To withdraw certain benefits of the Private Securities Litigation Reform Act from auditors that perform non-audit functions, and for other purposes.

January 23, 2002

Mr. MARKEY introduced the following bill; which was referred to the Committee on Financial Services

To withdraw certain benefits of the Private Securities Litigation Reform Act from auditors that perform non-audit functions, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Accountability for Accountants Act of 2002'.

SEC. 2. RESTORATION OF JOINT AND SEVERAL LIABILITY.

(a) AMENDMENT- Subparagraph (A) of section 21D(f)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-4(f)(2)(A)) is amended to read as follows:

`(A) JOINT AND SEVERAL LIABILITY- Any covered person against whom a final judgment is entered in a private action shall be liable for damages jointly and severally only if the trier of fact specifically determines that--

`(i) such covered person knowingly committed a violation of the securities laws;

`(ii) the covered person was the auditor of the financial statements of the issuer of the securities that are the subject of the class action and such auditor failed to comply with section 10A by failing to detect and report an illegal act of such issuer that is the basis of such class action;

`(iii) the covered person was the auditor of the financial statements of such issuer and such auditor performed any non-audit functions for such issuer during the fiscal year in which an alleged violation of the securities laws occurred; or

`(iv) the issuer of such securities is insolvent.'.

(b) UNCOLLECTABLE SHARES- Section 21D(f)(4) of such Act is amended by adding at the end the following new subparagraph:

`(D) INAPPLICABILITY TO INSOLVENCY CASES- The provisions of this paragraph shall not apply in any case in which the trier of fact determines that the issuer of the securities that are the subject of the class action is insolvent under paragraph (2)(A)(iv).'.

(c) DISCLOSURE TO JURIES- Section 21D(f) of such Act is further amended--

(1) by striking paragraph (6); and

(2) by redesignating paragraphs (7) through (10) as paragraphs (6) through (9), respectively.

(d) DEFINITION- Section 21D(f)(9) of such Act (as redesignated by subsection (c)(2) of this section) is amended--

(1) by striking `and' at then end of subparagraph (C);

(2) by striking the period at the end of subparagraph (D) and inserting `; and'; and

(3) by adding at the end the following new subparagraph:

`(E) an auditor shall be considered to have performed `non-audit functions for an issuer' if such auditor received any compensation for services from such issuer for a fiscal year that did not qualify to be treated as audit fees for such fiscal year for purposes of item 9(e)(1) of the schedule 14A of such issuer.'.

(e) PREVENTION OF STAYS OF DISCOVERY-

(1) Section 21D(b)(3) of such Act is amended by adding at the end the following new subparagraph:

`(E) INAPPLICABILITY TO ACTION AGAINST AUDITORS- In any private action arising under this title against the auditor of the financial statements of the issuer of the securities that are the subject of such action, discovery and other proceedings shall not be stayed pursuant to this paragraph.'.

(2) Section 27(b) of the Securities Act of 1933 (15 U.S.C. 77z-1(b)) is amended by adding at the end the following new paragraph:

`(5) INAPPLICABILITY TO ACTION AGAINST AUDITORS- In any private action arising under this title against the auditor of the financial statements of the issuer of the securities that are the subject of such action, discovery and other proceedings shall not be stayed pursuant to this subsection.'.

SEC. 3. RESTORATION OF AIDING AND ABETTING LIABILITY.

(a) 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 new subsection:

`(g) PROSECUTION OF PERSONS WHO AID OR ABET VIOLATIONS- For purposes of subsections (b) and (d), any person who knowingly or recklessly provides substantial assistance to another person in the violation of a provision of this title, or of any rule or regulation hereunder, shall be deemed to violate such provision to the same extent as the person to whom such assistance is provided. No person shall be liable under this subsection based on an omission or failure to act unless such omission or failure constituted a breach of a duty owed by such person.'.

(b) SECURITIES EXCHANGE ACT OF 1934- Section 20(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78t(e)) is amended to read as follows:

`(e) PROSECUTION OF PERSONS WHO AID OR ABET VIOLATIONS- For purposes of subsections (d)(1) and (d)(3) of section 21, or an action by a self-regulatory organization, or an express or implied private right of action under this title, any person who knowingly or recklessly

provides substantial assistance to another person in the violation of a provision of this title, or of any rule or regulation thereunder, shall be deemed to violate such provision and shall be liable to the same extent as the person to whom such assistance is provided. No person shall be liable under this subsection based on an omission or failure to act unless such omission or failure constituted a breach of a duty owed by such person.'.

(c) INVESTMENT COMPANY ACT OF 1940- Section 42 of the Investment Company Act of 1940 (15 U.S.C. 80a-41) is amended by adding at the end the following new subsection:

`(f) PROSECUTION OF PERSONS WHO AID OR ABET VIOLATIONS- For purposes of subsections (d) and (e), any person who knowingly or recklessly provides substantial assistance to another person in the violation of a provision of this title, or of any rule, regulation, or order hereunder, shall be deemed to violate such provision to the same extent as the person to whom such assistance is provided. No person shall be liable under this subsection based on an omission or failure to act unless such omission or failure constituted a breach of a duty owed by such person.'.

(d) INVESTMENT ADVISERS ACT OF 1940- Section 209(d) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is amended--

(1) in subsection (d)--

(A) by striking `or that any person has aided, abetted, counseled, commanded, induced, or procured, is aiding, abetting, counseling, commanding, inducing, or procuring, or is about to aid, abet, counsel, command, induce, or procure such a violation,'; and

(B) by striking `or in aiding, abetting, counseling, commanding, inducing, or procuring any such act or practice'; and

(2) by adding at the end the following new subsection:

`(f) PROSECUTION OF PERSONS WHO AID OR ABET VIOLATIONS- For purposes of subsections (d) and (e), any person who knowingly or recklessly provides substantial assistance to another person in the violation of a provision of this title, or of any rule, regulation, or order hereunder, shall be deemed to violate such provision to the same extent as the person to whom such assistance is provided. No person shall be liable under this subsection based on an omission or failure to act unless such omission or failure constituted a breach of duty owed by such person.'.

SEC. 4. DESTRUCTION OF RECORDS; SEPARATION OF FUNCTIONS.

(a) AUDIT REQUIREMENTS- Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1) is amended--

(1) by redesignating subsections (e) and (f) as subsections (g) and (h), respectively; and

(2) by inserting after subsection (d) the following new subsections:

`(e) DESTRUCTION OF RECORDS-

`(1) MAINTENANCE OF RECORDS REQUIRED- Any accountant that conducts an audit of an issuer pursuant to this title to which subsection (a) applies shall maintain all documents (including electronic documents) sent, received, or created in connection with any audit, review, or other engagement for such issuer for a period of four years from the end of the fiscal period in which the engagement was concluded.

`(2) PENALTY- In addition to any other sanctions that may be available, any person who knowingly and willfully violates paragraph (1) shall be subject to fine and imprisonment to the same extent as a person violating section 1512(b) of title 18, United States Code.

`(f) CONSIDERATION OF SEPARATION OF AUDIT AND NON-AUDIT FUNCTIONS-

`(1) CONSIDERATION REQUIRED- Any accountant that conducts an audit of an issuer pursuant to this title to which subsection (a) applies shall, within 60 days after the date of enactment of the Accountability for Accountants Act of 2002, initiate a review of--

`(A) whether that accountant should divest itself of any interests in non-audit businesses in light of the inherent potential conflicts of interest in providing both audit and non-audit services to an issuer; or

`(B) whether the accountant should cease providing non-audit services to those companies whose financial statements it audits.

`(2) REPORTS- Each accountant to which paragraph (1) applies shall report to the Commission within 12 months after such date of enactment on whether such accountant has decided to either divest its non-audit services, or to cease providing non-audit services to audit clients. The Commission shall submit a report to Congress on the reports received under the preceding sentence.'.

(b) PRESERVATION OF RECORDS DURING SHAREHOLDER LITIGATION-

(1) SECURITIES ACT OF 1933- Section 27(b)(2) of the Securities Act of 1933 (15 U.S.C. 77z-1(b)(2)) is amended by inserting `, and the issuer of the securities that are the subject of such action,' after `in the complaint'.

(2) SECURITIES EXCHANGE ACT OF 1934- Section 21D(b)(3)(C)(i) of the Securities Act of 1933 (15 U.S.C. 77z-1(b)(3)(C)(i)) is amended by inserting `, and the issuer of the securities that are the subject of such action,' after `in the complaint'.

END