[Congressional Record Volume 141, Number 106 (Tuesday, June 27, 1995)]
[Senate]
[Pages S9126-S9131]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                PRIVATE SECURITIES LITIGATION REFORM ACT

  The Senate continued with the consideration of the bill.
  The PRESIDING OFFICER. The time from now until 3 p.m. will be 
reserved for debate on the Sarbanes amendment with the time to be 
equally divided in the usual manner.
  Mr. DOMENICI addressed the Chair.
  The PRESIDING OFFICER. The Senator from New Mexico.


                           Amendment No. 1477

  Mr. DOMENICI. Mr. President, I have discussed this with Senator 
D'Amato. Some of the time remaining will be allocated to me by him. So 
let me start by yielding myself 7 minutes from our side.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DOMENICI. Mr. President, speaking now of the safe harbor 
amendment that is before us, and the safe harbor language that is in 
the bill, I first want to call to the Senate's attention the chilling 
effects on voluntary disclosure that exist today because of our failure 
to have an adequate safe harbor for voluntary statements about future 
conditions.
  First:

       Seventy-five percent of the American Stock Exchange CEO's 
     surveyed have limited disclosure of forward-looking 
     information.

  That is according to an April 1994 survey.
  Limited disclosure:

       Seventy-one percent of more than 200 entrepreneurial 
     companies surveyed are reluctant to discuss the companies 
     performance. (National Venture Capital Association, 1994.)
       Nearly 40 percent of investor relation personnel surveyed 
     at 386 companies have cut back on voluntary disclosure of 
     information to the investment community. (National Investor 
     Relations Institute, March 1994.)
       Fear of litigation is the number one obstacle to enhance 
     voluntary disclosure by corporate managers. (Harvard Business 
     School study, 1994.)
       Less than 50 percent of companies with earnings result 
     significantly above or below analysts' expectations released 
     information voluntarily. That information, too, is from one 
     of our great universities, the University of California, 
     (November 1993.)

  Mr. President, it has been asked why, originally in the Dodd-Domenici 
or Domenici-Dodd bills we did not have this statutory safe harbor 
language.
  Mr. President, fellow Senators, the truth of the matter is that it 
has been 4 years since we first started this exercise of trying to get 
this law. And the final draft, more or less, of what is being alluded 
to as the Dodd-Domenici or Domenici-Dodd bill is 3 years old.
  For those who are questioning why we do not adopt the original bill's 
language on safe harbor, let me just suggest that such an approach's 
time has come and gone. If the Senators suggesting the regulatory 
approach would have all come to the party 3 years ago, the bill would 
have been enacted. But nobody would. So what happened is we had in that 
bill asked that the Securities and Exchange Commission solve this 
problem.
  Mr. President, for various reasons the Securities and Exchange 
Commission is not able to solve the safe harbor problem. They have had 
numerous hours of hearings, Commissioners are split, we are short two 
Commissioners. There are vacancies. Entrenched staff of that 
institution are arguing back and forth on philosophy and language. 
Meanwhile, the status quo continues, and here we sit with an unfixed 
safe harbor even though Congress has asked them to fix it.
  Last year in appropriations, Mr. President, fellow Senators, I put in 
the appropriations bill report language that the SEC needed to create a 
new safe harbor and to report back to us by the end of the fiscal year. 
The provision called upon them to tell the people of this country what 
the safe harbor would be since the SEC wanted to develop it. They have 
not done it. It is almost time for another appropriations bill. And 
they have not done it.
  Let me suggest that inaction and gridlock at the SEC do not mean we 
should not do something. In fact, I do 

[[Page S 9127]]
not believe that is what the current head of the SEC, Arthur Levitt is 
saying, that we should not do anything because we should still leave it 
up to them 3 years and untold numbers of hours, and hundreds of pages 
of testimony. So frankly, we ought to do something statutorily about 
the safe harbor.
  The fact that it is a problem is absolutely manifold before us here 
today. And the fact that those very same lawyers, that small group of 
sharks, that sit around waiting for litigation, are fighting so hard to 
keep the current, ineffective safe harbor makes it patently clear that 
filing frivolous lawsuits when a company misses an earnings projection 
is one of their great slot machines. This is one situation where they 
just jump out there and pick up on statements that are predictions of 
the future, and anything that does not turn out as it was spoken as a 
basis to file a lawsuit.
  Forward-looking statements are predictions about the future. 
Frequently, these lawsuits are based on past statements of future 
expectations.
  Why do not future predictions always come true?
  Mr. President, changes in the business cycle occur beyond the control 
of the company or their executive or their accountants. Is that fraud?
  Changes in the market occur. And ask somebody why the changes have 
occurred and you will get as many answers as there are people you would 
ask. Is that fraud?
  Changing the timing of an order--is that fraud?
  Because forward-looking statements often involve future products, 
innovations, technologies of the future, failure to meet one or another 
expectation, is inevitable. But it should not be inevitable that a 
lawsuit follows.
 But I ask: Is each of those a fraud if you do not meet them? No. It is 
simply failure of a prediction about the future to come true.

  Talk about the chilling effects of disclosure. I have just explained 
the reality of harm this ineffective policy is causing in the 
marketplace. And so now let me proceed to talk about the safe harbor in 
this bill.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. DOMENICI. I yield myself 5 more minutes.
  Arthur Levitt, for whom I have great respect, and he knows that, said 
he wanted a balanced safe harbor. The SEC has been promising this new 
safe harbor for at least 3 years. Arthur Levitt has said that the 
current safe harbor ``is a failure.''
  That is not Pete Domenici, who proposed this bill some 4 years ago; 
it is Arthur Levitt saying the current safe harbor, whatever it is, is 
a ``failure.'' The securities litigation reform bill that Senator Dodd 
and I introduced, directed them to make plans for, and recommend a fix 
to this broken safe harbor situation. We have gone through that with 
you already. But I can repeat again, frustrated by this lack of 
progress, I put language in the appropriations bill's report.
  Actually, it has been 8 months since the SEC took its first step and 
issued a concept proposal, and still we get nothing.
  So in answer to those in the Chamber, including my friend from 
Maryland, Senator Sarbanes, who say Senator Dodd, Senator Domenici, if 
you left the bill the way it was when you originally introduced it, I 
would be for this provision because you did not have the provision that 
is before the Senate today. Of course not. We have been anxiously 
waiting for 3 years now for the SEC to fix this. And since they have 
not, we believe the committee has come up with an excellent solution to 
this problem.
  Let me go on then and cite for the Record a little detail about the 
disagreements among the Commission and various staff at the SEC just to 
show that there is great imbalance.
  Wallman wants a meaningful safe harbor. Beese wants a strong safe 
harbor. The Commission is two commissioners short and there will be 
three empty seats soon. With new commissioners eventually coming on 
board, it will slow the process even further. It will be years.
  The Senate bill recognized the problem at the SEC and the urgency of 
a meaningful safe harbor. The committee made the change and crafted a 
statutory safe harbor, even though the Securities Commission could not 
tell us how to do it. And I believe the committee have done it right. 
They had the benefit of this entire record before the SEC.
  The main concern that Arthur Levitt has expressed to the Congress is 
that there should be no safe harbor for predictions about the future 
that were intentionally false.
  The Council of Institutional Investors, the mutual fund managers, did 
not agree with Arthur Levitt and they had suggested that Congress go 
further than our bill. They argued that statements which are 
accompanied by warnings should be per se immune from liability. The 
Senate bill does not go that far.
  CALPERS--the California public employees pension fund--in their 
testimony to the SEC, stated:

       By definition, projections are inherently uncertain. The 
     more such statements are based on assumptions susceptible to 
     change, the less useful they are in assessing prospective 
     performance. Investors recognize this and appropriately 
     discount the importance of such information when making 
     investments. This being the case, we see no reason why 
     investors should then be allowed to rely upon such statements 
     in an action for fraud after their speculative nature has 
     been fulfilled.

  There is a warning that will accompany each of these statements if it 
is to be protected under the safe harbor created by the bill. It will 
clearly: say these forward looking statements are predictions; they may 
not come true. It may turn out that the actual results differ 
materially from this prediction about the future.
  The Council of Institutional Investors--that is the professional 
people who manage these funds, people who have a fiduciary duty and 
high level of trust to manage pension funds--told the SEC that any safe 
harbor must be ``100 percent safe.'' This means that all information in 
it must be absolutely protected even if it is irrelevant or 
unintentionally, or intentionally, false or misleading.'' The bill does 
not go that far.
  For decades, Congress has deferred to the courts in setting the 
contours of class action 10b-5 litigation. We are changing that in this 
bill, and we should not pass the buck on to anyone on something as 
important as safe harbor.
  The chilling effect on the willingness of companies to make 
disclosures is bad for investors, for analysts, for professional fund 
managers, for retirement stewards, companies and the market in general. 
The high technology companies cannot grow without a meaningful safe 
harbor, and we provide just that.
  We provide a meaningful safe harbor. That meaningful safe harbor 
clearly does not protect against intentional fraud and knowing 
misrepresentations. We have made it very specific; individuals engaging 
in that type of activity can not get into our safe harbor. Those 
statements are still actionable. So any statements on the floor that we 
will let people perpetrate fraud because of this statutory safe harbor, 
which includes knowledge, purpose and intention, that is not so. 
Nonetheless, you either have to have a safe harbor that works on future 
statements that are predictive only or you have it wide open again for 
litigation and we are right back where we started.
  Mr. President, I yield the floor.
  Mrs. FEINSTEIN. Mr. President, the safe harbor provisions of the bill 
have been criticized by some of my colleagues. I would like to address 
those criticisms by pointing out that S. 240 puts more responsibilities 
on companies seeking to use the safe harbor and puts more conditions on 
their use of the safe harbor than the SEC does in its current rules. It 
also goes further than a number of courts of appeals that have examined 
the issue of liability for forward-looking statements.
  I wonder if the bill's manager would engage in a colloquy with me on 
this point?
  Mr. D'AMATO. I would be delighted to.
  Mrs. FEINSTEIN. First, S. 240 has a definition of forward-looking 
statement. It includes projections of revenues, statements about 
management's plans for the future, and statements about future economic 
performance of a company, among other things. Can you tell me where 
that definition came from?

[[Page S 9128]]

  Mr. D'AMATO. It came directly from rule 175. It is the SEC's own 
definition of forward-looking statements.
  Mrs. FEINSTEIN. Now, the Banking Committee excluded a number of 
companies and a number of transactions from using the safe harbor. Can 
you explain why that was done?
  Mr. D'AMATO. The Banking Committee made a policy decision to exclude 
from the safe harbor certain companies and certain transactions in 
which the incentives for making overly optimistic forward-looking 
statements might be present. It is important to note that the safe 
harbor does not apply to:
  First, statements about a company that within the past 3 years has 
been convicted of certain violations of the Federal securities laws.
  Second, statements made in an offering by a blank check company. 
These are companies that offer securities to the public, but which have 
no clear business plan and are therefore highly speculative.
  Third, statements made by an issuer of penny stock. These are 
companies that sell very low priced stock, often through brokers who 
use high pressure sales tactics. There have been significant problems 
of fraud in the sale of these securities in the past.
  Fourth, statements made in connection with a rollup transaction. 
These are transactions in which sponsors of limited partnerships 
attempt to combine many separate partnerships and rake off huge 
management fees. Congress passed legislation to address these abuses in
 1990. We shouldn't allow these transactions to use the safe harbor.

  Five, statements made in connection with a going private transaction. 
These are transactions in which a company buys back its shares from its 
public shareholders. Often, it involves management of the company 
buying back the shares.
  Six, statements made in connection with the sale of mutual funds. 
Mutual funds simply should not be making projections. The SEC has a 
long series of rules governing mutual fund disclosure.
  Seven, statements made in connection with a tender offer also are 
excluded. These often are hotly contested takeover battles, and we have 
decided not to give them any safe harbor protection.
  Eight, statements made in connection with certain partnership 
offerings and direct participation programs. Very often, these are 
securities products put together in-house at a broker-dealer, and we 
think the temptation for making rosy performance projections may be too 
great in these cases.
  Nine, statements made in connection with ownership reports under 
13(d) also are excluded. These are the reports required under law by 
anyone who purchases 5 percent or more of a company's securities. The 
law also requires that they state their plans with respect to the 
company. The committee decided these statements should not be protected 
under the safe harbor.
  Ten, finally, the safe harbor does not apply to forward-looking 
statements in the financial statements of a company.
  So, to answer your question, we excluded a long list of companies and 
transactions from the safe harbor, because we were concerned that, in 
these companies and in these transactions, there might be a temptation 
for companies to make rosy projections.
  Mrs. FEINSTEIN. The committee's bill also has a tough requirement 
that, in order to use the safe harbor, a company has to accompany any 
projection with a warning is that not correct?
  Mr. D'AMATO. That is true. The bill requires that there be a clear 
warning that actual results may differ materially from any projection, 
estimate, or description of future events.
  Mrs. FEINSTEIN. Then, I want to compliment the committee for its work 
here. Clearly this is a difficult area. We want to provide certainty 
for companies and encourage them to make disclosure. At the same time, 
we want to make sure that no one takes advantage of the safe harbor to 
mislead investors. You have tried to strike a balance here.
  The PRESIDING OFFICER. Who yields time?
  If no one yields time, the time will be deducted equally.
  Mr. DOMENICI. Parliamentary inquiry, Mr. President. How much time do 
we have?
  The PRESIDING OFFICER. The Senator still has 5 minutes 48 seconds; 
the other side has 18 minutes.
  Mr. SARBANES. Mr. President, how much time remains?
  The PRESIDING OFFICER. The Senator has 17 minutes remaining.
  Mr. SARBANES. How much is remaining on the other side?
  The PRESIDING OFFICER. About 5 minutes.
  Mr. SARBANES. I thank the Chair.
  Mr. President, the amendment we are about to vote on shortly is an 
amendment that puts into this bill the very provision that was in the 
bill introduced by Senators Dodd and Domenici, which referred over to 
the Securities and Exchange Commission the responsibility for 
developing a safe harbor provision.
  I have to tell you, I think it is either the height of arrogance or 
the height of folly to be trying to draft these standards here in the 
committee and in the Chamber of the Senate. Even the proponents admit 
this is a very complex issue. The original bill as introduced and as 
cosponsored provided to send this issue to the Securities and Exchange 
Commission in order for them to put their expertise and their 
rulemaking authority to work in order to develop an appropriate safe 
harbor provision.
  Now, the Chairman of the SEC has indicated that he thinks changes 
need to be made with respect to safe harbor for forward-looking 
statements. But he has also indicated that the provision in the bill is 
not acceptable, that it goes much too far. And, in fact, the very 
morning of the markup he said in a letter to the committee, ``I cannot 
embrace proposals which allow willful fraud to receive the benefit of 
safe harbor protection.''
  In other words, it is his view of the standard written in the bill 
that it would provide safe harbor protection for willful fraud. I 
challenge anyone in the Chamber to rise and defend that should be the 
case.
  What they will try to argue is, ``No, this standard does not really 
permit that.'' But here is the Chairman of the Securities and Exchange 
Commission, in effect, saying that this standard does permit that. And 
he is supported in this judgment by a range of public interest groups 
concerned with securities regulation. The North American Securities 
Administrators Association has come in with respect to this matter and 
have indicated that they believe that the safe harbor definition should 
be left to the Securities and Exchange Commission. In a May 23, 1995, 
letter, the North American Securities Administrators Association, the 
Government Finance Officers Association, the National League of Cities, 
and nine other groups expressed the view:

       We believe the more appropriate response is SEC rulemaking 
     in this area.

  Mr. DOMENICI. Will the Senator yield?
  Mr. SARBANES. Certainly.
  Mr. DOMENICI. Mr. President, I stated in the Senator's absence--you 
can charge this to my time; I do not mean to use his--that the SEC had 
been trying to do this for 3 years. And last year, we put it in the 
appropriations bill. I said, because I was the one who wrote it in, 
while funding the SEC, we expect them to do it. Is it not true they 
have been unable to arrive at a consensus and present one that they are 
willing to say will work and should be adopted? Is that not true?
  Mr. SARBANES. No. I think what is true is that the SEC--the Senator 
put it in his bill that he introduced 15 months ago, in March 1994, was 
when he first brought forth in statutory language the proposition that 
it should be referred to the SEC. The SEC, in October 1994, issued a 
concept release and notice of hearing. In that concept release, they 
invited comments to be made before the end of the year, and they also 
scheduled hearings to take place in February of this year, of this very 
year.
  Now, the SEC received over 150 comments by the end of the year. They 
held 3 days of hearings, 2 days in Washington and 1 day in California. 
This, in fact, is the hearing record from those hearings conducted by 
the Securities and Exchange Commission. Now, as the Chairman of the 
Commission pointed out in a letter to the committee about the problem 
of working this out, he said there is a need for a stronger safe harbor 
than currently exists. He has 

[[Page S 9129]]

made that statement. And I think generally people accept that. The 
question is, who is going to write this safe harbor? Does it make sense 
for the Congress to be writing the safe harbor instead of the experts 
and the regulators who represent--who are supposed to represent the 
public interest in this matter to devise the safe harbor?
  Mr. DOMENICI. May I ask a question?
  Mr. SARBANES. Certainly.
  Mr. DOMENICI. The Senator is assuming we do not have the public 
interest in mind when we write this?
  Mr. SARBANES. We do not have the expertise.
  Mr. DOMENICI. We do not?
  Mr. SARBANES. We do not have the expertise of the SEC. And we do not, 
particularly in an area that is as difficult and complex as this one. I 
think that is very clear. In fact, the standard you propose in the bill 
was amended here on the floor by the chairman of the committee earlier 
today.
  Mr. DOMENICI. I understand.
  Mr. SARBANES. In response to criticism. If we have to define it 
legislatively, of course we will have to try to do that. But I invite 
the Senator's attention to the provisions of the bill that try to 
define out the safe harbor. It is obviously a very intricate and 
complex section. The Chairman of the Securities and Exchange 
Commission, upon reading this, then wrote a letter to the committee 
saying he could not embrace the proposal because it would allow willful 
fraud to receive the benefit of safe harbor protection.
  So, in fact, your very bill--it is very interesting the way this bill 
has been structured. The proposal now before us allows the SEC to 
expand the safe harbor. In other words, they can provide even more of a 
safe harbor, but it does not allow the SEC to limit the safe harbor. So 
it is all a one-way voyage. It is a one-way voyage, and really giving 
the SEC the role that it ought to have in this situation and has been 
denied to them.
  I think the Members are assuming an incredible responsibility here. 
As I pointed out earlier, the North American Securities Administrators, 
the Government Finance Officers, the National League of Cities, and 
nine other similar groups all express the view that they thought what 
was a more appropriate response is SEC rulemaking in this area. Now, 
then, I quoted earlier from the Chairman of the SEC. The Government 
Finance Officers Association, representing more than 13,000 State and 
local government financial officials, county treasurers, city managers, 
and so on, wrote of the safe harbor provision in the bill, and I am now 
quoting them:

       We believe this opens a major loophole through which 
     wrongdoers could escape liability while fraud victims would 
     be denied recovery.

  Let me repeat that.

       We believe this opens a major loophole through which 
     wrongdoers could escape liability while fraud victims would 
     be denied recovery.

  The North American Securities Administrators Association, which 
represents the 50 State securities regulators--they are really a front 
line of defense against securities fraud--have called the provision 
that is in the bill ``an overly broad safe harbor making it extremely 
difficult to sue when misleading information causes investors to suffer 
losses.''
  Mr. President, I submit that the wise course of action here is to 
adopt this amendment. That is the provision that was originally in the 
bill. That is the provision that Members were acquainted with when they 
cosponsored the bill. Let the Securities and Exchange Commission, which 
has the expertise and the knowledge and the experience, deal with this 
very complex area and shape a proper safe harbor provision which is not 
subject to abuse and which is not subject to the objection of the 
Chairman of the Commission, who stated with respect to the provision 
that is in this bill that we are now trying to change:

       I cannot embrace proposals which allow willful fraud to 
     receive the benefit of safe harbor protection.

  Mr. President, I reserve the balance of my time.
  Mr. DODD. Mr. President, how much time remains on this side?
  The PRESIDING OFFICER. The minority has 7 minutes, 40 seconds. The 
majority side has 4\1/2\ minutes.
  Mr. DODD. I ask consent to have 2 minutes, if I may?
  The PRESIDING OFFICER. Is the Senator from Maryland yielding?
  Mr. SARBANES. Yes.
  Mr. D'AMATO. Yes, certainly. I yield 2 minutes to my colleague.
  Mr. DODD. Let me state again, Mr. President, there are those, I 
suppose, who would always say, in any matter, defer to an agency to 
write it. We deal with a lot of complex areas of law. This is one of 
them. I admit that.
  But the notion inherent there is that there is in the SEC an ability 
to deal with this issue beyond the capacity of this body. I do not 
think that is necessarily true. In fact, the Commission itself is so 
highly divided on the issue we might wait 2 or 3 years before we get an 
answer. If you read the two letters from Arthur Levitt, one dated May 
19 and one May 25, you would hardly recognize they are coming from the 
same author. In the May 19 letter, it says, this area has to be cleared 
up. The letter of May 25, I would call a fairly strident letter. The 
authors might have been different people, although they were signed by 
the same individual.
  We have in this legislation very emphatically made it clear that for 
any individual who knowingly and intentionally misleads, knowingly 
intentionally misleads an investor, that there is no protection of safe 
harbor. I do not know how much more clear and explicit you can be.
  The idea somehow that this is a major gaping hole by which defrauded 
investors are somehow going to be taken advantage of is rhetoric. We 
close up that loophole. We close it up by saying no misleading 
statements.
  In fact, we go further than that. We require there be warnings in 
these forward-looking statements. It narrows it down to who can take 
advantage of safe harbor, under what circumstances, what kind of 
people. This is not available to stockbrokers or others. It is the 
issuers, and it is designed specifically to give investors the kind of 
information they need.
  We need to encourage the issuers to step forward with their 
statements, not cause them to step back. It does not serve the economic 
interest of this country, or anyone for that matter, to be faced with 
that kind of a problem. That is why we included safe harbor, that is 
why we included the language to cut out the misleading statements. We 
think this is a good provision, and we urge that we stick with the 
language of the bill.
  Mr. SARBANES. Mr. President, what is the time situation?
  The PRESIDING OFFICER. The Senator from Maryland has 7 minutes 40 
seconds. The Senator from New York has 2 minutes 22 seconds.
  Mr. SARBANES. Mr. President, I say to my colleague from Connecticut, 
I think he is being extremely unfair to the Chairman of the Securities 
and Exchange Commission. I think the two letters that the Chairman 
wrote us are perfectly consistent with one another.
  I know the Senator is very involved in this legislation and very 
anxious to try to pass it. I differ sharply with him on that issue, but 
I do not think in the course of the debate he ought to, in effect, 
demean the Chairman of the SEC.
  The letter he wrote on May 19 spelled out his very considerable 
concern over the safe harbor provision. I quoted from it at great 
length earlier in the day. I am not going to repeat that here except, 
for instance, he says:

       A safe harbor must be thoughtful--so that it protects 
     considered projections, but never fraudulent ones.

  He then raises a lot of questions about what safe harbor can cover, 
and he states right in the letter, this is the earlier letter:

       Given these complexities--and in light of the enormous 
     amount of care, thought, and work that the Commission has 
     already invested in the subject--my recommendation would be 
     that you provide broad rulemaking authority to the Commission 
     to improve the safe harbor.

  That is what the amendment at the desk does. That is what this 
amendment does.
  The Chairman then went on, since the Senator from Connecticut, or at 
least colleagues of his were pushing hard for statutory definition, to 
spell out the components that he thought ought to be in any statutory 
definition of safe harbor.
  At that time, efforts were being made to shape this. Those efforts 
did not 

[[Page S 9130]]
prove fruitful and, in the end, on May 25, the morning of the markup, 
the Chairman wrote a letter to the committee expressing his view about 
the provision that is in this bill, the very provision we are now 
trying to change. And he said:

       I cannot embrace proposals which allow willful fraud to 
     receive the benefit of safe harbor protection.

  I think Chairman Levitt is a dedicated public servant. I think he is 
trying to do what is right. In his letter, he acceded to the view that 
something needed to be done to provide a stronger safe harbor 
protection, but then he raised his concerns in the nature of the 
protections that ought to be made. He has spent a lifetime on Wall 
Street. He is an experienced businessman. In fact, he quoted himself as 
a businessman about the problem of meritless lawsuits. He recognizes 
the problem of frivolous lawsuits and, in fact, has been working with 
the committee to try to address those. He has a sufficient removal 
representing the public interest as he does to be able to identify 
provisions in this bill which he thinks are defective.
  I want the Members to realize what they are doing here. They are 
trying to enact a standard which the regulators--the Chairman of the 
Securities and Exchange Commission, the State regulators, the 
Government finance officers--are all telling them, ``Don't do this; 
don't do this.'' This is not as though we were putting into the law a 
standard which the regulators acceded to or thought was reasonable. 
They are saying, ``Don't do this, don't put this standard in.''
  There are two ways to correct that. One is to refer it back to the 
Commission, which is exactly what was in the bill as it was introduced 
and a matter the Commission was working at, and that is what this 
amendment does. The other is to try to define the standard here. If we 
have to do that, I am prepared to address that subject.
  I do not think that is the wise thing to do. I do not think that, 
frankly, with all due deference to my colleagues, that there is anyone 
here who really knows this law intimately and well enough in a highly 
complex area to write the standard. I say that with all due deference, 
and I include myself within those about whom I am making that judgment. 
So it ought not to be done in the legislation.
  The initial approach by Senators Dodd and Domenici was the correct 
approach, and that is what this amendment does. This amendment is word 
for word what was in the bill. It would provide the opportunity for the 
Commission, through broad rulemaking authority, to improve the safe 
harbor provision, and I very strongly commend this amendment to my 
colleagues.
  I yield the floor and reserve whatever time is remaining.
  Mr. D'AMATO. May I ask how much time?
  The PRESIDING OFFICER. The Senator from New York has 2 minutes 22 
seconds. The Senator from Maryland has 1 minute 48 seconds.
  Mr. D'AMATO. Mr. President, let me refer to one of the two letters 
mentioned by my colleague. In the letter, sent by the Chairman of the 
SEC, the Chairman says:

       There is a need for a stronger safe harbor than currently 
     exists. The current rules have largely been a failure, and I 
     share the disappointment of the issuers that the rules have 
     been ineffective in affording protection for forward-looking 
     statements.

  He says clearly in this letter that we have not afforded protection 
for forward-looking statements.
  History shows that we have been waiting for 3 years for the SEC to 
work out the safe harbor issue. Last year, the Appropriations Committee 
stated that the time for the SEC to act on this had come, it said, ``We 
want some rules. We can wait no longer.''
  The Chairman of the SEC has been working on this but it is obvious 
that the Commission has some concerns on the safe harbor and cannot 
come to a point where it publishes rules. I say the media does not know 
what they are writing about. What we are attempting to do with this 
legislation is to allow companies the flexibility to make forward-
looking statements but, holding them liable if they make knowingly and 
intentionally misleading statements. There is no safe harbor for any 
untested companies and there is not safe harbor in situations where we 
felt the investor was at too great a risk of being mislead. To this 
effect, the safe harbor provision excludes IPO's, it excludes tender 
offers, and excludes stockbrokers. If you want a good example of 
legislation that goes too far, look at the House bill.
  I think some of the journalists writing on this legislation, 
particularly those from the New York Times, have not taken the time to 
really understand what this legislation does. I suggest that they take 
some time to read the bill before they write. There is not a safe 
harbor that allows companies to say anything--anything, even 
intentionally false or misleading statements--as long as there is a 
disclaimer that the statement is in the safe harbor. This legislation 
does not institute a caveat emptor, buyer beware, attitude. I believe 
that would be going too far, much too far. But to say that the safe 
harbor in S. 240 would do this is wrong; it is wrong.
  We cannot continue to allow businessmen to be held up by a handful of 
buccaneering barristers. That is an artful term used by my friend and 
colleague from Connecticut, and that is exactly what these lawyers are 
doing, they do not give two hoots and a holler about the stockholders. 
They care only about their own personal enrichment. That is why I have 
to oppose this amendment. I yield the floor.
  The PRESIDING OFFICER. The Senator's time has expired. The Senator 
from Maryland.
  Mr. SARBANES. Mr. President, I, in fact, quoted the very sentence the 
Senator from New York quoted from Arthur Levitt where he says, ``There 
is a need for a stronger safe harbor than currently exists.'' The 
question is, how are you going to develop that safe harbor?
  This amendment says the SEC should do it. That is what the bill 
introduced by Senators Dodd and Domenici on March 24, 1994, provided 
for. Then they say, well, the SEC has delayed. The SEC put out their 
concept release on safe harbor in October 1994. In other words, about 7 
or 8 months ago. They received 150 responses on the safe harbor issue. 
That is more testimony than the Banking Committee has had on all 
securities litigation issues.
  The SEC held 3 public hearings on the safe harbor issue in February--
2 in Washington, 1 in San Francisco--62 witnesses in all: Venture 
capitalists, law professors, corporate executives, plaintiffs lawyers, 
defense lawyers, institutional investors.
  Arthur Levitt says:

       There are many questions that have arisen in the course of 
     the commission's explanation of how to design a safe harbor.

  He then talks about the concept release, the comment letters, the 3 
days of hearings, and his meeting personally with a wide range of 
groups that have an interest in the subject.
  This matter should be handled by the SEC, just the way it was 
proposed in the original bill, which Members have cosponsored. That is 
what this amendment does.
  I urge its adoption.


                       Vote on Amendment No. 1477

  The PRESIDING OFFICER. Under the previous order, the question is on 
agreeing to amendment No. 1477 offered by the Senator from Maryland.
  Mr. D'AMATO. Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays are ordered, and the clerk will call the roll.
  The bill clerk called the roll.
  Mr. BOND (when his name was called). Present.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 43, nays 56, as follows:
                      [Rollcall Vote No. 288 Leg.]

                                YEAS--43

     Akaka
     Biden
     Bingaman
     Boxer
     Bradley
     Breaux
     Bryan
     Bumpers
     Byrd
     Cohen
     Conrad
     Daschle
     Dorgan
     Exon
     Feingold
     Glenn
     Graham
     Harkin
     Heflin
     Hollings
     Inouye
     Jeffords
     Kennedy
     Kerry
     Kohl
     Lautenberg
     Leahy
     Levin
     McCain
     Mikulski
     Moynihan
     Nunn
     Pell
     Pryor
     Robb
     Rockefeller
     Roth
     Sarbanes
     Shelby
     Simon
     Snowe
     Specter
     Wellstone
     
[[Page S 9131]]


                                NAYS--56

     Abraham
     Ashcroft
     Baucus
     Bennett
     Brown
     Burns
     Campbell
     Chafee
     Coats
     Cochran
     Coverdell
     Craig
     D'Amato
     DeWine
     Dodd
     Dole
     Domenici
     Faircloth
     Feinstein
     Ford
     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Johnston
     Kassebaum
     Kempthorne
     Kerrey
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McConnell
     Moseley-Braun
     Murkowski
     Murray
     Nickles
     Packwood
     Pressler
     Reid
     Santorum
     Simpson
     Smith
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner

                        ANSWERED ``PRESENT''--1

       
     Bond
       
  So the amendment (No. 1477) was rejected.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote by which 
the amendment was rejected.
  Mr. DOMENICI. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. Under the previous order, the Senator from 
Maryland is recognized to offer an amendment.
  Mr. DOLE. Mr. President, will the Senator yield to me for 3 minutes?
  Mr. SARBANES. Certainly.
  The PRESIDING OFFICER. The majority leader is recognized.
  Mr. SARBANES. Mr. President, at the end of that time I will be 
recognized to offer the amendment?
  The PRESIDING OFFICER. That is correct.
  Mr. DOLE. I thank the Senator.
  

                          ____________________