[House Document 104-150]
[From the U.S. Government Publishing Office]





        104th Congress, 1st Session - - - - - - - - - - - - House 
Document 104-150

 
                           VETO OF H.R. 1058

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

HIS VETO OF H.R. 1058, A BILL TO REFORM FEDERAL SECURITIES LITIGATION, 
                         AND FOR OTHER PURPOSES




December 20, 1995.--Message and accompanying bill ordered to be printed
To the House of Representatives:
    I am returning herewith without my approval H.R. 1058, the 
``Private Securities Litigation Reform Act of 1995.'' This 
legislation is designed to reform portions of the Federal 
securities laws to end frivolous lawsuits and to ensure that 
investors receive the best possible information by reducing the 
litigation risk to companies that make forward-looking 
statements.
    I support those goals. Indeed, I made clear my willingness 
to support the bill passed by the Senate with appropriate 
``safe harbor'' language, even though it did not include 
certain provisions that I favor--such as enhanced provisions 
with respect to joint and several liability, aider and abettor 
liability, and statute of limitations.
    I am not, however, willing to sign legislation that will 
have the effect of closing the courthouse door on investors who 
have legitimate claims. Those who are the victims of fraud 
should have recourse in our courts. Unfortunately, changes made 
in this bill during conference could well prevent that.
    This country is blessed by strong and vibrant markets and I 
believe that they function best when corporations can raise 
capital by providing investors with their best good-faith 
assessment of future prospects, without fear of costly, 
unwarranted litigation. But I also know that our markets are as 
strong and effective as they are because they operate--and are 
seen to operate--with integrity. I believe that this bill, as 
modified in conference, could erode this crucial basis of our 
markets' strength.
    Specifically, I object to the following elements of this 
bill. First, I believe that the pleading requirements of the 
Conference Report with regard to a defendant's state of mind 
impose an unacceptable procedural hurdle to meritorious claims 
being heard in Federal courts. I am prepared to support the 
high pleading standard of the U.S. Court of Appeals for the 
Second Circuit--the highest pleading standard of any Federal 
circuit court. But the conferees make crystal clear in the 
Statement of Managers their intent to raise the standard even 
beyond that level. I am not prepared to accept that.
    The conferees deleted an amendment offered by Senator 
Specter and adopted by the Senate that specifically 
incorporated Second Circuit case law with respect to pleading a 
claim of fraud. Then they specifically indicated that they were 
not adopting Second Circuit case law but instead intended to 
``strengthen'' the existing pleading requirements of the Second 
Circuit. All this shows that the conferees meant to erect a 
higher barrier to bringing suit than any now existing--one so 
high that even the most aggrieved investors with the most 
painful losses may get tossed out of court before they have a 
chance to prove their case.
    Second, while I support the language of the Conference 
Report providing a ``safe harbor'' for companies that include 
meaningful cautionary statements in their projections of 
earnings, the Statement of Managers--which will be used by 
courts as a guide to the intent of the Congress with regard to 
the meaning of the bill--attempts to weaken the cautionary 
language that the bill itself requires. Once again, the end 
result may be that investors find their legitimate claims 
unfairly dismissed.
    Third, the Conference Report's Rule 11 provision lacks 
balance, treating plaintiffs more harshly than defendants in a 
manner that comes too close to the ``loser pays'' standard I 
oppose.
    I want to sign a good bill and I am prepared to do exactly 
that if the Congress will make the following changes to this 
legislation: first, adopt the Second Circuit pleading standards 
and reinsert the Specter amendment into the bill. I will 
support a bill that submits all plaintiffs to the tough 
pleading standards of the Second Circuit, but I am not prepared 
to go beyond that. Second, remove the language in the Statement 
of Managers that waters down the nature of the cautionary 
language that must be included to make the safe harbor safe. 
Third, restore the Rule 11 language to that of the Senate bill.
    While it is true that innocent companies are hurt by 
frivolous lawsuits and that valuable information may be 
withheld from investors when companies fear the risk of such 
suits, it is also true that there are innocent investors who 
are defrauded and who are able to recover their losses only 
because they can go to court. It is appropriate to change the 
law to ensure that companies can make reasonable statements and 
future projections without getting sued every time earnings 
turn out to be lower than expected or stock prices drop. But it 
is not appropriate to erect procedural barriers that will keep 
wrongly injured persons from having their day in court.
    I ask the Congress to send me a bill promptly that will put 
an end to litigation abuses while still protecting the 
legitimate rights of ordinary investors. I will sign such a 
bill as soon as it reaches my desk.

                                                William J. Clinton.
    The White House, December 19, 1995.


H.R. 1058

  One Hundred Fourth Congress of the United States of America, at the 
 First Session, Begun and Held at the City of Washington on Wednesday, 
  the Fourth Day of January, One Thousand Nine Hundred and Ninety-five



                                 An Act



    To reform Federal securities litigation, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Private 
Securities Litigation Reform Act of 1995''.
    (b) Table of Contents.--The table of contents for this Act 
is as follows:

Sec. 1. Short title; table of contents.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

Sec. 101. Private securities litigation reform.
Sec. 102. Safe harbor for forward-looking statements.
Sec. 103. Elimination of certain abusive practices.
Sec. 104. Authority of Commission to prosecute aiding and abetting.
Sec. 105. Loss causation.
Sec. 106. Study and report on protections for senior citizens and 
          qualified retirement plans.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations 
          Act.
Sec. 108. Applicability.

               TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

Sec. 201. Proportionate liability.
Sec. 202. Applicability.
Sec. 203. Rule of construction.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

Sec. 301. Fraud detection and disclosure.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

SEC. 101. PRIVATE SECURITIES LITIGATION REFORM.

    (a) Securities Act of 1933.--Title I of the Securities Act 
of 1933 (15 U.S.C. 77a et seq.) is amended by adding at the end 
the following new section:

``SEC. 27. PRIVATE SECURITIES LITIGATION.

    ``(a) Private Class Actions.--
            ``(1) In general.--The provisions of this 
        subsection shall apply to each private action arising 
        under this title that is brought as a plaintiff class 
        action pursuant to the Federal Rules of Civil 
        Procedure.
            ``(2) Certification filed with complaint.--
                    ``(A) In general.--Each plaintiff seeking 
                to serve as a representative party on behalf of 
                a class shall provide a sworn certification, 
                which shall be personally signed by such 
                plaintiff and filed with the complaint, that--
                            ``(i) states that the plaintiff has 
                        reviewed the complaint and authorized 
                        its filing;
                            ``(ii) states that the plaintiff 
                        did not purchase the security that is 
                        the subject of the complaint at the 
                        direction of plaintiff's counsel or in 
                        order to participate in any private 
                        action arising under this title;
                            ``(iii) states that the plaintiff 
                        is willing to serve as a representative 
                        party on behalf of a class, including 
                        providing testimony at deposition and 
                        trial, if necessary;
                            ``(iv) sets forth all of the 
                        transactions of the plaintiff in the 
                        security that is the subject of the 
                        complaint during the class period 
                        specified in the complaint;
                            ``(v) identifies any other action 
                        under this title, filed during the 3-
                        year period preceding the date on which 
                        the certification is signed by the 
                        plaintiff, in which the plaintiff has 
                        sought to serve, or served, as a 
                        representative party on behalf of a 
                        class; and
                            ``(vi) states that the plaintiff 
                        will not accept any payment for serving 
                        as a representative party on behalf of 
                        a class beyond the plaintiff's pro rata 
                        share of any recovery, except as 
                        ordered or approved by the court in 
                        accordance with paragraph (4).
                    ``(B) Nonwaiver of attorney-client 
                privilege.--The certification filed pursuant to 
                subparagraph (A) shall not be construed to be a 
                waiver of the attorney-client privilege.
            ``(3) Appointment of lead plaintiff.--
                    ``(A) Early notice to class members.--
                            ``(i) In general.--Not later than 
                        20 days after the date on which the 
                        complaint is filed, the plaintiff or 
                        plaintiffs shall cause to be published, 
                        in a widely circulated national 
                        business-oriented publication or wire 
                        service, a notice advising members of 
                        the purported plaintiff class--
                                    ``(I) of the pendency of 
                                the action, the claims asserted 
                                therein, and the purported 
                                class period; and
                                    ``(II) that, not later than 
                                60 days after the date on which 
                                the notice is published, any 
                                member of the purported class 
                                may move the court to serve as 
                                lead plaintiff of the purported 
                                class.
                            ``(ii) Multiple actions.--If more 
                        than one action on behalf of a class 
                        asserting substantially the same claim 
                        or claims arising under this title is 
                        filed, only the plaintiff or plaintiffs 
                        in the first filed action shall be 
                        required to cause notice to be 
                        published in accordance with clause 
                        (i).
                            ``(iii) Additional notices may be 
                        required under federal rules.--Notice 
                        required under clause (i) shall be in 
                        addition to any notice required 
                        pursuant to the Federal Rules of Civil 
                        Procedure.
                    ``(B) Appointment of lead plaintiff.--
                            ``(i) In general.--Not later than 
                        90 days after the date on which a 
                        notice is published under subparagraph 
                        (A)(i), the court shall consider any 
                        motion made by a purported class member 
                        in response to the notice, including 
                        any motion by a class member who is not 
                        individually named as a plaintiff in 
                        the complaint or complaints, and shall 
                        appoint as lead plaintiff the member or 
                        members of the purported plaintiff 
                        class that the court determines to be 
                        most capable of adequately representing 
                        the interests of class members 
                        (hereafter in this paragraph referred 
                        to as the `most adequate plaintiff') in 
                        accordance with this subparagraph.
                            ``(ii) Consolidated actions.--If 
                        more than one action on behalf of a 
                        class asserting substantially the same 
                        claim or claims arising under this 
                        title has been filed, and any party has 
                        sought to consolidate those actions for 
                        pretrial purposes or for trial, the 
                        court shall not make the determination 
                        required by clause (i) until after the 
                        decision on the motion to consolidate 
                        is rendered. As soon as practicable 
                        after such decision is rendered, the 
                        court shall appoint the most adequate 
                        plaintiff as lead plaintiff for the 
                        consolidated actions in accordance with 
                        this subparagraph.
                            ``(iii) Rebuttable presumption.--
                                    ``(I) In general.--Subject 
                                to subclause (II), for purposes 
                                of clause (i), the court shall 
                                adopt a presumption that the 
                                most adequate plaintiff in any 
                                private action arising under 
                                this title is the person or 
                                group of persons that--
                                            ``(aa) has either 
                                        filed the complaint or 
                                        made a motion in 
                                        response to a notice 
                                        under subparagraph 
                                        (A)(i);
                                            ``(bb) in the 
                                        determination of the 
                                        court, has the largest 
                                        financial interest in 
                                        the relief sought by 
                                        the class; and
                                            ``(cc) otherwise 
                                        satisfies the 
                                        requirements of Rule 23 
                                        of the Federal Rules of 
                                        Civil Procedure.
                                    ``(II) Rebuttal evidence.--
                                The presumption described in 
                                subclause (I) may be rebutted 
                                only upon proof by a member of 
                                the purported plaintiff class 
                                that the presumptively most 
                                adequate plaintiff--
                                            ``(aa) will not 
                                        fairly and adequately 
                                        protect the interests 
                                        of the class; or
                                            ``(bb) is subject 
                                        to unique defenses that 
                                        render such plaintiff 
                                        incapable of adequately 
                                        representing the class.
                            ``(iv) Discovery.--For purposes of 
                        this subparagraph, discovery relating 
                        to whether a member or members of the 
                        purported plaintiff class is the most 
                        adequate plaintiff may be conducted by 
                        a plaintiff only if the plaintiff first 
                        demonstrates a reasonable basis for a 
                        finding that the presumptively most 
                        adequate plaintiff is incapable of 
                        adequately representing the class.
                            ``(v) Selection of lead counsel.--
                        The most adequate plaintiff shall, 
                        subject to the approval of the court, 
                        select and retain counsel to represent 
                        the class.
                            ``(vi) Restrictions on professional 
                        plaintiffs.--Except as the court may 
                        otherwise permit, consistent with the 
                        purposes of this section, a person may 
                        be a lead plaintiff, or an officer, 
                        director, or fiduciary of a lead 
                        plaintiff, in no more than 5 securities 
                        class actions brought as plaintiff 
                        class actions pursuant to the Federal 
                        Rules of Civil Procedure during any 3-
                        year period.
            ``(4) Recovery by plaintiffs.--The share of any 
        final judgment or of any settlement that is awarded to 
        a representative party serving on behalf of a class 
        shall be equal, on a per share basis, to the portion of 
        the final judgment or settlement awarded to all other 
        members of the class. Nothing in this paragraph shall 
        be construed to limit the award of reasonable costs and 
        expenses (including lost wages) directly relating to 
        the representation of the class to any representative 
        party serving on behalf of the class.
            ``(5) Restrictions on settlements under seal.--The 
        terms and provisions of any settlement agreement of a 
        class action shall not be filed under seal, except that 
        on motion of any party to the settlement, the court may 
        order filing under seal for those portions of a 
        settlement agreement as to which good cause is shown 
        for such filing under seal. For purposes of this 
        paragraph, good cause shall exist only if publication 
        of a term or provision of a settlement agreement would 
        cause direct and substantial harm to any party.
            ``(6) Restrictions on payment of attorneys' fees 
        and expenses.--Total attorneys' fees and expenses 
        awarded by the court to counsel for the plaintiff class 
        shall not exceed a reasonable percentage of the amount 
        of any damages and prejudgment interest actually paid 
        to the class.
            ``(7) Disclosure of settlement terms to class 
        members.--Any proposed or final settlement agreement 
        that is published or otherwise disseminated to the 
        class shall include each of the following statements, 
        along with a cover page summarizing the information 
        contained in such statements:
                    ``(A) Statement of plaintiff recovery.--The 
                amount of the settlement proposed to be 
                distributed to the parties to the action, 
                determined in the aggregate and on an average 
                per share basis.
                    ``(B) Statement of potential outcome of 
                case.--
                            ``(i) Agreement on amount of 
                        damages.--If the settling parties agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        concerning the average amount of such 
                        potential damages per share.
                            ``(ii) Disagreement on amount of 
                        damages.--If the parties do not agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        from each settling party concerning the 
                        issue or issues on which the parties 
                        disagree.
                            ``(iii) Inadmissibility for certain 
                        purposes.--A statement made in 
                        accordance with clause (i) or (ii) 
                        concerning the amount of damages shall 
                        not be admissible in any Federal or 
                        State judicial action or administrative 
                        proceeding, other than an action or 
                        proceeding arising out of such 
                        statement.
                    ``(C) Statement of attorneys' fees or costs 
                sought.--If any of the settling parties or 
                their counsel intend to apply to the court for 
                an award of attorneys' fees or costs from any 
                fund established as part of the settlement, a 
                statement indicating which parties or counsel 
                intend to make such an application, the amount 
                of fees and costs that will be sought 
                (including the amount of such fees and costs 
                determined on an average per share basis), and 
                a brief explanation supporting the fees and 
                costs sought.
                    ``(D) Identification of lawyers' 
                representatives.--The name, telephone number, 
                and address of one or more representatives of 
                counsel for the plaintiff class who will be 
                reasonably available to answer questions from 
                class members concerning any matter contained 
                in any notice of settlement published or 
                otherwise disseminated to the class.
                    ``(E) Reasons for settlement.--A brief 
                statement explaining the reasons why the 
                parties are proposing the settlement.
                    ``(F) Other information.--Such other 
                information as may be required by the court.
            ``(8) Attorney conflict of interest.--If a 
        plaintiff class is represented by an attorney who 
        directly owns or otherwise has a beneficial interest in 
        the securities that are the subject of the litigation, 
        the court shall make a determination of whether such 
        ownership or other interest constitutes a conflict of 
        interest sufficient to disqualify the attorney from 
        representing the plaintiff class.
    ``(b) Stay of Discovery; Preservation of Evidence.--
            ``(1) In general.--In any private action arising 
        under this title, all discovery and other proceedings 
        shall be stayed during the pendency of any motion to 
        dismiss, unless the court finds, upon the motion of any 
        party, that particularized discovery is necessary to 
        preserve evidence or to prevent undue prejudice to that 
        party.
            ``(2) Preservation of evidence.--During the 
        pendency of any stay of discovery pursuant to this 
        subsection, unless otherwise ordered by the court, any 
        party to the action with actual notice of the 
        allegations contained in the complaint shall treat all 
        documents, data compilations (including electronically 
        recorded or stored data), and tangible objects that are 
        in the custody or control of such person and that are 
        relevant to the allegations, as if they were the 
        subject of a continuing request for production of 
        documents from an opposing party under the Federal 
        Rules of Civil Procedure.
            ``(3) Sanction for willful violation.--A party 
        aggrieved by the willful failure of an opposing party 
        to comply with paragraph (2) may apply to the court for 
        an order awarding appropriate sanctions.
    ``(c) Sanctions for Abusive Litigation.--
            ``(1) Mandatory review by court.--In any private 
        action arising under this title, upon final 
        adjudication of the action, the court shall include in 
        the record specific findings regarding compliance by 
        each party and each attorney representing any party 
        with each requirement of Rule 11(b) of the Federal 
        Rules of Civil Procedure as to any complaint, 
        responsive pleading, or dispositive motion.
            ``(2) Mandatory sanctions.--If the court makes a 
        finding under paragraph (1) that a party or attorney 
        violated any requirement of Rule 11(b) of the Federal 
        Rules of Civil Procedure as to any complaint, 
        responsive pleading, or dispositive motion, the court 
        shall impose sanctions on such party or attorney in 
        accordance with Rule 11 of the Federal Rules of Civil 
        Procedure. Prior to making a finding that any party or 
        attorney has violated Rule 11 of the Federal Rules of 
        Civil Procedure, the court shall give such party or 
        attorney notice and an opportunity to respond.
            ``(3) Presumption in favor of attorneys' fees and 
        costs.--
                    ``(A) In general.--Subject to subparagraphs 
                (B) and (C), for purposes of paragraph (2), the 
                court shall adopt a presumption that the 
                appropriate sanction--
                            ``(i) for failure of any responsive 
                        pleading or dispositive motion to 
                        comply with any requirement of Rule 
                        11(b) of the Federal Rules of Civil 
                        Procedure is an award to the opposing 
                        party of the reasonable attorneys' fees 
                        and other expenses incurred as a direct 
                        result of the violation; and
                            ``(ii) for substantial failure of 
                        any complaint to comply with any 
                        requirement of Rule 11(b) of the 
                        Federal Rules of Civil Procedure is an 
                        award to the opposing party of the 
                        reasonable attorneys' fees and other 
                        expenses incurred in the action.
                    ``(B) Rebuttal evidence.--The presumption 
                described in subparagraph (A) may be rebutted 
                only upon proof by the party or attorney 
                against whom sanctions are to be imposed that--
                            ``(i) the award of attorneys' fees 
                        and other expenses will impose an 
                        unreasonable burden on that party or 
                        attorney and would be unjust, and the 
                        failure to make such an award would not 
                        impose a greater burden on the party in 
                        whose favor sanctions are to be 
                        imposed; or
                            ``(ii) the violation of Rule 11(b) 
                        of the Federal Rules of Civil Procedure 
                        was de minimis.
                    ``(C) Sanctions.--If the party or attorney 
                against whom sanctions are to be imposed meets 
                its burden under subparagraph (B), the court 
                shall award the sanctions that the court deems 
                appropriate pursuant to Rule 11 of the Federal 
                Rules of Civil Procedure.
    ``(d) Defendant's Right to Written Interrogatories.--In any 
private action arising under this title in which the plaintiff 
may recover money damages only on proof that a defendant acted 
with a particular state of mind, the court shall, when 
requested by a defendant, submit to the jury a written 
interrogatory on the issue of each such defendant's state of 
mind at the time the alleged violation occurred.''.
    (b) Securities Exchange Act of 1934.--Title I of the 
Securities Exchange Act of 1934 (78a et seq.) is amended by 
inserting after section 21C the following new section:

``SEC. 21D. PRIVATE SECURITIES LITIGATION.

    ``(a) Private Class Actions.--
            ``(1) In general.--The provisions of this 
        subsection shall apply in each private action arising 
        under this title that is brought as a plaintiff class 
        action pursuant to the Federal Rules of Civil 
        Procedure.
            ``(2) Certification filed with complaint.--
                    ``(A) In general.--Each plaintiff seeking 
                to serve as a representative party on behalf of 
                a class shall provide a sworn certification, 
                which shall be personally signed by such 
                plaintiff and filed with the complaint, that--
                            ``(i) states that the plaintiff has 
                        reviewed the complaint and authorized 
                        its filing;
                            ``(ii) states that the plaintiff 
                        did not purchase the security that is 
                        the subject of the complaint at the 
                        direction of plaintiff's counsel or in 
                        order to participate in any private 
                        action arising under this title;
                            ``(iii) states that the plaintiff 
                        is willing to serve as a representative 
                        party on behalf of a class, including 
                        providing testimony at deposition and 
                        trial, if necessary;
                            ``(iv) sets forth all of the 
                        transactions of the plaintiff in the 
                        security that is the subject of the 
                        complaint during the class period 
                        specified in the complaint;
                            ``(v) identifies any other action 
                        under this title, filed during the 3-
                        year period preceding the date on which 
                        the certification is signed by the 
                        plaintiff, in which the plaintiff has 
                        sought to serve as a representative 
                        party on behalf of a class; and
                            ``(vi) states that the plaintiff 
                        will not accept any payment for serving 
                        as a representative party on behalf of 
                        a class beyond the plaintiff's pro rata 
                        share of any recovery, except as 
                        ordered or approved by the court in 
                        accordance with paragraph (4).
                    ``(B) Nonwaiver of attorney-client 
                privilege.--The certification filed pursuant to 
                subparagraph (A) shall not be construed to be a 
                waiver of the attorney-client privilege.
            ``(3) Appointment of lead plaintiff.--
                    ``(A) Early notice to class members.--
                            ``(i) In general.--Not later than 
                        20 days after the date on which the 
                        complaint is filed, the plaintiff or 
                        plaintiffs shall cause to be published, 
                        in a widely circulated national 
                        business-oriented publication or wire 
                        service, a notice advising members of 
                        the purported plaintiff class--
                                    ``(I) of the pendency of 
                                the action, the claims asserted 
                                therein, and the purported 
                                class period; and
                                    ``(II) that, not later than 
                                60 days after the date on which 
                                the notice is published, any 
                                member of the purported class 
                                may move the court to serve as 
                                lead plaintiff of the purported 
                                class.
                            ``(ii) Multiple actions.--If more 
                        than one action on behalf of a class 
                        asserting substantially the same claim 
                        or claims arising under this title is 
                        filed, only the plaintiff or plaintiffs 
                        in the first filed action shall be 
                        required to cause notice to be 
                        published in accordance with clause 
                        (i).
                            ``(iii) Additional notices may be 
                        required under federal rules.--Notice 
                        required under clause (i) shall be in 
                        addition to any notice required 
                        pursuant to the Federal Rules of Civil 
                        Procedure.
                    ``(B) Appointment of lead plaintiff.--
                            ``(i) In general.--Not later than 
                        90 days after the date on which a 
                        notice is published under subparagraph 
                        (A)(i), the court shall consider any 
                        motion made by a purported class member 
                        in response to the notice, including 
                        any motion by a class member who is not 
                        individually named as a plaintiff in 
                        the complaint or complaints, and shall 
                        appoint as lead plaintiff the member or 
                        members of the purported plaintiff 
                        class that the court determines to be 
                        most capable of adequately representing 
                        the interests of class members 
                        (hereafter in this paragraph referred 
                        to as the `most adequate plaintiff') in 
                        accordance with this subparagraph.
                            ``(ii) Consolidated actions.--If 
                        more than one action on behalf of a 
                        class asserting substantially the same 
                        claim or claims arising under this 
                        title has been filed, and any party has 
                        sought to consolidate those actions for 
                        pretrial purposes or for trial, the 
                        court shall not make the determination 
                        required by clause (i) until after the 
                        decision on the motion to consolidate 
                        is rendered. As soon as practicable 
                        after such decision is rendered, the 
                        court shall appoint the most adequate 
                        plaintiff as lead plaintiff for the 
                        consolidated actions in accordance with 
                        this paragraph.
                            ``(iii) Rebuttable presumption.--
                                    ``(I) In general.--Subject 
                                to subclause (II), for purposes 
                                of clause (i), the court shall 
                                adopt a presumption that the 
                                most adequate plaintiff in any 
                                private action arising under 
                                this title is the person or 
                                group of persons that--
                                            ``(aa) has either 
                                        filed the complaint or 
                                        made a motion in 
                                        response to a notice 
                                        under subparagraph 
                                        (A)(i);
                                            ``(bb) in the 
                                        determination of the 
                                        court, has the largest 
                                        financial interest in 
                                        the relief sought by 
                                        the class; and
                                            ``(cc) otherwise 
                                        satisfies the 
                                        requirements of Rule 23 
                                        of the Federal Rules of 
                                        Civil Procedure.
                                    ``(II) Rebuttal evidence.--
                                The presumption described in 
                                subclause (I) may be rebutted 
                                only upon proof by a member of 
                                the purported plaintiff class 
                                that the presumptively most 
                                adequate plaintiff--
                                            ``(aa) will not 
                                        fairly and adequately 
                                        protect the interests 
                                        of the class; or
                                            ``(bb) is subject 
                                        to unique defenses that 
                                        render such plaintiff 
                                        incapable of adequately 
                                        representing the class.
                            ``(iv) Discovery.--For purposes of 
                        this subparagraph, discovery relating 
                        to whether a member or members of the 
                        purported plaintiff class is the most 
                        adequate plaintiff may be conducted by 
                        a plaintiff only if the plaintiff first 
                        demonstrates a reasonable basis for a 
                        finding that the presumptively most 
                        adequate plaintiff is incapable of 
                        adequately representing the class.
                            ``(v) Selection of lead counsel.--
                        The most adequate plaintiff shall, 
                        subject to the approval of the court, 
                        select and retain counsel to represent 
                        the class.
                            ``(vi) Restrictions on professional 
                        plaintiffs.--Except as the court may 
                        otherwise permit, consistent with the 
                        purposes of this section, a person may 
                        be a lead plaintiff, or an officer, 
                        director, or fiduciary of a lead 
                        plaintiff, in no more than 5 securities 
                        class actions brought as plaintiff 
                        class actions pursuant to the Federal 
                        Rules of Civil Procedure during any 3-
                        year period.
            ``(4) Recovery by plaintiffs.--The share of any 
        final judgment or of any settlement that is awarded to 
        a representative party serving on behalf of a class 
        shall be equal, on a per share basis, to the portion of 
        the final judgment or settlement awarded to all other 
        members of the class. Nothing in this paragraph shall 
        be construed to limit the award of reasonable costs and 
        expenses (including lost wages) directly relating to 
        the representation of the class to any representative 
        party serving on behalf of a class.
            ``(5) Restrictions on settlements under seal.--The 
        terms and provisions of any settlement agreement of a 
        class action shall not be filed under seal, except that 
        on motion of any party to the settlement, the court may 
        order filing under seal for those portions of a 
        settlement agreement as to which good cause is shown 
        for such filing under seal. For purposes of this 
        paragraph, good cause shall exist only if publication 
        of a term or provision of a settlement agreement would 
        cause direct and substantial harm to any party.
            ``(6) Restrictions on payment of attorneys' fees 
        and expenses.--Total attorneys' fees and expenses 
        awarded by the court to counsel for the plaintiff class 
        shall not exceed a reasonable percentage of the amount 
        of any damages and prejudgment interest actually paid 
        to the class.
            ``(7) Disclosure of settlement terms to class 
        members.--Any proposed or final settlement agreement 
        that is published or otherwise disseminated to the 
        class shall include each of the following statements, 
        along with a cover page summarizing the information 
        contained in such statements:
                    ``(A) Statement of plaintiff recovery.--The 
                amount of the settlement proposed to be 
                distributed to the parties to the action, 
                determined in the aggregate and on an average 
                per share basis.
                    ``(B) Statement of potential outcome of 
                case.--
                            ``(i) Agreement on amount of 
                        damages.--If the settling parties agree 
                        on the average amount of dam- 
                        ages per share that would be 
                        recoverable if the plaintiff prevailed 
                        on each claim alleged under this title, 
                        a statement concerning the average 
                        amount of such potential damages per 
                        share.
                            ``(ii) Disagreement on amount of 
                        damages.--If the parties do not agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        from each settling party concerning the 
                        issue or issues on which the parties 
                        disagree.
                            ``(iii) Inadmissibility for certain 
                        purposes.--A statement made in 
                        accordance with clause (i) or (ii) 
                        concerning the amount of damages shall 
                        not be admissible in any Federal or 
                        State judicial action or administrative 
                        proceeding, other than an action or 
                        proceeding arising out of such 
                        statement.
                    ``(C) Statement of attorneys' fees or costs 
                sought.--If any of the settling parties or 
                their counsel intend to apply to the court for 
                an award of attorneys' fees or costs from any 
                fund established as part of the settlement, a 
                statement indicating which parties or counsel 
                intend to make such an application, the amount 
                of fees and costs that will be sought 
                (including the amount of such fees and costs 
                determined on an average per share basis), and 
                a brief explanation supporting the fees and 
                costs sought. Such information shall be clearly 
                summarized on the cover page of any notice to a 
                party of any proposed or final settlement 
                agreement.
                    ``(D) Identification of lawyers' 
                representatives.--The name, telephone number, 
                and address of one or more representatives of 
                counsel for the plaintiff class who will be 
                reasonably available to answer questions from 
                class members concerning any matter contained 
                in any notice of settlement published or 
                otherwise disseminated to the class.
                    ``(E) Reasons for settlement.--A brief 
                statement explaining the reasons why the 
                parties are proposing the settlement.
                    ``(F) Other information.--Such other 
                information as may be required by the court.
            ``(8) Security for payment of costs in class 
        actions.--In any private action arising under this 
        title that is certified as a class action pursuant to 
        the Federal Rules of Civil Procedure, the court may 
        require an undertaking from the attorneys for the 
        plaintiff class, the plaintiff class, or both, or from 
        the attorneys for the defendant, the defendant, or 
        both, in such proportions and at such times as the 
        court determines are just and equitable, for the 
        payment of fees and expenses that may be awarded under 
        this subsection.
            ``(9) Attorney conflict of interest.--If a 
        plaintiff class is represented by an attorney who 
        directly owns or otherwise has a beneficial interest in 
        the securities that are the subject of the litigation, 
        the court shall make a determination of whether such 
        ownership or other interest constitutes a conflict of 
        interest sufficient to disqualify the attorney from 
        representing the plaintiff class.
    ``(b) Requirements for Securities Fraud Actions.--
            ``(1) Misleading statements and omissions.--In any 
        private action arising under this title in which the 
        plaintiff alleges that the defendant--
                    ``(A) made an untrue statement of a 
                material fact; or
                    ``(B) omitted to state a material fact 
                necessary in order to make the statements made, 
                in the light of the circumstances in which they 
                were made, not misleading;

        the complaint shall specify each statement alleged to 
        have been misleading, the reason or reasons why the 
        statement is misleading, and, if an allegation 
        regarding the statement or omission is made on 
        information and belief, the complaint shall state with 
        particularity all facts on which that belief is formed.
            ``(2) Required state of mind.--In any private 
        action arising under this title in which the plaintiff 
        may recover money damages only on proof that the 
        defendant acted with a particular state of mind, the 
        complaint shall, with respect to each act or omission 
        alleged to violate this title, state with particularity 
        facts giving rise to a strong inference that the 
        defendant acted with the required state of mind.
            ``(3) Motion to dismiss; stay of discovery.--
                    ``(A) Dismissal for failure to meet 
                pleading requirements.--In any private action 
                arising under this title, the court shall, on 
                the motion of any defendant, dismiss the 
                complaint if the requirements of paragraphs (1) 
                and (2) are not met.
                    ``(B) Stay of discovery.--In any private 
                action arising under this title, all discovery 
                and other proceedings shall be stayed during 
                the pendency of any motion to dismiss, unless 
                the court finds upon the motion of any party 
                that particularized discovery is necessary to 
                preserve evidence or to prevent undue prejudice 
                to that party.
                    ``(C) Preservation of evidence.--
                            ``(i) In general.--During the 
                        pendency of any stay of discovery 
                        pursuant to this paragraph, unless 
                        otherwise ordered by the court, any 
                        party to the action with actual notice 
                        of the allegations contained in the 
                        complaint shall treat all documents, 
                        data compilations (including 
                        electronically recorded or stored 
                        data), and tangible objects that are in 
                        the custody or control of such person 
                        and that are relevant to the 
                        allegations, as if they were the 
                        subject of a continuing request for 
                        production of documents from an 
                        opposing party under the Federal Rules 
                        of Civil Procedure.
                            ``(ii) Sanction for willful 
                        violation.--A party aggrieved by the 
                        willful failure of an opposing party to 
                        comply with clause (i) may apply to the 
                        court for an order awarding appropriate 
                        sanctions.
            ``(4) Loss causation.--In any private action 
        arising under this title, the plaintiff shall have the 
        burden of proving that the act or omission of the 
        defendant alleged to violate this title caused the loss 
        for which the plaintiff seeks to recover damages.
    ``(c) Sanctions for Abusive Litigation.--
            ``(1) Mandatory review by court.--In any private 
        action arising under this title, upon final 
        adjudication of the action, 
        the court shall include in the record specific findings 
        regarding compliance by each party and each attorney 
        representing any party with each requirement of Rule 
        11(b) of the Federal Rules of Civil Procedure as to any 
        complaint, responsive pleading, or dispositive motion.
            ``(2) Mandatory sanctions.--If the court makes a 
        finding under paragraph (1) that a party or attorney 
        violated any requirement of Rule 11(b) of the Federal 
        Rules of Civil Procedure as to any complaint, 
        responsive pleading, or dispositive motion, the court 
        shall impose sanctions on such party or attorney in 
        accordance with Rule 11 of the Federal Rules of Civil 
        Procedure. Prior to making a finding that any party or 
        attorney has violated Rule 11 of the Federal Rules of 
        Civil Procedure, the court shall give such party or 
        attorney notice and an opportunity to respond.
            ``(3) Presumption in favor of attorneys' fees and 
        costs.--
                    ``(A) In general.--Subject to subparagraphs 
                (B) and (C), for purposes of paragraph (2), the 
                court shall adopt a presumption that the 
                appropriate sanction--
                            ``(i) for failure of any responsive 
                        pleading or dispositive motion to 
                        comply with any requirement of Rule 
                        11(b) of the Federal Rules of Civil 
                        Procedure is an award to the opposing 
                        party of the reasonable attorneys' fees 
                        and other expenses incurred as a direct 
                        result of the violation; and
                            ``(ii) for substantial failure of 
                        any complaint to comply with any 
                        requirement of Rule 11(b) of the 
                        Federal Rules of Civil Procedure is an 
                        award to the opposing party of the 
                        reasonable attorneys' fees and other 
                        expenses incurred in the action.
                    ``(B) Rebuttal evidence.--The presumption 
                described in subparagraph (A) may be rebutted 
                only upon proof by the party or attorney 
                against whom sanctions are to be imposed that--
                            ``(i) the award of attorneys' fees 
                        and other expenses will impose an 
                        unreasonable burden on that party or 
                        attorney and would be unjust, and the 
                        failure to make such an award would not 
                        impose a greater burden on the party in 
                        whose favor sanctions are to be 
                        imposed; or
                            ``(ii) the violation of Rule 11(b) 
                        of the Federal Rules of Civil Procedure 
                        was de minimis.
                    ``(C) Sanctions.--If the party or attorney 
                against whom sanctions are to be imposed meets 
                its burden under subparagraph (B), the court 
                shall award the sanctions that the court deems 
                appropriate pursuant to Rule 11 of the Federal 
                Rules of Civil Procedure.
    ``(d) Defendant's Right to Written Interrogatories.--In any 
private action arising under this title in which the plaintiff 
may recover money damages, the court shall, when requested by a 
defendant, submit to the jury a written interrogatory on the 
issue of each such defendant's state of mind at the time the 
alleged violation occurred.
    ``(e) Limitation on Damages.--
            ``(1) In general.--Except as provided in paragraph 
        (2), in any private action arising under this title in 
        which the 
        plaintiff seeks to establish damages by reference to 
        the market price of a security, the award of damages to 
        the plaintiff shall not exceed the difference between 
        the purchase or sale price paid or received, as 
        appropriate, by the plaintiff for the subject security 
        and the mean trading price of that security during the 
        90-day period beginning on the date on which the 
        information correcting the misstatement or omission 
        that is the basis for the action is disseminated to the 
        market.
            ``(2) Exception.--In any private action arising 
        under this title in which the plaintiff seeks to 
        establish damages by reference to the market price of a 
        security, if the plaintiff sells or repurchases the 
        subject security prior to the expiration of the 90-day 
        period described in paragraph (1), the plaintiff's 
        damages shall not exceed the difference between the 
        purchase or sale price paid or received, as 
        appropriate, by the plaintiff for the security and the 
        mean trading price of the security during the period 
        beginning immediately after dissemination of 
        information correcting the misstatement or omission and 
        ending on the date on which the plaintiff sells or 
        repurchases the security.
            ``(3) Definition.--For purposes of this subsection, 
        the `mean trading price' of a security shall be an 
        average of the daily trading price of that security, 
        determined as of the close of the market each day 
        during the 90-day period referred to in paragraph 
        (1).''.

SEC. 102. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    (a) Amendment to the Securities Act of 1933.--Title I of 
the Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended 
by inserting after section 27 (as added by this Act) the 
following new section:

``SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) Applicability.--This section shall apply only to a 
forward-looking statement made by--
            ``(1) an issuer that, at the time that the 
        statement is made, is subject to the reporting 
        requirements of section 13(a) or section 15(d) of the 
        Securities Exchange Act of 1934;
            ``(2) a person acting on behalf of such issuer;
            ``(3) an outside reviewer retained by such issuer 
        making a statement on behalf of such issuer; or
            ``(4) an underwriter, with respect to information 
        provided by such issuer or information derived from 
        information provided by the issuer.
    ``(b) Exclusions.--Except to the extent otherwise 
specifically provided by rule, regulation, or order of the 
Commission, this section shall not apply to a forward-looking 
statement--
            ``(1) that is made with respect to the business or 
        operations of the issuer, if the issuer--
                    ``(A) during the 3-year period preceding 
                the date on which the statement was first 
                made--
                            ``(i) was convicted of any felony 
                        or misdemeanor described in clauses (i) 
                        through (iv) of section 15(b)(4)(B) of 
                        the Securities Exchange Act of 1934; or
                            ``(ii) has been made the subject of 
                        a judicial or administrative decree or 
                        order arising out of a governmental 
                        action that--
                                    ``(I) prohibits future 
                                violations of the antifraud 
                                provisions of the securities 
                                laws;
                                    ``(II) requires that the 
                                issuer cease and desist from 
                                violating the antifraud 
                                provisions of the securities 
                                laws; or
                                    ``(III) determines that the 
                                issuer violated the antifraud 
                                provisions of the securities 
                                laws;
                    ``(B) makes the forward-looking statement 
                in connection with an offering of securities by 
                a blank check company;
                    ``(C) issues penny stock;
                    ``(D) makes the forward-looking statement 
                in connection with a rollup transaction; or
                    ``(E) makes the forward-looking statement 
                in connection with a going private transaction; 
                or
            ``(2) that is--
                    ``(A) included in a financial statement 
                prepared in accordance with generally accepted 
                accounting principles;
                    ``(B) contained in a registration statement 
                of, or otherwise issued by, an investment 
                company;
                    ``(C) made in connection with a tender 
                offer;
                    ``(D) made in connection with an initial 
                public offering;
                    ``(E) made in connection with an offering 
                by, or relating to the operations of, a 
                partnership, limited liability company, or a 
                direct participation investment program; or
                    ``(F) made in a disclosure of beneficial 
                ownership in a report required to be filed with 
                the Commission pursuant to section 13(d) of the 
                Securities Exchange Act of 1934.
    ``(c) Safe Harbor.--
            ``(1) In general.--Except as provided in subsection 
        (b), in any private action arising under this title 
        that is based on an untrue statement of a material fact 
        or omission of a material fact necessary to make the 
        statement not misleading, a person referred to in 
        subsection (a) shall not be liable with respect to any 
        forward-looking statement, whether written or oral, if 
        and to the extent that--
                    ``(A) the forward-looking statement is--
                            ``(i) identified as a forward-
                        looking statement, and is accompanied 
                        by meaningful cautionary statements 
                        identifying important factors that 
                        could cause actual results to differ 
                        materially from those in the forward-
                        looking statement; or
                            ``(ii) immaterial; or
                    ``(B) the plaintiff fails to prove that the 
                forward-looking statement--
                            ``(i) if made by a natural person, 
                        was made with actual knowledge by that 
                        person that the statement was false or 
                        misleading; or
                            ``(ii) if made by a business 
                        entity; was--
                                    ``(I) made by or with the 
                                approval of an executive 
                                officer of that entity, and
                                    ``(II) made or approved by 
                                such officer with actual 
                                knowledge by that officer that 
                                the statement was false or 
                                misleading.
            ``(2) Oral forward-looking statements.--In the case 
        of an oral forward-looking statement made by an issuer 
        that is subject to the reporting requirements of 
        section 13(a) or section 15(d) of the Securities 
        Exchange Act of 1934, or by a person acting on behalf 
        of such issuer, the requirement set forth in paragraph 
        (1)(A) shall be deemed to be satisfied--
                    ``(A) if the oral forward-looking statement 
                is accompanied by a cautionary statement--
                            ``(i) that the particular oral 
                        statement is a forward-looking 
                        statement; and
                            ``(ii) that the actual results 
                        could differ materially from those 
                        projected in the forward-looking 
                        statement; and
                    ``(B) if--
                            ``(i) the oral forward-looking 
                        statement is accompanied by an oral 
                        statement that additional information 
                        concerning factors that could cause 
                        actual results to differ materially 
                        from those in the forward-looking 
                        statement is contained in a readily 
                        available written document, or portion 
                        thereof;
                            ``(ii) the accompanying oral 
                        statement referred to in clause (i) 
                        identifies the document, or portion 
                        thereof, that contains the additional 
                        information about those factors 
                        relating to the forward-looking 
                        statement; and
                            ``(iii) the information contained 
                        in that written document is a 
                        cautionary statement that satisfies the 
                        standard established in paragraph 
                        (1)(A).
            ``(3) Availability.--Any document filed with the 
        Commission or generally disseminated shall be deemed to 
        be readily available for purposes of paragraph (2).
            ``(4) Effect on other safe harbors.--The exemption 
        provided for in paragraph (1) shall be in addition to 
        any exemption that the Commission may establish by rule 
        or regulation under subsection (g).
    ``(d) Duty To Update.--Nothing in this section shall impose 
upon any person a duty to update a forward-looking statement.
    ``(e) Dispositive Motion.--On any motion to dismiss based 
upon subsection (c)(1), the court shall consider any statement 
cited in the complaint and cautionary statement accompanying 
the forward-looking statement, which are not subject to 
material dispute, cited by the defendant.
    ``(f) Stay Pending Decision on Motion.--In any private 
action arising under this title, the court shall stay discovery 
(other than discovery that is specifically directed to the 
applicability of the exemption provided for in this section) 
during the pendency of any motion by a defendant for summary 
judgment that is based on the grounds that--
            ``(1) the statement or omission upon which the 
        complaint is based is a forward-looking statement 
        within the meaning of this section; and
            ``(2) the exemption provided for in this section 
        precludes a claim for relief.
    ``(g) Exemption Authority.--In addition to the exemptions 
provided for in this section, the Commission may, by rule or 
regulation, provide exemptions from or under any provision of 
this title, including with respect to liability that is based 
on a statement or that is based on projections or other 
forward-looking information, 
if and to the extent that any such exemption is consistent with 
the public interest and the protection of investors, as 
determined by the Commission.
    ``(h) Effect on Other Authority of Commission.--Nothing in 
this section limits, either expressly or by implication, the 
authority of the Commission to exercise similar authority or to 
adopt similar rules and regulations with respect to forward-
looking statements under any other statute under which the 
Commission exercises rulemaking authority.
    ``(i) Definitions.--For purposes of this section, the 
following definitions shall apply:
            ``(1) Forward-looking statement.--The term 
        `forward-looking statement' means--
                    ``(A) a statement containing a projection 
                of revenues, income (including income loss), 
                earnings (including earnings loss) per share, 
                capital expenditures, dividends, capital 
                structure, or other financial items;
                    ``(B) a statement of the plans and 
                objectives of management for future operations, 
                including plans or objectives relating to the 
                products or services of the issuer;
                    ``(C) a statement of future economic 
                performance, including any such statement 
                contained in a discussion and analysis of 
                financial condition by the management or in the 
                results of operations included pursuant to the 
                rules and regulations of the Commission;
                    ``(D) any statement of the assumptions 
                underlying or relating to any statement 
                described in subparagraph (A), (B), or (C);
                    ``(E) any report issued by an outside 
                reviewer retained by an issuer, to the extent 
                that the report assesses a forward-looking 
                statement made by the issuer; or
                    ``(F) a statement containing a projection 
                or estimate of such other items as may be 
                specified by rule or regulation of the 
                Commission.
            ``(2) Investment company.--The term `investment 
        company' has the same meaning as in section 3(a) of the 
        Investment Company Act of 1940.
            ``(3) Penny stock.--The term `penny stock' has the 
        same meaning as in section 3(a)(51) of the Securities 
        Exchange Act of 1934, and the rules and regulations, or 
        orders issued pursuant to that section.
            ``(4) Going private transaction.--The term `going 
        private transaction' has the meaning given that term 
        under the rules or regulations of the Commission issued 
        pursuant to section 13(e) of the Securities Exchange 
        Act of 1934.
            ``(5) Securities laws.--The term `securities laws' 
        has the same meaning as in section 3 of the Securities 
        Exchange Act of 1934.
            ``(6) Person acting on behalf of an issuer.--The 
        term `person acting on behalf of an issuer' means an 
        officer, director, or employee of the issuer.
            ``(7) Other terms.--The terms `blank check 
        company', `rollup transaction', `partnership', `limited 
        liability company', `executive officer of an entity' 
        and `direct participation investment program', have the 
        meanings given those terms by rule or regulation of the 
        Commission.''.
    (b) Amendment to the Securities Exchange Act of 1934.--The 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 21D (as added by this Act) 
the following new section:

``SEC. 21E. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) Applicability.--This section shall apply only to a 
forward-looking statement made by--
            ``(1) an issuer that, at the time that the 
        statement is made, is subject to the reporting 
        requirements of section 13(a) or section 15(d);
            ``(2) a person acting on behalf of such issuer;
            ``(3) an outside reviewer retained by such issuer 
        making a statement on behalf of such issuer; or
            ``(4) an underwriter, with respect to information 
        provided by such issuer or information derived from 
        information provided by such issuer.
    ``(b) Exclusions.--Except to the extent otherwise 
specifically provided by rule, regulation, or order of the 
Commission, this section shall not apply to a forward-looking 
statement--
            ``(1) that is made with respect to the business or 
        operations of the issuer, if the issuer--
                    ``(A) during the 3-year period preceding 
                the date on which the statement was first 
                made--
                            ``(i) was convicted of any felony 
                        or misdemeanor described in clauses (i) 
                        through (iv) of section 15(b)(4)(B); or
                            ``(ii) has been made the subject of 
                        a judicial or administrative decree or 
                        order arising out of a governmental 
                        action that--
                                    ``(I) prohibits future 
                                violations of the antifraud 
                                provisions of the securities 
                                laws;
                                    ``(II) requires that the 
                                issuer cease and desist from 
                                violating the antifraud 
                                provisions of the securities 
                                laws; or
                                    ``(III) determines that the 
                                issuer violated the antifraud 
                                provisions of the securities 
                                laws;
                    ``(B) makes the forward-looking statement 
                in connection with an offering of securities by 
                a blank check company;
                    ``(C) issues penny stock;
                    ``(D) makes the forward-looking statement 
                in connection with a rollup transaction; or
                    ``(E) makes the forward-looking statement 
                in connection with a going private transaction; 
                or
            ``(2) that is--
                    ``(A) included in a financial statement 
                prepared in accordance with generally accepted 
                accounting principles;
                    ``(B) contained in a registration statement 
                of, or otherwise issued by, an investment 
                company;
                    ``(C) made in connection with a tender 
                offer;
                    ``(D) made in connection with an initial 
                public offering;
                    ``(E) made in connection with an offering 
                by, or relating to the operations of, a 
                partnership, limited liability company, or a 
                direct participation investment program; or
                    ``(F) made in a disclosure of beneficial 
                ownership in a report required to be filed with 
                the Commission pursuant to section 13(d).
    ``(c) Safe Harbor.--
            ``(1) In general.--Except as provided in subsection 
        (b), in any private action arising under this title 
        that is based on an untrue statement of a material fact 
        or omission of a material fact necessary to make the 
        statement not misleading, a person referred to in 
        subsection (a) shall not be liable with respect to any 
        forward-looking statement, whether written or oral, if 
        and to the extent that--
                    ``(A) the forward-looking statement is--
                            ``(i) identified as a forward-
                        looking statement, and is accompanied 
                        by meaningful cautionary statements 
                        identifying important factors that 
                        could cause actual results to differ 
                        materially from those in the forward-
                        looking statement; or
                            ``(ii) immaterial; or
                    ``(B) the plaintiff fails to prove that the 
                forward-looking statement--
                            ``(i) if made by a natural person, 
                        was made with actual knowledge by that 
                        person that the statement was false or 
                        misleading; or
                            ``(ii) if made by a business 
                        entity; was--
                                    ``(I) made by or with the 
                                approval of an executive 
                                officer of that entity; and
                                    ``(II) made or approved by 
                                such officer with actual 
                                knowledge by that officer that 
                                the statement was false or 
                                misleading.
            ``(2) Oral forward-looking statements.--In the case 
        of an oral forward-looking statement made by an issuer 
        that is subject to the reporting requirements of 
        section 13(a) or section 15(d), or by a person acting 
        on behalf of such issuer, the requirement set forth in 
        paragraph (1)(A) shall be deemed to be satisfied--
                    ``(A) if the oral forward-looking statement 
                is accompanied by a cautionary statement--
                            ``(i) that the particular oral 
                        statement is a forward-looking 
                        statement; and
                            ``(ii) that the actual results 
                        might differ materially from those 
                        projected in the forward-looking 
                        statement; and
                    ``(B) if--
                            ``(i) the oral forward-looking 
                        statement is accompanied by an oral 
                        statement that additional information 
                        concerning factors that could cause 
                        actual results to materially differ 
                        from those in the forward-looking 
                        statement is contained in a readily 
                        available written document, or portion 
                        thereof;
                            ``(ii) the accompanying oral 
                        statement referred to in clause (i) 
                        identifies the document, or portion 
                        thereof, that contains the additional 
                        information about those factors 
                        relating to the forward-looking 
                        statement; and
                            ``(iii) the information contained 
                        in that written document is a 
                        cautionary statement that satisfies the 
                        standard established in paragraph 
                        (1)(A).
            ``(3) Availability.--Any document filed with the 
        Commission or generally disseminated shall be deemed to 
        be readily available for purposes of paragraph (2).
            ``(4) Effect on other safe harbors.--The exemption 
        provided for in paragraph (1) shall be in addition to 
        any exemption that the Commission may establish by rule 
        or regulation under subsection (g).
    ``(d) Duty To Update.--Nothing in this section shall impose 
upon any person a duty to update a forward-looking statement.
    ``(e) Dispositive Motion.--On any motion to dismiss based 
upon subsection (c)(1), the court shall consider any statement 
cited in the complaint and any cautionary statement 
accompanying the forward-looking statement, which are not 
subject to material dispute, cited by the defendant.
    ``(f) Stay Pending Decision on Motion.--In any private 
action arising under this title, the court shall stay discovery 
(other than discovery that is specifically directed to the 
applicability of the exemption provided for in this section) 
during the pendency of any motion by a defendant for summary 
judgment that is based on the grounds that--
            ``(1) the statement or omission upon which the 
        complaint is based is a forward-looking statement 
        within the meaning of this section; and
            ``(2) the exemption provided for in this section 
        precludes a claim for relief.
    ``(g) Exemption Authority.--In addition to the exemptions 
provided for in this section, the Commission may, by rule or 
regulation, provide exemptions from or under any provision of 
this title, including with respect to liability that is based 
on a statement or that is based on projections or other 
forward-looking information, if and to the extent that any such 
exemption is consistent with the public interest and the 
protection of investors, as determined by the Commission.
    ``(h) Effect on Other Authority of Commission.--Nothing in 
this section limits, either expressly or by implication, the 
authority of the Commission to exercise similar authority or to 
adopt similar rules and regulations with respect to forward-
looking statements under any other statute under which the 
Commission exercises rulemaking authority.
    ``(i) Definitions.--For purposes of this section, the 
following definitions shall apply:
            ``(1) Forward-looking statement.--The term 
        `forward-looking statement' means--
                    ``(A) a statement containing a projection 
                of revenues, income (including income loss), 
                earnings (including earnings loss) per share, 
                capital expenditures, dividends, capital 
                structure, or other financial items;
                    ``(B) a statement of the plans and 
                objectives of management for future operations, 
                including plans or objectives relating to the 
                products or services of the issuer;
                    ``(C) a statement of future economic 
                performance, including any such statement 
                contained in a discussion and analysis of 
                financial condition by the management or in the 
                results of operations included pursuant to the 
                rules and regulations of the Commission;
                    ``(D) any statement of the assumptions 
                underlying or relating to any statement 
                described in subparagraph (A), (B), or (C);
                    ``(E) any report issued by an outside 
                reviewer retained by an issuer, to the extent 
                that the report assesses a forward-looking 
                statement made by the issuer; or
                    ``(F) a statement containing a projection 
                or estimate of such other items as may be 
                specified by rule or regulation of the 
                Commission.
            ``(2) Investment company.--The term `investment 
        company' has the same meaning as in section 3(a) of the 
        Investment Company Act of 1940.
            ``(3) Going private transaction.--The term `going 
        private transaction' has the meaning given that term 
        under the rules or regulations of the Commission issued 
        pursuant to section 13(e).
            ``(4) Person acting on behalf of an issuer.--The 
        term `person acting on behalf of an issuer' means any 
        officer, director, or employee of such issuer.
            ``(5) Other terms.--The terms `blank check 
        company', `rollup transaction', `partnership', `limited 
        liability company', `executive officer of an entity' 
        and `direct participation investment program', have the 
        meanings given those terms by rule or regulation of the 
        Commission.''.

SEC. 103. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

    (a) Prohibition of Referral Fees.--Section 15(c) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended 
by adding at the end the following new paragraph:
            ``(8) Prohibition of referral fees.--No broker or 
        dealer, or person associated with a broker or dealer, 
        may solicit or accept, directly or indirectly, 
        remuneration for assisting an attorney in obtaining the 
        representation of any person in any private action 
        arising under this title or under the Securities Act of 
        1933.''.
    (b) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--
            (1) Securities act of 1933.--Section 20 of the 
        Securities Act of 1933 (15 U.S.C. 77t) is amended by 
        adding at the end the following new subsection:
    ``(f) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--Except as otherwise ordered by the court 
upon motion by the Commission, or, in the case of an 
administrative action, as otherwise ordered by the Commission, 
funds disgorged as the result of an action brought by the 
Commission in Federal court, or as a result of any Commission 
administrative action, shall not be distributed as payment for 
attorneys' fees or expenses incurred by private parties seeking 
distribution of the disgorged funds.''.
            (2) Securities exchange act of 1934.--Section 21(d) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 
        78u(d)) is amended by adding at the end the following 
        new paragraph:
            ``(4) Prohibition of attorneys' fees paid from 
        commission disgorgement funds.--Except as otherwise 
        ordered by the court upon motion by the Commission, or, 
        in the case of an administrative action, as otherwise 
        ordered by the Commission, funds disgorged as the 
        result of an action brought 
        by the Commission in Federal court, or as a result of 
        any Commission administrative action, shall not be 
        distributed as payment for attorneys' fees or expenses 
        incurred by private parties seeking distribution of the 
        disgorged funds.''.

SEC. 104. AUTHORITY OF COMMISSION TO PROSECUTE AIDING AND ABETTING.

    Section 20 of the Securities Exchange Act of 1934 (15 
U.S.C. 78t) is amended--
            (1) by striking the section heading and inserting 
        the following:

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

        and
            (2) by adding at the end the following new 
        subsection:
    ``(f) Prosecution of Persons Who Aid and Abet Violations.--
For purposes of any action brought by the Commission under 
paragraph (1) or (3) of section 21(d), any person that 
knowingly provides substantial assistance to another person in 
violation of a provision of this title, or of any rule or 
regulation issued under this title, shall be deemed to be in 
violation of such provision to the same extent as the person to 
whom such assistance is provided.''.

SEC. 105. LOSS CAUSATION.

    Section 12 of the Securities Act of 1933 (15 U.S.C. 77l) is 
amended--
            (1) by inserting ``(a) In General.--'' before ``Any 
        person'';
            (2) by inserting ``, subject to subsection (b),'' 
        after ``shall be liable''; and
            (3) by adding at the end the following:
    ``(b) Loss Causation.--In an action described in subsection 
(a)(2), if the person who offered or sold such security proves 
that any portion or all of the amount recoverable under 
subsection (a)(2) represents other than the depreciation in 
value of the subject security resulting from such part of the 
prospectus or oral communication, with respect to which the 
liability of that person is asserted, not being true or 
omitting to state a material fact required to be stated therein 
or necessary to make the statement not misleading, then such 
portion or amount, as the case may be, shall not be 
recoverable.''.

SEC. 106. STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS AND 
                    QUALIFIED RETIREMENT PLANS.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission 
shall--
            (1) determine whether investors that are senior 
        citizens or qualified retirement plans require greater 
        protection against securities fraud than is provided in 
        this Act and the amendments made by this Act;
            (2) determine whether investors that are senior 
        citizens or qualified retirement plans have been 
        adversely impacted by abusive or unnecessary securities 
        fraud litigation, and whether the provisions in this 
        Act or amendments made by 
        this Act are sufficient to protect their investments 
        from such litigation; and
            (3) if so, submit to the Congress a report 
        containing recommendations on protections from 
        securities fraud and abusive or unnecessary securities 
        fraud litigation that the Commission determines to be 
        appropriate to thoroughly protect such investors.
    (b) Definitions.--For purposes of this section--
            (1) the term ``qualified retirement plan'' has the 
        same meaning as in section 4974(c) of the Internal 
        Revenue Code of 1986; and
            (2) the term ``senior citizen'' means an individual 
        who is 62 years of age or older as of the date of the 
        securities transaction at issue.

SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS 
                    ACT.

    Section 1964(c) of title 18, United States Code, is amended 
by inserting before the period ``, except that no person may 
rely upon any conduct that would have been actionable as fraud 
in the purchase or sale of securities to establish a violation 
of section 1962. The exception contained in the preceding 
sentence does not apply to an action against any person that is 
criminally convicted in connection with the fraud, in which 
case the statute of limitations shall start to run on the date 
on which the conviction becomes final''.

SEC. 108. APPLICABILITY.

    The amendments made by this title shall not affect or apply 
to any private action arising under title I of the Securities 
Exchange Act of 1934 or title I of the Securities Act of 1933, 
commenced before and pending on the date of enactment of this 
Act.

              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

SEC. 201. PROPORTIONATE LIABILITY.

    (a) Amendment to Securities and Exchange Act of 1934.--
Section 21D of the Securities Exchange Act of 1934 (as added by 
this Act) is amended by adding at the end the following new 
subsection:
    ``(g) Proportionate Liability.--
            ``(1) Applicability.--Nothing in this subsection 
        shall be construed to create, affect, or in any manner 
        modify, the standard for liability associated with any 
        action arising under the securities laws.
            ``(2) Liability for damages.--
                    ``(A) Joint and several liability.--Any 
                covered person against whom a final judgment is 
                entered in a private action shall be liable for 
                damages jointly and severally only if the trier 
                of fact specifically determines that such 
                covered person knowingly committed a violation 
                of the securities laws.
                    ``(B) Proportionate liability.--
                            ``(i) In general.--Except as 
                        provided in paragraph (1), a covered 
                        person against whom a final judgment 
                        is entered in a private action shall be 
                        liable solely for the portion of the 
                        judgment that corresponds to the 
                        percentage of responsibility of that 
                        covered person, as determined under 
                        paragraph (3).
                            ``(ii) Recovery by and costs of 
                        covered person.--In any case in which a 
                        contractual relationship permits, a 
                        covered person that prevails in any 
                        private action may recover the 
                        attorney's fees and costs of that 
                        covered person in connection with the 
                        action.
            ``(3) Determination of responsibility.--
                    ``(A) In general.--In any private action, 
                the court shall instruct the jury to answer 
                special interrogatories, or if there is no 
                jury, shall make findings, with respect to each 
                covered person and each of the other persons 
                claimed by any of the parties to have caused or 
                contributed to the loss incurred by the 
                plaintiff, including persons who have entered 
                into settlements with the plaintiff or 
                plaintiffs, concerning--
                            ``(i) whether such person violated 
                        the securities laws;
                            ``(ii) the percentage of 
                        responsibility of such person, measured 
                        as a percentage of the total fault of 
                        all persons who caused or contributed 
                        to the loss incurred by the plaintiff; 
                        and
                            ``(iii) whether such person 
                        knowingly committed a violation of the 
                        securities laws.
                    ``(B) Contents of special interrogatories 
                or findings.--The responses to interrogatories, 
                or findings, as appropriate, under subparagraph 
                (A) shall specify the total amount of damages 
                that the plaintiff is entitled to recover and 
                the percentage of responsibility of each 
                covered person found to have caused or 
                contributed to the loss incurred by the 
                plaintiff or plaintiffs.
                    ``(C) Factors for consideration.--In 
                determining the percentage of responsibility 
                under this paragraph, the trier of fact shall 
                consider--
                            ``(i) the nature of the conduct of 
                        each covered person found to have 
                        caused or contributed to the loss 
                        incurred by the plaintiff or 
                        plaintiffs; and
                            ``(ii) the nature and extent of the 
                        causal relationship between the conduct 
                        of each such person and the damages 
                        incurred by the plaintiff or 
                        plaintiffs.
            ``(4) Uncollectible share.--
                    ``(A) In general.--Notwithstanding 
                paragraph (2)(B), upon motion made not later 
                than 6 months after a final judgment is entered 
                in any private action, the court determines 
                that all or part of the share of the judgment 
                of the covered person is not collectible 
                against that covered person, and is also not 
                collectible against a covered person described 
                in paragraph (2)(A), each covered person 
                described in paragraph (2)(B) shall be liable 
                for the uncollectible share as follows:
                            ``(i) Percentage of net worth.--
                        Each covered person shall be jointly 
                        and severally liable for the 
                        uncollectible share if the plaintiff 
                        establishes that--
                                    ``(I) the plaintiff is an 
                                individual whose recoverable 
                                damages under the final 
                                judgment are 
                                equal to more than 10 percent 
                                of the net worth of the 
                                plaintiff; and
                                    ``(II) the net worth of the 
                                plaintiff is equal to less than 
                                $200,000.
                            ``(ii) Other plaintiffs.--With 
                        respect to any plaintiff not described 
                        in subclauses (I) and (II) of clause 
                        (i), each covered person shall be 
                        liable for the uncollectible share in 
                        proportion to the percentage of 
                        responsibility of that covered person, 
                        except that the total liability of a 
                        covered person under this clause may 
                        not exceed 50 percent of the 
                        proportionate share of that covered 
                        person, as determined under paragraph 
                        (3)(B).
                            ``(iii) Net worth.--For purposes of 
                        this subparagraph, net worth shall be 
                        determined as of the date immediately 
                        preceding the date of the purchase or 
                        sale (as applicable) by the plaintiff 
                        of the security that is the subject of 
                        the action, and shall be equal to the 
                        fair market value of assets, minus 
                        liabilities, including the net value of 
                        the investments of the plaintiff in 
                        real and personal property (including 
                        personal residences).
                    ``(B) Overall limit.--In no case shall the 
                total payments required pursuant to 
                subparagraph (A) exceed the amount of the 
                uncollectible share.
                    ``(C) Covered persons subject to 
                contribution.--A covered person against whom 
                judgment is not collectible shall be subject to 
                contribution and to any continuing liability to 
                the plaintiff on the judgment.
            ``(5) Right of contribution.--To the extent that a 
        covered person is required to make an additional 
        payment pursuant to paragraph (4), that covered person 
        may recover contribution--
                    ``(A) from the covered person originally 
                liable to make the payment;
                    ``(B) from any covered person liable 
                jointly and severally pursuant to paragraph 
                (2)(A);
                    ``(C) from any covered person held 
                proportionately liable pursuant to this 
                paragraph who is liable to make the same 
                payment and has paid less than his or her 
                proportionate share of that payment; or
                    ``(D) from any other person responsible for 
                the conduct giving rise to the payment that 
                would have been liable to make the same 
                payment.
            ``(6) Nondisclosure to jury.--The standard for 
        allocation of damages under paragraphs (2) and (3) and 
        the procedure for reallocation of uncollectible shares 
        under paragraph (4) shall not be disclosed to members 
        of the jury.
            ``(7) Settlement discharge.--
                    ``(A) In general.--A covered person who 
                settles any private action at any time before 
                final verdict or judgment shall be discharged 
                from all claims for contribution brought by 
                other persons. Upon entry of the settlement by 
                the court, the court shall enter a bar order 
                constituting the final discharge of all 
                obligations to the plaintiff of the settling 
                covered person arising out of the action. The 
                order 
                shall bar all future claims for contribution 
                arising out of the action--
                            ``(i) by any person against the 
                        settling covered person; and
                            ``(ii) by the settling covered 
                        person against any person, other than a 
                        person whose liability has been 
                        extinguished by the settlement of the 
                        settling covered person.
                    ``(B) Reduction.--If a covered person 
                enters into a settlement with the plaintiff 
                prior to final verdict or judgment, the verdict 
                or judgment shall be reduced by the greater 
                of--
                            ``(i) an amount that corresponds to 
                        the percentage of responsibility of 
                        that covered person; or
                            ``(ii) the amount paid to the 
                        plaintiff by that covered person.
            ``(8) Contribution.--A covered person who becomes 
        jointly and severally liable for damages in any private 
        action may recover contribution from any other person 
        who, if joined in the original action, would have been 
        liable for the same damages. A claim for contribution 
        shall be determined based on the percentage of 
        responsibility of the claimant and of each person 
        against whom a claim for contribution is made.
            ``(9) Statute of limitations for contribution.--In 
        any private action determining liability, an action for 
        contribution shall be brought not later than 6 months 
        after the entry of a final, nonappealable judgment in 
        the action, except that an action for contribution 
        brought by a covered person who was required to make an 
        additional payment pursuant to paragraph (4) may be 
        brought not later than 6 months after the date on which 
        such payment was made.
            ``(10) Definitions.--For purposes of this 
        subsection--
                    ``(A) a covered person `knowingly commits a 
                violation of the securities laws'--
                            ``(i) with respect to an action 
                        that is based on an untrue statement of 
                        material fact or omission of a material 
                        fact necessary to make the statement 
                        not misleading, if--
                                    ``(I) that covered person 
                                makes an untrue statement of a 
                                material fact, with actual 
                                knowledge that the 
                                representation is false, or 
                                omits to state a fact necessary 
                                in order to make the statement 
                                made not misleading, with 
                                actual knowledge that, as a 
                                result of the omission, one of 
                                the material representations of 
                                the covered person is false; 
                                and
                                    ``(II) persons are likely 
                                to reasonably rely on that 
                                misrepresentation or omission; 
                                and
                            ``(ii) with respect to an action 
                        that is based on any conduct that is 
                        not described in clause (i), if that 
                        covered person engages in that conduct 
                        with actual knowledge of the facts and 
                        circumstances that make the conduct of 
                        that covered person a violation of the 
                        securities laws;
                    ``(B) reckless conduct by a covered person 
                shall not be construed to constitute a knowing 
                commission of a violation of the securities 
                laws by that covered person;
                    ``(C) the term `covered person' means--
                            ``(i) a defendant in any private 
                        action arising under this title; or
                            ``(ii) a defendant in any private 
                        action arising under section 11 of the 
                        Securities Act of 1933, who is an 
                        outside director of the issuer of the 
                        securities that are the subject of the 
                        action; and
                    ``(D) the term `outside director' shall 
                have the meaning given such term by rule or 
                regulation of the Commission.''.
    (b) Amendments to the Securities Act of 1933.--Section 
11(f) of the Securities Act of 1933 (12 U.S.C. 77k(f)) is 
amended--
            (1) by striking ``All'' and inserting ``(1) Except 
        as provided in paragraph (2), all''; and
            (2) by adding at the end the following new 
        paragraph:
    ``(2)(A) The liability of an outside director under 
subsection (e) shall be determined in accordance with section 
38 of the Securities Exchange Act of 1934.
    ``(B) For purposes of this paragraph, the term `outside 
director' shall have the meaning given such term by rule or 
regulation of the Commission .''.

SEC. 202. APPLICABILITY.

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

SEC. 203. RULE OF CONSTRUCTION.

    Nothing in this Act or the amendments made by this Act 
shall be deemed to create or ratify any implied private right 
of action, or to prevent the Commission, by rule or regulation, 
from restricting or otherwise regulating private actions under 
the Securities Exchange Act of 1934.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

SEC. 301. FRAUD DETECTION AND DISCLOSURE.

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

``SEC. 10A. AUDIT REQUIREMENTS.

    ``(a) In General.--Each audit required pursuant to this 
title of the financial statements of an issuer by an 
independent public accountant shall include, in accordance with 
generally accepted auditing standards, as may be modified or 
supplemented from time to time by the Commission--
            ``(1) procedures designed to provide reasonable 
        assurance of detecting illegal acts that would have a 
        direct and material effect on the determination of 
        financial statement amounts;
            ``(2) procedures designed to identify related party 
        transactions that are material to the financial 
        statements or otherwise require disclosure therein; and
            ``(3) an evaluation of whether there is substantial 
        doubt about the ability of the issuer to continue as a 
        going concern during the ensuing fiscal year.
    ``(b) Required Response To Audit Discoveries.--
            ``(1) Investigation and report to management.--If, 
        in the course of conducting an audit pursuant to this 
        title to which subsection (a) applies, the independent 
        public accountant detects or otherwise becomes aware of 
        information indicating that an illegal act (whether or 
        not perceived to have a material effect on the 
        financial statements of the issuer) has or may have 
        occurred, the accountant shall, in accordance with 
        generally accepted auditing standards, as may be 
        modified or supplemented from time to time by the 
        Commission--
                    ``(A)(i) determine whether it is likely 
                that an illegal act has occurred; and
                    ``(ii) if so, determine and consider the 
                possible effect of the illegal act on the 
                financial statements of the issuer, including 
                any contingent monetary effects, such as fines, 
                penalties, and damages; and
                    ``(B) as soon as practicable, inform the 
                appropriate level of the management of the 
                issuer and assure that the audit committee of 
                the issuer, or the board of directors of the 
                issuer in the absence of such a committee, is 
                adequately informed with respect to illegal 
                acts that have been detected or have otherwise 
                come to the attention of such accountant in the 
                course of the audit, unless the illegal act is 
                clearly inconsequential.
            ``(2) Response to failure to take remedial 
        action.--If, after determining that the audit committee 
        of the board of directors of the issuer, or the board 
        of directors of the issuer in the absence of an audit 
        committee, is adequately informed with respect to 
        illegal acts that have been detected or have otherwise 
        come to the attention of the accountant in the course 
        of the audit of such accountant, the independent public 
        accountant concludes that--
                    ``(A) the illegal act has a material effect 
                on the financial statements of the issuer;
                    ``(B) the senior management has not taken, 
                and the board of directors has not caused 
                senior management to take, timely and 
                appropriate remedial actions with respect to 
                the illegal act; and
                    ``(C) the failure to take remedial action 
                is reasonably expected to warrant departure 
                from a standard report of the auditor, when 
                made, or warrant resignation from the audit 
                engagement;
        the independent public accountant shall, as soon as 
        practicable, directly report its conclusions to the 
        board of directors.
            ``(3) Notice to commission; response to failure to 
        notify.--An issuer whose board of directors receives a 
        report under paragraph (2) shall inform the Commission 
        by notice not later than 1 business day after the 
        receipt of such report and shall furnish the 
        independent public accountant making such report with a 
        copy of the notice furnished to the Commission. If the 
        independent public accountant fails to receive a copy 
        of the notice before the expiration of the required 1-
        business-day period, the independent public accountant 
        shall--
                    ``(A) resign from the engagement; or
                    ``(B) furnish to the Commission a copy of 
                its report (or the documentation of any oral 
                report given) not later than 1 business day 
                following such failure to receive notice.
            ``(4) Report after resignation.--If an independent 
        public accountant resigns from an engagement under 
        paragraph (3)(A), the accountant shall, not later than 
        1 business day following the failure by the issuer to 
        notify the Commission under paragraph (3), furnish to 
        the Commission a copy of the accountant's report (or 
        the documentation of any oral report given).
    ``(c) Auditor Liability Limitation.--No independent public 
accountant shall be liable in a private action for any finding, 
conclusion, or statement expressed in a report made pursuant to 
paragraph (3) or (4) of subsection (b), including any rule 
promulgated pursuant thereto.
    ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If 
the Commission finds, after notice and opportunity for hearing 
in a proceeding instituted pursuant to section 21C, that an 
independent public accountant has willfully violated paragraph 
(3) or (4) of subsection (b), the Commission may, in addition 
to entering an order under section 21C, impose a civil penalty 
against the independent public accountant and any other person 
that the Commission finds was a cause of such violation. The 
determination to impose a civil penalty and the amount of the 
penalty shall be governed by the standards set forth in section 
21B.
    ``(e) Preservation of Existing Authority.--Except as 
provided in subsection (d), nothing in this section shall be 
held to limit or otherwise affect the authority of the 
Commission under this title.
    ``(f) Definition.--As used in this section, the term 
`illegal act' means an act or omission that violates any law, 
or any rule or regulation having the force of law.''.
    (b) Effective Dates.--The amendment made by subsection (a) 
shall apply to each annual report--
            (1) for any period beginning on or after January 1, 
        1996, with respect to any registrant that is required 
        to file selected quarterly financial data pursuant to 
        the rules or regulations of the Securities and Exchange 
        Commission; and
            (2) for any period beginning on or after January 1, 
        1997, with respect to any other registrant.

                                   Newt Gingrich,
                           Speaker of the House of Representatives.
                                   Strom Thurmond,
                               President of the Senate pro tempore.
    [Endorsement on back of bill:)
    I certify that this Act originated in the House of 
Representatives.
                                             Robin H. Carle, Clerk.

                                
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