[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 667 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 667

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               April 4 (legislative day, March 27), 1995

 Mr. Bryan (for himself and Mr. Shelby) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To amend the Securities Exchange Act of 1934 in order to reform the 
  conduct of private securities litigation, to provide for financial 
        fraud detection and disclosure, 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 
Enforcement Improvements 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--PRIVATE SECURITIES LITIGATION

Sec. 101. Elimination of certain abusive practices and procedural 
                            reforms.
Sec. 102. Special requirements for class action complaints; multiple 
                            securities class actions; procedure for 
                            selecting lead counsel in class actions; 
                            early evaluation procedure.
Sec. 103. Requirements for securities fraud actions.
Sec. 104. Proportionate liability and contribution.
Sec. 105. Restoration of aiding and abetting liability.
Sec. 106. Limitations period for implied private rights of action.
Sec. 107. Safe harbor for forward-looking statements.
           TITLE II--FINANCIAL FRAUD DETECTION AND DISCLOSURE

Sec. 201. Financial fraud detection and disclosure.

                 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, 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.''.
    (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, 
upon motion by any party, 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 and substantial harm to 
        the competitive or privacy interests of a person.
    ``(l) 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--
            ``(1) be determined based on--
                    ``(A) a reasonable percentage of the amount made 
                available to class members from the common fund; and
                    ``(B) a reasonable percentage of the value of any 
                other benefits made available to the class; and
            ``(2) include reasonable expenses incurred in the 
        prosecution of the action.
    ``(m) 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 or final 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 
action or administrative proceeding, other than an action or proceeding 
arising out of such statements:
            ``(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 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 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 settling parties do 
                not agree on the amount of damages 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 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 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.
            ``(5) Other information.--Such other information as may be 
        required by the court.''.

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

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 27A 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 at 
                the direction of plaintiff's counsel;
                    ``(C) states that the plaintiff is willing to serve 
                as a class representative, including providing 
                testimony at deposition and trial, if necessary;
                    ``(D) sets forth all of the plaintiffs' 
                transactions in the security that is the subject of the 
                complaint during the class period specified in the 
                complaint;
                    ``(E) identifies all suits under this title which 
                the plaintiff has filed as a class action in the prior 
                12 months; and
                    ``(F) 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) shall not be 
        construed to be a waiver of 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 a defendant in 
        more than one such action, each such 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 arising 
        under this title 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, or if the court upon motion of 
        any party so decides, not later than 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 
        described under paragraph (1)--
                    ``(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;
                    ``(D) the parties shall evaluate the merits of the 
                action under the supervision of a person (hereafter in 
                this section referred to as the `mediator') agreed upon 
                by them or designated by the court in the absence of 
                agreement, which person may be another district court 
                judge, any magistrate-judge or a special master, each 
                side having one peremptory challenge of a mediator 
                designated by the court by filing a written notice of 
                challenge not later than 5 days after 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 
        described in paragraph (1) may be sanctioned by the court 
        pursuant to the Federal Rules of Civil Procedure. 
        Notwithstanding paragraph (2), subject to review by the court, 
        the mediator may 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 described in paragraph (1), 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).
                    ``(B) Written evaluation.--An evaluation required 
                by subparagraph (A) with respect to the claims against 
                and defenses of each defendant shall be issued in 
                writing not later than 10 days after the end of the 
                early evaluation procedure and provided to the parties. 
                The evaluation shall not be admissible in the action, 
                and shall not be provided to the court until a motion 
                for sanctions under paragraph (5) is timely filed.
            ``(5) Mandatory sanctions.--
                    ``(A) Clearly frivolous actions.--In an action that 
                is evaluated under paragraph (4)(A)(i) in which final 
                judgment is entered against the plaintiff, the 
                plaintiff or plaintiff's counsel shall be liable to the 
                defendant for sanctions as awarded by the court, which 
                may include an order to pay reasonable attorneys' fees 
                and other expenses, if the court agrees, based on the 
                entire record, that the action was clearly frivolous 
                when filed and was maintained in bad faith.
                    ``(B) Clearly meritorious actions.--In an action 
                that is evaluated under paragraph (4)(A)(ii) in which 
                final judgment is entered against the defendant, the 
                defendant or defendant's counsel shall be liable to the 
                plaintiff for sanctions as awarded by the court, which 
                may include an order to pay reasonable attorneys' fees 
                and other expenses, if the court agrees, based on the 
                entire record, that the action was clearly meritorious 
                and was defended in bad faith.
            ``(6) Extension of early evaluation period.--The period of 
        the early evaluation procedure described in paragraph (1) 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.--In an implied private action described in 
        paragraph (1), each side shall bear equally the reasonable fees 
        and expenses of the mediator agreed upon or designated under 
        paragraph (2)(D), if the mediator is not a judicial officer.''.

SEC. 103. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    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) In General.--In any private action arising under section 
10(b) that is based on a fraudulent statement or fraudulent omission, 
liability for that statement or omission may be established only upon 
proof that--
            ``(1) the defendant directly or indirectly made that 
        fraudulent statement or omission; and
            ``(2) the defendant made that fraudulent statement or 
        fraudulent omission knowingly or recklessly.
    ``(b) Application.--Subsection (a) does not affect any liability 
under section 10(b), other than as provided in subsection (a), based on 
the employment of any device, scheme, or artiface to defraud or on the 
engagement in any act, practice, or course of business which operates 
or would operate as a fraud or deceit upon any person.
    ``(c) Fraudulent Statement.--For purposes of this section, a 
fraudulent statement is a statement that contains an untrue statement 
of a material fact, or omits to state a material fact necessary in 
order to make the statements made, in light of the circumstances in 
which they were made, not misleading.
    ``(d) Knowingly.--For purposes of subsection (a), a person makes a 
fraudulent statement knowingly if the person 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 
light of the circumstances in which they were made, not misleading.
    ``(e) Recklessly.--For purposes of subsection (a), a person makes a 
fraudulent statement recklessly if the person, in making the statement 
is guilty of highly unreasonable conduct that--
            ``(1) involves not merely simple or even inexcusable 
        negligence, but an extreme departure from standards of ordinary 
        care; and
            ``(2) presents a danger of misleading securities purchasers 
        or sellers that was either known to the defendant or so obvious 
        that the defendant must have been aware of it.
    ``(f) Pleading Requirement.--In any private action described in 
subsection (a), in which the plaintiff may recover money damages only 
if it proves that the defendant acted as described in subsection 
(a)(2), the plaintiff shall allege in its complaint facts suggesting 
that the defendant made a fraudulent statement or fraudulent omission 
knowingly or recklessly.
    ``(g) Fraud on the Market.--The Commission shall, by rule, define 
the circumstances in which it is and is not appropriate for reliance to 
be presumed under the fraud on the market theory in any action to which 
subsection (a) applies. In promulgating such rules, the Commission 
shall consider--
            ``(1) whether the issuer and its securities are regularly 
        reviewed by 2 or more analysts;
            ``(2) the weekly trading volume of any class of securities 
        of the issuer of the security;
            ``(3) the existence of public reports by securities 
        analysts concerning any class of securities of the issuer of 
        the security;
            ``(4) 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 in a 
        registration statement filed under the Securities Act of 1933 
        in connection with the sale of equity securities;
            ``(5) 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; and
            ``(6) any other factors determined by the Commission to be 
        appropriate.''.

SEC. 104. PROPORTIONATE LIABILITY AND CONTRIBUTION.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 10A (as added by section 103 of this 
Act) the following new section:

``SEC. 10B. PROPORTIONATE LIABILITY AND CONTRIBUTION.

    ``(a) Proportionate Liability.--
            ``(1) Special findings.--In all implied private actions 
        arising under this title involving the fault of more than one 
        defendant, including third-party defendants, the court, unless 
        otherwise agreed by all parties, shall instruct the jury to 
        answer special interrogatories or, if there is no jury, shall 
        make findings, indicating whether such defendant--
                    ``(A) acted with a degree of scienter greater than 
                recklessness; or
                    ``(B) at the time of the violation of this title 
                for which liability is claimed, directly or indirectly 
                controlled a defendant who acted with a degree of 
                scienter greater than recklessness.
            ``(2) Allocation of liability.--
                    ``(A) In general.--
                            ``(i) Rules of joint and several 
                        liability.--In all private actions arising 
                        under this title to which paragraph (1) 
                        applies, each liable defendant, including 
                        third-party defendants, as to whom an 
                        affirmative finding under paragraph (1) has 
                        been made shall be subject to the rules of 
                        joint and several liability.
                            ``(ii) Proportionate liability.--Subject to 
                        subparagraph (C), each liable defendant to 
                        which clause (i) does not apply, including 
                        third-party defendants, shall be 
                        proportionately liable for his or her equitable 
                        share of the obligation, as determined in 
                        accordance with subsection (c)(4).
                    ``(B) Uncollectible shares.--If, upon motion made 
                under subsection (c)(5), the court determines that all 
                or part of the equitable share of a defendant of the 
                obligation is uncollectible from that defendant, the 
                court shall reallocate any uncollectible amount among 
                those defendants who are jointly and severally liable 
                under subparagraph (A)(i) according to their respective 
                percentages of fault, as determined in accordance with 
                subsection (c)(1).
                    ``(C) Reallocation.--If there are no defendants who 
                are jointly and severally liable (other than defendants 
                whose equitable shares are uncollectible) or if, upon 
                motion made not later than 6 months after reallocation 
                of an uncollectible amount under subparagraph (B), the 
                court shall determine that all or part of such 
                uncollectible amount is uncollectible from defendants 
                who are jointly and severally liable, the court shall 
                reallocate any uncollectible amount among the 
                defendants who are proportionately liable under 
                subparagraph (A)(ii), according to their respective 
                percentages of fault as determined in accordance with 
                subsection (c)(1).
                    ``(D) Contribution and continuing liability.--A 
                defendant whose liability is reallocated pursuant to 
                subparagraph (B) and (C) shall be subject to 
                contribution under subsection (b) and to any continuing 
                liability to the plaintiff on the judgment.
    ``(b) Right to Contribution.--Subject to subsection (f), in an 
implied private action arising under this title, a right of 
contribution--
            ``(1) shall exist between or among 2 or more persons who 
        are liable upon the same indivisible claim for the same 
        damages, whether or not judgment has been recovered against all 
        or any of such persons;
            ``(2) may be enforced either in the original action or by a 
        separate action brought for that purpose; and
            ``(3) shall be based upon the equitable share of each 
        person of the obligation, as determined in accordance with 
        subsection (c)(4), except that a defendant who is jointly and 
        severally liable under subsection (a)(2)(A)(i) shall not be 
        entitled to contribution for the payment of any amount 
        reallocated under subsection (a)(2)(B) from any party who is 
        proportionately liable under subsection (a)(2)(A)(ii), other 
        than the party whose liability was reallocated.
    ``(c) Special Findings.--
            ``(1)  Fault of multiple parties.--In all implied private 
        actions arising under this title involving the fault of more 
        than 1 defendant, including third-party defendants and persons 
        who have been released under subsection (e), the court, unless 
        otherwise agreed by all parties, shall instruct the jury to 
        answer special interrogatories or, if there is no jury, shall 
        make findings indicating--
                    ``(A) the amount of damages the plaintiff is 
                entitled to recover; and
                    ``(B) the percentage of the total fault that is 
                allocated to each defendant, each third-party 
                defendant, and each person who has been released from 
                liability under subsection (e).
            ``(2) Single party determinations.--For purposes of 
        paragraph (1), the court may determine that 2 or more persons 
        are to be treated as a single party.
            ``(3) Court considerations.--In determining the percentages 
        of fault for purposes of this subsection, the trier of fact 
        shall consider both the nature of the conduct of each party at 
        fault and the extent of the causal relation between the conduct 
        and the damages claimed.
            ``(4) Determination and allocation of damages.--The court 
        shall determine the award of damages to the plaintiff in 
        accordance with its findings, subject to any reduction under 
        subsection (e), and shall enter judgment against each liable 
        defendant and third-party defendant on the basis of the rules 
        of joint and several liability or, if applicable, as set forth 
        in subsection (a). For purposes of allocation of liability 
        under subsection (a)(2), and contribution under subsections (b) 
        and (d), the court shall also determine and state in the 
        judgment the equitable share of each party of the obligation in 
        accordance with the respective percentages of fault assigned to 
        each party.
            ``(5) Determination of collectibility.--Upon motion made 
        not later than 6 months after judgment is entered in an action 
        arising under this title, the court shall determine whether all 
        or part of the equitable share of a party of the obligation is 
        uncollectible from that party and, except as otherwise provided 
        in subsection (a)(2), shall reallocate any uncollectible amount 
        among the other parties according to their respective 
        percentages of fault. A party whose liability is reallocated 
        shall be subject to contribution and to any continuing 
        liability to the plaintiff on the judgment.
    ``(d) Enforcement of Contribution.--
            ``(1) In general.--In an implied private action arising 
        under this title, if the proportionate fault of the parties to 
        a claim for contribution--
                    ``(A) has been established previously by the court, 
                as provided by subsection (c), a party paying more than 
                its equitable share of the obligation, upon motion, may 
                recover judgment for contribution; or
                    ``(B) has not been established by the court, 
                contribution may be enforced in a separate action, 
                whether or not a judgment has been rendered against 
                either the person seeking contribution or the person 
                from whom contribution is being sought.
            ``(2) Timing.--In an implied private action arising under 
        this title--
                    ``(A) if a judgment has been rendered, an action 
                for contribution shall be commenced not later than 1 
                year after the date on which the judgment becomes 
                final; or
                    ``(B) if no judgment has been rendered, a person 
                bringing an action for contribution shall--
                            ``(i) discharge by payment the common 
                        liability within the period of the statute of 
                        limitations applicable to the plaintiff's right 
                        of action and commence the action for 
                        contribution not later than 1 year after the 
                        date on which such payment is made; or
                            ``(ii) agree while the action is pending, 
                        to discharge the common liability and, not 
                        later than 1 year after the date of the 
                        agreement, pay the liability and commence an 
                        action for contribution.
    ``(e) Effect of Release.--A release, covenant not to sue, or 
similar agreement entered into by a plaintiff and a person liable, 
shall discharge that person from all liabilities for contribution, but 
shall not discharge any other persons liable upon the same claim unless 
the agreement so provides. Upon such release, covenant not to sue, or 
similar agreement, the claim of the releasing person against other 
persons shall be reduced by the amount paid to the releasing person in 
consideration of such release, covenant not to sue, or similar 
agreement.
    ``(f) Encouragement of Finality in Settlement Discharge.--
            ``(1) Discharge.--A defendant who, in good faith, settles 
        any private action brought under this title at any time before 
        verdict or judgment is rendered shall be discharged from all 
        claims for contribution brought by other persons. Upon entry of 
        the settlement by the court, the court shall enter a bar order 
        constituting the final discharge of all obligations to the 
        plaintiff of the settling defendant arising out of the action. 
        The order shall bar all future claims for contribution 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 rendered in any 
        private action brought under this title, the verdict or 
        judgment shall be reduced by the amount paid to the plaintiff 
        by that person.''.

SEC. 105. 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 
promulgated under this title, 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 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 arising 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 
promulgated under this title, 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.''; and
            (2) by striking the heading of such section and inserting 
        the following:

``SEC. 20. LIABILITY OF CONTROLLING PERSONS AND PERSONS WHO AID OR ABET 
              VIOLATIONS.''.

    (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 promulgated under this title, 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 promulgated under this title, 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. 106. 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. 36. 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) 2 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 commenced after the date of 
enactment of this section.''.

SEC. 107. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    (a) Rulemaking.--Not later than 12 months after the date of 
enactment of this Act, the Commission shall adopt rules or regulations 
(or amend the rules or regulations in effect on the date of enactment 
of this Act), to provide one or more safe harbors for such forward-
looking information, as that term is defined by the Commission, as the 
Commission may designate, having due regard for the public interest and 
the protection of investors.
    (b) Criteria.--Rules or regulations adopted (or amended) pursuant 
to subsection (a) shall specify with respect to a safe harbor--
            (1) the forward-looking information or classes of forward-
        looking information to be covered by the safe harbor;
            (2) the securities or classes of securities to be covered 
        by the safe harbor;
            (3) the issuers of or classes of issuers of securities or 
        other persons to whom the safe harbor shall apply, as 
        appropriate;
            (4) the criteria the Commission determines to be necessary 
        and appropriate in the public interest and for the protection 
        of investors by which such forward-looking information may be 
        included in the safe harbor; and
            (5) the provisions of the Securities Act of 1933 and the 
        Securities Exchange Act of 1934 to which the safe harbor shall 
        apply.
    (c) Report.--
            (1) Submission.--Not later than 30 days after the date of 
        adoption of the rules described in subsection (a), the 
        Commission shall submit a report to the Committee on Commerce 
        of the House of Representatives and the Committee on Banking, 
        Housing, and Urban Affairs of the Senate describing such rules.
            (2) Contents.--The report required by paragraph (1) shall 
        include a description of--
                    (A) the procedures to be followed by the court for 
                making a summary determination early in a judicial 
                proceeding of the applicability of any rule of the 
                Commission to forward-looking statements in order--
                            (i) to limit litigation and discovery; and
                            (ii) to promote timely dismissal of claims 
                        against issuers of securities based on such 
                        forward-looking statements if such statements 
                        are in accordance with the rules and 
                        regulations of the Commission;
                    (B) the steps that the Commission is undertaking to 
                provide clear guidance to issuers of securities and the 
                judiciary regarding the rules prescribed pursuant to 
                subsection (a); and
                    (C) any legislative recommendations relating to 
                forward-looking statements that the Commission 
                determines to be appropriate.
    (d) Securities Exchange Act Amendment.--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) 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 later 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.''.

           TITLE II--FINANCIAL FRAUD DETECTION AND DISCLOSURE

SEC. 201. FINANCIAL FRAUD DETECTION AND DISCLOSURE.

    (a) Amendments 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 13 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 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 issuer's ability 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 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 by the Commission--
                    ``(A) determine whether it is likely that an 
                illegal act has occurred, and 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 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, 
        having first assured itself that the audit committee of the 
        board of directors of the issuer or the board of directors (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 independent public 
        accountant 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 of the issuer have 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 of the issuer.
            ``(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 not later than 1 business day after 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 making such 
        report does not 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) 
                not later than 1 business day after such failure to 
                receive notice.
            ``(4) Report after resignation.--An independent public 
        accountant electing resignation under paragraph (3)(A) shall, 
        not later than 1 business day after 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 to those provisions.
    ``(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 whether to impose a civil 
penalty, and the amount of any such 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 limits or otherwise affects the 
authority of the Commission under this title.
    ``(f) Definition.--As used in this section, the term `illegal act' 
means any action or omission that violates any law, or any rule or 
regulation having the force of law.''.
    (b) Effective Dates.--Section 13A of the Securities Exchange Act of 
1934, as added by subsection (a) of this section, shall apply to any 
person registered under that Act that is required to file selected 
quarterly financial data pursuant to the rules of the Commission for 
all such reports for any period beginning on or after January 1, 1996. 
Such section shall apply to such reports filed by any other person 
registered under that Act for any period beginning on or after January 
1, 1997.
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