[Congressional Record Volume 141, Number 47 (Tuesday, March 14, 1995)]
[Extensions of Remarks]
[Pages E587-E588]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                    SECURITIES LITIGATION REFORM ACT

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                               speech of

                           HON. LOUIS STOKES

                                of ohio

                    in the house of representatives

                         Tuesday, March 7, 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. STOKES. Mr. Chairman, I rise in strong opposition to H.R. 1058, 
the Securities Litigation Reform Act of 1995. We should not, in an 
attempt to decrease the amount of frivolous class action lawsuits, 
forsake our duty to act in the best interest of individual small 
investors and consumers by limiting their ability to seek redress in 
the courts. This ill-conceived and hurried legislation will not only 
fail to reform the securities litigation system in the United States, 
but will in fact compromise Americans' faith in our securities 
industry.
  The bill before us today, the Securities Litigation Reform Act of 
1995, will not only attempt to curtail unwanted lawsuits, but will also 
make it impossible for regular Americans to have access to the Federal 
courts. Such an assault on American citizens' rights to access to the 
courts is unacceptable and I will oppose this legislation for many of 
the same reasons I opposed H.R. 988, the Attorney Accountability Act of 
1995. H.R. 1058 is a restrictive bill that will certainly undermine 
many of our most important efforts to provide a forum that provides 
legal redress for individual Americans and our ability to insure the 
integrity of the securities markets.
  Mr. Speaker, one of the stated purposes of the Securities Litigation 
Reform Act is to shift fee burdens to a losing party including 
defrauded individual small investors. Proponents of H.R. 1058 have 
stated that this provision is intended to discourage frivolous class 
action lawsuits, and encourage parties to settle disputes prior to 
trial.
  This bill also establishes new loopholes and limited liability 
provisions for brokers and firms who defraud investors. Finally, the 
bill contains other technical modifications that make it easier for 
wrongdoers to commit fraud and more difficult for investors to seek 
redress in the courts.
  This bill is hostile to the American justice system's over 200-year-
old policy that favors access to the Federal courts for citizens with a 
claim. Adoption of the ``loser pays'' standards in H.R. 1058 would 
inhibit the will of the 
[[Page E588]] people by transferring all of the burden of the costs of 
rendering justice in the courts from the wealthy, well-connected and 
privileged to the individual small investor. The clear result of 
imposing a ``loser pays'' rule would be to destroy regular Americans' 
rights under the Federal security laws to have access to the Federal 
courts.
  Mr. Speaker, by disproportionately transferring to plaintiffs the 
burden of the cost of pursuing securities litigation this bill is 
clearly in opposition to over 200 years of American common law. 
Furthermore, the reasoning behind this unfair and unjust bill is not 
supported by the facts. So-called frivolous lawsuits actually make up a 
minute portion of all lawsuits litigated in this Nation. Noted 
securities law experts like Professor Arthur R. Miller of the Harvard 
Law School have pointed out that: ``There is absolutely no evidence 
that the 1 percent of cases on the Federal court docket under the 
Securities Acts is any different, in terms of the problem of 
frivolousness, as the other 99 percent of the Federal judicial 
docket.''
  Under current law, the Federal rules of civil procedure give judges 
the opportunity to hold attorneys accountable for bringing frivolous 
lawsuits. Rule 11 of the Federal rules of civil procedure presently 
authorize Federal courts to impose sanctions upon attorneys, law
 firms, or parties for engaging in inappropriate conduct or for 
bringing frivolous or harassment lawsuits. The facts clearly show that 
despite the fact that there were thousands of cases filed last year, in 
less than 1 percent of those cases did Federal judges determine that 
rule 11 sanctions were justified.

  Mr. Speaker, we have also been told that frivolous securities 
lawsuits are at the crest of a wave of securities litigation that is 
overwhelming the courts and sapping the strength of corporate America. 
Neither statement could be further from the truth. This is confirmed by 
the testimony by the Securities and Exchange Commission's William R. 
McLucas, who testified that: ``According to statistics obtained from 
the Administrative Office of the U.S. Courts, the approximate aggregate 
number of securities cases--including SEC cases--filed in Federal 
District Court does not appear to have increased over the past two 
decades.'' In fact, the figures from the Administrative Office of the 
U.S. Courts also reveal that in 1993 there were 298 class-action 
lawsuits, slightly less than the 305 filed over 20 years ago in 1974.
  Mr. Speaker, while I am sympathetic to the goal of eliminating 
frivolous securities litigation, H.R. 1058 in its present form fails to 
provide adequate protection or incentives to preserve the rights of 
victims of abuses of the securities laws, and in particular, those 
investors and consumers in my home State of Ohio.
  As you all know, several municipalities and counties throughout the 
United States have been plagued by massive losses as a result of 
involvement in risky securities investments. My home district has not 
been immune to the abuses that exist in the securities brokerage 
industry. Due to the high risk leveraging and derivatives investments 
peddled by many Wall Street brokerage firms, Cuyahoga County's $1.8 
billion investment pool, the Secured Asset Fund Earnings [SAFE], has 
been dissolved, and these investments have cost Cuyahoga County 
taxpayers approximately $122 million. More than 70 government agencies, 
including Ohio cities, counties, and school districts participated in 
the SAFE fund, which held more than one-fourth of its investments in 
these highly speculative securities. As a result of SAFE's losses and 
dissolution, Cuyahoga County has had to cut next year's budget by 11 
percent--$35 million--and will freeze spending for 3 years after that.
  This bill would clearly protect wrongdoers from lawsuits brought 
against them by defrauded investors. The ``loser pays'' requirements, 
loopholes and limited liability
 would make it virtually impossible for my constituents who have been 
victims of SAFE's collapse to seek judicial redress, should faud turn 
out to have contributed to its demise.

  American securities markets are the envy of the world. They provide 
magnificent benefits to investors and businesses alike. Despite the 
claims of supporters of this bill that securities litigation is 
hampering capital markets. The facts reveal that initial public 
offerings have proceeded at a record pace in recent years, and a long 
list of notorious cases have recovered billions of dollars for 
thousands of defrauded investors.
  Our markets attract investments because investors have confidence in 
securities industry honesty and efficiency. All investors are aware of 
the fact that there are risks attached to any investment, and these 
investors are willing to take such risks in exchange for the potential 
gain. Yet, investors are not prepared to be defrauded and swindled out 
of their hard-earned money. So when any investor is defrauded, the 
entire securities industry is placed at risk. Private securities 
actions actually represent an efficient and effective privatization of 
National Policy to counteract financial fraud. H.R. 1058 would 
seriously compromise such a counter-action.
  Mr. Speaker, it is my belief that H.R. 1058, and the circumstances 
under which it is presented in this House, attempt to mislead the 
American people to believe that cookie cutter, simplistic solutions 
will cure what ails this Nation. Nothing could be further from the 
truth. As our Nation faces an epidemic of financial difficulties, 
bankruptcy and the abuse of consumer and citizens funds, the solution 
to these problems will not be found in quick fixes like the Securities 
Litigation Reform Act. The American people elected us to act in their 
best interest, not compromise their welfare because Government refuses 
to have the courage to meet its obligations. I urge my colleagues to 
join with me and vote against this bill.


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