[Congressional Record Volume 141, Number 42 (Tuesday, March 7, 1995)]
[House]
[Pages H2760-H2780]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page H2760]]
                    SECURITIES LITIGATION REFORM ACT

  The SPEAKER pro tempore. Pursuant to House Resolution 105 and rule 
XXIII, the Chair declares the House in the Committee of the Whole House 
on the State of the Union for the consideration of the bill, H.R. 1058.

                              {time}  1621


                     in the committee of the whole

  Accordingly, the House resolved itself into the Committee of the 
Whole House on the State of the Union for the consideration of the bill 
(H.R. 1058) to reform Federal securities litigation, and for other 
purposes, with Mr. Combest in the chair.
  The Clerk read the title of the bill.
  The CHAIRMAN. Pursuant to the rule, the bill is considered as having 
been read the first time.
  Under the rule, the gentleman from Virginia [Mr. Bliley] will be 
recognized for 30 minutes, and the gentleman from Massachusetts [Mr. 
Markey] will be recognized for 30 minutes.
  The Chair recognizes the gentleman from Virginia [Mr. Bliley].
  Mr. BLILEY. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, I rise in support of H.R. 1058, the Securities 
Litigation Reform Act. A recent survey by the National Venture Capital 
Association found that 62 percent of responding entrepreneurial 
companies that went public in 1986 had been sued by 1993. The survey 
concluded that, if historical rates continue, ``unprecedented numbers 
of newly public companies are likely to be sued in the coming years.'' 
This is a national tragedy and a situation the Congress cannot allow to 
continue. H.R. 1058 is an important first step in our continuing review 
of litigation reform.
  H.R. 1058 is the product of months of intensive negotiations. I would 
like to highlight for the Members of this body major changes that were 
made to this legislation during the committee drafting process.
  The entire bill has been modified where necessary to make clear that 
restrictions on bringing legal actions based on the antifraud 
provisions of section 10 of the Securities Exchange Act and rule 10b-5 
apply only to private suits, not to SEC enforcement actions. The 
legislation was intended to curb strike suits, not SEC enforcement 
actions, and that is now what it does.
  Similarly, the bill has been modified to apply only to implied 
actions under section 10b, and does not override other sections of the 
securities laws that provide their own express causes of action. Strike 
suits are almost always brought under section 10, and actions based on 
other sections of the securities laws have not been a problem.
  The intentional fraud-only standard of H.R. 10 has been modified. 
H.R. 1058 provides for actions based on misrepresentations or omissions 
done recklessly, but a defendant found reckless can only be held for 
the proportionate share of his liability. The definition of 
recklessness is based, in part, on language taken from the leading case 
in this area. Intentional fraud will still bring joint and several 
liability, as well it should. Anyone who intentionally breaks the law 
should know that he will be responsible for all damages that flow from 
his actions.
  The bill preserves the principle of ``fraud on the market'' by 
removing the obligation in H.R. 10 to prove reliance in each instance 
of misrepresentation. Existing case law allowing plaintiffs to meet 
their obligation of showing reliance by relying on the market price 
will be codified for the first time. Members who seek to apply fraud on 
the market to all securities and not just those with liquid markets do 
not understand the legal principle and economic theories that underly 
the legislation.
  The provision governing fee shifting, ``Loser Pays,'' has been 
modified significantly under the terms of H.R. 1058. The prevailing 
party can recover his costs only if he can prove that the losing 
party's case was without substantial merit, and that imposing those 
costs on the loser will not be unjust to either side. This entire 
provision applies to judgments; if a case is settled, it does not 
apply.
  One thing has not changed. H.R. 1058 addresses the same issue as H.R. 
10 did, that is, the crying need to reform the process by which 
securities class actions are litigated. H.R. 1058 is a refinement of 
H.R. 10, brought about by debate and consultation between many Members 
on both sides of the aisle. I urge its support by all Members of the 
House.
  Mr. Chairman, I reserve the balance of my time.
  Mr. MARKEY. Mr. Chairman, I yield myself 6 minutes.
  Mr. Chairman, what I would like to do to help all those who are 
trying to decide how they are going to vote here today is to perhaps 
assist them by applying a multiple choice test, so that people can 
choose themselves, as we go through the test, which they think would be 
the correct answer.
  Let me begin by asking which one of these four categories would be 
hurt by H.R. 1058: A, insider traders; B, fraudulent derivative 
brokers; C, wrongdoer accountants; or D, fraud victims.
  The correct answer there is D, fraud victims would in fact be harmed, 
because it is going to essentially cripple the ability of private fraud 
actions to be brought by individual investors who have in fact had 
their life savings ripped off by investors, by companies that have 
misled them in their investment strategy.
  Next question: out of the 235,000 suits filed in 1994, how many were 
securities fraud cases in this country: A, 31,800 out of the 235,000; 
B, 9,500; C, 18,670; D, 290, 290 out of the 235,000 cases. The correct 
answer is 290 cases in the securities fraud area.
  The next question, by what percentage have securities fraud class 
actions increased over the last 20 years in our country: A, a 150-
percent increase; B, a 100-percent increase; C, a 50-percent increase; 
D, minus 4.3-percent. The correct answer is D, a 4.3-percent decrease 
in securities fraud actions brought over the last 20 years.

                              {time}  1630

  Next question, just trying to be helpful:
  Out of the 14,000 public companies, how many were sued each year on 
average in securities fraud class actions over the last several years?
  A. 7,000 public companies sued each year.
  B. 3,500 public companies sued each year.
  C. 1,400 companies in America sued each year.
  D. 125 companies sued for fraud each year in the United States.
  The correct answer, D, only 125 companies are sued each year in the 
United States for securities fraud.
  Next question:
  Which is H.R. 1058's solution to the derivatives crisis facing dozens 
of municipalities and other counties in the United States?
  A. Improve the supervision and regulation of derivatives dealers.
  B. Strengthen fraud liability.
  C. Increase customer protections.
  D. Make it virtually impossible for victims to recover their losses 
from fraudulent brokers.
  The answer, D, make it impossible for all intents and purposes for 
there to be a recovery when individuals have been injured.
  Next question:
  Which one do the English not like?
  A. Tea.
  B. Soccer.
  C. Fish and chips.
  D. The English rule.
  The correct answer is the English rule. they do not like the English 
rule in England.
  Economist, the leading conservative periodical in that country, last 
month editorialized against the English rule arguing that the American 
rule is a better rule if ordinary individuals are to be compensated for 
harm which has befallen them because of fraudulent activity in the 
financial marketplace.
  Next question:
  Which is not a defense to securities fraud under H.R. 1058?
  A. The plaintiff did not plead specific facts of my state of mind.
  B. The plaintiff did not read on line 12 of page 68 of the prospectus 
where I made my fraudulent misrepresentation.
  C. Sorry, I forgot the truth.
  D. None of the above.
  The answer, D.
  H.R. 1058 requires plaintiff's complaints to make specific 
allegations which, if true, would be sufficient to establish scienter 
as to each defendant 
[[Page H2761]] at the time the alleged violation occurred. In addition, 
it is expressly made insufficient for this purpose to plead the mere 
presence of facts inconsistent with a statement or omission alleged to 
have been misleading.
  Next question:
  How much will H.R. 1058 reduce the Federal budget?
  A. By $100 million.
  B. By $50 million.
  C. By zero.
  D. It will increase it by up to $250 million over the next 5 years.
  The answer, D, it will increase the Federal deficit by $250 million 
according to the Congressional Budget Office because of the needed 
additional enforcement by the Securities and Exchange Commission out in 
the financial marketplace.
  Finally, under H.R. 1058, who will pay fraud victims the share of the 
damages caused by the primary wrongdoer who is in jail or bankrupt?
  A. The reckless wrongdoers who participated in the fraud.
  B. Aiders and abetters in the fraud who helped to make it possible.
  C. The accountants who claim they forgot to disclose the fraud.
  D. Nobody.
  The answer is, D, nobody else would have to pay if somebody lost 
their life's fortune after being misled into a terrible investment with 
information which was completely and totally erroneous.
  That is the problem we have with this bill. We hope that as we move 
into the specific amendments that those who are concerned about 
integrity and honesty in the financial marketplace will support some of 
the amendments we have to improve the bill.
  Mr. BLILEY. Mr. Chairman, for purposes of debate only, I yield 5 
minutes to the gentleman from Texas [Mr. Fields], chairman of the 
Subcommittee on Telecommunications and Finance.
  (Mr. FIELDS of Texas asked and was given permission to revise and 
extend his remarks.)
  Mr. FIELDS of Texas. Mr. Chairman, I begin with a quiz of my own.
  Were the remarks of my friend:
  A. Inaccurate.
  B. Misleading.
  C. Entertaining.
  D. Good-natured.
  I think the answer is ``all of the above,'' and we are going to have 
plenty of time to debate this.
  I rise in support of H.R. 1058, the Securities Litigation Reform Act. 
This legislation revolutionizes the standard by which all disputes 
under securities laws will be litigated.
  For example, the Securities Litigation Reform Act will introduce the 
concept of proportional liability into the Federal securities laws for 
the first time. A defendant may be liable for joint and several damages 
only if found to have acted knowingly. Defendants found liable for 
recklessness will be held proportionately liable. A person will be 
liable for all the damages he causes but only the damages that person 
causes. The concept is common sense and so simple one must wonder why 
it was not adopted long ago.
  Arguably, the adoption of proportional liability alone is the most 
significant development in private securities litigation in the 61 
years since the Federal securities laws were passed. This provision 
alone will go a long way toward eliminating strike suits, in that deep-
pocket defendants will no longer be subject to the same coercive 
pressure to settle. By the adoption of this provision, we will 
eliminate the abuses of the current system that amount to a 
socialization of the risk. More importantly, Congress should do 
everything it can to ensure that the constitutional right of wrongly 
accused defendants, yes, even corporate defendants, to have an 
opportunity to defend themselves in court is protected. The costs of 
defending frivolous lawsuits today prevents that from happening. 
Proportional liability is a reform that will help accomplish this 
objective.
  It is impossible to review the impact of spurious litigation and the 
abuses possible within the current securities class action system and 
not realize how important this bill is for the economic welfare of our 
country.
  Critics of this legislation will tell us that private securities 
litigation is a critical addition to an effective enforcement program 
at the Securities and Exchange Commission. We agree, but surely 
frivolous lawsuits are not a necessary part of the Securities and 
Exchange Commission enforcement mechanism. Lawsuits brought solely for 
the purpose of coercing settlements out of deep-pocket defendants have 
no place in our law enforcement mechanism.
  The frightening implication of the arguments of opponents of 
litigation reform is that everything is just fine the way it is. They 
see strike suit lawyers bringing lawsuits as a regulatory device that 
should be encouraged to promote market efficiency. We on this side of 
the aisle could not disagree more. We believe the only justifiable 
purpose for a lawsuit is to recover damages for people who have been 
injured. Academic studies of class action strike suits, however, show 
that even successful plaintiff shareholders recover just pennies on the 
dollar. The lawyers without clients who bring these suits take home 
millions of dollars in fees. Strike suits do not contribute to market 
efficiency. They contribute to affluent lifestyles of strike suit 
lawyers.
  H.R. 1058 is dramatic, it is revolutionary legislation because that 
is what is necessary. The old ways of doing things are just not 
working. The bill provides that the losing party, his attorney or both 
will pay the prevailing party's legal fees if a court enters a final 
judgment against them. The court has discretion not to award fees if 
the losing party establishes that its position was substantially 
justified. The court will require the attorney, the class, or both to 
post security for costs to ensure that funds are available to pay the 
legal fees if they are awarded. This section represents a compromise 
from the original ``loser pays.'' It will be a powerful deterrent to 
the filing of frivolous suits. It will also ensure that successful 
plaintiffs receive a full recovery of their damages and that successful 
defendants do not suffer injury from having been wrongly accused.
  Some provisions in this legislation are not revolutionary but just 
good public policy. For the first time in the securities laws, a 
standard for reckless conduct is defined. Similarly for the first time 
the Federal securities laws have been modified to specifically allow 
proving reliance by demonstrating a fraud on the market, that that has 
occurred. Finally, the bill creates a safe harbor for forward looking 
statements issued by companies so that they need not fear litigation if 
projections they make in good faith do not turn out as expected.
  H.R. 1058 is a breakthrough piece of legislation. I urge the support 
of all my colleagues.
  Mr. MARKEY. Mr. Chairman, I yield 5 minutes to the gentleman from 
Louisiana [Mr. Tauzin].
  (Mr. TAUZIN asked and was given permission to revise and extend his 
remarks.)
  Mr. TAUZIN. Mr. Chairman, a good legal system is not one that is 
measured by the number of lawsuits that are filed. It is not one 
measured by the length of those lawsuits, about how many judgments are 
rendered. Quite the contrary. A good legal system is one that deters 
bad behavior and, therefore, leads to fewer lawsuits. It is one in fact 
that encourages settlements of merited cases rather than the massive 
settlement of all cases regardless of merits.
  On that test, this legal system we are trying to reform today is a 
rotten one. The gentleman from Massachusetts has told you that there 
were only a few cases filed. Let me give Members the facts.
  In 1993, there were 723 of these cases pending, more than any other 
year except 1974. In fact, in the last 4 years, from 1990 to 1993, 
there have been 1,180 of these cases filed and that is almost equal to 
the number filed in the 10 previous years. Many more lawsuits. While 
Federal lawsuits are generally declining by 30 percent, these lawsuits 
are up by 10 percent.
  Second, these lawsuits are not sailboats sailing on the ocean of 
litigation. These are massive carriers, massive lawsuits. The 723 cases 
pending today estimated request $28.9 billion in damages. These are 
huge lawsuits that clog up the system and that send a message out to 
everybody across America that the lawsuits are waiting for you the 
first time your stock prices drop.
  The ripple effect of these lawsuits is massive. To businesses sued 
and those 
[[Page H2762]] not sued, the message is simple: ``Don't tell investors 
anything about your company because anything you say will be held 
against you in a lawsuit filed by lawyers who xerox the claims, appoint 
their own clients and get a lawsuit going worth billions of dollars in 
which most of the parties end up settling at 10 cents on the dollar.''
  Let me ask Members something: When 93 percent of these cases never 
reach a jury, when most of them are settled for 10 cents on the dollar, 
do you not get the impression I get, that this is a system where merit 
does not matter, everybody settles all the time?
  Why? Because these are massive lawsuits and merit does not count. The 
liability is so huge, the shotgun effect of the lawsuit against all 
parties is so dramatic, the damages claimed is so huge that the 
temptation is to get out of it as fast as you can, 10 cents on the 
dollar, take care of the lawyer, do not worry about the stockholders, 
is the way this system works.
  This is a bad legal system. And when we are told, as we are told, 
that only 6 cents on the dollar ends up being recovered for 
stockholders under this system, you and I ought to be deeply concerned 
about it. It means that real fraud is not being prosecuted. It means 
that meritless cases are filed and stockholders get nothing, but a few 
big law firms in America are doing quite well.
  When you have that kind of a system where merit does not matter, 
where lawsuits are filed on a Xerox machine, where one lawyer in 
California says, ``I have the best law practice in America, I have no 
clients,'' he just names whoever he wants to represent the class and 
files a lawsuit.
  When you have professional plaintiffs appearing time after time on 
these lawsuits and bounties, legal bounties paid in order to get these 
lawsuits going, when you have got that kind of a system, is not time to 
reform it?
  For 4 years now, I have been asking this Congress to do that and I am 
delighted today we will have that chance. As we debate amendments over 
the next 8 hours, let me tell Members that we have tried to accommodate 
concerns. We have tried to bring this bill this year as close as we can 
to the Dodd-Domenici bill of last year and to the Tauzin bill of last 
year that got 182 cosponsors, 67 Democrats to cosponsor it.
  We will see when this debate is over an awful lot of Members on both 
sides of this aisle voting for this measure. We will improve it in the 
process in the next 8 hours. It will be a better bill, closer to the 
bill that we offered last year and the year before. I am proud to tell 
Members the coalition that I have been working with has endorsed this 
bill and the effort to improve it is still on this floor. We will join 
with many other Democrats in a bipartisan effort to improve this 
section of the law.
  When we are through, we are going to have a statute that discourages 
fraud because it counts on real merited cases to be filed, and it 
counts on them to be brought to fruition and the guilty parties 
punished. It will be a system that discourages frivolous, shakedown 
strike lawsuits that benefit no one in this country except the few law 
firms who make a havoc of our legal system and a ton of money over it.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 7 minutes to the gentleman 
from California [Mr. Cox], one of the principal authors of the 
legislation.
  Mr. COX of California. Mr. Chairman, it is frequently said that 
lawyers are turning America into a nation of victims. Thanks to the 
trial bar which makes its living fanning these flames, not only real 
injuries but every imaginable harm is now compensable in court, except 
one; the one category of injury for which there is seemingly no 
recompense is injury inflicted by lawyers themselves.
  What is the remedy for the ruinous economic losses, the delays, and 
the sheer misery caused by the fraudulent abuse of our laws, in 
particular of our securities laws? The answer is none. None. Fraudulent 
securities litigation may be the most egregious instance of this cure 
today. It is a legal torture chamber for plaintiffs and defendants 
alike, more suitable to the pages of Charles Dickens' ``Bleak House'' 
than a nation dedicated to equal justice under law.
  The current system of private securities litigations is an outrage 
and a disgrace. It cheats both the victims of fraud and innocent 
parties by lavishly encouraging meritless cases, it has destroyed 
thousands of jobs, undercut economic growth and American 
competitiveness and raised the prices every American pays for goods and 
services.
  It mocks the many victims of real fraud who receive pennies on the 
dollar while the lawyers take millions. The only beneficiaries are the 
lawyers. Their clients typically get a pittance for their claims.
  Who are the victims of these strike suits which are brought to 
generate settlement value, which are brought in order to generate a 
nuisance value so that the lawyers can be paid simply to stop their 
harassment? First and foremost, victims of this kind of system are the 
victims of real fraud.The current system herds them into powerless 
classes of plaintiffs who are completely under the thumb of strike suit 
lawyers. The class members do not even have the chance to participate 
personally; oftentimes they are not even identified until very late in 
the proceedings.
  Earlier today we heard from a company in Arlington, VA, just across 
the river from the Capitol, who spent hundreds of thousands of dollars 
responding to one of these strike suits generated for the purpose of 
making the company pay the lawyers to go away. The class representative 
that was selected by these lawyers as the most representative of all of 
the plaintiffs finally sent a postcard to the company and ended it this 
way by saying, ``I did not know the lawyer was going to do this; he 
talked to my wife. He acted against my wishes. I was in the hospital at 
the time. I like your company.''
  That is the degree to which class action lawyers are able to control 
this kind of litigation. The lead plaintiffs who supposedly represent 
the victims' interests are not average investors. As often as not the 
so-called lead plaintiffs are virtually employees of the counsel. As 
one of the leading attorneys in this area once put it, and as the 
gentleman from Louisiana [Mr. Tauzin] so eloquently reminded us, he 
said, ``I have the greatest practice of law in the world. I have no 
clients.'' That is the way class action securities strike suit lawyers 
view their opportunity to harass ordinary investors.
  The same stable of tame lead plaintiffs appears in case after case. 
That is why our bill puts a limit on the number of suits that 
professional plaintiffs can bring to five in every 3 years.
  How bad is this problem? Harry Lewis has appeared
   as lead plaintiff in an estimated 300 to 400 lawsuits. Rodney 
Shields has been in over 80 cases. William Weinberger has appeared in 
90 cases just since 1990. One court recently called one of these 
professional plaintiffs the unluckiest investor in the world. 
Obviously, a wry sense of humor, that judge.

  With the lawyers in charge of the litigation, it is little wonder 
they manage to benefit their own interests at the expense of their 
clients. Many recent studies have shown that the current system 
encourages strike suits lawyers to ignore even overwhelming cases of 
fraud. Flagrant cases that should lead to 100 percent recovery are 
instead settled for cents on the dollar while the lawyers get millions 
in settlement fees.
  Even when the fraud victims get a full recovery the current winner-
loses system unique to America still ensures they will never get fully 
compensated. Their attorneys' fees and costs come right off the top. 
And because the plaintiffs' lawyers, not the victims, control the 
litigations, they make sure those attorneys' fees are top dollar no 
matter how meager their clients' recovery.
  The current system ensures that investors will suffer ever more 
avoidable losses in the future. Even good faith reasonable predictions 
about the future events of a company's prospects are penalized under 
the current securities laws. The threat of lawsuits over so-called 
forward looking information, how is this company going to do in the 
future, is so serious that many if not most CEO's these days refuse to 
talk to the press at all about their company's performance and yet that 
is exactly the kind of information the market needs to operate. How a 
company has performed in the past is interesting, but everybody wants 
to know what is going to happen from here forward. 
[[Page H2763]] That is the information the market seeks out. Because 
the market is after that information they are now getting it through 
the black market and under the table. We would like to make sure that 
it is quality information, that a reasonable statement made in good 
faith should be available and should come from the source.
  Strike suits claim virtually every American as a victim. Most 
particularly by this I mean ordinary workers and consumers all are 
victims of the heavy litigations tax levied by strike suit lawyers. The 
tens of millions of dollars siphoned off each year by strike suits 
represents thousands of workers not hired, new products delayed or 
canceled outright and vital research that will never be done, and price 
increases imposed on consumers. This tax will fall most heavily on 
high-tech biotechnology and other growth companies, the very industry 
most critical to American competitiveness.
  One out of every four strike suits targets high-tech companies. High-
tech and biotech companies have paid 40 percent of the costs of strike 
suit settlements handing out some $440 million, however, over the last 
2 years alone.
  Strike suits claim a last category of victims: tens of millions of 
Americans who have invested in securities through their labor union 
pension funds, ESOP's or their individual mutual fund. They suffer 
twice. They suffer whenever price fluctuation triggers the suit, and 
they suffer again through the costs of litigating and settling the 
strike suits that follow.
  The current system is not protecting them; our legislation will.
  Mr. MARKEY. Mr. Chairman, I yield 2 minuted to the gentlewoman from 
California [Ms. Eshoo].
  Ms. ESHOO. Mr. Chairman, at the first Committee on Commerce hearing 
on this issue I stated that our final objective must be the Congress 
must pass and the President should sign into law legislation which 
provides relief from meritless lawsuits and do it this year. Let me 
state the plain facts. Meritless lawsuits are crippling our high-
technology industry. They cost money, they cut investment and stifle 
initiative. They must be stopped.
  Twenty-six of the 40 largest high-tech companies in Silicon Valley 
have been sued. In fact I think if you place them all in the room, all 
of the players in Silicon Valley, the only difference between them is 
those that have sued and those that will be.
  H.R. 1058 attempts to stop these suits and I commend my colleagues 
for bringing this issue to the floor. We share the same goal of ending 
frivolous lawsuits.
  In my view, in the effort to right the wrongs, many of the reform 
proposed by H.R. 1058 go too far. By eliminating such protections as 
the recklessness standard for fraud, this legislation would strip the 
ability of shareholders with legitimate claims, let me underscore that 
again, with legitimate claims to go to court.
  Just yesterday the White House called H.R. 1058 ``manifestly 
unfair,'' and the chairman of the SEC, Arthur Levitt, has said the 
Commission cannot support the bill. That is why it is being debated, 
that is why it has been brought to the floor, and that is why there are 
many key amendments that will be offered to improve the bill.
  So Mr. Chairman, high technology businesses should not have to wait 
another year. They need relief now.
  Recently I introduced legislation, H.R. 675, along with my colleague, 
the gentleman from California, Mr. Norm Mineta, who is my next-door 
neighbor and represents part of the Silicon Valley, which mirrors the 
broad bipartisan legislation introduced again this year by Senators 
Dodd and Domenici. I believe H.R. 675 will put an end to frivolous 
suits while protecting investors' rights. This bill, I believe, 
protects investors' rights and is a bill which ultimately I think will 
break a legislative stalemate which would only delay protection for our 
high technology community.
  We must craft a piece of legislation that stops the frivolousness and 
yet still protects shareholders and investors, and the bill before us 
today I think is a step in the right direction.
  In my view, the balance of the work still remains to be done. As H.R. 
1058 advances through the legislative process, our objective again must 
be to end meritless lawsuits quickly and efficiently and with fairness, 
and I think that is an operative word.
  Mr. Chairman, my constituents need and deserve relief, and I look 
forward to working on producing that for them.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 2 minutes to the 
distinguished gentleman from Ohio [Mr. Gillmor].
  Mr. GILLMOR. Mr. Chairman, I thank the gentleman for yielding time to 
me, and I rise in support of H.R. 1058, the Securities Litigations 
Reform Act.
  This week we are going to be debating a number of important legal and 
economic issues, and one of the most critical will be finally 
addressing the explosion of abusive and speculative litigation known as 
``strike suits.'' For too many years American high technology and 
manufacturing companies have faced the unreasonable risk and threat of 
litigation at the cost of higher product prices, diminished earnings 
shareholder returns, reduced capital investment, and a less vibrant 
American economy.
  As a result many people are not willing to serve on the boards of 
directors of these companies. Many companies, even where there is no 
fraud and no negligence committed, are faced with the tremendous cost 
of litigations. It also makes companies far less willing to disclose 
useful and valuable information to the public. Such abuses simply 
cannot be allowed to continue unchecked.
  Robert Samuelson, a noted economist, pointed out the huge increase in 
legal costs in our society. Over a 22-year period legal fees as a 
percent of the gross national product increased nine-tenths of 1 
percent to 1.7 percent, nearly double.
  When you consider that 3 or 4 percent is considered good growth in 
the economy, and you drain off 1.7 percent in nonproductive fees of 
this sort, it is clear the tremendous harm that it does to our economy, 
the harm it does to jobs and to the standard of living of the average 
working American.
  Let me close by quoting from Jim Kimsey, who represents the American 
Electronic Association, before the Telecommunications Committee.
  Of the explosion in securities litigation he said: ``We believe the 
current securities litigation system promotes meritless litigation, 
shortchanges investors, and costs jobs. It is a showcase example of the 
legal system run awry. It is bad law, bad policy, and bad economics.''
  Mr. Chairman, the time has come to act and pass securities reform 
litigation.
  Mr. MARKEY. Mr. Chairman, I yield 5 minutes to the gentleman from 
Michigan [Mr. Dingell] the ranking minority member of the full 
committee.
  (Mr. DINGELL asked and was given permission to revise his remarks.)
  Mr. DINGELL. Mr. Chairman, I ask unanimous consent to use a modest 
display.
  The CHAIRMAN. Is there objection to the request of the gentleman from 
Michigan?
  There was no objection.
  Mr. DINGELL. Mr. Chairman, there are ways of cleaning up the abuses 
that exist with regard to citizens' suits regarding securities. But 
this legislation is not the way that it should be done.
  My colleagues on the Republican side would have us believe that the 
securities industry and the marketplaces of this country are some kind 
of kindergarten or perhaps a cloistered nunnery where nothing that is 
good for us is brought out. No, sir, nothing could be further from the 
truth. The hard fact of the matter is this is the place where rascals 
and rogues go to plunder the American people, honest investors who 
invest their life savings and that is all. And this legislation, while 
it might correct abuses of which the other side complains, will also 
strip law-abiding citizens of their rights to litigate where wrongdoing 
has been done to them and where their assets have been stolen by 
wrongdoing.

                              {time}  1700

  This is not a handout from the trial lawyers. This is a prestigious 
business publication. It says, ``Can you trust your broker?'' The 
answer is you may be able to, but you may not. It is inside the 
publication, and I would commend it to the reading of my colleagues.
  Look at some of the things that have had happened recently in the 
securities industry, and you will understand why 
[[Page H2764]] it is that this is bad legislation: a billion-dollar 
collapse of Barings investment banking firm in England. The lawsuits 
against the perpetrators of that wrongdoing would have probably been 
sheltered by this legislation. Similarly, the $2 billion collapse of 
Orange County investments that led that county to declare bankruptcy 
probably would be sheltered by this legislation. Limited partnership 
fraud so far has cost Prudential Securities better than $1 billion. 
Twelve billion dollars in litigation in a fraud case against Drexel 
Burnham Lambert; the case was settled for $3 billion, no shakedown by 
trial lawyers, but action by the Federal Government.
  How about the securities fraud and insider trading scandals 
perpetrated by Ivan Boesky, Dennis Levine, Martin Siegel and others on 
Wall Street?
  What about some other splendid securities frauds which probably would 
have been sheltered under this legislation? Lincoln Savings and Loan, 
Charlie Keating and his cohorts; they sold worthless bonds to the 
elderly in bank lobbies; Washington Public Power Supply System, a 
massive default of $10 billion and more in bonds, led to a class-action 
lawsuit which resulted in more than an $800 million settlement, 
probably would have been proscribed under the legislation that we are 
addressing. In Salomon Brothers, a group of elite institutions worked 
together to raid government bonds auctions; probably lawsuits would 
have been banned under the legislation we are talking about. At 
Miniscribe, the company shipped bricks in boxes instead of hard disk 
drives, or at Phar-Mor, where executives maintained two sets of books 
so that as much as $1 billion could be diverted for personal interests. 
Those are some of the better.
  But you know that in some 35 other communities other than Orange 
County, some publicly supported institutions also reported massive 
losses in 9 months, these because of exotic derivatives, and it goes on 
and on, Kemper Financial Services, which was recently charged by the 
SEC with illegally diverting stock trades for the benefit of its own 
profit-sharing plan. Kemper settled a similar charge earlier with the 
SEC for $10 million. We do not know how much they are going to come up 
with on this one.
  The Wall Street Journal reported the SEC charged more than a dozen 
individuals and companies with wireless cable fraud bulking 3,000 
investors out of $40 million. On February 27, the Journal and the Times 
reported Hanover, Sterling & Co., a brokerage company, was ordered to 
cease all operations. Why? Because thousands of investors in the 16 
stocks to which the firm was a market-maker suffered massive losses 
ranging from 57 percent to 80 percent when the shutdown was reported.
  Business Week on February 20 said, ``Can you trust your broker?'' The 
answer, as I have said, was not reassuring. It says a rising wave of 
cynicism, both inside and outside the industry on widely accepted ways 
of doing business at the largest and most prestigious firms.
  What we are talking about here is legislation that has been offered 
by my Republican colleagues that shelters wrongdoing. It does not only 
protect innocent people against strike suits, but it requires, for 
example, that in pleading, a pleader has to prove what was going on 
inside the head and the mind of the wrongdoer, and the question then 
is, what is the representative of the hurt litigant? Is it a lawyer? Is 
it a psychic or is it a psychiatrist?
  This is outrageous legislation and should be rejected.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 1 minute to the 
distinguished gentleman from Colorado [Mr. Schaefer].
  (Mr. SCHAEFER asked and was given permission to revise and extend his 
remarks.)
  Mr. SCHAEFER. Mr. Chairman, I rise today in support of H.R. 1058, the 
Securities Litigation Reform Act.
  As a member of the Telecom and Finance Subcommittee, I have long 
supported similar legislation to fix our broken securities litigation 
system. The system is broken for defrauded investors who recall and 
recover only a small amount of their losses when part of valid cases. 
The system is broken for businesses, especially the startup high-tech 
firms who rely on capital markets for financing. And it is broken for 
the general public who ultimately must pay the price of frivolous 
litigation in the form of slower economic growth, fewer jobs, and 
higher prices.
  It is very clear we have a serious problem. I say to my colleagues, 
strike a blow for our small businesses and startup enterprises. Support 
H.R. 1058.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 2 minutes to the gentleman 
from Iowa [Mr. Ganske].
  Mr. GANSKE. Mr. Chairman, I rise today in strong support of H.R. 
1058.
  We must end abuse that is eroding our legal system. As stated by SEC 
Chairman Arthur Levitt, private actions are intended to compensate 
defrauded investors and deter securities violations.
  If the current system fails to distinguish between strong and weak 
cases, it serves neither purpose effectively. I could not agree more.
  Unfortunately, this is precisely with what we are left today, an 
ineffective system.
  The changes mandated by this legislation would help restore 
responsibility and respectability to our corporate system. First, the 
provision that imposes loser-pays rules when the court determines the 
position of the losing party was not substantially justified are 
warranted. This would prevent the consummate race to the courthouse. 
Plaintiffs will have to weigh the merits of the case before filing 
suit. Opponents claim this will have a chilling effect on plaintiffs' 
right to sue. This is simply not the case.
  The modified loser-pays provision will only result in fee shifting in 
cases that should not have been
 brought in the first place. The only thing chilled by this provision 
would be meritless suits which I believe deserve to be put in the deep 
freeze.

  Second, as for the definition of recklessness, the current law is 
vague and uncertain. Parties may engage in nearly identical conduct, 
yet courts reach completely different results. The vagueness and 
uncertainty of the current standard has led to a great deal of 
inconsistency, confusion, and unfairness in our judicial system.
  I think all of us would agree that by creating consistency we can 
increase fairness and decrease the probability of injustice in our 
legal system.
  In general, most strike suits under current law do more harm than 
good. Reform is needed for two main reasons. No. 1, proper plaintiffs 
must have a place to redress valid grievances.
  Mr. MARKEY. Mr. Chairman, I yield myself 2 minutes.
  Mr. Chairman, I would just like to point out to my colleagues that 
there are 435 votes in this House to improve class action security 
fraud lawsuits.
  We want to stop the race to the courthouse. We want to sanction 
lawyers who bring frivolous cases or bring them in bad faith.
  But what we really hear from the other side about the virtues that 
our antifraud laws bring to our investors and to our market, we rarely 
hear about the need for a balanced approach to reform. We rarely hear 
the mention of the terrible frauds that have occurred over the last 10 
years, and we never hear assurances from the other side that their 
legislation will not adversely impact these disastrous situations like 
Drexel and Milken and Boesky and Lincoln Savings and Keating and 
Miniscribe and many others.
  If the legislation brought here today was meant to shut down these 
legal firms that take professional plaintiffs and terrorize private 
corporations across this country, I think we can find a consensus. The 
truth of the matter is though the legislation we are considering here 
today shuts down the good suits, the legitimate suits, the suits that 
have to be brought by individuals in this country against Boesky and 
against Milken and against Keating and against all of those S&L scam 
artists that were out there in the 1980's, the scam artists that 
resulted in the U.S. Congress being forced to vote for 100 to 150 
billion dollars' worth of taxpayer dollars in order to insure that 
those who had put their life savings in the S&L's and banks across this 
country did not in fact face bankruptcy.
  Mr. Chairman, I reserve the balance of my time.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 2 minutes to the gentleman 
from Massachusetts [Mr. Blute].

[[Page H2765]]

  Mr. BLUTE. Mr. Chairman, I thank the gentleman, the distinguished 
chairman of the subcommittee, who wrote this legislation.
  Mr. Chairman, the engine of economic growth in this country is under 
assault from some lawyers who give the term ``gone fishing'' an 
entirely new meaning.
  These strike-suit lawyers are trolling for easy money won from 
vulnerable companies whose only crime is being subject to a volatile 
market.
  Entrepreneurial high-tech companies in my State such as EMC Corp. 
based in my district are being hit with strike suits which seek damages 
for loss in stock value. This is a company that has created thousands 
of jobs in the State of Massachusetts. Since going public in 1986, it 
has been the subject of two such suits. One was filed less than 24 
hours after the company disclosed quarterly earnings lower than the 
previous quarter.
  This kind of situation is not unusual. Hundreds of suits are filed by 
lawyers and professional plaintiffs who prey on small high-tech firms 
because their stocks tend to be more volatile and they are more 
inclined to settle.
  In fact, between 1989 and 1993, 61 percent of all strike suits were 
brought against companies with less than $500 million in annual sales, 
and 33 percent against companies with less than $100 million in sales.
  Mr. Speaker, the problem is critical, because these high-tech 
companies are the job-creating innovators, where many of our cutting-
edge products originate. These are companies that are leading our 
export efforts in our economy. Biotechnology companies in my district 
are developing treatments for cancer and AIDS. These kinds of strike 
suits are jeopardizing the development of those life-saving products by 
holding these companies hostage.
  These companies are forced to divert resources, energy, talent, and 
money to fighting these unwarranted strike suits.
  Mr. Chairman, I urge my colleagues to support this bill, and let us 
have a strong growth export economy.
  Mr. MARKEY. Mr. Chairman, I yield 4 minutes to the gentleman from 
Michigan [Mr. Conyers], the ranking minority member of the Committee on 
the Judiciary.
  Mr. CONYERS. Mr. Chairman, I thank the gentleman from Massachusetts 
for yielding to me and commend him on the excellent job that he has 
done today and through the years on this very important subject.
  Ladies and gentlemen, the committee report explaining why this 
legislation is needed talks about the typical case of high-growth, 
high-technology stock which experiences a sudden change in price, 
thereby giving rise to securities lawsuits and a claim for damages by 
shareholders.
  But that is not the type of lawsuit that would be affected by the one 
killer amendment by the gentleman from California who will offer it 
very soon in this debate. By blocking all possibility of civil RICO 
lawsuits for securities fraud, the Cox amendment would incredibly harm 
plantiffs such as the elderly bondholders who were cheated out of their 
life's savings by Charles Keating in the Lincoln Savings and Loan 
debacle. It would deny any effective remedy for the thousands of 
depositors of the Bank of Credit and Commerce International, the 
notorious BCCI, which regulators from 62 countries united to shut down 
because of the bank's fraudulent practices.
  Why an amendment of such a broad sweep that it would prevent lawsuits 
against some of the biggest white-collar criminals in the Nation's 
history, even though the sponsors of the amendment may not have 
intended such a result? The answer is this amendment was hastily put 
together without the benefit of any hearings or debate in any committee 
or the possibility of a markup where there could have been important 
improvements, and now within an 8-hour ambit, we are asked to consider 
the revocation of the greatest single crime-fighting bill provision, 
RICO, on the law books today.

                              {time}  1715

  It is a shame for what is going on now.
  Mr. COX of California. Mr. Chairman, will the gentleman yield?
  Mr. CONYERS. I yield to the gentleman from California [Mr. Cox], who 
is a member of the Committee on the Judiciary, by the way.
  Mr. COX of California. Mr. Chairman, I point out that the RICO 
amendment, which the gentleman is accurate in stating that I will soon 
offer, was in fact inadvertently left out of the bill when we combined 
the Commerce and Judiciary portions. It was in the original bill 
introduced on January 4, also in the original bill of last year and 
introduced and made public as part of the Contract With America in 
October. It has always been in the bill.
  Mr. CONYERS. Well, may I just respond to the gentleman? Could we 
inadvertently leave it out when there were no hearings on it? It was 
mentioned in the bill, but there were a lot of things mentioned in the 
bill. On this pretext, anything that was not put in the bill could have 
been accidentally left out.
  The problem that we have is that the gentleman's amendment is asking 
the Congress in broad daylight to believe that the biggest amendment 
for fighting civil fraud that has ever been put on the books was 
accidentally left out. I guess we accidentally did not have any 
hearings. I guess there accidentally were not any witnesses. I guess 
this was all an accident that needs to be corrected right now.
  If it was an accident, let us go back and do it correctly. The 
provision of this amendment is broader than any attempt at a 
modification of RICO, and the gentleman knows it.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 3 minutes to the gentleman 
from Oklahoma [Mr. Coburn].
  Mr. COBURN. I thank the gentleman for yielding to me.
  Mr. Chairman, something I learned a long time ago from my father that 
I think would do us all well and that is his definition of a good 
lawyer. And a good lawyer is somebody who solves problems rather than 
creates them.
  The legislation that we are considering has in fact addressed an 
issue before us that is causing and wreaking havoc with a large number 
of America's most consistent job-providing industries.
  I believe the American people are sick and tired of those who feed 
off of our system and weaken American competitiveness. They are sick of 
the unscrupulous few who make a mockery of our concept of justice by 
exploiting the legal system for their own personal gain.
  Mr. Chairman, a glitch in the Securities and Exchange Act of 1934, 
called rule 10 B-5, created a new group of parasites known as 
professional plaintiffs. These professional plaintiffs are recruited by 
those who figured out how to exploit our judicial system by filing 
frivolous lawsuits.
  Currently, exploitation of rule 10 B-5 allows these clever few to sue 
companies through the use of professional plaintiffs for fraud whenever 
the price of a stock drops. These professional plaintiffs, or 
parasites, if you will, who hold only a tiny share of stock, launch 
fishing expeditions and rack up formidable discovery fees to force the 
defendants to settle out of court rather than to pay the costs of 
defending themselves. The result has been a threefold explosion of 
securities fraud suits over the last 5 years. One out of every eight 
companies on the New York Stock Exchange has been hit with this type of 
suit. I believe America's economic growth is stifled by such a 
perversion of our legal system by a small handful of lawyers that file 
the lion's share of suits, hitting one in every four high-technology 
firms in our country today. Just nine law firms in this country have 
accounted for two-thirds of the 1,400 class suits filed between 1988 
and 1993.
  The threat that exploitation of rule 10 B-5 poses to our time, our 
peace of mind, and our pocketbooks, the pocketbooks of the average 
American, is immoral and should be illegal.
  I am supporting the Securities Reform Act because it will free 
American Businesses from the ever-present threat of baseless and 
expensive lawsuits. This bill will deter the practice of frivolous 
lawsuits that serve only to line the pockets of those who rob our 
corporations of investment capital and rob them of the resource for 
competitive research and development and ultimately rob us of an 
increased standard of living and high-wage jobs.
  I therefore urge passage of H.R. 1058.
  [[Page H2766]] Mr. MARKEY. Mr. Chairman, I yield 2 minutes to the 
gentleman from Pennsylvania [Mr. Klink].
  Mr. KLINK. I thank the gentleman for yielding this time to me.
  You know, proponents of this so-called securities litigation reform 
are arguing that private securities and class action suits are making 
it virtually impossible for public companies to raise capital and are 
preventing these companies from going public.
  But they will tell you only anecdotes about their friends in big 
business who would prefer not to be sued because they really cannot 
rely on the facts. The facts will show that our markets have been 
tremendously successful in raising capital for public companies. Every 
important statistical measure of the success of our securities markets, 
the number and proceeds of initial public offerings, the volume and 
value of common stock offerings, the volume of trading, have been at 
all-time highs. The number of initial public security offerings has 
risen 9,000 percent in the last 20 years while the proceeds raised have 
skyrocketed 38,000 percent.
  The staff report of the Senate Subcommittee on Securities has found 
that, ``Despite the claims by critics that securities litigation is 
hampering capital formation, initial public offerings have proceeded at 
a record pace in recent years.''
  We all know that recently the Dow-Jones Industrial Averages surpassed 
the 4,000 mark, which is an all-time high. That has to make us all 
wonder how can it be that there is such a serious problem from the 
roughly 300 fraud class action cases filed each year.
  In light of the facts, claims by companies that they are afraid to go 
public to raise capital because of fear of litigation are nothing but 
really self-serving nonsense. If they are really are so concerned about 
litigation, they would not be restricting the minuscule number of 
private securities fraud class actions, they would be restricting the 
huge and increasing numbers of business-versus-business suits.
  As the Rand Corp.'s recent study of the litigation patterns of 
Fortune 1,000 companies demonstrates, by far, is that you are seeing 
many more firms that are suing other firms. As the Wall Street Journal, 
in an article of December 3, 1993, entitled ``Suits by Firms Exceed 
Those by Individuals,'' noted, ``Businesses may be their own worst 
enemies when it comes to the so-called litigation explosion.''
  So why is it that proponents are seeking to limit only private 
actions and not business suits?
  Mr. FIELDS of Texas. Mr. Chairman, I yield 2 minutes to our good 
friend on the other side of the aisle, the gentleman from Virginia [Mr. 
Moran].
  Mr. MORAN. I thank the gentleman for yielding this time to me.
  Mr. Chairman, I do not know if there are others of my colleagues who 
have been stockbrokers at some time in their life, but I was for 10 
years. I have watched what has happened in the securities marketplace. 
The gentleman from Michigan [Mr. Dingell] is absolutely right: There 
are corporate abuses.
  Mr. KLINK, the gentleman from Pennsylvania, is also correct that the 
securities market itself is doing quite well.
  But the fact remains that there is an abuse within this industry that 
does need to be corrected. And it is focused primarily on those firms 
that provide the highest rate of growth to our economy, those firms 
that take the greatest risks, in the area of high-technology.
  Legent Corp., in Herndon, VA, now in Vienna, actually, they had a 
slight change in their earnings expectation, the stock dropped. 
Immediately they were hit with one of those strike lawsuits. They 
required 200,000 pages of documentation, many, many days of very 
valuable employee time was spent, and they wound up settling for $2 
million in legal fees even though it was acknowledged it was a 
frivolous lawsuit.
  Metrix Corp., same thing happened; A small reduction in their 
earnings expectation, the stocks began to drop, and they got hit with a 
strike lawsuit. They had to produce 50,000 documents, 200,000 
electronic messages to the plaintiffs' lawyers, 20 employees had to 
spend full time on this. They wound up settling for $975,000.
  Mr. Chairman, I want you to recognize this: The investors, the 
shareholders got $400 or less. The lawyer got $330,000. That is what 
this is all about. They are fishing expeditions for lawyers who have 
found a way to abuse the system. It should not be tolerated in the 
courts and it should not be tolerated in the Congress.
  Mr. MARKEY. Mr. Chairman, I yield 1 minute to the gentleman from 
Texas [Mr. Bryant].
  Mr. BRYANT of Texas. I thank the gentleman for yielding this time to 
me.
  Mr. Chairman, I was inspired after hearing my friend, the gentleman 
from Virginia [Mr. Moran], for whom I have great respect, enormous 
respect. After I heard him speak, I want to say that he voices the 
sentiments by many of us on this side that we ought to make some 
modifications that deal with the real problems.
  But the bill we have before us today is one of a long line of 
measures that are so extreme, that go so far and that are so, in many 
respects, absurd as to, I think, astonish anyone who is an observer or 
a participant in the system of jurisprudence in America today.
  If the problem was as it has been described by the majority, surely 
the Securities and Exchange Commission would have been here saying so. 
But they came before the committee and did not say that this bill was 
the solution.
  The gentleman from Virginia, [Mr. Moran] quoted anecdotes. There are 
many anecdotes; some of them are right on point. But when you get to 
anecdotes and you look at them carefully, you begin to find that the 
point one wishes to make by using anecdotes begins to fall apart.
  Mr. FIELDS of Texas. Mr. Chairman, I yield 1 minute to the gentleman 
from New York State [Mr. Paxon].
  Mr. PAXON. I thank the gentleman for yielding this time to me.
  Mr. Chairman, I rise in strong support of H.R. 1058. This needed 
legislation strikes at the very heart of the serious problem, the 
strike suits and abusive litigation.
  As we have heard from previous speakers, our capital markets are the 
envy of the world, but that position is being seriously threatened. It 
is threatened by a privileged few, a group of people who are not 
injured in any way, but have found a system for legal extortion, a 
system where all you need is to read stock quotes for a falling stock 
and pair it up with a data base, and there is a comprehensive list of 
ready plaintiffs.
  Mr. Chairman, for far too long this has been going on. It is time to 
stop it and for Congress to approve this important legislation.
  I believe it is a balanced approach that will benefit all Americans.
  It will not eliminate the ability of injured Americans to bring 
claims, but it will stop get-rich attorneys from filing spurious claims 
against companies.
  I am proud of our Committee on Commerce, the work product they have 
put forth, and particularly the work of the gentleman from California, 
Mr. Cox, the gentleman from Texas, Mr. Fields, and the gentleman from 
Virginia, Chairman Bliley.
  Mr. MARKEY. Mr. Chairman, I yield myself the 2 minutes to conclude.
  Mr. Chairman, the cover of NewsWeek just out tells the story: ``The 
boy who lost a billion dollars, Nick Leeson, the 28-year-old trader who 
bankrupted England's oldest investment firm.''
  Now, Nick Leeson is an interesting case. It is not directly on point 
here, except to the extent to which there are Nick Leesons out there 
and they do prey upon innocent investors, they do engage in practices 
that risk the life savings of individuals who believe that the holding 
out, the representation made by the S&L, is in fact accurate.
  Now, with the Dow-Jones Industrial Average rising to 4,000 this week, 
there is unprecedented confidence in the American marketplace, that it 
is honest and efficient, but honest above all.
  That is what our American laws have given assurances to the rest of 
the world over the last 60 years. If you go to Singapore, if you go to 
England, if you go to any other place in the world, you go to a country 
that has lower standards than our country. It is this system of laws 
which we have put in place which has given the reason for individual 
investors to look at the thousands of companies which we have, take 
their savings and put them into these companies that have allowed our 
[[Page H2767]] Dow-Jones Industrial Average to rise to 4,000. That is 
what we should be extremely cautious about as we deal with this issue 
here today.
  Our system works. If we want to deal with rogue lawyers, if we want 
to deal with frivolous law cases let us deal with them, but let us not 
also kid ourselves, there are many here who are interested in ensuring 
that the legitimate cases that have to be brought to protect the public 
are also excluded as well.
  Mr. FIELDS of Texas. Mr. Chairman, I yield myself the remaining 
minute.
                              {time}  1730

  Mr. Chairman, some of the examples we have heard from the other side 
of the aisle, Milken, Keating, Leeson, they all share something 
important. Each of these acted with intent. Each of these acted with 
the intent to defraud.
  The legislation that we are considering today would not affect 
shareholder actions against those people or people like them in the 
future. Those people would be jointly and severally liable. That has 
not changed in our legislation, and, Mr. Chairman, I think that is a 
compelling point in ending this debate.
  Mr. HASTINGS of Florida. Mr. Chairman, while H.R. 10 is called the 
Common Sense Legal Reform Act, the more accurate title would be the 
Citizens' Rights Reduction Act. For more than 200 years, the citizens 
of the United States have possessed the right by their own States to 
hold wrongdoers accountable. Under H.R. 10, such rights would be taken 
away from the citizens of the States. With an apparent Congress-knows-
best attitude, the proponents of this bill want to take away the rights 
of ordinary Americans to hold wrongdoers accountable and to seek fair 
and just compensation when they are wronged. This bill is wrong.
  Mr. HASTERT. Mr. Chairman, I rise in support of H.R. 1058, the 
Securities Litigation Reform Act, a bill that will discourage meritless 
suits.
  There is a securities litigation explosion in this country. In 1993 
we saw the highest number of pending cases in any year for which data 
are available except 1974. Since 1990, filings have increased 
dramatically. The number of cases filed in the 4 years from 1990 to 
1993 nearly equals the number filed in the previous 10 years combined.
  Some argue that H.R. 1058 will hurt investors, but just the opposite 
is true. The current litigation explosion punishes investors because 
companies increasingly fear so called strike suits which are filed each 
time their stock fluctuates. Thus, companies reveal less and less 
information to investors that could be used against them in the future. 
Clearly, investors lose when they do not have access to information 
when making decisions about where to place their life savings.
  Investors are also hurt under current law because they, in reality, 
are the ones who pay the costs when a company has to go to court to 
defend itself against a meritless lawsuit. They also pay the high cost 
of maintaining insurance against these strike suits.
  Finally, investors, who have legitimate claims,
   receive less money than they deserve because it is common practice 
to simply settle out of court. Companies settle out of court, whether 
or not the suit has merit, because it costs an average of $692,000 in 
legal fees and 1,055 hours of management time to successfully defend a 
strike suit. When meritless suits can be dismissed, the cases of real 
fraud will be brought to court. Then, investors will get paid the real 
value of their loss.

  That is just not the case today. Today, investors receive between 6 
and 14 cents on the dollar lost.
  Securities litigation reform will reward investors by removing these 
punishments. However, in addition, specific provisions are included in 
the bill to give investors the same authority over their attorney as 
other clients, in other types of litigation, have. The bill provides 
for a court-appointed steering committee to make sure that lawsuits are 
maintained in the client's best interest. It also requires settlement 
offers to disclose the amount paid to lawyers and class members per 
share of stock. These significant changes favor those investors who 
have legitimate and important suits.
  But investors are not the only ones punished by meritless strike 
suits. High-technology and high-growth companies are also punished. One 
in every eight companies listed on the New York Stock Exchange is hit 
with a strike suit. Even more startling is that one of every four 
strike suits targets these high-growth companies. The average 
settlement, which is over $8.6 million, has, in essence, become a 
litigation tax on these companies.
  Those who have a tangential relationship to these suits, primarily 
the accountants who certify the books, are also punished. The long arm 
of the law has sought to include them, even when there is no fraud on 
their part, just because they have deep pockets.
  It's time that we reform our judicial system so that those who commit 
crimes are the ones who are punished, not those who abide by the law. 
H.R. 1058 will restore integrity to our system and I urge my colleagues 
to join me in voting to pass this important bill.
  The CHAIRMAN. All time for general debate has expired. Pursuant to 
the rule, the bill is considered as having been read for amendment 
under the 5-minute rule.
  The text of H.R. 1058 is as follows:
                               H.R. 1058
       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 ``Securities 
     Litigation Reform Act''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1.  Short title; table of contents.
Sec. 2. Prevention of lawyer-driven litigation.
  (a) Plaintiff steering committees to ensure client control of 
              lawsuits.
  ``Sec. 36. Class action steering committees.
    ``(a) Class action steering committee.
    ``(b) Membership of plaintiff steering committee.
    ``(c) Functions of plaintiff steering committee.
    ``(d) Immunity from civil liability; removal.
    ``(e) Effect on other law.''
  (b) Prohibition on attorneys' fees paid from Commission disgorgement 
              funds.
Sec. 3. Prevention of abusive practices that foment litigation.
  (a) Additional provisions applicable to private actions.
  ``Sec. 20B. Procedures applicable to private actions.
    ``(a) Elimination of bonus payments to named plaintiffs in class 
              actions.
    ``(b) Restrictions on professional plaintiffs.
    ``(c) Awards of fees and expenses.
    ``(d) Prevention of abusive conflicts of interest.
    ``(e) Disclosure of settlement terms to class members.
    ``(f) Encouragement of finality in settlement discharges.
    ``(g) Contribution from non-parties in interests of fairness.
    ``(h) Defendant's right to written interrogatories establishing 
              scienter.''
  (b) Prohibition of referral fees that foment litigation.
Sec. 4. Prevention of ``fishing expedition'' lawsuits.
  ``Sec. 10A. Requirements for securities fraud actions.
    ``(a) Scienter.
    ``(b) Requirement for explicit pleading of scienter.
    ``(c) Dismissal for failure to meet pleading requirements; stay of 
              discovery; summary judgment.
    ``(d) Reliance and causation.
    ``(e) Allocation of liability.
    ``(f) Damages.''
Sec. 5. Establishment of ``safe harbor'' for predictive Statements.
  ``Sec. 37. Application of safe harbor for forward-looking Statements.
    ``(a) Safe harbor defined.
    ``(b) Automatic protective order staying discovery; expedited 
              procedure.
    ``(c) Regulatory authority.''
Sec. 6. Rule of construction.
Sec. 7. Effective date.
     SEC. 2. PREVENTION OF LAWYER-DRIVEN LITIGATION.

       (a) Plaintiff Steering Committees To Ensure Client Control 
     of Lawsuits.--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. CLASS ACTION STEERING COMMITTEES.

       ``(a) Class Action Steering Committee.--In any private 
     action arising under this title seeking to recover damages on 
     behalf of a class, the court shall, at the earliest 
     practicable time, appoint 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.
       ``(b) Membership of Plaintiff Steering Committee.--
       ``(1) Qualifications.--
       ``(A) Number.--A plaintiff steering committee shall consist 
     of not fewer 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 $10,000,000 in market 
     value of the securities which are the subject matter of the 
     litigation; or
     [[Page H2768]]   ``(ii) such smaller percentage or dollar 
     amount as the court finds appropriate under the 
     circumstances.
       ``(2) Named plaintiffs.--Class plaintiffs serving as the 
     representative parties 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, of which prior notice shall have 
     been given and 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 relating to the 
     organization or actions of the plaintiff steering committee.
       ``(c) Functions of Plaintiff Steering Committee.--The 
     authority of 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 authority to accept an offer of 
     settlement subject to final approval by the court. 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.
       ``(d) Immunity From Civil Liability; Removal.--Any person 
     serving as a member of a plaintiff steering committee shall 
     be immune from any civil liability for any negligence in 
     performing such service, but shall not be immune from 
     liability for intentional misconduct or from the assessment 
     of costs pursuant to section 20B(c). The court may remove a 
     member of a plaintiff steering committee for good cause 
     shown.
       ``(e) 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.''.
       (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 by 
     the Commission, or of any Commission proceeding, shall not be 
     distributed as payment for attorneys' fees or expenses 
     incurred by private parties seeking distribution of the 
     disgorged funds.''.

     SEC. 3. PREVENTION OF ABUSIVE PRACTICES THAT FOMENT 
                   LITIGATION.

       (a) Additional Provisions Applicable to Private Actions.--
     The Securities Exchange Act of 1934 is amended by inserting 
     after section 20A (15 U.S.C. 78t-1) the following new 
     section:
               ``procedures applicable to private actions

       ``Sec. 20B. (a) Elimination of Bonus Payments to Named 
     Plaintiffs in Class Actions.--In any private action under 
     this title that is certified as a class action pursuant to 
     the Federal Rules of Civil Procedure, the portion of any 
     final judgment or of any settlement that is awarded to class 
     plaintiffs serving as the representative parties shall be 
     equal, on a per share basis, to the portion of the final 
     judgment or settlement awarded to all other members of the 
     class. Nothing in this subsection shall be construed to limit 
     the award to any representative parties of actual expenses 
     (including lost wages) relating to the representation of the 
     class.
       ``(b) Restrictions on Professional Plaintiffs.--Except as 
     the court may otherwise permit for good cause, a person may 
     be a named plaintiff, or an officer, director, or fiduciary 
     of a named plaintiff, in no more than 5 class actions filed 
     during any 3-year period.
       ``(c) Awards of Fees and Expenses.--
       ``(1) Authority to award fees and expenses.--If the court 
     in any private action arising under this title enters a final 
     judgment against a party litigant on the basis of a motion to 
     dismiss, motion for summary judgment, or a trial on the 
     merits, the court shall, upon motion by the prevailing party, 
     determine whether (A) the position of the losing party was 
     not substantially justified, (B) imposing fees and expenses 
     on the losing party or the losing party's attorney would be 
     just, and (C) the cost of such fees and expenses to the 
     prevailing party is substantially burdensome or unjust. If 
     the court makes the determinations described in clauses (A), 
     (B), and (C), the court shall award the prevailing party 
     reasonable fees and other expenses incurred by that party. 
     The determination of whether the position of the losing party 
     was substantially justified shall be made on the basis of the 
     record in the action for which fees and other expenses are 
     sought, but the burden of persuasion shall be on the 
     prevailing party.
       ``(2) Security for payment of costs in class actions.--In 
     any private action arising under this title that is certified 
     as a class action pursuant to the Federal Rules of Civil 
     Procedure, the court shall require an undertaking from the 
     attorneys for the plaintiff class, the plaintiff class, or 
     both, in such proportions and at such times as the court 
     determines are just and equitable, for the payment of the 
     fees and expenses that may be awarded under paragraph (1).
       ``(3) Application for fees.--A party seeking an award of 
     fees and other expenses shall, within 30 days of a final, 
     nonappealable judgment in the action, submit to the court an 
     application for fees and other expenses that verifies that 
     the party is entitled to such an award under paragraph (1) 
     and the amount sought, including an itemized statement from 
     any attorney or expert witness representing or appearing on 
     behalf of the party stating the actual time expended and the 
     rate at which fees and other expenses are computed.
       ``(4) Allocation and size of award.--The court, in its 
     discretion, may--
       ``(A) determine whether the amount to be awarded pursuant 
     to this section shall be awarded against the losing party, 
     its attorney, or both; and
       ``(B) reduce the amount to be awarded pursuant to this 
     section, or deny an award, to the extent that the prevailing 
     party during the course of the proceedings engaged in conduct 
     that unduly and unreasonably protracted the final resolution 
     of the action.
       ``(5) Awards in discovery proceedings.--In adjudicating any 
     motion for an order compelling discovery or any motion for a 
     protective order made in any private action arising under 
     this title, the court shall award the prevailing party 
     reasonable fees and other expenses incurred by the party in 
     bringing or defending against the motion, including 
     reasonable attorneys' fees, unless the court finds that 
     special circumstances make an award unjust.
       ``(6) Rule of construction.--Nothing in this subsection 
     shall be construed to limit or impair the discretion of the 
     court to award costs pursuant to other provisions of law.
       ``(7) Protection against abuse of process.--In any action 
     to which this subsection applies, a court shall not permit a 
     plaintiff to withdraw from or voluntarily dismiss such action 
     if the court determines that such withdrawal or dismissal is 
     taken for purposes of evasion of the requirements of this 
     subsection.
       ``(8) Definitions.--For purposes of this subsection--
       ``(A) The term `fees and other expenses' includes the 
     reasonable expenses of expert witnesses, the reasonable cost 
     of any study, analysis, report, test, or project which is 
     found by the court to be necessary for the preparation of the 
     party's case, and reasonable attorneys' fees and expenses. 
     The amount of fees awarded under this section shall be based 
     upon prevailing market rates for the kind and quality of 
     services furnished.
       ``(B) The term `substantially justified' shall have the 
     same meaning as in section 2412(d)(1) of title 28, United 
     States Code.
       ``(d) Prevention of Abusive Conflicts of Interest.--In any 
     private action under this title pursuant to a complaint 
     seeking damages on behalf of a class, if the class is 
     represented by an attorney who directly owns or otherwise has 
     a beneficial interest in the securities that are the subject 
     of the litigation, the court shall, on motion by any party, 
     make a determination of whether such interest constitutes a 
     conflict of interest sufficient to disqualify the attorney 
     from representing the class.
       ``(e) Disclosure of Settlement Terms to Class Members.--In 
     any private action under this title that is certified as a 
     class action pursuant to the Federal Rules of Civil 
     Procedure, any settlement agreement that is published or 
     otherwise disseminated to the class shall include the 
     following statements:
       ``(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 likelihood that the 
     plaintiff would prevail on the claims alleged under this 
     title and a brief explanation of the reasons for that 
     conclusion.
       ``(B) Disagreement on amount of damages or likelihood of 
     prevailing.--If the 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) concerning 
     the amount of damages and the likelihood of prevailing shall 
     not be admissible for purposes of any Federal or State 
     judicial action or administrative proceeding.
       ``(2) Statement of attorneys' fees or costs sought.--If any 
     of the settling parties 
     [[Page H2769]] or their counsel intend to apply to the court 
     for an award of attorneys' fees or costs from any fund 
     established as part of the settlement, a statement indicating 
     which parties or counsel intend to make such an application, 
     the amount of fees and costs that will be sought (including 
     the amount of such fees and costs determined on a per-share 
     basis, together with the amount of the settlement proposed to 
     be distributed to the parties to suit, determined on a per-
     share basis), and a brief explanation of the basis for the 
     application. Such information shall be clearly summarized on 
     the cover page of any notice to a party of any settlement 
     agreement.
       ``(3) Identification of lawyers' representatives.--The name 
     and address of one or more representatives of counsel for the 
     class who will be reasonably available to answer written 
     questions from class members concerning any matter contained 
     in any notice of settlement published or otherwise 
     disseminated to the class.
       ``(4) Other information.--Such other information as may be 
     required by the court, or by any plaintiff steering committee 
     appointed by the court pursuant to section 36.
       ``(f) Encouragement of Finality in Settlement Discharges.--
       ``(1) Discharge.--A defendant who settles any private 
     action arising under this title at any time before verdict or 
     judgment shall be discharged from all claims for contribution 
     brought by other persons with respect to the matters that are 
     the subject of such action. 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 percentage of 
     responsibility of that person; or
       ``(B) the amount paid to the plaintiff by that person.
       ``(g) Contribution From Non-Parties in Interests of 
     Fairness.--
       ``(1) Right of contribution.--A person who becomes liable 
     for damages in any private action under this title (other 
     than an action under section 9(e) or 18(a)) may recover 
     contribution from any other person who, if joined in the 
     original suit, would have been liable for the same damages.
       ``(2) Statute of limitations for contribution.--Once 
     judgment has been entered in any such private action 
     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.
       ``(h) Defendant's Right to Written Interrogatories 
     Establishing Scienter.--In any private action under this 
     title in which the plaintiff may recover money damages, the 
     court shall, when requested by a defendant, submit to the 
     jury a written interrogatory on the issue of each such 
     defendant's state of mind at the time the alleged violation 
     occurred.''.
       (b) Prohibition of Referral Fees That Foment Litigation.--
     Section 15(c) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o(c)) is amended by adding at the end the following 
     new paragraph:
       ``(8) Receipt of Referral Fees.--No broker or dealer, or 
     person associated with a broker or dealer, may solicit or 
     accept remuneration for assisting an attorney in obtaining 
     the representation of any customer in any private action 
     under this title.''.

     SEC. 4. PREVENTION OF ``FISHING EXPEDITION'' LAWSUITS.

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

     ``SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

       ``(a) Scienter.--
       ``(1) In general.--In any private action arising under this 
     title based on a fraudulent statement, liability may be 
     established only on proof that--
       ``(A) the defendant directly or indirectly made a 
     fraudulent statement;
       ``(B) the defendant possessed the intention to deceive, 
     manipulate, or defraud; and
       ``(C) the defendant made such fraudulent statement 
     knowingly or recklessly.
       ``(2) Fraudulent statement.--For purposes of this section, 
     a fraudulent statement is a statement that contains an untrue 
     statement of a material fact, or omits a material fact 
     necessary in order to make the statements made, in the light 
     of the circumstances in which they were made, not misleading.
       ``(3) Knowingly.--For purposes of paragraph (1), a 
     defendant makes a fraudulent statement knowingly if the 
     defendant knew that the statement of a material fact was 
     untrue at the time it was made, or knew that an omitted fact 
     was necessary in order to make the statements made, in the 
     light of the circumstances in which they were made, not 
     misleading.
       ``(4) Recklessness.--For purposes of paragraph (1), a 
     defendant makes a fraudulent statement recklessly if the 
     defendant, in making such statement, is guilty of highly 
     unreasonable conduct that (A) involves not merely simple or 
     even gross negligence, but an extreme departure from 
     standards of ordinary care, and (B) presents a danger of 
     misleading buyers or sellers that was either known to the 
     defendant or so obvious that the defendant must have been 
     consciously aware of it. For example, a defendant who 
     genuinely forgot to disclose, or to whom disclosure did not 
     come to mind, is not reckless.
       ``(b) Requirement for Explicit Pleading of Scienter.--In 
     any private action to which subsection (a) applies, the 
     complaint shall specify each statement or omission alleged to 
     have been misleading, and the reasons the statement or 
     omission was misleading. The complaint shall also make 
     specific allegations which, if true, would be sufficient to 
     establish scienter as to each defendant at the time the 
     alleged violation occurred. It shall not be sufficient for 
     this purpose to plead the mere presence of facts inconsistent 
     with a statement or omission alleged to have been misleading. 
     If an allegation is made on information and belief, the 
     complaint shall set forth with specificity all information on 
     which that belief is formed.
       ``(c) Dismissal for Failure To Meet Pleading Requirements; 
     Stay of Discovery; Summary Judgment.--In any private action 
     to which subsection (a) applies, the court shall, on the 
     motion of any defendant, dismiss the complaint if the 
     requirements of subsection (b) are not met, except that the 
     court may, in its discretion, permit a single amended 
     complaint to be filed. During the pendency of any such motion 
     to dismiss, all discovery and other proceedings shall be 
     stayed unless the court finds upon the motion of any party 
     that particularized discovery is necessary to preserve 
     evidence or to prevent undue prejudice to that party. If a 
     complaint satisfies the requirements of subsection (b), the 
     plaintiff shall be entitled to conduct discovery limited to 
     the facts concerning the allegedly misleading statement or 
     omission. Upon completion of such discovery, the parties may 
     move for summary judgment.
       ``(d) Reliance and Causation.--
       ``(1) In general.--In any private action to which 
     subsection (a) applies, the plaintiff shall prove that--
       ``(A) he or she had knowledge of, and relied (in connection 
     with the purchase or sale of a security) on, the statement 
     that contained the misstatement or omission described in 
     subsection (a)(1); and
       ``(B) that the statement containing such misstatement or 
     omission proximately caused (through both transaction 
     causation and loss causation) any loss incurred by the 
     plaintiff.
       ``(2) Fraud on the market.--For purposes of paragraph (1), 
     reliance may be proven by establishing that the market as a 
     whole considered the fraudulent statement, that the price at 
     which the security was purchased or sold reflected the 
     market's estimation of the fraudulent statement, and that the 
     plaintiff relied on that market price. Proof that the market 
     as a whole considered the fraudulent statement may consist of 
     evidence that the statement--
       ``(A) was published in publicly available research reports 
     by analysts of such security;
       ``(B) was the subject of news articles;
       ``(C) was delivered orally at public meetings by officers 
     of the issuer, or its agents;
       ``(D) was specifically considered by rating agencies in 
     their published reports; or
       ``(E) was otherwise made publicly available to the market 
     in a manner that was likely to bring it to the attention of, 
     and to be considered as credible by, other active 
     participants in the market for such security.

     Nonpublic information may not be used as proof that the 
     market as a whole considered the fraudulent statement.
       ``(3) Presumption of reliance.--Upon proof that the market 
     as a whole considered the fraudulent statement pursuant to 
     paragraph (2), the plaintiff is entitled to a rebuttable 
     presumption that the price at which the security was 
     purchased or sold reflected the market's estimation of the 
     fraudulent statement and that the plaintiff relied on such 
     market price. This presumption may be rebutted by evidence 
     that--
       ``(A) the market as a whole considered other information 
     that corrected the allegedly fraudulent statement; or
       ``(B) the plaintiff possessed such corrective information 
     prior to the purchase or sale of the security.
       ``(4) Reasonable expectation of integrity of market 
     price.--A plaintiff who buys or sells a security for which it 
     is unreasonable to rely on market price to reflect all 
     current information may not establish reliance pursuant to 
     paragraph (2). For purposes of paragraph (2), the following 
     factors shall be considered in determining whether it was 
     reasonable for a party to expect the market price of the 
     security to reflect substantially all publicly available 
     information regarding the issuer of the security:
       ``(A) The weekly trading volume of any class of securities 
     of the issuer of the security.
       ``(B) The existence of public reports by securities 
     analysts concerning any class of securities of the issuer of 
     the security.
       ``(C) The eligibility of the issuer of the security, under 
     the rules and regulations of the Commission, to incorporate 
     by reference its reports made pursuant to section 13 of this 
     title in a registration statement filed under the Securities 
     Act of 1933 in connection with the sale of equity securities.
     [[Page H2770]]   ``(D) A history of immediate movement of the 
     price of any class of securities of the issuer of the 
     security caused by the public dissemination of information 
     regarding unexpected corporate events or financial releases.

     In no event shall it be considered reasonable for a party to 
     expect the market price of the security to reflect 
     substantially all publicly available information regarding 
     the issuer of the security unless the issuer of the security 
     has a class of securities listed and registered on a national 
     securities exchange or quoted on the automated quotation 
     system of a national securities association.
       ``(e) Allocation of Liability.--
       ``(1) Joint and several liability for knowing fraud.--A 
     defendant who is found liable for damages in a private action 
     to which subsection (a) applies may be liable jointly and 
     severally only if the trier of fact specifically determines 
     that the defendant acted knowingly (as defined in subsection 
     (a)(3)).
       ``(2) Proportionate liability for recklessness.--If the 
     trier of fact does not make the findings required by 
     paragraph (1) for joint and several liability, a defendant's 
     liability in a private action to which subsection (a) applies 
     shall be determined under paragraph (3) of this subsection 
     only if the trier of fact specifically determines that the 
     defendant acted recklessly (as defined in subsection (a)(4)).
       ``(3) Determination of proportionate liability.--If the 
     trier of fact makes the findings required by paragraph (2), 
     the defendant's liability shall be determined as follows:
       ``(A) The trier of fact shall determine the percentage of 
     responsibility of the plaintiff, of each of the defendants, 
     and of each of the other persons or entities alleged by the 
     parties to have caused or contributed to the harm alleged by 
     the plaintiff. In determining the percentages of 
     responsibility, the trier of fact shall consider both the 
     nature of the conduct of each person and the nature and 
     extent of the causal relationship between that conduct and 
     the damage claimed by the plaintiff.
       ``(B) For each defendant, the trier of fact shall then 
     multiply the defendant's percentage of responsibility by the 
     total amount of damage suffered by the plaintiff that was 
     caused in whole or in part by that defendant and the court 
     shall enter a verdict or judgment against the defendant in 
     that amount. No defendant whose liability is determined under 
     this subsection shall be jointly liable on any judgment 
     entered against any other party to the action.
       ``(C) Except where contractual relationship permits, no 
     defendant whose liability is determined under this paragraph 
     shall have a right to recover any portion of the judgment 
     entered against such defendant from another defendant.
       ``(4) Effect of Provision.--This subsection relates only to 
     the allocation of damages among defendants. Nothing in this 
     subsection shall affect the standards for liability under any 
     private action arising under this title.
       ``(f) Damages.--In any private action to which subsection 
     (a) applies, 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 fraudulent statement; 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 fraudulent statement.''.

     SEC. 5. ESTABLISHMENT OF ``SAFE HARBOR'' FOR PREDICTIVE 
                   STATEMENTS.

       The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
     is amended by adding at the end the following new section:
     ``SEC. 37. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING 
                   STATEMENTS.

       ``(a) Safe Harbor Defined.--In any action arising under 
     this title based on a fraudulent statement (within the 
     meaning of section 10A), a person shall not be liable for the 
     publication of any projection if--
       ``(1) the basis for such projection is briefly described 
     therein, with citations (which may be general) to 
     representative sources or authority, and a disclaimer is made 
     to alert persons for whom such information is intended that 
     the projections should not be given any more weight than the 
     described basis therefor would reasonably justify; and
       ``(2) the basis for such projection is not inaccurate as of 
     the date of publication, determined without benefit of 
     subsequently available information or information not known 
     to such person at such date.
       ``(b) Automatic Protective Order Staying Discovery; 
     Expedited Procedure.--In any action arising under this title 
     based on a fraudulent statement (within the meaning of 
     section 10A) by any person, such person may, at any time 
     beginning after the filing of the complaint and ending 10 
     days after the filing of such person's answer to the 
     complaint, move to obtain an automatic protective order under 
     the safe harbor procedures of this section. Upon such motion, 
     the protective order shall issue forthwith to stay all 
     discovery as to the moving party, except that which is 
     directed to the specific issue of the applicability of the 
     safe harbor. A hearing on the applicability of the safe 
     harbor shall be conducted within 45 days of the issuance of 
     such protective order. At the conclusion of the hearing, the 
     court shall either (1) dismiss the portion of the action 
     based upon the use of a projection to which the safe harbor 
     applies, or (2) determine that the safe harbor is unavailable 
     in the circumstances.
       ``(c) Regulatory Authority.--In consultation with investors 
     and issuers of securities, the Commission shall adopt rules 
     and regulations to facilitate the safe harbor provisions of 
     this section. Such rules and regulations shall--
       ``(1) include clear and objective guidance that the 
     Commission finds sufficient for the protection of investors,
       ``(2) prescribe such guidance with sufficient particularity 
     that compliance shall be readily ascertainable by issuers 
     prior to issuance of securities, and
       ``(3) provide that projections that are in compliance with 
     such guidance and that concern the future economic 
     performance of an issuer of securities registered under 
     section 12 of this title will be deemed not to be in 
     violation of section 10(b) of this title.''.

     SEC. 6. RULE OF CONSTRUCTION.

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

     SEC. 7. EFFECTIVE DATE.

       This Act and the amendments made by this Act are effective 
     on the date of enactment of this Act and shall apply to cases 
     commenced after such date of enactment.

  The CHAIRMAN. The bill will be considered for amendment under the 5-
minute rule for a period not to exceed 8 hours.
  During consideration of the bill for amendment, the Chairman of the 
Committee of the Whole may accord priority in recognition to a Member 
who has caused an amendment to be printed in the designated place in 
the Congressional Record. Those amendments will be considered read.
  Are there any amendments to the bill?


               amendment offered by mr. cox of california

  Mr. COX of California. Mr. Chairman, I offer an amendment.
  The CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment offered by Mr. Cox of California: Page 28, after 
     line 2, insert the following new section (and redesignate the 
     succeeding sections and conform the table of contents 
     accordingly):

     SEC. 6. 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 conduct actionable as fraud 
     in the purchase or sale of securities'' before the period.

  Mr. COX of California. Mr. Chairman, I offer an amendment that would 
prevent plaintiffs' attorneys from bringing actions alleging securities 
law violations under the Racketeer Influence and Corrupt Organizations 
Act which we know as RICO.
  Today we are fulfilling our Contract With America by curbing 
frivolous securities litigation. For many years now shrewd plaintiffs' 
attorneys have been using RICO to evade the requirements that Congress 
has established in the Federal securities laws. Supreme Court Justice 
Thurgood Marshall called our attention to this problem as far back as 
1985 when he explained that the civil RICO statute, quote, ``virtually 
eliminates decades of legislative and judicial development of private 
civil remedies under the Federal securities laws.'' Today's amendment 
seeks only to reform RICO in the area of securities legislation, but I 
should point out that this House under its previous control by today's 
minority, the Democrats, have previously passed wholesale RICO reform 
by an overwhelming margin. This reform measure, authored by the 
gentleman from Virginia [Mr. Boucher] and the gentleman from Florida 
[Mr. McCollum], now the chairman of the Judiciary Subcommittee on 
Crime, enjoyed overwhelming bipartisan support. My amendment is fully 
consistent with this effort, if more limited.
  The provision originally in the Contract With America that addressed 
the problem of civil RICO actions in the securities area, as I 
explained in my colloquy a moment ago with the gentleman from Michigan, 
was omitted from the bill as reported out of committee inadvertently. 
It was not opposed in committee. If we do not reinsert this provision 
by adopting my 
[[Page H2771]] amendment, we will fail to address a significant number 
of frivolous actions based on alleged securities law violations, but 
brought under the RICO statute. When Congress enacted RICO back in 
1970, we intended that it be used as a weapon against organized 
criminals, not as a weapon against ordinary investors and the business 
community.
  The problem posed by the widespread use of civil RICO is one 
recognized by legal experts across the spectrum. In the Supreme Court 
case from which I just quoted, in 1985 Justice Marshall, along with 
Justice Powell, was in the dissent but the majority who said that the 
law needs to be changed still agreed that the
 abuse of RICO is very real.

  Let me quote from the majority opinion:

       In its private civil version RICO is evolving into 
     something quite different from the original conception of its 
     enactors; in other words, Congress. The extraordinary uses to 
     which civil RICO has been put appear to be primarily the 
     result of the failure of Congress.

  That from the majority of the Supreme Court, so the majority and the 
minority of the Supreme Court agreed that RICO is being abused by its 
application in the securities area.
  Plaintiffs' attorneys' inappropriate and abusive use of RICO has also 
been recognized by the current White House counsel, Abner Mikva. While 
still a judge for the U.S. Circuit Court of Appeals for the District of 
Columbia, Mr. Mikva detailed his observations of RICO abuse when 
testifying before the House Committee on Criminal Justice in 1985. Mr. 
Mikva, of course, has been a Member of Congress in 1970, and he had 
warned back then that RICO might be stretched and abused in a way. Here 
is his testimony in 1985 before the House Subcommittee on Criminal 
Justice:

       I stand amazed to realize that my hyperbolic horrible 
     examples of how far the law would reach pale into 
     insignificance when compared to what actually has happened. 
     What started out as a small cottage industry for Federal 
     prosecutors has become a commonplace weapon in the civil 
     litigation arsenal.

  Most significantly, those that have the responsibility of regulating 
our securities markets support my amendment. For the past 10 years the 
chairman of the Securities and Exchange Commission, the SEC, have all 
supported civil RICO reform. Beginning in 1985, former SEC Chairman 
John Shad testified before Congress in support of legislation to amend 
RICO in this way. In 1986, Mr. Chairman, the SEC even submitted draft 
legislation for civil RICO reform. In 1989, the SEC General Counsel, 
Dan Goelzer, testified before Congress in favor of this civil RICO 
reform, and today the SEC continues to support civil RICO reform.
  In testimony before our committee, Mr. Chairman, the chairman of the 
SEC, Arthur Levitt, stated that H.R. 10, as originally drafted, 
contained the kind of civil RICO reform that is necessary. He recently 
wrote a letter to our Committee on Commerce chairman, the gentleman 
from Virginia [Mr. Bliley], stating that the SEC fully supports this 
provision that I am offering today.
  The reason this area is one of such wide-ranging consensus is because 
almost everyone who studied the issue recognizes that the civil RICO 
statute has been abused in securities fraud legislation to distort the 
incentives and remedies that the Federal securities laws are supposed 
to provide. They have done this by taking advantage of a loophole in 
RICO that has permitted inclusion of securities laws violations as a 
predicate act for which the defendant may be tagged as a racketeer and 
held liable for treble damages and attorney fees.
  Additionally, because many claims that could be asserted as 
securities laws claims can also be characterized as mail or wire 
fraud----
  The CHAIRMAN. The time of the gentleman from California [Mr. Cox] has 
expired.
  (By unanimous consent, Mr. Cox of California was allowed to proceed 
for 5 additional minutes.)
  Mr. COX of California. Because many claims that could be asserted as 
securities laws claims can also be characterized as mail or wire fraud, 
and because mail and wire fraud are also predicates for civil RICO 
liability, Plaintiffs' attorneys have a devastating, potent, and 
readily available alternative for bringing actions under RICO instead 
of under our securities laws. As the SEC general counsel stated in his 
1989 testimony before the House Committee on the Judiciary, and I quote 
now,

       The commission is concerned that the civil liability 
     provisions of RICO can, in many cases, convert private 
     securities law fraud claims into RICO claims. Successful 
     plaintiffs in such cases are entitled to treble damages, 
     despite the express limitations on recovery under the 
     securities laws to actual damages. Private plaintiffs may be 
     able to bypass the carefully crafted liability provisions of 
     the securities laws and thereby recover damages in cases in 
     which Congress or the courts have determined that no recovery 
     should be available.

  Congress initially passed securities laws in order to impose a 
uniform system of duties and liabilities upon the securities industry 
and to protect investors. Each time we have acted to amend the 
securities laws we have balanced the need to provide the maximum amount 
of consumer protection against the need to maintain fluid, stable and 
reliable markets. Today we are seeking to enact litigation reforms 
because we have identified significant problems and abuses in the 
current system that are hurting investors, consumers, and the Nation as 
a whole.
  Mr. Chairman, the failure to adopt this amendment would undermine the 
reforms we are hoping to achieve because attorneys could then do an end 
run around all of the reform by simply using the RICO statute. In 
evading the reforms that we are seeking to achieve today enterprising 
lawyers will have the continuing ability to extort settlements from 
innocent defendants based on claims that will allow them no chance of 
recovery under the reforms that we have today. Lest we have any doubt 
about the ability of plaintiffs' attorneys to leverage settlements from 
defendants under civil RICO, we need only listen again to Justice 
Thurgood Marshall who explained that, quote,

       Many a prudent defendant, facing ruinous exposure, will 
     decide to settle a case even with no merit. It is, thus, not 
     surprising that civil RICO has been used for extortive 
     purposes, giving rise to the very evils it was designed to 
     combat.

  Mr. Chairman, unless we adopt my amendment, a plaintiff's attorney 
alleging a single violation of the securities laws will be able to 
bring an action under civil RICO and leverage a hefty settlement from 
an innocent victim. Because an element of RICO is a pattern, plaintiffs 
would have the latitude to conduct discovery of records dating as far 
back as 10 years. Discovery costs like that run up a tab of millions of 
dollars. Often, faced with the cost of these multimillion-dollar 
discovery fees, the prospect of being labeled a racketeer and the 
prospect of being held liable for treble damages and attorney fees, 
defendants, as Thurgood Marshall has said, are forced to settle 
meritless cases brought under RICO.
  Mr. Chairman, our economy's health depends on the efficient operation 
of America's capital markets. We must continue to balance the 
provisions of adequate remedies for injured investors and the 
imposition of excessive penalties on all participants in our capital 
markets. The treble damage blunderbuss of RICO undermines this balance 
and imposes exorbitant litigation costs, impedes the raising of 
capital, and
  Mr BRYANT of Texas. Mr. Chairman, will the gentleman yield?
  Mr. COX of California. I yield to the gentleman from Texas.
  Mr. BRYANT of Texas. Mr. Chairman, I just took note of the fact that 
the gentleman said a moment ago that for some kind of a loophole in the 
RICO statute that allows people to sue securities dealers who they 
believe are guilty of a pattern of fraudulent activity, but I am 
looking here at the language from the statute: 18 U.S.C. says that 
actually racketeering; that is, predicate action with the RICO statue, 
include, quote, any fees involving fraud and the sales of securities. I 
ask, ``In view of that, how can you describe this as a loophole?''
  Mr. COX of California. As I mentioned, the Supreme Court, all of the 
Justices, both in the majority and minority of this RICO case, viewed 
this as an area where congressional action is richly needed because 
RICO, although technically being exploited within the letter of the 
law, was never intended to apply to securities cases.
   [[Page H2772]] Mr. BRYANT of Texas. Well, I just read the statute to 
the gentleman which specifically related to----
  Mr. COX of California. Well, reclaiming my time----
  Mr. BRYANT of Texas. Fraud and the sale of securities----
  Mr. COX of California. So I can fully and adequately respond to the 
gentleman----
  The CHAIRMAN. The time of the gentleman from California [Mr. Cox] has 
expired.
  (By unanimous consent, Mr. Cox of California was allowed to proceed 
for 1 additional minute.)
  Mr. COX of California. The SEC chairman came and testified before our 
Committee on Commerce, and here is what he said. It is very brief, and 
I will just share it with the gentleman:
  For many years the Commission has supported legislation to eliminate 
the overlap between the private remedies under RICO and under the 
Federal securities laws. The securities laws generally provide adequate 
remedies for those injured by security fraud. It is both unnecessary 
and unfair to expose defendants in securities cases to the threat of 
treble damages and other extraordinary remedies provided by RICO.
  Mr. BRYANT of Texas. Mr. Chairman, would the gentleman yield further?
  Mr. COX of California. This is according to the Clinton appointment 
to head up the Securities and Exchange Commission.
  Mr. BRYANT of Texas. If the gentleman would yield further just to 
point out the gentleman said it was a loophole, and I read to the 
gentleman the law indicating it is not a loophole. Now the gentleman is 
reading to me testimony, or something, from the SEC, but we never had 
hearings on the issue of RICO in the committee that the gentleman and I 
are members of. We never had any hearings----
  Mr. COX of California. Reclaiming my time, we did, of course, have 
hearings on this testimony that was given at that hearing----
  Mr. BRYANT of Texas. There were no hearings on RICO----
  Mr. COX of California. The SEC.
  Mr. BRYANT of Texas. The gentleman will have to acknowledge we had no 
hearings on RICO.
  Mr. COX of California. Mr. Chairman, I think my 60 seconds have 
expired.
  Mr. Chairman, I offer an amendment that would prevent plaintiffs' 
attorneys from bringing actions alleging securities law violations 
under the Racketeer Influenced and Corrupt Organizations Act [RICO]. 
Today we are fulfilling our Contract With America by curbing frivolous 
securities litigation. For many years now, shrewd plaintiffs' attorneys 
have been using RICO to evade the requirements we have established in 
the Federal securities laws. Supreme Court Justice Thurgood Marshall 
called our attention to this problem as far back as 1985 when he 
explained that the civil RICO statute ``virtually eliminates decades of 
legislative and judicial development of private civil remedies under 
the Federal securities laws.'' Sedima, S.P.R.I. v. Imrex Company, Inc., 
105 S.Ct. 3292, 3294 (1985) (dissenting). Indeed, while today's 
amendment seeks only to reform RICO in the area of securities 
litigation, the House--Democrats in control--has previously passed 
wholesale RICO reform by an overwhelming margin. This reform measure, 
authored by the gentlemen from Virginia [Mr. Boucher] and Mr. McCollum, 
the chairman of the Judiciary Subcommittee on Crime, enjoyed 
overwhelming bipartisan support. My amendment, I believe is fully 
consistent with this effort.
  This provision originally in the Contract With America that addressed 
the problem of civil RICO actions in the securities area (H.R. 10, 
Title I Sec. 107) was omitted from the bills reported out of committee. 
If we do not reinsert this provision by adopting my amendment, we will 
fail to address a significant number of frivolous actions based on 
alleged securities law violations, but brought under the RICO statute. 
When we enacted RICO back in 1970, we intended that it be used as a 
weapon against organized criminals, not as a weapon against ordinary 
investors and the business community.
  The problem posed by the widespread use of civil RICO is one 
recognized by legal experts across the spectrum. In addition to Justice 
Marshall, Chief Justice Rehnquist has observed:

       Virtually everyone who has addressed the question agrees 
     that civil RICO is now being used in ways that Congress never 
     intended when it enacted the statute in 1970. Most of the 
     civil suits filed under the statute have nothing to do with 
     organized crime.

(Rehnquist, Reforming Diversity Jurisdiction and Civil RICO, St. Mary's 
L.J. 5, 9 (1989) (originally presented at the Brookings Institution's 
Eleventh Seminar on the Administration of Justice, April 7, 1989). 
Plaintiffs' attorneys' inappropriate and abusive use of RICO has also 
been recognized by current White House Counsel Abner Mikva. While still 
a judge for the U.S. Circuit Court of Appeals for the District of 
Columbia, Mr. Mikva detailed his observations of RICO abuse when 
testifying before the House Subcommittee on Criminal Justice in 1985. 
While a Member of Congress in 1970, Mr. Mikva had warned his colleagues 
about RICO's overbreadth. In 1985, in testifying before the House 
Subcommittee on Criminal Justice, he noted the following about his 
comparison of his initial thoughts on RICO back in 1970 with the 
subsequent reality:

       I stand amazed * * * to realize that my hyperbolic horrible 
     examples of how far the law would reach pale into 
     insignificance when compared to what has actually happened * 
     * * What started out as a small cottage industry for federal 
     prosecutors has become a commonplace weapon in the civil 
     litigation arsenal.

  As we learned yesterday, Mr. Mikva and the Administration have a 
number of problems with the legislation before us today. However, as 
observed above, my amendment is one provision upon which we all agree.
  Also, most significantly, those that have the responsibility of 
regulating our securities markets similarly support my amendment. For 
the past 10 years, the Chairmen of the Securities and Exchange 
Commission [SEC] have all supported civil RICO reform. Beginning in 
1985, former SEC Chairman John Shad testified before Congress in 
support of legislation to amend RICO. In 1986, the SEC even submitted 
draft legislation to Congress that would have significantly limited 
civil RICO claims based on alleged securities law violations. In 1989, 
SEC General Counsel Dan Goelzer testified before Congress in favor of 
civil RICO reform. And today, the SEC continues to support civil RICO 
reform. In a recent letter to Commerce Committee Chairman Bliley, SEC 
Chairman Arthur Levitt stated that the SEC fully supports this 
provision I am offering today.
  The reason why this is one area where there is such wide-ranging 
consensus is because almost everyone who has studied this issue 
recognizes that plaintiffs' attorneys have used the civil RICO statute 
to distort the incentives and remedies that the federal securities laws 
provide. They have done this by taking advantage of a loophole in RICO 
that has permitted inclusion of securities law violations as a 
predicate act for which a defendant may be tagged as a racketeer and 
held liable for treble damages and attorneys' fees. Additionally, 
because many claims that could be asserted as securities law claims can 
also be characterized as mail or wire fraud, and because mail and wire 
fraud are also predicates for civil RICO liability, plaintiffs' 
attorneys have a devastating potent and readily available alternative 
for bringing actions under RICO rather than under our securities laws. 
As SEC General Counsel Goelzer stated in 1989 testimony before the 
House Judiciary Committee:

       The Commission is concerned, however, that the civil 
     liability provisions of RICO can in many cases convert 
     private securities law fraud claims into RICO claims. 
     Successful plaintiffs in such cases are entitled to treble 
     damages, despite the express limitations on recovery under 
     the securities laws to actual damages. Private plaintiffs may 
     be able to bypass the carefully crafted liability provisions 
     of the securities laws, and thereby recover damages in cases 
     in which Congress or the courts have determined that no 
     recovery should be available under those laws. As a result, 
     civil RICO places increased and unwarranted financial burdens 
     on commercial defendants, including securities industry 
     defendants.

  Congress initially passed securities laws in order to impose a 
uniform system of duties and liabilities upon the securities industry, 
and to protect investors. Each time that we have amended the securities 
laws, we have balanced the need to provide the maximum amount of 
consumer protection possible against the need to maintain fluid, 
stable, and reliable markets. Today, we are seeking to enact litigation 
reforms because we have identified significant problems and abuses in 
the current system that are hurting investors, consumers, and the 
nation as a whole. We are seeking to enact changes to our federal 
securities laws in those areas where we have identified reforms are 
needed. We are seeking a losers pay provision to punish plaintiffs for 
bringing frivolous actions. In addition, we are seeking a limitation on 
joint and several liability to restore fairness to the federal 
securities laws. The failure to adopt my amendment would undermine the 
reforms we are hoping to achieve today without any award, unscrupulous 
attorneys could do an end run around the reforms by using the RICO 
statute. Through the use of civil RICO, plaintiffs will be able to 
initiate law suits based on alleged securities law violations, and will 
be entitled to seek treble damages and attorneys' fees.
  [[Page H2773]] In evading the reforms we are seeking to achieve 
today, enterprising plaintiffs' attorneys will have the continuing 
ability to extort settlements from innocent defendants based on claims 
that would allow them no chance of recovery under the reforms before us 
today. Lest we have any doubt about the ability of plaintiffs' 
attorneys to leverage settlements from defendants under civil RICO, we 
need only listen again to Justice Marshall, who explained that ``[m]any 
a prudent defendant, facing ruinous exposure, will decide to settle 
even a case with no merit. It is thus not surprising that civil RICO 
has been used for extortive purposes, giving rise to the very evils it 
was designed to combat.'' Sedima, 105 S.Ct. at 3295. Unless we adopt my 
amendment, a plaintiff's attorney, alleging a single violation of the 
securities laws, will be able to bring an action under civil RICO and 
leverage a hefty settlement from an innocent victim. Because an element 
of a RICO action is a ``pattern,'' plaintiffs have the latitude to 
conduct discovery of records dating back 10 years or more. Such 
discovery costs defendants millions of dollars. Often, faced with the 
cost of these multi-million dollar discovery fees, and the prospect of 
being labeled a racketeer, and being held liable for treble damages and 
attorneys' fees, defendants are forced to settle meritless cases.
  Our economy's health depends on the efficient operation of its 
country's capital markets. We must continue to balance the provision of 
adequate remedies for injured investors and the imposition of excessive 
penalties on all participants in our capital markets. The treble damage 
blunderbuss of RICO undermines this balance and imposes exorbitant 
litigation costs, impedes the raising of capital and ultimately puts 
these costs on the shoulders of consumers and emerging innovative 
companies.
  Mr. Chairman, at this point I would like to read several comments 
from judges across the country who have commented on the abuses 
prevalent in civil RICO litigation. If there is one message we should 
extract from these opinions, it is that we must reform RICO to prevent 
plaintiffs' attorneys from bringing actions more appropriately brought 
under our securities laws.

       ``It is true that private civil actions under the statute 
     are being brought almost solely against such defendants 
     [respected and legitimate businesses], rather than against 
     the archetypal, intimidating mobster. Yet this defect--if 
     defect it is--is inherent in the statute as written, and its 
     correction must lie with Congress.'' The Supreme Court, 
     Sedima, 105 S. Ct. at 3286-87.
       ``I have a feeling about RICO in the civil world * * * as 
     being the most conspicuous case I know of legislation 
     requiring Congressional attention to revision.''--Former U.S. 
     District Court Judge Simon Rifkind of the Southern District 
     of New York.
       ``An imaginative plaintiff could take virtually any illegal 
     occurrence and point to acts preparatory to the occurrence, 
     usually the use of the telephone or mails, as meeting the 
     requirement of pattern.''--U.S. Circuit Court of Appeals for 
     the 5th Circuit Judges Higginbotham, Politz, and Jolly 
     (Montesano v. Seafirst Commercial Corp., 818 F.2d 423, 424 
     (5th Cir. 1987)).
       ``Congress * * * may well have created a runaway treble 
     damage bonanza for the already excessively litigious.''--
     Federal Circuit Court of Appeals for the 7th Circuit Judges 
     Wood, Cummings, and Hoffman (Schacht v. Brown, 711 F2d, 1343, 
     1361 (7th Cir. 1983)).
       ``[O]ne of the proliferating developments in civil 
     litigation has been the use of RICO * * * in civil claims, in 
     routine commercial disputes, including those arising under 
     the federal securities laws. I think that the proliferation 
     of these claims and the use of a law that was designed to 
     eliminate organized crime is a very bad influence on the 
     commercial community.''--U.S. District Court Judge Milton 
     Pollack of the Southern District of New York.
       ``McCarthy, though armed with substantial damage claims, 
     with a requested ad damnum of $312,220 in compensatory and $1 
     million in punitive damages, obviously cannot resist the 
     treble damages and attorneys' fees lure of RICO.''--Judge 
     Shadur, U.S. District Court for the Northern District of 
     Illinois (McCarthy Cattle Co. v. Paine Webber, Inc., 1985 WL 
     631 (N.D. Ill., April 11, 1985).
       ``[The plaintiff's complaint] demonstrates at least two 
     facts of life in an urban district court in a litigation-
     prone society: * * * RICO's lure of treble damages and 
     attorneys' fees draws litigants and lawyers * * * like 
     lemmings to the sea.''--Judge Shadur (Wolin v. Hanley Dawson 
     Cadillac, Inc., 636 F. Supp. 890, 891 (N.D. Ill. 1986).

  Mr. CONYERS. Mr. Chairman, I rise in opposition to the amendment 
offered by the gentleman from California [Mr. Cox].
  Mr. Chairman and members of the committee, this amendment, we must 
never forget, has arrived here by extraordinary means. It was 
accidentally, like when you sweep up trash at night in the Committee on 
the Judiciary. This little slip of paper called RICO fell to the ground 
in a corner. Nobody noticed it, and, therefore, we have a whole 
securities bill that went to the Committee on Rules, was dealt with, 
and then the Committee on Rules came back again and said, ``Oh, we 
overlooked civil RICO, and we have an amendment, not to modify it as 
applies to securities, which has been the main use of civil RICO in 
securities ever since RICO was started. We said we will not pare it 
down, we will not deal with the other amendments that have always 
applied to RICO before in the Committee on the Judiciary without so 
much as mentioning this name RICO. We now have a measure in one 
sentence that will remove it from all securities legislation from this 
point on.

                              {time}  1745

  Are you aware of the magnitude of what it is we are proposing to do 
here as the first amendment to this legislation on the floor? We are 
now saying that the fact that RICO was used in all of the major fraud 
cases, that we have now reached the point on the basis of a Supreme 
court case that goes back 10 years to say that now RICO is so abused we 
must now get rid of it.
  Remember, the last time I saw an idea about RICO was when the former 
gentleman from New Jersey [Mr. Hughes] developed a gatekeeper concept, 
in which we would filter through under a very strict set of principles 
which cases might make it to a RICO suit.
  But now--and I disagreed with that. But the gatekeeper concept was a 
very modest one. It kept RICO alive in terms of civil litigation. It 
was much more carefully crafted than a blanket exemption from RICO in 
all securities cases.
  What we are saying is that all of the major fraud cases in which RICO 
busted people who were bilking millions of dollars, sometimes billions 
of dollars, is now going to be thrown in the trash heap, and we will 
not need it anymore.
  That is why those who want to preserve RICO includes the Association 
of Attorneys General, the National Association of Insurance 
Commissioners, the U.S. Conference of Mayors, the North American 
Securities Administration associations. It is very clear that public 
prosecutors and regulators are aghast at the Cox amendment and the 
implications of what it has in store in us trying to police this very 
tricky, complex area of money crimes that is now still as much a 
problem has it has always been.
  Civil RICO, with their treble damages, which frequently are used for 
great leverage purposes, can recover money which pay attorney fees and 
are a vital remedy that should not be diminished in any way. RICO is 
critical in the fight against savings and loan fraud, bank and 
insurance and financial crimes. Using civil RICO, the victims of white 
collar crime can sue these malfeasors for triple their losses, and it 
is frequently the only effective means for victims.
  Do not throw the baby out with the bath water. There has never been a 
minute's hearing in any of the committees of jurisdiction, certainly 
not Judiciary, and I really must say that this is the most outrageous 
proposal in terms of securities regulation that I have ever heard. Vote 
down the Cox amendment.
  Mr. McCOLLUM. Mr. Chairman, I move to strike the requisite number of 
words.
  (Mr. McCOLLUM asked and was given permission to revise and extend his 
remarks.)
  Mr. McCOLLUM. Mr. Chairman. I rise in support of the amendment 
offered by the gentleman from California. In the last several 
Congresses the subject of RICO reform and, in particular, the use of 
the RICO statute in civil business disputes, has received significant 
attention. Hearings have been held; bills have been introduced; but in 
the end, nothing has happened. A law that was originally intended to 
strike a major blow to organized crime and racketeering, has continued 
to be used as a hammer in routine civil cases.
  Today, we take a step toward meaningful civil RICO reform. This 
amendment will end inappropriate use of the civil RICO statute in an 
area of the law where it has been most abused--the securities law area. 
Congress never intended for the RICO statute to be used as the 
principal means of litigating disputes over securities transactions. 
The 
[[Page H2774]] securities laws themselves provide aggrieved buyers and 
sellers with private causes of action so that they may seek 
compensation for their losses. The increases in the use of the 
racketeering statue for this purpose, however, has produced 
consequences that Congress never intended. The threat of RICO sanctions 
has had a chilling effect on entrepreneurship and ultimately economic 
growth.
  Mr. Chairman, the civil RICO statute is tough, and it should be. The 
statute's provision for treble damaged and attorneys fees awards were 
designed to help private citizens strike back against criminal 
enterprises and other corrupt organizations. But they were never 
intended to be used as a means to litigate disputes between parties to 
bona fide securities transactions.
  The amendment offered by the gentleman from California will begin the 
process of restoring the civil RICO statute to the uses that Congress 
intended. This amendment will put an immediate stop to one of the 
greatest abuses of the civil RICO statute.
  It must be noted, however, Mr. Chairman, that adopting this amendment 
will not remedy all of the problems with the way the civil RICO statute 
is being misused. As Chairman of the Subcommittee on Crime, where 
jurisdiction over this issue resides, I intend to introduce RICO 
reform. It is my hope that the subcommittee will bring forward 
legislation to help ensure that the RICO statutes are used in the 
manner that Congress originally intended.
  In the interim, however, this amendment will stop some of the most 
egregious abuses of the civil RICO statute. This amendment is an 
important first step in the RICO reform process. I urge my colleagues 
to support it.
  Mr. Chairman, I also want to commend the gentleman from Virginia [Mr. 
Boucher] for his work on the other side of the aisle in trying to get 
civil RICO reform over the past sessions of Congress. Many hearings 
were held in this past decade. Where there might not have been one this 
session of Congress, we have certainly had plenty on the subject in the 
past.
  The truth of the matter is the House once even passed a reform of 
RICO that did not go through the Senate, which would have required a 
prior criminal conviction before you could get civil RICO. I dare say, 
to allay the gentleman from Michigan's concerns, there are plenty of 
remedies for those bad apples that commit serious fraud out there 
without going and using the civil RICO statute for the kind of abusive 
purposes that have been happening in the securities area and in many 
others.
  So I commend the gentleman from California for offering the 
amendment, I urge my colleagues to support it, and I appreciate the 
time.
  Mr. DINGELL. Mr. Chairman, I move to strike the requisite number of 
words.
  (Mr. DINGELL asked and was given permission to revise and extend his 
remarks.)
  Mr. DINGELL. Mr. Chairman, I rise in opposition to the amendment.
  Mr. Chairman, this is a most extraordinary day. When we considered 
the bill in the committee, this is the headline we got in the Wall 
Street Journal, a well-known bastion of left wing liberalism and 
excessive regulation said this: ``Fraud Shields for Companies Gain in 
House.''
  I do not know whether we ought to amend RICO or not. There is not one 
scintilla of evidence in the record of the Committee on Commerce 
whether we should or we should not. And there is nothing there which 
says that we ought to take away the right of a person to sue civilly 
under RICO where there is interstate trafficking in stolen securities. 
RICO had securities violations as the subject of civil suits from the 
very first day that it was enacted into law.
  Now, we have a market which is the most trusted in the world. It is 
for two reasons: One, because we have good enforcement at the SEC. The 
other is because we have an extraordinarily good system of private 
enforcement, enforcement by private citizens suing wrongdoers to 
collect for wrongdoing. And millions and millions of dollars are 
collected for this reason.
  My colleagues never saw this language in the committee. We never knew 
it was coming until late last night, when the Committee on Rules 
decided that something should be done about this matter. No discussion 
was offered in the committee. The author of the legislation had nothing 
to say on this subject. No one on the Republican side had anything to 
say about the need to address the wrongdoing under RICO.
  It is interesting to note that in Russia they are now saying, and 
this is what the chairman of the Russian Securities Fund had to say, 
``Each scandal chips away at investors' trust, and trust is the only 
thing we can rely on to get more business.''
  I have told the securities industry time after time, people think 
that the securities industry and the markets in this country run on 
money. They do not. They run on public confidence. And if there is 
public confidence, then everyone will make lots of money. What we are 
doing here is sneaking out of the Committee on Rules a proposal to 
repeal RICO, and it is not going to contribute to the trust of the 
American people in the securities market or in the marketplace.
  The only confidence that is going to be boosted by this amendment is 
going to be the confidence of rascals and scoundrels, who will then be 
secure in the knowledge that if they engage in theft of resources 
belonging to others, that they are not going to get sued. That is all.
  This legislation comes to the floor with abbreviated hearings and not 
adequate opportunity for amendments to be offered. The legislation is 
controlled by the Committee on Rules, which has said we will add RICO, 
which is not germane to the bill, and which is not even in the 
Committee on Energy and Commerce.
  We are amending a statute which is not even under the jurisdiction of 
the Committee on Energy and Commerce, and we are amending it without 
ever having a word of hearings or a bit of evidence or testimony taken 
on the subject. Why is RICO taken up now when it could be addressed in 
another committee in proper fashion after appropriate hearings? I have 
no explanation. Perhaps the gentleman from California who offers the 
amendment has, but I seriously doubt if he does or will.
  Many Americans had hoped that the Contract on America would be an 
engine for progress by making needed and targeted reforms. This 
amendment is just another demonstration that the contract instead has 
become a gravy train for any special interest with enough money and 
resources that they can get aboard and go where they want to go at the 
expense of the ordinary American.
  Mr. FIELDS of Texas. Mr. Chairman, I move to strike the requisite 
number of words.
  (Mr. FIELDS of Texas asked and was given permission to revise and 
extend his remarks.)
  Mr. COX of California. Mr. Chairman, will the gentleman yield?
  Mr. FIELDS of Texas. I yield to the gentleman from California.
  Mr. COX of California. Mr. Chairman, I would just point out, we just 
saw an exhibit on the floor and, as is so often the case when one reads 
the headlines, you miss the story. In the fine print the gentleman from 
Michigan forgot to tell us the last sentence of that happens to be a 
concise statement of the purpose of the bill. It says, ``The purpose of 
the bill,'' and this was actually on what he presented to us, but you 
could not read it, only the headline, ``The purpose of this bill 
remains to reduce litigation to cut down on fraud committed by 
unscrupulous lawyers and professional plaintiffs.''
  Mr. FIELDS of Texas. Mr. Chairman, reclaiming my time, today we are 
seeking to enact fundamental reforms of the manner in which securities 
actions are litigated. In order to ensure that our reforms are 
comprehensive, we must make every effort to identify oversights or 
omissions in our legislation that could potentially hamper the 
effectiveness of H.R. 1058.
  Mr. DINGELL. Mr. Chairman, will the gentleman yield?
  Mr. FIELDS of Texas. I yield to the gentleman from Michigan.
  Mr. DINGELL. I was much impressed by the comments of the gentleman 
from California. The quote that he gave is an excellent one: ``The 
purpose of the bill is to cut down on litigation and to cut down on 
fraud committed by 
[[Page H2775]] unscrupulous lawyers and professional plaintiffs.'' And 
the authority that is quoted in the article is, guess who? The 
gentleman from California [Mr. Cox].
  Mr. COX of California. Mr. Chairman, if the gentleman will yield 
further, I think that the gentleman from Michigan earlier pointed out 
that the Wall Street Journal usually understands where to get their 
information, and there is not much question but that that is what the 
bill does, and in particular this amendment will help us to achieve 
that objective.
  Mr. FIELDS of Texas. Mr. Chairman, reclaiming my time, as I was 
pointing out, there have been oversights, and this amendment seeks to 
address an oversight of the drafting. In the current bill we have 
failed to prescribe civil RICO actions based on conduct that is 
actionable in fraud and the purchase or sale of securities. Left 
uncorrected, this omission would seriously undermine our efforts today.
  The original drafters of H.R. 10 recognized this fact and included 
this identical provision in title I, section 107. As a result of sheer 
error, section 107 was not included in any of the versions reported out 
of committee. By offering this amendment, the gentleman from California 
[Mr. Cox] is seeking to do no more than reinsert this provision back 
into the Contract With America.
  Mr. Chairman, it is particularly important to note that this 
amendment has the support of the U.S. Securities and Exchange 
Commission. In providing the views of the Commission to the Committee 
on Commerce on title II of H.R. 10 on February 23, 1995, this year, 
Chairman Levitt stated the Commission supports the elimination of civil 
RICO liability predicated on security law violations.
                              {time}  1800

  The enactment of this legislation will provide much needed reform by 
helping curb frivolous securities actions. This amendment will go a 
long way toward guaranteeing meaningful reform because civil RICO 
actions are well-recognized vehicles for bringing frivolous lawsuits. 
If we do not adopt this amendment, plaintiffs' attorneys will be free 
to evade our reforms by merely bringing securities actions under RICO, 
thereby frustrating the efforts of this legislation.
  We should have no doubt that if we fail to adopt this amendment, 
plaintiffs' attorneys will take full advantage of our omission. Almost 
every claim that a plaintiff alleges as a violation of securities laws 
may also be pled as a RICO violation. Plaintiffs' attorneys can easily 
allege both the enterprise and the pattern elements necessary to turn a 
securities action into a RICO claim, because most security law 
violations are committed in the course of conducting the affairs of a 
business or an enterprise.
  Moreover, virtually all securities transactions involve the use of 
the mail or telephone.
  Further demonstrating the need to enact this amendment is the 
significant number of securities fraud cases brought as RICO claims. As 
early as 1985, the American Bar Association found that 40 percent of 
all civil RICO cases filed in Federal courts were based on securities 
fraud. If we fail to pass this amendment, we will continue to leave 
this avenue wide open for the plaintiffs' bar. The failure to amend 
RICO to exclude issues for conduct that is actionable as a securities 
law violation would enable plaintiffs' attorneys to continue to seek 
treble damages and to evade the most important elements of the types of 
reform we hope to accomplish.
  We need only compare the provisions of this legislation with those of 
the RICO----
  The CHAIRMAN. The time of the gentleman from Texas [Mr. Fields] has 
expired.
  (By unanimous consent, Mr. Fields of Texas was allowed to proceed for 
3 additional minutes.)
  Mr. FIELDS of Texas. Mr. Chairman, we need only compare the 
provisions of this legislation with those of the RICO statute in order 
to identify those reforms that plaintiffs' attorneys will be able to 
avoid. H.R. 1058, this legislation, has a losers pay provision. RICO 
does not. H.R. 1058 preserves a one year statute of limitation. The 
RICO statute of limitations is longer. H.R. 1058 limits joint and 
several liability to knowing securities fraud; RICO does not. The list 
continues.
  But the point is clear, unless we eliminate the RICO alternative, our 
reforms under this legislation will be undermined.
  The U.S. Supreme Court Justice, Chief Justice Rehnquist, Justice 
Marshall, and the Judicial Conference have all recognized the ability 
of plaintiffs' attorneys to bring meritless actions under RICO and 
leverage substantial payments for defendants through such actions. As 
Justice Marshall explained about civil RICO actions in 1985, and I 
quote:

       Many a prudent defendant, facing a ruinous exposure, will 
     decide to settle even a case with no merit. It is thus not 
     surprising that civil RICO has been used for extortive 
     purposes, giving rise to the very evils that it was designed 
     to combat.

  Mr. Chairman, we enacted civil RICO many years ago to provide private 
citizens with a weapon against organized crime and racketeering. We did 
not intend RICO to be a supplement to the Federal securities laws. We 
never intended to give trial lawyers treble damages in these types of 
civil lawsuits.
  Nonetheless, unless we adopt this amendment, plaintiffs' attorneys 
will use RICO to evade our efforts of reform.
  I urge all of my colleagues to support the Cox amendment and follow 
through with our promise to the American people to provide common sense 
and comprehensive legal reform.
  Mr. TAUZIN. Mr. Chairman, I move to strike the requisite number of 
words.
  Mr. Chairman, the whole purpose of this debate, the whole purpose of 
this multi-year effort to bring this issue to the floor and eventually 
hopefully to pass this bill, is to change the incentives in this 
system, in this legal system, to change them in a very positive way, to 
create an incentive system that says, if you find knowing fraud, 
prosecute it. You will have, under knowing fraud, under the examples 
illustrated by several of my colleagues on this side, you will have the 
full recourse of 10(b)(5) litigation remedies at your disposal. You 
will have full joint and several liability available to you. You sue 
all the parties. They are all 100 percent responsible. It is up to them 
to figure out who is going to contribute to each other in a knowing 
fraud case.
  It says where there is not knowing fraud--and by the way, the 
original statute we are amending never talked about anything but 
knowing fraud. Courts have invented another standard of violations of 
the statutes. Courts have invented something that they said was called 
recklessness, something close to knowing. It was so close to knowing 
they said that you almost had to be believed to have known that you 
were committing a fraud or you were so reckless, you were so in fact in 
violation of common standards of what we perceive to be good behavior 
that you literally will be presumed to have known.
  In those cases where it is a reckless behavior, not a knowing 
behavior, this statute creates a new liability structure. It says, in 
those cases that you identify the persons who were reckless. You 
identify their percentage liability or the court does eventually in the 
judgment, and each is proportionately liable for their share of the 
recklessness, as opposed to the joint and several liability that 
attaches to knowing fraud, the guys that intend to harm you and, in 
fact, do harm you.
  It is the purpose of this statute to create these two liabilities for 
one simple reason: Without a change in the law, as this bill suggests, 
plaintiffs will, plaintiffs' lawyers will continue to file these 
shakedown lawsuits, scattershot everybody connected with the company, 
everybody associated with it, officers, board members, accountants, 
lawyers, everybody connected with a company, and then sit back and do 
discovery and continue the litigation until somebody says, wait a 
minute, we have had enough, here is 10 cents on the dollar. We are out 
of here. That has been the practice.
  If you want to discourage that, you need to make this important 
change in the way these kinds of lawsuits are brought. Remember we are 
talking about civil lawsuits. This bill does nothing, nothing to change 
the authority nor the responsibility of the SEC to 
[[Page H2776]] prosecute claims of fraud under its enforcement 
authority already guaranteed in law and preserved in this statute.
  What this amendment does, and it is supported by the SEC, is to say 
that plaintiff lawyers who do not like these reforms, who want to 
continue bringing these massive lawsuits to shake people down, will not 
be able to use the civil processes of RICO to do that. They are going 
to use this reform statute. Without this amendment, this reform is 
meaningless. Lawyers can simply continue to do, as some have suggested 
they will do, and that is use the treble damage approach of the RICO 
statute to avoid the reforms of this legislation and, therefore, 
continue to wreak havoc upon a legal system that is creating some awful 
problems for us in the marketplace.
  We have heard through witnesses before our committee in the last 
Congress and this Congress what some of those awful problems are, 
problems in which small companies, particularly growth companies, who 
are doing their best with a new invention to get it going and to 
produce it and sell it to the marketplace find that their stock may 
jump up one day, jump down the next. And all of a sudden they are in a 
massive lawsuit, they and everybody connected with them
  Problems that we have found in companies across the board where they 
have said, we would like to tell you more about our company, if you 
want to invest in it, but we are afraid to tell you anything because 
whatever we say somebody is going to say we misled you in a lawsuit 
next week. And we are going to find ourselves involved in another 
massive litigation with a lot of court costs and legal fees.
  If we do not cure those problems soon, this legal mess created under 
10(b)(5) will continue to erode the productivity of small growth 
companies who are desperately trying to employ Americans and to produce 
more products not only for our marketplace but for the marketplaces of 
the world. It is that simple.
  Lawyers who actually use this system today and who want to fight 
these reforms would love to have somewhere else to go, some other 
system, and using the civil RICO is the way they might go. This 
amendment needs to be passed.
  Mr. WHITE. Mr. Chairman, I move to strike the requisite number of 
words.
  Mr. Chairman, I will not take 5 minutes because this is really a very 
simple argument. If Members do not want to reform the securities laws, 
then they do not want to vote for this amendment. But if they do want 
to reform the securities laws, this amendment is absolutely essential. 
Why? Because the RICO statute which this amendment would take away from 
applying to securities laws has become the stealth bomber of civil 
litigation in our society.
  This is a statute that is so poorly drafted by this body that 
plaintiffs' lawyers can apply it to everything but the kitchen sink. 
And anybody who has practiced law knows that the way around an 
established regime in the statutory framework is to file a civil RICO 
suit because then none of the laws apply.
  That is why a statute designed to apply to racketeering and organized 
crime in 40 percent of the cases now applies to securities lawsuits. 
This is a statute that is out of control. If we do not exempt this 
litigation from this statute, we will never get this job done.
  Mr. Chairman, we are trying to reform the securities laws. Reform is 
desperately needed. I think almost all of us acknowledge that. But if 
we do not eliminate RICO, we are not going to get this reform done.
  RICO is a loophole large enough for any plaintiff's lawyer to drive 
the largest Mercedes Benz through. We have to exempt it from this 
statute. I urge every single one of my colleagues who believe in 
securities law reform to vote for this amendment.
  Mr. BRYANT of Texas. Mr. Chairman, I move to strike the requisite 
number of words.
  Mr. Chairman, I would like to start by saying, I really think that 
the offering of this amendment today is a low point in the operation of 
this House this year. This is an amendment that has a sweeping impact, 
yet we never had any hearings on this matter. Why? Because the 
committee with jurisdiction over this bill, which the gentleman from 
Texas, [Mr. Fields] presides over, at least the subcommittee, does not 
even have jurisdiction over RICO.
  The result of that is that we are going to hear in this debate today, 
we have already heard, we are going to continue to hear a whole series 
of misstatements and a lot of remarks that are going to be read that 
somebody else wrote. Why? Because nobody in the debate on either side 
knows very much about RICO.
  I used to be the cosponsor in previous Congresses of a bill, along 
with a number of my colleagues on this side of aisle and that side of 
the aisle, to reform the RICO statute. There are problems with it. But 
I dare say, nobody who has spoken so far on that side of aisle or on 
this side of the aisle knows what they are. The fact of the matter is, 
we never saw
 this amendment until late last night. We never had any hearings on it. 
I just have to say that bringing a sweeping proposal like that to the 
House that has such an enormous impact without anybody really knowing 
what it is is, in my view, not the way to legislate. I urge Members to 
look at it in that light.

  We have heard a number of interesting statements. The last speaker a 
moment ago, the gentleman from California [Mr. Cox], has gotten up and 
said, we have got to get rid of RICO. It is a loophole in the law. You 
probably believe that it is loophole in the law. Somebody our staff 
told you that. Maybe a lobbyist told you that.
  But I read to the gentleman from California [Mr. Cox] just a moment 
ago and I will read for the benefit of this gentleman as well, 18 
United States Code which says, ``Any offense involving fraud in the 
sale of securities is one of the predicate acts of racketeering.'' It 
has been there in there from the very beginning. It is not a loophole. 
It has always been in there. Surely the gentleman would not wish to 
mislead the House. I am not sure he did not intend to. We have all made 
mistakes.
  The fact is, when you do not have any hearings on a proposal, when it 
has not been seen by anybody until the night before the bill comes up, 
there are going to be mistakes made. And that is one of them.
  We heard the gentleman from California [Mr. Cox] and others stand up 
and praise the SEC and say the SEC wants this. We do not know if the 
SEC wants it or not. There was language that was sort of a side bar 
language in their testimony with regard to the underlying bill that 
made some statements with regard to the need to reform RICO. I agree 
that there is a need to reform RICO. But the fact is, the SEC did not 
testify on RICO. Why? There have not been any hearings on RICO before 
the House of Representatives or any of its committees this year. So we 
do not know what their clear view is of RICO.
  Also they invoked the SEC. They say we should look at these casual 
remarks that they have made and apply them to our own judgment of RICO. 
What about the SEC's opinion of the loser-pays bill that you brought up 
here? They think it is a bad idea. What about their opinion of your 
standard of recklessness? They think it is a bad idea. What about the 
SEC's opinion of your definition of fraud on the market? They think it 
is a bad idea. And what about the SEC's opinion of the pleading 
requirements which you have put in the bill? They think those are a bad 
idea as well.
                              {time}  1815

  I note that the gentleman repeatedly gets up and says, ``It is a 
shame that plaintiff just does not recover enough in these cases.'' 
This is a RICO statute that provides treble damages. That is the one 
you want to repeal with this amendment. You might not have even 
realized that, inasmuch as there were no hearings, and very few people 
in this debate today are going to know very much about what the RICO 
statute even says.
  Finally, I think it is perhaps maybe a symbol of this whole debate, 
but after the gentleman from Michigan, Mr. Dingell, made a stirring 
speech condemning this whole effort, the gentleman from California, Mr. 
Cox, gets up and referred to Mr. Dingell's clipping, and reads to him 
from the last line of the 
[[Page H2777]] clipping, making it appear that somehow the Wall Street 
Journal has said the opposite of what Mr. Dingell says.
  Then Mr. Dingell gets up and realizes who Mr. Cox is quoting; he is 
quoting himself. Why? Because he did not have any hearings, and he does 
not have anybody else to quote. This amendment is not based upon any 
hearings, it is not based upon any jurisprudential, it is not based 
upon any data, any economic study, it is based upon an idea those guys 
had late last night.
  I urge Members to vote this amendment down and restore some dignity 
to the proceedings of this House.
  Mr. BILBRAY. Mr. Chairman, I move to strike the requisite number of 
words.
  Mr. Chairman, I happen to have heard my colleague, the gentleman from 
Michigan, mention in not too glowing terms the concept of rascals and 
rogues who had capitalized off of certain situations in our society. My 
question is as to who are the rascals and who are the rogues.
  Frankly, when we have 40 percent of the cases under the RICO being 
identified as being not as the original intention to the depth of what 
the original intention was supposed to come out, Mr. Chairman, there 
are rascals and rogues who would manipulate the law for their own 
personal gains. This amendment would try to rectify that problem.
  I do not think anybody who voted for the original intention expected 
it to be a free ride for those in the legal profession, to be able to 
dig deep into other people's pockets, or to be able to have procedures 
that they could not use in any other civil cases.
  However, to take advantage of a law that was meant to stop 
racketeering, to take advantage of legislation that was meant to 
protect the people of this country from organized crime, truly is 
immoral. Frankly, I think that this abuse that has been recognized by 
the Supreme Court is probably a good example of why the bar 
associations of this country probably are not doing their job, and 
because of that, we need to do our job here to straighten out abuses 
that have become obvious, obvious to the point to where we have to 
correct the well-intentioned RICO regulations.
  Mr. Chairman, I think that we do have rascals and rogues out there, a 
segment of our society that refuses to live by the rulings and the good 
intentions that the rest of us take for granted. There are those that 
take a look at legislation and say what a great opportunity not to have 
to play by the rules.
  I think this amendment, Mr. Chairman, will help to straighten it out 
and say we will live by the rules, and I think that the amendment will 
say that the rules will be set the same for these cases.
  Mr. CONYERS. Mr. Chairman, will the gentleman yield?
  Mr. BILBRAY. I yield to the gentleman from Michigan.
  Mr. CONYERS. Mr. Chairman, I thank the gentleman for yielding.
  Mr. Chairman, about the gentleman's concern, does he know that 
alleged Mafia links in securities cases would not be prosecutable under 
RICO? Is that part of his intention in repealing RICO, as applies to 
securities?
  Mr. BILBRAY. Of course not, Mr. Chairman. There are 40 percent of the 
cases being used under this. Is the gentleman saying that 40 percent of 
the cases under RICO are all racketeering?
  Mr. CONYERS. No, I have no idea.
  Mr. BILBRAY. Here is the point: RICO is meant to go after 
racketeering. It is being misused by attorneys, because it means they 
do not have to play by the other rules.
  Mr. CONYERS. If I could remind the gentleman, we have already read 
the statute on the floor. It includes as a predicate offense securities 
violations. It is in plain English, and it was there from the first day 
that RICO was enacted into law, having passed this Congress.
  However, my point is, would the gentleman preclude Mafia activities 
with securities from being a prosecutable offense under RICO? Because 
when we take RICO away, we are taking away the opportunity to prosecute 
Mafia involvement with securities.
  Mr. FIELDS of Texas. Mr. Chairman, will the gentleman yield?
  Mr. BILBRAY. I yield to the gentleman from Texas.
  Mr. FIELDS of Texas. Mr. Chairman, I apologize to the gentleman on 
the other side of the aisle that I do not have the statute book with 
me, but as the gentleman knows, the civil part of RICO is just one or 
two sentences, and that is that one or two sentences that has made a 
number of civil actions to be brought under RICO. That is not what our 
intent is.
  Mr. BILBRAY. It does not constitute 40 percent of the legislation.
  Mr. FIELDS of Texas. If someone is breaking the law, as the gentleman 
alleges, as a Mafia mobster, that person would still be penalized under 
the criminal sections of RICO.
  Mr. BILBRAY. Mr. Chairman, what we are talking about, those one or 
two sentences, are being manipulated for 40 percent of the actions. I 
do not think the legislation, and the gentleman was here, probably, I 
was not, I cannot believe the gentleman meant for 40 percent of this 
law to be used in this manner. I cannot believe that was his intention.
  Mr. CONYERS. If the gentleman will yield, we did not mean any 
percentages, Mr. Chairman. Nobody had any percentages in mind. The fact 
of the matter is if the law can apply in a case being prosecuted 
civilly, it ought to apply.
  Treble damages under RICO is an incredibly important tool, without 
which we are going to be at a loss for a lot of violations, including 
Mafia violations that are being reported in the Wall Street Journal.
  Mr. BILBRAY. I think that what the gentleman is saying, see, the 
gentleman is trying to use that. This law was meant to go after the 
Mafia. The fact is it is being abused.
  Mr. MARKEY. Mr. Chairman, I move to strike the requisite number of 
words.
  Mr. Chairman, I rise in opposition to this amendment. This is 
Congress operating at its worst. The amendment that we have here on the 
floor was never considered before our committee. There were no hearings 
that were called on this issue. In fact, the statute that we are 
amending right now is a separate statute altogether, the RICO statute. 
It has nothing to do with the jurisdiction of this committee.
  In fact, Mr. Chairman, this subject was never referred to our 
committee for consideration. Moreover, the Committee on the Judiciary, 
which does have jurisdiction over this issue, did not consider it, and 
had no witnesses on this subject as part of the process of bringing 
this bill out onto the floor.
  Mr. Chairman, we can all have a debate about whether or not 
racketeering should be considered to cover this, that, or another 
category, or potential defendants in suits, but let us not kid 
ourselves. When our subcommittee held hearings on penny stock fraud in 
1989 and 1990, we had to have our witnesses testify with bags over 
their heads because of the fear of retaliation by organized crime in 
the penny stock market of this country.
  Mr. Chairman, for any of the Members who think that as we talk about 
racketeering, that somehow or other it is exclusive of the securities 
marketplace, believe me, the penny stock market was rife with organized 
crime, so much so that there were life-threatening circumstances that 
many of our witnesses felt they were going to encounter.
  Mr. Chairman, that is even apart from the central question, though, 
that we have to answer tonight: Is it proper for this Congress to take 
up an issue of such a magnitude with no hearings, in fact, with markups 
before our committee, that is, a process by which we could make 
amendments to the legislation, that resulted in both subcommittee and 
full committee markups being truncated down to a point where there was 
no more than 2 or 3 hours on each occasion, even to consider amendments 
to the subject which was before us, much less this, which was not 
before us?
  To then come out here with a historic amendment to a separate piece 
of legislation with the Committee on Rules having a special hearing 
last night to put in order a nongermane amendment to a piece of 
legislation that has nothing to do with the business, and then asking 
our Members to rush out here at 6:30 and cast a vote on that, it is 
unfair. It is wrong. Congress 
[[Page H2778]] should not operate this way. It is completely 
unnecessary.
  The Committee on the Judiciary, chaired by the gentleman from 
Illinois, is fully capable of having a hearing on RICO that considers 
all aspects of it, that has witnesses coming in from the Justice 
Department, from the States, from the private bar, and from all others 
to give testimony.
  Congress tonight is being asked to cast a historic vote on a subject 
with no information before us except the opinions of a few Members who 
have been able to get a nongermane amendment put in order. It is 
Congress at its worst.
  I recommend to all Members to vote ``no'' on such an important 
subject, and send that signal that this subject should be sent back to 
the Committee on the Judiciary so that they have hearings on the issue, 
and send us out a bill that deals with that relevant subject in a way 
that dignifies this most important of all legislative bodies in the 
country.
  Mr. DINGELL. Mr. Chairman, will the gentleman yield?
  Mr. MARKEY. I am glad to yield to the gentleman from Michigan.
  Mr. DINGELL. I would like to address, if the gentleman would permit, 
the substance of the amendment, Mr. Chairman. The amendment says 
``Except no person may bring an action under this provision if the 
racketeering activity as defined in section 1961,'' and so forth, 
``involves conduct actionable as fraud in the purchase or sale of 
securities'' before the period.
  What this means is if fraud involving securities is involved in the 
question that is involved in the lawsuit----
  Mr. DINGELL. Mr. Chairman, I ask unanimous consent that the gentleman 
may proceed for 4 additional minutes.
  Mr. COX of California. Mr. Chairman, I object.
  The CHAIRMAN. Objection is heard.
  Mr. DINGELL. What this says, Mr. Chairman, because the language of 
the amendment reads as it does, is that if you are charged in a civil 
suit with violation of wire laws, of narcotics, or any of the other 
things which are prohibited under RICO, you had better make darned sure 
that you have been involved in some way with securities, because then 
you get a wash.
  This amendment guts RICO. It guts civil suits under RICO. It should 
be rejected.
  The CHAIRMAN. The time of the gentleman from Massachusetts [Mr. 
Markey] has expired.
  (At the request of Mr. Fields of Texas and by unanimous consent, Mr. 
Markey was allowed to proceed for 3 additional minutes.)
  Mr. MARKEY. Mr. Chairman, I yield to the gentleman from Michigan [Mr. 
Dingell].
  Mr. DINGELL. Mr. Chairman, just so that we understand, because of the 
redundant way in which the amendment is drawn, it says that if the suit 
by a citizen involves securities, you cannot sue under RICO, so you 
would not be able to sue under RICO for any of the other things which 
are prohibited under RICO: for example, murder; for example, violation 
of narcotics laws; for example, participating in a criminal enterprise 
of any kind, or for any kind of interstate fraud, gambling, narcotics, 
or whatever it might happen to be.
  Mr. Chairman, if we are going to deal with the question of RICO 
reform, then good sense says that we should deal with it well. We ought 
not offer, simply because the individual can rush into court and say 
``But you cannot sue me under RICO for gambling or narcotics because I 
was involved in securities, and the language of the Cox amendment says 
that I can't be sued if securities were involved.''
  I do not blame the gentleman from California for objecting, because I 
would not want anybody to say these things about me on the floor, but 
the hard fact is the legislation is poorly drawn, it is hurried to the 
floor without proper hearings, without any
 intelligent consideration, and it has results far different, far 
broader, far worse from the standpoint of RICO, law enforcement, and 
getting at criminals generally. That is what is involved here.

  The amendment ought to be rejected, if for no other reason than it is 
sloppy work. It is an embarrassment to the House. It may not embarrass 
the author of the amendment, but it assuredly embarrasses me, because I 
believe that this body should legislate well and efficiently. It should 
legislate wisely, so we do not surprise ourselves with the stupid 
consequences of irresponsible, unwise, and careless work. I urge that 
the amendment be rejected.

                              {time}  1830

  Mr. LEWIS of California. Mr. Chairman, I move to strike the requisite 
number of words, and I yield to my colleague the gentleman from 
California [Mr. Cox].
  Mr. COX of California. I thank the gentleman for yielding.
  I am disappointed with the intemperate remarks of the gentleman from 
Michigan who certainly knows that we have had ample testimony on the 
subject of RICO in many, many committees in this Congress over years 
and years and years which I recounted when the gentleman apparently was 
not on the floor commencing in 1985, dating all the way up to this year 
when just a few weeks ago, the current Commissioner of the Securities 
and Exchange Commission came before our Committee on Commerce and 
supported this amendment. He also has sent a letter to the current 
chairman of the Committee on Commerce supporting this amendment.
  I mentioned that Abner Mikva has testified before Congress in support 
of this amendment, in support of RICO reform. I mentioned that the 
Supreme Court of the United States when it examined this issue 10 years 
ago found that it is up to Congress to fix this problem and both the 
majority and the minority in that Supreme Court decision said that RICO 
is being stretched beyond what Congress originally intended in the 
securities area.
  I even quoted from Justice Thurgood Marshall. Thurgood Marshall was 
in the dissent, in the minority in that case, and it was Thurgood 
Marshall and Justice Powell who would have voted to limit RICO in the 
Supreme Court, but we are doing it here in Congress because majority 
said it is really Congress' mistake, Congress should fix it. The SEC's 
general counsel has testified in favor of this and we quoted from his 
testimony. I have submitted for the Record comments from judges across 
America who have said that this is an abuse. Almost all of the examples 
that we just recently heard were examples where criminal RICO, which is 
the whole bulk of the statute, civil RICO is only a few sentences, 
where criminal RICO should be used.
  It is certainly important that criminals be prosecuted and that is 
exactly what will happen before and after this amendment. But what we 
do not want to see is for our carefully crafted Federal securities laws 
to be shunted aside and instead for people to be able to use a statute 
never intended to apply in these civil cases in this way so that they 
can get treble damages, something not provided for in our securities 
laws, so that they can get discovery going all the way back 10 years to 
show a pattern which is part of RICO, not part of the securities laws, 
and in short so they can gin up settlements where a settlement is not 
in order.
  This is exactly the kind of securities litigation fraud that we are 
here to punish and we certainly should not do anything that would 
permit it to continue.
  I urge my colleagues very strongly to support his amendment. If there 
are no further comments, I would ask for a vote.
  The CHAIRMAN. The question is on the amendment offered by the 
gentleman from California [Mr. Cox].
  The question was taken; and the Chairman announced that the noes 
appeared to have it.


                             recorded vote

  Mr. FIELDS of Texas. Mr. Chairman, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 292, 
noes 124, answered ``present'' 1, not voting 17, as follows:
                             [Roll No. 209]

                               AYES--292

     Ackerman
     Allard
     Andrews
     Archer
     Armey
     Bachus
     Baesler
     Baker (CA)
     Baker (LA)
     Baldacci
     Ballenger
     Barcia
     Barr
     Barrett (NE)
     Bartlett
     Barton
     Bass
     Bateman
     Bereuter
     Bilbray
     Bilirakis
     Bishop
     Bliley
     Blute
     Boehlert
     Bonilla
     Bono
     Boucher
     Brewster
     Browder
     [[Page H2779]] Brownback
     Bryant (TN)
     Bunn
     Bunning
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Canady
     Cardin
     Castle
     Chabot
     Chambliss
     Chapman
     Chenoweth
     Christensen
     Chrysler
     Clement
     Clinger
     Clyburn
     Coble
     Coburn
     Collins (GA)
     Combest
     Cooley
     Costello
     Cox
     Crane
     Crapo
     Cremeans
     Cubin
     Cunningham
     Danner
     Davis
     de la Garza
     Deal
     DeLauro
     DeLay
     Deutsch
     Diaz-Balart
     Dickey
     Dooley
     Doolittle
     Dornan
     Doyle
     Dreier
     Duncan
     Dunn
     Durbin
     Edwards
     Ehlers
     Ehrlich
     Emerson
     English
     Ensign
     Eshoo
     Evans
     Everett
     Ewing
     Farr
     Fawell
     Fazio
     Fields (TX)
     Flanagan
     Foley
     Forbes
     Fowler
     Fox
     Frank (MA)
     Franks (CT)
     Franks (NJ)
     Frelinghuysen
     Frisa
     Funderburk
     Gallegly
     Ganske
     Gekas
     Geren
     Gilchrest
     Gillmor
     Gilman
     Goodlatte
     Goodling
     Goss
     Graham
     Gunderson
     Gutknecht
     Hall (TX)
     Hamilton
     Hancock
     Harman
     Hastert
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Heineman
     Herger
     Hilleary
     Hobson
     Hoekstra
     Hoke
     Holden
     Horn
     Hostettler
     Houghton
     Hoyer
     Hunter
     Hutchinson
     Hyde
     Inglis
     Istook
     Johnson (CT)
     Johnson, Sam
     Jones
     Kasich
     Kelly
     Kennelly
     Kim
     King
     Kingston
     Klug
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Laughlin
     Lazio
     Leach
     Lewis (CA)
     Lewis (KY)
     Lightfoot
     Linder
     Lipinski
     Livingston
     LoBiondo
     Lofgren
     Longley
     Lucas
     Maloney
     Manzullo
     Martini
     Mascara
     McCollum
     McCrery
     McHugh
     McInnis
     McIntosh
     McKeon
     Metcalf
     Meyers
     Mica
     Miller (FL)
     Minge
     Moakley
     Molinari
     Mollohan
     Montgomery
     Moorhead
     Moran
     Morella
     Myers
     Myrick
     Neal
     Nethercutt
     Neumann
     Ney
     Nussle
     Orton
     Oxley
     Packard
     Parker
     Paxon
     Payne (VA)
     Peterson (FL)
     Peterson (MN)
     Petri
     Pickett
     Pombo
     Porter
     Portman
     Poshard
     Pryce
     Quillen
     Quinn
     Radanovich
     Ramstad
     Regula
     Riggs
     Roberts
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Roukema
     Royce
     Salmon
     Sanford
     Sawyer
     Saxton
     Scarborough
     Schaefer
     Schiff
     Schumer
     Seastrand
     Sensenbrenner
     Shadegg
     Shaw
     Shays
     Shuster
     Sisisky
     Skeen
     Skelton
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Smith (WA)
     Solomon
     Souder
     Spence
     Spratt
     Stearns
     Stenholm
     Stockman
     Stump
     Talent
     Tanner
     Tate
     Tauzin
     Taylor (NC)
     Tejeda
     Thomas
     Thornberry
     Thornton
     Thurman
     Tiahrt
     Torkildsen
     Torricelli
     Traficant
     Upton
     Vento
     Vucanovich
     Waldholtz
     Walker
     Walsh
     Wamp
     Ward
     Watts (OK)
     Weldon (FL)
     Weldon (PA)
     Weller
     White
     Whitfield
     Wicker
     Wilson
     Wolf
     Young (AK)
     Young (FL)
     Zeliff
     Zimmer

                               NOES--124

     Abercrombie
     Barrett (WI)
     Becerra
     Beilenson
     Bentsen
     Berman
     Bevill
     Bonior
     Borski
     Brown (CA)
     Brown (FL)
     Brown (OH)
     Bryant (TX)
     Clay
     Clayton
     Coleman
     Collins (IL)
     Collins (MI)
     Conyers
     Coyne
     Cramer
     DeFazio
     Dellums
     Dicks
     Dingell
     Dixon
     Doggett
     Engel
     Fattah
     Fields (LA)
     Filner
     Foglietta
     Ford
     Frost
     Furse
     Gejdenson
     Gephardt
     Gonzalez
     Gordon
     Green
     Gutierrez
     Hall (OH)
     Hastings (FL)
     Hefner
     Hilliard
     Hinchey
     Jackson-Lee
     Jacobs
     Johnson (SD)
     Johnson, E.B.
     Johnston
     Kanjorski
     Kaptur
     Kennedy (MA)
     Kennedy (RI)
     Kildee
     Kleczka
     Klink
     LaFalce
     Lantos
     Levin
     Lewis (GA)
     Lincoln
     Luther
     Manton
     Markey
     Martinez
     Matsui
     McCarthy
     McDermott
     McHale
     McNulty
     Meehan
     Menendez
     Mfume
     Miller (CA)
     Mineta
     Mink
     Nadler
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pastor
     Payne (NJ)
     Pelosi
     Pomeroy
     Rahall
     Reed
     Reynolds
     Richardson
     Rivers
     Roemer
     Roybal-Allard
     Rush
     Sabo
     Sanders
     Schroeder
     Scott
     Serrano
     Skaggs
     Slaughter
     Stark
     Stokes
     Studds
     Stupak
     Taylor (MS)
     Thompson
     Torres
     Towns
     Tucker
     Velazquez
     Visclosky
     Volkmer
     Waters
     Watt (NC)
     Waxman
     Williams
     Wise
     Woolsey
     Wyden
     Wynn

                        ANSWERED ``PRESENT''--1

       
     Lowey
       

                             NOT VOTING--17

     Boehner
     Condit
     Flake
     Gibbons
     Greenwood
     Hansen
     Jefferson
     Largent
     McDade
     McKinney
     Meek
     Murtha
     Norwood
     Rangel
     Rose
     Roth
     Yates
                              {time}  1851

  The Clerk announced the following pairs:
  On this vote:

       Mr. Largent for, with Mr. Flake against.
       Mr. Roth for, with Mr. Jefferson against.

  Messrs. JOHNSON of South Dakota, GENE GREEN of Texas, and LEVIN 
changed their vote from ``aye'' to ``no.''
  Ms. LOFGREN and Messrs. PETERSON of Florida, THORNTON, and MOAKLEY 
changed their vote from ``no'' to ``aye.''
  So the amendment was agreed to.
  The result of the vote was announced as above recorded.
                          personal explanation
  Mr. LARGENT. Mr. Speaker, had I been present for the following votes 
on Tuesday, March 7, 1995, I would have voted as follows:
  On House Resolution 105, agreeing to the resolution--``yea.''
  On the Cox amendment to H.R. 1058, to prohibit claimants from 
bringing securities lawsuits under Racketeer Influenced and Corrupt 
Organizations [RICO] Act--``yea.''
                amendment offered by mr. fields of texas

  Mr. FIELDS of Texas. Mr. Chairman, I offer a technical amendment.
  The Clerk read as follows:

       Amendment offered by Mr. Fields of Texas: Page 9, line 5, 
     strike ``verifies'' and insert ``certifies''.
       Page 11, line 21, and page 13, line 20, strike ``any 
     settlement'' and insert ``any proposed or final settlement''.
       Page 12, line 9, insert ``per share'' after ``potential 
     damages''.
       Page 14, beginning on line 18, strike ``The order shall 
     bar'' and all that follows through line 23, and insert the 
     following:
       The order shall bar all future claims for contribution 
     arising out of the action--
       ``(A) by any person against the settling defendant; and
       ``(B) by the settling defendant against any person older 
     than a person whose liability has been extinguished by the 
     settling defendant's settlement.
       Page 16, line 20, insert ``section 10(b) of'' after 
     ``under''.
       Page 17, line 6, insert ``to state'' after ``or omits''.
       Page 17, line 25, strike ``or sellers'' and insert ``, 
     sellers, or security holders''.
       Page 18, line 2, strike ``consciously''.
       Page 19, line 25, insert ``knowledge and'' after 
     ``paragraph (1),''.

  Mr. FIELDS of Texas (during the reading). Mr. Chairman, I ask 
unanimous consent that the amendment be considered as read and printed 
in the Record.
  The CHAIRMAN. Is there objection to the request of the gentleman from 
Texas?
  There was no objection.
  Mr. FIELDS of Texas. Mr. Chairman, this amendment contains only 
technical and conforming changes that have been agreed to by the 
majority and minority.
  The amendments clarify that disclosure is required for both proposed 
and final settlements, and that such disclosures includes a statement 
of potential damages per share. They also prevent settlement discharge 
bar orders from prohibiting a defendant from using an indemnification 
agreement or suing a subordinate. The amendments clarify that the new 
section 10A applies only to actions under old section 10(b) and make 
certain other technical and conforming changes.
  Mr. MARKEY. Mr. Chairman, will the gentleman yield?
  Mr. FIELDS of Texas. I yield to my friend, the gentleman from 
Massachusetts.
  Mr. MARKEY. Mr. Chairman, I thank the gentleman for yielding.
  Indeed this amendment does include several technical changes which 
have been agreed upon between the majority and the minority, and we 
would recommend them to the full committee.
  The CHAIRMAN. The question is on the amendment offered by the 
gentleman from Texas [Mr. Fields].
  The amendment was agreed to.
  Mr. BLILEY. Mr. Chairman, I move to strike the last word.
  Mr. Chairman, I am about to make a motion that the committee do rise, 
but before doing so I would like to announce that when the Committee 
returns to this measure tomorrow, the first order of business will be 
the amendment of the gentlewoman from California [Ms. Eshoo].
  Mr. Chairman, I move that the Committee do now rise.
  The motion was agreed to.
  Accordingly, the Committee rose; and the Speaker pro tempore (Mrs. 
Vucanovich) having assumed the chair, Mr. Combest, Chairman of the 
Committee of the Whole House on the State of the Union, reported that 
that Committee, having had under consideration the bill (H.R. 1058) to 
reform Federal 
[[Page H2780]] securities litigation, and for other purposes, had come 
to no resolution thereon.

                          ____________________