[Congressional Record Volume 141, Number 106 (Tuesday, June 27, 1995)]
[Senate]
[Pages S9143-S9145]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                PRIVATE SECURITIES LITIGATION REFORM ACT

  The Senate continued with the consideration of the bill.
  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.


                           Amendment No. 1478

  Mr. D'AMATO. Mr. President, I would like to inquire of my colleagues 
if any of them have any statements to make with respect to the pending 
amendment, and how much time they intend to take. Might I ask my 
colleague how long he believes he will take?
  Mr. BROWN. I have a brief statement that I think will be more than 
completed in 5 minutes.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that after the 
Senator from Colorado makes his statement that I be recognized--it is 
my intent to make a motion to table. Does the Senator wish to claim 
time to respond?
  Mr. SARBANES. I may. I do not know what he is going to say. Why do we 
not say 10 minutes evenly divided and go to the vote?
  Mr. D'AMATO. That is fine. I ask unanimous consent that after the 
statement of the Senator from Colorado, which will take 10 minutes 
equally divided, at that point in time I will ask for the yeas and nays 
and make a motion to table.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Colorado.
  Mr. BROWN. Mr. President, distributed on our desk is a statement from 
Abner Mikva, counsel to the President and former Member of this 
Congress, who has what I believe is a very distinguished record, as 
well as a fine record as a judge for this Nation. I have the utmost 
respect for Judge Mikva, and so it is with seriousness that I view his 
letter that has been distributed.
  It addresses the subject which we are discussing, and the implication 
is, of course, that this is an important factor in the President 
deciding whether he will sign this bill. He speaks out strongly on 
behalf of Senator Sarbanes' amendment, I think for no other reason than 
that it is worth taking a serious look at.
  As I read the two standards, I suspect other Members will find it a 
challenge, as I do, in pinpointing precisely what the difference is. 
The bill carves out an exclusion; that is, a safe harbor. What we found 
under current law is that people in business, in order to avoid 
liability in terms of speculating about their company or commenting on 
their company's future, simply have clammed up. Their lawyers tell 
them, ``Look, if you say anything and it turns out not to be totally 
accurate or if you speculate on the future and it goes the other way, 
you are going to get sued.'' So to avoid being sued they say, ``We 
don't want you to say anything.'' Literally, that is what many 
companies will say.
  ``How is the weather at your plant?''
  ``Can't say.''
  ``What do you expect your earnings to be?''
  ``I don't know.''
  What this issue revolves around is the fact that we have denied 
economic free speech. It is a different issue than misleading people. I 
think everyone here--at least I hope they would--would feel very 
strongly that if someone intentionally misleads you for their own gain 
that we give redress for that. We expect people to be honest and that 
is fair and reasonable. But what we have found is the penalties are so 
profound and enormous and the ease of bringing a suit is so great that 
we have tried to address the problem by at least not penalizing people 
who make reasonable statements about the future of their company. That 
is what this is all about.
  The first thing the bill does is go through a series of instances 
where some people have been known to make misstatements about a company 
in the past, and they specifically exclude them from this safe harbor. 
In other words, they say, Look, if you are convicted of any felony or 
misdemeanor, you are not going to come under this provision at least 
for a few years. If you are offering securities by a blank check 
company, you're not going to come under this safe harbor provision. If 
you are involved in issuance of penny stocks, you are not going to come 
under this safe harbor provision. If you are dealing with a rollup 
transaction, you will not come under the safe harbor provision. If you 
are dealing with a going private transaction, you will not come under 
the safe harbor provision.
  The bill has said here are some areas, and we understand in the past 
people have made misleading statements or false statements,
 and we are going to specifically exclude them from the safe harbor. 
Mr. President, I think that is responsible. I want to commend the 
chairman of the committee for doing that. I think it is a responsible 
approach. I want to say on this floor that if there are other areas 
that have had this kind of problem, we ought to pay attention and add 
them to this section. That is how to deal with this area. If there is a 
problem, we have to deal with it. What is left, which is considerably 
reduced, is meant to give some freedom of speech and is meant to allow 
people to make reasonable statements.

  The problem here is that any time you attempt to forecast earnings, 
any time you, again, attempt to forecast what is going on, you are 
probably not going to have any better record of forecasting than the 
weather bureau has. They are conscientious, honest, and they miss it 
about half of the time. It does not mean that they are evil. What it 
means is that it is difficult to forecast. The question we have to 
answer is, should we simply, by putting tough penalties into place, 
prevent people from economic forecasting. Maybe we ought to put into 
law that it is illegal for anybody to come in about the future of their 
company. The reason we do not is that it probably does not help 
investors very much.
  Mrs. BOXER. Will the Senator yield?
  Mr. BROWN. I will yield when I finish my statement. This is an 
attempt. One says, ``knowingly made with a purpose and actual intent of 
misleading investors.'' The amendment says, ``made with the actual 
knowledge that it was false or misleading.''
  Well, ``knowingly made'' and ``actual knowledge'' sound similar and 
have some similarities. I believe, in reading the legislation, the big 
difference is this: It is in the words of ``purpose'' and ``actual 
intent.'' I think as Members try and make a decision about how they can 
vote, they ought to ask themselves, if somebody makes a statement and 
it turns out not to be accurate, should we insist, before we penalize 
them, that they had the purpose and actual intent of misleading 
someone? Or was it an innocent statement and they did not intend to 
mislead someone, they did not have that actual intent? I believe the 
purpose of misleading someone and intent of misleading someone is at 
the heart of this amendment.
  The amendment is offered by a very conscientious, thoughtful 
legislator. It is endorsed by a very thoughtful and reasonable judge, 
who acts as counsel to the President. I think the heart of the issue 
comes down to whether or not we want to extend economic free speech in 
these areas. Should you have the purpose and intent of misleading 
people, or should you be allowed to say what is appropriate without 
that? 

[[Page S 9144]]

  Mr. President, I want to pledge one thing. I think the issue raised 
is appropriate and is a good one. I pledge one thing. If there are 
additional carved-out areas, exemptions from this that we ought to look 
at, I want to look at them and support them if they are reasonable. But 
let me say, Mr. President, that I think it is important that we be very 
careful about denying economic free speech. It is an important aspect 
of giving a full picture in describing economic opportunities and 
economic endeavors.
  Mr. D'AMATO. Mr. President, I believe that under the present order we 
have 10 minutes equally divided.
  The PRESIDING OFFICER. The Senator is correct.
  Mr. D'AMATO. Mr. President, we have debated this issue for several 
days and I think the Senator from Colorado stated the concern with this 
amendment well. If there are areas where we need additional carve-
outs--to exempt people from getting this safe harbor, I am willing to 
look at them. Senator Dodd is willing to look at them. Senator Domenici 
is willing to look at them. If there are reasonable suggestions that 
the SEC has, we will look at them. We are going to go to conference if 
we pass this bill, and I pledge that we will keep the offer open to 
look at those suggestions. We have been looking for them for 3 years. 
If suggestions come up now, because of this legislation, and they make 
sense, I will certainly consider them. We have worked to modify and 
strengthen, S. 240, to protect the rights of the legitimate investor 
and understand their concerns. That is what we attempted to do in 
drafting this legislation.
  I yield the floor.
  Mr. SARBANES. Mr. President, I just want to make a couple of comments 
here at the close of the debate on this amendment. I have to say to my 
colleagues, I hope everyone understands that they are ignoring the 
recommendations and judgment of the Chairman of the SEC, the State 
Securities Regulators, Government Finance Officers Association, and so 
forth. It may well be that people feel so knowledgeable and have such 
expertise in this area that that does not trouble them. I have to tell 
you, it troubles me and would trouble me wherever I found myself on 
some issues. I would want to be very certain about ignoring those 
opinions.
  Arthur Levitt said:

       A carefully crafted safe harbor protection from meritless 
     private lawsuits should encourage public companies to make 
     additional forward-looking disclosure that would benefit 
     investors.

  That is what the Senator from Connecticut has been asserting. No one 
is challenging that. He earlier said, ``You are not going to have any 
safe harbor.'' Nobody is saying that.
  Arthur Levitt goes on to say:

       At the same time, it should not compromise the integrity of 
     such information which is vital to both investor protection 
     and the efficiency of the capital markets--the two goals of 
     the Federal securities law.

  He has said about the language that is in the bill, the language we 
are trying to take out:

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

  That is what the issue is. The Government Finance Officers 
Association has written to us that the safe harbor provision in the 
bill opens a major loophole through which wrongdoers could escape 
liability while fraud victims would be denied recovery. That is the 
issue.
  I understand that we need a meaningful safe harbor, but the safe 
harbor should not be structured in such a way that pirates can find 
shelter in it. And, as written, the language in the legislation does 
exactly that. That is why the Chairman of the Securities and Exchange 
Commission, the Government Finance Officers Association, the North 
American Securities Administrators Association, which represents the 50 
States' security regulators, that is why--the North American Security 
Administration Association called the provisions in the bill ``An 
overly broad safe harbor making it extremely difficult to sue when 
misleading information causes investors to suffer losses.''
  The amendment is very simple. The amendment would take out the 
language in which all of the regulators have seen major problems, in 
terms of investor fraud, and substitute for it that you do not have 
protection in a safe harbor if you make a forward-looking statement 
made with the actual knowledge that it was false or misleading. And no 
one yet on the floor has explained to me why such statements ought to 
get protection from liability.
  Mrs. BOXER. Will the Senator yield?
  Mr. SARBANES. I yield to the Senator from California.
  Mrs. BOXER. Mr. President, I think that this is the crux of the 
matter. And the ranking member is really the conscience of the Senate 
on this whole matter. I want to ask a very direct question. I am not an 
attorney, and my learned friend is.
  If we vote for S. 240 without the Senator's amendment, is it the 
Senator's view that a company or an officer of a company, could make a 
false statement--tell a lie, put it that way--make a false statement, 
which is tell a lie, that he had actual knowledge was a lie?
  In other words, I know I am wearing a yellow suit. If I said I am 
wearing a blue suit, I am telling a lie. I have to know that this is 
yellow. Is my friend saying that unless we adopt his amendment we could 
have a business person make a false statement that he knew was false, 
and he could still benefit from the safe harbor in S. 240 and hide 
behind that?
  Mr. SARBANES. He could find shelter within the safe harbor even 
though he had actual knowledge that the statement was false--even 
though he had actual knowledge.
  Mr. D'AMATO. Mr. President, I have heard many statements in this 
debate. One particular statement I have heard is about a pirate's cove. 
The pirate's cove exists today, those pirates are taking investors for 
a real ride, and they are drowning them. They are drowning companies 
and they are drowning good people.
  All the pirates have to do is allege fraud, and companies find 
themselves facing millions of dollars in damages or in settlements. If 
we adopt the standard in this amendment, nobody will be willing to make 
predictions. They will not take the risk.
  Now, look at what S. 240 says. It says, with no exceptions, that the 
safe harbor does not apply to a forward statement that is knowingly 
made with the purpose and actual intent of misleading investors.
  We think that this standard will encourage people to make statements, 
make predictions, but will hold them liable if they knowingly, with 
intent to defraud make a statement that is false. Anything less than 
this standard will allow the same band of pirates that we have now to 
continue to bring meritless cases.
  S. 240 stops lawyers from being able to pay their professional 
plaintiffs. They were actually paying people $10,000, $15,000, $20,000 
to use their name on the suit. One of these characters has signed up 14 
times with the same law firm, the same law firm that is working, 
lobbying, paying millions of dollars to try and defeat comprehensive 
reform.
  If we want reform and to we want to get rid of these pirates, we need 
to pass S. 240. This amendment will cause a chilling effect on the 
ability of people to make projections about the future.
  I yield the floor.
  Mr. D'AMATO. Mr. President, I move to table the amendment and I ask 
for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays have been ordered.
  The PRESIDING OFFICER. The question is on agreeing to the motion to 
table.
  The yeas and nays have been ordered.
  The clerk will call the roll.
  The bill clerk called the roll.
  Mr. LOTT. I announce that the Senator from Indiana [Mr. Lugar] is 
necessarily absent.
  The PRESIDING OFFICER (Mr. DeWine). Are there any other Senators in 
the Chamber desiring to vote?
  The result was announced--yeas 50, nays 48, as follows:

                      [Rollcall Vote No. 289 Leg.]

                                YEAS--50

     Abraham
     Ashcroft
     Bennett
     Brown
     Burns
     Campbell
     Chafee
     Coats
     Cochran
     Coverdell
     Craig
     D'Amato
     DeWine
     Dodd
     Dole
     Domenici
     Faircloth
     Ford 

[[Page S 9145]]

     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Jeffords
     Kassebaum
     Kempthorne
     Kyl
     Lieberman
     Lott
     Mack
     McConnell
     Nickles
     Packwood
     Pressler
     Reid
     Santorum
     Simpson
     Smith
     Snowe
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner

                                NAYS--48

     Akaka
     Baucus
     Biden
     Bingaman
     Boxer
     Bradley
     Breaux
     Bryan
     Bumpers
     Byrd
     Cohen
     Conrad
     Daschle
     Dorgan
     Exon
     Feingold
     Feinstein
     Glenn
     Graham
     Harkin
     Heflin
     Hollings
     Inouye
     Johnston
     Kennedy
     Kerrey
     Kerry
     Kohl
     Lautenberg
     Leahy
     Levin
     McCain
     Mikulski
     Moseley-Braun
     Moynihan
     Murkowski
     Murray
     Nunn
     Pell
     Pryor
     Robb
     Rockefeller
     Roth
     Sarbanes
     Shelby
     Simon
     Specter
     Wellstone

                        ANSWERED ``PRESENT''--1

       
     Bond
       

                             NOT VOTING--1

       
     Lugar
       
  So the motion to lay on the table the amendment (No. 1478) was agreed 
to.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote.
  Mr. DOMENICI. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. D'AMATO. Mr. President, I would propound a unanimous-consent 
request which I believe will deal with all of the outstanding 
amendments. I believe there are six amendments, three on each side, and 
it would be my intent to ask that we stack those votes so we could give 
our colleagues the opportunity to arrange their evening schedule. 
Possibly, with the concurrence of the two leaders, we can agree to time 
limits on all of those amendments, so we can take them up tomorrow 
morning and then proceed to final passage. That is my intent, to see if 
we can reach that agreement. I bring this up because some of my 
colleagues have asked what the schedule will be. If we can work out 
that agreement, it would be my hope that we would dispose of all of the 
amendments this evening and then start voting at a certain time 
tomorrow morning.
  I yield the floor.
  Mr. COVERDELL addressed the Chair.
  The PRESIDING OFFICER. The Senator from Georgia.
  Mr. COVERDELL. Mr. President, I rise to speak on the bill.

                          ____________________