关键词：Securities

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 755
to report more frequently, as necessary to update the information
contained in its application for registration under this section, and
to provide to the Board such additional information as the Board
or the Commission may specify, in accordance with subsection (b)(2).
(e) PUBLIC AVAILABILITY.—Registration applications and annual
reports required by this subsection, or such portions of such applications
or reports as may be designated under rules of the Board,
shall be made available for public inspection, subject to rules of
the Board or the Commission, and to applicable laws relating to
the confidentiality of proprietary, personal, or other information
contained in such applications or reports, provided that, in all
events, the Board shall protect from public disclosure information
reasonably identified by the subject accounting firm as proprietary
information.
(f) REGISTRATION AND ANNUAL FEES.—The Board shall assess
and collect a registration fee and an annual fee from each registered
public accounting firm, in amounts that are sufficient to recover
the costs of processing and reviewing applications and annual
reports.
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS
AND RULES.
(a) AUDITING, QUALITY CONTROL, AND ETHICS STANDARDS.—
(1) IN GENERAL.—The Board shall, by rule, establish,
including, to the extent it determines appropriate, through
adoption of standards proposed by 1 or more professional groups
of accountants designated pursuant to paragraph (3)(A) or
advisory groups convened pursuant to paragraph (4), and
amend or otherwise modify or alter, such auditing and related
attestation standards, such quality control standards, and such
ethics standards to be used by registered public accounting
firms in the preparation and issuance of audit reports, as
required by this Act or the rules of the Commission, or as
may be necessary or appropriate in the public interest or for
the protection of investors.
(2) RULE REQUIREMENTS.—In carrying out paragraph (1),
the Board—
(A) shall include in the auditing standards that it
adopts, requirements that each registered public accounting
firm shall—
(i) prepare, and maintain for a period of not less
than 7 years, audit work papers, and other information
related to any audit report, in sufficient detail to support
the conclusions reached in such report;
(ii) provide a concurring or second partner review
and approval of such audit report (and other related
information), and concurring approval in its issuance,
by a qualified person (as prescribed by the Board)
associated with the public accounting firm, other than
the person in charge of the audit, or by an independent
reviewer (as prescribed by the Board); and
(iii) describe in each audit report the scope of
the auditor’s testing of the internal control structure
and procedures of the issuer, required by section
404(b), and present (in such report or in a separate
report)—
15 USC 7213.
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116 STAT. 756 PUBLIC LAW 107–204—JULY 30, 2002
(I) the findings of the auditor from such
testing;
(II) an evaluation of whether such internal
control structure and procedures—
(aa) include maintenance of records that
in reasonable detail accurately and fairly
reflect the transactions and dispositions of the
assets of the issuer;
(bb) provide reasonable assurance that
transactions are recorded as necessary to
permit preparation of financial statements in
accordance with generally accepted accounting
principles, and that receipts and expenditures
of the issuer are being made only in accordance
with authorizations of management and
directors of the issuer; and
(III) a description, at a minimum, of material
weaknesses in such internal controls, and of any
material noncompliance found on the basis of such
testing.
(B) shall include, in the quality control standards that
it adopts with respect to the issuance of audit reports,
requirements for every registered public accounting firm
relating to—
(i) monitoring of professional ethics and independence
from issuers on behalf of which the firm issues
audit reports;
(ii) consultation within such firm on accounting
and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development, and advancement
of personnel;
(v) the acceptance and continuation of engagements;
(vi) internal inspection; and
(vii) such other requirements as the Board may
prescribe, subject to subsection (a)(1).
(3) AUTHORITY TO ADOPT OTHER STANDARDS.—
(A) IN GENERAL.—In carrying out this subsection, the
Board—
(i) may adopt as its rules, subject to the terms
of section 107, any portion of any statement of auditing
standards or other professional standards that the
Board determines satisfy the requirements of paragraph
(1), and that were proposed by 1 or more professional
groups of accountants that shall be designated
or recognized by the Board, by rule, for such purpose,
pursuant to this paragraph or 1 or more advisory
groups convened pursuant to paragraph (4); and
(ii) notwithstanding clause (i), shall retain full
authority to modify, supplement, revise, or subsequently
amend, modify, or repeal, in whole or in part,
any portion of any statement described in clause (i).
(B) INITIAL AND TRANSITIONAL STANDARDS.—The Board
shall adopt standards described in subparagraph (A)(i) as
initial or transitional standards, to the extent the Board
determines necessary, prior to a determination of the
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 757
Commission under section 101(d), and such standards shall
be separately approved by the Commission at the time
of that determination, without regard to the procedures
required by section 107 that otherwise would apply to
the approval of rules of the Board.
(4) ADVISORY GROUPS.—The Board shall convene, or
authorize its staff to convene, such expert advisory groups
as may be appropriate, which may include practicing accountants
and other experts, as well as representatives of other
interested groups, subject to such rules as the Board may
prescribe to prevent conflicts of interest, to make recommendations
concerning the content (including proposed drafts) of
auditing, quality control, ethics, independence, or other standards
required to be established under this section.
(b) INDEPENDENCE STANDARDS AND RULES.—The Board shall
establish such rules as may be necessary or appropriate in the
public interest or for the protection of investors, to implement,
or as authorized under, title II of this Act.
(c) COOPERATION WITH DESIGNATED PROFESSIONAL GROUPS OF
ACCOUNTANTS AND ADVISORY GROUPS.—
(1) IN GENERAL.—The Board shall cooperate on an ongoing
basis with professional groups of accountants designated under
subsection (a)(3)(A) and advisory groups convened under subsection
(a)(4) in the examination of the need for changes in
any standards subject to its authority under subsection (a),
recommend issues for inclusion on the agendas of such designated
professional groups of accountants or advisory groups,
and take such other steps as it deems appropriate to increase
the effectiveness of the standard setting process.
(2) BOARD RESPONSES.—The Board shall respond in a timely
fashion to requests from designated professional groups of
accountants and advisory groups referred to in paragraph (1)
for any changes in standards over which the Board has
authority.
(d) EVALUATION OF STANDARD SETTING PROCESS.—The Board
shall include in the annual report required by section 101(h) the
results of its standard setting responsibilities during the period
to which the report relates, including a discussion of the work
of the Board with any designated professional groups of accountants
and advisory groups described in paragraphs (3)(A) and (4) of subsection
(a), and its pending issues agenda for future standard setting
projects.
SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.
(a) IN GENERAL.—The Board shall conduct a continuing program
of inspections to assess the degree of compliance of each
registered public accounting firm and associated persons of that
firm with this Act, the rules of the Board, the rules of the Commission,
or professional standards, in connection with its performance
of audits, issuance of audit reports, and related matters involving
issuers.
(b) INSPECTION FREQUENCY.—
(1) IN GENERAL.—Subject to paragraph (2), inspections
required by this section shall be conducted—
(A) annually with respect to each registered public
accounting firm that regularly provides audit reports for
more than 100 issuers; and
15 USC 7214.
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116 STAT. 758 PUBLIC LAW 107–204—JULY 30, 2002
(B) not less frequently than once every 3 years with
respect to each registered public accounting firm that regularly
provides audit reports for 100 or fewer issuers.
(2) ADJUSTMENTS TO SCHEDULES.—The Board may, by rule,
adjust the inspection schedules set under paragraph (1) if the
Board finds that different inspection schedules are consistent
with the purposes of this Act, the public interest, and the
protection of investors. The Board may conduct special inspections
at the request of the Commission or upon its own motion.
(c) PROCEDURES.—The Board shall, in each inspection under
this section, and in accordance with its rules for such inspections—
(1) identify any act or practice or omission to act by the
registered public accounting firm, or by any associated person
thereof, revealed by such inspection that may be in violation
of this Act, the rules of the Board, the rules of the Commission,
the firm’s own quality control policies, or professional standards;
(2) report any such act, practice, or omission, if appropriate,
to the Commission and each appropriate State regulatory
authority; and
(3) begin a formal investigation or take disciplinary action,
if appropriate, with respect to any such violation, in accordance
with this Act and the rules of the Board.
(d) CONDUCT OF INSPECTIONS.—In conducting an inspection
of a registered public accounting firm under this section, the Board
shall—
(1) inspect and review selected audit and review engagements
of the firm (which may include audit engagements that
are the subject of ongoing litigation or other controversy
between the firm and 1 or more third parties), performed at
various offices and by various associated persons of the firm,
as selected by the Board;
(2) evaluate the sufficiency of the quality control system
of the firm, and the manner of the documentation and communication
of that system by the firm; and
(3) perform such other testing of the audit, supervisory,
and quality control procedures of the firm as are necessary
or appropriate in light of the purpose of the inspection and
the responsibilities of the Board.
(e) RECORD RETENTION.—The rules of the Board may require
the retention by registered public accounting firms for inspection
purposes of records whose retention is not otherwise required by
section 103 or the rules issued thereunder.
(f) PROCEDURES FOR REVIEW.—The rules of the Board shall
provide a procedure for the review of and response to a draft
inspection report by the registered public accounting firm under
inspection. The Board shall take such action with respect to such
response as it considers appropriate (including revising the draft
report or continuing or supplementing its inspection activities before
issuing a final report), but the text of any such response, appropriately
redacted to protect information reasonably identified by
the accounting firm as confidential, shall be attached to and made
part of the inspection report.
(g) REPORT.—A written report of the findings of the Board
for each inspection under this section, subject to subsection (h),
shall be—
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 759
(1) transmitted, in appropriate detail, to the Commission
and each appropriate State regulatory authority, accompanied
by any letter or comments by the Board or the inspector,
and any letter of response from the registered public accounting
firm; and
(2) made available in appropriate detail to the public (subject
to section 105(b)(5)(A), and to the protection of such confidential
and proprietary information as the Board may determine
to be appropriate, or as may be required by law), except
that no portions of the inspection report that deal with criticisms
of or potential defects in the quality control systems
of the firm under inspection shall be made public if those
criticisms or defects are addressed by the firm, to the satisfaction
of the Board, not later than 12 months after the date
of the inspection report.
(h) INTERIM COMMISSION REVIEW.—
(1) REVIEWABLE MATTERS.—A registered public accounting
firm may seek review by the Commission, pursuant to such
rules as the Commission shall promulgate, if the firm—
(A) has provided the Board with a response, pursuant
to rules issued by the Board under subsection (f), to the
substance of particular items in a draft inspection report,
and disagrees with the assessments contained in any final
report prepared by the Board following such response; or
(B) disagrees with the determination of the Board that
criticisms or defects identified in an inspection report have
not been addressed to the satisfaction of the Board within
12 months of the date of the inspection report, for purposes
of subsection (g)(2).
(2) TREATMENT OF REVIEW.—Any decision of the Commission
with respect to a review under paragraph (1) shall not
be reviewable under section 25 of the Securities Exchange
Act of 1934 (15 U.S.C. 78y), or deemed to be ‘‘final agency
action’’ for purposes of section 704 of title 5, United States
Code.
(3) TIMING.—Review under paragraph (1) may be sought
during the 30-day period following the date of the event giving
rise to the review under subparagraph (A) or (B) of paragraph
(1).
SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.
(a) IN GENERAL.—The Board shall establish, by rule, subject
to the requirements of this section, fair procedures for the investigation
and disciplining of registered public accounting firms and associated
persons of such firms.
(b) INVESTIGATIONS.—
(1) AUTHORITY.—In accordance with the rules of the Board,
the Board may conduct an investigation of any act or practice,
or omission to act, by a registered public accounting firm,
any associated person of such firm, or both, that may violate
any provision of this Act, the rules of the Board, the provisions
of the securities laws relating to the preparation and issuance
of audit reports and the obligations and liabilities of accountants
with respect thereto, including the rules of the Commission
issued under this Act, or professional standards, regardless
of how the act, practice, or omission is brought to the attention
of the Board.
Establishment.
15 USC 7215.
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116 STAT. 760 PUBLIC LAW 107–204—JULY 30, 2002
(2) TESTIMONY AND DOCUMENT PRODUCTION.—In addition
to such other actions as the Board determines to be necessary
or appropriate, the rules of the Board may—
(A) require the testimony of the firm or of any person
associated with a registered public accounting firm, with
respect to any matter that the Board considers relevant
or material to an investigation;
(B) require the production of audit work papers and
any other document or information in the possession of
a registered public accounting firm or any associated person
thereof, wherever domiciled, that the Board considers relevant
or material to the investigation, and may inspect
the books and records of such firm or associated person
to verify the accuracy of any documents or information
supplied;
(C) request the testimony of, and production of any
document in the possession of, any other person, including
any client of a registered public accounting firm that the
Board considers relevant or material to an investigation
under this section, with appropriate notice, subject to the
needs of the investigation, as permitted under the rules
of the Board; and
(D) provide for procedures to seek issuance by the
Commission, in a manner established by the Commission,
of a subpoena to require the testimony of, and production
of any document in the possession of, any person, including
any client of a registered public accounting firm, that the
Board considers relevant or material to an investigation
under this section.
(3) NONCOOPERATION WITH INVESTIGATIONS.—
(A) IN GENERAL.—If a registered public accounting firm
or any associated person thereof refuses to testify, produce
documents, or otherwise cooperate with the Board in
connection with an investigation under this section, the
Board may—
(i) suspend or bar such person from being associated
with a registered public accounting firm, or
require the registered public accounting firm to end
such association;
(ii) suspend or revoke the registration of the public
accounting firm; and
(iii) invoke such other lesser sanctions as the Board
considers appropriate, and as specified by rule of the
Board.
(B) PROCEDURE.—Any action taken by the Board under
this paragraph shall be subject to the terms of section
107(c).
(4) COORDINATION AND REFERRAL OF INVESTIGATIONS.—
(A) COORDINATION.—The Board shall notify the
Commission of any pending Board investigation involving
a potential violation of the securities laws, and thereafter
coordinate its work with the work of the Commission’s
Division of Enforcement, as necessary to protect an ongoing
Commission investigation.
(B) REFERRAL.—The Board may refer an investigation
under this section—
(i) to the Commission;
Notification.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 761
(ii) to any other Federal functional regulator (as
defined in section 509 of the Gramm-Leach-Bliley Act
(15 U.S.C. 6809)), in the case of an investigation that
concerns an audit report for an institution that is
subject to the jurisdiction of such regulator; and
(iii) at the direction of the Commission, to—
(I) the Attorney General of the United States;
(II) the attorney general of 1 or more States;
and
(III) the appropriate State regulatory
authority.
(5) USE OF DOCUMENTS.—
(A) CONFIDENTIALITY.—Except as provided in subparagraph
(B), all documents and information prepared or
received by or specifically for the Board, and deliberations
of the Board and its employees and agents, in connection
with an inspection under section 104 or with an investigation
under this section, shall be confidential and privileged
as an evidentiary matter (and shall not be subject to civil
discovery or other legal process) in any proceeding in any
Federal or State court or administrative agency, and shall
be exempt from disclosure, in the hands of an agency
or establishment of the Federal Government, under the
Freedom of Information Act (5 U.S.C. 552a), or otherwise,
unless and until presented in connection with a public
proceeding or released in accordance with subsection (c).
(B) AVAILABILITY TO GOVERNMENT AGENCIES.—Without
the loss of its status as confidential and privileged in
the hands of the Board, all information referred to in
subparagraph (A) may—
(i) be made available to the Commission; and
(ii) in the discretion of the Board, when determined
by the Board to be necessary to accomplish the purposes
of this Act or to protect investors, be made available
to—
(I) the Attorney General of the United States;
(II) the appropriate Federal functional regulator
(as defined in section 509 of the Gramm-
Leach-Bliley Act (15 U.S.C. 6809)), other than the
Commission, with respect to an audit report for
an institution subject to the jurisdiction of such
regulator;
(III) State attorneys general in connection with
any criminal investigation; and
(IV) any appropriate State regulatory
authority,
each of which shall maintain such information as confidential
and privileged.
(6) IMMUNITY.—Any employee of the Board engaged in
carrying out an investigation under this Act shall be immune
from any civil liability arising out of such investigation in
the same manner and to the same extent as an employee
of the Federal Government in similar circumstances.
(c) DISCIPLINARY PROCEDURES.—
(1) NOTIFICATION; RECORDKEEPING.—The rules of the Board
shall provide that in any proceeding by the Board to determine
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116 STAT. 762 PUBLIC LAW 107–204—JULY 30, 2002
whether a registered public accounting firm, or an associated
person thereof, should be disciplined, the Board shall—
(A) bring specific charges with respect to the firm
or associated person;
(B) notify such firm or associated person of, and provide
to the firm or associated person an opportunity to defend
against, such charges; and
(C) keep a record of the proceedings.
(2) PUBLIC HEARINGS.—Hearings under this section shall
not be public, unless otherwise ordered by the Board for good
cause shown, with the consent of the parties to such hearing.
(3) SUPPORTING STATEMENT.—A determination by the Board
to impose a sanction under this subsection shall be supported
by a statement setting forth—
(A) each act or practice in which the registered public
accounting firm, or associated person, has engaged (or
omitted to engage), or that forms a basis for all or a
part of such sanction;
(B) the specific provision of this Act, the securities
laws, the rules of the Board, or professional standards
which the Board determines has been violated; and
(C) the sanction imposed, including a justification for
that sanction.
(4) SANCTIONS.—If the Board finds, based on all of the
facts and circumstances, that a registered public accounting
firm or associated person thereof has engaged in any act or
practice, or omitted to act, in violation of this Act, the rules
of the Board, the provisions of the securities laws relating
to the preparation and issuance of audit reports and the obligations
and liabilities of accountants with respect thereto,
including the rules of the Commission issued under this Act,
or professional standards, the Board may impose such disciplinary
or remedial sanctions as it determines appropriate, subject
to applicable limitations under paragraph (5), including—
(A) temporary suspension or permanent revocation of
registration under this title;
(B) temporary or permanent suspension or bar of a
person from further association with any registered public
accounting firm;
(C) temporary or permanent limitation on the activities,
functions, or operations of such firm or person (other
than in connection with required additional professional
education or training);
(D) a civil money penalty for each such violation, in
an amount equal to—
(i) not more than $100,000 for a natural person
or $2,000,000 for any other person; and
(ii) in any case to which paragraph (5) applies,
not more than $750,000 for a natural person or
$15,000,000 for any other person;
(E) censure;
(F) required additional professional education or
training; or
(G) any other appropriate sanction provided for in the
rules of the Board.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 763
(5) INTENTIONAL OR OTHER KNOWING CONDUCT.—The sanctions
and penalties described in subparagraphs (A) through
(C) and (D)(ii) of paragraph (4) shall only apply to—
(A) intentional or knowing conduct, including reckless
conduct, that results in violation of the applicable statutory,
regulatory, or professional standard; or
(B) repeated instances of negligent conduct, each
resulting in a violation of the applicable statutory, regulatory,
or professional standard.
(6) FAILURE TO SUPERVISE.—
(A) IN GENERAL.—The Board may impose sanctions
under this section on a registered accounting firm or upon
the supervisory personnel of such firm, if the Board finds
that—
(i) the firm has failed reasonably to supervise an
associated person, either as required by the rules of
the Board relating to auditing or quality control standards,
or otherwise, with a view to preventing violations
of this Act, the rules of the Board, the provisions
of the securities laws relating to the preparation and
issuance of audit reports and the obligations and liabilities
of accountants with respect thereto, including the
rules of the Commission under this Act, or professional
standards; and
(ii) such associated person commits a violation of
this Act, or any of such rules, laws, or standards.
(B) RULE OF CONSTRUCTION.—No associated person of
a registered public accounting firm shall be deemed to
have failed reasonably to supervise any other person for
purposes of subparagraph (A), if—
(i) there have been established in and for that
firm procedures, and a system for applying such procedures,
that comply with applicable rules of the Board
and that would reasonably be expected to prevent and
detect any such violation by such associated person;
and
(ii) such person has reasonably discharged the
duties and obligations incumbent upon that person
by reason of such procedures and system, and had
no reasonable cause to believe that such procedures
and system were not being complied with.
(7) EFFECT OF SUSPENSION.—
(A) ASSOCIATION WITH A PUBLIC ACCOUNTING FIRM.—
It shall be unlawful for any person that is suspended
or barred from being associated with a registered public
accounting firm under this subsection willfully to become
or remain associated with any registered public accounting
firm, or for any registered public accounting firm that
knew, or, in the exercise of reasonable care should have
known, of the suspension or bar, to permit such an association,
without the consent of the Board or the Commission.
(B) ASSOCIATION WITH AN ISSUER.—It shall be unlawful
for any person that is suspended or barred from being
associated with an issuer under this subsection willfully
to become or remain associated with any issuer in an
accountancy or a financial management capacity, and for
any issuer that knew, or in the exercise of reasonable
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116 STAT. 764 PUBLIC LAW 107–204—JULY 30, 2002
care should have known, of such suspension or bar, to
permit such an association, without the consent of the
Board or the Commission.
(d) REPORTING OF SANCTIONS.—
(1) RECIPIENTS.—If the Board imposes a disciplinary sanction,
in accordance with this section, the Board shall report
the sanction to—
(A) the Commission;
(B) any appropriate State regulatory authority or any
foreign accountancy licensing board with which such firm
or person is licensed or certified; and
(C) the public (once any stay on the imposition of
such sanction has been lifted).
(2) CONTENTS.—The information reported under paragraph
(1) shall include—
(A) the name of the sanctioned person;
(B) a description of the sanction and the basis for
its imposition; and
(C) such other information as the Board deems appropriate.
(e) STAY OF SANCTIONS.—
(1) IN GENERAL.—Application to the Commission for review,
or the institution by the Commission of review, of any disciplinary
action of the Board shall operate as a stay of any such
disciplinary action, unless and until the Commission 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) that
no such stay shall continue to operate.
(2) EXPEDITED PROCEDURES.—The Commission shall establish
for appropriate cases an expedited procedure for consideration
and determination of the question of the duration of
a stay pending review of any disciplinary action of the Board
under this subsection.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) APPLICABILITY TO CERTAIN FOREIGN FIRMS.—
(1) IN GENERAL.—Any foreign public accounting firm that
prepares or furnishes an audit report with respect to any issuer,
shall be subject to this Act and the rules of the Board and
the Commission issued under this Act, in the same manner
and to the same extent as a public accounting firm that is
organized and operates under the laws of the United States
or any State, except that registration pursuant to section 102
shall not by itself provide a basis for subjecting such a foreign
public accounting firm to the jurisdiction of the Federal or
State courts, other than with respect to controversies between
such firms and the Board.
(2) BOARD AUTHORITY.—The Board may, by rule, determine
that a foreign public accounting firm (or a class of such firms)
that does not issue audit reports nonetheless plays such a
substantial role in the preparation and furnishing of such
reports for particular issuers, that it is necessary or appropriate,
in light of the purposes of this Act and in the public
interest or for the protection of investors, that such firm (or
class of firms) should be treated as a public accounting firm

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 765
(or firms) for purposes of registration under, and oversight
by the Board in accordance with, this title.
(b) PRODUCTION OF AUDIT WORKPAPERS.—
(1) CONSENT BY FOREIGN FIRMS.—If a foreign public
accounting firm issues an opinion or otherwise performs material
services upon which a registered public accounting firm
relies in issuing all or part of any audit report or any opinion
contained in an audit report, that foreign public accounting
firm shall be deemed to have consented—
(A) to produce its audit workpapers for the Board
or the Commission in connection with any investigation
by either body with respect to that audit report; and
(B) to be subject to the jurisdiction of the courts of
the United States for purposes of enforcement of any
request for production of such workpapers.
(2) CONSENT BY DOMESTIC FIRMS.—A registered public
accounting firm that relies upon the opinion of a foreign public
accounting firm, as described in paragraph (1), shall be
deemed—
(A) to have consented to supplying the audit
workpapers of that foreign public accounting firm in
response to a request for production by the Board or the
Commission; and
(B) to have secured the agreement of that foreign public
accounting firm to such production, as a condition of its
reliance on the opinion of that foreign public accounting
firm.
(c) EXEMPTION AUTHORITY.—The Commission, and the Board,
subject to the approval of the Commission, may, by rule, regulation,
or order, and as the Commission (or Board) determines necessary
or appropriate in the public interest or for the protection of investors,
either unconditionally or upon specified terms and conditions
exempt any foreign public accounting firm, or any class of such
firms, from any provision of this Act or the rules of the Board
or the Commission issued under this Act.
(d) DEFINITION.—In this section, the term ‘‘foreign public
accounting firm’’ means a public accounting firm that is organized
and operates under the laws of a foreign government or political
subdivision thereof.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) GENERAL OVERSIGHT RESPONSIBILITY.—The Commission
shall have oversight and enforcement authority over the Board,
as provided in this Act. The provisions of section 17(a)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)), and of section
17(b)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(b)(1))
shall apply to the Board as fully as if the Board were a ‘‘registered
securities association’’ for purposes of those sections 17(a)(1) and
17(b)(1).
(b) RULES OF THE BOARD.—
(1) DEFINITION.—In this section, the term ‘‘proposed rule’’
means any proposed rule of the Board, and any modification
of any such rule.
(2) PRIOR APPROVAL REQUIRED.—No rule of the Board shall
become effective without prior approval of the Commission in
accordance with this section, other than as provided in section
103(a)(3)(B) with respect to initial or transitional standards.
15 USC 7217.
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116 STAT. 766 PUBLIC LAW 107–204—JULY 30, 2002
(3) APPROVAL CRITERIA.—The Commission shall approve
a proposed rule, if it finds that the rule is consistent with
the requirements of this Act and the securities laws, or is
necessary or appropriate in the public interest or for the protection
of investors.
(4) PROPOSED RULE PROCEDURES.—The provisions of paragraphs
(1) through (3) of section 19(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(b)) shall govern the proposed
rules of the Board, as fully as if the Board were a
‘‘registered securities association’’ for purposes of that section
19(b), except that, for purposes of this paragraph—
(A) the phrase ‘‘consistent with the requirements of
this title and the rules and regulations thereunder
applicable to such organization’’ in section 19(b)(2) of that
Act shall be deemed to read ‘‘consistent with the requirements
of title I of the Sarbanes-Oxley Act of 2002, and
the rules and regulations issued thereunder applicable to
such organization, or as necessary or appropriate in the
public interest or for the protection of investors’’; and
(B) the phrase ‘‘otherwise in furtherance of the purposes
of this title’’ in section 19(b)(3)(C) of that Act shall
be deemed to read ‘‘otherwise in furtherance of the purposes
of title I of the Sarbanes-Oxley Act of 2002’’.
(5) COMMISSION AUTHORITY TO AMEND RULES OF THE
BOARD.—The provisions of section 19(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(c)) shall govern the abrogation,
deletion, or addition to portions of the rules of the Board
by the Commission as fully as if the Board were a ‘‘registered
securities association’’ for purposes of that section 19(c), except
that the phrase ‘‘to conform its rules to the requirements of
this title and the rules and regulations thereunder applicable
to such organization, or otherwise in furtherance of the purposes
of this title’’ in section 19(c) of that Act shall, for purposes
of this paragraph, be deemed to read ‘‘to assure the fair
administration of the Public Company Accounting Oversight
Board, conform the rules promulgated by that Board to the
requirements of title I of the Sarbanes-Oxley Act of 2002,
or otherwise further the purposes of that Act, the securities
laws, and the rules and regulations thereunder applicable to
that Board’’.
(c) COMMISSION REVIEW OF DISCIPLINARY ACTION TAKEN BY
THE BOARD.—
(1) NOTICE OF SANCTION.—The Board shall promptly file
notice with the Commission of any final sanction on any registered
public accounting firm or on any associated person
thereof, in such form and containing such information as the
Commission, by rule, may prescribe.
(2) REVIEW OF SANCTIONS.—The provisions of sections
19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 78s (d)(2) and (e)(1)) shall govern the review by
the Commission of final disciplinary sanctions imposed by the
Board (including sanctions imposed under section 105(b)(3) of
this Act for noncooperation in an investigation of the Board),
as fully as if the Board were a self-regulatory organization
and the Commission were the appropriate regulatory agency
for such organization for purposes of those sections 19(d)(2)
and 19(e)(1), except that, for purposes of this paragraph—
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 767
(A) section 105(e) of this Act (rather than that section
19(d)(2)) shall govern the extent to which application for,
or institution by the Commission on its own motion of,
review of any disciplinary action of the Board operates
as a stay of such action;
(B) references in that section 19(e)(1) to ‘‘members’’
of such an organization shall be deemed to be references
to registered public accounting firms;
(C) the phrase ‘‘consistent with the purposes of this
title’’ in that section 19(e)(1) shall be deemed to read ‘‘consistent
with the purposes of this title and title I of the
Sarbanes-Oxley Act of 2002’’;
(D) references to rules of the Municipal Securities Rulemaking
Board in that section 19(e)(1) shall not apply; and
(E) the reference to section 19(e)(2) of the Securities
Exchange Act of 1934 shall refer instead to section 107(c)(3)
of this Act.
(3) COMMISSION MODIFICATION AUTHORITY.—The Commission
may enhance, modify, cancel, reduce, or require the remission
of a sanction imposed by the Board upon a registered
public accounting firm or associated person thereof, if the
Commission, having due regard for the public interest and
the protection of investors, finds, after a proceeding in accordance
with this subsection, that the sanction—
(A) is not necessary or appropriate in furtherance of
this Act or the securities laws; or
(B) is excessive, oppressive, inadequate, or otherwise
not appropriate to the finding or the basis on which the
sanction was imposed.
(d) CENSURE OF THE BOARD; OTHER SANCTIONS.—
(1) RESCISSION OF BOARD AUTHORITY.—The Commission,
by rule, consistent with the public interest, the protection of
investors, and the other purposes of this Act and the securities
laws, may relieve the Board of any responsibility to enforce
compliance with any provision of this Act, the securities laws,
the rules of the Board, or professional standards.
(2) CENSURE OF THE BOARD; LIMITATIONS.—The Commission
may, by order, as it determines 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, 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 a hearing, that
the Board—
(A) has violated or is unable to comply with any provision
of this Act, the rules of the Board, or the securities
laws; or
(B) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by a registered public
accounting firm or an associated person thereof.
(3) CENSURE OF BOARD MEMBERS; REMOVAL FROM OFFICE.—
The Commission may, as 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, remove
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116 STAT. 768 PUBLIC LAW 107–204—JULY 30, 2002
from office or censure any member of the Board, if the Commission
finds, on the record, after notice and opportunity for a
hearing, that such member—
(A) has willfully violated any provision of this Act,
the rules of the Board, or the securities laws;
(B) has willfully abused the authority of that member;
or
(C) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by any registered public
accounting firm or any associated person thereof.
SEC. 108. ACCOUNTING STANDARDS.
(a) AMENDMENT TO SECURITIES ACT OF 1933.—Section 19 of
the Securities Act of 1933 (15 U.S.C. 77s) is amended—
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively; and
(2) by inserting after subsection (a) the following:
‘‘(b) RECOGNITION OF ACCOUNTING STANDARDS.—
‘‘(1) IN GENERAL.—In carrying out its authority under subsection
(a) and under section 13(b) of the Securities Exchange
Act of 1934, the Commission may recognize, as ‘generally
accepted’ for purposes of the securities laws, any accounting
principles established by a standard setting body—
‘‘(A) that—
‘‘(i) is organized as a private entity;
‘‘(ii) has, for administrative and operational purposes,
a board of trustees (or equivalent body) serving
in the public interest, the majority of whom are not,
concurrent with their service on such board, and have
not been during the 2-year period preceding such
service, associated persons of any registered public
accounting firm;
‘‘(iii) is funded as provided in section 109 of the
Sarbanes-Oxley Act of 2002;
‘‘(iv) has adopted procedures to ensure prompt
consideration, by majority vote of its members, of
changes to accounting principles necessary to reflect
emerging accounting issues and changing business
practices; and
‘‘(v) considers, in adopting accounting principles,
the need to keep standards current in order to reflect
changes in the business environment, the extent to
which international convergence on high quality
accounting standards is necessary or appropriate in
the public interest and for the protection of investors;
and
‘‘(B) that the Commission determines has the capacity
to assist the Commission in fulfilling the requirements
of subsection (a) and section 13(b) of the Securities
Exchange Act of 1934, because, at a minimum, the standard
setting body is capable of improving the accuracy and
effectiveness of financial reporting and the protection of
investors under the securities laws.
15 USC 7218.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 769
‘‘(2) ANNUAL REPORT.—A standard setting body described
in paragraph (1) shall submit an annual report to the Commission
and the public, containing audited financial statements
of that standard setting body.’’.
(b) COMMISSION AUTHORITY.—The Commission shall promulgate
such rules and regulations to carry out section 19(b) of the
Securities Act of 1933, as added by this section, as it deems necessary
or appropriate in the public interest or for the protection
of investors.
(c) NO EFFECT ON COMMISSION POWERS.—Nothing in this Act,
including this section and the amendment made by this section,
shall be construed to impair or limit the authority of the Commission
to establish accounting principles or standards for purposes
of enforcement of the securities laws.
(d) STUDY AND REPORT ON ADOPTING PRINCIPLES-BASED
ACCOUNTING.—
(1) STUDY.—
(A) IN GENERAL.—The Commission shall conduct a
study on the adoption by the United States financial
reporting system of a principles-based accounting system.
(B) STUDY TOPICS.—The study required by subparagraph
(A) shall include an examination of—
(i) the extent to which principles-based accounting
and financial reporting exists in the United States;
(ii) the length of time required for change from
a rules-based to a principles-based financial reporting
system;
(iii) the feasibility of and proposed methods by
which a principles-based system may be implemented;
and
(iv) a thorough economic analysis of the
implementation of a principles-based system.
(2) REPORT.—Not later than 1 year after the date of enactment
of this Act, the Commission shall submit a report on
the results of the study required by paragraph (1) to the Committee
on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Financial Services of the House of Representatives.
SEC. 109. FUNDING.
(a) IN GENERAL.—The Board, and the standard setting body
designated pursuant to section 19(b) of the Securities Act of 1933,
as amended by section 108, shall be funded as provided in this
section.
(b) ANNUAL BUDGETS.—The Board and the standard setting
body referred to in subsection (a) shall each establish a budget
for each fiscal year, which shall be reviewed and approved according
to their respective internal procedures not less than 1 month prior
to the commencement of the fiscal year to which the budget pertains
(or at the beginning of the Board’s first fiscal year, which may
be a short fiscal year). The budget of the Board shall be subject
to approval by the Commission. The budget for the first fiscal
year of the Board shall be prepared and approved promptly following
the appointment of the initial five Board members, to permit
action by the Board of the organizational tasks contemplated by
section 101(d).
(c) SOURCES AND USES OF FUNDS.—
15 USC 7219.
Regulations.
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116 STAT. 770 PUBLIC LAW 107–204—JULY 30, 2002
(1) RECOVERABLE BUDGET EXPENSES.—The budget of the
Board (reduced by any registration or annual fees received
under section 102(e) for the year preceding the year for which
the budget is being computed), and all of the budget of the
standard setting body referred to in subsection (a), for each
fiscal year of each of those 2 entities, shall be payable from
annual accounting support fees, in accordance with subsections
(d) and (e). Accounting support fees and other receipts of the
Board and of such standard-setting body shall not be considered
public monies of the United States.
(2) FUNDS GENERATED FROM THE COLLECTION OF MONETARY
PENALTIES.—Subject to the availability in advance in an appropriations
Act, and notwithstanding subsection (i), all funds
collected by the Board as a result of the assessment of monetary
penalties shall be used to fund a merit scholarship program
for undergraduate and graduate students enrolled in accredited
accounting degree programs, which program is to be administered
by the Board or by an entity or agent identified by
the Board.
(d) ANNUAL ACCOUNTING SUPPORT FEE FOR THE BOARD.—
(1) ESTABLISHMENT OF FEE.—The Board shall establish,
with the approval of the Commission, a reasonable annual
accounting support fee (or a formula for the computation
thereof), as may be necessary or appropriate to establish and
maintain the Board. Such fee may also cover costs incurred
in the Board’s first fiscal year (which may be a short fiscal
year), or may be levied separately with respect to such short
fiscal year.
(2) ASSESSMENTS.—The rules of the Board under paragraph
(1) shall provide for the equitable allocation, assessment, and
collection by the Board (or an agent appointed by the Board)
of the fee established under paragraph (1), among issuers,
in accordance with subsection (g), allowing for differentiation
among classes of issuers, as appropriate.
(e) ANNUAL ACCOUNTING SUPPORT FEE FOR STANDARD SETTING
BODY.—The annual accounting support fee for the standard setting
body referred to in subsection (a)—
(1) shall be allocated in accordance with subsection (g),
and assessed and collected against each issuer, on behalf of
the standard setting body, by 1 or more appropriate designated
collection agents, as may be necessary or appropriate to pay
for the budget and provide for the expenses of that standard
setting body, and to provide for an independent, stable source
of funding for such body, subject to review by the Commission;
and
(2) may differentiate among different classes of issuers.
(f) LIMITATION ON FEE.—The amount of fees collected under
this section for a fiscal year on behalf of the Board or the standards
setting body, as the case may be, shall not exceed the recoverable
budget expenses of the Board or body, respectively (which may
include operating, capital, and accrued items), referred to in subsection
(c)(1).
(g) ALLOCATION OF ACCOUNTING SUPPORT FEES AMONG
ISSUERS.—Any amount due from issuers (or a particular class of
issuers) under this section to fund the budget of the Board or
the standard setting body referred to in subsection (a) shall be
allocated among and payable by each issuer (or each issuer in
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 771
a particular class, as applicable) in an amount equal to the total
of such amount, multiplied by a fraction—
(1) the numerator of which is the average monthly equity
market capitalization of the issuer for the 12-month period
immediately preceding the beginning of the fiscal year to which
such budget relates; and
(2) the denominator of which is the average monthly equity
market capitalization of all such issuers for such 12-month
period.
(h) CONFORMING AMENDMENTS.—Section 13(b)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is amended—
(1) in subparagraph (A), by striking ‘‘and’’ at the end;
and
(2) in subparagraph (B), by striking the period at the
end and inserting the following: ‘‘; and
‘‘(C) notwithstanding any other provision of law, pay the
allocable share of such issuer of a reasonable annual accounting
support fee or fees, determined in accordance with section 109
of the Sarbanes-Oxley Act of 2002.’’.
(i) RULE OF CONSTRUCTION.—Nothing in this section shall be
construed to render either the Board, the standard setting body
referred to in subsection (a), or both, subject to procedures in
Congress to authorize or appropriate public funds, or to prevent
such organization from utilizing additional sources of revenue for
its activities, such as earnings from publication sales, provided
that each additional source of revenue shall not jeopardize, in
the judgment of the Commission, the actual and perceived independence
of such organization.
(j) START-UP EXPENSES OF THE BOARD.—From the unexpended
balances of the appropriations to the Commission for fiscal year
2003, the Secretary of the Treasury is authorized to advance to
the Board not to exceed the amount necessary to cover the expenses
of the Board during its first fiscal year (which may be a short
fiscal year).
TITLE II—AUDITOR INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.
(a) PROHIBITED ACTIVITIES.—Section 10A of the Securities
Exchange Act of 1934 (15 U.S.C. 78j–1) is amended by adding
at the end the following:
‘‘(g) PROHIBITED ACTIVITIES.—Except as provided in subsection
(h), it shall be unlawful for a registered public accounting firm
(and any associated person of that firm, to the extent determined
appropriate by the Commission) that performs for any issuer any
audit required by this title or the rules of the Commission under
this title or, beginning 180 days after the date of commencement
of the operations of the Public Company Accounting Oversight
Board established under section 101 of the Sarbanes-Oxley Act
of 2002 (in this section referred to as the ‘Board’), the rules of
the Board, to provide to that issuer, contemporaneously with the
audit, any non-audit service, including—
‘‘(1) bookkeeping or other services related to the accounting
records or financial statements of the audit client;
‘‘(2) financial information systems design and implementation;
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116 STAT. 772 PUBLIC LAW 107–204—JULY 30, 2002
‘‘(3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
‘‘(4) actuarial services;
‘‘(5) internal audit outsourcing services;
‘‘(6) management functions or human resources;
‘‘(7) broker or dealer, investment adviser, or investment
banking services;
‘‘(8) legal services and expert services unrelated to the
audit; and
‘‘(9) any other service that the Board determines, by regulation,
is impermissible.
‘‘(h) PREAPPROVAL REQUIRED FOR NON-AUDIT SERVICES.—A registered
public accounting firm may engage in any non-audit service,
including tax services, that is not described in any of paragraphs
(1) through (9) of subsection (g) for an audit client, only if the
activity is approved in advance by the audit committee of the
issuer, in accordance with subsection (i).’’.
(b) EXEMPTION AUTHORITY.—The Board may, on a case by
case basis, exempt any person, issuer, public accounting firm, or
transaction from the prohibition on the provision of services under
section 10A(g) of the Securities Exchange Act of 1934 (as added
by this section), to the extent that such exemption is necessary
or appropriate in the public interest and is consistent with the
protection of investors, and subject to review by the Commission
in the same manner as for rules of the Board under section 107.
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.
78j–1), as amended by this Act, is amended by adding at the
end the following:
‘‘(i) PREAPPROVAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—
‘‘(A) AUDIT COMMITTEE ACTION.—All auditing services
(which may entail providing comfort letters in connection
with securities underwritings or statutory audits required
for insurance companies for purposes of State law) and
non-audit services, other than as provided in subparagraph
(B), provided to an issuer by the auditor of the issuer
shall be preapproved by the audit committee of the issuer.
‘‘(B) DE MINIMUS EXCEPTION.—The preapproval requirement
under subparagraph (A) is waived with respect to
the provision of non-audit services for an issuer, if—
‘‘(i) the aggregate amount of all such non-audit
services provided to the issuer constitutes not more
than 5 percent of the total amount of revenues paid
by the issuer to its auditor during the fiscal year
in which the nonaudit services are provided;
‘‘(ii) such services were not recognized by the issuer
at the time of the engagement to be non-audit services;
and
‘‘(iii) such services are promptly brought to the
attention of the audit committee of the issuer and
approved prior to the completion of the audit by the
audit committee or by 1 or more members of the audit
committee who are members of the board of directors
to whom authority to grant such approvals has been
delegated by the audit committee.
15 USC 7231.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 773
‘‘(2) DISCLOSURE TO INVESTORS.—Approval by an audit committee
of an issuer under this subsection of a non-audit service
to be performed by the auditor of the issuer shall be disclosed
to investors in periodic reports required by section 13(a).
‘‘(3) DELEGATION AUTHORITY.—The audit committee of an
issuer may delegate to 1 or more designated members of the
audit committee who are independent directors of the board
of directors, the authority to grant preapprovals required by
this subsection. The decisions of any member to whom authority
is delegated under this paragraph to preapprove an activity
under this subsection shall be presented to the full audit committee
at each of its scheduled meetings.
‘‘(4) APPROVAL OF AUDIT SERVICES FOR OTHER PURPOSES.—
In carrying out its duties under subsection (m)(2), if the audit
committee of an issuer approves an audit service within the
scope of the engagement of the auditor, such audit service
shall be deemed to have been preapproved for purposes of
this subsection.’’.
SEC. 203. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.
78j–1), as amended by this Act, is amended by adding at the
end the following:
‘‘(j) AUDIT PARTNER ROTATION.—It shall be unlawful for a registered
public accounting firm to provide audit services to an issuer
if the lead (or coordinating) audit partner (having primary responsibility
for the audit), or the audit partner responsible for reviewing
the audit, has performed audit services for that issuer in each
of the 5 previous fiscal years of that issuer.’’.
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.
78j–1), as amended by this Act, is amended by adding at the
end the following:
‘‘(k) REPORTS TO AUDIT COMMITTEES.—Each registered public
accounting firm that performs for any issuer any audit required
by this title shall timely report to the audit committee of the
issuer—
‘‘(1) all critical accounting policies and practices to be used;
‘‘(2) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management officials of the issuer, ramifications
of the use of such alternative disclosures and treatments, and
the treatment preferred by the registered public accounting
firm; and
‘‘(3) other material written communications between the
registered public accounting firm and the management of the
issuer, such as any management letter or schedule of
unadjusted differences.’’.
SEC. 205. CONFORMING AMENDMENTS.
(a) DEFINITIONS.—Section 3(a) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end the
following:
‘‘(58) AUDIT COMMITTEE.—The term ‘audit committee’
means—
‘‘(A) a committee (or equivalent body) established by
and amongst the board of directors of an issuer for the
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116 STAT. 774 PUBLIC LAW 107–204—JULY 30, 2002
purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the financial
statements of the issuer; and
‘‘(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
‘‘(59) REGISTERED PUBLIC ACCOUNTING FIRM.—The term
‘registered public accounting firm’ has the same meaning as
in section 2 of the Sarbanes-Oxley Act of 2002.’’.
(b) AUDITOR REQUIREMENTS.—Section 10A of the Securities
Exchange Act of 1934 (15 U.S.C. 78j–1) is amended—
(1) by striking ‘‘an independent public accountant’’ each
place that term appears and inserting ‘‘a registered public
accounting firm’’;
(2) by striking ‘‘the independent public accountant’’ each
place that term appears and inserting ‘‘the registered public
accounting firm’’;
(3) in subsection (c), by striking ‘‘No independent public
accountant’’ and inserting ‘‘No registered public accounting
firm’’; and
(4) in subsection (b)—
(A) by striking ‘‘the accountant’’ each place that term
appears and inserting ‘‘the firm’’;
(B) by striking ‘‘such accountant’’ each place that term
appears and inserting ‘‘such firm’’; and
(C) in paragraph (4), by striking ‘‘the accountant’s
report’’ and inserting ‘‘the report of the firm’’.
(c) OTHER REFERENCES.—The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.) is amended—
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking
‘‘independent public accountants’’ each place that term appears
and inserting ‘‘a registered public accounting firm’’; and
(2) in subsections (e) and (i) of section 17 (15 U.S.C. 78q),
by striking ‘‘an independent public accountant’’ each place that
term appears and inserting ‘‘a registered public accounting
firm’’.
(d) CONFORMING AMENDMENT.—Section 10A(f) of the Securities
Exchange Act of 1934 (15 U.S.C. 78k(f)) is amended—
(1) by striking ‘‘DEFINITION’’ and inserting ‘‘DEFINITIONS’’;
and
(2) by adding at the end the following: ‘‘As used in this
section, the term ‘issuer’ means an issuer (as defined in section
3), the securities of which are registered under section 12,
or that is required to file reports pursuant to section 15(d),
or that files or has filed a registration statement that has
not yet become effective under the Securities Act of 1933 (15
U.S.C. 77a et seq.), and that it has not withdrawn.’’.
SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.
78j–1), as amended by this Act, is amended by adding at the
end the following:
‘‘(l) CONFLICTS OF INTEREST.—It shall be unlawful for a registered
public accounting firm to perform for an issuer any audit
service required by this title, if a chief executive officer, controller,
chief financial officer, chief accounting officer, or any person serving
in an equivalent position for the issuer, was employed by that
registered independent public accounting firm and participated in

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 775
any capacity in the audit of that issuer during the 1-year period
preceding the date of the initiation of the audit.’’.
SEC. 207. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC
ACCOUNTING FIRMS.
(a) STUDY AND REVIEW REQUIRED.—The Comptroller General
of the United States shall conduct a study and review of the
potential effects of requiring the mandatory rotation of registered
public accounting firms.
(b) REPORT REQUIRED.—Not later than 1 year after the date
of enactment of this Act, the Comptroller General shall submit
a report to the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the
House of Representatives on the results of the study and review
required by this section.
(c) DEFINITION.—For purposes of this section, the term ‘‘mandatory
rotation’’ refers to the imposition of a limit on the period
of years in which a particular registered public accounting firm
may be the auditor of record for a particular issuer.
SEC. 208. COMMISSION AUTHORITY.
(a) COMMISSION REGULATIONS.—Not later than 180 days after
the date of enactment of this Act, the Commission shall issue
final regulations to carry out each of subsections (g) through (l)
of section 10A of the Securities Exchange Act of 1934, as added
by this title.
(b) AUDITOR INDEPENDENCE.—It shall be unlawful for any registered
public accounting firm (or an associated person thereof,
as applicable) to prepare or issue any audit report with respect
to any issuer, if the firm or associated person engages in any
activity with respect to that issuer prohibited by any of subsections
(g) through (l) of section 10A of the Securities Exchange Act of
1934, as added by this title, or any rule or regulation of the
Commission or of the Board issued thereunder.
SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY
AUTHORITIES.
In supervising nonregistered public accounting firms and their
associated persons, appropriate State regulatory authorities should
make an independent determination of the proper standards
applicable, particularly taking into consideration the size and
nature of the business of the accounting firms they supervise and
the size and nature of the business of the clients of those firms.
The standards applied by the Board under this Act should not
be presumed to be applicable for purposes of this section for small
and medium sized nonregistered public accounting firms.
TITLE III—CORPORATE
RESPONSIBILITY
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.
78f) is amended by adding at the end the following:
‘‘(m) STANDARDS RELATING TO AUDIT COMMITTEES.—
‘‘(1) COMMISSION RULES.—
15 USC 78j–1.
15 USC 7234.
Deadline.
15 USC 7233.
Deadline.
15 USC 7232.
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116 STAT. 776 PUBLIC LAW 107–204—JULY 30, 2002
‘‘(A) IN GENERAL.—Effective not later than 270 days
after the date of enactment of this subsection, the Commission
shall, by rule, direct the national securities exchanges
and national securities associations to prohibit the listing
of any security of an issuer that is not in compliance
with the requirements of any portion of paragraphs (2)
through (6).
‘‘(B) OPPORTUNITY TO CURE DEFECTS.—The rules of the
Commission under subparagraph (A) shall provide for
appropriate procedures for an issuer to have an opportunity
to cure any defects that would be the basis for a prohibition
under subparagraph (A), before the imposition of such
prohibition.
‘‘(2) RESPONSIBILITIES RELATING TO REGISTERED PUBLIC
ACCOUNTING FIRMS.—The audit committee of each issuer, in
its capacity as a committee of the board of directors, shall
be directly responsible for the appointment, compensation, and
oversight of the work of any registered public accounting firm
employed by that issuer (including resolution of disagreements
between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit
report or related work, and each such registered public
accounting firm shall report directly to the audit committee.
‘‘(3) INDEPENDENCE.—
‘‘(A) IN GENERAL.—Each member of the audit committee
of the issuer shall be a member of the board of
directors of the issuer, and shall otherwise be independent.
‘‘(B) CRITERIA.—In order to be considered to be independent
for purposes of this paragraph, a member of an
audit committee of an issuer may not, other than in his
or her capacity as a member of the audit committee, the
board of directors, or any other board committee—
‘‘(i) accept any consulting, advisory, or other
compensatory fee from the issuer; or
‘‘(ii) be an affiliated person of the issuer or any
subsidiary thereof.
‘‘(C) EXEMPTION AUTHORITY.—The Commission may
exempt from the requirements of subparagraph (B) a particular
relationship with respect to audit committee members,
as the Commission determines appropriate in light
of the circumstances.
‘‘(4) COMPLAINTS.—Each audit committee shall establish
procedures for—
‘‘(A) the receipt, retention, and treatment of complaints
received by the issuer regarding accounting, internal
accounting controls, or auditing matters; and
‘‘(B) the confidential, anonymous submission by
employees of the issuer of concerns regarding questionable
accounting or auditing matters.
‘‘(5) AUTHORITY TO ENGAGE ADVISERS.—Each audit committee
shall have the authority to engage independent counsel
and other advisers, as it determines necessary to carry out
its duties.
‘‘(6) FUNDING.—Each issuer shall provide for appropriate
funding, as determined by the audit committee, in its capacity
as a committee of the board of directors, for payment of
compensation—
Deadline.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 777
‘‘(A) to the registered public accounting firm employed
by the issuer for the purpose of rendering or issuing an
audit report; and
‘‘(B) to any advisers employed by the audit committee
under paragraph (5).’’.
SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) REGULATIONS REQUIRED.—The Commission shall, by rule,
require, for each company filing periodic reports under section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m,
78o(d)), that the principal executive officer or officers and the principal
financial officer or officers, or persons performing similar
functions, certify in each annual or quarterly report filed or submitted
under either such section of such Act that—
(1) the signing officer has reviewed the report;
(2) based on the officer’s knowledge, the report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
made, in light of the circumstances under which such statements
were made, not misleading;
(3) based on such officer’s knowledge, the financial statements,
and other financial information included in the report,
fairly present in all material respects the financial condition
and results of operations of the issuer as of, and for, the
periods presented in the report;
(4) the signing officers—
(A) are responsible for establishing and maintaining
internal controls;
(B) have designed such internal controls to ensure
that material information relating to the issuer and its
consolidated subsidiaries is made known to such officers
by others within those entities, particularly during the
period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s
internal controls as of a date within 90 days prior to
the report; and
(D) have presented in the report their conclusions
about the effectiveness of their internal controls based on
their evaluation as of that date;
(5) the signing officers have disclosed to the issuer’s auditors
and the audit committee of the board of directors (or
persons fulfilling the equivalent function)—
(A) all significant deficiencies in the design or operation
of internal controls which could adversely affect the issuer’s
ability to record, process, summarize, and report financial
data and have identified for the issuer’s auditors any material
weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the issuer’s internal controls; and
(6) the signing officers have indicated in the report whether
or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
15 USC 7241.
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116 STAT. 778 PUBLIC LAW 107–204—JULY 30, 2002
(b) FOREIGN REINCORPORATIONS HAVE NO EFFECT.—Nothing
in this section 302 shall be interpreted or applied in any way
to allow any issuer to lessen the legal force of the statement
required under this section 302, by an issuer having reincorporated
or having engaged in any other transaction that resulted in the
transfer of the corporate domicile or offices of the issuer from
inside the United States to outside of the United States.
(c) DEADLINE.—The rules required by subsection (a) shall be
effective not later than 30 days after the date of enactment of
this Act.
SEC. 303. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) RULES TO PROHIBIT.—It shall be unlawful, in contravention
of such rules or regulations as the Commission shall prescribe
as necessary and appropriate in the public interest or for the
protection of investors, for any officer or director of an issuer,
or any other person acting under the direction thereof, 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 that issuer
for the purpose of rendering such financial statements materially
misleading.
(b) ENFORCEMENT.—In any civil proceeding, the Commission
shall have exclusive authority to enforce this section and any rule
or regulation issued under this section.
(c) NO PREEMPTION OF OTHER LAW.—The provisions of subsection
(a) shall be in addition to, and shall not supersede or
preempt, any other provision of law or any rule or regulation
issued thereunder.
(d) DEADLINE FOR RULEMAKING.—The Commission shall—
(1) propose the rules or regulations required by this section,
not later than 90 days after the date of enactment of this
Act; and
(2) issue final rules or regulations required by this section,
not later than 270 days after that date of enactment.
SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.
(a) ADDITIONAL COMPENSATION PRIOR TO NONCOMPLIANCE WITH
COMMISSION FINANCIAL REPORTING REQUIREMENTS.—If an issuer
is required to prepare an accounting restatement due to the material
noncompliance of the issuer, as a result of misconduct, with any
financial reporting requirement under the securities laws, the chief
executive officer and chief financial officer of the issuer shall
reimburse the issuer for—
(1) any bonus or other incentive-based or equity-based compensation
received by that person from the issuer during the
12-month period following the first public issuance or filing
with the Commission (whichever first occurs) of the financial
document embodying such financial reporting requirement; and
(2) any profits realized from the sale of securities of the
issuer during that 12-month period.
(b) COMMISSION EXEMPTION AUTHORITY.—The Commission may
exempt any person from the application of subsection (a), as it
deems necessary and appropriate.
SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.
(a) UNFITNESS STANDARD.—
15 USC 7243.
15 USC 7242.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 779
(1) SECURITIES EXCHANGE ACT OF 1934.—Section 21(d)(2)
of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2))
is amended by striking ‘‘substantial unfitness’’ and inserting
‘‘unfitness’’.
(2) SECURITIES ACT OF 1933.—Section 20(e) of the Securities
Act of 1933 (15 U.S.C. 77t(e)) is amended by striking ‘‘substantial
unfitness’’ and inserting ‘‘unfitness’’.
(b) EQUITABLE RELIEF.—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:
‘‘(5) EQUITABLE RELIEF.—In any action or proceeding brought
or instituted by the Commission under any provision of the securities
laws, the Commission may seek, and any Federal court may
grant, any equitable relief that may be appropriate or necessary
for the benefit of investors.’’.
SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT
PERIODS.
(a) PROHIBITION OF INSIDER TRADING DURING PENSION FUND
BLACKOUT PERIODS.—
(1) IN GENERAL.—Except to the extent otherwise provided
by rule of the Commission pursuant to paragraph (3), it shall
be unlawful for any director or executive officer of an issuer
of any equity security (other than an exempted security),
directly or indirectly, to purchase, sell, or otherwise acquire
or transfer any equity security of the issuer (other than an
exempted security) during any blackout period with respect
to such equity security if such director or officer acquires such
equity security in connection with his or her service or employment
as a director or executive officer.
(2) REMEDY.—
(A) IN GENERAL.—Any profit realized by a director
or executive officer referred to in paragraph (1) from any
purchase, sale, or other acquisition or transfer in violation
of this subsection shall inure to and be recoverable by
the issuer, irrespective of any intention on the part of
such director or executive officer in entering into the transaction.
(B) ACTIONS TO RECOVER PROFITS.—An action to
recover profits in accordance with this subsection 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 fails or refuses to bring such action within
60 days after the date of request, or fails diligently to
prosecute the action thereafter, except that no such suit
shall be brought more than 2 years after the date on
which such profit was realized.
(3) RULEMAKING AUTHORIZED.—The Commission shall, in
consultation with the Secretary of Labor, issue rules to clarify
the application of this subsection and to prevent evasion thereof.
Such rules shall provide for the application of the requirements
of paragraph (1) with respect to entities treated as a single
employer with respect to an issuer under section 414(b), (c),
(m), or (o) of the Internal Revenue Code of 1986 to the extent
necessary to clarify the application of such requirements and
to prevent evasion thereof. Such rules may also provide for
15 USC 7244.
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116 STAT. 780 PUBLIC LAW 107–204—JULY 30, 2002
appropriate exceptions from the requirements of this subsection,
including exceptions for purchases pursuant to an automatic
dividend reinvestment program or purchases or sales
made pursuant to an advance election.
(4) BLACKOUT PERIOD.—For purposes of this subsection,
the term ‘‘blackout period’’, with respect to the equity securities
of any issuer—
(A) means any period of more than 3 consecutive business
days during which the ability of not fewer than 50
percent of the participants or beneficiaries under all individual
account plans maintained by the issuer to purchase,
sell, or otherwise acquire or transfer an interest in any
equity of such issuer held in such an individual account
plan is temporarily suspended by the issuer or by a fiduciary
of the plan; and
(B) does not include, under regulations which shall
be prescribed by the Commission—
(i) a regularly scheduled period in which the
participants and beneficiaries may not purchase, sell,
or otherwise acquire or transfer an interest in any
equity of such issuer, if such period is—
(I) incorporated into the individual account
plan; and
(II) timely disclosed to employees before
becoming participants under the individual
account plan or as a subsequent amendment to
the plan; or
(ii) any suspension described in subparagraph (A)
that is imposed solely in connection with persons
becoming participants or beneficiaries, or ceasing to
be participants or beneficiaries, in an individual
account plan by reason of a corporate merger, acquisition,
divestiture, or similar transaction involving the
plan or plan sponsor.
(5) INDIVIDUAL ACCOUNT PLAN.—For purposes of this subsection,
the term ‘‘individual account plan’’ has the meaning
provided in section 3(34) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(34), except that such
term shall not include a one-participant retirement plan (within
the meaning of section 101(i)(8)(B) of such Act (29 U.S.C.
1021(i)(8)(B))).
(6) NOTICE TO DIRECTORS, EXECUTIVE OFFICERS, AND THE
COMMISSION.—In any case in which a director or executive
officer is subject to the requirements of this subsection in
connection with a blackout period (as defined in paragraph
(4)) with respect to any equity securities, the issuer of such
equity securities shall timely notify such director or officer
and the Securities and Exchange Commission of such blackout
period.
(b) NOTICE REQUIREMENTS TO PARTICIPANTS AND BENEFICIARIES
UNDER ERISA.—
(1) IN GENERAL.—Section 101 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1021) is amended by
redesignating the second subsection (h) as subsection (j), and
by inserting after the first subsection (h) the following new
subsection:
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 781
‘‘(i) NOTICE OF BLACKOUT PERIODS TO PARTICIPANT OR BENEFICIARY
UNDER INDIVIDUAL ACCOUNT PLAN.—
‘‘(1) DUTIES OF PLAN ADMINISTRATOR.—In advance of the
commencement of any blackout period with respect to an individual
account plan, the plan administrator shall notify the
plan participants and beneficiaries who are affected by such
action in accordance with this subsection.
‘‘(2) NOTICE REQUIREMENTS.—
‘‘(A) IN GENERAL.—The notices described in paragraph
(1) shall be written in a manner calculated to be understood
by the average plan participant and shall include—
‘‘(i) the reasons for the blackout period,
‘‘(ii) an identification of the investments and other
rights affected,
‘‘(iii) the expected beginning date and length of
the blackout period,
‘‘(iv) in the case of investments affected, a statement
that the participant or beneficiary should
evaluate the appropriateness of their current investment
decisions in light of their inability to direct or
diversify assets credited to their accounts during the
blackout period, and
‘‘(v) such other matters as the Secretary may
require by regulation.
‘‘(B) NOTICE TO PARTICIPANTS AND BENEFICIARIES.—
Except as otherwise provided in this subsection, notices
described in paragraph (1) shall be furnished to all participants
and beneficiaries under the plan to whom the blackout
period applies at least 30 days in advance of the blackout
period.
‘‘(C) EXCEPTION TO 30-DAY NOTICE REQUIREMENT.—In
any case in which—
‘‘(i) a deferral of the blackout period would violate
the requirements of subparagraph (A) or (B) of section
404(a)(1), and a fiduciary of the plan reasonably so
determines in writing, or
‘‘(ii) the inability to provide the 30-day advance
notice is due to events that were unforeseeable or
circumstances beyond the reasonable control of the
plan administrator, and a fiduciary of the plan reasonably
so determines in writing,
subparagraph (B) shall not apply, and the notice shall
be furnished to all participants and beneficiaries under
the plan to whom the blackout period applies as soon
as reasonably possible under the circumstances unless such
a notice in advance of the termination of the blackout
period is impracticable.
‘‘(D) WRITTEN NOTICE.—The notice required to be provided
under this subsection shall be in writing, except
that such notice may be in electronic or other form to
the extent that such form is reasonably accessible to the
recipient.
‘‘(E) NOTICE TO ISSUERS OF EMPLOYER SECURITIES SUBJECT
TO BLACKOUT PERIOD.—In the case of any blackout
period in connection with an individual account plan, the
plan administrator shall provide timely notice of such
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116 STAT. 782 PUBLIC LAW 107–204—JULY 30, 2002
blackout period to the issuer of any employer securities
subject to such blackout period.
‘‘(3) EXCEPTION FOR BLACKOUT PERIODS WITH LIMITED
APPLICABILITY.—In any case in which the blackout period
applies only to 1 or more participants or beneficiaries in connection
with a merger, acquisition, divestiture, or similar transaction
involving the plan or plan sponsor and occurs solely
in connection with becoming or ceasing to be a participant
or beneficiary under the plan by reason of such merger, acquisition,
divestiture, or transaction, the requirement of this subsection
that the notice be provided to all participants and
beneficiaries shall be treated as met if the notice required
under paragraph (1) is provided to such participants or beneficiaries
to whom the blackout period applies as soon as reasonably
practicable.
‘‘(4) CHANGES IN LENGTH OF BLACKOUT PERIOD.—If, following
the furnishing of the notice pursuant to this subsection,
there is a change in the beginning date or length of the blackout
period (specified in such notice pursuant to paragraph
(2)(A)(iii)), the administrator shall provide affected participants
and beneficiaries notice of the change as soon as reasonably
practicable. In relation to the extended blackout period, such
notice shall meet the requirements of paragraph (2)(D) and
shall specify any material change in the matters referred to
in clauses (i) through (v) of paragraph (2)(A).
‘‘(5) REGULATORY EXCEPTIONS.—The Secretary may provide
by regulation for additional exceptions to the requirements
of this subsection which the Secretary determines are in the
interests of participants and beneficiaries.
‘‘(6) GUIDANCE AND MODEL NOTICES.—The Secretary shall
issue guidance and model notices which meet the requirements
of this subsection.
‘‘(7) BLACKOUT PERIOD.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘blackout period’ means,
in connection with an individual account plan, any period
for which any ability of participants or beneficiaries under
the plan, which is otherwise available under the terms
of such plan, to direct or diversify assets credited to their
accounts, to obtain loans from the plan, or to obtain distributions
from the plan is temporarily suspended, limited,
or restricted, if such suspension, limitation, or restriction
is for any period of more than 3 consecutive business days.
‘‘(B) EXCLUSIONS.—The term ‘blackout period’ does not
include a suspension, limitation, or restriction—
‘‘(i) which occurs by reason of the application of
the securities laws (as defined in section 3(a)(47) of
the Securities Exchange Act of 1934),
‘‘(ii) which is a change to the plan which provides
for a regularly scheduled suspension, limitation, or
restriction which is disclosed to participants or beneficiaries
through any summary of material modifications,
any materials describing specific investment
alternatives under the plan, or any changes thereto,
or
‘‘(iii) which applies only to 1 or more individuals,
each of whom is the participant, an alternate payee
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 783
(as defined in section 206(d)(3)(K)), or any other beneficiary
pursuant to a qualified domestic relations order
(as defined in section 206(d)(3)(B)(i)).
‘‘(8) INDIVIDUAL ACCOUNT PLAN.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
term ‘individual account plan’ shall have the meaning provided
such term in section 3(34), except that such term
shall not include a one-participant retirement plan.
‘‘(B) ONE-PARTICIPANT RETIREMENT PLAN.—For purposes
of subparagraph (A), the term ‘one-participant retirement
plan’ means a retirement plan that—
‘‘(i) on the first day of the plan year—
‘‘(I) covered only the employer (and the
employer’s spouse) and the employer owned the
entire business (whether or not incorporated), or
‘‘(II) covered only one or more partners (and
their spouses) in a business partnership (including
partners in an S or C corporation (as defined in
section 1361(a) of the Internal Revenue Code of
1986)),
‘‘(ii) meets the minimum coverage requirements
of section 410(b) of the Internal Revenue Code of 1986
(as in effect on the date of the enactment of this
paragraph) without being combined with any other
plan of the business that covers the employees of the
business,
‘‘(iii) does not provide benefits to anyone except
the employer (and the employer’s spouse) or the partners
(and their spouses),
‘‘(iv) does not cover a business that is a member
of an affiliated service group, a controlled group of
corporations, or a group of businesses under common
control, and
‘‘(v) does not cover a business that leases
employees.’’.
(2) ISSUANCE OF INITIAL GUIDANCE AND MODEL NOTICE.—
The Secretary of Labor shall issue initial guidance and a model
notice pursuant to section 101(i)(6) of the Employee Retirement
Income Security Act of 1974 (as added by this subsection)
not later than January 1, 2003. Not later than 75 days after
the date of the enactment of this Act, the Secretary shall
promulgate interim final rules necessary to carry out the
amendments made by this subsection.
(3) CIVIL PENALTIES FOR FAILURE TO PROVIDE NOTICE.—
Section 502 of such Act (29 U.S.C. 1132) is amended—
(A) in subsection (a)(6), by striking ‘‘(5), or (6)’’ and
inserting ‘‘(5), (6), or (7)’’;
(B) by redesignating paragraph (7) of subsection (c)
as paragraph (8); and
(C) by inserting after paragraph (6) of subsection (c)
the following new paragraph:
‘‘(7) The Secretary may assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan administrator’s
failure or refusal to provide notice to participants and
beneficiaries in accordance with section 101(i). For purposes of
this paragraph, each violation with respect to any single participant
or beneficiary shall be treated as a separate violation.’’.
Regulations.
Deadlines.
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116 STAT. 784 PUBLIC LAW 107–204—JULY 30, 2002
(3) PLAN AMENDMENTS.—If any amendment made by this
subsection requires an amendment to any plan, such plan
amendment shall not be required to be made before the first
plan year beginning on or after the effective date of this section,
if—
(A) during the period after such amendment made
by this subsection takes effect and before such first plan
year, the plan is operated in good faith compliance with
the requirements of such amendment made by this subsection,
and
(B) such plan amendment applies retroactively to the
period after such amendment made by this subsection takes
effect and before such first plan year.
(c) EFFECTIVE DATE.—The provisions of this section (including
the amendments made thereby) shall take effect 180 days after
the date of the enactment of this Act. Good faith compliance with
the requirements of such provisions in advance of the issuance
of applicable regulations thereunder shall be treated as compliance
with such provisions.
SEC. 307. RULES OF PROFESSIONAL RESPONSIBILITY FOR ATTORNEYS.
Not later than 180 days after the date of enactment of this
Act, the Commission shall issue rules, in the public interest and
for the protection of investors, setting forth minimum standards
of professional conduct for attorneys appearing and practicing before
the Commission in any way in the representation of issuers,
including a rule—
(1) requiring an attorney to report evidence of a material
violation of securities law or breach of fiduciary duty or similar
violation by the company or any agent thereof, to the chief
legal counsel or the chief executive officer of the company
(or the equivalent thereof); and
(2) if the counsel or officer does not appropriately respond
to the evidence (adopting, as necessary, appropriate remedial
measures or sanctions with respect to the violation), requiring
the attorney to report the evidence to the audit committee
of the board of directors of the issuer or to another committee
of the board of directors comprised solely of directors not
employed directly or indirectly by the issuer, or to the board
of directors.
SEC. 308. FAIR FUNDS FOR INVESTORS.
(a) CIVIL PENALTIES ADDED TO DISGORGEMENT FUNDS FOR THE
RELIEF OF VICTIMS.—If in any judicial or administrative action
brought by the Commission under the securities laws (as such
term is defined in section 3(a)(47) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(47)) the Commission obtains an order
requiring disgorgement against any person for a violation of such
laws or the rules or regulations thereunder, or such person agrees
in settlement of any such action to such disgorgement, and the
Commission also obtains pursuant to such laws a civil penalty
against such person, the amount of such civil penalty shall, on
the motion or at the direction of the Commission, be added to
and become part of the disgorgement fund for the benefit of the
victims of such violation.
(b) ACCEPTANCE OF ADDITIONAL DONATIONS.—The Commission
is authorized to accept, hold, administer, and utilize gifts, bequests
and devises of property, both real and personal, to the United

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 785
States for a disgorgement fund described in subsection (a). Such
gifts, bequests, and devises of money and proceeds from sales of
other property received as gifts, bequests, or devises shall be deposited
in the disgorgement fund and shall be available for allocation
in accordance with subsection (a).
(c) STUDY REQUIRED.—
(1) SUBJECT OF STUDY.—The Commission shall review and
analyze—
(A) enforcement actions by the Commission over the
five years preceding the date of the enactment of this
Act that have included proceedings to obtain civil penalties
or disgorgements to identify areas where such proceedings
may be utilized to efficiently, effectively, and fairly provide
restitution for injured investors; and
(B) other methods to more efficiently, effectively, and
fairly provide restitution to injured investors, including
methods to improve the collection rates for civil penalties
and disgorgements.
(2) REPORT REQUIRED.—The Commission shall report its
findings to the Committee on Financial Services of the House
of Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate within 180 days after of
the date of the enactment of this Act, and shall use such
findings to revise its rules and regulations as necessary. The
report shall include a discussion of regulatory or legislative
actions that are recommended or that may be necessary to
address concerns identified in the study.
(d) CONFORMING AMENDMENTS.—Each of the following provisions
is amended by inserting ‘‘, except as otherwise provided in
section 308 of the Sarbanes-Oxley Act of 2002’’ after ‘‘Treasury
of the United States’’:
(1) Section 21(d)(3)(C)(i) of the Securities Exchange Act
of 1934 (15 U.S.C. 78u(d)(3)(C)(i)).
(2) Section 21A(d)(1) of such Act (15 U.S.C. 78u-1(d)(1)).
(3) Section 20(d)(3)(A) of the Securities Act of 1933 (15
U.S.C. 77t(d)(3)(A)).
(4) Section 42(e)(3)(A) of the Investment Company Act of
1940 (15 U.S.C. 80a–41(e)(3)(A)).
(5) Section 209(e)(3)(A) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b–9(e)(3)(A)).
(e) DEFINITION.—As used in this section, the term
‘‘disgorgement fund’’ means a fund established in any administrative
or judicial proceeding described in subsection (a).
TITLE IV—ENHANCED FINANCIAL
DISCLOSURES
SEC. 401. DISCLOSURES IN PERIODIC REPORTS.
(a) DISCLOSURES REQUIRED.—Section 13 of the Securities
Exchange Act of 1934 (15 U.S.C. 78m) is amended by adding at
the end the following:
‘‘(i) ACCURACY OF FINANCIAL REPORTS.—Each financial report
that contains financial statements, and that is required to be prepared
in accordance with (or reconciled to) generally accepted
accounting principles under this title and filed with the Commission
shall reflect all material correcting adjustments that have been
15 USC 7261.
Deadline.
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116 STAT. 786 PUBLIC LAW 107–204—JULY 30, 2002
identified by a registered public accounting firm in accordance
with generally accepted accounting principles and the rules and
regulations of the Commission.
‘‘(j) OFF-BALANCE SHEET TRANSACTIONS.—Not later than 180
days after the date of enactment of the Sarbanes-Oxley Act of
2002, the Commission shall issue final rules providing that each
annual and quarterly financial report required to be filed with
the Commission shall disclose all material off-balance sheet transactions,
arrangements, obligations (including contingent obligations),
and other relationships of the issuer with unconsolidated
entities or other persons, that may have a material current or
future effect on financial condition, changes in financial condition,
results of operations, liquidity, capital expenditures, capital
resources, or significant components of revenues or expenses.’’.
(b) COMMISSION RULES ON PRO FORMA FIGURES.—Not later
than 180 days after the date of enactment of the Sarbanes-Oxley
Act fo 2002, the Commission shall issue final rules providing that
pro forma financial information included in any periodic or other
report filed with the Commission pursuant to the securities laws,
or in any public disclosure or press or other release, shall be
presented in a manner that—
(1) does not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to
make the pro forma financial information, in light of the circumstances
under which it is presented, not misleading; and
(2) reconciles it with the financial condition and results
of operations of the issuer under generally accepted accounting
principles.
(c) STUDY AND REPORT ON SPECIAL PURPOSE ENTITIES.—
(1) STUDY REQUIRED.—The Commission shall, not later
than 1 year after the effective date of adoption of off-balance
sheet disclosure rules required by section 13(j) of the Securities
Exchange Act of 1934, as added by this section, complete a
study of filings by issuers and their disclosures to determine—
(A) the extent of off-balance sheet transactions,
including assets, liabilities, leases, losses, and the use of
special purpose entities; and
(B) whether generally accepted accounting rules result
in financial statements of issuers reflecting the economics
of such off-balance sheet transactions to investors in a
transparent fashion.
(2) REPORT AND RECOMMENDATIONS.—Not later than 6
months after the date of completion of the study required
by paragraph (1), the Commission shall submit a report to
the President, the Committee on Banking, Housing, and Urban
Affairs of the Senate, and the Committee on Financial Services
of the House of Representatives, setting forth—
(A) the amount or an estimate of the amount of offbalance
sheet transactions, including assets, liabilities,
leases, and losses of, and the use of special purpose entities
by, issuers filing periodic reports pursuant to section 13
or 15 of the Securities Exchange Act of 1934;
(B) the extent to which special purpose entities are
used to facilitate off-balance sheet transactions;
Deadline.
Deadline.
Deadline.
Deadline.
Regulations.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 787
(C) whether generally accepted accounting principles
or the rules of the Commission result in financial statements
of issuers reflecting the economics of such transactions
to investors in a transparent fashion;
(D) whether generally accepted accounting principles
specifically result in the consolidation of special purpose
entities sponsored by an issuer in cases in which the issuer
has the majority of the risks and rewards of the special
purpose entity; and
(E) any recommendations of the Commission for
improving the transparency and quality of reporting offbalance
sheet transactions in the financial statements and
disclosures required to be filed by an issuer with the
Commission.
SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.
(a) PROHIBITION ON PERSONAL LOANS TO EXECUTIVES.—Section
13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as
amended by this Act, is amended by adding at the end the following:
‘‘(k) PROHIBITION ON PERSONAL LOANS TO EXECUTIVES.—
‘‘(1) IN GENERAL.—It shall be unlawful for any issuer (as
defined in section 2 of the Sarbanes-Oxley Act of 2002), directly
or indirectly, including through any subsidiary, to extend or
maintain credit, to arrange for the extension of credit, or to
renew an extension of credit, in the form of a personal loan
to or for any director or executive officer (or equivalent thereof)
of that issuer. An extension of credit maintained by the issuer
on the date of enactment of this subsection shall not be subject
to the provisions of this subsection, provided that there is
no material modification to any term of any such extension
of credit or any renewal of any such extension of credit on
or after that date of enactment.
‘‘(2) LIMITATION.—Paragraph (1) does not preclude any
home improvement and manufactured home loans (as that term
is defined in section 5 of the Home Owners’ Loan Act (12
U.S.C. 1464)), consumer credit (as defined in section 103 of
the Truth in Lending Act (15 U.S.C. 1602)), or any extension
of credit under an open end credit plan (as defined in section
103 of the Truth in Lending Act (15 U.S.C. 1602)), or a charge
card (as defined in section 127(c)(4)(e) of the Truth in Lending
Act (15 U.S.C. 1637(c)(4)(e)), or any extension of credit by
a broker or dealer registered under section 15 of this title
to an employee of that broker or dealer to buy, trade, or
carry securities, that is permitted under rules or regulations
of the Board of Governors of the Federal Reserve System pursuant
to section 7 of this title (other than an extension of credit
that would be used to purchase the stock of that issuer), that
is—
‘‘(A) made or provided in the ordinary course of the
consumer credit business of such issuer;
‘‘(B) of a type that is generally made available by
such issuer to the public; and
‘‘(C) made by such issuer on market terms, or terms
that are no more favorable than those offered by the issuer
to the general public for such extensions of credit.
‘‘(3) RULE OF CONSTRUCTION FOR CERTAIN LOANS.—Paragraph
(1) does not apply to any loan made or maintained
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116 STAT. 788 PUBLIC LAW 107–204—JULY 30, 2002
by an insured depository institution (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813)), if
the loan is subject to the insider lending restrictions of section
22(h) of the Federal Reserve Act (12 U.S.C. 375b).’’.
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT
AND PRINCIPAL STOCKHOLDERS.
(a) AMENDMENT.—Section 16 of the Securities Exchange Act
of 1934 (15 U.S.C. 78p) is amended by striking the heading of
such section and subsection (a) and inserting the following:
‘‘SEC. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.
‘‘(a) DISCLOSURES REQUIRED.—
‘‘(1) DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS
REQUIRED TO FILE.—Every 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 pursuant to section 12, or who is a director or
an officer of the issuer of such security, shall file the statements
required by this subsection with the Commission (and, if such
security is registered on a national securities exchange, also
with the exchange).
‘‘(2) TIME OF FILING.—The statements required by this subsection
shall be filed—
‘‘(A) at the time of the registration of such security
on a national securities exchange or by the effective date
of a registration statement filed pursuant to section 12(g);
‘‘(B) within 10 days after he or she becomes such
beneficial owner, director, or officer;
‘‘(C) if there has been a change in such ownership,
or if such person shall have purchased or sold a securitybased
swap agreement (as defined in section 206(b) of
the Gramm-Leach-Bliley Act (15 U.S.C. 78c note)) involving
such equity security, before the end of the second business
day following the day on which the subject transaction
has been executed, or at such other time as the Commission
shall establish, by rule, in any case in which the Commission
determines that such 2-day period is not feasible.
‘‘(3) CONTENTS OF STATEMENTS.—A statement filed—
‘‘(A) under subparagraph (A) or (B) of paragraph (2)
shall contain a statement of the amount of all equity securities
of such issuer of which the filing person is the beneficial
owner; and
‘‘(B) under subparagraph (C) of such paragraph shall
indicate ownership by the filing person at the date of
filing, any such changes in such ownership, and such purchases
and sales of the security-based swap agreements
as have occurred since the most recent such filing under
such subparagraph.
‘‘(4) ELECTRONIC FILING AND AVAILABILITY.—Beginning not
later than 1 year after the date of enactment of the Sarbanes-
Oxley Act of 2002—
‘‘(A) a statement filed under subparagraph (C) of paragraph
(2) shall be filed electronically;
‘‘(B) the Commission shall provide each such statement
on a publicly accessible Internet site not later than the
end of the business day following that filing; and
Deadline.
Deadline.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 789
‘‘(C) the issuer (if the issuer maintains a corporate
website) shall provide that statement on that corporate
website, not later than the end of the business day following
that filing.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall be effective 30 days after the date of the enactment of this
Act.
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) RULES REQUIRED.—The Commission shall prescribe rules
requiring each annual report required by section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d))
to contain an internal control report, which shall—
(1) state the responsibility of management for establishing
and maintaining an adequate internal control structure and
procedures for financial reporting; and
(2) contain an assessment, as of the end of the most recent
fiscal year of the issuer, of the effectiveness of the internal
control structure and procedures of the issuer for financial
reporting.
(b) INTERNAL CONTROL EVALUATION AND REPORTING.—With
respect to the internal control assessment required by subsection
(a), each registered public accounting firm that prepares or issues
the audit report for the issuer shall attest to, and report on, the
assessment made by the management of the issuer. An attestation
made under this subsection shall be made in accordance with standards
for attestation engagements issued or adopted by the Board.
Any such attestation shall not be the subject of a separate engagement.
SEC. 405. EXEMPTION.
Nothing in section 401, 402, or 404, the amendments made
by those sections, or the rules of the Commission under those
sections shall apply to any investment company registered under
section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a–
8).
SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.
(a) CODE OF ETHICS DISCLOSURE.—The Commission shall issue
rules to require each issuer, together with periodic reports required
pursuant to section 13(a) or 15(d) of the Securities Exchange Act
of 1934, to disclose whether or not, and if not, the reason therefor,
such issuer has adopted a code of ethics for senior financial officers,
applicable to its principal financial officer and comptroller or principal
accounting officer, or persons performing similar functions.
(b) CHANGES IN CODES OF ETHICS.—The Commission shall
revise its regulations concerning matters requiring prompt disclosure
on Form 8–K (or any successor thereto) to require the immediate
disclosure, by means of the filing of such form, dissemination
by the Internet or by other electronic means, by any issuer of
any change in or waiver of the code of ethics for senior financial
officers.
(c) DEFINITION.—In this section, the term ‘‘code of ethics’’ means
such standards as are reasonably necessary to promote—
(1) honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal
and professional relationships;
Regulations.
Regulations.
15 USC 7264.
15 USC 7263.
15 USC 7262.
15 USC 78p note.
Deadline.
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116 STAT. 790 PUBLIC LAW 107–204—JULY 30, 2002
(2) full, fair, accurate, timely, and understandable disclosure
in the periodic reports required to be filed by the issuer;
and
(3) compliance with applicable governmental rules and
regulations.
(d) DEADLINE FOR RULEMAKING.—The Commission shall—
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT.
(a) RULES DEFINING ‘‘FINANCIAL EXPERT’’.—The Commission
shall issue rules, as necessary or appropriate in the public interest
and consistent with the protection of investors, to require each
issuer, together with periodic reports required pursuant to sections
13(a) and 15(d) of the Securities Exchange Act of 1934, to disclose
whether or not, and if not, the reasons therefor, the audit committee
of that issuer is comprised of at least 1 member who is a financial
expert, as such term is defined by the Commission.
(b) CONSIDERATIONS.—In defining the term ‘‘financial expert’’
for purposes of subsection (a), the Commission shall consider
whether a person has, through education and experience as a public
accountant or auditor or a principal financial officer, comptroller,
or principal accounting officer of an issuer, or from a position
involving the performance of similar functions—
(1) an understanding of generally accepted accounting principles
and financial statements;
(2) experience in—
(A) the preparation or auditing of financial statements
of generally comparable issuers; and
(B) the application of such principles in connection
with the accounting for estimates, accruals, and reserves;
(3) experience with internal accounting controls; and
(4) an understanding of audit committee functions.
(c) DEADLINE FOR RULEMAKING.—The Commission shall—
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
SEC. 408. ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS.
(a) REGULAR AND SYSTEMATIC REVIEW.—The Commission shall
review disclosures made by issuers reporting under section 13(a)
of the Securities Exchange Act of 1934 (including reports filed
on Form 10–K), and which have a class of securities listed on
a national securities exchange or traded on an automated quotation
facility of a national securities association, on a regular and systematic
basis for the protection of investors. Such review shall include
a review of an issuer’s financial statement.
(b) REVIEW CRITERIA.—For purposes of scheduling the reviews
required by subsection (a), the Commission shall consider, among
other factors—
(1) issuers that have issued material restatements of financial
results;
(2) issuers that experience significant volatility in their
stock price as compared to other issuers;
(3) issuers with the largest market capitalization;
15 USC 7266.
15 USC 7265.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 791
(4) emerging companies with disparities in price to earning
ratios;
(5) issuers whose operations significantly affect any material
sector of the economy; and
(6) any other factors that the Commission may consider
relevant.
(c) MINIMUM REVIEW PERIOD.—In no event shall an issuer
required to file reports under section 13(a) or 15(d) of the Securities
Exchange Act of 1934 be reviewed under this section less frequently
than once every 3 years.
SEC. 409. REAL TIME ISSUER DISCLOSURES.
Section 13 of the Securities Exchange Act of 1934 (15 U.S.C.
78m), as amended by this Act, is amended by adding at the end
the following:
‘‘(l) REAL TIME ISSUER DISCLOSURES.—Each issuer reporting
under section 13(a) or 15(d) shall disclose to the public on a rapid
and current basis such additional information concerning material
changes in the financial condition or operations of the issuer, in
plain English, which may include trend and qualitative information
and graphic presentations, as the Commission determines, by rule,
is necessary or useful for the protection of investors and in the
public interest.’’.
TITLE V—ANALYST CONFLICTS OF
INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED
SECURITIES ASSOCIATIONS AND NATIONAL SECURITIES
EXCHANGES.
(a) RULES REGARDING SECURITIES ANALYSTS.—The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting after section 15C the following new section:
‘‘SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS.
‘‘(a) ANALYST PROTECTIONS.—The Commission, or upon the
authorization and direction of the Commission, a registered securities
association or national securities exchange, shall have adopted,
not later than 1 year after the date of enactment of this section,
rules reasonably designed to address conflicts of interest that can
arise when securities analysts recommend equity securities in
research reports and public appearances, in order to improve the
objectivity of research and provide investors with more useful and
reliable information, including rules designed—
‘‘(1) to foster greater public confidence in securities
research, and to protect the objectivity and independence of
securities analysts, by—
‘‘(A) restricting the prepublication clearance or
approval of research reports by persons employed by the
broker or dealer who are engaged in investment banking
activities, or persons not directly responsible for investment
research, other than legal or compliance staff;
‘‘(B) limiting the supervision and compensatory evaluation
of securities analysts to officials employed by the
broker or dealer who are not engaged in investment
banking activities; and
Deadline.
15 USC 78o–6.
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116 STAT. 792 PUBLIC LAW 107–204—JULY 30, 2002
‘‘(C) requiring that a broker or dealer and persons
employed by a broker or dealer who are involved with
investment banking activities may not, directly or
indirectly, retaliate against or threaten to retaliate against
any securities analyst employed by that broker or dealer
or its affiliates as a result of an adverse, negative, or
otherwise unfavorable research report that may adversely
affect the present or prospective investment banking relationship
of the broker or dealer with the issuer that is
the subject of the research report, except that such rules
may not limit the authority of a broker or dealer to discipline
a securities analyst for causes other than such
research report in accordance with the policies and procedures
of the firm;
‘‘(2) to define periods during which brokers or dealers who
have participated, or are to participate, in a public offering
of securities as underwriters or dealers should not publish
or otherwise distribute research reports relating to such securities
or to the issuer of such securities;
‘‘(3) to establish structural and institutional safeguards
within registered brokers or dealers to assure that securities
analysts are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of
those whose involvement in investment banking activities
might potentially bias their judgment or supervision; and
‘‘(4) to address such other issues as the Commission, or
such association or exchange, determines appropriate.
‘‘(b) DISCLOSURE.—The Commission, or upon the authorization
and direction of the Commission, a registered securities association
or national securities exchange, shall have adopted, not later than
1 year after the date of enactment of this section, rules reasonably
designed to require each securities analyst to disclose in public
appearances, and each registered broker or dealer to disclose in
each research report, as applicable, conflicts of interest that are
known or should have been known by the securities analyst or
the broker or dealer, to exist at the time of the appearance or
the date of distribution of the report, including—
‘‘(1) the extent to which the securities analyst has debt
or equity investments in the issuer that is the subject of the
appearance or research report;
‘‘(2) whether any compensation has been received by the
registered broker or dealer, or any affiliate thereof, including
the securities analyst, from the issuer that is the subject of
the appearance or research report, subject to such exemptions
as the Commission may determine appropriate and necessary
to prevent disclosure by virtue of this paragraph of material
non-public information regarding specific potential future
investment banking transactions of such issuer, as is appropriate
in the public interest and consistent with the protection
of investors;
‘‘(3) whether an issuer, the securities of which are recommended
in the appearance or research report, currently is,
or during the 1-year period preceding the date of the appearance
or date of distribution of the report has been, a client of the
registered broker or dealer, and if so, stating the types of
services provided to the issuer;
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 793
‘‘(4) whether the securities analyst received compensation
with respect to a research report, based upon (among any
other factors) the investment banking revenues (either generally
or specifically earned from the issuer being analyzed)
of the registered broker or dealer; and
‘‘(5) such other disclosures of conflicts of interest that are
material to investors, research analysts, or the broker or dealer
as the Commission, or such association or exchange, determines
appropriate.
‘‘(c) DEFINITIONS.—In this section—
‘‘(1) the term ‘securities analyst’ means any associated person
of a registered broker or dealer that is principally responsible
for, and any associated person who reports directly or
indirectly to a securities analyst in connection with, the
preparation of the substance of a research report, whether
or not any such person has the job title of ‘securities analyst’;
and
‘‘(2) the term ‘research report’ means a written or electronic
communication that includes an analysis of equity securities
of individual companies or industries, and that provides
information reasonably sufficient upon which to base an investment
decision.’’.
(b) ENFORCEMENT.—Section 21B(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u–2(a)) is amended by inserting ‘‘15D,’’
before ‘‘15B’’.
(c) COMMISSION AUTHORITY.—The Commission may promulgate
and amend its regulations, or direct a registered securities association
or national securities exchange to promulgate and amend its
rules, to carry out section 15D of the Securities Exchange Act
of 1934, as added by this section, as is necessary for the protection
of investors and in the public interest.
TITLE VI—COMMISSION RESOURCES
AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15 U.S.C.
78kk) is amended to read as follows:
‘‘SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
‘‘In addition to any other funds authorized to be appropriated
to the Commission, there are authorized to be appropriated to
carry out the functions, powers, and duties of the Commission,
$776,000,000 for fiscal year 2003, of which—
‘‘(1) $102,700,000 shall be available to fund additional compensation,
including salaries and benefits, as authorized in
the Investor and Capital Markets Fee Relief Act (Public Law
107–123; 115 Stat. 2390 et seq.);
‘‘(2) $108,400,000 shall be available for information technology,
security enhancements, and recovery and mitigation
activities in light of the terrorist attacks of September 11,
2001; and
‘‘(3) $98,000,000 shall be available to add not fewer than
an additional 200 qualified professionals to provide enhanced
oversight of auditors and audit services required by the Federal
securities laws, and to improve Commission investigative and
15 USC 78o–6
note.
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116 STAT. 794 PUBLIC LAW 107–204—JULY 30, 2002
disciplinary efforts with respect to such auditors and services,
as well as for additional professional support staff necessary
to strengthen the programs of the Commission involving Full
Disclosure and Prevention and Suppression of Fraud, risk
management, industry technology review, compliance, inspections,
examinations, market regulation, and investment
management.’’.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by inserting after section 4B the following:
‘‘SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
‘‘(a) AUTHORITY TO CENSURE.—The Commission may censure
any person, or deny, temporarily or permanently, to any person
the privilege of appearing or practicing before the Commission
in any way, if that person is found by the Commission, after
notice and opportunity for hearing in the matter—
‘‘(1) not to possess the requisite qualifications to represent
others;
‘‘(2) to be lacking in character or integrity, or to have
engaged in unethical or improper professional conduct; or
‘‘(3) to have willfully violated, or willfully aided and abetted
the violation of, any provision of the securities laws or the
rules and regulations issued thereunder.
‘‘(b) DEFINITION.—With respect to any registered public
accounting firm or associated person, for purposes of this section,
the term ‘improper professional conduct’ means—
‘‘(1) intentional or knowing conduct, including reckless conduct,
that results in a violation of applicable professional standards;
and
‘‘(2) negligent conduct in the form of—
‘‘(A) a single instance of highly unreasonable conduct
that results in a violation of applicable professional standards
in circumstances in which the registered public
accounting firm or associated person knows, or should
know, that heightened scrutiny is warranted; or
‘‘(B) repeated instances of unreasonable conduct, each
resulting in a violation of applicable professional standards,
that indicate a lack of competence to practice before the
Commission.’’.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK
BARS.
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended
by this Act, is amended by adding at the end the following:
‘‘(6) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM PARTICIPATING
IN AN OFFERING OF PENNY STOCK.—
‘‘(A) IN GENERAL.—In any proceeding under paragraph (1)
against any person participating in, or, at the time of the
alleged misconduct who was participating in, an offering of
penny stock, the court may prohibit that person from participating
in an offering of penny stock, conditionally or unconditionally,
and permanently or for such period of time as the
court shall determine.
‘‘(B) DEFINITION.—For purposes of this paragraph, the term
‘person participating in an offering of penny stock’ includes

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 795
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term
to include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or
in part, conditionally or unconditionally, from inclusion in such
term.’’.
(b) SECURITIES ACT OF 1933.—Section 20 of the Securities Act
of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following:
‘‘(g) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM
PARTICIPATING IN AN OFFERING OF PENNY STOCK.—
‘‘(1) IN GENERAL.—In any proceeding under subsection (a)
against any person participating in, or, at the time of the
alleged misconduct, who was participating in, an offering of
penny stock, the court may prohibit that person from participating
in an offering of penny stock, conditionally or unconditionally,
and permanently or for such period of time as the
court shall determine.
‘‘(2) DEFINITION.—For purposes of this subsection, the term
‘person participating in an offering of penny stock’ includes
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term
to include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or
in part, conditionally or unconditionally, from inclusion in such
term.’’.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS
AND DEALERS.
(a) BROKERS AND DEALERS.—Section 15(b)(4) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended—
(1) by striking subparagraph (F) and inserting the following:
‘‘(F) is subject to any order of the Commission barring
or suspending the right of the person to be associated with
a broker or dealer;’’; and
(2) in subparagraph (G), by striking the period at the
end and inserting the following: ‘‘; or
‘‘(H) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that—
‘‘(i) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
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116 STAT. 796 PUBLIC LAW 107–204—JULY 30, 2002
‘‘(ii) constitutes a final order based on violations of
any laws or regulations that prohibit fraudulent, manipulative,
or deceptive conduct.’’.
(b) INVESTMENT ADVISERS.—Section 203(e) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—
(1) by striking paragraph (7) and inserting the following:
‘‘(7) is subject to any order of the Commission barring
or suspending the right of the person to be associated with
an investment adviser;’’;
(2) in paragraph (8), by striking the period at the end
and inserting ‘‘; or’’; and
(3) by adding at the end the following:
‘‘(9) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that—
‘‘(A) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
‘‘(B) constitutes a final order based on violations of
any laws or regulations that prohibit fraudulent, manipulative,
or deceptive conduct.’’.
(c) CONFORMING AMENDMENTS.—
(1) SECURITIES EXCHANGE ACT OF 1934.—The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended—
(A) in section 3(a)(39)(F) (15 U.S.C. 78c(a)(39)(F))—
(i) by striking ‘‘or (G)’’ and inserting ‘‘(H), or (G)’’;
and
(ii) by inserting ‘‘, or is subject to an order or
finding,’’ before ‘‘enumerated’’;
(B) in each of section 15(b)(6)(A)(i) (15 U.S.C.
78o(b)(6)(A)(i)), paragraphs (2) and (4) of section 15B(c)
(15 U.S.C. 78o–4(c)), and subparagraphs (A) and (C) of
section 15C(c)(1) (15 U.S.C. 78o–5(c)(1))—
(i) by striking ‘‘or (G)’’ each place that term appears
and inserting ‘‘(H), or (G)’’; and
(ii) by striking ‘‘or omission’’ each place that term
appears, and inserting ‘‘, or is subject to an order
or finding,’’; and
(C) in each of paragraphs (3)(A) and (4)(C) of section
17A(c) (15 U.S.C. 78q–1(c))—
(i) by striking ‘‘or (G)’’ each place that term appears
and inserting ‘‘(H), or (G)’’; and
(ii) by inserting ‘‘, or is subject to an order or
finding,’’ before ‘‘enumerated’’ each place that term
appears.
(2) INVESTMENT ADVISERS ACT OF 1940.—Section 203(f) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b–3(f)) is
amended—
(A) by striking ‘‘or (8)’’ and inserting ‘‘(8), or (9)’’; and
(B) by inserting ‘‘or (3)’’ after ‘‘paragraph (2)’’.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 797
TITLE VII—STUDIES AND REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF
PUBLIC ACCOUNTING FIRMS.
(a) STUDY REQUIRED.—The Comptroller General of the United
States shall conduct a study—
(1) to identify—
(A) the factors that have led to the consolidation of
public accounting firms since 1989 and the consequent
reduction in the number of firms capable of providing audit
services to large national and multi-national business
organizations that are subject to the securities laws;
(B) the present and future impact of the condition
described in subparagraph (A) on capital formation and
securities markets, both domestic and international; and
(C) solutions to any problems identified under subparagraph
(B), including ways to increase competition and the
number of firms capable of providing audit services to
large national and multinational business organizations
that are subject to the securities laws;
(2) of the problems, if any, faced by business organizations
that have resulted from limited competition among public
accounting firms, including—
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among public accounting firms.
(b) CONSULTATION.—In planning and conducting the study
under this section, the Comptroller General shall consult with—
(1) the Commission;
(2) the regulatory agencies that perform functions similar
to the Commission within the other member countries of the
Group of Seven Industrialized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization that
the Comptroller General considers appropriate.
(c) REPORT REQUIRED.—Not later than 1 year after the date
of enactment of this Act, the Comptroller General shall submit
a report on the results of the study required by this section to
the Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the House
of Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT
RATING AGENCIES.
(a) STUDY REQUIRED.—
(1) IN GENERAL.—The Commission shall conduct a study
of the role and function of credit rating agencies in the operation
of the securities market.
(2) AREAS OF CONSIDERATION.—The study required by this
subsection shall examine—
(A) the role of credit rating agencies in the evaluation
of issuers of securities;
Deadline.
15 USC 7201
note.
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116 STAT. 798 PUBLIC LAW 107–204—JULY 30, 2002
(B) the importance of that role to investors and the
functioning of the securities markets;
(C) any impediments to the accurate appraisal by credit
rating agencies of the financial resources and risks of
issuers of securities;
(D) any barriers to entry into the business of acting
as a credit rating agency, and any measures needed to
remove such barriers;
(E) any measures which may be required to improve
the dissemination of information concerning such resources
and risks when credit rating agencies announce credit
ratings; and
(F) any conflicts of interest in the operation of credit
rating agencies and measures to prevent such conflicts
or ameliorate the consequences of such conflicts.
(b) REPORT REQUIRED.—The Commission shall submit a report
on the study required by subsection (a) to the President, the Committee
on Financial Services of the House of Representatives, and
the Committee on Banking, Housing, and Urban Affairs of the
Senate not later than 180 days after the date of enactment of
this Act.
SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.
(a) STUDY.—The Commission shall conduct a study to determine,
based upon information for the period from January 1, 1998,
to December 31, 2001—
(1) the number of securities professionals, defined as public
accountants, public accounting firms, investment bankers,
investment advisers, brokers, dealers, attorneys, and other
securities professionals practicing before the Commission—
(A) who have been found to have aided and abetted
a violation of the Federal securities laws, including rules
or regulations promulgated thereunder (collectively
referred to in this section as ‘‘Federal securities laws’’),
but who have not been sanctioned, disciplined, or otherwise
penalized as a primary violator in any administrative
action or civil proceeding, including in any settlement of
such an action or proceeding (referred to in this section
as ‘‘aiders and abettors’’); and
(B) who have been found to have been primary violators
of the Federal securities laws;
(2) a description of the Federal securities laws violations
committed by aiders and abettors and by primary violators,
including—
(A) the specific provision of the Federal securities laws
violated;
(B) the specific sanctions and penalties imposed upon
such aiders and abettors and primary violators, including
the amount of any monetary penalties assessed upon and
collected from such persons;
(C) the occurrence of multiple violations by the same
person or persons, either as an aider or abettor or as
a primary violator; and
(D) whether, as to each such violator, disciplinary sanctions
have been imposed, including any censure, suspension,
temporary bar, or permanent bar to practice before
the Commission; and
Deadline.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 799
(3) the amount of disgorgement, restitution, or any other
fines or payments that the Commission has assessed upon
and collected from, aiders and abettors and from primary violators.
(b) REPORT.—A report based upon the study conducted pursuant
to subsection (a) shall be submitted to the Committee on Banking,
Housing, and Urban Affairs of the Senate, and the Committee
on Financial Services of the House of Representatives not later
than 6 months after the date of enactment of this Act.
SEC. 704. STUDY OF ENFORCEMENT ACTIONS.
(a) STUDY REQUIRED.—The Commission shall review and analyze
all enforcement actions by the Commission involving violations
of reporting requirements imposed under the securities laws, and
restatements of financial statements, over the 5-year period preceding
the date of enactment of this Act, to identify areas of
reporting that are most susceptible to fraud, inappropriate manipulation,
or inappropriate earnings management, such as revenue
recognition and the accounting treatment of off-balance sheet special
purpose entities.
(b) REPORT REQUIRED.—The Commission shall report its
findings to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate, not later than 180 days after the
date of enactment of this Act, and shall use such findings to revise
its rules and regulations, as necessary. The report shall include
a discussion of regulatory or legislative steps that are recommended
or that may be necessary to address concerns identified in the
study.
SEC. 705. STUDY OF INVESTMENT BANKS.
(a) GAO STUDY.—The Comptroller General of the United States
shall conduct a study on whether investment banks and financial
advisers assisted public companies in manipulating their earnings
and obfuscating their true financial condition. The study should
address the rule of investment banks and financial advisers—
(1) in the collapse of the Enron Corporation, including
with respect to the design and implementation of derivatives
transactions, transactions involving special purpose vehicles,
and other financial arrangements that may have had the effect
of altering the company’s reported financial statements in ways
that obscured the true financial picture of the company;
(2) in the failure of Global Crossing, including with respect
to transactions involving swaps of fiberoptic cable capacity,
in the designing transactions that may have had the effect
of altering the company’s reported financial statements in ways
that obscured the true financial picture of the company; and
(3) generally, in creating and marketing transactions which
may have been designed solely to enable companies to manipulate
revenue streams, obtain loans, or move liabilities off balance
sheets without altering the economic and business risks
faced by the companies or any other mechanism to obscure
a company’s financial picture.
(b) REPORT.—The Comptroller General shall report to Congress
not later than 180 days after the date of enactment of this Act
on the results of the study required by this section. The report
shall include a discussion of regulatory or legislative steps that
Deadline.
Deadline.
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116 STAT. 800 PUBLIC LAW 107–204—JULY 30, 2002
are recommended or that may be necessary to address concerns
identified in the study.
TITLE VIII—CORPORATE AND
CRIMINAL FRAUD ACCOUNTABILITY
SEC. 801. SHORT TITLE.
This title may be cited as the ‘‘Corporate and Criminal Fraud
Accountability Act of 2002’’.
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.
(a) IN GENERAL.—Chapter 73 of title 18, United States Code,
is amended by adding at the end the following:
‘‘§ 1519. Destruction, alteration, or falsification of records
in Federal investigations and bankruptcy
‘‘Whoever knowingly alters, destroys, mutilates, conceals, covers
up, falsifies, or makes a false entry in any record, document, or
tangible object with the intent to impede, obstruct, or influence
the investigation or proper administration of any matter within
the jurisdiction of any department or agency of the United States
or any case filed under title 11, or in relation to or contemplation
of any such matter or case, shall be fined under this title, imprisoned
not more than 20 years, or both.
‘‘§ 1520. Destruction of corporate audit records
‘‘(a)(1) Any accountant who conducts an audit of an issuer
of securities to which section 10A(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78j–1(a)) applies, shall maintain all audit
or review workpapers for a period of 5 years from the end of
the fiscal period in which the audit or review was concluded.
‘‘(2) The Securities and Exchange Commission shall promulgate,
within 180 days, after adequate notice and an opportunity for
comment, such rules and regulations, as are reasonably necessary,
relating to the retention of relevant records such as workpapers,
documents that form the basis of an audit or review, memoranda,
correspondence, communications, other documents, and records
(including electronic records) which are created, sent, or received
in connection with an audit or review and contain conclusions,
opinions, analyses, or financial data relating to such an audit or
review, which is conducted by any accountant who conducts an
audit of an issuer of securities to which section 10A(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies. The
Commission may, from time to time, amend or supplement the
rules and regulations that it is required to promulgate under this
section, after adequate notice and an opportunity for comment,
in order to ensure that such rules and regulations adequately
comport with the purposes of this section.
‘‘(b) Whoever knowingly and willfully violates subsection (a)(1),
or any rule or regulation promulgated by the Securities and
Exchange Commission under subsection (a)(2), shall be fined under
this title, imprisoned not more than 10 years, or both.
‘‘(c) Nothing in this section shall be deemed to diminish or
relieve any person of any other duty or obligation imposed by
Federal or State law or regulation to maintain, or refrain from
destroying, any document.’’.
Regulations.
18 USC 1501
note.
Corporate and
Criminal Fraud
Accountability
Act of 2002.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 801
(b) CLERICAL AMENDMENT.—The table of sections at the beginning
of chapter 73 of title 18, United States Code, is amended
by adding at the end the following new items:
‘‘1519. Destruction, alteration, or falsification of records in Federal investigations
and bankruptcy.
‘‘1520. Destruction of corporate audit records.’’.
SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION
OF SECURITIES FRAUD LAWS.
Section 523(a) of title 11, United States Code, is amended—
(1) in paragraph (17), by striking ‘‘or’’ after the semicolon;
(2) in paragraph (18), by striking the period at the end
and inserting ‘‘; or’’; and
(3) by adding at the end, the following:
‘‘(19) that—
‘‘(A) is for—
‘‘(i) the violation of any of the Federal securities
laws (as that term is defined in section 3(a)(47) of
the Securities Exchange Act of 1934), any of the State
securities laws, or any regulation or order issued under
such Federal or State securities laws; or
‘‘(ii) common law fraud, deceit, or manipulation
in connection with the purchase or sale of any security;
and
‘‘(B) results from—
‘‘(i) any judgment, order, consent order, or decree
entered in any Federal or State judicial or administrative
proceeding;
‘‘(ii) any settlement agreement entered into by the
debtor; or
‘‘(iii) any court or administrative order for any
damages, fine, penalty, citation, restitutionary payment,
disgorgement payment, attorney fee, cost, or
other payment owed by the debtor.’’.
SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.
(a) IN GENERAL.—Section 1658 of title 28, United States Code,
is amended—
(1) by inserting ‘‘(a)’’ before ‘‘Except’’; and
(2) by adding at the end the following:
‘‘(b) Notwithstanding subsection (a), a private right of action
that involves a claim of fraud, deceit, manipulation, or contrivance
in contravention of a regulatory requirement concerning the securities
laws, as defined in section 3(a)(47) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later than
the earlier of—
‘‘(1) 2 years after the discovery of the facts constituting
the violation; or
‘‘(2) 5 years after such violation.’’.
(b) EFFECTIVE DATE.—The limitations period provided by section
1658(b) of title 28, United States Code, as added by this
section, shall apply to all proceedings addressed by this section
that are commenced on or after the date of enactment of this
Act.
(c) NO CREATION OF ACTIONS.—Nothing in this section shall
create a new, private right of action.
28 USC 1658
note.
28 USC 1658
note.
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116 STAT. 802 PUBLIC LAW 107–204—JULY 30, 2002
SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR
OBSTRUCTION OF JUSTICE AND EXTENSIVE CRIMINAL
FRAUD.
(a) ENHANCEMENT OF FRAUD AND OBSTRUCTION OF JUSTICE
SENTENCES.—Pursuant to section 994 of title 28, United States
Code, and in accordance with this section, the United States Sentencing
Commission shall review and amend, as appropriate, the
Federal Sentencing Guidelines and related policy statements to
ensure that—
(1) the base offense level and existing enhancements contained
in United States Sentencing Guideline 2J1.2 relating
to obstruction of justice are sufficient to deter and punish
that activity;
(2) the enhancements and specific offense characteristics
relating to obstruction of justice are adequate in cases where—
(A) the destruction, alteration, or fabrication of evidence
involves—
(i) a large amount of evidence, a large number
of participants, or is otherwise extensive;
(ii) the selection of evidence that is particularly
probative or essential to the investigation; or
(iii) more than minimal planning; or
(B) the offense involved abuse of a special skill or
a position of trust;
(3) the guideline offense levels and enhancements for violations
of section 1519 or 1520 of title 18, United States Code,
as added by this title, are sufficient to deter and punish that
activity;
(4) a specific offense characteristic enhancing sentencing
is provided under United States Sentencing Guideline 2B1.1
(as in effect on the date of enactment of this Act) for a fraud
offense that endangers the solvency or financial security of
a substantial number of victims; and
(5) the guidelines that apply to organizations in United
States Sentencing Guidelines, chapter 8, are sufficient to deter
and punish organizational criminal misconduct.
(b) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION
ACTION.—The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than 180 days after the date of enactment of this Act, in accordance
with the prcedures set forth in section 219(a) of the Sentencing
Reform Act of 1987, as though the authority under that Act had
not expired.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED
COMPANIES WHO PROVIDE EVIDENCE OF FRAUD.
(a) IN GENERAL.—Chapter 73 of title 18, United States Code,
is amended by inserting after section 1514 the following:
‘‘§ 1514A. Civil action to protect against retaliation in fraud
cases
‘‘(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY
TRADED COMPANIES.—No company with a class of securities registered
under section 12 of the Securities Exchange Act of 1934
(15 U.S.C. 78l), or that is required to file reports under section
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)),
Deadline.
28 USC 994 note.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 803
or any officer, employee, contractor, subcontractor, or agent of such
company, may discharge, demote, suspend, threaten, harass, or
in any other manner discriminate against an employee in the terms
and conditions of employment because of any lawful act done by
the employee—
‘‘(1) to provide information, cause information to be provided,
or otherwise assist in an investigation regarding any
conduct which the employee reasonably believes constitutes
a violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against shareholders,
when the information or assistance is provided to or the investigation
is conducted by—
‘‘(A) a Federal regulatory or law enforcement agency;
‘‘(B) any Member of Congress or any committee of
Congress; or
‘‘(C) a person with supervisory authority over the
employee (or such other person working for the employer
who has the authority to investigate, discover, or terminate
misconduct); or
‘‘(2) to file, cause to be filed, testify, participate in, or
otherwise assist in a proceeding filed or about to be filed
(with any knowledge of the employer) relating to an alleged
violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against shareholders.
‘‘(b) ENFORCEMENT ACTION.—
‘‘(1) IN GENERAL.—A person who alleges discharge or other
discrimination by any person in violation of subsection (a) may
seek relief under subsection (c), by—
‘‘(A) filing a complaint with the Secretary of Labor;
or
‘‘(B) if the Secretary has not issued a final decision
within 180 days of the filing of the complaint and there
is no showing that such delay is due to the bad faith
of the claimant, bringing an action at law or equity for
de novo review in the appropriate district court of the
United States, which shall have jurisdiction over such an
action without regard to the amount in controversy.
‘‘(2) PROCEDURE.—
‘‘(A) IN GENERAL.—An action under paragraph (1)(A)
shall be governed under the rules and procedures set forth
in section 42121(b) of title 49, United States Code.
‘‘(B) EXCEPTION.—Notification made under section
42121(b)(1) of title 49, United States Code, shall be made
to the person named in the complaint and to the employer.
‘‘(C) BURDENS OF PROOF.—An action brought under
paragraph (1)(B) shall be governed by the legal burdens
of proof set forth in section 42121(b) of title 49, United
States Code.
‘‘(D) STATUTE OF LIMITATIONS.—An action under paragraph
(1) shall be commenced not later than 90 days after
the date on which the violation occurs.
‘‘(c) REMEDIES.—
‘‘(1) IN GENERAL.—An employee prevailing in any action
under subsection (b)(1) shall be entitled to all relief necessary
to make the employee whole.
Deadline.
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116 STAT. 804 PUBLIC LAW 107–204—JULY 30, 2002
‘‘(2) COMPENSATORY DAMAGES.—Relief for any action under
paragraph (1) shall include—
‘‘(A) reinstatement with the same seniority status that
the employee would have had, but for the discrimination;
‘‘(B) the amount of back pay, with interest; and
‘‘(C) compensation for any special damages sustained
as a result of the discrimination, including litigation costs,
expert witness fees, and reasonable attorney fees.
‘‘(d) RIGHTS RETAINED BY EMPLOYEE.—Nothing in this section
shall be deemed to diminish the rights, privileges, or remedies
of any employee under any Federal or State law, or under any
collective bargaining agreement.’’.
(b) CLERICAL AMENDMENT.—The table of sections at the beginning
of chapter 73 of title 18, United States Code, is amended
by inserting after the item relating to section 1514 the following
new item:
‘‘1514A. Civil action to protect against retaliation in fraud cases.’’.
SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS
OF PUBLICLY TRADED COMPANIES.
(a) IN GENERAL.—Chapter 63 of title 18, United States Code,
is amended by adding at the end the following:
‘‘§ 1348. Securities fraud
‘‘Whoever knowingly executes, or attempts to execute, a scheme
or artifice—
‘‘(1) to defraud any person in connection with any security
of an issuer with a class of securities registered under section
12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l)
or that is required to file reports under section 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); or
‘‘(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any money or property in connection
with the purchase or sale of any security of an issuer
with a class of securities registered under section 12 of the
Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is
required to file reports under section 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than 25
years, or both.’’.
(b) CLERICAL AMENDMENT.—The table of sections at the beginning
of chapter 63 of title 18, United States Code, is amended
by adding at the end the following new item:
‘‘1348. Securities fraud.’’.
TITLE IX—WHITE-COLLAR CRIME
PENALTY ENHANCEMENTS
SEC. 901. SHORT TITLE.
This title may be cited as the ‘‘White-Collar Crime Penalty
Enhancement Act of 2002’’.

PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 805
SEC. 902. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL
FRAUD OFFENSES.
(a) IN GENERAL.—Chapter 63 of title 18, United States Code,
is amended by inserting after section 1348 as added by this Act
the following:
‘‘§ 1349. Attempt and conspiracy
‘‘Any person who attempts or conspires to commit any offense
under this chapter shall be subject to the same penalties as those
prescribed for the offense, the commission of which was the object
of the attempt or conspiracy.
(b) CLERICAL AMENDMENT.—The table of sections at the beginning
of chapter 63 of title 18, United States Code, is amended
by adding at the end the following new item:
‘‘1349. Attempt and conspiracy.’’.
SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) MAIL FRAUD.—Section 1341 of title 18, United States Code,
is amended by striking ‘‘five’’ and inserting ‘‘20’’.
(b) WIRE FRAUD.—Section 1343 of title 18, United States Code,
is amended by striking ‘‘five’’ and inserting ‘‘20’’.
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended—
(1) by striking ‘‘$5,000’’ and inserting ‘‘$100,000’’;
(2) by striking ‘‘one year’’ and inserting ‘‘10 years’’; and
(3) by striking ‘‘$100,000’’ and inserting ‘‘$500,000’’.
SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) DIRECTIVE TO THE UNITED STATES SENTENCING COMMISSION.—
Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the United
States Sentencing Commission shall review and, as appropriate,
amend the Federal Sentencing Guidelines and related policy statements
to implement the provisions of this Act.
(b) REQUIREMENTS.—In carrying out this section, the Sentencing
Commission shall—
(1) ensure that the sentencing guidelines and policy statements
reflect the serious nature of the offenses and the penalties
set forth in this Act, the growing incidence of serious
fraud offenses which are identified above, and the need to
modify the sentencing guidelines and policy statements to deter,
prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address whether the guideline offense
levels and enhancements for violations of the sections amended
by this Act are sufficient to deter and punish such offenses,
and specifically, are adequate in view of the statutory increases
in penalties contained in this Act;
(3) assure reasonable consistency with other relevant directives
and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
28 USC 994 note.
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116 STAT. 806 PUBLIC LAW 107–204—JULY 30, 2002
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing, as set forth in section 3553(a)(2) of title 18,
United States Code.
(c) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION
ACTION.—The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than 180 days after the date of enactment of this Act, in accordance
with the procedures set forth in section 219(a) of the Sentencing
Reform Act of 1987, as though the authority under that Act had
not expired.
SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) IN GENERAL.—Chapter 63 of title 18, United States Code,
is amended by inserting after section 1349, as created by this
Act, the following:
‘‘§ 1350. Failure of corporate officers to certify financial
reports
(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS.—Each
periodic report containing financial statements filed by an issuer
with the Securities Exchange Commission pursuant to section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)
or 78o(d)) shall be accompanied by a written statement by the
chief executive officer and chief financial officer (or equivalent
thereof) of the issuer.
‘‘(b) CONTENT.—The statement required under subsection (a)
shall certify that the periodic report containing the financial statements
fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act pf 1934 (15 U.S.C. 78m or
78o(d)) and that information contained in the periodic report fairly
presents, in all material respects, the financial condition and results
of operations of the issuer.
‘‘(c) CRIMINAL PENALTIES.—Whoever—
‘‘(1) certifies any statement as set forth in subsections
(a) and (b) of this section knowing that the periodic report
accompanying the statement does not comport with all the
requirements set forth in this section shall be fined not more
than $1,000,000 or imprisoned not more than 10 years, or
both; or
‘‘(2) willfully certifies any statement as set forth in subsections
(a) and (b) of this section knowing that the periodic
report accompanying the statement does not comport with all
the requirements set forth in this section shall be fined not
more than $5,000,000, or imprisoned not more than 20 years,
or both.’’.
(b) CLERICAL AMENDMENT.—The table of sections at the beginning
of chapter 63 of title 18, United States Code, is amended
by adding at the end the following:
‘‘1350. Failure of corporate officers to certify financial reports.’’.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 807
TITLE X—CORPORATE TAX RETURNS
SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE
TAX RETURNS BY CHIEF EXECUTIVE OFFICERS.
It is the sense of the Senate that the Federal income tax
return of a corporation should be signed by the chief executive
officer of such corporation.
TITLE XI—CORPORATE FRAUD
ACCOUNTABILITY
SEC. 1101. SHORT TITLE.
This title may be cited as the ‘‘Corporate Fraud Accountability
Act of 2002’’.
SEC. 1102. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING
AN OFFICIAL PROCEEDING.
Section 1512 of title 18, United States Code, is amended—
(1) by redesignating subsections (c) through (i) as subsections
(d) through (j), respectively; and
(2) by inserting after subsection (b) the following new subsection:
‘‘(c) Whoever corruptly—
‘‘(1) alters, destroys, mutilates, or conceals a record, document,
or other object, or attempts to do so, with the intent
to impair the object’s integrity or availability for use in an
official proceeding; or
‘‘(2) otherwise obstructs, influences, or impedes any official
proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than 20
years, or both.’’.
SEC. 1103. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND
EXCHANGE COMMISSION.
(a) IN GENERAL.—Section 21C(c) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u–3(c)) is amended by adding at the
end the following:
‘‘(3) TEMPORARY FREEZE.—
‘‘(A) IN GENERAL.—
‘‘(i) ISSUANCE OF TEMPORARY ORDER.—Whenever,
during the course of a lawful investigation involving
possible violations of the Federal securities laws by
an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons, agents,
or employees, it shall appear to the Commission that
it is likely that the issuer will make extraordinary
payments (whether compensation or otherwise) to any
of the foregoing persons, the Commission may petition
a Federal district court for a temporary order requiring
the issuer to escrow, subject to court supervision, those
payments in an interest-bearing account for 45 days.
‘‘(ii) STANDARD.—A temporary order shall be
entered under clause (i), only after notice and opportunity
for a hearing, unless the court determines that
15 USC 78a note.
Corporate Fraud
Accountability
Act of 2002.
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116 STAT. 808 PUBLIC LAW 107–204—JULY 30, 2002
notice and hearing prior to entry of the order would
be impracticable or contrary to the public interest.
‘‘(iii) EFFECTIVE PERIOD.—A temporary order
issued under clause (i) shall—
‘‘(I) become effective immediately;
‘‘(II) be served upon the parties subject to it;
and
‘‘(III) unless set aside, limited or suspended
by a court of competent jurisdiction, shall remain
effective and enforceable for 45 days.
‘‘(iv) EXTENSIONS AUTHORIZED.—The effective
period of an order under this subparagraph may be
extended by the court upon good cause shown for not
longer than 45 additional days, provided that the combined
period of the order shall not exceed 90 days.
‘‘(B) PROCESS ON DETERMINATION OF VIOLATIONS.—
‘‘(i) VIOLATIONS CHARGED.—If the issuer or other
person described in subparagraph (A) is charged with
any violation of the Federal securities laws before the
expiration of the effective period of a temporary order
under subparagraph (A) (including any applicable
extension period), the order shall remain in effect,
subject to court approval, until the conclusion of any
legal proceedings related thereto, and the affected
issuer or other person, shall have the right to petition
the court for review of the order.
‘‘(ii) VIOLATIONS NOT CHARGED.—If the issuer or
other person described in subparagraph (A) is not
charged with any violation of the Federal securities
laws before the expiration of the effective period of
a temporary order under subparagraph (A) (including
any applicable extension period), the escrow shall
terminate at the expiration of the 45-day effective
period (or the expiration of any extension period, as
applicable), and the disputed payments (with accrued
interest) shall be returned to the issuer or other
affected person.’’.
(b) TECHNICAL AMENDMENT.—Section 21C(c)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u–3(c)(2)) is amended by striking
‘‘This’’ and inserting ‘‘paragraph (1)’’.
SEC. 1104. AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.
(a) REQUEST FOR IMMEDIATE CONSIDERATION BY THE UNITED
STATES SENTENCING COMMISSION.—Pursuant to its authority under
section 994(p) of title 28, United States Code, and in accordance
with this section, the United States Sentencing Commission is
requested to—
(1) promptly review the sentencing guidelines applicable
to securities and accounting fraud and related offenses;
(2) expeditiously consider the promulgation of new sentencing
guidelines or amendments to existing sentencing guidelines
to provide an enhancement for officers or directors of
publicly traded corporations who commit fraud and related
offenses; and
(3) submit to Congress an explanation of actions taken
by the Sentencing Commission pursuant to paragraph (2) and
28 USC 994 note.
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PUBLIC LAW 107–204—JULY 30, 2002 116 STAT. 809
any additional policy recommendations the Sentencing Commission
may have for combating offenses described in paragraph
(1).
(b) CONSIDERATIONS IN REVIEW.—In carrying out this section,
the Sentencing Commission is requested to—
(1) ensure that the sentencing guidelines and policy statements
reflect the serious nature of securities, pension, and
accounting fraud and the need for aggressive and appropriate
law enforcement action to prevent such offenses;
(2) assure reasonable consistency with other relevant directives
and with other guidelines;
(3) account for any aggravating or mitigating circumstances
that might justify exceptions, including circumstances for which
the sentencing guidelines currently provide sentencing enhancements;
(4) ensure that guideline offense levels and enhancements
for an obstruction of justice offense are adequate in cases where
documents or other physical evidence are actually destroyed
or fabricated;
(5) ensure that the guideline offense levels and enhancements
under United States Sentencing Guideline 2B1.1 (as
in effect on the date of enactment of this Act) are sufficient
for a fraud offense when the number of victims adversely
involved is significantly greater than 50;
(6) make any necessary conforming changes to the sentencing
guidelines; and
(7) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553 (a)(2) of title 18,
United States Code.
(c) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION
ACTION.—The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than the 180 days after the date of enactment of this Act, in
accordance with the procedures sent forth in section 21(a) of the
Sentencing Reform Act of 1987, as though the authority under
that Act had not expired.
SEC. 1105. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS
FROM SERVING AS OFFICERS OR DIRECTORS.
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 21C of the
Securities Exchange Act of 1934 (15 U.S.C. 78u–3) is amended
by adding at the end the following:
‘‘(f) AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.—In any cease-and-desist proceeding
under subsection (a), the Commission may issue an order
to prohibit, conditionally or unconditionally, and permanently or
for such period of time as it shall determine, any person who
has violated section 10(b) or the rules or regulations thereunder,
from acting as an officer or director of any issuer that has a
class of securities registered pursuant to section 12, or that is
required to file reports pursuant to section 15(d), if the conduct
of that person demonstrates unfitness to serve as an officer or
director of any such issuer.’’.
(b) SECURITIES ACT OF 1933.—Section 8A of the Securities
Act of 1933 (15 U.S.C. 77h–1) is amended by adding at the end
of the following:
Deadline.
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116 STAT. 810 PUBLIC LAW 107–204—JULY 30, 2002
LEGISLATIVE HISTORY—H.R. 3763 (S. 2673):
HOUSE REPORTS: Nos. 107–414 (Comm. on Financial Services) and 107–610
(Comm. of Conference).
SENATE REPORTS: No. 107–205 accompanying S. 2673 (Comm. on Banking, Housing,
and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 148 (2002):
Apr. 24, considered and passed House.
July 15, considered and passed Senate, amended, in lieu of S. 2673.
July 25, House and Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 38 (2002):
July 30, Presidential remarks and statement.
Æ
‘‘(f) AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.—In any cease-and-desist proceeding
under subsection (a), the Commission may issue an order
to prohibit, conditionally or unconditionally, and permanently or
for such period of time as it shall determine, any person who
has violated section 17(a)(1) or the rules or regulations thereunder,
from acting as an officer or director of any issuer that has a
class of securities registered pursuant to section 12 of the Securities
Exchange Act of 1934, or that is required to file reports pursuant
to section 15(d) of that Act, if the conduct of that person demonstrates
unfitness to serve as an officer or director of any such
issuer.’’.
SEC. 1106. INCREASED CRIMINAL PENALTIES UNDER SECURITIES
EXCHANGE ACT OF 1934.
Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78ff(a)) is amended—
(1) by striking ‘‘$1,000,000, or imprisoned not more than
10 years’’ and inserting ‘‘$5,000,000, or imprisoned not more
than 20 years’’; and
(2) by striking ‘‘$2,500,000’’ and inserting ‘‘$25,000,000’’.
SEC. 1107. RETALIATION AGAINST INFORMANTS.
(a) IN GENERAL.—Section 1513 of title 18, United States Code,
is amended by adding at the end the following:
‘‘(e) Whoever knowingly, with the intent to retaliate, takes
any action harmful to any person, including interference with the
lawful employment or livelihood of any person, for providing to
a law enforcement officer any truthful information relating to the
commission or possible commission of any Federal offense, shall
be fined under this title or imprisoned not more than 10 years,
or both.’’.
Approved July 30, 2002.

Spotlight on
Sarbanes-Oxley Rulemaking and Reports
  See also: Spotlight On: Implementation of Internal Control Reporting Provisions

Press Releases
SEC Staff Responds to Frequently Asked Questions Regarding Auditor Independence (Press Release No. 2003-94; August 13, 2003)
 
Summary of SEC Actions and SEC Related Provisions Pursuant to the Sarbanes-Oxley Act of 2002 (Press Release No. 2003-89a; July 30, 2003)
 
SEC Study on Adoption by the U.S. Financial Reporting System of a Principles-Based Accounting System (Press Release No. 2003-86; July 25, 2003)
 
SEC Staff Responds to Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures (Press Release No. 2003-73; June 13, 2003)
 
SEC Implements Internal Control Provisions of Sarbanes-Oxley Act; Adopts Investment Company R&D Safe Harbor (Press Release No. 2003-66; May 27, 2003)
 
SEC Votes to Madate Electronic Filing of Ownership Reports; Prohibit Improper Influence of Auditors (Press Release No. 2003-51; April 24, 2003)
 
SEC Provides Guidance for Filers Reporting Pension Fund Blackout Periods, Non-GAAP Financial Data (Press Release No. 2003-41; March 27, 2003)
 
Commission Proposes Amendments Regarding CEO, CFO Certification Under Sarbanes-Oxley (Press Release No. 2003-39; March 21, 2003)
 
SEC Adopts Attorney Conduct Rule Under Sarbanes-Oxley Act (Press Release No. 2003-13; January 23, 2003)
 
SEC Adopts Rules on Retention of Records Relevant to Audits and Reviews (Press Release No. 2002-11; January 22, 2003)
 
SEC Adopts Rules on Disclosure of Off-Balance Sheet Arrangements and Aggregate Contractual Obligations (Press Release No. 2003-10; January 22, 2003)
 
Commission Adopts Rules Strengthening Auditor Independence (Press Release No. 2003-9; January 22, 2003)
 
SEC Adopts Measures to Certify Management Investment Company Shareholder Reports (Press Release No. 2003-8; January 22, 2003)
 
SEC Adopts Rules on Provisions of Sarbanes-Oxley Act: Non-GAAP Financials etc. (Press Release No. 2003-6; January 15, 2003)
 
SEC Proposes Listing Standards Rule, Adopts Investment Company Exemptive Provisions (Press Release No. 2003-1; January 8, 2003)
 
SEC Proposes Electronic Filing of Insider Ownership Reports, Adopts Standardized Options Exemptions (Press Release No. 2002-178; December 18, 2002)
 
SEC Proposes Auditor Independence and Workpaper Retention Rules Required under Sarbanes-Oxley, Agrees to Issue Report on Anti-Money Laundering Rules (Press Release No. 2002-165; November 19, 2002)
 
SEC Proposes Rules to Implement Sarbanes-Oxley Act Provisions Concerning Standards of Professional Conduct for Attorneys (Press Release No. 2002-158; November 6, 2002)
 
SEC Proposes Rules to Implement Sarbanes-Oxley Act Reforms (Press Release No. 2002-155; October 30, 2002)
 
SEC Proposes Additional Disclosures, Prohibitions to Implement Sarbanes-Oxley Act (Press Release No. 2002-150; October 16, 2002)
 
Commission Approves Rules Implementing Provisions of Sarbanes-Oxley Act, Accelerating Periodic Filings, and Other Measures (Press Release No. 2002-128; August 27, 2002)
 
SEC Issues Supplemental Information on Accelerated Deadline for Insider Transaction Reports under Sarbanes-Oxley Act (Press Release No. 2002-121; August 6, 2002)
 
SEC Prepares to Implement Sarbanes-Oxley Act Requirement for CEO And CFO Certification of SEC Filings (Press Release No. 2002-119; August 2, 2002)
 
FAQs
Office of the Chief Accountant: Application of the Commission抯 Rules on Auditor Independence Frequently Asked Questions (December 14, 2004)
 
Office of Chief Accountant: Application of the January 2003 Rules of Auditor Independence - Frequently Asked Questions (August 13, 2003); Note: this was superseded by the December 14, 2004 FAQ revision (listed above)
 
Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures (June 13, 2003)
 
Division of Corporation Finance: Sarbanes-Oxley Act of 2002 ?Frequently Asked Questions (November 8, 2002; revised November 14, 2002)
 
Final Rulemaking
Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date (Release Nos. 33-8400, 34-49424; File No.: S7-22-02; March 16, 2004)
 
Management's Report on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (Release Nos. 33-8392, 34-49313; IC-26357; File Nos.: S7-40-02; S7-06-03; February 24, 2004)
 
Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (Release Nos. 33-8238, 34-47986; IC-26068; File Nos.: S7-40-02; S7-06-03; June 5, 2003)
 
Improper Influence on Conduct of Audits (Release Nos. 34-47890; IC-26050; FR-71; File No.: S7-39-02; May 20, 2003)
 
Mandated Electronic Filing and Website Posting for Forms 3, 4 and 5 (Release Nos. 33-8230; 34-47809; 35-27674; IC-26044; File No.: S7-52-02; May 7, 2003)
 
Standards Relating to Listed Company Audit Committees (Release Nos. 33-8220; 34-47654; IC-26001; File No.: S7-02-03; April 9, 2003)
 
Filing Guidance Related To: Conditions for Use of Non-GAAP Financial Measures; and Insider Trades During Pension Fund Blackout Periods (Release Nos. 33-8216; 34-47583; IC-25983; FR-69; File Nos.: S7-43-02 and S7-44-02; March 27, 2003)
 
Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002 (Release Nos. 33-8177A; 34-47235A; File No.: S7-40-02; March 26, 2003)
 
Strengthening the Commission's Requirements Regarding Auditor Independence (Release Nos. 33-8183A; 34-47265A; 35-27642A; IC-25915A; IA-2103A; FR-68; File No.: S7-49-02; March 26, 2003)
 
Implementation of Standards of Professional Conduct for Attorneys (Release Nos. 33-8185, 34-47276, IC-25919; File No.: S7-45-02; January 29, 2003)
 
Strengthening the Commission's Requirements Regarding Auditor Independence (Release Nos. 33-8183, 34-47265, 35-27642, IC-25915, IA-2103, FR-68; File No.: S7-49-02; Jan. 28, 2003)
 
Disclosure in Management's Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations (Release Nos. 33-8182, 34-47264, FR-67, International Series No. 1266; File No.: S7-42-02; January 28, 2003)
 
Certification of Management Investment Company Shareholder Reports and Designation of Certified Shareholder Reports as Exchange Act Periodic Reporting Forms; Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002 (Release Nos. 34-47262, IC-25914; File Nos.: S7-33-02 and S7-40-02; January 27, 2003)
 
Retention of Records Relevant to Audits and Reviews (Release Nos. 33-8180, 34-47241, IC-25911, FR-66; File No.: S7-46-02; January 24, 2003)
 
Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002 (Release Nos. 33-8177, 34-47235; File No.: S7-40-02; January 23, 2003)
 
Insider Trades During Pension Fund Blackout Periods (Release Nos. 34-47225, IC-25909; File No.: S7-44-02; January 22, 2003)
 
Conditions for Use of Non-GAAP Financial Measures (Release Nos. 33-8176, 34-47226, FR-65; File No.: S7-43-02; January 22, 2003)
 
Certification of Disclosure in Companies' Quarterly and Annual Reports (Release Nos. 33-8124, 34-46427, IC-25722; File No.: S7-21-02; August 29, 2002)
 
Ownership Reports and Trading by Officers, Directors and Principal Security Holders (Release Nos. 34-46421, 35-27563, IC-25720; File No.: S7-31-02; August 27, 2002)
 
Proposed Rulemaking
Certification of Disclosure in Certain Exchange Act Reports (Release Nos. 33-8212, 34-47551, IC-25967; File No. S7-06-03; March 21, 2003; Comments)
 
Implementation of Standards of Professional Conduct for Attorneys (Release Nos. 33-8186, 34-47282, IC-25920; File No.: S7-45-02; January 29, 2003; Comments)
 
Standards Relating To Listed Company Audit Committees (Release Nos. 34-47137; 33-8173; IC-25885; File No.: S7-02-03; January 8, 2003; Comments)
 
Mandated Electronic Filing and Website Posting for Forms 3, 4 and 5 (Release Nos. 33-8170; 34-47069; 35-27627; IC-25872; File No. S7-52-02; December 20, 2002; Comments)
 
Strengthening the Commission's Requirements Regarding Auditor Independence (Release Nos. 33-8154; 34-46934; 35-27610; IC-25838; IA-2088, FR-64; File No. S7-49-02; December 2, 2002; Comments)
 
Retention of Records Relevant to Audits and Reviews (Release Nos. 33-8151; 34-46869; IC-25830; File No. S7-46-02; November 21, 2002; Comments)
 
Implementation of Standards of Professional Conduct for Attorneys (Release Nos. 33-8150; 34-46868; IC-25829; File No. S7-45-02; November 21, 2002; Comments)
 
Insider Trades During Pension Fund Blackout Periods (Release Nos. 34-46778; IC-25795; File No. S7-44-02; November 6, 2002; Comments)
 
Conditions for Use of Non-GAAP Financial Measures (Release Nos. 33-8145; 34-46768; File No. S7-43-02; November 5, 2002; Comments)
 
Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments (Release Nos. 33-8144; File No. S7-42-02; November 4, 2002; Comments)
 
Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002 (Release Nos. 33-8138; 34-46701; IC-25775; File No. S7-40-02; October 22, 2002; Comments)
 
Improper Influence on Conduct of Audits (Release Nos. 34-46685; IC-25773; File No. S7-39-02; October 18, 2002; Comments)
 
Certification of Disclosure in Companies' Quarterly and Annual Reports (Release No. 34-46300; File No. S7-21-02; Aug. 2, 2002; Comments)
 
Other Releases
Ownership Reports and Trading by Officers, Directors and Principal Security Holders (Release No. 34-46313; File No. S7-31-02; August 6, 2002)
 
Special Studies
Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 on Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers (June 15, 2005)


Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System (July 25, 2003)
 
Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets (January 24, 2003; in PDF format)
 
Study and Report on Violations by Securities Professionals: Section 703 of the Sarbanes-Oxley Act Of 2002 (January 24, 2003; in PDF format)
 
Report Pursuant to Section 308(c) of the Sarbanes-Oxley Act of 2002 (January 24, 2003; in PDF format)
 
Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002 (January 24, 2003; in PDF format)
 


http://www.sec.gov/spotlight/sarbanes-oxley.htm

The Laws That Govern the Securities Industry

--------------------------------------------------------------------------------
  Securities Act of 1933
  Securities Exchange Act of 1934
  Public Utility Holding Company Act of 1935
  Trust Indenture Act of 1939
  Investment Company Act of 1940
  Investment Advisers Act of 1940
  Sarbanes-Oxley Act of 2002

--------------------------------------------------------------------------------


Securities Act of 1933
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:


require that investors receive financial and other significant information concerning securities being offered for public sale; and

prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.

Purpose of Registration
A primary means of accomplishing these goals is the disclosure of important financial information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company's securities. While the SEC requires that the information provided be accurate, it does not guarantee it. Investors who purchase securities and suffer losses have important recovery rights if they can prove that there was incomplete or inaccurate disclosure of important information.

The Registration Process
In general, securities sold in the U.S. must be registered. The registration forms companies file provide essential facts while minimizing the burden and expense of complying with the law. In general, registration forms call for:


a description of the company's properties and business;

a description of the security to be offered for sale;

information about the management of the company; and

financial statements certified by independent accountants.
Registration statements and prospectuses become public shortly after filing with the SEC. If filed by U.S. domestic companies, the statements are available on the EDGAR database accessible at www.sec.gov. Registration statements are subject to examination for compliance with disclosure requirements.

Not all offerings of securities must be registered with the Commission. Some exemptions from the registration requirement include:


private offerings to a limited number of persons or institutions;

offerings of limited size;

intrastate offerings; and

securities of municipal, state, and federal governments.
By exempting many small offerings from the registration process, the SEC seeks to foster capital formation by lowering the cost of offering securities to the public.

Securities Exchange Act of 1934
With this Act, Congress created the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation's securities self regulatory organizations (SROs). The various stock exchanges, such as the New York Stock Exchange, and American Stock Exchange are SROs. The National Association of Securities Dealers, which operates the NASDAQ system, is also an SRO.

The Act also identifies and prohibits certain types of conduct in the markets and provides the Commission with disciplinary powers over regulated entities and persons associated with them.

The Act also empowers the SEC to require periodic reporting of information by companies with publicly traded securities.

Corporate Reporting
Companies with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports. These reports are available to the public through the SEC's EDGAR database.

Proxy Solicitations
The Securities Exchange Act also governs the disclosure in materials used to solicit shareholders' votes in annual or special meetings held for the election of directors and the approval of other corporate action. This information, contained in proxy materials, must be filed with the Commission in advance of any solicitation to ensure compliance with the disclosure rules. Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which holders are asked to vote.

Tender Offers
The Securities Exchange Act requires disclosure of important information by anyone seeking to acquire more than 5 percent of a company's securities by direct purchase or tender offer. Such an offer often is extended in an effort to gain control of the company. As with the proxy rules, this allows shareholders to make informed decisions on these critical corporate events.

Insider Trading
The securities laws broadly prohibit fraudulent activities of any kind in connection with the offer, purchase, or sale of securities. These provisions are the basis for many types of disciplinary actions, including actions against fraudulent insider trading. Insider trading is illegal when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading.

Registration of Exchanges, Associations, and Others
The Act requires a variety of market participants to register with the Commission, including exchanges, brokers and dealers, transfer agents, and clearing agencies. Registration for these organizations involves filing disclosure documents that are updated on a regular basis.

The exchanges and the National Association of Securities Dealers (NASD) are identified as self-regulatory organizations (SRO). SROs must create rules that allow for disciplining members for improper conduct and for establishing measures to ensure market integrity and investor protection. SRO proposed rules are published for comment before final SEC review and approval.

The full text of this Act can be read at: http://www.sec.gov/about/laws/sea34.pdf.

Public Utility Holding Company Act of 1935
On August 8, 2005, the Energy Policy Act of 2005 (H.R. 6, 199th Cong.) was signed by the President and became law, Pub.L. 109-58. Title XII of the Energy Policy Act is the Electricity Modernization Act of 2005 (the "Modernization Act"). Subtitle F of the Modernization Act, repeals the Public Utility Holding Company Act of 1935 ("Act") effective February 8, 2006. It also enacted the Public Utility Holding Company Act of 2005 ("2005 Act") and gave the Federal Energy Regulatory Commission jurisdiction over its administration.

Although OPUR has been dissolved, the Securities and Exchange Commission ("SEC") will continue to maintain this web site until March 1, 2007, as a service to any interested parties looking for materials that might not otherwise be easily accessed. However, in light of the repeal of the Act, no new material will be added to the site. Also, because the Act is no longer in effect, no new filings, amendments to filings, or forms that had been required under the Act, can or will be accepted by the SEC either on EDGAR or on paper.

Any questions about the 2005 Act should be directed to the Federal Energy Regulatory Commission.

Trust Indenture Act of 1939
This Act applies to debt securities such as bonds, debentures, and notes that are offered for public sale. Even though such securities may be registered under the Securities Act, they may not be offered for sale to the public unless a formal agreement between the issuer of bonds and the bondholder, known as the trust indenture, conforms to the standards of this Act.  The full text of this Act is available at:  http://www.sec.gov/about/laws/tia39.pdf. 

Investment Company Act of 1940
This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The regulation is designed to minimize conflicts of interest that arise in these complex operations. The Act requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis. The focus of this Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. It is important to remember that the Act does not permit the SEC to directly supervise the investment decisions or activities of these companies or judge the merits of their investments. The full text of this Act is available at: http://www.sec.gov/about/laws/ica40.pdf.

Investment Advisers Act of 1940
This law regulates investment advisers. With certain exceptions, this Act requires that firms or sole practitioners compensated for advising others about securities investments must register with the SEC and conform to regulations designed to protect investors. Since the Act was amended in 1996, generally only advisers who have at least $25 million of assets under management or advise a registered investment company must register with the Commission.  The full text of this Act is available at: http://www.sec.gov/about/laws/iaa40.pdf.

Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which he characterized as "the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt." The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession. The full text of the Act is available at:  http://www.sec.gov/about/laws/soa2002.pdf.  You can find links to all Commission rulemaking and reports issued under the Sarbanes-Oxley Act at:  http://www.sec.gov/spotlight/sarbanes-oxley.htm.

Note: See also Researching the Federal Securities Laws Through the SEC Website.

Researching the Federal Securities Laws Through the SEC Website
Introduction
This guide provides an overview of how to research the securities law through the SEC website and is provided as a service to investors and members of the public. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule you should consult with an attorney who specializes in securities law. This guide does not address primary and secondary sources available in print or through other websites, other than those to which the SEC website links. The guide is organized by providing suggestions for the research of:

Statutes (the Securities Laws)
 
SEC Rules and Regulations
 
SEC Concept Releases
 
SEC Interpretive Releases
 
SEC Staff Interpretations
In general, you should conduct your research on the federal securities laws in the order prescribed above. This is because while the federal statutes and the SEC rules and regulations have the force of law, other SEC-issued documents vary in the degree to which they carry the force of law.

Statutes
Major pieces of legislation, such as the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, provide the framework for the SEC's oversight of the securities markets. These statutes are broadly drafted, establishing basic principles and objectives. The laws that govern the securities industry include:

Securities Act of 1933
 
Securities Exchange Act of 1934
 
Public Utility Holding Company Act of 1935 (repealed)
 
Trust Indenture Act of 1939
 
Investment Company Act of 1940
 
Investment Advisers Act of 1940
 
Securities Investor Protection Act of 1970
 
Public Company Accounting Reform and Corporate Responsibility Act of 2002 (Sarbanes-Oxley Act of 2002)
You can find general descriptions of the objectives of each of these statutes in the “About the SEC” section of our website. The web pages of the Division of Investment Management and the Division of Corporation Finance also provide links to the federal securities laws and regulations that each Division oversees.

TIP: The SEC website links to the text of the federal securities laws provided by the House Committee on Financial Services. The texts include references to the United States Code (U.S.C). U.S.C. citations are the official citations for federal laws. You can find the securities laws in Title 15 of the U.S.C. For example, the Securities Act of 1933 is 15 U.S.C. ?77a et seq.; the Securities Act of 1934 is 15 U.S.C. ?78a et seq.; the Investment Company Act of 1940 is 15 U.S.C. ?80-1 et seq.; and the Investment Adviser Act is 15 U.S.C. ?0b-1 et seq.

As a convenience to researchers and investors, the SEC website provides a link to the University of Cincinnati’s Securities Lawyer’s Deskbook. The Securities Lawyer’s Deskbook allows you to research the text of the federal securities laws and regulations by using key words and phrases.

Legislative History
Legislative history is the official record of the passage of a statute. It is useful if you are looking for Congressional intent at the time Congress passed a particular statute. Although our website does not link to the legislative history of the securities laws, we provide a link to the Library of Congress’ THOMAS online database. Through THOMAS, you can research the legislative history for more recent securities laws. The THOMAS database begins with the 104th Congress (1995). It also provides searches for bill summary, bill text, and public law beginning with the 93rd Congress (1973).

TIP: The Securities Lawyer’s Deskbook is helpful when checking for legislative or administrative changes. As noted in its Introduction, “the data on any page of the Securities Lawyer's Deskbook can be checked for incorporation of the latest regulatory or legislative action by reviewing the history note at the bottom of each page.”

SEC Rules and Rulemaking
Rulemaking is the process by which federal agencies implement legislation passed by Congress and signed into law by the President. The SEC engages in rulemaking to maintain fair and orderly markets and to protect investors by altering regulations or creating new ones. There are both official and unofficial sources of SEC rules and regulations.

NOTE: If you are researching administrative regulations, including SEC rules, you always should check whether they are current. You also should check the coverage and status of all sources.

Official Sources
The Federal Register. The Federal Register is the official daily publication where the SEC and other federal agencies first publish proposed regulations for comment, adopted final regulations, explanations of actions taken, and announcements of significant interpretations of the law. The Regulatory Actions section of our webpage may include links to the Federal Register publication of a specific rule. If our web pages do not link to a Federal Register release, you can find a copy of the release by going to the website of the U.S. Government Printing Office.
 
The Code of Federal Regulations. After publication in the Federal Register, final regulations are then arranged by subject into the Code of Federal Regulations (CFR). SEC rules are found in Chapter II of Title 17 — Commodity and Securities Exchanges. Chapters are divided into parts, which cover particular topics. Parts are divided into sections (which correspond to rule numbers). The parts covering the federal securities laws are:

17 CFR, part 230 - Securities Act of 1933
 
17 CFR, part 240 - Securities Exchange Act of 1934
 
17 CFR, part 250 - Public Utility Holding Company Act of 1935
 
17 CFR, part 260 - Trust Indenture Act of 1939
 
17 CFR, part 270 - Investment Company Act of 1940
 
17 CFR, part 275 - Investment Advisers Act of 1940
 
17 CFR, part 300 - Securities Investor Protection Act (Rules of SIPC)
You can find other frequently requested material in the CFR at:

17 CFR, part 200 - General SEC Rules (includes organization of SEC, codes of conduct and ethics; information requests)
 
17 CFR, part 201 - SEC Rules of Practice
 
17 CFR, part 202 - Informal Procedures
 
17 CFR, part 203 - Investigations
 
17 CFR, part 210 - Regulation S-X
 
17 CFR, part 229 - Regulation S-K
Tip: Individuals often refer to SEC rules and regulations by the number only, without reference to the entire CFR citation. However, you need the full CFR citation to find a specific rule. For example if you are looking for Rule 10b-5 of the Securities Exchange Act of 1934, the citation is 17 CFR 240.10b-5. An idiosyncrasy of the federal securities laws is that the term “regulation” often refers to a collection of rules for example, Regulation S-K and Regulation SHO.

The SEC's website provides access to regulations codified in the CFR. In addition, the SEC’s website includes selected rules and regulations on the Forms web page.

CFR Titles are updated annually. Therefore if you are researching recent rulemaking, you should check GPO’s website for the monthly “List of CFR Sections Affected.” (LSA). As noted on GPO’s web page, the LSA “lists proposed, new, and amended Federal regulations that have been published in the Federal Register since the most recent revision date of a CFR title. Each LSA issue is cumulative and contains the CFR part and section numbers, a description of its status (e.g., amended, confirmed, revised), and the Federal Register page number where the change(s) may be found.”

The CFR references the Federal Register citation for the original adopting release as well as any releases amending the rule or regulation.

Unofficial Sources
The “Regulatory Actions” section of our website is an unofficial source of both Final and Proposed Rulemaking Releases. You should note that the date of the releases reported on our website is the date of the Commission’s approval and not the publication date in the Federal Register.

Tip: Rulemaking releases, unlike the text of the rules found in the CFR, provide in-depth background information about the origin of specific rules. The releases include, for example, the staff’s basis for drafting the rule, changes from earlier proposed rules, and a summary of public comments.

Final Rules. Final rules releases dating back to September 1994 are available on our website as are selected rulemaking releases for the period from 1962 to 1994. The Details section for a particular release will include links to the proposed rule(s), comments, and also identify the effective date and the compliance date (where appropriate). The “Final Rules” section also will include amendments or corrections to the rule as well as notices of extensions or compliance dates.

Proposed Rules. In addition to releases of proposed rules, the “Regulatory Actions” web page includes links to public comments about the rules as well as links to related releases. We also post the Federal Register version of the release. You can find the proposed rules by looking for either the release number (in some cases the first of several release numbers for the specific rule) or by date. The web page does not organize the proposed rules by subject matter or by file number. The website includes proposed rules going back to 1994.
What Is an Effective Date?
The effective date is the date on which a rule or regulation becomes law.

What Is a Compliance Date?
The compliance date is the date on which the entities covered by the rule must comply with the rule.

What Do the Prefixes to the Release Numbers Mean?
The prefixes included in the release numbers identify the Act pursuant to which the rule was promulgated. Common prefixes are:

33-: Securities Act of 1933
34-: Securities Exchange Act of 1934
35-: Public Utility Holding Company Act of 1935
39-: Trust Indenture Act of 1939
IA-: Investment Advisers Act of 1940
IC-: Investment Company Act of 1940
FR-: Financial Releases (should not be confused with citations to the Federal Register)

If you are researching a rule by release number, you can use the non-EDGAR search engine at the top of our home page. This will help you to locate a release in the event that this is not the release number identified on the rulemaking pages.

What Is the Difference Between an SR- and an S7- File?
S7- files are the file numbers assigned to Commission rules. SR-files refer to rules of the self-regulatory organizations.

SEC Concept Releases
The Commission occasionally publishes "concept" releases to solicit the public's views on securities issues so that we can better evaluate the need for future rulemaking. The Regulatory Actions section of our web site includes concept releases dating back to 1994.

SEC Interpretive Releases
The Commission occasionally provides guidance on topics of general interest to the business and investment communities by issuing "interpretive" releases, in which we publish our views and interpret the federal securities laws and SEC regulations. Interpretive releases (like concept releases) are not positive law but provide useful guidance as to the position of the SEC staff on various issues. The “Regulatory Actions” web page includes interpretive releases from 1995 to the present. The Regulatory Actions web page does not organize the releases by topic. However, the web page for the Division of Corporation Finance includes interpretive releases and other information, organized by subject category, dating back to 2002. The Division of Market Regulation’s web page also includes interpretive releases.

Tip: The CFR includes indices of interpretive releases of the Commission, organized by the relevant Act. The CFR includes the Federal Register citation. For example, you can find citations for interpretive releases covering the Securities Exchange Act at 17 CFR, part 241.

SEC Policy Statements
From time to time, the Commission issues a "policy statement" to clarify its position on a particular matter. The policy statements include interagency statements. You can find the policy statements on our “Regulatory Actions web page.

SEC Staff Interpretations
The SEC staff provides informal guidance through various oral and written statements. Because they represent the views of the staff, these interpretations are not legally binding. You can find links to the available interpretations through the Staff Interpretations section of our website.

SEC Staff Legal and Accounting Bulletins
Staff Legal Bulletins summarize the Commission staff's views regarding various aspects of the federal securities laws and SEC regulations. They represent interpretations and policies followed by the Divisions of Corporation Finance, Market Regulation, or Investment Management on any given matter.

Staff Accounting Bulletins reflect the Commission staff's views regarding accounting-related disclosure practices. They represent interpretations and policies followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws. You also can find the Codification of Staff Accounting Bulletins on our website.

No-Action, Exemptive and Interpretive Letters
No-action, exemptive and interpretive letters issued by the staff members of the Divisions of Corporation Finance, Market Regulation, and Investment Management posted on our web site date back to 2002. Staff Letters to Industry from the staff of the Office of the Chief Accountant are posted from 1998 to the present. No-action letters are letters are inquiries sent by individuals or entities about a specified proposed conduct requesting that the SEC staff not recommend an enforcement action in the event that the proposed conduct occurs.

Where to Obtain SEC Materials Not Available on Our Website
You can request SEC rules and other materials not available on our website by emailing publicinfo@sec.gov, calling (202) 551-8090, or faxing your request to (202) 772-9295.

Where to Go for Additional Assistance
If you need assistance in find SEC laws or regulations on our website, please call the Office of Investor Education and Advocacy at (202) 551-6551 or email help@sec.gov.


http://www.sec.gov/investor/pubs/securitieslaws.htm



--------------------------------------------------------------------------------

Researching the Federal Securities Laws Through the SEC Website
Introduction
This guide provides an overview of how to research the securities law through the SEC website and is provided as a service to investors and members of the public. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule you should consult with an attorney who specializes in securities law. This guide does not address primary and secondary sources available in print or through other websites, other than those to which the SEC website links. The guide is organized by providing suggestions for the research of:

Statutes (the Securities Laws)
 
SEC Rules and Regulations
 
SEC Concept Releases
 
SEC Interpretive Releases
 
SEC Staff Interpretations
In general, you should conduct your research on the federal securities laws in the order prescribed above. This is because while the federal statutes and the SEC rules and regulations have the force of law, other SEC-issued documents vary in the degree to which they carry the force of law.

Statutes
Major pieces of legislation, such as the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, provide the framework for the SEC's oversight of the securities markets. These statutes are broadly drafted, establishing basic principles and objectives. The laws that govern the securities industry include:

Securities Act of 1933
 
Securities Exchange Act of 1934
 
Public Utility Holding Company Act of 1935 (repealed)
 
Trust Indenture Act of 1939
 
Investment Company Act of 1940
 
Investment Advisers Act of 1940
 
Securities Investor Protection Act of 1970
 
Public Company Accounting Reform and Corporate Responsibility Act of 2002 (Sarbanes-Oxley Act of 2002)
You can find general descriptions of the objectives of each of these statutes in the “About the SEC” section of our website. The web pages of the Division of Investment Management and the Division of Corporation Finance also provide links to the federal securities laws and regulations that each Division oversees.

TIP: The SEC website links to the text of the federal securities laws provided by the House Committee on Financial Services. The texts include references to the United States Code (U.S.C). U.S.C. citations are the official citations for federal laws. You can find the securities laws in Title 15 of the U.S.C. For example, the Securities Act of 1933 is 15 U.S.C. ?77a et seq.; the Securities Act of 1934 is 15 U.S.C. ?78a et seq.; the Investment Company Act of 1940 is 15 U.S.C. ?80-1 et seq.; and the Investment Adviser Act is 15 U.S.C. ?0b-1 et seq.

As a convenience to researchers and investors, the SEC website provides a link to the University of Cincinnati’s Securities Lawyer’s Deskbook. The Securities Lawyer’s Deskbook allows you to research the text of the federal securities laws and regulations by using key words and phrases.

Legislative History
Legislative history is the official record of the passage of a statute. It is useful if you are looking for Congressional intent at the time Congress passed a particular statute. Although our website does not link to the legislative history of the securities laws, we provide a link to the Library of Congress’ THOMAS online database. Through THOMAS, you can research the legislative history for more recent securities laws. The THOMAS database begins with the 104th Congress (1995). It also provides searches for bill summary, bill text, and public law beginning with the 93rd Congress (1973).

TIP: The Securities Lawyer’s Deskbook is helpful when checking for legislative or administrative changes. As noted in its Introduction, “the data on any page of the Securities Lawyer's Deskbook can be checked for incorporation of the latest regulatory or legislative action by reviewing the history note at the bottom of each page.”

SEC Rules and Rulemaking
Rulemaking is the process by which federal agencies implement legislation passed by Congress and signed into law by the President. The SEC engages in rulemaking to maintain fair and orderly markets and to protect investors by altering regulations or creating new ones. There are both official and unofficial sources of SEC rules and regulations.

NOTE: If you are researching administrative regulations, including SEC rules, you always should check whether they are current. You also should check the coverage and status of all sources.

Official Sources
The Federal Register. The Federal Register is the official daily publication where the SEC and other federal agencies first publish proposed regulations for comment, adopted final regulations, explanations of actions taken, and announcements of significant interpretations of the law. The Regulatory Actions section of our webpage may include links to the Federal Register publication of a specific rule. If our web pages do not link to a Federal Register release, you can find a copy of the release by going to the website of the U.S. Government Printing Office.
 
The Code of Federal Regulations. After publication in the Federal Register, final regulations are then arranged by subject into the Code of Federal Regulations (CFR). SEC rules are found in Chapter II of Title 17 — Commodity and Securities Exchanges. Chapters are divided into parts, which cover particular topics. Parts are divided into sections (which correspond to rule numbers). The parts covering the federal securities laws are:

17 CFR, part 230 - Securities Act of 1933
 
17 CFR, part 240 - Securities Exchange Act of 1934
 
17 CFR, part 250 - Public Utility Holding Company Act of 1935
 
17 CFR, part 260 - Trust Indenture Act of 1939
 
17 CFR, part 270 - Investment Company Act of 1940
 
17 CFR, part 275 - Investment Advisers Act of 1940
 
17 CFR, part 300 - Securities Investor Protection Act (Rules of SIPC)
You can find other frequently requested material in the CFR at:

17 CFR, part 200 - General SEC Rules (includes organization of SEC, codes of conduct and ethics; information requests)
 
17 CFR, part 201 - SEC Rules of Practice
 
17 CFR, part 202 - Informal Procedures
 
17 CFR, part 203 - Investigations
 
17 CFR, part 210 - Regulation S-X
 
17 CFR, part 229 - Regulation S-K
Tip: Individuals often refer to SEC rules and regulations by the number only, without reference to the entire CFR citation. However, you need the full CFR citation to find a specific rule. For example if you are looking for Rule 10b-5 of the Securities Exchange Act of 1934, the citation is 17 CFR 240.10b-5. An idiosyncrasy of the federal securities laws is that the term “regulation” often refers to a collection of rules for example, Regulation S-K and Regulation SHO.

The SEC's website provides access to regulations codified in the CFR. In addition, the SEC’s website includes selected rules and regulations on the Forms web page.

CFR Titles are updated annually. Therefore if you are researching recent rulemaking, you should check GPO’s website for the monthly “List of CFR Sections Affected.” (LSA). As noted on GPO’s web page, the LSA “lists proposed, new, and amended Federal regulations that have been published in the Federal Register since the most recent revision date of a CFR title. Each LSA issue is cumulative and contains the CFR part and section numbers, a description of its status (e.g., amended, confirmed, revised), and the Federal Register page number where the change(s) may be found.”

The CFR references the Federal Register citation for the original adopting release as well as any releases amending the rule or regulation.

Unofficial Sources
The “Regulatory Actions” section of our website is an unofficial source of both Final and Proposed Rulemaking Releases. You should note that the date of the releases reported on our website is the date of the Commission’s approval and not the publication date in the Federal Register.

Tip: Rulemaking releases, unlike the text of the rules found in the CFR, provide in-depth background information about the origin of specific rules. The releases include, for example, the staff’s basis for drafting the rule, changes from earlier proposed rules, and a summary of public comments.

Final Rules. Final rules releases dating back to September 1994 are available on our website as are selected rulemaking releases for the period from 1962 to 1994. The Details section for a particular release will include links to the proposed rule(s), comments, and also identify the effective date and the compliance date (where appropriate). The “Final Rules” section also will include amendments or corrections to the rule as well as notices of extensions or compliance dates.

Proposed Rules. In addition to releases of proposed rules, the “Regulatory Actions” web page includes links to public comments about the rules as well as links to related releases. We also post the Federal Register version of the release. You can find the proposed rules by looking for either the release number (in some cases the first of several release numbers for the specific rule) or by date. The web page does not organize the proposed rules by subject matter or by file number. The website includes proposed rules going back to 1994.
What Is an Effective Date?
The effective date is the date on which a rule or regulation becomes law.

What Is a Compliance Date?
The compliance date is the date on which the entities covered by the rule must comply with the rule.

What Do the Prefixes to the Release Numbers Mean?
The prefixes included in the release numbers identify the Act pursuant to which the rule was promulgated. Common prefixes are:

33-: Securities Act of 1933
34-: Securities Exchange Act of 1934
35-: Public Utility Holding Company Act of 1935
39-: Trust Indenture Act of 1939
IA-: Investment Advisers Act of 1940
IC-: Investment Company Act of 1940
FR-: Financial Releases (should not be confused with citations to the Federal Register)

If you are researching a rule by release number, you can use the non-EDGAR search engine at the top of our home page. This will help you to locate a release in the event that this is not the release number identified on the rulemaking pages.

What Is the Difference Between an SR- and an S7- File?
S7- files are the file numbers assigned to Commission rules. SR-files refer to rules of the self-regulatory organizations.

SEC Concept Releases
The Commission occasionally publishes "concept" releases to solicit the public's views on securities issues so that we can better evaluate the need for future rulemaking. The Regulatory Actions section of our web site includes concept releases dating back to 1994.

SEC Interpretive Releases
The Commission occasionally provides guidance on topics of general interest to the business and investment communities by issuing "interpretive" releases, in which we publish our views and interpret the federal securities laws and SEC regulations. Interpretive releases (like concept releases) are not positive law but provide useful guidance as to the position of the SEC staff on various issues. The “Regulatory Actions” web page includes interpretive releases from 1995 to the present. The Regulatory Actions web page does not organize the releases by topic. However, the web page for the Division of Corporation Finance includes interpretive releases and other information, organized by subject category, dating back to 2002. The Division of Market Regulation’s web page also includes interpretive releases.

Tip: The CFR includes indices of interpretive releases of the Commission, organized by the relevant Act. The CFR includes the Federal Register citation. For example, you can find citations for interpretive releases covering the Securities Exchange Act at 17 CFR, part 241.

SEC Policy Statements
From time to time, the Commission issues a "policy statement" to clarify its position on a particular matter. The policy statements include interagency statements. You can find the policy statements on our “Regulatory Actions web page.

SEC Staff Interpretations
The SEC staff provides informal guidance through various oral and written statements. Because they represent the views of the staff, these interpretations are not legally binding. You can find links to the available interpretations through the Staff Interpretations section of our website.

SEC Staff Legal and Accounting Bulletins
Staff Legal Bulletins summarize the Commission staff's views regarding various aspects of the federal securities laws and SEC regulations. They represent interpretations and policies followed by the Divisions of Corporation Finance, Market Regulation, or Investment Management on any given matter.

Staff Accounting Bulletins reflect the Commission staff's views regarding accounting-related disclosure practices. They represent interpretations and policies followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws. You also can find the Codification of Staff Accounting Bulletins on our website.

No-Action, Exemptive and Interpretive Letters
No-action, exemptive and interpretive letters issued by the staff members of the Divisions of Corporation Finance, Market Regulation, and Investment Management posted on our web site date back to 2002. Staff Letters to Industry from the staff of the Office of the Chief Accountant are posted from 1998 to the present. No-action letters are letters are inquiries sent by individuals or entities about a specified proposed conduct requesting that the SEC staff not recommend an enforcement action in the event that the proposed conduct occurs.

Where to Obtain SEC Materials Not Available on Our Website
You can request SEC rules and other materials not available on our website by emailing publicinfo@sec.gov, calling (202) 551-8090, or faxing your request to (202) 772-9295.

Where to Go for Additional Assistance
If you need assistance in find SEC laws or regulations on our website, please call the Office of Investor Education and Advocacy at (202) 551-6551 or email help@sec.gov.


http://www.sec.gov/investor/pubs/securitieslaws.htm



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