[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1058 Enrolled Bill (ENR)]
H.R.1058
One Hundred Fourth Congress
of the
United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Wednesday,
the fourth day of January, one thousand nine hundred and ninety-five
An Act
To reform Federal securities litigation, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; 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. Private securities litigation reform.
Sec. 102. Safe harbor for forward-looking statements.
Sec. 103. Elimination of certain abusive practices.
Sec. 104. Authority of Commission to prosecute aiding and abetting.
Sec. 105. Loss causation.
Sec. 106. Study and report on protections for senior citizens and
qualified retirement plans.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
Sec. 108. Applicability.
TITLE II--REDUCTION OF COERCIVE SETTLEMENTS
Sec. 201. Proportionate liability.
Sec. 202. Applicability.
Sec. 203. Rule of construction.
TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD
Sec. 301. Fraud detection and disclosure.
TITLE I--REDUCTION OF ABUSIVE LITIGATION
SEC. 101. PRIVATE SECURITIES LITIGATION REFORM.
(a) Securities Act of 1933.--Title I of the Securities Act of 1933
(15 U.S.C. 77a et seq.) is amended by adding at the end the following
new section:
``SEC. 27. PRIVATE SECURITIES LITIGATION.
``(a) Private Class Actions.--
``(1) In general.--The provisions of this subsection shall
apply to 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 complaint.--
``(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 other 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, or served, 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 (4).
``(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) Appointment of lead plaintiff.--
``(A) Early notice to class members.--
``(i) In general.--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.
``(ii) Multiple actions.--If more than one action on
behalf of a class asserting substantially the same claim or
claims arising under this title is filed, only the
plaintiff or plaintiffs in the first filed action shall be
required to cause notice to be published in accordance with
clause (i).
``(iii) Additional notices may be required under
federal rules.--Notice required under clause (i) shall be
in addition to any notice required pursuant to the Federal
Rules of Civil Procedure.
``(B) Appointment of lead plaintiff.--
``(i) In general.--Not later than 90 days after the
date on which a notice is published under subparagraph
(A)(i), the court shall consider any motion made by a
purported class member in response to the notice, including
any motion by a class member who is not individually named
as a plaintiff in the complaint or complaints, 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 paragraph referred to as
the `most adequate plaintiff') in accordance with this
subparagraph.
``(ii) 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 clause (i) 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
subparagraph.
``(iii) Rebuttable presumption.--
``(I) In general.--Subject to subclause (II), for
purposes of clause (i), 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--
``(aa) has either filed the complaint or made a
motion in response to a notice under subparagraph
(A)(i);
``(bb) in the determination of the court, has
the largest financial interest in the relief sought
by the class; and
``(cc) otherwise satisfies the requirements of
Rule 23 of the Federal Rules of Civil Procedure.
``(II) Rebuttal evidence.--The presumption
described in subclause (I) may be rebutted only upon
proof by a member of the purported plaintiff class that
the presumptively most adequate plaintiff--
``(aa) will not fairly and adequately protect
the interests of the class; or
``(bb) is subject to unique defenses that
render such plaintiff incapable of adequately
representing the class.
``(iv) Discovery.--For purposes of this subparagraph,
discovery relating to whether a member or members of the
purported plaintiff class is the most adequate plaintiff
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.
``(v) Selection of lead counsel.--The most adequate
plaintiff shall, subject to the approval of the court,
select and retain counsel to represent the class.
``(vi) Restrictions on professional plaintiffs.--Except
as the court may otherwise permit, consistent with the
purposes of this section, a person may be a lead plaintiff,
or an officer, director, or fiduciary of a lead plaintiff,
in no more than 5 securities class actions brought as
plaintiff class actions pursuant to the Federal Rules of
Civil Procedure during any 3-year period.
``(4) 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 equal, on a per share basis,
to the portion 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.
``(5) 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.
``(6) 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 any damages and prejudgment interest
actually paid to the class.
``(7) 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.
``(8) Attorney conflict of interest.--If a plaintiff class 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
plaintiff class.
``(b) Stay of Discovery; Preservation of Evidence.--
``(1) In general.--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.
``(2) Preservation of evidence.--During the pendency of any
stay of discovery pursuant to this subsection, unless otherwise
ordered by the court, any party to the action with actual notice of
the allegations contained in the complaint shall treat all
documents, data compilations (including electronically recorded or
stored data), and tangible objects that are in the custody or
control of such person and that are relevant to the allegations, as
if they were the subject of a continuing request for production of
documents from an opposing party under the Federal Rules of Civil
Procedure.
``(3) Sanction for willful violation.--A party aggrieved by the
willful failure of an opposing party to comply with paragraph (2)
may apply to the court for an order awarding appropriate sanctions.
``(c) 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
as to any complaint, responsive pleading, or dispositive motion.
``(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 as to any
complaint, responsive pleading, or dispositive motion, the court
shall impose sanctions on such party or attorney in accordance with
Rule 11 of the Federal Rules of Civil Procedure. Prior to making a
finding that any party or attorney has violated Rule 11 of the
Federal Rules of Civil Procedure, the court shall give such party
or attorney notice and an opportunity to respond.
``(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--
``(i) for failure of any responsive pleading or
dispositive 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 the reasonable attorneys' fees and
other expenses incurred as a direct result of the
violation; and
``(ii) for substantial failure of any complaint to
comply with any requirement of Rule 11(b) of the Federal
Rules of Civil Procedure is an award to the opposing party
of the reasonable attorneys' fees and other expenses
incurred in the action.
``(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 unreasonable burden on that party or
attorney and would be unjust, and the failure to make such
an award would not impose a greater burden on the party in
whose favor sanctions are to be imposed; 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.
``(d) 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.--Title I of the Securities
Exchange Act of 1934 (78a et seq.) is amended by inserting after
section 21C the following new section:
``SEC. 21D. PRIVATE SECURITIES LITIGATION.
``(a) Private Class Actions.--
``(1) In general.--The provisions of 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 complaint.--
``(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 other 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 (4).
``(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) Appointment of lead plaintiff.--
``(A) Early notice to class members.--
``(i) In general.--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.
``(ii) Multiple actions.--If more than one action on
behalf of a class asserting substantially the same claim or
claims arising under this title is filed, only the
plaintiff or plaintiffs in the first filed action shall be
required to cause notice to be published in accordance with
clause (i).
``(iii) Additional notices may be required under
federal rules.--Notice required under clause (i) shall be
in addition to any notice required pursuant to the Federal
Rules of Civil Procedure.
``(B) Appointment of lead plaintiff.--
``(i) In general.--Not later than 90 days after the
date on which a notice is published under subparagraph
(A)(i), the court shall consider any motion made by a
purported class member in response to the notice, including
any motion by a class member who is not individually named
as a plaintiff in the complaint or complaints, 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 paragraph referred to as
the `most adequate plaintiff') in accordance with this
subparagraph.
``(ii) 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 clause (i) 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.
``(iii) Rebuttable presumption.--
``(I) In general.--Subject to subclause (II), for
purposes of clause (i), 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--
``(aa) has either filed the complaint or made a
motion in response to a notice under subparagraph
(A)(i);
``(bb) in the determination of the court, has
the largest financial interest in the relief sought
by the class; and
``(cc) otherwise satisfies the requirements of
Rule 23 of the Federal Rules of Civil Procedure.
``(II) Rebuttal evidence.--The presumption
described in subclause (I) may be rebutted only upon
proof by a member of the purported plaintiff class that
the presumptively most adequate plaintiff--
``(aa) will not fairly and adequately protect
the interests of the class; or
``(bb) is subject to unique defenses that
render such plaintiff incapable of adequately
representing the class.
``(iv) Discovery.--For purposes of this subparagraph,
discovery relating to whether a member or members of the
purported plaintiff class is the most adequate plaintiff
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.
``(v) Selection of lead counsel.--The most adequate
plaintiff shall, subject to the approval of the court,
select and retain counsel to represent the class.
``(vi) Restrictions on professional plaintiffs.--Except
as the court may otherwise permit, consistent with the
purposes of this section, a person may be a lead plaintiff,
or an officer, director, or fiduciary of a lead plaintiff,
in no more than 5 securities class actions brought as
plaintiff class actions pursuant to the Federal Rules of
Civil Procedure during any 3-year period.
``(4) 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 equal, on a per share basis,
to the portion 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 a class.
``(5) 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.
``(6) 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 any damages and prejudgment interest
actually paid to the class.
``(7) 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. Such information shall be clearly summarized on
the cover page of any notice to a party of any proposed or
final settlement agreement.
``(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.
``(8) Security for payment of costs in class actions.--In any
private action arising under this title that is certified as a
class action pursuant to the Federal Rules of Civil Procedure, the
court may require an undertaking from the attorneys for the
plaintiff class, the plaintiff class, or both, or from the
attorneys for the defendant, the defendant, or both, in such
proportions and at such times as the court determines are just and
equitable, for the payment of fees and expenses that may be awarded
under this subsection.
``(9) Attorney conflict of interest.--If a plaintiff class 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
plaintiff class.
``(b) Requirements for Securities Fraud Actions.--
``(1) Misleading statements and omissions.--In any private
action arising under this title in which the plaintiff alleges that
the defendant--
``(A) made an untrue statement of a material fact; or
``(B) 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 complaint shall state with
particularity all facts on which that belief is formed.
``(2) Required state of mind.--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, state with particularity facts
giving rise to a strong inference that the defendant acted with the
required state of mind.
``(3) Motion to dismiss; stay of discovery.--
``(A) 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 paragraphs (1) and (2) are not
met.
``(B) 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.
``(C) Preservation of evidence.--
``(i) In general.--During the pendency of any stay of
discovery pursuant to this paragraph, unless otherwise
ordered by the court, any party to the action with actual
notice of the allegations contained in the complaint shall
treat all documents, data compilations (including
electronically recorded or stored data), and tangible
objects that are in the custody or control of such person
and that are relevant to the allegations, as if they were
the subject of a continuing request for production of
documents from an opposing party under the Federal Rules of
Civil Procedure.
``(ii) Sanction for willful violation.--A party
aggrieved by the willful failure of an opposing party to
comply with clause (i) may apply to the court for an order
awarding appropriate sanctions.
``(4) Loss causation.--In any private action arising under this
title, the plaintiff shall have the burden of proving that the act
or omission of the defendant alleged to violate this title caused
the loss for which the plaintiff seeks to recover damages.
``(c) 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
as to any complaint, responsive pleading, or dispositive motion.
``(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 as to any
complaint, responsive pleading, or dispositive motion, the court
shall impose sanctions on such party or attorney in accordance with
Rule 11 of the Federal Rules of Civil Procedure. Prior to making a
finding that any party or attorney has violated Rule 11 of the
Federal Rules of Civil Procedure, the court shall give such party
or attorney notice and an opportunity to respond.
``(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--
``(i) for failure of any responsive pleading or
dispositive 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 the reasonable attorneys' fees and
other expenses incurred as a direct result of the
violation; and
``(ii) for substantial failure of any complaint to
comply with any requirement of Rule 11(b) of the Federal
Rules of Civil Procedure is an award to the opposing party
of the reasonable attorneys' fees and other expenses
incurred in the action.
``(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 unreasonable burden on that party or
attorney and would be unjust, and the failure to make such
an award would not impose a greater burden on the party in
whose favor sanctions are to be imposed; 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.
``(d) 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.
``(e) Limitation on Damages.--
``(1) In general.--Except as provided in paragraph (2), in any
private action arising under this title in which the plaintiff
seeks to establish damages by reference to the market price of a
security, the award of damages to the plaintiff 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
mean trading price of that security during the 90-day period
beginning on the date on which the information correcting the
misstatement or omission that is the basis for the action is
disseminated to the market.
``(2) Exception.--In any private action arising under this
title in which the plaintiff seeks to establish damages by
reference to the market price of a security, 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 mean trading price 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.
``(3) Definition.--For purposes of this subsection, the `mean
trading price' of a security shall be an average of the daily
trading price of that security, determined as of the close of the
market each day during the 90-day period referred to in paragraph
(1).''.
SEC. 102. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
(a) Amendment to the 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 27 (as added by this Act) the following new section:
``SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) Applicability.--This section shall apply only to a forward-
looking statement made by--
``(1) an issuer that, at the time that the statement is made,
is subject to the reporting requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934;
``(2) a person acting on behalf of such issuer;
``(3) an outside reviewer retained by such issuer making a
statement on behalf of such issuer; or
``(4) an underwriter, with respect to information provided by
such issuer or information derived from information provided by the
issuer.
``(b) Exclusions.--Except to the extent otherwise specifically
provided by rule, regulation, or order of the Commission, this section
shall not apply to a forward-looking statement--
``(1) that is 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) of the Securities Exchange Act of 1934; 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 antifraud
provisions of the securities laws;
``(II) requires that the issuer cease and desist
from violating the antifraud provisions of the
securities laws; or
``(III) determines that the issuer violated the
antifraud provisions of the securities laws;
``(B) makes the forward-looking statement in connection
with an offering of securities by a blank check company;
``(C) issues penny stock;
``(D) makes the forward-looking statement in connection
with a rollup transaction; or
``(E) makes the forward-looking statement in connection
with a going private transaction; or
``(2) that is--
``(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;
``(C) made in connection with a tender offer;
``(D) made in connection with an initial public offering;
``(E) made in connection with an offering by, or relating
to the operations of, a partnership, limited liability company,
or a direct participation investment program; 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.
``(c) Safe Harbor.--
``(1) In general.--Except as provided in subsection (b), in any
private action arising under this title that is based on an untrue
statement of a material fact or omission of a material fact
necessary to make the statement not misleading, a person referred
to in subsection (a) shall not be liable with respect to any
forward-looking statement, whether written or oral, if and to the
extent that--
``(A) the forward-looking statement is--
``(i) identified as a forward-looking statement, and is
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those in the forward-looking statement; or
``(ii) immaterial; or
``(B) the plaintiff fails to prove that the forward-looking
statement--
``(i) if made by a natural person, was made with actual
knowledge by that person that the statement was false or
misleading; or
``(ii) if made by a business entity; was--
``(I) made by or with the approval of an executive
officer of that entity, and
``(II) made or approved by such officer with actual
knowledge by that officer that the statement was false
or misleading.
``(2) Oral forward-looking statements.--In the case of an oral
forward-looking statement made by an issuer that is subject to the
reporting requirements of section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, or by a person acting on behalf of
such issuer, the requirement set forth in paragraph (1)(A) shall be
deemed to be satisfied--
``(A) if the oral forward-looking statement is accompanied
by a cautionary statement--
``(i) that the particular oral statement is a forward-
looking statement; and
``(ii) that the actual results could differ materially
from those projected in the forward-looking statement; and
``(B) if--
``(i) the oral forward-looking statement is accompanied
by an oral statement that additional information concerning
factors that could cause actual results to differ
materially from those in the forward-looking statement is
contained in a readily available written document, or
portion thereof;
``(ii) the accompanying oral statement referred to in
clause (i) identifies the document, or portion thereof,
that contains the additional information about those
factors relating to the forward-looking statement; and
``(iii) the information contained in that written
document is a cautionary statement that satisfies the
standard established in paragraph (1)(A).
``(3) Availability.--Any document filed with the Commission or
generally disseminated shall be deemed to be readily available for
purposes of paragraph (2).
``(4) Effect on other safe harbors.--The exemption provided for
in paragraph (1) shall be in addition to any exemption that the
Commission may establish by rule or regulation under subsection
(g).
``(d) Duty To Update.--Nothing in this section shall impose upon
any person a duty to update a forward-looking statement.
``(e) Dispositive Motion.--On any motion to dismiss based upon
subsection (c)(1), the court shall consider any statement cited in the
complaint and cautionary statement accompanying the forward-looking
statement, which are not subject to material dispute, cited by the
defendant.
``(f) Stay Pending Decision on Motion.--In any private action
arising under this title, the court shall stay discovery (other than
discovery that is specifically directed to the applicability of the
exemption provided for in this section) during the pendency of any
motion by a defendant 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.
``(g) Exemption Authority.--In addition to the exemptions provided
for in this section, the Commission may, by rule or regulation, provide
exemptions from or under any provision of this title, including with
respect to liability that is based on a statement or that is based on
projections or other forward-looking information, if and to the extent
that any such exemption is consistent with the public interest and the
protection of investors, as determined by the Commission.
``(h) 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.
``(i) Definitions.--For purposes of this section, the following
definitions shall apply:
``(1) Forward-looking statement.--The term `forward-looking
statement' means--
``(A) 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;
``(B) a statement of the plans and objectives of management
for future operations, including plans or objectives relating
to the products or services of the issuer;
``(C) a statement of future economic performance, including
any such statement 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;
``(D) any statement of the assumptions underlying or
relating to any statement described in subparagraph (A), (B),
or (C);
``(E) any report issued by an outside reviewer retained by
an issuer, to the extent that the report assesses a forward-
looking statement made by the issuer; or
``(F) a statement containing a projection or estimate of
such other items as may be specified by rule or regulation of
the Commission.
``(2) Investment company.--The term `investment company' has
the same meaning as in section 3(a) of the Investment Company Act
of 1940.
``(3) Penny stock.--The term `penny stock' has the same meaning
as in section 3(a)(51) of the Securities Exchange Act of 1934, and
the rules and regulations, or orders issued pursuant to that
section.
``(4) Going private transaction.--The term `going private
transaction' has the meaning given that term under the rules or
regulations of the Commission issued pursuant to section 13(e) of
the Securities Exchange Act of 1934.
``(5) Securities laws.--The term `securities laws' has the same
meaning as in section 3 of the Securities Exchange Act of 1934.
``(6) Person acting on behalf of an issuer.--The term `person
acting on behalf of an issuer' means an officer, director, or
employee of the issuer.
``(7) Other terms.--The terms `blank check company', `rollup
transaction', `partnership', `limited liability company',
`executive officer of an entity' and `direct participation
investment program', have the meanings given those terms by rule or
regulation of the Commission.''.
(b) Amendment to the Securities Exchange Act of 1934.--The
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting after section 21D (as added by this Act) the following new
section:
``SEC. 21E. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) Applicability.--This section shall apply only to a forward-
looking statement made by--
``(1) an issuer that, at the time that the statement is made,
is subject to the reporting requirements of section 13(a) or
section 15(d);
``(2) a person acting on behalf of such issuer;
``(3) an outside reviewer retained by such issuer making a
statement on behalf of such issuer; or
``(4) an underwriter, with respect to information provided by
such issuer or information derived from information provided by
such issuer.
``(b) Exclusions.--Except to the extent otherwise specifically
provided by rule, regulation, or order of the Commission, this section
shall not apply to a forward-looking statement--
``(1) that is 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 antifraud
provisions of the securities laws;
``(II) requires that the issuer cease and desist
from violating the antifraud provisions of the
securities laws; or
``(III) determines that the issuer violated the
antifraud provisions of the securities laws;
``(B) makes the forward-looking statement in connection
with an offering of securities by a blank check company;
``(C) issues penny stock;
``(D) makes the forward-looking statement in connection
with a rollup transaction; or
``(E) makes the forward-looking statement in connection
with a going private transaction; or
``(2) that is--
``(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;
``(C) made in connection with a tender offer;
``(D) made in connection with an initial public offering;
``(E) made in connection with an offering by, or relating
to the operations of, a partnership, limited liability company,
or a direct participation investment program; or
``(F) made in a disclosure of beneficial ownership in a
report required to be filed with the Commission pursuant to
section 13(d).
``(c) Safe Harbor.--
``(1) In general.--Except as provided in subsection (b), in any
private action arising under this title that is based on an untrue
statement of a material fact or omission of a material fact
necessary to make the statement not misleading, a person referred
to in subsection (a) shall not be liable with respect to any
forward-looking statement, whether written or oral, if and to the
extent that--
``(A) the forward-looking statement is--
``(i) identified as a forward-looking statement, and is
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those in the forward-looking statement; or
``(ii) immaterial; or
``(B) the plaintiff fails to prove that the forward-looking
statement--
``(i) if made by a natural person, was made with actual
knowledge by that person that the statement was false or
misleading; or
``(ii) if made by a business entity; was--
``(I) made by or with the approval of an executive
officer of that entity; and
``(II) made or approved by such officer with actual
knowledge by that officer that the statement was false
or misleading.
``(2) Oral forward-looking statements.--In the case of an oral
forward-looking statement made by an issuer that is subject to the
reporting requirements of section 13(a) or section 15(d), or by a
person acting on behalf of such issuer, the requirement set forth
in paragraph (1)(A) shall be deemed to be satisfied--
``(A) if the oral forward-looking statement is accompanied
by a cautionary statement--
``(i) that the particular oral statement is a forward-
looking statement; and
``(ii) that the actual results might differ materially
from those projected in the forward-looking statement; and
``(B) if--
``(i) the oral forward-looking statement is accompanied
by an oral statement that additional information concerning
factors that could cause actual results to materially
differ from those in the forward-looking statement is
contained in a readily available written document, or
portion thereof;
``(ii) the accompanying oral statement referred to in
clause (i) identifies the document, or portion thereof,
that contains the additional information about those
factors relating to the forward-looking statement; and
``(iii) the information contained in that written
document is a cautionary statement that satisfies the
standard established in paragraph (1)(A).
``(3) Availability.--Any document filed with the Commission or
generally disseminated shall be deemed to be readily available for
purposes of paragraph (2).
``(4) Effect on other safe harbors.--The exemption provided for
in paragraph (1) shall be in addition to any exemption that the
Commission may establish by rule or regulation under subsection
(g).
``(d) Duty To Update.--Nothing in this section shall impose upon
any person a duty to update a forward-looking statement.
``(e) Dispositive Motion.--On any motion to dismiss based upon
subsection (c)(1), the court shall consider any statement cited in the
complaint and any cautionary statement accompanying the forward-looking
statement, which are not subject to material dispute, cited by the
defendant.
``(f) Stay Pending Decision on Motion.--In any private action
arising under this title, the court shall stay discovery (other than
discovery that is specifically directed to the applicability of the
exemption provided for in this section) during the pendency of any
motion by a defendant 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.
``(g) Exemption Authority.--In addition to the exemptions provided
for in this section, the Commission may, by rule or regulation, provide
exemptions from or under any provision of this title, including with
respect to liability that is based on a statement or that is based on
projections or other forward-looking information, if and to the extent
that any such exemption is consistent with the public interest and the
protection of investors, as determined by the Commission.
``(h) 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.
``(i) Definitions.--For purposes of this section, the following
definitions shall apply:
``(1) Forward-looking statement.--The term `forward-looking
statement' means--
``(A) 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;
``(B) a statement of the plans and objectives of management
for future operations, including plans or objectives relating
to the products or services of the issuer;
``(C) a statement of future economic performance, including
any such statement 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;
``(D) any statement of the assumptions underlying or
relating to any statement described in subparagraph (A), (B),
or (C);
``(E) any report issued by an outside reviewer retained by
an issuer, to the extent that the report assesses a forward-
looking statement made by the issuer; or
``(F) a statement containing a projection or estimate of
such other items as may be specified by rule or regulation of
the Commission.
``(2) Investment company.--The term `investment company' has
the same meaning as in section 3(a) of the Investment Company Act
of 1940.
``(3) Going private transaction.--The term `going private
transaction' has the meaning given that term under the rules or
regulations of the Commission issued pursuant to section 13(e).
``(4) Person acting on behalf of an issuer.--The term `person
acting on behalf of an issuer' means any officer, director, or
employee of such issuer.
``(5) Other terms.--The terms `blank check company', `rollup
transaction', `partnership', `limited liability company',
`executive officer of an entity' and `direct participation
investment program', have the meanings given those terms by rule or
regulation of the Commission.''.
SEC. 103. 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) 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:
``(f) 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. 104. 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:
``(f) 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 violation of a provision of this title,
or of any rule or regulation issued under this title, shall be deemed
to be in violation of such provision to the same extent as the person
to whom such assistance is provided.''.
SEC. 105. 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. 106. STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS AND
QUALIFIED RETIREMENT PLANS.
(a) 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;
(2) determine whether investors that are senior citizens or
qualified retirement plans have been adversely impacted by abusive
or unnecessary securities fraud litigation, and whether the
provisions in this Act or amendments made by this Act are
sufficient to protect their investments from such litigation; and
(3) if so, submit to the Congress a report containing
recommendations on protections from securities fraud and abusive or
unnecessary securities fraud litigation that the Commission
determines to be appropriate to thoroughly protect such investors.
(b) 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. 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 any
conduct that would have been actionable as fraud in the purchase or
sale of securities to establish a violation of section 1962. The
exception contained in the preceding sentence does not apply to an
action against any person that is criminally convicted in connection
with the fraud, in which case the statute of limitations shall start to
run on the date on which the conviction becomes final''.
SEC. 108. 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 and
pending on the date of enactment of this Act.
TITLE II--REDUCTION OF COERCIVE SETTLEMENTS
SEC. 201. PROPORTIONATE LIABILITY.
(a) Amendment to Securities and Exchange Act of 1934.--Section 21D
of the Securities Exchange Act of 1934 (as added by this Act) is
amended by adding at the end the following new subsection:
``(g) Proportionate Liability.--
``(1) Applicability.--Nothing in this subsection shall be
construed to create, affect, or in any manner modify, the standard
for liability associated with any action arising under the
securities laws.
``(2) Liability for damages.--
``(A) Joint and several liability.--Any covered person
against whom a final judgment is entered in a private action
shall be liable for damages jointly and severally only if the
trier of fact specifically determines that such covered person
knowingly committed a violation of the securities laws.
``(B) Proportionate liability.--
``(i) In general.--Except as provided in paragraph (1),
a covered person against whom a final judgment is entered
in a private action shall be liable solely for the portion
of the judgment that corresponds to the percentage of
responsibility of that covered person, as determined under
paragraph (3).
``(ii) Recovery by and costs of covered person.--In any
case in which a contractual relationship permits, a covered
person that prevails in any private action may recover the
attorney's fees and costs of that covered person in
connection with the action.
``(3) Determination of responsibility.--
``(A) In general.--In any private action, the court shall
instruct the jury to answer special interrogatories, or if
there is no jury, shall make findings, with respect to each
covered person and each of the other persons claimed by any of
the parties to have caused or contributed to the loss incurred
by the plaintiff, including persons who have entered into
settlements with the plaintiff or plaintiffs, concerning--
``(i) whether such person violated the securities laws;
``(ii) the percentage of responsibility of such person,
measured as a percentage of the total fault of all persons
who caused or contributed to the loss incurred by the
plaintiff; and
``(iii) whether such person knowingly committed a
violation of the securities laws.
``(B) Contents of special interrogatories or findings.--The
responses to interrogatories, or findings, as appropriate,
under subparagraph (A) shall specify the total amount of
damages that the plaintiff is entitled to recover and the
percentage of responsibility of each covered person found to
have caused or contributed to the loss incurred by the
plaintiff or plaintiffs.
``(C) Factors for consideration.--In determining the
percentage of responsibility under this paragraph, the trier of
fact shall consider--
``(i) the nature of the conduct of each covered person
found to have caused or contributed to the loss incurred by
the plaintiff or plaintiffs; and
``(ii) the nature and extent of the causal relationship
between the conduct of each such person and the damages
incurred by the plaintiff or plaintiffs.
``(4) Uncollectible share.--
``(A) In general.--Notwithstanding paragraph (2)(B), upon
motion made not later than 6 months after a final judgment is
entered in any private action, the court determines that all or
part of the share of the judgment of the covered person is not
collectible against that covered person, and is also not
collectible against a covered person described in paragraph
(2)(A), each covered person described in paragraph (2)(B) shall
be liable for the uncollectible share as follows:
``(i) Percentage of net worth.--Each covered person
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 worth of the
plaintiff; and
``(II) the net worth of the plaintiff is equal to
less than $200,000.
``(ii) Other plaintiffs.--With respect to any plaintiff
not described in subclauses (I) and (II) of clause (i),
each covered person shall be liable for the uncollectible
share in proportion to the percentage of responsibility of
that covered person, except that the total liability of a
covered person under this clause may not exceed 50 percent
of the proportionate share of that covered person, as
determined under paragraph (3)(B).
``(iii) Net worth.--For purposes of this subparagraph,
net worth shall be determined as of the date immediately
preceding the date of the purchase or sale (as applicable)
by the plaintiff of the security that is the subject of the
action, and shall be equal to the fair market value of
assets, minus liabilities, including the net value of the
investments of the plaintiff in real and personal property
(including personal residences).
``(B) Overall limit.--In no case shall the total payments
required pursuant to subparagraph (A) exceed the amount of the
uncollectible share.
``(C) Covered persons subject to contribution.--A covered
person against whom judgment is not collectible shall be
subject to contribution and to any continuing liability to the
plaintiff on the judgment.
``(5) Right of contribution.--To the extent that a covered
person is required to make an additional payment pursuant to
paragraph (4), that covered person may recover contribution--
``(A) from the covered person originally liable to make the
payment;
``(B) from any covered person liable jointly and severally
pursuant to paragraph (2)(A);
``(C) from any covered person held proportionately liable
pursuant to this paragraph who is liable to make the same
payment and has paid less than his or her proportionate share
of that payment; or
``(D) from any other person responsible for the conduct
giving rise to the payment that would have been liable to make
the same payment.
``(6) Nondisclosure to jury.--The standard for allocation of
damages under paragraphs (2) and (3) and the procedure for
reallocation of uncollectible shares under paragraph (4) shall not
be disclosed to members of the jury.
``(7) Settlement discharge.--
``(A) In general.--A covered person who settles any private
action 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 covered person
arising out of the action. The order shall bar all future
claims for contribution arising out of the action--
``(i) by any person against the settling covered
person; and
``(ii) by the settling covered person against any
person, other than a person whose liability has been
extinguished by the settlement of the settling covered
person.
``(B) Reduction.--If a covered 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--
``(i) an amount that corresponds to the percentage of
responsibility of that covered person; or
``(ii) the amount paid to the plaintiff by that covered
person.
``(8) Contribution.--A covered person who becomes jointly and
severally liable for damages in any private action 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.
``(9) Statute of limitations for contribution.--In any private
action 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 covered person who was required to make
an additional payment pursuant to paragraph (4) may be brought not
later than 6 months after the date on which such payment was made.
``(10) Definitions.--For purposes of this subsection--
``(A) a covered person `knowingly commits a violation of
the securities laws'--
``(i) with respect to an action that is based on an
untrue statement of material fact or omission of a material
fact necessary to make the statement not misleading, if--
``(I) that covered person makes an untrue statement
of a material fact, with actual knowledge that the
representation is false, or omits to state a fact
necessary in order to make the statement made not
misleading, with actual knowledge that, as a result of
the omission, one of the material representations of
the covered person is false; and
``(II) persons are likely to reasonably rely on
that misrepresentation or omission; and
``(ii) with respect to an action that is based on any
conduct that is not described in clause (i), if that
covered person engages in that conduct with actual
knowledge of the facts and circumstances that make the
conduct of that covered person a violation of the
securities laws;
``(B) reckless conduct by a covered person shall not be
construed to constitute a knowing commission of a violation of
the securities laws by that covered person;
``(C) the term `covered person' means--
``(i) a defendant in any private action arising under
this title; or
``(ii) a defendant in any private action arising under
section 11 of the Securities Act of 1933, who is an outside
director of the issuer of the securities that are the
subject of the action; and
``(D) the term `outside director' shall have the meaning
given such term by rule or regulation of the Commission.''.
(b) Amendments to the Securities Act of 1933.--Section 11(f) of the
Securities Act of 1933 (12 U.S.C. 77k(f)) is amended--
(1) by striking ``All'' and inserting ``(1) Except as provided
in paragraph (2), all''; and
(2) by adding at the end the following new paragraph:
``(2)(A) The liability of an outside director under subsection (e)
shall be determined in accordance with section 38 of the Securities
Exchange Act of 1934.
``(B) For purposes of this paragraph, the term `outside director'
shall have the meaning given such term by rule or regulation of the
Commission .''.
SEC. 202. APPLICABILITY.
The amendments made by this title shall not affect or apply to any
private action arising under the securities laws commenced before and
pending on the date of enactment of this Act.
SEC. 203. RULE OF CONSTRUCTION.
Nothing in this Act or the amendments made by this Act shall be
deemed to create or ratify any implied private right of action, or to
prevent the Commission, by rule or regulation, from restricting or
otherwise regulating private actions under the Securities Exchange Act
of 1934.
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.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.