IB
Union Calendar No. 247
107TH CONGRESS
2D SESSION
H. R. 3763
[Report No. 107–414]
To protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 14, 2002
Mr. OXLEY (for himself, Mr. BAKER, Mr. BOEHNER, Mrs. ROUKEMA, Mr. BE-
REUTER, Mr. BACHUS, Mrs. KELLY, Mr. CASTLE, Mr. ROYCE, Mr. NEY,
Mr. GILLMOR, Mr. COX, Mr. LATOURETTE, Mr. MANZULLO, Mr. JONES
of North Carolina, Mr. OSE, Mr. GREEN of Wisconsin, Mr. TOOMEY, Mr.
SHADEGG, Mr. FOSSELLA, Mr. CANTOR, Ms. HART, Mr. FERGUSON, Mr.
ROGERS of Michigan, and Mr. TIBERI) introduced the following bill;
which was referred to the Committee on Financial Servcies
MARCH 12, 2002
Additional sponsors: Mr. SHAYS, Mr. GRUCCI, and Mr. KING
APRIL 9, 2002
Additional sponsor: Mrs. BIGGERT
APRIL 22, 2002
Additional sponsors: Mr. PORTMAN and Mr. WELDON of Florida
APRIL 22, 2002
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on February 14, 2002]
A BILL
To protect investors by improving the accuracy and reliability
of corporate disclosures made pursuant to the securities
laws, 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; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Cor-
porate and Auditing Accountability, Responsibility, and
Transparency Act of 2002’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
Sec. 2. Auditor oversight.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Real-time disclosure of financial information.
Sec. 5. Insider trades during pension fund blackout periods prohibited.
Sec. 6. Improved transparency of corporate disclosures.
Sec. 7. Improvements in reporting on insider transactions and relationships.
Sec. 8. Codes of conduct.
Sec. 9. Enhanced oversight of periodic disclosures by issuers.
Sec. 10. Retention of records.
Sec. 11. Commission authority to bar persons from serving as officers or direc-
tors.
Sec. 12. Disgorging insiders profits from trades prior to correction of erroneous
financial statements.
Sec. 13. Securities and Exchange Commission authority to provide relief.
Sec. 14. Study of rules relating to analyst conflicts of interest.
Sec. 15. Review of corporate governance practices.
Sec. 16. Study of enforcement actions.
Sec. 17. Study of credit rating agencies.
Sec. 18. Study of investment banks and other financial institutions.
Sec. 19. Study of model rules for attorneys of issuers.
Sec. 20. Enforcement authority.
Sec. 21. Exclusion for investment companies.
Sec. 22. Definitions.
SEC. 2. AUDITOR OVERSIGHT.
(a) CERTIFIED FINANCIAL STATEMENT REQUIRE-
MENTS.—If a financial statement is required by the securi-
ties laws or any rule or regulation thereunder to be certified
by an independent public or certified accountant, an ac-
countant shall not be considered to be qualified to certify
such financial statement, and the Securities and Exchange
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.—The Commission shall
by rule establish the criteria by which a public regulatory
organization may be recognized for purposes of this section.
Such criteria shall include the following requirements:
(1)(A) The board of such organization shall be
comprised of five members, three of whom shall be
public members who are not members of the account-
ing profession and two of whom shall be persons li-
censed to practice public accounting and who have re-
cent experience in auditing public companies.
(B) Each member of the board of such organiza-
tion shall be a person who meets such standards of fi-
nancial literacy as are determined by the Commis-
sion.
(C) For purposes of this paragraph, a person
shall not be considered a member of the accounting
profession if such person has not worked in such pro-
fession for any of the last two years prior to the date
of such person’s appointment to the board.
(2) Such organization is so organized and has
the capacity—
(A) to be able to carry out the purposes of
this section and to comply, and to enforce com-
pliance by accountants and persons associated
with accountants, with the provisions of this Act,
professional ethics and competency standards,
and the rules of the organization;
(B) to perform a review of the work product
(including the quality thereof) of an accountant
or a person associated with an accountant; and
(C) to perform a review of any potential
conflicts of interest between an accountant (or a
person associated with an accountant) and the
issuer, the issuer’s board of directors and com-
mittees thereof, officers, and affiliates of such
issuer, that may result in an impairment of
auditor independence.
(3) Such organization shall have the authority to
impose sanctions, which, if there is a finding of know-
ing or intentional misconduct, may include a deter-
mination that an accountant is not qualified to cer-
tify a financial statement, or any categories of finan-
cial statements, required by the securities laws, or
that a person associated with an accountant is not
qualified to participate in such certification, if, after
conducting a review and providing fair procedures
and an opportunity for a hearing, the organization
finds that—
(A) such accountant or person associated
with an accountant has violated the standards of
independence, ethics, or competency in the pro-
fession;
(B) such accountant or person associated
with an accountant has been found by the Com-
mission or a court of competent jurisdiction to
have violated the securities laws or a rule or reg-
ulation thereunder (provided in both cases that
any applicable time period for appeal has ex-
pired);
(C) an audit conducted by such accountant
or any person associated with an accountant has
been materially affected by an impairment of
auditor independence;
(D) such accountant or person associated
with an accountant has performed both auditing
services and consulting services in violation of
the rules prescribed by the Commission pursuant
to subsection (c); or
(E) such accountant or any person associ-
ated with an accountant has impeded, ob-
structed, or otherwise not cooperated in such re-
view.
(4) Any such organization shall disclose publicly,
and make available for public comment, proposed
procedures and methods for conducting such reviews.
(5) Any such organization shall have in place
procedures to minimize and deter conflicts of interest
involving the public members of such organization,
and have in place procedures to resolve such conflicts.
(6) Any such organization shall have in place
procedures for notifying the boards of accountancy of
the States of the results of reviews and evidence under
paragraphs (2) and (3).
(7) Any such organization shall have in place
procedures for notifying the Commission of any find-
ings of such reviews, including any findings regard-
ing suspected violations of the securities laws.
(8) Any such organization shall consult with
boards of accountancy of the States.
(9) Any such organization shall have in place a
mechanism to allow the organization to operate on a
self-funded basis. Such funding mechanism shall en-
sure that such organization is not solely dependent
upon members of the accounting profession for such
funding and operations.
(10) Any such organization shall have the au-
thority to request, in a manner established by the
Commission, that the Commission, by subpoena or
otherwise, compel the testimony of witnesses or the
production of any books, papers, correspondence,
memoranda, or other records relevant to any account-
ant review proceeding or necessary or appropriate for
the organization to carry out its purposes. The Com-
mission shall comply with any such request from such
an organization if the Commission determines that
compliance with the request would assist the organi-
zation in its accountant review proceeding or in car-
rying out its purposes, unless the Commission deter-
mines that compliance would not be in the public in-
terest. The issuance and enforcement of a subpoena re-
quested under this paragraph shall be deemed to be
made pursuant to, and shall be made in accordance
with, the provisions of subsections (b) and (c) of sec-
tion 21 of the Securities and Exchange Act of 1934
(15 U.S.C. 78u(b)–(c)). For purposes of taking evi-
dence, the Commission in its discretion may designate
the Board, or any member thereof, as officers pursu-
ant to section 21(b) of such Act.
(c) PROHIBITION ON THE OFFER OF BOTH AUDIT AND
CONSULTING SERVICES.—
(1) 
MODIFICATION
OF
REGULATIONS
RE-
QUIRED.—The Commission shall revise its regulations
pertaining to auditor independence to require that an
accountant shall not be considered independent with
respect to an audit client if the accountant provides
to the client the following nonaudit services, as such
terms are defined in such regulations as in effect on
the date of enactment of this Act, and subject to such
conditions and exemptions as the Commission shall
prescribe:
(A) financial information system design or
implementation; or
(B) internal audit services.
(2) REVIEW
OF
PROHIBITED
NONAUDIT
SERV-
ICES.—The Commission is authorized to review the
impact on the independence of auditors of the scope
of services provided by auditors to issuers in order to
determine whether the list of prohibited nonaudit
services under paragraph (1) shall be modified. In
conducting such review, the Commission shall con-
sider the impact of the provision of a service on an
auditor’s independence where provision of the service
creates a conflict of interest with the audit client.
(3) ADDITIONS BY RULE.—After conducting the
review required by paragraph (2) and at any other
time, the Commission may, by rule consistent with
the protection of investors and the public interest,
modify the list of prohibited nonaudit services under
paragraph (1).
(4) REPORT.—The Commission shall report to
the Committee on Financial Services of the House of
Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate on its con-
duct of any reviews as required by this section. The
report shall include a discussion of regulatory or leg-
islative steps that are recommended or that may be
necessary to address concerns identified in the study.
(5) CONFORMING
REVISION.—The Commission
shall revise its regulations pertaining to accountant
fee disclosure items, as set forth in paragraphs (e)(1)
through (e)(3) of item 9 from Schedule 14A (17 CFR
240.14a–101), in light of paragraph (1) of this sub-
section and after making a determination as to
whether such disclosures are necessary.
(6) DEADLINE FOR RULEMAKING.—The Commis-
sion shall—
(A) within 90 days after the date of enact-
ment of this Act, propose, and
(B) within 270 days after such date, pre-
scribe,
the revisions to its regulations required by this sub-
section.
(d) PRO ACCOUNTANT REVIEW PROCEEDINGS.—
(1) REVIEW PROCEEDING FINDINGS.—Any find-
ings made pursuant to an accountant review con-
ducted under this section that a financial statement
audited by such accountant and submitted to the
Commission may have been materially affected by an
impairment of auditor independence, or by a viola-
tion of professional ethics and competency standards,
shall be submitted to the Commission. The Commis-
sion shall promptly notify an issuer of any such find-
ing that relates to the financial statements of such
issuer.
(2) CONFIDENTIAL TREATMENT OF PROCEEDINGS
PENDING SEC REVIEW.—
(A) NO DISCLOSURE.—Except as otherwise
provided in this section, but notwithstanding
any other provision of law, neither the Commis-
sion, a recognized public regulatory organiza-
tion, nor any other person shall disclose any in-
formation concerning any accountant review
proceeding and the findings therein.
(B) SPECIFIC WITHHOLDING NOT AUTHOR-
IZED.—Nothing in this subsection shall—
(i) authorize a recognized public regu-
latory organization to withhold information
from the Commission;
(ii) authorize such board or the Com-
mission to withhold information concerning
an accountant review proceeding from an
accountant or person associated with an ac-
countant that is the subject of such pro-
ceeding;
(iii) authorize the Commission to with-
hold information from Congress; or
(iv) prevent the Commission from com-
plying with a request for information from
any other Federal department or agency re-
questing information for purposes within
the scope of its jurisdiction, or complying
with an order of a court of the United
States in an action brought by the United
States or the Commission.
(C) DURATION OF WITHHOLDING.—Neither
the Commission nor the recognized public regu-
latory organization shall disclose the results of
any such finding until the completion of any re-
view by the Commission under subsections (e)
and (f), or the conclusion of the 30-day period
for seeking review if no motion seeking review is
filed within such period.
(D) TREATMENT
UNDER
FOIA.—For pur-
poses of section 552 of title 5, United States
Code, this subsection shall be considered a statute
described in subsection (b)(3)(B) of such section
552.
(3) NONPRECLUSIVE
EFFECT
OF
PRO
FIND-
INGS.—A finding by a recognized public regulatory
organization that an individual audit of an issuer
met or failed to meet any applicable standard with
respect to the quality of such audit shall not be con-
strued 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.
(e) REVIEW OF SANCTIONS.—
(1) NOTICE.—If any recognized public regu-
latory organization—
(A) makes a finding with respect to or im-
poses any final disciplinary sanction on any ac-
countant;
(B) prohibits or limits any person in re-
spect to access to services offered by such organi-
zation; or
(C) makes a finding with respect to or im-
poses any final disciplinary sanction on any
person associated with an accountant or bars
any person from becoming associated with an
accountant,
the recognized public regulatory organization shall
promptly submit notice thereof with the Commission.
The notice shall be in such form and contain such in-
formation as the Commission, by rule, may prescribe
as necessary or appropriate in furtherance of the pur-
poses of this section.
(2) REVIEW BY COMMISSION.—Any action with
respect to which a recognized public regulatory orga-
nization is required by paragraph (1) of this sub-
section to submit notice shall be subject to review by
the Commission, on its own motion, or upon applica-
tion by any person aggrieved thereby filed within 30
days after the date such notice was filed with the
Commission and received by such aggrieved person, or
within such longer period as the Commission may de-
termine. 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 opportunity for hearing on the
question of a stay (which hearing may consist solely
of the submission of affidavits or presentation of oral
arguments). The Commission shall establish for ap-
propriate cases an expedited procedure for consider-
ation and determination of the question of a stay.
(f) CONDUCT OF COMMISSION REVIEW.—
(1) BASIS FOR ACTION.—In any proceeding to
review a final disciplinary sanction imposed by a
recognized public regulatory organization on an ac-
countant or a person associated with such accountant,
after notice and opportunity for hearing (which hear-
ing may consist solely of consideration of the record
before the recognized public regulatory organization
and opportunity for the presentation of supporting
reasons to affirm, modify, or set aside the sanction)—
(A) if the Commission finds that such ac-
countant or person associated with an account-
ant has engaged in such acts or practices, or has
omitted such acts, as the recognized public regu-
latory organization has found him to have en-
gaged in or omitted, that such acts or practices,
or omissions to act, are in violation of such pro-
visions of this section, or of professional ethics
and competency standards, and that such provi-
sions are, and were applied in a manner, con-
sistent with the purposes of this section, the
Commission, by order, shall so declare and, as
appropriate, affirm the sanction imposed by the
recognized public regulatory organization, mod-
ify the sanction in accordance with paragraph
(2) of this subsection, or remand to the recog-
nized public regulatory organization for further
proceedings; or
(B) if the Commission does not make any
such finding, it shall, by order, set aside the
sanction imposed by the recognized public regu-
latory organization and, if appropriate, remand
to the recognized public regulatory organization
for further proceedings.
(2) REDUCTION OF SANCTIONS.—If the Commis-
sion, having due regard for the public interest and the
protection of investors, finds after a proceeding in ac-
cordance with paragraph (1) of this subsection that a
sanction imposed by a recognized public regulatory
organization upon an accountant or person associated
with an accountant imposes any burden on competi-
tion not necessary or appropriate in furtherance of
the purposes of this Act or is excessive or oppressive,
the Commission may cancel, reduce, or require the re-
mission of such sanction.
(g) REVIEW AND APPROVAL OF RULES.—
(1) SUBMISSION, PUBLICATION, AND COMMENT.—
Each recognized public regulatory organization 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 such recognized public
regulatory organization (hereinafter 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 interested persons an oppor-
tunity to submit written data, views, and arguments
concerning such proposed rule change. No proposed
rule change shall take effect unless approved by the
Commission or otherwise permitted in accordance
with the provisions 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 pe-
riod as the Commission may designate up to 90 days
of such date if it finds such longer period to be appro-
priate and publishes its reasons for so finding or as
to which the recognized public regulatory organiza-
tion 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 publication
of notice of the filing of the proposed rule change.
At the conclusion of such proceedings the Com-
mission, by order, shall approve or disapprove
such proposed rule change. The Commission may
extend the time for conclusion of such pro-
ceedings 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 organization
consents.
(3) BASIS FOR APPROVAL OR DISAPPROVAL.—
The Commission shall approve a proposed rule change
of a recognized public regulatory organization if it
finds that such proposed rule change is consistent
with the requirements of this Act and the rules and
regulations thereunder applicable to such organiza-
tion. The Commission shall disapprove a proposed
rule change of a recognized public regulatory organi-
zation if it does not make such finding. The Commis-
sion shall not approve any proposed rule change prior
to the 30th day after the date of publication of notice
of the filing thereof, unless the Commission finds good
cause for so doing and publishes its reasons for so
finding.
(4) RULES EFFECTIVE UPON FILING.—
(A) Notwithstanding the provisions of para-
graph (2) of this subsection, a proposed rule
change may take effect upon filing with the Com-
mission if designated by the recognized public
regulatory organization as (i) constituting a
stated policy, practice, or interpretation with re-
spect to the meaning, administration, or enforce-
ment 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 regulatory 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 public interest and the pur-
poses of this subsection, 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 accord-
or to modify or alter the procedures the Commission
may follow in making, rules and regulations pursu-
ant to any other authority under the securities laws.
(C) Any amendment to the rules of a recognized
public regulatory organization made by the Commis-
sion pursuant to this subsection shall be considered
for all purposes to be part of the rules of such recog-
nized public regulatory organization and shall not be
considered to be a rule of the Commission.
(i) 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 there-
of, and make and disseminate such reports as the
Commission, by rule, prescribes as necessary or ap-
propriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes
of this Act 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 Act and the se-
curities laws, including conducting a special review of
a particular public accounting firm’s quality control
system or a special review of a particular aspect of
some or all public accounting firms’ quality control
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—
(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 sub-
paragraph (A) to the Committee on Financial
Services of the United States House of Represent-
atives and the Committee on Banking, Housing,
and Urban Affairs of the United States Senate.
At the same time it transmits a public regu-
latory 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 regulatory organiza-
tion.
(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 Act or
the securities laws, to disapprove the election of any
member of a public regulatory organization if the
Commission determines, after notice and opportunity
for hearing, that the person elected is unfit to serve
on the public regulatory organization.
(j) CLARIFICATION OF APPLICATION OF PRO AUTHOR-
ITY.—The authority granted to any such organization in
this section shall only apply to the actions of accountants
related to the certification of financial statements 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 compa-
nies.
(k) 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,
rules to implement this section.
(l) EFFECTIVE DATE; TRANSITION PROVISIONS.—
(1) EFFECTIVE DATE.—Except as provided in
paragraph (2), subsection (a) of this section shall be
effective with respect to any certified financial state-
ment for any fiscal year that ends more than one
year after the Commission recognizes a public regu-
latory organization pursuant to this section.
(2) DELAY IN ESTABLISHMENT OF BOARD.—If
the Commission has failed to recognize any public
regulatory organization pursuant to this section with-
in one year after the date of enactment of this Act,
the Commission shall perform the duties of such orga-
nization with respect to any certified financial state-
ment for any fiscal year that ends before one year
after any such board is recognized by the Commis-
sion.
SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) RULES TO PROHIBIT.—It shall be unlawful in
contravention of such rules or regulations as the Commis-
sion shall prescribe as necessary and appropriate in the
public interest or for the protection of investors for any offi-
cer, director, or affiliated person of an issuer of any security
registered under section 12 of the Securities Exchange Act
of 1934 (15 U.S.C. 78l) to take any action to fraudulently
influence, coerce, manipulate, or mislead any independent
public or certified accountant engaged in the performance
of an audit of the financial statements of such issuer for
the purpose of rendering such financial statements materi-
ally misleading. In any civil proceeding, the Commission
shall have exclusive authority to enforce this section and
any rule or regulation hereunder.
(b) NO PREEMPTION OF OTHER LAW.—The provisions
of subsection (a) shall be in addition to, and shall not super-
sede or preempt, any other provision of law or any rule
or regulation thereunder.
(c) 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 rules or regulations required by this section.
SEC. 4. REAL-TIME DISCLOSURE OF FINANCIAL INFORMA-
TION.
(a) REAL-TIME ISSUER DISCLOSURES REQUIRED.—
(1) OBLIGATIONS.—Every issuer of a security
registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) shall file with the Com-
mission and disclose to the public, on a rapid and es-
sentially contemporaneous basis, such information
concerning the financial condition or operations of
such issuer as the Commission determines by rule is
necessary in the public interest and for the protection
of investors. Such rule shall—
(A) specify the events or circumstances giv-
ing rise to the obligation to disclose or update a
disclosure;
(B) establish requirements regarding the ra-
pidity 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 exemptions
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 securi-
ties of such issuer, by an officer or director of the
issuer of those securities, or by a beneficial owner
of such securities, shall be made available elec-
tronically to the Commission and to the issuer
by such officer, director, or beneficial owner be-
fore the end of the next business day after the
day on which the transaction occurs;
(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 af-
filiated 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 facili-
tate such electronic filing and disclosure.
SEC. 5. INSIDER TRADES DURING PENSION FUND BLACK-
OUT PERIODS PROHIBITED.
(a) PROHIBITION.—It shall be unlawful for any person
who is directly or indirectly the beneficial owner of more
than 10 percent of any class of any equity security (other
than an exempted security) which is registered under sec-
tion 12 of the Securities Exchange Act of 1934 (15 U.S.C.
78l) or who is a director or an officer of the issuer of such
security, directly or indirectly, to purchase (or otherwise
acquire) or sell (or otherwise transfer) any equity security
of any issuer (other than an exempted security), during any
blackout period with respect to such equity security.
(b) REMEDY.—Any profit realized by such beneficial
owner, director, or officer from any purchase (or other ac-
quisition) or sale (or other transfer) in violation of this sec-
tion shall inure to and be recoverable by the issuer irrespec-
tive of any intention on the part of such beneficial owner,
director, or officer in entering into the transaction. Suit
to recover such profit may be instituted at law or in equity
in any court of competent jurisdiction by the issuer, or by
the owner of any security of the issuer in the name and
in behalf of the issuer if the issuer shall fail or refuse to
bring such suit within 60 days after request or shall fail
diligently to prosecute the same thereafter; but no such suit
shall be brought more than 2 years after the date such profit
was realized. This subsection shall not be construed to cover
any transaction where such beneficial owner was not such
both at the time of the purchase and sale, or the sale and
purchase, of the security or security-based swap (as defined
in section 206B of the Gramm-Leach-Bliley Act) involved,
or any transaction or transactions which the Commission
by rules and regulations may exempt as not comprehended
within the purposes of this subsection.
(c) RULEMAKING PERMITTED.—The Commission may
issue rules to clarify the application of this subsection, to
ensure adequate notice to all persons affected by this sub-
section, and to prevent evasion thereof.
(d) DEFINITION.—For purposes of this section, the
term ‘‘beneficial owner’’ has the meaning provided such
term in rules or regulations issued by the Securities and
Exchange Commission under section 16 of the Securities
Exchange Act of 1934 (15 U.S.C. 78p).
SEC. 6. IMPROVED TRANSPARENCY OF CORPORATE DIS-
CLOSURES.
(a) MODIFICATION OF REGULATIONS REQUIRED.—The
Commission shall revise its regulations under the securities
laws pertaining to the disclosures required in periodic fi-
nancial reports and registration statements to require 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 fi-
nancial statements and are reasonably likely to mate-
rially affect the liquidity or the availability of, or re-
quirements for, capital resources, or the financial con-
dition or results of operations of the issuer; and