[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

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                               AMENDMENTS