[Congressional Record Volume 141, Number 10 (Wednesday, January 18, 1995)]
[Extensions of Remarks]
[Pages E118-E119]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


    INTRODUCTION OF PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

                                 ______


                         HON. EDWARD J. MARKEY

                            of massachusetts

                    in the house of representatives

                       Wednesday, January 18, 1995
  Mr. MARKEY. Mr. Speaker, today I am introducing legislation which 
would reform securities fraud litigation in order to curb frivolous 
[[Page E119]] lawsuits while protecting and strengthening the ability 
of defrauded investors to sue.
  I believe that Americans can be justifiably proud of the substantial 
benefits we enjoy from the fact that we have the best securities 
markets in the world. Our stock and bond markets have expanded 
tremendously over the last several years. This has helped to finance 
the birth and growth of promising new industries such as 
telecommunications, computer software, and other high technology 
companies that create better jobs and promote economic growth.
  One of the most critical factors supporting the successful growth of 
America's market-based capital formation system is the high level of 
trust and confidence investors have in the fundamental integrity and 
fairness of our securities markets. Our Federal securities laws help 
assure stock or bond prices efficiently reflect the values of the 
companies that have issued them. This is achieved through a system of 
full disclosure of all material information about public companies, 
which empowers Americans so that they can make informed investment 
decisions about which company's stocks or bonds they want to purchase. 
But disclosure cannot effectively serve the needs of the investing 
public unless backed up by strong enforcement mechanisms that assure 
that those who lie, cheat, and steal will be caught and punished.
  Over the last decade, we have witnessed horrendous financial frauds 
involving hundreds of billions of dollars--including Lincoln Savings & 
Loan, Drexel, Centrust, Phar-Mor, Miniscribe, and ZZZ Best. The 
``rogues gallery'' of financial miscreants and malfeasors that were 
responsible for these crimes were brought to justice through the 
combined efforts of Federal regulators and individual investors who 
filed private lawsuits. Such private lawsuits perform functions that 
Federal bureaucrats cannot accomplish. They provide compensation to 
investors who have been defrauded and they supplement the SEC's 
enforcement activities by helping to deter companies that may be 
contemplating actions that would mislead their investors.
  The securities litigation provisions of the GOP Contract With America 
would give white collar criminals, stock swindlers, and financial con 
artists a license to rip-off the investing public. Make no mistake 
about it: H.R. 10, the so-called Common Sense Legal Reform Act, is 
special interest legislation at its worst. While it purports to take 
aim against abuses by attorneys, in reality the principal beneficiaries 
of this legislation will be huge corporations, wealthy Wall Street 
investment bankers, Big Six Accounting firms, and well-heeled corporate 
lawyers. Who will lose out? The defrauded investors, pension funds, and 
State and local governments who are victimized by financial fraud, and 
every honest business in America which can't get capital to build 
because a competitor is checking the system.
  Individual investors--such as those here today who have suffered 
financial losses as the result of the Orange County bankruptcy--will 
face nearly insurmountable new procedural and substantive obstacles in 
bringing their cases to court. Proposals such as adoption of the 
English rule on fee shifting, establishment of heightened intent 
requirements that would eliminate recklessness as a cause of action in 
securities fraud cases, enhanced pleading requirements, elimination of 
cases based on a fraud on the market, and other proposed changes would 
effectively end securities class action litigation in this country. 
This would deprive potentially defrauded investors from being able to 
seek recovery of their lost savings.
  Unlike the Republican bill, the legislation I am introducing today 
would target the real problems and abuses that can occur in the 
existing litigation process without impairing the ability of defrauded 
investors to sue wealthy corporations, and the accountants or attorneys 
who knowingly or recklessly assisted them in perpetrating financial 
frauds. My bill contains reforms which would:
  Ban or restrict a range of abusive practices engaged in by 
plaintiffs' or defendants' attorneys;
  Streamline the securities litigation process by providing for an 
early evaluation process aimed at weeding out frivolous cases;
  Require the SEC to issue new rules to strengthen the safe harbor 
provided for companies to issue forward-looking statements;
  Limit the potential financial risk faced by defendants in securities 
fraud litigation cases by providing defendants with a right to obtain 
contribution from their codefendants based on proportionate 
responsibility;
  Assure that the interests of plaintiffs' attorneys are more closely 
aligned with the interests of their clients by mandating that fees be 
calculated on the percentage of lost funds recovered, rather than on 
how many billable hours the lawyers have generated;
  Overturn the Supreme Court's Central Bank of Denver decision by fully 
restoring liability to those who knowingly or recklessly aid or abet 
securities fraud;
  Overturn the Supreme Court's Lampf decision by establishing a statute 
of limitations for securities fraud cases of 5 years after occurrence 
or 3 years after the violation was actually discovered;
  Strengthen the role of auditors in detecting and reporting evidence 
of financial fraud; and finally,
  Mandate an SEC study on the effectiveness of private enforcement of 
compliance with the federal securities laws.
  This package of reforms represents a balanced alternative to the 
special interest smorgasbord set forth in H.R. 10. Over the next few 
days and weeks, I intend to seek cosponsors to my bill and I fully 
expect to offer this legislation, or amendments derived from it, to 
H.R. 10 when it is marked up in our subcommittee. While the specifics 
of this bill may undergo further refinement during the course of 
discussions with my House colleagues, and some additional or related 
provisions may be introduced later, the fundamental principles of 
fairness to investors that this bill embodies will not be altered.
  In conclusion, I am proud, as a Democrat, to have supported the 
evolution of a market system that provides investors with the right to 
obtain full disclosure of critical investment information. I believe 
that investors who are defrauded by false or misleading financial 
statements, or inflated puffery about a corporation's earnings, 
products or prospects, or the value of its securities, should have a 
right to sue for recovery. The bill I am introducing today would 
preserve that right, while eliminating certain abusive or problematic 
practices that unduly burden the overwhelming majority of companies who 
are seeking in good faith to play by the rules and comply with the law.


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