[Congressional Record Volume 141, Number 44 (Thursday, March 9, 1995)]
[Extensions of Remarks]
[Pages E564-E565]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                    SECURITIES LITIGATION REFORM ACT

                                 ______


                               speech of

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Wednesday, March 8, 1995

       The House in Committee of the Whole House on the State of 
     the Union had under consideration the bill (H.R. 1058) to 
     reform Federal securities litigation, and for other purposes.

  Mr. LaFALCE. Mr. Chairman, I rise today to state my reluctant 
opposition to this bill, for I had hoped it would be adequately amended 
so that I could support it. Instead, I must comment on several serious 
issues that yet remain to be addressed with this legislation.
  This week's so-called tort reform legislation consists of three 
bills, addressing in turn civil litigation, securities litigation, and 
product liability. In each case, I believe the proponents of the bill 
have recognized a real problem, but have attempted to write into law 
remedies that 
[[Page E565]] far exceed those needed to address the problem, and far 
exceeding those that are desirable.
  Today's bill, H.R. 1058, is the least problematic of these bills. It 
addresses a discrete but serious issue--the filing of frivolous 
securities fraud class action lawsuits. As the Chairman of the 
Securities and Exchange Commission agrees, this problem clearly exists 
and may be growing. A very small group of overzealous attorneys pursue 
these lawsuits, often within hours of a significant change in the price 
of a stock or security. These attorneys keep on hand stables of 
professional plaintiffs for these suits, and prey on high-technology 
companies whose stock prices are naturally volatile. In many cases, 
companies are forced to settle out of court, rather than endure a 
lengthy and expensive trial on the merits.
  The evidence indicates that such lawsuits are often baseless. 
However, the costs of defending such suits places a significant drag on 
high-technology and startup companies, not to mention their directors, 
officers, and accounting firms.
  Without a system of proportionate liability--such as that proposed in 
H.R. 1058--accounting firms, for example, justifiably fear the prospect 
of being names as codefendants in these class action lawsuits. As a 
result, some now choose not to perform accounting and auditing services 
for this growing sector of our economy.
  For these reasons, I had hoped to be able to support a bill that 
would address the specific problem of securities fraud class action 
lawsuits in a responsible way. Instead, like so many other bills 
seeking to enact the so-called Contract With America, we have today 
considered a bill that far overreacts and far overreaches.
  H.R. 1058 did improve somewhat as it moved through the Commerce 
Committee, both at the subcommittee and the full committee level. 
Unfortunately, House leaders chose to circumvent the Legislative 
process in the Judiciary Committee, where further improvements could 
have been made. Today on the House floor, several valuable amendments 
to the bill were offered, including one by my colleague from New York 
[Mr. Manton]. These amendments were not even considered seriously. I am 
forced to conclude that proponents of this bill do not intend to pursue 
reasonable compromise. I hope that the Senate will be more deliberate, 
and that any future conference agreement might weigh these difficult 
issues in a more responsible manner.
  But at this time, H.R. 1058 contains numerous flaws, including: an 
unduly burdensome loser pays provision, prohibitive fact pleading 
requirements, an onerous bond requirement for the filing of class 
action suits, the need to show scienter rather than recklessness in 
order to prove securities fraud, et cetera. These are serious defects, 
which must be responsibly and deliberately addressed. For these 
reasons, I must now oppose passage of H.R. 1058, but hope it will be 
moderated significantly in conference with the Senate, so that I could 
then support final passage of the conference report.


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