[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1058 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 1058

    To reform Federal securities litigation, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 27, 1995

 Mr. Bliley (for himself, Mr. Fields of Texas, Mr. Cox of California, 
 and Mr. Tauzin) introduced the following bill; which was referred to 
  the Committee on Commerce and, in addition, to the Committee on the 
 Judiciary, for a period to be subsequently determined by the Speaker, 
 in each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
    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 ``Securities 
Litigation Reform Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1.  Short title; table of contents.
Sec. 2. Prevention of lawyer-driven litigation.
    (a) Plaintiff steering committees to ensure client control of 
                            lawsuits.
            ``Sec. 36. Class action steering committees.
                ``(a) Class action steering committee.
                ``(b) Membership of plaintiff steering committee.
                ``(c) Functions of plaintiff steering committee.
                ``(d) Immunity from civil liability; removal.
                ``(e) Effect on other law.''
    (b) Prohibition on attorneys' fees paid from Commission 
                            disgorgement funds.
Sec. 3. Prevention of abusive practices that foment litigation.
    (a) Additional provisions applicable to private actions.
            ``Sec. 20B. Procedures applicable to private actions.
                ``(a) Elimination of bonus payments to named plaintiffs 
                            in class actions.
                ``(b) Restrictions on professional plaintiffs.
                ``(c) Awards of fees and expenses.
                ``(d) Prevention of abusive conflicts of interest.
                ``(e) Disclosure of settlement terms to class members.
                ``(f) Encouragement of finality in settlement 
                            discharges.
                ``(g) Contribution from non-parties in interests of 
                            fairness.
                ``(h) Defendant's right to written interrogatories 
                            establishing scienter.''
    (b) Prohibition of referral fees that foment litigation.
Sec. 4. Prevention of ``fishing expedition'' lawsuits.
            ``Sec. 10A. Requirements for securities fraud actions.
                ``(a) Scienter.
                ``(b) Requirement for explicit pleading of scienter.
                ``(c) Dismissal for failure to meet pleading 
                            requirements; stay of discovery; summary 
                            judgment.
                ``(d) Reliance and causation.
                ``(e) Allocation of liability.
                ``(f) Damages.''
Sec. 5. Establishment of ``safe harbor'' for predictive Statements.
            ``Sec. 37. Application of safe harbor for forward-looking 
                            Statements.
                ``(a) Safe harbor defined.
                ``(b) Automatic protective order staying discovery; 
                            expedited procedure.
                ``(c) Regulatory authority.''
Sec. 6. Rule of construction.
Sec. 7. Effective date.

SEC. 2. PREVENTION OF LAWYER-DRIVEN LITIGATION.

    (a) Plaintiff Steering Committees To Ensure Client Control of 
Lawsuits.--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. CLASS ACTION STEERING COMMITTEES.

    ``(a) Class Action Steering Committee.--In any private action 
arising under this title seeking to recover damages on behalf of a 
class, the court shall, at the earliest practicable time, appoint a 
committee of class members to direct counsel for the class (hereafter 
in this section referred to as the `plaintiff steering committee') and 
to perform such other functions as the court may specify. Court 
appointment of a plaintiff steering committee shall not be subject to 
interlocutory review.
    ``(b) Membership of Plaintiff Steering Committee.--
            ``(1) Qualifications.--
                    ``(A) Number.--A plaintiff steering committee shall 
                consist of not fewer than 5 class members, willing to 
                serve, who the court believes will fairly represent the 
                class.
                    ``(B) Ownership interests.--Members of the 
                plaintiff steering committee shall have cumulatively 
                held during the class period not less than--
                            ``(i) the lesser of 5 percent of the 
                        securities which are the subject matter of the 
                        litigation or $10,000,000 in market value of 
                        the securities which are the subject matter of 
                        the litigation; or
                            ``(ii) such smaller percentage or dollar 
                        amount as the court finds appropriate under the 
                        circumstances.
            ``(2) Named plaintiffs.--Class plaintiffs serving as the 
        representative parties in the litigation may serve on the 
        plaintiff steering committee, but shall not comprise a majority 
        of the committee.
            ``(3) Noncompensation of members.--Members of the plaintiff 
        steering committee shall serve without compensation, except 
        that any member may apply to the court for reimbursement of 
        reasonable out-of-pocket expenses from any common fund 
        established for the class.
            ``(4) Meetings.--The plaintiff steering committee shall 
        conduct its business at one or more previously scheduled 
        meetings of the committee, of which prior notice shall have 
        been given and at which a majority of its members are present 
        in person or by electronic communication. The plaintiff 
        steering committee shall decide all matters within its 
        authority by a majority vote of all members, except that the 
        committee may determine that decisions other than to accept or 
        reject a settlement offer or to employ or dismiss counsel for 
        the class may be delegated to one or more members of the 
        committee, or may be voted upon by committee members seriatim, 
        without a meeting.
            ``(5) Right of nonmembers to be heard.--A class member who 
        is not a member of the plaintiff steering committee may appear 
        and be heard by the court on any issue relating to the 
        organization or actions of the plaintiff steering committee.
    ``(c) Functions of Plaintiff Steering Committee.--The authority of 
the plaintiff steering committee to direct counsel for the class shall 
include all powers normally permitted to an attorney's client in 
litigation, including the authority to retain or dismiss counsel and to 
reject offers of settlement, and the authority to accept an offer of 
settlement subject to final approval by the court. Dismissal of counsel 
other than for cause shall not limit the ability of counsel to enforce 
any contractual fee agreement or to apply to the court for a fee award 
from any common fund established for the class.
    ``(d) Immunity From Civil Liability; Removal.--Any person serving 
as a member of a plaintiff steering committee shall be immune from any 
civil liability for any negligence in performing such service, but 
shall not be immune from liability for intentional misconduct or from 
the assessment of costs pursuant to section 20B(c). The court may 
remove a member of a plaintiff steering committee for good cause shown.
    ``(e) Effect on Other Law.--This section does not affect any other 
provision of law concerning class actions or the authority of the court 
to give final approval to any offer of settlement.''.
    (b) Prohibition on Attorneys' Fees Paid From Commission 
Disgorgement Funds.--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 on Attorneys' Fees Paid From Commission 
Disgorgement Funds.--Except as otherwise ordered by the court, funds 
disgorged as the result of an action brought by the Commission, or of 
any Commission proceeding, shall not be distributed as payment for 
attorneys' fees or expenses incurred by private parties seeking 
distribution of the disgorged funds.''.

SEC. 3. PREVENTION OF ABUSIVE PRACTICES THAT FOMENT LITIGATION.

    (a) Additional Provisions Applicable to Private Actions.--The 
Securities Exchange Act of 1934 is amended by inserting after section 
20A (15 U.S.C. 78t-1) the following new section:

               ``procedures applicable to private actions

    ``Sec. 20B. (a) Elimination of Bonus Payments to Named Plaintiffs 
in Class Actions.--In any private action under this title that is 
certified as a class action pursuant to the Federal Rules of Civil 
Procedure, the portion of any final judgment or of any settlement that 
is awarded to class plaintiffs serving as the representative parties 
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 subsection shall be construed to limit the award to any 
representative parties of actual expenses (including lost wages) 
relating to the representation of the class.
    ``(b) Restrictions on Professional Plaintiffs.--Except as the court 
may otherwise permit for good cause, a person may be a named plaintiff, 
or an officer, director, or fiduciary of a named plaintiff, in no more 
than 5 class actions filed during any 3-year period.
    ``(c) Awards of Fees and Expenses.--
            ``(1) Authority to award fees and expenses.--If the court 
        in any private action arising under this title enters a final 
        judgment against a party litigant on the basis of a motion to 
        dismiss, motion for summary judgment, or a trial on the merits, 
        the court shall, upon motion by the prevailing party, determine 
        whether (A) the position of the losing party was not 
        substantially justified, (B) imposing fees and expenses on the 
        losing party or the losing party's attorney would be just, and 
        (C) the cost of such fees and expenses to the prevailing party 
        is substantially burdensome or unjust. If the court makes the 
        determinations described in clauses (A), (B), and (C), the 
        court shall award the prevailing party reasonable fees and 
        other expenses incurred by that party. The determination of 
        whether the position of the losing party was substantially 
        justified shall be made on the basis of the record in the 
        action for which fees and other expenses are sought, but the 
        burden of persuasion shall be on the prevailing party.
            ``(2) 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 shall require an undertaking from the 
        attorneys for the plaintiff class, the plaintiff class, or 
        both, in such proportions and at such times as the court 
        determines are just and equitable, for the payment of the fees 
        and expenses that may be awarded under paragraph (1).
            ``(3) Application for fees.--A party seeking an award of 
        fees and other expenses shall, within 30 days of a final, 
        nonappealable judgment in the action, submit to the court an 
        application for fees and other expenses that verifies that the 
        party is entitled to such an award under paragraph (1) and the 
        amount sought, including an itemized statement from any 
        attorney or expert witness representing or appearing on behalf 
        of the party stating the actual time expended and the rate at 
        which fees and other expenses are computed.
            ``(4) Allocation and size of award.--The court, in its 
        discretion, may--
                    ``(A) determine whether the amount to be awarded 
                pursuant to this section shall be awarded against the 
                losing party, its attorney, or both; and
                    ``(B) reduce the amount to be awarded pursuant to 
                this section, or deny an award, to the extent that the 
                prevailing party during the course of the proceedings 
                engaged in conduct that unduly and unreasonably 
                protracted the final resolution of the action.
            ``(5) Awards in discovery proceedings.--In adjudicating any 
        motion for an order compelling discovery or any motion for a 
        protective order made in any private action arising under this 
        title, the court shall award the prevailing party reasonable 
        fees and other expenses incurred by the party in bringing or 
        defending against the motion, including reasonable attorneys' 
        fees, unless the court finds that special circumstances make an 
        award unjust.
            ``(6) Rule of construction.--Nothing in this subsection 
        shall be construed to limit or impair the discretion of the 
        court to award costs pursuant to other provisions of law.
            ``(7) Protection against abuse of process.--In any action 
        to which this subsection applies, a court shall not permit a 
        plaintiff to withdraw from or voluntarily dismiss such action 
        if the court determines that such withdrawal or dismissal is 
        taken for purposes of evasion of the requirements of this 
        subsection.
            ``(8) Definitions.--For purposes of this subsection--
                    ``(A) The term `fees and other expenses' includes 
                the reasonable expenses of expert witnesses, the 
                reasonable cost of any study, analysis, report, test, 
                or project which is found by the court to be necessary 
                for the preparation of the party's case, and reasonable 
                attorneys' fees and expenses. The amount of fees 
                awarded under this section shall be based upon 
                prevailing market rates for the kind and quality of 
                services furnished.
                    ``(B) The term `substantially justified' shall have 
                the same meaning as in section 2412(d)(1) of title 28, 
                United States Code.
    ``(d) Prevention of Abusive Conflicts of Interest.--In any private 
action under this title pursuant to a complaint seeking damages on 
behalf of a class, if the 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, on motion by 
any party, make a determination of whether such interest constitutes a 
conflict of interest sufficient to disqualify the attorney from 
representing the class.
    ``(e) Disclosure of Settlement Terms to Class Members.--In any 
private action under this title that is certified as a class action 
pursuant to the Federal Rules of Civil Procedure, any settlement 
agreement that is published or otherwise disseminated to the class 
shall include the following statements:
            ``(1) Statement of potential outcome of case.--
                    ``(A) Agreement on amount of damages and likelihood 
                of prevailing.--If the settling parties agree on the 
                amount of damages per share that would be recoverable 
                if the plaintiff prevailed on each claim alleged under 
                this title and the likelihood that the plaintiff would 
                prevail--
                            ``(i) a statement concerning the amount of 
                        such potential damages; and
                            ``(ii) a statement concerning the 
                        likelihood that the plaintiff would prevail on 
                        the claims alleged under this title and a brief 
                        explanation of the reasons for that conclusion.
                    ``(B) Disagreement on amount of damages or 
                likelihood of prevailing.--If the parties do not agree 
                on the amount of damages per share that would be 
                recoverable if the plaintiff prevailed on each claim 
                alleged under this title or on the likelihood that the 
                plaintiff would prevail on those claims, or both, a 
                statement from each settling party concerning the issue 
                or issues on which the parties disagree.
                    ``(C) Inadmissibility for certain purposes.--
                Statements made in accordance with subparagraphs (A) 
                and (B) concerning the amount of damages and the 
                likelihood of prevailing shall not be admissible for 
                purposes of any Federal or State judicial action or 
                administrative proceeding.
            ``(2) 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 a per-share basis, 
        together with the amount of the settlement proposed to be 
        distributed to the parties to suit, determined on a per-share 
        basis), and a brief explanation of the basis for the 
        application. Such information shall be clearly summarized on 
        the cover page of any notice to a party of any settlement 
        agreement.
            ``(3) Identification of lawyers' representatives.--The name 
        and address of one or more representatives of counsel for the 
        class who will be reasonably available to answer written 
        questions from class members concerning any matter contained in 
        any notice of settlement published or otherwise disseminated to 
        the class.
            ``(4) Other information.--Such other information as may be 
        required by the court, or by any plaintiff steering committee 
        appointed by the court pursuant to section 36.
    ``(f) Encouragement of Finality in Settlement Discharges.--
            ``(1) Discharge.--A defendant who settles any private 
        action arising under this title at any time before verdict or 
        judgment shall be discharged from all claims for contribution 
        brought by other persons with respect to the matters that are 
        the subject of such action. 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 or indemnity arising out of the 
        action--
                    ``(A) by nonsettling persons against the settling 
                defendant; and
                    ``(B) by the settling defendant against any 
                nonsettling defendants.
            ``(2) Reduction.--If a person enters into a settlement with 
        the plaintiff prior to 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.
    ``(g) Contribution From Non-Parties in Interests of Fairness.--
            ``(1) Right of contribution.--A person who becomes liable 
        for damages in any private action under this title (other than 
        an action under section 9(e) or 18(a)) may recover contribution 
        from any other person who, if joined in the original suit, 
        would have been liable for the same damages.
            ``(2) Statute of limitations for contribution.--Once 
        judgment has been entered in any such private action 
        determining liability, an action for contribution must be 
        brought not later than 6 months after the entry of a final, 
        nonappealable judgment in the action.
    ``(h) Defendant's Right to Written Interrogatories Establishing 
Scienter.--In any private action 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.''.
    (b) Prohibition of Referral Fees That Foment Litigation.--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) Receipt of Referral Fees.--No broker or dealer, or person 
associated with a broker or dealer, may solicit or accept remuneration 
for assisting an attorney in obtaining the representation of any 
customer in any private action under this title.''.

SEC. 4. PREVENTION OF ``FISHING EXPEDITION'' LAWSUITS.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 10 the following new section:

``SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    ``(a) Scienter.--
            ``(1) In general.--In any private action arising under this 
        title based on a fraudulent statement, liability may be 
        established only on proof that--
                    ``(A) the defendant directly or indirectly made a 
                fraudulent statement;
                    ``(B) the defendant possessed the intention to 
                deceive, manipulate, or defraud; and
                    ``(C) the defendant made such fraudulent statement 
                knowingly or recklessly.
            ``(2) Fraudulent statement.--For purposes of this section, 
        a fraudulent statement is a statement that contains an untrue 
        statement of a material fact, or omits a material fact 
        necessary in order to make the statements made, in the light of 
        the circumstances in which they were made, not misleading.
            ``(3) Knowingly.--For purposes of paragraph (1), a 
        defendant makes a fraudulent statement knowingly if the 
        defendant knew that the statement of a material fact was untrue 
        at the time it was made, or knew that an omitted fact was 
        necessary in order to make the statements made, in the light of 
        the circumstances in which they were made, not misleading.
            ``(4) Recklessness.--For purposes of paragraph (1), a 
        defendant makes a fraudulent statement recklessly if the 
        defendant, in making such statement, is guilty of highly 
        unreasonable conduct that (A) involves not merely simple or 
        even gross negligence, but an extreme departure from standards 
        of ordinary care, and (B) presents a danger of misleading 
        buyers or sellers that was either known to the defendant or so 
        obvious that the defendant must have been consciously aware of 
        it. For example, a defendant who genuinely forgot to disclose, 
        or to whom disclosure did not come to mind, is not reckless.
    ``(b) Requirement for Explicit Pleading of Scienter.--In any 
private action to which subsection (a) applies, the complaint shall 
specify each statement or omission alleged to have been misleading, and 
the reasons the statement or omission was misleading. The complaint 
shall also make specific allegations which, if true, would be 
sufficient to establish scienter as to each defendant at the time the 
alleged violation occurred. It shall not be sufficient for this purpose 
to plead the mere presence of facts inconsistent with a statement or 
omission alleged to have been misleading. If an allegation is made on 
information and belief, the complaint shall set forth with specificity 
all information on which that belief is formed.
    ``(c) Dismissal for Failure To Meet Pleading Requirements; Stay of 
Discovery; Summary Judgment.--In any private action to which subsection 
(a) applies, the court shall, on the motion of any defendant, dismiss 
the complaint if the requirements of subsection (b) are not met, except 
that the court may, in its discretion, permit a single amended 
complaint to be filed. During the pendency of any such 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. If a complaint satisfies the requirements of subsection (b), the 
plaintiff shall be entitled to conduct discovery limited to the facts 
concerning the allegedly misleading statement or omission. Upon 
completion of such discovery, the parties may move for summary 
judgment.
    ``(d) Reliance and Causation.--
            ``(1) In general.--In any private action to which 
        subsection (a) applies, the plaintiff shall prove that--
                    ``(A) he or she had knowledge of, and relied (in 
                connection with the purchase or sale of a security) on, 
                the statement that contained the misstatement or 
                omission described in subsection (a)(1); and
                    ``(B) that the statement containing such 
                misstatement or omission proximately caused (through 
                both transaction causation and loss causation) any loss 
                incurred by the plaintiff.
            ``(2) Fraud on the market.--For purposes of paragraph (1), 
        reliance may be proven by establishing that the market as a 
        whole considered the fraudulent statement, that the price at 
        which the security was purchased or sold reflected the market's 
        estimation of the fraudulent statement, and that the plaintiff 
        relied on that market price. Proof that the market as a whole 
        considered the fraudulent statement may consist of evidence 
        that the statement--
                    ``(A) was published in publicly available research 
                reports by analysts of such security;
                    ``(B) was the subject of news articles;
                    ``(C) was delivered orally at public meetings by 
                officers of the issuer, or its agents;
                    ``(D) was specifically considered by rating 
                agencies in their published reports; or
                    ``(E) was otherwise made publicly available to the 
                market in a manner that was likely to bring it to the 
                attention of, and to be considered as credible by, 
                other active participants in the market for such 
                security.
        Nonpublic information may not be used as proof that the market 
        as a whole considered the fraudulent statement.
            ``(3) Presumption of reliance.--Upon proof that the market 
        as a whole considered the fraudulent statement pursuant to 
        paragraph (2), the plaintiff is entitled to a rebuttable 
        presumption that the price at which the security was purchased 
        or sold reflected the market's estimation of the fraudulent 
        statement and that the plaintiff relied on such market price. 
        This presumption may be rebutted by evidence that--
                    ``(A) the market as a whole considered other 
                information that corrected the allegedly fraudulent 
                statement; or
                    ``(B) the plaintiff possessed such corrective 
                information prior to the purchase or sale of the 
                security.
            ``(4) Reasonable expectation of integrity of market 
        price.--A plaintiff who buys or sells a security for which it 
        is unreasonable to rely on market price to reflect all current 
        information may not establish reliance pursuant to paragraph 
        (2). For purposes of paragraph (2), the following factors shall 
        be considered in determining whether it was reasonable for a 
        party to expect the market price of the security to reflect 
        substantially all publicly available information regarding the 
        issuer of the security:
                    ``(A) The weekly trading volume of any class of 
                securities of the issuer of the security.
                    ``(B) The existence of public reports by securities 
                analysts concerning any class of securities of the 
                issuer of the security.
                    ``(C) The eligibility of the issuer of the 
                security, under the rules and regulations of the 
                Commission, to incorporate by reference its reports 
                made pursuant to section 13 of this title in a 
                registration statement filed under the Securities Act 
                of 1933 in connection with the sale of equity 
                securities.
                    ``(D) A history of immediate movement of the price 
                of any class of securities of the issuer of the 
                security caused by the public dissemination of 
                information regarding unexpected corporate events or 
                financial releases.
        In no event shall it be considered reasonable for a party to 
        expect the market price of the security to reflect 
        substantially all publicly available information regarding the 
        issuer of the security unless the issuer of the security has a 
        class of securities listed and registered on a national 
        securities exchange or quoted on the automated quotation system 
        of a national securities association.
    ``(e) Allocation of Liability.--
            ``(1) Joint and several liability for knowing fraud.--A 
        defendant who is found liable for damages in a private action 
        to which subsection (a) applies may be liable jointly and 
        severally only if the trier of fact specifically determines 
        that the defendant acted knowingly (as defined in subsection 
        (a)(3)).
            ``(2) Proportionate liability for recklessness.--If the 
        trier of fact does not make the findings required by paragraph 
        (1) for joint and several liability, a defendant's liability in 
        a private action to which subsection (a) applies shall be 
        determined under paragraph (3) of this subsection only if the 
        trier of fact specifically determines that the defendant acted 
        recklessly (as defined in subsection (a)(4)).
            ``(3) Determination of proportionate liability.--If the 
        trier of fact makes the findings required by paragraph (2), the 
        defendant's liability shall be determined as follows:
                    ``(A) The trier of fact shall determine the 
                percentage of responsibility of the plaintiff, of each 
                of the defendants, and of each of the other persons or 
                entities alleged by the parties to have caused or 
                contributed to the harm alleged by the plaintiff. In 
                determining the percentages of responsibility, the 
                trier of fact shall consider both the nature of the 
                conduct of each person and the nature and extent of the 
                causal relationship between that conduct and the damage 
                claimed by the plaintiff.
                    ``(B) For each defendant, the trier of fact shall 
                then multiply the defendant's percentage of 
                responsibility by the total amount of damage suffered 
                by the plaintiff that was caused in whole or in part by 
                that defendant and the court shall enter a verdict or 
                judgment against the defendant in that amount. No 
                defendant whose liability is determined under this 
                subsection shall be jointly liable on any judgment 
                entered against any other party to the action.
                    ``(C) Except where contractual relationship 
                permits, no defendant whose liability is determined 
                under this paragraph shall have a right to recover any 
                portion of the judgment entered against such defendant 
                from another defendant.
            ``(4) Effect of Provision.--This subsection relates only to 
        the allocation of damages among defendants. Nothing in this 
        subsection shall affect the standards for liability under any 
        private action arising under this title.
    ``(f) Damages.--In any private action to which subsection (a) 
applies, and in which the plaintiff claims to have bought or sold the 
security based on a reasonable belief that the market value of the 
security reflected all publicly available information, the plaintiff's 
damages shall not exceed the lesser of--
            ``(1) the difference between the price paid by the 
        plaintiff for the security and the market value of the security 
        immediately after dissemination to the market of information 
        which corrects the fraudulent statement; and
            ``(2) the difference between the price paid by the 
        plaintiff for the security and the price at which the plaintiff 
        sold the security after dissemination of information correcting 
        the fraudulent statement.''.

SEC. 5. ESTABLISHMENT OF ``SAFE HARBOR'' FOR PREDICTIVE STATEMENTS.

    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 Defined.--In any action arising under this title 
based on a fraudulent statement (within the meaning of section 10A), a 
person shall not be liable for the publication of any projection if--
            ``(1) the basis for such projection is briefly described 
        therein, with citations (which may be general) to 
        representative sources or authority, and a disclaimer is made 
        to alert persons for whom such information is intended that the 
        projections should not be given any more weight than the 
        described basis therefor would reasonably justify; and
            ``(2) the basis for such projection is not inaccurate as of 
        the date of publication, determined without benefit of 
        subsequently available information or information not known to 
        such person at such date.
    ``(b) Automatic Protective Order Staying Discovery; Expedited 
Procedure.--In any action arising under this title based on a 
fraudulent statement (within the meaning of section 10A) by any person, 
such person may, at any time beginning after the filing of the 
complaint and ending 10 days after the filing of such person's answer 
to the complaint, move to obtain an automatic protective order under 
the safe harbor procedures of this section. Upon such motion, the 
protective order shall issue forthwith to stay all discovery as to the 
moving party, except that which is directed to the specific issue of 
the applicability of the safe harbor. A hearing on the applicability of 
the safe harbor shall be conducted within 45 days of the issuance of 
such protective order. At the conclusion of the hearing, the court 
shall either (1) dismiss the portion of the action based upon the use 
of a projection to which the safe harbor applies, or (2) determine that 
the safe harbor is unavailable in the circumstances.
    ``(c) Regulatory Authority.--In consultation with investors and 
issuers of securities, the Commission shall adopt rules and regulations 
to facilitate the safe harbor provisions of this section. Such rules 
and regulations shall--
            ``(1) include clear and objective guidance that the 
        Commission finds sufficient for the protection of investors,
            ``(2) prescribe such guidance with sufficient particularity 
        that compliance shall be readily ascertainable by issuers prior 
        to issuance of securities, and
            ``(3) provide that projections that are in compliance with 
        such guidance and that concern the future economic performance 
        of an issuer of securities registered under section 12 of this 
        title will be deemed not to be in violation of section 10(b) of 
        this title.''.

SEC. 6. RULE OF CONSTRUCTION.

    Nothing in 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 from restricting or otherwise regulating private 
actions under the Securities Exchange Act of 1934.

SEC. 7. EFFECTIVE DATE.

    This Act and the amendments made by this Act are effective on the 
date of enactment of this Act and shall apply to cases commenced after 
such date of enactment.
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