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‘‘(b) REQUIRED
RESPONSE
TO
AUDIT
DISCOV-
ERIES.—
‘‘(1) INVESTIGATION AND REPORT TO MANAGE-
MENT.—If, in the course of conducting any audit
pursuant to this title to which subsection (a) applies,
the independent public accountant detects or other-
wise becomes aware of information indicating that
an illegal act (whether or not perceived to have a
material effect on the issuer’s financial statements)
has or may have occurred, the accountant shall, in
accordance with generally accepted auditing stand-
ards, as may be modified or supplemented from time
to time by the Commission—
‘‘(A)(i) determine whether it is likely that
an illegal act has occurred, and (ii) if so, deter-
mine and consider the possible effect of the ille-
gal act on the financial statements of the is-
suer, including any contingent monetary effects,
such as fines, penalties, and damages; and
‘‘(B) as soon as practicable inform the ap-
propriate level of the issuer’s management and
assure that the issuer’s audit committee, or the
issuer’s board of directors in the absence of
such a committee, is adequately informed with
respect to illegal acts that have been detected or
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otherwise come to the attention of such ac-
countant in the course of the audit, unless the
illegal act is clearly inconsequential.
‘‘(2) RESPONSE TO FAILURE TO TAKE REME-
DIAL ACTION.—If, having first assured itself that
the audit committee of the board of directors of the
issuer or the board (in the absence of an audit com-
mittee) is adequately informed with respect to illegal
acts that have been detected or otherwise come to
the accountant’s attention in the course of such ac-
countant’s audit, the independent public accountant
concludes that—
‘‘(A) any such illegal act has a material ef-
fect on the financial statements of the issuer,
‘‘(B) senior management has not taken,
and the board of directors has not caused sen-
ior management to take, timely and appropriate
remedial actions with respect to such illegal act,
and
‘‘(C) the failure to take remedial action is
reasonably expected to warrant departure from
a standard auditor’s report, when made, or
warrant resignation from the audit engagement,
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the independent public accountant shall, as soon as
practicable, directly report its conclusions to the
board of directors.
‘‘(3) NOTICE
TO
COMMISSION; RESPONSE
TO
FAILURE TO NOTIFY.—An issuer whose board of di-
rectors has received a report pursuant to paragraph
(2) shall inform the Commission by notice within
one business day of receipt of such report and shall
furnish the independent public accountant making
such report with a copy of the notice furnished the
Commission. If the independent public accountant
making such report shall fail to receive a copy of
such notice within the required one-business-day pe-
riod, the independent public accountant shall—
‘‘(A) resign from the engagement; or
‘‘(B) furnish to the Commission a copy of
its report (or the documentation of any oral re-
port given) within the next business day follow-
ing such failure to receive notice.
‘‘(4) REPORT AFTER RESIGNATION.—An inde-
pendent public accountant electing resignation shall,
within the one business day following a failure by an
issuer to notify the Commission under paragraph
(3), furnish to the Commission a copy of the ac-
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countant’s report (or the documentation of any oral
report given).
‘‘(c) AUDITOR LIABILITY LIMITATION.—No inde-
pendent public accountant shall be liable in a private ac-
tion for any finding, conclusion, or statement expressed
in a report made pursuant to paragraph (3) or (4) of sub-
section (b), including any rules promulgated pursuant
thereto.
‘‘(d) CIVIL PENALTIES IN CEASE-AND-DESIST PRO-
CEEDINGS.—If the Commission finds, after notice and op-
portunity for hearing in a proceeding instituted pursuant
to section 21C of this title, that an independent public
accountant has willfully violated paragraph (3) or (4) of
subsection (b) of this section, then the Commission may,
in addition to entering an order under section 21C, impose
a civil penalty against the independent public accountant
and any other person that the Commission finds was a
cause of such violation. The determination whether to im-
pose a civil penalty, and the amount of any such penalty,
shall be governed by the standards set forth in section 21B
of this title.
‘‘(e) PRESERVATION OF EXISTING AUTHORITY.—Ex-
cept for subsection (d), nothing in this section limits or
otherwise affects the authority of the Commission under
this title.
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‘‘(f) DEFINITIONS.—As used in this section, the term
‘illegal act’ means any action or omission to act that vio-
lates any law, or any rule or regulation having the force
of law.’’.
(b) EFFECTIVE DATES.—As to any registrant that
is required to file selected quarterly financial data pursu-
ant to item 302(a) of Regulation S–K (17 CFR
229.302(a)) of the Securities and Exchange Commission,
the amendments made by subsection (a) of this section
shall apply to any annual report for any period beginning
on or after January 1, 1996. As to any other registrant,
such amendment shall apply for any period beginning on
or after January 1, 1997.
TITLE II—COMMISSION PRIVATE
ENFORCEMENT STUDY
SEC. 201. FILING OF MATERIALS WITH THE COMMISSION.
(a) COMMISSION NOTIFICATION.—Section 21 of the
Securities Exchange Act of 1934 (15 U.S.C. ) is further
amended by adding at the end the following new sub-
section:
‘‘(p) COMMISSION NOTIFICATION.—
‘‘(1) An attorney filing a complaint or an
amended complaint in an implied private action aris-
ing under this title that is filed as a class action
pursuant to the Federal Rules of Civil Procedure
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shall promptly provide the Commission with a copy
of such complaint. Any party filing a dispositive mo-
tion or an opposition to a dispositive motion in such
an action shall promptly provide the Commission
with a copy of the motion or opposition together
with any supporting declaratory affidavits, exhibits
or similar materials. Counsel for the plaintiff shall
provide the Commission with copies of all orders on
dispositive motions.
‘‘(2) No confidentiality order issued pursuant to
section 21(k) of this title shall limit the information
required to be filed with the Commission pursuant
to paragraph (1).
‘‘(3) The Commission may file an enforcement
action or take such other action as it deems appro-
priate based upon the submissions that it receives
pursuant to this paragraph.’’.
SEC. 202. COMMISSION PRIVATE ENFORCEMENT STUDY.
(a) COMMISSION PRIVATE ENFORCEMENT STUDY.—
Not later than five years after the date of enactment of
this section, the Commission shall submit to Congress a
report:
(1) listing each implied private action arising
under this title that has been filed as a class action
pursuant to the Federal Rules of Civil Procedure for
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which the Commission has received notification pur-
suant to section 201 of this Act;
(2) identifying which actions were consolidated,
dismissed, tried, settled, or remain pending;
(3) identifying such causes of action and mo-
tions that were found by the court to be clearly un-
warranted, if any;
(4) in actions that were tried or settled, describ-
ing the participation of each defendant in the judg-
ment or settlement;
(5) describing the extent to which accountants,
attorneys, and other professionals participated in the
conduct underlying the claims asserted;
(6) identifying which actions were based solely
on forward-looking statements;
(7) identifying which actions alleged significant
transactions in the issuer’s securities by corporate
officers, directors, or controlling shareholders during
the period of alleged deception; and
(8) proposing such legislative, administrative
and budgetary recommendations as may be nec-
essary to effectuate the purposes of this title.
Æ
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