[Congressional Record Volume 141, Number 105 (Monday, June 26, 1995)]
[Senate]
[Pages S9032-S9087]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                PRIVATE SECURITIES LITIGATION REFORM ACT

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
resume consideration of S. 240, which the clerk will report.
  The legislative clerk read as follows:

       A bill (S. 240) to amend the Securities Exchange Act of 
     1934 to establish a filing deadline and to provide certain 
     safeguards to ensure that the interests of investors are well 
     protected under the implied private action provisions of the 
     act.

  The Senate resumed consideration of the bill.

       Pending:
       Bryan Amendment No. 1469, to provide for a limitation 
     period for implied private rights of action.

  Mr. BENNETT. Mr. President, I have listened to the debate on this 
issue from both sides of the aisle with great interest and have several 
observations that I would like to share with you and the others in the 
Senate as we come to this point.
  As is pointed out often to me, and sometimes as I have pointed out 
during my political career, I am not a lawyer. I have not been blessed 
with the experience of having gone through law school or passed the bar 
or practiced law or any of the other kinds of experiences that go with 
being an attorney, which so many of our colleagues in the Senate have. 
Indeed, a majority, Mr. President, of the Members of this body are 
lawyers.
  I have not kept exact tally, but I believe that the vast majority, if 
not 100 percent, of the people who have commented on this bill, have 
been lawyers.
  No, I must correct myself. Mr. President, the Senator from California 
[Mrs. Boxer] is not a lawyer, and she has been very forthright in her 
opposition to this bill. So I would back away from that. But most of 
the people who have spoken on this have been lawyers. And I have 
noticed that they have addressed this issue on the basis of what will 
happen in court if S. 240 were to pass.
  They have argued that back and forth, with lawyers saying: Oh, no, if 
S. 240 were passed, why, then this is how the courts would be forced to 
rule. And then other lawyers have risen and said: You are wrong; if S. 
240 passes, the courts would not have that ruling at all; they would 
rule this way. Back and forth, so the argument goes between those who 
have had the experience of a legal education.
  I wish to share with the Senate my view of this, which is based not 
on a legal background but upon direct experience and observation with 
what has been happening with strike suits as these have come to be 
known.
  My first experience is a vicarious one, but I do my best to make sure 
that it is accurate. It is the experience that my father had after he 
left the Senate and began his last career, which was back in the 
business world serving on a variety of boards of directors.
  I have told this story in the committee hearing, but I think it is 
appropriate to repeat here because it makes the point I intend to make.
  One of the boards that my father went on after he left the Senate was 
a board of a mutual fund. The compensation of the directors was tied to 
the performance of the mutual fund. This is the kind of thing people 
are saying we ought to do with directors and chief executives, not just 
set a compensation and let it stay there, but have a compensation tied 
to the performance of the fund.
  Once a year, the compensation of the directors would be adjusted as a 
result of the better performance of the fund during the year, and since 
the fund, at least during the time my father served

[[Page S9033]]

on the board, always did better each year, the compensation went up 
each year.
  My father received a stack of legal papers suing him for looting the 
assets of that particular mutual fund. He was a little startled, and he 
called the general counsel of the mutual fund and said, ``What is this 
all about?''
  ``Oh,'' said the general counsel, ``don't worry about that, Senator, 
it is just because `Bennett' comes before all of the other directors in 
our alphabetical list, and there is a lawyer in New York who every year 
sues us, sues all of the directors, for looting the fund by virtue of 
the increase in compensation that comes as a result of the formula that 
we have.'' He said, ``Because, as I say, your name is first 
alphabetically, you are the one filed with the papers. You notice it 
says `Wallace Bennett, et al.' The `et al.' means all of the other 
directors. If we had another director whose name began with `A,' he 
would be the one on whom the papers would be served. Don't worry about 
it. We'll take care of it.''
  Dad said, ``How are you going to take care of it? This is a very 
impressive lawsuit.''
  ``Oh,'' he said, ``we have in the budget $100,000 to send to that 
lawyer in settlement of this lawsuit. We do this every year. He files 
the lawsuit, we send him a check for $100,000, he goes away. It is a 
standard kind of thing that we have built into our budget.''
  ``Why in the world are we paying this man $100,000 simply to file the 
lawsuit?''
  ``Well, Senator,'' he said, perhaps a little nonplused at my father's 
naivete, ``the legal bills of our fighting this suit would be 
substantially in excess of $100,000. So the financially responsible 
thing for us to do for our shareholders is to settle it at the lowest 
possible price, and we found that this fellow will go away if we send 
him $100,000. And, therefore, we do the financially responsible thing 
by sending him $100,000.''
  Dad said, ``That's extortion, that's blackmail, that's like the 
protection rackets, if you will, that the mafia runs when they come in 
and say in a particular storefront, `You need some protection from 
somebody who might bomb this place.' ''
  He said, ``Well, Senator, we have better things to do than respond to 
these kinds of lawsuits. The cheapest way out of this dilemma is simply 
send the man his $100,000 every year.''
  We are told during this debate, ``Oh, these are hypotheticals.'' We 
are told, ``Oh, we have to look at what might happen here, what might 
happen there.'' We are told, ``Oh, the proponents of the bill are 
raising scare tactics of the worst possible case, and that is not the 
normal procedure at all.''
  I can assure you, Mr. President, this was an actual case, an actual 
circumstance where automatically the lawyer, by simply hitting the 
button on his word processor and turning out the same set of papers, 
received a check for $100,000 every year.
  As I understand the case, to finish the story, that particular lawyer 
is no longer doing that, simply because he got greedy. He started to 
overreach and do this not only with the funds where my father was 
serving as a member of the board but other funds, assuming he would get 
the same treatment. Finally, one of them, managed by Merrill Lynch, 
decided to call his bluff and go to court with him.
  Merrill Lynch had deeper pockets than the mutual fund on whose board 
my father sat, and they decided to reach into those pockets and pay the 
legal expenses necessary to close this operation down. So they called 
the man's bluff. They forced him to come up with the legal fees 
necessary to go to court, and he found he could not survive if he had 
to pay all the legal fees to actually prosecute the lawsuit and, thus, 
ultimately the whole thing was shut down.
  I cite that because of the rhetoric that has surrounded this bill. We 
are not talking about what will happen in court in a theoretical 
lawsuit when we are talking about the impetus behind the writing and 
filing of this bill. We are talking about the fact that the vast 
majority of these lawsuits never get to court and do not intend to go 
to court. They are filed not because the lawyer has discovered some 
great evil on behalf of the investor. They are filed because the lawyer 
knows full well that the company or mutual fund or pension fund, or 
whatever it is that is being accused, will find it cheaper to settle 
out of court than go through the legal hassle of paying all the bills 
necessary to resolve the issue in the courts.
  During the hearing on this bill, Ralph Nader made the statement: No 
one settles out of court unless he has something to hide, and 
challenged me personally on that issue saying, no CEO who is 
responsible would ever settle a lawsuit out of court unless he had 
something to hide, and he then proceeded to lecture me as to what my 
duty would be assuming, perhaps erroneously, that I was a lawyer.
  I said to him and I say here on the floor today, again, I am not a 
lawyer but I was a CEO of a company who settled a suit out of court 
about which we had nothing to hide. Indeed, all of the issues that were 
involved in that lawsuit were clearly on the public record, but the 
legal bills to prosecute that lawsuit were bankrupting our company.
  Now, the company at the time was very, very small, it was very 
fragile and our legal bills were running $25,000 a month. I spoke to 
our lawyer and said, ``What happens if we go to trial?''
  Our lawyer said, ``They will then go to a minimum of $25,000 a 
week.''
  There was no way that company could survive the drain of legal bills 
of $25,000 a week. So I said, ``What will it take to settle?''
  We signed an agreement settling that lawsuit that called upon us to 
pay the other party $2,500 a month. Some of our shareholders did not 
like it. They said, ``Oh, we think it is terrible we have to pay them 
anything, because we're convinced we're right.''
  I said, ``Look, you can be convinced you're right all you want. The 
issue is, can we afford to continue to press our legal position at a 
$25,000 a month tab all the way into court and then $25,000 a week? 
Swallow your pride about saying we want our position absolutely 
vindicated, take the $2,500 a month settlement and put this behind us 
and get on with our business.''
  It was one of the smartest business decisions we ever made.
  I pointed this out to Mr. Nader in the hearing. I resent the 
suggestion that the reason we settled out of court was that we had 
something to hide. And I say absolutely that settlements out of court 
are made, 90 percent of the time, on the basis of pure economics; it is 
cheaper to settle than to continue to litigate. And if it is, swallow 
your position about making a point, do the wise economic thing and 
settle this suit.
  That is where these strike suits come from--lawyers who recognize 
that reality. Settlements out of court are made on the basis of 
economics. They are not made on any other basis. That is why so many of 
these suits are filed. That is why the vast bulk of these suits are 
settled out of court, and that is why this has become--as the Senator 
from New Mexico [Mr. Domenici], pointed out--a magnificent way for some 
lawyers to practice because, as the Senator said, this is a practice 
without clients. What could be more fun than to be a lawyer with a 
practice without any clients, and with, in the case that I have cited 
in my father's circumstance, a guaranteed $100,000 per year income 
doing nothing more than mailing off a set of documents to a company 
that will write out the check because it is easier to do that than to 
go to court.
  I point out to those who say, ``Oh, this is not very widespread,'' 
that we had some testimony in the committee from a lawyer who says this 
is, in fact, never done. I asked him directly. I said, ``Are you 
telling us that no lawyer ever files a strike suit solely on the belief 
that he will get a settlement out of court and not have to litigate 
it?'' He said, ``Senator, no lawyer ever does that.'' At that point, 
the credibility of that witness disappeared, as far as I was concerned, 
because I knew that it was done.
  Well, this practice has created enough concern that we have a 
bipartisan basis of support for this bill. Indeed, the initial 
supporter, the initial mover and shaker on this bill was the Senator 
from Connecticut [Mr. Dodd]--not known for his hard right-wing 
propensities and leanings. He is one of my good friends. We disagree 
about a number of things. He is a liberal Democrat and I am a 
conservative Republican.

[[Page S9034]]

But I consider him one of the more thoughtful Members of this body. He 
was the moving force behind this bill in the first instance. He knows 
that these suits are filed for the purpose of getting settlements, not 
ever going to court. He was joined by Senator Domenici.
  Senator Domenici told me over the weekend--we were in Utah together--
he has been accused of the fatal sin of being a moderate by some 
portions of the conservative press. I said, ``What did you do, plead 
guilty?'' This is one of the more thoughtful Members of the Senate, as 
well. He is a careful lawyer. He understands all of the legal issues. 
He has pushed this bill right from the very beginning, and he, along 
with Senator Dodd, is the principal cosponsor of the bill in this 
Congress.
  It is a smokescreen, in my view, to spend all of your time talking 
about what may or may not happen in court if S. 240 passes, because 
that ignores the fact that the purpose of S. 240 is to deal with those 
people who file suits without any intention of going to court. We need 
to understand that as we are debating this bill.
  Now, there have been some things said about this bill that I would 
like to set straight. One of the myths that has come out of this debate 
is that if S. 240 had been law at the time of the failure of the 
Lincoln Savings & Loan, Mr. Charles Keating would have gone scot-free 
and his victims would have been denied any kind of recovery. That is 
simply not the case, Mr. President. The safe harbor provisions of S. 
240 would not have protected Keating and his codefendants.
  Keating's statements that bonds were federally insured and as safe as 
a bank deposit were fraudulent and obviously false and not covered by 
the safe harbor. The safe harbor applies to forward-looking 
projections, not to statements of fact that can be checked out in the 
past. For Keating to say the bonds were federally insured is not a 
forward-looking statement. Its very nature is a statement of past and 
existing circumstances, and they did not happen to be true. That is one 
of the reasons Mr. Keating is now out of the savings and loan business 
and under the protection and custody of the Federal Government.
  Mr. SARBANES. Will the Senator yield for a moment?
  Mr. BENNETT. Yes, I am happy to yield.
  Mr. SARBANES. I wonder if we can get the time situation straightened 
out. Could I ask the Chair what time did we go on the bill?
  The PRESIDING OFFICER. We resumed the bill at 12:16.
  Mr. SARBANES. Mr. President, I ask unanimous consent that the time 
between 12:16 and 2 o'clock be treated as equally divided between the 
Senator from Utah and myself. When he completes his statement, I will 
put down the amendment. But the time he is using would come out of his 
side, and there will still be time left, unless he is going to go on 
for a very long time. I think that would equalize the situation in 
which we find ourselves.
  Mr. BENNETT. I have no objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BENNETT. I know that the Senator from Maryland was scheduled to 
speak first, but no one was here, so I started. I would be happy to 
yield now if the Senator wishes to speak.
  Mr. SARBANES. If the Senator would yield, I was going to offer an 
amendment on which the time would be equally divided. I am happy to 
withhold offering the amendment until the Senator completes his general 
statement. But I did not want the general statement to go on without 
getting this straightened out because there might not be much time left 
for the amendment.
  Mr. BENNETT. I agree that the time of my statement will be charged 
against our time on the amendment.
  Mr. SARBANES. Thank you.
  Mr. BENNETT. I shall conclude so that we can move to the amendment of 
the Senator from Maryland.
  We should understand that this debate and conversation about what may 
or may not have been the case in the Keating circumstance had S. 240 
been in place is, in fact, irrelevant to the purpose of this 
legislation and to the direction that it will take in the future. The 
Keating codefendants could remain fully liable if S. 240 had been in 
place. The aiders and abettors would still be held accountable. The 
Keating claims are within the current statute of limitations, and the 
other 10(b)(5) reforms do not affect the recoveries.
  So, Mr. President, I hope as we examine this whole circumstance, we 
keep in mind the purpose for which S. 240 was written in the first 
place. It is to deal with those people who file lawsuits without any 
expectation that they will ever come to trial but in the hope that the 
economics of the circumstance will force people to settle with them 
short of a trial, so that they can enjoy what, as I say, the Senator 
from New Mexico calls the ``perfect'' law practice--a law practice 
without clients and a law practice that does not require you to ever go 
to court, to ever hold discovery, to ever go through any procedure--
simply file a set of papers and wait, as the lawyer in New York did who 
dealt with my father, for the check to arrive in the mail. That kind of 
thing is bad--it is bad for investors, it is bad for the country. That 
is the reason we are supporting S. 240.
  I now yield the floor to the Senator from Maryland.


                           Amendment No. 1472

 (Purpose: To amend the proportionate liability provisions of the bill)

  Mr. SARBANES. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Maryland [Mr. Sarbanes] proposes an 
     amendment numbered 1472.

  Mr. SARBANES. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 134, strike line 6, and insert the following:
       ``(A) Net financial worth.--Each
       On page 134, strike lines 9 through 15, and insert the 
     following: ``that the net financial worth of the''.
       On page 134, line 23, strike ``50 percent'' and insert 
     ``100 percent''.

  Mr. SARBANES. Mr. President, I ask the Chair to state the time 
situation.
  The PRESIDING OFFICER. The Senator from Maryland has 52 minutes. The 
manager of the bill has approximately 30 minutes.
  Mr. SARBANES. Mr. President, before I turn to the provisions of the 
amendment, I want to make a few comments with respect to what my 
distinguished colleague from Utah said in his opening remarks on the 
consideration of this legislation today.
  It is very important to understand that there are parts of this bill 
that Members are trying to amend and there are parts we are not trying 
to amend. There are parts which we think are desirable and worthwhile 
having. There are other parts that we think are excessive. They 
overreach. They go too far.
  Those are the ones we are trying to correct. If we could get it 
corrected, we would have a total package of which one could be 
supportive.
  Examples that are cited, many of them that are being cited, are, in 
fact, things we are prepared to try to correct with the provisions of 
this legislation, that we are not opposing. It is very important that 
that be understood.
  The New York Times on Friday has an editorial headed ``Protection for 
Corporate Fraud.'' It says, speaking of the Senate security bill:

       . . . goes far beyond their stated purpose of ending 
     frivolous litigation. The Senate securities bill sets out to 
     protect corporate officials from being sued when they issue 
     overly optimistic predictions of corporate profitability that 
     are simply innocent misjudgment. Sponsors cite cases for 
     opportunist shareholders who waited for a company's share 
     price to nosedive, then sued on the grounds that their 
     investment was based on fraudulent representations of the 
     company's health. But to solve this infrequent problem, the 
     bill would erect a nearly insurmountable barrier to suing 
     officials who peddle recklessly false information. It would 
     block suits against the accountants, lawyers, and other 
     professionals who look the other way when the companies they 
     serve mislead investors. The bill requires that suits be 
     filed within a short statute of limitations and threatens 
     plaintiffs who technically violate the court's procedures 
     with heavy fines, including payment of the defendant's legal 
     fees. These provisions would ward off frivolous suits. But 
     they just as surely ward off valid suits. Securities markets 
     work well when investors are confident that the data on which 
     they base

[[Page S9035]]

     decisions is honest. The bill threatens that confidence.

  Mr. President, I ask unanimous consent that that editorial be printed 
at the end of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. SARBANES. The Baltimore Sun has an editorial ``Safe Harbors for 
Financial Fraud.'' Let me quote very briefly from it:

       In the wake of the Nation's savings and loan debacle, the 
     financial derivative shock to U.S. pension systems, the junk 
     bond manipulations of Mike Milken, one could expect Congress 
     to bolster the rights of investors in securities fraud cases. 
     Instead, Capitol Hill legislators are rallying to protect the 
     interests of corporate executives, securities dealers, 
     lawyers and accountants against the claims of victims of 
     financial crimes.

  Further on it says:

       Originally drafted to reduce the number of frivolous 
     investor lawsuits against corporations. . . .

  And then it goes on to say:

       But the sweeping protections included have fired the 
     opposition of investor groups, advocates for the elderly and 
     even the Federal Securities and Exchange Commission.

  It closes by saying:

       The arsenal of weapons against investors in the legislation 
     shows that it is more about protecting the shadowy dealings 
     of corporate leaders and their professional confederates than 
     in limiting frivolous class action lawsuits.

  This is the question. No one is protecting the frivolous class action 
lawsuit. The question is whether the provisions of the bill have gone 
beyond that and are excessive. We submit that they are. Those are some 
of the provisions we are now trying to change.
  Mr. President, I ask unanimous consent that the Baltimore Sun 
editorial be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2.)
  Mr. SARBANES. Mr. President, I made reference to an article that 
appeared in the New York Times on Sunday, authored by Mark Griffin, the 
director of the Utah securities division who is a board member of the 
North American Securities Administrators Association, comprising the 
securities regulators from the 50 States. Mr. Griffin is chairman of 
the Securities Litigation Reform Task Force of the North American 
Securities Administrators Association. In other words, all of the 50 
State securities administrators.
  That article entitled ``Securities Litigation Bill Is Reform in Name 
Only.'' Just to quote briefly:

       What's in a name? In the case of the Private Securities 
     Litigation Reform Act of 1995, consumers will find a world 
     class misnomer. Now before the Senate, the bill is more 
     accurately described as securities litigation repeal. For 
     millions of middle-class American investors, the fate of this 
     bill--and the even more radical version passed by the House 
     of Representatives in March--could spell the difference 
     between recovering or losing billions of dollars from 
     securities fraud.
       Securities litigation reform began with the intent of 
     putting some weights around the ankles of a few fleet-footed 
     lawyers; but the measure now dangerously close to Senate 
     passage would wind up being a noose around the neck of 
     defrauded investors. While everyone agrees on the need for 
     reasonable reform, numerous public-minded groups are strongly 
     opposed to radical steps in the Senate bill, S. 240, that 
     would snuff out key investor rights.
       If securities litigation reform was the real goal here, the 
     widespread support that exists for reasonable steps to curb 
     lawsuit abuses would have ensured easy passage. But the bill 
     now before the Senate would rein in frivolous lawsuits only 
     by making it virtually impossible for consumers to pursue 
     rightful claims.

  He goes on later to say,

       The reality is that the main intent of this legislation, 
     despite what its proponents say, is to provide a shield for 
     all but the most extreme cases of fraud.

  Mr. President, I ask unanimous consent that this article be printed 
in the Record at the close of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 3.)
  Mr. SARBANES. I will come back to this article because I think it is 
a perspective analysis of the situation in which we find ourselves.
  Now, Mr. President, let me turn to the amendment which I sent to the 
desk, which deals with the issue of proportional liability and the 
departure from the concept of joint and several liability.
  Let me recap very quickly the broader issue that was dealt with last 
and then the more narrowly focused amendment which I have offered and 
which I will then discuss. The bill changes the current system of joint 
and several liability to a new system of proportionate liability. Joint 
and several liability is the legal principle that says that each 
participant in a fraud may be held liable for all of the fraud victim's 
losses.

  Under the Federal securities laws as they now are--not as they are 
being changed in this bill but as they are right now--each participant 
in a securities fraud--a corporate executive, an outside accountant, 
lawyer, investment banker--may be held liable for all of a victim's 
losses. In other words, if one of the fraud participants is bankrupt or 
if one of the fraud participants has fled the country, the other fraud 
participants make up the difference. So the burden, if one of the fraud 
participants is bankrupt or flees, does not fall on the innocent 
investor. It seems to me a rather simple concept. It is between those 
who have participated in the fraud--perhaps in varying degrees but 
nevertheless participated in it--they should be held accountable and 
have to sustain the burden before it is thrust upon the innocent 
investor. In fact, under the current system, the defrauded investors 
are able to recover their entire losses against any of the participants 
in the fraud. This bill will change that. The bill will change the 
system from joint and several liability to proportional liability for 
reckless defendants.
  Who are reckless defendants under the securities laws as they now 
exist? The Federal securities law currently punishes two types of 
people who participate in a fraud: People who plan the fraud who 
intended to deceive the investors, and people who acted recklessly, who 
knew nothing about the fraud and did nothing about it--who knew about 
the fraud and did nothing about it.
  The standard of recklessness used in the courts is not--last week, in 
fact, some of the people supporting this legislation talked about it as 
though it was negligent or just by chance that one got involved. The 
standard is--this is a quote out of the Sundstrand case:

       . . . a highly unreasonable omission involving not merely 
     simple or even gross negligence but an extreme departure from 
     the standards of ordinary care and which present a danger of 
     misleading buyers or sellers that is either known to the 
     defendant or is so obvious that the actor must have been 
     aware of it.

  The recklessness liability, under Federal securities fraud, is 
usually asserted against the fraud artist's professional advisers, his 
lawyers, accountants, appraisers, investment bankers, and so forth. 
Unfortunately, sometimes these people know about a fraud and do nothing 
about it. In those instances, the law holds them jointly and severally 
liable in that fraud. The bill changes that. It changes that. And the 
reckless participant will be liable only for a proportionate share of 
the investor's losses. If one of the fraud participants is bankrupt or 
fled the country or cannot be found, the losses will no longer be made 
up by other participants in the fraud. Instead, the innocent investor--
the innocent investor will not recover his losses, even when other 
participants in the fraud are available to pay. Reckless participants 
in a fraud will be favored over innocent victims of a fraud, over 
individual investors, over State and local governments, over pension 
plans, over charitable organizations.
  Securities regulators, Government officials, consumer groups, and 
others oppose this provision. The Chairman of the SEC wrote the 
Congress saying:

       The Commission has consistently opposed proportionate 
     liability.

  The North American Securities Administrators Association, which 
represents the 50 State securities regulators, wrote, urging the Senate 
``to lift the severe limitations on joint and several liability so that 
defrauded investors may fully recover their losses.''
  The Government Finance Officers Association, representing thousands 
of county treasurers, city managers, and so on, people who invest 
taxpayer funds and pension funds, are opposed to this provision. They 
wrote, on June 8, in a letter that was printed last week in the 
Record--and I ask unanimous consent their letter, along with the one 
from


[[Page S9036]]

the North American Securities Administrators Association, again be 
printed at the conclusion of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 4.)
  Mr. SARBANES. They wrote:

       Fraud victims would find it exceedingly difficult to fully 
     recover their losses. S. 240 sharply limits the traditional 
     rule of joint and several liability for reckless violators. 
     This means the fraud victims would be precluded from fully 
     recovering their losses.

  The National League of Cities, the Consumer Federation of America, 
the U.S. Conference of Mayors have all opposed this version of 
proportionate liability that puts fraud participants ahead of fraud 
victims. On Friday, we received a letter from the American Association 
of Retired Persons, which I would like to have printed in the Record.
  I ask unanimous consent to do so.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                              American Association


                                           of Retired Persons,

                                    Washington, DC, June 23, 1995.
     Re S. 240, the ``Private Securities Litigation Reform Act.''
     U.S. Senate,
     Washington, DC.
       Dear Senator: The Senate will soon be voting on S. 240, the 
     Private Securities Litigation Act. While the American 
     Association of Retired Persons (AARP) supports efforts to 
     eliminate truly frivolous lawsuits, we cannot support this 
     bill as reported out of the Banking, Housing, and Urban 
     Affairs Committee. As currently written, many aggrieved 
     investors with legitimate claims will be vulnerable to 
     abusive practices in the securities marketplace.
       More than 28 million Americans over the age of 65 rely in 
     part on investment income to meet expenses. Though older 
     investors once relied heavily on federally insured products 
     such as certificates of deposit or savings accounts, lower 
     interest rates have prompted many, including those who are 
     not financially sophisticated, to invest in securities. In 
     addition, because of the increasing use of defined-
     contribution (versus defined-benefit) pension plans, more and 
     more people are using securities products when planning for 
     retirement.
       Older Americans fall prey not only to financial fraud, but 
     also are injured by some practices within the ``legitimate'' 
     investment industry. Some older investors are hit with hefty 
     fees or subjected to ``churning'' of accounts to maximize 
     profits for salespeople. Others routinely lose money in 
     regulated investments that are unsuitable to their needs, are 
     promoted in a misleading fashion, or are accompanied by 
     inadequate and unclear disclosures. This money may represent 
     a lifetime of savings, a lump sum pension payout, or proceeds 
     from the sale of a home. Financial losses for retirees can 
     mean a loss of basic support, with little opportunity to 
     recapture lost income.
       As currently drafted, S. 240 will shield wrongdoers from 
     liability in a number of ways. As a result, the bill needs to 
     be improved to help strike a better balance between 
     protecting investors and eliminating claims without merit. 
     AARP urges you to support amendments which may be offered 
     calling for the following:
       Maintenance of traditional joint and several liability 
     among defendants. Under the bill as currently drafted, 
     liability for reckless behavior would be narrowed to such an 
     extent that it would be difficult, if not impossible, for 
     small investors to be made whole for losses suffered. This 
     amendment would protect investors against jailed, missing, or 
     bankrupt malfeasors by restoring existing joint and several 
     liability; and
       Replacement of the safe harbor provision in the bill with a 
     directive to the SEC to issue a rule which structures a safe 
     harbor that protects both legitimate businesses and 
     investors. S. 240 weakens current law by allowing an 
     expansive safe harbor for forward-looking corporate 
     statements that make exaggerated claims to attract investors, 
     even if these statements are made recklessly. Clearly, such 
     statements would harm investors greatly and should not be 
     immunized from liability.
       If AARP can be of further assistance or if you have any 
     questions, please have your staff contact Kent Burnette at 
     (202) 434-3800.
           Sincerely,
                                                  Horace B. Deets,
                                               Executive Director.
  Mr. SARBANES. That letter states:

       As currently drafted, S. 240 will shield wrongdoers from 
     liability in a number of ways. As a result, the bill needs to 
     be improved to help strike a better balance between 
     protecting investors and eliminating claims without merit.

  Last week, an amendment was offered by Senators Shelby, Bryan, Boxer, 
and I, to try to strike a better balance with respect to the broad 
issue of joint and several liability. That amendment was defeated. I 
very much regret that was the case. The amendment that has just been 
sent to the desk is, therefore, not dealing with the broader issue of 
joint and several liability, which I have just outlined, but with a 
more narrow aspect of it.
  I urge my colleagues to focus very carefully on the fact situation. 
Even the authors of the bill that is before us recognize that it is 
unfair to favor reckless lawyers, accountants, and investment bankers 
who participate in a fraud entirely over the individual investor 
victimized by the fraud. In fact, the bill has two provisions, one that 
would require reckless accountants and reckless lawyers to pay 
investors more than the proportionate share of the reckless advisers 
when a fraud artist is bankrupt or has fled the country, and another 
provision designed to make up for the entire losses of so-called small 
investors.
  Let me examine these two provisions, and the amendment goes to these 
two provisions. The first provision says that all the defendants shall 
be jointly and severally liable for the uncollec-

tible share of the small investor, but only under these very limited 
circumstances--first of all, only if the net worth of the investor is 
under $200,000. The committee report says that net worth includes all 
of the plaintiffs' financial assets including stocks, bonds, real 
estate, and jewelry.
  How many investors are we talking about here? People who are able to 
buy stocks, are going to have a net worth under $200,000, particularly 
when the net worth includes the value of their home? How many elderly 
people who have saved for a lifetime have a net worth over $200,000? 
Their home is usually paid for or close to it. They have some other 
assets. For such a person, $200,000 is not a large net worth. I guess 
they would have to value the engagement ring, value the wedding ring, 
value the heirlooms. So it is a $200,000 net financial worth of the 
plaintiff.
  The other provision says that the plaintiff will be held whole only 
if the recoverable damages are equal to more than 10 percent of the net 
financial worth of the plaintiff. Listen to this. You are only going to 
protect--the bill supposedly makes an effort to protect the small 
investor. But the definition of the protection is that the investor's 
net worth has to be under $200,000, and then you protect recoverable 
damages only if they are equal to or more than 10 percent of the net 
financial worth.
  (Mr. THOMPSON assumed the Chair.)
  Mr. SARBANES. Mr. President, let me just give you this example. A 
retired person, a small investor, retired person has a $190,000 net 
worth. A fraudulent stock scheme is practiced upon this person, and he 
loses $17,000. The person who perpetrated the scheme, this scam artist, 
has gone bankrupt. They flee the country, or whatever. The lawyer who 
advised the scam artist knew about this or was reckless in terms of 
knowing about this fraud, the standard I quoted earlier. Under current 
law, that person would be jointly and severally liable and would have 
to pay all of the damages. Under this provision, since the damages are 
not 10 percent of the net worth, the investor does not get that 
protection.
  What is the meaning of this provision in the bill, if it has that 
kind of exclusion that simply swallows up any meaning? Here is a small 
investor, $190,000 net worth, loses $17,000 which is not 10 percent of 
the $190,000, and the small investor is not protected in that 
situation, and the participants in the fraud are able to avoid having 
to make that small investor whole. If you really mean trying to provide 
some protection for the small investor, this provision needs to be 
corrected.
  Clearly, as written, hardly anyone is going to be protected. And the 
amendment that I have offered, one part of it, provides greater 
protection to small investors, people of modest means. The bill says 
you are protected only if you lose 10 percent of your net worth in a 
fraud. In other words, you have to lose $20,000 of a $200,000 net worth 
or $15,000 of a $150,000 net worth. My amendment deletes this 10 
percent requirement. It says you do not have to lose 10 percent of your 
net worth in the fraud. Regardless of how much you lose in the fraud, 
if your net worth is $200,000 or less, you are protected.
  So you have the very small investor who ought to be protected, not 
the reckless advisers to the corporate scam artists who participated in 
the fraud.
  So we strike the provision in the bill that requires that the damages 
be


[[Page S9037]]

equal to 10 percent of the net worth. So you have someone with a 
$200,000 net worth. If they lose something to this scam artist, they 
are going to be protected, and all the defendants will continue to be 
held jointly and severally liable in that instance. If you really want 
to talk about protecting small investors, you obviously have to make 
that change.
  The second provision that is in this legislation, in the course of 
changing the joint and several liability scheme and shifting it to 
proportionate liability, even the authors recognize that was a very 
heavy weighting of the balance against the investors. So they said, 
``Well, in all instances we are going to require the reckless 
participants in the fraud to pay investors an additional amount over 
their proportionate share.''
  The additional amount, though, that is provided for is 50 percent. 
Let me give you an example. A con artist perpetrates a fraud. He is 
assisted by the reckless conduct of his lawyer or his accountant who 
knows about the fraud but does nothing to stop it. When the fraud is 
exposed, the con artist skips the country. The reckless adviser is 
found to be 10 percent responsible for the investor's losses.
  Under the bill, there is an overage, and the reckless adviser could 
be held liable for up to 15 percent of the investor's losses; in other 
words, a 50-percent overage. So you give some additional marginal 
recovery to the investor.
  The extra 50 percent payment required under the bill, in my judgment, 
does not go far enough toward making the investor whole. So the other 
part of this amendment increases the additional payment the reckless 
defendants pay, when the con artist is bankrupt or flees, from 50 
percent of their proportionate share to 100 percent.
  Under the example I gave a moment ago, a reckless adviser, a lawyer, 
investment banker, an accountant to the corporate swindler who did 
nothing to stop it was later found responsible for 10 percent of the 
fraud. As the bill is written, he could be held to 15 percent of it. 
This amendment would raise that to 20 percent. It would allow investors 
to recover a little bit more of their losses in cases of fraud.
  I note that just on Friday when we were debating this bill my 
distinguished colleague from New York said in speaking about addressing 
this problem that we were outlining at the time:

       If the fraudulent defendant is bankrupt and cannot pay, we 
     would double the liability of the other defendants. So if a 
     defendant was found 5 percent negligent but the main 
     defendant is not able to pay, the 5 percent negligent 
     defendant would be held responsible for 10 percent of the 
     damages.
  Well, that is what my amendment is trying to accomplish. The bill as 
written provides a 50 percent overage. So if you were 5 percent liable, 
under the bill you would go to 7\1/2\ percent. I actually think that 
this was, in effect, really the recognition of an appropriate increase, 
and this would double it. In that instance, you go from 5 to 10. If 
they were 10 percent liable, they would go to 20 percent liable.
  So those are the two amendments here. I disagree with abandoning the 
joint and several liability principle. That was voted on the other day. 
What we are now trying to do is to take the provision in the bill and 
to make it more reasonable with respect to the small investor. In some 
respects, I regard this as the ``have-you-no-shame'' amendment in terms 
of the provisions that are in the bill. We have provisions in this bill 
that if you are a very small investor with a net worth of under 
$200,000, you have to lose at least $20,000----
  The PRESIDING OFFICER. The Senator has 20 minutes remaining.
  Mr. SARBANES. Mr. President, I yield myself 1 minute.
  You have to lose over $20,000 in order to be held whole by these 
defendants who have participated in this fraudulent scheme. If you are 
going to recognize the concept of the small investor and the need to 
provide some additional protection, do not render it meaningless by 
having this 10 percent requirement on losses. It is bad enough that you 
have defined the small investor as $200,000 of net worth including, 
including the person's home--including the person's home. Now, that is 
an awful lot of people.
  The PRESIDING OFFICER. The Senator has 19 minutes.
  Mr. SARBANES. I yield 1 more minute.
  And then, in addition, to require that they lose at least 10 percent 
of their net worth, more than $20,000--you take a person, they have 
$200,000 of net worth. They have a home worth $150,000, which is modest 
in today's markets in most places in the country--worth $150,000. They 
have $50,000 worth of items for net worth which the bill has defined as 
including the jewelry and heirlooms and everything else. They are drawn 
into a fraudulent scheme. They lose $19,500, not 10 percent of the 
$200,000, and you are not going to hold them harmless. You are going to 
put the fraudulent perpetrators, the perpetrators of the fraud, ahead 
of the innocent investor.
  Mr. President, it is an outrage. At a minimum we need to change this; 
otherwise, there is no shame left whatever.
  Now, Mr. President, I understand that the Senator from the other side 
of the aisle has returned, and I will reserve the remainder of my time.

                               Exhibit 1

                [From the New York Times, June 23, 1995]

                     Protection for Corporate Fraud

       Two bills before Congress reveal how reckless the 
     Republicans have become in their zeal to reduce regulation. 
     The bills--which would ``reform'' laws governing securities 
     firms and banks--go far beyond their stated purpose of ending 
     frivolous litigation. What they would actually do is insulate 
     corporate officials who commit fraud from legal challenge by 
     their victims.
       The Senate securities bill sets out to protect corporate 
     officials from being sued when they issue overly optimistic 
     predictions of corporate profitability that are simply 
     innocent misjudgments. Sponsors cite cases where 
     opportunistic shareholders waited for a company's share price 
     to nosedive, then sued on the grounds that their investment 
     was based on fraudulent representations of the company's 
     health.
       But to solve this infrequent problem, the bill would erect 
     a nearly insurmountable barrier to suing officials who peddle 
     recklessly false information. It would block suits against 
     accountants, lawyers and other professionals who look the 
     other way when the companies they serve mislead investors. 
     The bill requires that suits be filed within a short statute 
     of limitations and threatens plaintiffs who technically 
     violate the court's procedures with heavy fines, including 
     payment of the defendant's legal fees.
       These provisions would ward off frivolous suits. But they 
     just as surely ward off valid suits. Securities markets work 
     well when investors are confident that the data on which they 
     base decisions is honest. The bill threatens that confidence.
       Banking legislation working its way through the House would 
     also cause damage, both socially and economically. It would 
     remove the Justice Department's authority to sue bankers and 
     realtors who systematically block blacks and other minorities 
     from renting apartments or getting mortgages. Apparently 
     Justice has been too vigilant fighting discrimination for the 
     G.O.P.'s taste. Astonishingly--in the wake of the fraud that 
     brought down savings and loan institutions during the 
     1980's--the bill would weaken regulatory oversight over bank 
     directors, requirements to provide independent audits and 
     prohibitions against preferential loans to bank officials.
       The bill leaves few customer protections in place. It would 
     eliminate some requirements that banks report interest rates 
     on customer accounts in uniform, easy-to-compare terms. It 
     would also gut the Community Reinvestment Act, which requires 
     banks to lend money in the neighborhoods where they take 
     deposits or else possibly relinquish the right to merge or 
     open and close branch offices. The act requires reform 
     because enforcement is needlessly expensive. But the answer 
     is to clarify and tighten standards, the solution the 
     Administration has already taken.
       The bill will make banks more profitable. But it will also 
     invite some of the sordid practices that contributed to the 
     $500 billion that the savings and loans failures cost 
     taxpayers.
       The Administration has expressed opposition to many of the 
     banking provisions. But it has remained silent on the 
     securities bill. Apparently, powerful Democrats, like 
     Christopher Dodd of the insurance state of Connecticut, have 
     pressured the White House to remain mum.
       President Clinton seems eager to run as a candidate who 
     could work with the Republican Congress but protect Americans 
     from G.O.P. excesses. He could demonstrate his worth by 
     vowing to veto the securities and banking bills--and any 
     others that would put the interests of deceptive executives 
     above those of ordinary voters.

                               Exhibit 2

                [From the Baltimore Sun, June 26, 1995]

                    Safe Harbors for Financial Fraud

       In the wake of the nation's savings and loan debacle, the 
     financial derivatives shock to U.S. pension systems, the junk 
     bond manipulations of Mike Milken, one could expect Congress 
     to bolster the rights of investors in securities fraud cases.

[[Page S9038]]

       Instead, Capitol Hill legislators are rallying to protect 
     the interests of corporate executives, securities dealers, 
     lawyers and accountants against the claims of victims of 
     financial crimes.
       Legislation approved by the House and awaiting a Senate 
     floor vote today would grant virtual immunity to these 
     participants in securities fraud lawsuits. Executives who 
     hype their companies' financial projections to jack up the 
     stock price would be sheltered from legal action.
       Bondholders defrauded by Charles Keating and his S&L scam, 
     the largest in U.S. history, would find it almost impossible 
     to sue the co-defendants for relief under the pending bill. 
     They recovered $240 million from Keating's accountants, 
     lawyers and securities dealers, although still losing nearly 
     40 percent of their money.
       Originally drafted to reduce the number of frivolous 
     investor lawsuits against corporations, the bill was pushed 
     by Silicon Valley companies whose fortunes are highly 
     volatile. But the sweeping protections included have fired 
     the opposition of investor groups, advocates for the elderly 
     and even the federal Securities and Exchange Commission.
       The number of federal securities fraud cases has nearly 
     doubled over the past decade. But the SEC, which polices 
     securities fraud, says that investor lawsuits are important 
     in accomplishing its mission. A study released last month by 
     the Congressional Research Service finds the number of 
     securities suits against companies ``exceptionally small.''
       The loudest complaints have come from the elderly, whose 
     retirement assets are most vulnerable to fraud. Senior 
     citizens account for over 30 percent of securities fraud 
     victims, according to a study by the Gray Panthers.
       The House bill includes the chilling proviso that the 
     losers of a fraud lawsuit must pay lawyer bills of those they 
     sued. The Senate measure would limit defendant responsibility 
     in lawsuits only to their degree of proven guilt, instead of 
     making all parties liable for fraud settlements.
       The arsenal of weapons against investors in the legislation 
     shows that it is more about protecting the shadowy dealings 
     of corporate leaders and their professional confederates than 
     in limiting frivolous class action lawsuits. If the integrity 
     of the marketplace is to be truly protected, the Senate will 
     vote down this invitation to expanded investor fraud.

                               Exhibit 3

                [From the New York Times, June 25, 1995]

           Securities Litigation Bill Is Reform in Name Only

                           (By Mark Griffin)

       What's in a name? In the case of the ``Private Securities 
     Litigation Reform Act of 1995,'' consumers will find a world-
     class misnomer. Now before the Senate, the bill is more 
     accurately described as securities litigation repeal. For 
     millions of middle-class American investors, the fate of this 
     bill--and the even more radical version passed by the House 
     of Representatives in March--could spell the difference 
     between recovering or losing billions of dollars from 
     securities fraud.
       Securities litigation reform began with the intent of 
     putting some weights around the ankles of a few fleet-footed 
     lawyers; but the measure now dangerously close to Senate 
     passage would wind up being a noose around the neck of 
     defrauded investors. While everyone agrees on the need for 
     reasonable reform, numerous public-minded groups are strongly 
     opposed to radical steps in the Senate bill, S. 240, that 
     would snuff out key investor rights.
       If securities litigation reform was the real goal here, the 
     widespread support that exists for reasonable steps to curb 
     lawsuit abuses would have insured easy passage. But the bill 
     now before the Senate would rein in frivolous lawsuits only 
     by making it virtually impossible for consumers to pursue 
     rightful claims. Here we see the financial world's equivalent 
     of the notorious Vietnam ``hamlet strategy'': we must destroy 
     this village in order to save it.
       The reality is that the main intent of this legislation, 
     despite what its proponents say, is to provide a shield for 
     all but the most extreme cases of fraud. Have the members of 
     the Senate already forgotten the financial scandals of the 
     1980's that cost investors and taxpayers billions of dollars? 
     Is it really good public policy to erect protective barriers 
     around future wrongdoers who will be emboldened to emulate 
     Lincoln Savings and Loan and Prudential Securities?
       At the heart of consumer concerns over this legislation are 
     two key problems.
       Under current rules, public companies are prevented from 
     deceiving investors by reasonable restrictions on statements 
     concerning future corporate performance, known as ``forward-
     looking statements.'' The original S. 240 created a limited 
     ``safe harbor'' for such statements, but the harbor was 
     changed to an ocean. So now the Senate is considering a 
     measure that protects any reckless or irresponsible statement 
     by a company about its future as long as the statement is 
     represented as forward-looking and notes that actual results 
     may differ.
       The Senate bill narrowly defines as fraudulent only those 
     statements ``knowingly made with the expectation, purpose and 
     actual intent of misleading investors.'' As if this was not a 
     loose enough standard the bill require that each of the three 
     conditions be proven separately in court.
       Consequently, S. 240 is a dagger aimed at the heart of what 
     makes possible strong public confidence in the markets: full, 
     fair disclosure mandated under Federal securities law. Arthur 
     Levitt, Jr., the Securities and Exchange Commission chairman, 
     has noted: ``I cannot embrace proposals which allow willful 
     fraud to receive the benefit of safe harbor protection.''
       Perhaps the clearest sign, however, that the bill's 
     proponents have sold middle-class investors down the river is 
     their refusal to lengthen the time in which consumers can 
     bring cases to court. The current rule derives from a 1991 
     Supreme Court decision that created a statute of limitations 
     for Federal securities law cases of one year from discovery 
     of a misdeed or three years from the commission of the act in 
     question. This represented a serious reduction in the time 
     available for such lawsuits, since Federal courts previously 
     had relied on state standards for statutes of limitation.
       Currently, 31 states permit longer than the ``1 and 3'' 
     standard for the filing of state securities cases. What 
     possible case can the backers of this bill make for keeping 
     the time limit as short as possible so that future swindlers 
     who cover their tracks carefully will get off the hook for 
     good?
       Fortunately, efforts are under way to pull the measure back 
     toward the interests of small investors. Among the amendments 
     expected to be deliberated on the Senate floor this week are 
     measures that would: replace the expansive safe harbor for 
     forward-looking statements with a directive to the S.E.C. to 
     continue its rulemaking efforts in this area; lengthen the 
     statute of limitations for private securities fraud actions; 
     fully restore aiding and abetting liability under the 
     securities laws, an established concept that before it was 
     recently removed by a Supreme Court decision, made it 
     possible to sue even indirect participants in a fraud, and 
     lift the severe limitations the bill imposes on joint and 
     several liability, allowing investors to continue recovering 
     from all participants in the fraud.
       The difference between reform and repeal of securities 
     litigation is an enormous one for middle-class investors in 
     America. Based on current payments to securities class-action 
     claimants, it should be expected that shutting the doors of 
     America's courthouses over the next five years to securities 
     fraud victims will result in 1.79 million investors losing 
     the right to recover approximately $2.87 billion. Even these 
     numbers may underestimate matters.
       By loosening the Federal laws that now empower citizens to 
     go to court to restrain misconduct in our financial 
     marketplace, Congress has the potential to unleash a new, 
     painful era of financial fraud.

                               Exhibit 4

                                                Government Finance


                                         Officers Association,

                                     Washington, DC, June 8, 1995.
     Hon. Paul S. Sarbanes,
     U.S. Senate, Washington, DC.
       Dear Senator Sarbanes: I am writing on behalf of the more 
     than 13,000 state and local government financial officials 
     who comprise the membership of the Government Finance 
     Officers Association (GFOA) to bring to your attention 
     serious concerns we have with the Securities Litigation 
     Reform Act, S. 240, recently approved by the Senate Banking 
     Committee. As you know, the GFOA is a professional 
     association of state and local officials who are involved in 
     and manage all the disciplines of public finance. The state 
     and local governmental entities our members represent bring a 
     unique perspective to this proposed legislation because they 
     are both investors of billions of dollars of public pension 
     funds and temporary cash balances, and issuers of debt 
     securities as well.
       We support efforts to deter frivolous securities lawsuits, 
     but we believe that any legislation to accomplish this must 
     also maintain an appropriate balance that ensures the rights 
     of investors to seek recovery against those who engage in 
     fraud in the securities markets. We believe that S. 240 does 
     not achieve this balance, but rather erodes the ability of 
     investors to seek recovery in cases of fraud.
       The strength and stability of our nation's securities 
     markets depend on investor confidence in the integrity, 
     fairness and efficiency of these markets. To maintain this 
     confidence, investors must have effective remedies against 
     those persons who violate the antifraud provisions of the 
     federal securities laws. In recent years, we have seen how 
     investment losses caused by securities laws violations can 
     adversely affect state and local governments and their 
     taxpayers. It is essential, therefore, that we fully maintain 
     our rights to seek redress in the courts.
       S. 240 would drastically alter the way America's financial 
     system has worked for over 60 years--a system second to none. 
     Following are the major concerns state and local governments 
     have with this ``reform'' legislation:
       Fraud victims would face the risk of having to pay the 
     defendant's legal fees if they lost. S. 240 imposes a 
     modified ``loser pays'' rule that carries the presumption 
     that if the loser is the plaintiff, all legal fees should be 
     shifted to the plaintiff. The same presumption, however, 
     would not apply to losing defendants. The end result of this 
     modified ``loser pays'' rule is that it would strongly 
     discourage the filing of securities fraud claims by victims, 
     regardless of the merits of the cases. This is particularly 
     true for state and local governments that have lost taxpayer 
     funds through investments, involving

[[Page S9039]]

     financial fraud in derivatives, for example, but who simply 
     cannot afford to risk further taxpayer funds by taking the 
     risk that they might lose their case and have to pay the 
     legal fees of large corporations. The argument is made that a 
     modified loser pays rule is necessary to deter frivolous 
     lawsuits, but we understand there are only 120 companies sued 
     annually--out of over 14,000 public corporations, and that 
     the number of suits has not increased from 1974.
       Fraud victims would find it exceedingly difficult to fully 
     recover their losses. Our legal standard of ``joint and 
     several'' liability has enabled defrauded investors to 
     recover full damages from accountants, brokers, bankers and 
     lawyers who help engineer securities frauds, even when the 
     primary wrongdoer is bankrupt, has fled or is in jail. S. 240 
     sharply limits the traditional rule of joint and several 
     liability for reckless violators. This means that fraud 
     victims would be precluded from fully recovering their 
     losses.
       Wrongdoers who ``aid and abet'' fraud would be immune from 
     cases brought by fraud victims. As you know, aiders had been 
     held liable in cases brought by fraud victims for 25 years 
     until a 5-4 Supreme Court ruling last year eliminated such 
     liability because there was not specific statutory language 
     in federal securities law. If aiders and abettors are immune 
     from liability, as issuers of debt securities, state and 
     local governments would become the ``deep pockets,'' and as 
     investors they would be limited in their ability to recover 
     losses. The Securities and Exchange Commission and the state 
     securities regulators have recommended full restoration of 
     liability of aiders and abettors and GFOA supports that 
     recommendation.
       Wrongdoers would be let off the hook by a short statute of 
     limitations. We had supported the modest extension of the 
     statute--from one year from discovery of the fraud but no 
     more than three years after the fraud to two years after the 
     violation was, or should have been, discovered but not more 
     than five years after the fraud was committed--that was 
     contained in an earlier version of S. 240. We are 
     disappointed that this extension was removed in the 
     Committee's markup of the legislation and hope it will be 
     restored when the full Senate considers the bill.
       Under S. 240, corporations could deceive investors about 
     future events and be immunized from liability in cases 
     brought by defrauded investors. Corporate predictions are 
     inherently prone to fraud as they are an easy way to make 
     exaggerated claims of favorable developments to attract 
     investors. The ``safe harbor'' in S. 240 is a very broad 
     exemption and immunizes a vast amount of corporate 
     information so long as it is called a ``forward-looking 
     statement'' and states that it is uncertain and there is risk 
     it may not occur. Such statements are immunized even if they 
     are made recklessly. We believe this opens a major loophole 
     through which wrongdoers could escape liability while fraud 
     victims would be denied recovery.
       Access to fair and full compensation through the civil 
     justice system is an important safeguard for state and local 
     government investors, and is a strong deterrent to securities 
     fraud. We believe. S. 240 as written does not provide such 
     access to state and local governments or to other investors. 
     Just as state and local government investors are urged to use 
     extreme caution in investing public funds, the Senate should 
     use extreme caution in reforming the securities regulation 
     system.
       We hope you will work to bring about needed changes in the 
     legislation when it is considered by the full Senate. If 
     there is any way we can help in this effort, please do not 
     hesitate to call on us.
           Sincerely,
                                               Catherine L. Spain,
     Director, Federal Liaison Center.
                                  ____

                                         North American Securities


                             Administrators Association, Inc.,

                                    Washington, DC, June 20, 1995.
     Re S. 240, the ``Private Securities Litigation Reform Act.''

     Hon. Paul S. Sarbanes,
     U.S. Senate, Hart Senate Office Building, Washington, DC.
       Dear Senator Sarbanes: The full Senate may consider as 
     early as Wednesday or Thursday of this week, S. 240, the 
     ``Private Securities Litigation Reform Act of 1995.'' On 
     behalf of the North American Securities Administrators 
     Association (NASAA), we are writing today to express the 
     Association's opposition to S. 240 as it was reported out of 
     the Banking Committee. In the U.S., NASAA is the national 
     voice of the 50 state securities agencies responsible for 
     investor protection and the efficient functioning of the 
     capital markets at the grassroots level.
       While everyone agrees on the need for changes to the 
     current securities litigation system, not everyone is 
     prepared to deny justice to defrauded investors in the name 
     of such reform. Proponents of the bill make two claims: 
     first, that they have modified the bill to satisfy many of 
     the objections to the earlier version; and second, that the 
     bill will not prevent meritorious claims from going forward. 
     Neither claim is accurate. First, the changes made to the 
     bill do little to resolve the serious objections to S. 240 
     raised by NASAA and its members. In fact, it may be argued 
     that during the Banking Committee's deliberations the bill 
     was made less acceptable from the perspective of investors. 
     Second, it is NASAA's view that the bill succeeds in curbing 
     frivolous lawsuits only by making it equally difficult to 
     pursue rightful claims against those who commit securities 
     fraud.
       The reality is that the major provisions of S. 240 will 
     work to shield even the most egregious wrongdoers among 
     public companies, brokerage firms, accountants and others 
     from legitimate lawsuits brought by defrauded investors. Do 
     we really want to erect protective barriers around future 
     wrongdoers?
       NASAA agrees that there is room for constructive 
     improvement in the federal securities litigation process. The 
     Association supports reform measures that achieve a balance 
     between protecting the rights of defrauded investors and 
     providing relief to honest companies and professionals who 
     may unfairly find themselves the targets of frivolous 
     lawsuits. Regrettably, S. 240 as approved by the Senate 
     Banking Committee fails to achieve this necessary balance.
       Although this bill has been characterized in some quarters 
     as an attempt to improve the cause of defrauded investors in 
     legitimate lawsuits, that simply is not the case. Attempts to 
     incorporate into the bill provisions that would work to the 
     benefit of defrauded investors were rejected when the Banking 
     Committee considered the bill. At the same time, the few 
     provisions in the original bill that may have worked to the 
     benefit of defrauded investors were deleted.
       For example, during the Committee' deliberations: (1) the 
     rather modest extension of the statute of limitations for 
     securities fraud suits contained in the original version was 
     deleted; (2) attempts to fully restore aiding and abetting 
     liability under the securities laws were rejected; (3) a 
     regulatory safe harbor for forward-looking statements 
     contained in the original version of S. 240 was replaced with 
     an overly broad safe harbor for such information, making it 
     extremely difficult to sue when misleading information causes 
     investors to suffer losses; and (4) efforts to loosen the 
     strict limitations on the applicability of joint and several 
     liability were rejected, making it all but impossible for 
     more than a very few to ever fully recover their losses when 
     they are defrauded. The truth here is that this is a one-
     sided measure that will benefit corporate interests at the 
     expense of investors.
       As state government officials responsible for administering 
     the securities laws in our jurisdictions, we know the 
     important role private actions play in the enforcement of our 
     securities laws and in protecting the honesty and integrity 
     of our capital markets. The strength and stability of our 
     nation's securities markets depend in large measure on 
     investor confidence in the fairness and integrity of these 
     markets. In order to maintain this confidence, it is critical 
     that investors have effective remedies against persons who 
     violate the anti-fraud provisions of the securities laws.
       When S. 240 is considered on the Senate floor, it is 
     expected that several pro-investor amendments will be offered 
     in an attempt to inject some balance into the measure. Among 
     the amendments we expect to be offered are those that would: 
     (1) extend the statute of limitations for private securities 
     fraud actions; (2) fully restore aiding and abetting 
     liability under the securities laws; (3) replace the 
     expansive safe harbor for foward-looking statements with a 
     directive to the Securities and Exchange Commission to 
     continue its rulemaking efforts and report back to Congress; 
     and (4) lift the severe limitations on joint and several 
     liability so that defrauded investors may fully recover their 
     losses.
       On behalf of NASAA, we respectfully encourage you to vote 
     in favor of all such amendments when they are offered on the 
     Senate floor. If all four amendments are not adopted, we 
     respectfully encourage you to oppose S. 240 on final passage.
       NASAA regrets that the Association cannot support the 
     litigation reform proposed as reported out of the Senate 
     Banking Committee. The Association believes that this issue 
     is an important one and one that should be addressed by 
     Congress. However, NASAA believes that is more important to 
     get it done right than it is to get it done quickly. S. 240 
     as it was reported out of the Banking Committee should be 
     rejected and more carefully-crafted and balanced legislation 
     should be adopted in its place.
       If you have any questions about NASAA's position on this 
     issue, please contact Maureen Thompson, NASAA's legislative 
     adviser.
           Sincerely,
     Philip A. Feign,
       Securities Commissioner, Colorado Division of Securities, 
     President, North American Securities Association.
     Mark J. Griffin,
       Director, Utah Securities Division, Chairman, Securities 
     Litigation Reform Task Force of the North American Securities 
     Administrators Association.

  Mr. DOMENICI. Mr. President, we have 29 minutes on this amendment?
  The PRESIDING OFFICER. There are 28 minutes 25 seconds.

[[Page S9040]]


  Mr. DOMENICI. I yield myself 15 minutes.
  Mr. President, I would like to speak to the Senate about this reform 
measure and in my own way lead up to the amendment which is the subject 
matter of today's discussion.
  This new system--and that is what it is--builds a better system for 
investors in 12 very succinct, easy to understand ways.
  First, it puts investors with real financial interests, not lawyers, 
in charge of the cases. It puts investors with real financial 
interests, not professional plaintiffs with one or two shares of stock, 
in charge of the case.
  Second, it requires notification to investors that a lawsuit has been 
filed so that all investors can decide if they really want to bring a 
lawsuit. It is likely that people trusted to manage pension funds and 
mutual funds, that is, institutional investors, will get more involved 
under this new system. Actually, at this point, for the most part, they 
sit on the sidelines and let the class action lawsuit affecting them 
proceed, managed by the lawyer that filed it and the plaintiffs that 
were with them.
  Third, this bill puts the lawyer and his clients on the same side. 
Reforms that change the economics of cases, proportionate liability, 
settlement terms and disclosure, are part of that.
  Fourth, it prohibits special side deals where pet plaintiffs get 
$10,000, $15,000, or $20,000 for their part in a suit. It protects all 
investors, not just the lawyers' pet plaintiffs so that settlements 
will be fair to all investors.
  Fifth, it stops brokers from selling names of investors to lawyers.
  Sixth, it creates an environment where those running our 
corporations, CEO's or chairmen of the board, can and will talk about 
their predictions about the future without fear of being sued every 
time they make a prediction that turns out to be not exactly what 
happens to the company or somewhat off the mark. So it gives investors 
a system with better disclosure of important information. And this has 
to do with safe harbor, which will be discussed later today as we 
proceed with this bill.
  Seventh, it provides better disclosure of how much a shareholder 
might get under a settlement and how much the lawyers will get so that 
shareholders can challenge excessive lawyers' fees.
  Eighth, it prohibits secret settlements where attorneys can keep 
their fees a secret. This is a restriction on settlements under seal.
  Ninth, limits the amount that attorneys can take off the top. Limits 
attorney's fees to a reasonable amount instead of the confusing 
calculations which are currently part of this system we want to amend 
and modify.
  Tenth, provides a uniform rule about what constitutes a legitimate 
lawsuit. So that it will no longer matter where a case is filed. 
Investors in Albuquerque, N.M.; Atlanta, GA; New York City; or 
Nashville, TN, will have the same rules as investors in any of the 
other cities. That is pleading reform. It stops fishing expeditions 
where lawyers can force thousands of dollars, worth of discovery money 
and demand thousands of company documents before a judge can decide if 
the complaint really states a cause of action, so that it might be 
dismissed before the costs of discovery are ever incurred.
  Eleventh, the last two make merit matter so that strong cases recover 
more than weak cases. It makes sure that people committing fraud 
compensate victims. It improves upon the current system so that victims 
will recover more than 6 cents on a dollar.
  Twelfth, it will weed out frivolous cases. It gives lawyers and 
judges more time to do a good job to protect investors in meritorious 
cases. High-technology company executives can focus on running their 
companies and growing their businesses. Investors will get higher stock 
prices and bigger dividends.
  This Senate bill, S. 240, which is before us does exactly what 
Chairman Arthur Levitt said the system should do--protect all 
investors, not just a few.
  Having said that, obviously there are groups of Americans that may be 
considered to be more vulnerable than others in the American profile of 
people, but let me talk a little bit about senior citizen investors and 
what we were able to find out about what they want and what they do not 
want.
  In March 1995, the National Investor Relations Institute commissioned 
a poll of Americans age 50 and over who invest in either stock or 
mutual funds.
  Eighty-seven percent said they worried that lawsuits are diverting 
resources that could be used on product research and business expansion 
to create jobs; 79 percent said defendants should only pay damage 
awards according to their percentage of fault, the very issue that is 
partially at stake in the Sarbanes amendment; 81 percent said they 
would like to see mandatory penalties against lawyers who aid in 
bringing a frivolous suit; 70 percent said the lawyer of a frivolous 
lawsuit should pay the legal fees of both sides; 70 percent said at 
least one member of their household was a member of the American 
Association of Retired Persons.
  I state that because this is what they think when asked about these 
subjects. Yet, the AARP seems somewhat on the other side, although it 
is hard to tell exactly what it is they want.
  Those polls are correct. The Banking Committee record backs up the 
opinions of senior citizen investors.
  Eighty-seven percent of senior citizen investors said lawsuits are 
diverting resources that could be used on product research and business 
expansion to create jobs. They are right. The Banking Committee hearing 
revealed, and I can go through a whole series of situations where 
precisely what that concern is, is revealed case by case by small- and 
medium-size and startup American companies.
  John Doerr, venture capitalist was involved in three law suits: 
Settlement, $66 million; legal fees to defend, $12 million; management 
time, 20 person years, total over 10 years, $120 million.
  The sum of $120 million will employ 200 first-rate engineers for a 
decade, creating faster, cheaper better products.
  John G. Adler, CEO Adaptec, litigation costs of the ``million dollar 
fishing expedition'' would have paid for 20 additional engineers.
  Dennis W. Bakke, AES spent an amount equal to one-half its annual 
budget for developing new power project throughout the world. Just one 
plant creates 1,300 jobs and $4 billion in economic activity.
  D&O increased sevenfold over last decade. Adept Technology, the only 
U.S. robotics company, pays $450,000 for $5 million in D&O insurance. A 
similar Canadian company pays $40,000 for a $4 million policy.
  The litigation tax represents a team of five or six engineers, a new 
product or new technology.
  Ed McCracken, CEO Silicon Graphics: current system is ``uncontrolled 
tax'' on innovation that is ``impacting real creation of jobs.''
  Seventy-nine percent of senior citizen investors say defendants 
should pay the damage award according to percentage of default. They 
are right. Present and former SEC Chairmen Levitt, Breeden, and Ruder 
agree with them, so do former SEC Commissioners Beese and Sommer.
  Under current law, someone who is only 1 percent responsible can be 
made to pay the entire amount, the entire judgment, the entire award. 
Breeden, former SEC Chairman, called the present system ``inverted, 
disproportionate liability.'' Parties who are central to perpetrating a 
fraud often pay little, if anything. At the same time, those whose 
involvement might be only peripheral and lacked any deliberation or any 
knowing participation in the fraud often pay most of the damage.
  Joint and several is the engine that drives abusive securities 
lawsuits. Plaintiffs' class action lawyers know this and use it to 
extract settlements. We should not turn professionals into insurers. We 
should not turn accounting firms, lawyers, and others who are the 
professionals involved in securities into insurers. Inclusion of deep 
pocket defendants increase the likelihood of settlement. Including an 
accounting firm or underwriter, they might add about one-third to the 
expected settlement value of the case. That is what the National 
Economic Research Associate study said.
  One accounting firm was sued for $200 million, paid $999,000 in 
settlement, spent $8.4 million in defense in a case growing out of 
gross fees to that firm

[[Page S9041]]

of $91,000. No auditors for high-technology companies; hard-to-find 
directors--all of these things are happening--no choice but to settle. 
These are qualities that the current system is creating in our economic 
environment. No auditors for high-technology companies; hard-to-find 
directors; no choice but to settle.
  These cases have a settlement rate between 85 and 95 percent. This is 
because no one can chance going to trial. The settlement rate for most 
civil litigation is 40 to 45 percent, a huge difference in these kinds 
of cases. Limiting joint and several liability will significantly 
reduce the number of frivolous suits brought against defendants who 
have done nothing wrong but are seen as deep pockets. One of the most 
active plaintiff class action lawyers wrote:

       Class actions are judicial monstrosities.

  Enacting two-tiered liability will make sure we have fewer frivolous 
judicial monstrosities. This bill, S. 240, would retain current law for 
defendants who engage in knowing fraud. So when we speak of safe harbor 
and proportionate liability, let us understand that in this new law, 
defendants who engage in knowing fraud are liable for the entire amount 
and there is no safe harbor for them. Other defendants who have some 
culpability are responsible for their share of the judgment, with two 
exceptions, and they are two items we are speaking about on the floor 
today.
  Small investors: All defendants are jointly and severally liable for 
small investors; that is, a net worth of $200,000 or less who lost 10 
percent or more of their net worth.
  In a very real sense, what we are doing there is providing some 
insurance for them and saying that this system ought to provide that 
kind of insurance.
  Also, in the case of insolvent codefendants, we say the solvent 
defendants must make an additional payment up to 50 percent of their 
own liability.
  All of these were efforts to make this bill unquestionably fair and 
fair-intentioned.
  Let us move on to 81 percent of the senior citizen investors said 
they would like to see mandatory penalties against lawyers who aid in 
bringing frivolous suits; 70 percent said the loser of a frivolous suit 
should pay the legal fees of both sides. S. 240 makes a modest step to 
do what the seniors want and what they want us to do. It makes the 
judges--and I repeat, it makes the judges--look closer at these cases 
and to discipline lawyers who file frivolous suits.
  Whenever one of these lawsuits is finished, dismissed, settled, or 
taken to trial, the judge is required to make a determination regarding 
all attorneys: Did the attorneys comply with rule 11? Did the case have 
some basis? Did the defense have some basis? If not, the judge must 
impose penalties, and if the judge finds that rule 11 was violated, the 
case was frivolous and the case was thrown out of court on a motion to 
dismiss, the presumption is the class action attorney will pay the 
prevailing attorney's legal fees. That is a far cry from loser pay but 
a small step in the direction of trying to get what 81 percent of the 
senior citizen investors said, and that is bring some accountability to 
lawyers who file frivolous lawsuits in this area of the law.
  Seniors in the poll thought Congress should go further. Frankly, I 
would have preferred something stronger, but this is a good compromise 
and it ought to be retained and clearly will be a step in the right 
direction.
  Seventy percent of the senior investors said at least one member of 
their households was a member of the AARP. AARP wrote the committee a 
letter on May 24. They oppose loser pay even though the poll showed 
seniors said it was a good idea. The bill has no loser pay provision. 
It has the provisions I have just described.
  They oppose proportionate liability, yet the seniors polled thought 
it was a good idea. Any attempt to raise scienter knowledge from the 
standard of reckless to intentional omissions. The bill does not alter 
the conduct actionable under the securities law.
  The PRESIDING OFFICER. The Senator has consumed his 10 minutes.
  Mr. DOMENICI. I yield myself 5 additional minutes. They added to 
their opposition a concern about safe harbor which we will discuss 
later.
  I ask that as part of my discussion here this morning with the 
Senate, that these poll results in detail be printed in the Record. 
They are only 2\1/2\ pages long.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

New Poll Finds Senior American Investors Support Securities Litigation 
                                 Reform

       Washington, March 22.--By an overwhelming margin, Americans 
     aged 50 and over who invest in stocks or mutual funds say 
     they favor legislation that would make it harder for lawyers 
     to file frivolous securities lawsuits against America's high 
     growth companies.
       Nearly seven out of ten investors surveyed say they favor 
     legal reforms to crack down on lawsuit abuse. According to a 
     new survey conducted by Public Opinion Strategies for The 
     National Investor Relations Institute (NIRI), eight out of 
     ten (81 percent) say they would like to see mandatory 
     penalties against lawyers ``who aid in bringing a frivolous 
     lawsuit''; more than two-thirds (70 percent) say the loser of 
     a frivolous suit should pay the legal fees of both sides; and 
     79 percent say defendants should only pay damage awards 
     according to their percentage of fault. Only 21 percent of 
     those polled oppose litigation reform.
       The survey, completed shortly after a 325-99 bipartisan 
     vote by the House of Representatives for securities 
     litigation reform, was released in advance of Senate 
     consideration of reform measures.
       It shows that older investors are concerned that excessive 
     lawsuits hurt American competitiveness. Some (87 percent) say 
     they worry that lawsuits are diverting resources that could 
     be used on product research and business expansion to create 
     jobs.
       A similar number (88 percent) believe lawyers, not 
     shareholders, are the primary beneficiaries of securities 
     lawsuits. Asked about a variety of legislative options, 
     investors favored measures to penalize those who abuse the 
     system:
       Question. Please tell me whether you would FAVOR or OPPOSE 
     each of the following proposals.

                              [In percent]
------------------------------------------------------------------------
                                                                 Don't
                                           Total      Total      know/
                                           favor      oppose    refused
                                                               to answer
------------------------------------------------------------------------
Requiring the loser of a frivolous              69         24          7
 lawsuit to pay legal fees for both
 sides.................................
Requiring mandatory penalties for               81         12          7
 lawyers who aid in bringing a
 frivolous lawsuit.....................
Forcing defendants to only pay damage           79         12          9
 awards according to their percentage
 of fault, instead of forcing them to
 pay damages they are not responsible
 for...................................
Limiting so-called professional                 57         25         18
 plaintiffs to five class action suits
 every three years.....................
Prohibiting participation in a suit by          58         31         11
 an attorney owning the stocks or
 mutual funds at issue.................
------------------------------------------------------------------------

       Louis M. Thompson, NIRI President & CEO, said the survey 
     demonstrates that many American investors are concerned that 
     lawsuits erode the value of their investment savings as they 
     near retirement age. More than one-third of those polled are 
     age 65 or older and 70 percent said that at least one member 
     of their household was a member of the American Association 
     of Retired Persons.
       ``Frivolous lawsuits pose a direct threat to the financial 
     well being of those Americans who are investing for their 
     future, including retirement,'' Thompson said. ``These 
     lawsuits don't just target companies, they paste a bulls eye 
     on American investors.''
       Survey respondents also say stock price declines are a 
     normal investment risk and not, by themselves, evidence of 
     fraud or grounds for a lawsuit. Only 15 percent say an annual 
     decline of 50 percent in a stock's value was grounds for a 
     lawsuit, and only one in ten believe a 10 percent decline in 
     a few days is grounds for legal action. However, 85 percent 
     say a company that knowingly provides false information to 
     investors should be sued.
       The survey of 800 American investors aged 50 or above was 
     conducted by Public Opinion Strategies on March 18-21. The 
     survey has a margin of error of plus or minus 3.5 percent. 
     All those surveyed reported investments in stocks or mutual 
     funds. Copies of the full study can be obtained by calling 
     NIRI at 703-506-3570.
       The National Investor Relations Institute, now in its 25th 
     year, is a professional association of 2,650 corporate 
     officers and investor relations consultants responsible for 
     communication between corporate management, shareholders, 
     security analysts and other financial publics.
  Mr. DOMENICI. Mr. President, S. 240 is good for small investors. 
Investor empowerment increases control over lawsuits and settlements. 
The current system involves class members who sign on the dotted line 
to claim their share of a settlement or recovery, usually amounting to 
6 to 8 cents on the dollar. Investors receive also insufficient 
settlement information.
  Lawyers often compromise the classes' best interests to maximize 
lawyer

[[Page S9042]]

fees. Example: In the Prudential Insurance case, the attorneys wanted 
to settle for $37 million. The California securities director, Gary 
Mendoza, objected, and got the class $90 million. Then they wanted to 
base their fees on the bigger settlement, even though they originally 
were willing to settle the case for much less.
  The bill shifts some of the power in these cases from the 
entrepreneurial class action attorneys to the people who have an 
expertise in managing retirement funds and other members of the class 
who are not ``pet plaintiffs.'' It also vests more power in the judges 
who have to be the final arbiter of these cases, including the money 
that goes to the lawyers.
  It requires lawyers to actually locate plaintiffs who genuinely are 
aggrieved before filing the suit. Notice of settlement proposals have 
to be sent to the class, be in a user-friendly format which they can 
understand, provide clear and specific information relevant to 
investors' decision whether to accept settlement, challenge legal fees, 
opt out or say no thanks.
  Under the current system, individuals can be bound by the settlement 
without knowing anything about it. But under S. 240 investors will get 
a phone number to call for information, and we can go on with more and 
more details that make this a good bill for the investors of this 
country. Small investors, large investors, institutional investors, I 
hope, will be playing a more significant role in the future as we move 
to the courts of our land on these kinds of class action suits.
  Now, Mr. President, I ask unanimous consent that a statement I have 
prepared regarding millions of dollars for the lawyers and coupons for 
the plaintiffs be printed in the Record at this point.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

              Millions for Lawyers, Coupons for Plaintiffs

       Members of the plaintiff class each received a $400 
     nontransferable coupon good for a year toward a new Ford in 
     litigation concerning leaky roofs in Ford Mustangs. The 
     lawyers received about $1 million in fees and expenses and 
     ``A Fistful of Coupons,'' New York Times, May 26, 1995.
       Professors are known for their academic temperament. 
     Professors are thoughtful and scholarly in their writings.
       Professor John Coffee of Columbia Law School wrote about 
     class action lawsuits where the plaintiffs get coupons and 
     the lawyer takes the cash:
       ``These script settlements tend to be used by lawyers who 
     are not zealous on behalf of the class.''
       Plaintiffs weren't so scholarly in their commentary:
       ``The whole idea that the lawyer collects a million and the 
     person collects nothing is the most asinine thing that I have 
     ever heard.''
       This plaintiff class would have benefited from S. 240: Most 
     adequate plaintiff; disclosure of settlement terms; and 
     attorney fee reform.

  Mr. DOMENICI. Proportionate liability. According to Arthur Levitt, 
the current system is bad for all investors. So let me talk about that 
for a minute. Creating a sound liability scheme is a balancing 
exercise, all investors versus the plaintiffs' class action lawyers and 
investors who happen to be plaintiffs in the case. Investors who are 
plaintiffs get 6 to 14 cents on the dollar. The current system 
obviously is not working very well and, clearly, litigation has an 
adverse impact on investors and on businesses.
  The current system is working even worse than many think. Investors 
are harmed when their company is frivolously sued. Stock prices are 
depressed. Dividends are less than they would have been, and management 
is sidetracked and loses much energy in figuring out what to do with a 
lawsuit instead of making the company work, grow, and prosper. Small 
companies cannot obtain outside directors and professional advisers; 
directors' and officers' insurance gets more and more expensive. That 
means they pay less for their company's activities. There would be 
smaller raises, fewer new jobs, and fewer new products.
  Arthur Levitt, in his April 6 written testimony, after discussing the 
interest in compensating plaintiff/investors, said:

       The Commission recognizes that there are competing policy 
     considerations that are also derived from concern with the 
     long-term interests of investors.

  It is true that Chairman Levitt has made what I consider 
``sequentially evolving statements.'' His three most recent 
pronouncements indicate that he disagrees with the premise of the 
Sarbanes amendment that joint and several liability is always 
appropriate when a codefendant is insolvent.
  Arthur Levitt supports modifying joint and several liability in 
certain contexts. Support for a two-tier liability system is one 
modification and S. 240 is a two-tier system.
  In response to questions from Senators D'Amato and Sarbanes during 
the April 6 hearing, Arthur Levitt said:

       I think in those instances where conduct was willful fraud 
     or in those instances where we're talking about an issuer, 
     that joint and several liability should still apply.

  The bill retains joint and several liability for knowing fraud.
  Arthur Levitt said further:

       I think when we're talking about other instances, a 
     proportionate liability scheme that was limited to fraud on 
     the market cases where the conduct may have been reckless, I 
     believe that would be a fair way of balancing it.

  A May 25 letter to Chairman D'Amato identifying problems with the 
committee print did not mention joint and several liability.
  In the SEC's submission to OMB, they did not oppose the joint and 
several provision of S. 240 and did not argue for change sought by this 
amendment.
  The SEC did not indicate any dissatisfaction with the way 
responsibility is allocated in the event of an insolvent codefendant.
  Jane Bryant Quinn's article in Newsweek endorses proportionate 
liability.
  We have to be concerned about real world effect of these litigation 
rules.
  Mr. President, I ask unanimous consent that the Boston Globe 
editorial called ``Stock Response,'' in which they end up saying the 
bill, as modified, before the Senate is a bill that should be adopted, 
be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                        [From the Boston Globe]

                             Stock Response

       Younger, high-tech Massachusetts corporations give the 
     state much of its economic vitality. But their volatility has 
     provided fodder for litigants who exploit weaknesses in tort 
     law to make extra bucks from the vulnerable. A bill now 
     moving through Congress would tighten terms under which suits 
     could be brought against corporations when performance fails 
     to match expectations. It would also reverse the trend toward 
     reducing information available to genuine investors.
       So-called strike suits sometimes follow sharp drops in 
     stock prices associated with unexpected bad news, usually 
     failure to meet predicted performance in sales or profits. 
     Such disappointments are more frequent among newer 
     corporations that are often dependent on a single product or 
     a narrow range of products. Performances are apt to be 
     erratic, and the loss of a single customer can inflict 
     serious but temporary injury to sales figures.
       Enterprising lawyers specializing in identifying such 
     situations sometimes team with stockholders--some with minor 
     stakes--to bring quick suits when company officers had 
     predicted better results. Too often it is the business 
     equivalent of suing your tout sheet, or maybe the horse, if 
     you lose money at the track. Managements frequently settle 
     rather than engage in costly litigation, even though they 
     might ultimately win at trial. Furthermore, they have become 
     increasingly wary of making any projections, to the detriment 
     of the full disclosure that underlies a free market.
       A move to make such suits more difficult while protecting 
     shareholders from fraud by unscrupulous managements has been 
     evolving in Congress for three years. It permits managements, 
     with important exceptions, to make forward-looking 
     projections that identify risks involved.
       Recent improvements in the bill have eliminated a loser-
     pays provision that would have chilled legitimate challenges 
     to management practices, an important concession that 
     preserves shareholder rights. It is essential that this 
     protection be preserved in the conference committee as the 
     bill inches toward final passage.

  Mr. DOMENICI. Mr. President, State and local officials support 
reform. There are about 14 quotes from State officials who support it.
  Mr. President, supporters of the securities litigation--we have about 
four sheets of them. And I just would like to call to the attention of 
the Senate in submitting these that State pension fund administrators 
and regulators from the States of Colorado, Delaware, Illinois, 
Massachusetts, North Carolina, Ohio, Oregon, South Carolina, and 
California are among those State supporters from the State regulatory 
side.

[[Page S9043]]

  I ask unanimous consent that all of these be made a part of the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  The Overwhelming Consensus in Favor of Securities Litigation Reform


                         investors want reform

       There is no denying that there are real problems in the 
     current system--problems that need to be addressed not just 
     because of abstract rights and responsibilities, but because 
     investors and markets are being hurt by litigation 
     excesses.--SEC Chairman Arthur Levitt (``Between Caveat 
     Emptor and Caveat Vendor: The Middle Group of Litigation 
     Reform,'' Remarks at the 22nd Annual Securities Regulation 
     Institute, January 25, 1995).
       Most shareholder suits are brought by people who care 
     little, if at all, for shareholders as a group. The 
     plaintiffs and their lawyers make grant statements about the 
     integrity of the markets, but the primary motivation--and the 
     primary outcome--is their own returns. Typically, plaintiffs 
     get a small award, and their lawyers get a large one.--Nell 
     Minow, LENS, Inc. (``Time to Wake the Sleeping Bear,'' Legal 
     Times, February 13, 1995).
       Our nation's securities laws were enacted to protect 
     investors and to improve our capital markets. However, the 
     perverse incentive of attorneys to file meritless claims has 
     created the exact opposite of the intended effects of our 
     securities laws. Abusive lawsuits triggered by a small group 
     of lawyers, inflict tremendous harm on our nation's financial 
     system and on the individuals and organizations drawn into 
     them.--Richard A. Eckstom, State Treasurer, South Carolina 
     (Letter to Sen. Hollings, April 17, 1995).
       . . . [T]he current system is not working and needs reform. 
     Under our current system, defrauded investors are receiving 
     too little compensation while plaintiffs' lawyers take the 
     lion's share of any settlement.--Managers of Ten Pension 
     Funds representing: The Massachusetts Bay Transportation 
     Authority; The Teachers Retirement System of Texas; New York 
     City Pension Funds; Champion International Pension Plan; The 
     Connecticut Retirement and Trust Funds; The Oregon Public 
     Employees Retirement System; The State of Wisconsin 
     Investment Board; State Universities Retirement System of 
     Illinois; Eastman Kodak Retirement Plan and The Washington 
     State Investment Board (Letter to Sen. Dodd and Sen. 
     Dominici, July, 1994).
       [T]he amount of damages that plaintiffs have typically 
     recovered represents only a percentage of their initial 
     claim; but the lawyers who bring the claim extract 
     substantial fees from any lawsuit filed. A system that was 
     intended to protect investors now primarily benefits their 
     lawyers.--J. Kenneth Blackwell, Treasurer, State of Ohio 
     (Letter to Sen. D'Amato, March 10, 1995).
       Because shareholders are on both sides of this litigation, 
     it merely transfers wealth from one group of shareholders to 
     another. However, it wastes millions of dollars in company 
     resources for legal expenses and other transaction costs that 
     otherwise could be invested to yield higher returns for 
     company investors.--Judy Baar Topinka, State Treasurer, State 
     of Illinois (Letter to Sen. Moseley-Braun, March 16, 1995).
       Investors are also being harmed by the current system, as 
     it shortchanges people who are victimized by real fraud . . . 
     The plaintiffs' lawyers who specialize in these cases profit 
     from brining as many cases as possible and quickly settling 
     them, regardless of the merits. Valid claims are being 
     undercompensated in the current system because lawyers have 
     less incentive to vigorously pursue them.--Janet C. 
     Rzewnicki, Treasurer, State of Delaware (Letter to Sen. 
     D'Amato, March 21, 1995).
       The current situation in the law permits and even 
     encourages the filing of lawsuits with very little merit 
     against corporations. The benefits derived from these suits 
     are going primarily to attorneys. However, the payments are 
     actually coming from the pockets of serious, lifetime owners 
     of the corporations like our members.--Thomas E. O'Hara, 
     Chairman, National Association of Investors Corporation 
     (Letter to Sen. Dodd, July 19, 1994).
       Nearly seven out of ten investors surveyed say they favor 
     legal reforms to crack down on lawsuit abuse. According to a 
     new survey conducted by Public Opinion Strategies for the 
     National Investor Relations institute, . . . [s]ome (87 
     percent) say they worry that lawsuits are diverting resources 
     that could be used on product research and business expansion 
     to create jobs. A similar number (88 percent) believe 
     lawyers, not shareholders, are the primary beneficiaries of 
     lawsuits.--National Investor Relations Institute (Press 
     Release, March 22, 1995).
       The system of penalties and incentives contemplated by 
     Congress is turned upside down. The winners in these suits 
     are invariable lawyers who collect huge contingency fees, 
     professional ``plaintiffs'' who collect bonuses and, in cases 
     where fraud has been committee, executives and board members 
     who use corporate funds and corporate owned insurance 
     policies to escape personal liability. The one constant is 
     that the shareholders pay for it all.--Ralph V. Whitworth, 
     President, United Shareholders Association (Testimony before 
     the Securities Subcommittee, Senate Banking Committee, July 
     23, 1993).
       We are ones who are hurt if a system allows someone to 
     force us to spend huge sums of money in legal costs by merely 
     paying ten dollars and filing a meritless cookie cutter 
     complaint against a company or its accountants when that 
     plaintiff is disappointed in his or her investment. Our 
     pensions and jobs depend on our employment by and investment 
     in our companies. If we saddle our companies with big and 
     unproductive costs that other countries do not pay, we cannot 
     be surprised if our jobs and raises begin to disappear and 
     our pensions come up short as the population ages.--Mayellen 
     Andersen, Investor and Corporate Relations Director, 
     Connecticut Retirement and Trusts Funds (Testimony before the 
     Senate Banking Securities Subcommittee, July 21, 1993).
       Shareholders . . . are likely to realize only a small 
     percentage of their claims and have little active involvement 
     in the lawsuit. Plaintiff's attorneys are clearly in the 
     drivers seat.--Kurt N. Schacht, General Counsel, State of 
     Wisconsin Investment Board (Letter to Sen. Domenici, 
     September 27, 1993).
       [T]he plaintiffs typically recover only a small percentage 
     of their claim, as the lawyers extract large fees for 
     bringing the suit. A system that was intended to protect 
     investors now seems to benefit the lawyers.--Bill Owens, 
     State Treasurer, State of Colorado (Letter to Sen. D'Amato, 
     April 19, 1995).
       The concern about, and the reaction to, meritless lawsuits 
     has caused industry, as well as accounting, law and insurance 
     companies, to increase their costs with price tags ultimately 
     paid by the consumer and the investing public, including a 
     large percentage of our retirees and pension holders.--Joseph 
     D. Malone, Treasurer and Receiver General, Commonwealth of 
     Massachusetts (Letter to Sen. D'Amato, March 22, 1995).
       [M]eritless litigations cost companies millions of 
     dollars--money that could be generating greater profit for 
     the company and higher returns for investors.--Jim Hill, 
     Treasurer, State of Oregon (Letter to Sen. Dodd and Sen. 
     Domenici, June 21, 1994).
       I believe there is a compelling need to reform the current 
     system of securities litigation. The problem with the current 
     system is two-fold. First, the current system too often 
     promotes the filing of meritless claims. Perhaps more 
     importantly, the current system does not adequately serve the 
     interest it is designed to protect--the interests of 
     defrauded investors.--Gary S. Mendoza, Commissioner of 
     Corporations, State of California (Letter to Representative 
     Fields, February 9, 1995).
       Investors will be the beneficiaries of meaningful reform. 
     The current system fails to distinguish cases of actual fraud 
     from frivolous cases. Typical class members receive less than 
     $.14 for their losses. A system where private attorneys have 
     an incentive to seek out cases of genuine fraud and litigate 
     them to conclusion will compensate investors properly and 
     will not coerce settlements which are paid by the 
     shareholders of innocent companies.--Christopher J. Murphy, 
     Chairman, Association of Publicly Traded Companies (Testimony 
     before the Securities Subcommittee, Senate Banking Committee, 
     March 2, 1995, at 1).
       [We] are all victims. The mere threat of a securities suit 
     makes us reluctant to provide the marketplace with voluntary 
     disclosures. This impedes the efficiency of the marketplace 
     by preventing investors from receiving full and complete 
     information. Investors are harmed because investment 
     decisions will not be made on a fully informed basis and 
     their stocks will be improperly valued. . . . Please help us 
     turn the securities litigation system right side up by 
     putting investors first and plaintiffs' attorneys last.--219 
     California High Tech Executives (Letter to Dianne Feinstein, 
     July 21, 1994).
       Much has been said about the fact that investors receive 
     little, ``pennies on the dollar'', in terms of the actual 
     settlement between the company and plaintiffs' attorneys. 
     However, just as important is the point that the vast number 
     of investors lost in these cases because during the period an 
     emerging growth company is being sued its stock becomes 
     moribund. Investors, large and small, are forced to wait the 
     process out, sell off at a price that does not accurately 
     reflect the company's true status and potential or exert 
     pressure on company officials to settle the suit regardless 
     of the fact that the suit is meritless.--James Morgan, 
     President, National Venture Capital Association (Testimony 
     before the Securities Subcommittee, Senate Banking, March 2, 
     1995, at 7).
       Investors are ill-served by the present system. Because 
     issuers fear abusive litigation, they have sharply curtailed 
     the amount of information they are willing to disclose, 
     leaving investors without information essential for 
     intelligent decision making. To the detriment of 
     shareholders, abusive securities litigation distracts 
     companies from their principal tasks, discourages the 
     development of new businesses and inhibits sound risk taking. 
     Finally, the existing litigation system encourages suit 
     regardless of merit and cost forces defendants to settle 
     regardless of merit.--Lynn D. Dudley, Director of Retirement 
     Policy, Association of Private Pension and Welfare Plans 
     (Letter to Sen. Domenici and Sen. Dodd, March 17, 1995).
       [M]eritless law class actions have skyrocketed. The need to 
     defend unfounded litigation imposes a ``litigation tax'' on 
     capital formation that must ultimately be paid by the 
     investing public.--Marc E. Lackritz, President, Securities 
     Industry Association

[[Page S9044]]

     (Testimony before the Securities Subcommittee, Senate Banking 
     Committee, March 2, 1995, at 3).
       If a suit is filed, it should be to redress a legitimate 
     wrong. If a company pays a settlement, it should be because 
     the company did something wrong. If an injured investor sues, 
     that investor should get more than a few cents on the dollar. 
     I think it is fair to say that the views I express today are 
     held by a majority of institutional investors.--Joh Lukomnik, 
     Deputy Comptroller, City of New York (Testifying before the 
     Subcommittee on Telecommunications and Finance, House Energy 
     and Commerce Committee, August 10, 1994).


              managers of private or public pension funds

       Champion International Pension Plan: Champion International 
     Pension Plan controls over $1.8 billion in total assets.
       Connecticut Retirement and Trust Fund: The Connecticut 
     Retirement and Trust Fund invests over $11 billion on behalf 
     of over 140,000 employees and beneficiaries.
       Eastman Kodak Retirement Plan: Eastman Kodak Retirement 
     Plan manages over $10.9 billion in total assets and is ranked 
     as one of the largest 60 pension plans in the U.S.
       Massachusetts Bay Transportation Association: With over 
     12,000 participants, the Massachusetts Bay Transportation 
     Association controls over $772 million in total assets.
       New York City Pension Funds: Over $49 billion have been 
     invested in the fund to insure the retirement security of 
     227,000 retirees and 130,000 vested employees.
       Oregon Public Employees' Retirement System: Assets 
     controlled by the fund total over $17.2 billion. The Oregon 
     Public Employees' Retirement System is ranked among the 
     largest 30 pension plans in the U.S.
        State of Wisconsin Investment Board: One of the 10 largest 
     pension funds in the United States, the State of Wisconsin 
     Investment Board manages over $33 billion contributed by the 
     State's public employees.
       State Universities Retirement System of Illinois: The State 
     Universities Retirement System is ranked as one of the 
     country's 100 largest pension funds with total assets of $5.3 
     billion.
       Teachers Retirement System of Texas: The Teachers 
     Retirement System of Texas controls over $36.5 billion in 
     total assets on behalf of its 700,000 members.
       Washington State Investment Board: With assets totaling 
     over $19.7 billion, the Washington State Investment Board is 
     ranked in the largest 25 pension funds.


            state pension fund administrators and regulators

       Commissioner of Corporations, State of California.
       Treasurer, State of Colorado.
       Treasurer, State of Delaware.
       Treasurer, State of Illinois.
       Treasurer, Commonwealth of Massachusetts.
       Treasurer, State of North Carolina.
       Treasurer, State of Ohio.
       Treasurer, State of Oregon.
       Treasurer, State of South Carolina.

  Mr. SARBANES. What is the time situation, Mr. President?
  The PRESIDING OFFICER. The Senator has 17 minutes, 30 seconds, with 6 
minutes 48 seconds on the other side.
  Mr. SARBANES. I yield myself 5 minutes. I say to my colleague that I 
listened carefully to his statement and it really does not address this 
amendment. The statement really addresses the overall bill and the 
provisions of the overall bill.
  There were some of the points he made with which I agree and some 
with which I disagree, but it did not really get to the question of the 
amendment before us. We had the debate on Friday on the joint and 
several issue, on Thursday night and Friday on the broad principle. We 
are now addressing the provision that is in the bill.
  I want the Senator to explain to me the fairness or equity--
obviously, the proponents of this legislation have recognized a 
necessity to protect the small unsophisticated investor. What they have 
provided is that if a plaintiff has a net worth of less than $200,000, 
he will be regarded as such a person--$200,000. This, by their own 
statement, includes all of the plaintiff's financial assets, including 
stocks, bonds, real estate, and jewelry. So if you own a home, that is 
going to get an awful lot of people close to the $200,000 right there. 
But in addition, it would be bad enough if they said if your net worth 
is $200,000 or less--you have to have a net worth of $200,000 or less 
in order to be fully protected. If you are slightly above that figure, 
you do not get full protection.
  In addition, there is also a requirement that to be fully protected 
on recoverable damages, you have to have lost more than 10 percent of 
your net worth by this fraudulent scheme. So, in other words, if you 
are at the $200,000 figure, you have to have lost more than $20,000 in 
order to be fully protected. Why should someone who has a net worth of 
only $200,000 not be fully protected if they get caught in a fraudulent 
scheme and they lose $12,000? Or $15,000? Or $18,000? Where is the 
equity or the fairness in that?
  If you are going to limit the small people--I think the limit is too 
great at $200,000, but this amendment does not address that part of the 
provision that is in the bill. This amendment addresses the provision 
that in addition to being limited to a $200,000 net worth, you have to 
have lost more than 10 percent of your net financial worth if you are 
going to be fully protected in recovering your damages.
  The small people are really going to be hit hard. The small people 
are really going to be hit hard because someone who has a $200,000 net 
worth, but only $5,000 of risk, loses it all.
  We say, ``Well, that is too bad. You will not get full protection.''
  I cannot, for the moment, begin to understand the equity of that 
provision, and therefore the amendment that I have sent to the desk 
seeks to change that in order to provide additional protection for the 
small, unsophisticated investors who have been recognized in this bill 
as requiring some form of special protection.
  Mrs. BOXER. Will the Senator yield?
  Mr. SARBANES. I yield for a question.
  Mrs. BOXER. I want to thank the Senator for this amendment. I wonder 
if the Senator has seen the extraordinary list of national, State, 
county, and local public officials--it is really from A to W, from 
Alabama to Wyoming--that opposes this bill in its current form.
  I say to my friend that if some of these amendments are passed, this 
is going to make a great difference to a lot of these people, and I 
think to this administration, and certainly to this Senator.
  We have the Government Finance Officers Association against it, the 
Municipal Treasurers Association of the United States against it, the 
National League of Cities, the National Association of County 
Treasurers and Finance Officers, the North American Security 
Administrators Association, and attorneys general from all over the 
country, including, I notice, from New Mexico and others.
  These are people that do not have an ax to grind. I wonder if my 
friend has seen this incredible list. It is 10 pages, single spaced, of 
all the people who oppose this bill, and I have not even mentioned the 
consumer groups on this issue.
  Mr. SARBANES. I am not sure I have seen the list, but I hope the 
Senator will include it in the Record so your colleagues will have the 
benefit of seeing the list.
  We have a clash amongst interest groups, no question about it. We 
have a group of lawyers who very much are involved in the securities 
litigation which my colleagues on the other side say are abusing the 
existing system. They are trying to address that. We also have a lot of 
corporate people who want to shield themselves from liability on the 
other hand.
  So we have vested economic interests coming from both directions, 
most of the judgment coming from groups that have no vested interest in 
it, questioning the provisions of this bill as being excessive and as 
going too far.
  As the article in the New York Times on Sunday by Mark Griffin, the 
director of the Utah Securities Division, states:

       What's in the name? In the case of Private Securities 
     Litigation Reform Act of 1995, consumers will find a world-
     class misnomer now before the Senate. The bill is more 
     accurately described as securities litigation repeal.

  In effect, what we have is a situation in which this is excessive; it 
goes too far. Even the proponents recognize that it went too far. They 
put this provision in that I am now trying to change, in a rather 
modest way, in order to make it have some meaning, rather than being 
almost meaningless.
  It has a double requirement. You have to be below $200,000 net worth, 
and you have to lose 10 percent of your net worth. If you are some 
small, unsophisticated person with very limited means, below $200,000 
net worth--that is, your house, your jewelry, your real estate, any 
stocks or bonds that you own, all of that added up gets you below 
$200,000--you would think at least we will protect that person fully, 
fully protect them.

[[Page S9045]]

  Oh, no, no. In addition to having to be below the $200,000 net worth, 
you have to lose in this stock swindle more than 10 percent of your net 
worth. If your net worth is $195,000, all these things added up, you 
have to lose more than $19,500.
  Suppose you are a small investor with a net worth of $195,000, all of 
these things I enumerated. Someone talks you into making an investment. 
A lot of elderly people get fast-talked on the telephone or in person 
and make an investment of $5,000. They lose it; they lose it. The stock 
swindler goes bust, flees. There is no recovery there. The people 
advise the stock swindler, who were participants in the fraud on a 
reckless standard--on a reckless standard, the stock swindlers, 
lawyers, accountants, investment advisor, people drawn into this 
thing--they are protected ahead of this innocent investor who has lost 
$5,000. I cannot understand it.
  I said before that this is a ``have-you-no-shame amendment,'' I say 
to my colleagues on the other side with respect to what you are doing 
to these small investors. Senators recognize the problem of the small 
investor, the unsophisticated person, and fail to adequately give them 
any protection, is what it amounts to.
  That is a very important aspect. I would like to get the response 
from the other side focused on the provisions of the amendment. All we 
do, we put the amendments forward, and then we hear a statement about 
the bill as a whole.
  We said earlier, at the very beginning of the debate, that we accept 
certain aspects of this bill. The real question now is on the 
amendments which go to particular provisions in the legislation.
  I yield the floor. Perhaps we can get a focus on this particular 
amendment and its provisions.
  Mr. DOMENICI. Mr. President, I think the distinguished Senator knows 
that I was one of the Senators, along with Senator Dodd, that 
introduced this legislation. I did not serve on the Banking Committee 
when this legislation was marked up.
  Let me see if I can explain. I do not have any apologies for this. I 
think the committee went, in one sense, too far. We are here to say, 
``Okay, that is fine.'' Here is the theory: The Senator now would like 
to say this bill has gone a long way to try to get rid of the problems 
that joint and several liability brings to this kind of class action 
suit.
  Now, if one does not believe that joint and several has created any 
problems for deep pockets who are almost in an infinitesimal amount 
involved in this case and makes them liable for the whole thing; if one 
does not believe that the accountants are not necessarily as liable 
unless knowingly participating in the fraud, that they should not be 
liable for the whole settlement or the whole verdict, if one does not 
believe that, obviously, those Senators ought to be for the Sarbanes 
amendment.
  If a Member is for changing that--and I spent a considerable amount 
of time, not necessarily as well as it can be done--explaining that the 
unfairness of the application that law to cases of this type by lawyers 
in America today, if a person does not believe it has been applied 
unfairly, or that it is causing litigation to be filed that is 
meaningless, putting huge burdens on America's startup companies, if 
Members do not believe that and they want to go forward, then go with 
Senator Sarbanes.
  If you want to leave joint and several liability as it is, this 
essentially means no matter how much of the culpability is yours, you 
pay the whole amount whatever that amount is. We know what that is 
doing to the system. It is not helping clean up the system at all.
  It is causing everybody in the chain of this kind of activity to buy 
huge insurance policies. We have an example here of one that I put in 
the Record. If you were in business in the United States, and exactly 
the same kind of business with exactly the same kind of activity in 
Canada, in one country it would cost $40,000, and in America it would 
cost $450,000.
  That would not matter to some who do not think it matters what 
business has to pay. If that is a medium-sized business, $450,000 
versus $40,000 for insurance coverage is a pretty big deal. It is like 
six to eight full-time engineers that could work at one of these 
companies. But they pay it in insurance so you can have this liability 
of joint and several. So every board of directors, every official, 
everybody in the company, the CPA's and everyone else, can be liable 
for the entire malfeasance of one.
  If you do not agree with that statement, if you do not agree with 
that position, which is basis of this new bill, S. 240, which 
reformulates class action suits on securities, then you start 
considering, who should we exclude? Who should we exclude from what is 
now perceived to be a more fair system for everybody at large? I would 
assume that if you want to change that joint and several, that you no 
longer consider each and every possible defendant as the insurer of 
stockholders--whether they are little stockholders or big 
stockholders--they are not the insurer, that they will not lose money 
because somebody in the chain of this company did something wrong.
  So what did the committee do? I say to my fellow Senators, they said 
OK, there could be some situations when we want to provide more than 
the proportionate liability, when we want to give a little bit of a 
break to some small investors who are poor. It did not mean that they 
were throwing the new system out. In fact, they have gone to great 
lengths in this bill saying the new system of proportionate liability 
will be better for everyone.
  The answer to Senator Sarbanes is much the same as one would give if 
we were on the floor discussing a Federal statute. When I was 
practicing law, if you stole $51 you committed a felony. If you stole 
$48 it was a misdemeanor. So you would come to the floor and say why 
$50? Or why did we not do $80? Or why did we not do $52? Why did we not 
cover the next little step? Just $51 should not be guilty of a felony. 
You have to draw the line somewhere.
  So the committee said, we want to take care of a small group of 
investors whom this change in the law might affect adversely. So they 
drew some lines. That is all they did.
  The Senator would like to draw the lines differently. Of course. The 
Senator from Maryland would like to draw a line very differently. He 
would like to throw this whole bill out. That is the line he would 
like. He would like to leave it like it is with maybe a few little soft 
amendments. He clearly does not want this bill to pass.
  From my standpoint, there is no answer to why you draw lines of this 
type. If you want to have a debate in the Senate and say instead of 
$200,000 worth of net worth it should be $300,000, have the debate. If 
you want to say it should be $250,000, have the debate. Sooner or later 
you will draw the line somewhere or you will return to the old law.
  Mr. SARBANES. Will the Senator yield on that point?
  Mr. DOMENICI. I will be pleased to yield.
  Mr. SARBANES. I have not tried to draw the line on the net worth 
issue at all. The Senator says if you want to put it at $250,000 or 
$300,000--I have not tried to change that line. I have not drawn that 
line at all. I have left the line at $200,000.
  That response does not go to the amendment in any respect.
  Mr. DOMENICI. OK. So, I answer the Senator's question before he 
finishes it by saying you delete the requirement that small investors 
lose at least 10 percent of their net worth.
  Mr. SARBANES. That is right.
  Mr. DOMENICI. You say it does not matter how much they lose of their 
net worth.
  Mr. SARBANES. I am saying if you have a small investor, $200,000 
worth of net worth--I am not trying to change the Senator's net worth--
it could be $300,000, could be $100,000--your net worth includes their 
home, includes everything they have----
  Mr. DOMENICI. So the Senator does not want any?
  Mr. SARBANES. I am saying keep it at $200,000.
  Mr. DOMENICI. Right.
  Mr. SARBANES. But do not require, before they are held harmless they 
lose 10 percent of their net worth. You have someone with a $200,000 
net worth, they loose $5,000 and you say, ``Tough.'' That is a small 
investor. It is an unsophisticated person who is taking a real 
pounding. I am saying, why do you not let them at least collect what 
they lost? You have limited it to a class of less than $200,000 net 
worth. At least whatever they lose, let them recover.

[[Page S9046]]


  Mr. DOMENICI. Let me just say, from this Senator's standpoint, as I 
look at this law, proportionate liability is fair. It is better for the 
entire system than the joint and several before. And there have been 
hours of statements on the floor on why the new system is better for 
the country, more fair and all the other things that have been said 
about it.
  If you want to start talking about changing that small group of 
investors that, somehow or another, the committee in reporting out this 
bill wanted to protect in some way, then I am not going to say the 
committee was perfect in every one of its lines. But I do not believe 
we ought to start with the premise that it is unfair when it could have 
been that there would not have been any exceptions, and that would have 
been a fair system. They decided to help small investors in some 
specific way. What they have done is not unfair. It may be unfair to 
you, Senator, and maybe to enough Senators to vote with you.
  The PRESIDING OFFICER. The time of the Senator has expired.
  Mr. SARBANES. I just point out to the Senator that the notion that it 
was unfair was encompassed by the Senator when he put his bill in. This 
was in the bill, put in by the Senator. So the Senator himself departed 
from the absolutely rigorous application of moving to proportionate 
liability because he recognized it was not fair.
  I am just making the point, the way it has been defined makes it so 
restrictive that these small, unsophisticated investors--which my 
colleague is asserting he is providing some protection for --are not 
going to get protection. I am urging my colleagues to change it in this 
respect in order to provide protection for these small people.
  The fact of the matter is, the shift the Senator is doing is he is 
shifting the burden of uncollected damages off of the codefendant, who 
has abused the system, over to the insolvent defendant, the victim.
  The Senator used an example between a misdemeanor and a felony, and 
he says you have to have a line. The line you have is you are still 
punishing the wrongdoer. The shift from a misdemeanor to a felony does 
not enable you to put the burden off on the victim of the crime. Here 
we are throwing it off on the victims, and you are doing it in such a 
way that they have no adequate protection. I think these small 
investors ought to be protected. I think the proportionate liability 
ought to be doubled. As the Senator from New York indicated the other 
day himself in making a statement, that is what this is directed to do. 
I say to my colleague, the way it is written now my colleague is going 
to have someone with a small net worth, they lose a small amount of 
money--he says, ``Too bad.''
  They say, ``But this fellow was a participant in the fraud. They were 
in this scheme that cheated me.''
  ``Tough. Very sorry.'' And Mr. and Mrs. Small investor, all across 
the country, are going to feel the brunt. They are going to feel the 
brunt of this.
  I should have tried to amend the net worth as well. I think the 
figure is much too low. But for the sake of drawing the distinctions we 
left the net worth. We just said all right, you got $200,000 net worth, 
you lose $15,000 in this fraudulent scheme. The person who directly 
perpetrated the scheme has fled. But his lawyer is around, his 
accountant is around, his investment counselor is around. And all of 
them were so reckless that they became participants in the scheme. They 
did not blow the whistle on this person and therefore you are entitled 
to collect from them. And I think you ought to be able to collect if 
you are the small person.
  If you have lost less than 10 percent, you have a smaller loss--why 
should they not? That may be the only investment funds these people 
have. We are not talking about wealthy people here. And you are putting 
the burden--it is very important to understand, the law to date has 
been that all of the defendants can be held. If one of them goes 
bankrupt, then the others can be brought in and made to pay. And the 
victim is held harmless.
  Now we are making the perpetrators of the fraud harmless as opposed 
to the victims.
  Mr. President, what is the time situation?
  The PRESIDING OFFICER. The Senator's time has expired. The hour of 2 
o'clock now having arrived, the Senator from California is recognized 
to offer an amendment on which there will be 90 minutes debate.
  The Senator from California.


                           Amendment No. 1473

(Purpose: To instruct the Securities and Exchange Commission to report 
 to the Congress on whether senior citizens and retirement plans need 
               enhanced protection from securities fraud)

  Mrs. BOXER. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from California [Mrs. Boxer] proposes an 
     amendment numbered 1473.
       At the appropriate place, insert the following:

     SEC.  . STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS 
                   AND QUALIFIED RETIREMENT PLANS.

       (a) Findings.--The Congress finds that--
       (1) senior citizens and qualified retirement plans are too 
     often the target of securities fraud of the kind evidenced in 
     the Charles Keating, Lincoln Savings & Loan Association, and 
     American Continental Corporation situations;
       (2) this Act, in an effort to curb unfounded lawsuits, 
     changes the standards and procedures for securities fraud 
     actions; and
       (3) the Securities and Exchange Commission has indicated 
     concern with some provisions of this Act.
       (b) In General.--Not later than 180 days after the date of 
     enactment of this Act, the Securities and Exchange Commission 
     shall--
       (1) determine whether investors that are senior citizens or 
     qualified retirement plans require greater protection against 
     securities fraud than is provided in this Act and the 
     amendments made by this Act; and
       (2) if so, submit to the Congress a report containing 
     recommendations on protections that the Commission determines 
     to be appropriate to thoroughly protect such investors.
       (c) Definitions.--For purposes of this section--
       (1) The term `qualified retirement plan' has the same 
     meaning as in section 4974(c) of the Internal Revenue Code of 
     1986; and
       (2) the term `senior citizen' means an individual who is 62 
     years of age or older as of the date of the securities 
     transaction at issue.

  Mrs. BOXER. Mr. President, thank you very much.
  The reason I had the wonderful employee of the Senate read the 
amendment in its entirety is that it is pretty straightforward. As has 
been stated before, I am not an attorney. Because I tend to see these 
things in a very straightforward way, I have a rule that I have to 
really be able to show my amendment to the people I represent and make 
sure that they speak clearly to the point.
  Is it not the case, Mr. President, that I have 45 minutes on my side, 
and Senator Domenici has 45 minutes on his side?
  The PRESIDING OFFICER (Mr. Frist). That is correct.
  Mrs. BOXER. Mr. President, I yield myself such time as I might 
consume, but I ask if the President will let the Senator know when she 
has used about 20 minutes.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. BOXER. Mr. President, since we are putting into the Record names 
of people and organizations, I wanted to make the point that in 
California a partial list of those who think this bill goes too far is 
as follows: The California State Association of Counties, the county of 
San Francisco, Napa County Deputy District Attorney, the Stanislaus 
County Board of Supervisors by resolution, the city of Barstow Finance 
Director, the city of El Monte Treasurer, the Glendale Treasurer, the 
city of Whittier Clerk-Treasurer, the Modesto Irrigation District, and 
that is a partial list.
  I ask unanimous consent that be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

        State-by-State Opponents to S. 240, as of June 22, 1995


                                alabama

       City of Mobile, Investment-Treasury Officer Arthur J. 
     Barnes.
       Pike County Commission, Administrator Steven W. Hicks.
       State of Alabama, Securities Commission, Director Joseph P. 
     Borg.


                                arizona

       City of Bullhead City.
       City of Yuma, Accounting Director Gerald A. Zochowski.

[[Page S9047]]




                                arkansas

       City of Stuttgart, Finance Officer Jane W. Jackson.
       Craighead County, Treasurer Russell H. Patton III.
       State of Arkansas, Attorney General Winston Bryant.


                               california

       ACC Bond Holders.
       California State Association of Counties, Executive 
     Director Steven C. Szalay.
       California Labor Federation--AFL-CIO.
       City of El Monte, Treasurer Henry J. Velasco.
       City of Barstow, Finance Director Evelyn Radel.
       City of Glendale, Treasurer Elizabeth W. Evans.
       City of Whittier, Clerk-Treasurer Gertrude L. Hill.
       Congress of California Seniors, President Lois Wellington.
       Congress of California Seniors--Los Angeles.
       County of San Francisco, Chief Administrative Officer 
     William L. Lee.
       Gray Panthers of Marin, Convenor John Kouns.
       Modesto Irrigation District, General Manager Allen Short.
       Napa County, Deputy District Attorney Daryl A. Roberts.
       Stanislaus County Board of Supervisors, Chairman Paul W. 
     Caruso (resolution).
       Contra Costa Times editorial opposing S. 240 (April 17, 
     1995).


                                colorado

       Abbey of St. Walburga, Boulder.
       Adams County, Treasurer Helen HIll.
       Alamosa County, Treasurer Charlene Cockrum.
       Arapahoe County, Treasurer Bernie Ciazza.
       Benet Hill Monastery, Colorado Springs.
       Capuchin Province of North America, Denver.
       City of Denver, District Attorney A. William Ritter, Jr.
       City of Denver, Employees Retirement Plan, Executive 
     Director Michael Heitzman.
       Chafee County Board of Commissioners, County Administrator 
     Frank M. Thomas.
       Colorado AFL-CIO, Jack Hawkins.
       Colorado AFSCME, Cathy Bacino.
       Colorado County Treasurers' Association, President Sherry 
     M. Rose (resolution).
       Colorado Public Interest Research Group, Rich McClintock.
       Colorado Senior Organization of Active Retirees of 
     International Steelworkers (SOAR), President Matt Peulen.
       Colorado Seniors Lobby, President Richard Tucker.
       Denver Federation of Teachers, Local 858, President Fleta 
     Nockels.
       Eagle County, Treasurer Sherry Brandon.
       Freemont County, Treasurer Jenny Woltemath.
       Gray Panthers of Colorado, President Eric Boyer.
       Gunnison County, Treasurer Alva May Dunbar.
       Jefferson County, Treasurer Bob Bammerlin.
       La Plata County, Treasurer Edward Murray.
       Machinists Union, District Lodge 86, President Ray Rivera.
       Mesa County, Treasurer Gena Harrison.
       Moffat County, Treasurer Joy Hammat.
       Morgan County, Treasurer Robert Sagel.
       National Council of Senior Citizens, Region 8, Director 
     Matt Peulen.
       Oil, Chemical & Atomic Workers Union of Colorado, Robert 
     Wages.
       Otero County, Treasurer Dennis Smith.
       Ouray County, Treasurer Ramona Radcliff.
       Retired Mens' Organization of International Steelworkers of 
     Colorado, President Mike Baca (resolution).
       Rio Grande County, Treasurer Peggy Kern.
       San Miguel County, Treasurer Sherry Rose.
       Sisters of St. Francis of Colorado Springs.
       Sisters of St. Francis of Penance, Denver.
       State of Colorado, Division of Securities, Commissioner 
     Philip A. Feigin.
       Summit County, Treasurer Larry Galliland.
       Weld County, Treasurer Arthur Willis.
       Yuma County, Treasurer Mary Lou Rose.


                              connecticut

       City of New Britain, Finance Director John Jedrzejczyk
       City of Shelton, Finance Director Louis M. Marusici
       Connecticut Government Finance Officers Association, 
     President Glenn S. Klocko
       Newington Public Schools, Business Administrator Alfred L. 
     Villa
       Town of Darien, Finance Director Kathleen A. Clarke
       Town of Stonington, First Selectman David S. Burdge
       Town of Waterford, Finance Director Arthur H. Davis III


                                delaware

       City of Dover, Finance Director Mike Karia
       City of Newark, Finance Director Patrick E. McCullar
       Delaware Association of Government Finance Officers, 
     President Patrick E. McCullar


                                florida

       Benedictine Sisters of Florida
       Broward AFL-CIO
       Consumer Fraud Watch
       Dade County Board of Commissioners (resolution)
       Dade League of Cities, President Helen L. Miller 
     (resolution)
       Delray Senior Citizens
       Escambia County Board of Commissioners, Chairman Willie J. 
     Junior (resolution)
       Florida AFL-CIO
       Florida AFSCME
       Florida Association of Court Clerks and Comptrollers
       Florida Association of Tax Collectors
       Florida Chapter, National Bar Association
       Florida Coalition to Protect Investor's Rights, Coordinator 
     Susan Glickman
       Florida Consumer Action Network
       Florida Education Association
       Florida Government Finance Officers Association, President 
     Rick Atkinson
       Florida Public Interest Research Group
       Florida Silver Haired Legislature, Inc.
       Florida State Council of Machinists
       Florida State Council of Senior Citizens
       Gray Panthers of Sarasota-Manatee
       Gray Panthers of South Dade
       Northeast Florida Area Council of Senior Citizens
       Palm Beach County Sheriff's Office, Sheriff Charles A. 
     McCutcheon
       South Florida Water Management District, Director of 
     Finance E. Barrett Atwood, Sr.
       United Faculty of Florida
       United Teachers of Dade
       Palm Beach Post editorials opposing S. 240 (June 3 and 5, 
     1995)


                                georgia

       City of Albany, Controller Chuck Olmsted
       City of Columbus, Mayor Bobby G. Poters
       City of Forest Park, Finance Director Sarah Davis
       Gwinett County, Director of Financial Services Charlotte J. 
     Nash
       Municipal Electric Authority of Georgia, President and 
     General Manager Frank L. Olson
       Municipal Gas Authority of Georgia, Executive V.P. and CFO 
     Richard W. McCullough
       State of Georiga, Employees' Retirement System, Director 
     Rudolph Johnson


                                 hawaii

       State of Hawaii, Employees Retirement System, Administrator 
     Stanley Siu
       City and County of Honolulu, Finance Director Russell W. 
     Miyake


                                 idaho

       City of Pocatello, Clerk-Treasurer Peter B. McDougall


                                illinois

       American Province of Little Company of Mary Sisters, 
     Provincial Offices, Evergreen Park
       Benedictine Sisters, Chicago
       Chicago and Suburbs Senior Senate, President Joseph Ramski
       Christian Brothers of Ireland, Chicago
       City of Alton, Treasurer Daniel V. Beiser
       City of Chicago, Mayor Richard Daley
       City of Danville, Comptroller Ron E. Neufeld
       City of Darien, Accoutant Marie Plunkett
       City of Decatur, Treasurer Beth B. Couter
       City of Galena, City Administrator Richard A. Schutlz
       City of Joliet, Management and Budget Director Robert D. 
     Fraser
       City of Moline, Finance Officer Kathleen A. Carr
       City of Peoria, City Treasurer Mary A. Ulrich
       City of Rolling Meadows, Acting City Manager Gerald Aponte
       City of West Chicago, Director of Finance W.C. Warren
       Coalition of Active and Retired Employees P.A.C. (Police & 
     Firemen)
       Cook County, Assessor Thomas C. Hynes
       Felician Sisters, Mother of Good Council Province, Chicago
       Illinois Government Finance Officers Association, Executive 
     Director William Stafford
       Illinois Municipal Treasurers Association, President Judith 
     E. Madonia
       Illinois State Council of Senior Citizens' Organizations, 
     President Gerald Prete
       LaSalle County, Treasurer Thomas C. Setchell
       Madison County, Chief Deputy-Treasurer Robert H. Chappell
       Missionary Sisters of St. Charles Borrome, Melrose Park
       Passionist Community, Holy Cross Province, Rev. Michael J. 
     Hoolahan
       School Sisters of St. Francis of Christ the King, Lemont
       Servants of the Holy Heart of Mary, Provincial 
     Administration Kankakee
       Sisters of Mercy of the Americas, Regional Community of 
     Chicago
       Sisters of St. Casimir, Chicago
       Sisters of St. Francis, Joliet
       Village of Bolingbrook, Deputy Village Treasurer Harriet C. 
     Allbee
       Village of Carol Stream, Finance Director Stan W. Helgerson
       Village of Carpentersville, Finance Director A. Donald 
     Mazza
       Village of Niles, Finance Director/Treasurer George R. Van 
     Geem
       Village of Sauk Village, Finance Officer Bev Sterrett


                                indiana

       Conference on Corporate Responsibility of Indiana and 
     Michigan, Chairperson Mary John Walsh


                                  iowa

       Iowa Association of Counties, Executive Director Bill 
     Peterson
       Iowa Municipal Finance Officers Association, President 
     Marian K. Karr
       Jackson County Board of Supervisors, Chair John J. Wiley

[[Page S9048]]

       City of Cedar Rapids, Controller-Auditor Robert E. McMahan
       City of Iowa City, Finance Director Donald J. Yucuis


                                kentucky

       Commonwealth of Kentucky, Kentucky Retirement Systems, 
     General Manager Pamela S. Johnson


                               louisiana

       Parish of St. Charles, President Chris A. Tregre
       Parish of Terrebonne Consolidated Government, Chief 
     Administrative & Financial Officer Doug Maier


                                 maine

       City of Lewiston, Finance Director Richard T. Metivier
       Maine Council of Senior Citizens, President John H. Marvin
       Maine Municipal Association, State and Federal Relations 
     Director Kenneth C Young, Jr.
       Maine Retired Teachers Association, Vice President Philip 
     A. Gonyar
       Maine State AARP, Legislative Committee, Chair William H. 
     Layman
       Maine State Employees Association, Retirees Steering 
     Committee Chair Eunice Cotton
       Southern Maine Area Agency on Aging, Executive Director 
     Laurence W. Gross


                                maryland

       Howard County, Director of Finance Raymond F. Servary, Jr.
       Marianist Provincial House, Baltimore
       State of Maryland, Office of the Attorney General, 
     Securities Division, Commissioner Robert N. McDonald


                             massachusetts

       AFSCME Council 93, Executive Director Joseph M. Vonavita
       Augustinians of the Assumption, Brighton
       Citizen Action of Massachuetts, Director Edward Kelly
       Essex County, Retirement Board, Chairman-Treasurer 
     Katherine O'Leary
       Fraternal Order of Police, Greater Boston Lodge, President 
     Michael Giannetti
       Hampshire County Commission, Legislative, Charter, and Code 
     Committee, Chairman Vincent J. O'Connor
       Industrial Cooperative Association Group, Director James 
     Megson
       Massachusetts Association of County Commissioners, 
     President Robert Stone
       Massachusetts Consumers' Coalition, Chairman Paul J. 
     Schlaver
       Massachusetts Jobs with Justice, Director Rand Wilson
       Massachusetts Public Interest Research Group, Executive 
     Director Janet Domenitz
       Massachusetts Teachers Association, Vice President Melanie 
     Kasperian
       Norfolk County Board of Commissioners, President William 
     O'Donnell (resolution)
       Plymouth County Board of Commissioners, Chair John R. 
     Buckley, Jr.
       Sons of Mary, Framingham
       State of Massachusetts, Attorney General Scott Harshbarger
       Tax Equity Alliance for Massachusetts, Director Jim Braude
       Teamsters Local 25, Recording Secretary/Field 
     Representative Richard Reardon
       Teamsters Local 122, Secretary/Treasurer John Murphy
       Teamsters Local 504, Secretary/Treasurer Dave Robbins
       Town of Concord, Finance Director Anthony T. Logalbo
       Town of Wellesley, Treasurer/Collector Marc V. Waldman
       Xaverian Brothers, American Northeastern Province, Milton


                                michigan

       City of Ann Arbor, Finance Director Allen D. Moore
       City of Bay City, Treasurer Judy M. Volk
       City of Berkeley, Clerk/Treasurer Leona M. Garrett
       City of Grayling, Treasurer Verna M. Meharg
       City of Kalamazoo, Administrative and Financial Services 
     Managing Director R. Keith Overly
       City of Mount Pleasant, Finance Director Rick L. Sanborn
       City of Southfield, Treasurer Roman J. Gronkowski
       Charter Township of Ada, Treasurer Soberberg
       Charter Township of Delta, Board of Trustees (resolution)
       Charter Township of Garfield, Treasurer Judy McManus
       Charter Township of Independence, Treasurer John Lutz
       Charter Township of Van Buren, Treasurer Helen Foster
       Conference on Corporate Responsibility of Indiana and 
     Michigan, Chairperson Mary Joan Walsh
       Genesee County, Controller Leonard D. Smorch
       Grand Rapids Dominicans, Prioress Barbara Hansen
       Macomb County Treasurer Association, President Pamela 
     Kondziolka
       Michigan Association of Counties, Executive Director 
     Timonthy K. McGuire
       Passionist Community, St. Paul of the Cross, Rev. Michael 
     Hoolahan
       Saginaw County, Treasurer Marvin D. Hare
       State of Michigan, Auditor General Ramona Henderson Pearson


                              mississippi

       State of Mississippi, Office of the Secretary of State, 
     Assistant Secretary of State for Securities and Business 
     Services Susan Shands


                                missouri

       Boone County, Treasurer Kay Murray
       Chesterfield Fire Protection Distric, District 
     Administrator John W. Klos
       City of Blue Springs, Director of Financial Isabel 
     Stocklein
       City of Brentwood, Finance Officer Susan L. Zimmer
       City of Des Peres, Director of Finance Brett Vuagniaux
       City of Ellisville, Director of Finance David S Daniels
       City of Ferguson, Director of Finance Jo Ann Bordeleau
       City of Fulton, Chief Financial Officer Jerry D. Ponder
       City of Harrisonville, Mayor C. A. ``Chuck'' Jones
       City of Lee's Summit, Treasurer Kathy VanGordom
       City of Lexington, City Administrator Abigail Tempel
       City of Macon, Finance Clerk Cathay Swan
       City of Manchester, Director of Finance C. Lynn Wei
       City of Moberly, Director of Finance and Personnel Nick 
     Burton
       City of O'Fallon, Director of Finance Laura Lashley Chiles
       City of Richard Heights, City Manager Carl L. Schwing
       City of Rolla, Finance Director Daniel L. Murphy
       City of Sedalia, City Controller/Treasurer Pamela 
     Burlingame
       City of Shelbina, City Clerk Charlette Schwieter
       City of Sugar Creek, City Clerk/Finance Officer Veronica A. 
     Powell
       City of Webster Groves, Acting City Manager Milton W. 
     Matthews
       Clay County, Treasurer Beverly Corum
       Communication Workers of America District 6, Vice President 
     Vic Crawley
       Hickory County Commission, Presiding Commissioner Bob 
     Breshears
       Jesuits of the Missouri Province, St. Louis
       Little Blue Valley Sewer District, Finance Director Jay 
     Sells
       Missouri AFL-CIO, State Director Daniel J. ``Duke'' McVey
       Missouri AFSCME, Council 72, Bob Carico
       Missouri Citizen Action
       Missouri Council of Senior Citizens
       John R. Perkins, Former Securities Division Director, 
     Missouri Secretary of State
       Municipal Finance Officers and Treasurer Association of 
     Missouri, President Daniel L. Murphy
       Society of the Sacred Heart, United States Province, St. 
     Louis
       St. Charles County, Finance Director Joseph M. Kernell
       St. Louis County Municipal League, Executive Director Tim 
     Fischesser
       St. Mary's Institute, O'Fallon
       Sistors of the Most Precious Blood, O'Fallon
       State of Missouri, Attorney General Jeremiah W. (Jay) Nixon
       Union of American Hebrew Congregations--Missouri
       United Auto Workers, Region 5
       St. Louis Post Dispatch editorial opposing S. 240 (May 9, 
     1995)


                                montana

       Butte Area Chapter of AARP, President Harold Kammerer
       Butte Human Rights Coalition, Chair George Waring
       Carbon County, Commissioner Mona Nutting (MACO resolution)
       Coalition of Montanans Concerned with Disabilities, 
     President Michael Regnier
       Custer County Commission, Commissioner Janet Kelly (Custer 
     resolution)
       Dawson County, Treasurer Cindi Byron
       Fergus County, Commissioner Vern Petersen (MACO resolution)
       Flathead County, Commissioner Howard Gipe (MACO resolution)
       Gallatin County Commission, Chairman Kris Dunn (resolution 
     and MACO resolution)
       Gallatin County, Treasurer Stan Hughes
       Hotel Employees & Restaurant Employees Union, Local 427, 
     Organizer Secky Fascione
       Montana Association of Counties, Executive Director Gordon 
     Morris (Resolution)
       Montana Coalition For Nursing Home Reform, President Alice 
     Campbell
       Montana People's Action, Executive Director Jim Fleischman
       Montana Public Interest Research Group, Executive Director 
     Linda Lee
       Montana Trial Lawyers, Executive Director Russel Hill
       State of Montana, State Auditor Mark O'Keefe
       Stillwater County, Commission Chairman Vicki Hyatt (MACO 
     resolution)
       Yellowstone County, Commissioner Mike Mathew (MACO 
     resolution)


                                nebraska

       General Drivers and Helpers, Local Union No. 554, Secretary 
     Treasurer Jerry Younger
       Nebraska Association of Public Employees, Executive 
     Director Bill Arfman
       Nebraska Citizen Action, Director Walt Bleich
       State of Nebraska, Department of Banking and Finance, 
     Assistant Director Jack E. Herstein


                                 nevada

       City of Las Vegas, Treasurer Michael K. Olson
       City of Wells, Clerk Michael T. Cosgrove
       Clark County School District, Treasurer Kenneth D. Selch


                               new jersey

       Consumers for Civil Justice

[[Page S9049]]

       New Jersey Conference of Mayors, Executive Director Don 
     Fauerbach
       New Jersey Fraternal Order of Police, President Richard 
     Whelan
       New Jersey Government Finance Officers Association, 
     President Barry Eccleston
       Tax Collectors and Treasurers Association of New Jersey, 
     President Vincent A. Belluscio


                               new mexico

       City of Farmington, Mayor Thomas C. Taylor
       New Mexico Federation of Labor, President George ``Jeep'' 
     Gilliland
       New Mexico Pro-PAC, President Gerry Bradley
       Progressive Alliance for Community Empowerment, President 
     Pablo Trujillo
       New Mexico Public Interest Research Group, Executive 
     Director Matthew White
       San Juan County, Treasurer Sid Martin
       State of New Mexico, Attorney General Tom Udall
       State Representative Mimi Stewart (Bernadillo)


                                new york

       AFSCME, District Council 37, Executive Director Stanley 
     Hill
       AFSCME, New York State, Political and Legislative Director 
     Edward F. Draves
       American Military Retirees Association, National and New 
     York President Thomas E. Burton
       Citizen Action of New York
       City of Newburgh, Director of Finance/Comptroller Hargovind 
     S. Patel
       City of New York, Public Advocate Mark Green
       Congregation of Christian Brothers, Eastern American 
     Province, New Rochelle
       Interfaith Center on Corporate Responsibility, Executive 
     Director Tim Smith
       Long Island Progressive Coalition, Executive Director David 
     Sprintzen
       New York Government Finance Officers' Association, 
     President Michael A. Gealto
       New York Hotel Trades Council, AFL-CIO, Pensioners Society
       New York Public Interest Research Group, Legislative 
     Director Blair Horner
       New York State Council of Senior Citizens, Executive 
     Director Maureen H. Campbell
       New York Statewide Senior Action Council, Board of 
     Directors President Max Berman
       Presbyterian Senior Services, Executive Director Dave 
     Taylor
       Sisters of Mary Reparatrix, Bronx
       State of New York, State Comptroller H. Carl McCall


                             north carolina

       Raleigh News & Observer editorial opposing S. 240 (May 27, 
     1995)


                              north dakota

       North Dakota AFL-CIO, President David L. Kamnicz
       North Dakota AFSCME, Kevin Riconas
       State of North Dakota, Treasurer Kathi Gilmore
       State of North Dakota, Securities Commissioner Cal 
     Hoovestol


                                  ohio

       Ashtabula County, Treasurer Robert L. Harvey
       City of Barberton, Finance Director Raymond E. Flickinger, 
     Jr.
       City of Cleveland, Treasurer Mary Christine Jackman
       City of Dublin, Finance Director Marsha I. Grigsby
       City of Jackson, Auditor Carl Barnett
       City of Lyndhurst, Finance Director Joseph G. Mirtel
       City of Mansfield, Finance Director Sandra L. Converse
       City of Painesville, Director of Finance James W. Onello
       City of Tallmadge, Treasurer Steven C. Brunot
       City of Upper Arlington, Finance Director Pete Rose
       City of Vandalia, Finance Director Linda Chapman
       City of West Carrolton, Finance Director Roberta A. 
     Donaldson
       City of Zanesville, Treasurer Walter K. Norris
       County Commissioners Association of Ohio, Executive 
     Director Larry L. Long
       County Treasurers Association of Ohio, President John 
     Donofrio
       Cuyahoga County Board of Commissioners, President Mary O. 
     Boyle
       Euclid City Schools, Treasurer Lowell B. Davis
       Glenmary Home Missioners, Director Robert Knueven
       Greene County, County Auditor Luwanna A. Delaney
       Lake County, Treasurer John C. Crocker
       Municipal Treasurers Association of the United States and 
     Canada, Ohio Chapter, Chairman Anthony L. Ianiro
       Montgomery County Board of Commissioners, President Vicki 
     Pegg
       Summit County, Treasurer John A. Donofrio
       Village of Edgerton, Clerk-Treasurer Kathleen Whitman
       Village of North Kingsville, Clerk-Treasurer Barbara R. 
     Lambert
       Village of Richfield, Finance Director Eleanor Lukovics
       Dayton Daily News editorial opposing S. 240 (5/10/95)


                                 oregon

       City of Astoria, Finance Director John J. Snyder
       City of Coos Bay, Finance Director Gail George
       City of Coquille, Recorder/Finance Director Shirley J. 
     Patterson
       City of Gresham, Financial and Information Services Manager 
     Axel Bergman
       City of Rouge River, City Recorder/Treasurer Leahnette M. 
     York
       City of West Lynn, Finance Director Willie Gin
       Crook County, Treasurer Mary J. Johnson
       Curry County, Treasurer Trudi J. Sthen
       Deschutes County, Treasurer Helen Rastovich
       Douglas County, Treasurer Joanne L. Motschenbacher
       Gray Panthers of Salem, Convener Nate Davis
       Jefferson County, Treasurer Bonnie K. Namenuk
       Josephine County, Treasurer Jan Elsnasser
       Lincoln County, Treasurer Linda Pitzer
       Linn County, Treasurer Shannon Willard
       Malheur County, Treasurer Janice L. Belnap
       Multnomah County, County Auditor Gary Blackmer
       Northwest Oregon Labor Council, AFL-CIO, Executive 
     Secretary Ron Fortune
       Oregon Public Employees Union/Local 503, President Karla 
     Spence
       Oregon State Council of Senior Citizens, Secretary Lois 
     Prince
       Oregon State Public Interest Research Group
       Oregon Trial Lawyers Association, President A. Michael 
     Adler
       Polk County, Treasurer Carolyn Wall


                              pennsylvania

       City of Philadelphia, Mayor Edward G. Rendell
       Commonwealth of Pennsylvania, Securities Commission, 
     Chairman Robert M. Lam
       Lehigh County Authority, General Manager Aurel M. Arndt
       Pennsylvania State Council of Senior Citizens President 
     David M. Lockhardt
       Vincentian Sisters of Charity
       Philadelphia Inquirer op-ed opposing S. 240 (June 4, 1995)


                             south carolina

       Aiken County, Administrator William M. Shepherd
       Berkeley County, Supervisor James H. Rozier, Jr.
       City of Columbia, Mayor Robert D. Coble
       City of Greer, Finance Director Mary P. Greer
       City of Mount Pleasant, Cheryll N. Woods-Flowers
       City of Sumter, Mayor Stephen M. Creech
       City of Union, Mayor T. Burton Williamson, Sr.
       Lexington County, Treasurer William O. ``Bill'' Rowell
       State of South Carolina, State Comptroller General Earle A. 
     Morris, Jr.
       South Carolina Association of Counties, Executive Director 
     Michael B. Cone


                              south dakota

       Charles Mix County, Auditor Norman Cihak
       Marshall County, Treasurer Nelva Kristofferson
       South Dakota AFL-CIO, President Jack Dudley
       South Dakota AFSCME, President Paul Aylward
       State of South Dakota, Department of Commerce and 
     Regulation, Division of Securities, Director Debra M. 
     Bollinger
       Yankton County, Commissioner Kathleen Piper


                               tennessee

       East Tennessee International UAW Retired Workers Council, 
     President James W. Renshaw
       Hamilton County, County Executive Claude Ramsey
       Tennessee Association of County Executives, Executive 
     Director Fred E. Congdon
       Tennessee State Senate Majority Leader Ward Crutchfield


                                 texas

       City of Cleburne, Finance Director Greg Wilmore
       City of Meadows, Secretary/Treasurer Elaine Herff


                                  utah

       State of Utah, Division of Securities, Director Mark J. 
     Griffin
       City of Bountiful, Treasurer Galen D. Rasmussen
       City of Ferron, Treasurer Brenda S. Bingham
       City of Ogden, Department of Management Services, Treasury 
     Division, Fiscal Operations Manager J. Norman Burden


                                vermont

       AFSCME Council 93, Vermont Coordinator George A. Lovell, 
     Jr.
       Central Vermont Council on Aging
       City of Burlington, Mayor Peter Clavelle
       Council of Vermont Elders
       Older Women's League
       Southwestern Vermont Council on Aging
       State Representative Jerry Kreitzer, Chair, House 
     Government Operations Committee
       State Representative Kathleen Keenan, Chair, House Commerce 
     Committee
       Teamsters Union Local 597
       Vermont Labor Forum
       Vermont NEA, President Marlene R. Burke
       Vermont Public Interest Research Group
       Vermont State Labor Council, AFL-CIO
       Vermont Trial Lawyers Association


                                virginia

       Benedictine Sisters of Virginia, Bristow

[[Page S9050]]

       City of Falls Church, Treasurer H. Robert Morrison
       City of Hopewell, Finance Director Elesteen Hager
       City of Roanoke, Finance Director James D. Grisso
       City of Suffolk, Finance Director Carroll L. Acors
       City of Waynesboro, City Auditor Frank Fletcher
       Commonwealth of Virginia, State Corporation Commission, 
     Division of Securities and Retail Franchising, Director 
     Ronald W. Thomas
       Henrico County, Finance Director Dennis W. Kerns
       Montgomery County Board of Supervisors, County 
     Administrator Betty Thomas
       Town of Rocky Mount, Finance Director Don E. Fecher
       Town of Warrenton, Mayor J. Willard Lineweaver
       Vinginia Association of Counties, General Counsel C. Flippo 
     Hicks


                               washington

       Association of Washington Cities, President Judy Boekholder
       City of Anacortes, Finance Director George Khtaian
       City of Chelais, Finance Director Jo Ann Hakola
       City of Spokane, Mayor Jack Geraghty
       Clark County, Treasurer Doug Lasher
       Cowlitz County, Treasurer Donna Rolfe
       King County, County Executive Gary Locke
       King County Union Retirees Council, AFL-CIO, President E.G. 
     Kroener
       Seattle Community College District, Edward Woodel
       Skagit County, Treasurer Judy Menish
       Thurston County, Treasurer Michael J. Murphy
       State of Washington, Department of Financial Institutions, 
     Securities Administrator Deborah R. Bortner
       State of Washington, Department of Retirement Systems, 
     Director Sheryl Wilson
       State of Washington, Treasurer Daniel K. Grimm
       The Seattle Times editorial opposing S. 240 (May 29, 1995)
       Seattle Post-Intelligencer editorial opposing S. 240 (June 
     2, 1995)


                             west virginia

       City of Bridgeport, Finance Director Keith L. Boggs
       State of West Virginia, Treasurer Larrie Bailey
       State of West Virginia, Board of Investments, Executive 
     Director H. Craig Slaughter


                               wisconsin

       City of Green Bay, Assistant Finance Director Brian C. 
     Ruechel
       City of Horicon, Clerk-Treasurer David J. Pasewald
       City of Hudson, Clerk-Treasurer Gerald P. Berning
       City of Oak Creek, Treasurer Barbara R. Davison
       City of Oshkosh, Finance Director Edward A. Nokes
       Holy Cross Sisters, Merrill
       Milwaukee County, Treasurer Thomas W. Meaux
       School Sisters of St. Francis, Milwaukee
       Sisters of the Divine Savior, Milwaukee
       Sisters of the Sorrowful Mother, Brown Deer
       Town of Delavan, Treasurer Dorothy Fladten
       Village of Greendale, Clerk-Treasurer Dianne S. Robertson
       Wisconsin State Council of Senior Citizens, President 
     Charlie Williams


                                wyoming

       Wyoming Association of Municipal Clerks and Treasurers, 
     President Kathleen Whitney.

  Mrs. BOXER. Mr. President, my amendment takes a very conservative 
approach to what I think could be a terrible, unintended consequence of 
this bill.
  Many times when we pass legislation with the best of intentions, with 
the best of minds, we come up short and we find out that in fact we 
hurt people instead of helping them. Since I know that every one of us 
is here to help people, every one of us is here to protect investors, 
every one of us is here to show that we are fair, reasonable and that 
we are just, I think the amendment I am offering ought to be accepted 
by the other side. I hope it will be.
  It simply asks the SEC to report to us in 180 days as to whether 
senior citizens and qualified retirement plans need more protection 
than that which is called for under S. 240.
  All I am doing in this amendment is ensuring that the most vulnerable 
targets of securities fraud, the elderly, are not going to be even more 
vulnerable as a result of this bill, S. 240. Frankly, I am afraid that 
they will be. This is not just my opinion; many senior groups oppose 
this bill in its current form. They want us to amend it. They are very 
concerned about the impact of this bill on their retirement plan, on 
their ability to not become a burden to their families.
  This bill's entire focus is to make it more difficult to bring a 
class action lawsuit involving fraud. That is its purpose. I understand 
it. We want to make sure there are no frivolous lawsuits filed. We do 
not like these strike suits. We want to get rid of them. But I am 
concerned that, if the proconsumer amendments continue to be beaten 
back in this Senate as they were in committee and the first one which 
was here in the Senate, clearly the ones who will be hurt the most are 
the ones who are the clearest targets for crooks.
  I want to share with my colleagues a couple of articles that appeared 
in the recent press showing that senior citizens are, in fact, the 
target of crooks. I am going to show you a couple of articles. Here we 
have an article from the AARP Bulletin, a publication of the American 
Association of Retired Persons.
  ``Targeting the Vulnerable.''
  ``Stock Schemes a New Peril.''
  I am going to read it.

       To Earl Bonsey of Dover, Maine, it sounded almost too good 
     to be true. As it turned out, it was. The 69-year-old retired 
     carpenter thought he was investing $15,000 in a safe, high-
     yield mutual fund. Instead, he got a high-risk junk bond fund 
     and lost a third of his money.
       Thousands of older Americans now find themselves in similar 
     situations, and the problem is worsening, experts say. 
     ``Although there are no firm statistics, we know that 
     countless numbers of older persons are being bilked out of 
     millions of dollars every year--dollars that often represent 
     the savings of a lifetime.''

  Here is an article from the New York Times just last month.
  ``If the Hair is Grey, Con Artists See Green.'' ``The Elderly Are 
Prime Targets.''
  I am going to read just a portion of this.

       Finding victims is simple. Older people are fairly easy to 
     contact, either through zip codes or mailing lists. Sometimes 
     they are taken for a ride by a parent or friend, whether it 
     is young people who turn up on their doorsteps offering to 
     carry groceries, or middle-aged people . . . in church 
     groups. Even trusted local business people can turn into 
     predators. The elderly ``just like the Marcus Welby view of 
     the world, believe that people in business are basically 
     honest,'' says Philip Feigin, Colorado's Communities 
     Commissioner and President of the North American Securities 
     Administrators Association which tracks investor fraud.
  And I might add that that organization, the North American Securities 
Administrators Association, opposes S. 240. This is what he says:

       So many times when we track a scam the investors who call 
     us are absolutely furious that we broke it up. Of course, any 
     investment made at any age can go sour, but if you blow it 
     when you are 30, you have 35 years to make it up before you 
     retire. If you blow it at 65, you may have to go back to work 
     for the rest of your life.

  Now, my God, the last thing we want to do here is send people back to 
work at age 65 and 70 when they have lost their life savings or part of 
their life savings. That is just what happened in the Keating case, so 
let us be careful with what we do here.
  Now, the next chart shows the Keating scam in all its beauty. It is a 
draft; it is actually used here as a salesman's training course where 
they showed their scam artists how to go after the elderly and it just 
shows how they look at the elderly: ``Edna Snidlip, 1 Geriatric Way, 
Retiredville, CA.''
  That is the person they put up as the target here, and they are 
trying to get her to write a $20,000 check, and that is how they refer 
to her. And I think more important than that is the next chart which 
shows what Keating said to his staff.

       Capitalize On This.
       And always remember the weak, meek and ignorant are always 
     good targets.

  It is unbelievable what goes on with certain bad apples in this 
country, who would target the elderly and call them the ``weak, meek 
and ignorant.'' That is why senior citizens oppose this bill, and they 
are going to remember what we do with this bill. To me, that is the 
most extraordinary thing. This is the way they talk about our grandmas 
and grandpas--``the weak, meek and ignorant.'' They are going to target 
them, and they are going to get them into some scheme. And then, if we 
do not strengthen this bill, they are not going to be able to recover. 
And so Senator Sarbanes is offering some amendments, I will be offering 
some amendments, Senator Shelby, Senator Bryan, and others. I hope we 
will get some support.

[[Page S9051]]

  Let me give you some of the stories of the senior citizens who were 
hoodwinked by Charles Keating, and let us be clear. The laws we are 
amending in S. 240 are the very laws that were used by these seniors to 
go after Keating and his cohorts.
  Last week, Senator Bryan was questioned by the chairman of the 
committee, who said: How does this have anything to do with the Keating 
people? It is very clear. We have the pleadings of the people who were 
hoodwinked by Keating, collected under these very laws. So when you 
change it--and by the way, there were forward-looking statements put 
out by Charles Keating which I will show later in the debate.
  When you change the laws, you make it harder for these people, 
whether it is on the proportionate liability or the safe harbor or the 
pleading requirements or any of the other things that we change by S. 
240. That is why. SEC has problems with this. The SEC has many problems 
with many of the provisions--with the safe harbor provision, with the 
lead plaintiff provision--and we are trying to fix this bill so that it 
is, indeed, a good bill and what it winds up doing is making sure we 
protect the good business people, not the bad ones. I wish to protect 
the good business people of California, of which there are many, most. 
But there are some who are not. And I used to be a stockbroker, and I 
can tell you this from that experience. People are very nervous when 
they give you their money to invest. It is a sacred trust. And to call 
these people ``weak, meek and ignorant'' does not deserve to be 
rewarded by legislation that makes it easier for these crooks.
  We should be careful. These seniors are warning us not to go too far. 
The seniors who were bilked by Keating showed up here in Washington, 
DC, to stand with some of us. Here is one of their stories. Barbara 
Marks of Burbank, CA. Here is what she says.

       I have my home. I have my car, but I have no savings. I 
     invested my savings but Charles Keating swindled it from me. 
     I lost $25,000 in American Continental Corporation bonds I 
     bought at Keating's Lincoln Savings. I've received about 50 
     percent back from class action lawsuits. It's made things 
     much more difficult. I hate having no money,

she says.

       I live check to check. If I didn't have any pension and 
     Social Security, I'd be on skid row. If a check doesn't show 
     up, I have nothing. Everything I do I have to pay on time. If 
     my battery goes, I have to pay. I cannot go to the bank and 
     draw out money if I don't have food or coffee. I have to wait 
     until the next check. Last week I had no money for 3 days.

  This is a woman who was swindled out of her money. Why would we want 
to do anything to make it harder for her to recover, or others like 
her? I ask that question. Now, I know my friends on the other side and 
my friends on this side who support S. 240 say I am wrong on this 
point. I say do not listen to me. Listen to the hundreds and hundreds 
of people and organizations and consumer groups that absolutely oppose 
S. 240 in strong form. Join with me in this amendment so that we can 
have a study done by the SEC to tell us if we have gone too far and we 
are hurting seniors. Let us see what else she says.

       As an older person you want to think people are honest. I 
     thought everything was protected and everything was on the up 
     and up. I thought my investment was insured. People should be 
     able to collect the money taken from them from all who are 
     responsible,

she says.
  This goes to Senator Sarbane's amendment.

       We should benefit from those who benefit from taking from 
     us. The money belongs to us. The Senate shouldn't take away 
     our rights.

  I ask unanimous consent to have printed in the Record the statement 
of Ms. Jeri Mellen and Ms. Joy Delfosse, both of Nevada, Don and Judy 
Maxfield of Arizona, John and Ethel Rabkin, Granada Hills, CA, and 
Evangeline Ivy of Glendale, CA.
  There being no objection, the material was ordered to be printed in 
the the Record, as follows:

   People Who Were Swindled by Charles Keating and Who Oppose S. 240 
               Washington, D.C. Visit, June 13, 14, 1995


                                 nevada

       1. Ms. Jeri Mellon, Henderson, NV.
       Jeri Melon lost $40,000 in American Continental Corp. (ACC) 
     bonds, which she purchased at Lincoln Savings & Loan in 
     Sherman Oaks, California in the last 1980's.
       She says, ``The bank had set aside a desk near the front of 
     the bank so that you were seen coming and going. The 
     individual selling the bonds was always a well-dressed, young 
     college graduate. He was charismatic, charming, good-looking, 
     attentive, and very well versed in his approach to clients.
       ``The tellers advised you to put your money in the bonds 
     rather than a CD. Lincoln Savings was insured, so I felt that 
     if the bank was endorsing these bonds, they would have to be 
     insured.''
       2. Ms. Joy Delfosse, Henderson, Nevada.
       Joy Delfosse lost $21,000 in ACC bonds that she purchased 
     at Lincoln Savings & Loan in Sherman Oaks, Ca. She had been a 
     customer of Lincoln Savings since 1969; and when a CD of hers 
     came due, the Lincoln tellers she trusted convinced her to 
     put her money into ACC bonds.


                                arizona

       1. Don and Judy Maxfield,
       Don and Judy Maxfield lost $21,000 in ACC bonds, when they 
     were living in Lakewood, CA. in the 1980's. They purchased 
     the bonds at their local Lincoln Savings bank in the Lakewood 
     Mall. when their CD's came due, Lincoln tellers persuaded 
     them to put their money into ACC bonds. At the time, the 
     Maxfields were looking forward to retirement and felt the 
     bonds were an attractive investment, since they were being 
     sold by Lincoln Savings.


                               California

       1. Sam and Ethel Rabkin, Granada Hills, CA.
       Sam and Ethel Rabkin lost $100,000 in ACC bonds, which they 
     purchased at the Lincoln Savings & Loan where they banked at 
     Granada Hills, CA. They said, ``Lincoln was a family bank 
     with all the tellers knowing you by your first name and they 
     made you feel part of the family.''
       2. Evangeline (Van) Ivy, Glendale, CA.
       Evangeline (Van) Ivy and her husband lost $100,000 in ACC 
     bonds, which they brought at the Lincoln Savings & Loan in 
     their town of Glendale CA. They were regular customers of the 
     Lincoln Savings in Glendale; they purchased their bonds when 
     their CDs came due, based on information from Lincoln sales 
     people that the bonds were safe.

  Mrs. BOXER. Sam and Ethel Rafkin lost $100,000 in junk bonds. They 
said:

       Lincoln was a family bank with all the tellers knowing you 
     by your first name and they made you feel part of the family.

  Sure, they did. But in the back rooms they laughed at them and called 
them the ``weak, meek and ignorant.''
  We better be careful when we change our securities laws that we do 
not as an unintended consequence--I do not think anyone, of course, 
intends to do that--reward that kind of crook. We know Charles Keating 
targeted the elderly. We know many others target the elderly. I showed 
you some of those articles. Charles Keating ran afoul of the securities 
laws. The securities laws that this bill will change will be changed 
deeply and adversely: 18,000 of the 23,000 people who bought Charles 
Keating's junk bonds were elderly--well, we know why; they targeted the 
elderly; junk bonds that did not drop 10, 20, or 30 percent in value 
but junk bonds that became 100 percent worthless; 18,000 people 
swindled. That is a small city. Make no mistake, the elderly are the 
target, and that is why my amendment is such a good amendment, because 
it simply says to the SEC: Take a look at what the Senate has done and 
the House has done with S. 240 and let us know in 180 days. Should we 
take some actions to make sure that senior citizens are better 
protected?
  Mr. President, have I used up the 20 minutes at this time?
  The PRESIDING OFFICER. The Senator has used 16 minutes.
  Mrs. BOXER. I say we better make sure we know what we are doing. We 
better make sure that at the end of the day, as the proponents of S. 
240 celebrate their victory, it is not a short lived victory, because I 
will tell you, Mr. President, there is no wrath like the wrath of the 
elderly. There is no wrath like the wrath of people who took their 
hard-earned retirement money and invested it, only to turn around and 
find out they were swindled. And that wrath will come down on those 
people who changed the laws in such a way that good people like this 
could not invest.

  Let me give you another unintended consequence, and it is something 
that my friend, Chris Dodd, has said over and over and over again, and 
he is right on this particular point. We have to make sure that people 
are interested in making investments in this Nation. We want to make 
sure they feel good about it, they feel protected. Or what will happen? 
Money will dry up. They will buy a Government bond. Why would they not? 
At least they know it is protected by the FDIC and that the full

[[Page S9052]]

faith and credit of the Treasury stands behind it.
  But we want people to invest in the business world. We want the 
capital to flow to innovation, to new technology so that jobs are 
created. So what I am saying is, as an unintended consequence of this 
bill, we better be careful that we do not go so much to one side 
because we do not want frivolous lawsuits that we, in fact, make people 
afraid that the protections are not there, that they will never collect 
if they are swindled and, therefore, they refuse to invest their money 
in the private sector. And they might very well.
  I will tell you, I would have a lot of pause. I know a lot about this 
rewrite of securities laws, and I am very concerned.
  Investment schemes that target the elderly are not the exception; 
they are the rule. The Senate Committee on Aging held hearings 2 years 
ago on elderly and retirement investor fraud. The assistant 
commissioner from my State securities regulators testified. Let me 
quote from his testimony:

       If I were conducting a seminar on investment fraud 
     techniques for aspiring con artists, lesson one would be: 
     Target the elderly and the retired.

  So we have proof from people who are out there that the elderly, 
senior citizens, and retirement plans are the focus of some of these 
bad appeals, these swindlers, these crooks, these corrupt people who 
have no heart at all. I used to call them hard-hearted. I do not think 
they have a heart. How do you have a heart when you take a grandma's 
money, a widow? She has $20,000. You imply that it is safe, as I read 
to you before the case of that elderly person. How do you take that 
money and lose it knowing all along that is what was going to happen 
and then even claim to have a heart?
  No. 1, target the elderly and the retired.
  The State securities regulators announced what they described as an 
alarming surge in investment schemes targeting IRA's.
  The PRESIDING OFFICER. The Senator has used 20 minutes.
  Mrs. BOXER. Mr. President, I yield myself 5 minutes. They reported 
that tens of thousands of unwary Americans already have invested 
hundreds of millions of dollars of their savings for old age through 
IRA's and other tax-deferred savings.
  So we know who the targets are. And the Boxer amendment simply says 
to the SEC, ``Help us out a little. After S. 240 is the law of the 
land, take a special look, from the standpoint of our seniors and 
retirement plans, and let us know if there is something we should do to 
strengthen the law.''
  I would be surprised if people fight us on this amendment. If they 
do, I will listen to their arguments, but it is hard for me to 
understand why we would not want to have this information.
  Mr. President, today I took an early morning walk around the Capitol 
on the west front, and I do not know if you have ever seen the statue 
of John Garfield. It was put up there by his Army buddies.
  For the first time, I decided to take a look at it. It is surrounded 
by five classical sculptures, and one of them is a man who is holding a 
tablet, and the tablet has three words on it: Law, justice, prosperity. 
Those three words--law, justice, prosperity.
  I thought to myself, how interesting that I happened to look at that 
this morning. Law, justice, and prosperity. What we are trying to do 
here is to make sure in S. 240 that our companies can be prosperous by 
protecting them from frivolous lawsuits. Law, justice, prosperity. But, 
on the other hand, there is a balance. Are we going to go too far and 
take prosperity away from our seniors or, shall I say, survival away 
from our seniors? So, law, justice and prosperity. We are dealing with 
those words today. We do not want to protect the bad guys; we want to 
help the good guys, and we certainly do not want to hurt the senior 
citizens and those who are saving diligently for their retirement.
  I know lawyer bashing is the latest thing of the nineties. We bash 
everything in the nineties, but particularly we bash lawyers, and I am 
against lawyers who file frivolous lawsuits. I will do whatever I can 
to stop that.
  But let us be clear, we are doing a lot more here. We are going very 
far, as this Congress has done on a number of issues, we are going too 
far. We are going to hurt our grandmas and grandpas and average, decent 
people who deserve to be protected and they do not deserve to have a 
law that protects them literally torn apart--torn apart--so that they 
can be sitting targets: ``the weak, the meek and the ignorant with no 
laws to help them.'' That is wrong.
  We are changing many rules about securities laws in S. 240. The least 
we can do--the least we can do--is require that the SEC come back to us 
in 180 days telling us what they believe the impact of these changes 
are on senior citizens and retirement plans. I hope my colleagues on 
both sides of the aisle can support the Boxer amendment.
  I retain the remainder of my time, Mr. President. I yield the floor 
at this time.
  I suggest the absence of a quorum and ask unanimous consent that the 
time be charged equally to both sides.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. D'AMATO. 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. D'AMATO. Mr. President, I was listening to the concern my 
colleague from California raised that senior citizens might be 
particularly vulnerable to unscrupulous predators who prey on them 
because of their lack of sophistication and, in many cases, take 
advantage of an established fiduciary relationship to defraud senior 
citizens of their savings.
  I agree with my colleague that, in the case of Charles Keating and 
his bank, it is hard to imagine that a large and reputable institution, 
insured by the Federal Deposit Insurance Corporation, would engage in 
the kind of reprehensible activities which defraud depositors and 
investors of hundreds of millions of dollars. People often think that 
banks have the Federal Government's stamp of approval and that they are 
therefore protected from these kinds of fraudulent practices, because 
of the various supervisory agencies--the Federal Reserve, the Office of 
the Comptroller--which review these banks. However, I reject the 
Senator's contention that S. 240 would open the door to this kind of 
activity. Fraud is not countenanced by this bill. Indeed, deliberate or 
intentional misstatements do not receive the safe harbor or any other 
protections. In fact, those who make intentional misstatements can be 
held liable, potentially, for all of the damages, even damages beyond 
those which they are found to be directly responsible. Further, the 
Securities and Exchange Commission is empowered under this legislation 
to bring suits that before now they did not have the authority to 
bring.

  This legislation's purpose is to control the race to the courthouse 
by greedy, avaricious lawyers, who look not to the benefit of innocent 
investors or the elderly who have been defrauded, but look only to 
enrich themselves. They have become legal holdup artists. Ninety-three 
percent of these cases are settled because it costs less for defendants 
to settle them than the millions of dollars they cost to try. The 
lawyers win their settlements by alleging fraud; they do not prove 
fraud.
  It is about time that we say we are not going to allow the American 
judicial system to be used in this manner; to allow lawyers to pirate 
profits from companies who have done nothing wrong, whose only mistake 
is that they are in business and that they are subject to the 
marketplace fluctuations. It is about time that we stood up to the 
lawyers who have made filing these cases a business. These lawyers are 
not concerned with the interests of the investors who have been abused.
  I do not want to see people's rights to seek redress limited. 
However, this bill does not do that. Later, I intend to refer to a 
statement by Mr. Levitt, in which he is highly complimentary of many of 
the provisions of S. 240. Also I intend to point to a comparison 
between our bill and the bill that was passed in the House of 
Representatives.
  I have not heard anybody point out that this bill does stop these 
attorneys from racing to the courthouse, and prohibits them from hiring 
plaintiffs so

[[Page S9053]]

that the people with real financial interests are represented. These 
attorneys would rather file suit on behalf of a person who owns 10 
shares of stock and who the lawyer selects than have to consider the 
interests of the defrauded investor. S. 240 stops this abusive behavior 
and it should be complimented for that. S. 240 would also legislate 
that if you are an accountant, and you discover fraud, you have an 
obligation to bring that up to the board of directors. However, S. 240 
goes further than that; it requires that your obligation does not end 
with the board of directors. If the board of directors does not act, 
you have to go one step further, and report the fraud to the SEC. These 
provisions protect the senior citizens.
  I am tired of hearing this nonsense that this legislation will just 
open up the doors to take advantage of people. People are being taken 
advantage of, this legislation tries to put a stop to that. Where do 
you think those senior citizens invest their money? They invest in 
pension funds that account for 25 percent of all the moneys invested. 
However, I did not hear my colleagues say, you have done a good thing 
by giving to these pension funds the authority to pick their lawyers 
and control their litigation. While I share my colleagues' concern that 
senior citizens not be hurt, I think it is unfair, that it is beyond 
the pale, to say that this bill protects fraud. I have heard that 
statement a half dozen times from my colleagues. But this bill does not 
protect fraud. I ask my colleagues to show me where in this legislation 
we protect fraud. Any intentional misstatement and you can be held 
liable. There is no safe harbor for fraud. It is neither right nor 
accurate to say that we protect fraud in this bill, and I resent the 
fact that my colleagues continue to make these statements.
  For several weeks, my colleague has been talking about offering 
amendments to help protect senior citizens. I have yet to see those 
amendments. This is the first amendment that has been introduced. It 
calls for a study. I believe that it is reasonable, and I am prepared, 
under certain circumstances, to accept this amendment. But I do not 
think it is unreasonable for me to ask what other amendments are going 
to be offered so that they are not just sprung on us. I hope that my 
colleagues are willing to share their amendments so that we can see if 
we might be able to accept them. I would like to be able to do that, 
but I certainly cannot accept amendments blindly.
  I yield the floor.
  Mrs. BOXER. Mr. President, how much time do I have left?
  The PRESIDING OFFICER. Twenty minutes.
  Mrs. BOXER. Before I yield to my good friend from Alabama, I want to 
respond to my friend from New York. My friend from New York, the 
chairman of the committee, worked very hard on S. 240. He simply has a 
different view of the consequences. You know, if it all was exactly the 
way my friend said it was, everyone would be supporting S. 240. But I 
have already put into the Record the names of hundreds of people from 
Alabama to Wyoming, people who are there to look out for the people, 
who have said S. 240 goes too far.
  I already mentioned the Congress of California Seniors. Listen to 
what they said, and they are smart people:

       Dear Senator Boxer: In behalf of the Congress of California 
     Seniors, I want to reiterate our strong opposition to S. 240 
     as it emerged from the Senate on May 25. This bill threatens 
     the retirement savings of every Californian.

  My friend can pound the podium all he wants. He is effective when he 
does that. But so can I.
  Listen:

       This bill threatens the retirement savings of every 
     Californian. It is one of the most anti-senior citizen pieces 
     of legislation to be considered by the Congress in recent 
     years.

  That is such strong talk from the Congress of California Seniors.
  So I just have to say there is a legitimate disagreement here. I am 
very hopeful that my friend, the chairman, will accept my amendment, 
because I think that is the minimum we can do. I hope that he will. But 
we can all pound the table and get upset because we see the bill 
differently, which is what the legislative process is about. I hope my 
friend will not take it personally that I see it in a different way 
than he does.
  At this time, I yield 10 minutes to my friend from Alabama, Senator 
Heflin.
  Mr. HEFLIN. Mr. President, I rise in support of the Boxer amendment 
which basically is to require a study as to the effect of securities 
litigation on senior citizens and to then come forward with ideas on 
how basically they might be protected in the event there are 
disadvantages that arise relative to the matters that are involved in 
securities litigation.
  I also rise in opposition to the bill. This bill has been called a 
reform bill. I think that is really a misnomer. It has been called by 
some--and they go, I think, a little too far--the crooks and swindlers 
protection act. However, the bill which proclaims to curb frivolous 
lawsuits would essentially put at a substantial disadvantage and 
penalize the victims of securities fraud and give protection to 
corporate wrongdoers and their aiders and abettors.
  This bill has many opponents, including the very people who are 
responsible for investor protection and overseeing capital formation in 
the States, the North American Securities Administrators Association. 
Also the Association for Retired People, AARP; the U.S. Conference of 
Mayors, and the Government Finance Officers Association number among 
those that are opposed to S. 240.
  All oppose the bill for good reason, as noted by the Raleigh News 
Observer, ``The bill is bad news for investors private and public and 
it would tie victims in legal knots while immunizing white-collar 
crooks against having to pay for their misdeeds.''
  The sponsors of this bill claim, with very little supporting 
evidence, that there is a litigation explosion in the securities class 
action arena. The studies regarding the number of these types of cases 
do not reflect anything close to an explosion. In fact, they prove that 
the level of actual cases has remained constant for the past 20 years. 
In 1993 alone there were only 140 companies sued; there are over 20,000 
companies registered with the Securities and Exchange Commission. This 
small number of companies sued, only 140, hardly amounts to a 
litigation explosion.
  The proponents of the bill also claim that most of the cases which 
were filed are frivolous and that companies feel that they must settle 
the cases to avoid protracted litigation expenses. Well, if we were to 
base this reform bill only on what companies believe are frivolous 
suits, we would believe that the charges filed against the accountants, 
lawyers, and brokers involved in the Charles Keating, Lincoln Savings 
fraud case were frivolous. Although they claimed the charges were 
frivolous, they settled for ten's of millions of dollars with investors 
who had lost considerably.
  There probably are cases in which companies have been wrongly sued 
for stock price decreases not due to fraud or based on actions for 
which they should not be held accountable. Predominately this is not 
the case. In fact, according to a study performed by the University of 
California for 3 years ending in 1990, only 20 companies were hauled 
into court of the 589 companies whose stocks dropped more than 20 
percent in 5 days around the time of a disappointing earnings report. 
In many of those 20 cases, executives were telling the public that 
everything looks great, while bailing out of the company and selling 
their own stock.
  The amendments offered by Senators Bryan and Sarbanes will go far to 
achieve a balance between protecting the rights of defrauded investors 
and providing protection from frivolous lawsuits to honest companies. 
These amendments include language which was part of the original 
version of S. 240. I believe that the cosponsors of the original 
version of S. 240 will agree that the bill as reported out of the 
Banking Committee steeply tilts the playing fields against investors. 
Without these amendments, I cannot support this legislation which will 
strip the rights of defrauded investors.
  The amendments are supported by the Securities Regulators 
Association, Government Finance Officers Association, and many others. 
Acceptance of them could resolve many concerns of these organizations. 
One amendment would allow the SEC to fashion through its rulemaking an 
effective

[[Page S9054]]

safe harbor for forward-looking statements. The SEC and others are 
concerned that the safe harbor in the bill makes it possible for 
defendants to avoid liability for false statements. Another amendment 
would extend the statute of limitations to allow investors enough time 
to file a securities fraud suit. Currently the bill provides for a time 
period which is widely regarded as too short.
  Other amendments which greatly improve this bill involve the ability 
to pursue accountants, brokers, and other professionals who may have 
aided in a securities fraud and the apportionment of damages to those 
secondary violators. One amendment would return to prviate parties the 
ability to pursue aiders and abetters in securities fraud suits. This 
amendment is supported by State securities regulators as well as by the 
SEC. Both of these enforcement agencies have limited resources 
available and realize the need for private actions to pursue aiders and 
abetters. The other amendment would allow the innocent victim to be 
compensated rather than penalized due to the bankruptcy of the primary 
violator. This amendment would simply restore joint and several 
liability so that the equities are in favor of the innocent investor.
  It seems odd that now we are moving to reform securities litigation 
with a result that would protect those who may create investor scams. 
If any reform needs to be addressed, based on the current actions on 
Wall Street, it should come in the form of greater investor protection, 
not making it easier for corporations and stockbrokers to mislead 
investors. There is currently a recent frenzy of mergers and takeovers. 
According to the New York Times securities regulators are opening 
investigations into insider trading at a rate not seen since the 
1980's. Unfortunately, I believe that if this bill were to become law, 
many of its provisions would soon be tested to the detriment of 
investors.
  Our financial markets do not run on money, they run on public 
confidence. The stock market is trading at all-time highs and companies 
are earning record profits. This is greatly due to the confidence that 
investors have in the marketplace. This confidence will be drastically 
altered if investors come to believe that not only are they at risk of 
being defrauded, but that they have no recourse to fight back against 
those who defraud them.
  I urge my fellow Senators to support all the amendments offered to 
put investor protection back into this bill. If these amendments are 
not adopted I will find it difficult to vote for a bill which supports 
those involved in fraud while tearing down long-standing protection in 
our securities law.

  In closing I would like to quote from a letter I received from Mr. 
Joe Borg, the director of the Alabama Securities Commission. In his 
letter, Mr. Borg considers the question of whether this bill would 
achieve a balance between protecting investors and granting relief to 
honest companies and professionals. He concludes that ``the bill would 
tilt the balance too far in favor of corporate interest and would have 
the effect of depriving many defrauded investors of the ability to 
recover their losses.'' He further states that ``I agree there is room 
for constructive improvement of the Federal securities process. 
However, S. 240 as reported by the Banking Committee goes beyond the 
stated goal of curbing frivolous lawsuits and instead would in 
practical effect, eradicate most private actions under the Federal 
securities laws.''
  Mr. President, I ask unanimous consent that the full letter be 
printed in the Record at the conclusion of my remarks.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                Alabama Securities Commission,

                                    Montgomery, AL, June 19, 1995.
     Via facsimile: 202-224-3149.
     Attn: Winston Lett.
     Hon. Howell Heflin, U.S. Senate, Washington, DC.
     Re: S. 240, the ``Private Securities Litigation Reform Act''.
       Dear Senator Heflin: I understand that the Senate may 
     consider as early as this week S. 240, the ``Private 
     Securities Litigation Reform Act.'' In my capacity as the 
     Director of the Alabama Securities Commission, I am writing 
     today to express my serious concerns with S. 240 as it was 
     reported out of the Senate Banking Committee. As you know, 
     the Alabama Securities Commission is responsible for investor 
     protection and for overseeing the capital formation process 
     in Alabama.
       In evaluating the variety of securities litigation reform 
     measures that have been introduced in the 104th Congress, I 
     applied one test: Does the bill achieve a balance between 
     protecting the rights of defrauded investors and provide 
     relief to honest companies and professionals who may find 
     themselves the target of a frivolous lawsuit?
       Regrettably, S. 240, as it was reported by the Senate 
     Banking Committee, does not achieve this balance. Instead, 
     the bill would tilt the balance too far in favor of corporate 
     interests and would have the effect of depriving many 
     defrauded investors of the ability to recover their losses.
       It is my understanding that pro-investor amendments will be 
     offered at the time S. 240 is considered on the Senate floor. 
     Among the amendments expected to be offered are the 
     following: Extending the statute of limitations for civil 
     securities fraud actions; fully restoring liability for 
     aiding and abetting securities fraud; narrowing the scope of 
     a safe harbor for forward looking statements so that the 
     Securities and Exchange Commission (SEC), which has the 
     necessary expertise, is directed to engage in rulemaking to 
     develop a reasonable and effective safe harbor without giving 
     corporate executives free rein to make misleading statements; 
     and modifying the severe limitations on joint and several 
     liability so that innocent defrauded investors have a chance 
     to fully recover their losses.
       The Securities and Exchange Commission, the North American 
     Securities Administrators Association (the organization 
     representing the 50 state securities regulators of which I am 
     a member), and others generally have expressed concerns over 
     the bill's treatment of these issues. The amendments expected 
     to be offered on the floor (as discussed above) respond to 
     those concerns and are deserving of your support. Please vote 
     in favor of these amendments when they are offered on the 
     floor.
       If these amendments are offered and rejected, I 
     respectfully encourage you to vote against S. 240 on final 
     passage.
       I want to emphasize that I agree there is room for 
     constructive improvement of the federal securities litigation 
     process. However, S. 240 as reported by the Banking Committee 
     goes beyond the stated goal of curbing frivolous lawsuits and 
     instead would, in practical effect, eradicate most all 
     private actions under the federal securities laws.
       In closing, I want to stress that our financial markets do 
     not run on money; they run on public confidence. It is my 
     view that the confidence that investors have in the 
     marketplace will be dramatically altered if they come to 
     believe that not only are they at risk of being defrauded, 
     but that they have no recourse to fight back against those 
     who have defrauded them. I urge you to support balanced and 
     targeted reform measures and to reject S. 240 if it does not 
     incorporate the amendments discussed above.
       You may reach me at 334-242-2984 should you have any 
     questions or need additional information.
           Sincerely,
                                                   Joseph P. Borg,
                                                         Director.

  Mr. HEFLIN. Mr. President, I yield my remaining time to the 
distinguished Senator from California, Senator Boxer.
  Mrs. BOXER. Mr. President, I reserve the balance of my time.
  The PRESIDING OFFICER. The Senator from California will have 8 
minutes, with 36 minutes on the other side.
  Mr. D'AMATO. I would like to take a moment to state, as I indicated 
to the Senator from California, that we certainly would like to review 
her amendment. While I might have difficulty with the language used in 
the amendment, I do not have a problem asking the Securities and 
Exchange Commission to look at the impact this legislation would have, 
particularly as it relates to senior citizens.
  Certainly, I think that is reasonable. I say that in the spirit of 
cooperation I hope that we can iron out our differences. I would also 
like to point out, Mr. President, that I have a statement from the 
chairman of the Securities and Exchange Commission, who indicates that 
he, as a businessman, finds there is a need for a stronger safe harbor.
  I quote from Chairman Levitt:

       The current rules have largely been a failure and I share 
     the disappointment of issuers that the rules have been 
     ineffective in affording protection for forward-looking 
     statements.

  He goes on to say:

       . . . I know all too well the punishing costs of meritless 
     lawsuits--costs that are ultimately paid by investors. 
     Particularly galling are the frivolous lawsuits that ignore 
     the fact that a projection is inherently uncertain even when 
     made reasonably and in good faith.

  That is the Chairman of the Securities and Exchange Commission who my 
colleagues like to quote so often.

[[Page S9055]]

  My colleagues would have us believe that all is well with the 
securities industry. All is not well. All is not well when you have a 
band of lawyers who literally hire the people they represent, race to 
the courthouse to file the suit and allege fraud, and are then selected 
as lead counsel.
  The statement that we are protecting fraud, gets the hackles up on 
this Senator. Not only are we not protecting fraudulent conduct, but we 
are making sure that people are held liable for intentionally making a 
misstatement. Again, I say there is no safe harbor anyplace for fraud. 
There were other legislative proposals that would have brought such a 
safe harbor, but not this bill. It is a disservice to this legislation 
to say it protects fraud. There is neither intent nor language in this 
bill nor is there any way to interpret this bill to say that fraudulent 
conduct is protected under S. 240.
  The cost of these abusive cases is incalculable. It has cost business 
the ability to communicate and to give the information to people to 
which they are entitled. This inability is particularly troublesome to 
the small startup business in the high-technology area. It has a 
chilling impact on these firms and it is wrong.
  The fact is that there were $1.3 billion worth of settlements, 
settlements in 1993-94, that is 93 percent of the cases filed. No one 
can afford to stand up defend themselves in these cases. Do we really 
believe out of all 300 cases that were brought, every one of them 
engaged in fraudulent conduct? That is absurd. Those cases were not 
tried they were settled. What we are attempting to do in S. 240 is to 
seek balance; to demonstrate that those who truly commit fraud will not 
be let off the hook, but by the same token, we will not expose an 
entire class of people who are associated with the securities business 
to meritless suits. That is what this legislation does, and it does 
strike a balance.
  Mr. President, 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. FRIST. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Grams). Without objection, it is so 
ordered.
  The Senator from Tennessee.
  Mr. FRIST. Mr. President, I rise to speak today in support of S. 240, 
the Private Securities Litigation Reform Act of 1995, and against the 
proposed amendment.
  S. 240 is a moderate and carefully balanced compromise bill that 
permits investors in securities to continue to file and win legitimate 
lawsuits. However, the bill does something that is much needed at this 
time: It gives issuers of securities the ability to quickly dismiss 
meritless and abusive lawsuits.
  The current system of securities litigation is clearly broken. Why? 
Because it makes millionaires out of attorneys who repeatedly file 
frivolous lawsuits. As a matter of fact, securities litigation costs 
American industry $2.4 billion a year, one-third of this amount being 
paid to plaintiffs' attorneys. This results in companies being forced 
to lay off workers and consumers paying higher prices for goods and 
services.
  The bottom line is that the current system of securities litigation 
does not benefit investors or consumers: It benefits a handful of 
attorneys.
  Here is how this perverse system of securities litigation currently 
works: There are a handful of plaintiff law firms in this country today 
that specialize in filing securities class action lawsuits. This is 
shown by the fact that seven plaintiff law firms in this country 
receive 63 percent of the legal fees generated by securities class 
action cases. That is seven law firms receiving 63 percent of all of 
these legal fees.
  These law firms monitor the stock prices of businesses with computers 
every day. When a corporation stock price suffers a major drop, the 
plaintiff's law firm immediately files a lawsuit. Indeed, some 20 
percent--or one out of five--of these securities lawsuits are filed 
within 48 hours of a major drop in the stock price.
  The reason these law firms are able to file their lawsuits so quickly 
is that they sue on behalf of professional plaintiffs. These 
professional plaintiffs actually receive a fee, in many cases, for 
permitting themselves to be named in the lawsuit. The Securities 
Subcommittee found that there were some plaintiffs who had as many as 
14 securities action lawsuits filed on their behalf.
  These law firms justify the filing of these lawsuits by generally 
alleging that the drop in the stock price was caused by the corporation 
or its management acting fraudulently or recklessly. The lawsuits seek 
the corporation to pay to its shareholders damages in the amount of the 
difference between the stock price before and after the stock's drop in 
value.
  Even if the lawsuit is meritless, the corporation is forced to 
settle, even if it is meritless, even if it does not make sense? Why? 
First, litigating a lawsuit is costly--even if your only goal is to get 
the lawsuit dismissed for failing to state a cause of action. This is 
because it is very difficult to dismiss such lawsuits, and defense 
expenses for complex securities class action lawsuits can total between 
$20,000 and $100,000 a month.
  Second, the depositions and extensive document review associated with 
these lawsuits are so time consuming that they disrupt the management 
of the business. On average, companies that are sued devote as much as 
1,000 management and employee hours per case per suit.
  The end result is that it is worthwhile for a business to settle even 
a frivolous securities litigation lawsuit because there is rarely, if 
ever, any cheap way of dismissing it.
  Opponents to securities litigation reform are going to tell you that 
notwithstanding all of the foregoing, investors still benefit from the 
current system of securities litigation. But I submit that the current 
system actually harms investors.
  The first problem, as was stated by former SEC Commissioner Carter 
Beese, is that the current system encourages, and I quote Mr. Beese, 
``. . . counsel to settle for amounts that are too low for fees that 
are too high.'' The plaintiffs in a securities class action have a 
conflict of interest with their lawyers. The lawyers' incentive is for 
an uncomplicated settlement and avoidance of a trial. This is because 
the difficulty and time-consuming work for the plaintiffs' attorneys 
comes at the trial phase. If it can be avoided by a settlement, the 
lawyers still get their percentage for relatively little effort. Thus, 
the lawyer-driven nature of these lawsuits tends to shortchange 
investors who have truly been defrauded and would benefit from 
litigating the lawsuit to conclusion.
  The second problem is that in securities class action lawsuits, when 
a corporation makes a settlement payment to a class of shareholders, 
the shareholders who still own the corporation's stock are not really 
getting any tangible benefit in return. If the settlement amount is 
coming from the corporation's money, then it is no more than a type of 
quasi-dividend, with a law firm taking on average a 33-percent cut for 
giving the shareholder the privilege of having the quasi-dividend 
occur.
  This will generally cause the corporation's stock price to drop, 
which indeed nullifies the benefit of the settlement. If the settlement 
amount comes from the corporation's directors and officers liabilities 
insurance, the corporation will be faced with partly paying it back 
through a staggeringly high premium the very next year. Either way, an 
investor who continues to own a share of stock in a sued corporation 
does not gain much from settlement of the lawsuit.
  The third and final problem is that investors can no longer get 
useful forward-looking information about corporations. As former SEC 
Commissioner Carter Beese testified before the Securities Subcommittee:

       Companies go out of their way to disclose every conceivable 
     bit of innocuous information, but very little useful forward-
     looking information. At the same time, legions of lawyers 
     scrub required filings to ensure that disclosures are as 
     milquetoast as possible, so as to provide no grist for the 
     litigation mill.

  With all of these problems we have with our current system of 
securities litigation, the moderate relief offered by S. 240 is 
necessary to protect investors, to protect consumers, and to protect 
jobs.
  I urge all of my colleagues to vote against amendments which weaken 
the

[[Page S9056]]

very carefully balanced aspect of S. 240 and to vote for S. 240's final 
passage.
  I thank the Chair. I yield the floor.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mrs. BOXER. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. BOXER. Mr. President, do I have 8 minutes remaining? Is that 
accurate?
  The PRESIDING OFFICER. That is correct.
  Mrs. BOXER. I will not take but 2 minutes of my time.
  My friend from New York is going to yield back his time so we can get 
to a very important amendment by the Senator from Nevada.
  I am very pleased that the chairman has indicated to me, although he 
has not said it definitively, that he may well be supporting my 
amendment.
  I think that we have pointed out by virtue of charts and some very 
serious examples that I do not think I need to repeat because they are 
very, very difficult here in this Chamber where senior citizens have 
been the target of fraud.
  I believe, because we are changing so many aspects of the law in this 
bill, that the SEC ought to take a look at what we have done and all 
the amendments that we have incorporated or turned down should this 
bill become the law of the land, and then tell us whether or not senior 
citizens are as well protected as they should be.
  So I think that this amendment should have broad support. It will 
give me some comfort to know that in 180 days, we will have a report 
from the SEC which has expressed reservations about this bill.
  I ask unanimous consent to have printed in the Record at this time 
some of the comments they have made regarding many aspects of this 
bill. They have questions about a lot of areas, including the safe 
harbor, which is the basic provision of the bill, proportionate 
liability, appointment of lead plaintiff, aiding and abetting, and 
damages.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

   Response to OMB Request for Views of the Securities and Exchange 
                      Commission Regarding S. 240

       The Securities and Exchange Commission submitted testimony 
     on S. 240, as introduced by Senators Domenici and Dodd, on 
     April 6, 1995.\1\ As noted in the testimony, the Commission 
     supported many of the provisions of S. 240 as introduced. The 
     Commission views S. 240 as ordered reported on May 25, 1995 
     by the Committee on Banking, Housing, and Urban Affairs as a 
     significant improvement over its counterpart in the House, 
     H.R. 1058. However, the Commission has significant concerns 
     regarding certain provisions of S. 240 as reported, and also 
     believes that the legislation should address certain 
     additional issues not included in S. 240.
---------------------------------------------------------------------------
     Footnotes at the end of article.
---------------------------------------------------------------------------
       Provisions of S. 240 endorsed by the Commission--The 
     Commission supports, or does not oppose, the following 
     measures:
       Class Action Reform Provisions: Except as discussed below, 
     the Commission supports, or does not oppose, the measures set 
     forth in Section 101, ``Elimination of Certain Abusive 
     Practices,'' and Section 102, ``Securities Class Action 
     Reform.''
       Requirements for Securities Fraud Actions: The Commission 
     supports, or does not oppose, the measures set forth in 
     Section 104, ``Requirements for Securities Fraud Actions,'' 
     and Section 106, ``Written Interrogatories.''
       RICO: The Commission supports the provision of Section 107, 
     eliminating the overlap between private remedies under RICO 
     and the Federal securities laws.
       Contribution and Settlement Discharge: The Commission 
     supports those provisions of Section 202 that provide for a 
     right or proportionate contribution among defendants, and for 
     the reduction of a judgment upon a settlement by an amount 
     equal to the greater of the settling defendant's percentage 
     of responsibility or the amount of the settlement.
       Fraud Detection and Disclosure: The Commission supports 
     Section 301,``Fraud Detection and Disclosure.''
       Limitation on Rescission under Section 12(2): The 
     Commission does not oppose the amendment offered by Senator 
     Bennett that would allow a defendant to avoid rescission 
     under Section 12(2) of the Securities Act and reduce the 
     damages upon proof that part of the plaintiff's loss was the 
     result of factors unrelated to the fraud.
       Provisions that should be included in S. 240--The 
     Commission has recommended that Congress adopt the following 
     measures, which are not included in S. 240:
       Statute of Limitations: The Commission recommends extending 
     the statute of limitations for private securities fraud 
     actions to five years after a violation occurs. Although S. 
     240 as originally introduced addressed this issue, the 
     provision was deleted from the reported bill.
       Aiding and Abetting in Private Actions: The Commission has 
     recommended restoring liability for aiding and abetting in 
     private actions. As discussed below, Section 108 of S. 240 
     only provides authority for the Commission to bring actions 
     based on aiding and abetting under the Exchange Act, and 
     limits such actions to persons who act knowingly.
       Recklessness: The Commission has recommended that Congress 
     expressly provide that recklessness is sufficient for 
     liability under Section 10(b), and codify the definition of 
     recklessness which was enunciated by the Seventh Circuit in 
     the Sundstrand case.\2\ S. 240 provides that defendants are 
     proportionately liable unless they commit ``knowing 
     securities fraud,'' which necessarily implies that there is 
     liability for reckless conduct, but does not expressly 
     provide that recklessness is sufficient.
       Provisions of S. 240 that the Commission does not support--
     The Commission opposes the following measures as currently 
     set forth in S. 240:
       Safe Harbor Scienter Standard: Section 105 creates a safe 
     harbor for forward-looking statements. The Commission 
     believes that the complex task of fashioning an effective 
     safe harbor for forward-looking statements would be better 
     addressed through Commission rulemaking pursuant to express 
     statutory authority. The safe harbor in S. 240 contains 
     important exclusions, not present in H.R. 1058, that address 
     some areas of particular concern. However, the measure might 
     make it possible for some defendants to avoid liability for 
     certain false statements.
       We believe that the safe harbor scienter standard would be 
     better if modified to include the following exclusions.
       (c) Exclusions--The exclusion from liability under 
     subsection (a) with respect to a ``forward--looking 
     statement'' that is materially false or misleading is not 
     available: (i) for a natural person, if such person made such 
     statement knowing that such statement was materially false or 
     misleading when made; or (ii) for an issuer, if such 
     statement was made by or with the approval of an executive 
     officer (as defined by the Commission) of that issuer, if 
     such executive officer made, or approved the making of, such 
     statement knowing that such statement was materially false or 
     misleading when made.\3\
       Provisions of S. 240 that cause concern or that need 
     clarification--The following provisions raise concerns or 
     need clarification and may require some adjustment in order 
     to achieve the desired effect:
       Proportionate Liability: Section 202 generally limits the 
     application of joint and several liability to defendants 
     determined to have committed knowing securities fraud. Other 
     defendants would be proportionately liable; except that, if a 
     defendant's share of the damages were uncollectible, each 
     proportionately liable defendant would be liable for a 
     proportionate share of the uncollectible amount, up to an 
     additional amount equal to 50% of his own share.
       The Commission has recommended that Congress first enact 
     other reform measures before adopting any form of 
     proportionate liability under which the burden of 
     uncollectible damages owned by an insolvent defendant must be 
     borne by the defrauded investor, rather than by solvent co-
     defendants who violated the federal securities laws. If 
     Congress determines to adopt a system of proportionate 
     liability, such as that provided in S. 240, the Commission 
     has recommended that it not include issuers (who should 
     remain liable for all damages suffered) and that it be 
     limited to fraud-on-the-market cases, rather than applying 
     also to cases of direct, considered reliance.
       Damages: Section 201 limits a plaintiff's damages to the 
     difference between the price paid by the plaintiff and the 
     value of the security during the 90-day period following 
     correction of the misstatement or omission. This provision 
     should be limited to fraud-on-the-market cases. In other 
     cases, this measure of damages may be wholly inappropriate. 
     In addition, the 90 day period should be shortened since 
     losses attributable to fraudulent statements may be offset by 
     price rises that are unrelated to the fraudulent activity.
       Aiding and Abetting in Commission Actions: Section 108 
     clarifies the availability in Commission actions under the 
     Exchange Act of liability for ``knowingly'' aiding and 
     abetting. This provision should also cover reckless aiding 
     and abetting and should be extended to the Securities Act, 
     and the Investment Company Act.
       Appointment of Lead Plaintiff in Class Action: One 
     provision of Section 102 requires the court generally to 
     appoint as lead plaintiff the class member that has the 
     largest financial interest in case. While this approach has 
     merit, it may create additional litigation concerning the 
     qualifications of the lead plaintiff, particularly when the 
     class member with the greatest financial interest in the 
     litigation has ties to management or interests that may be 
     different from other class members. The Commission believes 
     that there should be greater clarification as to how this 
     concept will work in practice.

[[Page S9057]]




                               footnotes

     \1\ Testimony of Arthur Levitt, Chairman, U.S. Securities and 
     Exchange Commission, Concerning Litigation Reform Proposals, 
     Before the Subcommittee on Securities, Committee on Banking, 
     Housing, and Urban Affairs, United States Senate (April 6, 
     1995).
     \2\ In Sundstrand Corporation v. Sun Chemical Corporation, 
     553 F.2d 1033, 1045 (7th Cir.), cert denied, 434 U.S. 875 
     (1977), the court used the following definition of 
     recklessness: ``a highly unreasonable omission, involving not 
     merely simple, or even inexcusable negligence, but an extreme 
     departure from the standards of ordinary care, and which 
     presents a danger of misleading buyers or sellers that is 
     either known to the defendant or is so obvious that the actor 
     must have been aware of it.''
     \3\ If the scienter standard is modified as suggested, the 
     Commission would support the safe harbor in S. 240. If, 
     however, the scienter standard is not so modified, the 
     Commission believes that the definition of forward-looking 
     statement in the safe harbor should be further narrowed, 
     although Commissioner Wallman believes that certain forward-
     looking elements of the financial statements should receive 
     safe harbor protection, such as stock option valuation 
     disclosures.

  Mrs. BOXER. Mr. President, the SEC has questions about this bill.
  I look at the Boxer amendment as a way to say OK, in 180 days, let us 
have a written report from the SEC to tell us if in fact this bill puts 
a greater burden on our seniors, takes away some of their privileges 
and their rights.
  Mr. President, I am going to retain the remainder of my time, 
although I will not use it unless some of my colleagues make some 
comments that I feel I must respond to. So I will reserve the remainder 
of my time only to be used in case that does occur.
  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. Mr. President, I intended to yield back our time because 
I believe that we will accept the Senator's amendment as it relates to 
the study of the SEC. That will be my recommendation. Having said that, 
I know Senator Dodd, who is a cosponsor of this amendment, would like 
to speak to it so I yield such time as he will need.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. I thank the Chair. Let me thank my colleague from New York. 
Let me just say to my very good friend--and those words are used 
lightly around here; when I speak of my colleague from California, they 
are meant as more than just a collegial gratuity--my very good friend 
from California has offered a good amendment. My intention is to 
support it because none of us, as I said the other day, Mr. President, 
can say with absolute certainty every time we change the law what the 
implications will be. We think over 4 years and more than 4,000 pages 
of congressional hearings and testimony, having put together what we 
think is a balanced bill here, we know what the implications will be.
  We made strong efforts in this legislation to try and protect those 
who are truly defrauded, and hence proportionate liability does not 
apply in those cases. We try and take care of smaller investors with a 
net worth of $200,000 or less, so that they are protected as well.
  I would like to say to my colleagues I am absolutely 100 percent 
certain that there will not be some implications here for smaller 
investors and seniors. I think the amendment covers seniors and smaller 
investors.
  Mrs. BOXER. Seniors and retirees.
  Mr. DODD. Looking at this makes some sense. I think they would have 
done it anyway but requiring it here in the law is not a bad provision 
to have. If I may point out to my colleague--and I do not know whether 
she is interested in doing it--I do not know what the timeframe on the 
study is.
  Mrs. BOXER. It is 180 days.
  Mr. DODD. It is 180 days from passage. I might suggest that not only 
you do it then, but it may be done every 6 months for a space of 2 or 3 
years because I would suggest that in just 6 months you may not get a 
picture. It may not be an adequate picture. You may need a bit longer 
time to get at various increments along the way as to what the 
implications are. Sometimes in 180 days you may not see any indication 
and you may get a false reading as to whether or not we have done 
something here that has a negative implication.
  So the Senator may want to modify the amendment to require it at 
various stages along the way here so we do get snap shots taken at 
various milestones over the next several years. So I appreciate the 
comments of my colleague from New York that this is an amendment we 
ought to accept, and I would concur in that conclusion and thank my 
colleague from California for offering the amendment.
  Let me if I can just briefly, Mr. President, also address, while I 
have the floor, the amendment raised by our colleague from Maryland. 
Let me first of all point out here when we set a net worth figure of 
$200,000 or less, we did it with the understanding that the average 
median net worth of people in this country is quite a bit less. We had 
two different studies, I would say to my colleagues. One study done by 
the Census Bureau in 1993 has the median net worth of all people in 
this country at $37,587. Another study done by the Federal Reserve has 
the median net worth--this is a 1992 study--at $52,200 a year. So when 
Senator D'Amato, myself, and Senator Domenici set a net worth of 
$200,000 or less a year, we are going extensively beyond the median net 
worth of families in this country. Depending on which study, either the 
Census Bureau or the Federal Reserve at $37,000 or $52,000, our figure 
at 200,000 goes well beyond the median income of people in this 
country, to try and protect the smaller investor. In fact, it goes four 
times beyond the median net worth.
  I do not know the percentage of families, but I suspect it is in the 
top 5 percent or so, maybe less, who would have net worth in excess of 
$200,000 a year.
  So we made a significant effort here to not only just protect smaller 
investors. Now, maybe the people who live in Washington and those of us 
who serve in Government with our incomes being what they are fail to 
recognize that most people in this country have net worth substantially 
less than what people in Washington, DC, might accept as a reasonable 
net worth.
  At any rate, we set it at that level, and anyone who has a net worth 
less than that and has a loss of 10 percent of their net worth, 
obviously, is protected by the joint and several and not proportionate 
liability.
  Now, with regard to the 10-percent figure, let me suggest that if we 
were to eliminate that, you are in effect eliminating proportionate 
liability because, as I said, it is such a high level that you 
basically exempt almost everybody in the country except for maybe 5 
percent of the population. So you really have not done anything in 
terms of trying to inject proportionate liability into the process, 
which is what the goal of S. 240 is, to apply proportionate liability 
where you do not have the kind of intentional fraud and you have people 
who are not that wealthy.
  Now, why did we do that? Why proportionate liability? Is this some 
gratuitous favor to try and bail out some people here who would 
otherwise be held fully accountable?
  It is not that at all, Mr. President. I would say the core, central 
issue here, aside from one of simple fairness, where someone who is 
marginally, marginally involved gets saddled with the full load of 
paying up all of these costs--and as we have pointed out over and over 
again over the last several days of debate--it is not that we are 
getting litigated results. It is not litigated results; 93 to 98 
percent of these cases are settled. Why are they settled? They are 
settled because your company lawyer says, ``Let me tell you something, 
Mr. CEO, or Ms. Chief Executive Officer, or Mr. Chief Financial 
Officer, or Ms. Chief Financial Officer. You run the risk here of 
losing everything. If you go to trial on this, you lose everything.'' 
You have a choice of settling or losing everything. And they opt to 
say, ``Look, we will settle.'' That is what they do in 93 to 98 percent 
of the cases. They settle.
  Now, you say, well what is so terrible about all of that? I would 
draw my colleagues' attention to an article in today's Wall Street 
Journal, which is entitled ``Big Accounting Firms Weed Out Risky 
Clients.'' The article points out the problem, and my colleagues ought 
to come to appreciate why there is a sense of urgency about trying to 
deal with this problem. Lee Berton, the author of the article, points 
out that the large accounting firms--and the large accounting firms, 
particularly in this country, are like the Good Housekeeping seal of 
approval for a firm-- are abandoning these clients.
  They are not picking them up, and there is a real economic danger, I 
think, in this country to have that trend line continue.

[[Page S9058]]

  I quote from the article:

       Big accounting firms say they have begun dropping risky 
     audit clients to lower their risk of lawsuits for allegedly 
     faulty audits. New companies, which have a particularly high 
     chance of failure, are affected most, because almost nothing 
     triggers lawsuits against accountants faster than company 
     failures.
       . . . Peat Marwick, the fourth-biggest U.S. accounting 
     firm, is currently dropping 50 to 100 audit clients annually, 
     up from only zero only 20 years ago. . .. ``When a client we 
     audit goes bust . . . it costs a bundle in court if we're 
     sued by investors, whether we win or lose the case.''
       . . . Mr. Lambert says that legal costs were ``staggering'' 
     for a lawsuit filed in a Federal court in Texas, alleging a 
     faulty review of a bank's books by Peat [Marwick]. The bank 
     was taken over by the Federal Government in 1992 after big 
     losses. The jury ruled in Peat's favor in 1993.

  So you had a lawsuit that did not end up going anywhere--actually, it 
went to trial in this particular case, and the decision was for Peat 
Marwick. Then listen to what happens.

       The jury ruled in Peat's favor in 1993, but the firm had to 
     spend $7 million to defend itself.

  The contract to handle the account that got them involved in the 
lawsuit was $15,000. That was the contract, but the lawsuit cost them 
$7 million, even though they won in the end. The intelligent business 
decision here is to say, ``Look, stay away from these firms, these new 
technologies that are emerging where there is a lot of volatility in 
them, don't go near them.''
  The net effect of all this is we are losing the benefit of having the 
top accounting firms in this country get in where they can make a huge 
difference in these firms, but because of the fear of expending amounts 
vastly in excess of what the contracts are worth to them, they stay 
away.
  Arthur Andersen ``has either dropped or declined to audit over 100 
companies'' in the past 2 years.
  I ask unanimous consent that this article be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, June 26, 1995]

              Big Accounting Firms Weed Out Risky Clients

                            (By Lee Berton)

       If you have a big-name auditor, hold on tight. It's getting 
     tougher to find--and keep--prestigious outside auditors to 
     certify annual financial statements.
       Big accounting firms say they have begun dropping risky 
     audit clients to lower their risk of lawsuits for allegedly 
     faulty audits. New companies, which have a particularly high 
     chance of failure, are affected most, because almost nothing 
     triggers lawsuits against accountants faster than company 
     failures.
       But established companies are getting the ax too. KPMG Peat 
     Marwick, the fourth-biggest U.S. accounting firm, is 
     currently dropping 50 to 100 audit clients annually, up from 
     only zero to 20 five years ago, says Robert W. Lambert, the 
     firm's new director of risk management. ``When a client we 
     audit goes bust,'' he says, ``it costs us a bundle in court 
     if we're sued by investors, whether we win or lose the 
     case.''
       Mr. Lambert says that legal costs were ``staggering'' for a 
     lawsuit filed in a federal court in Texas alleging a faulty 
     review of a bank's books by Peat. The bank was taken over by 
     the federal government in 1992 after big losses. The jury 
     ruled in Peat's favor in 1993, but the firm had to spend $7 
     million to defend itself ``even though the fee for the job 
     was only $15,000,'' Mr. Lambert says. ``We just can't afford 
     to take on risky audit clients anymore.''
       Lawrence Weinbach, managing partner of Arthur Andersen & 
     Co., another leading accounting firm, says his organization 
     has either dropped or declined to audit more than 100 
     companies over the past two years. ``When a company has a 
     risky profile and its stock price is volatile, we're just not 
     going to jump in and do the audit and invite a lawsuit,'' 
     says Mr. Weinbach.
       Audit clients dropped by the Big Six are often furious 
     because investors tend to feel safest with companies audited 
     by the biggest accounting firms. A Big Six opinion is ``like 
     the Good Housekeeping Seal of Approval on Wall Street,'' 
     maintains Chriss Street, chairman and chief executive of 
     Comprehensive Care Corp., a Newport Beach Calif., medical-
     rehabilitation center operator that Andersen recently 
     dropped.
       But the accounting firms say they have no choice. 
     Litigation settlement costs of the Big Six accounting firms 
     now exceed $1 billion a year. The firms say that even after 
     insurance reimbursement, these costs equal 12% of their 
     annual audit and accounting revenue.
       No risky client can pay us enough money to defend ourselves 
     after the client develops problems,'' asserts J. Michael 
     Cook, chairman of Deloitte & Touche, the third biggest U.S. 
     accounting firm. ``We must reduce our legal risks to remain 
     viable.''
       And he and other heads of Big Six firms say that if 
     Congress doesn't pass pending legislation reducing 
     accountants' litigation exposure, the firms will turn down 
     even more audit clients.
       The biggest legal drain on accounting firms involves 
     settling lawsuits brought by disgruntled investors against 
     the auditors of collapsed companies. These suits usually 
     accuse the auditors of professional negligence in failing to 
     warn the public of the problems of a troubled client company.
       To protect his firm against these costs, Mr. Cook says, 
     Deloitte has begun weeding out audit clients with potential 
     problems and refusing to handle the audits of companies 
     making initial public offerings, or IPOs, because so many of 
     them fail. And all of his competitors among the Big Six are 
     doing likewise. The portion of all IPOs audited by these 
     prestigious firms declined to 75% last year from 84% in 1992, 
     according to Emerson's Audit Change Report, a trade 
     publication.
       Andersen's Mr. Weinbach says his firm uses new computer 
     software to measure the litigation risk of an audit client. 
     The software looks at the company's financial health, 
     industry performance, stock fluctuations and financial 
     controls among other information. Other firms have begun 
     asking clients to agree to arbitration or mediation rather 
     than filing lawsuits in case of disputes over fees or 
     performance.
       Andersen now asks tax and consulting clients to sign 
     indemnification clauses that require the client to pay 
     Andersen's court costs if the accounting firm is sued by a 
     third party. For instance, litigation might arise if a real-
     estate buyer got into a dispute over a project's performance 
     or price with the seller and Andersen had provided a 
     financial projection for the project. ``If the client doesn't 
     agree to indemnify us, we generally won't do the work,'' says 
     Mr. Weinbach.
       BDO Seidman, the ninth-biggest U.S. accounting firm, two 
     years ago began asking clients of five U.S. offices to agree 
     to arbitrate disputes over fees and service quality rather 
     than go to court. And Ernst & Young, the second biggest U.S. 
     accounting firm, says that later this year it will begin 
     asking clients to agree to resolve disputes with it through 
     arbitration or mediation rather than by court suits. Philip 
     Laskawy, Ernst's chairman, says this shift will save Ernst 
     and its clients ``millions of dollars in legal fees.''
       The accounting firms are swinging hardest at companies that 
     have actually experienced financial trouble. For instance, 
     Mr. Street of Comprehensive Care is irate that his company 
     recently got a terse letter from Andersen saying the company 
     no longer meets Andersen's audit profile and should seek 
     another auditor.
       Andersen had been Comprehensive's auditor for three years 
     for an annual fee of $125,000. But in the past two years, 
     Andersen has ``qualified'' the company's annual report, 
     questing whether Comprehensive could continue as a ``going 
     concern.'' The company has reported losses in each of its 
     past five years, totaling close to $100 million.
       Mr. Street, who was brought into Comprehensive about a year 
     ago, says that Andersen gave no warning that it planned to 
     drop the company. ``We were caught completely off guard and 
     were in the midst of restructuring and recapitalizing the 
     company with Andersen's help,'' he says. ``We feel that 
     Andersen abandoned us when we most needed them.''
       Andersen won't comment specifically on why it dropped 
     Comprehensive as an audit client. But it says that ``in the 
     current litigious business environment, accounting firms are 
     forced to assess risks associated with current and future 
     clients.'' It adds: ``Comprehensive's historic performance 
     speaks for itself.''
  Mr. DODD. Mr. President, it goes to the very heart of why we put this 
bill together. We saw the trend lines where we are losing the expertise 
and ability. One of the provisions, by the way, we put in this bill is 
to require these accounting firms, if everything else is adopted, to 
seek out a report when they discover problems of fraud. That has not 
been a requirement in the law in the past, to actually serve as a 
quasi-governmental agency, if you will.
  Obviously, the Federal Government cannot go around and audit every 
firm in the country to determine whether it is doing its job or not. 
But having these accounting firms do it, requiring them to report when 
they discover any kind of wrongdoing, I think, is going to enhance 
tremendously our ability to pursue those firms where you have the 
intentional fraud, but also cause these firms to be far more careful 
about how they do their business.
  So if we adopt the Sarbanes amendment by eliminating the 10 percent, 
in effect, it is just the median income of $200,000, you have just 
destroyed the whole purpose of proportionate liability. It goes right 
to the heart of what this Wall Street article points out today--the 
fact you are seeing these firms leave these audits, audits that serve 
all of us and also serve the investor.
  That investor making the decision about where to put those hard-
earned dollars is going to be less inclined to

[[Page S9059]]

invest in these firms that may be, in the overwhelming number of cases, 
highly deserving of that investment, because they do not have that 
``Good Housekeeping seal of approval.'' The investor would probably shy 
away from it. Everybody loses in that kind of situation.
  We are trying to help solve that problem by the provisions we have 
included in S. 240. Is it perfect? Is it guaranteed success? Absolutely 
not. I would be the first one to tell you, no guarantees here. We think 
it will go to the heart of the problem, maybe help us solve it. But as 
the Senator from California has offered with her amendment to take a 
good look and see what the implications of this are, I think, makes 
good sense, is sound judgment.
  For those reasons, I support her amendment. But I oppose the 
amendment offered by our colleague from Maryland. I would rather there 
be an amendment offered eliminating proportionate liability, just 
striking all proportionate liability because that is the net effect of 
the amendment.
  If you just have a net worth of $200,000, you have only 5 percent of 
your investors at that, so it is really gone, in effect. It seems to me 
when median net worth is either $37,000 or $52,000--we have set it at 
$200,000--it is really going, to a large extent, beyond what many have 
suggested we ought to do here. But I thought, and the Senator from New 
York did, that by setting that higher bar, as well as including the 10-
percent loss, that what we were trying to protect against with this 
provision is the total economic devastation of someone. Again, 
obviously, if you eliminate that 10 percent, you lose that altogether.
  So with that, Mr. President, I urge, with all due respect to my 
friend and colleague from Maryland, rejection of his amendment, that we 
accept the amendment by the Senator from California, and I gather next 
we will be talking about an amendment which I support, which is the 
amendment being offered by the Senator from Nevada dealing with the 
statute of limitations.
  With that, Mr. President, I will be happy to yield the floor.
  Mrs. BOXER. Mr. President, I ask for the yeas and nays on my 
amendment.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  Mrs. BOXER. I yield back the remainder of my time.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. Mr. President, at a later time, I will ask the Senator 
from California to consider whether she really wants to vote on this 
amendment, because we are willing to accept it. Having said that, I 
want to commend my colleague, the prime sponsor of this legislation, 
Senator Dodd, for very eloquently and very cogently stating the 
incredible burden that has been placed on the fine accounting firms of 
America.
  I might refer those who are interested to the report of the 
committee. I quote:

       Accounting firms particularly have been hard hit by 
     securities litigation. The six largest firms face $10 billion 
     worth of 10b-5 claims. Their gross audit-related litigation 
     costs amounted to $783 million in 1992--more than 14 percent 
     of their audit revenues for that year. Former SEC 
     Commissioner Sommer, who heads the Public Oversight Board, 
     the independent body that oversees the accounting 
     profession's self-regulatory efforts, testified that, in view 
     of ``some recent judgments and the amounts being sought in 
     pending cases, it is not beyond the pale to believe, and some 
     responsible people do believe--that one or more major 
     [accounting] firms may ultimately be bankrupted.''

  But the problem goes beyond just bankruptcy. The accounting firms are 
being priced out of the marketplace. They cannot afford, as Senator 
Dodd indicated, to give their services to clients due to the great 
exposure they face, through no fault of their own, to being brought in 
to suits because they are the deep pockets, particularly where there is 
a small firm or small company as the primary defendant.
  That small firm then, or many small firms, are being deprived of 
having the best accounting firms; the American public are being 
deprived of having the audit capacity and functions of our best; and, 
third, the accounting profession is placed unnecessarily under a great, 
great strain.
  It is just simply intolerable and unfair. Part of this bill is 
crafted to eliminate that unfairness. It will eliminate the situation 
where people have no choice but to surrender to these lawsuits--
something that happens in 93 percent of these suits. They cannot afford 
to go to trial and I do not think that is what the capital system 
should be about.


                           amendment no. 1472

  Mr. McCONNELL. Mr. President, the doctrine of joint liability permits 
an injured plaintiff to collect the full judgment from any defendant 
found liable for any part of the injury. It means that no matter how 
remotely connected a defendant is to the events leading to plaintiff's 
injury, a defendant could be required to satisfy the entire judgment.
  The result is that lawyers for the plaintiffs add a whole host of 
defendants to a lawsuit in an effort to ensure the plaintiff can get 
the full judgment paid. With joint liability, it doesn't matter if you 
had anything to do with the events leading up to the plaintiff's 
injury. Instead, the chances of your getting sued depend upon how deep 
your pockets are. The deeper the pocket, the more likely to be sued.
  I'll illustrate with a negligence case: if a drunk driver injures an 
individual on someone else's property, the property owner will be 
joined in the lawsuit. It happened to the Cincinnati Symphony 
Orchestra, only it wasn't even the property owner. The accident 
happened near one of the orchestra's performance facilities. And the 
orchestra, a nonprofit entity, was needlessly dragged into a $13 
million lawsuit and put at risk for the judgment.
  Nonprofit organizations, municipalities and small businesses can be 
hardest hit by joint liability. Although we don't think of these 
defendants as wealthy or rich, they are usually adequately insured, 
which also makes them good candidates to be deep pockets. New York City 
spends more on personal injury awards and settlements--$270 million--
than it spends on funding public libraries.
  In securities litigation, accountants, bankers, and insurers are 
targets of abusive suits because of their deep pockets. One Big Eight 
accounting firm, Laventhol & Horwath, went bankrupt because the cost of 
fighting these suits became too prohibitive. The consequence of 
dragging these professional firms into these kinds of lawsuits is 
obvious: it becomes increasingly difficult for new businesses to get 
advice from business professionals. And, it gets harder to find people 
to serve on corporate boards due to the fear of lawsuits.
  This litigation explosion burdens the economy, retarding economic 
growth. It is essentially a tax imposed on every American. And every 
potential defendant has to take account, in the prices they set, for 
the possibility of being dragged into a lawsuit.
  During the product liability debate, I received a letter from the 
Institute for the National Black Business Council, an association of 
minority business owners. Mr. Lou Collier, the president of the 
council, wrote in support of expanding the product liability bill. 
Without an expansion of the joint and several liability reform, Mr. 
Collier states, ``Millions of small businesses--restaurants, gas 
station owners, hair stylists, nearly every small business you can 
think of, would still face the threat of bankruptcy. That includes most 
African-American firms.'' The latest census data shows that 49 percent 
of all black-owned firms are service firms, and Mr. Collier, on behalf 
of minority small business owners, asked us to improve the climate for 
small business, ``Small business owners and entrepreneurs have to 
overcome staggering odds to build a successful company. They shouldn't 
have to face a legal system where one frivolous lawsuit can force them 
to close their doors.''
  The same arguments ring true in the context of securities litigation. 
This amendment must be defeated because restoring joint liability means 
little improvement in the litigation climate.
  Injured plaintiffs will still recover their full economic loss. But 
for the subjective noneconomic loss, each defendant would be 
responsible only for his or her proportionate share of harm caused.
  This bill is fair and consistent with principles of individual 
responsibility. It will put an end to the gamble taken

[[Page S9060]]

by the trial bar when they join everyone in sight of an alleged harm. I 
urge that the amendment be rejected.


                           Amendment No. 1469

  The PRESIDING OFFICER. The pending business is the Bryan amendment 
No. 1469.
  Mr. BRYAN. Mr. President, am I correctly informed? I believe we have 
a time agreement of 1\1/2\ hours equally divided. Am I correct, I 
inquire of the Chair?
  The PRESIDING OFFICER. The Senator is correct.
  Mr. BRYAN. Since I am the advocate of the amendment, may the Senator 
from Nevada presume that he controls 45 minutes of the time that is 
allotted to those who are in support of the amendment?
  The PRESIDING OFFICER. That is correct.
  Mr. BRYAN. I yield myself 15 minutes at this point, Mr. President.
  My colleagues will recall that we began the debate on this amendment 
last Friday shortly before we recessed for the weekend. I want to make 
just a couple of points in general about this. There are a number of 
things that have divided us as we have debated S. 240, but there are 
some things in which the prime sponsor of this legislation, Senator 
Dodd, and I are in agreement, and I acknowledge, as he has previously 
indicated on the floor, Senator Dodd, as the prime sponsor of S. 240, 
is in support of the amendment, which I will describe in a moment.
  But first let me give a little bit of background. My colleagues will 
recall in 1991 the Supreme Court of the United States decided the Lampf 
case, as it was called--and the Lampf case, in effect, imposed a 
statute of limitations which is a bar to securities litigation 1 year 
from the point that the plaintiff discovers the fraud and in no event 
more than 3 years in the actual occurrence of the fraud.

  Now, that came as quite a shock and surprise to those that are in the 
securities business, because the accepted interpretation prior to that 
had been that you looked to the statute of limitations in the State in 
which the action originated. Immediately, as a result of that, because 
the Court's decision was retroactive; that is, there were a number of 
cases pending, as well as prospective; that is, to place a bar on any 
actions to be filed in the future, a number of us came to the floor, 
and the Senate Banking Committee at that time unanimously reported out 
the 2-to-5-year statute of limitations proposal--2 years from the date 
of discovery of the fraud, in no event beyond 5 years. That is what 
this amendment does. Under the current print, 1-to-3 is the statute of 
limitations timing. Under the Bryan amendment, it could be 2 to 5 
years. This is what the Banking Committee, in 1991, had unanimously 
agreed should go forward.
  Moreover, I think it is important for my colleagues--and there are 
approximately 50 of them who have signed onto this legislation--S. 240, 
as introduced, contains the 2-year/5-year statute of limitations. So 
this amendment, somewhat of an anomaly, does not change the original 
language of S. 240 but seeks to restore to the bill the language which 
was originally in the bill at the time it was introduced and language, 
at least by implication, that 50 of our colleagues, as cosponsors of 
the legislation, have supported.
  So this is not something that comes as after the fact--2-to-5 years.
  Why is the 2-to-5 years important? I realize that people are not 
literally hanging over the edges of their seats in the galleries as we 
discuss what appears to be a very abstract legal issue. First, let me 
say that it has absolutely nothing about frivolous lawsuits--not one 
thing. We are talking about a lawsuit which, by definition, is 
meritorious but cannot be filed under the current law if indeed it is 
after the 1-year point in which the plaintiff discovers the fraud, or 
in no event beyond 3 years.
  So this does not have a thing to do with frivolous litigation. I 
understand the concern of my colleagues and I share it. We ought to act 
against frivolous lawsuits, and there are provisions in S. 240 that 
deal with rule 11 and some other provisions that I think are 
meritorious. So no one who is approaching this amendment ought to be 
misled that somehow a vote against this amendment protects the innocent 
from frivolous litigation. This simply gives you the right to get into 
the courthouse door. Without this amendment, you are saying 1 year, 3 
years, and you are barred.
  Now, who supports the amendment? Well, first, let me indicate to my 
colleagues that the Chairman of the Securities and Exchange Commission 
has repeatedly testified in favor of extending the statute of 
limitations. Most recently, on April 6, 1995, Chairman Levitt testified 
before the subcommittee that:

       Extending the statute of limitations is warranted because 
     many securities frauds are inherently complex, and the law 
     should not reward a perpetrator of a fraud who successfully 
     conceals its existence for more than three years.

  So the present Chairman of the Securities and Exchange Commission 
says that it is important to protect innocent investors who have been 
defrauded from those who are inherently clever enough to conceal it to 
provide for a longer statute of limitations. Then he went on by way of 
explanation to say that even with all of the resources that are 
available to the SEC, the staff that is available with the expertise 
that they have, with all of the kind of background information they 
have as to what is happening in the marketplace generally, that it 
takes approximately 2.25 years to complete an investigation. Now, that 
is beyond the period of time that the 1-to-3 year statute would 
provide. This is not partisan, this is not a Democratic chairman and 
the Republican SEC under President Bush who felt differently. The 
former chairman, the last Republican chairman was Richard Breeden. He 
had this to say about the proposed 2-to-5 year statute, and 
specifically about the unfairness and the limiting ability of a 2-year 
statute:

       Had a 3-year statute of limitations been in effect and had 
     it been applied to the SEC, approximately one-half of the 
     cases against Drexel Burnham, a large part of the case of 
     Equity Funding, one of the largest frauds in the history of 
     the United States, and the entire case against E.F. Hutton 
     for check kiting would have been barred from the courthouse.

  Again, these were meritorious cases. The recovery would have been 
prevented because the statute of limitations would have constituted a 
bar. In that period of the 1980's where we have talked about Charles 
Keating and we talked about Ivan Boesky, another name has had 
prominence and that is Michael Milken. Here is what the sentencing 
judge had to say to him with respect to the complexity of securities 
matters and their difficulty:

       You may have committed only subtle crimes--

  This was being addressed to Mr. Milken at the time of sentencing.

       . . . not because you were not disposed to any criminal 
     behavior but because you were willing to commit only crimes 
     that were unlikely to be detected. We see often in this court 
     individuals who would be unwilling to rob a bank, but who 
     readily cash Social Security checks that are not theirs when 
     checks come to them in the mail because they are not likely 
     to be caught in doing so . . . You also committed crimes that 
     are hard to detect, and crimes that are hard to detect 
     warrant greater punishment in order to be effective in 
     deterring others from committing them.

  These are crimes that are very hard to detect and are particularly 
very difficult to detect when we are talking about small plaintiffs who 
do not have the resources available to them that the Securities and 
Exchange Commission, the North American Association of Securities 
Dealers and others might have.
  In the Lampf case itself, which was a very narrowly divided case, 5-
4, one of the dissenting Justices, Justice Kennedy, had this to say:

       Concealment is inherent in most securities fraud cases. The 
     most extensive and corrupt schemes may not be discovered 
     within the time allowed for bringing an express cause of 
     action under the 1934 act. Ponzi schemes, for example, can 
     maintain the illusion of a profit-making enterprise for 
     years, and sophisticated investors may not be able to 
     discover the fraud until long after its perpetration. The 
     practicalities of litigation, indeed the simple facts of 
     business life, are such that the rule adopted today--

  Referring to the majority of the court that adopted the more limiting 
1 and 3 year statute of limitations.

     will ``thwart the legislative purpose of creating an 
     effective remedy'' for victims of securities fraud. By 
     adopting a 3-year period of repose, the Court makes a section 
     10(b) action all but a dead letter for injured investors who 
     by no conceivable standard of fairness or practicality can be 
     expected to file a

[[Page S9061]]

     suit within 3 years after the violation occurred.

  In its brief before the Supreme Court, the SEC pointed out the 
difficulty that the shorter limitation period ``would deprive many 
defrauded investors of a satisfactory opportunity to vindicate their 
rights.'' Here is what the SEC, in the brief, went on to say:

       Especially in complex cases, plaintiffs often ``do not 
     discover the fraud until long after its perpetration.'' 
     Violations involving financial fraud, for instance, often go 
     undetected until the enterprise fails, an event that may 
     occur years after the violation. Moreover, as the 
     securities markets have grown in size and complexity, 
     frauds have become increasingly difficult to discover.

  An example of that, Mr. President, is the municipal bond. They are 
particularly susceptible to concealment. In a typical municipal bond 
offering, 2 to 3 years of interest payable to the bondholder is placed 
in an escrow account, so the bondholders can have no inkling anything 
has gone awry until they do not receive an interest payment--oftentimes 
many years after the closing of the offering. The average timespan 
between issue date in municipal bonds and the date of default in 
repayment is approximately 4.5 years.
  Limited partnerships have the same susceptibility. Again, as the 
North American Securities Administrators Association--and some of my 
colleagues may not have had the opportunity to interface with them; 
these are the securities administrators of the 50 States, who are 
charged with enforcement of securities law at the State level--as they 
have testified, limited partnerships in which investors have poured 
more than $150 billion since 1980--

       . . . often run for as many as 7 to 10 years. Customer 
     account statements--a primary means of detecting fraud or 
     misconduct--reflect only the original purchase price of the 
     partnership, not the current market value. Therefore, it may 
     only be at the expiration of the partnership that an investor 
     uncovers misconduct or wrongdoing. Under Lampf, [the 1- to 3-
     year statute decided in that case] that investor would be 
     precluded from seeking redress in the courts, for no reason 
     other than the decision to purchase a long-term investment. 
     Holders of zero coupon bonds will face similar difficulties 
     in uncovering fraud in the short period of time allowed under 
     Lampf.

  The point, I think, that is to be made here is that we have talked a 
great deal about balance. Every provision that I can see that is 
contained in S. 240 is designed to provide additional protection for 
securities underwriters. Aiders and abetters are not included. Safe 
harbor statements are made more generous.
  The wealthiest investor, in effect, becomes the chief of the last, 
and one can go on and on. Of all of the provisions contained in this 
legislation, in its original form, only the extension of the statute of 
limitations could be fairly said to benefit the innocent investor.
  For those of my colleagues who are truly seeking balance as they 
approach this legislation, and who support and will vote for the final 
version of S. 240, this is really your only opportunity at this stage 
to provide that kind of balance by extending the statute of 
limitations.
  Here is what Mark Griffin, who is the head of the Utah Securities 
Division, had to say in testimony before the Banking Committee. He said 
the current period for filing fraud actions is ``unduly short.'' Going 
on, he said:

       . . . [it] is the experience of State securities regulators 
     that victims of investment fraud often have no way of 
     knowing, nor reason to suspect for what may be many years, 
     the truth about the mishandling or abuse of their 
     investments.

  That comes from the security administrator in the State of Utah.
  Mr. President, in looking at what States have done, the testimony is 
that 60 percent of the jurisdictions have longer statutes, and ``13 
States recognize the concept of equitable tolling, in which the 
limitations period starts running only after the fraud is discovered.''
  Among those States are Alabama, Arizona, Kansas, Massachusetts, New 
Jersey, Washington, and Wisconsin. Many other States have longer 
statutes, as well, including California, Pennsylvania, my own state of 
Nevada, Michigan, Ohio, Florida, Texas, Illinois, and New York.
  It seems to me that in an era in which we believe that not all wisdom 
resides in the banks of the Potomac, looking at the experiences at the 
State level could be particularly instructive as we process this 
statute of limitations amendment.
  The effect of the shortened statute of limitations is simply 
devastating, and has absolutely nothing, Mr. President, to do with 
frivolous lawsuits.
  For example, had the Lampf rule been in effect, investor cases with 
respect to such notorious fraud as Lincoln Savings and Loan, Washington 
Public Power Supply System, Executive Life Insurance, Home-Stake 
Production Co., and Crazy Eddie would have been barred.
  Mr. President, I yield myself an additional 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BRYAN. Mr. President, I thank the Chair for keeping me cognizant 
of the time.
  In fact, Charles Keating attempted to have his case dismissed on 
Lampf grounds, and that was the genesis of our effort to keep those 
cases alive. The Congress responded by making sure that the Court's 
decision did not have a retroactive effect on those cases that were 
pending. According to a study released by the House Subcommittee on 
Telecommunications and Finance in 1991 after the Lampf decision, over 
$5 billion in pending fraud claims were dismissed or threatened with 
dismissal based on the shortened statute of limitations.
  This amendment tracks the exact formula that is urged upon us by the 
SEC, an extension that would allow cases to be filed up to 5 years 
after violation has occurred, provided they are brought within 2 years 
after discovery of the violation.
  As I pointed out at the outset, S. 240 in its original form contained 
an extension of the statute of limitations. I commend my colleague and 
good friend, the distinguished senior Senator from Connecticut, who has 
taken a lead on this case. He has long supported the longer statute of 
limitations. I commend his effort.
  I might say that in previous Congresses, subsequent to the Lampf 
decision, efforts to make changes in the securities litigation system 
have all recognized the wisdom of the longer statute of limitations of 
2 to 5 years.
  I note it is somewhat anomalous--we have the situation in which the 
amendment on the floor is designed to restore what the introducer of 
the bill must surely have intended, because they cast it in the 
identical language that we are seeking to place back into the bill.
  In addition to the securities regulators at the national level and 
the State level, this amendment enjoys the support of the Consumer 
Federation of America, the Public Citizen, the Council of Institutional 
Investors, the United Shareholders Association, the Bond Investors 
Association, the U.S. Conference of Mayors, the Government Finance 
Officers Association, and the National Association of County Treasurers 
and Finance Officers, to list but a few.
  So for my colleagues who may have some motivation in saying ``Look, 
the lawyers are responsible for all of the ills in America and have 
done terrible things with respect to the securities litigation,'' they 
have an opportunity to support other provisions in the law.
  Please, in the interest of striking back at these securities lawyers, 
do not deprive, do not undermine the right of innocent investors to 
simply present their case, to simply present their case; simply give 
them the key to get into the courthouse door. And all these other 
provisions that are included with respect to lawyer sanctions, which I 
happen to agree with if it is a frivolous case, then they can come into 
place and operate to serve as a bar to the frivolous case.
  This is a case that deprives the innocent investor with a meritorious 
cause of action from ever having his or her case presented because of 
the cleverness of the wrongdoer, the defrauder. We ought not, it seems 
to me, as a matter of public policy, say, ``Look, we ought to provide 
the benefits in our society to those who are clever enough to conceal 
their wrongdoing and perpetrate frauds before the victims find out.''
  I do not think any Member of the Senate can defend that kind of a 
public policy.
  I note the distinguished majority leader is on the floor and may seek 
recognition. I reserve the balance of my time.

[[Page S9062]]

  The PRESIDING OFFICER. Who yields time on the pending amendment?
  The Senator from New York.
  Mr. D'AMATO. Mr. President, let me point out that one of the finest, 
most skilled, and eloquent lawyers, when it comes to interpretation of 
the law, is my friend, the Senator from Nevada. I find myself at a 
distinct disadvantage when having to take any position that is contrary 
to one that he is expounding on. Such is the case here. I do not 
pretend to be his equal.
  However, I will attempt to explain a concern to my colleagues 
regarding the extension of the statute of limitations. That concern is 
that if we extend the statute of limitations we will open the door to 
more mischief.
  At first, I was ambivalent on this particular question, as to whether 
the statute of limitations should be 1 and 3 years or 2 and 5; I 
considered extending the time as is done in some of the State statutes. 
My friend and colleague explained how this came about, how we had, 
actually, no statutory law until the Supreme Court in its Lampf 
decision in 1991 said: the 1-year and 3-year statute of limitations is 
rooted in common law and should be the uniform limit.
  Some said that this statute would preclude meritorious suits. Indeed, 
there may be some curtailment of individual investor suits, However, 
having said that, this statute of limitations will not preclude suits 
being brought under longer State statutes, nor will it preclude the 
Securities and Exchange Commission from bringing suits in cases of 
fraud, where the SEC has no statute of limitations.
  There are examples of the SEC bringing suits, after the statute of 
limitations has expired; suits in which large settlements have been 
recovered. In one rather recent case, the Prudential case, there the 
settlement was $660 million. The SEC has recovered notable settlements 
in some other large cases--the Drexel-Burnham-Lambert case brought $400 
million in disgorgement. Again, the statute of limitations is not a bar 
for the SEC.
  So, while the statute of limitations may be a bar to some individuals 
are aggrieved, if there is a serious case there is no doubt in my mind, 
nor, I think, in anybody's mind, that the Securities and Exchange 
Commission will bring a suit. My staff has reviewed some of the 
historical debate on the general question of how long the statute of 
limitations should be.
  Back in 1934, when this issue was first debated in the context of the 
need for a fraud statute, Senator Kean made a statement on what he felt 
was the reason we should limit the filing of suits to within 1 year 
from the actual time of discovery. I quote from Senator Kean:

       If a man buys something today and discovers tomorrow that 
     some mistake has been made and perhaps he has grounds to sue 
     because of fraud, under the terms of the bill he must bring 
     the suit within 1 year. But suppose he thinks perhaps the 
     bonds I have bought will go up. I will not bring suit 
     until I find out about that. If the bonds go down, then I 
     will have the option of suing these people and trying to 
     recover. If the bonds go up, then I will not sue because I 
     can get a profit on them.

  Mr. President, I suggest to you that by extending the statute of 
limitations, what we do is open the door for those people who wait and 
see if anything comes out over time. It becomes much easier to create a 
lawsuit and to force a settlement if we allow a longer period of time 
for something, anything, to be discovered. This extended statute of 
limitations opens the door to the kinds of litigation we see now, but 
these enterprising entrepreneurial lawyers will have a longer period of 
time in which to bring their claim. Certainly this Senator does not 
want to protect anyone who has been involved in fraud. Again, if there 
has been an egregious fraud, there is no doubt in this Senator's mind 
that the Securities and Exchange Commission will do the business of the 
people, which they have done in the past.
  But businesses are entitled to some certainty that they will not be 
sued. I think my friend, Senator Dodd, quite aptly stated his argument 
as it relates to the inventive, creative entrepreneurial petitioner of 
the law. I believe my friend called them buccaneering barristers. I 
think extending the statute of limitations just gives them a longer 
period of time to practice their craft of filing suits without merit.
  If there is a legitimate fraud, even if it is discovered and 10 years 
down the road and it has brought harm, then as far as I am concerned I 
want the situation to be rectified. I know that there is a body who can 
do that; that is, the Securities and Exchange Commission.
  Let me say again this is an area where I think reasonable people can 
have some differences. I, myself, have gone back and forth on this 
issue. It was only when I was convinced that there was the opportunity 
to close down some of the people who are not practicing law as they 
should, who are more interested in creating situations where they force 
settlement, and at the same time we would not leave that door open for 
defrauded people to be further victimized, that I decided on the 
statute of limitations in this legislation.
  That is why I will be forced to oppose my colleague's amendment, as 
thoughtfully and as articulately as he has presented it.
  I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. BRYAN. Mr. President, I yield time to the distinguished senior 
Senator from Connecticut, after which I hope to be able to respond to 
the debate of my good friend, the distinguished chairman.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, will the Senator from Nevada yield to me 5 
minutes?
  Mr. BRYAN. I do.
  The PRESIDING OFFICER. The Senator from Connecticut is recognized.
  Mr. DODD. Mr. President, I rise to support this amendment by my 
colleague from Nevada.
  Like my good friend from New York, I understand the arguments on the 
other side. I suppose one might say in this debate what is magical 
about 1 and 3 or 2 and 5? I presume that if we made it 2 and 5, there 
would be those who would say it ought to be 3 and 7, or 4 and 8. You 
could run the string out. Then there are some who think you should not 
have any statute of limitations, I say to the distinguished Presiding 
Officer. So you are never going to satisfy everybody with some of these 
provisions.
  Senator Domenici and I originally offered this bill back several 
years ago, and we included an extension of the statute of limitations 
here to 2 and 5 years on the theory that it contributed to the balance 
of the legislation. It is a crucial part of the balance between 
investor's and defendant's rights, plaintiff's and defendant's rights. 
Our colleague from Nevada has promptly pointed out the legislative or 
legal history of this.
  The Supreme Court decision in Lampf versus Gilbertson established the 
limits of 3 years after fraud occurred, or 1 year after it was 
discovered. It is simply too little time, in my view, to ensure that 
investors have the necessary time to bring an action. Justice Anthony 
Kennedy, in his dissent in the Lampf decision said, and I think it is 
worth noting: ``Concealment is inherent in most of the securities fraud 
cases.'' And it is tough fraud to find, I point out to the Chair.

       The most extensive and corrupt schemes may not be 
     discovered within the time allowed. Ponzi schemes, for 
     example, can maintain the illusion of a profit-making 
     enterprise for years, and sophisticated investors may not be 
     able to discover the fraud until long after its perpetration.

  The SEC and the Council of Institutional Investors support extending 
the statute of limitations, and, frankly, I am concerned that unlike S. 
240, this amendment does not contain language that requires an investor 
to use reasonable diligence.
  This is the one point on which I have some disagreement with on the 
amendment offered by my colleague from Nevada. Even though we disagree 
on this point, I still intend to support the amendment. I think 
requiring reasonable diligence on the part of investors is not asking 
too much. There has to be some burdens and responsibilities people 
assume when they engage in this activity. In our original bill that 
included an extension of the statute of limitations, we required 
reasonable diligence on the part of the investor. That reasonable 
diligence is no longer included in the amendment being offered by the 
distinguished Senator

[[Page S9063]]

from Nevada. The reason I say that is because I think it ought to be a 
distinction made between the lazy investor and the diligent investor. 
We make no distinction with this amendment; that is, the current 
standard in most private actions under our securities laws.
  Frankly, I am concerned that the unintended impact of this amendment, 
should it be adopted, will be to grant more time in effect to investors 
who know nothing about their investments or care nothing about them and 
those who exercise reasonable care.
  I think we ought to be trying to inject responsibility on the part of 
everybody involved in these activities. While this is a significant 
departure from the original Domenici-Dodd language on the statute of 
limitations, as I mentioned a moment ago, I will not oppose the 
amendment on that basis alone.
  So when this amendment is considered and voted on, I will cast a vote 
for it for the reasons I have identified. I think in this day and age 
of technology, being what it is with the sophistication that is out 
there, it is an awful lot to expect even a knowledgeable investor to be 
able to pick up on some of these activities, as they might have even a 
few short years ago, in the absence of high technology.
  So trying to keep pace with that high technology, providing a bit 
more time here, is not an unreasonable request in my view.
  For that reason, I commend the Senator from Nevada for his comment. I 
urge my colleagues to support it.
  I yield the floor.
  Mr. BRYAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. BRYAN. Mr. President, may I inquire how much time do I have under 
my control?
  The PRESIDING OFFICER. The Senator controls 20 minutes and 4 seconds.
  Mr. BRYAN. I thank the Chair. I yield myself 7 minutes.
  The able distinguished chairman of the Banking Committee, who is my 
friend, raised two objections as I understand the thrust of his 
argument. I must just say as an aside, it makes me very, very nervous 
when the able chairman lavishes great praise upon a more junior member 
of the committee because no one is more sophisticated than the 
distinguished chairman in making his point. He speaks in the idiomatic 
language of the street and people understand where he is coming from, 
and he speaks with clarity that every lawyer in America can only hope 
to equal. So I am quite concerned when I receive this praise.
  He made two points. One, he said that by extending the statute of 
limitations as we propose to do in this amendment we would thereby 
increase the amount of litigation.
  Let me just suggest that the experience shows quite to the contrary. 
My colleagues will note that I have had a chart prepared tracing the 
experience of the past 20 years, from 1974 to 1993. As my colleagues 
will note, that represents a fairly level activity. In fact, the most 
number of cases filed in any one year was 315. Last year was 290. And 
as you will note, the statute of limitations case was not cited until 
1991. Prior to that, the longer statute of limitations existed. There 
were actually in many years fewer cases than had been filed since the 
statute of limitations result.
  So may I say, with all due respect, I think the experience is 
contrary to his assertion that more cases would be filed. In point of 
fact, I think an argument can be made that the shorter statute of 
limitations may encourage haste in filing such actions which is clearly 
contrary to the purpose that he and I and I think all of our colleagues 
have in terms of trying to discourage such litigation.
  Second, he makes the point that the SEC is available, and he is quite 
correct, but I think it is important to point out that when the SEC 
brings an action, it brings an action to impose a fine, penalty or 
sanction, but it does not--I think this is a very important 
distinction--seek to recover money that investors have lost. So it is a 
philosophically different role. One is akin to a prosecutorial agency 
in which sanctions, fine and imprisonment may result. The purpose of 
the individual filing is to recover his or her loss.
  Even if one thought the SEC might do an adequate job, the testimony 
by Mr. Breeden, the former chairman, was that it would require another 
800 to 900 people serving in that office to offset the inability of 
private causes of action to be brought under S. 240 as constituted, and 
in the committee report on this particular bill it indicates that the 
cost of providing those additional resources to the SEC would be 
another $250 million over the previous 5 years.
  Let me say that I think, like most of us, we gain considerable 
insight over the years as we have served, and I was pleased to have my 
friend's support and his leadership in 1991 when we sought to do the 
very thing we are seeking to do in the Chamber this afternoon, and that 
is to extend the statute of limitations from 1 to 3 to 2 to 5. And I 
wish to give my friend an opportunity to engage me in a colloquy if he 
chooses to do so. But may I respectfully say I think the Senator from 
New York was absolutely right in 1991, as we sought to process the 
corrective legislation in the aftermath of the Lampf case by supporting 
then a 2- to 5-year statute of limitations, and I hesitate to say he 
has not grown in wisdom over the intervening years but I think that he 
clearly was more correct then than he is now.
  I would be happy to engage my colleague in any conversation he might 
care to in terms of this debate. I just do not see that there is any 
reason today, of course, not to go for the 2- to 5-year statute of 
limitations. The same circumstances exist, it seems to me, and I want 
to give my good friend a chance to share with me the benefit of his 
additional wisdom.
  Mr. D'AMATO. I appreciate the opportunity to engage my friend in 
dialog in the spirit of the Senate. As I said, I was ambivalent on this 
issue. I have had numerous constituents and groups who have come to me 
and said: Senator, we are very much concerned that leaving the door 
open, particularly extending the statute of limitations to 5 years, 
will just create added exposure to these suits. We cannot extend the 
statute of limitations, unfortunately, because of those individuals who 
do not and have not practiced law with the same spirit and 
enlightenment of my colleague from Nevada.
  I understand he has joined with us and voted with us on a number of 
matters, which some might consider procedural but are awfully 
important, aimed at reducing the abuses in this system; the race to the 
courthouse, the buying of people to put oneself in a position to bring 
these suits, and the plaintiffs for hire who let their names be used 
for bonuses.
  When my colleague says to me he wants to stop this abuse, I know that 
to be the case. But those in the industries, in the emerging companies 
say, ``You know, if you keep that door open, there is just a stronger 
likelihood that there will be that inventive lawsuit later on that 
holds them harmless.''
  I feel I must be supportive of those companies and that theory. We 
must not abandon these firms. Let me say once again, even if there has 
been fraud and it is discovered only 5 years or 6 years after the 
statute of limitations has expired the Securities and Exchange 
Commission can bring suit.
  Nor have we placed a disproportionate burden on the SEC. They have 
repeatedly said that they do not want to be in the position where they 
have to be the eyes and ears for all, that, there is a proper place for 
individuals and their lawyers to bring these class action cases.
  I think that by limiting private rights of action to 1 and 3 years 
and yet having no limit, no statute of limitations for the Securities 
and Exchange Commission, that we strike a proper balance. It was in 
that spirit that I came to this decision.
  Second, it was also in that spirit that I could put together a 
majority----
  Mr. BRYAN. May I interrupt my friend?
  Mr. D'AMATO. To pass out this bill. I want to be candid.
  Mr. BRYAN. And I appreciate that. The concern that I have is that we 
are engaging in this discussion and the time may run out.
  Mr. D'AMATO. I yield to my friend any time that he may need.
  Mr. BRYAN. Will the Senator be willing to take part of his time to 
engage in the colloquy?
  Mr. D'AMATO. Oh, yes. I ask unanimous consent that the last 5 minutes 
be charged to myself.

[[Page S9064]]


  Mr. BRYAN. I thank the Senator.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I finished my statement, and I will be glad to yield to 
my friend any additional time. How much time remains, might I inquire 
of the Chair?
  The PRESIDING OFFICER. The Senator from New York has 31 minutes 40 
seconds remaining and the Senator from Nevada has 17\1/2\ minutes 
remaining with the exchange of time conceding 5 minutes.
  Mr. BRYAN. I think we are going to be fine. Let me say, I appreciate 
his fairness. He did not have to do that, and I think that speaks well 
for him. I did not want to cut him off. I did not want to be precluded 
from making final comments. If the Senator has concluded, I would like 
to make a response and yield the floor back to him.
  Mr. D'AMATO. I had completed my observations how we find ourselves in 
this position. And there is that necessity, in any attempt to craft 
legislation--I have to say that my colleague is offering amendments 
because he is not happy with all the provisions of this bill and wants 
to make it better, to enhance the bill--to put together a package that 
can build a coalition, and this was a major concern to quite a few 
Senators on my side, a very, very big concern.
  I can see their point. If I had my druthers, I might say what is 
wrong with 2 and 5, but I heard from many groups, and numerous 
associations, who were quite persuasive as to why this would be a 
retreat.
  One last observation. In this legislation we are attempting to reduce 
the exposure to unfair suits; it sends a very different message if we 
extend the statute of limitations. How can we say this cuts down on 
frivolous suits when people think ``My gosh, you are broadening the 
time to bring them.''
  The Supreme Court has said 1 year and 3 years is sufficient, and now 
we have amendments to extend it to 2 and 5. We cannot support that. I 
must tell you there are a number of my colleagues who felt very, very 
strongly, that 1 year and 3 years was the right statute of limitations 
and that is why, given the fact I knew we had the support of the SEC, I 
supported this position. I share that with my friend and colleague.
  Mr. BRYAN. I thank the distinguished chairman. I ask unanimous 
consent to yield 2 additional minutes to myself.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BRYAN. Let me say, I appreciate the explanation the chairman has 
given. It is a matter of balance. Again, I respond with great respect 
that the role of the SEC is not to recover those losses, and that is 
something that greatly troubles me, that individuals who have lost 
money, who are totally innocent, although the SEC would not be 
precluded from bringing an action, that action is not to recover money 
for them but simply to impose the appropriate fine, penalty, sanction, 
that may exist for the violation.
  Second, I, too, was exposed to the arguments made by those who reach 
a different conclusion than I do that the shorter statute of 
limitations protects them from some lawsuits.
  On the other hand, I must say that in balancing, I found the 
arguments of the securities regulators--the SEC, the States securities, 
the State and local government finance officials--who all argued that 
the 2 to 5 was necessary. We all put into the scales of justice our 
individual component parts, and I would just respectfully say, engaging 
my good friend in colloquy, that ultimately that is what persuaded me 
on the longer statute.
  Mr. SARBANES. Will the Senator yield?
  Mr. BRYAN. I will be pleased to yield.
  Mr. SARBANES. I would like to ask the Senator, as I understand it, 
not only the SEC but the FDIC and State securities regulators all 
joined the SEC in seeking to, in effect, overturn the Lampf decision 
and go to the 2-and-5-year standard for the statute of limitations; is 
that correct?
  Mr. BRYAN. That is correct. The distinguished ranking member from 
Maryland is correct. They all uniformly support that position.
  Mr. SARBANES. And, in fact, I have a quote from SEC Chairman Breeden. 
This was in 1991. This is the Republican Chairman of the Securities and 
Exchange Commission, in which he said:

       The timeframe set forth in the Supreme Court's decision is 
     unrealistically short and will do undue damage to the ability 
     of private litigants to sue.

  He then went on to point out that in many cases:

       Events only come to light years after the original 
     distribution of securities and the cases could well mean that 
     by the time investors discover they have a case, they are 
     already barred from the courthouse.

  Will the Senator yield me just 3 minutes?
  Mr. BRYAN. I will be pleased to yield to the distinguished ranking 
member such time as he needs.
  Mr. SARBANES. Mr. President, what is the time situation?
  The PRESIDING OFFICER (Mr. D'Amato). The Senator from Nevada has 
14\1/2\ minutes; the Senator from Minnesota has 30 minutes 27 seconds.
  Mr. SARBANES. I will defer and let the Senator from Minnesota proceed 
before we use the time on this side.
  Mr. GRAMS addressed the Chair.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Mr. GRAMS. Mr. President, I rise in opposition to the amendment 
offered by the Senator from Nevada. In Lampf versus Gilbertson, the 
U.S. Supreme Court established the period of time in which attorneys 
may file claims under the implied right of action found in 10b-5, and 
that was 1 year after the plaintiff knew of the alleged violation and 3 
years after the alleged violation occurred.
  While critics of this legislation have seized upon the statute of 
limitations as a wedge to defeat this important reform measure, they 
have failed to present a convincing case of why this period should be 
extended. In the years since the Lampf decision, we have not seen a 
surge in the number of actions dismissed because of the limitation 
period. Instead, the evidence points to just the opposite conclusion. 
Since the Lampf decision, we have witnessed an increase in the number 
of complex claims filed within days, even hours, after a movement in 
the market.
  Plaintiffs with meritorious claims have more than enough time to file 
their claims, but, unfortunately, so do strike suit attorneys. There 
are a number of reasons, however, why the current statute of 
limitations should be preserved. For example, a longer period of 
limitations makes it more difficult for innocent defendants to defend 
themselves in court. As a result, strike suit attorneys will have an 
easier time forcing these defendants into exorbitant settlements.
  These settlements, by the way, rarely benefit any real injured class 
of investors. They simply go to enrich an attorney and, worse, the 
result of these settlements are higher prices for consumers, lost jobs 
for workers, and a weaker economy. In other words, consumers lose, it 
is the workers who lose, victims of real valid securities fraud actions 
lose--everyone loses, again, except for the attorneys.
  S. 240 is designed to reverse this trend, to weed out the frivolous 
litigation that robs consumers of their hard-earned dollars, to make it 
easier for innocent parties to defend themselves against meritless 
charges, to free our economy from the litigation bonanza that has made 
us less competitive in the global marketplace.
  If the Senate adopts this amendment, it will do the opposite, and we 
will do a major disservice to the people we represent.
  Again, for these reasons, I urge my colleagues to reject this 
amendment.
  The PRESIDING OFFICER. Who yields time?
  Mr. SARBANES. Will the Senator from Minnesota yield for a question?
  Mr. GRAMS. Yes.
  Mr. SARBANES. The chart that the Senator from Nevada put up back 
there indicates that there was no major number of lawsuits filed 
subsequent to the Lampf decision. I do not know where, in fact, the 
highest figure preceded the Lampf decision. As I understand it, that 
was 315, and since then, it is now 290. On what basis does the Senator 
make the assertion that following the Lampf decision there was an 
upsurge in the number of cases filed?
  Mr. GRAMS. Well, I hate to differ, but the statistics, according to 
some of the research that we have done, do not correspond with the 
statistics that the

[[Page S9065]]

Senator from Nevada has produced. So we still maintain that the 1 and 
3----
  Mr. SARBANES. These figures, as I understand it, are from the 
Administrative Office of the U.S. Courts. What figures is the Senator 
using? What are they, and where do they come from?
  Mr. GRAMS. I was talking with my staff, and that is according to the 
SEC and, I guess, also the Judicial Conference begs to differ with the 
numbers that the Senator from Nevada presented. I also wanted to 
comment on what the Senator from Connecticut had mentioned in talking 
about the new technologies and the speed with which things are done and 
the complexity of the programs.
  That also gives an advantage to those who are able to find fault, or 
to find fraud, or to find these problems and have a real advantage then 
in trying to file these claims within a year or within the 3 years. So 
the technology has probably worked in favor of those, as well as 
against them. And this timetable, if I am not mistaken, was adopted in 
1934, and has served those years since. That would also provide 
adequate time. The main thing is that it would weed out the frivolous 
lawsuits and, as the Senator from New York pointed out, even if these 
time periods elapse and real fraud is found, they can still be 
rectified in the courts.
  Mr. SARBANES. How would they be rectified in the courts if the 
statute of limitations had run? That is the whole problem. See, the 
people who file a----
  Mr. GRAMS. The SEC would be able to bring the suits.
  Mr. SARBANES. The people who file the frivolous suits, by the 
Senator's own statement, would file them within the 1-year period. He 
was just complaining about that, and he said subsequent to Lampf, the 
numbers jumped because they were doing exactly that. Our numbers do not 
show that.
  In fact, the SEC used these numbers when they testified before the 
committee in 1993. But the frivolous suits, the persons that are doing 
these things with a cookie-cutter, they can file them within the 1-year 
period. The people that are going to be blocked out by the 1 and 3 
requirement are people who really have reasonable claims and do not 
find out about them. By definition, there is a lot of deception that 
goes on here, and a lot of people with meritorious claims are going to 
be blocked out by the failure to adopt this 2 and 5-year amendment, 
which I think is a very constructive proposal.
  Mr. GRAMS. I wanted to make one note, that all these what we would 
consider frivolous lawsuits are not filed within hours, but some wait 3 
to 5 years, requiring businesses to produce even more records, which 
would make it even more expensive to debate or fight this in court.
  Mr. BRYAN. Would the Senator yield for a question?
  Mr. SARBANES. Mr. President, what is the time situation?
  The PRESIDING OFFICER. The Senator from Maryland has 14 minutes 15 
seconds, and the Senator from Minnesota 23 minutes.
  Mr. SARBANES. Is this colloquy on the time of the Senator from 
Minnesota?
  The PRESIDING OFFICER. Yes. Who yields time?
  Mr. GRAMS. I will yield to the Senator from Nevada for a question.
  Mr. BRYAN. If I might inquire of my good friend. The Senator from 
Minnesota made the point that a 2-year statute of limitations will help 
investors and disadvantage lawyers. If that were the case, I would 
argue on behalf of his position. But if in his State of Minnesota, or 
in my State of Nevada, an innocent victim of fraud, because of the 
cleverness of the perpetrator of the fraud, does not discover that 
fraud until after 3 years from the date of its occurrence, would not 
the Senator agree that, in that situation, the investor recovers not at 
all? The SEC can bring an action, but it is not brought to recover on 
behalf of the investor. The investor may be penalized civilly or 
criminally, but the recovery is not on behalf of the investor. I would 
be interested in the Senator's response.
  Mr. GRAMS. Sometimes all the cleverness is not on behalf of the 
defendant but on behalf of the plaintiff who is bringing the suit. This 
is basically the attorney. So I believe that with the speed and 
technology, this always can be a debate or an argument of who benefits 
most from that. But I do believe that in the far majority of the cases, 
the plaintiff has adequate time, and in the serious cases where real 
fraud has been perpetrated by such a company, would always have an 
opportunity, if I am not mistaken, for the SEC to bring legal action.
  Mr. SARBANES. If the Senator will yield on that point, the SEC can 
bring action against the bad actor to punish the bad actor, but that 
action would not recover the damages for the innocent investor. I ask 
the Senator from Nevada, is that not correct?
  Mr. BRYAN. That is the point.
  Mr. SARBANES. For the private party to recover the damages, the 
private party must bring this suit. So your private party would be 
left, in effect, holding the bag.
  Mr. GRAMS. I was just advised that the plaintiff can recover from the 
disgorgement fund if this were the case.
  Mr. BRYAN. If the Senator might answer one other question about 
frivolous litigation----
  The PRESIDING OFFICER. Does the Senator yield on his time?
  Mr. GRAMS. Yes.
  Mr. BRYAN. If I might engage in a continuing dialog, we all agree--
and there is no disagreement--with respect to taking the appropriate 
action against the frivolous lawsuits, as I have commended the chairman 
of the Banking Committee. There are provisions in there that I agree 
with, as do the Senator from Minnesota and the Senator from Maryland, 
with respect to the sanction provisions under rule 11. But I must say--
and I ask the Senator this--when you have the SEC, the Securities and 
Exchange Commission, the State Securities Administrators, the North 
American Association of Securities Administrators, you have the State 
Government Finance Officers, the local government finance officers, all 
of whom advocate the 2- and 5-year statute, is it the Senator's view 
that they are advocating that on behalf of the Nation's trial lawyers 
as opposed to the public? Unless there is a conspiracy I am not aware 
of, I would be interested in the Senator's response.
  Mr. GRAMS. I think as you noted in your colloquy, there have been 
arguments on both sides. And in weighing the differences in those two 
arguments, you might agree with the group that you have just mentioned. 
But I also agreed with some of the others and agree that the 1 and 3 
still provides adequate protection.
  Mr. BRYAN. I respect the response of the Senator. I yield the floor, 
reserving the remainder of my time.
  The PRESIDING OFFICER. Who yields time?
  Mr. SARBANES. What is the time situation?
  The PRESIDING OFFICER. The Senator from Nevada has 14 minutes 15 
seconds.
  Mr. SARBANES. Will the Senator yield 4 minutes?
  Mr. BRYAN. The Senator from Nevada will be happy to yield 4 minutes.
  Mr. SARBANES. I thank the Senator.
  Mr. President, first of all, I want to have printed in the Record a 
letter from the American Bar Association expressing its opposition to 
S. 240, and stating:

       In its present form the ABA opposes S. 240 since many of 
     the provisions of the legislation would dramatically reduce 
     the protection now afforded shareholders who are defrauded. 
     The ABA agrees that some adjustments to existing procedures 
     and securities class actions are warranted.

  They are making a very important point. I say to my distinguished 
colleagues, I hear the assertions, the people proposing the amendments 
want no changes made. That is not the case.
  From the very first in this debate, we agreed to the proposition that 
some changes needed to be made. The question now is, what changes, how 
far? We are trying to cut back on the excesses.
  Here is a letter--and many others I have quoted take exactly the same 
position--which concludes by saying, urging us:

       . . . to amend many of the proposals in S. 240. Instead of 
     accomplishing the laudable purposes that the proponents 
     assert, the legislation in its present form will have a 
     fundamental negative effect upon private enforcement of the 
     securities law which is an essential and effective ingredient 
     to maintaining the integrity of our markets.

  Mr. President, I ask unanimous consent that the full text of the 
letter be printed in the Record at the end of my statement.

[[Page S9066]]

  The PRESIDING OFFICER (Mr. Grams). Without objection, it is so 
ordered.
  (See exhibit 1.)
  Mr. SARBANES. Mr. President, I very strongly support the amendment 
offered by the Senator from Nevada. I think it is important to restore 
some balance to this bill.
  The statute of limitations governs a period of time that an investor 
has to bring a securities fraud lawsuit. If it is not brought within 
that period of time, it cannot be brought at all, no matter how valid 
the claim is.
  So, it is very important to understand the impact the statute of 
limitations will have upon all suits. It is being portrayed here as 
impacting only frivolous suits. It will, in fact, impact all suits, 
including meritorious suits.
  For over 40 years, the courts held that the statute of limitations 
for security fraud actions is the State statute of limitations 
determined by analogous State law. While these statutes varied, they 
afforded securities fraud victims sufficient time, generally speaking, 
to discover fraud and to file suits. More than 60 percent of the States 
had statutes of limitations longer than what has now been provided in 
the Lampf case and that is in this bill.
  That was a 5-to-4 decision, that the lawsuit must be brought within a 
year after learning of the fraud, and in no event, more than 3 years 
after it takes place, even if you do not know about it --even if you do 
not know about it.
  There are two standards. One, you know; how soon must you bring your 
suit? The other is, you do not know about it; how many years must 
transpire before you are closed out? If you find out about it 7 years 
later, even under the old statute of limitations, well, it is too long. 
Now that is being cut from 5 to 3 years.
  The time period in this bill is shorter than the statute of 
limitations for private security actions under the law of 31 of the 50 
States. Security law experts say the statute of limitations imposed by 
the Supreme Court is too short. It does not provide investors with 
enough time to discover a fraud and then to file a lawsuit.
  I quoted earlier a quote from Chairman Breeden, in which he said that 
it could ``well mean that by the time investors discover they have a 
case, they are already barred from the courthouse.''
  As my distinguished colleague from Nevada has pointed out, not only 
the SEC but State securities administrators and the FDIC have all 
agreed that the shorter period as reflected in this legislation does 
not allow individual investors adequate time to discover and pursue 
violations of securities law. In fact, the State securities regulators 
said about the shorter statute of limitations, that it:

       . . . effectively forecloses any means of recovery for 
     defrauded investors whose only mistake may be to not discover 
     a concealed fraud.

  We are talking about people who are the victims of fraud. Their only 
mistake is they have not discovered this concealed fraud.
  I want to commend Senator Bryan for offering this amendment. It is a 
matter he has pursued before. In fact, it was without opposition, 
adopted as an amendment to a banking bill in 1991. Many here thought it 
was important. In fact, this bill, as initially introduced by Senator 
Domenici and Senator Dodd, contained this provision. In fact, it was 
put right in the title:

       To amend the Securities and Exchange Act of 1934 to 
     establish a filing deadline.

  Obviously, it was regarded as an important matter, since it was put 
front and center.
  As I indicated, the objective, independent parties have all testified 
that the 2 and 5 years is the standard that we ought to have. The 
Government Finance Officers Association wrote:

       Wrongdoers would be let off the hook by a shorter statute 
     of limitations.

  Mr. President, I very strongly support this.
  Let me close with this observation: Extending the statute of 
limitations has nothing to do with frivolous cases. It will allow 
individual investors more time to bring legitimate cases, time they 
need, because fraud artists often conceal their fraud. The experts in 
this area, the securities regulators, know more than anyone about 
bringing securities fraud cases. They have been supportive of the 
proposition being offered by my distinguished colleague from Nevada.
  I very much hope my colleagues will support this amendment. I yield 
the floor.

                               Exhibit 1

                                         American Bar Association,


                                  Governmental Affairs Office,

                                  Washington, DC, June 26, 1995.  
     Hon. Christopher J. Dodd,
     Committee on Banking, Housing and Urban Affairs, U.S. Senate, 
         Washington, DC.
       Dear Senator Dodd: I write on behalf of the American Bar 
     Association concerning legislation entitled Reform of Private 
     Securities Litigation--S. 240--presently before the United 
     States Senate. In its present form the ABA opposes S. 240 
     since many of the provisions of the legislation would 
     dramatically reduce the protection now afforded shareholders 
     who are defrauded.
       The ABA agrees that some adjustments to existing procedure 
     in securities class actions are warranted. Legislative 
     amendments which require full disclosure of settlement terms, 
     promote finality in settlements and encourage voluntary and 
     non-binding ADR foster those goals without sacrificing the 
     integrity of our markets and the interests of public 
     investors. Accordingly, we support provisions of S. 240 which 
     contain such reforms.
       The ABA's concerns are directed to those provisions in 
     proposed legislation which would, in effect, eviscerate the 
     remedy which makes the capital market in the United States 
     the envy of the world. In particular, we oppose the ``Loser 
     Pays'' provisions, the change in the long-standing principle 
     of joint and several liability, and the expanded ``safe-
     harbor'' which will not protect even fraudulent forward 
     looking statements. In addition, we oppose the mandating of 
     heightened requirements for pleading scienter, and mandatory 
     stay of discovery when a motion to dismiss is filed, the 
     limitations on discovery even after a complaint has been 
     sustained, and the limitation to a single amendment to a 
     complaint in a securities class action.
       The legislation detailed above, if enacted, would not 
     simply, as proponents assert, prevent frivolous litigation. 
     It would dramatically undermine the ability of public 
     shareholders who have been injured through violations of the 
     federal securities laws to achieve redress. In our view, the 
     federal class action for securities fraud remains a vital and 
     necessary component of the federal regulatory scheme. 
     Moreover, the present trend in the case law to eliminate 
     frivolous claims and to ensure adherence to relatively 
     stringent pleading and proof requirements, calls into 
     question the need for many of the provisions of S. 240.
       At a minimum, any proposed changes to Federal rules of 
     Civil Procedure should follow the Rules Enabling Act in which 
     Congress specified such changes will go to the Judicial 
     Conference of the United States which receives input from the 
     public, the bench and the bar. The need for this review by 
     the Judicial Conference is particularly compelling given the 
     provisions of the legislation which seek to have different 
     pleading, proof and discovery rules for federal securities 
     fraud cases, a dramatic departure from the uniform approach 
     to all claims taken by the Federal Rules of Civil Procedure 
     ever since their enactment in 1937.
       The reasons for our objections to particular provisions of 
     S. 240 are detailed below:


                 modified ``loser pays'' under rule 11

       The requirements of Section 103 (a) and (b) requires the 
     court (i) to make specific findings on compliance by all 
     parties and all attorneys with regard to each requirement of 
     Rule 11(b) and (ii) mandating sanctions for any violations. 
     The court is also directed to presume that the appropriate 
     sanction is reasonable attorneys' fees and expenses of the 
     opposing party. Although this presumption may be rebutted by 
     evidence that such sanctions would impose an undue burden on 
     the violator, we agree with Chairman Levitt of the SEC that 
     this section ``may have the unintended effect of imposing a 
     `Loser Pays' scheme''.
       The in terrorem effect of such a change in the law will 
     largely close the Federal courts to securities class actions 
     including the most meritorious of cases because the vast 
     majority of litigants are unable to run the risk of being 
     forced to pay for the other side's fees. The merits of 
     litigation are rarely, if ever, clear at the outset and what 
     is one side's clearly meritorious case is often the other 
     side's frivolous litigation. Thus, in the absence of 
     assurances from counsel, which counsel will be unable to 
     provide, all but the very wealthy likely will be prevented 
     from bringing a securities action in Federal court and no one 
     likely will ever bring a class action.
       If any ``Loser Pays'' provision is enacted, securities 
     class actions in the federal courts will largely become a 
     thing of the past, and private securities litigation in 
     general may all but disappear, except for disputes between 
     wealthy adversaries. The resulting loss in accountability, 
     investor confidence, and the proper functioning of our 
     capital markets would be wholly against the public interest. 
     A major deterrent to corporate wrongdoing would be lost. This 
     cannot be the desire of Congress and we urge you to reject 
     these proposals.

[[Page S9067]]




          excessive safe harbor for forward looking statements

       S. 240, in Section 105, adopts a sweeping exemption from 
     fraud liability for forward looking statements by including a 
     scienter standard which, in the words of Chairman Levitt of 
     the SEC, ``may be so high as to preclude all but the most 
     obvious frauds.'' S. 240 should be amended to assure that 
     there is no safe harbor for a forward looking statement that 
     is materially false or misleading.


                 ending of joint and several liability

       The ABA strongly supports the existing joint and several 
     liability principles of today's laws. As SEC Chairman Levitt 
     stated, ``[t]he Commission has consistently opposed 
     proportionate liability, because [u]nder the existing system 
     of joint and several liability, the solvent defendants [in 
     cases where one of the wrongdoers in insolvent] must bear the 
     share of the bankrupt defendants. Under a system of strict 
     proportionate liability, the defrauded investors would be 
     required to absorb the loss.'' As he elaborated: ``although 
     the traditional doctrine of joint and several liability may 
     cause defendants to bear more than their proportional share 
     of liability in particular cases, this is because the current 
     system is based on equitable principles that operate to 
     protect innocent investors. Joint and several liability is 
     based on the equitable principle that, as between defrauded 
     investors and defendants who are found to have knowingly or 
     recklessly participated in a fraud, the risk of loss should 
     fall on the latter. The goal of ensuring that defrauded 
     investors are fully compensated for their losses, in other 
     words, overrides any distinction based on the relative 
     culpability of the defendants. . . .
       S. 240 should therefore be amended to restore the joint and 
     several liability princples.


   pleading and discovery, and limitations on amended pleadings and 
                               discovery

       S. 240 mandates a number of procedural requirements none of 
     which have serious merit and all of which represent a 
     violation of the procedures established by the Rules Enabling 
     Act. Simply put, the cumbersome nature of these proposals and 
     their unintended consequences demonstrate anew why the far 
     more thoughtful process established by Congress in the Rules 
     Enabling Act ought to be followed here.
       Rule 23 contains ample safeguards today to assure that 
     named plaintiffs adequately represent the class and their 
     lawyers pursue the cases vigorously. The new pleading and 
     discovery proposals of S. 240 are troublesome in that for the 
     first time under the Federal Rules special requirements are 
     established for a particular class of cases. Moreover, the 
     proposals contradict the present Rule 9(b) of the Federal 
     Rules of Civil Procedure. Given the evidence that courts are 
     already enforcing heightened pleading requirements today, the 
     proposal is not only mischievous but unnecessary. The last 
     thing Congress should be endorsing is the dismissal of 
     meritorious cases at the pleading state. The pleading 
     standards in S. 240 require a plaintiff to plead the ``state 
     of mind'' of each defendant, which is impossible to do prior 
     to any discovery.
       Finally, the limitations on the ability of plaintiffs to 
     amend their pleadings and to pursue discovery while 
     undoubtedly having the effect of preventing frivolous claims 
     from going forward, also has the pernicious effect of barring 
     claims with substantial merit. It is only through significant 
     discovery and repleading that these important claims get 
     adjudicated, an unlikely result if these proposals are 
     adopted.
       In sum, the American Bar Association urges you to amend 
     many of the proposals in S. 240. Instead of accomplishing the 
     laudable purposes that their proponents assert, the 
     legislation in its present form will have a fundamental 
     negative effect upon private enforcement of the securities 
     law, which is an essential and effective ingredient to 
     maintaining the integrity of our markets.
           Sincerely,
                                                  Robert D. Evans.

  Mr. D'AMATO. Mr. President, the question before us, on the statute of 
limitations, is an interesting one.
  I think we really have to ask whether or not you really cannot 
discover a fraud in the 3 years?
  Now, there have been some Ponzi schemes and other schemes that have 
gone on and worked for a long time. There have been some fraudulent 
investment practices at large, very well respected, institutions, where 
it has taken a period of time for people to bring them to the bar. In 
those cases, I suggest that it has been the SEC who has brought these 
cases. They have done it because people have broken the law, people 
have committed fraud. They have not filed specious, frivolous suits.
  That does not mean every time they bring a suit, the are right; but 
more often than not, they are. Indeed, where people have defrauded 
investors and have made profits unfairly, the SEC has been quite 
successful in gaining penalties and fines, and in some cases 
disgorgement of those ill-gotten gains. Again I state that the SEC is 
not precluded by the statute of limitations. In the Prudential case the 
SEC got $660 million in disgorgement. The wonderful thing is that when 
the SEC recovers in a case those moneys go to the people who have been 
victimized. It is not a case where they recover pennies on the dollar.
  If we look at most of the successful cases that have not been brought 
by the SEC, the cases brought by the private sector bar, they literally 
recover pennies, pennies on the dollar of lost investment. As a matter 
of fact, there have been a series of articles that after these cases 
have been settled--most of these cases end in settlements being made--
the people who the lawyers settle on behalf of get literally nothing, 
in some cases box tops, or the ability to receive even more products 
that they do not want. They say, ``What was this? What did I gain from 
this suit?'' But, the lawyers got millions and millions of dollars.
  We are really here making a statement, saying, we will put into law 
what the Supreme Court, in its wisdom, feels is right. Of course we 
have a right to disagree, but they said 3 years is plenty of time in 
which to discover that fraud; 1 year after the time of discovery and I 
agree.
  Let me raise a question. Why should it take 2 years to bring a 
lawsuit after the time of discovery?
  Mr. SARBANES. Will the Senator yield?
  Mr. D'AMATO. Why, after 1 year upon discovery, can you not bring a 
suit?
  Mr. SARBANES. Will the Senator yield on that point?
  Mr. D'AMATO. I am happy to yield. But on my colleague's time, because 
we are pretty much even now. I have done that deliberately, evened it 
up.
  Mr. BRYAN. I yield such time as the Senator needs.
  Mr. SARBANES. As I understand it, the Senator from Nevada said it 
takes the SEC 2.2 years from the time they start working on it to bring 
the case. So if it takes the SEC 2.2 years, I do not think it is 
unreasonable that a private party ought to have 2 years.
  The SEC cannot recover. The disgorgement which the Senator made 
reference to is only for illegal gains that a party realizes. Then you 
can force them to disgorge it. They may not have illegal gains, or the 
disgorgement may not be enough to pay the private parties. The private 
party suit goes against the wrongdoer with respect to all of their 
assets. The disgorgement only gets at some bonanza which they have hit 
upon which you force them to give back and then you can allocate that 
out. That does not begin to cover the problem of the plaintiff 
recovering.
  But, in any event, on the particular point, the SEC takes 2.2 years. 
I do not think it is unreasonable to give private parties 2 years to 
bring their suit.
  Mr. D'AMATO. If I might, the point is, if after the discovery of a 
fraud it takes more than a year to bring that case I think we are just 
really holding captive and in bondage, so to speak, a small business 
entrepreneur who is the possible plaintiff of a suit. Also, I think 
that the SEC does not take 2.2 years to bring that case; but I believe 
to finish that case; not to just investigate that case.
  Let me suggest that, extending the statute of limitations makes it 
possible to hold this sword of alleged fraud over someone; I have found 
it or someone will find it. Instead of bringing a case within a year 
they dangle it over the company for 18 months, 2 years, attempting to 
get a settlement, then maybe file the papers just before that 2 years 
is up--I do not think we want to do that. How is that advancing the 
cause of justice?
  If there is wrongdoing this Senator wants to see the people who have 
undertaken that wrongdoing punished. I want to see their illegal 
profits given back. And again, there is a procedure whereby those who 
have gotten ill-gotten gains who have profited by defrauding others can 
be brought to justice by the Securities and Exchange Commission. And 
the SEC has used that authority. They have done it in the case of 
Prudential, and, I daresay, that in other cases where outrageous 
practices have taken place they will continue to bring suit.
  Mr. President, what we are seeking here is a balance. I think to 
basically double the statute of limitations will not bring about the 
kind of balance we are looking for. I think it would be a mistake.

[[Page S9068]]

  Again, this Senator has been willing to look at this question 
carefully but I think the overwhelming body of opinion in the business 
community, in the legal community, and in the Congress, is that 3 years 
is a sufficient period of time given the fact that the SEC has 
authority to bring suit.
  By the way, there may be cases that the SEC should not undertake, 
which it does, but there is the difference. I have some trust in them. 
I do not have any trust in the entrepreneurial spirit of a handful of 
lawyers who have managed to hold captive, to a certain extent, 
legitimate business activities in this country. When the accountants of 
this country are placed in the position that some of them may go out of 
business because of the incredible liability that they face in 
practicing their profession as a result of these type lawsuits, then it 
is time to say, ``Enough is enough. We have to change this.''
  That is what we are attempting to do with this legislation, and that 
is why the 1 and 3 years statute of limitations is the provision we 
used. I recognize reasonable people may disagree, but I hope I have 
been able to lay out the methodology and the motive, for why we have 
chosen what we think is a fair balance. One year from the time the 
fraud is discovered, 3 years from the time the fraud has been 
committed; I think that is very, very reasonable.
  I yield the floor.
  Mr. BRYAN. May I inquire of the Chair, how much time remains?
  The PRESIDING OFFICER. The Senator from Nevada has 4 minutes and 45 
seconds remaining. The Senator from New York has 12 minutes and 7 
seconds remaining.
  Mr. BRYAN. Mr. President, it is my understanding that a motion will 
be made shortly to seek unanimous consent, to which I have no 
objection, to have the rollcall begin at 5:30. If in fact the Senator 
from Nevada is correctly informed of that, I inquire of the 
distinguished chairman of the Banking Committee whether he would be 
agreeable to providing a little additional time for us to engage in 
discussion?
  Mr. D'AMATO. May I ask if my colleague might like an additional 15 
minutes or half-hour equally divided?
  Mr. BRYAN. That I would think would be fair. If we do not need it 
all, we can yield it back.
  Mr. D'AMATO. Mr. President, I ask unanimous consent we be given an 
additional 30 minutes to debate, 15 minutes on each side.
  The PRESIDING OFFICER. There is about 15 minutes remaining in the 
debate.
  Mr. D'AMATO. I am asking an additional 15 minutes and extend the time 
for voting an additional half-hour.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Nevada.
  Mr. SARBANES. Mr. President, will the Senator yield for just a 
moment?
  Mr. BRYAN. The Senator from Nevada will be happy to yield.
  Mr. SARBANES. Will the Chair indicate the parliamentary situation for 
us now?
  The PRESIDING OFFICER. Will the Senator repeat the question, please?
  Mr. SARBANES. Will the Chair repeat the parliamentary situation now?
  The PRESIDING OFFICER. There was just consent given for an additional 
30 minutes of debate.
  Mr. SARBANES. Equally divided?
  The PRESIDING OFFICER. Equally divided, 15 minutes for each side.
  Mr. D'AMATO. That would bring us to 5:45.
  Mr. SARBANES. Then when would the vote occur?
  Mr. D'AMATO. At 5:45.
  The PRESIDING OFFICER. Right, under the time that was just consented 
to, it would be at 5:45.
  Mr. SARBANES. As I understood the request, it was to move the vote to 
5:30 and have half an hour equally divided. The vote is now scheduled 
for 5:15, is that correct?
  The PRESIDING OFFICER. The request was for an additional 30 minutes 
of debate time and there was 15 minutes remaining on the clock between 
the two sides, so that would now give 45 minutes debate remaining, 
equally divided between both sides.
  Mr. SARBANES. That was not my understanding.
  Mr. BRYAN. Mr. President, if I might?
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. BRYAN. If I misspoke myself I apologize.
  What I was seeking to do was to get a combined 30, which was the time 
that, as I understood it, the vote was to occur, and the use of 
additional time. I am not trying to preclude my friend from New York 
from exercising the full amount of his time.
  Mr. D'AMATO. Mr. President, might I ask that the two votes that are 
scheduled after the Bryan vote be limited to 10 minutes each?
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SARBANES. When will the first vote occur under this request?
  The PRESIDING OFFICER. According to the unanimous-consent agreement, 
it would be at 5:45.
  Mr. SARBANES. The subsequent two votes would be 10 minutes each; is 
that correct?
  The PRESIDING OFFICER. That is correct.
  Mr. SARBANES. The time between now and 5:45 will be divided equally?
  The PRESIDING OFFICER. The additional time is divided equally. The 
Senator from Nevada would now have 16 minutes and 57 seconds; the 
Senator from New York would have 28 minutes and 1 second. But the 
additional 30 minutes was equally divided between the two sides.
  Mr. BRYAN. Mr. President, again, I think I created some confusion. I 
apologize. It was my intent to get additional time but to begin our 
voting at 5:30. The reason I say that to my friend from New York is to 
try to accommodate him. I intend to offer several amendments this 
evening. I think the sooner that we get to those probably the better 
off we are.
  So somehow the state of the Record might reflect that whatever time 
the Senator needs, I would like a little bit more time, and start 
voting at 5:30. It is not my intent by some parliamentary artifice to 
reduce or limit his time. But I need a little bit more time. That is 
why I was requesting that be done in that fashion.
  Mr. SARBANES. Mr. President, I think maybe we can work this out if we 
begin the vote at 5:45, and divide the time between now and then 
equally and make the two votes after the first vote 10-minute votes.
  Mr. D'AMATO. I have no objection.
  The PRESIDING OFFICER (Mr. Abraham). Is there objection? But the time 
is still not divided equally with the 45 minutes remaining.
  Mr. D'AMATO. Let me ask that the time from this time on be divided 
equally; that both sides start off with the same time, and we commence 
our first vote at 5:45.
  Mr. SARBANES. And then the subsequent two votes will be 10-minute 
votes.
  The PRESIDING OFFICER. Is there objection? Without objection, it is 
so ordered.
  The PRESIDING OFFICER. Who yields time?
  Mr. BRYAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. BRYAN. Mr. President, I think this has been an interesting and a 
constructive debate.
  Let me just say that this is an issue that I know is dry as dust, but 
I think it is important to point out that across the country there is 
some understanding that we are not just talking about legalisms, and 
what we are about to do will have a serious impact on millions and 
millions of Americans.
  I invite my colleagues' attention to a number of editorial responses 
from across the United States, from a broad number of newspapers, not 
regionally focused, not philosophically on one side, but I think a 
broad spectrum. They raise very, very legitimate concerns about S. 240 
in its present print.
  The Miami Herald, ``License to Steal''; the Bergen County Record, 
``Protection for Con Artists''; the News & Observer, ``Safe Harbor for 
Fraud''; the New York Times, ``Protection for Corporate Fraud''; 
Jonesboro Sun, ``Bad Measure''; the Denver Post, ``Senate Bill Would 
Give Free Ride to Securities Fraud''; the Seattle Post-Intelligencer, 
``Securities Bill Hurts Investors''; the Napa Valley Register, 
``Securities Fraud Bill is a Fraud''; the Palm Beach Post, ``One Big 
Stock Swindle''; North Sioux City Times, ``Your Money At Risk''; the 
Seattle Times, ``Congress is Wrong to Limit Investor Suits''; Dayton 
Daily News, ``Securities `Reform' Bill Backwards''; St.

[[Page S9069]]

Louis Post-Dispatch, ``Don't Protect Securities Fraud''; Contra Costa 
Times, ``Shielding Securities Fraud''; Los Angeles Times, ``This Isn't 
Reform--It's a Steamroller''; and, again, the Palm Beach Post, ``Making 
the Nation Safe for Fraud.''
  So the notion that somehow this is an argument that only involves 
those who are involved as securities lawyers I think can misstate the 
scope and the concern of this provision.
  Let me say that if you look at the history of what has occurred since 
the last case in 1991, that issue was brought before the Congress. At 
that time, my good friend, the distinguished chairman of the Banking 
Committee, was a cosponsor with me in trying to extend the statute of 
limitations from 1 to 3 years, as that court decided the case, to 2 to 
5. The distinguished Senator from Connecticut was a supporter of that 
change, as well. He continues to support the 2-to-5-year statute of 
limitations.
  His very able cosponsor, the distinguished senior Senator from New 
Mexico, Senator Domenici, also expressed his support in 1991. The only 
concern the Senator had was that he felt that the statute of 
limitations issue ought not to be considered in an isolated sense. This 
is what he had to say on the floor of the U.S. Senate on November 19, 
1991.
  First, I am not opposed to the extension or retroactivity if we are 
able to attach some amendments that address the issues of attorney 
fees, who pays the cost for these various lawsuits which are going to 
be extended, all of which is done in S. 240.
  So we have those people who have been over the years most actively 
involved at one time or another, all of whom supported S. 240 with a 2-
to-5-year statute of limitations.
  Those who know the circumstances best, those who investigate fraud at 
the State level and at the Federal level, the North American Securities 
Administrators Association and the Securities and Exchange Commission, 
all say that one fact that is central to securities fraud is the 
cleverness of the defrauders in concealing their fraud. They have from 
time to time pointed out the Ponzi scheme, in which you do not know 
until at the very end that you have been a victim of a fraud; or 
municipal bond fraud, which has front loaded an escrow account in which 
payments are made for several years so the unwary investor is totally 
unaware that he or she has been defrauded. You have limited 
partnerships, in which those frauds are not detected for years, and the 
SEC itself saying that to conduct an investigation takes an average of 
2.25 years.
  That strikes me as a very persuasive argument for a 2-to-5-year 
statute of limitations.
  In addition, you have the State financial officers and local 
government financial officers. Now, I am not unmindful of the fact that 
accountants and securities underwriters and others do not like the 
longer statute of limitations, and they are obviously entitled to make 
their point. But I do not think it would shock anybody on the floor to 
suggest that their positions are tinged with self-interest.
  Who speaks for the public? The Congress of the United States ought to 
speak for the public. And those who represent the public interest in 
both Republican and Democratic administrations, the Chairmen of the 
SEC, each have expressed their support for a 2- to 5-year statute of 
limitations. State securities administrators, many of whom, I suspect, 
probably most, are appointed by Governors directly representing the 
people of their respective States, have also spoken in behalf of the 2- 
to 5-year statute of limitations. State financial officers, many of 
whom are directly elected by the people, others of whom may be 
appointed by the Chief Executive of the respective States, again 
representing the public interest, have expressed their support. And the 
same thing is true with local government financial officers.
  Mr. SARBANES. Will the Senator yield on that very point?
  Mr. BRYAN. The Senator would be happy to yield.
  Mr. SARBANES. In just yesterday's New York Times an article appeared 
written by Mark Griffin, the director of the Utah Securities Division. 
He is a board member of the North American Securities Administrators 
Association, which comprises the 50 States' securities regulators. In 
fact, he is the chairman of the Securities Litigation Reform Task Force 
and testified in front of our committee, and I think, in fairness, all 
members of the committee would agree that he was a very rational, 
thoughtful witness. Now, he in this article, in which he takes a very 
strong position, says, ``The securities litigation bill is reform in 
name only.'' But on this very point that the Senator is now arguing, 
having addressed other provisions of the bill that he thought were 
deficient, he said, and I quote him:

       Perhaps the clearest sign, however, that the bill's 
     proponents have sold middle class investors down the river is 
     their refusal to lengthen the time in which consumers can 
     bring cases to court. The current rule derives from a 1991 
     Supreme Court decision that created a statute of limitations 
     for Federal securities law cases of 1 year from discovery of 
     a misdeed or 3 years from the commission of the act in 
     question. This represented a serious reduction in the time 
     available for such lawsuits since Federal courts previously 
     had relied on State standards for statute of limitations. 
     Currently 31 States permit longer than the 1 and 3 standard 
     for the filing of State securities cases.

  And then he closes this discussion on this very point with this 
question:

       What possible case can the backers of this bill make for 
     keeping the time limit as short as possible so that future 
     swindlers who cover their tracks carefully will get off the 
     hook for good?

  Mr. President, this is not a party to the issue. This is not someone 
who has a vested economic interest on one side or another of this. This 
is a State director of the State securities division.
  I thank the Senator for yielding.
  Mr. BRYAN. I think the Senator makes a very compelling point, and I 
think he speaks on behalf of the Nation's security regulators at the 
State level. And that view is shared by his counterpart at the Federal 
level.
  I would yield the floor and reserve the remainder of my time.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. Mr. President, I think we just have a fundamental 
difference of opinion. There are those people who advocate extending 
the period of time to 5 years to detect fraud. To them I say, look at 
the sophistication to study markets and to review documents that we 
have today. Given the ability to learn more about a company, more about 
its activities, given all of the information that is available, I think 
that extending the statute of limitations gives this group of hawks--
that is a kind word; more descriptive would be ``vultures''--who look 
at every turn to seize an opportunity to bring suit, not on behalf of 
the poor or the downtrodden but on behalf of themselves, too much time 
and opportunity to find something with which to bring a frivolous suit. 
There is a page in the Committee report on S. 240 which quotes a lawyer 
who talks about his clientele. He is one of those lawyers who brings 
these meritless suits, and he describes it.
  I do not pretend, nor do I suggest at all, all lawyers operate in 
this manner, because they do not. That would be wrong. That would be a 
disservice. But a sufficient number operate in this way in this 
particular area. I have asked if we could get some figures on this. It 
would be very interesting to ascertain, for example, in the second 
circuit, where one law firm in particular brings all these suits, how 
many of the plaintiffs are the same. I mean, they are the same people 
and they own almost no stock whatsoever--sometimes as little as 10 
shares each. They just get shares in every company. And if stock in 
that company goes up or down--even if it goes up--then they sue. They 
say: You did not tell us; you withheld information from us; and we 
should have known; and I am injured. They sue, and they get paid. They 
get paid for loaning their names. These lawyers, these same lawyers pay 
these individuals. This one lawyer said--I do not want to give the 
wrong name:
  ``I have the greatest practice of law in the world,'' this one lawyer 
said. He acknowledges once telling a meeting of corporate directors--
imagine telling this to a group of corporate directors--``I have the 
greatest law practice in the world.'' And why? Why? Senator Boxer talks 
about the aged, the sick, the infirm, the poor investors, here is what

[[Page S9070]]

he thinks about them. Here is what he thinks about them; he said, ``I 
have no clients.''
  He is operating for himself. He is just looking to make money, pile 
it up. Here it is on page 6 of the committee report, which has been 
submitted, ``Report of the Committee of Banking, Housing and Urban 
Affairs,'' I knew it was here because I did read it. The comment by one 
plaintiff's lawyer:

       I have the greatest practice in the world. I have no 
     clients.

  ``William T. Barrett, `I have no clients,' Forbes, October 11, 
1993.'' The fellow's name was Bill Barrett. Mr. Barrett was a partner 
in the law firm that brings most of these suits perhaps even more than 
anybody else. And he is proud of that. He is proud of that.
  I do not think that is something to be proud about. If you want to 
say I recover on behalf of the little guy, and I take on those who have 
inveigled them and swindled them, I understand that. But when you brag: 
I have the greatest practice of law in the world--``I have no 
clients''--that is a heck of an admission.
  I do not want to give Mr. Barrett and those who practice with that 
kind of attitude an additional period of time to chum up the waters, to 
try to create situations, to try to look for that which does not exist. 
I will support them if they are bring cases that involve fraud 
absolutely, that involve deliberately giving misinformation, 
absolutely, but I will not support the creation of specious lawsuits, 
lawsuits that are not well grounded and only designed to shake down--
shake down--businesses, shake down insurers, shake down people, to make 
them pay.
  That is wrong, and we have got to stop it. The fact is we are paying 
billions of dollars out and consumers are paying because we have 
allowed this practice to continue, and it has become a very 
sophisticated art form. Look at the record. Just look at the record. 
Ninety-three percent of those cases are settled, and they are not 
settled because anybody was going to prove fraud. They are settled 
because a small company or even a large successful company cannot 
afford to carry that litigation on for many years; litigation that 
costs them millions of dollars. Even if they win, they lose.
  You heard my friend, Senator Dodd, bring up the case where the 
accounting firm was sued and won, they won the lawsuit. It cost them $6 
million to win. They were only paid on the initial contract $15,000. 
That probably epitomizes the worst of what takes place, but it takes 
place too often.
  Open the door longer? No, I do not see what benefit that would hold. 
And I really have a difficult time understanding, and I do not refer to 
my colleagues, those in the media who say we are trying to give a 
license to people to commit fraud. Why do they not wake up? They could 
not operate under the same standards that business does. They are given 
a shield. We are simply saying, in this legislation, that you ought to 
be able, if you discover the fraud within a year, to bring the suit. 
Why would you need 2 years?
  Now, it is true that at the Securities and Exchange Commission, once 
they have completed all their depositions; they go through very 
thoroughly; takes 2-plus years to bring suit.
  But in 2.2 years their suit is absolutely totally ready, they have 
laid the cupboard bare and have made all their discoveries, they use 
the power of their office to bring suit where there is fraud and they 
can recover for the investors. So, indeed, it may take them 2 years to 
completion. We are not saying somebody has to complete their lawsuit in 
2 years, but certainly, they should be able to start it within 1 year 
if they believe a fraud has really taken place. Extending it to 2 years 
just goes beyond the realm of reason.
  I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. BRYAN. Mr. President, may I inquire how much time remains?
  The PRESIDING OFFICER. On your side, 11 minutes 30 seconds, and 
Senator D'Amato has 12 minutes 56 seconds.
  Mr. BRYAN. I yield as much time as the Senator from Maryland desires.
  Mr. SARBANES. If the Senator will just yield me 3 minutes.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, I want to again commend the Senator from 
Nevada for offering this amendment. It is a very important amendment. 
This is an issue he has dealt with over the years with a great deal of 
attention and understanding and thought.
  The distinguished Senator from Nevada is, of course, a former 
Governor of that State, and prior to that the attorney general of the 
State of Nevada, and before that a member of the Nevada Legislature on 
the judiciary committee. So he has had experience in dealing with these 
issues, and I am sure out of his tenure as attorney general can 
appreciate what small investors come up against when they are 
confronted with these fraud situations.
  This provision to extend the statute of limitations does not reach 
the kind of horror examples that people on the proponents of this 
legislation are asserting.
  This statute of limitations issue affects meritorious suits as well 
as frivolous suits. There are other ways in the bill that we are trying 
to do away with the frivolous suits, to which the Senator from New York 
was just making reference. And, in fact, many of us trying to amend 
this bill have indicated that we support many of the provisions aimed 
at dealing with the frivolous suits. But we have to draw the line when 
the provisions are carried to excess, when you have overreaching and, 
in effect, you are negatively going to impact upon the small investor 
who has been bilked, who has been taken gross advantage of.
  This statute of limitations we previously dealt with here with 
relatively little controversy. As a matter of fact, most people, when 
we previously considered it, were supportive of the 2- to 5-year 
period, which is what the standard has been for 40 years under the 
securities laws, for 40 years.
  The 1- to 3-year standard that is now in this bill is shorter than 
what applies in over 60 percent of the States. If you know about the 
fraud, you ought to be able to bring a suit within a year. The SEC 
takes over 2 years to bring a suit once it knows about it. So I think 
it is unfair to expect the private party to meet a higher standard than 
you expect the Securities and Exchange Commission to meet with all the 
expertise and with all the resources that it has.
  The 3 years, in effect, says if you perpetrate a fraud and no one 
finds out about it and 3 years go by, you are scot-free.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. SARBANES. Will the Senator yield me 1 more minute?
  Mr. BRYAN. I will be pleased to.
  Mr. SARBANES. What that says is if you do a fraud, you are a fast 
operator, you perpetrate a fraud, and you manage to conceal it for 3 
years, that under this statute, you are then scot-free. What the 
distinguished Senator from Nevada is saying is that period at least 
ought to be 5 years.
  Some say why should it not even be longer and some States, in fact, 
have a longer period. The argument for having a statute of limitations 
generally speaking in the law is that at some point you want to have 
finality, you want to bring things to an end, you do not want to have 
always open the prospects of a lawsuit. So you try to have a reasonable 
statute of limitations. The one we have always used in this area now 
for more than four decades has been 5 years in terms of the period that 
could run in which you could then find out about the fraud.
  Now it is proposed to cut that back to 3 years. So if the fast 
operator can conceal and deceive his fraud for a 3-year period, then he 
escapes, he comes out scot-free.
  I say to my colleagues, I suggest to you this is a very meritorious 
amendment, and I very much hope the Members will support it.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO. How much time remains?
  The PRESIDING OFFICER. Twelve minutes fifty-six seconds.
  Mr. D'AMATO. I yield the Senator 5 minutes.
  The PRESIDING OFFICER. The Senator from Utah.


                           Amendment No. 1472

  Mr. BENNETT. Mr. President, I appreciate the opportunity to come--and 
I understand there will be stacked

[[Page S9071]]

votes--and talk on several amendments, one that was the subject of 
debate earlier. I asked my distinguished chairman if I could make a 
quick comment on it, and he agreed that might be appropriate.
  There is an article in today's Wall Street Journal that I think has 
bearing on the debate, today's news today, if you will, which says: 
``Big Accounting Firms Weed Out Risky Clients.''

       If you have a big-name auditor, hold on tight. It's getting 
     a lot tougher to find--and keep--prestigious outside auditors 
     to certify annual financial statements.

  The statement that I think is appropriate in this article, to this 
debate, referring to a partner at Peat Marwick, is where he talks 
about:

       When a client we audit goes bust . . . it costs us a bundle 
     in court if we're sued by investors, whether we win or lose 
     the case.
       Mr. Lambert says that legal costs are ``staggering'' for a 
     lawsuit filed in a Federal court in Texas alleging a faulty 
     review of a bank's books by Peat. The bank was taken over by 
     the Federal Government in 1992 after big losses. The jury 
     ruled in Peat's favor in 1993, but the firm had to spend $7 
     million to defend itself even though the fee for the job was 
     $15,000. Mr. Lambert says, ``We just can't afford to take on 
     risky audit clients anymore.''

  That is what will happen if we do not pass this legislation, Mr. 
President. People are going to be denied access to accountants, who 
will not run the risk of a $7 million legal fee, even when they are 
exonerated, for a $15,000 auditing fee. They will simply not be 
available, and the end that we are all seeking in this legislation, 
which is to protect investors, will be frustrated if the amendment 
dealing with the joint and several liability is adopted.
  Mr. SARBANES. Will the Senator yield on that point?
  Mr. BENNETT. I will be happy to.
  Mr. SARBANES. The other day, we rejected the amendment that would 
have restored joint and several. So the bill now has proportionate 
liability in it. The only thing the amendment offered earlier addresses 
is a provision in the bill that would still keep joint and several for 
small investors.
  So if you had a small investor with a net worth of under $200,000--
and that figure is retained--we would drop out of it the requirement 
that that small investor had to lose at least 10 percent of his net 
worth, namely $20,000. So if he lost $15,000 or $5,000, he could be 
held whole instead of the participant in the fraud escaping the burden.
  Mr. BENNETT. Mr. President, we are talking about strike suits on 
behalf of professional plaintiffs, and a professional plaintiff could 
easily fit within the category of the Senator's amendment.
  Mr. DODD. Will my colleague yield?
  Mr. BENNETT. I will be happy to yield.
  Mr. DODD. My colleague from Maryland was not here when I expressed my 
remarks. I will say to the Senator from Utah, I submitted that article 
for the Record.
  Mr. BENNETT. I apologize.
  Mr. DODD. If you go to the Census Bureau and Federal Reserve study on 
what the median net worth is in this country, you get two different 
numbers. The Census Bureau says the median net worth is $37,000. The 
Federal Reserve said in 1992 it is $52,000.
  When you set the standard at $200,000 of net worth, which we do, 
basically, you are including about 95 percent of the people in this 
country. Only a small percentage is left that have a net worth in 
excess of $200,000. So if you then do not have some of the standard 
here, then de facto--not de jure, but de facto--you have eliminated 
proportionate liability.
  Mr. SARBANES. I ask the Senator from Connecticut, what is the net 
worth of the median investor?
  Mr. DODD. I do not have that statistic.
  Mr. SARBANES. I know, but you are----
  The PRESIDING OFFICER. The Senator from Utah has the floor.
  Mr. BENNETT. I think my time has probably expired. I thank my 
colleague from Connecticut. I apologize that I was not listening to him 
when that was put into the Record. I will not ask that it be printed in 
the Record.
  Mr. D'AMATO. I yield another 2 minutes to the Senator from Utah.


                           Amendment No. 1469

  Mr. BENNETT. The amendment before us is on the statute of 
limitations. We have heard all of these arguments. I do not want to 
repeat them over and over again. Simply, from my business experience, I 
tell you the impact of the statute of limitations which is hanging over 
business. If you have a statute of limitations that is 5 years, you 
have to keep all your records for 5 years; you have to be concerned 
about what is going to happen to you in 5 years, even though you know 
nothing has gone wrong, and you get yourself into that circumstance.
  If there were time, I could describe circumstances where the lawyers 
wait until the last moment before the expiration of the statute, no 
matter when it is, in order to panic the situation. It becomes a 
device, if you will, that plays into the hands of the people that are 
seeking to do the kinds of things we are talking about here.
  I believe 3 years is long enough. I believe that it is a salutary 
thing to say to the lawyers, if you suspect there is fraud, get on with 
it quickly and do not play the game of playing it out those extra 2 
years and hoping in that extra 2-year period that people will be a 
little sloppy in recordkeeping and you will be able to create greater 
uncertainty than you would if you acted in a timely fashion. Memories 
fade after 3 years, legal suits become much more difficult to pursue 
after 3 years. I think the 3 years that are in the bill are 
appropriate. For that reason, I am opposing the amendment. I thank the 
Chair.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO. The Senator from North Carolina would like 3 minutes.
  I yield to the Senator from North Carolina.
  Mr. FAIRCLOTH. Mr. President, I want to address some of the 
amendments that have been discussed on the Senate floor today. First, I 
oppose extending the statute of limitations for securities private 
rights of action. I think the current 3-year statute is quite adequate. 
The Securities and Exchange Commission Act of 1934 put this into law. 
That was 60 years ago. It has been unchanged ever since.
  Certainly, in this age of computers, fax machines, and the rapid 
communications that we have, particularly in the financial community, I 
do not see the need to extend the statute that has been more than 
adequate for 60-plus years.
  Mr. President, there is little evidence that a longer period is 
needed. Three years from the discovery of a securities fraud violation 
is adequate.
  The problem has not been a longer period--the problem has been that 
class action suits are now filed literally within hours of a stock 
price dropping. I cannot understand why anyone would think that a 
longer period is justified with the current practices that we are 
dealing with.
  I am also concerned that by extending the statute to 5 years, we make 
it harder for firms to defend themselves against lawsuits that are 
totally baseless to begin with.
  Companies will have to search business records that have not been 
used for years. They will have to interview employees whose 
recollections are hazy. Moreover, they will have to track down 
employees that probably no longer work for the firm and probably are on 
the other side of the country. All of this is to defend themselves 
against a possible claim for 5 years. Business records and 
recollections get hazy, and 5 years gets to be a long time.
  In my home State of North Carolina, we have a 2-year statute of 
limitations, and to my recollection, no one has ever suggested that it 
needed to be changed.
  With respect to Mr. Sarbanes' amendment, I think the Senate has 
covered this ground already. On Friday, the Senate defeated Mr. 
Shelby's amendment by a large margin.
  Mr. President, S. 240 already has an extremely balanced and 
reasonable proportionate liability section. First, it requires that in 
the case where other defendants are insolvent, every other defendant 
must pay an additional 50 percent of the losses he caused to help pay 
the plaintiffs.
  Also, the bill takes care of small investors. It covers those with a 
financial net worth of under $200,000.
  Mr. President, this covers 90 percent of the families in the United 
States. There is no need to go further, as Senator Sarbanes is 
suggesting. Yes, there are many victims and some victims who are not 
made whole. But there are

[[Page S9072]]

very few. If, however, we do not leave this provision alone, there will 
be many victims on the other side of the equation, those companies that 
are sued simply because they have deep pockets.
  These companies are often forced into settling because large lawsuits 
loom and it is cheaper to settle. They, too, are victims of a flawed 
legal system and untrustworthy lawyers. This needs to be changed. S. 
240 changes this, and that is why I am opposed to the Sarbanes 
amendment.
  The PRESIDING OFFICER. Who yields time?
  Mr. BRYAN. I yield to the Senator from Connecticut.
  Mr. DODD. I will take 1 minute. Again, for the purpose of debate and 
discussion here, my colleagues will not be surprised. The original bill 
we put in, of course, did include a statute of limitations very much 
along the lines being offered by the Senator from Nevada. I support 
this amendment. There is one major difference here between this 
amendment and what was originally proposed, and that is the requirement 
of reasonable diligence on the part of the investor to determine 
whether or not there has been any fraud. Reasonable diligence is not 
included in this amendment. I regret that because I think there is a 
difference between the investor who must bear a responsibility to keep 
an eye out for what is going on and the one that does not pay any 
attention whatsoever. The absence of that language is not so fatal that 
I oppose the amendment. There is a difference between the original 
language and the language here. So you treat both investors alike and 
people who engage in this activity bear a responsibility to watch out 
for themselves in many ways, which is not included in the amendment.
  I think that technology being what it is, the world having changed to 
the point where you can actually have pretty sophisticated operations 
today, makes it difficult for the average investor to be aware of what 
is going on. I support the language Senator Domenici and I originally 
had in the bill and, for that reason, I support this amendment.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO. How much time is remaining?
  The PRESIDING OFFICER. Two minutes two seconds, and Senator Bryan has 
4 minutes 44 seconds.
  Mr. BRYAN. Thank you very much, Mr. President. This has been an 
interesting discussion. Because the time is running out, let me be 
brief on several points. For my colleagues who are concerned about the 
abuses that lawyers visit upon the system, let me suggest that this 
amendment is not at issue. The able chairman and the sponsor of the 
bill have crafted a number of provisions--prohibition of referral fees 
to brokers, prohibition on attorney's fees paid from SEC disgorgement 
funds, and several others.
  Let nobody be misled that this bill or debate is about whether you 
favor reforms in the litigation system as it deals with attorney abuse. 
We have dealt with that issue. I find myself a bit confused. The 
distinguished Senator from Utah is arguing against my amendment and he 
says if the statute of limitations is extended, those lawyers who file 
suits will wait until the last minute. He has extensive experience in 
business, and I greatly respect him. The distinguished Senator from 
North Carolina, also experienced in business, tells us that the problem 
is that lawyers file instantaneously when the stock prices go down. I 
must say, I do not think it can be both ways.
  The basic problem here is one of concealment. The very nature of 
these frauds that are perpetrated upon the investment public involve 
the concealment of fraud through any artifice or device possible, and 
although there is much new technology out in the market, the technology 
changes are not a response to the basic cleverness of those who 
perpetrate these frauds in keeping their frauds from the victim.
  The North American Association of Securities Administrators and the 
SEC point out to a number of those cases--municipal bond frauds, 
limited partnership, to cite just two.
  Mr. President, I think it also needs to be made note of those who 
have looked at this over the years, as Senator D'Amato, Senator 
Domenici, and Senator Dodd have all at one point taken the position the 
statute of limitations ought to be extended from 2 to 5 years.
  I recognize there are those that have a vested financial interest who 
want to preclude suits from being filed. I understood that. That ought 
not to dictate policy response.
  Those who have the public interest and the public trust at issue as 
to their only responsibility, the SEC, State Securities Association, 
the State Financial Officers, Local Government Financial Officers, all 
are together. All of the regulators agreed that in the interest of 
fairness, the statute of limitations ought to be extended from 2 to 5 
years. That represents both a national perspective, a State 
perspective, and a local government perspective.
  Unless we subscribe to a conspiracy in history, all cannot be in 
league with trial lawyers. They have reached the conclusion, as I have, 
based upon the compelling evidence before us, concealment is the 
problem, and 2 to 5 years is a reasonable time to provide an 
opportunity for plaintiffs to file.
  Mr. D'AMATO. Mr. President, this is admittedly incomplete, but let me 
just share some statistics from one law firm in New York between 1990 
and 1992. One plaintiff was a plaintiff in 14 cases--14. The second 
plaintiff was in 10; the third fellow, 7; another fellow, 7; another 
fellow, 7. I will not mention the names of these plaintiffs, because I 
want to be respectful and not embarrass them. But, I should mention 
their names, because I am sure these plaintiffs are not legitimately 
aggrieved. It is incredible. I would like to find out how many shares 
they owned in each of these firms--I bet not more than one owns more 
than 10 shares. These plaintiffs buy shares in multiple companies so 
the firm can be designated lead counsel, and then the plaintiffs get 
paid a bonus.
  That is the kind of practice we have had taking place. I do not think 
we should keep this door open for 5 years for these lawyers to find 
supposed frauds so they can bring these kinds of cases. That is why I 
have to oppose this amendment.
  Do I want to hurt those who truly have been hurt? Absolutely not. 
When I see one plaintiff in 14 cases in 3 years, and another plaintiff 
in 10, and 1, 2, 3, 4, 5, 6 others who have been involved in a 
multiplicity of cases during this same period, I say it is time to 
change things.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada has 1 minute and 18 
seconds remaining.
  Mr. BRYAN. I think this perhaps has been discussed fully. I want to 
acknowledge the leadership the ranking member, Senator Sarbanes, 
provided in viewing this legislation. I thank him very much for his 
leadership; and the courtesy of the chairman of the committee. Although 
we find ourselves in disagreement, his courtesy is much appreciated.
  Mr. D'AMATO. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second? There is a 
sufficient second.
  The yeas and nays were ordered.
  Mr. D'AMATO. I move to table.
  The PRESIDING OFFICER (Mr. Brown). The question is on agreeing to the 
motion to table the amendment numbered 1469, offered by the Senator 
from Nevada [Mr. Bryan].
  The clerk will call the roll.
  The assistant legislative clerk called the roll.
  Mr. LOTT. I announce that the Senator from Texas [Mr. Gramm] and the 
Senator from Pennsylvania [Mr. Santorum] are necessarily absent.
  Mr. FORD. I announce that the Senator from Illinois [Ms. Moseley-
Braun], the Senator from New York [Mr. Moynihan], and the Senator from 
Illinois [Mr. Simon] are necessarily absent.
  I further announce that the Senator from Rhode Island [Mr. Pell] is 
absent on official business.
  I further announce that, if present and voting, the Senator from 
Illinois [Ms. Moseley-Braun] would vote ``aye.''
  I further announce that, if present and voting, the Senator from 
Rhode Island [Mr. Pell] would vote ``nay.''
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 52, nays 41, as follows:

[[Page S9073]]



                      [Rollcall Vote No. 283 Leg.]

                                YEAS--52

     Abraham
     Ashcroft
     Baucus
     Bennett
     Brown
     Bumpers
     Burns
     Campbell
     Chafee
     Coats
     Cochran
     Coverdell
     Craig
     D'Amato
     DeWine
     Dole
     Domenici
     Exon
     Faircloth
     Feinstein
     Frist
     Gorton
     Grams
     Grassley
     Gregg
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Jeffords
     Kassebaum
     Kempthorne
     Kyl
     Lott
     Lugar
     Mack
     McConnell
     Murray
     Nickles
     Packwood
     Pressler
     Pryor
     Robb
     Simpson
     Smith
     Snowe
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner

                                NAYS--41

     Akaka
     Biden
     Bingaman
     Boxer
     Bradley
     Breaux
     Bryan
     Byrd
     Cohen
     Conrad
     Daschle
     Dodd
     Dorgan
     Feingold
     Ford
     Glenn
     Graham
     Harkin
     Heflin
     Hollings
     Inouye
     Johnston
     Kennedy
     Kerrey
     Kerry
     Kohl
     Lautenberg
     Leahy
     Levin
     Lieberman
     McCain
     Mikulski
     Murkowski
     Nunn
     Reid
     Rockefeller
     Roth
     Sarbanes
     Shelby
     Specter
     Wellstone

                        ANSWERED ``PRESENT''--1

       
     Bond
       

                             NOT VOTING--6

     Gramm
     Moseley-Braun
     Moynihan
     Pell
     Santorum
     Simon
  So the motion to table the amendment (No. 1469) was agreed to.


                           Amendment No. 1472

  The PRESIDING OFFICER. The question now occurs on the Amendment 1472 
offered by the Senator from Maryland, Mr. Sarbanes. Is there a request 
for the yeas and nays?
  Mr. D'AMATO. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  Mrs. BOXER. Mr. President, parliamentary inquiry? It was my 
understanding that the author of the amendment had the option to take a 
minute of time before the vote was taken. I understand that it was part 
of the unanimous consent agreement. I want to make sure that I am 
correct on that, because I would like that opportunity with my 
amendment. I was not certain whether the Senator from Maryland waived 
that right or what the parliamentary situation was.
  The PRESIDING OFFICER. The Senator is correct. That time is available 
if Senators wish to take it. It certainly would be available to the 
Senator from California when her amendment is considered.
  The question is on agreeing to the amendment of the Senator from 
Maryland. On this question, the yeas and nays have been ordered.
  Mr. BYRD. Mr. President, the explanation of the amendment was 
included in the order. I ask that the explanation be given.
  The PRESIDING OFFICER. The agreement called for an explanation, and 
the explanation is requested. The Senator from Maryland is recognized.
  Mr. SARBANES. Mr. President, I will be very quick.
  This amendment takes a provision that is in the bill that departs 
from proportionate liability. The bill says that in a situation in 
which you have a small investor, with a net worth of less than 
$200,000, and if that small investor loses over 10 percent of his net 
worth--in other words, $20,000--then you will in effect hold them 
harmless, all the defendants will continue to be jointly and severally 
liable. I leave the $200,000 net worth provision but eliminate the 10 
percent requirement as to the amount of loss, so if someone has a net 
worth of $200,000 and loses $5,000, they still would be protected. The 
notion of this is to try to protect small investors, and I am very 
frank to tell you I think they ought to be protected.
  Under the other provision in the bill, they provide--
  Mr. CONRAD. May we have order, Mr. President, so we can hear.
  Mr. SARBANES. That in an instance of proportionate liability----
  The PRESIDING OFFICER. The Senator's time has expired.
  The Senator from New York is recognized.
  Mr. D'AMATO. Mr. President, this amendment is really another attempt 
to knock out one of the most meaningful provisions of S. 240 and double 
the amount that defendants would have to pay if there was an insolvent 
codefendant. The basis upon which we attempt to give some relief is to 
say, yes, for some small investors, if they have under $200,000 and a 
10 percent cap. What we are doing here is just knocking it aside. We 
have to stop people going after people just because they have deep 
pockets, just because they have lots of money. And so I urge my 
colleagues to vote no.
  The PRESIDING OFFICER. The question now occurs on agreeing to 
amendment No. 1472 offered by the Senator from Maryland, Mr. Sarbanes. 
The yeas and nays have been ordered. The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. BOND (when his name was called). Present.
  Mr. LOTT. I announce that the Senator from Texas [Mr. Gramm] is 
necessarily absent.
  Mr. FORD. I announce that the Senator from Illinois [Ms. Moseley-
Braun], the Senator from New York [Mr. Moynihan], the Senator from 
Illinois [Mr. Simon] are necessarily absent.
  I further announce that the Senator from Rhode Island [Mr. Pell] are 
absent on official business.
  I further announce that, if present and voting, the Senator from 
Illinois [Ms. Mosely-Braun] and the Senator from Rhode Island [Mr. 
Pell] would each vote nay.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
who desire to vote?
  The result was announced--yeas 29, nays 65, as follows:

                      [Rollcall Vote No. 284 Leg.]

                                YEAS--29

     Akaka
     Biden
     Boxer
     Bradley
     Breaux
     Bryan
     Cohen
     Conrad
     Daschle
     Dorgan
     Feingold
     Graham
     Harkin
     Heflin
     Hollings
     Inouye
     Jeffords
     Kennedy
     Kerrey
     Lautenberg
     Leahy
     Levin
     McCain
     Rockefeller
     Sarbanes
     Shelby
     Snowe
     Thompson
     Wellstone

                                NAYS--65

     Abraham
     Ashcroft
     Baucus
     Bennett
     Bingaman
     Brown
     Bumpers
     Burns
     Byrd
     Campbell
     Chafee
     Coats
     Cochran
     Coverdell
     Craig
     D'Amato
     DeWine
     Dodd
     Dole
     Domenici
     Exon
     Faircloth
     Feinstein
     Ford
     Frist
     Glenn
     Gorton
     Grams
     Grassley
     Gregg
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Johnston
     Kassebaum
     Kempthorne
     Kerry
     Kohl
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McConnell
     Mikulski
     Murkowski
     Murray
     Nickles
     Nunn
     Packwood
     Pressler
     Pryor
     Reid
     Robb
     Roth
     Santorum
     Simpson
     Smith
     Specter
     Stevens
     Thomas
     Thurmond
     Warner

                        ANSWERED ``PRESENT''--1

       
     Bond
       

                             NOT VOTING--5

     Gramm
     Moseley-Braun
     Moynihan
     Pell
     Simon
  So the amendment (No. 1472) was rejected.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote by which 
the amendment was rejected.
  Mr. DOLE. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. SARBANES addressed the Chair.
  The PRESIDING OFFICER. The Senator from Maryland is recognized.
  Mr. SARBANES. Mr. President, as I understand it, under the unanimous 
consent request, the Senator from California now has the opportunity to 
address the substance of her amendment for 1 minute and the Senator 
from New York has 1 minute to reply; is that correct?
  The PRESIDING OFFICER. The Senator is correct.
  Mr. SARBANES. Mr. President, I make the point of order that the 
Senate is not in order, and I request the Chair to obtain order in the 
Senate before we go to the explanation of the amendment and the 
response thereto, out of courtesy to our colleagues.
  The PRESIDING OFFICER. The Senator's point is well taken. The Senate 
will be in order. Members will cease conversation.
  The Senator from California is recognized.


                           Amendment No. 1473

  Mrs. BOXER. I will be less than 1 minute. Mr. President, I say to my 
friends, S. 240 changes many aspects of our securities laws, and many 
senior citizen groups have voiced concern.

[[Page S9074]]

  My amendment simply says if S. 240 becomes law, the Securities and 
Exchange Commission shall report to the Congress in 180 days as to its 
impact on senior citizens who are the main targets of securities fraud.
  So we are calling on the SEC to come and report to us as to the 
impact of this legislation on senior citizens.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New York is recognized.
  Mr. D'AMATO. Mr. President, we have agreed to ask the Securities and 
Exchange Commission to make this statement. We understand the 
vulnerability of seniors. We are prepared to accept the amendment 
without a rollcall vote.
  Mrs. BOXER. Mr. President, I ask for a rollcall vote in accordance 
with the previous order.
  The PRESIDING OFFICER. The yeas and nays have been ordered.
  Mr. DOLE addressed the Chair.
  The PRESIDING OFFICER. The distinguished majority leader is 
recognized.


                           Order of Procedure

  Mr. DOLE. This is in reference to the remainder of the evening, so it 
will be important to every Member. I understand we are not able to 
convince anybody to continue on this evening, except there will be 
amendments offered and there will be debate this evening, but there 
will be no more votes after this rollcall vote.
  There will be votes starting at 10:30 a.m. tomorrow: Two votes, under 
the same provision. There will be 2 minutes to explain before each 
vote, and then following those two votes, I understand there will be 
another amendment laid down. Senator Sarbanes will be recognized to lay 
down his amendment at about 11:15, I assume. We still very much would 
like to finish this bill in the early afternoon. There are five 
amendments, I understand, outstanding.
  Mr. D'AMATO. It appears there are five amendments.
  Mr. DOLE. Again, there has not been any delay on either side. There 
has been a lot of good debate all day today. But we would like to 
complete action on this bill to move to something else, hopefully 
regulatory reform. There will be no more rollcall votes tonight, but 
two votes starting at 10:30 a.m.
  Mr. ROCKEFELLER. Will the majority leader yield? The Senator was just 
interested in when the Medicare Select conference report will take 
place?
  Mr. DOLE. I hope that will happen this evening. As I understand, the 
Senator from West Virginia wanted 20 minutes for debate. We will 
dispose of that this evening.
  Mr. ROCKEFELLER. I thank the majority leader.


                       Vote on Amendment No. 1473

  The PRESIDING OFFICER. Under the previous order, the question is on 
agreeing to amendment No. 1473 offered by the Senator from California, 
Mrs. Boxer. The yeas and nays have been ordered. The clerk will call 
the roll.
  The assistant legislative clerk called the roll.
  Mr. BOND (when his name was called). Present.
  Mr. LOTT. I announce that the Senator from Texas [Mr. Gramm] is 
necessarily absent.
  Mr. FORD. I announce that the Senator from Illinois [Ms. Moseley-
Braun], the Senator from New York [Mr. Moynihan], and the Senator from 
Illinois [Mr. Simon] are necessarily absent.
  I further announce that the Senator from Rhode Island [Mr. Pell] is 
absent on official business.
  I further announce that, if present and voting, the Senator from 
Rhode Island [Mr. Pell] and the Senator from Illinois [Ms. Moseley-
Braun] would each vote ``aye.''
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 93, nays 1, as follows:

                      [Rollcall Vote No. 285 Leg.]

                                YEAS--93

     Abraham
     Akaka
     Ashcroft
     Baucus
     Bennett
     Biden
     Bingaman
     Boxer
     Bradley
     Breaux
     Brown
     Bryan
     Bumpers
     Burns
     Byrd
     Campbell
     Chafee
     Coats
     Cochran
     Cohen
     Conrad
     Coverdell
     Craig
     D'Amato
     Daschle
     DeWine
     Dodd
     Dole
     Domenici
     Dorgan
     Exon
     Feingold
     Feinstein
     Ford
     Frist
     Glenn
     Gorton
     Graham
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Hatfield
     Heflin
     Helms
     Hollings
     Hutchison
     Inhofe
     Inouye
     Jeffords
     Johnston
     Kassebaum
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Kohl
     Kyl
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Mikulski
     Murkowski
     Murray
     Nickles
     Nunn
     Packwood
     Pressler
     Pryor
     Reid
     Robb
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Shelby
     Simpson
     Smith
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner
     Wellstone

                                NAYS--1

       
     Faircloth
       

                        ANSWERED ``PRESENT''--1

       
     Bond
       

                             NOT VOTING--5

     Gramm
     Moseley-Braun
     Moynihan
     Pell
     Simon
  So the amendment (No. 1473) was agreed to.
  Mrs. BOXER. I move to reconsider the vote.
  Mr. SARBANES. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. HATCH. Mr. President, I am very pleased to offer my enthusiastic 
support to the Private Securities Litigation Reform Act of 1995.
  I was an original cosponsor of S. 240, and have been deeply 
interested in remedying the current abuses in the securities litigation 
system--particularly those abuses that have arisen from the misuse of 
class action lawsuits to prosecute securities fraud. Companies in Utah 
as well as across the country are being adversely affected by unfair 
lawsuits brought under the current system.
  This is only one area of the law in which litigation abuse has become 
rampant, and I commend the many cosponsors of this bill--who number 
over 50--for their recognition that it is time to address some of the 
significant litigation abuses in this country.
  In particular, I would like to commend and thank Senators Dodd and 
Domenici for their longstanding leadership on this issue. They have 
once again worked long and hard to come up with an excellent bill, 
which so many of us have been able to support wholeheartedly. I also 
want to thank Senator D'Amato for his support of securities litigation 
reform and for his key role in developing the fine version of the bill 
reported out of the Banking Committee that we are considering here on 
the floor today.
  This bill seeks to make securities litigation more fair by curbing 
the abusive litigation practices that have been employed by a small 
number of plaintiffs' lawyers in securities litigation class action 
lawsuits. The hallmark of this small group has been the so-called 
strike suit. In such suits, attorneys typically file a securities fraud 
lawsuit against a company as soon as possible after the company's stock 
drops in price--often regardless of whether there has been any fraud on 
the part of the company.
  In the complaint, those attorneys accuse the company of securities 
fraud, either in issuing the stock or in other company statements, and 
seek to obtain damages to make up for the stock price drop--a drop that 
is in fact typically caused by nothing more than natural market forces.
  Here is one example. In a case--or I should say cases--filed in New 
York this past year, Philip Morris had announced that it was reducing 
the price of Marlboro cigarettes by 40 cents per pack. [In re Philip 
Morris Securities Litigation, 1995 U.S. Dist. LEXIS 92 (S.D.N.Y. Jan. 
6, 1995).] Shortly thereafter, the company's price per share lost 
nearly 24 percent of its value. That is not so surprising in a reactive 
market that could easily have interpreted such action as leading to a 
loss in profits, at least in the short term.
  What was surprising was the reaction of lawyers. Within just 2 
business days, 10 securities litigation lawsuits involve 34 law firms 
were filed against Philip Morris. That kind of litigiousness on such 
short notice is absolutely astounding. Unfortunately, that kind of 
action has become commonplace and is plaguing our finest companies, be 
they large corporations or smaller businesses.
  It is so widespread that a 1992 National Law Journal article reported 
that of 46 stock fraud cases studied, 12 were filed within 1 day and 
another 30

[[Page S9075]]

within 1 week of the publication of unfavorable news about the 
defendant company. [Source: Milt Policzer, ``They've Cornered the 
Market,'' National Law Journal, April 27, 1992.]
  In 1990, when L.A. Gear, the sportswear and sneaker manufacturer, 
announced lower than expected earnings, one law firm filed 15 lawsuits 
just three days after the announcement. [Source: William Lash, 
``Securities Law Reform: Too Little, Too Late'' (Center for the Study 
of American Business, Washington University, May 1995).]
  Particularly hard hit by strike suits have been high technology 
computer companies. A Stanford University law professor who conducted a 
study of shareholder class actions filed in the early 1980's, most 
involving high tech firms, found that every single company that 
experienced a market loss in stock price of at least $20 million was 
sued. Every single company. [See Janet Cooper Alexander, ``Do the 
Merits Matter? A Study of Settlements in Securities Class Actions,'' 43 
Stan. L. Rev. 497 (1991).] That is mindboggling. These are some of the 
most successful American companies in recent decades, and they are 
being besieged with lawsuits. Why could this be?

  The answer is found in the securities litigation system. In her 
study, the Stanford professor--Professor Janet Cooper Alexander--
concluded that, due to the pressures of the litigation system, 
companies were being sued for reasons that had little or nothing to do 
with the presence of any real underlying securities fraud and that 
companies were being forced into settlements that had nothing to do 
with the merits of the case. That is not how the legal system is 
supposed to work, and that is now how the securities laws were meant to 
be used.
  Although the securities laws were designed to punish and prevent 
fraud and abuse in the securities market, they are currently being 
abused by certain attorneys who seek to make a profit from simple stock 
losses. But the securities laws were not designed to insure against 
stock loss. Far from it. The securities laws were designed to protect 
American investors from fraud.
  When most of our major high-technology firms have been the target of 
a securities fraud class action lawsuit, and when hundreds of millions 
of dollars are spent each year on the litigation costs relating to such 
suits, a number of which show no evidence of wrongdoing whatsoever on 
the part of the defendant, I think we have to take a long hard look at 
this and ask ourselves--is corporate fraud really so widespread that it 
exists in every single firm in America? Or is this system encouraging 
litigation when there is no evidence of any wrongdoing whatsoever on 
the part of the defendant?
  I think the answer is clear. I think the reason these suits yield so 
many costly settlements has to do with the high costs to companies of 
defending against these suits. Due to the threat of exorbitant legal 
fees that would be required to defend against such strike suits, 
companies will settle securities lawsuits even when those suits are 
entirely meritless. The plaintiffs' attorneys then collect a hefty 
portion of that settlement through their contingent fees.
  While accurate statistics are not available on the breakdown of 
attorneys fees, because this information is often not public, the 
Banking Committee has heard testimony that plaintiffs in these types of 
lawsuits typically receive only 14 cents for every dollar of damages 
while the attorneys collect 39 percent of the settlement. Other studies 
have suggested even lower recoveries by the shareholders.
  This area of legal abuse is truly the work of a few attorneys. It has 
been widely reported--both in congressional testimony and in cases and 
articles--that only a small number of law firms are involved in these 
abusive strike suits. Often, the firms use the same professional 
plaintiffs in multiple suits. Some will pay referral fees to get 
plaintiffs. Typically, these firms will rush to the courthouse to try 
to be the firm that files suit first.
  One problem is that, under current law, that firm will often be 
designated the lead class counsel and will be able to receive a larger 
share of the settlement. Clearly, with so many suits being filed on 
such short notice, the law firms involved cannot possible have 
thoroughly considered the possible existence of fraud. Instead, these 
firms are simply reacting to the skewed incentives in the current 
system that reward them for filing a lawsuit first.
  These few, rapacious law firms have made this kind of abusive 
litigation their specialty. They are the ones who have taken advantage 
of the system and harmed our businesses and our economy. Let us all be 
perfectly clear in our understanding that the only group this bill 
harms is that small group of specialized lawyers.

  Their actions come at a very high cost. Companies pay needless 
litigation, settlement, and insurance costs with money that could be 
going to create jobs or to further research and development. Testimony 
before the Banking Committee demonstrated again and again how much 
excessive securities litigation costs companies, who must then pass 
those costs on.
  Let me just mention one example. Testimony was received about a 
Silicon Valley corporation named Adept Technology. Adept Technology is 
the only U.S. robotics corporation and it employs over 275 people. They 
were contemplating an initial public offering of shares, or what is 
commonly referred to as going public. They were advised, however, that 
due to the threat of litigation if they went public, they would have to 
carry a liability insurance policy of $5 million in coverage which 
would cost upwards of $450,000 per year. They were advised that they 
had to bear that cost, because, as a high-technology company going 
public, they would undoubtedly be sued for securities fraud within a 
year or two of going public. The upshot of securities litigation 
lawsuit abuse is that Adept must pay a litigation tax in order to be a 
publicly traded company. The money spent this way could easily pay for 
five or six engineers who might be creating new products and helping 
keep American business competitive.
  By limiting the access of some firms to the capital market--for 
example, those that decide they cannot afford to go public--the current 
system damages our economy and stunts its ability to grow. The irony is 
that, while securities litigation laws were designed to safeguard 
investors, in reality the current system ends up hurting investors. It 
harms those investors who could have invested successfully in those 
companies, had they gone public, and it hurts those investors who could 
have earned more profits on their shares, had those companies been more 
profitable. In this system, whose intent was to protect investors, the 
sad fact is that investors end up getting hurt while certain lawyers 
rake in exorbitant fees.
  Another cost this abusive system imposes is in the perverse 
incentives created when companies decide to disclose less information 
about their companies simply for fear that they will inevitably be sued 
on the basis of the information. That goes completely against the grain 
of the securities laws--all of which were designed to encourage 
openness and full information in our securities markets.
  These costs must be addressed. We need to eliminate abuses in the 
system, so that we can efficiently preserve the core values of the 
American stock market--honesty, integrity, openness, and the free 
exchange of information. Those values are what gives the American stock 
market its respect, both here and abroad.
  This act is an attempt to do just that. It represents the culmination 
of a bipartisan effort that has evolved over several Congresses. I 
believe this bill balances several competing interests. There can be no 
question that it ensures that the class action device will remain 
available for those shareholders who have been the victims of 
securities fraud. It also improves on that class action device so that 
injured investors--not a small group of greedy lawyers--can control the 
litigation and have a greater share of any settlement.
  The bill does this in a number of ways.
  First, the bill contains a number of reforms of securities litigation 
class actions that are designed to increase participation of the real 
shareholder plaintiffs and decrease the control of attorneys. For 
example, the court will select the most adequate plaintiff who will 
then direct litigation decisions. Securities lawsuits have often been 
brought and controlled by a relatively

[[Page S9076]]

small group of lawyers whose incentives are frequently at odds with 
those of the plaintiffs and with the goals of the securities laws. This 
provision would ensure that litigation decisions are truly in the best 
interests of the shareholders and are not merely in the best interest 
of the law firm that won the race to the counthouse door.

  Where the parties enter into a class action settlement agreement, the 
bill requires the disclosure of settlement terms to class members so 
that plaintiffs know what they are getting and the attorneys fees 
involved.
  The bill increases pleading requirements so that a potential 
violation must be clearly laid out in a complaint. In securities 
actions involving misleading statements or omissions, plaintiffs will 
have to specify each allegedly misleading statement or omission and why 
it is misleading. Where a defendant's state of mind must be proven, 
plaintiffs must plead specific facts supporting that state of mind.
  Those provisions make sense. They do not require a plaintiff to prove 
the entire case at the pleading stage. Instead, they merely require 
that that case be set out and that all the allegations be supported by 
sufficient allegations of fact.
  The bill also provides for a stay of discovery during the pendency of 
any motion to dismiss, unless the court finds that particularized 
discovery is necessary to preserve evidence or prevent undue prejudice. 
This reduces one of the highest litigation costs that have been used to 
badger defendants into settling. This way, some of the merits of the 
case can be considered by the court before the defendant can be forced 
to settle through the threat of mounting unpayable legal bills.
  Another problem the bill addresses is the problem of predictive of 
so-called forward-looking statements. Some companies have faced 
damaging lawsuits merely on the basis of vague but optimistic 
projections that they would do well even though it was clear that the 
preduction was somewhat speculative and future-orented. The bill does 
so by establishing what has been referred to as a safe harbor to 
protect issuers and others from liability under the securities laws for 
forward-looking statements.
  This provision has been mischaracterized by opponents of this 
legislation. It should be clearly understood, however, that 
intentionally misleading statements would never be covered by the safe 
harbor provision. In addition, a number of other exceptions apply to 
insure that investors can be protected adequately from fraud. In this 
way, the bill does not permit companies to misrepresent their future 
performance or intentions knowingly. It simply permits them to suggest 
what they predict their future will entail without being subject to 
harassing lawsuits when, for one reason or another, reality differs 
from their suggestions.
  The bill also reforms joints and several liability in private 
securities lawsuits. Often, accounting firms and others involved in 
issuing securities have been held liable and ultimately responsible for 
fraud that was at best the primary responsibility of the issuing 
company. This provision is carefully structured to be fair, and to 
ensure that injured investors are protected to the greatest extent 
possible. As a general rule, liability would be several only, in 
proportion to a defendant's responsibility for wrongdoing.
  Significantly, in cases involving knowing fraud, defendants would 
remain jointly and severally liable. That is something that opponents 
of this bill seem to have missed entirely. Where any defendant engages 
in knowing fraud, that defendant can be liable for the investors' 
entire loss. This bill does not give any leeway to knowing wrongdoers.
  In addition, the bill also employs certain modifications to the joint 
and several rule where one defendant's share may be uncollectible. 
Those are designed to fairly balance the responsibilities and needs of 
plaintiffs and defendants. Thus, it helps improve a shareholder's 
ability to gain full recovery, for instance, where the defendant 
company has gone bankrupt. In those cases, the other defendants' 
contributions will be stepped up.

  While this bill will grant some relief to accountants and others who 
have been unfairly held jointly and severally liable, at the same time 
the bill seeks to ensure that accountants take responsibility for 
detecting fraud. The bill requires accountants to put in place 
procedures to detect securities fraud. Then, if the accountant 
discovers or suspects fraud, the accountant must inform management. If 
management fails to act accordingly, the accountant must then notify 
the SEC concerning the suspected fraud.
  In another provision designed to balance the need to ensure that true 
fraud does not go unpunished, the SEC is given authority to prosecute 
those who aid and abet securities fraud. By giving this authority to 
the SEC, it will not be misused by some of the securities lawyers who 
have misused so many other provisions of the securities laws.
  As one final point, I emphasize that the pervasive litigation abuses 
in securities class action lawsuits are not the only litigation misuses 
plaguing our civil justice system. In other areas of the law, reform is 
needed just as desperately.
  I was very proud to see the Senate pass product liability reform in 
May, and I look forward to the passage of securities litigation reform. 
I only note that these two areas of legal reform are only the tip of 
the iceberg. Americans have been subject to all sorts of litigation 
abuses that are imposing unjustifiable costs on our economy, our 
businesses, and our workers.
  Those costs are passed on throughout the Nation and they cause harm 
whenever a company, a school, or a volunteer organization must defend 
against outrageous legal claims. That occurs whether the lawsuits are 
securities litigation lawsuits, product liability actions, or garden 
variety fraud, breach of contract, or other types of civil lawsuits.
  I hope to have the Senate consider the problem of the multiple 
imposition of punitive damages for the same act or course of conduct. 
While it is not my intent to offer to this legislation amendments that 
pertain to other, broader civil justice reforms, I see this bill as one 
step in a progression of more extensive reforms to improve our 
litigation system. I am pleased to see the support for this bill, and I 
look to my colleagues for continuing efforts against litigation abuse.
  Again, I thank Senators Domenici, Dodd, and D'Amato for their 
leadership and commend them for their efforts.
  Mrs. MURRAY. Mr. President, I rise today in support of S. 240--the 
Private Securities Litigation Reform Act.
  Mr. President, Americans need to be assured that their investment are 
secure--that our money has been invested in good faith.
  And, if an American investor has been the victim of fraud--no matter 
how big or little--how rich or poor--they should get equal treatment 
under the law.
  Guilty parties must be held accountable.
  Mr. President, I am not rich. I know that investments are risky. 
There is no guarantee that you will make money in the stock market, or 
the bond market, or on any investment.
  I learned a long time ago--from my parents--that you should not 
invest money you cannot afford to lose. So, now as a parent myself, I 
am very conservative in my investments.
  I believe in personal responsibility.
  But, Mr. President, there is an appropriate Federal role in this 
process, as well. We cannot abdicate our responsibility to protect the 
American people.
  And, Mr. president, we in Congress have a unique role in promoting 
investor confidence.
  We have a duty to encourage critical investments--it is needed for 
capital formation--it is needed for economic growth and job creation.
  This is especially true in my home State of Washington--where many 
consumers invest in small high-technology companies.
  For Washington State and for the entire country--we must be vigilant 
to ensure proper protection for investors.
  That is why I am a big supporter of the work of the Securities and 
Exchange Commission: Chairman Arthur Levitt and his staff do a great 
job in exposing fraud and protecting even the smallest of investors.
  Section 105 of this bill gives the SEC new authority to sue for 
damages from securities fraud--so that victims of fraud will recover 
more of their losses.

[[Page S9077]]

  Right now, Americans--who have been defrauded--have been getting only 
pennies on the dollar for their losses. Victims of fraud deserve 
better; they deserve more. This bill will help change that.
  Mr. President, that is why this bill is so critical. It returns some 
common sense to our legal system.
  I have been pleased to work with my good friend from Connecticut, 
Senator Dodd, on this legislation. He has provided real leadership on 
this issue together with the distinguished chairman of the Budget 
Committee, Senator Domenici.
  This bill is the best of bipartisan cooperation--it passed the 
Banking Committee by a vote of 11 to 4, with the majority of Democrats, 
voting in favor of this much needed reform.
  I have heard from so many people in my home State of Washington on 
this issue. Many have told me the present system operates at the 
expense of the investors it was intended to protect--everyday, 
hardworking Americans.
  We have all heard the stores of court cases which diminish 
investments. They inhibit job creation. They slow economic growth.
  How many times do small business people settle suits out of court 
just to make them go away?
  And, as I said, how many times do small investors--who have actually 
been the victims of fraud--only receive pennies on the dollar of their 
investment?
  This bill returns power and benefits to the little guy. Sections 101 
and 102 of the D'Amato substitute are critical in this regard.
  This reform will provide a mechanism for real plaintiffs--instead of 
a few lawyers--to take charge of the cases.
  That way, the interest of plaintiffs are taken into account.
  And, investors are the ones who lose money when fraud occurs--they 
have a right to have more of a say in steering the course of 
litigation.
  Right now, small investors lose out--we all lose out--because company 
resources are wasted on settling suits, instead of inventing new 
products.
  Biotech companies waste their resources on settling nuisance lawsuits 
instead of finding the cure for AIDS and breast cancer.
  High-technology companies waste their time and resources on legal 
fees--instead of giving us a cutting technological edge that will bring 
us into the 21st century.
  I have heard from many of these companies in my home State. Companies 
such as these--new, growing, forward-looking--are a point of civic 
pride in the Pacific Northwest. They reflect the high-technology, high-
wage economy of the future.
  I have real letters from real people expressing the importance of 
this bill. I ask unanimous consent that these letters be printed in the 
Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

                                           The Northern Group,

                                        Seattle, WA, June 1, 1995.
     Senator Patty Murray,
     U.S. Senate, Washington, DC.
       Dear Senator Murray: I would like to voice my strong 
     support for Senate Bill 240. This long overdue legislation is 
     critical to the continued success of our nation's 
     entrepreneurial underpinnings.
       It is unfortunate that our judicial system has allowed a 
     small group of unscrupulous attorneys to create such havoc 
     among the community of public companies, particularly given 
     the evidence that shows the lawyers as primary beneficiaries.
       Enough! S. 240 deserves your full support.
           Sincerely,
                                                    Glenn Kalnasy,
     President.
                                  ____



                                                   IMRE Corp.,

                                        Seattle, WA, June 7, 1995.
     Re Senate Bill 240.

     Hon. Patty Murray,
     U.S. Senator, Washington, DC.
       Dear Senator Murray: We urge you to continue to support SB 
     240, a bill which would reduce the ability of parties to 
     bring groundless stockholder suits. IMRE Corporation is a 
     small, publicly held, biomedical company which is seeking to 
     develop therapeutic products to treat patients with certain 
     immunologically mediated conditions such as rheumatoid 
     arthritis and difficulties with kidney transplants. Given the 
     investor environment for biotechnology companies, wide 
     fluctuations in a company's stock price can occur because of 
     rumors, perceptions, and other factors outside the control of 
     the company.
       While there are circumstances in which shareholder suits 
     should be brought to protect investors, many stockholder 
     suits which are filed are based solely on a sudden drop in 
     stock price which may have nothing to do with information 
     that was or was not disseminated to the public by the 
     company. Groundless shareholder suits consume vital corporate 
     resources that should be used for more productive purposes 
     such as research and development.
       If we can be of any assistance in answering questions that 
     you or your staff may have about this subject matter, please 
     call me at (206) 298-9400.
           Sincerely yours,
                                          Edward M. Yoshida, Esq.,
     Director, Legal Affairs.
                                  ____



                                       Washington Natural Gas,

                                        Seattle, WA, May 25, 1995.
     Hon. Patty Murray,
     Senate Russell Building, Washington, DC.
       Dear Senator Murray: I am writing to urge your support of 
     S. 240, the Private Securities Litigation Reform Act of 1995. 
     This legislation, designed to curb abusive securities suits, 
     is very important to Washington Energy Company (WECO). We 
     believe that it is time to restore balance and fairness to 
     the securities litigation system.
       The number of shareholder suits have escalated dramatically 
     in recent years. Many are unsubstantiated, however, companies 
     are forced to address them in protracted and extremely costly 
     processes. In addition, these suits may produce indirect 
     expenses, such as insurance costs and stock price 
     fluctuations. As you may know, Washington Energy Company 
     currently is involved with a shareholder suit. While the 
     court dismissed the claim as one without merit, we've been 
     forced to commit considerable resources. These costs will 
     continue to climb as the decision has been appealed.
       S. 240 seeks to establish disincentives against filing 
     frivolous suits. It encourages voluntary disclosures, 
     transfers control of suits from lawyers to investors, and 
     enhances ways to address bona fide shareholder claims.
       The Senate Budget Committee soon will be considering the 
     ``Chairman's Mark'' which reflects a good compromise. Your 
     support would be greatly appreciated.
           Sincerely,
                                               William J. Wortley,
     Vice President Public Affairs.
                                  ____



                                         Key Technology, Inc.,

                                    Walla Walla, WA, June 5, 1995.
     Re S. 240, The Securities Litigation Reform Act.

     Hon. Patty Murray,
     U.S. Senate, Hart Senate Office Building, Washington, DC.
       Dear Senator Murray: I am writing to express my support for 
     the provisions in the Private Securities Litigation Reform 
     Act (S. 240). This reform will benefit the growth of 
     companies, like Key Technology, that provide jobs and 
     economic expansion in our local communities. In addition, the 
     proposed reform will provide protection for those who have 
     invested these companies.
       It is important that we work to provide a more fair basis 
     on which to establish the degree of liability for defendants, 
     to provide a safe harbor for statements by a company 
     regarding future economic performance, and to put an end to 
     litigation suits filed without any substantial evidence.
       I am pleased to see that you are a co-sponsor of S. 240 and 
     encourage your continued support of this needed reform. Thank 
     you for taking a leadership position on this important issue.
           Sincerely,
                                                       Tom Madsen,
     President.
                                  ____



                                              Whirlpool Corp.,

                                  Benton Harbor, MI, May 24, 1995.
     Hon. Patty Murray,
     U.S. Senate, Washington, DC.
       Dear Senator Murray: As a company with a constituent 
     facility in Redmond, I am writing to request your support of 
     the Securities Litigation Reform Act. Senate Banking 
     Committee Chairman D'Amato's substitute for S. 240 is 
     scheduled to be marked up in the Senate Banking Committee on 
     Thursday, May 25, 1995.
       We especially request your support for a ``safe harbor'' 
     which would correct the ``chilling effect'' on voluntary 
     disclosure of information to investors by providing companies 
     with protection from investor lawsuits based upon forward-
     looking information. Disclosures that would be protected by a 
     safe harbor provision are predictive statements on business 
     trends, possible price movements and other market factors 
     which investors want and expect companies, such as Whirlpool, 
     to provide.
       Unfortunately, the threat of private securities litigation, 
     should these predictions not be realized, is causing many 
     companies to hesitate before sharing such information. A 
     strong safe harbor provision will help correct the chilling 
     effect on disclosure and will force American businesses to 
     redirect their focus away from baseless lawsuits. In turn, 
     this will allow us to redirect scarce resources toward 
     competing more effectively in the global market place.

[[Page S9078]]

       Thank you for your consideration of this important issue. 
     Please support the Securities Litigation Reform Act with a 
     safe harbor provision as it is considered in future Committee 
     and Floor action.
           Very truly yours,
                                                    Robert Kenagy,
     Associate General Counsel.
                                  ____



                                        Darwin Molecular Corp.

                                        Bothell, WA, June 6, 1995.
     Hon. Patty Murray,
     U.S. Senate, Washington, DC.
       Dear Senator Murray: I am writing on behalf of Darwin 
     Molecular, a start-up biotechnology company based in Bothell. 
     It has come to our attention that the U.S. Senate is 
     contemplating SB 240, a bill that would dramatically reduce 
     the ability of lawyers to file meritless stockholder 
     lawsuits. I am writing to encourage your continued support 
     for this bill.
       As you well know, high technology business and especially 
     biotechnology companies face many uncertainties on the road 
     to produce development. This is an industry whose potential 
     may continue to be in jeopardy because of the inherent 
     difficulty of balancing out the financial opportunities and 
     obligations against truly innovative scientific and medical 
     productivity. It is difficult enough to raise sufficient 
     funding to do useful and beneficial research without the 
     additional burdens imposed by other types of ``risks'' often 
     from individuals who may be looking to enhance their own 
     situations. New companies in particular are vulnerable to 
     these risks.
       Reform legislation in this area would be extremely 
     beneficial not only to assist companies but most importantly 
     to provide a more productive marketplace for the ultimate 
     beneficiary, the consumer.
       We thank you for your support of this bill.

                                                Diane Isonaka,

                                          Director, Scientific and
     Business Development.
                                  ____

                                                 Conductive Rubber


                                             Technology, Inc.,

                                        Bothell, WA, June 6, 1995.
     Hon. Patty Murray,
     U.S. Senator, Washington, DC.
       Dear Senator Murray: As the President of a small, high-tech 
     company in Bothell, Washington, I am concerned about the S. 
     240 legislation drafted to curb the extravagant number of 
     meritless lawsuits filed against high tech companies. As it 
     now stands, the bill has been altered from its original 
     intent and purpose and no longer provides the ``safe harbor'' 
     provision for forward-looking and predictive statements by 
     companies.
       S. 240 is a modest, reasonable and balanced piece of 
     legislation which assured the right of private action as a 
     deterrent to fraud. The high-tech community has acted very 
     responsibly in their desire to provide access for truly 
     defrauded investors to sue for recovery. The U.S. House of 
     Representatives has already passed Securities Litigation 
     Reform Legislation by a veto-proof majority of 325 to 99.
       I am asking you to support the original intent and purpose 
     of S. 240 by cosponsoring the bill and further to add your 
     vote to strengthening amendments for safe harbor, without 
     which reform will be meaningless for the high-tech community.
       Please give your unqualified support to this important 
     bill. I look forward to the successful passage of S. 240 as 
     soon as possible.
           Best regards,
                                                    R.B. Lawrence,
     President.
                                  ____

                                             Lease Crutcher Lewis,


                                                  Contractors,

                                        Seattle, WA, June 8, 1995.
     Hon. Patty Murray,
     U.S. Senate, Washington, DC.
       Dear Senator Murray: I understand that the U.S. Senate is 
     considering a bill (SB 240) which would reduce frivolous 
     stockholder lawsuits. As both a small investor and an 
     employee of a company that provides services to high 
     technology companies, I strongly encourage your support of 
     such legislation.
       High-tech companies, particularly high risk biomedical 
     companies, are susceptible to what amounts to extortion by 
     attorneys bringing meritless lawsuits. By nature, their stock 
     values fluctuate widely, and almost any sharp drop can 
     trigger a stockholder suit.
       Officers of high-tech companies have become so fearful of 
     stockholder suits that disclosure of information of any type 
     can be a risky proposition. Such an intimidating business 
     atmosphere stifles the entrepreneurial spirit found in most 
     young high-tech enterprises.
       Unscrupulous attorneys have stunted the growth of high-tech 
     companies, have cost the small investor money, and have made 
     themselves rich in the process. Again, I strongly encourage 
     your support of SB 240, as such legislation is a positive 
     step in limiting stockholder suits to only those cases which 
     have merit.
           Respectfully,
                                                     Mark Johnson,
     Division Manager, Biomedical Projects.
                                  ____



                                      Eagle Hardware & Garden,

                                                     June 2, 1995.
     Hon. Patty Murray,
     Russell Senate Office Building,
     Washington, DC.
       Dear Senator Murray: I want to express our thanks and 
     appreciation for your vote for Senate Bill 240. It is very 
     important for businesses and employees in the state of 
     Washington.
       Eagle Hardware & Garden, Inc. had a basically unfounded 
     class action suit filed against the company by Steve Berman. 
     It was a frivolous suit and the insurance company will settle 
     the case, but we know these suits can damage a fledging 
     company and affect the price of the stock for all 
     shareholders.
       Again, your vote for Senate Bill 240 is greatly 
     appreciated.
           Very truly yours,
     David J. Heerensperger.
                                  ____



                                          Hi-Rel Laboratories,

                                        Spokane, WA, June 2, 1995.
     To: Senator Slade Gorton, Senator Patty Murray.
       Dear Senators: I would like to take a moment and thank each 
     of you for being cosponsors for S. 240.
       As you know, we need strong laws to protect the rights of 
     the people, However, business needs support on many laws 
     which cause great harm.
       We urge you to continue to support this bill and hope that 
     you will work hard to convince others that this bill as 
     written, needs to be passed and not a watered down version,
       Hi-Rel Laboratories, Inc, and the American Electronics 
     Association will always stand behind a person who in fact has 
     a legitimate suit against a company, but to have the suits 
     for no reason other than to be able to settle a suit on an 
     un-earned basis just to make sure the defense lawyers have 
     income, borders on fraud.
       Thank you again for the support.
           Respectfully,
                                                       John Level,
                                                  VP Gen. Manager.

  Mrs. MURRAY. I want to read just a portion of another letter I 
received. It is from Michael Darling, who wrote:

       Digital Systems International settled two securities cases 
     in 1993 for payments of cash and stock valued at $7.5 
     million, not including litigation expenses. The costs of the 
     litigation forced the company to lay off 30 workers--and to 
     ask those remaining to accept pay cuts.

  Mr. President, I have also heard from the opponents of the 
legislation. I have listened carefully to every argument against the 
bill. I have worked to make this legislation good for all the parties 
involved.
  In fact, I have studied this issue for more than 2 years with members 
of both sides of the aisle--in a strong bipartisan fashion--to make 
this bill work for the American people.
  As we debate this bill, there are ads running in the papers and 
inflammatory attack ads being broadcast by both sides in this debate. 
Given the lengthy debate we have had on this bill, I find these 
campaigns very disturbing.
  Let me say to these groups, Mr. President, they are not serving 
anyone's purpose but their own.
  They are not helping craft legislation that works for America--they 
are slugging it out trying to seek advantage.
  I stand here on the floor today and say clearly to both sides of this 
issue--
  Keep things in perspective. Use some common sense. Stop attacking and 
start cooperating.
  Mr. President, I have seen some unfortunate--and inaccurate--
statements made about this bill. Many have referred to an editorial 
from a Seattle newspaper which overlooked some of the bill's most 
important provisions.
  First, their editorial states that high-profile, meritorious cases of 
securities fraud could not be brought once S. 240 becomes law.
  That is simply not true. The SEC can always fight fraud, and they do 
so with vigor and clear purpose.
  This point is made quite clearly in the committee report:

       None of the provisions in S. 240 affects the SEC's ability 
     to bring enforcement actions.

  Second, the editorial stated the bill contains a loser-pays 
provision.
  Again, this is untrue. S. 240 does not contain any fee-shifting 
provisions.
  It merely modifies rule 11 of the Federal Rule of Civilian Procedure. 
And, rule 11 does not sanction anyone just for losing their case.
  This provision actually favors the small investor. S. 240 states that 
the sanction does not apply if it will cause undue financial hardship 
on the sanctioned party.
  Mr. President, this editorial has been challenged aggressively by 
public officials, business people, and many constituents in my State. I 
now ask unanimous consent to have printed in the Record a series of 
letters-to-the-editor to Washington newspapers on this issue.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:


[[Page S9079]]

            [From Seattle Post-Intelligencer, June 19, 1995]

           Editorial on Fraud Law Shows Homework Wasn't Done

                            (By John Level)

       Your June 2 editorial regarding Sens. Patty Murray and 
     Slade Gorton was certainly not good reporting. Both senators 
     became co-sponsors of S. 240 because the bill is long 
     overdue. If you had done your homework, you would have found 
     the following information.
       High-growth companies have become targets of abusive 
     securities litigation. There are about 300 lawsuits filed in 
     each of the past few years. Ninety-three percent are settled 
     before they go to court with settlements that amount to $8.6 
     million or a $2.4 billion a year industry.
       The only reason that these cases are settled out of court 
     is that it is cheaper in the long run. The trail lawyers are 
     the only big winners in these suits. In many cases, over 60 
     percent of the settlement goes to the legal system.
       Nearly seven out of 10 investors surveyed by Public Opinion 
     Strategies for the National Investor Relations Institute say 
     they want the bill passed. The only people who do not want 
     the bill passed are the lawyers, people who make a living 
     from lawsuits and some people who have not read the bill or 
     even seen it. I suspect that is the case with you.
       Your editorial was written without a full understanding of 
     the bill, and your remarks about Murray are fully uncalled 
     for. A retraction should be made to her. While I don't agree 
     with Murray all of the time, she certainly made a good 
     decision in supporting this bill and it appears that she 
     ``read'' it.
                                  ____


                   [From Seattle Times, June 7, 1995]

                     Investors Retain Right To Sue

                        (By Scott G. Hallquist)

       The misleading information printed by The Times concerning 
     securities litigation reform has been a disservice to Times 
     readers. In both an editorial published May 29 and a news 
     article published May 31, Times writers incorrectly suggested 
     that the proposed legislation will strip investors of their 
     right to sue companies for fraud. This is simply not true.
       The legislation to be considered by the Senate represents a 
     negotiated compromise that preserves an investor's right to 
     sue, while implementing reforms intended to curb lawsuits 
     that are filed without reasonable basis.
       By providing a safe harbor for forward-looking company 
     forecasts made in good faith, the legislation is expected to 
     improve the quality of information companies can make 
     available to investors.
       Most troubling to me was a personal attack upon the 
     integrity of Sen. Patty Murray by a local attorney who 
     specializes in securities litigation. Unlike her accuser, I 
     do not believe that Sen. Murray can be ``bought off'' and 
     applaud her courage for voting in favor of this legislation.
       In our securities markets, the ability of individual 
     investors to sue for damages for fraud by securities issuers 
     does provide an important incentive for companies to provide 
     accurate and timely information to investors. In approving 
     the legislation now being considered by Congress, Sen. Murray 
     and other members of Congress balanced the need to preserve 
     redress for investors in fraud cases, against the need for 
     public companies to be able to discuss future performance 
     without the fear that unanticipated developments will 
     invariably result in costly and protracted litigation.
       Growing public companies are primary engines of job 
     creation and economic growth in our state. Appropriately 
     balanced legislation such as the securities litigation reform 
     bill supported by Sen. Murray is a reasonable step that need 
     not be feared by individual or public investors.
                                  ____


                  [From Seattle Times, June 19, 1995]

       Reform Measure Doesn't Limit Liability of Accounting Firms

                           (By John A. Moga)

       Your May 29 editorial and your May 31 news report on 
     congressional efforts to repair a securities litigation 
     system that is drowning investors and businesses in a sea of 
     unmerited lawsuits included a number of disturbing factual 
     errors.
       Your report that legislation (S. 240) introduced in the 
     Senate by Republican Sen. Pete Domenici would relieve 
     accounting firms of liability is simply not true. Rather, the 
     bill establishes a system of proportionate liability that 
     would base liability on a defendant's degree of 
     responsibility for any plaintiff damages. In cases of 
     ``knowing fraud'' where the defendant was guilty of 
     deliberate misconduct, the defendant would remain liable for 
     the total amount of damages assessed by the court. By the 
     way, this provision applies to all defendants--not just 
     accounting firms as you suggest.
       The report also erroneously says that the bill eliminates 
     the ``fraud on the market'' provision of current law. This, 
     too, is untrue. S. 240 retains fraud on the market--which 
     enables shareholders to recover even when they are unaware of 
     the erroneous statement--an important provision for 
     investors.
       Finally, I was distressed by the flat assertion in your 
     editorial that the proposed reform measures strip investors 
     and government of their right to sue. Neither the Senate bill 
     nor a measure passed by the House earlier this year does any 
     such thing. I believe you should re-visit this issue and make 
     sure you have all the facts right. Your readers deserve it.
                                  ____


                 Lawyers the Only Ones to Reap Benefits

                          (By Austin L. Wolff)

       Your editorial in defense of the current class-action 
     securities law is very wrong. You have not looked at the real 
     issue. Stockholder class-action suits enrich the lawyers at 
     the expense of the stockholders and the consumer.
       Most suits against small public companies are never proved 
     but instead settle out of court because, regardless of right 
     or wrong, it is cheaper to pay than to defend. A word that 
     would describe this type of settlement is ``blackmail.'' 
     Carol Bartz, president of Autodesk, a CADD software company, 
     explained it this way at President Clinton's business 
     conference. A lawyer, using the name of a couple of 
     shareholders, instigated a class-action suit. Autodesk's 
     lawyers reviewed the claim and concluded that the company was 
     not in the wrong but advised the company to pay $10 million 
     because it would cost $100 million to defend. That is called 
     a ``negotiated'' settlement.
       In a recent stockholder case against Egghead, the Issaquah-
     based software retailer, I personally heard the judge approve 
     a similarly arrived-at settlement that paid the suing lawyer 
     about $700,000, which computes out at the rate of $700 per 
     ``billable'' hour. That is almost 200 times minimum wage.
       The two stockholders in whose name the suit was brought had 
     lost a total of less than $1,200. The managers who were 
     running the company at that time paid nothing because they 
     were covered by a company guaranty. The total cost to the 
     company, and thus to the rest of the stockholders, was in the 
     order of $3 million, plus the loss of much management and 
     employee time. Among those stockholders, and thus among those 
     who in essence paid, was my nephew, a minor, whose savings 
     account for college was invested in the company. . . .
       The judge implied that settlements like this would 
     encourage more such suits. Woe to small businesses, woe to 
     the investing public.
       There are adequate criminal laws regarding fraud that are 
     handled by state and federal agencies; let those agencies 
     prosecute. . . .
                                  ____


            [From Seattle Post-Intelligencer, June 16, 1995]

     Editorial Fails To Acknowledge the Need to Reform Existing Law

                             (By Dan Grimm)

       As state treasurer and a member of the State Investment 
     Board, I read with interest your June 2 editorial on 
     securities litigation reform. The SIB has been involved in 
     costly and protracted litigation involving allegations of 
     securities fraud. (Your editorial noted the SIB's recent 
     recovery of $1 million in the settlement of a securities 
     fraud case. And like some corporations, the SIB has had to 
     deal with hastily drafted lawsuits filed by attorneys who 
     were out to make a quick buck.
       I was disappointed that you failed to acknowledge the need 
     to reform the securities litigation law. The fact is, many 
     organizations representing investors and government entities 
     support legislation designed to deter costly and frivolous 
     litigation while preserving vital investor rights and 
     remedies.
       Your editorial correctly pointed our that legislation under 
     consideration by Congress could unduly burden investors and 
     limit their access to the courts. That's why I sent a letter 
     to our Senate delegation urging them to oppose legislation 
     that does not strike an appropriate balance between the 
     concerns of investors and corporations.
       I have been in contact with Sen. Patty Murray to share 
     those concerns, and contrary to the assertions of your 
     editorial, she shares the view that securities-reform 
     legislation must protect the rights of investors as well as 
     address the problems of frivolous lawsuits. In fact, Murray 
     was instrumental in making sure that legislation under 
     consideration by Congress will reasonably protect the rights 
     of small and large investors. With her assistance, the 
     draconian ``loser pays'' provision was tempered in the 
     Banking Committee. I am optimistic that Murray will be 
     successful in her efforts to see that other anti-investor 
     language is moderated or even removed from the bill as it 
     moves through the Senate.

  Mrs. MURRAY. Mr. President, this system needs reform. S. 240 will 
retain the rights of investors to bring suit if they have been the 
victims of securities fraud.
  At the same time, it will clamp down on the abusive suits that prey 
on investors and small business owners.
  It is an honest effort to reduce the excessive costs to investors and 
our economy. It enjoys bipartisan support.
  It is a good compromise.
  For those of us concerned about the rights of investors--let me be 
very clear.
  It is absolutely critical to me that businesses and entrepreneurs 
remain bound to their obligations to maximize the return-on-
investment--to seniors

[[Page S9080]]

and average American families who invest in stocks and bonds.
  I will not support a bill which goes further than this in changing 
the current system.
  I will not support a loser pays provision.
  I will fight efforts to remove the protections for small investors in 
the bill.
  I will reject any legislation that takes away the SEC's powers to 
fight fraud.
  These are lines I will not cross, and in fact, no Senator should 
cross.
  They set my standards publicly for Senators offering amendments 
today--and Senators who go into conference with the House.
  As it stands now, S. 240 brings rationality and perspective and 
common sense to the system.
  And, I urge its swift adoption.
  Mr. LEAHY. Mr. President, I have many questions about S. 240, the so-
called Private Securities Litigation Reform Act. This bill is intended 
to curb frivolous lawsuits by private investors claiming securities 
fraud. But I fear that this bill would also stifle honest lawsuits. I 
cannot support a bill that will infringe on the rights of innocent 
securities fraud victims.
  Our Federal securities laws provide enforceable legal rights to the 
Securities and Exchange Commission (SEC) and private investors. The 
ability of private investors to enforce their rights is indispensable 
to enforcing our Federal securities laws. As one former Commissioner of 
the SEC said:

       Because the Commission does not have adequate resources to 
     detect and prosecute all violations of the federal securities 
     laws, private actions preform a critical role in preserving 
     the integrity of our securities market.
  A perfect example of this critical role is the securities fraud case 
involving Charles Keating, known for his role in the largest savings 
and loan debacle in U.S. history. After Keating, as president of the 
Lincoln Savings & Loan of California, sold uninsured bonds in the 
lobbies of Lincoln branches by making misrepresentations, private 
investors sued under our Federal securities laws. A class of 23,000 
investors recovered $240 million of their $288 million in losses 
through private securities fraud actions.
  I am sure that the vast majority of professionals working in the 
securities industry strive to provide accurate information and there 
are some abuses of the private securities litigation system. This 
legislation would, undoubtedly, curb many of these abuses. For 
instance, I support the bill's provisions to prohibit lawyers from 
paying bounties to professional plaintiffs, those who buy a few shares 
of different stocks so they may bring shareholder suits for a living.
  But this bill also overreaches beyond these abuses and penalizes 
innocent investors. Under S. 240, for example, aiders and abettors 
cannot be sued in private securities actions, even if they knowingly 
assist securities fraud. The defendants in the Charles Keating case 
whose liability depending on aiding and abetting, which included 
Keating's lawyers, accountants and consultants, paid over $100 million 
to fraud victims.
  In addition, the nonpartisan Congressional Budget Office estimated 
that enactment of S. 240 would increase costs to the SEC for 
enforcement actions by $125 million to $250 million over the next 5 
years. In these tight budget times, I am very doubtful that Congress 
will increase the SEC's budget by such a large amount. As a result, 
enforcement of our securities laws will suffer.
  I have heard from many Vermonters, including the commissioner of the 
Vermont Department of Banking, Insurance and Securities--the State's 
chief securities regulator--who feel S. 240, as reported by the Senate 
Banking Committee, would severely limit private actions under 
securities laws. Vermont institutional investors, such as the Towns of 
Colchester, Brandon and Stowe, Teamster Union Local 597, the Vermont 
NEA, AFSCME Council 93, the Vermont State Labor Council and others have 
also alerted me to their opposition to this bill. Vermont consumer and 
senior groups including Vermont Public Interest Research Group, Council 
of Vermont Elders, Older Women's League, Southwestern Vermont Council 
on Aging and the Central Vermont Council on Aging opposed S. 240. 
Moreover, the Commissioner of the SEC--the national's chief securities 
regulator--also has significant concerns about S. 240 as reported.
  I believe we are moving too fast on this bill, ignoring the SEC and 
others concerns. That is why I supported a motion on the Senate floor 
to refer this bill to the Senate Judiciary Committee, of which I am a 
member. This legislation would make significant changes to Federal 
litigation rules and should be carefully reviewed by the Senate 
Judiciary Committee before the full Senate votes on it. Unfortunately, 
that motion was defeated.
  Thousands of Vermonters and millions of Americans depend on our 
Federal securities laws to protect their investments, savings and 
retirements. These laws are just too important to add questionable 
curbs that may protect companies and individuals who commit fraud at 
the expense of innocent investors. Unless this bill is significantly 
amended, I will vote against it.


                      Unanimous-Consent Agreements

  Mr. D'AMATO. Mr. President, I would like to propound a number of 
unanimous consent agreements which we have worked out in order to 
accommodate Members and in order to move the legislative flow.
  I ask unanimous consent that Senator Bryan be recognized to offer an 
amendment relative to aiding and abetting on which there will be 1 hour 
for debate to be equally divided in the usual form, and any second-
degree amendments may be limited to half that debate time, and must be 
relevant in the first degree they propose to amend.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I further ask that following the debate 
on the Bryan amendment, the amendment be laid aside, and Senator Boxer 
be recognized to offer an amendment relative to lead plaintiffs, on 
which there will be 90 minutes for debate equally divided in the usual 
form, and any second-degree amendment be limited to half the debate 
time and must be relevant to the first-degree amendment they propose to 
amend.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I further ask that at 9:15 on Tuesday, 
the Senate resume consideration of S. 240, and that there be time for 
30 minutes of debate on the Bryan amendment to be equally divided in 
the usual form, and following that debate there will be 30 minutes for 
debate on the Boxer amendment, to be equally divided in the usual form.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that at the hour 
of 10:15 on Tuesday, the Senate proceed to vote on or in relation to 
the Bryan amendment, to be followed immediately by a vote on or in 
relation to the Boxer amendment, with 2 minutes prior to the second 
vote for Senator Boxer in the usual form, to set forth an explanation, 
1 minute on each side.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I further ask, following the two stacked 
votes at 10:15, Senator Sarbanes be recognized to offer an amendment 
relative to safe harbor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that Senator 
Abraham be recognized, and that the time he utilizes be charged against 
the time that we would be allocated in considering the Bryan amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. ABRAHAM. Mr. President, I rise today to express my support for S. 
240. This legislation makes a number of important reforms that are 
designed to prevent abuse in litigation connected with the issuance of 
securities.
  This in turn will improve the investment climate in this country, 
which will make it easier to start businesses and create jobs.
  These changes will be made without, in my judgment, in any way 
undermining protection for investors against genuine fraud or other 
misconduct by issuers.
  There is one particular set of reforms the bill would make on which I 
would like to focus. The bill will require courts to sanction attorneys 
who file

[[Page S9081]]

frivolous pleadings. This reform will apply when the lawyers file 
frivolous proceedings on behalf of plaintiffs and on lawyers filing on 
behalf of defendants. I think it is an extremely sound proposal which 
should command strong support from Members on both sides of the aisle.
  Indeed, as the Presiding Officer will recall, he himself offered a 
similar provision with regard to the product liability issue some weeks 
ago, a provision which I supported and which a majority of Senators 
supported at that time.
  Mr. President, under present law, Federal Rules of Civil Procedure 
No. 11 requires all attorneys to have some factual and legal basis for 
filing any claim or defense. If attorneys violate this requirement, 
courts may award sanctions against the violator. Right now, however, 
the courts are not required to take any action against the violator.
  The changes proposed by S. 240 would do three things. First, they 
would require courts to find, at the end of all securities cases, 
whether any attorney violated rule 11. Second, the court would then 
have to impose a sanction if they found a violation. Third, that 
sanction would presumptively require the attorney in violation to pay 
the other side's attorney fees, although the court could select another 
sanction if the attorney shows that the presumptive sanction would 
impose an undue burden on the sanctioned party.
  Two important features of this reform should particularly be known. 
First, the court would only be obligated to impose a sanction on an 
attorney who filed a frivolous pleading; that is, a pleading wholly 
lacking in a legal or factual basis. This reform will in no way kill 
legitimate litigation.
  Second, the sanction is paid by the person signing the frivolous 
pleading; that is to say the attorney responsible, not by the party the 
attorney is representing.
  The Supreme Court itself has noted the securities litigation has been 
especially prone to be misused as a tool to extort settlements. It is 
Congress' responsibility to do something to put an end to this abuse. 
The rule 11 provisions are one mechanism this legislation puts in place 
to do just that.
  This leaves me, however, with one problem about what we are doing 
here this week. It is certainly good we are taking serious steps to 
enact litigation reforms that will address abusive practices in the 
securities area. Similarly, it was good we took similar steps to enact 
reforms that address abusive practices in the field of product 
liability, which we did just a few weeks ago.
  I ask, Mr. President, why are we stopping here? Brokerage firms, 
accountants, and manufacturers, and the people who buy their products 
or use their services, are far from the only victims of our out-of-
control civil justice system.
  Our homeowners, farmers, volunteer groups, charitable organizations, 
small businesses, State and local governments, architects, engineers, 
doctors and patients, employers and employees, are likewise injured by 
our civil justice system on a daily basis.
  Every day, lawsuits suffering from the same defects as those the 
sponsors of this litigation have brought up are filed against all of 
these people.
  Indeed, when their plight was brought to the attention of the Senate 
during the product liability debate, along with several other 
colleagues, I led an effort to broaden the reforms that bill would have 
made.
  We wanted reforms that would benefit all Americans. A majority of 
Senators supported many of our broadening proposals, yet the will of 
that majority was frustrated by opponents of broader reform, who made 
clear they would filibuster a bill that made civil justice reforms that 
would benefit all Americans. I considered mounting a similar effort in 
conjunction with this bill, but sponsors of this legislation were 
assured that it would suffer a similar fate. Therefore, and with some 
regret, I yielded to their request not to offer broadening amendments 
at this time. However, I do not believe the Senate can forever avoid 
confronting the fact that, while it is making important reforms in 
specific areas of civil justice, it is refusing to make broad-based 
reforms that will help small businesses, charities, and other 
institutions that form the backbone of this country. I, for one, will 
continue to bring these reforms up, again and again. I will not rest 
until broad-based reforms to our civil justice system are adopted.
  Mr. President, I think it is important that we take the actions we 
take today to protect the people in the securities industry and people 
who are shareholders in corporations that are affected by these 
frivolous lawsuits, just as I think it was appropriate that we take 
those actions in conjunction with product liability actions. But across 
America, every day the small business people, the farmers, and the 
charitable organizations in our communities suffer from frivolous 
lawsuits brought against them. They suffer when the joint and several 
liability provisions cause deep pockets to end up paying for damages 
they had virtually no connection with creating. I think it is time for 
across-the-board reforms that protect, not just certain areas of civil 
justice, but all areas.
  For those reasons, I intend to come back to this Chamber at a future 
time to offer some of those types of reforms, and I look forward to 
working with other Members of the Senate who agree we need them and we 
need them soon.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New York is recognized.
  Mr. D'AMATO. Mr. President, I commend my colleague from Michigan 
because he does have, and has had, a number of proposals that I believe 
would have strengthened the bill. He has agreed, in order to get 
legislation that would pass and begin to address some of the 
shortcomings in the present system, to withhold them--I deeply 
appreciate that--so we can make some progress. I fully anticipate in 
the future he will go forward with those legislative initiatives.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada is recognized.


                           Amendment No. 1474

   (Purpose: To amend provisions relating to liability for aiding or 
                          abetting violations)

  Mr. BRYAN. Mr. President, I send an amendment to the desk and ask for 
its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The bill clerk read as follows:

       The Senator from Nevada [Mr. Bryan], proposes an amendment 
     numbered 1474.

  Mr. BRYAN. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:
       On page 127, strike line 20 and all that follows through 
     page 128, line 15, and insert the following:

     SEC. 108. AUTHORITY OF COMMISSION TO PROSECUTE AIDING AND 
                   ABETTING.

       (a) Securities Act of 1933.--Section 20 of the Securities 
     Act of 1933 (15 U.S.C. 77t) is amended by adding at the end 
     the following new subsection:
       ``(n) Prosecution of Persons Who Aid or Abet Violations.--
     For purposes of subsections (b) and (d), any person who 
     knowingly or recklessly provides substantial assistance to 
     another person in the violation of a provision of this title, 
     or of any rule or regulation promulgated under this title, 
     shall be deemed to violate such provision to the same extent 
     as the person to whom such assistance is provided. No person 
     shall be liable under this subsection based on an omission or 
     failure to act unless such omission or failure constituted a 
     breach of a duty owed by such person.''.
       (b) Securities Exchange Act of 1934.--Section 20 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78t) is amended--
       (1) by adding at the end the following new subsection:
       ``(e) Prosecution of Persons Who Aid or Abet Violations.--
     For purposes of paragraphs (1) and (3) of section 21(d), or 
     an action by a self-regulatory organization, or an express or 
     implied private right of action arising under this title, any 
     person who knowingly or recklessly provides substantial 
     assistance to another person in the violation of a provision 
     of this title, or of any rule or regulation promulgated under 
     this title, shall be deemed to violate such provision and 
     shall be liable to the same extent as the person to whom such 
     assistance is provided. No person shall be liable under this 
     subsection based on an omission or failure to act unless such 
     omission or failure constituted a breach of a duty owed by 
     such person.''; and
       (2) by striking the section heading and inserting the 
     following:

     ``SEC. 20. LIABILITY OF CONTROLLING PERSONS AND PERSONS WHO 
                   AID OR ABET VIOLATIONS.''.

       (c) Investment Company Act of 1940.--Section 42 of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-41) is amended 
     by adding at the end the following new subsection:

[[Page S9082]]

       ``(f) Prosecution of Persons Who Aid or Abet Violations.--
     For purposes of subsections (d) and (e), any person who 
     knowingly or recklessly provides substantial assistance to 
     another person in the violation of a provision of this title, 
     or of any rule, regulation, or order promulgated under this 
     title, shall be deemed to violate such provision to the same 
     extent as the person to whom such assistance is provided. No 
     person shall be liable under this subsection based on an 
     omission or failure to act unless such omission or failure 
     constituted a breach of a duty owed by such person.''.
       (d) Investment Advisers Act of 1940.--Section 209(d) of the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-9) is 
     amended--
       (1) in subsection (d)--
       (A) by striking ``or that any person has aided, abetted, 
     counseled, commanded, induced, or procured, is aiding, 
     abetting, counseling, commanding, inducing, or procuring, or 
     is about to aid, abet, counsel, command, induce, or procure 
     such a violation,''; and
       (B) by striking ``or in aiding, abetting, counseling, 
     commanding, inducing, or procuring any such act or 
     practice''; and
       (2) by adding at the end the following new subsection:
       ``(f) Prosecution of Persons Who Aid or Abet Violations.--
     For purposes of subsections (d) and (e), any person who 
     knowingly or recklessly provides substantial assistance to 
     another person in the violation of a provision of this title, 
     or of any rule, regulation, or order promulgated under this 
     title, shall be deemed to violate such provision to the same 
     extent as the pension to whom such assistance is provided. No 
     person shall be liable under this subsection based on an 
     omission or failure to act unless such omission or failure 
     constituted a breach of duty owed by such person.''.

  Mr. BRYAN. Mr. President, I yield myself such time as I may require.
  Mr. President, our colleagues will recall, under the unanimous 
consent agreement propounded by our distinguished chairman, that this 
is an amendment that deals with restoring aiding and abetting 
liability. The amendment which I offer is to restore the state of the 
law as everyone in America believed it to be prior to last year's 
Supreme Court decision in a case involving Central Bank of Denver 
versus First Interstate Bank of Denver.
  With one stroke of the judicial pen, so to speak, this 5-to-4 
decision wiped out private liability for crooked professionals who aid 
and abet, but who are not defined as primary participants in securities 
fraud under the provision of the law. What we are talking about are 
those people who counsel and assist in furtherance of the perpetration 
of fraud. Some of them are disreputable lawyers--who ought to be 
disbarred. Others are accountants. Others are professionals who, by 
virtue of their own affirmative action, have aided and contributed to 
the securities fraud involved.
  Aiding and abetting liability was the primary method through which 
professional assistors of fraud--these lawyers, accountants and 
investment banks--have historically been held liable to defrauded 
investors. In my view, if this decision is allowed to stand without 
action having been taken by the Congress, it will seriously weaken and 
erode the effectiveness of our Federal securities laws because it 
overturns three decades of established precedent in which Federal 
courts have permitted private investors to sue aiders and abettors of 
securities fraud.
  Every circuit court of appeals to address the issue--11 circuits--has 
upheld aiding and abetting liability. Investors have long had the right 
to sue accountants, brokers, bankers and lawyers who, by their actions, 
have assisted the primary perpetrators of such securities schemes. This 
right of action has played a critical role in compensating those 
investors who have been swindled in major financial frauds of recent 
times. I will comment a bit more on that in just a moment.
  The damage caused by the Central Bank decision is immeasurable. 
Dozens, if not hundreds, of participants in securities frauds have had 
cases against them dismissed on the basis of the Central Bank decision. 
An unknown number of other cases against clear wrongdoers have been 
precluded, based on the Central Bank decision. And the deterrence of 
securities fraud, which ought to be one of the prime reasons for the 
law in the first place, has suffered a major blow. The problem is that 
in immunizing wrongdoers who substantially assist fraud, we clearly 
give fraudulent behavior a green light.
  I cannot think of any argument that could be advanced, as a matter of 
social or economic justice, in which we ought to reward fraudulent 
behavior on the part of those who aid and abet a primary perpetrator in 
a securities fraud to the detriment and loss of literally tens of 
thousands of innocent investors. Under the Central Bank case, it is 
simply OK to help others commit securities fraud so long as you are 
careful not to make any direct statements or direct the wrongdoing.
  I know a good bit of animosity is directed to America's lawyers, and 
I must say that I am not happier than anybody else who has seen in 
America, speaking generically, a proliferation of a lot of litigation 
that ought not to be filed. If I might cite an outrageous case in my 
own State that has nothing to do with the issue currently, but it is 
the kind of case that just engenders real hostility on the part of the 
public--and count me on the part of those being hostile. It is a person 
who, under the workers compensation law in our State, had been denied 
recovery. Subsequent to that, he drove his automobile into the worker 
compensation office in the Las Vegas area, nearly killed several people 
who were working, and then a year or two later had the temerity to file 
a lawsuit against the SIS, which is the worker compensation system in 
Nevada, blaming the system for causing his action in doing extensive 
damage to the building and literally terrifying those employees.
  So I am not unmindful of the hostility that has been generated. But 
this is a case that rewards lawyers. If you are clever enough not to 
make a direct statement or participate directly in the wrongdoing, then 
you are home free. You do not go to jail, you go home free. I cannot 
imagine that is the sort of thing that we want to encourage.
  To put this into some historical context, if this decision had been 
on the books earlier, the substantial recoveries by the victims in the 
Keating case--which is the Lincoln Savings and Loan case--would have 
been impossible. As you will recall, in the Lincoln Savings and Loan 
case, the primary wrongdoer was the nefarious Charles Keating. By the 
time the class action is filed, Mr. Keating is bankrupt.
  There was a judgment entered of about $240 to $262 million in the 
class action. But about half, a little more than $100 million of 
recovery for the 23,000 bondholders, would have been denied to these 
23,000 bondholders. These are people who are totally innocent, have no 
culpability at all other than the fact that they relied upon some 
representations made at the savings and loan which they kind of thought 
was a local, home-based outfit. Everybody knew each other. Mr. and Mrs. 
Smith would be greeted every morning. ``Have you walked your dog? Your 
cat?'' ``How are the grandkids doing?'' That sort of thing. But the 
aiders and abettors responded with more than $100 million of recovery 
that otherwise would have been denied to these 23,000 bondholders. Had 
this case, Central Bank, been the law, that $100 million recovery would 
not have been possible.
  These are aiders and abettors, people who have assisted in the fraud. 
Again, if the scales of justice mean anything, should those who have 
aided and abetted, in terms of their own conduct, not be held 
responsible, to respond to damages incurred by their conduct to those 
who are totally innocent?
  That is what this whole issue is all about. Federal District Judge 
Stanley Sporkin, a former SEC enforcement chief, in his opinion in the 
Keating case asked critical questions that sum up the theory behind 
aiding and abetting:

       Where were the professionals when these clearly improper 
     transactions were being consummated? Why didn't any of them 
     speak up or disassociate themselves from the transactions? 
     Where also were the outside accountants and attorneys when 
     these transactions were effectuated?

  In a subsequent speech, Judge Sporkin elaborated,

       For this kind of massive, very sophisticated fraud to have 
     occurred, it required the complicity of certain professionals 
     that we all know of--CPAs, lawyers and appraisers. I am 
     suggesting that perhaps these professionals did not discharge 
     their responsibilities to the broader public interest.

  The responsibility of corrupt accountants and lawyers for the savings 
and loan debacle of the 1980's can hardly be overstated. On August 12, 
1992, then SEC Chairman Richard Breeden wrote Senator Domenici:

       Securities fraud actions against accounting firms that 
     participate in or assist in fraudulent activity by not 
     properly

[[Page S9083]]

     preforming their auditing functions are important to the 
     maintenance of high standards of quality and integrity among 
     public accounting firms.

  Parenthetically, I should say I think the public has a right to 
expect that level of integrity.
  Then Chairman Breeden went on to say:

       Investors rely heavily on the accuracy of all of audited 
     financial statements of public companies as do creditors, 
     investment analysts and others. When others fail to adhere to 
     generally accepted accounting principles or generally 
     accepted auditing standards, many innocent parties may 
     suffer. Indeed, inaccuracies in audited financial statements 
     of banks and savings and loans have contributed billions of 
     dollars in investor losses during the past 10 years. Public 
     policy should seek to maintain high expectations of integrity 
     and accuracy in the performance by others and accountants of 
     their tasks.

  Mr. President, that is what the Republican Chairman of the SEC had to 
say about the importance of holding aiders and abettors responsible for 
their actions.
  A number of notable statistics from cases brought by the Federal 
Government highlight the importance of holding professional assistors 
liable: In 1990, the RTC banned six of the largest accounting firms--
Ernst & Young, Deloitte & Touche, Coopers & Lybrand, Peat Marwick, 
Arthur Andersen, and Grant Thornton--from receiving thrift 
reorganization work because they were being sued by the Government for 
failure to perform their audits of S&L's in a professional manner.
  According to the General Accounting Office, when all categories of 
professionals are considered, Resolution Trust Corp. attorneys 
suspected wrongdoing on the part of one or more professionals 
affiliated with over 80 percent of failed thrift institutions. More 
than 80 percent. There is some indication that professionals were 
responsible, and attorneys in particular were suspected of wrongdoing.
  In one astounding example of the pervasive role of accountants in S&L 
wrongdoing, a Federal judge stated in 1992 that:

       [The Office of Thrift Supervision] advised the court that 
     approximately one-third of the 690 financial institutions 
     that have failed were audited by Ernst & Young or its 
     predecessor.--Director of the Office of Thrift Supervision v. 
     Ernst & Young, 786 F. Supp. 46, 52 (D.D.C. 1992).

  In a speech before the American Bar Association, Timothy Ryan, former 
Director of the Office Thrift Supervision, stated:

       The federal agencies have uncovered actionable abuse in a 
     third of the failed thrifts investigated to date. It is clear 
     that many of the unlawful scheme hatched at those failed 
     institutions could not have proceeded without the active 
     assistance of professional service providers, especially 
     lawyers. They have abandoned their ethics for expediency, and 
     sold their good name to satisfy their greed.

  Mr. President, the point I seek to make is that unless the law is 
changed, that kind of conduct, so articulately denounced, will remain 
unpunished and innocent investors will be unable to recover from 
lawyers, accountants, and other professionals.
  So, Mr. President, the loss of aiding and abetting liability 
undermines fundamental protections for investors and the securities 
markets. Many defrauded investors will not recover their losses 
because, typically, the perpetrator of the fraud is insolvent, in jail, 
or has fled by the time the case is completed. In addition to wiping 
out private actions against aiders and abettors, the Central Bank case 
calls into question the SEC's own enforcement actions against aiders 
and abettors.
  S. 240 fails to restore aiding and abetting liability for private 
actions. Although it authorizes the SEC to take action against aiders 
and abettors who knowingly violate the securities laws, it effectively 
eliminates the ability of the Commission to proceed against reckless 
professional assistors, which is now permitted by most courts.
  This amendment, which was drafted with the technical assistance of 
the SEC, reverses the Central Bank decision, and restores the status 
quo ante. It restores the law to the way it was prior to the Central 
Bank case last year by restoring aiding and abetting authority in 
individual securities fraud actions and clarifying the SEC's authority 
to pursue aiders and abettors for reckless and knowing fraud.
  The original sponsor of securities litigation reform, Senator Dodd, 
has recognized the importance of aiding and abetting liability and has 
urged a response to Central Bank. At a May 12, 1994, hearing before 
this committee, he said:

       In my view, aiding and abetting liability has been 
     critically important in deterring individuals from assisting 
     possible fraudulent acts by others. Until the Supreme Court 
     changed the landscape a few weeks ago, aiding and abetting 
     liability was an important tool in ensuring honesty and high 
     professional standards by individual professionals who 
     facilitate access to the securities markets. In my view, we 
     need to respond to the Supreme Court's decision promptly and 
     I emphasize promptly.

  In a February 27, 1995, ``Dear Colleague,'' Senator Dodd and Senator 
Domenici reiterated that a reversal of Central Bank should occur ``as a 
part of a comprehensive package to fix our broken securities class 
action system.'' In his additional views to the committee report on S. 
240, Senator Dodd again expressed his concern about the restoration of 
aiding and abetting liability for private actions.
  Even the Supreme Court majority opinion in Central Bank which was 
based solely on the lack of the actual words ``aiding and abetting'' in 
the statute, recognized the need for restoring aiding and abetting 
liability. In the words of Justice Kennedy:

       To be sure, aiding and abetting a wrongdoer ought to be 
     actionable in certain instances. The issue, however, is not 
     whether imposing private liability on aiders and abettors is 
     good policy, but whether aiding and abetting liability is 
     covered by the statute.

  The SEC argued strongly in the Supreme Court that ``aiding and 
abetting'' liability was critical to enforcement of the Federal 
securities laws. Since the Court decision, the SEC has repeatedly urged 
Congress to restore aiding and abetting liability. Most recently, on 
April 6, 1995, SEC Chairman Arthur Levitt testified before the 
Subcommittee on Securities that:

       Unless another theory of liability can be applied in a 
     particular case, persons who knowingly or recklessly assist 
     the perpetration of a fraud may be insulated from liability 
     to private parties if they act behind the scenes and do not 
     themselves make statements, directly or indirectly, that are 
     relied upon by investors. Because this is conduct that should 
     be deterred, Congress should enact legislation to restore 
     aiding and abetting liability in private actions. Such 
     legislation should also clarify the Commission's ability to 
     use the aiding and abetting theory of liability where it is 
     not expressly provided by statute.

  Levitt previously testified that, of 400 pending SEC cases, 80 to 85 
rely on aiding and abetting theories of liability.
  I must say, Mr. President, as I read the current version of S. 240, 
even the ability of the SEC to recover for aiding-and-abetting 
liability seems to be more narrowly confined than those circumstances 
where there is knowledge or scienter involved.
  On May 25, 1995, the day S. 240 was voted out of the Banking 
Committee, Chairman Levitt again raised the aiding-and-abetting issue, 
noting that, while some of the SEC's authority had been restored, ``a 
more complete solution is preferable.''
  The bar association of the city of New York--undoubtedly the leading 
organization of plaintiff and defense attorney's in the securities 
field--has taken an extremely strong position on this issue. As Mr. 
Sheldon Elsen testified in the House,

       Let me turn, finally, to lawsuits against lawyers, 
     accountants, underwriters and other professionals. Experience 
     in these cases has shown that securities frauds do not 
     succeed very often without the aid of such professionals, but 
     that it is almost impossible to prove the professionals' 
     involvement . . . The Association feels particularly strongly 
     about this matter, which involves lawyer misconduct. In our 
     view, the primary problem of abuse by lawyers lies in the 
     conduct of securities lawyers involved in fraudulent 
     transactions.

  That is a scorching indictment by the most distinguished and 
knowledgeable and the most sophisticated bar in America dealing with 
this subject. And it deals with lawyer misconduct. Thus our purpose 
here simply is to deter lawyer misconduct on the part of the plaintiffs 
bar, and that we certainly ought to do. If the changes which our able 
chairman has crafted to rule 11 do, indeed, deal with misconduct in the 
form of frivolous actions by the plaintiffs bar, why would we not also 
want to impose liability on lawyers, accountants and others who are 
helping

[[Page S9084]]

to assist in the perpetration of this fraud? The policy disconnect, Mr. 
President, I find difficult to comprehend.
  Mr. President, as I have indicated previously, the securities 
regulators in their respective States also support this proposition. 
And it seems to me that in light of the indications that we have seen 
that the amount of securities fraud is estimated to be about $40 
billion annually--the SEC has commented recently in an article which I 
shared with our colleagues on Friday that securities fraud is not 
something out of the 19th century; it is very much alive, very 
sophisticated--the sophisticated aiders and abettors, the clever 
lawyers, the smooth accountants who assist in this fraud behind the 
scenes, they ought to be brought to the bar of justice, and economic 
recovery for innocent victims is the way of achieving that economic 
justice.
  I yield the floor and reserve the remainder of my time.
  The PRESIDING OFFICER. Who seeks recognition? The Senator from 
Connecticut is recognized.
  Mr. DODD. Mr. President, I thank the Chair. I will try not to take a 
great deal of time on this. I have said privately, Mr. President, I am 
going to hire the Senator from Nevada as my lawyer if I am ever in need 
of a lawyer, after the Senator from New York apparently.
  I have known the Senator from Nevada for a long time. No one is 
better in crystallizing an argument and making a thoughtful 
presentation on a point. Certainly we have seen his incredible ability 
here over the last several days on a number of amendments that he has 
offered to this bill.
  On this particular issue of aiding and abetting, he has once again 
displayed those skills which should probably earn him a distinguished 
reputation as great debater of causes. But we disagree on this 
amendment. I say that because we agree on aspects of this. The tendency 
of these debates on amendments is to lose sight of where you agree.
  One of the things this bill does do is, of course, extend to the SEC 
the authority to bring aiding and abetting cases, which was not the 
case prior to this legislation as a result of Supreme Court decisions 
so we have strengthened it.
  Second, when it comes to the issue of fraud, knowing intentional 
fraud, we do not change anything in effect. The joint and several 
provisions apply. People who are knowingly involved in those 
activities, all can be subject to the maximum financial penalties.
  What we are talking about here is a much lower standard and one that 
would apply, as the amendment indicates, to knowing or reckless 
behavior. It is a result of that standard and the amendment of the 
Senator from Nevada that I would take exception, particularly the 
recklessness standard. The knowing standard, if you could really 
tighten that up to some degree and actual knowledge, and so forth, I 
think you might have something that we would like to talk about. But 
the recklessness standard here is a standard that is so difficult to 
apply that it in effect would destroy the attempts of this legislation 
to mitigate against this explosion of unwarranted litigation in the 
area of securities.
  Let me just, if I can, Mr. President, as a matter of background point 
out that until the Central Bank of Denver case was decided last year, 
many circuit courts recognized aiding-and-abetting liability.
  I want to come back to that point in a minute because one of the 
points I wish to make here is that it is being implied or suggested if 
we adopt this amendment, all we are doing is going back and just 
applying the law as it was prior to the Central Bank of Denver case. I 
would argue very strenuously here in a moment that, in fact, we are 
going by and applying a different standard than existed prior to the 
decision on Central Bank of Denver and, in fact, going further back 
than I think the courts at least in many cases would like to see us go.
  At any rate, that was the situation. Prior to Central Bank of Denver 
there was a controversy about aiding-and-abetting. In that case, the 
Supreme Court decided that there was no aiding and abetting liability 
for private lawsuits involving fraud and that in fact that idea evolved 
as a result of section 10(b), rule 10b-5. And many can argue, in fact, 
that probably was the case; that we had not legislatively determined 
that, this has been more of an evolution of an idea over the years, and 
so the issue comes back to us if we want to expand it.
  The Supreme Court did not believe that section 10(b) intended to 
cover aiding-and-abetting liability. You can argue about that, but that 
is how the Court ruled. Providing for aiding and abetting liability 
under section 10(b) would be contrary to the goal of this legislation.
  I remind my colleagues to come back to the central goal of this 
legislation, and that is to reduce the number of frivolous lawsuits 
that are being brought under 10(b) and to try and avoid what my 
colleague from New York, I think, has appropriately described as sort 
of a hijacking scheme that goes on where you end up with these 
settlements because if you do not settle, the small percentage of risk 
that you may end being held accountable causes people to settle for 
amounts vastly in excess of their involvement.
  The case we talked about earlier today where Peat Marwick in a 
$15,000 contract to go in and do an audit of some banks books were 
brought to trial, and it went on for some time. The courts ultimately 
decided that in that case Peat Marwick was not responsible, did not 
meet the aiding-and-abetting standard, but the legal fees for Peat 
Marwick for a $15,000 contract, which is a nothing contract, were in 
excess of $7 million. That is what it cost that company over a $15,000 
contract.
  We want to stop that kind of stuff. That should not have to go on, 
frankly. And that is where the crux of this whole legislation is 
designed to try and minimize those sorts of problems.
  At any rate, the Supreme Court said in the Central Bank of Denver 
case--and it is highly appropriate that we have as the Presiding 
Officer this evening the distinguished Senator from Denver--from 
Colorado. I apologize--in that case litigation under rule 10b-5 
presents a danger of vexatiousness--it is a mouthful, that word, 
``vexatiousness''--different in degree and kind and would require 
secondary actors to expend large sums even for pretrial defense and the 
negotiation of settlement.
  That is exactly what happened to Peat Marwick--a $15,000 contract, a 
$7 million legal fee. Peat Marwick, it was painful to them. They 
probably passed that cost on to a lot of other clients out there, so it 
is not as if somehow the company just absorbed it, as bad it was for 
them, but there is where you get the economic ripple effect as a result 
of a lawsuit where again the allegation is that they were marginally 
involved, aiding and abetting on a $15,000 contract. The Court said no, 
they were not ultimately but not before that company spent $7 million 
to defend against a $15,000 contract.
  The Supreme Court did not consider whether the SEC was able to bring 
cases for aiding and abetting, and the committee print, as I mentioned 
a moment ago, restores aiding and abetting liability for the Securities 
and Exchange Commission. Allowing the SEC to bring cases against aiders 
and abetters strikes, we think, a balance. It allows the SEC to punish 
bad actors without opening the door to a flood of unnecessary 
litigation.
  So, Mr. President, that is the reason that we reluctantly oppose the 
amendment of our colleague, because it does change the standard.
  Now, let me come back to the point I made earlier, because the 
suggestion that all we are doing is making whole the situation prior to 
the Supreme Court's decision on the Central Bank of Denver case is just 
not borne out.
  Let me point out that prior to the Central Bank of Denver the courts 
across the country adopted different types of scienter, standards, for 
the aiding-and-abetting context. Some courts concluded that, as with 
the primary violators, recklessness was sufficient.
  I would say to my colleague from Nevada he is correct in that. There 
were courts that did hold the recklessness standard adds enough to net 
someone under the aiding-and-abetting provisions. Other courts, I would 
point out just as quickly, Mr. President, held that where the alleged 
primary violators did not have an independent duty

[[Page S9085]]

to disclose information to the plaintiff, proof of actual knowledge of 
the fraud was required. Still other courts adopted what the SEC 
described to the Supreme Court as the sliding scale approach to aiding 
and abetting under which the degree of scienter required for aiding-
and-abetting liability varied depending upon the nature of the 
defendant's conduct and the presence or absence of a duty to disclose.
  So here we had a lot of different standards being used. Recklessness 
was one, in some courts. But in many others, it was actual knowledge or 
sliding scales.
  The Seventh Circuit had essentially eliminated aiding-and-abetting 
claims by requiring proof of all elements of a primary violation of 
10b-5 in order to impose liability.
  Accordingly, expanding to private suits the provision included in the 
committee print would not provide any real protection against abusive 
claims. And that approach, if we adopted this amendment, would actually 
represent, as I said a moment ago, an expansion of liability, not a 
return to pre-Central Bank of Denver status quo, because it would 
overrule those decisions that had set the higher standard. That is, 
actual knowledge before you can get a minor player in terms of the 
aiding-and-abetting clause.
  Again, my point is--and again I say this with all due respect to the 
author of the amendment--throughout the amendment it is knowing or 
reckless, and on the reckless standard, let me, just for the purpose of 
my colleagues, point out how difficult that standard is to apply. 
Again, this is citing some work that has been done on the issue. I will 
footnote them accordingly.
  Let me begin with this. The prevailing reckless standard does not 
limit, as I am sure the case can be made, liability to highly culpable 
wrongdoers, and that is the suggestion here. Again, the highly culpable 
wrongdoers are not covered. We get them under this bill, in fact. And 
this is where the problem comes with recklessness. The vagueness of the 
recklessness standard is one of the principal reasons that joint and 
several liability should be modified, and that is what we do in this 
bill.
  In practice, the legal standard does not provide protection against 
unjustified or abusive claims because juries can and do misapply the 
standard. Juries today have considerable difficulty in distinguishing 
innocent mistakes, negligence, and even gross negligence--none of 
which, by the way, Mr. President, is actionable under rule 10b-5--from 
recklessness.
  So, while to the layman recklessness sounds like something else, 
recklessness can actually be a minor mistake, a mathematical mistake. 
In effect, you could get netted under the recklessness standard.
  One commentator observed:

       The courts have been less than precise in defining what 
     exactly constitutes a reckless misrepresentation. This 
     imprecision has resulted in ad hoc, if not arbitrary, 
     recklessness, if I may use the word, determinations. The 
     result is that the actual and potential parties to section 
     10(b) and rule 10b-5 actions cannot predict with any degree 
     of certainty how a trier of fact will characterize alleged 
     conduct and, thus, whether it may serve as the basis of 
     liability.

  I am quoting from Johnson, ``Liability for Recklessness 
Representations and Omissions'' under section 10(b) of the Securities 
and Exchange Act of 1934 in the Cincinnati Law Review, 1991.
  Let me quote further from Commissioners of the SEC. Commissioner 
Beese argues:

       Because the standard of recklessness is a vague one and its 
     interpretation by both the court and the jury is difficult to 
     predict accurately, defendants that may not have acted in a 
     reckless fashion cannot be assured of being vindicated at 
     trial.

  Former SEC Chairman Breeden observed:

       The problem is that almost anything can be said to be 
     reckless.

  He goes on to say:

       It is all too easy to apply 20/20 hindsight to a complex 
     problem and conclude that someone behaved less than 
     perfectly.

  The standard of reckless behavior has tended to expand in recent 
years as courts and even at times the SEC tried to reach out to 
compensate investor losses. Even the SEC, with all its expertise, has 
misjudged the standard. In a case arising out of a 1982 bankruptcy of 
one of an accounting firm's clients, the SEC alleged a violation of 
rule 10b-5 asserting that the firm had acted recklessly in failing to 
comply with the professional standards in an audit. A Federal court 
rejected every claim, including the claim that the firm had acted 
recklessly. The court found that the SEC's claim ``involved complex 
issues of accounting as to which reasonable accountants could reach 
different conclusions. It follows that no finding of fraud or 
recklessness can rationally be made in that case.''
  That was SEC versus Price Waterhouse, decided in 1992.
  Mr. SARBANES. Will the Senator yield for a question?
  Mr. DODD. I will be glad to yield.
  Mr. SARBANES. Does your bill allow for any private right of action 
against an aider and abettor?
  Mr. DODD. No, it does not.
  Mr. SARBANES. Not even knowingly. I have been listening to the 
Senator very carefully, and he is talking about recklessness.
  Mr. DODD. Right.
  Mr. SARBANES. My own view is, if you are reckless, you ought to be 
able to be reached as an aider or abettor. I understand the Senator is 
opposed to that. The Senator's bill, as I understand it, would not 
allow a knowing aider and abettor to be reached by a private securities 
suit; is that correct?
  Mr. DODD. Let me say to my colleague, the problem with just the word 
``knowing'' is that it is far too vague a word. I said at the outset of 
my remarks that if you could apply where you had actual knowing, 
knowledge of the fraud itself, then you might raise a different 
standard. I said that at the outset of my remarks.
  My problem is your amendment says ``knowing or recklessness.'' I 
focused my remarks on the recklessness side of this because under the 
amendment, you could be nabbed under the recklessness standard. Again, 
as I pointed out, with a series of court decisions----
  Mr. SARBANES. The bill does not have a knowing standard in it; is 
that correct? The bill leaves out aider and abettor altogether in a 
private action.
  Mr. DODD. No. What we have said here is where you have the knowledge, 
knowing fraud involved here, then obviously the whole question of 
joint-and-several liability applies. In almost every case an aider and 
abettor, where you have that kind of knowledge situation, would be 
snagged. Yes, we do cover that in that situation.
  What they are attempting to do with this amendment is to reach a 
different level. So when you have that fact situation, clearly as we 
made that case all the way through this debate dealing with 
proportionate liability, we do not allow proportionate liability to 
apply. Where you meet that standard of the actual knowledge and intent 
to defraud, then you get everybody involved.
  Mr. SARBANES. The aiding-and-abetting issue is separate from the 
joint-and-several issue, is it not?
  Mr. DODD. De facto they end up not being separate. If this amendment 
were adopted, that is not the case, because you have a reckless 
standard here which is a much, much lower threshold than the other ones 
we require you to meet.
  Mr. D'AMATO. Will the Senator yield for a question?
  Mr. DODD. I will be glad to yield.
  Mr. D'AMATO. If one is tangentially involved, let us say an 
accountant, and knowingly and intentionally participates in a fraud, is 
that person, regardless of their portion of liability, held jointly-
and-severally liable?
  Mr. DODD. Absolutely. Absolutely.
  Mr. D'AMATO. So that a person, would be considered as a minor 
participant, an aider and abettor, as a result of this amendment. We 
have made very clear, that if they knowingly and intentionally 
participate in fraud, that defendant can really be held as a primary 
culprit, so to speak; he or she would be libel for all the damages 
under the present situation; is that not true?
  Mr. DODD. My understanding is that is correct.
  Mr. D'AMATO. Of course, as it is clearly stated in the S. 240 the 
Securities and Exchange Commission, still has the ability to go after 
those for their intentional wrongdoing.
  Mr. DODD. That is there, also. We include that in the bill 
specifically. As I pointed out a minute ago, everybody said let us go 
back to Central Bank of Denver. Prior to that case, different standards 
were being used on the aiding and abetting provisions. Some

[[Page S9086]]

courts did recklessness. Obviously, if you are an attorney for the 
plaintiff in that case, of course you are going to allege that. In 
effect, you have wiped out our efforts in the bill to try and minimize 
that. So you are back in the negotiation phase again. But up to the 93 
or 98 percent of these cases people are settling out of court. That is 
what every good attorney would advise his clients. They would say, 
``You are exposed to the whole cost on this. With the reckless 
standards being so low, my advice is you better settle, because if do 
you not, that is a pretty low standard.'' In a sense, you get snagged 
for the whole amount. We are trying to avoid that.
  Mr. SARBANES. You let the knowing aider and abettor go free. How can 
you justify that? I will argue the recklessness with you, and I 
understand that is a more complicated issue. But how can you let the 
knowing aider and abettor go free?
  Mr. DODD. It is not a question of letting him go free. I think in the 
most recent colloquy the Senator from New York and I had, we made it 
clear that where you have that standard, I think we establish very 
clearly what the intent of the legislation is.
  I say to my colleague, having to face the law firm of Sarbanes and 
Bryan or Bryan and Sarbanes is difficult under any set of 
circumstances. But the word ``knowing'' alone is a rather loose term in 
terms of what constitutes knowledge. So I say to my colleague from 
Maryland that if, in fact, it is the desire of the Senator from Nevada 
and the Senator from Maryland to offer an amendment that truly raises 
the level of knowledge to a point where legal definitions would apply, 
I, for one--not speaking for my colleague from New York or others--
would entertain such an amendment. That is what you have done. The word 
``knowing''--you have to be much more definitive.
  Mr. SARBANES. If the Senator will yield further, I am trying to point 
out what you have done with the bill. In other words, what you have 
done with the bill is let a knowing aider and abettor go free. Now, I 
cannot, for the life of me, understand how you can possibly justify 
that. A knowing aider and abettor cannot be reached and held liable 
when a securities fraud is perpetrated. How can you justify that?
  Mr. DODD. That is not what the case is here. You are applying two 
different standards here. When you have actual knowledge and intent to 
defraud, again, we do not allow an aider and abettor, in that case, to 
get off the hook at all. It is a different standard you are applying 
here.
  Mr. SARBANES. I would refer the Senator to pages 131 and 132 of his 
bill, where they define a knowing securities fraud. ``Defendant engages 
in knowing securities fraud if that defendant, (1), makes a material 
misrepresentation with actual knowledge that the representation is 
false * * *. And it also requires other things.
  The central--
  Mr. DODD. To reclaim my time, that is under the section dealing with 
proportionate liability. Again, my colleague is fully aware that, 
obviously, it would only apply it to proportionate liability. When you 
have the knowledge and intent to defraud, then the joint and several 
applies.
  Mr. SARBANES. Will the Senator repeat that again?
  Mr. DODD. We do not apply proportionate liability when you have the 
knowledge and intent to defraud. You cannot escape and get 
proportionate liability. Joint and several applies.
  Mr. SARBANES. By your own admission, under this bill, an aider and 
abettor cannot be reached in a private action suit, is that correct?
  Mr. DODD. An aider and abettor can be reached through Government 
action, but not private action, correct. Under the standards you have 
set here--
  Mr. SARBANES. How can you justify that?
  Mr. DODD. To go back to the point I am trying to make to my colleague 
over and over again, under the proportionate liability standard--which 
is the section we are talking about here--recklessness is such a low 
standard.
  Mr. SARBANES. You are not even reaching the aider and abettor; you 
only go to recklessness.
  Mr. DODD. My colleague from Maryland has a fundamental and inherent 
objection to proportionate liability.
  Mr. SARBANES. I am trying to get over that. I am trying to point out 
that there are a lot of other problems with this bill.
  The PRESIDING OFFICER. The time the Senator has been allocated has 
expired.
  Mr. BRYAN. Mr. President, I would be happy to yield more time. How 
much time remains?
  The PRESIDING OFFICER. There are 11 minutes 27 seconds remaining.
  Mr. BRYAN. I yield five more minutes to the Senator.
  Mr. SARBANES. What I am trying to point out to my colleague is that 
there is a joint and several liability problem in this bill. We have 
tried to deal with that--unsuccessfully. There was a statute of 
limitations problem in this bill. I think these are large problems. 
These are what the independent objective groups have been writing to us 
about.
  Now we are addressing the aider and abettor problem. The way you have 
written the bill, aiders and abettors in a private action go scot-
free--whatever the test is. They go scot-free on recklessness and on 
knowingly. The way you have written the bill --
  Mr. DODD. I say to my colleague, if he will yield, the way you have 
written your amendment, what you are asking us to support is that you 
would apply that standard of reckless behavior, which is an unfair 
standard to apply.
  Mr. SARBANES. I do not think it is unfair. But I do want to make this 
point. The question is, who is going to go scot-free? For years, we 
caught aiders and abettors on recklessness and knowingly, on both of 
those standards. That was the law.
  Mr. DODD. Not in every court, no, no. There were courts that set a 
much higher standard in this country than that. Actual knowledge was 
required by many courts in the country prior to the decision by Central 
Bank of Denver. You are going back and weakening a standard applied in 
many courts.
  Mr. SARBANES. If the Senator will yield, the general prevailing 
standard on reaching aiders and abettors was, in effect, thrown out in 
the Denver case.
  Mr. DODD. I point out to my colleague--and you may not have been here 
when I pointed out the cases where the SEC used sliding scales in 
cases. Other courts used actual damages.
  Mr. SARBANES. Fine. I am prepared to concede to the Senator that, in 
certain jurisdictions, there were sliding scales and all the rest. But 
you have eliminated all of that.
  Mr. DODD. I did not, the Supreme Court eliminated that.
  Mr. SARBANES. You do not have a sliding scale encompassing knowing 
standard. You have knocked it out, and all the aiders and abettors are 
dancing their way down the street.
  Mr. DODD. I did not do it, the Supreme Court did it.
  The PRESIDING OFFICER. The time of the Senator has expired.
  Mr. BRYAN. I am enjoying this colloquy. If the Senator requires more 
time, I yield three more minutes.
  Mr. SARBANES. The final point is that, obviously, tomorrow we are 
going to do the so-called safe harbor. I call it pirate's cove because 
it is being carved out here for all the sharks and barracudas to find 
sort of a comfort and solace----
  Mr. DODD. Including the buccaneer barristers.
  Mr. SARBANES. The Senator from Nevada and I have conceded that we 
want to do some things about frivolous suits. We are trying to get at 
the extraordinary lengths to which you have gone to immunize from 
liability and, therefore, throw the burden upon innocent investors. I 
think the Senator from Nevada put it very well the other day. He said 
this is a ``Trojan horse.'' It is waving the pennant of frivolous 
suits, but hidden within the Trojan horse are lots of other things as 
well. That is exactly the case. That is what we have been trying to, in 
effect, lay out in the course of this debate.
  Mr. DODD. If my colleague will yield on that point, would you not 
admit that the present situation, in the absence of passing this 
legislation, is certainly as big a Trojan horse as anything he might 
describe with this legislation being adopted?
  Mr. SARBANES. What I want to do is pass a good piece of legislation. 
I want to avoid the comment that was at the end of the article that I 
put in the Record the other day about the pendulum swing. And that in 
the course of

[[Page S9087]]

swinging the pendulum too far, what you are going to require are some 
investors to actually be defrauded and not gain any recovery before you 
will straighten out the law. We ought to straighten it out now and not 
allow that situation to happen. We tried to address the issue of joint 
and several liability versus proportionate liability. We had this 
extension of the statute of limitations, and we are doing aiders an 
abettors today, and tomorrow we are going to do the ``pirate's cove.''
  The Senator from California has, I think, some very worthwhile 
amendments to offer as well. This is not a balanced bill. That point 
needs to be made and needs to be made very clear. This is not a 
balanced bill. There are certain problems we want to get at, and we 
ought to do that. This bill overreaches. It is unbalanced. I think we 
will pay a high price for it.
  The PRESIDING OFFICER. The Senator from New York has used all of his 
time.
  Mr. BRYAN. Mr. President, I will yield back the remainder of my time. 
I want to thank my colleague, Senator Sarbanes, for making the point 
that I think needs to be made here, that if the recovery is premised 
and predicated upon aider and abettor recovery; whether the conduct is 
intentional, whether it is knowing, or reckless, no recovery. The only 
way in which you can attach liability is under an aiding and abetting 
theory. That is the point he has made.
  The Senator from Connecticut quite correctly points out that with 
respect to others that are primary, then the level of misconduct, 
whether intentional or knowing, creates the joint and several liability 
situation, and the reckless conduct which the Senator from Maryland and 
I agree ought to be included as well.
  That is when you get the proportionate liability. There is no 
question about proportion or joint and several. There is no recovery if 
the cause of action is based upon aiding and abetting. That is the 
point he has made so clear.
  Mr. SARBANES. The Senator put it very clearly. The point we were 
trying to make, the aiders and abettors walk scot-free as far as 
private lawsuits are concerned under this legislation.
  Mr. BRYAN. This is my understanding.
  Mr. SARBANES. We try to attach liability that way.
  Under the different theories of liability, there is an argument over 
recklessness and knowingly and so forth.
  The bill never attaches liability to the aider and abettor; is that 
correct?
  Mr. BRYAN. That is my understanding.
  Mr. SARBANES. I understand in many suits that an important part of 
the recovery, on the part of the innocent investor, is from the aiders 
and the abettors.
  Mr. BRYAN. That is my understanding.
  Tomorrow, as we complete the debate, I will have additional data to 
share with my colleagues. I have never been involved in this area as an 
attorney representing a class action or defending this, but the issue 
is quite substantial, and the impact, I think, will astonish some of 
our colleagues. It is not just an academic discussion among Senators in 
good faith trying to craft a piece of legislation.
  The impact is profound. There must be reasons, when these actions are 
brought, they are brought under a theory of aiding and abetting. It 
must be the only way to get into court against some of this misconduct 
with lawyers, accountants, bankers, and others. We simply wipe them 
out. ``You folks can do whatever you want. You are home free.'' That is 
a public policy that, in my view, is indefensible.
  Mr. SARBANES. If the Senator will yield for a second, I would like to 
bring this discussion towards close by saying there is a point where I 
agree very strongly with the Senator from Connecticut.
  At the outset of his statement he gave praise to the very strong 
statement which the Senator from Nevada had made on this issue. I want 
to fully associate myself with that judgment. I think he is absolutely 
right. I urge all my colleagues, and their staffs that are following 
this issue, to go very carefully through the opening statement which 
the Senator from Nevada made when he presented his amendment. It was a 
very powerful statement as to why aiders and abettors ought not to be 
completely free from liability.
  Mr. BRYAN. I notice a number of colleagues are about ready to join 
the floor with other amendments.
  I will simply share one additional statistic in closing and yielding 
the remainder of my time. Chairman Levitt has stated, of 400 pending 
SEC cases, 80 to 85 rely on aiding and abetting theories of liability. 
We are talking about a substantial number.
  I yield the floor and yield back the remainder of my time.
  Mr. ROCKEFELLER. I ask unanimous consent that the Senator from West 
Virginia be allowed to speak for 5 minutes as if in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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