‘‘(I) is prepared specifically for
the purpose of the Board proceeding;
and
‘‘(II) addresses the merits of the
issues under investigation by the
Board.
‘‘(iii) HEARINGS PUBLIC.—Except as
otherwise ordered by the Board on its own
motion or on the motion of a party, all
hearing under this paragraph shall be open
to the public.
‘‘(B) ADMISSIBILITY.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in subparagraph (C), all reports,
memoranda, and other information pre-
pared, collected, or received by the Board,
the deliberations and other proceedings of
the Board and its employees and agents in
connection with an investigation or discipli-
nary proceeding under this section, the
fact that an investigation or disciplinary
proceeding has been commenced, and the
Board’s determination with respect to any
investigation or disciplinary proceeding
shall be inadmissible in any proceeding in
any State or Federal court or before any
State or Federal administrative agency.
‘‘(ii) TREATMENT OF CERTAIN DOCU-
MENTS.—Submissions to the Board 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 Board
proceeding, including documents generated
by the Board 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 Board proceedings;
and
‘‘(II) addresses the merits of the
issues under investigation by the
Board.
‘‘(C) AVAILABILITY AND ADMISSIBILITY OF
INFORMATION.—
‘‘(i) IN
GENERAL.—All information
referred to in subparagraphs (A) and (B)
shall be—
‘‘(I) available to the Commission
and to any other Federal department
or agency in connection with the exer-
cise of its regulatory authority to the
extent that such information would be
available to such agency from the
Commission as a result of a Commis-
sion enforcement investigation;
‘‘(II) available to Federal and
State authorities in connection with
any criminal investigation or pro-
ceeding;
‘‘(III) 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
‘‘(IV) available to State licensing
boards to the extent authorized in
paragraph (6).
‘‘(ii) OTHER LIMITATIONS.—Any doc-
uments or other information provided to
the Commission or other authorities pursu-
ant to clause (i) shall be subject to the lim-
itations on discovery and admissibility set
forth in subparagraphs (A) and (B).
‘‘(D) TITLE
TREATMENT.—This sub-
section shall be considered to be a statute de-
scribed in section 552(b)(3)(B) of title 5,
United States Code, for purposes of that sec-
tion 552.
‘‘(6) PARTICIPATION
BY
STATE
LICENSING
BOARDS.—
‘‘(A) NOTICE.—When the Board institutes
an investigation pursuant to paragraph (2)(A),
it shall notify the State licensing boards in the
States in which the public accounting firm or
person associated with such firm engaged in the
act or failure to act alleged to have violated
professional standards, of the pendency of the
investigation, and shall invite the State licens-
ing boards to participate in the investigation.
‘‘(B) ACCEPTANCE BY STATE BOARD.—If a
State licensing board elects to join in the inves-
tigation, its representatives shall participate,
pursuant to rules established by the Board, in
investigating the matter and in presenting the
evidence justifying the charges in any hearing
pursuant to paragraph (3)(A).
‘‘(C) STATE
SANCTIONS
PERMITTED.—If
the Board or the Commission imposes a sanc-
tion upon a public accounting firm or person
associated with such a firm, and that deter-
mination either is not subjected to judicial re-
view or is upheld on judicial review, a State li-
censing board may impose a sanction on the
basis of the Board’s report pursuant to para-
graph (4). Any sanction imposed by the State
licensing board under this clause shall be inad-
missible in any proceeding in any State or Fed-
eral court or before any State or Federal ad-
ministrative agency, except to the extent pro-
vided in paragraph (5)(D).
‘‘(h) COMMISSION OVERSIGHT OF THE BOARD.—
‘‘(1) PROPOSED RULE CHANGES.—
‘‘(A) IN GENERAL.—The Board shall file
with the Commission, in accordance 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 the
Board (hereafter in this subsection collectively
referred to as a ‘proposed rule change’) accom-
panied 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 interested persons an opportunity to
submit written data, views, and arguments con-
cerning the proposed rule change. No proposed
rule change shall take effect unless approved by
the Commission or otherwise permitted in ac-
cordance with this subsection.
‘‘(B) APPROVAL OR DISAPPROVAL.—
‘‘(i) IN GENERAL.—Not later than 35
days after the date on which notice of the
filing of a proposed rule change is pub-
lished in accordance with subparagraph
(A), or such longer period as the Commis-
sion may designate (not to exceed 90 days
after such date, if it finds such longer pe-
riod to be appropriate and publishes its
reasons for such finding or as to which the
Board consents) the Commission shall—
‘‘(I) by order approve such pro-
posed rule change; or
‘‘(II) institute proceedings to de-
termine whether the proposed rule
change should be disapproved.
‘‘(ii) DISAPPROVAL
PROCEEDINGS.—
Proceedings for disapproval shall include
notice of the grounds for disapproval under
consideration and opportunity for hearing
and shall be concluded not later than 180
days after the date of publication of notice
of the filing of the proposed rule change.
At the conclusion of the proceedings for
disapproval, the Commission, by order,
shall approve or disapprove such proposed
rule change. The Commission may extend
the time for conclusion of such proceedings
for—
‘‘(I) not more than 60 days, if
the Commission finds good cause for
such extension and publishes its rea-
sons for such finding; or
‘‘(II) such longer period to which
the Board consents.
‘‘(iii) APPROVAL.—The Commission
shall approve a proposed rule change if it
finds that such proposed rule change is
consistent with the requirements of the se-
curities laws, and the rules and regulations
issued thereunder, applicable to the Board.
The Commission shall disapprove a pro-
posed rule change if it does not make such
finding. The Commission shall not approve
any proposed rule change prior to the expi-
ration of the 30-day period beginning on
the date on which notice of the filing of a
proposed rule change is published in ac-
cordance with this subparagraph, unless
the Commission finds good cause to do so
and publishes its reasons for such finding.
‘‘(C) 
EFFECT
OF
PROPOSED
RULE
CHANGE.—
‘‘(i) 
EFFECTIVE
DATE.—Notwith-
standing subparagraph (B), a proposed
rule change may take effect upon filing
with the Commission if designated by the
Board as—
‘‘(I) constituting a stated policy,
practice, or interpretation with respect
to the meaning, administration, or en-
forcement of an existing rule of the
Board;
‘‘(II) establishing or changing a
due, fee, or other charge imposed by
the Board; or
‘‘(III) concerned solely with the
administration of the Board or other
matters which the Commission, by
rule, consistent with the public inter-
est and the purposes of this sub-
section, may specify.
‘‘(ii) SUMMARY
EFFECT.—Notwith-
standing any other provision of this sub-
section, 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. Any pro-
posed rule change put into effect sum-
marily shall be filed promptly thereafter in
accordance with this paragraph.
‘‘(iii) ENFORCEMENT.—Any proposed
rule change which has taken effect pursu-
ant to clause (i) or (ii) may be enforced by
the Board to the extent that it is not in-
consistent with the securities laws, the
rules and regulations issued thereunder,
and applicable Federal and State law. Dur-
ing the 60-day period beginning on the
date on which notice of the filing of a pro-
posed rule change if filed in accordance
with this paragraph, the Commission may
summarily abrogate the change in the
rules of the Board made thereby and re-
quire that the proposed rule change be
refiled in accordance with subparagraph
(A) and reviewed in accordance with sub-
paragraph (B), if it appears to the Com-
mission that such action is necessary or
appropriate in the public interest, for the
protection of investors, or otherwise in fur-
therance of the purposes of the securities
laws. Commission action pursuant to the
preceding sentence shall not affect the va-
lidity or force of the rule change during
the period it was in effect and shall not be
reviewable under section 25 of this Act nor
deemed to be ‘final agency action’ for pur-
poses of section 704 of title 5, United
States Code.
‘‘(2) AMENDMENT BY COMMISSION OF RULES
OF THE BOARD.—The Commission, by rule, may ab-
rogate, add to, and delete from (hereafter in this
subsection collectively referred to as ‘amend’) the
rules of the Board as the Commission deems nec-
essary or appropriate to ensure the fair administra-
tion of the Board, to conform its rules to require-
ments of the securities laws, and the rules and regu-
lations issued thereunder applicable to the Board, or
otherwise in furtherance of the purposes of the secu-
rities laws, in the following manner:
‘‘(A) 
PUBLICATION
OF
NOTICE.—The
Commission shall notify the Board and publish
notice of the proposed rulemaking in the Fed-
eral Register. The notice shall include the text
of the proposed amendment to the rules of the
Board and a statement of the Commission’s
reasons, including any pertinent facts, for com-
mencing such proposed rulemaking.
‘‘(B) COMMENTS.—The Commission shall
give interested persons an opportunity for the
oral presentation of data, views, and arguments,
in addition to an opportunity to make written
submissions. A transcript shall be kept of any
oral presentation.
‘‘(C) INCORPORATION.—A rule adopted
pursuant to this subsection shall incorporate
the text of the amendment to the rules of the
Board and a statement of the Commission’s
basis for and purpose in so amending such
rules. Such statement shall include an identi-
fication of any facts on which the Commission
considers its determination to so amend the
rules of the Board to be based, including the
reasons for the Commission’s conclusions as to
any of the facts that were disputed in the rule-
making.
‘‘(D) REGULATIONS.—
‘‘(i) TITLE 5 APPLICABILITY.—Except
as otherwise provided in this paragraph,
rulemaking under this paragraph shall be
in accordance with the procedures specified
in section 553 of title 5, United States
Code, for rulemaking not on the record.
‘‘(ii) 
CONSTRUCTION.—Nothing 
in
this subsection shall be construed to impair
or limit the Commission’s power to make,
modify, or alter the procedures the Com-
mission may follow in making rules and
regulations pursuant to any other author-
ity under the securities laws.
‘‘(iii) INCORPORATION
OF
AMEND-
MENTS.—Any amendment to the rules of
the Board made by the Commission pursu-
ant to this subsection shall be considered
for purposes of the securities laws to be
part of the rules of the Board and shall
not be considered to be a rule of the Com-
mission.
‘‘(3) NOTICE OF DISCIPLINARY ACTION TAKEN
BY THE BOARD; REVIEW OF ACTION BY THE COM-
MISSION.—
‘‘(A) NOTICE
REQUIRED.—If the Board
imposes a final disciplinary sanction on a public
accounting firm registered with the Board or on
any person associated with such a firm, the
Board shall promptly file notice thereof with
the Commission. The notice shall be in such
form and contain such information as the Com-
mission, by rule, may prescribe as necessary or
appropriate in furtherance of the purposes of
the securities laws.
‘‘(B) REVIEW.—An action with respect to
which the Board is required by subparagraph
(A) to file notice shall be subject to review by
the Commission, on its own motion, or upon ap-
plication by any person aggrieved thereby, filed
not later than 30 days after the date on which
such notice is filed with the Commission and re-
ceived by such aggrieved person, or within such
longer period as the Commission may deter-
mine. Application to the Commission for review,
or the institution of review by the Commission
on its own motion, shall not operate as a stay
of such action unless the Commission otherwise
orders, summarily or after notice and oppor-
tunity for hearing on the question of a stay
(which hearing may consist solely of the sub-
mission of affidavits or presentation of oral ar-
guments). The Commission shall establish for
appropriate cases an expedited procedure for
consideration and determination of the question
of a stay.
‘‘(4) DISPOSITION OF REVIEW; CANCELLATION,
REDUCTION, OR REMISSION OF SANCTION.—
‘‘(A) IN GENERAL.—In any proceeding to
review a final disciplinary sanction imposed by
the Board on a public accounting firm reg-
istered with the Board or a person associated
with such a firm, after notice and opportunity
for hearing (which hearing may consist solely of
consideration of the record before the Board
and opportunity for the presentation of sup-
porting reasons to affirm, modify, or set aside
the sanction)—
‘‘(i) if the Commission finds that—
‘‘(I) such firm or person associ-
ated with such a firm has engaged in
such acts or practices, or has omitted
such acts, as the Board has found
them to have engaged in or omitted;
‘‘(II) such acts, practices, or
omissions, are in violation of such
provisions of the securities laws, the
rules or regulations issued thereunder,
the rules adopted by the Board, or
professional standards as have been
specified in the determination of the
Board; and
‘‘(III) such provisions were ap-
plied in a manner consistent with the
purposes of the securities laws;
the Commission, by order, shall so declare
and, as appropriate, affirm the sanction
imposed by the Board, modify the sanction
in accordance with paragraph (2), or re-
mand to the Board for further pro-
ceedings; or
‘‘(ii) if the Commission does not make
the findings under clause (i), it shall, by
order, set aside the sanction imposed by
the Board and, if appropriate, remand to
the Board for further proceedings.
‘‘(B) CANCELLATION, REDUCTION, OR RE-
MISSION
OF
SANCTION.—If the Commission,
having due regard for the public interest and
the protection of investors, finds after a pro-
ceeding in accordance with subparagraph (A)
that a sanction imposed by the Board upon a
firm or person associated with a firm imposes
any burden on competition not necessary or ap-
propriate in furtherance of the purposes of the
securities laws or is excessive or oppressive, the
Commission may cancel, reduce, or require the
remission of such sanction.
‘‘(5) COMPLIANCE WITH RULES AND REGULA-
TIONS.—
‘‘(A) DUTIES
OF
BOARD.—The Board
shall—
‘‘(i) comply with the securities laws,
the rules and regulations issued there-
under, and its own rules; and
‘‘(ii) subject to subparagraph (B) and
the rules thereunder, absent reasonable
justification or excuse, enforce compliance
with such provisions and with professional
standards by public accounting firms reg-
istered with the Board and persons associ-
ated with such firms.
‘‘(B) RELIEF BY COMMISSION.—The Com-
mission, by rule, consistent with the public in-
terest, the protection of investors, and the other
purposes of the securities laws, may relieve the
Board of any responsibility under this section
to enforce compliance with any specified provi-
sion of the securities laws, the rules or regula-
tions issued thereunder, or professional stand-
ards by any public accounting firm registered
with the Board or person associated with such
a firm, or any class of such firms or persons as-
sociated with such a firm.
‘‘(i) FOREIGN ACCOUNTING FIRMS.—A foreign public
accounting firm that furnishes accountant’s reports on
any financial statement, report, or other document re-
quired to be filed with the Commission under any Federal
securities law shall, with respect to those reports, be sub-
ject to the provisions of this section in the same manner
and to the same extent as a domestic public accounting
firm. The Commission may, by rule, regulation, or order
and as it deems consistent with the public interest and
the protection of investors, either unconditionally or upon
specified terms and conditions, exempt from one or more
provisions of this section any foreign public accounting
firm. Registration pursuant to this subsection shall not,
by itself, provide a basis for subjecting foreign accounting
firms to the jurisdiction of the Federal or State courts.
‘‘(j) COMMISSION AUTHORITY NOT IMPAIRED.—
Nothing in this section shall be construed to impair or
limit the Commission’s authority—
‘‘(1) over the accounting profession, accounting
firms, or any persons associated with such firms;
‘‘(2) to set standards for accounting practices,
derived from other provisions of the securities laws
or the rules or regulations issued thereunder; or
‘‘(3) to take, on its own initiative, legal, admin-
istrative, or disciplinary action against any public
accounting firm registered with the Board or any
person associated with such a firm.’’.
SEC. 5. STUDY ON THE IMPROVEMENT OF CORPORATE
GOVERNANCE.
(a) STUDY OF CORPORATE PRACTICES.—The Com-
mission shall conduct a study and review of current cor-
porate governance standards and practices to determine
whether such standards and practices are serving the best
interests of shareholders. Such study and review shall in-
clude an analysis of—
(1) whether current standards and practices
promote full disclosure of relevant information to
shareholders;
(2) whether corporate codes of ethics and inde-
pendence requirements are adequate to protect
shareholders, and to what extent deviations from
such codes are tolerated;
(3) the existing requirements for qualification
of members of the audit and finance committee of
issuer boards to determine whether such require-
ments are adequate to create a board structure that
assures the sufficiency of the issuer’s disclosure;
(4) the extent to which conflicts of interests are
aggressively reviewed, including an assessment of
whether the current standards for determining a di-
rector to be independent are adequate, and whether
adequate means for redressing such conflicts exist;
(5) whether there are significant disincentives
to serve as an independent director and what are the
necessary and appropriate regulatory or legislative
changes on the State and Federal level to reduce or
eliminate such disincentives; and
(6) what further or additional practices or
standards might best protect investors and promote
the interests of shareholders.
(b) PARTICIPATION
OF STATE REGULATORS.—In
conducting the study required under subsection (a), the
Commission shall seek the views of, and consult with, the
securities and corporate regulators of the various States.
(c) REPORT REQUIRED.—The Commission shall sub-
mit a report on the analysis required under subsection (a)
to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate no later than 180 days
after the date of enactment of this Act.
SEC. 6. INSIDER TRADES DURING PENSION FUND BLACK-
OUT PERIODS PROHIBITED.
Section 16 of the Securities Exchange Act of 1934
(15 U.S.C. 78p) is amended by adding at the end the fol-
lowing new subsection:
‘‘(h) INSIDER TRADES DURING PENSION FUND
BLACKOUT PERIODS PROHIBITED.—
‘‘(1) PROHIBITION.—It shall be unlawful for
any such beneficial owner, director, or officer, di-
rectly or indirectly, to purchase (or otherwise ac-
quire) or sell (or otherwise transfer) any equity secu-
rity of any issuer (other than an exempted security),
during any blackout period with respect to such eq-
uity security.
‘‘(2) REMEDY.—Any profit realized by such
beneficial owner, director, or officer from any pur-
chase (or other acquisition) or sale (or other trans-
fer) in violation of this subsection shall inure to and
be recoverable by the issuer irrespective of any in-
tention on the part of such beneficial owner, direc-
tor, or officer in entering into the transaction.
‘‘(3) RULEMAKING PERMITTED.—The Commis-
sion may issue rules to clarify the application of this
subsection, to ensure adequate notice to all persons
affected by this subsection, and to prevent evasion
thereof.
‘‘(4) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) the term ‘blackout period’ with re-
spect to the equity securities of any issuer—
‘‘(i) means any period during which
the employees of such issuer are precluded
from purchasing (or otherwise acquiring)
or selling (or otherwise transferring) their
interest in any equity security of such
issuer held in an individual account plan
of such issuer; but
‘‘(ii) does not include a period in
which the employees of an issuer may not
allocate their interests in the individual ac-
count plan due to an express investment
restriction—
‘‘(I) incorporated into the indi-
vidual account plan; and
‘‘(II) timely disclosed to employ-
ees before joining the individual ac-
count plan or as a subsequent amend-
ment to the plan; and
‘‘(B) the term ‘individual account plan’ has
the meaning provided such term in section
3(34) of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1002(34)).’’.
SEC. 7. IMPROVEMENTS IN FINANCIAL REPORTING.
(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) OFF-BALANCE SHEET TRANSACTIONS.—The
issuer’s off-balance sheet transactions and relation-
ships with unconsolidated entities or other persons,
to the extent they are not disclosed in the financial
statement and expose the issuer to current or future
possible liability, obligations, expenses, or cash flow
changes, or affect the recognition of revenue, car-
rying value, or potential impairment of assets, credit
ratings, earnings, cash flows, or stock price.
(2) 
INSIDER
TRANSACTIONS.—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.
(3) 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.
(4) 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.
(5) 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.
(6) 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) GENERAL OBJECTIVES; PLAIN LANGUAGE.—
(1) ADDITIONAL PROCEEDING.—In addition to
the proceeding required by subsection (a), the Com-
mission shall initiate a proceeding—
(A) to require financial reports to present
financial information in plain language, to the
maximum extent possible; and
(B) to further improve the transparency
and clarity of the information available to inves-
tors, in light of the analysis required by para-
graph (2).
(2) ANALYSIS.—In order to determine what ad-
ditional or reorganized information should be dis-
closed to improve the transparency of financial state-
ments filed under the securities laws, the Commis-
sion shall review and analyze all enforcement actions
by the Commission, and all restatements of financial
statements and other periodic filings with the Com-
mission, over the five years preceding such date of
enactment to identify areas of reporting that are
most susceptible to fraud, inappropriate manipula-
tion, or inappropriate earnings management.
(3) ALTERNATIVES
TO
BE
CONSIDERED.—In
conducting the proceeding required by this sub-
section, the Commission shall consider—
(A) requiring the identification of the key
accounting principles that are most important
to the issuer’s reported financial condition or
results of operation;
(B) requiring an explanation, where mate-
rial, of how different available accounting prin-
ciples would lead to different presentations re-
garding financial condition or results of oper-
ation; and
(C) requiring new or additional disclosure
with respect to—
(i) the methodology used by the issuer
in establishing or maintaining reserves;
(ii) all officer and director affiliations
with, and any compensation received by an
officer or director from, any special pur-
pose entities;
(iii) internal controls adopted to ap-
prove the creation of special purpose enti-
ties;
(iv) disclosing in detail any arrange-
ments that would require the issuer to as-
sume the debts incurred by a special pur-
pose entity; and
(v) additional critical areas identified
by the Commission in connection with
earnings management; and
(D) reviewing issuer compliance with and
sufficiency of current rules and regulations re-
lating to revenue recognition.
(c) DEADLINES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the Commission shall complete the rule-
making required by this section within 180 days
after the date of enactment of this Act.
(2) PLAIN LANGUAGE.—The Commission shall
complete the rulemaking required by subsection
(b)(1)(A) within one year after the date of enact-
ment of this Act.
SEC. 8. CREATION OF CURRENT DISCLOSURE REPORTING
SYSTEM.
Section 13 of the Securities Exchange Act of 1934
(15 U.S.C. 78m) is amended by adding at the end the
following new subsection:
‘‘(i) CURRENT DISCLOSURE REPORTING SYSTEM.—
‘‘(1) RULEMAKING
REQUIRED.—The Commis-
sion shall, by rule pursuant to this section, require
issuers to provide timely information with respect to
significant events and trends in the issuer’s oper-
ations, and to consider the total mix of its business
and update its information and accounting systems
to provide for ongoing, current information that
would disclose, among other things—
‘‘(A) known and reliable financial informa-
tion throughout each fiscal quarter;
‘‘(B) to the extent possible, known trends
in an issuer’s business that would be material
to investors;
‘‘(C) assessments of developments during
and between fiscal quarters and the factors that
may have modified prior forecasts or otherwise
changed preliminary financial results that the
issuer may have provided;
‘‘(D) financial information on a business
segments basis; and
‘‘(E) updates to information previously dis-
closed, whether disclosed in periodic reports
under this section, in previous disclosures under
this subsection, or otherwise.
‘‘(2) IMPACT ON FOREIGN ISSUERS.—In con-
ducting the rulemaking required by this subsection,
the Commission shall evaluate—
‘‘(A) the impact of requiring current dis-
closures on foreign issuers; and
‘‘(B) the extent to which it is advisable to
provide reasonable exceptions to the reporting
requirements for foreign issuers, while at the
same time making the overall disclosure stand-
ards reasonably consistent.
Nothing in this paragraph shall be construed to re-
quire the Commission to provide the exceptions de-
scribed in subparagraph (B).
‘‘(3) ASSESS IMPACT ON REGULATION FD.—In
conducting the rulemaking required by this sub-
section, the Commission shall assess the impact of
requiring ongoing disclosures on, and need for co-
ordinating that requirement with, the requirements
of Regulation FD (17 CFR part 243).’’.
SEC. 9. ENHANCED OVERSIGHT OF PERIODIC DISCLO-
SURES BY ISSUERS.
(a) REGULAR AND SYSTEMATIC REVIEW.—The Secu-
rities and Exchange Commission shall review disclosures
made by issuers pursuant to the Securities Exchange Act
of 1934 (including reports filed on form 10–K) on a basis
that is more regular and systematic than that in practice
on the date of enactment on this Act. Such review shall
include a review of an issuer’s financial statements.
(b) RISK RATING SYSTEM.—For purposes of the re-
views required by subsection (a), the Commission shall es-
tablish a risk rating system whereby issuers receive a risk
rating by the Commission, which shall be used to deter-
mine the frequency of such reviews. In designing such a
risk rating system the Commission shall consider, among
other factors the following:
(1) Emerging companies with disparities in
price to earning ratios.
(2) Issuers with the largest market capitaliza-
tion.
(3) Issuers whose operations significantly im-
pact any material sector of the economy.
(4) Systemic factors such as the effect on niche
markets or important subsectors of the economy.
(5) Issuers that experience significant volatility
in their stock price as compared to other issuers.
(6) Any other factor the Commission may con-
sider relevant.
(c) MINIMUM REVIEW PERIOD.—In no event shall an
issuer be reviewed less than once every three years by the
Commission.
SEC. 10. REAUTHORIZATION OF APPROPRIATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION.
Subsection (a) of section 35 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78kk(a)) is amended to
read as follows:
‘‘(a) IN GENERAL.—In addition to any other funds
authorized to be appropriated to the Securities and Ex-
change Commission, there are authorized to be appro-
priated to carry out the functions, powers, and duties of
the Commission, $876,000,000 for fiscal year 2003, of
which—
‘‘(1) not less than $134,000,000 shall be avail-
able for the Division of Corporate Finance and the
Office of the Chief Accountant; and
‘‘(2) not less than $326,000,000 shall be avail-
able to the Division of Enforcement.’’.
SEC. 11. ELECTRONIC DISCLOSURE OF AFFILIATE TRANS-
ACTIONS.
(a) IN GENERAL.—Except as specifically provided in
this Act, and notwithstanding any other provision of law,
any disclosure required by the securities laws or the rules
and regulations thereunder of the purchase or sale of any
securities by an officer or director or other affiliated per-
son of the issuer of those securities shall—
(1) include the disclosure of the purchase or
sale of any security futures product (as defined in
section 3(a)(56) of the Securities Exchange 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; and
(2) be made available in electronic form—
(A) to the Commission by the affiliated
person, before the end of the calendar day on
which the transaction occurs;
(B) 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
business day on which the disclosure is received
under subparagraph (A); and
(C) in any case in which the issuer main-
tains a corporate website that is accessible only
internally, on that internal website, before the
end of the calendar day on which the trans-
action occurs.
(b) OTHER FORMATS.—The requirement of disclo-
sures in electronic form under subsection (a)(2) shall, at
the discretion of the Commission, be in lieu of any other
format required for such disclosures on the day before the
date of enactment of this Act.
(c) INCORPORATED DEFINITIONS.—In this Act, the
terms ‘‘affiliated person’’, ‘‘Commission’’, ‘‘issuer’’, and
‘‘securities’’ have the same meanings as in section 3 of
the Securities Exchange Act of 1934.
(d) EFFECTIVE DATE.—This section shall become ef-
fective 90 days after the date of enactment of this Act.
SEC. 12. RESTORATION OF JOINT AND SEVERAL LIABILITY.
(a) AMENDMENT.—Subparagraph (A) of section
21D(f)(2) of the Securities Exchange Act of 1934 (15
U.S.C. 78u–4(f)(2)(A)) is amended to read as follows:
‘‘(A) JOINT
AND
SEVERAL
LIABILITY.—
Any covered person against whom a final judg-
ment is entered in a private action shall be lia-
ble for damages jointly and severally only if the
trier of fact specifically determines that—
‘‘(i) such covered person knowingly
committed a violation of the securities
laws;
‘‘(ii) the covered person was the audi-
tor of the financial statements of the issuer
of the securities that are the subject of the
class action and such auditor failed to
comply with section 10A by failing to de-
tect and report an illegal act of such issuer
that is the basis of such class action;
‘‘(iii) the covered person was the audi-
tor of the financial statements of such
issuer and such auditor performed any
nonaudit functions for such issuer during
the fiscal year in which an alleged violation
of the securities laws occurred; or
‘‘(iv) the issuer of such securities is
insolvent.’’.
(b) UNCOLLECTABLE SHARES.—Section 21D(f)(4) of
such Act is amended by adding at the end the following
new subparagraph:
‘‘(D) INAPPLICABILITY
TO
INSOLVENCY
CASES.—The provisions of this paragraph shall
not apply in any case in which the trier of fact
determines that the issuer of the securities that
are the subject of the class action is insolvent
under paragraph (2)(A)(iv).’’.
(c) DISCLOSURE TO JURIES.—Section 21D(f) of such
Act is further amended—
(1) by striking paragraph (6); and
(2) by redesignating paragraphs (7) through
(10) as paragraphs (6) through (9), respectively.
(d) DEFINITION.—Section 21D(f)(9) of such Act (as
redesignated by subsection (c)(2) of this section) is
amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (C);
(2) by striking the period at the end of sub-
paragraph (D) and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(E) an auditor shall be considered to have
performed ‘nonaudit functions for an issuer’ if
such auditor received any compensation for
services from such issuer for a fiscal year that
did not qualify to be treated as audit fees for
such fiscal year for purposes of item 9(e)(1) of
the schedule 14A of such issuer.’’.
(e) PREVENTION OF STAYS OF DISCOVERY.—
(1) Section 21D(b)(3) of such Act is amended
by adding at the end the following new subpara-
graph:
‘‘(E) 
INAPPLICABILITY
TO
ACTION
AGAINST
AUDITORS.—In any private action
arising under this title against the auditor of
the financial statements of the issuer of the se-
curities that are the subject of such action, dis-
covery and other proceedings shall not be
stayed pursuant to this paragraph.’’.
(2) Section 27(b) of the Securities Act of 1933
(15 U.S.C. 77z–1(b)) is amended by adding at the
end the following new paragraph:
‘‘(5) INAPPLICABILITY
TO
ACTION
AGAINST
AUDITORS.—In any private action arising under this
title against the auditor of the financial statements
of the issuer of the securities that are the subject of
such action, discovery and other proceedings shall
not be stayed pursuant to this subsection.’’.
SEC. 13. CREDIT RATING AGENCIES.
(a) STUDY REQUIRED.—The Securities and Ex-
change Commission shall conduct a study of the role and
function of credit rating agencies in the operation of the
securities market. Such study shall examine—
(1) the role of the credit rating agencies in the
evaluation of issuers of securities;
(2) the importance of that role to investors and
the functioning of the securities markets;
(3) any impediments to the accurate appraisal
by credit rating agencies of the financial resources
and risks of issuers of securities;
(4) any measures which may be required to im-
prove the dissemination of information concerning
such resources and risks when credit rating agencies
announce credit ratings; and
(5) any conflicts of interest in the operation of
credit rating agencies and measures to prevent such
conflicts or ameliorate the consequences of such con-
flicts.
(b) REPORT REQUIRED.—The Commission shall sub-
mit a report on the analysis required by subsection (a)
to the President and the Committee on Financial Services
of the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate with-
in 180 days after the date of enactment of this Act.
SEC. 14. RESTORATION OF AIDING AND ABETTING LIABIL-
ITY.
(a) SECURITIES ACT OF 1933.—Section 20 of the Se-
curities Act of 1933 (15 U.S.C. 77t) is amended by adding
at the end the following new subsection:
‘‘(g) PROSECUTION OF PERSONS WHO AID OR ABET
VIOLATIONS.—For purposes of subsections (b) and (d),
any person who knowingly or recklessly provides substan-
tial assistance to another person in the violation of a provi-
sion of this title, or of any rule or regulation hereunder,
shall be deemed to violate such provision to the same ex-
tent as the person to whom such assistance is provided.
No person shall be liable under this subsection based on
an omission or failure to act unless such omission or fail-
ure constituted a breach of a duty owed by such person.’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Section
20(e) of the Securities Exchange Act of 1934 (15 U.S.C.
78t(e)) is amended to read as follows:
‘‘(e) PROSECUTION OF PERSONS WHO AID OR ABET
VIOLATIONS.—For purposes of subsections (d)(1) and
(d)(3) of section 21, or an action by a self-regulatory orga-
nization, or an express or implied private right of action
under this title, any person who knowingly or recklessly
provides substantial assistance to another person in the
violation of a provision of this title, or of any rule or regu-
lation thereunder, shall be deemed to violate such provi-
sion and shall be liable to the same extent as the person
to whom such assistance is provided. No person shall be
liable under this subsection based on an omission or fail-
ure to act unless such omission or failure constituted a
breach of a duty owed by such person.’’.
(c) INVESTMENT COMPANY ACT OF 1940.—Section
42 of the Investment Company Act of 1940 (15 U.S.C.
80a–41) is amended by adding at the end the following
new subsection:
‘‘(f) PROSECUTION OF PERSONS WHO AID OR ABET
VIOLATIONS.—For purposes of subsections (d) and (e),
any person who knowingly or recklessly provides substan-
tial assistance to another person in the violation of a provi-
sion of this title, or of any rule, regulation, or order here-
under, shall be deemed to violate such provision to the
same extent as the person to whom such assistance is pro-
vided. No person shall be liable under this subsection
based on an omission or failure to act unless such omission
or failure constituted a breach of a duty owed by such
person.’’.
(d) INVESTMENT ADVISERS ACT OF 1940.—Section
209(d) of the Investment Advisers Act of 1940 (15 U.S.C.
80b–9) is amended—
(1) in subsection (d)—
(A) by striking ‘‘or that any person has
aided, abetted, counseled, commanded, induced,
or procured, is aiding, abetting, counseling,
commanding, inducing, or procuring, or is
about to aid, abet, counsel, command, induce,
or procure such a violation,’’; and
(B) by striking ‘‘or in aiding, abetting,
counseling, commanding, inducing, or procuring
any such act or practice’’; and
(2) by adding at the end the following new sub-
section:
‘‘(f) PROSECUTION OF PERSONS WHO AID OR ABET
VIOLATIONS.—For purposes of subsections (d) and (e),
any person who knowingly or recklessly provides substan-
tial assistance to another person in the violation of a provi-
sion of this title, or of any rule, regulation, or order here-
under, shall be deemed to violate such provision to the
same extent as the person to whom such assistance is pro-
vided. No person shall be liable under this subsection
based on an omission or failure to act unless such omission
or failure constituted a breach of duty owed by such per-
son.’’.
SEC. 15. DESTRUCTION OF RECORDS.
(a) AUDIT REQUIREMENTS.—Section 10A of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78j–1) is—
(1) by redesignating subsections (e) and (f) as
subsections (f) and (g), respectively; and
(2) by inserting after subsection (d) the fol-
lowing new subsection:
‘‘(e) DESTRUCTION OF RECORDS.—
‘‘(1) MAINTENANCE OF RECORDS REQUIRED.—
Any accountant that conducts an audit of an issuer
pursuant to this title to which subsection (a) applies
shall maintain all documents (including electronic
documents) sent, received, or created in connection
with any audit, review, or other engagement for such
issuer for a period of 7 years from the end of the
fiscal period in which the engagement was con-
cluded.
‘‘(2) PENALTY.—In addition to any other sanc-
tions that may be available, any person who know-
ingly and willfully violates paragraph (1) shall be
subject to fine and imprisonment to the same extent
as a person violating section 1512(b) of title 18,
United States Code.’’.
(b) PRESERVATION OF RECORDS DURING SHARE-
HOLDER LITIGATION.—
(1) SECURITIES ACT OF 1933.—Section 27(b)(2)
of the Securities Act of 1933 (15 U.S.C. 77z–
1(b)(2)) is amended by inserting ‘‘, and the issuer
of the securities that are the subject of such action,’’
after ‘‘in the complaint’’.
(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21D(b)(3)(C)(i) of the Securities Act of 1933
(15 U.S.C. 77z–1(b)(3)(C)(i)) is amended by insert-
ing ‘‘, and the issuer of the securities that are the
subject of such action,’’ after ‘‘in the complaint’’.
(c) STATUTE OF LIMITATIONS.—Title I of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding at the end the following new section:
‘‘SEC. 37. STATUTE OF LIMITATIONS.
‘‘(a) IN GENERAL.—Except as otherwise specifically
provided in this title, and notwithstanding section 9(e), an
implied private right of action arising under this title 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 this section shall apply to all proceedings com-
menced after the date of the enactment of the Comprehen-
sive Investor Protection Act of 2002.’’.
SEC. 16. ANALYST CONFLICTS OF INTEREST.
(a) STUDY AND REVIEW REQUIRED.—The Securities
and Exchange Commission shall conduct a study and re-
view of any final rules by any self-regulatory organization
registered with the Commission pursuant to section 19 of
the Securities Exchange Act of 1934 (15 U.S.C. 78s) re-
lated to matters involving equity research analysts con-
flicts of interest. Such study and report shall include a
review of the effectiveness of such final rules in addressing
matters relating to the objectivity and integrity of equity
research analyst reports and recommendations.
(b) REPORT REQUIRED.—The Securities and Ex-
change Commission shall submit a report to the Com-
mittee on Financial Services of the House of Representa-
tives and the Committee on Banking, Housing, and Urban
Affairs of the Senate on such study and review no later
than 180 days after any such final rules by any self-regu-
latory organization registered with the Commission pursu-
ant to section 19 of the Securities Exchange Act of 1934
are approved by the Commission. Such report shall include
recommendations to the Congress, including any rec-
ommendations for additional self-regulatory organization
rulemaking regarding matters involving equity research
analysts. The Commission shall annually submit an up-
date on such review.
(c) ADDITIONAL RULES REQUIRED.—Unless the
final rules reviewed by the Commission under subsections
(a) and (b) contain the following provisions, the Commis-
sion shall, by rule—
(1) prohibit equity research analysts from—
(A) holding any beneficial interest in any
equity security (as such term in defined in sec-
tion 3(a)(11) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(11)) in any issuer cov-
ered by such analyst; and
(B) receiving compensation based on the
investment banking revenues of the firm with
which the analyst is associated, or on the in-
vestment banking revenues of such firm and its
affiliates, except that this prohibition shall not
prohibit such an analyst from receiving com-
pensation based on the overall revenues of such
firm or of such firm and its affiliates; and
(2) require such self-regulatory organizations—
(A) to establish criteria for evaluating ana-
lyst research quality; and
(B) to require analyst compensation to be
based principally on the quality of the equity re-
search analyst’s research.
SEC. 17. DEFINITION OF SECURITIES LAWS.
As used in this Act (including in any amendment
made by this Act), the term ‘‘securities laws’’ means the
Securities Act of 1933 (15 U.S.C. 77a et seq.), the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78a et seq.), the
Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.),
the Investment Company Act of 1940 (15 U.S.C. 80a–
1 et seq.), the Investment Advisers Act of 1940 (15 U.S.C.
80b et seq.), and the Securities Investor Protection Act