies, and for other purposes.
107TH CONGRESS
2D SESSION
H. R. 5118
AN ACT
To provide for enhanced penalties for accounting and audit-
ing improprieties at publicly traded companies, and for
other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Corporate Fraud Ac-
countability Act of 2002’’.
SEC. 2. HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE
FRAUD.
(a) MAIL FRAUD.—Section 1341 of title 18, United
5 States Code, is amended by striking ‘‘five’’ and inserting
‘‘20’’.
(b) WIRE FRAUD.—Section 1343 of title 18, United
States Code, is amended by striking ‘‘five’’ and inserting
‘‘20’’.
(c) SECURITIES FRAUD.—Chapter 63 of title 18,
United States Code, is amended by adding at the end the
following:
‘‘§ 1348. Securities fraud
‘‘Whoever knowingly executes 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.’’.
(d) 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:
‘‘1348. Securities fraud.’’.
SEC. 3. TAMPERING WITH A RECORD OR OTHERWISE IM-
PEDING AN OFFICIAL PROCEEDING.
Section 1512 of title 18, United States Code, is
amended—
(1) by redesignating subsections (c) through (i)
as subsections (d) through (j), respectively; and
(2) by inserting after subsection (b) the fol-
lowing new subsection:
‘‘(c) Whoever corruptly—
‘‘(1) alters, destroys, mutilates, or conceals a
record, document, or other object, or attempts to do
so, with the intent to impair the object’s integrity or
availability for use in an official proceeding; or
‘‘(2) otherwise obstructs, influences, or impedes
any official proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than
20 years, or both.’’.
SEC. 4. AMENDMENT TO THE FEDERAL SENTENCING
GUIDELINES.
(a) REQUEST FOR IMMEDIATE CONSIDERATION BY
THE UNITED STATES SENTENCING COMMISSION.—Pur-
suant to its authority under section 994(p) of title 28,
United States Code, and in accordance with this section,
the United States Sentencing Commission is requested
to—
(1) promptly review the sentencing guidelines
applicable to securities and accounting fraud and re-
lated offenses;
(2) expeditiously consider the promulgation of
new sentencing guidelines or amendments to existing
sentencing guidelines to provide an enhancement for
officers or directors of publicly traded corporations
who commit fraud and related offenses; and
(3) submit to Congress an explanation of ac-
tions taken by the Sentencing Commission pursuant
to paragraph (2) and any additional policy rec-
ommendations the Sentencing Commission may have
for combating offenses described in paragraph (1).
(b) CONSIDERATIONS IN REVIEW.—In carrying out
this section, the Sentencing Commission is requested to—
(1) ensure that the sentencing guidelines and
policy statements reflect the serious nature of securi-
ties, pension, and accounting fraud and the need for
aggressive and appropriate law enforcement action
to prevent such offenses;
(2) assure reasonable consistency with other
relevant directives and with other guidelines;
(3) account for any aggravating of mitigating
circumstances that might justify exceptions, includ-
ing circumstances for which the sentencing guide-
lines currently provide sentencing enhancements;
(4) ensure that guideline offense levels and en-
hancements for an obstruction of justice offense are
adequate in cases where documents or other physical
evidence are actually destroyed or fabricated;
(5) ensure that the guideline offense levels and
enhancements under United States Sentencing
Guideline 2B1.1 (as in effect on the date of enact-
ment of this Act) are sufficient for a fraud offense
when the number of victims adversely involved is sig-
nificantly greater than 50;
(6) make any necessary conforming changes to
the sentencing guidelines; and
(7) assure that the guidelines adequately meet
the purposes of sentencing as set forth in section
3553 (a)(2) of title 18, United States Code.
(c) EMERGENCY AUTHORITY AND DEADLINE FOR
COMMISSION ACTION.—The United States Sentencing
Commission is requested to promulgate the guidelines or
amendments provided for under this sections as soon as
practicable, and in any event not later than the 120 days
after the date of enactment of this Act, in accordance with
the procedures sent forth in section 21(a) of the Sen-
tencing Reform Act of 1987, as though the authority
under that Act had not expired.
SEC. 5. DEBTS NONDISCHARGEABLE IF INCURRED IN VIO-
LATION 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) is a claim for—
‘‘(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), any of the State se-
curities laws, or any regulation or order
issued under such Federal or State securi-
ties 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. 6. CORPORATE RESPONSIBILITY FOR FINANCIAL RE-
PORTS.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the fol-
lowing:
‘‘§ 1349. 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 that those financial statements
fairly and accurately represent, in all material respects,
the operations and financial condition of the issuer.
‘‘(c) CRIMINAL PENALTIES.—Whoever—
‘‘(1) knowingly violates this section shall be
fined not more than $1,000,000, or imprisoned not
more than 10 years, or both; or
‘‘(2) willfully violates this section shall be fined
not more than $5,000,000, or imprisoned not more
than 20 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:
‘‘1349. Failure of corporate officers to certify financial reports.’’.
SEC. 7. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMI-
NAL OFFENSES.
(a) IN GENERAL.—Chapter 1 of title 18, United
States Code, is amended by inserting before section 2 the
following:
‘‘§ 1. Attempt and conspiracy
‘‘Any person who attempts or conspires to commit
any offense against the United States shall be subject to
the same penalties as those prescribed for the offense, the
commission of which was the object of the attempt or con-
spiracy.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of title 18, United States Code, is amend-
ed so that the item relating to section 1 reads as follows:
‘‘1. Attempt and conspiracy.’’.
SEC. 8. INCREASED CRIMINAL PENALTIES UNDER SECURI-
TIES 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. 9. TEMPORARY FREEZE AUTHORITY FOR THE SECURI-
TIES AND EXCHANGE COMMISSION.
(a) IN GENERAL.—Section 21C(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u–3(c)) is amended
by adding at the end the following:
‘‘(3) TEMPORARY FREEZE.—
‘‘(A) IN GENERAL.—
‘‘(i) 
ISSUANCE
OF
TEMPORARY
ORDER.—Whenever, during the course of a
lawful investigation involving possible vio-
lations of the Federal securities laws by an
issuer of publicly traded securities or any
of 
its 
directors, 
officers, 
partners,
controling persons, agents, or employees, it
shall appear to the Commission that it is
likely that the issuer will make extraor-
dinary payments (whether compensation of
otherwise) to any of the foregoing persons,
the Commission may petition a Federal
district court for a temporary order requir-
ing the issuer to escrow, subject to court
supervision, those payments in an interest-
bearing account for 45 days.
‘‘(ii) STANDARD.—A temporary order
shall be entered under clause (i), only after
notice and opportunity for a hearing, un-
less the court determines that notice and
hearing prior to entry of the order would
be impracticable or contrary to the public
interest.
‘‘(iii) EFFECTIVE
PERIOD.—A tem-
porary order issued under clause (i)
shall—
‘‘(I) 
become 
effective 
imme-
diately;
‘‘(II) be served upon the parties
subject to it; and
‘‘(III) unless set aside, limited or
suspended by a court of competent ju-
risdiction, shall remain effective and
enforceable for 45 days.
‘‘(iv) 
EXTENSIONS
AUTHORIZED.—
The effective period of an order under this
subparagraph may be extended by the
court upon good cause shown for not
longer than 45 additional days, provided
that the combined period of the order shall
not exceed 90 days.
‘‘(B) PROCESS
ON DETERMINATION
OF
VIOLATIONS.—
‘‘(i) VIOLATIONS
CHARGED.—If the
issuer or other person described in sub-
paragraph (A) is charged with any viola-
tion of the Federal securities laws before
the expiration of the effective period of a
temporary order under subparagraph (A)
(including any applicable extension period),
the order shall remain in effect, subject to
court approval, until the conclusion of any
legal proceedings related thereto, and the
affected issuer or other person, shall have
the right to petition the court for review of
the order.
‘‘(ii) VIOLATIONS NOT CHARGED.—If
the issuer or other person described in sub-
paragraph (A) is not charged with any vio-
lation of the Federal securities laws before
the expiration of the effective period of a
temporary order under subparagraph (A)
(including any applicable extension period),
the escrow shall terminate at the expira-
tion of the 45-day effective period (or the
expiration of any extension period, as ap-
plicable), and the disputed payments (with
accrued interest) shall be returned to the
issuer or other affected person.’’.
(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)’’.
SEC. 10. AUTHORITY OF THE COMMISSION TO PROHIBIT
PERSONS FROM SERVING AS OFFICERS OR
DIRECTORS.
(a) SECURITIES EXCHANGE ACT OF 1934.—Section
21C of the Securities Exchange Act of 1934 (15 U.S.C.
78u–3) is amended by adding at the end the following:
‘‘(f) AUTHORITY OF THE COMMISSION TO PROHIBIT
PERSONS FROM SERVING AS OFFICERS OR DIRECTORS.—
In any cease-and-desist proceeding under subsection (a),
the Commission may issue an order to prohibit, condi-
tionally or unconditionally, and permanently or for such
period of time as it shall determine, any person who has
violated section 10(b) or the rules or regulations there-
under, from acting as an officer or director of any issuer
that has a class of securities registered pursuant to sec-
tion, or that is required to file reports pursuant to section
(d), if the conduct of that person demonstrates unfitness
to serve as an officer or director of any such issuer.’’.
(b) 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 of the following:
‘‘(f) AUTHORITY OF THE COMMISSION TO PROHIBIT
PERSONS FROM SERVING AS OFFICERS OR DIRECTORS.—
In any cease-and-desist proceeding under subsection (a),
the Commission may issue an order to prohibit, condi-
tionally or unconditionally, and permanently or for such
period of time as it shall determine, any person who has
violated section 17(a)(1) or the rules or regulations there-
under, from acting as an officer or director of any issuer
that has a class of securities registered pursuant to section
of the Securities Exchange Act of 1934, or that is required
to file reports pursuant to section 15(d) of that Act, if
the conduct of that person demonstrates unfitness to serve
as an officer or director of any such issuer.’’.
SEC. 11. RETALIATION AGAINST INFORMANT.
(a) IN GENERAL.—Section 1513 of title 18, United
States Code, is amended by adding at the end the fol-
lowing:
‘‘(e) Whoever knowingly, with the intent to retaliate,
takes any action harmful to any person, including inter-
ference with the lawful employment or livelihood of any
person, for providing to a law enforcement officer any
truthful information relating to the commission or possible
commission of any Federal offense, shall be fined under
this title or imprisoned not more than 10 years, or both.’’.
Passed the House of Representatives July 16, 2002.
Attest:
Clerk.