[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 555 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 555

  To amend the Securities Exchange Act of 1934 in order to reform the 
   conduct of private securities litigation, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 18, 1995

   Mr. Markey (for himself, Mr. Conyers, Mr. Nadler, Mr. Kennedy of 
Massachusetts, and Mrs. Schroeder) 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

                             March 29, 1995

 Additional sponsors: Mr. Engel, Mr. Filner, Mr. Martinez, Mr. Foley, 
                     Mr. Foglietta, and Mr. Berman
Deleted sponsor: Mr. Deutsch (added February 3, 1995; deleted February 
                               13, 1995)

_______________________________________________________________________

                                 A BILL


 
  To amend the Securities Exchange Act of 1934 in order to reform the 
   conduct of private 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.

    This Act may be cited as the ``Private Securities Litigation Reform 
Act of 1995''.

                 TITLE I--PRIVATE SECURITIES LITIGATION

SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES AND PROCEDURAL 
              REFORMS.

    (a) Receipt for 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) 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 implied private action 
        arising under this title.''.
    (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 solely as the result of an action brought by 
        the Commission in Federal court, or 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.''.
    (c) Additional Provisions Applicable to Class Actions.--Section 21 
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by 
adding at the end the following new subsections:
    ``(i) Recovery by Named Plaintiffs in Class Actions.--In an implied 
private action arising under this title that is certified as a class 
action pursuant to the Federal Rules of Civil Procedure, the share of 
any final judgment or of any settlement that is awarded to class 
plaintiffs serving as the representative parties shall be calculated in 
the same manner as the shares of the final judgment or settlement 
awarded to all other members of the class. Nothing in this subsection 
shall be construed to limit the award to any representative parties of 
reasonable compensation, costs, and expenses (including lost wages) 
relating to the representation of the class.
    ``(j) Conflicts of Interest.--In an implied private action arising 
under this title that is certified as a class action pursuant to the 
Federal Rules of Civil Procedure, if a party 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 interest constitutes a conflict of 
interest sufficient to disqualify the attorney from representing the 
party.
    ``(k) Restrictions on Secrecy.--
            ``(1) Restrictions on settlements under seal.--In an 
        implied private action arising under this title, the terms and 
        provisions of any settlement agreement between any of the 
        parties shall not be filed under seal, except that on motion of 
        any of the parties 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. 
        Good cause shall only exist if publication of a term or 
        provision of a settlement agreement would cause direct and 
        substantial harm to any person.
            ``(2) Restrictions on protective orders and sealing of 
        cases.--In an implied private action arising under this title, 
        a court may enter an order restricting the disclosure of 
        information obtained through discovery or an order restricting 
        access after entry of final judgment to court records only 
        after making particularized findings of fact that such 
        disclosure or access would cause direct, immediate, and 
        substantial harm to the competitive or privacy interests of a 
        person.
            ``(3) Burden of proof.--The party who is the proponent for 
        the entry of an order, as provided under this subsection, shall 
        have the burden of proof in obtaining such an order.
            ``(4) Disclosure to congress or government agencies.--
                    (A) No agreement between or among parties in an 
                implied private action arising under this title may 
                contain a provision that prohibits or otherwise 
                restricts a party from disclosing any information 
                relevant to such action to Congress or to any Federal 
                or State agency with authority to enforce laws 
                regulating an activity relating to such information.
                    ``(B) Any disclosure of information to Congress or 
                to a Federal or State agency as described under 
                subparagraph (A) shall be confidential to the extent 
                provided by law.
    ``(l) Preservation of Evidence.--Upon receiving actual notice of 
the filing of a complaint in an implied private action arising under 
this title that names a person as a defendant in such action and that 
contains allegations concerning the conduct of such person, such person 
shall not willfully destroy any documents, data compilations (including 
any electronically recorded or stored data), or tangible objects that 
are in the custody or control of such person and that a reasonable 
person would consider relevant to the allegations in the complaint. Any 
defendant that does not comply with this subsection shall be 
sanctioned, which sanction may include having judgment entered against 
it.
    ``(m) Payment of Attorneys' Fees From Settlement Funds.--In an 
implied private action arising under this title that is certified as a 
class action pursuant to the Federal Rules of Civil Procedure, 
attorneys' fees awarded by the court from a common fund for the class 
to counsel for the class shall be determined based on (1) a reasonable 
percentage of amount actually paid to class members from the common 
fund, and (ii) any other benefits available to the class, plus 
reasonable expenses incurred in the prosecution of the action.
    ``(n) Disclosure of Settlement Terms to Class Members.--In an 
implied private action arising under this title that is certified as a 
class action pursuant to the Federal Rules of Civil Procedure, a 
proposed settlement agreement that is published or otherwise 
disseminated to the class shall include the following statements, which 
shall not be admissible for purposes of any Federal or State judicial 
or administrative proceeding:
            ``(1) Statement of the benefits of settlement.--A statement 
        of the total amount of the settlement, fully describing all 
        proposed payments and non-monetary benefits to the class, and a 
        schedule setting forth the reasonably anticipated per share 
        payments to class members.
            ``(2) 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.
            ``(3) 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, and a brief 
        explanation of the basis for the application.
            ``(4) Identification of 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 class members.
            ``(5) Other information.--Such other information as may be 
        required by the court.
    ``(o) Contribution in Actions Brought Under Section 10(b).--
            ``(1) Right to contribution.--Any person who becomes 
        jointly and severally liable for damages under section 10(b) of 
        this title may recover contribution.
            ``(2) Settlement discharge.--Any defendant who, in good 
        faith, settles an action brought under section 10(b) of this 
        title at any time before verdict or judgment shall be 
        discharged from all claims for contribution brought by other 
        persons. Upon the determination by the court that the 
        settlement was entered into in good faith, 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 both (A) future claims 
        for contribution by nonsettling persons against the settling 
        defendant and (B) future claims for contribution by the 
        settling defendant against any nonsettling defendants.
            ``(3) Apportionment of liability.--Liability shall be 
        apportioned as follows:
                    ``(A) In addition to determining the total dollar 
                amount of damages, the trier of fact shall determine 
                the percentage of responsibility for those damages of 
                each defendant (including defendants who have entered 
                into settlements with the plaintiff). Where the trier 
                of fact is a jury, the court shall instruct the jury, 
                in accordance with the Federal Rules of Civil 
                Procedure, to answer interrogatories and prepare the 
                appropriate forms for a verdict, specifically 
                indicating each defendant's percentage of 
                responsibility for the damages.
                    ``(B) If one or more defendants has or have settled 
                an action prior to verdict or judgment, the remaining 
                defendants as a whole shall be jointly and severally 
                liable for the percentage of damages allocated to them 
                under subparagraph (A).
                    ``(C) The amount of contribution to which a 
                nonsettling defendant is entitled shall be no more than 
                the excess paid over and above such defendant's share 
                as allocated in subparagraph (A); except that no 
                nonsettling defendant shall be required to contribute 
                an amount greater than the unpaid portion, if any, of 
                such defendant's share as allocated in subparagraph 
                (A), plus such defendant's proportionate share of any 
                wholly uncollectible portion of another nonsettling 
                defendant's share.
            ``(4) Effect on pending actions.--This subsection shall 
        apply to all actions pending on or commenced on or after the 
        date of its enactment.
            ``(5) Statute of limitations.--Once judgment has been 
        rendered in an action determining liability, no action for 
        contribution may be brought after one year after that judgment 
        becomes final.''.

SEC. 102. SPECIAL REQUIREMENTS FOR CLASS ACTION COMPLAINTS; MULTIPLE 
              SECURITIES CLASS ACTIONS; PROCEDURE FOR SELECTING LEAD 
              COUNSEL IN CLASS ACTIONS; EARLY EVALUATION PROCEDURE.

    (a) Special Requirements for Class Action Complaints.--The 
Securities Exchange Act of 1934 is amended by inserting after section 
27A (15 U.S.C. 78aa-1) the following new section:

``SEC. 27B. SPECIAL PROVISIONS FOR CLASS ACTIONS.

    ``(a) Certification of Complaints.--
            ``(1) In general.--In an implied private action arising 
        under this title that is filed as a class action pursuant to 
        the Federal Rules of Civil Procedure, each plaintiff seeking to 
        serve as a class representative shall provide a certification 
        personally signed by the plaintiff to be filed with the 
        complaint that--
                    ``(A) states that the plaintiff has reviewed the 
                complaint and authorized its filing;
                    ``(B) states that the plaintiff did not purchase 
                the security that is the subject of the complaint with 
                the intent of commencing litigation;
                    ``(C) states that the plaintiff did not purchase 
                the security that is the subject of the complaint at 
                the direction of plaintiff's counsel;
                    ``(D) states that the plaintiff is willing to serve 
                as a class representative, including providing 
                testimony at deposition and trial, if necessary;
                    ``(E) sets forth all the plaintiffs' transactions 
                in the security that is the subject of the complaint 
                during the class period specified in the complaint;
                    ``(F) identifies all suits under this title which 
                the plaintiff has filed as a class action in the prior 
                12 months; and
                    ``(G) states that the plaintiff will not accept any 
                payment for serving as class representative beyond the 
                plaintiff's pro rata share of any recovery, except as 
                ordered by the court.
            ``(2) Non-waiver of attorney-client privilege.--The 
        certification filed pursuant to paragraph (1) of this 
        subsection shall not waive the attorney-client privilege.
    ``(b) Multiple Securities Class Actions.--
            ``(1) In general.--If more than one implied private action 
        arising under this title out of substantially the same 
        transaction or occurrence is filed in one or more Federal 
        courts, and any person or entity is named as defendant in more 
        than one such action, each action shall be deemed a multiple 
        securities class action, and the actions shall be deemed a 
        group of multiple securities class actions.
            ``(2) Consolidation.--The parties shall promptly call to 
        the attention of each court in which multiple securities class 
        actions are filed the other actions in the group of multiple 
        securities class actions. All the actions in the group of 
        multiple securities class actions shall be transferred or 
        consolidated (or both) in the most convenient forum before one 
        judge as promptly as possible. The Judicial Panel on Multi-
        District Litigation shall give expedited treatment to 
        proceedings involving multiple securities class actions to 
        facilitate their transfer to one district as promptly as 
        possible.
            ``(3) Selection of lead counsel.--When multiple securities 
        class actions are filed, plaintiffs' counsel shall promptly 
        organize themselves and select lead counsel to direct the 
        prosecution of the actions, subject to the approval of the 
        court. If plaintiffs' counsel do not organize themselves, the 
        court shall promptly designate lead counsel, in no event later 
        than 45 days after the filing of the first multiple securities 
        class action. In selecting or designating lead counsel, 
        plaintiffs' counsel and the court shall not give undue weight 
        to the order of filing the multiple securities class actions.
            ``(4) Later-filed cases.--Any multiple securities class 
        action filed after the case organization period shall be 
        subject to the decisions taken during the case organization 
        period.
    ``(c) Early Evaluation Procedure.--
            ``(1) In general.--In an implied private action that is 
        filed as a class action pursuant to the Federal Rules of Civil 
        Procedure, if the class representatives and each of the other 
        parties to the action agree, and any party so requests, within 
        60 days after the filing of the class action, the court shall 
        order an early evaluation procedure. The period of the early 
        evaluation procedure shall not extend beyond 150 days after the 
        filing of the first complaint subject to the procedure.
            ``(2) Requirements.--During the early evaluation 
        procedure--
                    ``(A) defendants shall not be required to answer or 
                otherwise respond to any complaint;
                    ``(B) plaintiffs may file a consolidated or amended 
                complaint at any time and may dismiss the action or 
                actions at any time without sanction;
                    ``(C) unless otherwise ordered by the court, no 
                formal discovery shall occur, except that parties may 
                propound discovery requests to third parties to 
                preserve evidence, and upon receipt of such a discovery 
                request, a third party shall not willfully destroy any 
                documents, data compilations (including any 
                electronically stored data) or tangible things that a 
                reasonable person would consider responsive to the 
                discovery request;
                    ``(D) the parties shall evaluate the merits of the 
                action under the supervision of a person (the 
                `mediator') (i) agreed upon by them, or (ii) designated 
                by the court in the absence of agreement, which person 
                may be another district court judge, any magistrate-
                judge or a special master; and each side shall have one 
                peremptory challenge of a mediator designated by the 
                court by filing a written notice of challenge within 
                five days of receipt of an order designating the 
                mediator;
                    ``(E) the parties shall promptly provide access to 
                or exchange all nonprivileged documents relating to the 
                allegations in the complaint or complaints; and any 
                documents withheld on the grounds of privilege shall be 
                sufficiently identified so as to permit the mediator to 
                determine if they are, in fact, privileged; and
                    ``(F) the parties shall exchange damage studies and 
                such other expert reports as may be helpful to an 
                evaluation of the action on the merits, which materials 
                shall be treated as prepared and used in the context of 
                settlement negotiations.
            ``(3) Failure to produce documents.--Any party that fails 
        to produce documents relevant to the allegations of the 
        complaint or complaints during the early evaluation procedure 
        may be sanctioned by the court pursuant to the Federal Rules of 
        Civil Procedure. Notwithstanding paragraph (2) of this 
        subsection, subject to review by the court, the mediator shall 
        have the authority to order the production of evidence by any 
        party and, to the extent necessary properly to evaluate the 
        case, may permit discovery of nonparties and depositions of 
        parties for good cause shown.
            ``(4) Evaluation by the mediator.--
                    ``(A) In general.--If, at the end of the early 
                evaluation procedure, the action has not been 
                voluntarily dismissed or settled, the mediator shall 
                evaluate the action as being:
                            ``(i) clearly frivolous, such that it can 
                        only be further maintained in bad faith; or
                            ``(ii) clearly meritorious, such that it 
                        can only be further defended in bad faith; or
                            ``(iii) described by neither clause (i) nor 
                        clause (ii) of this subparagraph.
                    ``(B) Written evaluation.--A written evaluation 
                with respect to the claims against and defenses of each 
                defendant shall be issued within 10 days after the end 
                of the early evaluation procedure and provided to the 
                parties. The evaluation shall not be admissible in the 
                action.
            ``(5) Sanctions.--If the action is evaluated under 
        paragraph (4)(A)(i) of this subsection and final judgment is 
        entered against the plaintiff, plaintiff or plaintiff's counsel 
        shall be liable to defendant for sanctions as awarded by the 
        court, if the court agrees, based on the entire record, that 
        the action was frivolous when filed and maintained in bad 
        faith. If the action is evaluated under paragraph (4)(A)(ii) of 
        this subsection and final judgment is entered against the 
        defendant, defendant or defendant's counsel shall be liable to 
        plaintiff for sanctions as awarded by the court, if the court 
        agrees, based on the entire record, that the action was 
        meritorious and defended in bad faith.
            ``(6) Extension of early evaluation period.--The period of 
        the early evaluation procedure may be extended by stipulation 
        of all parties. At the conclusion of the period, the action 
        shall proceed in accordance with Federal Rules of Civil 
        Procedure.
            ``(7) Fees.--Each side shall bear equally the reasonable 
        fees and expenses of the mediator if he is not a judicial 
        officer.''.

SEC. 103. RESTORATION OF AIDING AND ABETTING LIABILITY.

    (a) Securities Act of 1933.--Section 20 of the Securities Act of 
1933 (15 U.S.C. 77t) is amended by adding at the end the following new 
subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (b) and (d), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule or regulation 
hereunder, shall be deemed to violate such provision to the same extent 
as the person to whom such assistance is provided. No person shall be 
liable under this subsection based on an omission or failure to act 
unless such omission or failure constituted a breach of a duty owed by 
such person.''.
    (b) Securities Exchange Act of 1934.--Section 20 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78t) is amended--
            (1) by striking the heading of such section and inserting 
        the following:

    ``liability of controlling persons and persons who aid or abet 
                           violations''; and

            (2) by adding at the end the following new subsection:
    ``(e) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d)(1) and (d)(3) of section 21, or an action 
by a self-regulatory organization, or an express or implied private 
right of action under this title, any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule or regulation 
thereunder, shall be deemed to violate such provision and shall be 
liable to the same extent as the person to whom such assistance is 
provided. No person shall be liable under this subsection based on an 
omission or failure to act unless such omission or failure constituted 
a breach of a duty owed by such person.''.
    (c) Investment Company Act of 1940.--Section 42 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-41) is amended by adding at the end 
the following new subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d) and (e), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule, regulation, or 
order hereunder, shall be deemed to violate such provision to the same 
extent as the person to whom such assistance is provided. No person 
shall be liable under this subsection based on an omission or failure 
to act unless such omission or failure constituted a breach of a duty 
owed by such person.''.
    (d) Investment Advisers Act of 1940.--Section 209(d) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is amended--
            (1) in subsection (d)--
                    (A) by striking ``or that any person has aided, 
                abetted, counseled, commanded, induced, or procured, is 
                aiding, abetting, counseling, commanding, inducing, or 
                procuring, or is about to aid, abet, counsel, command, 
                induce, or procure such a violation,''; and
                    (B) by striking ``or in aiding, abetting, 
                counseling, commanding, inducing, or procuring any such 
                act or practice''; and
            (2) by adding at the end the following new subsection:
    ``(f) Prosecution of Persons Who Aid or Abet Violations.--For 
purposes of subsections (d) and (e), any person who knowingly or 
recklessly provides substantial assistance to another person in the 
violation of a provision of this title, or of any rule, regulation, or 
order hereunder, shall be deemed to violate such provision to the same 
extent as the person to whom such assistance is provided. No person 
shall be liable under this subsection based on an omission or failure 
to act unless such omission or failure constituted a breach of duty 
owed by such person.''.

SEC. 104. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    (a) Rulemaking.--Not later than 12 months after the enactment of 
this Act, the Commission shall adopt rules with respect to forward-
looking statements concerning the future economic performance of an 
issuer of securities registered under section 12 of the Act. Such rules 
shall specify--
            (1) the criteria the Commission determines to be necessary 
        and appropriate in the public interest and for the protection 
        of investors by which forward-looking statements concerning the 
        future economic performance of an issuer of securities 
        registered under section 12 of the Act will be deemed not to be 
        in violation of section 10(b) of the Act; and
            (2) the limits to liability for forward-looking statements, 
        and how such rules shall incorporate and reflect the scienter 
        requirements applicable to implied private actions under 
        section 10(b).
    (b) Report.--Within 30 days following adoption of the rules 
described in subsection (a), the Commission shall submit a report to 
the House Committee on Commerce and the Senate Committee on Banking 
describing the rules the Commission has prescribed pursuant to 
subsection (a). Such report shall also--
            (1) describe the procedures which shall be followed for 
        making a summary determination of the applicability of any 
        Commission rule for forward-looking statements early in a 
        judicial proceeding to limit litigation and discovery and for 
        promoting timely dismissal of claims against such issuers of 
        securities based on such forward-looking statements if such 
        statements are in accordance with any rules and regulations 
        adopted by the Commission;
            (2) what steps the Commission is undertaking to provide 
        clear guidance to issuers of securities and the judiciary 
        regarding the rules prescribed pursuant to subsection (a); and
            (3) any legislative recommendations relating to forward-
        looking statements which the Commission determines to be 
        appropriate.
    (c) Securities Exchange Act Amendment.--The Securities and Exchange 
Act of 1934 (15 U.S.C. 78a et seq.), is amended by adding at the end 
the following new section:

``SEC. 40. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) In General.--In any implied private action arising under this 
title that alleges that a forward-looking statement concerning the 
future economic performance of an issuer registered under section 12 
was materially false or misleading, if a party making a motion in 
accordance with subsection (b) requests a stay of discovery concerning 
the claims or defenses related to such statement of that party, the 
court shall grant such a stay until it has ruled on any such motion.
    ``(b) Summary Judgment Motions.--Subsection (a) shall apply to any 
motion for summary judgment made by a defendant asserting that the 
forward-looking statement was within the coverage of any rule which the 
Commission may have adopted concerning such predictive statements, if 
such motion is made not less than 60 days after the plaintiff commences 
discovery in the action.
    ``(c) Dilatory Conduct; Duplicative Discovery.--Notwithstanding 
subsection (a) or (b), the time permitted for a plaintiff to conduct 
discovery under subsection (b) may be extended, or a stay of the 
proceedings may be denied, if the court finds that--
            ``(1) the defendant making a motion described in subsection 
        (b) engaged in dilatory or obstructive conduct in taking or 
        opposing any discovery; or
            ``(2) a stay of discovery pending a ruling on a motion 
        under subsection (b) would be substantially unfair to the 
        plaintiff or other parties to the action.''.

SEC. 105. LIMITATIONS PERIOD FOR IMPLIED PRIVATE RIGHTS OF ACTION.

    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. LIMITATIONS PERIOD FOR IMPLIED PRIVATE RIGHTS OF ACTION.

    ``(a) In General.--Except as otherwise provided in this title, an 
implied private right of action arising under this title shall be 
brought not later than the earlier of--
            ``(1) 5 years after the date on which the alleged violation 
        occurred; or
            ``(2) 3 years after the date on which the alleged violation 
        was discovered.
    ``(b) Effective Date.--The limitations period provided by this 
section shall apply to all proceedings pending on or commenced after 
the date of enactment of this section.''.

SEC. 106. FINANCIAL FRAUD DETECTION AND DISCLOSURE.

    (a) Amendments to the Securities Exchange Act of 1934.--The 
Securities Exchange Act of 1934 is amended by inserting after section 
13 (15 U.S.C. 78m) the following new section:

``SEC. 13A. FRAUD DETECTION AND DISCLOSURE.

    ``(a) Audit Requirements.--Each audit required pursuant to this 
title of an issuer's financial statements 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, the following:
            ``(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 which are material to the financial statements or 
        otherwise require disclosure therein; and
            ``(3) an evaluation of whether there is substantial doubt 
        about the issuer's ability to continue as a going concern over 
        the ensuing fiscal year.
    ``(b) Required Response to Audit Discoveries.--
            ``(1) Investigation and report to management.--If, in the 
        course of conducting any 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 issuer's financial statements) 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 issuer's management and assure that the 
                issuer's audit committee, or the issuer's board of 
                directors in the absence of such a committee, is 
                adequately informed with respect to illegal acts that 
                have been detected or 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, 
        having first assured itself that the audit committee of the 
        board of directors of the issuer or the board (in the absence 
        of an audit committee) is adequately informed with respect to 
        illegal acts that have been detected or otherwise come to the 
        accountant's attention in the course of such accountant's 
        audit, the independent public accountant concludes that--
                    ``(A) any such illegal act has a material effect on 
                the financial statements of the issuer,
                    ``(B) 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 such illegal act, and
                    ``(C) the failure to take remedial action is 
                reasonably expected to warrant departure from a 
                standard auditor's report, 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 has received a 
        report pursuant to paragraph (2) shall inform the Commission by 
        notice within one business day of receipt of such report and 
        shall furnish the independent public accountant making such 
        report with a copy of the notice furnished the Commission. If 
        the independent public accountant making such report shall fail 
        to receive a copy of such notice within the required one-
        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) 
                within the next business day following such failure to 
                receive notice.
            ``(4) Report after resignation.--An independent public 
        accountant electing resignation shall, within the one business 
        day following a failure by an 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 rules 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 of this title, that an 
independent public accountant has willfully violated paragraph (3) or 
(4) of subsection (b) of this section, then 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 
whether to impose a civil penalty, and the amount of any such penalty, 
shall be governed by the standards set forth in section 21B of this 
title.
    ``(e) Preservation of Existing Authority.--Except for subsection 
(d), nothing in this section limits or otherwise affects the authority 
of the Commission under this title.
    ``(f) Definitions.--As used in this section, the term `illegal act' 
means any action or omission to act that violates any law, or any rule 
or regulation having the force of law.''.
    (b) Effective Dates.--As to any registrant that is required to file 
selected quarterly financial data pursuant to item 302(a) of Regulation 
S-K (17 CFR 229.302(a)) of the Securities and Exchange Commission, the 
amendments made by subsection (a) of this section shall apply to any 
annual report for any period beginning on or after January 1, 1996. As 
to any other registrant, such amendment shall apply for any period 
beginning on or after January 1, 1997.

             TITLE II--COMMISSION PRIVATE ENFORCEMENT STUDY

 SEC. 201. FILING OF MATERIALS WITH THE COMMISSION.

    (a) Commission Notification.--Section 21 of the Securities Exchange 
Act of 1934 (15 U.S.C. ) is further amended by adding at the end the 
following new subsection:
    ``(p) Commission Notification.--
            ``(1) An attorney filing a complaint or an amended 
        complaint in an implied private action arising under this title 
        that is filed as a class action pursuant to the Federal Rules 
        of Civil Procedure shall promptly provide the Commission with a 
        copy of such complaint. Any party filing a dispositive motion 
        or an opposition to a dispositive motion in such an action 
        shall promptly provide the Commission with a copy of the motion 
        or opposition together with any supporting declaratory 
        affidavits, exhibits or similar materials. Counsel for the 
        plaintiff shall provide the Commission with copies of all 
        orders on dispositive motions.
            ``(2) No confidentiality order issued pursuant to section 
        21(k) of this title shall limit the information required to be 
        filed with the Commission pursuant to paragraph (1).
            ``(3) The Commission may file an enforcement action or take 
        such other action as it deems appropriate based upon the 
        submissions that it receives pursuant to this paragraph.''.

 SEC. 202. COMMISSION PRIVATE ENFORCEMENT STUDY.

    (a) Commission Private Enforcement Study.--Not later than five 
years after the date of enactment of this section, the Commission shall 
submit to Congress a report:
            (1) listing each implied private action arising under this 
        title that has been filed as a class action pursuant to the 
        Federal Rules of Civil Procedure for which the Commission has 
        received notification pursuant to section 201 of this Act;
            (2) identifying which actions were consolidated, dismissed, 
        tried, settled, or remain pending;
            (3) identifying such causes of action and motions that were 
        found by the court to be clearly unwarranted, if any;
            (4) in actions that were tried or settled, describing the 
        participation of each defendant in the judgment or settlement;
            (5) describing the extent to which accountants, attorneys, 
        and other professionals participated in the conduct underlying 
        the claims asserted;
            (6) identifying which actions were based solely on forward-
        looking statements;
            (7) identifying which actions alleged significant 
        transactions in the issuer's securities by corporate officers, 
        directors, or controlling shareholders during the period of 
        alleged deception; and
            (8) proposing such legislative, administrative and 
        budgetary recommendations as may be necessary to effectuate the 
        purposes of this title.
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