[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 1260 Reported in Senate (RS)]






                                                       Calendar No. 355
105th CONGRESS
  2d Session
                                S. 1260

                          [Report No. 105-182]

To amend the Securities Act of 1933 and the Securities Exchange Act of 
1934 to limit the conduct of securities class actions under State law, 
                        and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 7, 1997

    Mr. Gramm (for himself, Mr. Dodd, Mr. Domenici, Mrs. Boxer, Mr. 
Faircloth, Mrs. Feinstein, Mr. Hagel, Mr. Reid, Mr. Wyden, Mr. Allard, 
Ms. Moseley-Braun, Mrs. Murray, Mr. Lieberman, Mr. Bennett, Mr. Grams, 
  Mr. Sessions, Mr. Santorum, Mr. Ashcroft, Mr. Abraham, Mr. Smith of 
 Oregon, Mr. Kerry, Mr. Mack, Mr. Nickles, Mr. Cochran, Mr. Thurmond, 
Mr. Inhofe, Mr. Helms, Mr. DeWine, Mr. Enzi, Mr. Coverdell, Mr. Gorton, 
  Mr. Brownback, Mr. Hutchinson, Mr. Warner, Mr. Robb, Mr. Ford, Mr. 
Bond, Mr. Frist, Mr. Kyl, and Mr. Lugar) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

                              May 4, 1998

               Reported by Mr. D'Amato, with an amendment
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 A BILL


 
To amend the Securities Act of 1933 and the Securities Exchange Act of 
1934 to limit the conduct of securities class actions under State law, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Securities Litigation 
Uniform Standards Act of 1997''.</DELETED>

<DELETED>SEC. 2. LIMITATION ON REMEDIES.</DELETED>

<DELETED>    (a) Amendments to the Securities Act of 1933.--</DELETED>
        <DELETED>    (1) Amendment.--Section 16 of the Securities Act 
        of 1933 (15 U.S.C. 77p) is amended to read as 
        follows:</DELETED>

<DELETED>``SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON 
              REMEDIES.</DELETED>

<DELETED>    ``(a) Remedies Additional.--Except as provided in 
subsection (b), the rights and remedies provided by this title shall be 
in addition to any and all other rights and remedies that may exist at 
law or in equity.</DELETED>
<DELETED>    ``(b) Class Action Limitations.--No class action based 
upon the statutory or common law of any State or subdivision thereof 
may be maintained in any State or Federal court by any private party 
alleging--</DELETED>
        <DELETED>    ``(1) an untrue statement or omission of a 
        material fact in connection with the purchase or sale of a 
        covered security; or</DELETED>
        <DELETED>    ``(2) that the defendant used or employed any 
        manipulative or deceptive device or contrivance in connection 
        with the purchase or sale of a covered security.</DELETED>
<DELETED>    ``(c) Removal of Class Actions.--Any class action brought 
in any State court involving a covered security, as set forth in 
subsection (b), shall be removable to the Federal district court for 
the district in which the action is pending, and shall be subject to 
subsection (b).</DELETED>
<DELETED>    ``(d) Definitions.--For purposes of this section the 
following definitions shall apply:</DELETED>
        <DELETED>    ``(1) Class action.--The term `class action' means 
        any single lawsuit, or any group of lawsuits filed in or 
        pending in the same court involving common questions of law or 
        fact, in which--</DELETED>
                <DELETED>    ``(A) damages are sought on behalf of more 
                than 25 persons;</DELETED>
                <DELETED>    ``(B) one or more named parties seek to 
                recover damages on a representative basis on behalf of 
                themselves and other unnamed parties similarly 
                situated; or</DELETED>
                <DELETED>    ``(C) one or more of the parties seeking 
                to recover damages did not personally authorize the 
                filing of the lawsuit.</DELETED>
        <DELETED>    ``(2) Covered security.--A security is a `covered 
        security' if it satisfies the standard for a covered security 
        specified in paragraph (1) or (2) of section 18(b) at the time 
        during which it is alleged that the misrepresentation, 
        omission, or manipulative or deceptive conduct 
        occurred.''.</DELETED>
        <DELETED>    (2) Conforming amendments.--Section 22(a) of the 
        Securities Act of 1933 (15 U.S.C. 77v(a)) is amended--
        </DELETED>
                <DELETED>    (A) by striking ``and, concurrent with 
                State and Territorial courts,'' and inserting ``and, 
                concurrent with State and Territorial courts, except as 
                provided in section 16 with respect to class 
                actions,''; and</DELETED>
                <DELETED>    (B) by striking ``No case arising under 
                this title and brought in any State court of competent 
                jurisdiction shall be removed'' and inserting ``Except 
                as provided in section 16(c), no case arising under 
                this title and brought in any State court of competent 
                jurisdiction shall be removed''.</DELETED>
<DELETED>    (b) Amendments to the Securities Exchange Act of 1934.--
Section 28 of the Securities Exchange Act of 1934 (15 U.S.C. 78bb) is 
amended--</DELETED>
        <DELETED>    (1) in subsection (a), by striking ``The rights 
        and remedies'' and inserting ``Except as provided in subsection 
        (f), the rights and remedies''; and</DELETED>
        <DELETED>    (2) by adding at the end the following new 
        subsection:</DELETED>
<DELETED>    ``(f) Limitations on Remedies.--</DELETED>
        <DELETED>    ``(1) Class action limitations.--No class action 
        based upon the statutory or common law of any State or 
        subdivision thereof may be maintained in any State or Federal 
        court by any private party alleging--</DELETED>
                <DELETED>    ``(A) a misrepresentation or omission of a 
                material fact in connection with the purchase or sale 
                of a covered security; or</DELETED>
                <DELETED>    ``(B) that the defendant used or employed 
                any manipulative or deceptive device or contrivance in 
                connection with the purchase or sale of a covered 
                security.</DELETED>
        <DELETED>    ``(2) Removal of class actions.--Any class action 
        brought in any State court involving a covered security, as set 
        forth in paragraph (1), shall be removable to the Federal 
        district court for the district in which the action is pending, 
        and shall be subject to paragraph (1).</DELETED>
        <DELETED>    ``(3) Definitions.--For purposes of this 
        subsection the following definitions shall apply:</DELETED>
                <DELETED>    ``(A) Class action.--The term `class 
                action' means any single lawsuit, or any group of 
                lawsuits filed in or pending in the same court 
                involving common questions of law or fact, in which--
                </DELETED>
                        <DELETED>    ``(i) damages are sought on behalf 
                        of more than 25 persons;</DELETED>
                        <DELETED>    ``(ii) one or more named parties 
                        seek to recover damages on a representative 
                        basis on behalf of themselves and other unnamed 
                        parties similarly situated; or</DELETED>
                        <DELETED>    ``(iii) one or more of the parties 
                        seeking to recover damages did not personally 
                        authorize the filing of the lawsuit.</DELETED>
                <DELETED>    ``(B) Covered security.--A security is a 
                `covered security' if it satisfies the standard for a 
                covered security specified in paragraph (1) or (2) of 
                section 18(b) of the Securities Act of 1933, at the 
                time during which it is alleged that the 
                misrepresentation, omission, or manipulative or 
                deceptive conduct occurred.''.</DELETED>
<DELETED>    (c) Applicability.--The amendments made by this section 
shall not affect or apply to any action commenced before and pending on 
the date of enactment of this Act.</DELETED>

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Securities Litigation Uniform 
Standards Act of 1998''.

SEC. 2. FINDINGS.

    The Congress finds that--
            (1) the Private Securities Litigation Reform Act of 1995 
        sought to prevent abuses in private securities fraud lawsuits;
            (2) since enactment of that legislation, considerable 
        evidence has been presented to Congress that a number of 
        securities class action lawsuits have shifted from Federal to 
        State courts;
            (3) this shift has prevented that Act from fully achieving 
        its objectives;
            (4) State securities regulation is of continuing 
        importance, together with Federal regulation of securities, to 
        protect investors and promote strong financial markets; and
            (5) in order to prevent certain State private securities 
        class action lawsuits alleging fraud from being used to 
        frustrate the objectives of the Private Securities Litigation 
        Reform Act of 1995, it is appropriate to enact national 
        standards for securities class action lawsuits involving 
        nationally traded securities, while preserving the appropriate 
        enforcement powers of State securities regulators and not 
        changing the current treatment of individual lawsuits.

SEC. 3. LIMITATION ON REMEDIES.

    (a) Amendments to the Securities Act of 1933.--
            (1) Amendment.--Section 16 of the Securities Act of 1933 
        (15 U.S.C. 77p) is amended to read as follows:

``SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON REMEDIES.

    ``(a) Remedies Additional.--Except as provided in subsection (b), 
the rights and remedies provided by this title shall be in addition to 
any and all other rights and remedies that may exist at law or in 
equity.
    ``(b) Class Action Limitations.--No class action based upon the 
statutory or common law of any State or subdivision thereof may be 
maintained in any State or Federal court by any private party 
alleging--
            ``(1) an untrue statement or omission of a material fact in 
        connection with the purchase or sale of a covered security; or
            ``(2) that the defendant used or employed any manipulative 
        or deceptive device or contrivance in connection with the 
        purchase or sale of a covered security.
    ``(c) Removal of Class Actions.--Any class action brought in any 
State court involving a covered security, as set forth in subsection 
(b), shall be removable to the Federal district court for the district 
in which the action is pending, and shall be subject to subsection (b).
    ``(d) Preservation of Certain Actions.--
            ``(1) In general.--Notwithstanding subsection (b), a class 
        action described in paragraph (2) of this subsection that is 
        based upon the statutory or common law of the State in which 
        the issuer is incorporated (in the case of a corporation) or 
        organized (in the case of any other entity) may be maintained 
        in a State or Federal court by a private party.
            ``(2) Permissible actions.--A class action is described in 
        this paragraph if it involves--
                    ``(A) the purchase or sale of securities by the 
                issuer or an affiliate of the issuer exclusively from 
                or to holders of equity securities of the issuer; or
                    ``(B) any recommendation, position, or other 
                communication with respect to the sale of securities of 
                the issuer that--
                            ``(i) is made by or on behalf of the issuer 
                        or an affiliate of the issuer to holders of 
                        equity securities of the issuer; and
                            ``(ii) concerns decisions of those equity 
                        holders with respect to voting their 
                        securities, acting in response to a tender 
or exchange offer, or exercising dissenters' or appraisal rights.
    ``(e) Preservation of State Jurisdiction.--The securities 
commission (or any agency or office performing like functions) of any 
State shall retain jurisdiction under the laws of such State to 
investigate and bring enforcement actions.
    ``(f) Definitions.--For purposes of this section the following 
definitions shall apply:
            ``(1) Affiliate of the issuer.--The term `affiliate of the 
        issuer' means a person that directly or indirectly, through 1 
        or more intermediaries, controls or is controlled by or is 
        under common control with, the issuer.
            ``(2) Class action.--
                    ``(A) In general.--The term `class action' means--
                            ``(i) any single lawsuit (other than a 
                        derivative action brought by 1 or more 
                        shareholders on behalf of a corporation) in 
                        which--
                                    ``(I) damages are sought on behalf 
                                of more than 50 persons or prospective 
                                class members, and questions of law or 
                                fact common to those persons or members 
                                of the prospective class, without 
                                reference to issues of individualized 
                                reliance on an alleged misstatement or 
                                omission, predominate over any 
                                questions affecting only individual 
                                persons or members; or
                                    ``(II) 1 or more named parties seek 
                                to recover damages on a representative 
                                basis on behalf of themselves and other 
                                unnamed parties similarly situated, and 
                                questions of law or fact common to 
                                those persons or members of the 
                                prospective class predominate over any 
                                questions affecting only individual 
                                persons or members; or
                            ``(ii) any group of lawsuits (other than 
                        derivative suits brought by 1 or more 
                        shareholders on behalf of a corporation) filed 
                        in or pending in the same court and involving 
                        common questions of law or fact, in which--
                                    ``(I) damages are sought on behalf 
                                of more than 50 persons; and
                                    ``(II) the lawsuits are joined, 
                                consolidated, or otherwise proceed as a 
                                single action for any purpose.
                    ``(B) Counting of certain class members.--For 
                purposes of this paragraph, a corporation, investment 
                company, pension plan, partnership, or other entity, 
                shall be treated as 1 person or prospective class 
                member, but only if the entity is not established for 
                the purpose of participating in the action.
            ``(3) Covered security.--The term `covered security' means 
        a security that satisfies the standards for a covered security 
        specified in paragraph (1) or (2) of section 18(b) at the time 
        during which it is alleged that the misrepresentation, 
        omission, or manipulative or deceptive conduct occurred.''.
            (2) Conforming amendments.--Section 22(a) of the Securities 
        Act of 1933 (15 U.S.C. 77v(a)) is amended--
                    (A) by inserting ``except as provided in section 16 
                with respect to class actions,'' after ``Territorial 
                courts,''; and
                    (B) by striking ``No case'' and inserting ``Except 
                as provided in section 16(c), no case''.
    (b) Amendments to the Securities Exchange Act of 1934.--Section 28 
of the Securities Exchange Act of 1934 (15 U.S.C. 78bb) is amended--
            (1) in subsection (a), by striking ``The rights and 
        remedies'' and inserting ``Except as provided in subsection 
        (f), the rights and remedies''; and
            (2) by adding at the end the following new subsection:
    ``(f) Limitations on Remedies.--
            ``(1) Class action limitations.--No class action based upon 
        the statutory or common law of any State or subdivision thereof 
        may be maintained in any State or Federal court by any private 
        party alleging--
                    ``(A) a misrepresentation or omission of a material 
                fact in connection with the purchase or sale of a 
                covered security; or
                    ``(B) that the defendant used or employed any 
                manipulative or deceptive device or contrivance in 
                connection with the purchase or sale of a covered 
                security.
            ``(2) Removal of class actions.--Any class action brought 
        in any State court involving a covered security, as set forth 
        in paragraph (1), shall be removable to the Federal district 
        court for the district in which the action is pending, and 
shall be subject to paragraph (1).
            ``(3) Preservation of certain actions.--
                    ``(A) In general.--Notwithstanding paragraph (1), a 
                class action described in subparagraph (B) of this 
                paragraph that is based upon the statutory or common 
                law of the State in which the issuer is incorporated 
                (in the case of a corporation) or organized (in the 
                case of any other entity) may be maintained in a State 
                or Federal court by a private party.
                    ``(B) Permissible actions.--A class action is 
                described in this subparagraph if it involves--
                            ``(i) the purchase or sale of securities by 
                        the issuer or an affiliate of the issuer 
                        exclusively from or to holders of equity 
                        securities of the issuer; or
                            ``(ii) any recommendation, position, or 
                        other communication with respect to the sale of 
                        securities of an issuer that--
                                    ``(I) is made by or on behalf of 
                                the issuer or an affiliate of the 
                                issuer to holders of equity securities 
                                of the issuer; and
                                    ``(II) concerns decisions of such 
                                equity holders with respect to voting 
                                their securities, acting in response to 
                                a tender or exchange offer, or 
                                exercising dissenters' or appraisal 
                                rights.
            ``(4) Preservation of state jurisdiction.--The securities 
        commission (or any agency or office performing like functions) 
        of any State shall retain jurisdiction under the laws of such 
        State to investigate and bring enforcement actions.
            ``(5) Definitions.--For purposes of this subsection the 
        following definitions shall apply:
                    ``(A) Affiliate of the issuer.--The term `affiliate 
                of the issuer' means a person that directly or 
                indirectly, through 1 or more intermediaries, controls 
                or is controlled by or is under common control with, 
                the issuer.
                    ``(B) Class action.--The term `class action' 
                means--
                            ``(i) any single lawsuit (other than a 
                        derivative action brought by 1 or more 
                        shareholders on behalf of a corporation) in 
                        which--
                                    ``(I) damages are sought on behalf 
                                of more than 50 persons or prospective 
                                class members, and questions of law or 
                                fact common to those persons or members 
                                of the prospective class, without 
                                reference to issues of individualized 
                                reliance on an alleged misstatement or 
                                omission, predominate over any 
                                questions affecting only individual 
                                persons or members; or
                                    ``(II) 1 or more named parties seek 
                                to recover damages on a representative 
                                basis on behalf of themselves and other 
                                unnamed parties similarly situated, and 
                                questions of law or fact common to 
                                those persons or members of the 
                                prospective class predominate over any 
                                questions affecting only individual 
                                persons or members; or
                            ``(ii) any group of lawsuits (other than 
                        derivative suits brought by 1 or more 
                        shareholders on behalf of a corporation) filed 
                        in or pending in the same court and involving 
                        common questions of law or fact, in which--
                                    ``(I) damages are sought on behalf 
                                of more than 50 persons; and
                                    ``(II) the lawsuits are joined, 
                                consolidated, or otherwise proceed as a 
                                single action for any purpose.
                    ``(C) Counting of certain class members.--For 
                purposes of this paragraph, a corporation, investment 
                company, pension plan, partnership, or other entity, 
                shall be treated as 1 person or prospective class 
                member, but only if the entity is not established for 
                the purpose of participating in the action.
                    ``(D) Covered security.--The term `covered 
                security' means a security that satisfies the standards 
                for a covered security specified in paragraph (1) or 
                (2) of section 18(b) of the Securities Act of 1933, at 
                the time during which it is alleged that the 
                misrepresentation, omission, or manipulative or 
                deceptive conduct occurred.''.

SEC. 4. APPLICABILITY.

    The amendments made by this Act shall not affect or apply to any 
action commenced before and pending on the date of enactment of this 
Act.
                                     





                                                       Calendar No. 355

105th CONGRESS

  2d Session

                                S. 1260

                          [Report No. 105-182]

_______________________________________________________________________

                                 A BILL

To amend the Securities Act of 1933 and the Securities Exchange Act of 
1934 to limit the conduct of securities class actions under State law, 
                        and for other purposes.

_______________________________________________________________________

                              May 4, 1998

                       Reported with an amendment