[Congressional Record Volume 141, Number 10 (Wednesday, January 18, 1995)]
[Senate]
[Pages S1070-S1096]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. McCAIN:
  S. 233. A bill to provide for the termination of reporting 
requirements of certain executive reports submitted to the Congress, 
and for other purposes; to the Committee on Governmental Affairs.


                 The Reporting Requirements Sunset Act

  Mr. McCAIN. Mr. President, I introduce legislation that would 
terminate the statutory requirement for all congressionally mandated 
reports, except for those required under the Inspector Generals Act and 
the Chief Financial Officers Act, 5 years after its enactment. The 
Reporting Requirements Sunset Act of 1995 is almost identical to 
legislation (S. 1971) that I introduced in the last Congress. This bill 
would also require the President to identify which reports he feels are 
unnecessary or wasteful in his next budget submission to Congress, a 
measure which will hopefully spur the Congress to swiftly dispose of 
those specific reports.
  This proposal is intended to address the growing problem of the 
thousands of reports the Congress is burdening the executive branch 
with each year. Each year, Members of Congress add layer upon layer of 
onerous paperwork requirements upon executive branch agencies by 
mandating various reports. This problem has a very real and substantive 
cost to taxpayers in terms of wasting hundreds of millions of dollars, 
in addition to taking up untold number of work-hours by Federal 
employees, and draining vast amounts of other agency resources that 
could be far better utilized in more worthy endeavors.
  The Vice President's National Performance Review determined that in 
1993 alone the Congress mandated that the Office of the President and 
executive branch agencies to prepare over 5,300 reports. This is a 
problem that is reaching truly epic proportions of unnecessary and 
wasteful papershuffling.
  I have based this legislation upon the official list of 
congressionally mandated reports which is published each Congress by 
the Clerk of the House of Representatives. It is the most comprehensive 
compilation available. Let me give just a few examples of the type of 
reports I am talking about. Each year, the following are required to be 
sent to the Congress from Federal agencies: a report on activities 
involving electric and hybrid vehicle research; a report on the United 
States-Japan Cooperative Medical Science
 Program; another on the number of customs service undercover 
operations commenced, pending, and closed; and finally, a report on the 
transportation, sale, and handling of animals for research and pets.

  Is the continued research, preparation, and production of these types 
of reports--and thousands more, all at taxpayers' expense--really 
necessary? I think the answer is likely no, Mr. President, and I am 
confident most people determined to reduce the size and cost of 
Government will agree.
  This problem of foisting massive reporting requirements on Federal 
agencies is extremely expensive. The Department of Agriculture alone 
spent over $40 million in taxpayers money in 1993 to produce the 280 
reports it was required to submit to the Congress. That is astounding, 
Mr. President--$40 million in taxpayer dollars spent by a single 
department on reports mandated by the Congress. At a time when our 
country is struggling to alleviate the burdens of the middle class and 
also address the urgent needs of our citizenry, 
[[Page S1071]] this is an especially egregious waste of money.
  Furthermore, this problem is getting worse with each passing year. 
The GAO stated that in 1970, the Congress mandated only 750 recurring 
reports from Federal agencies. Now we have spiraled well past 5,300, 
and the GAO determined that ``Congress imposes about 300 new 
requirements on Federal agencies each year.'' Clearly, Mr. President, 
the wasteful blizzard of paperwork that Vice President Gore criticized 
is becoming an avalanche, and it's time for the Senate to take decisive 
action to remedy it.
  This legislation would terminate the statutory requirement for all 
congressionally mandated reports 5 years after it is signed into law, 
with two specific exceptions. The reports to be exempted are those 
required under the Inspector Generals Act of 1978 and the Chief 
Financial Officers Act of 1990. The Inspector Generals Act requires the 
Congress to be advised of activities regarding investigations into 
waste, fraud, and abuse in Federal agencies; and the CFO Act requires 
agencies to provide financial information about their short- and long-
term management of agency resources.
  I believe the reports required by these two laws are very important 
and merit continuation, and I also recognize that there are many other 
reports that my colleagues feel have great value because of the 
information they provide to the Congress. Such reports can simply be 
reauthorized at any time in the 5 years before this amendment would 
sunset them.
  Mr. President, it's time we put an end to this cycle of waste and 
misspent resources. The adoption of this legislation would be a strong 
contribution toward downsizing Government as the American people are 
calling on us to do. I urge my colleagues to support this legislation 
and remove the millstone of unnecessary and costly paperwork that 
Congress has hung around the neck of the Federal Government for too 
long.
                                 ______

      By Mr. CAMPBELL (for himself, Mr. Grassley, and Mr. Kohl):
  S. 234. A bill to amend title 23, United States Code, to exempt a 
State from certain penalties for failing to meet requirements relating 
to motorcycle helmet laws if the State has in effect a motorcycle 
safety program, and to delay the effective date of certain penalties 
for States that fail to meet certain requirements for motorcycle safety 
laws, and for other purposes; to the Committee on Environment and 
Public Works.


                     MOTORCYCLE SAFETY LEGISLATION

  Mr. CAMPBELL. Mr. President, today, I rise to introduce legislation 
which will provide relief to 25 of those States that have been 
penalized by one such mandate. The Intermodal Transportation Act of 
1991 penalized States which did not pass laws mandating seatbelt and 
helmet usage by October 1 of 1993. The penalties involve a required 
transfer of scarce transportation and construction dollars to section 
402 safety programs. The penalties are assessed regardless of whether 
the State already has the funds dedicated to safety programs and 
regardless of the State's individual safety record.
  Like many of my colleagues, Mr. President, I am not opposed to safety 
programs and I certainly support them. I am not opposed to the use of 
helmets. On the contrary, I am opposed to the Federal Government 
blackmailing States, as many other Senators are. It is not a good 
policy to force States to channel funds from one transportation 
activity to another, using threats of withholding Federal money for 
these programs.
  This bill would give States the option of implementing their own 
safety programs, which they can tailor to the specific needs of their 
individual States. If they choose to design a safety program or already 
have such a program in place, it would not be subject to the section 
153 penalties. They still would have the option of passing such laws if 
they want it. In fact, it would not mandate that any States repeal 
existing laws.
  I believe encouraging and providing support to States and local 
communities to establish training programs would be a much more 
effective means of improving motorcycle safety on the roads and the 
highways. The Federal Government should redirect their role to 
establishing basic guidelines regarding the programs, rather than 
forcing States to dip from one transportation fund to another.
  Mr. President, as the Senate has been debating the issue of unfunded 
mandates, I am introducing legislation that will provide options and 
relief to the 25 States which have been financially penalized under the 
Intermodal Surface Transportation Act of 1991 for not having passed 
laws mandating helmet use by the deadline of October 1, 1993. This is 
not only a burdensome Federal mandate placed on the backs of State 
legislatures, but also an erosion of civil liberties and personal 
freedom.
  Twenty-five States face penalties in fiscal years 1995, 1996, and 
1997. In accordance with ISTEA, they are required to transfer scarce 
transportation and construction dollars to section 402 safety programs.
  This shift will force States to spend 10 to 20 times the amount they 
are currently spending on section 402 safety programs. These penalties 
are assessed regardless of whether the State already has funds 
dedicated to helmet safety programs and regardless of the State's 
individual safety record.
  Initially, these States are being forced to shift 1.5 percent of 
their Federal highway dollars. This transfer effects three programs: 
the National Highway System, the Surface Transportation Program, and 
the Congestion Mitigation and Air Quality Improvement Program. Those 
States which did not enact helmet laws by September 30, 1994, are 
required to shift 3 percent of their Federal highway funds from these 
important programs into safety programs.
  My bill would repeal the section 153 penalties and, upon enactment of 
this legislation, gives States until fiscal year 1996 to either pass 
helmet laws, or establish motor safety programs, exempting those States 
which already have safety programs in place.
  Mr. President, let me be clear. I am not opposed to people wearing 
helmets. Quite the contrary. What I am opposed to is the Federal 
Government blackmailing States to pass laws. It simply is not good 
policy to force States to funnel funds from one State transportation 
activity to another. It should be pointed out that the money the 
Federal Government wants to redirect, is tax revenue already paid by 
State residents.
  Safety education programs are desirable. That is the point of my 
bill. I firmly believe, and I'm sure my colleagues would agree, that we 
must do everything we can to make our roads and highways safer.
  My bill would give States the option of implementing safety programs, 
instead of mandating the use of helmets and remove the section 153 
penalties.
  My own State of Colorado has no helmet law. The Colorado Legislature 
has repeatedly shot down any attempt to implement one.
  Colorado, however, has a motorcycle fatality rate almost 30 percent 
below the average for States with mandatory helmet laws. Of the top 12 
States with the best motorcycle safety records, only one has a helmet 
law. On the other hand, half of the 12 States with the worst safety 
records have helmet laws.
  Comparing States with and without mandatory helmet laws as a whole, 
figures show that for the 14-year period between 1977 and 1990, States 
with mandatory helmet laws had 12.5 percent more accidents and 2.3 
percent more fatalities than States that did not mandate helmet usage.
  In the past decade, motorcycle fatalities have decreased 38 percent 
and accidents have plummeted 41 percent. These figures are particularly 
impressive
 because the Federal Highway Administration estimates that the average 
vehicle miles traveled by motorcyclists has increased 85 percent since 
1975. These statistics are unmatched by any other category of road 
user--passenger or commercial.

  What can account for this decrease in accidents and fatalities? 
Evidence clearly indicates that the most effective way to reduce 
motorcycle accidents and motorcycle fatalities is through comprehensive 
education programs, as opposed to mandating helmet usage. Currently 42 
States have established and funded some sort of safety program.
  The national average of motorcycle fatalities per 100 accidents is 
2.95. 
[[Page S1072]] States with rider education programs and no helmet laws, 
however, have the lowest average death rate, 2.56 fatalities per 100 
accidents. States with mandatory helmet laws and no rider education 
programs have a significantly higher rate of 3.09 fatalities per 100 
accidents.
  Police accident reports indicate that well over 45 percent of 
motorcyclists involved in accidents did not have a motorcycle license, 
92 percent did not have any rider training, and over 50 percent had 
less than 6 months riding experience. Some 62 percent of the accidents 
and 50 percent of the fatalities involved riders between the ages of 17 
and 26. Clearly, mandating helmet use will not address the real problem 
of rider inexperience and lack of training.
  I believe that encouraging and providing support to States and local 
communities to establish motorcycle training programs would be a much 
more effective means of improving motorcycle safety on our roads and 
highways. The Federal Government should redirect its role to providing 
uniform national guidelines regarding these safety programs, rather 
than mandating where the money to pay for them should come from.
  I realize the motivations behind ISTEA and those who wish to force 
States into passing helmet and seatbelt laws are doing so out of 
concern for the safety of the traveling public, but I think their 
efforts are misguided.
  Forcing States to pass laws, or throwing money at safety programs is 
not the answer. Throughout my career in politics, I have always strived 
to protect the interest of States and communities by allowing them to 
make the important decisions on how their affairs should be conducted. 
When Congress blackmailed the States regarding highway speed limits, I 
thought that was wrong. The same goes for helmet laws. I have stuck 
with the philosophy that each State and each community should, to the 
best of their abilities, be allowed to make its own policy decisions.
  I own a motorcycle, that's no secret. Where helmets are required to 
be worn, I wear them. Where they are not, I don't. I make no bones 
about the fact that my dislike for the Federal mandate requiring States 
to pass helmet laws is in part inspired by my interest in motorcycling. 
But, I also think personal freedom is an issue. I am prochoice. I do 
not think the Federal Government should dictate to the States, or its 
citizens, on matters of individual liberty. The choice of wearing a 
helmet, or not doing so, should be left up to the individual--not 
forced by Government extortion. And those who contend that it is not 
simply a personal responsibility because motorcyclists who choose not 
to wear helmets can become a ``public burden,'' are using faulty logic. 
It would then follow that we should mandate helmets for skiers, 
horsemen, skateboarders, and automobile drivers.
  Mr. President, in closing, I want to strongly encourage my colleagues 
to reconsider the position Congress took in ISTEA in mandating that 
States pass helmet and seatbelt laws. It is wrong to blackmail the 
States into passing laws. And, if motorcycle safety programs are 
desired, we should work toward establishing effective program 
guidelines, rather than force States to dip from one transportation pot 
to fill another.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 234

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

     SECTION 1. USE OF A MOTORCYCLE HELMET AND MOTORCYCLE SAFETY 
                   PROGRAM.

       Section 153(h) of title 23, United States Code, is 
     amended--
       (1) by striking ``(1) Fiscal year 1994.--If,'' and 
     inserting the following:
       ``(2) Safety belts.--
       ``(A) Fiscal year 1994.--If,'';
       (2) by striking ``(2) Thereafter.--If'' and inserting the 
     following:
       ``(B) Thereafter.--If,''; and
       (3) in paragraph (2) (as amended by paragraphs (1) and 
     (2)), by striking ``subsection (a)(1) and a law described 
     in'' each place it appears;
       (4) by inserting under the subsection heading the 
     following:
       ``(1) Motorcycle helmets.--
       ``(A) Fiscal year 1996.--If, at any time in fiscal year 
     1996, a State does not have in effect a law described in 
     subsection (a)(1) or a motorcycle safety program administered 
     or authorized by the State to reduce motorcycle accidents and 
     fatalities, the Secretary shall transfer 1\1/2\ percent of 
     the funds apportioned to the State for fiscal year 1997 under 
     each of subsections (b)(1), (b)(2), and (b)(3) of section 104 
     of this title to the apportionment of the State under section 
     402 of this title.
       ``(B) Thereafter.--If, at any time in a fiscal year 
     beginning after September 30, 1996, a State does not have in 
     effect a law described in subsection (a)(1) or a motorcycle 
     safety program administered by the State to reduce motorcycle 
     accidents and fatalities, the Secretary shall transfer 3 
     percent of the funds apportioned to the State for the 
     succeeding fiscal year under each of subsections (b)(1), 
     (b)(2), and (b)(3) of section 104 of this title to the 
     apportionment of the State under section 402 of this 
     title.''.
                                 ______

      By Mr. HOLLINGS:
  S. 237. A bill to amend the Internal Revenue Code of 1986 to impose a 
value added tax and to use the receipts from the tax to reduce the 
Federal budget deficit and Federal debt and to finance health care 
reform; to the Committee on Finance.


  THE DEFICIT AND DEBT REDUCTION AND HEALTH CARE FINANCING ACT OF 1995

  Mr. HOLLINGS. Mr. President, I rise to introduce the Deficit 
Reduction and Health Care Financing Act of 1995. This bill would create 
a 5-percent national value-added tax, with all revenues set aside in a 
trust fund to finance deficit reduction and health care reform. Let me 
be clear, I offer this bill under duress. But it is the only way I 
know--in tandem with deeper spending cuts--to deal with the fiscal 
recklessness that has gotten out of hand in this city.
  It's time we stopped running government based on the promise of 
pollisters and started thinking about performing for the people. Today, 
I propose a 5-percent national value-added tax without exemptions. The 
VAT is essentially like a national sales tax. Traditionally, there have 
been three principal objections to a VAT: First, it is regressive; 
second, it is too complicated; third, it raises too much money and 
would cause waste. Let me address each of these objections in turn.
  First, the issue of regressivity. I agree, but all taxes are 
inherently regressive. With a consumption tax, the more you consume, 
the more you pay; the less you consume, the less you pay. The VAT does 
fall disproportionately on lower income brackets. But the VAT is not 
nearly as regressive as interest costs on the national debt. It is not 
nearly as regressive as the debt's inflationary impact on the economy, 
which disproportionately harms the poor.
  Second, it is said that the VAT is too complicated. Well, it's 
certainly not too complicated for the Japanese, the Koreans, and every 
member of the European Economic Community. Moreover, we can draw on the 
lessons of these other countries as well as the experiences of the 
States with sales taxes in order to minimize such complications.
  Third, some say that a VAT would raise too much money. This is a 
dream. We will need ever dime raised by a 5- percent VAT, plus savings 
from additional steep spending cuts, in order to eliminate the deficit. 
Even then, it will take years to pay down the debt and to put 
government back in the black.
  A VAT will help us not only to eliminate the deficit but also to pay 
cash on the barrelhead for health reform. Additionally, moving to 
border-rebatable taxes will contribute to eliminating our other great 
deficit--the trade deficit. At present, our overseas competitors rebate 
to their manufacturers the VAT on all goods exported to the United 
States; those manufacturers' other in-country taxes are relatively low. 
In stark contrast, producers in the United States pay property taxes, 
income taxes, excise taxes, Social Security taxes and much more; then, 
when their goods are shipped overseas, the importing country slaps a 
fat VAT tax on top of all those other taxes. This does tremendous harm 
to the competitiveness of U.S. products abroad. It makes it financially 
attractive to produce outside the United States, and represents at 
least a 15-percent disadvantage in international trade. A U.S. VAT 
would eliminate this disadvantage. With good reason, Lester Thurow of 
MIT says that ``the rules of international trade make you stupid if you 
don't have a VAT.''
  I have no illusions as to the political trauma involved in enacting a 
new tax. 
[[Page S1073]] There is never a good time to raise a tax. But as we 
continue to wait for a propitious moment, our financial crisis worsens 
every day. It's time to put government back on track with difficult 
belt-tightening and and honest taxes. I propose a single, ultra-simple 
reform--a reform that would transform the reputation of Congress in the 
eyes of the American people. That reform is to put the U.S. Government 
on a pay-as-you-go basis.
                                 ______

      By Mr. HOLLINGS:
  S. 238. A bill to create a legislative line-item veto by requiring 
separate enrollment of items in appropriations bills; to the Committee 
on Rules and Administration.


      THE LEGISLATIVE LINE-ITEM VETO SEPARATE ENROLLMENT AUTHORITY

  Mr. HOLLINGS. Mr. President, I rise today to introduce legislation 
which would provide Congress and the President with an additional 
weapon to eliminate wasteful and unnecessary appropriations and thereby 
reduce the Federal deficit. This bill, a statutory, separate enrollment 
line-item veto, is identical to a measure previously considered by the 
99th and reported favorably by a bipartisan vote out of the Senate 
Budget Committee on July 25, 1990. During the 103d Congress, a similar 
amendment offered by myself and Senator Bradley received the support of 
52 Senators.
  Today, 43 States have, in one form or another, a line-item veto 
allowing the chief executive to limit legislative spending. As a former 
Governor who inherited a budget deficit in a poor State, I can testify 
that a line-item veto is invaluable in imposing fiscal restraints.
  The fiscal problems of our Nation have been painfully documented. Our 
Government continues on annual deficit binges that have pushed our 
total deficit past $4.7 trillion. For years now, we have been toying 
with freezes, asset sales, and sham summits, but the deficit and debt 
continue to grow.
  The American taxpayer, as well as the Congress, have grown weary of 
the smoke and mirrors and are past ready for new measures that will 
help to put our country back in the black. If every there was a problem 
that needed to be attacked from every particular angle, it is this 
deficit.
  Mr. President, I welcome President Clinton's strong support for the 
line-item veto initiative and his continuing resolve to attack the 
burgeoning deficit monster. In order to hold him to that commitment, we 
should send him into battle well armed. By restoring accountability and 
responsibility throughout the appropriations process, the line-item 
veto would force Members of Congress and the President to stop fixing 
the blame and start fixing the problem.
  In order to provide greater flexibility in the legislative process, 
this legislation provides that each item shall be enrolled as a 
separate bill and sent to the President for his approval. Therefore, 
each item of an appropriations bill would be subject to veto or 
approval, just like any other bill, and the override provisions found 
in article I of the Constitution would apply in the case of a veto. An 
item is defined as any numbered section and any unnumbered paragraph of 
an appropriations bill. The enrolling clerk would merely break an 
appropriations bill down into its component parts and send each 
separately enrolled provision to the President.
  Finally, this legislation also contains a 2-year sunset provision 
allowing for a reasonable testing period and requiring an evaluation of 
the line-item veto's success. I have no question but that it will be 
demonstrated to be a modest, but effective, method of restraining 
fiscal profligacy. I hope that Senators will join me in this effort, 
and I ask unanimous consent the full text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 238

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled, That (a) 
     the Impoundment Control Act of 1974 is amended by adding at 
     the end thereof the following new title:

  ``TITLE XI--SEPARATE ENROLLMENT AUTHORITY LEGISLATIVE LINE ITEM VETO

       ``Sec. 1101. (a)(1) Notwithstanding any other provision of 
     law, when any general or special appropriation bill or any 
     bill or joint resolution making supplemental, deficiency, or 
     continuing appropriations passes both Houses of the Congress 
     in the same form, the Secretary of the Senate (in the case of 
     a bill or joint resolution originating in the Senate) or the 
     Clerk of the House of Representatives (in the case of a bill 
     or joint resolution originating in the House of 
     Representatives) shall cause the enrolling clerk of such 
     House to enroll each item of such bill or joint resolution as 
     a separate bill or joint resolution, as the case may be.
       ``(2) A bill or joint resolution that is required to be 
     enrolled pursuant to paragraph (1)--
       ``(A) shall be enrolled without substantive revision;
       ``(B) shall conform in style and form to the applicable 
     provisions of chapter 2 of title 1, United States Code (as 
     such provisions are in effect on the date of the enactment of 
     this title); and
       ``(C) shall bear the designation of the measure of which it 
     was an item prior to such enrollment, together with such 
     other designation as may be necessary to distinguish such 
     bill or joint resolution from other bills or joint 
     resolutions enrolled pursuant to paragraph (1) with respect 
     to the same measure.
       ``(b) A bill or joint resolution enrolled pursuant to 
     subsection (a)(1) with respect to an item shall be deemed to 
     be a bill under clauses 2 and 3 of section 7 of article I of 
     the Constitution of the United States and shall be signed by 
     the presiding officers of both Houses of the Congress and 
     presented to the President for approval or disapproval (and 
     otherwise treated for all purposes) in the manner provided 
     for bills and joint resolutions generally.
       ``(c) For purposes of this concurrent resolution, the term 
     `item' means any numbered section and any unnumbered 
     paragraph of--
       ``(1) any general or special appropriation bill; and
       ``(2) any bill or joint resolution making supplemental, 
     deficiency, or continuing appropriations.''.
       (b) The amendment made by subsection (a) shall apply to 
     bills and joint resolutions agreed to by the Congress during 
     the two-calendar-year period beginning with the date of the 
     enactment of this Act.
                                 ______

      By Mr. SHELBY (for himself, Mr. Nickles, Mr. Burns, Mrs. 
        Hutchison, Mr. Lott, Mr. Packwood, Mr. Pressler, Mr. Inhofe, 
        Mr. Thomas, and Mr. Brown):
  S. 239. A bill to require certain Federal agencies to protect the 
right of private property owners, and for other purposes; to the 
Committee on Governmental Affairs.


                 private property owners bill of rights

  Mr. SHELBY. Mr. President, today I am introducing a bill to address 
the continued deterioration of individual property rights. 
Environmental regulations are increasingly interfering with the ability 
of private property owners to use and develop their land. Contrary to 
popular belief, protecting the property rights of individuals and 
protecting our environment are not mutually exclusive principles.
  All too often, I hear stories that landowners are being deprived of 
the ability to build a house because the Corps of Engineers has 
designated their property as a wetland; or the U.S. Fish and Wildlife 
Service has prohibited cultivation of land for fear it might jeopardize 
an endangered species. A landowner may even be required to pay 
exorbitant mitigation fees or fines in order to regain the use of their 
property. That is, of course, if they are lucky enough to regain the 
right to use their property.
  Not only does the enforcement of such land use statutes abuse the 
rights of the property rights owners, but they impose the cost of 
enforcing these public goods on individual owners rather than the 
public at large. If the land is regulated in the name of a public good, 
surely we can distribute the cost among the public as well.
  The mounting cases regarding regulatory takings necessitate 
Congressional action. The Domenigoni family experience is a good 
example. Cindy and Andy Domenigoni are fifth generation farmers in 
Riverside County, CA. First cultivated in 1879, their farm has 
traditionally been home to the Stephen's kangaroo rat, which was listed 
as an endangered species in 1988.
  In 1990, Fish and Wildlife Service officials ordered them to stop 
cultivating their 800 tillable acres and warned them that disking this 
land would warrant their arrest. Punishment for disking land that had 
been cultivated for the previous 100 years would now result in jail 
time, a $50,000 fine, or both.
  As a result, the Domenigonis' land lain idle, producing no crops for 
4 years. They lost $75,000 in foregone 
[[Page S1074]] crops each year and incurred another $100,000 loss in 
biological consultation fees, legal fees, and other costs associated 
with fighting this regulatory taking.
  Ironically, on November 1, 1993, shortly after devastating southern 
California fires destroyed thousands of acres of kangaroo rat habitat, 
FWS biologist John Bradley determined that the rats had left the area 
before the fire, because the years of leaving the fields fallow had 
made the brush and weeds grow too thick for the rats.
  I must say this kind of policy is reckless and haphazard. When 
elected to the Senate, we had to take an oath to uphold the 
Constitution of the United States. I do not believe confiscating the 
economic value of ones property would be considered upholding the 
Constitution. Indeed, I believe most would agree that such action is 
nothing less than the taking of property without compensation.
  In another case, Mr. and Mrs. Howard Heck were denied building on 
their 25 acres of land because a federally threatened plant species was 
``within 5 miles of the proposed project site.'' Mr. Heck has said, 
``We were proud to be Americans in a land where * * *  our children 
were to have the opportunity to achieve any goal we wanted. Now we are 
ashamed of our country and Government that allows the bureaucrats to 
steal from its citizens * * *.''
  I, too, am ashamed the Government in this Nation can effectively 
steal the economic value of one's land and rob this elderly couple of 
their dignity and peace during their remaining years on this Earth.
  In still another instance, a Corps field agent to the regional chief 
of enforcement signed a memo stating a particular family in Maine, 
``would be a good one to squash and set an example * * *.''
  The Government of the United States of America has no business 
``squashing'' hard working Americans or plundering away their wealth. 
The very reason the Constitution was established was to protect 
individuals, not to harm them. The atrocities previously mentioned need 
to be addressed with a clearly defined policy for Federal agencies in 
order to stop the abuse of Government bureaucrats.
  The two laws most responsible for imposing the heavy burden on 
property ownership are the Endangered Species Act and section 404 of 
the Clean Water Act.
  Although the intention of these acts is commendable, they have 
created perverse incentives for private property ownership. Individuals 
are reluctant to develop or build on land for fear the Fish and 
Wildlife Service, the Corps of Engineers or the EPA will soon visit. A 
visit from the IRS is more welcome than a visit from these Federal 
agencies.
  The negative impact of these perverse incentives directly affect the 
housing and agricultural industries as well as many others. Every house 
that is not built and every farm that is not cultivated costs us jobs. 
Not only do the present policies crush an individual's hopes and 
dreams, but it hinders those still trying to achieve them.
  As a result of the inequities in the current policies, Senator 
Nickles and I are reintroducing legislation entitled the, ``Private 
Property Owners Bill of Rights.'' This bill would insure that private 
property owners are protected by the Federal Government, its employees, 
agents, and representatives.
  Our bill requires notice and consent from property owners before 
Federal agencies and their agents can enter a private property owners 
land for purposes of the Endangered Species Act or wetlands laws.
  In addition, this legislation ensures that property owners rights are 
considered and respected when agency decisions or actions are taken 
pursuant to these two laws by providing an administrative appeals 
process. The process calls for the owner to be given access to the 
information collected, a description of the way the information was 
collected, and an opportunity to discuss the accuracy of the 
information.
  Lastly, and most importantly, it requires the agency itself to 
determine whether a taking has occurred and if so to compensate the 
private property owner for the loss in fair market value of the 
property. A property owner who is deprived of at least 20 percent or 
more of the fair market value of $10,000 or more is entitled to receive 
compensation. The agency would be required to pay the fair market value 
of the property if purchased or the difference between the fair market 
value of the property without the restrictions and the fair market 
value of the property with restrictions.
  I believe our legislation addresses the serious problem of property 
rights abuse. It will enhance the foundation necessary for contracts 
and commerce and in doing so, will foster an environment essential to 
achieving the American Dream.
  I strongly urge my colleagues to cosponsor this legislation and 
support this cause on behalf of every property owner in America.
  I ask unanimous consent that the following Senators be listed as 
original cosponsors of this legislation: Senator Nickles, Senator 
Burns, Senator Hutchison, Senator Lott, Senator Packwood, Senator 
Pressler, Senator Inhofe, Senator Thomas, and Senator Brown.
  Mr. NICKLES. Mr. President, of all the freedoms we enjoy in this 
country, the ability to own, care for, and develop private property is 
perhaps the most crucial to our free enterprise economy. In fact, our 
economy would cease to function without the incentives provided by 
private property. So sacred and important are these rights, that our 
forefathers chose to specifically protect them in the fifth amendment 
to the U.S. Constitution, which says in part, ``nor shall private 
property be taken for public use, without just compensation.''
  Unfortunately, Mr. President, some Federal environmental, safety, and 
health laws are encouraging Government violation of private property 
rights, and it is a problem which is increasing in severity and 
frequency. we would all like to believe the Constitution will protect 
our property rights if they are threatened, but today that is simply 
not true. The only way for a person to protect their private property 
rights is in the courts, and far too few people have the time or money 
to take such action. Thus many citizens lose their fifth amendment 
rights simply because no procedures have been established to prevent 
Government takings.
  Mr. President, many people in the Federal bureaucracy believe that 
public protection of health, safety, and the environment is not 
compatible with protection of private property rights. I disagree. In 
fact, the terrible environmental conditions exposed in Eastern Europe 
when the cold war ended lead me to believe that property ownership 
enhances environmental protection. As the residents of East Berlin and 
Prague know all too well, private owners are more effective caretakers 
of the environment than communist governments.
  Yet the question remains, how do we prevent overzealous bureaucrats 
from using their authority in ways which threaten property rights?
  Mr. President, today I rise to join my colleague Senator Richard 
Shelby of Alabama in introducing legislation which will strengthen 
every citizen's fifth amendment rights. Our bill, the Private Property 
Owners Bill of Rights, targets two of the worst property rights 
offenders, the Endangered Species Act and the wetlands permitting 
program established by Section 404 of the Clean Water Act.
  Mr. President, our bill requires Federal agents who enter private 
property to gather information under either the Endangered Species Act 
or the wetlands permitting program to first obtain the written consent 
of the landowner. While it is difficult to believe that such a basic 
right should need to be spelled out in law, overzealous bureaucrats and 
environmental radicals too often mistake private resources as their 
own. Property owners are also guaranteed the right of access to that 
information, the right to dispute its accuracy, and the right of an 
administrative appeal from decisions made under those laws.
  Most importantly, the Private Property Owners Bill of Rights 
guarantees compensation for a landowner whose property is devalued by 
50 percent or more by a Federal action under the Endangered Species Act 
or wetlands permitting program. An administrative process is 
established to give property owners a simple and inexpensive way to 
seek resolution of their takings 
[[Page S1075]] claims. If we are to truly live up to the requirements 
of our Constitution, Mr. President, we must make this commitment. I 
believe this provision will work both to protect landowners from 
uncompensated takings and to discourage Government actions which would 
cause such takings.
  Mr. President, the time has come for farmers, ranchers, and other 
landowners to take a stand against violations of their private property 
rights by the Federal bureaucracy. The Private Property Owners Bill of 
Rights will help landowners take that stand.
  Mr. BURNS. Mr. President, today I join my colleague from Alabama, 
Senator Shelby in introducing a bill which would protect individual's 
private property rights.
  This bill, the Private Property Owners Bill of Rights, would provide 
a consistent Federal policy to encourage, support, and promote the 
private ownership of property and to ensure the constitutional and 
legal rights of private property owners.
  Private property rights are protected by the fifth amendment of the 
Constitution. Yet, many laws have been encroaching further and further 
on this right. The bill we are introducing today is very important to 
Montana because it makes the Federal Government respect and protect 
private property rights when enforcing the Endangered Species Act and 
the Clean Water Act. Montana's private property owners have been 
greatly impacted by these two laws.
  In Montana a couple years ago, I saw a headline which read ``Judge 
Says Grizzlies Have `People Rights'.'' This article ran in an 
agriculture trade publication. The story was about John Shuler of 
Choteau who shot a grizzly bear in 1989 after he found three of these 
bears in his sheep pen. He originally fired the shot to scare the bears 
away, but when one bear charged him, he was forced to shoot that bear. 
For those who may not be aware, the grizzly is protected under the 
Endangered Species Act.
  The judge ruled that the Endangered Species Act's self-defense 
exception must meet the same requirements used in criminal law for 
humans. The judge then ruled that since this rancher had stepped off 
his porch, to protect his investment, he ``Purposefully placed himself 
in the zone of imminent danger of a bear attack''. According to this 
judge, the rancher didn't have the right to protect his property. 
Folks, that's wrong.
  The Private Property Owners Bill of Rights would create an 
administrative appeals process for affected property owners. And the 
bill establishes a framework so private property holders can seek and 
obtain compensation.
  In addition, before a Government official can enter private land, 
they must have consent from the land owner. If information is collected 
on private property, this information cannot be used unless the private 
individual has full access to the information and has the right to 
dispute the accuracy of the information. The bill also establishes the 
right to administratively appeal decisions regarding wetlands and 
critical habitat of a listed species.
  Montanans believe that protecting private property is of utmost 
importance. And this bill reinforces the Government's responsibility to 
protect property rights and will help get the Federal Government off 
the backs of Montana's working men and women.
  I believe strongly in every American's private property rights and 
this bill should be signed into law.
                                 ______

      By Mr. DOMENICI (for himself, Mr. Dodd, Mr. Hatch, Ms. Mikulski, 
        Mr. Bennett, Ms. Moseley-Braun, Mr. Lott, Mrs. Murray, Mr. 
        Mack, Mr. Johnston, Mr. Faircloth, Mr. Conrad, Mr. Burns, Mr. 
        Chafee, Mr. Gorton, Mr. Helms, Mr. Kyl, Mr. Craig Thomas, Mrs. 
        Hutchison, Mr. Santorum, and Mr. Pell):
  S. 240. A bill to amend the Securities Exchange Act of 1934 to 
establish a filing deadline and to provide certain safeguards to ensure 
that the interests of investors are well protected under the implied 
private action provisions of the Act; to the Committee on Banking, 
Housing, and Urban Affairs.


          the private securities litigation reform act of 1995

 Mr. DOMENICI. Mr. President, I introduce a bill on behalf of 
Senator Dodd, myself and 15 other Senators on both sides of the aisle 
which will return some fairness and common sense to our broken 
securities class action litigation system. The system as it currently 
operates encourages the quick filing of frivolous complaints by 
entrepreneurial class action attorneys, and costs businesses countless 
amounts of time and money to defend against and settle these strike 
suits. In cases of real fraud, the system often leaves injured 
investors with pennies on the dollar for their losses, while 
plaintiffs' lawyers take a substantial amount of the settlement. In 
short, the current securities litigation system rarely benefits anyone 
except for plaintiffs' attorneys, and victimizes innocent companies and 
investors.
  The list of companies that have been hit with frivolous securities 
suits reads like the who's who of high growth, high-technology 
businesses. In fact, 19 of the 30 largest companies in Silicon Valley 
have been sued since 1988. They are the backbone of our economy and the 
foundation of our ability to compete in the new global marketplace. 
During 2 days of hearings on securities litigation conducted by Senator 
Dodd back in 1993, we heard from CEO's who had been involved in 
frivolous securities class actions first hand. Their testimony 
indicated that:
  Companies get sued when their stock price drops.
  Companies also get sued by shareholders for settling securities 
suits.
  Frivolous litigation is time consuming and distracts CEO's and other 
corporate officers from economically productive activity.
  Defending a securities lawsuit often is as costly as starting up a 
new product line.
  The general counsel for the Intel Corp. testified that if Intel had 
been sued when it was a start-up company, that such a suit probably 
would have bankrupted the company before it invented the microchip. We 
cannot afford to allow the current system to snuff out this sort of 
innovation.
  Frivolous litigation also adversely affects investors by drawing 
scarce resources away from productive activity, which is then reflected 
in a company's stock price. Arthur Levitt, Chairman of the Securities 
and Exchange Commission, stated in testimony before the House in August 
1994, that ``when issuers and others pay substantial sums to deal with 
frivolous lawsuits, significant costs are imposed on the process of 
capital-raising and on business, costs that ultimately will be borne by 
all shareholders''.
  Instead we must put a stop to the race-to-the-courthouse game played 
by plaintiffs' class action attorneys, in which they file lawsuits 
within hours of news that a company came up short on an earnings 
projection or will be forced to delay the introduction of a new product 
line. Information provided to the Senate Securities Subcommittee by the 
National Association of Securities and Commercial Law Attorneys 
[NASCAT] suggests that 56 percent of the class actions that they hand-
picked to provide to the subcommittee were filed within 30 days of a 
triggering event, like a missed earnings projection. Twenty-one percent 
of the cases were filed within 48 hours of the triggering. The stock 
price drops and class action suits are filed quickly with little due 
diligence done to
 investigate each of the elements necessary for a successful 10b-5 
case.

  Many academics and those familiar with our securities class action 
system also agree that the securities litigation system encourages the 
filing of frivolous suits. Jonathan Macey, a law professor at Cornell 
University believes that most securities class actions are frivolous. 
``The facts show that every time a firm's share price drops by enough 
that it's profitable for plaintiffs' lawyers to bring a lawsuit, they 
do'', he said recently. Janet Cooper Alexander at Stanford University 
has proven that most class actions are settled without regard to 
whether the case has merit. Chairman Levitt has acknowledged that 
``virtually all securities class actions are settled for some fraction 
of the claimed damages, and some allege that settlements often fail to 
reflect the underlying merits of the cases. If true, this means that 
weak claims are overcompensated and strong claims are 
undercompensated.''
  [[Page S1076]] In case you don't believe that class action attorneys 
are filing frivolous suits, take a look at the article the Wall Street 
Journal ran last week on January 11th. It provides an excellent example 
of the cookie-cutter complaints which often form the basis of these 
million dollar lawsuits. It documents a case against Philip Morris 
filed within 48 hours of the company's announcement of a price cut on 
one of its brands of cigarettes. The case was dismissed after the judge 
noticed that the plaintiffs' attorneys had filed two separate suits 
which alleged that Philip Morris had engaged in fraud to create and 
prolong the illusion of their success in the toy industry. As you might 
well know, Philip Morris doesn't make toys.
  But this is how the current system works. Plaintiffs' lawyers race to 
the courthouse, file frivolous suits without any research into their 
validity, and companies normally may pay something to make them go 
away. Because usually, plaintiffs' lawyers don't make the glaring 
mistake they made in the Philip Morris case and forget to delete the 
word toy from their complaint. Judges rarely dismiss these cases 
without such a blunder. Companies continue to get sued and are forced 
to settle frivolous cases. Our bill will eliminate these poorly 
researched, kitchen sink complaints.
  Plaintiffs' lawyers often sue not only the issuer company, but their 
officers and directors, accountants, lawyers, and underwriters. These 
cases are brought under joint and severable liability, which means that 
any one defendant could be made to pay the entire judgment even if he 
or she was only marginally responsible. This increases the pressure to 
settle even the most frivolous cases.
  Our bill adopts the State law trend of imposing proportionate 
liability, liability according to relative fault. Our bill retains 
joint severable liability for the really bad actors, but provides 
proportionate liability for those parties only incidentally involved. 
However, our bill contains a provision which deals with the problem of 
insolvent defendants and small investors. We believe that this 
provision strikes the correct balance and returns fairness to the 
system.
  Our bill also allows for alternative dispute resolution as an 
alternative to costly and time consuming litigation. One reason these 
cases settle regardless of the merits is that it costs so much to get 
through what lawyers call discovery, the process of exchanging 
information before a trial. By allowing for ADR, we hope to reduce 
those costs. Our bill also requires specificity in pleading securities 
fraud, a requirement imposed on every other fraud action under rule 
9(b) of the Federal rules. This provision will reduce the number of 
fishing expedition lawsuits, like the one in the Philip Morris case.
  Even in cases of real fraud, the current system allows investors to 
recover on average about 6 cents on the dollar, while plaintiffs' 
lawyers take on average between 30 and 33 percent of the settlement 
fund. One plaintiffs' class action lawyer boasted in Forbes magazine 
that securities class action cases are a great practice because there 
are no clients. Yet these clientless lawyers claim to be acting in the 
best interests of the class.
  Once a settlement is reached, the entrepreneurial lawyer with no 
clients becomes an adversary of the plaintiffs' class. The lawyers' 
interest shifts to protecting the settlement. ``At its worst, the 
settlement process may amount to a covert exchange of a cheap 
settlement for a high award of attorney's fees'', according to John 
Coffee of Columbia University. Professor Coffee also has noted that 
plaintiffs' attorneys in many securities class actions appear to ``sell 
out their clients in return for an overly generous fee award''.
  Under our bill, plaintiffs' lawyers will no longer be able to sell 
out their clients for huge fee awards. Our bill allows judges to 
appoint a plaintiff steering committee or guardian ad litem at the 
request of the class to ensure that the attorneys act in the best 
interests of their clients. Clients, not lawyers, will be in charge of 
the litigation, and will be able to make the important decisions like 
when to settle, when to dismiss their attorneys or when to proceed to 
trial.
  Our bill also eliminates pet plaintiff fees, bonus awards plaintiffs' 
attorneys pay to individuals to act as class representatives, 
regardless of the number of shares they own or the amount of their 
actual losses. These fees reduce the amount of recovery available to 
the class as a whole and serve no purpose but to give attorneys an 
available stable of plaintiffs willing to sue at a moment's notice in 
exchange for a big payoff. This practice undermines the fairness of the 
system and should be eliminated.
  Out current securities class action system obviously is broken and 
needs the types of reforms Senator Dodd and I have proposed in this 
bill. Too many cases are pursued for the purpose of extracting 
settlements from corporations and other parties without regard to their 
merits. The business community is powerless to deal with these suits, 
and companies settle rather than bet the company. These settlements 
yield large fees for plaintiffs' lawyers but compensate investors only 
for a fraction of their actual losses.
  We reject the notion that stock price volatility is fraud. 
Plaintiffs' lawyers must be made to stop, think, investigate, and 
research before they file these potentially devastating suits. Truly 
defrauded investors must have greater control over their litigation and 
receive a greater share of the settlement fund.
  The spirit motivating this bill is the obligation that Chairman 
Levitt has identified: ``to make sure that current system operates in 
the best interest of all investors. This means focusing not just on the 
interests of those who happen to be aggrieved in a particular case, but 
also on the interests of issuers and the markets as a whole''.
  I would like to commend Senator Dodd for tackling the difficult 
issue. Under his leadership in the last Congress, we developed a 
substantial hearing record in the Securities Subcommittee and collected 
as many facts and opinions as we could. This bill is the product of a 
great deal of work and deliberation, and I want to express my gratitude 
for the way he and his staff went about developing this legislation.
  I ask unanimous consent that a copy of the Wall Street Journal 
article I mentioned earlier be printed in the Record. I also ask 
unanimous consent that a section-by-section description of the bill and 
the bill text itself be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
                                 S. 240

       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--PRIVATE SECURITIES LITIGATION

Sec. 101. Elimination of certain abusive practices.
Sec. 102. Alternative dispute resolution procedure; time limitation on 
              private rights of action.
Sec. 103. Plaintiff steering committees.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Amendment to Racketeer Influenced and Corrupt Organizations 
              Act.

                     TITLE II--FINANCIAL DISCLOSURE

Sec. 201. Safe harbor for forward-looking statements.
Sec. 202. Fraud detection and disclosure.
Sec. 203. Proportionate liability and joint and several liability.
Sec. 204. Public Auditing Self-Disciplinary Board.
                 TITLE I--PRIVATE SECURITIES LITIGATION

     SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

       (a) Receipt for Referral Fees.--Section 15(c) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended 
     by adding at the end the following new paragraph:
       ``(7) Receipt of referral fees.--No broker or dealer, or 
     person associated with a broker or dealer, may solicit or 
     accept remuneration for assisting an attorney in obtaining 
     the representation of any customer in any implied private 
     action arising under this title.''.
       (b) Prohibition on Attorneys' Fees Paid From Commission 
     Disgorgement Funds.--Section 21(d) of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78u(d)) is amended by adding at the 
     end the following new paragraph:
       ``(4) Prohibition on attorneys' fees paid from commission 
     disgorgement funds.--Except as otherwise ordered by the 
     court, funds disgorged as the result of an action brought 
     [[Page S1077]] by the Commission in Federal court, or of any 
     Commission administrative action, shall not be distributed as 
     payment for attorneys' fees or expenses incurred by private 
     parties seeking distribution of the disgorged funds.''.
       (c) Additional Provisions Applicable to Class Actions.--
     Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 
     78u) is amended by adding at the end the following new 
     subsections:
       ``(i) Recovery by Named Plaintiffs in Class Actions.--In an 
     implied private action arising under this title that is 
     certified as a class action pursuant to the Federal Rules of 
     Civil Procedure, the share of any final judgment or of any 
     settlement that is awarded to class plaintiffs serving as the 
     representative parties shall be calculated in the same manner 
     as the shares of the final judgment or settlement awarded to 
     all other members of the class. Nothing in this subsection 
     shall be construed to limit the award to any representative 
     parties of reasonable compensation, costs, and expenses 
     (including lost wages) relating to the representation of the 
     class.
       ``(j) Conflicts of Interest.--In an implied private action 
     arising under this title that is certified as a class action 
     pursuant to the Federal Rules of Civil Procedure, if a party 
     is represented by an attorney who directly owns or otherwise 
     has a beneficial interest in the securities that are the 
     subject of the litigation, the court shall make a 
     determination of whether such interest constitutes a conflict 
     of interest sufficient to disqualify the attorney from 
     representing the party.
       ``(k) Restrictions on Settlements Under Seal.--In an 
     implied private action arising under this title that is 
     certified as a class action pursuant to the Federal Rules of 
     Civil Procedure, the terms and provisions of any settlement 
     agreement between any of the parties shall not be filed under 
     seal, except that on motion of any of the parties to the 
     settlement, the court may order filing under seal for those 
     portions of a settlement agreement as to which good cause is 
     shown for such filing under seal. Good cause shall only exist 
     if publication of a term or provision of a settlement 
     agreement would cause direct and substantial harm to any 
     person.
       ``(l) Restrictions on Payment of Attorneys' Fees From 
     Settlement Funds.--In an implied private action arising under 
     this title that is certified as a class action pursuant to 
     the Federal Rules of Civil Procedure, attorneys' fees awarded 
     by the court to counsel for the class shall be determined as 
     a percentage of the amount of damages and prejudgment 
     interest actually paid to the class as a result of the 
     attorneys' efforts. In no event shall the amount awarded to 
     counsel for the class exceed a reasonable percentage of the 
     amount recovered by the class plus reasonable expenses.
       ``(m) Disclosure of Settlement Terms to Class Members.--In 
     an implied private action arising under this title that is 
     certified as a class action pursuant to the Federal Rules of 
     Civil Procedure, a proposed settlement agreement that is 
     published or otherwise disseminated to the class shall 
     include the following statements, which shall not be 
     admissible for purposes of any Federal or State judicial or 
     administrative proceeding:
       ``(1) Statement of potential outcome of case.--
       ``(A) Agreement on amount of damages and likelihood of 
     prevailing.--If the settling parties agree on the amount of 
     damages per share that would be recoverable if the plaintiff 
     prevailed on each claim alleged under this title and the 
     likelihood that the plaintiff would prevail--
       ``(i) a statement concerning the amount of such potential 
     damages; and
       ``(ii) a statement concerning the probability that the 
     plaintiff would prevail on the claims alleged under this 
     title and a brief explanation of the reasons for that 
     conclusion.
       ``(B) Disagreement on amount of damages or likelihood of 
     prevailing.--If the parties do not agree on the amount of 
     damages per share that would be recoverable if the plaintiff 
     prevailed on each claim alleged under this title or on the 
     likelihood that the plaintiff would prevail on those claims, 
     or both, a statement from each settling party concerning the 
     issue or issues on which the parties disagree.
       ``(C) Inadmissibility for certain purposes.--Statements 
     made in accordance with subparagraphs (A) and (B) shall not 
     be admissible for purposes of any Federal or State judicial 
     or administrative proceeding.
       ``(2) Statement of attorneys' fees or costs sought.--If any 
     of the settling parties or their counsel intend to apply to 
     the court for an award of attorneys' fees or costs from any 
     fund established as part of the settlement, a statement 
     indicating which parties or counsel intend to make such an 
     application, the amount of fees and costs that will be 
     sought, and a brief explanation of the basis for the 
     application.
       ``(3) Identification of representatives.--The name, 
     telephone number, and address of one or more representatives 
     of counsel for the plaintiff class who will be reasonably 
     available to answer questions from class members concerning 
     any matter contained in any notice of settlement published or 
     otherwise disseminated to class members.
       ``(4) Other information.--Such other information as may be 
     required by the court, or by any guardian ad litem or 
     plaintiff steering committee appointed by the court pursuant 
     to section 38.
       ``(n) Special Verdicts.--In an implied 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.
       ``(o) Named Plaintiff Threshold.--In an implied private 
     action arising under this title, in order for a plaintiff or 
     plaintiffs to obtain certification as representatives of a 
     class of investors pursuant to the Federal Rules of Civil 
     Procedure, the plaintiff or plaintiffs must show that they 
     owned, in the aggregate, during the time period in which 
     violations of this title are alleged to have occurred, not 
     less than the lesser of--
       ``(1) 1 percent of the securities which are the subject of 
     the litigation; or
       ``(2) $10,000 (in market value) of such securities.''.

     SEC. 102. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE; TIME 
                   LIMITATION ON PRIVATE RIGHTS OF ACTION.

       (a) Recovery of Costs and Attorneys' Fees.--The Securities 
     Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by 
     adding at the end the following new section:

     ``SEC. 36. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.

       ``(a) In General.--
       ``(1) Offer to proceed.--Except as provided in paragraph 
     (2), in an implied private action arising under this title, 
     any party may, before the expiration of the period permitted 
     for answering the complaint, deliver to all other parties an 
     offer to proceed pursuant to any voluntary, nonbinding 
     alternative dispute resolution procedure established or 
     recognized under the rules of the court in which the action 
     is maintained.
       ``(2) Plaintiff class actions.--In an implied private 
     action under this title which is brought as a plaintiff class 
     action, an offer under paragraph (1) shall be made not later 
     than 30 days after a guardian ad litem or plaintiff steering 
     committee is appointed by the court in accordance with 
     section 38.
       ``(3) Response.--The recipient of an offer under paragraph 
     (1) or (2) shall file a written notice of acceptance or 
     rejection of the offer with the court not later than 10 days 
     after receipt of the offer. The court may, upon motion by any 
     party made prior to the expiration of such period, extend the 
     period for not more than 90 additional days, during which 
     time discovery may be permitted by the court.
       ``(4) Selection of type of alternative dispute 
     resolution.--For purposes of paragraphs (1) and (2), if the 
     rules of the court establish or recognize more than 1 type of 
     alternative dispute resolution, the parties may stipulate as 
     to the type of alternative dispute resolution to be applied. 
     If the parties are unable to so stipulate, the court shall 
     issue an order not later than 20 days after the date on which 
     the parties agree to the use of alternative dispute 
     resolution, specifying the type of alternative dispute 
     resolution to be applied.
       ``(5) Sanctions for dilatory or obstructive conduct.--If 
     the court finds that a party has engaged in dilatory or 
     obstructive conduct in taking or opposing any discovery 
     allowed during the response period described in paragraph 
     (3), the court may--
       ``(A) extend the period to permit further discovery from 
     that party for a suitable period; and
       ``(B) deny that party the opportunity to conduct further 
     discovery prior to the expiration of the period.
       ``(b) Penalty for Unreasonable Litigation Position.--
       ``(1) Award of costs.--In an implied private action arising 
     under this title, upon motion of the prevailing party made 
     prior to final judgment, the court shall award costs, 
     including reasonable attorneys' fees, against a party or 
     parties or their attorneys, if--
       ``(A) the party unreasonably refuses to proceed pursuant to 
     an alternative dispute resolution procedure, or refuses to 
     accept the result of an alternative dispute resolution 
     procedure;
       ``(B) final judgment is entered against the party; and
       ``(C) the party asserted a claim or defense in the action 
     which was not substantially justified.
       ``(2) Determination of justification.--For purposes of 
     paragraph (1)(C), whether a position is `substantially 
     justified' shall be determined in the same manner as under 
     section 2412(d)(1)(B) of title 28, United States Code.
       ``(3) Limited use.--Fees and costs awarded under this 
     paragraph shall not be applied to any named plaintiff in any 
     action certified as a class action under the Federal Rules of 
     Civil Procedure if such plaintiff has never owned more than 
     $1,000,000 of the securities which are the subject of the 
     litigation.''.
       (b) Limitations Period for Implied Private Rights of 
     Action.--The Securities Exchange Act of 1934 (15 U.S.C. 78a 
     et seq.) is amended by adding at the end the following new 
     section:

     ``SEC. 37. LIMITATIONS PERIOD FOR IMPLIED PRIVATE RIGHTS OF 
                   ACTION.

       ``(a) In General.--Except as otherwise provided in this 
     title, an implied private right of action arising under this 
     title shall be brought not later than the earlier of--
       ``(1) 5 years after the date on which the alleged violation 
     occurred; or
       ``(2) 2 years after the date on which the alleged violation 
     was discovered or should have been discovered through the 
     exercise of reasonable diligence.
     [[Page S1078]]   ``(b) Effective Date.--The limitations 
     period provided by this section shall apply to all 
     proceedings pending on or commenced after the date of 
     enactment of this section.''.

     SEC. 103. PLAINTIFF STEERING COMMITTEES.

       The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
     is amended by adding at the end the following new section:

     ``SEC. 38. GUARDIAN AD LITEM AND CLASS ACTION STEERING 
                   COMMITTEES.

       ``(a) Guardian Ad Litem.--Except as provided in subsection 
     (b), not later than 10 days after certifying a plaintiff 
     class in an implied private action brought under this title, 
     the court shall appoint a guardian ad litem for the plaintiff 
     class from a list or lists provided by the parties or their 
     counsel. The guardian ad litem shall direct counsel for the 
     class and perform such other functions as the court may 
     specify. The court shall apportion the reasonable fees and 
     expenses of the guardian ad litem among the parties. Court 
     appointment of a guardian ad litem shall not be subject to 
     interlocutory review.
       ``(b) Class Action Steering Committee.--Subsection (a) 
     shall not apply if, not later than 10 days after certifying a 
     plaintiff class, on its own motion or on motion of a member 
     of the class, the court appoints a committee of class members 
     to direct counsel for the class (hereafter in this section 
     referred to as the `plaintiff steering committee') and to 
     perform such other functions as the court may specify. Court 
     appointment of a plaintiff steering committee shall not be 
     subject to interlocutory review.
       ``(c) Membership of Plaintiff Steering Committee.--
       ``(1) Qualifications.--
       ``(A) Number.--A plaintiff steering committee shall consist 
     of not less than 5 class members, willing to serve, who the 
     court believes will fairly represent the class.
       ``(B) Ownership interests.--Members of the plaintiff 
     steering committee shall have cumulatively held during the 
     class period not less than--
       ``(i) the lesser of 5 percent of the securities which are 
     the subject matter of the litigation or securities which are 
     the subject matter of the litigation with a market value of 
     $10,000,000; or
       ``(ii) such smaller percentage or dollar amount as the 
     court finds appropriate under the circumstances.
       ``(2) Named plaintiffs.--Class members who are named 
     plaintiffs in the litigation may serve on the plaintiff 
     steering committee, but shall not comprise a majority of the 
     committee.
       ``(3) Noncompensation of members.--Members of the plaintiff 
     steering committee shall serve without compensation, except 
     that any member may apply to the court for reimbursement of 
     reasonable out-of-pocket expenses from any common fund 
     established for the class.
       ``(4) Meetings.--The plaintiff steering committee shall 
     conduct its business at one or more previously scheduled 
     meetings of the committee at which a majority of its members 
     are present in person or by electronic communication. The 
     plaintiff steering committee shall decide all matters within 
     its authority by a majority vote of all members, except that 
     the committee may determine that decisions other than to 
     accept or reject a settlement offer or to employ or dismiss 
     counsel for the class may be delegated to one or more members 
     of the committee, or may be voted upon by committee members 
     seriatim, without a meeting.
       ``(5) Right of nonmembers to be heard.--A class member who 
     is not a member of the plaintiff steering committee may 
     appear and be heard by the court on any issue in the action, 
     to the same extent as any other party.
       ``(d) Functions of Guardian Ad Litem and Plaintiff Steering 
     Committee.--
       ``(1) Direct counsel.--The authority of the guardian ad 
     litem or the plaintiff steering committee to direct counsel 
     for the class shall include all powers normally permitted to 
     an attorney's client in litigation, including the authority 
     to retain or dismiss counsel and to reject offers of 
     settlement, and the preliminary authority to accept an offer 
     of settlement, subject to the restrictions specified in 
     paragraph (2). Dismissal of counsel other than for cause 
     shall not limit the ability of counsel to enforce any 
     contractual fee agreement or to apply to the court for a fee 
     award from any common fund established for the class.
       ``(2) Settlement offers.--If a guardian ad litem or a 
     plaintiff steering committee gives preliminary approval to an 
     offer of settlement, the guardian ad litem or the plaintiff 
     steering committee may seek approval of the offer by a 
     majority of class members if the committee determines that 
     the benefit of seeking such approval outweighs the cost of 
     soliciting the approval of class members.
       ``(e) Immunity From Liability; Removal.--Any person serving 
     as a guardian ad litem or as a member of a plaintiff steering 
     committee shall be immune from any liability arising from 
     such service. The court may remove a guardian ad litem or a 
     member of a plaintiff steering committee for good cause 
     shown.
       ``(f) Effect on Other Law.--This section does not affect 
     any other provision of law concerning class actions or the 
     authority of the court to give final approval to any offer of 
     settlement.''.

     SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

       The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
     is amended by adding at the end the following new section:
     ``SEC. 39. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

       ``(a) Intent.--In an implied private action arising under 
     this title in which the plaintiff may recover money damages 
     from a defendant only on proof that the defendant acted with 
     some level of intent, the plaintiff's complaint shall allege 
     specific facts demonstrating the state of mind of each 
     defendant at the time the alleged violation occurred.
       ``(b) Misleading Statements and Omissions.--In an implied 
     action arising under this title in which the plaintiff 
     alleges that the defendant--
       ``(1) made an untrue statement of a material fact; or
       ``(2) 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 plaintiff 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 plaintiff 
     shall set forth all information on which that belief is 
     formed.
       ``(c) Burden of Proof.--In an implied private action 
     arising under this title based on a material misstatement or 
     omission concerning a security, and in which the plaintiff 
     claims to have bought or sold the security based on a 
     reasonable belief that the market value of the security 
     reflected all publicly available information, the plaintiff 
     shall have the burden of proving that the misstatement or 
     omission caused any loss incurred by the plaintiff.
       ``(d) Damages.--In an implied private action arising under 
     this title based on a material misstatement or omission 
     concerning a security, and in which the plaintiff claims to 
     have bought or sold the security based on a reasonable belief 
     that the market value of the security reflected all publicly 
     available information, the plaintiff's damages shall not 
     exceed the lesser of--
       ``(1) the difference between the price paid by the 
     plaintiff for the security and the market value of the 
     security immediately after dissemination to the market of 
     information which corrects the misstatement or omission; and
       ``(2) the difference between the price paid by the 
     plaintiff for the security and the price at which the 
     plaintiff sold the security after dissemination of 
     information correcting the misstatement or omission.''.

     SEC. 105. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT 
                   ORGANIZATIONS ACT.

       Section 1964(c) of title 18, United States Code, is amended 
     by inserting ``, except that no person may bring an action 
     under this provision if the racketeering activity, as defined 
     in section 1961(1)(D), involves fraud in the sale of 
     securities'' before the period.
                     TITLE II--FINANCIAL DISCLOSURE

     SEC. 201. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

       (a) Consideration of Regulatory or Legislative Changes.--In 
     consultation with investors and issuers of securities, the 
     Securities and Exchange Commission shall consider adopting or 
     amending its rules and regulations, or making legislative 
     recommendations, concerning--
       (1) criteria that the Commission finds appropriate for the 
     protection of investors by which forward-looking statements 
     concerning the future economic performance of an issuer of 
     securities registered under section 12 of the Securities 
     Exchange Act of 1934 will be deemed not to be in violation of 
     section 10(b) of that Act; and
       (2) procedures by which courts shall timely dismiss claims 
     against such issuers of securities based on such forward-
     looking statements if such statements are in accordance with 
     any criteria under paragraph (1).
       (b) Commission Considerations.--In developing rules or 
     legislative recommendations in accordance with subsection 
     (a), the Commission shall consider--
       (1) appropriate limits to liability for forward-looking 
     statements;
       (2) procedures for making a summary determination of the 
     applicability of any Commission rule for forward-looking 
     statements early in a judicial proceeding to limit protracted 
     litigation and expansive discovery;
       (3) incorporating and reflecting the scienter requirements 
     applicable to implied private actions under section 10(b); 
     and
       (4) providing clear guidance to issuers of securities and 
     the judiciary.
       (c) Securities Act Amendment.--The Securities and Exchange 
     Act of 1934 (15 U.S.C. 78a et seq.), is amended by adding at 
     the end the following new section:

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

       ``(a) In General.--In any implied private action arising 
     under this title that alleges that a forward-looking 
     statement concerning the future economic performance of an 
     issuer registered under section 12 was materially false or 
     misleading, if a party making a motion in accordance with 
     subsection (b) requests a stay of discovery concerning the 
     claims or defenses of that party, the court shall grant such 
     a stay until it has ruled on any such motion.
       ``(b) Summary Judgment Motions.--Subsection (a) shall apply 
     to any motion for summary judgment made by a defendant 
     asserting that the forward-looking statement was within the 
     coverage of any rule which 
     [[Page S1079]] the Commission may have adopted concerning 
     such predictive statements, if such motion is made not less 
     than 60 days after the plaintiff commences discovery in the 
     action.
       ``(c) Dilatory Conduct; Duplicative Discovery.--
     Notwithstanding subsection (a) or (b), the time permitted for 
     a plaintiff to conduct discovery under subsection (b) may be 
     extended, or a stay of the proceedings may be denied, if the 
     court finds that--
       ``(1) the defendant making a motion described in subsection 
     (b) engaged in dilatory or obstructive conduct in taking or 
     opposing any discovery; or
       ``(2) a stay of discovery pending a ruling on a motion 
     under subsection (b) would be substantially unfair to the 
     plaintiff or other parties to the action.''.
     SEC. 202. 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 an issuer's financial statements by an independent 
     public accountant shall include, in accordance with generally 
     accepted auditing standards, as may be modified or 
     supplemented from time to time by the Commission--
       ``(1) procedures designed to provide reasonable assurance 
     of detecting illegal acts that would have a direct and 
     material effect on the determination of financial statement 
     amounts;
       ``(2) procedures designed to identify related party 
     transactions which are material to the financial statements 
     or otherwise require disclosure therein; and
       ``(3) an evaluation of whether there is substantial doubt 
     about the issuer's ability to continue as a going concern 
     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 issuer's financial statements) has or 
     may have occurred, the accountant shall, in accordance with 
     generally accepted auditing standards, as may be modified or 
     supplemented from time to time by the Commission--
       ``(A)(i) determine whether it is likely that an illegal act 
     has occurred; and
       ``(ii) if so, determine and consider the possible effect of 
     the illegal act on the financial statements of the issuer, 
     including any contingent monetary effects, such as fines, 
     penalties, and damages; and
       ``(B) as soon as practicable, inform the appropriate level 
     of the issuer's management and assure that the issuer's audit 
     committee, or the issuer's board of directors in the absence 
     of such a committee, is adequately informed with respect to 
     illegal acts that have been detected or have otherwise come 
     to the attention of such accountant in the course of the 
     audit, unless the illegal act is clearly inconsequential.
       ``(2) Response to failure to take remedial action.--If, 
     having first assured itself that the audit committee of the 
     board of directors of the issuer or the board (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 accountant's attention in the course of such 
     accountant's audit, 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 auditor's 
     report, when made, or warrant resignation from the audit 
     engagement;
     the independent public accountant shall, as soon as 
     practicable, directly report its conclusions to the board of 
     directors.
       ``(3) Notice to commission; response to failure to 
     notify.--An issuer whose board of directors 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 rules promulgated pursuant thereto.
       ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If 
     the Commission finds, after notice and opportunity for 
     hearing in a proceeding instituted pursuant to section 21C, 
     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.--With respect to any registrant that 
     is required to file selected quarterly financial data 
     pursuant to item 302(a) of Regulation S-K of the Securities 
     and Exchange Commission (17 CFR 229.302(a)), the amendments 
     made by subsection (a) shall apply to any annual report for 
     any period beginning on or after January 1, 1994. With 
     respect to any other registrant, the amendment shall apply 
     for any period beginning on or after January 1, 1995.
     SEC. 203. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL 
                   LIABILITY.

       (a) Securities Act Amendment.--The Securities and Exchange 
     Act of 1934 (15 U.S.C. 78a et seq.) is amended by adding at 
     the end the following new section:

     ``SEC. 41. PROPORTIONATE LIABILITY AND JOINT AND SEVERAL 
                   LIABILITY IN IMPLIED ACTIONS.

       ``(a) Applicability.--This section shall apply only to the 
     allocation of damages among persons who are, or who may 
     become, liable for damages in an implied private action 
     arising under this title. Nothing in this section shall 
     affect the standards for liability associated with an implied 
     private action arising under this title.
       ``(b) Application of Joint and Several Liability.--
       ``(1) In general.--A person against whom a judgment is 
     entered in an implied private action arising under this title 
     shall be liable jointly and severally for any recoverable 
     damages on such judgment if the person is found to have--
       ``(A) been a primary wrongdoer;
       ``(B) committed knowing securities fraud; or
       ``(C) controlled any primary wrongdoer or person who 
     committed knowing securities fraud.
       ``(2) Primary wrongdoer.--As used in this subsection--
       ``(A) the term `primary wrongdoer' means--
       ``(i) any--

       ``(I) issuer, registrant, purchaser, seller, or underwriter 
     of securities;
       ``(II) marketmaker or specialist in securities; or
       ``(III) clearing agency, securities information processor, 
     or government securities dealer;

     if such person breached a direct statutory or regulatory 
     obligation or if such person otherwise had a principal role 
     in the conduct that is the basis for the implied right of 
     action; or
       ``(ii) any person who intentionally rendered substantial 
     assistance to the fraudulent conduct of any person described 
     in clause (i), with actual knowledge of such person's 
     fraudulent conduct or fraudulent purpose, and with knowledge 
     that such conduct was wrongful; and
       ``(B) a defendant engages in `knowing securities fraud' if 
     such defendant--
       ``(i) makes a material representation with actual knowledge 
     that the representation is false, or omits to make a 
     statement with actual knowledge that, as a result of the 
     omission, one of the defendant's material representations is 
     false and knows that other persons are likely to rely on that 
     misrepresentation or omission, except that reckless conduct 
     by the defendant shall not be construed to constitute 
     `knowing securities fraud'; or
       ``(ii) intentionally rendered substantial assistance to the 
     fraudulent conduct of any person described in clause (i), 
     with actual knowledge of such person's fraudulent conduct or 
     fraudulent purpose, and with knowledge that such conduct was 
     wrongful.
       ``(c) Determination of Responsibility.--In an implied 
     private action in which more than 1 person contributed to a 
     violation of this title, the court shall instruct the jury to 
     answer special interrogatories, or if there is no jury, shall 
     make findings, concerning the degree of responsibility of 
     each person alleged to have caused or contributed to the 
     violation of this title, including persons who have entered 
     into settlements with the plaintiff. The interrogatories or 
     findings shall specify the amount of damages the plaintiff is 
     entitled to recover and the degree of responsibility, 
     measured as a percentage of the total fault of all persons 
     involved in the violation, of each person found to have 
     caused or contributed to the damages incurred by the 
     plaintiff or plaintiffs. In determining the degree of 
     responsibility, the trier of fact shall consider--
      [[Page S1080]]   ``(1) the nature of the conduct of each 
     person; and
       ``(2) the nature and extent of the causal relationship 
     between that conduct and the damage claimed by the plaintiff.
       ``(d) Application of Proportionate Liability.--Except as 
     provided in subsection (b), the amount of liability of a 
     person who is, or may through right of contribution become, 
     liable for damages based on an implied private action arising 
     under this title shall be determined as follows:
       ``(1) Degree of responsibility.--Except as provided in 
     paragraph (2), each liable party shall only be liable for the 
     portion of the judgment that corresponds to that party's 
     degree of responsibility, as determined under subsection (c).
       ``(2) Uncollectible shares.--If, upon motion made not later 
     than 6 months after a final judgment is entered, the court 
     determines that all or part of a defendant's share of the 
     obligation is uncollectible--
       ``(A) the remaining defendants 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 a final judgment are equal to more than 10 
     percent of the plaintiff's net financial worth; and
       ``(ii) the plaintiff's net financial worth is less than 
     $200,000; and
       ``(B) the amount paid by each of the remaining defendants 
     to all other plaintiffs shall be, in total, not more than the 
     greater of--
       ``(i) that remaining defendant's percentage of fault for 
     the uncollectible share; or
       ``(ii) 5 times--

       ``(I) the amount which the defendant gained from the 
     conduct that gave rise to its liability; or
       ``(II) if a defendant did not obtain a direct financial 
     gain from the conduct that gave rise to the liability and the 
     conduct consisted of the provision of deficient services to 
     an entity involved in the violation, the defendant's gross 
     revenues received for the provision of all services to the 
     other entity involved in the violation during the calendar 
     years in which deficient services were provided.

       ``(3) Overall limit.--In no event shall the total payments 
     required pursuant to paragraph (2) exceed the amount of the 
     uncollectible share.
       ``(4) Defendants subject to contribution.--A defendant 
     whose liability is reallocated pursuant to paragraph (2) 
     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 
     defendant is required to make an additional payment pursuant 
     to paragraph (2), that defendant may recover contribution--
       ``(A) from the defendant originally liable to make the 
     payment;
       ``(B) from any defendant liable jointly and severally 
     pursuant to subsection (b)(1);
       ``(C) from any defendant held proportionately liable 
     pursuant to this subsection 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 who would have been liable to make 
     the same payment.
       ``(e) Nondisclosure to Jury.--The standard for allocation 
     of damages under subsections (b)(1) and (c) and the procedure 
     for reallocation of uncollectible shares under subsection 
     (d)(2) shall not be disclosed to members of the jury.
       ``(f) Settlement Discharge.--
       ``(1) In general.--A defendant who settles an implied 
     private action brought under this title at any time before 
     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 defendant arising out of the 
     action. The order shall bar all future claims for 
     contribution or indemnity arising out of the action--
       ``(A) by nonsettling persons against the settling 
     defendant; and
       ``(B) by the settling defendant against any nonsettling 
     defendants.
       ``(2) Reduction.--If a person enters into a settlement with 
     the plaintiff prior to verdict or judgment, the verdict or 
     judgment shall be reduced by the greater of--
       ``(A) an amount that corresponds to the degree of 
     responsibility of that person; or
       ``(B) the amount paid to the plaintiff by that person.
       ``(g) Contribution.--A person who becomes liable for 
     damages in an implied private action arising under this title 
     may recover contribution from any other person who, if joined 
     in the original suit, would have been liable for the same 
     damages. A claim for contribution shall be determined based 
     on the degree of responsibility of the claimant and of each 
     person against whom a claim for contribution is made.
       ``(h) Statute of Limitations for Contribution.--Once 
     judgment has been entered in an implied private action 
     arising under this title determining liability, an action for 
     contribution must 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 defendant 
     who was required to make an additional payment pursuant to 
     subsection (d)(2) may be brought not later than 6 months 
     after the date on which such payment was made.''.
       (b) Effective Date.--Section 41 of the Securities Exchange 
     Act of 1934, as added by subsection (a), shall only apply to 
     implied private actions commenced after the date of enactment 
     of this Act.

     SEC. 204. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.

       The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
     is amended by inserting immediately after section 13 the 
     following new section:

     ``SEC. 13A. PUBLIC AUDITING SELF-DISCIPLINARY BOARD.

       ``(a) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       ``(1) Public accounting firm.--The term `public accounting 
     firm' means a sole proprietorship, unincorporated 
     association, partnership, corporation, or other legal entity 
     that is engaged in the practice of public accounting.
       ``(2) Board.--The term `Board' means the Public Auditing 
     Self-Disciplinary Board designated by the Commission pursuant 
     to subsection (b).
       ``(3) Accountant's report.--The term `accountant's report' 
     means a document in which a public accounting firm identifies 
     a financial statement, report, or other document and sets 
     forth the firm's opinion regarding such financial statement, 
     report, or other document, or an assertion that an opinion 
     cannot be expressed.
       ``(4) Person associated with a public accounting firm.--The 
     term `person associated with a public accounting firm' means 
     a natural person who--
       ``(A) is a partner, shareholder, employee, or individual 
     proprietor of a public accounting firm, or who shares in the 
     profits of a public accounting firm; and
       ``(B) engages in any conduct or practice in connection with 
     the preparation of an accountant's report on any financial 
     statement, report, or other document required to be filed 
     with the Commission under any securities law.
       ``(5) Professional standards.--The term `professional 
     standards' means generally accepted auditing standards, 
     generally accepted accounting principles, generally accepted 
     standards for attestation engagements, and any other 
     standards related to the preparation of financial statements 
     or accountant's reports promulgated by the Commission or a 
     standard-setting body recognized by the Board.
       ``(b) Establishment of Board.--
       ``(1) In general.--Not later than 90 days after the date of 
     enactment of this section, the Commission shall establish a 
     Public Auditing Self-Disciplinary Board to perform the duties 
     set forth in this section. The Commission shall designate an 
     entity to serve as the Board if the Commission finds that--
       ``(A) such entity is sponsored by an existing national 
     organization of certified public accountants that--
       ``(i) is most representative of certified public 
     accountants covered by this title; and
       ``(ii) has demonstrated its commitment to improving the 
     quality of practice before the Commission; and
       ``(B) control over such entity is vested in the members of 
     the Board selected pursuant to subsection (c).
       ``(2) Alternative election of members.--If the Commission 
     designates an entity to serve as the Board pursuant to 
     paragraph (1), the entity shall conduct the election of 
     initial Board members in accordance with subsection 
     (c)(1)(B)(i).
       ``(c) Membership of Board.--
       ``(1) In general.--The Board shall be composed of 3 
     appointed members and 4 elected members, as follows:
       ``(A) Appointed members.--Three members of the Board shall 
     be appointed in accordance with the following:
       ``(i) Initial appointments.--The Chairman of the Commission 
     shall make the initial appointments, in consultation with the 
     other members of the Commission, not later than 90 days after 
     the date of enactment of this section.
       ``(ii) Subsequent appointments.--After the initial 
     appointments under clause (i), members of the Board appointed 
     to fill vacancies of appointed members of the Board shall be 
     appointed in accordance with the rules adopted pursuant to 
     paragraph (5). Such rules shall provide that such members 
     shall be appointed by the Board, subject to the approval of 
     the Commission.
       ``(B) Elected members.--Four members, including the member 
     who shall serve as the chairperson of the Board, shall be 
     elected in accordance with the following:
       ``(i) Initial election.--Not later than 120 days after the 
     date on which the Chairman of the Commission makes 
     appointments under subparagraph (A)(i), an entity designated 
     by the Commission pursuant to subsection (b) shall conduct an 
     election of 4 initial elected members pursuant to interim 
     election rules proposed by the entity and approved by the 3 
     interim members of the Board and the Commission. If the 
     Commission is unable to designate an entity meeting the 
     criteria set forth in subsection (b)(1), the members of the 
     Board appointed under subparagraph (A)(i) shall adopt interim 
     rules, subject to approval by the Commission, providing for 
     the election of the 4 initial elected members. Such rules 
     shall provide that such members of the Board shall be 
     elected--

       ``(I) not later than 120 days after the date on which 
     members are initially appointed under subparagraph (A)(i);
     [[Page S1081]]   ``(II) by persons who are associated with 
     public accounting firms and who are certified public 
     accountants under the laws of any State; and
       ``(III) subject to the approval of the Commission.
       ``(ii) Subsequent elections.--After the initial elections 
     under clause (i), members of the Board elected to fill 
     vacancies of elected members of the Board shall be elected in 
     accordance with the rules adopted pursuant to paragraph (5). 
     Such rules shall provide that such members of the Board shall 
     be elected--

       ``(I) by persons who are associated with public accounting 
     firms and who are certified public accountants under the laws 
     of any State; and
       ``(II) subject to the approval of the Commission.

       ``(2) Qualification.--Four members of the Board, including 
     the chairperson of the Board, shall be persons who have not 
     been associated with a public accounting firm during the 10-
     year period preceding appointment or election to the Board 
     under paragraph (1). Three members of the Board who are 
     elected shall be persons associated with a public accounting 
     firm registered with the Board.
       ``(3) Full-time basis.--The chairperson of the Board shall 
     serve on a full-time basis, severing all business ties with 
     his or her former firms or employers prior to beginning 
     service on the Board.
       ``(4) Terms.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     each member of the Board shall hold office for a term of 4 
     years or until a successor is appointed, whichever is later, 
     except that any member appointed to fill a vacancy occurring 
     prior to the expiration of the term for which such member's 
     predecessor was appointed shall be appointed for the 
     remainder of such term.
       ``(B) Initial board members.--Beginning on the date on 
     which all members of the Board have been selected in 
     accordance with this subsection, the terms of office of the 
     initial Board members shall expire, as determined by the 
     Board, by lottery--
       ``(i) for 1 member, 1 year after such date;
       ``(ii) for 2 members, 2 years after such date;
       ``(iii) for 2 members, 3 years after such date; and
       ``(iv) for 2 members, 4 years after such date.
       ``(5) Rules.--Following selection of the 7 initial members 
     of the Board in accordance with subparagraphs (A)(i) and 
     (B)(i) of paragraph (1), the Board shall propose and adopt 
     rules, which shall provide for--
       ``(A) the operation and administration of the Board, 
     including--
       ``(i) the appointment of members in accordance with 
     paragraph (1)(A)(ii);
       ``(ii) the election of members in accordance with paragraph 
     (1)(B)(ii); and
       ``(iii) the compensation of the members of the Board;
       ``(B) the appointment and compensation of such employees, 
     attorneys, and consultants as may be necessary or appropriate 
     to carry out the Board's functions under this title;
       ``(C) the registration of public accounting firms with the 
     Board pursuant to subsections (d) and (e); and
       ``(D) the matters described in subsections (f) and (g).
       ``(d) Registration and Annual Fees.--After the date on 
     which all initial members of the Board have been selected in 
     accordance with subsection (c), the Board shall assess and 
     collect a registration fee and annual dues from each public 
     accounting firm registered with the Board. Such fees and dues 
     shall be assessed at a level sufficient to recover the costs 
     and expenses of the Board and to permit the Board to operate 
     on a self-financing basis. The amount of fees and dues for 
     each public accounting firm shall be based upon--
       ``(1) the annual revenues of such firm from accounting and 
     auditing services;
       ``(2) the number of persons associated with the public 
     accounting firm;
       ``(3) the number of clients for which such firm furnishes 
     accountant's reports on financial statements, reports, or 
     other documents filed with the Commission; and
       ``(4) such other criteria as the Board may establish.
       ``(e) Registration With Board.--
       ``(1) Registration required.--Beginning 1 year after the 
     date on which all initial members of the Board have been 
     selected in accordance with subsection (c), it shall be 
     unlawful for a public accounting firm to furnish an 
     accountant's report on any financial statement, report, or 
     other document required to be filed with the Commission under 
     any Federal securities law, unless such firm is registered 
     with the Board.
       ``(2) Application for registration.--A public accounting 
     firm may be registered under this subsection by filing with 
     the Board an application for registration in such form and 
     containing such information as the Board, by rule, may 
     prescribe. Each application shall include--
       ``(A) the names of all clients of the public accounting 
     firm for which the firm furnishes accountant's reports on 
     financial statements, reports, or other documents filed with 
     the Commission;
       ``(B) financial information of the public accounting firm 
     for its most recent fiscal year, including its annual 
     revenues from accounting and auditing services, its assets 
     and its liabilities;
       ``(C) a statement of the public accounting firm's policies 
     and procedures with respect to quality control of its 
     accounting and auditing practice;
       ``(D) information relating to criminal, civil, or 
     administrative actions or formal disciplinary proceedings 
     pending against such firm, or any person associated with such 
     firm, in connection with an accountant's report furnished by 
     such firm;
       ``(E) a list of persons associated with the public 
     accounting firm who are certified public accountants, 
     including any State professional license or certification 
     number for each such person; and
       ``(F) such other information that is reasonably related to 
     the Board's responsibilities as the Board considers necessary 
     or appropriate.
       ``(3) Periodic reports.--Once in each year, or more 
     frequently as the Board, by rule, may prescribe, each public 
     accounting firm registered with the Board shall submit 
     reports to the Board updating the information contained in 
     its application for registration and containing such 
     additional information that is reasonably related to the 
     Board's responsibilities as the Board, by rule, may 
     prescribe.
       ``(4) Exemptions.--The Commission, by rule or order, upon 
     its own motion or upon application, may conditionally or 
     unconditionally exempt any public accounting firm or any 
     accountant's report, or any class of public accounting firms 
     or any class of accountant's reports, from any provisions of 
     this section or the rules or regulations issued hereunder, if 
     the Commission finds that such exemption is consistent with 
     the public interest, the protection of investors, and the 
     purposes of this section.
       ``(5) Confidentiality.--The Board may, by rule, designate 
     portions of the filings required pursuant to paragraphs (2) 
     and (3) as privileged and confidential.
       ``(f) Duties of Board.--After the date on which all initial 
     members of the Board have been selected in accordance with 
     subsection (c), the Board shall have the following duties and 
     powers:
       ``(1) Investigations and disciplinary proceedings.--The 
     Board shall establish fair procedures for investigating and 
     disciplining public accounting firms registered with the 
     Board, and persons associated with such firms, for violations 
     of the Federal securities laws, the rules or regulations 
     issued thereunder, the rules adopted by the Board, or 
     professional standards in connection with the preparation of 
     an accountant's report on a financial statement, report, or 
     other document filed with the Commission.
       ``(2) Investigation procedures.--
       ``(A) In general.--The Board may conduct an investigation 
     of any act, practice, or omission by a public accounting firm 
     registered with the Board, or by any person associated with 
     such firm, in connection with the preparation of an 
     accountant's report on a financial statement, report, or 
     other document filed with the Commission that may violate any 
     applicable provision of the Federal securities laws, the 
     rules and regulations issued thereunder, the rules adopted by 
     the Board, or professional standards, whether such act, 
     practice, or omission is the subject of a criminal, civil, or 
     administrative action, or a disciplinary proceeding, or 
     otherwise is brought to the attention of the Board.
       ``(B) Powers of board.--For purposes of an investigation 
     under this paragraph, the Board may, in addition to such 
     other actions as the Board determines to be necessary or 
     appropriate--
       ``(i) require the testimony of any person associated with a 
     public accounting firm registered with the Board, with 
     respect to any matter which the Board considers relevant or 
     material to the investigation;
       ``(ii) require the production of audit workpapers and any 
     other document or information in the possession of a public 
     accounting firm registered with the Board, or any person 
     associated with such firm, wherever domiciled, that the Board 
     considers relevant or material to the investigation, and may 
     examine the books and records of such firm to verify the 
     accuracy of any documents or information so supplied; and
       ``(iii) request the testimony of any person and the 
     production of any document in the possession of any person, 
     including a client of a public accounting firm registered 
     with the Board, that the Board considers relevant or material 
     to the investigation.
       ``(C) Suspension or revocation of registration for 
     noncompliance.--The refusal of any person associated with a 
     public accounting firm registered with the Board to testify, 
     or the refusal of any such person to produce documents or 
     otherwise cooperate with the Board, in connection with an 
     investigation under this section, shall be cause for 
     suspending or barring such person from associating with a 
     public accounting firm registered with the Board, or such 
     other appropriate sanction as the Board shall determine. The 
     refusal of any public accounting firm registered with the 
     Board to produce documents or otherwise cooperate with the 
     Board, in connection with an investigation under this 
     section, shall be cause for the suspension or revocation of 
     the registration of such firm, or such other appropriate 
     sanction as the Board shall determine.
       ``(D) Referral to commission.--
       ``(i) In general.--If the Board is unable to conduct or 
     complete an investigation under this section because of the 
     refusal of any client of a public accounting firm registered 
     with the Board, or any other person, to testify, produce 
     documents, or otherwise cooperate with the Board in 
     connection with 
     [[Page S1082]] such investigation, the Board shall report 
     such refusal to the Commission.
       ``(ii) Investigation.--The Commission may designate the 
     Board or one or more officers of the Board who shall be 
     empowered, in accordance with such procedures as the 
     Commission may adopt, to subpoena witnesses, compel their 
     attendance, and require the production of any books, papers, 
     correspondence, memoranda, or other records relevant to any 
     investigation by the Board. Attendance of witnesses and the 
     production of any records may be required from any place in 
     the United States or any State at any designated place of 
     hearing. Enforcement of a subpoena issued by the Board, or an 
     officer of the Board, pursuant to this subparagraph shall 
     occur in the manner provided for in section 21(c). 
     Examination of witnesses subpoenaed pursuant to this 
     subparagraph shall be conducted before an officer authorized 
     to administer oaths by the laws of the United States or of 
     the place where the examination is held.
       ``(iii) Referrals to commission.--The Board may refer any 
     investigation to the Commission, as the Board deems 
     appropriate.
       ``(E) Immunity from civil liability.--An employee of the 
     Board engaged in carrying out an investigation or 
     disciplinary proceeding under this section shall be immune 
     from any civil liability arising out of such investigation or 
     disciplinary proceeding in the same manner and to the same 
     extent as an employee of the Federal Government in similar 
     circumstances.
       ``(3) Disciplinary procedures.--
       ``(A) Decision to discipline.--In a proceeding by the Board 
     to determine whether a public accounting firm, or a person 
     associated with such firm, should be disciplined, the Board 
     shall bring specific charges, notify such firm or person of 
     the charges, give such firm or person an opportunity to 
     defend against such charges, and keep a record of such 
     actions.
       ``(B) Sanctions.--If the Board finds that a public 
     accounting firm, or a person associated with such firm, has 
     engaged in any act, practice, or omission in violation of the 
     Federal securities laws, the rules or regulations issued 
     thereunder, the rules adopted by the Board, or professional 
     standards, the Board may impose such disciplinary sanctions 
     as it deems appropriate, including--
       ``(i) revocation or suspension of registration under this 
     section;
       ``(ii) limitation of activities, functions, and operations;
       ``(iii) fine;
       ``(iv) censure;
       ``(v) in the case of a person associated with a public 
     accounting firm, suspension or bar from being associated with 
     a public accounting firm registered with the Board; and
       ``(vi) any other disciplinary sanction that the Board 
     determines to be appropriate.
       ``(C) Statement required.--A determination by the Board to 
     impose a disciplinary sanction shall be supported by a 
     written statement by the Board setting forth--
       ``(i) any act or practice in which the public accounting 
     firm or person associated with such firm has been found to 
     have engaged, or which such firm or person has been found to 
     have omitted;
       ``(ii) the specific provision of the Federal securities 
     laws, the rules or regulations issued thereunder, the rules 
     adopted by the Board, or professional standards which any 
     such act, practice, or omission is deemed to violate; and
       ``(iii) the sanction imposed and the reasons therefor.
       ``(D) Prohibition on association.--It shall be unlawful--
       ``(i) for any person as to whom a suspension or bar is in 
     effect willfully to be or to become associated with a public 
     accounting firm registered with the Board, in connection with 
     the preparation of an accountant's report on any financial 
     statement, report, or other document filed with the 
     Commission, without the consent of the Board or the 
     Commission; and
       ``(ii) for any public accounting firm registered with the 
     Board to permit such a person to become, or remain, 
     associated with such firm without the consent of the Board or 
     the Commission, if such firm knew or, in the exercise of 
     reasonable care should have known, of such suspension or bar.
       ``(4) Reporting of sanctions.--If the Board imposes a 
     disciplinary sanction against a public accounting firm, or a 
     person associated with such firm, the Board shall report such 
     sanction to the Commission, to the appropriate State or 
     foreign licensing board or boards with which such firm or 
     such person is licensed or certified to practice public 
     accounting, and to the public. The information reported shall 
     include--
       ``(A) the name of the public accounting firm, or person 
     associated with such firm, against whom the sanction is 
     imposed;
       ``(B) a description of the acts, practices, or omissions 
     upon which the sanction is based;
       ``(C) the nature of the sanction; and
       ``(D) such other information respecting the circumstances 
     of the disciplinary action (including the name of any client 
     of such firm affected by such acts, practices, or omissions) 
     as the Board deems appropriate.
       ``(5) Discovery and admissibility of board material.--
       ``(A) Discoverability.--
       ``(i) In general.--Except as provided in subparagraph (C), 
     all reports, memoranda, and other information prepared, 
     collected, or received by the Board, and the deliberations 
     and other proceedings of the Board and its employees and 
     agents in connection with an investigation or disciplinary 
     proceeding under this section shall not be subject to any 
     form of civil discovery, including demands for production of 
     documents and for testimony of individuals, in connection 
     with any proceeding in any State or Federal court, or before 
     any State or Federal administrative agency. This subparagraph 
     shall not apply to any information provided to the Board that 
     would have been subject to discovery from the person or 
     entity that provided it to the Board, but is no longer 
     available from that person or entity.
       ``(ii) Exemption.--Submissions to the Board by or on behalf 
     of a public accounting firm or person associated with such a 
     firm or on behalf of any other participant in a Board 
     proceeding, including documents generated by the Board 
     itself, shall be exempt from discovery to the same extent as 
     the material described in clause (i), whether in the 
     possession of the Board or any other person, if such 
     submission--
       ``(I) is prepared specifically for the purpose of the Board 
     proceeding; and
       ``(II) addresses the merits of the issues under 
     investigation by the Board.

       ``(iii) Construction.--Nothing in this subparagraph shall 
     limit the authority of the Board to provide appropriate 
     public access to disciplinary hearings of the Board, or to 
     reports or memoranda received by the Board in connection with 
     such proceedings.
       ``(B) Admissibility.--
       ``(i) In general.--Except as provided in subparagraph (C), 
     all reports, memoranda, and other information prepared, 
     collected, or received by the Board, the deliberations and 
     other proceedings of the Board and its employees and agents 
     in connection with an investigation or disciplinary 
     proceeding under this section, the fact that an investigation 
     or disciplinary proceeding has been commenced, and the 
     Board's determination with respect to any investigation or 
     disciplinary proceeding shall be inadmissible in any 
     proceeding in any State or Federal court or before any State 
     or Federal administrative agency.
       ``(ii) Treatment of certain documents.--Submissions to the 
     Board by or on behalf of a public accounting firm or person 
     associated with such a firm or on behalf of any other 
     participant in a Board proceeding, including documents 
     generated by the Board itself, shall be inadmissible to the 
     same extent as the material described in clause (i), if such 
     submission--

       ``(I) is prepared specifically for the purpose of the Board 
     proceedings; and
       ``(II) addresses the merits of the issues under 
     investigation by the Board.

       ``(C) Availability and admissibility of information.--
       ``(i) In general.--All information referred to in 
     subparagraphs (A) and (B) shall be--

       ``(I) available to the Commission and to any other Federal 
     department or agency in connection with the exercise of its 
     regulatory authority to the extent that such information 
     would be available to such agency from the Commission as a 
     result of a Commission enforcement investigation;
       ``(II) available to Federal and State authorities in 
     connection with any criminal investigation or proceeding;
       ``(III) admissible in any action brought by the Commission 
     or any other Federal department or agency pursuant to its 
     regulatory authority, to the extent that such information 
     would be available to such agency from the Commission as a 
     result of a Commission enforcement investigation and in any 
     criminal action; and
       ``(IV) available to State licensing boards to the extent 
     authorized in paragraph (6).

       ``(ii) Other limitations.--Any documents or other 
     information provided to the Commission or other authorities 
     pursuant to clause (i) shall be subject to the limitations on 
     discovery and admissibility set forth in subparagraphs (A) 
     and (B).
       ``(D) Title 5 treatment.--This subsection shall be 
     considered to be a statute described in section 552(b)(3)(B) 
     of title 5, United States Code, for purposes of that section 
     552.
       ``(6) Participation by state licensing boards.--
       ``(A) Notice.--When the Board institutes an investigation 
     pursuant to paragraph (2)(A), it shall notify the State 
     licensing boards in the States in which the public accounting 
     firm or person associated with such firm engaged in the act 
     or failure to act alleged to have violated professional 
     standards, of the pendancy of the investigation, and shall 
     invite the State licensing boards to participate in the 
     investigation.
       ``(B) Acceptance by state board.--
       ``(i) Participation.--If a State licensing board elects to 
     join in the investigation, its representatives shall 
     participate, pursuant to rules established by the Board, in 
     investigating the matter and in presenting the evidence 
     justifying the charges in any hearing pursuant to paragraph 
     (3)(A).
       ``(ii) Review.--In the event that the State licensing board 
     disagrees with the Board's determination with respect to the 
     matter under investigation, it may seek review of that 
     determination by the Commission pursuant to procedures that 
     the Commission shall specify by regulation.
       ``(C) Prohibition on concurrent investigations.--A State 
     licensing board shall not institute its own proceeding with 
     respect to a matter referred to in subparagraph (A) until 
     after the Board's determination has become final, including 
     completion of all review by the Commission and the courts.
     [[Page S1083]]   ``(D) State sanctions permitted.--If the 
     Board or the Commission imposes a sanction upon a public 
     accounting firm or person associated with such a firm, and 
     that determination either is not subjected to judicial review 
     or is upheld on judicial review, a State licensing board may 
     impose a sanction on the basis of the Board's report pursuant 
     to paragraph (4). Any sanction imposed by the State licensing 
     board under this clause shall be inadmissible in any 
     proceeding in any State or Federal court or before any State 
     or Federal administrative agency, except to the extent 
     provided in paragraph (5)(D).
       ``(E) Sanctions not permitted.--If a sanction is not 
     imposed on a public accounting firm or person associated with 
     such a firm, and--
       ``(i) a State licensing board elected to participate in an 
     investigation referred to in subparagraph (A), the State 
     licensing board may not impose a sanction with respect to the 
     matter; and
       ``(ii) a State licensing board elected not to participate 
     in an investigation referred to in subparagraph (A), 
     subparagraphs (A) and (B) of paragraph (5) shall apply with 
     respect to any investigation or proceeding subsequently 
     instituted by the State licensing board and, in particular, 
     the State licensing board shall not have access to the record 
     of the proceeding before the Board and that record shall be 
     inadmissible in any proceeding before the State licensing 
     board.
       ``(g) Additional Duties Regarding Quality Control.--After 
     the date on which all initial members of the Board have been 
     selected in accordance with subsection (c), the Board shall 
     have the following duties and powers in addition to those set 
     forth in subsection (f):
       ``(1) In general.--The Board shall seek to promote a high 
     level of professional conduct among public accounting firms 
     registered with the Board, to improve the quality of audit 
     services provided by such firms, and, in general, to protect 
     investors and promote the public interest.
       ``(2) Professional peer review organizations.--
       ``(A) Membership requirement.--The Board shall require each 
     public accounting firm subject to the disciplinary authority 
     of the Board to be a member of a professional peer review 
     organization certified by the Board pursuant to subparagraph 
     (B).
       ``(B) Criteria for certification.--The Board shall, by 
     rule, establish general criteria for the certification of 
     peer review organizations and shall certify organizations 
     that satisfy those criteria, or such amended criteria as the 
     Board may adopt. To be certified, a peer review organization 
     shall, at a minimum--
       ``(i) require a member public accounting firm to undergo 
     peer review not less than once every 3 years and publish the 
     results of the peer review; and
       ``(ii) adopt standards that are acceptable to the Board 
     relating to audit service quality control.
       ``(C) Penalties.--Violation by a public accounting firm or 
     a person associated with such a firm of a rule of the peer 
     review organization to which the firm belongs shall 
     constitute grounds for--
       ``(i) the imposition of disciplinary sanctions by the Board 
     pursuant to subsection (f); and
       ``(ii) denial to the public accounting firm or person 
     associated with such firm of the privilege of appearing or 
     practicing before the Commission.
       ``(3) Confidentiality.--Except as otherwise provided by 
     this section, all reports, memoranda, and other information 
     provided to the Board solely for purposes of paragraph (2), 
     or to a peer review organization certified by the Board, 
     shall be confidential and privileged, unless such 
     confidentiality and privilege are expressly waived by the 
     person or entity that created or provided the information.
       ``(h) Commission Oversight of the Board.--
       ``(1) Proposed rule changes.--
       ``(A) In general.--The Board shall file with the 
     Commission, in accordance with such rules as the Commission 
     may prescribe, copies of any proposed rule or any proposed 
     change in, addition to, or deletion from the rules of the 
     Board (hereafter in this subsection collectively referred to 
     as a `proposed rule change') accompanied by a concise general 
     statement of the basis and purpose of such proposed rule 
     change. The Commission shall, upon the filing of any proposed 
     rule change, publish notice thereof together with the terms 
     of substance of the proposed rule change or a description of 
     the subjects and issues involved. The Commission shall give 
     interested persons an opportunity to submit written data, 
     views, and arguments concerning the proposed rule change. No 
     proposed rule change shall take effect unless approved by the 
     Commission or otherwise permitted in accordance with this 
     subsection.
       ``(B) Approval or disapproval.--
       ``(i) In general.--Not later than 35 days after the date on 
     which notice of the filing of a proposed rule change is 
     published in accordance with subparagraph (A), or such longer 
     period as the Commission may designate (not to exceed 90 days 
     after such date, if it finds such longer period to be 
     appropriate and publishes its reasons for such finding or as 
     to which the Board consents) the Commission shall--

       ``(I) by order approve such proposed rule change; or
       ``(II) institute proceedings to determine whether the 
     proposed rule change should be disapproved.

       ``(ii) Disapproval proceedings.--Proceedings for 
     disapproval shall include notice of the grounds for 
     disapproval under consideration and opportunity for hearing 
     and shall be concluded not later than 180 days after the date 
     of publication of notice of the filing of the proposed rule 
     change. At the conclusion of the proceedings for disapproval, 
     the Commission, by order, shall approve or disapprove such 
     proposed rule change. The Commission may extend the time for 
     conclusion of such proceedings for--

       ``(I) not more than 60 days, if the Commission finds good 
     cause for such extension and publishes its reasons for such 
     finding; or
       ``(II) such longer period to which the Board consents.

       ``(iii) Approval.--The Commission shall approve a proposed 
     rule change if it finds that such proposed rule change is 
     consistent with the requirements of the Federal securities 
     laws, and the rules and regulations issued thereunder, 
     applicable to the Board. The Commission shall disapprove a 
     proposed rule change if it does not make such finding. The 
     Commission shall not approve any proposed rule change prior 
     to the expiration of the 30-day period beginning on the date 
     on which notice of the filing of a proposed rule change is 
     published in accordance with this subparagraph, unless the 
     Commission finds good cause to do so and publishes its 
     reasons for such finding.
       ``(C) Effect of proposed rule change.--
       ``(i) Effective date.--Notwithstanding subparagraph (B), a 
     proposed rule change may take effect upon filing with the 
     Commission if designated by the Board as--

       ``(I) constituting a stated policy, practice, or 
     interpretation with respect to the meaning, administration, 
     or enforcement of an existing rule of the Board;
       ``(II) establishing or changing a due, fee, or other charge 
     imposed by the Board; or
       ``(III) concerned solely with the administration of the 
     Board or other matters which the Commission, by rule, 
     consistent with the public interest and the purposes of this 
     subsection, may specify.

       ``(ii) Summary effect.--Notwithstanding any other provision 
     of this subsection, a proposed rule change may be put into 
     effect summarily if it appears to the Commission that such 
     action is necessary for the protection of investors. Any 
     proposed rule change put into effect summarily shall be filed 
     promptly thereafter in accordance with this paragraph.
       ``(iii) Enforcement.--Any proposed rule change which has 
     taken effect pursuant to clause (i) or (ii) may be enforced 
     by the Board to the extent that it is not inconsistent with 
     the Federal securities laws, the rules and regulations issued 
     thereunder, and applicable Federal and State law. During the 
     60-day period beginning on the date on which notice of the 
     filing of a proposed rule change if filed in accordance with 
     this paragraph, the Commission may summarily abrogate the 
     change in the rules of the Board made thereby and require 
     that the proposed rule change be refiled in accordance with 
     subparagraph (A) and reviewed in accordance with subparagraph 
     (B), if it appears to the Commission that such action is 
     necessary or appropriate in the public interest, for the 
     protection of investors, or otherwise in furtherance of the 
     purposes of the Federal securities laws. Commission action 
     pursuant to the preceding sentence shall not affect the 
     validity or force of the rule change during the period it was 
     in effect and shall not be reviewable under section 25 of 
     this Act nor deemed to be `final agency action' for purposes 
     of section 704 of title 5, United States Code.
       ``(2) Amendment by commission of rules of the board.--The 
     Commission, by rule, may abrogate, add to, and delete from 
     (hereafter in this subsection collectively referred to as 
     `amend') the rules of the Board as the Commission deems 
     necessary or appropriate to ensure the fair administration of 
     the Board, to conform its rules to requirements of the 
     Federal securities laws, and the rules and regulations issued 
     thereunder applicable to the Board, or otherwise in 
     furtherance of the purposes of the Federal securities laws, 
     in the following manner:
       ``(A) Publication of notice.--The Commission shall notify 
     the Board and publish notice of the proposed rulemaking in 
     the Federal Register. The notice shall include the text of 
     the proposed amendment to the rules of the Board and a 
     statement of the Commission's reasons, including any 
     pertinent facts, for commencing such proposed rulemaking.
       ``(B) Comments.--The Commission shall give interested 
     persons an opportunity for the oral presentation of data, 
     views, and arguments, in addition to an opportunity to make 
     written submissions. A transcript shall be kept of any oral 
     presentation.
       ``(C) Incorporation.--A rule adopted pursuant to this 
     subsection shall incorporate the text of the amendment to the 
     rules of the Board and a statement of the Commission's basis 
     for and purpose in so amending such rules. Such statement 
     shall include an identification of any facts on which the 
     Commission considers its determination to so amend the rules 
     of the Board to be based, including the reasons for the 
     Commission's conclusions as to any of the facts that were 
     disputed in the rulemaking.
       ``(D) Regulations.--
     [[Page S1084]]   ``(i) Title 5 applicability.--Except as 
     otherwise provided in this paragraph, rulemaking under this 
     paragraph shall be in accordance with the procedures 
     specified in section 553 of title 5, United States Code, for 
     rulemaking not on the record.
       ``(ii) Construction.--Nothing in this subsection shall be 
     construed to impair or limit the Commission's power to make, 
     modify, or alter the procedures the Commission may follow in 
     making rules and regulations pursuant to any other authority 
     under the Federal securities laws.
       ``(iii) Incorporation of amendments.--Any amendment to the 
     rules of the Board made by the Commission pursuant to this 
     subsection shall be considered for purposes of the Federal 
     securities laws to be part of the rules of the Board and 
     shall not be considered to be a rule of the Commission.
       ``(3) Notice of disciplinary action taken by the board; 
     review of action by the commission.--
       ``(A) Notice required.--If the Board imposes a final 
     disciplinary sanction on a public accounting firm registered 
     with the Board or on any person associated with such a firm, 
     the Board shall promptly file notice thereof with the 
     Commission. The notice shall be in such form and contain such 
     information as the Commission, by rule, may prescribe as 
     necessary or appropriate in furtherance of the purposes of 
     the Federal securities laws.
       ``(B) Review.--An action with respect to which the Board is 
     required by subparagraph (A) to file notice shall be subject 
     to review by the Commission, on its own motion, or upon 
     application by any person aggrieved thereby, filed not later 
     than 30 days after the date on which such notice is filed 
     with the Commission and received by such aggrieved person, or 
     within such longer period as the Commission may determine. 
     Application to the Commission for review, or the institution 
     of review by the Commission on its own motion, shall not 
     operate as a stay of such action unless the Commission 
     otherwise orders, summarily or after notice and opportunity 
     for hearing on the question of a stay (which hearing may 
     consist solely of the submission of affidavits or 
     presentation of oral arguments). The Commission shall 
     establish for appropriate cases an expedited procedure for 
     consideration and determination of the question of a stay.
       ``(4) Disposition of review; cancellation, reduction, or 
     remission of sanction.--
       ``(A) In general.--In any proceeding to review a final 
     disciplinary sanction imposed by the Board on a public 
     accounting firm registered with the Board or a person 
     associated with such a firm, after notice and opportunity for 
     hearing (which hearing may consist solely of consideration of 
     the record before the Board and opportunity for the 
     presentation of supporting reasons to affirm, modify, or set 
     aside the sanction)--
       ``(i) if the Commission finds that--

       ``(I) such firm or person associated with such a firm has 
     engaged in such acts or practices, or has omitted such acts, 
     as the Board has found them to have engaged in or omitted;
       ``(II) such acts, practices, or omissions, are in violation 
     of such provisions of the Federal securities laws, the rules 
     or regulations issued thereunder, the rules adopted by the 
     Board, or professional standards as have been specified in 
     the determination of the Board; and
       ``(III) such provisions were applied in a manner consistent 
     with the purposes of the Federal securities laws;

     the Commission, by order, shall so declare and, as 
     appropriate, affirm the sanction imposed by the Board, modify 
     the sanction in accordance with paragraph (2), or remand to 
     the Board for further proceedings; or
       ``(ii) if the Commission does not make the findings under 
     clause (i), it shall, by order, set aside the sanction 
     imposed by the Board and, if appropriate, remand to the Board 
     for further proceedings.
       ``(B) Cancellation, reduction, or remission of sanction.--
     If the Commission, having due regard for the public interest 
     and the protection of investors, finds after a proceeding in 
     accordance with subparagraph (A) that a sanction imposed by 
     the Board upon a firm or person associated with a firm 
     imposes any burden on competition not necessary or 
     appropriate in furtherance of the purposes of the Federal 
     securities laws or is excessive or oppressive, the Commission 
     may cancel, reduce, or require the remission of such 
     sanction.
       ``(5) Compliance with rules and regulations.--
       ``(A) Duties of board.--The Board shall--
       ``(i) comply with the Federal securities laws, the rules 
     and regulations issued thereunder, and its own rules; and
       ``(ii) subject to subparagraph (B) and the rules 
     thereunder, absent reasonable justification or excuse, 
     enforce compliance with such provisions and with professional 
     standards by public accounting firms registered with the 
     Board and persons associated with such firms.
       ``(B) Relief by commission.--The Commission, by rule, 
     consistent with the public interest, the protection of 
     investors, and the other purposes of the Federal securities 
     laws, may relieve the Board of any responsibility under this 
     section to enforce compliance with any specified provision of 
     the Federal securities laws, the rules or regulations issued 
     thereunder, or professional standards by any public 
     accounting firm registered with the Board or person 
     associated with such a firm, or any class of such firms or 
     persons associated with such a firm.
       ``(6) Censure; other sanctions.--
       ``(A) In general.--The Commission is authorized, by order, 
     if in its opinion such action is necessary or appropriate in 
     the public interest, for the protection of investors, or 
     otherwise in furtherance of the purposes of the Federal 
     securities laws, to censure or impose limitations upon the 
     activities, functions, and operations of the Board, if the 
     Commission finds, on the record after notice and opportunity 
     for hearing, that the Board has--
       ``(i) violated or is unable to comply with any provision of 
     the Federal securities laws, the rules or regulations issued 
     thereunder, or its own rules; or
       ``(ii) without reasonable justification or excuse, has 
     failed to enforce compliance with any such provision or any 
     professional standard by a public accounting firm registered 
     with the Board or a person associated with such a firm.
       ``(B) Removal from office.--The Commission is authorized, 
     by order, if in its opinion such action is necessary or 
     appropriate, in the public interest for the protection of 
     investors, or otherwise in furtherance of the purposes of the 
     Federal securities laws, to remove from office or censure any 
     member of the Board, if the Commission finds, on the record 
     after notice and opportunity for hearing, that such member 
     has--
       ``(i) willfully violated any provision of the Federal 
     securities laws, the rules or regulations issued thereunder, 
     or the rules of the Board;
       ``(ii) willfully abused such member's authority; or
       ``(iii) without reasonable justification or excuse, failed 
     to enforce compliance with any such provision or any 
     professional standard by any public accounting firm 
     registered with the Board or any person associated with such 
     a firm.
       ``(i) Foreign Accounting Firms.--A foreign public 
     accounting firm that furnishes accountant's reports on any 
     financial statement, report, or other document required to be 
     filed with the Commission under any Federal securities law 
     shall, with respect to those reports, be subject to the 
     provisions of this section in the same manner and to the same 
     extent as a domestic public accounting firm. The Commission 
     may, by rule, regulation, or order and as it deems consistent 
     with the public interest and the protection of investors, 
     either unconditionally or upon specified terms and 
     conditions, exempt from one or more provisions of this 
     section any foreign public accounting firm. Registration 
     pursuant to this subsection shall not, by itself, provide a 
     basis for subjecting foreign accounting firms to the 
     jurisdiction of the Federal or State courts.
       ``(j) Relationship With Antitrust Laws.--
       ``(1) Treatment under antitrust laws.--In no case shall the 
     Board, any member thereof, any public accounting firm 
     registered with the Board, or any person associated with such 
     a firm be subject to liability under any antitrust law for 
     any act of the Board or any failure to act by the Board.
       ``(2) Definition.--For purposes of this subsection, the 
     term `antitrust law' means the Federal Trade Commission Act 
     and each statute defined by section 4 thereof as `Antitrust 
     Acts' and all amendments to such Act and such statutes and 
     any other Federal Acts or State laws in pari materia.
       ``(k) Applicability of Auditing Principles.--Each audit 
     required pursuant to this title of an issuer's financial 
     statements by an independent public accountant shall be 
     conducted in accordance with generally accepted auditing 
     standards, as may be modified or supplemented from time-to-
     time by the Commission. The Commission may defer to 
     professional standards promulgated by private organizations 
     that are generally accepted by the accounting or auditing 
     profession.
       ``(l) Commission Authority Not Impaired.--Nothing in this 
     section shall be construed to impair or limit the 
     Commission's authority--
       ``(1) over the accounting profession, accounting firms, or 
     any persons associated with such firms;
       ``(2) to set standards for accounting practices, derived 
     from other provisions of the Federal securities laws or the 
     rules or regulations issued thereunder; or
       ``(3) to take, on its own initiative, legal, 
     administrative, or disciplinary action against any public 
     accounting firm registered with the Board or any person 
     associated with such a firm.''.
                                                                    ____

 Summary of Domenici-Dodd Private Securities Litigation Reform Act of 
                                  1995

       The ``Private Securities Litigation Reform Act of 1995'' is 
     designed to address several broad areas of concern about 
     private securities litigation: plaintiffs' ability to control 
     their cases and recover damages; abuses of securities 
     litigation by some lawyers; the impact of private securities 
     litigation on financial disclosure by companies; and better 
     methods for deterring fraud.


               1. Litigation Abuses and Investor Control

       Plaintiffs' lawyers often race each other to the courthouse 
     in order to be the first to file a case and win control over 
     the case and any resulting legal fees. In some instances 
     plaintiffs' lawyers and defendants tacitly agree to settle a 
     case for a small amount with little regard to whether the 
     case is strong or weak, in order to assure payment to 
     plaintiffs' 
     [[Page S1085]] counsel. In addition, lawyers have filed 
     securities cases without having a real client, or have sued 
     based simply based on a price drop, without bothering to 
     investigate whether any wrongdoing might have occurred.
       The bill addresses these abuses by ensuring that investors, 
     not lawyers, decide whether to bring a case, whether to 
     settle, and how much the lawyers should receive. It also 
     contains provisions intended to ensure that lawyers look at 
     the facts before they sue:
       The bill requires courts to appoint a plaintiff steering 
     committee or a guardian to directly control lawyers for the 
     class.
       The bill requires that notices of settlement agreements 
     sent to investors spell out clearly important facts such as 
     how much investors are giving up by settling, and how much 
     their lawyers will receive in the settlement.
       The bill requires that courts tie awards of lawyers' fees 
     directly to how much is recovered by investors, rather than 
     simply how many hours the lawyers billed or how many pages of 
     briefs they filed.
       The bill establishes an alternative dispute resolution 
     procedure to make it easier to prosecute a case without the 
     necessity of slow and expensive federal court proceedings.
       The bill requires that in order to bring a securities case 
     as a class action, the plaintiffs in whose name the case is 
     brought must have held either 1 per cent of the securities 
     which are the subject of the litigation or $10,000 worth of 
     securities. This should help stop a problem pointed to by 
     several courts, in which ``professional
      plaintiffs'' who own small amounts of stock in many 
     companies try to bring class action lawsuits whenever one 
     of their investments goes down.
       The bill clarifies how a lawyer should plead a securities 
     fraud claim. Plaintiffs' lawyers should have no trouble 
     meeting these standards if they have legitimate cases and 
     have looked at the facts.
       These provisions should ensure that defrauded investors can 
     recover damages more quickly, with less of their recovery 
     drained off in lawyers' fees.


            2. securities litigation and financial reporting

       Certain professional, like accountants, are singled out 
     under the current litigation system simply because they are a 
     deep pocket. Their liability exposure under the current 
     system could drive them away from providing auditing services 
     to many companies, especially new companies and ``high tech'' 
     companies. The bill establishes a liability system for less 
     culpable defendants that is more fair and is linked to degree 
     of fault. Defendants who have acted egregiously would still 
     be fully liable. Plaintiffs who have a net worth of less than 
     $200,000 and lose more than 10 percent of their net worth.
       At the same time, the bill establishes a self-disciplinary 
     organization for accountants under the direct supervision of 
     the SEC. This entity would be somewhat like self-regulatory 
     organizations such as the New York Stock Exchange or the 
     National Association of Securities Dealers. The net effect 
     should be a more direct and rational way of dealing with 
     ``bad apples'' in the accounting profession without punishing 
     the entire profession.
       The bill also contains a provision which gives companies 
     more freedom to make forward-looking statements in good 
     faith. This responds to concerns expressed by many companies 
     that litigation ``chills'' voluntary predictive statements 
     about a company's future economic performance, even though 
     that is exactly the sort of information that is good for 
     investors and the market.


                    3. enhancing deterrence of fraud

       The bill extends the statute of limitations for implied 
     actions to five years from the date of the violation, or two 
     years after the violation was discovered or should have been 
     discovered through the exercise of reasonable diligence. The 
     bill also incorporates pending legislation concerning the 
     responsibility of auditors to search for and report fraud. A 
     similar bill in the House is supported by the SEC and the 
     AICPA.
                                                                    ____

Section-by-Section Analysis of the Private Securities Litigation Reform 
                              Act of 1995


                 title i--private securities litigation

                         Section 1. Short Title

       Section 1 provides that the title of this Act shall be the 
     ``Private Securities Litigation Reform Act of 1995 (the 
     ``Act'').

         Section 101--Elimination of Certain Abusive Practices

       Section 101 amends the Securities and Exchange Act of 1934 
     (the ``Exchange Act'') by adding new paragraphs to Sections 
     15(c) and 21 of the Exchange Act. Section 101 eliminates 
     certain litigation practices.
       Subsection 101(a) amends Section 15(c) of the Exchange Act. 
     Subsection 101(a) prohibits brokers or dealers from 
     soliciting or accepting compensation from attorneys for 
     assisting them in obtaining the representation of any 
     customer of the broker or dealer in an implied action.
       Subsection 101(b) amends Section 21(d) of the Exchange Act 
     to prevent distribution of funds disgorged pursuant to an 
     action by the Securities and Exchange Commission 
     (``Commission'' or ``SEC'') as attorneys' fees or expenses 
     unless otherwise ordered by the court.
       Subsection 101(c) amends Section 21 of the Exchange Act and 
     adds seven new subsections. New subparagraph (i) of Section 
     21 requires that the named plaintiffs of the class action be 
     compensated in the same manner as other members of the class. 
     This provision is not intended to bar reasonable compensation 
     of such plaintiffs out of any common fund established for the 
     class for costs and expenses relating to representation of 
     the class, such as lost wages or out-of-pocket expenses 
     incurred due to deposition or trial testimony.
       New subparagraph (j) requires a court to determine whether 
     an attorney who owns or has a beneficial interest in the 
     securities that are the subject of the litigation may 
     represent the class or whether such ownership or interest 
     constitutes a conflict of interest which would disqualify the 
     attorney.
       New subparagraph (k) prohibits settlements under seal 
     except by motion of one or more of the settling parties if 
     those parties can show good cause why the court should file 
     under seal. ``Good cause'' exists only if publication of a 
     term or provision of the settlement would cause direct and 
     substantial harm to any person. This subparagraph is 
     necessary because it is not always possible to
      determine the outcome of class action cases. Since class 
     action litigation is imbued with a public purpose, 
     information concerning the terms on which such cases are 
     settled should be publicly available in most instances.
       New subparagraph (l) requires courts to determine 
     attorneys' fees as a percentage of the amount of damages and 
     prejudgment interest actually recovered by the class as a 
     result of the attorneys' efforts. The amount awarded to class 
     counsel cannot exceed a reasonable percentage of the amount 
     recovered by the class plus reasonable expenses. This 
     provision is intended to encourage courts to link the amount 
     of attorneys' fee awarded to the result achieved for the 
     class and the degree of skill and effort required to achieve 
     that result.
       New subparagraph (m) requires proposed settlement 
     agreements distributed to the class to contain certain 
     information. Subpart (1)(A) requires that if the settling 
     parties agree on the amount of damages which the plaintiff 
     class would recover if the class prevailed in litigation, and 
     if they agree on the likelihood that the class could prevail, 
     the notice should contain a brief statement about the 
     potential damages per share, a statement concerning the 
     probability that the plaintiff would prevail on the claims 
     alleged, and a brief explanation of the reasons for that 
     conclusion. Subpart (B) requires that if the settling parties 
     do not agree on the amount of damages that would be 
     recoverable by the plaintiff on each alleged claim, or on the 
     probability that the plaintiff would prevail on the claims 
     alleged, the notice must contain a brief statement by each 
     party containing the elements specified in subparagraph (A), 
     concerning the issues on which the parties disagree. If any 
     of the settling parties or their counsel intend to apply to 
     the court for attorneys' fees or costs from any fund to be 
     established under the settlement, subpart (2) requires a 
     statement concerning the amount of fees and costs to be 
     sought by each such party or attorney, and a brief 
     explanation of the reasons for the application. Subpart (3) 
     requires the settlement agreement to contain the name, 
     address and telephone number of a representative of counsel 
     for the plaintiff class who will be reasonably available to 
     answer class members' questions on any matter contained in 
     the notice of settlement distributed to class members. 
     Subpart (4) permits the court, or a guardian ad litem or 
     plaintiff steering committee apointed by the court in 
     accordance with new Section 38 of the Exchange Act, to 
     require additional information in the notice sent to class 
     members.
       New subparagraph (n) requires the court to submit to the 
     jury a written interrogatory on the issue of each defendant's 
     state of mind at the time of the alleged violation. This 
     provision applies only in actions in which the plaintiff, in 
     order to recover money damages, must prove that the defendant 
     acted with some degree of intent.
       New subparagraph (o) requires that any plaintiffs who wish 
     to obtain certification as representatives of a class of 
     investors must collectively have owned during the period in 
     which the violations occurred the lesser of 1 percent or 
     $10,000 market value of the securities which are the subject 
     matter of the litigation. This requirement is comparable to a 
     rule of the SEC concerning the minimum holding required in 
     order to seek to place a shareholder proposal on an issuer's 
     proxy statement.\1\ However, that rule differs in that it 
     applies to shareholders who own the lesser of 1 percent of 
     the securities or $1,000 market value of the securities, and 
     it also contains minimum holding period requirements which 
     are not included in this bill.
     Footnotes at end of article.
---------------------------------------------------------------------------
       Class certification is a significant step in many 
     securities cases, because it places a small group of 
     investors in charge of claims asserted on behalf of a much 
     larger group. This may create an incentive for plaintiffs 
     with nominal claims to seek class certification as a means of 
     coercing other parties into settlement. Moreover, some cases 
     have called attention to investors who appear to buy small 
     amounts of stock in a number of companies with the apparent 
     intent of using those investments to mount class action 
     lawsuits.\2\
       The purpose of this provision is to create a minimum 
     ``standing'' requirement for securities class actions in 
     order to ensure that 
     [[Page S1086]] the representatives of investor class members 
     are not individuals who have only a nominal interest in the 
     outcome of the litigation. This provision does not create any 
     obstacle to filing a lawsuit as a class action, but simply 
     addresses the standard for certifying a particular group of 
     plaintiffs as investor class representatives.

Section 102--Alternative Dispute Resolution Procedure; Time Limitation 
                      on Private Rights of Action

       Subsection 102(a) amends the Exchange Act by adding a new 
     Section 36, which creates an alternative dispute resolution 
     procedure for securities litigation under Rule 10(b) of the 
     Exchange Act. The section allows any party to offer to 
     proceed pursuant to any voluntary nonbinding ADR procedure 
     established or recognized by the courts within the time 
     period for answering the complaint, or, in cases certified as 
     class actions, within 30 days after a guardian ad litem or 
     plaintiff steering committee is appointed. The court may 
     extend the period for responding to an ADR offer for up to 90 
     days to permit discovery.
       If the courts recognize more than one type of ADR, the 
     parties may stipulate to the type of ADR to be used. If the 
     parties cannot agree, the court must decide within 20 days 
     which method of ADR the parties will use. If any party 
     engages in dilatory or obstructive conduct during the 
     response period, the court may extend the discovery period, 
     deny the party further discovery or impose reasonable fees 
     and costs upon the party.
       Should any party reject an offer to proceed via ADR, or 
     refuse to abide by the result of an ADR proceeding, that 
     party can exercise its right to litigate the case in federal 
     court. However, the subsection requires the court to award 
     fees and costs against that party if the court enters 
     judgment against the party and the party asserted a claim or 
     defense which was not substantially justified. As with 
     Section 36(a), this fee-shifting provision would not apply to 
     a named plaintiff in a class action case if he or she had 
     never owned more than $1,000,000 of the securities that are 
     the subject of the dispute.
       The purpose of this section is to create a stronger 
     incentive to use ADR in multi-party securities litigation. 
     Greater use of ADR should result in faster recoveries for 
     defrauded investors, and should also result in smaller 
     attorneys' fees for all parties.\3\
       Subsection 102(b) adds a new Section 37 to the Exchange 
     Act. Section 37(a) creates a new limitations period for 
     implied private rights of action under the Exchange Act. The 
     subsection requires implied private rights of action to be 
     brought not later than the earlier of five years after the 
     violation occurred or two years after the violation was 
     discovered or should have been discovered through the 
     exercise of reasonable diligence. Subsection 38(b) requires 
     the new limitations
      period to apply to all proceedings pending on or commenced 
     after the date its enactment.

   Section 103--Guardians Ad Litem and Plaintiff Steering Committees

       Section 103 adds a new Section 38 to the Exchange Act. 
     Section 38 requires courts to ensure that a plaintiff class 
     has adequate control over its attorneys by either appointing 
     a guardian ad litem when a plaintiff class is certified, or 
     creating a plaintiff steering committee in securities class 
     actions to give the class greater control over the lawsuit.
       Section 38(a) requires courts to appoint a guardian ad 
     litem within 10 days of certifying a plaintiff class. The 
     guardian ad litem is to direct counsel for the plaintiff 
     class or perform such other functions as the court may 
     specify. The guardian ad litem is to be selected from one or 
     more lists submitted by the parties or their counsel. The 
     guardian's reasonable fees and expenses are to be apportioned 
     by the court among the parties. In doing so, the Court may 
     permit the guardian to recover his or her reasonable fees and 
     expenses from any fund established for the benefit of the 
     class, but the guardian is to recover reasonable fees and 
     expenses whether or not such a fund is established. This 
     should prevent any possibility that the guardian might have a 
     financial interest in supporting or opposing a settlement 
     offer. This provision also states that appointment of a 
     guardian shall not be subject to interlocutory review.
       Section 38(b) permits the Court, as an alternative to 
     appointing a guardian ad litem, appoints a steering committee 
     of class members within 10 days after class certification, 
     with the same powers as a guardian. Appointment of the 
     committee is also not subject to interlocutory review.
       Section 38(c) provides that the plaintiff steering 
     committee shall consist of at least 5 willing class members 
     who the court believes will fairly represent the class. 
     Committee members must have cumulatively held the lesser of 5 
     per cent of the securities which are the subject of the 
     litigation, or securities which are the subject of the 
     litigation with a market value of $10,000,000. ``Securities 
     which are the subject matter of the litigation'' means 
     securities which were held during any time period when the 
     class alleges that fraud was committed against any class 
     members. The $10,000,000 market value can be measured at any 
     time between the time when the class alleges that violations 
     first occurred until the date the class is certified. If the 
     court determines that appointment of a committee which meets 
     these requirements is impractical, the court may appoint a 
     committee which meets a smaller percentage test or dollar 
     amount test which the court believes is reasonable.
       Under subsection 38(c)(2), named plaintiffs may serve on 
     the committee, but may not comprise a majority of the 
     committee. Under subsection 38(c)(3), committee members shall 
     serve without compensation, but may apply to the court for 
     reimbursement of reasonable out-of-pocket expenses from any 
     common fund established for the class. This differs from the 
     compensation scheme for guardians, who can receive 
     compensation for their services. The reason for this 
     distinction from guardians is two-fold: Committee members 
     should be sufficiently motivated to serve on the Committee by 
     their economic interest in the litigation and by their desire 
     to obtain justice for themselves and other class members. 
     Second, since the Committee involves a larger number of 
     people than a single guardian, compensating the Committee 
     would be substantially more burdensome on the class and on 
     other parties than would compensating a guardian.
       Under subsection 38(c)(4), the committee would conduct 
     previously scheduled meetings with at least a majority of 
     committee members present in person or by electronic 
     communication. All matters must be decided by majority vote 
     of all members, except decisions on matters other than 
     whether to accept or reject a settlement offer or to hire or 
     fire counsel. Those decisions may be delegated to one or more 
     members of the committee or voted upon by members seriatim, 
     without a meeting. Subsection 38(5) allows any class member 
     who is not a member of the committee to appear and be heard 
     by the court on any issue in the case.
       Section 38(d) enumerates the functions of guardians ad 
     litem and plaintiff steering committees. Guardians and 
     Committees have the same powers permitted to clients in other 
     litigation, including the power to hire and fire counsel, 
     reject settlement offers and accept settlement offers, 
     pursuant to some restrictions. However, counsel dismissed 
     other than for cause would be able to enforce any contractual 
     fee agreement or to apply to the Court for a fee award from 
     any common fund established for the class. Section 38(d)(2) 
     allows the committee to give preliminary approval to 
     settlement offers and to seek approval of the settlement by a 
     majority of the class if the benefit of seeking such approval 
     outweighs the cost of soliciting approval from class members.
       Section 38(e) provides that any person who is appointed as 
     a guardian ad litem or member of a plaintiff steering 
     committee shall be immune from any liability as a result of 
     such service. This immunity includes liability for breach of 
     fiduciary duty, liability under any provision of the Exchange 
     Act or any other federal statute or rule imposing sanctions 
     for conduct in the course of litigation, or any other action 
     taken in the course of acting as a fiduciary. This immunity 
     would not apply to any action taken by the former guardian or 
     committee member following resignation or removal by the 
     court.
       Section 38(f) clarifies that this section does not override 
     any other provision relating to class actions or the 
     authority of the court to approve final settlements, such as 
     under Rule 23 of the Federal Rules of Civil Procedure.

         Section 104--Requirements for Securities Fraud Actions

       Section 104 adds a new Section 39 to the Exchange Act. 
     Section 39 specifies certain pleading requirements for 
     implied actions, as well as damage calculations to be 
     utilized in securities fraud suits. The overall purpose of 
     this section is to provide a filter at the pleading stage to 
     screen out allegations that have no factual basis, to provide 
     a clearer statement of the plaintiff's claims, and to provide 
     greater clarity about the scope of the case. This section 
     should not provide any barrier to meritorious cases, although 
     in some instances it may require attorneys for plaintiffs to 
     exercise greater care in drafting their complaint. By 
     requiring more specificity in pleading, the amount of motions 
     to dismiss and the amount of discovery should be reduced. For 
     plaintiffs with strong cases, this should encourage faster 
     recoveries with less expenditure for attorneys' fees.
       Section 39(a), which applies to implied actions in which 
     the plaintiff may recover money damages only on proof that 
     the defendant acted with some degree of intent, requires the 
     plaintiff to allege in its complaint specific facts 
     demonstrating why the plaintiff believes that each such 
     defendant had such an intent. Blanket assertions of intent 
     unconnected to any facts would be insufficient.
       Section 39(b) requires that a plaintiff who alleges that 
     the defendant made an untrue statement of a material fact or 
     omitted to state a material fact necessary to make statements 
     made not misleading must specify in the complaint each 
     statement alleged to have been misleading, the reason or 
     reasons why the plaintiff believes the statement was 
     misleading, and, if an allegation regarding such statements 
     is made on information and belief, the plaintiff must state 
     all information on which his or her belief is formed.
       Section 39(c) clarifies that in implied actions based on 
     the ``fraud in the market'' theory, while the plaintiff need 
     not show that he or she specifically relied on any alleged 
     misstatement or omission, plaintiff has the burden of showing 
     that the misstatement or omission caused the loss. This means 
     that plaintiff must establish that it was the defendant's 
     misstatement or omission, rather than some intervening 
     factor, which established the market price at 
     [[Page S1087]] which the plaintiff purchased or sold the 
     securities in question.
       Subsection 39(d) sets out an upper limit for damage 
     calculations to be used in cases of material misstatements or 
     omissions where the plaintiff claims to have bought or sold 
     based upon the ``fraud on the market'' theory. Plaintiff's 
     damages in these cases may not exceed the lesser of (i) the 
     difference between the price paid by the plaintiff for the 
     security and the market value immediately after dissemination 
     to the market of information which corrects the misstatement 
     or omission, or (ii) the difference between the price paid by 
     the plaintiff for the security and the price at which the 
     plaintiff sold the security after dissemination of correcting 
     information. The purpose of this provision is to provide 
     greater certainty about the upper limit of damage exposure 
     for cases in which the range of possible damage calculations 
     tends to be substantial, leading to complex battles between 
     expert witnesses over damage estimates. This provision also 
     takes into account the fact that plaintiffs' damages are 
     sometimes mitigated when the stock price recovers soon after 
     an adverse announcement.

    Section 105--Amendment to the Racketeer Influenced and Corrupt 
                           Organizations Act

       Section 105 amends Section 1964(c) of Title 18 of the 
     United States Code (the ``Racketeer Influenced and Corrupt 
     Organization Act'' or ``RICO''). Section 106 eliminates 
     private actions for securities fraud under the ``civil RICO'' 
     provisions of Title 18.
                     title II--financial disclosure

        Section 201--Safe Harbor for Forward-Looking Statements

       Subsection 201(a) requires the SEC, in consultation with 
     investors and issuers of securities, to consider adopting or 
     amending rules, or making legislative recommendations, 
     concerning criteria which the Commission finds are 
     appropriate for the protection of investors, and which 
     issuers may rely upon to ensure that their forward-looking 
     statements concerning their future economic performance will 
     be deemed not to violate the Exchange Act. This provision 
     also requires the Commission to consider rule-making or 
     legislative recommendations for procedures by which courts 
     shall timely dismiss claims based on forward-looking 
     statements of issuers of such statements meet any criteria 
     set by the Commission pursuant to this subsection.
       Subsection 201(b) amends the Exchange Act by adding a new 
     Section 40. Under new Section 40(a), an implied private 
     action under the Exchange Act alleging that a forward-looking 
     statement concerning the future economic performance of an 
     issuer was materially false or misleading, the court would be 
     required to grant a stay of discovery concerning the claims 
     or defenses of a party if that party made a motion for such a 
     stay in accordance with Section 40(b). Section 40(a) also 
     sets out certain matters to be considered by the Commission 
     in developing any such rules or legislative recommendations.
       Section 40(b) states that such a stay shall apply in 
     connection with any motion for summary judgment made by a 
     defendant asserting that the forward-looking statement was 
     within the coverage of any rule of the Commission concerning 
     such statements. However, Section 40(b) requires that 
     plaintiff have at least 60 days to conduct discovery before 
     such a summary judgment motion is made. Section 40(c) permits 
     the court to extend the time for plaintiff to conduct 
     discovery, or to deny a stay of proceedings, if the party 
     making the motion engaged in dilatory or obstructive conduct, 
     or if a stay of discovery would be substantially unfair to 
     the plaintiff or any other party.

              Section 202--Fraud Detection and Disclosure

       Section 202(a) amends the Exchange Act to create a new 
     Section 10A. Section 10A would codify certain auditing 
     standards for the detection of financial fraud by auditors, 
     and would require auditors to report directly to the 
     Commission any financial fraud discovered during an audit 
     engagement. This provision also would shield auditors from 
     private liability for the contents of such a report. This 
     provision is substantially similar to H.R. 574 and S. 630, 
     both titled the ``Financial Fraud Detection and Disclosure 
     Act.''
  Section 203. Proportionate Liability and Joint and Several Liability

       Section 203(a) amends the Exchange Act to create a new 
     Section 41. Section 41(a) specifies that this provision only 
     applies to the allocation of damages among persons who are or 
     may become liable in an implied right of action under the 
     Exchange Act.
       Section 41(b) applies joint and several liability against 
     primary wrongdoers, persons who commit knowing securities 
     fraud, and those who control any primary wrongdoer or person 
     who commits knowing securities fraud. Section 41(b)(2) 
     defines the terms ``primary wrongdoer'' and ``knowing 
     securities fraud.''
       In cases where more than one person is found to have 
     contributed to an act of securities fraud, subsection 41(c) 
     requires the finder of fact to determine the degree of 
     responsibility of each party. The finder of fact must specify 
     the plaintiff's total amount of damages, and the degree of 
     responsibility of each defendant, measured as a percentage of 
     the total fault of all those liable for the violation. In 
     determining the degree of responsibility, the subsection 
     requires the finder of fact to consider the nature and 
     conduct of each person and the causal relationship between 
     the conduct and the plaintiff's damages.
       Subsection 41(d) creates a system of proportionate 
     liability for those who are not jointly and severally liable 
     under section 41(b). Section 41(d) holds such defendants 
     liable for their proportionate share of damages. If a 
     plaintiff is unable to collect the proportionate share of any 
     defendant's liability within six months after the final 
     judgment, subsection 41(d) reallocates the uncollectible 
     share. If the plaintiff is an individual with a net worth of 
     under $200,000, and his or her recoverable damages are more 
     than 10 per cent of that net worth, all of the remaining 
     defendants are jointly and severally liable for all of the 
     plaintiff's damages.
       Otherwise, where damages are uncollectible from one or more 
     defendants, the defendants as to whom proportionate liability 
     applies will be liable for their proportionate share of 
     plaintiff's damages, plus the greater of (i) their 
     proportionate share of the uncollectible damages, or (ii) 
     five times the amount which that defendant gained from the 
     conduct which gave rise to the liability. If the defendant 
     did not obtain a direct financial gain from its conduct, and 
     the conduct giving rise to its liability consisted of 
     deficient services, the latter measurement would be five 
     times the defendant's gross revenues from its entire economic 
     relationship with any other entity involved in the violation 
     during the calendar years in which the defendant provided 
     deficient services. Under Section 41(d)(4) and (5), 
     defendants who become liable for another defendant's 
     uncollectible share would have a right of contribution 
     against the defendant
      originally liable for the payment or any other person 
     responsible for the fraudulent conduct.
       Subsection 41(e) prevents disclosure of the formula for 
     allocation of damages and the procedure for reallocation of 
     uncollectible shares to the jury.
       Subsection 41(f) provides that a defendant who enters into 
     a settlement of an implied right to action is discharged from 
     any claim for contribution by any other potential defendants. 
     This subsection also clarifies that a settlement prior to a 
     verdict or judgment shall reduce the verdict or judgment 
     against other defendants by the greater of (i) the amount 
     that corresponds to the settling person's degree of 
     responsibility, and (ii) the amount paid to the plaintiff by 
     that person.
       Section 41(g) clarifies that contribution shall be 
     determined based on the degree of responsibility of the 
     claimant and each person against whom a right of contribution 
     is asserted. Subsection 41(h) requires liable defendants to 
     bring contribution actions within six months after the date 
     that the judgment against the defendant becomes final unless 
     the defendant made additional payments of uncollectible 
     liability under subsection 41(d). In cases where the 
     defendant made additional payments, the defendant must bring 
     the contribution action within six months after the 
     additional payment was made.
       Section 203(b) provides that Section 41 shall only apply to 
     actions commenced after the enactment date of this Act.

          Section 204--Public Auditing Self-Disciplinary Board

       Section 204 amends the Exchange Act and adds a new Section 
     13A. Section 13A creates a self-disciplinary board for public 
     auditors.
       Section 13A(a) supplies definitions for key terms to be 
     used throughout the section.
       Subsection 13A(b) requires the SEC to establish a Public 
     Auditing Self-Disciplinary Board (``Board'') within 90 days 
     after the date of the enactment of section 13A. The 
     Commission shall designate an entity to serve as the Board if 
     control of such entity is vested in members of the Board 
     selected under Section 13A(c) and if the entity meets other 
     enumerated criteria.
       Subsection 13A(c) specifies that the Board will be composed 
     of three SEC-appointed members and four elected members. For 
     the appointed members, the Chairman of the SEC shall make the 
     initial appointments in consultation with other members of 
     the Commission within ninety days after enactment. After
      initial appointments, the Board will appoint members to fill 
     vacancies in these three slots, subject to SEC approval.
       For elected members, subsection 13A(c)(1), paragraph (B) 
     requires that within 120 days after the 3 initial Board 
     members are appointed, if an entity has been designated as 
     the Board under Section 13A(b), that entity shall conduct an 
     election of 4 initial Board members. The election shall be 
     conducted under interim election rules proposed by the entity 
     and approved by the 3 appointed members and the Commission. 
     If no entity has been designated by the Commission under 
     Section 13A(b), the 3 appointed members shall adopt interim 
     rules providing for the election of the 4 initial elected 
     members. In either event, the election of the 4 elected 
     members shall occur within 120 days after the appointment of 
     the 3 initial members, the initial election shall be by 
     persons who are certified public accountants and who are 
     associated with public accounting firms, and the persons 
     elected shall be subject to approval by the Commission. After 
     the initial elections, elections for the 4 elected member 
     slots must be by persons associated with public accounting 
     firms who are certified public accountants, and the persons 
     elected are subject to SEC approval.
       [[Page S1088]] Subsection 13A(c)(2) requires that four 
     members of the Board, including the Chairman, must not have 
     been associated with a public accounting firm during the 10-
     year period preceding their appointment. Three of the elected 
     members are required to be associated with a public 
     accounting firm registered with the Board.
       Subsection 13A(c)(3) requires the Chairman of the Board to 
     serve on a full-time basis, unless the SEC otherwise 
     authorizes, and to sever all business ties with his or her 
     former firms prior to serving on the Board.
       Subsection 13A(c)(4) requires that each member of the Board 
     will serve a four-year term or until a successor is 
     appointed, whichever is later. However, those members 
     appointed to fill a vacancy created by a member's departure 
     prior to the expiration of her term will only be appointed 
     for the remainder of the term. Pursuant to section 13A(c)(4), 
     initially selected Board members' terms will expire on a 
     staggered basis until all initial members have been replaced 
     by members appointed according to the terms of the section.
       Section 13A(c)(5) requires the Board to propose and adopt 
     rules providing for the administration and operation of the 
     Board, including appointment and election of members, the 
     selection of a chairperson, and compensation of Board 
     members. The Board also must adopt rules concerning the 
     appointment and compensation of other employees, attorneys 
     and consultants deemed necessary and appropriate to carry out 
     the board's functions. The Board must create rules for the 
     registration of public accounting firms, and rules governing 
     the Board's duties.
       Subsection 13A(d) provides the Board with power to assess 
     and collect registration fees and annual dues from each 
     public accounting firm registered with the Board. These fees 
     must be sufficient to cover the costs and expenses of the 
     Board and permit the Board to operate on a self-financed 
     basis, and will be based upon the annual revenues of each 
     firm from accounting and auditing services, the number of 
     persons associated with the firm, the number of clients the 
     firm furnishes with accountant's reports, and other criteria 
     the Board establishes.
       Subsection 13A(e) requires all public accounting firms 
     which furnish accountants reports with respect to documents 
     filed with the SEC to register with the Board within one year 
     after all members of the Board have been selected.
       Each public accounting firm that performs such services 
     must apply for registration with the Board. Each application 
     must contain the names of all clients of the firm for which 
     the firm provides accountant's reports.
       The application must also list financial information of the 
     firm for the most recent fiscal year, including assets, 
     liabilities and annual revenues from accounting and auditing 
     services, a statement of the firm's policies and procedures 
     with respect to quality control of its accounting and 
     auditing practice, information relating to criminal, civil or 
     administrative actions or disciplinary proceedings pending 
     against the firm or any of its members and any other 
     information the Board deems necessary or appropriate that is 
     reasonably related to the Board's responsibilities.
       The registered firms must update their application 
     information annually. Finally, the subsection allows the 
     Board or SEC to exempt any firm or class of firms, 
     accountant's report or class of reports from any provision of 
     the section, if the SEC finds the exemption consistent with 
     the public interest, the protection of investors and the 
     purposes of the section. The Board may designate portions of 
     the filings as confidential and privileged.
       Section 13A(f) sets out the duties of the Board. The Board 
     must establish fair procedures for investigating and 
     disciplining registered firms and persons associated with 
     them for violations of the Federal securities laws, their 
     rules and regulations, the Board's rules or professional 
     standards in connection with the preparation of an 
     accountant's report on a financial statement, report or other 
     document filed with the SEC.
       Section 13A(f)(2) allows the Board to conduct an 
     investigation of any illegal act, practice or omission by a 
     registered firm or an associated person in connection with 
     the preparation of documents filed with the SEC.
       Section 13A(f)(2), paragraph (B) empowers the Board to 
     require the testimony of any person associated with a firm 
     with respect to any matter the Board considers material or 
     relevant. The Board also can require the production of audit 
     workpapers or any other document possessed by a registered 
     firm or any associated person that the Board considers 
     relevant or material, including the books and records of the 
     firm to verify the accuracy of any document supplied. The 
     Board also has the power to request the testimony of any 
     person, including a firm's client, and the production of any 
     documents they possess that the Board deems material or 
     relevant.
       Section 13A(f)(2), paragraph (C) provides that if any 
     person associated with a public accounting firm refuses to 
     produce documents or otherwise comply with a Board request, 
     the Board may suspend or bar the person from associating with 
     any registered firm or hand down any other sanction the Board 
     deems appropriate. The refusal of any registered public 
     accounting firm to produce documents or otherwise cooperate 
     with the Board also is cause for suspension or revocation of 
     the registration.
       If the Board cannot complete or conduct its investigation 
     because of the refusal of any client to comply, Section 
     13A(f)(2), paragraph (D) requires the Board to report the 
     refusal to the SEC. The SEC then may designate one or more 
     officers of the Board to be granted nationwide subpoena 
     power. This Section also authorizes the Board to refer any 
     investigation to the SEC.
       Section 13A(f)(2), paragraph (E) grants immunity to any 
     Board member who carries out an investigation or disciplinary 
     proceeding under this Section from civil liability arising 
     out of the investigation or disciplinary proceeding in the 
     same manner as any other federal Government employee in 
     similar circumstances.
       Section 13A(f)(3) allows the Board to implement procedures 
     to determine if disciplinary measures should be taken against 
     a firm or its associated persons. In determining whether a 
     person or firm should be disciplined, the Board must bring 
     specific charges, notify the firm or associated persons of 
     the charges, give the parties an opportunity to defend 
     against the charges, and keep a record of such actions. Upon 
     a finding of a violation, the Board may impose any 
     disciplinary sanctions as it deems appropriate, including 
     those enumerated in subsection 13A(f)(3), part (B).
       Section 13A(f)(3), paragraph (C) requires the Board to file 
     a written statement in support of a determination to impose 
     sanctions. The statement must set forth the illegal act or 
     practice, the specific law, regulation, Board rules or 
     professional standards violated, the sanction imposed, and 
     the reasons therefor.
       Section 13A(f)(3), paragraph (D) prohibits any person 
     suspended or barred by the Board from willfully associating 
     with a registered firm without Board or SEC permission. Firms 
     may not knowingly permit suspended or barred persons to 
     become or remain associated with the firm without Board or 
     SEC approval.
       Section 13A(f)(4) requires the Board to report sanctions to 
     the SEC, the appropriate foreign or state licensing boards or 
     any boards with which the firm or person is licensed or 
     certified to practice public accounting, and to the public. 
     The report must include the name of the firm or associated 
     person, a description of the acts, practice or omissions, the 
     nature of the sanctions, and any other information on the 
     circumstances of the disciplinary action as the Board deems 
     appropriate.
       Section 13A(f)(5) concerns the discoverability and 
     admissibility of material related to the Board's disciplinary 
     process in civil litigation. It is intended to ensure that 
     the Board's disciplinary process does not interfere with 
     private actions for damages relating to conduct within the 
     Board's jurisdiction and, at the same time, that private 
     damages actions do not interfere with the Board's 
     disciplinary process. The intention of this section is that 
     plaintiffs should not be deprived of access to any material 
     that they can obtain from public accounting firms under 
     current law. Similarly, the Board itself, and materials 
     specifically created by others in connection with the Board's 
     disciplinary procedure, would be kept separate from the civil 
     liability system.
       Section 13A(f)(5)(A) provides that except as provided in 
     subparagraph (B), all documents prepared, collected or 
     received by the Board and the deliberations of the Board in 
     connection with an investigation or disciplinary proceeding 
     are not subject to any form of compulsory discovery. This 
     subparagraph does not apply to information provided to the 
     Board that would have been subject to discovery from the 
     person or entity that provided it to the Board, but is no 
     longer available from that person or entity. This does not 
     limit the Board's authority to provide public access to 
     disciplinary proceedings.
       Section 13A(f)(5)(B) provides that all documents prepared, 
     collected or received by the Board and the deliberations and 
     other proceedings of the Board in connection with an 
     investigation or disciplinary proceeding shall be 
     inadmissible in any state or federal court or any 
     administrative agency.
       Section 13A(f)(5)(C) creates an exception to subparagraphs 
     (A) and (B) so that all information referred to in those 
     subparagraphs is available to the SEC and any other Federal 
     agency and admissible in any action brought by the Commission 
     or other Federal agency to the same extent it would be 
     available and admissible under current law. This information 
     shall also be available to state licensing boards under 
     certain circumstances.
       Section 13A(f)(6) allows state licensing boards limited 
     participation in Board actions. When the Board institutes an 
     investigation it shall notify the State licensing board in 
     the States in which the public accounting firm or auditor 
     engaged in the act or failure to act that is the subject 
     matter of the investigation and invite the state licensing 
     boards to participate. If the state licensing board elects to 
     participate, it shall do so pursuant to rules established by 
     the Board.
       If the State board disagrees with the Board's 
     determination, it may seek review of that determination by 
     the Commission pursuant to procedures that the Commission 
     shall specify by regulation. However, this Section prohibits 
     state licensing boards from instituting its own proceeding 
     until after the Board's determination has become final.
       Section 13A(f)(6), paragraph (C) provides that if the State 
     board elects not to participate in the Board's investigation, 
     it shall not institute its own investigation or proceeding 
     [[Page S1089]] in the matter until after the Board's 
     determination has become final.
       Section 13A(f)(6), paragraph (D) provides that if the Board 
     or Commission imposes a sanction upon a public accounting 
     firm or auditor, and that determination either is not 
     subjected to judicial review or is upheld on judicial review, 
     the state licensing board may impose a sanction on the basis 
     of the Board's report. Any sanction imposed by the state 
     licensing board on this basis shall be inadmissible in any 
     proceeding in any State or Federal court or administrative 
     agency except to extent provided in paragraph (5)(D).
       Section 13A(f)(6), paragraph (E) provides that if no 
     sanction is imposed by the Board or the SEC, the state 
     licensing board may not impose a sanction if it chose to 
     participate in the investigation. If the State board chose 
     not to participate in the investigation, paragraph (5)'s 
     rules on discovery and admissibility apply to subsequent 
     State board proceedings. The Section also denies State boards 
     access to the record of the proceeding before the Board, and 
     that record is inadmissible in any State board proceeding.
       Section 13A(g) requires the Board to promote a high level 
     of professional conduct among registered public accounting 
     firms, to improve the quality of audit services those firms 
     provide, and to protect investors and promote the public 
     interest.
       Section 13A(g)(2) mandates that the Board require public 
     accounting firms subject to its disciplinary authority to be 
     members of a Board-certified professional peer review 
     organization. To qualify the peer review organization must 
     require a public accounting firm to undergo peer review at 
     least once every three years and publish the results of the 
     peer review. It must have standards relating to audit
      service quality control that are acceptable to the Board. 
     Violation by a public accounting firm or auditor of a rule 
     of the peer review organization shall constitute grounds 
     for imposition of disciplinary sanctions and denial to the 
     public accounting firm or auditor the privilege of 
     appearing before the SEC.
       Section 13A(g)(3) provides that all reports, memoranda and 
     other information provided to the Board for the purpose of 
     creating the procedures are confidential unless 
     confidentiality and privilege are expressly waived by the 
     proper parties.
       Section 13A(h) gives the SEC oversight of the Board. 
     Section 13A(h), paragraph (1) requires the Board to file 
     copies of proposed Board rule changes or deletions with the 
     SEC pursuant to rules to be promulgated by the SEC, along 
     with a concise statement of the basis and purpose of the 
     proposed change. The SEC then must publish notice of the 
     change and give interested persons an opportunity to submit 
     comments. The Board cannot make changes without Commission 
     approval.
       Not later than 35 days after the SEC publishes notice of 
     the change, or within 90 days if the SEC so designates, the 
     SEC must approve the change or institute proceedings to 
     determine whether the change should be disapproved. 
     Disapproval proceedings must include notice of the grounds 
     for disapproval under consideration and an opportunity for a 
     hearing. The proceedings must be concluded not later than 180 
     days after the publication of notice and filing of the 
     proposed change. At the end of the proceedings, the SEC must 
     approve or disapprove the change or extend the time for 
     conclusion of the proceedings pursuant to subsection 13A(h), 
     paragraphs (1)(B)(ii) (I) and (II).
       Section 13A(h)(1), paragraph (B)(iii) requires the SEC to 
     approve the change if it finds that it is consistent with the 
     Federal securities laws and disapprove it if it does not make 
     such a finding. The SEC may not approve a rule change until 
     the 30-day period after the notice of the proposed change is 
     filed, unless the SEC finds good cause to do so and publishes 
     its reasons.
       Section 13A(h)(1), paragraph (C) allows a proposed rule 
     change to take effect upon filing with the SEC if the Board 
     designates it as constituting a stated policy, practice or 
     interpretation of an existing Board rule, establishing or 
     changing a due, fee or other Board-imposed charge, or 
     concerned solely with the administration of the Board. The 
     SEC may put a change into effect summarily if such action is 
     necessary to protect investors. The Board may enforce such 
     changes to the extent they are not inconsistent with the 
     Federal securities laws, their rules and regulations, and 
     applicable State and Federal law. The SEC may summarily 
     abrogate changes in the rules by the Board if it appears to 
     the SEC that such
      action is necessary to the public interest, for the 
     protection of investors, or in furtherance of federal or 
     state laws.
       Section 13A(h)(2) also allows the SEC to amend the Board's 
     rules if the SEC deems the action necessary or appropriate to 
     the fair administration of the Board, to conform its rules to 
     requirements of the Federal securities laws by following 
     certain procedures adopted from the Administrative Procedure 
     Act. The SEC must publish notice of the proposed rulemaking 
     in the Federal Register, give interested persons an 
     opportunity to comment, and incorporate the text of its 
     amendment to the rules of the Board with a statement of the 
     basis and purpose of the amendment.
       The SEC also may adopt regulations pursuant to section 553 
     of title 5 of the United States Code for rulemaking not on 
     the record. Amendments to the Board's rules by the SEC are 
     deemed Board rules and not rules of the SEC.
       Section 13A(h)(3) requires the Board to promptly notify the 
     SEC if the Board imposes a final disciplinary sanction on a 
     registered firm or associated person. The Commission may 
     review the action on its own motion or the motion of any 
     aggrieved party filed within 30 days after the Board's notice 
     is filed with the SEC and received by the aggrieved party.
       Section 13A(h)(4) requires the Commission to affirm the 
     Board's sanction, modify it or remand to the Board for 
     further proceedings if upon review of the sanctions, the SEC 
     determines that the firm or person engaged in the acts, 
     practices or omissions that the Board alleges, that such 
     acts, practices or omissions violated the Federal securities 
     laws, the Board's rules or professional standards, and such 
     laws are consistent with the purposes of the Federal 
     securities laws. If the SEC does not make such findings, it 
     must set aside the sanctions and remand to the Board if 
     appropriate. If the SEC finds that a sanction imposed by the 
     Board burdens competition unnecessary or inappropriate in 
     furtherance to the purposes of the Federal securities laws or 
     is excessive or oppressive, the SEC may cancel, reduce or 
     require the remission of the sanctions.
       Section 13A(h)(5) requires the Board to comply with Federal 
     securities laws and its own rules and enforce compliance with 
     those laws and with professional standards. The SEC may 
     relieve the Board of any responsibility under Section 13A to 
     enforce compliance with the above laws or standards.
       Section 13A(h)(6) allows the SEC to censure or limit the 
     activities, functions or operations of the Board if the SEC 
     finds that the Board violated or is unable to comply or has 
     failed to enforce compliance by a registered firm or 
     associated persons with any provision of the Federal 
     securities laws, the Board's rules or professional standards 
     of conduct. The SEC also may remove a Board member
      from office if, after notice and opportunity for hearing, 
     the SEC determines that the member willfully violated any 
     provision of the Federal securities laws or the Board's 
     rules, abused the member's authority or failed to enforce 
     compliance with any professional standard of conduct by 
     any firm or associated person without reasonable 
     justification or excuse.
       Section 13A(i) requires foreign accounting firms to 
     register with the Board if they furnish the same types of 
     services as domestic firms required to register under Section 
     13A. The SEC may exempt foreign firms from the provisions of 
     this section if exemption is deemed consistent with the 
     public interest and the protection of investors.
       Registration pursuant to this subsection shall not be 
     itself provide a basis for subjecting foreign accounting 
     firms to the jurisdiction of the federal or state courts.
       Under Section 13A(j), neither the Board, any member of the 
     Board nor any person associated with a public accounting firm 
     shall be subject to suit under any antitrust law for any act 
     of the Board of any failure to act by the Board. ``Antitrust 
     law'' means the Federal Trade Commission Act and each statute 
     defined by Section 4 thereof as ``Antitrust Acts'' and all 
     amendments to such act and such statutes and any other 
     federal Acts or state laws in pari materia.
       Section 13A(k) provides that all audits of an issuer's 
     financial statements required under the Exchange Act shall be 
     in accordance with generally accepted auditing standards. It 
     also clarifies that the Commission can modify or supplement 
     such standards, and that the Commission may defer to 
     professional standards promulgated by private-sector 
     organizations that are generally accepted by the accounting 
     or auditing profession.
       Section 13A(l) declares that nothing in Section 13A impairs 
     or limits the SEC's authority over accountants, to set 
     standards for accounting or auditing standards or to take 
     action against any firm or associated person.


                               footnotes

     \1\See 17 C.F.R. Sec. 240.14a-8.
     \2\For example, in one such case the Court found that due to 
     a ``consistent pattern of purchasing a few shares in troubled 
     companies [and] Plaintiff's involvement in over two dozen 
     lawsuits,'' ``the Court finds clear evidence that Plaintiff's 
     purchasing stock in troubled companies to possibly pursue 
     litigation is a serious defense likely to become the focus of 
     the litigation to the detriment of the class.'' Shields v. 
     Smith, [1991-92 Transfer binder] Fed. Sec. L. Rep. (CCH) 
     para.97,007, at 91,967-68 (N.D. Cal. Nov. 4, 1991). See also 
     Cooperman v. Fairfield Communities, Inc., No. LR-C-90-164, 
     slip op. at 9 n.1 (E.D. Ark., filed June 26, 1991); Hoexter 
     v. Simmons, 140 F.R.D. 416, 422-23 (D. Ariz. 1991).
     \3\The Committee on Commerce, Science, and Transportation 
     recently voted out of Committee a comparable measure 
     concerning alternative dispute resolution procedures. See the 
     ``Product Liability Fairness Act,'' S. 687 [Report No. 103-
     203], November 20, 1993. The report accompanying S. 687 
     stated that its provision on Alternative Dispute Resolution 
     was intended to reduce delay and undercompensation of 
     victims. See Product Liability Reform Act, Report of the 
     Senate Committee on Commerce and Transportation, [Report No. 
     103-203], November 20, 1993, at 6-7.
                                                                    ____

             [From the Wall Street Journal, Jan. 11, 1995]

    Judges Show Growing Skepticism in Class-Action Securities Cases

                             (By Junda Woo)

       The dismissal last week of a shareholder suit against 
     Philip Morris Cos. is the latest sign that some judges are 
     growing impatient with securities class action litigation.
       In dismissing allegations that Philip Morris misled 
     shareholders in the months before announcing its 1993 
     Marlboro price cut, U.S. 
     [[Page S1090]] District Judge Richard Owen in Manhattan 
     criticized the plaintiffs' attorneys. Two separate suits, 
     later consolidated with eight others, ``contained identical 
     allegations, apparently lodged in counsel's computer memory 
     of `fraud' from complaints that the defendants here engaged 
     in conduct ``to create and prolong the illusion of (Philip 
     Morris') success in the toy industry,'' he said.
       Judge Owen also noted with disapproval that the original 
     suits, in which plaintiffs had sought class-action status, 
     were filed either on the day of Philip Morris's announcement, 
     known as Marlboro Friday, or the following Monday. He 
     expressed disbelief that shareholders of the tobacco, food 
     and beer giant would have landed on attorney's doorsteps so 
     quickly.
       And he quoted from similar rulings by other judges, 
     including a 1991 ruling dismissing a complaint against 
     Citicorp that said, ``The complaint creates the strong 
     impression that when Citicorp announced a cut in dividends, 
     plaintiff's counsel simply stepped to the nearest computer 
     console, conducted a global Nexis search, pressed the `Print' 
     button, and filed the product as their complaint.'' Judge 
     Owen couldn't be reached for comment.
       But Melvyn L. Weiss, a partner at one of the firms that 
     filed the Philip Morris suit, said the plaintiffs plan an 
     appeal. ``The law is very clear that an investor is entitled 
     to know all facts that they would want to know in making 
     their decision,'' he said. ``You can remain silent, but when 
     you speak, you have to tell the whole truth.'' The plaintiffs 
     had contended that New York-based Philip Morris led analysts 
     to believe that it wouldn't cut the price of its flagship 
     Marlboro brand.
       ``I have enough of a reputation without going around filing 
     suits that I don't believe in,'' Mr. Weiss added. ``I would 
     never pursue a case like this, especially against a worthy 
     adversary, without a profound belief in the integrity of the 
     case.''
       In addition to Mr. Weiss's firm, Milberg Weiss Bershad 
     Hynes & Lerach, other law firms representing the plaintiffs 
     were Abbey & Ellis and Barrack, Rodos & Bacine.
       Nevertheless, Judge Owen isn't the only one worried about 
     class-action securities suits. Sens. Pete Domenici, a New 
     Mexico Republican, and Christopher Dodd, a Connecticut 
     Democrat, are expected to reintroduce a bill that would put 
     the brakes on some alleged abuses in securities litigation. 
     Its provisions include a higher legal standard for claiming 
     securities fraud and a nonbinding arbitration mechanism for 
     securities litigation.
       ``In my opinion, it's most of them that are frivolous--not 
     just a lot, but most,'' said Jonathan R. Macey, a Cornell 
     University law professor who advocates having plaintiffs' 
     lawyers bid to work on such cases, with the money going to 
     the plaintiffs. ``The facts show that every time a firm's 
     share price drops by enough that it's profitable for 
     plaintiffs lawyers to bring a lawsuit, they do.''
       John L. Coffee, Jr., a Columbia University law professor, 
     says ``some of the judges are very skeptical of particular 
     law firms'' because some of them bring so many shareholder 
     suits. He adds that ``about nine firms'' bring more than half 
     of the suits that are filed.
       Federal judges sometimes try to dismiss shareholder suits 
     early on because they are so time-consuming, Prof. Coffee 
     said, but appellate courts have reined in any attempts to 
     broadly throw out securities suits.

 Mr. DODD. Mr. President, I introduce the Private Securities 
Litigation Reform Act of 1995. This bipartisan proposal is identical to 
the legislation I introduced in the 103d Congress with my good friend 
Senator Domenici. eighteen of our colleagues are joining us as original 
cosponsors.
  In the year since we last introduced this legislation, the process by 
which private individuals bring securities lawsuits has received 
enormous scrutiny. I am happy to say that as a result of this increased 
focus in the media and in the investor and business community, the 
debate has shifted. We are no longer arguing about whether the current 
system is in need of repair. The discussion is now centered on how best 
to fix it.
  Even those who 1 year ago were unwilling to admit that the system 
needed to be reformed, now concede that substantial changes are needed. 
In my view, the fact that there is finally consensus about the need for 
securities litigation reform is enormously significant. Because this 
consensus now exists, I believe we will see comprehensive legislation 
enacted this Congress. With the introduction of this bill, we begin the 
process to develop the best legislative solutions.
  This bill is by no means the final word on the matter. In the last 
year, hearings have been held in both Houses of Congress. Numerous 
studies of have been completed, including a comprehensive report by my 
securities Subcommittee staff. Every word of the legislation has 
received in-depth analysis. In addition, there have been a number of 
judicial decisions which have altered the private securities litigation 
landscape. The most significant of these was the U.S. Supreme Court 
Decision last year in Central Bank of Denver versus First Intereststate 
Bank of Denver, which eliminated private liability for those who aid 
and abet securities fraud.
  Many constructive suggestions have been made about ways to improves 
the legislation. The fact that we have not incorporated these changes 
to last years proposal should not be taken as a sign that we are 
unwilling to modify our bill. We simply preferred to begin this year 
where we left off last year so as not to create additional controversy 
or confusion. I am eager to work with my colleagues to refine and 
perfect the proposal as it moves through the process. As I have stated 
before, I would be willing to address the Bank of Denver decision as 
part of our deliberations.
  I cannot overstate how critical securities lawsuits brought by 
private individuals are to ensuring the integrity of our capital 
markets. As an important back-up to Government enforcement actions, 
these private actions help deter wrongdoing. When the system is working 
well, it helps to ensure that corporate officers, auditors, directors, 
lawyers and others properly perform their jobs. Private litigation is 
an indispensable tool with which defrauded investors can recover their 
losses without having to rely on Government action.
  Private securities litigation has evolved over the years mainly as a 
result of court decisions rather than legislative action. The most 
important private right of action for defrauded investors has long been 
section 10(b) of the Securities Exchange Act. Private actions under 
that provision were never expressly set out by Congress, but have been 
construed and refined by courts, with the tacit consent of Congress.
  This lack of congressional involvement in shaping the contours of 
private litigation has created uncertainty about legal standards and 
unwarranted opportunities for abuse of investors and companies. Last 
Congress, my Securities Subcommittee held several days of hearing on 
securities litigation. These hearings documented a number of glaring 
problems with the current system.
  First, securities class action cases are vulnerable to abuses by 
``entrepreneurial'' lawyers who put their own interests ahead of their 
clients. Many critics charge that plaintiffs' attorneys appear to 
control the settlement of the case with little or no influence from 
either the named plaintiffs or the larger class of investors.
  For example, in one case which was cited to the subcommittee by a 
lawyer as a showcase of how the system works, the case was settled 
before trial for $33 million. The lawyers asked the court for more than 
$20 million of that amount in fees and costs. The court awarded the 
plaintiffs' lawyers over $11 million and lawyers for the company $3 
million. Investors recovered only 6.5 percent of their recoverable 
damages.
  A second area of abuse is frivolous litigation. We have heard 
complaints from companies, especially in the high-technology sectors, 
that they face groundless securities litigation days or even hours 
after adverse earnings announcements. Courts have echoed this concern. 
As the Supreme Court pointed out in Blue Chip Stamps versus Manor Drug 
Store:

       [I]n the field of federal securities laws governing 
     disclosure of information, even a complaint which by 
     objective standards may have very little success at trial has 
     a settlement value to the plaintiff out of any proportion to 
     its prospect of success at trial so long as he may prevent 
     the suit from being resolved against him by dismissal or 
     summary judgment. The very pendency of the lawsuit may 
     frustrate or delay normal business activity of the defendant 
     which is totally unrelated to the lawsuit.

  The net effect of private litigation under the Federal securities 
laws has been to weaken the financial disclosure system on which our 
capital markets depend. The accounting profession, which is at the 
heart of the Financial Disclosure System, has warned that because of 
the doctrine of joint and several liability, accountants face potential 
liability which could destroy the ability of independent auditors to 
review financial disclosure by companies.
  We need to rationalize the current framework for assessing liability 
so it 
[[Page S1091]] is fairer and doesn't simply create an incentive to sue 
those with the deepest pockets. Unlimited liability is simply not the 
most effective deterrent of wrongdoing. We need to more directly police 
the conduct of professionals like accountants and do so in a more 
effective manner.
                         LEGISLATIVE SOLUTIONS

  The bill contains three major initiatives to deal with these 
problems:
  First, it empowers investors so that they--not their lawyers--have 
greater control over class action cases.
  Second, it limits opportunities for frivolous litigation.
  Third, it rationalizes the professional liability of accountants in 
exchange for stronger regulation.
  In addition, the bill incorporates measures previously proposed in 
Congress to strengthen the obligation of auditors to search for fraud 
and to lengthen the statute of limitations for fraud actions.


                        1. EMPOWERING INVESTORS

  The bill addresses abuses of investors by their lawyers by ensuring 
that investors, not lawyers, decide whether to bring a case, whether to 
settle, and how much the lawyers should receive.
  The bill requires courts to appoint a plaintiff steering committee or 
a guardian to directly control lawyers for the class.
  The bill requires that notices of settlement agreements sent to 
investors spell out clearly important facts such as how much investors 
are giving up by settling, and how much their lawyers will receive in 
the settlement.
  The bill requires that courts tie awards of lawyers' fees directly to 
how much is recovered by investors, rather than simply how many hours 
the lawyers billed or how many pages of briefs they filed.
  The bill establishes an alternative dispute resolution procedure to 
make it easier to prosecute a case without the necessity of slow and 
expensive Federal court proceedings. This idea is very similar to a 
provision in the products liability bill passed by the Commerce 
Committee last fall, and like that bill it is intended to speed up the 
recovery process for plaintiffs who have strong cases.
  These provisions should ensure that defrauded investors are not 
cheated a second time by their lawyers. It also should help victims of 
fraud to recover damages more quickly, with less of their recovery 
drained off in lawyers' fees.


                        2. FRIVOLOUS LITIGATION

  The bill requires that in order to bring a securities case as a class 
action, the plaintiffs in whose name the case is brought must have held 
either 1 percent of the securities which are the subject of the 
litigation or $10,000 worth of securities. This should help stop a 
problem pointed to by several courts, in which professional plaintiffs 
who own small amounts of stock in many companies try to bring class 
action lawsuits whenever one of their investments goes down.
  The bill clarifies how a lawyer should plead a securities fraud 
claim. Plaintiffs' lawyers should have no trouble meeting these 
standards if they have legitimate cases and have looked at the facts.
  These and other reforms should end the race to the courthouse by 
lawyers eager to file a case without investigating the facts or finding 
a real client.


            3. securities litigation and financial reporting

  The accounting profession has argued that accounting firms are 
unfairly singled out under the current litigation system simply because 
they are a deep pocket. They claim that their liability exposure under 
the current system could drive them away from providing auditing 
services to many companies, especially new companies and high-
technology companies.
  The bill establishes a liability system for less culpable defendants 
that is linked to degree of fault. At the same time, the bill 
establishes a self-disciplinary organization for accountants under the 
direct supervision of the SEC. This entity would be somewhat like self-
regulatory organizations such as the New York Stock Exchange or the 
National Association of Securities Dealers. The net effect should be a 
more direct and rational way of dealing with bad apples in the 
accounting profession without punishing the entire profession.


                    3. enhancing deterrence of fraud

  The bill would extend the statute of limitations for implied actions 
to 5 years from the date of the violation, or 2 years after the 
violation was discovered or should have been discovered through the 
exercise of reasonable diligence. The bill also incorporates pending 
legislation concerning the responsibility of auditors to search for and 
report fraud. A similar bill in past Congresses has been supported by 
the SEC and the AICPA.
  There is tremendous support for this legislation within Congress and 
from a large variety of private organizations. I look forward to 
working with my colleagues to enact comprehensive reform as soon as 
possible.
 Ms. MIKULSKI. Mr. President, I am pleased to work on a 
bipartisan basis with my colleagues Senator Dodd and Senator Domenici 
to cosponsor and renew my commitment to reforming securities 
litigation.
  This bill addresses the problem of bounty hunters racing to the 
courthouse to be the first to file a lawsuit based on nothing more than 
a change in stock price--and then coerce innocent businesses to settle 
these lawsuits.
  This bill eliminates the payment of bonus awards or bounties to 
representative plaintiffs in class actions. It gives people who are 
harmed extra time to consider who really harmed them before they have 
to file their case at the courthouse, by extending the statute of 
limitations to 2 years after the violation was or should have been 
discovered, and 5 years after the violation occurred. It also puts the 
investor in the driver's seat to control the litigation and recover 
more of their damages.
  My constituents have told me that some attorneys are paying stock 
brokers and others a bounty in return for identifying who they should 
sue. High-technology companies, their accountants, and others are being 
lumped into these securities lawsuits that are filed at the courthouse 
just hours after a change in the stock price.
  I am opposed to the race-to-the courthouse mentality that ends up in 
needless lawsuits that have huge litigation costs for firms that should 
be focused on creating jobs.
  I want to see the courthouse door kept open for the little guy, but 
let's get this bounty hunter law under control.
  These needless lawsuits hit these firms through: expensive liability 
insurance premiums; disruption to the lives of those people who have 
been drawn into the suit--and is a tremendous distraction from the 
company's achieving its mission, contributing to the economy, and 
creating jobs.
  I am concerned about these costs to the private sector, and to 
communities across America--and especially the costs to the high-
technology community who are our hope for jobs in the 21st century.
  I am hearing loud and clear that the current bounty hunter mentality 
is putting these jobs at risk.
  Rather than creating jobs, these high-technology jobs are having to 
put their efforts and their dollars into expensive litigation and 
insurance.
  I know how the system works with these lawsuits. It doesn't matter 
who's right or who's wrong. Both the guilty and the innocent end up 
settling at some big cost, even if just to avoid the risk and to get on 
with life.
  So, the good guys cut their losses and the bad guys get off the hook.
  I am pleased to work on a bipartisan basis with Senators Domenici and 
Dodd and support this legislation that helps take care of the good 
guys.
                                 ______

      By Mr. D'AMATO:
  S. 241. A bill to increase the penalties for sexual exploitation of 
children, and for other purposes; to the Committee on the Judiciary.


         THE PREVENTION OF SEXUAL EXPLOITATION OF CHILDREN ACT

 Mr. D'AMATO. Mr. President, I rise today to introduce the 
Prevention of the Sexual Exploitation of Children's Act. There is a 
large and growing threat to the welfare and safety of our children 
being caused by the advent of the computer age. The ``information 
superhighway,'' while a boon to our standard of living and economic 
growth, also contains hidden dangers which must be addressed to protect 
our children from debauched sexual predators. The ``information 
superhighway'' 
[[Page S1092]] has become a safe haven for pedophiles to entice 
children into acts of sexual depravity with little chance of exposure. 
Pedophiles and other sexual miscreants historically would position 
themselves outside of schools, playgrounds, and other public areas 
where children would congregate in order to satisfy their own depraved 
appetites. Now through the use of bulletin boards, major on-line 
services such as Prodigy, America Online, Compuserve, Internet, and a 
host of other computer conduits, these individuals can ply their trade 
with much less exposure to parental supervision or law enforcement. 
While many State and local authorities are addressing this problem, the 
use of the ``information superhighway'' makes the role of the Federal 
Government even more critical. The use of the computer conduits allow 
for the defendants to cross State, local and even international 
boundaries with impunity. These miscreants can be extremely violent and 
cause irreparable harm to the children they come into contact with. 
This violence must be answered with stiff judicial penalties.
  In addition to the physical depravity that is a direct result of the 
computer age, there has been a noted increase in pornographic material 
involving children being distributed and sold over computer lines. This 
pornographic material not only acts as a stimulus to the pedophiles but 
the simple possession of this material by people creates a demand for 
it, and these people should share in the responsibility of the 
exploitation of children by the pornography producers. This circular 
motion of supply and demand fuels the proliferation of more and more 
pornographic material.
  My legislation will raise the judicial penalties which would deter 
the proliferation of pornographic material available and remove the 
defendants from society. By enacting harsher judicial penalties, 
Congress will be sending a strong message that our society will not 
tolerate these forms of criminal behavior.
  I ask my fellow colleagues to join me in support of this legislation. 
These violations are a growing concern both within the law enforcement 
community and the family structure, and we must deal with them now.
  Mr. President, I ask for unanimous consent that the text of this 
legislation and additional material be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 241

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Prevention of Sexual 
     Exploitation of Children Act''.

     SEC. 2. PENALTIES.

       (a) Sexual Exploitation of Children.--Section 2251(d) of 
     title 18, United States Code, is amended--
       (1) by striking ``10 years'' and inserting ``15 years''; 
     and
       (2) by striking ``more than 15 years'' and inserting ``more 
     than 20 years''.
       (b) Certain Activities Relating to Material Involving the 
     Sexual Exploitation of Minors.--Section 2252(b)(1) of title 
     18, United States Code, is amended--
       (1) by striking ``ten years'' and inserting ``15 years''; 
     and
       (2) by striking ``more than fifteen'' and inserting ``more 
     than 20 years''.
                                                                    ____

                                                  U.S. Senate,

                                 Washington, DC, January 18, 1995.
       Dear Colleague: I am writing to invite you to join me as a 
     cosponsor of ``The Prevention of Sexual Exploitation of 
     Children's Act''.
       Technological advances, while a boon to our standard of 
     living and our economic growth, contain hidden dangers that 
     directly effect the welfare of our children. Computer 
     conduits, or the ``information superhighway'', is being used 
     extensively to entice children into acts of sexual depravity 
     by pedofiles and other deviants. These sexual predators will 
     often depict themselves as children and arrange a meeting 
     with their victims, with the child being sexually abused as 
     the ultimate outcome. In addition to the luring of children 
     through the ``information superhighway'', these conduits are 
     also being used to transport child pornography. The influx 
     and availability of the child pornography only prompt these 
     sexual deviants into further preying on our children.
       Pedofiles and other sexual miscreants historically would 
     position themselves outside of schools, playgrounds and other 
     public areas where children would congregate in order to 
     satisfy their own depraved appetites. Now through the use of 
     bulletin boards, major on-line services, such as Prodigy, 
     America Online, Compuserve, Internet, and a host of other 
     computer conduits, these individuals can ply their trade with 
     much less exposure to parental supervision or law 
     enforcement. These deviants are often very violent and cause 
     the children irreparable harm.
       This legislation will raise the judicial penalties which 
     would deter the proliferation of pornographic material 
     available and remove the defendants from society. By enacting 
     harsher judicial penalties, Congress will be sending a strong 
     message that our society will not tolerate these forms of 
     criminal behavior.
       If you would like to help me stem this burgeoning problem 
     by cosponsoring the ``Prevention of Sexual Exploitation of 
     Children's Act'', please contact Greg Regan of my office at 
     4-8349.
           Sincerely,
                                               Alfonse M. D'Amato,
     Senator
                                                                    ____


                 [From the New York Post, Jan. 9, 1995]

  Molesters With a Modem--Kiddie-Sex Perverts Using Computers To Lure 
                                Victims

                  (By Lou Lumenick and Kieran Crowley)

       City cops are about to start patrolling the information 
     superhighway to hunt down child pornographers and pedophiles 
     who are luring kids through high-tech computer bulletin 
     boards, The Post has learned.
       ``The bulletin boards are a total haven for pedophiles,'' 
     said Sgt. Richard Perrine, who's forming a new computer 
     investigation unit.
       ``There are no names and faces, and a 33-year-old man can 
     pass himself off as a 10-year-old kid.''
       Perrine said the new unit, in the NYPD's Organized Crime 
     Control Bureau, plans to include computer child-pornographers 
     and pedophiles among its targets.
       ``We haven't really solidified our strategy yet,'' he told 
     The Post.
       ``This is something that's so new, law enforcement is not 
     quite ready for it.''
       Law-enforcement officials say pedophiles are lurking on the 
     nation's three major on-line services, America Online, 
     Prodigy and Compuserve--as well as on the worldwide Internet, 
     smaller on-line services, and locally-operated computer 
     bulletin boards.
       On-line services are an easy way for pedophiles to meet 
     children anonymously, noted Dyanne Greer, a senior lawyer 
     with the National Center for the Prosecution of Child Abuse.
       ``Many cases are not reported, so I'm not sure anybody is 
     really aware how much this is going on,'' she said.
       A Post probe uncovered these on-line horror stories:
       Westchester computer expert George Telesha pretended to be 
     a 14-year-old girl on America Online and was quickly besieged 
     by perverts sending dirty pictures.
       A Manhattan computer expert allegedly got a 13-year-old New 
     Jersey boy he met on-line to go skating with him.
       Cops said the man lured the youth into the woods near the 
     boy's home and sexually abused him six times between last 
     July and September.
       An unemployed Brooklyn computer programmer tried to 
     sodomize a Nevada teen-ager he met on a computer bulletin 
     board.
       A 27-year-old computer engineer in Cupertino, Calif., 
     allegedly met a 14-year-old boy through America Online.
       He is charged with handcuffing, shackling and blindfolding 
     the boy and then taking him to his apartment, where he 
     whipped him with a belt, shaved his pubic hair and had sex 
     with him.
       A California man sent pornographic photos via computer to a 
     teen-ager, then sought to have the teen killed to silence 
     him.
       Such crimes are not easy to investigate or prosecute, 
     officials note.
       ``It's a bigger problem than most people realize,'' said 
     Mike Brick, director of the Orlando bureau of the Florida 
     State Office of Law Enforcement.
       ``There's a lot of people out there who want to have sex 
     with children. If they hang out at a real playground, a 
     teacher or someone might see them. In the computer 
     playground, they can more or less hide in the bushes.''
       A handful of agencies have staffers pose as youngsters to 
     solicit dirty pictures and come-ons, but many don't have the 
     manpower, equipment or inclination to do so on a regular 
     basis.
       And even if they did, experts say there's probably no way 
     to completely stop on-line perverts--who constitute a tiny 
     fraction of overall on-line communicators--short of shutting 
     down the services.
       And that is not only unlikely, but would rob children and 
     others of a valuable educational resource.
       The service say they're concerned--but in no position to 
     play the role of police.
       AOL spokeswoman Pam McGraw said computer-privacy laws keep 
     her company's hands tied when it comes to the person-to-
     person type of communication in which porn can be exchanged 
     in electronic ``private chat rooms.''
       ``Federal law prevents us from monitoring E-mail,'' McGraw 
     said. ``We do our best to prevent misuse of our service.''
       She urged AOL customers to report offensive communications 
     which are prohibited under company rules so the company can 
     warn offenders or eject them from the system.
       Law enforcement officials say on-line companies are quick 
     to cut off perverts and help 
     [[Page S1093]] track down and prosecute pedophiles and 
     pornographers.
       But the crimes still flourish because computers make life 
     simpler for the perverts.
       Pedophilies can easily pretend to be a child on-line, or 
     even someone of the opposite sex, to help draw a child into a 
     trap. And they can elude detection by using false names and 
     post office boxes.
       ``Offenders can say they're other kids, then arrange for 
     face-to-face meetings.'' Greer said ``It's pretty scary when 
     you find out you're dealing with a 47-year-old man instead of 
     the 14-year-old you expected.
                                 ______

      By Mr. DASCHLE (for himself, Mr. Breaux, Mr. Kennedy, Mr. Reid, 
        Mr. Rockefeller, Ms. Mikulski, Mr. Ford, Mr. Dodd, and Mr. 
        Kerry):
  S. 242. A bill to amend the Internal Revenue Code of 1986 to allow a 
deduction for the payment of tuition for higher education and interest 
on student loans; to the Committee on Finance.


                    higher education tax relief act

  Mr. DASCHLE. Mr. President, earlier today, several of my 
distinguished colleagues and I announced our intention to introduce 
another important element of our Democratic plan to help middle-class 
Americans who are squeezed between prices that are rising and incomes 
that are not.
  Today Senators Breaux, Kennedy, Reid, Rockefeller, Mikulski, Ford, 
Dodd, Kerry, and I are introducing the Higher Education Tax Relief Act 
of 1995. This legislation will provide tax relief for middle-income 
families who are trying to send their children to college or vocational 
or professional school, as well as to individuals who seek such 
educational opportunities.
  As I have noted on many occasions, our highest priority in the 104th 
Congress is to strengthen the financial security of working middle-
income families. One of our greatest concerns is the increasing 
inability of many families to afford to send their children to college 
or vocational school.
  Pressures on State budgets are forcing public colleges and 
universities to increase the tuition and fees they charge to new 
students. Many private institutions are trying to fill the student aid 
gap by taking on the task themselves, but they are finding it more and 
more costly to do so.
  Our legislation will provide a tax deduction of up to $10,000 for 
tuition and fees associated with attending public and non-profit 
colleges and universities or vocational and professional schools. This 
aspect of the proposal is identical to the tuition deduction advanced 
by President Clinton in his middle-class bill of rights package. We 
think the President was right to focus on education in that package 
because it is one of the highest priorities--and biggest expenses--of 
middle-income families.
  In addition, our tax deduction would be available up to the same 
amount for interest incurred on student loans. Ever since the deduction 
for student loan interest was eliminated in the Tax Reform Act of 1986, 
we have heard an ever-louder cry from middle-income Americans that they 
want it back. And for good reason. As more and more forms of direct 
student aid are eliminated, these families are having to incur debt in 
order to finance the costs of higher education, especially since their 
incomes simply are not rising commensurate with the cost of living.
  The deduction we are proposing, whether taken for tuition and fees or 
for student loan interest, is available to families with incomes of up 
to $100,000 per year or individuals with incomes of up to $70,000 per 
year. Moreover, the deduction may be taken whether or not the taxpayer 
is in a position to itemize on his or her return, providing greater 
assurance that those at the lower end of the middle-income range will 
benefit.
  Our proposal provides a choice to middle-income Americans and 
complements the various forms of student aid currently available to 
those with the lowest incomes. Middle-income taxpayers, most of whom no 
longer qualify for other forms of student aid, may deduct amounts they 
are able to pay for tuition and fees at the time they or their children 
are attending an institution of higher education. If, however, they 
must finance their own or their children's education, they may deduct 
the interest on student loans later when they begin paying back the 
loans.
  Mr. President, the Higher Education Tax Relief Act of 1995, along 
with the President's tuition deduction proposal, identifies a major 
difference between the Republican and Democratic views of middle-income 
tax relief. The Republican Contract With America does not contain tax 
relief directed at helping middle-income families pay for education. In 
fact, it contains numerous measures that will further harm the ability 
of middle-income Americans to obtain the education they seek.
  For example, one of the spending cuts contemplated by Republicans is 
the repeal of the in-school interest subsidy for student loans. Right 
now, the interest clock on many student loans does not start ticking 
until a student has finished college. The Republicans want to start 
charging interest immediately. We believe that's an attack on middle-
income families who cannot afford to send their children to college 
without borrowing the money.
  College already is too expensive for many families, and we shouldn't 
limit the number who can afford it by raising the costs even more. 
Democrats believe opportunities should be open to everyone willing to 
earn them with hard work. We believe education is necessary and should 
be affordable to anyone who wants it--that we should not tax the income 
necessary for middle-income families to send their children to college 
or vocational and professional schools.
  These are Democratic values.
  Let me point out that none of us introducing this legislation today 
have any intention of increasing the deficit as a result of this 
proposal. We have asked the Joint Committee on Taxation to estimate the 
cost of this proposal and, at the appropriate time, we intend to offer 
ways to pay for it.
  Mr. President, I ask that a copy of our legislation be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
                                 S. 242

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Higher Education Tax Relief 
     Act of 1995''.

     SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

       (a) Deduction Allowed.--Part VII of subchapter B of chapter 
     1 of the Internal Revenue Code of 1986 (relating to 
     additional itemized deductions for individuals) is amended by 
     redesignating section 220 as section 221 and by inserting 
     after section 219 the following new section:

     ``SEC. 220. HIGHER EDUCATION TUITION AND FEES; INTEREST ON 
                   STUDENT LOANS.

       ``(a) Allowance of Deduction.--In the case of an 
     individual, there shall be allowed as a deduction an amount 
     equal to the sum of--
       ``(1) the qualified higher education expenses, plus
       ``(2) interest on qualified higher education loans,

     paid by the taxpayer during the taxable year.
       ``(b) Qualified Higher Education Expenses.--For purposes of 
     this section--
       ``(1) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' means tuition and fees required for the enrollment 
     or attendance of--
       ``(i) the taxpayer,
       ``(ii) the taxpayer's spouse, or
       ``(iii) any dependent of the taxpayer with respect to whom 
     the taxpayer is allowed a deduction under section 151,

     as an eligible student at an institution of higher education.
       ``(B) Exception for education involving sports, etc.--Such 
     term does not include expenses with respect to any course or 
     other education involving sports, games, or hobbies unless 
     such expenses--
       ``(i) are part of a degree program, or
       ``(ii) are deductible under this chapter without regard to 
     this section.
       ``(C) Exception for nonacademic fees.--Such term does not 
     include any student activity fees, athletic fees, insurance 
     expenses, or other expenses unrelated to a student's academic 
     course of instruction.
       ``(D) Eligible student.--For purposes of subparagraph (A), 
     the term `eligible student' means a student who meets the 
     requirements of section 484(a)(1) of the Higher Education Act 
     of 1965 (20 U.S.C. 1091(a)(1)).
       ``(2) Dollar limitation.--
       ``(A) In general.--The amount taken into account under 
     paragraph (1) for any taxable year shall not exceed $10,000.
       ``(B) Phase-in.--In the case of taxable years beginning in 
     1996, 1997, 1998, and 1999, the following amounts shall be 
     substituted for `$10,000' in subparagraph (A):
 [[Page S1094]] ``For taxable years                      The substitute
  beginning in:                                              amount is:
  1996.......................................................$2,000....

  1997....................................................... 4,000....

  1998....................................................... 6,000....

  1999...................................................... 8,000.....
       ``(3) Limitation based on modified adjusted gross income.--
       ``(A) In general.--If the modified adjusted gross income of 
     the taxpayer for the taxable year exceeds $70,000 ($100,000 
     in the case of a joint return), the amount which would (but 
     for this paragraph) be taken into account under paragraph (1) 
     shall be reduced (but not below zero) by the amount which 
     bears the same ratio to the amount which would be taken into 
     account as such excess bears to $20,000.
       ``(B) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 1996, the $70,000 and 
     $100,000 amounts contained in subparagraph (A) shall be 
     increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment under section 1(f)(3) 
     for the calendar year in which the taxable year begins, 
     except that section 1(f)(3)(B) shall be applied by 
     substituting `1995' for `1992'.
       ``(C) Rounding.--If any amount as adjusted under 
     subparagraph (B) is not a multiple of $50, such amount shall 
     be rounded to the nearest multiple of $50 (or if such amount 
     is a multiple of $25, such amount shall be rounded to the 
     next highest multiple of $50).
       ``(D) Modified adjusted gross income.--The term `modified 
     adjusted gross income' means the adjusted gross income of the 
     taxpayer for the taxable year determined--
       ``(i) without regard to this section and sections 911, 931, 
     and 933, and
       ``(ii) after the application of sections 86, 135, 219, and 
     469.
       ``(4) Institution of higher education.--The term 
     `institution of higher education' means an institution 
     which--
       ``(A) is described in section 481 of the Higher Education 
     Act of 1965 (20 U.S.C. 1088), and
       ``(B) is eligible to participate in programs under title IV 
     of such Act.
       ``(c) Qualified Higher Education Loan.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified higher education 
     loan' means a loan to a student which is--
       ``(A) made, insured, or guaranteed by the Federal 
     Government,
       ``(B) made by a State or a political subdivision of a 
     State,
       ``(C) made from the proceeds of a qualified student loan 
     bond under section 144(b), or
       ``(D) made by an institution of higher education (as 
     defined in section 1201(a) of the Higher Education Act of 
     1965 (20 U.S.C. 1141(a))).
       ``(2) Limitation.--
       ``(A) In general.--The amount of interest on a qualified 
     higher education loan which is taken into account under 
     subsection (a)(2) shall be reduced by the amount which bears 
     the same ratio to such amount of interest as--
       ``(i) the proceeds from such loan used for qualified higher 
     education expenses, bears to
       ``(ii) the total proceeds from such loan.
       ``(B) Qualified higher education expenses.--For purposes of 
     subparagraph (A), the term `qualified higher education 
     expenses' has the meaning given such term by subsection (b), 
     except that--
       ``(i) such term shall include reasonable living expenses 
     while away from home, and
       ``(ii) the limitations of paragraphs (2) and (3) of 
     subsection (b) shall not apply.
       ``(d) Coordination With Other Provisions.--
       ``(1) No double benefit.--
       ``(A) In general.--No deduction shall be allowed under 
     subsection (a) for qualified higher education expenses or 
     interest on qualified higher education loans with respect to 
     which a deduction is allowed under any other provision of 
     this chapter.
       ``(B) Savings bond exclusion.--A deduction shall be allowed 
     under subsection (a)(1) for qualified higher education 
     expenses only to the extent the amount of such expenses 
     exceeds the amount excludable under section 135 for the 
     taxable year.
       ``(2) Qualified residence interest.--If a deduction is 
     allowed under subsection (a)(2) for interest which is also 
     qualified residence interest under section 163(h), such 
     interest shall not be taken into account under section 
     163(h).
       ``(e) Special Rules.--
       ``(1) Election.--If a deduction is allowable under more 
     than one provision of this chapter with respect to qualified 
     higher education expenses, the taxpayer may elect the 
     provision under which the deduction is allowed.
       ``(2) Limitation on taxable year of deduction.--
       ``(A) In general.--A deduction shall be allowed under 
     subsection (a)(1) for any taxable year only to the extent the 
     qualified higher education expenses are in connection with 
     attendance at an institution of higher education during the 
     taxable year.
       ``(B) Certain prepayments allowed.--Subparagraph (A) shall 
     not apply to qualified higher education expenses paid during 
     a taxable year which are in connection with attendance at an 
     institution of higher education which begins during the first 
     2 months of the following taxable year.
       ``(3) Adjustment for certain scholarships and veterans 
     benefits.--The amount of qualified higher education expenses 
     otherwise taken into account under subsection (a)(1) with 
     respect to the education of an individual shall be reduced 
     (before the application of subsection (b)) by the sum of the 
     amounts received with respect to such individual for the 
     taxable year as--
       ``(A) a qualified scholarship which under section 117 is 
     not includable in gross income,
       ``(B) an educational assistance allowance under chapter 30, 
     31, 32, 34, or 35 of title 38, United States Code, or
       ``(C) a payment (other than a gift, bequest, devise, or 
     inheritance within the meaning of section 102(a)) for 
     educational expenses, or attributable to attendance at an 
     eligible educational institution, which is exempt from income 
     taxation by any law of the United States.
       ``(4) No deduction for married individuals filing separate 
     returns.--If the taxpayer is a married individual (within the 
     meaning of section 7703), this section shall apply only if 
     the taxpayer and his spouse file a joint return for the 
     taxable year.
       ``(5) Regulations.--The Secretary may prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including regulations requiring recordkeeping 
     and information reporting.''
       (b) Deduction Allowed in Computing Adjusted Gross Income.--
     Section 62(a) of such Code is amended by inserting after 
     paragraph (15) the following new paragraph:
       ``(16) Higher education tuition and fees.--The deduction 
     allowed by section 219.''
       (c) Conforming Amendment.--The table of sections for part 
     VII of subchapter B of chapter 1 of such Code is amended by 
     striking the item relating to section 220 and inserting:
``Sec. 220. Higher education tuition and fees.
``Sec. 221. Cross reference.''
       (d) Effective Dates.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

  Mr. KENNEDY. Mr. President, a college education is a building block 
of the American dream. But with college costs rising, higher education 
is increasingly out of reach for many families.
  President Clinton deserves credit for acting on this problem, and the 
legislation we are introducing today will carry out the President's 
proposal to make college education more affordable for working 
families. The bill provides a tax deduction of up to $10,000 a year for 
college tuition costs, and it restores the deduction for interest on 
student loans.
  The deduction for tuition will be available for families earning up 
to $100,000 a year and individuals earning up to $70,000. It will be 
available for tuition at traditional 4-year colleges and universities, 
community colleges, and vocational and professional schools offering 
job training in a variety of fields.
  The deduction for interest on student loans is equally important, and 
will offer significant help to students who must borrow to go to 
college and who are struggling to pay off their loans and establish 
themselves in the working world.
  By contrast, the Republican contract proposes to cut over $10 billion 
in Federal financial aid for students over the next 5 years. In 
Massachusetts alone, that would mean a loss of over $100 million a 
year. In reality, when you read the fine print, the Contract With 
America is a contract against college education.
  Families across the country know that education is the best 
investment they can make in their children's future. We must do more to 
ease the burden of that investment, not make it harder for families to 
obtain it.
  I look forward to working with my colleagues on both side of the 
aisle to ensure that this important legislation becomes law.
                                 ______

      By Mr. SARBANES (for himself, Mr. Byrd, Mr. Rockefeller, and Ms. 
        Mikulski):
  S.J. Res. 20. A joint resolution granting the consent of Congress to 
a compact to provide for joint natural resource management and 
enforcement of laws and regulations pertaining to natural resources and 
boating at the Jennings Randolph Lake Project lying in Garrett County, 
MD and Mineral County, WV, entered into between the States of West 
Virginia and Maryland; to the Committee on the Judiciary.


               the jennings randolph lake project compact

  Mr. SARBANES. Mr. President, today I am reintroducing legislation 
together with my colleagues Senators Byrd, Rockefeller, and Mikulski to 
grant congressional consent to a compact entered into between the 
States of 
[[Page S1095]] West Virginia and Maryland, with concurrence of the U.S. 
Army Corps of Engineers, to provide for joint management and 
enforcement of laws and regulations pertaining to natural resources and 
boating at Jennings Randolph Lake. This legislation was approved by the 
Senate in the closing days of the 103d Congress, but was not considered 
in the House.
  Jennings Randolph Lake is located on the north branch of the Potomac 
River in Garrett County, MD and Mineral County, WV. Construction of the 
dam, which created the lake, was authorized by the Flood Control Act of 
1962 and the project was specifically designed to improve the water 
quality of the Potomac River, reduce flood damage, provide water 
supply, and opportunities for recreation. Completed in 1982, the dam is 
one of the largest dams east of the Mississippi--approximately 6.6 
miles long, with a surface area of 952 acres and a drainage area of 263 
square miles. Originally named Bloomington Lake, the project was 
rededicated in May 1987 in honor of former West Virginia Senator 
Jennings Randolph.
  The lake and surrounding area are extraordinarily beautiful and 
include some of the most picturesque countryside in the Nation. The 
lake and the north branch of the Potomac River below the dam support a 
recreational trout fishery that is regarded as one of the best in 
America. Other recreational opportunities including boating, downstream 
whitewater rafting, hiking, and picnicing are drawing increasing 
numbers of visitors to the lake. The Army Corps of Engineers currently 
operates and maintains five recreation sites at the project and the 
State of Maryland, in cooperation with the corps, is in the process of 
developing a boat launch and support facilities on the Maryland side of 
the project.
  Unfortunately, the creation of the lake removed the natural boundary 
between West Virginia and Maryland and the meandering nature of the 
former river and the depth of the lake have made it virtually 
impossible to reestablish the precise location of the boundary. As a 
consequence, enforcement of natural resources and boating laws and 
regulations on the lake has been tentative at best and at worst, 
nonexistent. As recreational uses of the lake continue to increase, it 
is anticipated that enforcement problems will become increasingly 
difficult.
  The compact legislation I am introducing today provides the State of 
West Virginia and Maryland with concurrent jurisdiction over the 
project area to enable them to jointly enforce natural resource and 
boating laws and regulations. This approach eliminates the need to 
redefine the boundary between the two States for law enforcement 
purposes. As required before congressional action can be taken, the 
compact was approved by the respective legislatures of Maryland and 
West Virginia in their 1993 legislative sessions.
  Mr. President, this legislation will address the ongoing problems 
associated with the management and enforcement of laws and regulations 
relating to natural resources and boating at the Jennings Randolph Lake 
Project. It has been long awaited by both States and I urge its swift 
enactment.
  I ask unanimous consent that the legislation be printed in the 
Record.
  There being no objection, the joint resolution was ordered to be 
printed in the Record, as follows:
                              S.J. Res. 20

       Resolved by the Senate and House of Representatives of the 
     United States of America in Congress assembled,

     SECTION 1. CONGRESSIONAL CONSENT.

       The Congress hereby consents to the Jennings Randolph Lake 
     Project Compact entered into between the States of West 
     Virginia and Maryland which compact is substantially as 
     follows:
                               ``COMPACT
       ``Whereas the State of Maryland and the State of West 
     Virginia, with the concurrence of the United States 
     Department of the Army, Corps of Engineers, have approved and 
     desire to enter into a compact to provide for joint natural 
     resource management and enforcement of laws and regulations 
     pertaining to natural resources and boating at the Jennings 
     Randolph Lake Project lying in Garrett County, Maryland and 
     Mineral County, West Virginia, for which they seek the 
     approval of Congress, and which compact is as follows:
       ``Whereas the signatory parties hereto desire to provide 
     for joint natural resource management and enforcement of laws 
     and regulations pertaining to natural resources and boating 
     at the Jennings Randolph Lake Project lying in Garrett 
     County, Maryland and Mineral County, West Virginia, for which 
     they have a joint responsibility; and they declare as 
     follows:
       ``1. The Congress, under Public Law 87-874, authorized the 
     development of the Jennings Randolph Lake Project for the 
     North Branch of the Potomac River substantially in accordance 
     with House Document Number 469, 87th Congress, 2nd Session 
     for flood control, water supply, water quality, and 
     recreation; and
       ``2. Section 4 of the Flood Control Act of 1944 (Ch 665, 58 
     Stat. 534) provides that the Chief of Engineers, under the 
     supervision of the Secretary of War (now Secretary of the 
     Army), is authorized to construct, maintain and operate 
     public park and recreational facilities in reservoir areas 
     under control of such Secretary for the purpose of boating, 
     swimming, bathing, fishing, and other recreational purposes, 
     so long as the same is not inconsistent with the laws for the 
     protection of fish and wildlife of the State(s) in which such 
     area is situated; and
       ``3. Pursuant to the authorities cited above, the U.S. Army 
     Engineer District (Baltimore), hereinafter `District', did 
     construct and now maintains and operates the Jennings 
     Randolph Lake Project; and
       ``4. The National Environmental Policy Act of 1969 (P.L. 
     91-190) encourages productive and enjoyable harmony between 
     man and his environment, promotes efforts which will 
     stimulate the health and welfare of man, and encourages 
     cooperation with State and local governments to achieve these 
     ends; and
       ``5. The Fish and Wildlife Coordination Act (16 U.S.C. 661-
     666c) provides for the consideration and coordination with 
     other features of water-resource development programs through 
     the effectual and harmonious planning, development, 
     maintenance, and coordination of wildlife conservation and 
     rehabilitation; and
       ``6. The District has Fisheries and Wildlife Plans as part 
     of the District's project Operational Management Plan; and
       ``7. In the respective States, the Maryland Department of 
     Natural Resources (hereinafter referred to as `Maryland DNR') 
     and the West Virginia Division of Natural Resources 
     (hereinafter referred to as `West Virginia DNR') are 
     responsible for providing a system of control, propagation, 
     management, protection, and regulation of natural resources 
     and boating in Maryland and West Virginia and the enforcement 
     of laws and regulations pertaining to those resources as 
     provided in Annotated Code of Maryland Natural Resources 
     Article and West Virginia Chapter 20, respectively, and the 
     successors thereof; and
       ``8. The District, the Maryland DNR, and the West Virginia 
     DNR are desirous of conserving, perpetuating and improving 
     fish and wildlife resources and recreational benefits of the 
     Jennings Randolph Lake Project; and
       ``9. The District and the States of Maryland and West 
     Virginia wish to implement the aforesaid acts and 
     responsibilities through this Compact and they each recognize 
     that consistent enforcement of the natural resources and 
     boating laws and regulations can best be achieved by entering 
     this Compact:
       ``Now, therefore, be it Resolved, That the States of 
     Maryland and West Virginia, with the concurrence of the 
     United States Department of the Army, Corps of Engineers, 
     hereby solemnly covenant and agree with each other, upon 
     enactment of concurrent legislation by The Congress of the 
     United States and by the respective state legislatures, to 
     the Jennings Randolph Lake Project Compact, which consists of 
     this preamble and the articles that follow:
                ``Article I--Name, Findings, and Purpose

       ``1.1 This compact shall be known and may be cited as the 
     Jennings Randolph Lake Project Compact.
       ``1.2 The legislative bodies of the respective signatory 
     parties, with the concurrence of the U.S. Army Corps of 
     Engineers, hereby find and declare:
       ``1. The water resources and project lands of the Jennings 
     Randolph Lake Project are affected with local, state, 
     regional, and national interest, and the planning, 
     conservation, utilization, protection and management of these 
     resources, under appropriate arrangements for inter-
     governmental cooperation, are public purposes of the 
     respective signatory parties.
       ``2. The lands and waters of the Jennings Randolph Lake 
     Project are subject to the sovereign rights and 
     responsibilities of the signatory parties, and it is the 
     purpose of this compact that, notwithstanding any boundary 
     between Maryland and West Virginia that preexisted the 
     creation of Jennings Randolph Lake, the parties will have and 
     exercise concurrent jurisdiction over any lands and waters of 
     the Jennings Randolph Lake Project concerning natural 
     resources and boating laws and regulations in the common 
     interest of the people of the region.

                ``Article II--District Responsibilities

       ``The District, within the Jennings Randolph Lake Project,
       ``2.1 Acknowledges that the Maryland DNR and West Virginia 
     DNR have authorities and responsibilities in the 
     establishment, administration and enforcement of the natural 
     resources and boating laws and regulations applicable to this 
     project, provided that the laws and regulations promulgated 
     by the 
     [[Page S1096]] States support and implement, where 
     applicable, the intent of the Rules and Regulations Governing 
     Public Use of Water Resources Development Projects 
     administered by the Chief of Engineers in Title 36, Chapter 
     RI, Part 327, Code of Federal Regulations,
       ``2.2 Agrees to practice those forms of resource management 
     as determined jointly by the District, Maryland DNR and West 
     Virginia DNR to be beneficial to natural resources and which 
     will enhance public recreational opportunities compatible 
     with other authorized purposes of the project,
       ``2.3 Agrees to consult with the Maryland DNR and West 
     Virginia DNR prior to the issuance of any permits for 
     activities or special events which would include, but not 
     necessarily be limited to: fishing tournaments, training 
     exercises, regattas, marine parades, placement of ski ramps, 
     slalom water ski courses and the establishment of private 
     markers and/or lighting. All such permits issued by the 
     District will require the permittee to comply with all State 
     laws and regulations,
       ``2.4 Agrees to consult with the Maryland DNR and West 
     Virginia DNR regarding any recommendations for regulations 
     affecting natural resources, including, but not limited to, 
     hunting, trapping, fishing or boating at the Jennings 
     Randolph Lake Project which the District believes might be 
     desirable for reasons of public safety, administration of 
     public use and enjoyment,
       ``2.5 Agrees to consult with the Maryland DNR and West 
     Virginia DNR relative to the marking of the lake with buoys, 
     aids to navigation, regulatory markers and establishing and 
     posting of speed limits, no wake zones, restricted or other 
     control areas and to provide, install and maintain such 
     buoys, aids to navigation and regulatory markers as are 
     necessary for the implementation of the District's 
     Operational Management Plan. All buoys, aids to navigation 
     and regulatory markers to be used shall be marked in 
     conformance with the Uniform State Waterway Marking System,
       ``2.6 Agrees to allow hunting, trapping, boating and 
     fishing by the public in accordance with the laws and 
     regulations relating to the Jennings Randolph Lake Project,
       ``2.7 Agrees to provide, install and maintain public ramps, 
     parking areas, courtesy docks, etc., as provided for by the 
     approved Corps of Engineers Master Plan, and
       ``2.8 Agrees to notify the Maryland DNR and the West 
     Virginia DNR of each reservoir drawdown prior thereto 
     excepting drawdown for the reestablishment of normal lake 
     levels following flood control operations and drawdown 
     resulting from routine water control management operations 
     described in the reservoir regulation manual including 
     releases requested by water supply owners and normal water 
     quality releases. In case of emergency releases or emergency 
     flow curtailments, telephone or oral notification will be 
     provided. The District reserves the right, following issuance 
     of the above notice, to make operational and other tests 
     which may be necessary to insure the safe and efficient 
     operation of the dam, for inspection and maintenance 
     purposes, and for the gathering of water quality data both 
     within the impoundment and in the Potomac River downstream 
     from the dam.

                 ``Article III--State Responsibilities

       ``The State of Maryland and the State of West Virginia 
     agree:
       ``3.1 That each State will have and exercise concurrent 
     jurisdiction with the District and the other State for the 
     purpose of enforcing the civil and criminal laws of the 
     respective States pertaining to natural resources and boating 
     laws and regulations over any lands and waters of the 
     Jennings Randolph Lake Project;
       ``3.2 That existing natural resources and boating laws and 
     regulations already in effect in each State shall remain in 
     force on the Jennings Randolph Lake Project until either 
     State amends, modifies or rescinds its laws and regulations;
       ``3.3 That the Agreement for Fishing Privileges dated June 
     24, 1985 between the State of Maryland and the State of West 
     Virginia, as amended, remains in full force and effect;
       ``3.4 To enforce the natural resources and boating laws and 
     regulations applicable to the Jennings Randolph Lake Project;
       ``3.5 To supply the District with the name, address and 
     telephone number of the person(s) to be contacted when any 
     drawdown except those resulting from normal regulation 
     procedures occurs;
       ``3.6 To inform the Reservoir Manager of all emergencies or 
     unusual activities occurring on the Jennings Randolph Lake 
     Project;
       ``3.7 To provide training to District employees in order to 
     familiarize them with natural resources and boating laws and 
     regulations as they apply to the Jennings Randolph Lake 
     Project; and
       ``3.8 To recognize that the District and other Federal 
     Agencies have the right and responsibility to enforce, within 
     the boundaries of the Jennings Randolph Lake Project, all 
     applicable Federal laws, rules and regulations so as to 
     provide the public with safe and healthful recreational 
     opportunities and to provide protection to all federal 
     property within the project.

                    ``Article IV--Mutual Cooperation

       ``4.1 Pursuant to the aims and purposes of this Compact, 
     the State of Maryland, the State of West Virginia and the 
     District mutually agree that representatives of their natural 
     resource management and enforcement agencies will cooperate 
     to further the purposes of this Compact. This cooperation 
     includes, but is not limited to, the following:
       ``4.2 Meeting jointly at least once annually, and providing 
     for other meetings as deemed necessary for discussion of 
     matters relating to the management of natural resources and 
     visitor use on lands and waters within the Jennings Randolph 
     Lake Project;
       ``4.3 Evaluating natural resources and boating, to develop 
     natural resources and boating management plans and to 
     initiate and carry out management programs;
       ``4.4 Encouraging the dissemination of joint publications, 
     press releases or other public information and the 
     interchange between parties of all pertinent agency policies 
     and objectives for the use and perpetuation of natural 
     resources of the Jennings Randolph Lake Project; and
       ``4.5 Entering into working arrangements as occasion 
     demands for the use of lands, waters, construction and use of 
     buildings and other facilities at the project.

                    ``Article V--General Provisions

       ``5.1 Each and every provision of this Compact is subject 
     to the laws of the States of Maryland and West Virginia and 
     the laws of the United States, and the delegated authority in 
     each instance.
       ``5.2 The enforcement and applicability of natural 
     resources and boating laws and regulations referenced in this 
     Compact shall be limited to the lands and waters of the 
     Jennings Randolph Lake Project, including but not limited to 
     the prevailing reciprocal fishing laws and regulations 
     between the States of Maryland and West Virginia.
       ``5.3 Nothing in this Compact shall be construed as 
     obligating any party hereto to the expenditure of funds or 
     the future payment of money in excess of appropriations 
     authorized by law.
       ``5.4 The provisions of this Compact shall be severable, 
     and if any phrase, clause, sentence or provision of the 
     Jennings Randolph Lake Project Compact is declared to be 
     unconstitutional or inapplicable to any signatory party or 
     agency of any party, the constitutionality and applicability 
     of the Compact shall not be otherwise affected as to any 
     provision, party, or agency. It is the legislative intent 
     that the provisions of the Compact be reasonably and 
     liberally construed to effectuate the stated purposes of the 
     Compact.
       ``5.5 No member of or delegate to Congress, or signatory 
     shall be admitted to any share or part of this Compact, or to 
     any benefit that may arise therefrom; but this provision 
     shall not be construed to extend to this agreement if made 
     with a corporation for its general benefit.
       ``5.6 When this Compact has been ratified by the 
     legislature of each respective State, when the Governor of 
     West Virginia and the Governor of Maryland have executed this 
     Compact on behalf of their respective States and have caused 
     a verified copy thereof to be filed with the Secretary of 
     State of each respective State, when the Baltimore District 
     of the U.S. Army Corps of Engineers has executed its 
     concurrence with this Compact, and when this Compact has been 
     consented to by the Congress of the United States, then this 
     Compact shall become operative and effective.
       ``5.7 Either State may, by legislative act, after one 
     year's written notice to the other, withdraw from this 
     Compact. The U.S. Army Corps of Engineers may withdraw its 
     concurrence with this Compact upon one year's written notice 
     from the Baltimore District Engineer to the Governor of each 
     State.
       ``5.8 This Compact may be amended from time to time. Each 
     proposed amendment shall be presented in resolution form to 
     the Governor of each State and the Baltimore District 
     Engineer of the U.S. Army Corps of Engineers. An amendment to 
     this Compact shall become effective only after it has been 
     ratified by the legislatures of both signatory States and 
     concurred in by the U.S. Army Corps of Engineers, Baltimore 
     District. Amendments shall become effective thirty days after 
     the date of the last concurrence or ratification.''.
       Sec. 2. The right to alter, amend or repeal this joint 
     resolution is hereby expressly reserved. The consent granted 
     by this joint resolution shall not be construed as impairing 
     or in any manner affecting any right or jurisdiction of the 
     United States in and over the region which forms the subject 
     of the compact.
     

                          ____________________