[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1058 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
June 28 (legislative day, June 19), 1995.
Resolved, That the bill from the House of Representatives (H.R.
1058) entitled ``An Act to reform Federal securities litigation, and
for other purposes'', do pass with the following
AMENDMENTS:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Private Securities
Litigation Reform Act of 1995''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--REDUCTION OF ABUSIVE LITIGATION
Sec. 101. Elimination of certain abusive practices.
Sec. 102. Securities class action reform.
Sec. 103. Sanctions for abusive litigation.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Safe harbor for forward-looking statements.
Sec. 106. Written interrogatories.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
Sec. 108. Authority of Commission to prosecute aiding and abetting.
Sec. 109. Loss causation.
Sec. 110. Study and report on protections for senior citizens and
qualified retirement plans.
Sec. 111. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
Sec. 112. Applicability.
TITLE II--REDUCTION OF COERCIVE SETTLEMENTS
Sec. 201. Limitation on damages.
Sec. 202. Proportionate liability.
Sec. 203. Applicability.
TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD
Sec. 301. Fraud detection and disclosure.
TITLE I--REDUCTION OF ABUSIVE LITIGATION
SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.
(a) Prohibition of Referral Fees.--Section 15(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end
the following new paragraph:
``(8) Prohibition of referral fees.--No broker or dealer,
or person associated with a broker or dealer, may solicit or
accept, directly or indirectly, remuneration for assisting an
attorney in obtaining the representation of any person in any
private action arising under this title or under the Securities
Act of 1933.''.
(b) Attorney Conflict of Interest.--
(1) 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:
``(f) Attorney Conflict of Interest.--In any private action arising
under this title, if a plaintiff is represented by an attorney who
directly owns or otherwise has a beneficial interest in the securities
that are the subject of the litigation, the court shall make a
determination of whether such ownership or other interest constitutes a
conflict of interest sufficient to disqualify the attorney from
representing the party.''.
(2) Securities exchange act of 1934.--Section 21 of the
Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by
adding at the end the following new subsection:
``(i) Attorney Conflict of Interest.--In any private action arising
under this title, in which a plaintiff is represented by an attorney
who directly owns or otherwise has a beneficial interest in the
securities that are the subject of the litigation, the court shall make
a determination of whether such ownership or other interest constitutes
a conflict of interest sufficient to disqualify the attorney from
representing the party.''.
(c) Prohibition of Attorneys' Fees Paid From Commission
Disgorgement Funds.--
(1) 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) Prohibition of Attorneys' Fees Paid From Commission
Disgorgement Funds.--Except as otherwise ordered by the court upon
motion by the Commission, or, in the case of an administrative action,
as otherwise ordered by the Commission, funds disgorged as the result
of an action brought by the Commission in Federal court, or as a result
of any Commission administrative action, shall not be distributed as
payment for attorneys' fees or expenses incurred by private parties
seeking distribution of the disgorged funds.''.
(2) Securities exchange act of 1934.--Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended
by adding at the end the following new paragraph:
``(4) Prohibition of attorneys' fees paid from commission
disgorgement funds.--Except as otherwise ordered by the court
upon motion by the Commission, or, in the case of an
administrative action, as otherwise ordered by the Commission,
funds disgorged as the result of an action brought by the
Commission in Federal court, or as a result of any Commission
administrative action, shall not be distributed as payment for
attorneys' fees or expenses incurred by private parties seeking
distribution of the disgorged funds.''.
SEC. 102. SECURITIES CLASS ACTION REFORM.
(a) Recovery Rules.--
(1) 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:
``(h) Recovery Rules for Private Class Actions.--
``(1) In general.--The rules contained in this subsection
shall apply in each private action arising under this title
that is brought as a plaintiff class action pursuant to the
Federal Rules of Civil Procedure.
``(2) Certification filed with complaints.--
``(A) In general.--Each plaintiff seeking to serve
as a representative party on behalf of a class shall
provide a sworn certification, which shall be
personally signed by such plaintiff and filed with the
complaint, that--
``(i) states that the plaintiff has
reviewed the complaint and authorized its
filing;
``(ii) states that the plaintiff did not
purchase the security that is the subject of
the complaint at the direction of plaintiff's
counsel or in order to participate in any
private action arising under this title;
``(iii) states that the plaintiff is
willing to serve as a representative party on
behalf of a class, including providing
testimony at deposition and trial, if
necessary;
``(iv) sets forth all of the transactions
of the plaintiff in the security that is the
subject of the complaint during the class
period specified in the complaint;
``(v) identifies any action under this
title, filed during the 3-year period preceding
the date on which the certification is signed
by the plaintiff, in which the plaintiff has
sought to serve as a representative party on
behalf of a class; and
``(vi) states that the plaintiff will not
accept any payment for serving as a
representative party on behalf of a class
beyond the plaintiff's pro rata share of any
recovery, except as ordered or approved by the
court in accordance with paragraph (3).
``(B) Nonwaiver of attorney-client privilege.--The
certification filed pursuant to subparagraph (A) shall
not be construed to be a waiver of the attorney-client
privilege.
``(3) Recovery by plaintiffs.--The share of any final
judgment or of any settlement that is awarded to a
representative party serving on behalf of a class shall be
calculated in the same manner as the shares of the final
judgment or settlement awarded to all other members of the
class. Nothing in this paragraph shall be construed to limit
the award of reasonable costs and expenses (including lost
wages) directly relating to the representation of the class to
any representative party serving on behalf of the class.
``(4) Restrictions on settlements under seal.--The terms
and provisions of any settlement agreement of a class action
shall not be filed under seal, except that on motion of any
party to the settlement, the court may order filing under seal
for those portions of a settlement agreement as to which good
cause is shown for such filing under seal. For purposes of this
paragraph, good cause shall exist only if publication of a term
or provision of a settlement agreement would cause direct and
substantial harm to any party.
``(5) Restrictions on payment of attorneys' fees and
expenses.--Total attorneys' fees and expenses awarded by the
court to counsel for the plaintiff class shall not exceed a
reasonable percentage of the amount of damages and prejudgment
interest awarded to the class.
``(6) Disclosure of settlement terms to class members.--Any
proposed or final settlement agreement that is published or
otherwise disseminated to the class shall include each of the
following statements, along with a cover page summarizing the
information contained in such statements:
``(A) Statement of plaintiff recovery.--The amount
of the settlement proposed to be distributed to the
parties to the action, determined in the aggregate and
on an average per share basis.
``(B) Statement of potential outcome of case.--
``(i) Agreement on amount of damages.--If
the settling parties agree on the average
amount of damages per share that would be
recoverable if the plaintiff prevailed on each
claim alleged under this title, a statement
concerning the average amount of such potential
damages per share.
``(ii) Disagreement on amount of damages.--
If the parties do not agree on the average
amount of damages per share that would be
recoverable if the plaintiff prevailed on each
claim alleged under this title, a statement
from each settling party concerning the issue
or issues on which the parties disagree.
``(iii) Inadmissibility for certain
purposes.--A statement made in accordance with
clause (i) or (ii) concerning the amount of
damages shall not be admissible in any Federal
or State judicial action or administrative
proceeding, other than an action or proceeding
arising out of such statement.
``(C) Statement of attorneys' fees or costs
sought.--If any of the settling parties or their
counsel intend to apply to the court for an award of
attorneys' fees or costs from any fund established as
part of the settlement, a statement indicating which
parties or counsel intend to make such an application,
the amount of fees and costs that will be sought
(including the amount of such fees and costs determined
on an average per share basis), and a brief explanation
supporting the fees and costs sought.
``(D) Identification of lawyers' representatives.--
The name, telephone number, and address of one or more
representatives of counsel for the plaintiff class who
will be reasonably available to answer questions from
class members concerning any matter contained in any
notice of settlement published or otherwise
disseminated to the class.
``(E) Reasons for settlement.--A brief statement
explaining the reasons why the parties are proposing
the settlement.
``(F) Other information.--Such other information as
may be required by the court.''.
(2) Securities exchange act of 1934.--Section 21 of the
Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by
adding at the end the following new subsection:
``(j) Recovery Rules for Private Class Actions.--
``(1) In general.--The rules contained in this subsection
shall apply in each private action arising under this title
that is brought as a plaintiff class action pursuant to the
Federal Rules of Civil Procedure.
``(2) Certification filed with complaints.--
``(A) In general.--Each plaintiff seeking to serve
as a representative party on behalf of a class shall
provide a sworn certification, which shall be
personally signed by such plaintiff and filed with the
complaint, that--
``(i) states that the plaintiff has
reviewed the complaint and authorized its
filing;
``(ii) states that the plaintiff did not
purchase the security that is the subject of
the complaint at the direction of plaintiff's
counsel or in order to participate in any
private action arising under this title;
``(iii) states that the plaintiff is
willing to serve as a representative party on
behalf of a class, including providing
testimony at deposition and trial, if
necessary;
``(iv) sets forth all of the transactions
of the plaintiff in the security that is the
subject of the complaint during the class
period specified in the complaint;
``(v) identifies any action under this
title, filed during the 3-year period preceding
the date on which the certification is signed
by the plaintiff, in which the plaintiff has
sought to serve as a representative party on
behalf of a class; and
``(vi) states that the plaintiff will not
accept any payment for serving as a
representative party on behalf of a class
beyond the plaintiff's pro rata share of any
recovery, except as ordered or approved by the
court in accordance with paragraph (3).
``(B) Nonwaiver of attorney-client privilege.--The
certification filed pursuant to subparagraph (A) shall
not be construed to be a waiver of the attorney-client
privilege.
``(3) Recovery by plaintiffs.--The share of any final
judgment or of any settlement that is awarded to a
representative party serving on behalf of a class shall be
calculated in the same manner as the shares of the final
judgment or settlement awarded to all other members of the
class. Nothing in this paragraph shall be construed to limit
the award to any representative party serving on behalf of a
class of reasonable costs and expenses (including lost wages)
directly relating to the representation of the class.
``(4) Restrictions on settlements under seal.--The terms
and provisions of any settlement agreement of a class action
shall not be filed under seal, except that on motion of any
party to the settlement, the court may order filing under seal
for those portions of a settlement agreement as to which good
cause is shown for such filing under seal. For purposes of this
paragraph, good cause shall exist only if publication of a term
or provision of a settlement agreement would cause direct and
substantial harm to any party.
``(5) Restrictions on payment of attorneys' fees and
expenses.--Total attorneys' fees and expenses awarded by the
court to counsel for the plaintiff class shall not exceed a
reasonable percentage of the amount of damages and prejudgment
interest awarded to the class.
``(6) Disclosure of settlement terms to class members.--Any
proposed or final settlement agreement that is published or
otherwise disseminated to the class shall include each of the
following statements, along with a cover page summarizing the
information contained in such statements:
``(A) Statement of plaintiff recovery.--The amount
of the settlement proposed to be distributed to the
parties to the action, determined in the aggregate and
on an average per share basis.
``(B) Statement of potential outcome of case.--
``(i) Agreement on amount of damages.--If
the settling parties agree on the average
amount of damages per share that would be
recoverable if the plaintiff prevailed on each
claim alleged under this title, a statement
concerning the average amount of such potential
damages per share.
``(ii) Disagreement on amount of damages.--
If the parties do not agree on the average
amount of damages per share that would be
recoverable if the plaintiff prevailed on each
claim alleged under this title, a statement
from each settling party concerning the issue
or issues on which the parties disagree.
``(iii) Inadmissibility for certain
purposes.--A statement made in accordance with
clause (i) or (ii) concerning the amount of
damages shall not be admissible in any Federal
or State judicial action or administrative
proceeding, other than an action or proceeding
arising out of such statement.
``(C) Statement of attorneys' fees or costs
sought.--If any of the settling parties or their
counsel intend to apply to the court for an award of
attorneys' fees or costs from any fund established as
part of the settlement, a statement indicating which
parties or counsel intend to make such an application,
the amount of fees and costs that will be sought
(including the amount of such fees and costs determined
on an average per share basis), and a brief explanation
supporting the fees and costs sought.
``(D) Identification of lawyers' representatives.--
The name, telephone number, and address of one or more
representatives of counsel for the plaintiff class who
will be reasonably available to answer questions from
class members concerning any matter contained in any
notice of settlement published or otherwise
disseminated to the class.
``(E) Reasons for settlement.--A brief statement
explaining the reasons why the parties are proposing
the settlement.
``(F) Other information.--Such other information as
may be required by the court.''.
(b) Appointment of Lead Plaintiff.--
(1) 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:
``(i) Procedures Governing Appointment of Lead Plaintiff in Class
Actions.--
``(1) Early notice to class members.--
``(A) In general.--In any private action arising
under this title that is brought on behalf of a class,
not later than 20 days after the date on which the
complaint is filed, the plaintiff or plaintiffs shall
cause to be published, in a widely circulated national
business-oriented publication or wire service, a notice
advising members of the purported plaintiff class--
``(i) of the pendency of the action, the
claims asserted therein, and the purported
class period; and
``(ii) that, not later than 60 days after
the date on which the notice is published, any
member of the purported class may move the
court to serve as lead plaintiff of the
purported class.
``(B) Additional notices may be required under
federal rules.--Notice required under subparagraph (A)
shall be in addition to any notice required pursuant to
the Federal Rules of Civil Procedure.
``(2) Appointment of lead plaintiff.--
``(A) In general.--Not later than 90 days after the
date on which a notice is published under paragraph
(1)(A), the court shall consider any motion made by a
purported class member in response to the notice, and
shall appoint as lead plaintiff the member or members
of the purported plaintiff class that the court
determines to be most capable of adequately
representing the interests of class members (hereafter
in this subsection referred to as the `most adequate
plaintiff') in accordance with this paragraph.
``(B) Consolidated actions.--If more than one
action on behalf of a class asserting substantially the
same claim or claims arising under this title has been
filed, and any party has sought to consolidate those
actions for pretrial purposes or for trial, the court
shall not make the determination required by
subparagraph (A) until after the decision on the motion
to consolidate is rendered. As soon as practicable
after such decision is rendered, the court shall
appoint the most adequate plaintiff as lead plaintiff
for the consolidated actions in accordance with this
paragraph.
``(C) Rebuttable presumption.--
``(i) In general.--Subject to clause (ii),
for purposes of subparagraph (A), the court
shall adopt a presumption that the most
adequate plaintiff in any private action
arising under this title is the person or group
of persons that--
``(I) has either filed the
complaint or made a motion in response
to a notice under paragraph (1)(A);
``(II) in the determination of the
court, has the largest financial
interest in the relief sought by the
class; and
``(III) otherwise satisfies the
requirements of Rule 23 of the Federal
Rules of Civil Procedure.
``(ii) Rebuttal evidence.--The presumption
described in clause (i) may be rebutted only
upon proof by a member of the purported
plaintiff class that the presumptively most
adequate plaintiff--
``(I) will not fairly and
adequately protect the interests of the
class; or
``(II) is subject to unique
defenses that render such plaintiff
incapable of adequately representing
the class.
``(iii) Discovery.--For purposes of clause
(ii), discovery relating to whether a member or
members of the purported plaintiff class is the
most adequate plaintiff--
``(I) may not be conducted by any
defendant; and
``(II) may be conducted by a
plaintiff only if the plaintiff first
demonstrates a reasonable basis for a
finding that the presumptively most
adequate plaintiff is incapable of
adequately representing the class.
``(D) Selection of lead counsel.--The most adequate
plaintiff shall, subject to the approval of the court,
select and retain counsel to represent the class.''.
(2) Securities exchange act of 1934.--Section 21 of the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding at the end the following new subsection:
``(k) Procedures Governing Appointment of Lead Plaintiff in Class
Actions.--
``(1) Early notice to class members.--
``(A) In general.--In any private action arising
under this title that is brought on behalf of a class,
not later than 20 days after the date on which the
complaint is filed, the plaintiff or plaintiffs shall
cause to be published, in a widely circulated national
business-oriented publication or wire service, a notice
advising members of the purported plaintiff class--
``(i) of the pendency of the action, the
claims asserted therein, and the purported
class period; and
``(ii) that, not later than 60 days after
the date on which the notice is published, any
member of the purported class may move the
court to serve as lead plaintiff of the
purported class.
``(B) Additional notices may be required under
federal rules.--Notice required under subparagraph (A)
shall be in addition to any notice required pursuant to
the Federal Rules of Civil Procedure.
``(2) Appointment of lead plaintiff.--
``(A) In general.--Not later than 90 days after the
date on which a notice is published under paragraph
(1)(A), the court shall consider any motion made by a
purported class member in response to the notice, and
shall appoint as lead plaintiff the member or members
of the purported plaintiff class that the court
determines to be most capable of adequately
representing the interests of class members (hereafter
in this subsection referred to as the `most adequate
plaintiff') in accordance with this paragraph.
``(B) Consolidated actions.--If more than one
action on behalf of a class asserting substantially the
same claim or claims arising under this title has been
filed, and any party has sought to consolidate those
actions for pretrial purposes or for trial, the court
shall not make the determination required by
subparagraph (A) until after the decision on the motion
to consolidate is rendered. As soon as practicable
after such decision is rendered, the court shall
appoint the most adequate plaintiff as lead plaintiff
for the consolidated actions in accordance with this
paragraph.
``(C) Rebuttable presumption.--
``(i) In general.--Subject to clause (ii),
for purposes of subparagraph (A), the court
shall adopt a presumption that the most
adequate plaintiff in any private action
arising under this title is the person or group
of persons that--
``(I) has either filed the
complaint or made a motion in response
to a notice under paragraph (1)(A);
``(II) in the determination of the
court, has the largest financial
interest in the relief sought by the
class; and
``(III) otherwise satisfies the
requirements of Rule 23 of the Federal
Rules of Civil Procedure.
``(ii) Rebuttal evidence.--The presumption
described in clause (i) may be rebutted only
upon proof by a member of the purported
plaintiff class that the presumptively most
adequate plaintiff--
``(I) will not fairly and
adequately protect the interests of the
class; or
``(II) is subject to unique
defenses that render such plaintiff
incapable of adequately representing
the class.
``(iii) Discovery.--For purposes of clause
(ii), discovery relating to whether a member or
members of the purported plaintiff class is the
most adequate plaintiff--
``(I) may not be conducted by any
defendant; and
``(II) may be conducted by a
plaintiff only if the plaintiff first
demonstrates a reasonable basis for a
finding that the presumptively most
adequate plaintiff is incapable of
adequately representing the class.
``(D) Selection of lead counsel.--The most adequate
plaintiff shall, subject to the approval of the court,
select and retain counsel to represent the class.''.
SEC. 103. SANCTIONS FOR ABUSIVE LITIGATION.
(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:
``(j) Sanctions for Abusive Litigation.--
``(1) Mandatory review by court.--In any private action
arising under this title, upon final adjudication of the
action, the court shall include in the record specific findings
regarding compliance by each party and each attorney
representing any party with each requirement of Rule 11(b) of
the Federal Rules of Civil Procedure.
``(2) Mandatory sanctions.--If the court makes a finding
under paragraph (1) that a party or attorney violated any
requirement of Rule 11(b) of the Federal Rules of Civil
Procedure, the court shall impose sanctions on such party or
attorney in accordance with Rule 11 of the Federal Rules of
Civil Procedure.
``(3) Presumption in favor of attorneys' fees and costs.--
``(A) In general.--Subject to subparagraphs (B) and
(C), for purposes of paragraph (2), the court shall
adopt a presumption that the appropriate sanction for
failure of the complaint or the responsive pleading or
motion to comply with any requirement of Rule 11(b) of
the Federal Rules of Civil Procedure is an award to the
opposing party of all of the reasonable attorneys' fees
and other expenses incurred as a direct result of the
violation.
``(B) Rebuttal evidence.--The presumption described
in subparagraph (A) may be rebutted only upon proof by
the party or attorney against whom sanctions are to be
imposed that--
``(i) the award of attorneys' fees and
other expenses will impose an undue burden on
that party or attorney; or
``(ii) the violation of Rule 11(b) of the
Federal Rules of Civil Procedure was de
minimis.
``(C) Sanctions.--If the party or attorney against
whom sanctions are to be imposed meets its burden under
subparagraph (B), the court shall award the sanctions
that the court deems appropriate pursuant to Rule 11 of
the Federal Rules of Civil Procedure.''.
(b) Securities Exchange Act of 1934.--Section 21 of the Securities
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end
the following new subsection:
``(l) Sanctions for Abusive Litigation.--
``(1) Mandatory review by court.--In any private action
arising under this title, upon final adjudication of the
action, the court shall include in the record specific findings
regarding compliance by each party and each attorney
representing any party with each requirement of Rule 11(b) of
the Federal Rules of Civil Procedure.
``(2) Mandatory sanctions.--If the court makes a finding
under paragraph (1) that a party or attorney violated any
requirement of Rule 11(b) of the Federal Rules of Civil
Procedure, the court shall impose sanctions in accordance with
Rule 11 of the Federal Rules of Civil Procedure on such party
or attorney.
``(3) Presumption in favor of attorneys' fees and costs.--
``(A) In general.--Subject to subparagraphs (B) and
(C), for purposes of paragraph (2), the court shall
adopt a presumption that the appropriate sanction for
failure of the complaint or the responsive pleading or
motion to comply with any requirement of Rule 11(b) of
the Federal Rules of Civil Procedure is an award to the
opposing party of all of the reasonable attorneys' fees
and other expenses incurred as a direct result of the
violation.
``(B) Rebuttal evidence.--The presumption described
in subparagraph (A) may be rebutted only upon proof by
the party or attorney against whom sanctions are to be
imposed that--
``(i) the award of attorneys' fees and
other expenses will impose an undue burden on
that party or attorney; or
``(ii) the violation of Rule 11(b) of the
Federal Rules of Civil Procedure was de
minimis.
``(C) Sanctions.--If the party or attorney against
whom sanctions are to be imposed meets its burden under
subparagraph (B), the court shall award the sanctions
that the court deems appropriate pursuant to Rule 11 of
the Federal Rules of Civil Procedure.''.
SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.
(a) Securities Act of 1933.--
(1) Stay of discovery.--Section 20 of the Securities Act of
1933 (15 U.S.C. 77t) is amended by adding at the end the
following new subsection:
``(k) Stay of Discovery.--In any private action arising under this
title, during the pendency of any motion to dismiss, all discovery and
other proceedings shall be stayed unless the court finds, upon the
motion of any party, that particularized discovery is necessary to
preserve evidence or to prevent undue prejudice to that party.''.
(2) Preservation of evidence.--Section 20 of the Securities
Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following new subsection:
``(l) Preservation of Evidence.--It shall be unlawful for any
person, upon receiving actual notice that a complaint has been filed in
a private action arising under this title naming that person as a
defendant and that describes the allegations contained in the
complaint, to willfully destroy or otherwise alter any document, data
compilation (including any electronically recorded or stored data), or
tangible object that is in the custody or control of that person and
that is relevant to the allegations.''.
(b) Securities Exchange Act of 1934.--Title I of the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at
the end the following new section:
``SEC. 36. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.
``(a) Misleading Statements and Omissions.--In any private action
arising under this title in which the plaintiff alleges that the
defendant--
``(1) made an untrue statement of a material fact; or
``(2) omitted to state a material fact necessary in order
to make the statements made, in the light of the circumstances
in which they were made, not misleading;
the complaint shall specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and,
if an allegation regarding the statement or omission is made on
information and belief, the plaintiff shall set forth all information
on which that belief is formed.
``(b) Required State of Mind.--
``(1) In general.--In any private action arising under this
title in which the plaintiff may recover money damages only on
proof that the defendant acted with a particular state of mind,
the complaint shall, with respect to each act or omission
alleged to violate this title, specifically allege facts giving
rise to a strong inference that the defendant acted with the
required state of mind.
``(2) Strong inference of fraudulent intent.--For purposes
of paragraph (1), a strong inference that the defendant acted
with the required state of mind may be established either--
``(A) by alleging facts to show that the defendant
had both motive and opportunity to commit fraud; or
``(B) by alleging facts that constitute strong
circumstantial evidence of conscious misbehavior or
recklessness by the defendant.
``(c) Motion To Dismiss; Stay of Discovery.--
``(1) Dismissal for failure to meet pleading
requirements.--In any private action arising under this title,
the court shall, on the motion of any defendant, dismiss the
complaint if the requirements of subsections (a) and (b) are
not met.
``(2) Stay of discovery.--In any private action arising
under this title, all discovery and other proceedings shall be
stayed during the pendency of any motion to dismiss, unless the
court finds upon the motion of any party that particularized
discovery is necessary to preserve evidence or to prevent undue
prejudice to that party.
``(3) Preservation of evidence.--It shall be unlawful for
any person, upon receiving actual notice that a complaint has
been filed in a private action arising under this title naming
that person as a defendant and that describes the allegations
contained in the complaint, to willfully destroy or otherwise
alter any document, data compilation (including any
electronically recorded or stored data), or tangible object
that is in the custody or control of that person and that is
relevant to the allegations.
``(d) Loss Causation.--In any private action arising under this
title, the plaintiff shall have the burden of proving that the act or
omission alleged to violate this title caused any loss incurred by the
plaintiff. Damages arising from such loss may be mitigated upon a
showing by the defendant that factors unrelated to such act or omission
contributed to the loss.''.
SEC. 105. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
(a) Securities Act of 1933.--Title I of the Securities Act of 1933
(15 U.S.C. 77a et seq.) is amended by inserting after section 13 the
following new section:
``SEC. 13A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) Safe Harbor.--
``(1) In general.--In any private action arising under this
title that is based on a fraudulent statement, an issuer that
is subject to the reporting requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934, a person
acting on behalf of such issuer, or an outside reviewer
retained by such issuer, shall not be liable with respect to
any forward-looking statement, whether written or oral, if and
to the extent that the statement--
``(A) projects, estimates, or describes future
events; and
``(B) refers clearly (and, except as otherwise
provided by rule or regulation, proximately) to--
``(i) such projections, estimates, or
descriptions as forward-looking statements; and
``(ii) the risk that actual results may
differ materially from such projections,
estimates, or descriptions.
``(2) Effect on other safe harbors.--The exemption from
liability provided for in paragraph (1) shall be in addition to
any exemption that the Commission may establish by rule or
regulation under subsection (e).
``(b) Definition of Forward-Looking Statement.--For purposes of
this section, the term `forward-looking statement' means--
``(1) a statement containing a projection of revenues,
income (including income loss), earnings (including earnings
loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
``(2) a statement of the plans and objectives of management
for future operations;
``(3) a statement of future economic performance contained
in a discussion and analysis of financial condition by the
management or in the results of operations included pursuant to
the rules and regulations of the Commission;
``(4) any disclosed statement of the assumptions underlying
or relating to any statement described in paragraph (1), (2),
or (3); or
``(5) a statement containing a projection or estimate of
such other items as may be specified by rule or regulation of
the Commission.
``(c) Exclusions.--The exemption from liability provided for in
subsection (a) does not apply to a forward-looking statement that is--
``(1) knowingly made with the purpose and actual intent of
misleading investors;
``(2) except to the extent otherwise specifically provided
by rule, regulation, or order of the Commission, made with
respect to the business or operations of the issuer, if the
issuer--
``(A) during the 3-year period preceding the date
on which the statement was first made--
``(i) was convicted of any felony or
misdemeanor described in clauses (i) through
(iv) of section 15(b)(4)(B); or
``(ii) has been made the subject of a
judicial or administrative decree or order
arising out of a governmental action that--
``(I) prohibits future violations
of the anti-fraud provisions of the
securities laws, as that term is
defined in section 3 of the Securities
Exchange Act of 1934;
``(II) requires that the issuer
cease and desist from violating the
anti-fraud provisions of the securities
laws; or
``(III) determines that the issuer
violated the anti-fraud provisions of
the securities laws;
``(B) makes the forward-looking statement in
connection with an offering of securities by a blank
check company, as that term is defined under the rules
or regulations of the Commission;
``(C) issues penny stock, as that term is defined
in section 3(a)(51) of the Securities Exchange Act of
1934, and the rules, regulations, or orders issued
pursuant to that section;
``(D) makes the forward-looking statement in
connection with a rollup transaction, as that term is
defined under the rules or regulations of the
Commission; or
``(E) makes the forward-looking statement in
connection with a going private transaction, as that
term is defined under the rules or regulations of the
Commission issued pursuant to section 13(e) of the
Securities Exchange Act of 1934; or
``(3) except to the extent otherwise specifically provided
by rule or regulation of the Commission--
``(A) included in a financial statement prepared in
accordance with generally accepted accounting
principles;
``(B) contained in a registration statement of, or
otherwise issued by, an investment company, as that
term is defined in section 3(a) of the Investment
Company Act of 1940;
``(C) made in connection with a tender offer;
``(D) made in connection with an initial public
offering;
``(E) made by or in connection with an offering by
a partnership, limited liability corporation, or a
direct participation investment program, as those terms
are defined by rule or regulation of the Commission; or
``(F) made in a disclosure of beneficial ownership
in a report required to be filed with the Commission
pursuant to section 13(d) of the Securities Exchange
Act of 1934.
``(d) Stay Pending Decision on Motion.--In any private action
arising under this title, the court shall stay discovery during the
pendency of any motion by a defendant (other than discovery that is
specifically directed to the applicability of the exemption provided
for in this section) for summary judgment that is based on the grounds
that--
``(1) the statement or omission upon which the complaint is
based is a forward-looking statement within the meaning of this
section; and
``(2) the exemption provided for in this section precludes
a claim for relief.
``(e) Authority.--In addition to the exemption provided for in this
section, the Commission may, by rule or regulation, provide exemptions
from liability under any provision of this title, or of any rule or
regulation issued under this title, that is based on a statement that
includes or that is based on projections or other forward-looking
information, if and to the extent that any such exemption is, as
determined by the Commission, consistent with the public interest and
the protection of investors.
``(f) Commission Disgorgement Actions.--
``(1) In general.--If the Commission, in any proceeding,
orders or obtains (by settlement, court order, or otherwise) a
payment of funds from a person who has violated this title
through means that included the utilization of a forward-
looking statement, and if any portion of such funds is set
aside or otherwise held for or available to persons who
suffered losses in connection with such violation, no person
shall be precluded from participating in the distribution of,
or otherwise receiving, a portion of such funds by reason of
the application of this section.
``(2) Judgment for losses suffered.--In any action by the
Commission alleging a violation of this title in which the
defendant or respondent is alleged to have utilized a forward-
looking statement in furtherance of such violation, the
Commission may, upon a sufficient showing, in addition to all
other remedies available to the Commission, obtain a judgment
for the payment of an amount equal to all losses suffered by
reason of the utilization of the forward-looking statement that
are not compensated through final adjudication or settlement of
a private action brought under this title arising from the same
violation.
``(g) Effect on Other Authority of Commission.--Nothing in this
section limits, either expressly or by implication, the authority of
the Commission to exercise similar authority or to adopt similar rules
and regulations with respect to forward-looking statements under any
other statute under which the Commission exercises rulemaking
authority.''.
(b) Securities Exchange Act of 1934.--Title I of the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at
the end the following new section:
``SEC. 37. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) Safe Harbor.--
``(1) In general.--In any private action arising under this
title that is based on a fraudulent statement, an issuer that
is subject to the reporting requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934, a person
acting on behalf of such issuer, or an outside reviewer
retained by such issuer, shall not be liable with respect to
any forward-looking statement, whether written or oral, if and
to the extent that the statement--
``(A) projects, estimates, or describes future
events; and
``(B) refers clearly (and, except as otherwise
provided by rule or regulation, proximately) to--
``(i) such projections, estimates, or
descriptions as forward-looking statements; and
``(ii) the risk that actual results may
differ materially from such projections,
estimates, or descriptions.
``(2) Effect on other safe harbors.--The exemption from
liability provided for in paragraph (1) shall be in addition to
any exemption that the Commission may establish by rule or
regulation under subsection (e).
``(b) Definition of Forward-Looking Statement.--For purposes of
this section, the term `forward-looking statement' means--
``(1) a statement containing a projection of revenues,
income (including income loss), earnings (including earnings
loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
``(2) a statement of the plans and objectives of management
for future operations;
``(3) a statement of future economic performance contained
in a discussion and analysis of financial condition by the
management or in the results of operations included pursuant to
the rules and regulations of the Commission;
``(4) any disclosed statement of the assumptions underlying
or relating to any statement described in paragraph (1), (2),
or (3); or
``(5) a statement containing a projection or estimate of
such other items as may be specified by rule or regulation of
the Commission.
``(c) Exclusions.--The exemption from liability provided for in
subsection (a) does not apply to a forward-looking statement that is--
``(1) knowingly made with the purpose and actual intent of
misleading investors;
``(2) except to the extent otherwise specifically provided
by rule, regulation, or order of the Commission, made with
respect to the business or operations of the issuer, if the
issuer--
``(A) during the 3-year period preceding the date
on which the statement was first made--
``(i) was convicted of any felony or
misdemeanor described in clauses (i) through
(iv) of section 15(b)(4)(B); or
``(ii) has been made the subject of a
judicial or administrative decree or order
arising out of a governmental action that--
``(I) prohibits future violations
of the anti-fraud provisions of the
securities laws;
``(II) requires that the issuer
cease and desist from violating the
anti-fraud provisions of the securities
laws; or
``(III) determines that the issuer
violated the anti-fraud provisions of
the securities laws;
``(B) makes the forward-looking statement in
connection with an offering of securities by a blank
check company, as that term is defined under the rules
or regulations of the Commission;
``(C) issues penny stock;
``(D) makes the forward-looking statement in
connection with a rollup transaction, as that term is
defined under the rules or regulations of the
Commission; or
``(E) makes the forward-looking statement in
connection with a going private transaction, as that
term is defined under the rules or regulations of the
Commission issued pursuant to section 13(e); or
``(3) except to the extent otherwise specifically provided
by rule or regulation of the Commission--
``(A) included in financial statements prepared in
accordance with generally accepted accounting
principles;
``(B) contained in a registration statement of, or
otherwise issued by, an investment company;
``(C) made in connection with a tender offer;
``(D) made in connection with an initial public
offering;
``(E) made by or in connection with an offering by
a partnership, limited liability corporation, or a
direct participation investment program, as those terms
are defined by rule or regulation of the Commission; or
``(F) made in a disclosure of beneficial ownership
in a report required to be filed with the Commission
pursuant to section 13(d).
``(d) Stay Pending Decision on Motion.--In any private action
arising under this title, the court shall stay discovery during the
pendency of any motion by a defendant (other than discovery that is
specifically directed to the applicability of the exemption provided
for in this section) for summary judgment that is based on the grounds
that--
``(1) the statement or omission upon which the complaint is
based is a forward-looking statement within the meaning of this
section; and
``(2) the exemption provided for in this section precludes
a claim for relief.
``(e) Authority.--In addition to the exemption provided for in this
section, the Commission may, by rule or regulation, provide exemptions
from liability under any provision of this title, or of any rule or
regulation issued under this title, that is based on a statement that
includes or that is based on projections or other forward-looking
information, if and to the extent that any such exemption is, as
determined by the Commission, consistent with the public interest and
the protection of investors.
``(f) Commission Disgorgement Actions.--
``(1) In general.--If the Commission, in any proceeding,
orders or obtains (by settlement, court order, or otherwise) a
payment of funds from a person who has violated this title
through means that included the utilization of a forward-
looking statement, and if any portion of such funds is set
aside or otherwise held for or available to persons who
suffered losses in connection with such violation, no person
shall be precluded from participating in the distribution of,
or otherwise receiving, a portion of such funds by reason of
the application of this section.
``(2) Judgment for losses suffered.--In any action by the
Commission alleging a violation of this title in which the
defendant or respondent is alleged to have utilized a forward-
looking statement in furtherance of such violation, the
Commission may, upon a sufficient showing, in addition to all
other remedies available to the Commission, obtain a judgment
for the payment of an amount equal to all losses suffered by
reason of the utilization of the forward-looking statement that
are not compensated through final adjudication or settlement of
a private action brought under this title arising from the same
violation.
``(g) Effect on Other Authority of Commission.--Nothing in this
section limits, either expressly or by implication, the authority of
the Commission to exercise similar authority or to adopt similar rules
and regulations with respect to forward-looking statements under any
other statute under which the Commission exercises rulemaking
authority.''.
(c) Investment Company Act of 1940.--Section 24 of the Investment
Company Act of 1940 (15 U.S.C. 80a-24) is amended by adding at the end
the following new subsection:
``(g) Regulatory Authority for Forward-Looking Statements.--
``(1) In general.--The Commission shall review and, if
necessary to carry out the purposes of this title, promulgate
such rules and regulations as may be necessary to describe
conduct with respect to the making of forward-looking
statements that the Commission deems does not provide a basis
for liability in any private action arising under this title.
``(2) Requirements.--A rule or regulation promulgated under
paragraph (1) shall--
``(A) include clear and objective guidance that the
Commission finds sufficient for the protection of
investors;
``(B) prescribe such guidance with sufficient
particularity that compliance shall be readily
ascertainable by issuers prior to issuance of
securities; and
``(C) provide that forward-looking statements that
are in compliance with such guidance and that concern
the future economic performance of an issuer of
securities registered under section 12 shall be deemed
not to be in violation of this title.
``(3) Effect on other authority of commission.--Nothing in
this subsection limits, either expressly or by implication, the
authority of the Commission to exercise similar authority or to
adopt similar rules and regulations with respect to forward-
looking statements under any other statute under which the
Commission exercises rulemaking authority.''.
SEC. 106. WRITTEN INTERROGATORIES.
(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:
``(m) Defendant's Right to Written Interrogatories.--In any private
action arising under this title in which the plaintiff may recover
money damages only on proof that a defendant acted with a particular
state of mind, the court shall, when requested by a defendant, submit
to the jury a written interrogatory on the issue of each such
defendant's state of mind at the time the alleged violation
occurred.''.
(b) Securities Exchange Act of 1934.--Section 21 of the Securities
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end
the following new subsection:
``(m) Defendant's Right to Written Interrogatories.--In any private
action arising under this title in which the plaintiff may recover
money damages, the court shall, when requested by a defendant, submit
to the jury a written interrogatory on the issue of each such
defendant's state of mind at the time the alleged violation
occurred.''.
SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT.
Section 1964(c) of title 18, United States Code, is amended by
inserting before the period ``, except that no person may rely upon
conduct that would have been actionable as fraud in the purchase or
sale of securities to establish a violation of section 1962''.
SEC. 108. AUTHORITY OF COMMISSION TO PROSECUTE AIDING AND ABETTING.
Section 20 of the Securities Exchange Act of 1934 (15 U.S.C. 78t)
is amended--
(1) by striking the section heading and inserting the
following:
``liability of controlling persons and persons who aid and abet
violations''; and
(2) by adding at the end the following new subsection:
``(e) Prosecution of Persons Who Aid and Abet Violations.--For
purposes of any action brought by the Commission under paragraph (1) or
(3) of section 21(d), any person that knowingly provides substantial
assistance to another person in the violation of a provision of this
title, or of any rule or regulation issued under this title, shall be--
``(1) deemed to be in violation of such provision; and
``(2) liable to the same extent as the person to whom such
assistance is provided.''.
SEC. 109. LOSS CAUSATION.
Section 12 of the Securities Act of 1933 (15 U.S.C. 77l) is
amended--
(1) by inserting ``(a) In General.--'' before ``Any
person'';
(2) by inserting ``, subject to subsection (b),'' after
``shall be liable''; and
(3) by adding at the end the following:
``(b) Loss Causation.--In an action described in subsection (a)(2),
if the person who offered or sold such security proves that any portion
or all of the amount recoverable under subsection (a)(2) represents
other than the depreciation in value of the subject security resulting
from such part of the prospectus or oral communication, with respect to
which the liability of that person is asserted, not being true or
omitting to state a material fact required to be stated therein or
necessary to make the statement not misleading, then such portion or
amount, as the case may be, shall not be recoverable.''.
SEC. 110. STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS AND
QUALIFIED RETIREMENT PLANS.
(a) Findings.--The Congress finds that--
(1) senior citizens and qualified retirement plans are too
often the target of securities fraud of the kind evidenced in
the Charles Keating, Lincoln Savings & Loan Association, and
American Continental Corporation situations;
(2) this Act, in an effort to curb unfounded lawsuits,
changes the standards and procedures for securities fraud
actions; and
(3) the Securities and Exchange Commission has indicated
concern with some provisions of this Act.
(b) In General.--Not later than 180 days after the date of
enactment of this Act, the Securities and Exchange Commission shall--
(1) determine whether investors that are senior citizens or
qualified retirement plans require greater protection against
securities fraud than is provided in this Act and the
amendments made by this Act; and
(2) if so, submit to the Congress a report containing
recommendations on protections that the Commission determines
to be appropriate to thoroughly protect such investors.
(c) Definitions.--For purposes of this section--
(1) The term ``qualified retirement plan'' has the same
meaning as in section 4974(c) of the Internal Revenue Code of
1986; and
(2) the term ``senior citizen'' means an individual who is
62 years of age or older as of the date of the securities
transaction at issue.
SEC. 111. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT.
Section 1964(c) of title 18, United States Code, is amended by
inserting before the period ``, except that no person may rely upon
conduct that would have been actionable as fraud in the purchase of
sale of securities to establish a violation of section 1962'': Provided
however, That this exception shall not apply if any participant in the
fraud is criminally convicted in connection therewith, in which case
the statute of limitations shall start to run on the date that the
conviction becomes final.
SEC. 112. APPLICABILITY.
The amendments made by this title shall not affect or apply to any
private action arising under title I of the Securities Exchange Act of
1934 or title I of the Securities Act of 1933 commenced before the date
of enactment of this Act.
TITLE II--REDUCTION OF COERCIVE SETTLEMENTS
SEC. 201. LIMITATION ON DAMAGES.
Section 36 of the Securities Exchange Act of 1934, as added by
section 104 of this Act, is amended by adding at the end the following
new subsection:
``(e) Limitation on Damages.--
``(1) In general.--Except as provided in paragraph (2), in
any private action arising under this title, the plaintiff's
damages shall not exceed the difference between the purchase or
sale price paid or received, as appropriate, by the plaintiff
for the subject security and the value of that security, as
measured by the median trading price of that security, during
the 90-day period beginning on the date on which the
information correcting the misstatement or omission is
disseminated to the market.
``(2) Exception.--In any private action arising under this
title in which damages are sought, if the plaintiff sells or
repurchases the subject security prior to the expiration of the
90-day period described in paragraph (1), the plaintiff's
damages shall not exceed the difference between the purchase or
sale price paid or received, as appropriate, by the plaintiff
for the security and the median market value of the security
during the period beginning immediately after dissemination of
information correcting the misstatement or omission and ending
on the date on which the plaintiff sells or repurchases the
security.''.
SEC. 202. PROPORTIONATE LIABILITY.
Title I of the Securities and Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by adding at the end the following new section:
``SEC. 38. PROPORTIONATE LIABILITY.
``(a) Applicability.--This section shall apply only to the
allocation of damages among persons who are, or who may become, liable
for damages in any private action arising under this title. Nothing in
this section shall affect the standards for liability associated with
any private action arising under this title.
``(b) Liability for Damages.--
``(1) Joint and several liability.--A person against whom a
judgment is entered in any private action arising under this
title shall be liable for damages jointly and severally only if
the trier of fact specifically determines that such person
committed knowing securities fraud.
``(2) Proportionate liability.--Except as provided in
paragraph (1), a person against whom a judgment is entered in
any private action arising under this title shall be liable
solely for the portion of the judgment that corresponds to the
percentage of responsibility of that person, as determined
under subsection (c).
``(3) Knowing securities fraud.--For purposes of this
section--
``(A) a defendant engages in `knowing securities
fraud' if that defendant--
``(i) makes a material representation with
actual knowledge that the representation is
false, or omits to make a statement with actual
knowledge that, as a result of the omission,
one of the material representations of the
defendant is false; and
``(ii) actually knows that persons are
likely to rely on that misrepresentation or
omission; and
``(B) reckless conduct by the defendant shall not
be construed to constitute knowing securities fraud.
``(c) Determination of Responsibility.--
``(1) In general.--In any private action arising under this
title in which more than 1 person is alleged to have violated a
provision of this title, the court shall instruct the jury to
answer special interrogatories, or if there is no jury, shall
make findings, concerning--
``(A) the percentage of responsibility of each of
the defendants and of each of the other persons alleged
by any of the parties to have caused or contributed to
the violation, including persons who have entered into
settlements with the plaintiff or plaintiffs, measured
as a percentage of the total fault of all persons who
caused or contributed to the violation; and
``(B) whether such defendant committed knowing
securities fraud.
``(2) Contents of special interrogatories or findings.--The
responses to interrogatories, or findings, as appropriate,
under paragraph (1) shall specify the total amount of damages
that the plaintiff is entitled to recover and the percentage of
responsibility of each person found to have caused or
contributed to the damages sustained by the plaintiff or
plaintiffs.
``(3) Factors for consideration.--In determining the
percentage of responsibility under this subsection, the trier
of fact shall consider--
``(A) the nature of the conduct of each person; and
``(B) the nature and extent of the causal
relationship between that conduct and the damages
incurred by the plaintiff or plaintiffs.
``(d) Uncollectible Share.--
``(1) In general.--Notwithstanding subsection (b)(2), in
any private action arising under this title, if, upon motion
made not later than 6 months after a final judgment is entered,
the court determines that all or part of a defendant's share of
the judgment is not collectible against that defendant or
against a defendant described in subsection (b)(1), each
defendant described in subsection (b)(2) shall be liable for
the uncollectible share as follows:
``(A) Percentage of net worth.--Each defendant
shall be jointly and severally liable for the
uncollectible share if the plaintiff establishes that--
``(i) the plaintiff is an individual whose
recoverable damages under the final judgment
are equal to more than 10 percent of the net
financial worth of the plaintiff; and
``(ii) the net financial worth of the
plaintiff is equal to less than $200,000.
``(B) Other plaintiffs.--With respect to any
plaintiff not described in subparagraph (A), each
defendant shall be liable for the uncollectible share
in proportion to the percentage of responsibility of
that defendant, except that the total liability under
this subparagraph may not exceed 50 percent of the
proportionate share of that defendant, as determined
under subsection (c)(2).
``(2) Overall limit.--In no case shall the total payments
required pursuant to paragraph (1) exceed the amount of the
uncollectible share.
``(3) Defendants subject to contribution.--A defendant
against whom judgment is not collectible shall be subject to
contribution and to any continuing liability to the plaintiff
on the judgment.
``(e) Right of Contribution.--To the extent that a defendant is
required to make an additional payment pursuant to subsection (d), that
defendant may recover contribution--
``(1) from the defendant originally liable to make the
payment;
``(2) from any defendant liable jointly and severally
pursuant to subsection (b)(1);
``(3) from any defendant held proportionately liable
pursuant to this subsection who is liable to make the same
payment and has paid less than his or her proportionate share
of that payment; or
``(4) from any other person responsible for the conduct
giving rise to the payment that would have been liable to make
the same payment.
``(f) Nondisclosure to Jury.--The standard for allocation of
damages under subsections (b) and (c) and the procedure for
reallocation of uncollectible shares under subsection (d) shall not be
disclosed to members of the jury.
``(g) Settlement Discharge.--
``(1) In general.--A defendant who settles any private
action arising under this title at any time before final
verdict or judgment shall be discharged from all claims for
contribution brought by other persons. Upon entry of the
settlement by the court, the court shall enter a bar order
constituting the final discharge of all obligations to the
plaintiff of the settling defendant arising out of the action.
The order shall bar all future claims for contribution arising
out of the action--
``(A) by any person against the settling defendant;
and
``(B) by the settling defendant against any person,
other than a person whose liability has been
extinguished by the settlement of the settling
defendant.
``(2) Reduction.--If a person enters into a settlement with
the plaintiff prior to final verdict or judgment, the verdict
or judgment shall be reduced by the greater of--
``(A) an amount that corresponds to the percentage
of responsibility of that person; or
``(B) the amount paid to the plaintiff by that
person.
``(h) Contribution.--A person who becomes liable for damages in any
private action arising under this title may recover contribution from
any other person who, if joined in the original action, would have been
liable for the same damages. A claim for contribution shall be
determined based on the percentage of responsibility of the claimant
and of each person against whom a claim for contribution is made.
``(i) Statute of Limitations for Contribution.--Once judgment has
been entered in any private action arising under this title determining
liability, an action for contribution shall be brought not later than 6
months after the entry of a final, nonappealable judgment in the
action, except that an action for contribution brought by a defendant
who was required to make an additional payment pursuant to subsection
(d) may be brought not later than 6 months after the date on which such
payment was made.''.
SEC. 203. APPLICABILITY.
The amendments made by this title shall not affect or apply to any
private action arising under title I of the Securities Exchange Act of
1934 commenced before the date of enactment of this Act.
TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD
SEC. 301. FRAUD DETECTION AND DISCLOSURE.
(a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by inserting immediately after section 10 the
following new section:
``SEC. 10A. AUDIT REQUIREMENTS.
``(a) In General.--Each audit required pursuant to this title of
the financial statements of an issuer by an independent public
accountant shall include, in accordance with generally accepted
auditing standards, as may be modified or supplemented from time to
time by the Commission--
``(1) procedures designed to provide reasonable assurance
of detecting illegal acts that would have a direct and material
effect on the determination of financial statement amounts;
``(2) procedures designed to identify related party
transactions that are material to the financial statements or
otherwise require disclosure therein; and
``(3) an evaluation of whether there is substantial doubt
about the ability of the issuer to continue as a going concern
during the ensuing fiscal year.
``(b) Required Response To Audit Discoveries.--
``(1) Investigation and report to management.--If, in the
course of conducting an audit pursuant to this title to which
subsection (a) applies, the independent public accountant
detects or otherwise becomes aware of information indicating
that an illegal act (whether or not perceived to have a
material effect on the financial statements of the issuer) has
or may have occurred, the accountant shall, in accordance with
generally accepted auditing standards, as may be modified or
supplemented from time to time by the Commission--
``(A)(i) determine whether it is likely that an
illegal act has occurred; and
``(ii) if so, determine and consider the possible
effect of the illegal act on the financial statements
of the issuer, including any contingent monetary
effects, such as fines, penalties, and damages; and
``(B) as soon as practicable, inform the
appropriate level of the management of the issuer and
assure that the audit committee of the issuer, or the
board of directors of the issuer in the absence of such
a committee, is adequately informed with respect to
illegal acts that have been detected or have otherwise
come to the attention of such accountant in the course
of the audit, unless the illegal act is clearly
inconsequential.
``(2) Response to failure to take remedial action.--If,
after determining that the audit committee of the board of
directors of the issuer, or the board of directors of the
issuer in the absence of an audit committee, is adequately
informed with respect to illegal acts that have been detected
or have otherwise come to the attention of the accountant in
the course of the audit of such accountant, the independent
public accountant concludes that--
``(A) the illegal act has a material effect on the
financial statements of the issuer;
``(B) the senior management has not taken, and the
board of directors has not caused senior management to
take, timely and appropriate remedial actions with
respect to the illegal act; and
``(C) the failure to take remedial action is
reasonably expected to warrant departure from a
standard report of the auditor, when made, or warrant
resignation from the audit engagement;
the independent public accountant shall, as soon as
practicable, directly report its conclusions to the board of
directors.
``(3) Notice to commission; response to failure to
notify.--An issuer whose board of directors receives a report
under paragraph (2) shall inform the Commission by notice not
later than 1 business day after the receipt of such report and
shall furnish the independent public accountant making such
report with a copy of the notice furnished to the Commission.
If the independent public accountant fails to receive a copy of
the notice before the expiration of the required 1-business-day
period, the independent public accountant shall--
``(A) resign from the engagement; or
``(B) furnish to the Commission a copy of its
report (or the documentation of any oral report given)
not later than 1 business day following such failure to
receive notice.
``(4) Report after resignation.--If an independent public
accountant resigns from an engagement under paragraph (3)(A),
the accountant shall, not later than 1 business day following
the failure by the issuer to notify the Commission under
paragraph (3), furnish to the Commission a copy of the
accountant's report (or the documentation of any oral report
given).
``(c) Auditor Liability Limitation.--No independent public
accountant shall be liable in a private action for any finding,
conclusion, or statement expressed in a report made pursuant to
paragraph (3) or (4) of subsection (b), including any rule promulgated
pursuant thereto.
``(d) Civil Penalties in Cease-and-Desist Proceedings.--If the
Commission finds, after notice and opportunity for hearing in a
proceeding instituted pursuant to section 21C, that an independent
public accountant has willfully violated paragraph (3) or (4) of
subsection (b), the Commission may, in addition to entering an order
under section 21C, impose a civil penalty against the independent
public accountant and any other person that the Commission finds was a
cause of such violation. The determination to impose a civil penalty
and the amount of the penalty shall be governed by the standards set
forth in section 21B.
``(e) Preservation of Existing Authority.--Except as provided in
subsection (d), nothing in this section shall be held to limit or
otherwise affect the authority of the Commission under this title.
``(f) Definition.--As used in this section, the term `illegal act'
means an act or omission that violates any law, or any rule or
regulation having the force of law.''.
(b) Effective Dates.--The amendment made by subsection (a) shall
apply to each annual report--
(1) for any period beginning on or after January 1, 1996,
with respect to any registrant that is required to file
selected quarterly financial data pursuant to the rules or
regulations of the Securities and Exchange Commission; and
(2) for any period beginning on or after January 1, 1997,
with respect to any other registrant.
Amend the title so as to read: ``An Act to amend the
Federal securities laws to curb certain abusive practices in
private securities litigation, and for other purposes.''.
Attest:
Secretary.
HR 1058 EAS----2
HR 1058 EAS----3
HR 1058 EAS----4
HR 1058 EAS----5
104th CONGRESS
1st Session
H. R. 1058
_______________________________________________________________________
AMENDMENTS