[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 1976 Introduced in Senate (IS)]
103d CONGRESS
2d Session
S. 1976
To amend the Securities Exchange Act of 1934 to establish a filing
deadline and to provide certain safeguards to ensure that the interests
of investors are well protected under the implied private action
provisions of the Act.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 24 (legislative day, February 22), 1994
Mr. Dodd (for himself, Mr. Domenici, Ms. Mikulski, Mr. Johnston, and
Mr. Faircloth) introduced the following bill; which was read twice and
referred to the Committee on Banking, Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To amend the Securities Exchange Act of 1934 to establish a filing
deadline and to provide certain safeguards to ensure that the interests
of investors are well protected under the implied private action
provisions of the Act.
Be it enacted by the Senate and House of Representatives 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 ``Private Securities
Litigation Reform Act of 1994''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--PRIVATE SECURITIES LITIGATION
Sec. 101. Elimination of certain abusive practices.
Sec. 102. Alternative dispute resolution procedure; time limitation on
private rights of action.
Sec. 103. Plaintiff steering committees.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
TITLE II--FINANCIAL DISCLOSURE
Sec. 201. Safe harbor for forward-looking statements.
Sec. 202. Fraud detection and disclosure.
Sec. 203. Proportionate liability and joint and several liability.
Sec. 204. Public Auditing Self-Disciplinary Board.
TITLE I--PRIVATE SECURITIES LITIGATION
SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.
(a) Receipt for Referral Fees.--Section 15(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end
the following new paragraph:
``(7) Receipt of referral fees.--No broker or dealer, or
person associated with a broker or dealer, may solicit or
accept remuneration for assisting an attorney in obtaining the
representation of any customer in any implied private action
arising under this title.''.
(b) Prohibition on Attorneys' Fees Paid From Commission
Disgorgement Funds.--Section 21(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78u(d)) is amended by adding at the end the following
new paragraph:
``(4) Prohibition on attorneys' fees paid from commission
disgorgement funds.--Except as otherwise ordered by the court,
funds disgorged as the result of an action brought by the
Commission in Federal court, or of any Commission
administrative action, shall not be distributed as payment for
attorneys' fees or expenses incurred by private parties seeking
distribution of the disgorged funds.''.
(c) Additional Provisions Applicable to Class Actions.--Section 21
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by
adding at the end the following new subsections:
``(i) Recovery by Named Plaintiffs in Class Actions.--In an implied
private action arising under this title that is certified as a class
action pursuant to the Federal Rules of Civil Procedure, the share of
any final judgment or of any settlement that is awarded to class
plaintiffs serving as the representative parties shall be calculated in
the same manner as the shares of the final judgment or settlement
awarded to all other members of the class. Nothing in this subsection
shall be construed to limit the award to any representative parties of
reasonable compensation, costs, and expenses (including lost wages)
relating to the representation of the class.
``(j) Conflicts of Interest.--In an implied private action arising
under this title that is certified as a class action pursuant to the
Federal Rules of Civil Procedure, if a party is represented by an
attorney who directly owns or otherwise has a beneficial interest in
the securities that are the subject of the litigation, the court shall
make a determination of whether such interest constitutes a conflict of
interest sufficient to disqualify the attorney from representing the
party.
``(k) Restrictions on Settlements Under Seal.--In an implied
private action arising under this title that is certified as a class
action pursuant to the Federal Rules of Civil Procedure, the terms and
provisions of any settlement agreement between any of the parties shall
not be filed under seal, except that on motion of any of the parties to
the settlement, the court may order filing under seal for those
portions of a settlement agreement as to which good cause is shown for
such filing under seal. Good cause shall only exist if publication of a
term or provision of a settlement agreement would cause direct and
substantial harm to any person.
``(l) Restrictions on Payment of Attorneys' Fees From Settlement
Funds.--In an implied private action arising under this title that is
certified as a class action pursuant to the Federal Rules of Civil
Procedure, attorneys' fees awarded by the court to counsel for the
class shall be determined as a percentage of the amount of damages and
prejudgment interest actually paid to the class as a result of the
attorneys' efforts. In no event shall the amount awarded to counsel for
the class exceed a reasonable percentage of the amount recovered by the
class plus reasonable expenses.
``(m) Disclosure of Settlement Terms to Class Members.--In an
implied private action arising under this title that is certified as a
class action pursuant to the Federal Rules of Civil Procedure, a
proposed settlement agreement that is published or otherwise
disseminated to the class shall include the following statements, which
shall not be admissible for purposes of any Federal or State judicial
or administrative proceeding:
``(1) Statement of potential outcome of case.--
``(A) Agreement on amount of damages and likelihood
of prevailing.--If the settling parties agree on the
amount of damages per share that would be recoverable
if the plaintiff prevailed on each claim alleged under
this title and the likelihood that the plaintiff would
prevail--
``(i) a statement concerning the amount of
such potential damages; and
``(ii) a statement concerning the
probability that the plaintiff would prevail on
the claims alleged under this title and a brief
explanation of the reasons for that conclusion.
``(B) Disagreement on amount of damages or
likelihood of prevailing.--If the parties do not agree
on the amount of damages per share that would be
recoverable if the plaintiff prevailed on each claim
alleged under this title or on the likelihood that the
plaintiff would prevail on those claims, or both, a
statement from each settling party concerning the issue
or issues on which the parties disagree.
``(C) Inadmissibility for certain purposes.--
Statements made in accordance with subparagraphs (A)
and (B) shall not be admissible for purposes of any
Federal or State judicial or administrative proceeding.
``(2) Statement of attorneys' fees or costs sought.--If any
of the settling parties or their counsel intend to apply to the
court for an award of attorneys' fees or costs from any fund
established as part of the settlement, a statement indicating
which parties or counsel intend to make such an application,
the amount of fees and costs that will be sought, and a brief
explanation of the basis for the application.
``(3) Identification of representatives.--The name,
telephone number, and address of one or more representatives of
counsel for the plaintiff class who will be reasonably
available to answer questions from class members concerning any
matter contained in any notice of settlement published or
otherwise disseminated to class members.
``(4) Other information.--Such other information as may be
required by the court, or by any guardian ad litem or plaintiff
steering committee appointed by the court pursuant to section
38.
``(n) Special Verdicts.--In an implied private action arising under
this title in which the plaintiff may recover money damages only on
proof that a defendant acted with a particular state of mind, the court
shall, when requested by a defendant, submit to the jury a written
interrogatory on the issue of each such defendant's state of mind at
the time the alleged violation occurred.
``(o) Named Plaintiff Threshold.--In an implied private action
arising under this title, in order for a plaintiff or plaintiffs to
obtain certification as representatives of a class of investors
pursuant to the Federal Rules of Civil Procedure, the plaintiff or
plaintiffs must show that they owned, in the aggregate, during the time
period in which violations of this title are alleged to have occurred,
not less than the lesser of--
``(1) 1 percent of the securities which are the subject of
the litigation; or
``(2) $10,000 (in market value) of such securities.''.
SEC. 102. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE; TIME LIMITATION ON
PRIVATE RIGHTS OF ACTION.
(a) Recovery of Costs and Attorneys' Fees.--The Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the
following new section:
``SEC. 36. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.
``(a) In General.--
``(1) Offer to proceed.--Except as provided in paragraph
(2), in an implied private action arising under this title, any
party may, before the expiration of the period permitted for
answering the complaint, deliver to all other parties an offer
to proceed pursuant to any voluntary, nonbinding alternative
dispute resolution procedure established or recognized under
the rules of the court in which the action is maintained.
``(2) Plaintiff class actions.--In an implied private
action under this title which is brought as a plaintiff class
action, an offer under paragraph (1) shall be made not later
than 30 days after a guardian ad litem or plaintiff steering
committee is appointed by the court in accordance with section
38.
``(3) Response.--The recipient of an offer under paragraph
(1) or (2) shall file a written notice of acceptance or
rejection of the offer with the court not later than 10 days
after receipt of the offer. The court may, upon motion by any
party made prior to the expiration of such period, extend the
period for not more than 90 additional days, during which time
discovery may be permitted by the court.
``(4) Selection of type of alternative dispute
resolution.--For purposes of paragraphs (1) and (2), if the
rules of the court establish or recognize more than 1 type of
alternative dispute resolution, the parties may stipulate as to
the type of alternative dispute resolution to be applied. If
the parties are unable to so stipulate, the court shall issue
an order not later than 20 days after the date on which the
parties agree to the use of alternative dispute resolution,
specifying the type of alternative dispute resolution to be
applied.
``(5) Sanctions for dilatory or obstructive conduct.--If
the court finds that a party has engaged in dilatory or
obstructive conduct in taking or opposing any discovery allowed
during the response period described in paragraph (3), the
court may--
``(A) extend the period to permit further discovery
from that party for a suitable period; and
``(B) deny that party the opportunity to conduct
further discovery prior to the expiration of the
period.
``(b) Penalty for Unreasonable Litigation Position.--
``(1) Award of costs.--In an implied private action arising
under this title, upon motion of the prevailing party made
prior to final judgment, the court shall award costs, including
reasonable attorneys' fees, against a party or parties or their
attorneys, if--
``(A) the party unreasonably refuses to proceed
pursuant to an alternative dispute resolution
procedure, or refuses to accept the result of an
alternative dispute resolution procedure;
``(B) final judgment is entered against the party;
and
``(C) the party asserted a claim or defense in the
action which was not substantially justified.
``(2) Determination of justification.--For purposes of
paragraph (1)(C), whether a position is `substantially
justified' shall be determined in the same manner as under
section 2412(d)(1)(B) of title 28, United States Code.
``(3) Limited use.--Fees and costs awarded under this
paragraph shall not be applied to any named plaintiff in any
action certified as a class action under the Federal Rules of
Civil Procedure if such plaintiff has never owned more than
$1,000,000 of the securities which are the subject of the
litigation.''.
(b) Limitations Period for Implied Private Rights of Action.--The
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
adding at the end the following new section:
``SEC. 37. LIMITATIONS PERIOD FOR IMPLIED PRIVATE RIGHTS OF ACTION.
``(a) In General.--Except as otherwise provided in this title, an
implied private right of action arising under this title shall be
brought not later than the earlier of--
``(1) 5 years after the date on which the alleged violation
occurred; or
``(2) 2 years after the date on which the alleged violation
was discovered or should have been discovered through the
exercise of reasonable diligence.
``(b) Effective Date.--The limitations period provided by this
section shall apply to all proceedings pending on or commenced after
the date of enactment of this section.''.
SEC. 103. PLAINTIFF STEERING COMMITTEES.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding at the end the following new section:
``SEC. 38. GUARDIAN AD LITEM AND CLASS ACTION STEERING COMMITTEES.
``(a) Guardian Ad Litem.--Except as provided in subsection (b), not
later than 10 days after certifying a plaintiff class in an implied
private action brought under this title, the court shall appoint a
guardian ad litem for the plaintiff class from a list or lists provided
by the parties or their counsel. The guardian ad litem shall direct
counsel for the class and perform such other functions as the court may
specify. The court shall apportion the reasonable fees and expenses of
the guardian ad litem among the parties. Court appointment of a
guardian ad litem shall not be subject to interlocutory review.
``(b) Class Action Steering Committee.--Subsection (a) shall not
apply if, not later than 10 days after certifying a plaintiff class, on
its own motion or on motion of a member of the class, the court
appoints a committee of class members to direct counsel for the class
(hereafter in this section referred to as the `plaintiff steering
committee') and to perform such other functions as the court may
specify. Court appointment of a plaintiff steering committee shall not
be subject to interlocutory review.
``(c) Membership of Plaintiff Steering Committee.--
``(1) Qualifications.--
``(A) Number.--A plaintiff steering committee shall
consist of not less than 5 class members, willing to
serve, who the court believes will fairly represent the
class.
``(B) Ownership interests.--Members of the
plaintiff steering committee shall have cumulatively
held during the class period not less than--
``(i) the lesser of 5 percent of the
securities which are the subject matter of the
litigation or securities which are the subject
matter of the litigation with a market value of
$10,000,000; or
``(ii) such smaller percentage or dollar
amount as the court finds appropriate under the
circumstances.
``(2) Named plaintiffs.--Class members who are named
plaintiffs in the litigation may serve on the plaintiff
steering committee, but shall not comprise a majority of the
committee.
``(3) Noncompensation of members.--Members of the plaintiff
steering committee shall serve without compensation, except
that any member may apply to the court for reimbursement of
reasonable out-of-pocket expenses from any common fund
established for the class.
``(4) Meetings.--The plaintiff steering committee shall
conduct its business at one or more previously scheduled
meetings of the committee at which a majority of its members
are present in person or by electronic communication. The
plaintiff steering committee shall decide all matters within
its authority by a majority vote of all members, except that
the committee may determine that decisions other than to accept
or reject a settlement offer or to employ or dismiss counsel
for the class may be delegated to one or more members of the
committee, or may be voted upon by committee members seriatim,
without a meeting.
``(5) Right of nonmembers to be heard.--A class member who
is not a member of the plaintiff steering committee may appear
and be heard by the court on any issue in the action, to the
same extent as any other party.
``(d) Functions of Guardian Ad Litem and Plaintiff Steering
Committee.--
``(1) Direct counsel.--The authority of the guardian ad
litem or the plaintiff steering committee to direct counsel for
the class shall include all powers normally permitted to an
attorney's client in litigation, including the authority to
retain or dismiss counsel and to reject offers of settlement,
and the preliminary authority to accept an offer of settlement,
subject to the restrictions specified in paragraph (2).
Dismissal of counsel other than for cause shall not limit the
ability of counsel to enforce any contractual fee agreement or
to apply to the court for a fee award from any common fund
established for the class.
``(2) Settlement offers.--If a guardian ad litem or a
plaintiff steering committee gives preliminary approval to an
offer of settlement, the guardian ad litem or the plaintiff
steering committee may seek approval of the offer by a majority
of class members if the committee determines that the benefit
of seeking such approval outweighs the cost of soliciting the
approval of class members.
``(e) Immunity From Liability; Removal.--Any person serving as a
guardian ad litem or as a member of a plaintiff steering committee
shall be immune from any liability arising from such service. The court
may remove a guardian ad litem or a member of a plaintiff steering
committee for good cause shown.
``(f) Effect on Other Law.--This section does not affect any other
provision of law concerning class actions or the authority of the court
to give final approval to any offer of settlement.''.
SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding at the end the following new section:
``SEC. 39. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.
``(a) Intent.--In an implied private action arising under this
title in which the plaintiff may recover money damages from a defendant
only on proof that the defendant acted with some level of intent, the
plaintiff's complaint shall allege specific facts demonstrating the
state of mind of each defendant at the time the alleged violation
occurred.
``(b) Misleading Statements and Omissions.--In an implied action
arising under this title in which the plaintiff alleges that the
defendant--
``(1) made an untrue statement of a material fact; or
``(2) omitted to state a material fact necessary in order
to make the statements made, in the light of the circumstances
in which they were made, not misleading;
the plaintiff shall specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and,
if an allegation regarding the statement or omission is made on
information and belief, the plaintiff shall set forth all information
on which that belief is formed.
``(c) Burden of Proof.--In an implied private action arising under
this title based on a material misstatement or omission concerning a
security, and in which the plaintiff claims to have bought or sold the
security based on a reasonable belief that the market value of the
security reflected all publicly available information, the plaintiff
shall have the burden of proving that the misstatement or omission
caused any loss incurred by the plaintiff.
``(d) Damages.--In an implied private action arising under this
title based on a material misstatement or omission concerning a
security, and in which the plaintiff claims to have bought or sold the
security based on a reasonable belief that the market value of the
security reflected all publicly available information, the plaintiff's
damages shall not exceed the lesser of--
``(1) the difference between the price paid by the
plaintiff for the security and the market value of the security
immediately after dissemination to the market of information
which corrects the misstatement or omission; and
``(2) the difference between the price paid by the
plaintiff for the security and the price at which the plaintiff
sold the security after dissemination of information correcting
the misstatement or omission.''.
SEC. 105. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT.
Section 1964(c) of title 18, United States Code, is amended by
inserting ``, except that no person may bring an action under this
provision if the racketeering activity, as defined in section
1961(1)(D), involves fraud in the sale of securities'' before the
period.
TITLE II--FINANCIAL DISCLOSURE
SEC. 201. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
(a) Consideration of Regulatory or Legislative Changes.--In
consultation with investors and issuers of securities, the Securities
and Exchange Commission shall consider adopting or amending its rules
and regulations, or making legislative recommendations, concerning--
(1) criteria that the Commission finds appropriate for the
protection of investors by which forward-looking statements
concerning the future economic performance of an issuer of
securities registered under section 12 of the Securities
Exchange Act of 1934 will be deemed not to be in violation of
section 10(b) of that Act; and
(2) procedures by which courts shall timely dismiss claims
against such issuers of securities based on such forward-
looking statements if such statements are in accordance with
any criteria under paragraph (1).
(b) Commission Considerations.--In developing rules or legislative
recommendations in accordance with subsection (a), the Commission shall
consider--
(1) appropriate limits to liability for forward-looking
statements;
(2) procedures for making a summary determination of the
applicability of any Commission rule for forward-looking
statements early in a judicial proceeding to limit protracted
litigation and expansive discovery;
(3) incorporating and reflecting the scienter requirements
applicable to implied private actions under section 10(b); and
(4) providing clear guidance to issuers of securities and
the judiciary.
(c) Securities Act Amendment.--The Securities and Exchange Act of
1934 (15 U.S.C. 78a et seq.), is amended by adding at the end the
following new section:
``SEC. 40. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) In General.--In any implied private action arising under this
title that alleges that a forward-looking statement concerning the
future economic performance of an issuer registered under section 12
was materially false or misleading, if a party making a motion in
accordance with subsection (b) requests a stay of discovery concerning
the claims or defenses of that party, the court shall grant such a stay
until it has ruled on any such motion.
``(b) Summary Judgment Motions.--Subsection (a) shall apply to any
motion for summary judgment made by a defendant asserting that the
forward-looking statement was within the coverage of any rule which the
Commission may have adopted concerning such predictive statements, if
such motion is made not less than 60 days after the plaintiff commences
discovery in the action.
``(c) Dilatory Conduct; Duplicative Discovery.--Notwithstanding
subsection (a) or (b), the time permitted for a plaintiff to conduct
discovery under subsection (b) may be extended, or a stay of the
proceedings may be denied, if the court finds that--
``(1) the defendant making a motion described in subsection
(b) engaged in dilatory or obstructive conduct in taking or
opposing any discovery; or
``(2) a stay of discovery pending a ruling on a motion
under subsection (b) would be substantially unfair to the
plaintiff or other parties to the action.''.
SEC. 202. FRAUD DETECTION AND DISCLOSURE.
(a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by inserting immediately after section 10 the
following new section:
``SEC. 10A. AUDIT REQUIREMENTS.
``(a) In General.--Each audit required pursuant to this title of an
issuer's financial statements by an independent public accountant shall
include, in accordance with generally accepted auditing standards, as
may be modified or supplemented from time to time by the Commission--
``(1) procedures designed to provide reasonable assurance
of detecting illegal acts that would have a direct and material
effect on the determination of financial statement amounts;
``(2) procedures designed to identify related party
transactions which are material to the financial statements or
otherwise require disclosure therein; and
``(3) an evaluation of whether there is substantial doubt
about the issuer's ability to continue as a going concern
during the ensuing fiscal year.
``(b) Required Response to Audit Discoveries.--
``(1) Investigation and report to management.--If, in the
course of conducting an audit pursuant to this title to which
subsection (a) applies, the independent public accountant
detects or otherwise 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 standards, 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, determine and consider the possible
effect of the illegal act on the financial statements
of the issuer, including any contingent monetary
effects, such as fines, penalties, and damages; and
``(B) as soon as practicable, inform the
appropriate 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 have otherwise come to the
attention of such accountant in the course of the
audit, unless the illegal act is clearly
inconsequential.
``(2) Response to failure to take remedial 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 committee) is adequately informed with respect to
illegal acts that have been detected or have otherwise come to
the accountant's attention in the course of such accountant's
audit, the independent public accountant concludes that--
``(A) the illegal act has a material effect on the
financial statements of the issuer;
``(B) the senior management has not taken, and the
board of directors has not caused senior management to
take, timely and appropriate remedial actions with
respect to the 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;
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 directors receives a report
under paragraph (2) shall inform the Commission by notice not
later than 1 business day after the receipt of such report and
shall furnish the independent public accountant making such
report with a copy of the notice furnished to the Commission.
If the independent public accountant fails to receive a copy of
the notice before the expiration of the required 1-business-day
period, 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 report given)
not later than 1 business day following such failure to
receive notice.
``(4) Report after resignation.--If an independent public
accountant resigns from an engagement under paragraph (3)(A),
the accountant shall, not later than 1 business day following
the failure by the issuer to notify the Commission under
paragraph (3), furnish to the Commission a copy of the
accountant's report (or the documentation of any oral report
given).
``(c) Auditor Liability Limitation.--No independent public
accountant shall be liable in a private action for any finding,
conclusion, or statement expressed in a report made pursuant to
paragraph (3) or (4) of subsection (b), including any rules promulgated
pursuant thereto.
``(d) Civil Penalties in Cease-and-Desist Proceedings.--If the
Commission finds, after notice and opportunity for hearing in a
proceeding instituted pursuant to section 21C, that an independent
public accountant has willfully violated paragraph (3) or (4) of
subsection (b), 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 to impose a civil penalty
and the amount of the penalty shall be governed by the standards set
forth in section 21B.
``(e) Preservation of Existing Authority.--Except as provided in
subsection (d), nothing in this section shall be held to limit or
otherwise affect the authority of the Commission under this title.
``(f) Definition.--As used in this section, the term `illegal act'
means an act or omission that violates any law, or any rule or
regulation having the force of law.''.
(b) Effective Dates.--With respect to any registrant that is
required to file selected quarterly financial data pursuant to item
302(a) of Regulation S-K of the Securities and Exchange Commission (17
CFR 229.302(a)), the amendments made by subsection (a) shall apply to
any annual report for any period beginning on or after January 1, 1994.
With respect to any other registrant, the amendment shall apply for any
period beginning on or after January 1, 1995.
SEC. 203. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL LIABILITY.
(a) Securities Act Amendment.--The Securities and Exchange Act of
1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the
following new section:
``SEC. 41. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL LIABILITY IN
IMPLIED ACTIONS.
``(a) Applicability.--This section shall apply only to the
allocation of damages among persons who are, or who may become, liable
for damages in an implied private action arising under this title.
Nothing in this section shall affect the standards for liability
associated with an implied private action arising under this title.
``(b) Application of Joint and Several Liability.--
``(1) In general.--A person against whom a judgment is
entered in an implied private action arising under this title
shall be liable jointly and severally for any recoverable
damages on such judgment if the person is found to have--
``(A) been a primary wrongdoer;
``(B) committed knowing securities fraud; or
``(C) controlled any primary wrongdoer or person
who committed knowing securities fraud.
``(2) Primary wrongdoer.--As used in this subsection--
``(A) the term `primary wrongdoer' means--
``(i) any--
``(I) issuer, registrant,
purchaser, seller, or underwriter of
securities;
``(II) marketmaker or specialist in
securities; or
``(III) clearing agency, securities
information processor, or government
securities dealer;
if such person breached a direct statutory or
regulatory obligation or if such person
otherwise had a principal role in the conduct
that is the basis for the implied right of
action; or
``(ii) any person who intentionally
rendered substantial assistance to the
fraudulent conduct of any person described in
clause (i), with actual knowledge of such
person's fraudulent conduct or fraudulent
purpose, and with knowledge that such conduct
was wrongful; and
``(B) a defendant engages in `knowing securities
fraud' if such defendant--
``(i) makes a material representation with
actual knowledge that the representation is
false, or omits to make a statement with actual
knowledge that, as a result of the omission,
one of the defendant's material representations
is false and knows that other persons are
likely to rely on that misrepresentation or
omission, except that reckless conduct by the
defendant shall not be construed to constitute
`knowing securities fraud'; or
``(ii) intentionally rendered substantial
assistance to the fraudulent conduct of any
person described in clause (i), with actual
knowledge of such person's fraudulent conduct
or fraudulent purpose, and with knowledge that
such conduct was wrongful.
``(c) Determination of Responsibility.--In an implied private
action in which more than 1 person contributed to a violation of this
title, the court shall instruct the jury to answer special
interrogatories, or if there is no jury, shall make findings,
concerning the degree of responsibility of each person alleged to have
caused or contributed to the violation of this title, including persons
who have entered into settlements with the plaintiff. The
interrogatories or findings shall specify the amount of damages the
plaintiff is entitled to recover and the degree of responsibility,
measured as a percentage of the total fault of all persons involved in
the violation, of each person found to have caused or contributed to
the damages incurred by the plaintiff or plaintiffs. In determining the
degree of responsibility, the trier of fact shall consider--
``(1) the nature of the conduct of each person; and
``(2) the nature and extent of the causal relationship
between that conduct and the damage claimed by the plaintiff.
``(d) Application of Proportionate Liability.--Except as provided
in subsection (b), the amount of liability of a person who is, or may
through right of contribution become, liable for damages based on an
implied private action arising under this title shall be determined as
follows:
``(1) Degree of responsibility.--Except as provided in
paragraph (2), each liable party shall only be liable for the
portion of the judgment that corresponds to that party's degree
of responsibility, as determined under subsection (c).
``(2) Uncollectible shares.--If, upon motion made not later
than 6 months after a final judgment is entered, the court
determines that all or part of a defendant's share of the
obligation is uncollectible--
``(A) the remaining defendants shall be jointly and
severally liable for the uncollectible share if the
plaintiff establishes that--
``(i) the plaintiff is an individual whose
recoverable damages under a final judgment are
equal to more than 10 percent of the
plaintiff's net financial worth; and
``(ii) the plaintiff's net financial worth
is less than $200,000; and
``(B) the amount paid by each of the remaining
defendants to all other plaintiffs shall be, in total,
not more than the greater of--
``(i) that remaining defendant's percentage
of fault for the uncollectible share; or
``(ii) 5 times--
``(I) the amount which the
defendant gained from the conduct that
gave rise to its liability; or
``(II) if a defendant did not
obtain a direct financial gain from the
conduct that gave rise to the liability
and the conduct consisted of the
provision of deficient services to an
entity involved in the violation, the
defendant's gross revenues received for
the provision of all services to the
other entity involved in the violation
during the calendar years in which
deficient services were provided.
``(3) Overall limit.--In no event shall the total payments
required pursuant to paragraph (2) exceed the amount of the
uncollectible share.
``(4) Defendants subject to contribution.--A defendant
whose liability is reallocated pursuant to paragraph (2) shall
be subject to contribution and to any continuing liability to
the plaintiff on the judgment.
``(5) Right of contribution.--To the extent that a
defendant is required to make an additional payment pursuant to
paragraph (2), that defendant may recover contribution--
``(A) from the defendant originally liable to make
the payment;
``(B) from any defendant liable jointly and
severally pursuant to subsection (b)(1);
``(C) from any defendant held proportionately
liable pursuant to this subsection who is liable to
make the same payment and has paid less than his or her
proportionate share of that payment; or
``(D) from any other person responsible for the
conduct giving rise to the payment who would have been
liable to make the same payment.
``(e) Nondisclosure to Jury.--The standard for allocation of
damages under subsections (b)(1) and (c) and the procedure for
reallocation of uncollectible shares under subsection (d)(2) shall not
be disclosed to members of the jury.
``(f) Settlement Discharge.--
``(1) In general.--A defendant who settles an implied
private action brought under this title at any time before
verdict or judgment shall be discharged from all claims for
contribution brought by other persons. Upon entry of the
settlement by the court, the court shall enter a bar order
constituting the final discharge of all obligations to the
plaintiff of the settling defendant arising out of the action.
The order shall bar all future claims for contribution or
indemnity arising out of the action--
``(A) by nonsettling persons against the settling
defendant; and
``(B) by the settling defendant against any
nonsettling defendants.
``(2) Reduction.--If a person enters into a settlement with
the plaintiff prior to verdict or judgment, the verdict or
judgment shall be reduced by the greater of--
``(A) an amount that corresponds to the degree of
responsibility of that person; or
``(B) the amount paid to the plaintiff by that
person.
``(g) Contribution.--A person who becomes liable for damages in an
implied private action arising under this title may recover
contribution from any other person who, if joined in the original suit,
would have been liable for the same damages. A claim for contribution
shall be determined based on the degree of responsibility of the
claimant and of each person against whom a claim for contribution is
made.
``(h) Statute of Limitations for Contribution.--Once judgment has
been entered in an implied private action arising under this title
determining liability, an action for contribution must be brought not
later than 6 months after the entry of a final, nonappealable judgment
in the action, except that an action for contribution brought by a
defendant who was required to make an additional payment pursuant to
subsection (d)(2) may be brought not later than 6 months after the date
on which such payment was made.''.
(b) Effective Date.--Section 41 of the Securities Exchange Act of
1934, as added by subsection (a), shall only apply to implied private
actions commenced after the date of enactment of this Act.
SEC. 204. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting immediately after section 13 the following new
section:
``SEC. 13A. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.
``(a) Definitions.--For purposes of this section, the following
definitions shall apply:
``(1) Public accounting firm.--The term `public accounting
firm' means a sole proprietorship, unincorporated association,
partnership, corporation, or other legal entity that is engaged
in the practice of public accounting.
``(2) Board.--The term `Board' means the Public Auditing
Self-Disciplinary Board designated by the Commission pursuant
to subsection (b).
``(3) Accountant's report.--The term `accountant's report'
means a document in which a public accounting firm identifies a
financial statement, report, or other document and sets forth
the firm's opinion regarding such financial statement, report,
or other document, or an assertion that an opinion cannot be
expressed.
``(4) Person associated with a public accounting firm.--The
term `person associated with a public accounting firm' means a
natural person who--
``(A) is a partner, shareholder, employee, or
individual proprietor of a public accounting firm, or
who shares in the profits of a public accounting firm;
and
``(B) engages in any conduct or practice in
connection with the preparation of an accountant's
report on any financial statement, report, or other
document required to be filed with the Commission under
any securities law.
``(5) Professional standards.--The term `professional
standards' means generally accepted auditing standards,
generally accepted accounting principles, generally accepted
standards for attestation engagements, and any other standards
related to the preparation of financial statements or
accountant's reports promulgated by the Commission or a
standard-setting body recognized by the Board.
``(b) Establishment of Board.--
``(1) In general.--Not later than 90 days after the date of
enactment of this section, the Commission shall establish a
Public Auditing Self-Disciplinary Board to perform the duties
set forth in this section. The Commission shall designate an
entity to serve as the Board if the Commission finds that--
``(A) such entity is sponsored by an existing
national organization of certified public accountants
that--
``(i) is most representative of certified
public accountants covered by this title; and
``(ii) has demonstrated its commitment to
improving the quality of practice before the
Commission; and
``(B) control over such entity is vested in the
members of the Board selected pursuant to subsection
(c).
``(2) Alternative election of members.--If the Commission
designates an entity to serve as the Board pursuant to
paragraph (1), the entity shall conduct the election of initial
Board members in accordance with subsection (c)(1)(B)(i).
``(c) Membership of Board.--
``(1) In general.--The Board shall be composed of 3
appointed members and 4 elected members, as follows:
``(A) Appointed members.--Three members of the
Board shall be appointed in accordance with the
following:
``(i) Initial appointments.--The Chairman
of the Commission shall make the initial
appointments, in consultation with the other
members of the Commission, not later than 90
days after the date of enactment of this
section.
``(ii) Subsequent appointments.--After the
initial appointments under clause (i), members
of the Board appointed to fill vacancies of
appointed members of the Board shall be
appointed in accordance with the rules adopted
pursuant to paragraph (5). Such rules shall
provide that such members shall be appointed by
the Board, subject to the approval of the
Commission.
``(B) Elected members.--Four members, including the
member who shall serve as the chairperson of the Board,
shall be elected in accordance with the following:
``(i) Initial election.--Not later than 120
days after the date on which the Chairman of
the Commission makes appointments under
subparagraph (A)(i), an entity designated by
the Commission pursuant to subsection (b) shall
conduct an election of 4 initial elected
members pursuant to interim election rules
proposed by the entity and approved by the 3
interim members of the Board and the
Commission. If the Commission is unable to
designate an entity meeting the criteria set
forth in subsection (b)(1), the members of the
Board appointed under subparagraph (A)(i) shall
adopt interim rules, subject to approval by the
Commission, providing for the election of the 4
initial elected members. Such rules shall
provide that such members of the Board shall be
elected--
``(I) not later than 120 days after
the date on which members are initially
appointed under subparagraph (A)(i);
``(II) by persons who are
associated with public accounting firms
and who are certified public
accountants under the laws of any
State; and
``(III) subject to the approval of
the Commission.
``(ii) Subsequent elections.--After the
initial elections under clause (i), members of
the Board elected to fill vacancies of elected
members of the Board shall be elected in
accordance with the rules adopted pursuant to
paragraph (5). Such rules shall provide that
such members of the Board shall be elected--
``(I) by persons who are associated
with public accounting firms and who
are certified public accountants under
the laws of any State; and
``(II) subject to the approval of
the Commission.
``(2) Qualification.--Four members of the Board, including
the chairperson of the Board, shall be persons who have not
been associated with a public accounting firm during the 10-
year period preceding appointment or election to the Board
under paragraph (1). Three members of the Board who are elected
shall be persons associated with a public accounting firm
registered with the Board.
``(3) Full-time basis.--The chairperson of the Board shall
serve on a full-time basis, severing all business ties with his
or her former firms or employers prior to beginning service on
the Board.
``(4) Terms.--
``(A) In general.--Except as provided in
subparagraph (B), each member of the Board shall hold
office for a term of 4 years or until a successor is
appointed, whichever is later, except that any member
appointed to fill a vacancy occurring prior to the
expiration of the term for which such member's
predecessor was appointed shall be appointed for the
remainder of such term.
``(B) Initial board members.--Beginning on the date
on which all members of the Board have been selected in
accordance with this subsection, the terms of office of
the initial Board members shall expire, as determined
by the Board, by lottery--
``(i) for 1 member, 1 year after such date;
``(ii) for 2 members, 2 years after such
date;
``(iii) for 2 members, 3 years after such
date; and
``(iv) for 2 members, 4 years after such
date.
``(5) Rules.--Following selection of the 7 initial members
of the Board in accordance with subparagraphs (A)(i) and (B)(i)
of paragraph (1), the Board shall propose and adopt rules,
which shall provide for--
``(A) the operation and administration of the
Board, including--
``(i) the appointment of members in
accordance with paragraph (1)(A)(ii);
``(ii) the election of members in
accordance with paragraph (1)(B)(ii); and
``(iii) the compensation of the members of
the Board;
``(B) the appointment and compensation of such
employees, attorneys, and consultants as may be
necessary or appropriate to carry out the Board's
functions under this title;
``(C) the registration of public accounting firms
with the Board pursuant to subsections (d) and (e); and
``(D) the matters described in subsections (f) and
(g).
``(d) Registration and Annual Fees.--After the date on which all
initial members of the Board have been selected in accordance with
subsection (c), the Board shall assess and collect a registration fee
and annual dues from each public accounting firm registered with the
Board. Such fees and dues shall be assessed at a level sufficient to
recover the costs and expenses of the Board and to permit the Board to
operate on a self-financing basis. The amount of fees and dues for each
public accounting firm shall be based upon--
``(1) the annual revenues of such firm from accounting and
auditing services;
``(2) the number of persons associated with the public
accounting firm;
``(3) the number of clients for which such firm furnishes
accountant's reports on financial statements, reports, or other
documents filed with the Commission; and
``(4) such other criteria as the Board may establish.
``(e) Registration With Board.--
``(1) Registration required.--Beginning 1 year after the
date on which all initial members of the Board have been
selected in accordance with subsection (c), it shall be
unlawful for a public accounting firm to furnish an
accountant's report on any financial statement, report, or
other document required to be filed with the Commission under
any Federal securities law, unless such firm is registered with
the Board.
``(2) Application for registration.--A public accounting
firm may be registered under this subsection by filing with the
Board an application for registration in such form and
containing such information as the Board, by rule, may
prescribe. Each application shall include--
``(A) the names of all clients of the public
accounting firm for which the firm furnishes
accountant's reports on financial statements, reports,
or other documents filed with the Commission;
``(B) financial information of the public
accounting firm for its most recent fiscal year,
including its annual revenues from accounting and
auditing services, its assets and its liabilities;
``(C) a statement of the public accounting firm's
policies and procedures with respect to quality control
of its accounting and auditing practice;
``(D) information relating to criminal, civil, or
administrative actions or formal disciplinary
proceedings pending against such firm, or any person
associated with such firm, in connection with an
accountant's report furnished by such firm;
``(E) a list of persons associated with the public
accounting firm who are certified public accountants,
including any State professional license or
certification number for each such person; and
``(F) such other information that is reasonably
related to the Board's responsibilities as the Board
considers necessary or appropriate.
``(3) Periodic reports.--Once in each year, or more
frequently as the Board, by rule, may prescribe, each public
accounting firm registered with the Board shall submit reports
to the Board updating the information contained in its
application for registration and containing such additional
information that is reasonably related to the Board's
responsibilities as the Board, by rule, may prescribe.
``(4) Exemptions.--The Commission, by rule or order, upon
its own motion or upon application, may conditionally or
unconditionally exempt any public accounting firm or any
accountant's report, or any class of public accounting firms or
any class of accountant's reports, from any provisions of this
section or the rules or regulations issued hereunder, if the
Commission finds that such exemption is consistent with the
public interest, the protection of investors, and the purposes
of this section.
``(5) Confidentiality.--The Board may, by rule, designate
portions of the filings required pursuant to paragraphs (2) and
(3) as privileged and confidential.
``(f) Duties of Board.--After the date on which all initial members
of the Board have been selected in accordance with subsection (c), the
Board shall have the following duties and powers:
``(1) Investigations and disciplinary proceedings.--The
Board shall establish fair procedures for investigating and
disciplining public accounting firms registered with the Board,
and persons associated with such firms, for violations of the
Federal securities laws, the rules or regulations issued
thereunder, the rules adopted by the Board, or professional
standards in connection with the preparation of an accountant's
report on a financial statement, report, or other document
filed with the Commission.
``(2) Investigation procedures.--
``(A) In general.--The Board may conduct an
investigation of any act, practice, or omission by a
public accounting firm registered with the Board, or by
any person associated with such firm, in connection
with the preparation of an accountant's report on a
financial statement, report, or other document filed
with the Commission that may violate any applicable
provision of the Federal securities laws, the rules and
regulations issued thereunder, the rules adopted by the
Board, or professional standards, whether such act,
practice, or omission is the subject of a criminal,
civil, or administrative action, or a disciplinary
proceeding, or otherwise is brought to the attention of
the Board.
``(B) Powers of board.--For purposes of an
investigation under this paragraph, the Board may, in
addition to such other actions as the Board determines
to be necessary or appropriate--
``(i) require the testimony of any person
associated with a public accounting firm
registered with the Board, with respect to any
matter which the Board considers relevant or
material to the investigation;
``(ii) require the production of audit
workpapers and any other document or
information in the possession of a public
accounting firm registered with the Board, or
any person associated with such firm, wherever
domiciled, that the Board considers relevant or
material to the investigation, and may examine
the books and records of such firm to verify
the accuracy of any documents or information so
supplied; and
``(iii) request the testimony of any person
and the production of any document in the
possession of any person, including a client of
a public accounting firm registered with the
Board, that the Board considers relevant or
material to the investigation.
``(C) Suspension or revocation of registration for
noncompliance.--The refusal of any person associated
with a public accounting firm registered with the Board
to testify, or the refusal of any such person to
produce documents or otherwise cooperate with the
Board, in connection with an investigation under this
section, shall be cause for suspending or barring such
person from associating with a public accounting firm
registered with the Board, or such other appropriate
sanction as the Board shall determine. The refusal of
any public accounting firm registered with the Board to
produce documents or otherwise cooperate with the
Board, in connection with an investigation under this
section, shall be cause for the suspension or
revocation of the registration of such firm, or such
other appropriate sanction as the Board shall
determine.
``(D) Referral to commission.--
``(i) In general.--If the Board is unable
to conduct or complete an investigation under
this section because of the refusal of any
client of a public accounting firm registered
with the Board, or any other person, to
testify, produce documents, or otherwise
cooperate with the Board in connection with
such investigation, the Board shall report such
refusal to the Commission.
``(ii) Investigation.--The Commission may
designate the Board or one or more officers of
the Board who shall be empowered, in accordance
with such procedures as the Commission may
adopt, to subpoena witnesses, compel their
attendance, and require the production of any
books, papers, correspondence, memoranda, or
other records relevant to any investigation by
the Board. Attendance of witnesses and the
production of any records may be required from
any place in the United States or any State at
any designated place of hearing. Enforcement of
a subpoena issued by the Board, or an officer
of the Board, pursuant to this subparagraph
shall occur in the manner provided for in
section 21(c). Examination of witnesses
subpoenaed pursuant to this subparagraph shall
be conducted before an officer authorized to
administer oaths by the laws of the United
States or of the place where the examination is
held.
``(iii) Referrals to commission.--The Board
may refer any investigation to the Commission,
as the Board deems appropriate.
``(E) Immunity from civil liability.--An employee
of the Board engaged in carrying out an investigation
or disciplinary proceeding under this section shall be
immune from any civil liability arising out of such
investigation or disciplinary proceeding in the same
manner and to the same extent as an employee of the
Federal Government in similar circumstances.
``(3) Disciplinary procedures.--
``(A) Decision to discipline.--In a proceeding by
the Board to determine whether a public accounting
firm, or a person associated with such firm, should be
disciplined, the Board shall bring specific charges,
notify such firm or person of the charges, give such
firm or person an opportunity to defend against such
charges, and keep a record of such actions.
``(B) Sanctions.--If the Board finds that a public
accounting firm, or a person associated with such firm,
has engaged in any act, practice, or omission in
violation of the Federal securities laws, the rules or
regulations issued thereunder, the rules adopted by the
Board, or professional standards, the Board may impose
such disciplinary sanctions as it deems appropriate,
including--
``(i) revocation or suspension of
registration under this section;
``(ii) limitation of activities, functions,
and operations;
``(iii) fine;
``(iv) censure;
``(v) in the case of a person associated
with a public accounting firm, suspension or
bar from being associated with a public
accounting firm registered with the Board; and
``(vi) any other disciplinary sanction that
the Board determines to be appropriate.
``(C) Statement required.--A determination by the
Board to impose a disciplinary sanction shall be
supported by a written statement by the Board setting
forth--
``(i) any act or practice in which the
public accounting firm or person associated
with such firm has been found to have engaged,
or which such firm or person has been found to
have omitted;
``(ii) the specific provision of the
Federal securities laws, the rules or
regulations issued thereunder, the rules
adopted by the Board, or professional standards
which any such act, practice, or omission is
deemed to violate; and
``(iii) the sanction imposed and the
reasons therefor.
``(D) Prohibition on association.--It shall be
unlawful--
``(i) for any person as to whom a
suspension or bar is in effect willfully to be
or to become associated with a public
accounting firm registered with the Board, in
connection with the preparation of an
accountant's report on any financial statement,
report, or other document filed with the
Commission, without the consent of the Board or
the Commission; and
``(ii) for any public accounting firm
registered with the Board to permit such a
person to become, or remain, associated with
such firm without the consent of the Board or
the Commission, if such firm knew or, in the
exercise of reasonable care should have known,
of such suspension or bar.
``(4) Reporting of sanctions.--If the Board imposes a
disciplinary sanction against a public accounting firm, or a
person associated with such firm, the Board shall report such
sanction to the Commission, to the appropriate State or foreign
licensing board or boards with which such firm or such person
is licensed or certified to practice public accounting, and to
the public. The information reported shall include--
``(A) the name of the public accounting firm, or
person associated with such firm, against whom the
sanction is imposed;
``(B) a description of the acts, practices, or
omissions upon which the sanction is based;
``(C) the nature of the sanction; and
``(D) such other information respecting the
circumstances of the disciplinary action (including the
name of any client of such firm affected by such acts,
practices, or omissions) as the Board deems
appropriate.
``(5) Discovery and admissibility of board material.--
``(A) Discoverability.--
``(i) In general.--Except as provided in
subparagraph (C), all reports, memoranda, and
other information prepared, collected, or
received by the Board, and the deliberations
and other proceedings of the Board and its
employees and agents in connection with an
investigation or disciplinary proceeding under
this section shall not be subject to any form
of civil discovery, including demands for
production of documents and for testimony of
individuals, in connection with any proceeding
in any State or Federal court, or before any
State or Federal administrative agency. This
subparagraph shall not apply to any information
provided to the Board that would have been
subject to discovery from the person or entity
that provided it to the Board, but is no longer
available from that person or entity.
``(ii) Exemption.--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 exempt from discovery to the
same extent as the material described in clause
(i), whether in the possession of the Board or
any other person, if such submission--
``(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) Construction.--Nothing in this
subparagraph shall limit the authority of the
Board to provide appropriate public access to
disciplinary hearings of the Board, or to
reports or memoranda received by the Board in
connection with such proceedings.
``(B) Admissibility.--
``(i) In general.--Except as provided in
subparagraph (C), all reports, memoranda, and
other information prepared, 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 disciplinary 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 documents.--
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 exercise
of 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;
``(II) available to Federal and
State authorities in connection with
any criminal investigation or
proceeding;
``(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 documents or
other information provided to the Commission or
other authorities pursuant to clause (i) shall
be subject to the limitations on discovery and
admissibility set forth in subparagraphs (A)
and (B).
``(D) Title 5 treatment.--This subsection shall be
considered to be a statute described in section
552(b)(3)(B) of title 5, United States Code, for
purposes of that section 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
pendancy of the investigation, and shall invite the
State licensing boards to participate in the
investigation.
``(B) Acceptance by state board.--
``(i) Participation.--If a State licensing
board elects to join in the investigation, 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).
``(ii) Review.--In the event that the State
licensing board disagrees with the Board's
determination with respect to the matter under
investigation, it may seek review of that
determination by the Commission pursuant to
procedures that the Commission shall specify by
regulation.
``(C) Prohibition on concurrent investigations.--A
State licensing board shall not institute its own
proceeding with respect to a matter referred to in
subparagraph (A) until after the Board's determination
has become final, including completion of all review by
the Commission and the courts.
``(D) State sanctions permitted.--If the Board or
the Commission imposes a sanction upon a public
accounting firm or person associated with such a firm,
and that determination either is not subjected to
judicial review or is upheld on judicial review, a
State licensing board may impose a sanction on the
basis of the Board's report pursuant to paragraph (4).
Any sanction imposed by the State licensing board under
this clause shall be inadmissible in any proceeding in
any State or Federal court or before any State or
Federal administrative agency, except to the extent
provided in paragraph (5)(D).
``(E) Sanctions not permitted.--If a sanction is
not imposed on a public accounting firm or person
associated with such a firm, and--
``(i) a State licensing board elected to
participate in an investigation referred to in
subparagraph (A), the State licensing board may
not impose a sanction with respect to the
matter; and
``(ii) a State licensing board elected not
to participate in an investigation referred to
in subparagraph (A), subparagraphs (A) and (B)
of paragraph (5) shall apply with respect to
any investigation or proceeding subsequently
instituted by the State licensing board and, in
particular, the State licensing board shall not
have access to the record of the proceeding
before the Board and that record shall be
inadmissible in any proceeding before the State
licensing board.
``(g) Additional Duties Regarding Quality Control.--After the date
on which all initial members of the Board have been selected in
accordance with subsection (c), the Board shall have the following
duties and powers in addition to those set forth in subsection (f):
``(1) In general.--The Board shall seek to promote a high
level of professional conduct among public accounting firms
registered with the Board, to improve the quality of audit
services provided by such firms, and, in general, to protect
investors and promote the public interest.
``(2) Professional peer review organizations.--
``(A) Membership requirement.--The Board shall
require each public accounting firm subject to the
disciplinary authority of the Board to be a member of a
professional peer review organization certified by the
Board pursuant to subparagraph (B).
``(B) Criteria for certification.--The Board shall,
by rule, establish general criteria for the
certification of peer review organizations and shall
certify organizations that satisfy those criteria, or
such amended criteria as the Board may adopt. To be
certified, a peer review organization shall, at a
minimum--
``(i) require a member public accounting
firm to undergo peer review not less than once
every 3 years and publish the results of the
peer review; and
``(ii) adopt standards that are acceptable
to the Board relating to audit service quality
control.
``(C) Penalties.--Violation by a public accounting
firm or a person associated with such a firm of a rule
of the peer review organization to which the firm
belongs shall constitute grounds for--
``(i) the imposition of disciplinary
sanctions by the Board pursuant to subsection
(f); and
``(ii) denial to the public accounting firm
or person associated with such firm of the
privilege of appearing or practicing before the
Commission.
``(3) Confidentiality.--Except as otherwise provided by
this section, all reports, memoranda, and other information
provided to the Board solely for purposes of paragraph (2), or
to a peer review organization certified by the Board, shall be
confidential and privileged, unless such confidentiality and
privilege are expressly waived by the person or entity that
created or provided the information.
``(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') 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 opportunity
to submit written data, views, and arguments concerning
the proposed rule change. No proposed rule change shall
take effect unless approved by the Commission or
otherwise permitted in accordance 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 published in
accordance with subparagraph (A), or such
longer period as the Commission may designate
(not to exceed 90 days after such date, if it
finds such longer period 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
proposed rule change; or
``(II) institute proceedings to
determine 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 reasons 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 Federal securities
laws, and the rules and regulations issued
thereunder, applicable to the Board. The
Commission shall disapprove a proposed rule
change if it does not make such finding. The
Commission shall not approve any proposed rule
change prior to the expiration of the 30-day
period beginning on the date on which notice of
the filing of a proposed rule change is
published in accordance 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.--Notwithstanding
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 enforcement 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 interest and
the purposes of this subsection, may
specify.
``(ii) Summary effect.--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.
Any proposed rule change put into effect
summarily shall be filed promptly thereafter in
accordance with this paragraph.
``(iii) Enforcement.--Any proposed rule
change which has taken effect pursuant to
clause (i) or (ii) may be enforced by the Board
to the extent that it is not inconsistent with
the Federal securities laws, the rules and
regulations issued thereunder, and applicable
Federal and State law. During the 60-day period
beginning on the date on which notice of the
filing of a proposed 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 require that the
proposed rule change be refiled in accordance
with subparagraph (A) and reviewed in
accordance with subparagraph (B), if it appears
to the Commission that such action is necessary
or appropriate in the public interest, for the
protection of investors, or otherwise in
furtherance of the purposes of the Federal
securities laws. Commission action pursuant to
the preceding sentence shall not affect the
validity or force of the rule change during the
period it was in effect and shall not be
reviewable under section 25 of this Act nor
deemed to be `final agency action' for purposes
of section 704 of title 5, United States Code.
``(2) Amendment by commission of rules of the board.--The
Commission, by rule, may abrogate, add to, and delete from
(hereafter in this subsection collectively referred to as
`amend') the rules of the Board as the Commission deems
necessary or appropriate to ensure the fair administration of
the Board, to conform its rules to requirements of the Federal
securities laws, and the rules and regulations issued
thereunder applicable to the Board, or otherwise in furtherance
of the purposes of the Federal securities laws, in the
following manner:
``(A) Publication of notice.--The Commission shall
notify the Board and publish notice of the proposed
rulemaking in the Federal Register. The notice shall
include the text of the proposed amendment to the rules
of the Board and a statement of the Commission's
reasons, including any pertinent facts, for commencing
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
identification 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 rulemaking.
``(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 Commission may
follow in making rules and regulations pursuant
to any other authority under the Federal
securities laws.
``(iii) Incorporation of amendments.--Any
amendment to the rules of the Board made by the
Commission pursuant to this subsection shall be
considered for purposes of the Federal
securities laws to be part of the rules of the
Board and shall not be considered to be a rule
of the Commission.
``(3) Notice of disciplinary action taken by the board;
review of action by the commission.--
``(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
Commission, by rule, may prescribe as necessary or
appropriate in furtherance of the purposes of the
Federal 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 application by any person aggrieved
thereby, filed not later than 30 days after the date on
which such notice is filed with the Commission and
received by such aggrieved person, or within such
longer period as the Commission may determine.
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
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 registered 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 supporting
reasons to affirm, modify, or set aside the sanction)--
``(i) if the Commission finds that--
``(I) such firm or person
associated 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 Federal 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
applied in a manner consistent with the
purposes of the Federal 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 remand to the Board for
further proceedings; 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 remission of
sanction.--If the Commission, having due regard for the
public interest and the protection of investors, finds
after a proceeding 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 appropriate in furtherance
of the purposes of the Federal securities laws or is
excessive or oppressive, the Commission may cancel,
reduce, or require the remission of such sanction.
``(5) Compliance with rules and regulations.--
``(A) Duties of board.--The Board shall--
``(i) comply with the Federal securities
laws, the rules and regulations issued
thereunder, 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 registered
with the Board and persons associated with such
firms.
``(B) Relief by commission.--The Commission, by
rule, consistent with the public interest, the
protection of investors, and the other purposes of the
Federal securities laws, may relieve the Board of any
responsibility under this section to enforce compliance
with any specified provision of the Federal securities
laws, the rules or regulations issued thereunder, or
professional standards by any public accounting firm
registered with the Board or person associated with
such a firm, or any class of such firms or persons
associated with such a firm.
``(6) Censure; other sanctions.--
``(A) In general.--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 the Federal securities laws, to censure or
impose limitations upon the activities, functions, and
operations of the Board, if the Commission finds, on
the record after notice and opportunity for hearing,
that the Board has--
``(i) violated or is unable to comply with
any provision of the Federal securities laws,
the rules or regulations issued thereunder, or
its own rules; or
``(ii) without reasonable justification or
excuse, has failed to enforce compliance with
any such provision or any professional standard
by a public accounting firm registered with the
Board or a person associated with such a firm.
``(B) Removal from office.--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 the Federal securities
laws, to remove from office or censure any member of
the Board, if the Commission finds, on the record after
notice and opportunity for hearing, that such member
has--
``(i) willfully violated any provision of
the Federal securities laws, the rules or
regulations issued thereunder, or the rules of
the Board;
``(ii) willfully abused such member's
authority; or
``(iii) without reasonable justification or
excuse, failed to enforce compliance with any
such provision or any professional standard by
any public accounting firm registered with the
Board or any person associated 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 required to be filed with the Commission under any
Federal securities law shall, with respect to those reports, be subject
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) Relationship With Antitrust Laws.--
``(1) Treatment under antitrust laws.--In no case shall the
Board, any member thereof, any public accounting firm
registered with the Board, or any person associated with such a
firm be subject to liability under any antitrust law for any
act of the Board or any failure to act by the Board.
``(2) Definition.--For purposes of this subsection, the
term `antitrust law' means the Federal Trade Commission Act and
each statute defined by section 4 thereof as `Antitrust Acts'
and all amendments to such Act and such statutes and any other
Federal Acts or State laws in pari materia.
``(k) Applicability of Auditing Principles.--Each audit required
pursuant to this title of an issuer's financial statements by an
independent public accountant shall be conducted in accordance with
generally accepted auditing standards, as may be modified or
supplemented from time-to-time by the Commission. The Commission may
defer to professional standards promulgated by private organizations
that are generally accepted by the accounting or auditing profession.
``(l) 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 Federal securities laws or the
rules or regulations issued thereunder; or
``(3) to take, on its own initiative, legal,
administrative, or disciplinary action against any public
accounting firm registered with the Board or any person
associated with such a firm.''.
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