[Congressional Record Volume 141, Number 104 (Friday, June 23, 1995)]
[Senate]
[Pages S8989-S8990]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                PRIVATE SECURITIES LITIGATION REFORM ACT

  The Senate continued with the consideration of the bill.
  Mr. D'AMATO. Mr. President, I would like to speak on the amendment 
that was submitted by my colleague, Senator Bryan. The issue of whether 
we should extend the statute of limitations to bring an implied right 
of action is fraught with confusion.
  In 1991, the Supreme Court, for the first time, set the statute of 
limitations on implied private rights of action. Before the Court's 
ruling there was no unified statute of limitations in these kinds of 
cases. The statute of limitations varied from State to State. Whether 
you could bring suit depended entirely on what the statute of 
limitations was in any particular State.
  In the 1991 Lampf case, the Court finally set a standard statute of 
limitations. There has been no evidence shown that extending this 
Supreme Court set statute to 5 years will benefit wronged investors. In 
fact, extending the statute of limitations will do nothing more than 
hold a sword over businesses, and create more of an unreasonably long 
opportunity for litigation.
  That is why we will be opposing this amendment to extend the statute 
of limitations. The bill holds to the statutes of limitations set by 
the Lampf case, 1 year from the time of discovery. It seems to me that 
once you discover fraud, you should be able to bring a lawsuit within 1 
year. To extend that to 2 years is unreasonable. If you have discovered 
a fraud, then bring the suit. Why would you need 2 years?
  Also, the SEC has the authority to bring suit at any time on behalf 
of investors who have been wronged; the SEC has no statute of 
limitations. Extending the statute of limitations to 2 years will make 
our judicial system a paradise for these lawyers.
  We have not diminished the right to bring a suit after fraud has been 
discovered, you can bring a suit 5, 10 years later through the SEC. 
However, the lawyers do not make money in huge settlements when the SEC 
brings suit, so they oppose the provision. I would rather have the SEC 
bring suit so that the defrauded investors actually recover their 
losses when a settlement is made. In fact, the function of the 
Securities and Exchange Commission is to protect the investor.
  The SEC recently forced Prudential to set up an open-ended 
disbursement fund to compensate investors who were defrauded in the 
1980's. I am confident that these investors are actually getting that 
money. The SEC had the authority to require this firm to set aside $330 
million for investors, and the SEC did not skim off $30 million of that 
settlement for lawyers. Is that not the way the system should operate?
  We debate whether 1 year is enough time after the fraud is discovered 
to bring suit. I ask, why would 1 year not be enough time? Investors 
are protected by the SEC's authority after that 1 year has expired. By 
limiting the statute of limitations to 1 year, however, we are able to 
stop lawyers from shopping around for years, looking for any possible 
violation to allege. If there is fraud which comes to light after the 
statute of limitations has expired the SEC can always bring suit. 
Understand that in most cases there is no fraud, the lawyers search 
until they find something with which to allege fraud so that they can 
force the defendants to settle. We need to stop this wasteful practice.
  We are not protecting people who commit fraudulent actions. We are 
saying that you cannot allege fraud year after year, just to make the 
charge. Again, I stress if there is a real fraud, doggone it, we know 
that the SEC will bring suit. This is not a new practice for the SEC, 
they have done it before and they will do it again. The SEC, however, 
will not waste time or money on a multiplicity of specious, spurious 
claims. So when the proponents of the extension of the statute of 
limitations say that investors brought 300 suits and the SEC only 
brought 1, I would note that those 300 suits were mostly frivolous. I 
would rather have one meritorious suit that recovers money for 
investors and is not used as a vehicle to extort money, than hundreds 
of meritless suits.
  So when we talk about extending the statute of limitations understand 
that we are not doing anything more, in most cases, than giving people 
an opportunity to fish around until they catch a way to allege fraud 
and file a lawsuit. Once fraud has been discovered, I think it is 
preposterous to say that more than 1 year is needed to bring suit. 
Remember, most of these cases allege fraud although no fraud has been 
committed. They allege fraud in order to force defendants to settle 
because they cannot defend themselves without putting themselves at 
risk of even greater losses.
  So I very strenuously oppose the extension of the statute of 
limitations, which I think would do a great disservice to the 
litigation system. The Supreme Court, the highest court in the land, 
established this statute of limitations and stated the need for 
uniformity in that statute.
  I would like to make two other observations. I read in a New York 
Times editorial that we are making it impossible to bring suit. This is 
not the case, we are only limiting the ability of lawyers to use these 
cases as a collection vehicle to enrich themselves just by alleging 
fraud. I will repeat that the SEC can bring a case where it believes 
fraud has been committed, without any statute of limitations, and the 
private right of action is still available in the State court system. 
If a State court, or State legislature extends the statute of 
limitations to 5 years from the commission of fraud and 2 years from 
the time of discovery, investors will be able to file suit. Of course, 
even in the terrible Keating case suit was brought within a year of 
discovery and within 2 years of fraud. So when people say we are 
against extending the statute of limitations, I answer, yes, we are 
going to bar specious claims, ridiculous

[[Page S8990]]

claims brought only to enrich the lawyers, however we keep protections 
against real fraud. In fact, the Securities and Exchange Commission, I 
believe, is in a much better position to judge where there is merit and 
where there is not in these cases.
  Mr. President, I have nothing further to add on the amendment put 
forth by my distinguished colleague, Senator Bryan.
  Mr. SARBANES. Mr. President, I will be very brief.
  The amendment offered by the distinguished Senator from Nevada [Mr. 
Bryan] on the statute of limitations question is a very important 
amendment. I hope my colleagues will consider it very carefully over 
the weekend and again on Monday, when we will debate the amendment and 
have a vote on or in relation to the amendment.
  Let me say that Senators Dodd and Domenici, when they introduced 
their bill, included a provision on the statute of limitations that 
closely parallels what Senator Bryan has offered.
  They recognized the statute of limitations problem and they sought to 
correct it in the package which they introduced. In fact, they 
apparently thought it was of such consequence that in the title to 
their bill, they put it first and foremost.
  Their bill as introduced is to amend the Securities Exchange Act of 
1934 to establish a filing deadline, and to provide certain other 
things. They put it right up front. That gives Members, perhaps, some 
indication of recognition of its importance.
  That provision was then dropped out in the committee's 
consideration--very unwisely, some Members think--and the measure now 
before the Senate does not contain that provision, which was in the 
original bill as introduced by Senators Domenici and Dodd. Of course, 
the amendment offered by the distinguished Senator from Nevada, Senator 
Bryan, is trying to correct that situation.
  Now, once again, we hear this argument made about the frivolous suits 
or the strike suits, but that really is not related to the statute of 
limitations problem.
  A shorter statute of limitations may well knock out meritorious 
suits, as well. Now, we tried to get a distinction between meritorious 
suits and frivolous suits with other provisions of the bill--provisions 
that we are not trying to amend here on the floor.
  In other words, there has been an acceptance of the proposition that 
there is something of a problem that we need to try to deal with. 
Certain provisions in this bill do that, and represent an appropriate 
change in the existing securities litigation system.
  Other provisions, we submit, go well beyond that. They are excessive 
and constitute overreach, and will in effect, reduce investor 
protections. We hope, in the course of the consideration of this 
measure, to change those provisions, to strengthen investor protections 
and, in effect, to make this a better bill, and eventually, if one 
could alter it sufficiently, make it worthy of broad-based general 
support.
  The statute of limitations problem does not reach the question of the 
distinction between meritorious suits and frivolous suits, unless one 
is going to assert the proposition: ``Well, the more immediate the 
statute of limitations, the more suits you can knock out.''
  It makes no distinction whether we are knocking out meritorious suits 
or frivolous suits. In fact, probably you will more likely knock out 
meritorious suits, since those usually take time to work out, and if 
people are responsible, they do not bring the suit until they have 
asserted a substantial basis for it.
  Now, Senator Bryan earlier today said it takes the SEC itself--with 
all of the resources that it has, all of the expertise that it has, all 
of the experience that it has--about 2.2 years to bring a suit once 
they begin working on it.
  That is the SEC. What does that mean for investors who are trying to 
bring private suits in terms of what constitutes a reasonable statute 
of limitations for them?
  Second, the 2- and 5-year time periods were what was generally 
applicable throughout a good period of our experience with the 
Securities and Exchange Act. It worked well. I have heard very little 
criticism of how it worked over that time period.
  I have heard criticisms of other aspects of the litigation system, 
but not really sharp criticism with respect to the statute of 
limitations question. As I indicated earlier, in fact, a provision was 
included in the bill that Senators Dodd and Domenici are pushing, this 
effort to revise the securities litigation system, very strongly. They 
included that in the legislation which they proposed.
  The Senate Banking Committee, in 1991, unanimously, just a couple of 
years ago, unanimously approved a provision that provided for the 2- 
and 5-year statute of limitations. The 2 years would mean that from the 
time you learned of the fraud, you would have 2 years to bring your 
action. These are complicated cases. You want people to bring 
responsible actions, and bringing responsible actions means it takes 
time to prepare them.
  In some respects, a shorter statute of limitations is an invitation 
for the filing of, in a sense, not well-grounded suits, because you 
just want to get in under the wire and you will go ahead and file the 
suit. The 5-year period would be the statute no matter what, even if 
you had not discovered the fraud.
  Now, unless we change that, it is only a 3-year period. Some of these 
things are concealed--they are concealed from the victims. In fact, the 
previous Chairman of the SEC, Mr. Breeden, testified to that effect:

       Adoption of these measures will give private litigants a 
     more realistic timeframe in which to discover that they have 
     been defrauded, while also accommodating legitimate interests 
     in providing finality to business transactions and avoiding 
     stale claims.

  The shorter period does not allow investors adequate time to discover 
and pursue violations of securities laws. Many of these things are very 
complicated. There is a lot of deception and concealment involved. The 
1- and 3-year limits really break with 40 years of legal precedent.
  I just hope that the Senate, when it considers this matter, will 
adopt the Bryan amendment, and go to the 2- and 5-year limitation 
period. I think it is reasonable. Some States have longer periods, as a 
matter of fact. I think it is reasonable to go to the 2- and 5-year 
standard, which is generally what prevailed over four decades of 
experience with the security laws.
  I am very hopeful my colleagues, in considering this amendment on 
Monday, will be supportive of it.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. BAUCUS. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BAUCUS. Mr. President, what is the pending business?
  The PRESIDING OFFICER. The Bryan amendment.
  Mr. BAUCUS. Mr. President, I ask unanimous consent to speak as if in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The PRESIDING OFFICER. The Senator from Montana is recognized.
  Mr. BAUCUS. I thank the Chair.
  (The remarks of Mr. Baucus pertaining to the introduction of S. 963 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')
  Mr. LEAHY. Mr. President, what is the parliamentary situation?
  The PRESIDING OFFICER. The pending business is the Bryan amendment to 
the securities litigation bill.
  Mr. LEAHY. I thank the Presiding Officer.
  Mr. President, I ask unanimous consent to proceed as in morning 
business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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