[Congressional Record Volume 141, Number 106 (Tuesday, June 27, 1995)]
[Senate]
[Pages S9150-S9173]
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. Madam President, I know the distinguished Senator from 
Florida, Senator Graham, is about to offer an amendment.
  It would be my intent when the ranking member returns, Senator 
Sarbanes, to offer a unanimous-consent agreement, the nature of which 
is we would have 1 hour equally divided on Senator Graham's amendment, 
and we then would proceed to Senator Boxer's amendment.
  I see Senator Sarbanes is here. I yield the floor to Senator Graham 
so he can start and offer his amendment, and at some point in time he 
might break to propound the unanimous-consent agreement.
  Mr. GRAHAM. Could I ask the Senator from New York a question? Your 
unanimous consent--are you going to provide some time in the morning 
prior to the vote for a brief statement for those who may not be able--
--
  Mr. D'AMATO. It would be our intent to vote this evening, probably by 
about 8 o'clock.
  Mr. GRAHAM. I am sorry. From earlier comments, I understood it was 
suggested otherwise.
  Mr. D'AMATO. We had attempted to get an agreement to stack the votes, 
but there was an objection to stacking more than a certain number. It 
is my intent to dispose of the Senator's amendment prior to disposing 
of the Boxer amendment.
  May I ask at this point unanimous consent that when the Senate 
considers the Graham amendment, there be 1 hour for debate, to be 
equally divided in the usual form, and no second-degree amendments be 
in order.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Madam President, I further ask that following the 
conclusion or yielding back of the time on the Graham amendment, that 
the amendment be laid aside and Senator Boxer be recognized to offer an 
amendment regarding insider trading, on which there would be 90 minutes 
for debate to be equally divided in the usual form, and no second-
degree amendments to be in order.
  Mr. SARBANES. Madam President, I will have to object to that request.
  The PRESIDING OFFICER. Does the Senator object? Objection is heard.
  Mr. D'AMATO. Well, then, we proceed to the Graham amendment.
  The PRESIDING OFFICER. The Senator from Florida.


                           Amendment No. 1479

 (Purpose: To provide for an early evaluation procedure in securities 
                             class actions)

  Mr. GRAHAM. Madam President, before I offer my amendment, I would 
like to make a few comments relative to this legislation. When I 
approach a piece of legislation, I like to do so by asking some basic 
questions, the first of which is: What is the problem? What is it that 
we do not like about the status quo that has caused us to propose some 
alteration of the status quo?
  In this case, that diagnosis has been very consistent, clear, and 
trumpeting, and it is that we have too many frivolous lawsuits that 
relate to securities fraud.
  I cite as my evidence of that an ad which appeared on page A7 of 
today's Washington Post, under the headlines, ``Who Profits? `A Coterie 
of Lawyers'.''
  This ad was in support of S. 240, and it was placed by ``America 
Needs More Investors, Not More Lawsuits,'' under the sponsorship of 
American Business Conference and American Electronics Association.
  What did the proponents of this legislation say was the reason that 
we have S. 240 before us this evening? Quoting from the ad:

       Specialized securities lawyers win big bucks by filing 
     meritless lawsuits against many of America's most promising 
     companies. The securities lawyers profit handsomely, but 
     Americans with money in stocks, pensions and mutual funds are 
     the losers in the deal.
       This is what editorial writers across the Nation are saying 
     about securities lawsuit abuse:

  And then the ad quotes a number of newspapers which have taken a 
position in support of this legislation. It happens that the first of 
those newspapers is from my State, the Tampa Tribune, June 25, 1995:

       The situation now is that all investors are paying the 
     costs of settling lawsuits that should never have been filed. 
     . . . [T]he time has come to pull the legal leeches off the 
     backs of corporations that have done no wrong.

  That is from the Tampa Tribune.
  The next is from the Rocky Mountain News:

       . . . the nogoodniks suffer at the same rate as the 
     straight-shooters. Meanwhile, who profits? A coterie of 
     lawyers with stock charts and fill-in-the-blanks fraud 
     complaints.

  That is the January 18, 1995, Rocky Mountain News.
  The Chicago Tribune of March 29 of this year:

       . . . groundless lawsuits by shareholders alleging fraud . 
     . . are often merely a way of extorting settlements from 
     corporations whose stock prices have dropped.

  Madam President, I ask unanimous consent the totality of the ad from 
today's Washington Post be printed in the Record immediately following 
my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. GRAHAM. Madam President, that is the stated problem: Frivolous, 
meritless lawsuits. But what do we have? Is that the prescription that 
has come out in S. 240? Is it legislation which is targeted at 
eradicating the tumor of meritless lawsuits? Unfortunately not.
  If I may quote from another newspaper, the Miami Herald of yesterday, 
which stated, under the headline, ``License to steal'':

       Practically everyone in Washington, to some degree or 
     other, has blamed ``frivolous or abusive lawsuits'' for 
     sapping America's economic vigor. And judging from anecdotes, 
     the complaint has some merit. But more often than not, the 
     proposed cures turn out to be far more debilitating than the 
     disease. A perfect illustration is a bill moving through 
     Congress that supposedly protects the securities industry 
     from ``frivolous'' suits by investors.
       The bill may come to a Senate vote today. It would bar, 
     among many other things, charges of fraud against those who 
     make false projections of a company's likely performance. By 
     granting ``safe harbor'' to all statements of a ``forward-
     looking'' nature, it essentially tells companies and brokers: 
     Go ahead, lie about the future. As long as you're not 
     misrepresenting the past, you can fleece investors in any way 
     that your imagination allows.

  Madam President, I ask unanimous consent the editorial from the June 
26, 

[[Page S 9151]]
1995, Miami Herald also be printed in the Record immediately after my 
remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2.)
  Mr. GRAHAM. What I think has happened, Madam President, is we had a 
goal to eliminate frivolous lawsuits which could have been hit easily 
with a .22 rifle. We have now used a howitzer, which has cratered in a 
large area of the legitimate rights of American investors when they are 
subjected to abusive and to fraudulent activities. We have created a 
situation in which it is going to be much more difficult to maintain 
any kind of suit, serious or frivolous, where fraud is alleged. We have 
shortened the statute of limitations. We have provided protection for 
those who assisted in the fraudulent behavior of the principals. We 
have created a circumstance of a conflict of interest by designating 
the largest investor in the company as the principal plaintiff in these 
types of cases. These are just some of the things that have happened, 
all under the pretext that we are going to be dealing with frivolous 
lawsuits.
  I suggest that there are serious consequences of this type of 
legislation, and what it is likely to lead to for the American free 
enterprise system. It was only 100 years ago that we had a very 
predatory form of free enterprise in the United States. We had large 
companies using their power in an abusive way to squelch small 
competitors, to gain monopolistic economic control. We had extreme 
swings in our business cycle, in large part attributed to that 
predatory behavior. We had the growth of populism and other forms of 
political dissent, as farmers and workers felt as if they were being 
the targets of this predatory behavior.
  The free enterprise system in America was in a very precarious 
condition. Free enterprise has flourished in America when people felt 
that the rules of free enterprise were fair and that everyone was going 
to be treated equally, that people could invest in firms--not without 
risk; that is the nature of the marketplace. But at least they were 
going to be treated with some discretion and some level of an equal 
playing field.
  I am afraid that legislation such as S. 240--which is going to be 
seen as, and I believe will in fact result in, a tilting of the 
economic playing field toward those who would be inclined to wish to 
abuse it and to use it for their own fraudulent purposes--will 
undermine that essential confidence of the American people in their 
economic institutions.
  So, with that, Madam President, I have an amendment that I would like 
to propose. It is an amendment which I will send to the desk which 
actually goes directly at the issue of frivolous lawsuits.
  Madam President, I send the 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 Florida [Mr. Graham] proposes an amendment 
     numbered 1479.

  Mr. GRAHAM. Madam 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 104, after line 22, insert the following:
       (c) Early Evaluation Procedures.--
       (1) 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:
       ``(j) Early Evaluation Procedures in Class Actions.--
       ``(1) In general.--In a private action arising under this 
     title that is filed as a class action pursuant to the Federal 
     Rules of Civil Procedure, if the class representatives and 
     each of the other parties to the action agree and any party 
     so requests, or if the court upon motion of any party so 
     decides, not later than 60 days after the filing of the class 
     action, the court shall order an early evaluation procedure. 
     The period of the early evaluation procedure shall not extend 
     beyond 150 days after the filing of the first complaint 
     subject to the procedure.
       ``(2) Requirements.--During the early evaluation procedure 
     described under paragraph (1)--
       ``(A) defendants shall not be required to answer or 
     otherwise respond to any complaint;
       ``(B) plaintiffs may file a consolidated or amended 
     complaint at any time and may dismiss the action or actions 
     at any time without sanction;
       ``(C) unless otherwise ordered by the court, no formal 
     discovery shall occur, except that parties may propound 
     discovery requests to third parties to preserve evidence;
       ``(D) the parties shall evaluate the merits of the action 
     under the supervision of a person (hereafter in this section 
     referred to as the `mediator') agreed upon by them or 
     designated by the court in the absence of agreement, which 
     person may be another district court judge, any magistrate-
     judge or a special master, each side having one peremptory 
     challenge of a mediator designated by the court by filing a 
     written notice of challenge not later than 5 days after 
     receipt of an order designating the mediator;
       ``(E) the parties shall promptly provide access to or 
     exchange all nonprivileged documents relating to the 
     allegations in the complaint or complaints, and any documents 
     withheld on the grounds of privilege shall be sufficiently 
     identified so as to permit the mediator to determine if they 
     are, in fact, privileged; and
       ``(F) the parties shall exchange damage studies and such 
     other expert reports as may be helpful to an evaluation of 
     the action on the merits, which materials shall be treated as 
     prepared and used in the context of settlement negotiations.
       ``(3) Failure to produce documents.--Any party that fails 
     to produce documents relevant to the allegations of the 
     complaint or complaints during the early evaluation procedure 
     described in paragraph (1) may be sanctioned by the court 
     pursuant to the Federal Rules of Civil Procedure. 
     Notwithstanding paragraph (2), subject to review by the 
     court, the mediator may order the production of evidence by 
     any party and, to the extent necessary properly to evaluate 
     the case, may permit discovery of nonparties and depositions 
     of parties for good cause shown.
       ``(4) Evaluation by the mediator.--
       ``(A) In general.--If, at the end of the early evaluation 
     procedure described in paragraph (1), the action has not been 
     voluntarily dismissed or settled, the mediator shall evaluate 
     the action as being--
       ``(i) clearly frivolous, such that it can only be further 
     maintained in bad faith;
       ``(ii) clearly meritorious, such that it can only be 
     further defended in bad faith; or
       ``(iii) described by neither clause (i) nor clause (ii).
       ``(B) Written evaluation.--An evaluation required by 
     subparagraph (A) with respect to the claims against and 
     defenses of each defendant shall be issued in writing not 
     later than 10 days after the end of the early evaluation 
     procedure and provided to the parties. The evaluation shall 
     not be admissible in the action, and shall not be provided to 
     the court until a motion for sanctions under paragraph (5) is 
     timely filed.
       ``(5) Mandatory sanctions.--
       ``(A) Clearly frivolous actions.--In an action that is 
     evaluated by the mediator under paragraph (4)(A)(i), upon 
     final adjudication of the action, the court shall include in 
     the record specific findings regarding compliance by each 
     party and each attorney representing any party with each 
     requirement of rule 11(b) of the Federal Rules of Civil 
     Procedure.
       ``(B) Mandatory sanctions.--If the court makes a finding 
     under subparagraph (A) that a party or attorney violated any 
     requirement of rule 11(b) of the Federal Rules of Civil 
     Procedure, the court shall impose sanctions on such party or 
     attorney in accordance with rule 11 of the Federal Rules of 
     Civil Procedure.
       ``(C) Presumption in favor of attorneys' fees and costs.--
       ``(i) In general.--Subject to clauses (ii) and (iii), for 
     purposes of subparagraph (B), the court shall adopt a 
     presumption that the appropriate sanction for failure of the 
     complaint to comply with any requirement of rule 11(b) of the 
     Federal Rules of Civil Procedure is an award to the opposing 
     party of all of the reasonable attorneys' fees and other 
     expenses incurred as a direct result of the violation.
       ``(ii) Rebuttal evidence.--The presumption described in 
     clause (i) may be rebutted only upon proof by the party or 
     attorney against whom sanctions are to be imposed that--

       ``(I) the award of attorneys' fees and other expenses will 
     impose an undue burden on that party or attorney; or
       ``(II) the violation of rule 11(b) of the Federal Rules of 
     Civil Procedure was de minimis.

       ``(iii) Sanctions.--If the party or attorney against whom 
     sanctions are to be imposed meets its burden under clause 
     (ii), the court shall award the sanctions that the court 
     deems appropriate pursuant to rule 11 of the Federal Rules of 
     Civil Procedure.
       ``(6) Extension of early evaluation period.--The period of 
     the early evaluation procedure described in paragraph (1) may 
     be extended by stipulation of all parties. At the conclusion 
     of the period, the action shall proceed in accordance with 
     Federal Rules of Civil Procedure.
       ``(7) Fees.--In a private action described in paragraph 
     (1), each side shall bear equally the reasonable fees and 
     expenses of the mediator agreed upon or designated under 
     paragraph (2)(D), if the mediator is not a judicial 
     officer.''.
       (2) Securities exchange act of 1934--Section 21 of the 
     Securities Act of 1933 (15 U.S.C. 78a) is amended by adding 
     at the end the following new subsection:
       ``(l) Early Evaluation Procedures in Class Actions.--

[[Page S 9152]]

       ``(1) In general.--In any private action arising under this 
     title that is filed as a class action pursuant to the Federal 
     Rules of Civil Procedure, if the class representatives and 
     each of the other parties to the action agree and any party 
     so requests, or if the court upon motion of any party so 
     decides, not later than 60 days after the filing of the class 
     action, the court shall order an early evaluation procedure. 
     The period of the early evaluation procedure shall not extend 
     beyond 150 days after the filing of the first complaint 
     subject to the procedure.
       ``(2) Requirements.--During the early evaluation procedure 
     described under paragraph (1)--
       ``(A) defendants shall not be required to answer or 
     otherwise respond to any complaint;
       ``(B) plaintiffs may file a consolidated or amended 
     complaint at any time and may dismiss the action or actions 
     at any time without sanction;
       ``(C) unless otherwise ordered by the court, no formal 
     discovery shall occur, except that parties may propound 
     discovery requests to third parties to preserve evidence;
       ``(D) the parties shall evaluate the merits of the action 
     under the supervision of a person (hereafter in this section 
     referred to as the `mediator') agreed upon by them or 
     designated by the court in the absence of agreement, which 
     person may be another district court judge, any magistrate-
     judge or a special master, each side having one peremptory 
     challenge of a mediator designated by the court by filing a 
     written notice of challenge not later than 5 days after 
     receipt of an order designating the mediator;
       ``(E) the parties shall promptly provide access to or 
     exchange all nonprivileged documents relating to the 
     allegations in the complaint or complaints, and any documents 
     withheld on the grounds of privilege shall be sufficiently 
     identified so as to permit the mediator to determine if they 
     are, in fact, privileged; and
       ``(F) the parties shall exchange damage studies and such 
     other expert reports as may be helpful to an evaluation of 
     the action on the merits, which materials shall be treated as 
     prepared and used in the context of settlement negotiations.
       ``(3) Failure to produce documents.--Any party that fails 
     to produce documents relevant to the allegations of the 
     complaint or complaints during the early evaluation procedure 
     described in paragraph (1) may be sanctioned by the court 
     pursuant to the Federal Rules of Civil Procedure. 
     Notwithstanding paragraph (2), subject to review by the 
     court, the mediator may order the production of evidence by 
     any party and, to the extent necessary properly to evaluate 
     the case, may permit discovery of nonparties and depositions 
     of parties for good cause shown.
       ``(4) Evaluation by the mediator.--
       ``(A) In general.--If, at the end of the early evaluation 
     procedure described in paragraph (1), the action has not been 
     voluntarily dismissed or settled, the mediator shall evaluate 
     the action as being--
       ``(i) clearly frivolous, such that it can only be further 
     maintained in bad faith;
       ``(ii) clearly meritorious, such that it can only be 
     further defended in bad faith; or
       ``(iii) described by neither clause (i) nor clause (ii).
       ``(B) Written evaluation.--An evaluation required by 
     subparagraph (A) with respect to the claims against and 
     defenses of each defendant shall be issued in writing not 
     later than 10 days after the end of the early evaluation 
     procedure and provided to the parties. The evaluation shall 
     not be admissible in the action, and shall not be provided to 
     the court until a motion for sanctions under paragraph (5) is 
     timely filed.
       ``(5) Mandatory sanctions.--
       ``(A) Clearly frivolous actions.--In an action that is 
     evaluated under paragraph (4)(A)(i) in which final judgment 
     is entered against the plaintiff, the plaintiff or 
     plaintiff's counsel shall be liable to the defendant for 
     sanctions as awarded by the court, which may include an order 
     to pay reasonable attorneys' fees and other expenses, if the 
     court agrees, based on the entire record, that the action was 
     clearly frivolous when filed and was maintained in bad faith.
       ``(B) Clearly meritorious actions.--In an action that is 
     evaluated under paragraph (4)(A)(ii) in which final judgment 
     is entered against the defendant, the defendant or 
     defendant's counsel shall be liable to the plaintiff for 
     sanctions as awarded by the court, which may include an order 
     to pay reasonable attorneys' fees and other expenses, if the 
     court agrees, based on the entire record, that the action was 
     clearly meritorious and was defended in bad faith.
       ``(6) Extension of early evaluation period.--The period of 
     the early evaluation procedure described in paragraph (1) may 
     be extended by stipulation of all parties. At the conclusion 
     of the period, the action shall proceed in accordance with 
     Federal Rules of Civil Procedure.
       ``(7) Fees.--In a private action described in paragraph 
     (1), each side shall bear equally the reasonable fees and 
     expenses of the mediator agreed upon or designated under 
     paragraph (2)(D), if the mediator is not a judicial 
     officer.''.
       On page 105, line 5, strike ``(j)'' and insert ``(i)''.
       On page 106, line 25, strike ``(l)'' and insert ``(k)''.
       On page 108, line 24, strike ``(k)'' and insert ``(j)''.
       On page 109, line 8, strike ``(l)'' and insert ``(k)''.
       On page 126, line 19, strike ``(m)'' and insert ``(l)''.
       On page 127, line 6, strike ``(m)'' and insert ``(l)''.
  Mr. GRAHAM. Madam President, the time I just used should be counted 
against the time which I was afforded to debate this matter.
  Madam President, the amendment that I send to the desk I do not 
purport to be original.
  It is in fact a version of what appeared in S. 240 as it was 
originally filed. It also draws heavily on language that was contained 
in the Bryan-Shelby bill, S. 667. What it attempts to do is to provide 
an early evaluation procedure for litigation filed either under the 
1933 Securities Act, or the 1934 Securities Act. It would provide that 
on the motion of the parties, or by the motion of the court before whom 
the case has been filed, that there can be an independent mediator 
designated. That mediator would have the responsibility of reviewing 
all of the facts of the litigation. After that review, the mediator 
would submit a report. That report would contain a finding that the 
litigation was either one of three categories. It was either a clearly 
frivolous action; second, a clearly meritorious action; or, third, was 
neither.
  If the parties in the face of that determination proceed with 
litigation, at the conclusion of the litigation, that report is 
submitted to the judge. And in the case under the 1934 act, for 
instance, where the report has found that this was a clearly frivolous 
action, and if the final judgment is entered against the plaintiff--
that is, the plaintiff proceeded forward to full litigation in spite of 
the fact that there had been an early evaluation that this was a 
clearly frivolous action, and the plaintiff had in fact had the final 
judgment entered against the plaintiff--then the plaintiff or the 
plaintiff's counsel shall be liable to defendant for sanctions as 
awarded by the court, which may include an order to pay reasonable 
attorney's fees and other expenses, if the court agrees based on the 
entire record that the action was clearly frivolous when filed and was 
maintained in bad faith.
  Madam President, if, on the other hand, this report of the early 
evaluation found that this was a clearly meritorious action, and the 
defendant carried it through to final judgment, and final judgment was 
entered against the defendant, then the defendant, or the defendant's 
counsel, shall be liable to the plaintiff for the sanctions awarded by 
the court which may include reasonable attorney's fees and other 
expenses; if the court agrees based on the entire record that the 
action was clearly meritorious and was defended in bad faith.
  Madam President, that is what we are trying to do here. We are trying 
to create some effective sanctions against people bringing frivolous 
lawsuits. We are attempting to set up a procedure that will facilitate 
the delineation and early determination of the frivolous from the 
nonfrivolous and meritorious cases. It is hoped with that early 
determination the parties against whom this report is entered will not 
pursue it further, or, in the case of the defendant, that they will 
settle the case without the necessity of prolonged and expensive 
litigation.
  Is not that what we are here for? We have identified the problem as 
being frivolous lawsuits. Why do we not solve the problem of frivolous 
lawsuits and not allow that problem to become a Trojan horse into which 
we load a lot of other issues, of shortening statute of limitations, 
creating conflicts of interest by designating only the most affluent 
investor as the lead plaintiff, giving really quite unwarranted 
protection to persons who make projections about the future with 
knowledge that those projections are false, giving increased sanction 
and protection to aiders and abettors who have acted in a reckless 
manner that has resulted in investors of being defrauded? None of those 
things are relevant to the issue of frivolous lawsuits.
  So, Madam President, I urge my colleagues to seriously consider this 
amendment which is submitted in an attempt to refocus our remedies on 
what has been general agreement to be the problem, which is frivolous 
lawsuits that do not advance the cause of justice that have the 
economic adverse effects that are recited by the proponents of S. 240.
  So, Madam President, I will reserve the remainder of my time. But I 
urge a 

[[Page S 9153]]
favorable consideration of this amendment by my colleagues.
  Thank you.
                               Exhibit 1

       Who Profits? ``A Coterie of Lawyers''--Rocky Mountain News.
       Specialized securities lawyers win big bucks by filing 
     meritless lawsuits against many of America's most promising 
     companies. The securities lawyers profit handsomely, but 
     Americans with money in stocks, pensions and mutual funds are 
     the losers in the deal.
       This is what editorial writers across the nation are saying 
     about securities lawsuit abuse:
       ``The situation now is that all investors are paying the 
     costs of settling lawsuits that should never have been filed. 
     . . . [T]he time has come to pull the legal leeches off the 
     backs of corporations that have done no wrong.''--Tampa 
     Tribune, June 25, 1995.
       ``. . . the nogoodniks suffer at the same rate as the 
     straight-shooters. Meanwhile, who profits? A coterie of 
     lawyers with stock charts and fill-in-the blanks fraud 
     complaints.''--Rocky Mountain News, January 18, 1995.
       ``. . . groundless lawsuits by shareholders alleging fraud 
     . . . are often merely a way of extorting settlements from 
     corporations whose stock prices have dropped.''--Chicago 
     Tribune, March 29, 1995.
       ``Enactment of either [the House or Senate] bill would 
     remove a serious blot on the legal system, which is supposed 
     to settle real disputes, not provide a protection racket for 
     a few lawyers.''--Boston Sunday Herald, June 18, 1995.
       ``These frivolous lawsuits discredit the legal profession, 
     distract companies from their main tasks, discourage or 
     retard the development of new, cutting edge businesses and 
     ultimately harm the interests of shareholders.''--The 
     Hartford Courant, April 11, 1994.
       ``The contemporary class action has created a class of 
     entrepreneurial lawyers. The first beagle to the court house 
     with a tame plaintiff in tow often gets to represent the 
     class, and collect a 33%-50% fee. . . Then the members of the 
     class receive small compensation . . .''--Barron's, June 5, 
     1995.
       ``The chief target of the reform legislation is a small 
     group of lawyers who have made a venal industry of filing 
     groundless securities-fraud lawsuits. . .
       ``. . . the securities bill [S. 240] would go a long way 
     toward curbing egregious abuse of the legal system. Such 
     abuse is in effect a hidden tax that costs American jobs and 
     discourages the entrepreneurial risk-taking that stimulates 
     economic growth.''--The News Tribune (Tacoma, Washington), 
     June 10, 1995.
       Legislation introduced in the Senate (S. 240) by Republican 
     Pete Domenici and Democrat Chris Dodd will give control back 
     to shareholders and really protect investors.
                                                                    ____

                               Exhibit 2

                        [From the Miami Herald]

                            License to Steal

       Practically everyone in Washington, to some degree or 
     other, has blamed ``frivolous or abusive lawsuits'' for 
     sapping America's economic vigor. And judging from anecdotes, 
     the complaint has some merit. But more often than not, the 
     proposed cures turn out to be far more debilitating than the 
     disease. A perfect illustration is a bill moving through 
     Congress that supposedly protects the securities industry 
     from ``frivolous'' suits by investors.
       The bill may come to a Senate vote today. It would bar, 
     among many other things, charges of fraud against those who 
     make false projections of a company's likely performance. By 
     granting ``safe harbor'' to all statements of a ``forward-
     looking'' nature, it essentially tells companies and brokers: 
     Go ahead, lie about the future. As long as you're not 
     misrepresenting the past, you can fleece investors in any way 
     that your imagination allows.
       Technically, investors still could sue in cases of 
     egregious deceit. But they'd have only one year to do so, and 
     they'd have to show evidence, up front, that the fraud was 
     deliberate. Not even the Securities and Exchange Commission 
     can prove willfulness that quickly.
       The problem is that companies make plenty of rosy 
     projections in good faith. Sometimes, when the promises don't 
     pan out, frustrated (or merely opportunistic) investors try 
     to sue. How common is that? Experts disagree.
       But the Senate bill offers a curious solution: To prevent 
     some unknown number of unfair securities-fraud lawsuits, 
     let's outlaw huge categories of them. The genuine, fair ones 
     will just have to go unpunished.
       So sorry you're swindled, old chap. Better luck next time.
       This is licensed larceny, and it's unconscionable. Yet 
     Florida Sen. Connie Mack, a member of the Banking Committee, 
     has co-sponsored and voted for the bill so far. In the time 
     since the committee review, Mr. Mack may have had a chance to 
     ponder its ill consequences. He'd do well to vote No today 
     and help slay this beast for good.
       Recent history is replete with colorful illustrations of 
     deliberate, systematic fraud on small investors. Their 
     savings were replenished, if at all, only by the courts or by 
     the threat of litigation. It's a strange moment indeed, with 
     the sores of the savings-and-loan fiasco still raw, for 
     Congress essentially to declare open season for deceiving 
     investors.
       It prompts an ironic question: How does it help American 
     investment to scare off potential investors with a promise 
     that the law won't aid them if they're bilked? The point of 
     solving the ``frivolous lawsuit'' problem was supposed to be 
     to encourage more investment. By that standard, the Senate's 
     ``Private Securities Litigation Reform Act'' amounts to self-
     strangulation.

  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. Madam President, the distinguished Senator from Florida 
is correct that the amendment he is now submitting has been the subject 
of intense scrutiny. Indeed, it was considered in the initial draft of 
this legislation. One of the reasons this proposal was rejected and 
dropped from the initial legislation was because it requires--and will 
wind up costing--too much. Also, this provision would set up an 
entirely new bureaucracy, by setting up an early evaluation procedure 
for class action lawsuits.
  Although early evaluation may be a laudable concept, this amendment 
will force parties into an early evaluation procedure. The procedure 
requires parties to voluntarily turn over documents or be subject to 
sanctions. At the end of the evaluation, if the parties do not settle 
or dismiss the action, they can be sanctioned if any further action is 
considered frivolous. I believe that parties should attempt to mediate 
their claims, if possible, but they should not be forced to mediate 
claims if they really want to seek a day in court.
  This is the balance that was reached. This Senator has never 
attempted to keep people from having their day in court. This Senator 
stated that belief clearly for the record during debate on this 
provision and the loser pays provision when they were strongly urged by 
those in the private sector who sought relief. But I would not, and 
could not, support the losers-pays concept because, as laudable as that 
might sound, it would indeed infringe upon the basic rights of men to 
seek relief. It would just be too high a bar for those who have truly 
been aggrieved.
  This amendment requires parties to submit to an early dispute 
resolution. If one of the parties, however, does not want this early 
procedure, then we have a very real problem. The early evaluation 
procedure would take place if each side agrees to it, or if either side 
wants it and the court acts upon such motion within 60 days of the 
filing the class action. I believe that this amendment goes too far in 
its attempt to resolve disputes. It actually sets up a standard where 
people would lose the ability to fight for their rights, whether they 
are the plaintiff or the defendant. I notice that Senator Dodd is here 
and know that he has spent a great deal of time on this issue.
  I yield the floor.
  Mr. DODD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Madam President, let me first of all thank my colleague 
from Florida for giving me a call earlier today about what he was going 
to offer with this amendment.
  Let me first of all, say that the spirit of this amendment, which I 
admit I like, in a way, has been offered as a part of the original bill 
alternative dispute resolution procedure to try to give litigants in 
securities matters an option of going a route rather than going into 
court to resolve their problems. We tried that on a number of bills. I 
go back 7 or 8 years ago in my efforts with then Senator Danforth of 
Missouri. We proposed some tort reform legislation that set up an 
alternative dispute resolution mechanism.
  So there is a spirit to this amendment and I am attracted to that 
spirit. I say that at the outset. But let me also say that despite my 
attraction with the spirit of what is being offered, I see this as 
being a proposal which is going to complicate matters rather than help 
resolve them.
  Under this amendment, as I understand it, any party that seeks a 
court order or an early evaluation--and if the court grants that 
order--an early evaluation might sound, and does sound very attractive, 
to Federal judges who are looking for a way to clear off their dockets, 
then you have the fishing process which can begin which I think runs 
counter to what we are trying to 

[[Page S 9154]]
achieve even under an alternative dispute resolution, a modest one as 
we have in the bill.
  Even if the complaint, Madam President, is clearly a matter--let us 
for the sake of argument assume that is the case--which would be 
dismissed and the case ended, when a motion to dismiss is decided, the 
plaintiff would get complete discovery prior to any ruling on the 
motion to dismiss. Now, that raises the issue of discovery and 
discovery costs. Of course, these are some of the principal forces and 
factors that cause innocent defendants to settle their cases.
  In testimony before our committee, in hearings on this matter--and I 
am quoting from page 14 of our committee report:

     . . .discovery costs account for roughly 80 percent of the 
     total litigation costs in securities fraud cases.

  In many cases the discovery can work in determining the guilt of a 
party. So I am not arguing there should not be discovery, but here you 
are getting it completely even before you get to the process, even 
before the motion to dismiss.
  One witness described the broad discovery requests requiring a 
company to produce over 1,500 boxes of documents at an expense of $1.4 
million, referring to page 16 of our report.
  What does all this mean, Madam President? Lawyers who can file 
meritless cases--and we have seen examples of that, cases that would be 
dismissed by the Court--will be able to circumvent the very important 
protection against unjustified claims that is provided by the motion to 
dismiss process.
  Indeed, this amendment would expand attorneys' ability to coerce 
settlements, in my view to include a new category of cases--those that 
are by definition meritless and that would be dismissed by the court. 
Given all the evidence that these lawyers extract in settlements in 
unjustified cases, we cannot--in my view, should not--enact a provision 
that would expand their power to do so in meritless cases, and that 
would be the net effect were the amendment to be adopted.
  So again, for one who is attracted very strongly to the alternative 
dispute resolution process, what you are getting here is something very 
different than that which raises the costs which provokes these kinds 
of settlements in meritless cases, and therefore, with all due respect 
to my good friend from Florida, I would urge the rejection of this 
amendment.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO. Madam President, we have nothing further to say on this 
side, unless the Senator from Florida wishes to continue. Otherwise, we 
will put in a quorum call.
  Mr. GRAHAM. Madam President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRAHAM. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAHAM. I ask unanimous consent that the quorum call time be 
taken equally off both sides.
  The PRESIDING OFFICER. Without objection, the time will be applied 
equally.
  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. I suggest the absence of a quorum.
  Mr. SARBANES. Will the Senator withhold on that?
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. How much time remains?
  The PRESIDING OFFICER. The Senator from Florida has 14\1/2\ minutes; 
the Senator from New York has 22 minutes and 32 seconds.
  Mr. SARBANES. I thank the Chair.
  Will the Senator from Florida give me just 2 minutes?
  Mr. GRAHAM. The Senator from Florida yields such time as the Senator 
from Maryland would choose to use.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Madam President, I wish to say to the Senator from 
Florida that I think he has come up with a very imaginative proposal 
here. His proposal in fact really gets at the question of the frivolous 
suits. We have been hearing a lot of discussion here over the last 
couple of days about trying to get at frivolous suits.
  When you look at the provisions that are being used in order to get 
at frivolous suits, you discover that they really encompass a great 
number of other things as well. As my colleague from Nevada, Senator 
Bryan, said at one point during the debate, this is a Trojan horse 
riding beneath the pennant of the frivolous suit with all sorts of 
other menacing, dangerous things hidden in the Trojan horse.
  I am interested that the proponents of this legislation are not 
responsive to the amendment of the Senator, which, of all the proposals 
I have seen, is the one that focuses on the frivolous suit and on the 
frivolous suit only, as I understand it.
  I ask the Senator, is it, in fact, correct that the focus of the 
Senator's amendment is the frivolous suit and it does not go beyond 
that?
  We have other things that are being done. People are being denied 
access to the courthouse. Aiders and abettors are being protected from 
any liability whatsoever. Joint and several liability is being done 
away with, all in the name of trying to get at the frivolous suit. It 
may have some implications for the frivolous suit, but the unfortunate 
thing is it also has very significant implications for the meritorious 
suit.
  As I understand the Senator's amendment, it is not subject to that 
criticism. This is the frivolous suit only.
  Mr. GRAHAM. The purpose, I say to the Senator, is the difference 
between using a laser beam to precisely remove a tumor as opposed to 
amputation to remove the entire limb. I fear that what we have done in 
this legislation, Madam President, is to amputate the ability of most 
investors to bring a serious case of securities fraud. Whether it is 
frivolous, competitive, or highly meritorious, we have eliminated for 
many individuals the ability to have access to court, to have their 
claims adjudicated in all types of cases.
  The purpose of this amendment was to be that laser that would 
identify those cases which in fact are, to use the amendment's term, 
clearly frivolous actions, and to provide some very stiff sanctions 
against persons who are found to have filed a clearly frivolous action 
but persist. If they lose that clearly frivolous action, which 
assumedly they are likely to do, then they face the prospect of paying 
not only their attorneys and their costs; they have to pay the 
defendant's attorneys and costs.
  Conversely, if a clearly meritorious action is filed and the 
defendant persists in litigation to defend against that clearly 
meritorious action and the defendant loses, then the defendant is 
placed in the position of being subject to the sanction of having to 
pay not only his own costs but also the costs of the plaintiff.
  This is not an attempt to apply a broadly based English standard of 
loser pays. This is an attempt to achieve the very purpose of this 
legislation, which is to discourage frivolous lawsuits by making the 
economic consequences of filing a frivolous lawsuit so onerous.
  I thank my colleague for having asked that clarifying question.
  Mr. SARBANES. As I understand it, the amendment of the Senator is 
balanced. There has been a tremendous amount of focus about the 
frivolous lawsuit filed by plaintiffs, but there also can be a problem 
with defendants resisting what are otherwise meritorious claims. Is 
that not correct?
 How does the Senator address that?

  Mr. GRAHAM. Yes, Madam President, there could be a frivolous defense 
as well as there can be a frivolous plaintiff's filing. And this 
amendment would provide balance. Exactly the same sanctions would be 
applied under the 1934 Securities Act to a frivolous action as would be 
applied to a clearly meritorious action. That is, if you are the 
defendant, and the evaluation is this is a clearly meritorious case, 
but you persist, litigate, and you lose, then you are subject to the 
sanction of having to pay the plaintiff's attorneys fees and court 
costs. So this is an attempt to create some strong economic incentives 
for people to settle and for people not to file a frivolous action, nor 
to persist in frivolous defenses.

[[Page S 9155]]

  Mr. SARBANES. I have to say to the Senator, having listened to this 
explanation, I have difficulty understanding why the proponents of this 
legislation have asserted that the purpose in trying to move the 
legislation is to avoid expensive litigation or preparation for 
litigation.
  Let me ask the Senator one final question. Does your process come in 
ahead of an extensive discovery period, or how does it work? At what 
point does your process come into play?
  Mr. GRAHAM. The expectation would be that this would be at the 
discretion of the parties or of the judge that this would be the first 
action initiated after the litigation has been filed.
  Mr. SARBANES. I see. So it would involve potentially a lot of the 
costs that are associated with preparing for trial, let alone the costs 
connected with the trial?
  Mr. GRAHAM. That is correct.
  Mr. SARBANES. It is difficult for me to understand the people who are 
opposing this amendment on the assertion they are trying to get at the 
cost of frivolous suits, or as I understand it, opposing the Senator's 
amendment. I just have difficulty squaring that.
  Mr. GRAHAM. It seems to me, Madam President, that this amendment is 
exactly consistent with what proponents of this legislation say the 
evil is that we are attempting to correct, and it would avoid the 
necessity of having to overreach in terms of a remedy to apply an 
excessive amount of medication of severely restricting access to courts 
by people with legitimate claims, which I fear this legislation will 
do. And even if a legitimate claim matures into a judgment, to then 
protect those persons against whom the judgment might be rendered by 
things like the aiders and abettors provision and the joint and several 
liability, particularly as it relates to small investors, et cetera. 
All of those types of things would be less necessary if we went 
straight at the problem cited, the frivolous lawsuit, and tried to 
eliminate as many of those lawsuits by effective sanctions as I believe 
this will be at the initial stages.
  Mr. SARBANES. Then you would not be running the risk, the very 
substantial risk, as I perceive this legislation, that meritorious 
claims would be adversely affected by these other sweeping provisions 
that are in this legislation. Your provision by definition is so 
directed that the meritorious claim would pass through the screening 
process, as I understand it?
  Mr. GRAHAM. The early evaluation would make a determination that the 
case was either clearly frivolous, clearly meritorious, or neither. And 
if you fell into that third category, then that ought to be the kind of 
open, civil due process that we associate with the American judicial 
system.
  Mr. SARBANES. Well, I thank the Senator very much for his explanation 
and for his very constructive and I think imaginative proposal.
  Mr. GRAHAM. Madam President, unless there is someone else who would 
like to speak on this amendment, I am prepared to make a short 
concluding statement and then if the opponents are prepared to yield 
back their time, I would be so prepared and we could proceed.
  Madam President, we have before us consensus on one issue, and that 
is that there is a problem relative to frivolous lawsuits in the 
securities area. The quandary is how to eradicate or mitigate that 
problem without doing excessive damage to other rights of investors, 
without eliminating what has been one of the principal deterrents to 
fraudulent behavior within our free enterprise system, what has been 
one of the foundations of public confidence that they could invest in 
our capitalistic system and be treated fairly.
  I believe this amendment goes directly at the problem that we have 
identified. It states that early on, after a case has been filed, there 
will be an independent evaluation by a judicially selected mediator as 
to whether this is a frivolous, meritorious, or other action. The case 
would then be in the hands of the litigants as to whether, in the face 
of that determination, they wish to proceed.
  But if they proceeded with a frivolous case, and if they lost that 
frivolous case, then they would be subject to very serious sanctions of 
having to pay not only their bills, but also the attorney fees and 
costs of their opponent. I think that would be a significant factor in 
terms of deterring the prosecution of frivolous suits.
  Frivolous defenses are sanctioned in exactly the same manner. So if a 
case is determined to be clearly meritorious, and yet the defendant 
proceeds and loses, that defendant will be subject to these sanctions. 
Madam President, I believe that comes as close to solving the problem 
we have identified and does so in a way that does not have unintended, 
adverse consequences on other aspects of investors' rights.
  So I urge those who are proponents of S. 240 to see this as a 
supportive, friendly, positive contribution to achieve their objective. 
And I hope that they and my other colleagues will support this 
amendment, which I believe moves toward achieving the very purpose that 
led to the introduction of this legislation in the first instance.
  Thank you, Madam President.
  I yield the floor, and I am prepared to yield back the balance of my 
time.
  Mr. D'AMATO. Madam President, I want to thank the Senator from 
Florida. I too yield back the balance of our time, and ask unanimous 
consent that this matter be set over for the purpose of giving Senator 
Boxer an opportunity to offer her amendment. She has indicated that she 
would take 40 minutes on her side and retain the balance of 5 minutes 
for tomorrow with the express intent that we will vote on her amendment 
first tomorrow after she makes her 5-minute statement. I reserve 
ourselves 2 minutes for tomorrow, and as much time as we need this 
evening. I do not intend to use more than 15 minutes at the most.
  Mrs. BOXER. Reserving the right to object, and I do not want to 
object, when are we going to vote on the Graham amendment?
  Mr. D'AMATO. It is my thought and intent that we will vote on Senator 
Graham's amendment after your amendment. And Senator Specter has 
several amendments to offer. If we could stack them to accommodate some 
of our colleagues, certainly well before 9 o'clock. It is my intent to 
ask for unanimous consent that we proceed in that manner.
  No matter, at least the Senator will have the opportunity of offering 
her amendment and starting to use some of her time.
  (Mr. BURNS assumed the chair.)
  Mrs. BOXER. I say to my friend, I am very willing. I would prefer to 
have my vote follow Senator Graham's. I think it makes more sense.
  Mr. D'AMATO. Would you like to vote on it this evening?
  Mrs. BOXER. I am suggesting tomorrow morning.
  Mr. D'AMATO. We will vote on Senator Graham's amendment this evening.
  Mrs. BOXER. I was not aware of that.
  Mr. D'AMATO. That was my purpose, so you would have an opportunity.
  Mr. SARBANES. If the manager will yield, as I understand the 
procedure now, the Graham amendment is being set aside so Senator Boxer 
can offer her amendment?
  Mr. D'AMATO. That is correct. Possibly Senator Specter, as well.
  Mr. SARBANES. Senator Boxer's amendment we will debate for 40 
minutes. You will respond for, I think, not more than----
  Mr. D'AMATO. Not more than 15 minutes.
  Mr. SARBANES. Then we will move on to some other amendments?
  Mr. D'AMATO. It is my hope we would take the three Specter 
amendments, at least two of those amendments, and dispose of them this 
evening, as well.
  Mr. SARBANES. The Boxer amendment would go on over to the morning. 
Senator Boxer will have an opportunity to speak in the morning for 5 
minutes.
  Mr. D'AMATO. That is correct.
  Mr. SARBANES. We intend to vote tonight on Senator Graham and Senator 
Specter?
  Mr. D'AMATO. That is correct.
  Mr. SARBANES. All together, or Senator Graham after Senator Boxer 
finishes her debate?
  Mr. D'AMATO. Well, I would like to possibly stack them for the 
convenience of our Members so they do not have to keep coming back and 
forth this evening.
  Mr. SARBANES. This evening.
  Mr. D'AMATO. This evening.
  Mr. SARBANES. So it would be the Graham amendment and Specter, some 
number of Specter.

[[Page S 9156]]

  Mr. D'AMATO. That is correct, either two or three.
  Mr. GRAHAM addressed the Chair.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. GRAHAM. Mr. President, at the appropriate time, and if that 
appropriate time is now, I would like to 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.
  The PRESIDING OFFICER. Is there objection? Without objection, it is 
so ordered. The Senator from California is recognized.


                           Amendment No. 1480

(Purpose: To make an amendment relating to the consequences of insider 
                                trading)

  Mrs. BOXER. I yield myself 30 minutes at this time.
  Mr. President, I send an amendment to the desk, and I ask for its 
immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The bill clerk read as follows:

       The Senator from California [Mrs. Boxer] proposes an 
     amendment numbered 1480.

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

       At the appropriate place in title I, insert the following 
     new section:

     SEC.   . CONSEQUENCES OF INSIDER TRADING.

       (a) Securities Act of 1933.--Section 13A of the Securities 
     Act of 1933, as added by section 105 of this Act, is amended 
     by adding at the end the following new subsection:
       ``(h) Consequences of Insider Trading.--
       ``(1) In general.--Notwithstanding subsection (c), the 
     exclusion from liability provided for in subsection (a) does 
     not apply to a false or misleading forward-looking statement 
     if, in connection with the false or misleading forward-
     looking statement, the issuer or any officer or director of 
     the issuer--
       ``(A) purchased or sold a material amount of the equity 
     securities of the issuer (or derivatives thereof), as 
     reflected in filings with the Commission; and
       ``(B) financially benefited from the forward-looking 
     statement.
       ``(2) Definition.--For purposes of this subsection, the 
     term `material amount' means--
       ``(A) with respect to an issuer, equity securities of the 
     issuer of any class having a total value of not less than 
     $1,000,000; and
       ``(B) with respect to an officer or director of an issuer, 
     holdings of that officer or director of any class of the 
     equity securities of the issuer having a total value of not 
     less than $50,000.''.
       (b) Securities Exchange Act of 1934.--Section 37 of the 
     Securities Exchange Act of 1934, as added by section 105 of 
     this Act, is amended by adding at the end the following new 
     subsection:
       ``(h) Consequences of Insider Trading.--
       ``(1) Consequences of insider trading.--Notwithstanding 
     subsection (c), the exclusion from liability provided for in 
     subsection (a) does not apply to a false or misleading 
     forward-looking statement if, in connection with the false or 
     misleading forward-looking statement, the issuer or any 
     officer or director of the issuer--
       ``(A) purchased or sold a material amount of the equity 
     securities of the issuer (or derivatives thereof), as 
     reflected in filings with the Commission; and
       ``(B) financially benefited from the forward-looking 
     statement.
       ``(2) Definition.--For purposes of this subsection, the 
     term `material amount' means--
       ``(A) with respect to an issuer, $1,000,000 worth of any 
     class of the equity securities of the issuer; and
       ``(B) with respect to an officer or director of an issuer, 
     $50,000 worth of the holdings of that person of any class of 
     the equity securities of the issuer.''.
     Amend the table of contents accordingly.

  Mrs. BOXER. Mr. President, simply put, my amendment says that insider 
traders who financially benefit from false or misleading forward-
looking statements shall not benefit from the safe harbor in S. 240. It 
could not be more direct. I am very hopeful colleagues will support me 
on this.
  It is very clear that 48 colleagues are unhappy with the safe harbor 
as it is in S. 240. All we are doing here is saying, ``Well, you didn't 
change it, so at least let us not allow insiders who financially 
benefit in connection with a false and misleading statement they issue 
to get the benefit of the safe harbor.''
  S. 240 has a safe harbor provision which basically gives insiders 
huge protection for false forward-looking statements, all statements, 
except those involving intentional fraud. In other words, there is a 
safe harbor for reckless fraud, knowing fraud and purposeful fraud. Let 
me repeat that. The S. 240 safe harbor provision, which gives insiders 
immunity for false forward-looking statements, involves reckless fraud, 
knowing fraud and purposeful fraud.
  Senator Sarbanes tried to change that standard. He offered two 
amendments. Those two amendments failed, although I would say the 
second one got 48 votes from both sides of the aisle. Obviously, people 
are troubled by the safe harbor which my friend from Maryland calls a 
pirate's cove. I call it a deep ocean--a deep ocean.
  In the Boxer amendment, the insider trading has to appear on the 
records of the SEC, so it is no guesswork. You know that insider made 
his insider trades because it is registered with the SEC, and it would 
have to involve significant insiders--the company itself or its 
officers or directors. So it is very narrowly drawn.
  Under my amendment, the insider trading would have to involve 
significant sums; in the case of a company, a million dollars in 
insider trading or more; in the case of an officer or director, insider 
trading would have to involve $50,000 or more.
  Let us be clear, the Boxer amendment only covers those trading on 
inside information who also issue false forward-looking statements in 
connection with that insider trading and who financially benefit from 
that trading.
  Make no mistake, unsuspecting investors are harmed quite directly by 
false or misleading forward-looking statements made in connection with 
insider trades. Why is that? Because small investors believe the 
statement. Buy the stock, push up the price, the insider then sells his 
stock at the higher price, pockets the profit, because of a false and 
misleading statement. The stock collapses. When the true news hits, the 
small investors are left holding losses.
  I am going to show a chart which I showed last week, the Crazy Eddie 
story. Crazy Eddie was a business. This is real. This is not a figment 
of anyone's imagination. Let us hear what Crazy Eddie said. This is a 
forward-looking statement:
  ``We are confident that our market penetration can grow 
appreciably.''
  ``Growing evidence of consumer acceptance of the Crazy Eddie name 
augurs well for continuing growth outside of New York.''
  Crazy Eddie dumps his stock, the top officer flees the country with 
millions, the CEO is convicted of fraud, and to any of my colleagues 
who say there is another provision that covers insider trading, that is 
only for the stockholders who actually bought Crazy Eddie's stock. It 
does not cover the class of other people who suffer because the stock 
plummeted. I think that is an important point, because every time I 
raise an amendment, the opposition stands up and says this is covered 
in another section. Wrong. Not for the class of shareholders, only the 
ones who buy Crazy Eddie's stock.
  If he sells a million dollars worth of stock, those people who bought 
it, yes, they can pursue under another provision of law. The other $2 
million worth of stock bought by the general public have very little 
chance here.
  Let us go to the next chart.
  T2 Medical, Inc. Here is another business. Take a look at this one's 
forward-looking statements. My colleagues want to encourage forward-
looking statements. So do I, but not false ones. I want to encourage 
honest ones. Does that mean that some businesses may make a mistake? 
They may make a mistake, a true mistake. But look at these guys:
  ``T2 plans to lead the way through the 1990's.''
  ``We expect continued steady revenue and earnings growth.''
  Just at the time of those statements, look what happens: The stock 
goes up; insiders sell 571,000 shares for 31 million bucks; the Wall 
Street Journal reports insurers reducing their payments by 15 to 50 
percent; the stock plunges; then the company discloses a grand jury 
investigation; total insider sales of $31.6 million.
  And look at the story here. Now the people at T2 Medical would get 
the safe harbor for forward-looking statements, the very same safe 
harbor that Senator Sarbanes tried to tighten up. They would get the 
protection of that safe harbor.
  It is an invitation to fraud. It is exactly what Chairman Levitt of 
the SEC 

[[Page S 9157]]
said would happen. He does not like the safe harbor. He said if you do 
this, by God, you crook, you cannot hide under that safe harbor. I hope 
my colleagues will embrace this amendment.
  Look at this, it tells the story, I say to my friend. The statement 
is made:
  ``T2 plans to lead the way through the 1990's.''
  ``We expect continued steady revenue and earnings growth.''
  The stock goes up, insiders sell, and the truth comes out. They 
disclose the grand jury investigation and bye, bye, baby, for all those 
poor snooks who bought it.
  This individual and these insiders do not deserve the safe harbor in 
S. 240. If Senator Sarbanes had been successful at changing the safe 
harbor, I would feel a lot better and I would not have offered this 
amendment.
 I told that to my friend. But we have the pirate's cove. Here are the 
pirates--Crazy Eddie and these people. These are just two examples. And 
for those who said Charles Keating never made forward-looking 
statements, I have a chart on that, too. So Crazy Eddie's top officer 
fled the country. The CEO was convicted of fraud. Investors were left 
with huge losses. That is the type of misbehavior this bill would 
encourage and reward. Why? It is not that anybody who writes this bill 
wants to help guys like this. But as a result of the safe harbor, these 
guys get the benefits. We say that they should not.

  Now, I do not think we want to encourage this. These are not isolated 
examples. There is a great deal of insider trading. Am I picking out 
two examples because I am exaggerating here? No; let me show you where 
we are with insider trading. This is a story from Business Week, 
December 1994. ``Insider Trading: It's Back, But With a New Cast of 
Characters.'' They looked at 100 of the largest businesses, by the way, 
and found that one out of every three merger deals was proceeded by 
stock price runups.
  Here is one from the Los Angeles Times. I want to say to my friends 
that this is a story from Saturday, June 24, 1995. I opened the paper 
when I was in L.A., and there it was. ``Insider Trading Probes Make a 
Comeback. Wall Street. SEC official notes more investigations than at 
any time since the takeover boom of the 1980's.''
  What are we doing? We are giving these people a safe harbor. I do not 
think this is in the best interest of the country. How about reading 
this a little bit:

       A wave of mergers and acquisitions in the United States is 
     reviving an unwanted headache for regulators: Insider 
     trading.
       ``We have more insider trading investigations now than at 
     any time since the takeover boom of the 1980's,'' said Thomas 
     Newkirk, associate director of enforcement for the Securities 
     and Exchange Commission.

  No wonder the SEC has trouble with the safe harbor in this bill. 
These are the guys who have to go after these crooks. They do not want 
to make it harder to catch them.
  I will put all of these in the Record at the appropriate time.
  Now, here is a quote from Gene Marcial, a Business Week ``Inside Wall 
Street'' columnist. This is his book.

       Don't kid yourself: Very little has changed on Wall Street. 
     Half a dozen years after the scandals of the 1980's, when any 
     number of street veterans were charged with violations of 
     securities laws and several high profile insiders were 
     marched off to jail, insider trading and market 
     manipulation--in most cases illegal--are still the most 
     zealously desired play in the financial world.

  He concludes and basically says, ``Sorry, but that's the way the game 
is played.''
  Now, look, if the game is played that way, we should try to stop it. 
We should not make it easier.
  Let us go to the next chart. Here is another one. New York Times, 
June 1995.

       Regulatory Alarms Ring on Wall Street. With the frenzy of 
     merger deals and takeover battles these days, it seems like 
     old times on Wall Street in more ways than one. Securities 
     regulators say they are opening investigations into insider 
     trading at a rate not seen since the mid-1980's, the era in 
     which Ivan Boesky, who went to jail for trading on inside 
     information, became a household name.

  They go on to say that it is a growth industry. We are going to give 
insider traders a safe harbor. They do not deserve it. I am worried 
about the good business people. I represent a lot of them and I am 
proud of them. They would not cheat anyone. They deserve to be 
supported, and they do not deserve frivolous lawsuits. This is about 
the bad guys.
  So let us, in good faith, say we did not change the safe harbor, but 
let us make sure that the worst of the worst, these inside players who 
issue a false or misleading statement and then sell their stock and 
benefit, do not get the benefit of the safe harbor.
  I say, if we do not do this, the incentives for insider trading and 
cashing in will be greater because, clearly, there is a nice, safe 
harbor for these people to hide in. I hope anyone who supports this 
bill would not want to encourage insider trading.
  Again, my amendment focuses narrowly on only one type of notorious 
fraud, insider trading in conjunction with false or misleading forward-
looking statements, and they have to increase the insider trader's 
profit. That is the only way they do not get the safe harbor. It has to 
be a false or misleading statement made in conjunction with their sale, 
and they have to make a profit. So we are not opening up a loophole for 
anybody good. We are closing a loophole for the bad. And that is very 
clear.
  My friend from Connecticut--and he is my friend and we go back and 
forth on this bill--has said many times that confidence of the 
investors is the most important thing. I have news. You just wait. If 
we do not fix this bill and this safe harbor provision goes forward, 
and we do not at least take this Boxer amendment, when we have the 
first crisis in the marketplace, when a group of investors like those 
burned by Keating or any of the others, when they come to Washington 
and stand on the steps of the Capitol and say, ``What have you done? 
You are giving these people a safe harbor. Where is my safe harbor? Why 
can I not collect from these crooks?'' You know, that is when 
confidence in the investing public will plummet.
  I tell you, with what I know about this bill--and my colleague said 
some claims would work. I worked on Wall Street at Hemphill, Noyes, & 
Co., Zuckerman & Smith, and J.R. Williston & Beane. I was proud of 
those days. I was one of the few women who had the license, passed the 
exam, was a registered representative. I had a very small--but 
important to me--practice. You can call it a practice. I had clients. 
They trusted me, and I will tell you, if I was in that business today, 
honestly knowing what I know about this bill and the fact that we did 
not pass the amendment offered by my friend from Maryland, I would 
really tell people to be very wary and to be very careful. I really 
would.
  The small investor, the IRA owner, the 401(k) owner, is increasingly 
coming to believe there are two games in town, two securities markets, 
one for the insiders and one for the little investors. The small 
investor is increasingly coming to fear that little investors are being 
played for suckers. Gary Lynch, who oversaw the Securities and Exchange 
Commission's investigation of Ivan Boesky, Dennis Levine, and Michael 
Milken is quoted as saying, ``What is happening now is exactly what 
everyone predicted in the 1980's, that as memories dulled, insider 
trading would pick up again. The temptation would be too great.''
  That is what this bill does--temptation in the form of a safe harbor, 
which my friend from Maryland calls the pirate's cove and I call an 
ocean. Insiders could well have a field day if this bill passes in its 
current form.
  I talked about the loss of faith that people would feel, and I say 
that very seriously. We may not see securities markets as we know them 
today. They may not be the envy of the world, the engine of economic 
opportunity for ordinary Americans, because they will be rigged against 
the honest investor, who will stay out of the securities marketplace.
  Now the bill supporters want to stop strike suits. So do I. They want 
to stop frivolous lawsuits. So do I. I have to say, I do not think 
anyone that backs S. 240 wants to help insiders who would issue a false 
and misleading statement, and pocket the stock. I know they do not.
  I hope they look at this legislation with an open mind. I think it is 
very narrowly focused. It is crafted for the sole purpose of making 
sure the bill 

[[Page S 9158]]
does not shield and encourage insider trading. I think it is quite 
clear.
  Let me say I do have a Charles Keating chart, and I want to just say 
some of the things that Charles Keating said in terms of his forward 
looking statements: ``Future prospects are outstanding.'' That's what 
he said. He tried to get people to buy the junk bonds. He said, ``We 
offer significant profit potential over the next 5 years.'' That is 
forward looking. ``Completion and sale of projects will generate huge 
gains.'' Thousands bought and lost money.
  Senator Bryan showed a chart. He showed what the impact would be if 
we adopt S. 240 the way it came to the floor. It would hurt those 
people.
  I just want to say, and I will retain the balance of my time, we are 
very clear in what we are trying to do with S. 240. We are trying to 
make it a better bill.
  Believe me, it would be easier for the ranking member and those 
members on the committee who had trouble with this bill to fold up our 
tents, because in this committee we could hardly get but a couple of 
votes.
  We believed enough in these amendments that we are offering that we 
decided to take to the floor and try to explain them to our colleagues. 
As others have said, it is difficult to do that. It is a technical area 
of the law.
  The bottom line is we do not want to give the Crazy Eddies--those who 
would make a false statement--a safe harbor, and then turn around when 
they make their money, the facts come out, the investors are left 
holding the bag. Why should those people get a safe harbor, I say to my 
friends.
  I hope you will endorse the Boxer amendment.
  Mr. President, I ask unanimous consent to have printed in the Record 
a New York Times article and a Los Angeles Times article.
  There being no objection, the articles were ordered to be printed in 
the Record, as follows:

                [From the New York Times, June 9, 1995]

                 Regulatory Alarms Ring on Wall Street

                           (By Susan Antilla)

       With the frenzy of merger deals and takeover battles these 
     days, it seems like old times on Wall Street in more ways 
     than one. Securities regulators say they are opening 
     investigations into insider trading at a rate not seen since 
     the mid 1980's, the era in which Ivan Boesky, who went to 
     jail for trading on inside information, became a household 
     name.
       Regulatory alarm bells went off again earlier this week 
     after I.B.M. disclosed its hostile $60-a-share offer for the 
     Lotus Development Corporation. That bid pushed up the value 
     of Lotus shares by 89 percent on Monday, the day it was 
     announced, and caused regulators to begin looking into 
     suspicious trading last week.
       Other cases brought to light recently involved Lockheed's 
     merger last year with Martin Marietta, another military 
     contractor, and AT&T's acquisition of the NCR Corporation.
       ``It's a growth industry,'' said William McLucas, director 
     of the division of enforcement at the Securities and Exchange 
     Commission.``In terms of raw numbers, we have as many cases 
     as we've had since the 1980's, when we were in the heyday of 
     mergers and acquisition activity.''
       Through the end of May, the National Association of 
     Securities Dealers, which overseas the Nasdaq electronic 
     trading market, had already referred 47 cases to the S.E.C. 
     for investigation into possible insider trading, said James 
     Cangiano, N.A.S.D.'s senior vice president for surveillance. 
     If the pace of suspect trading continues at that rate, it 
     would mean the N.A.S.D. would surpass the record 110 insider 
     trading referrals it made to the S.E.C. in 1987, he added.
       The same holds true for the New York Stock Exchange, where 
     investigators have opened three times as many insider trading 
     cases so far this year as they had by this date in 1994.
       The Lotus case seems typical. In the days before the I.B.M. 
     announcement, trading in both Lotus stock on Nasdaq and Lotus 
     options, which are traded on the American Stock Exchange, was 
     unusually heavy. ``I think you can presume we are looking at 
     it,'' Mr. Cangiano said. And
      while the S.E.C. does not comment on pending investigations, 
     Wall Street professionals say that the agency has 
     undoubtedly already opened a case to investigate Lotus 
     trading.
       These days, those trading on insider information apparently 
     do not come as frequently from the ranks of Wall Street's 
     professionals as they did in the 1980's, regulators say. 
     Those who take advantage of privileged information now tend 
     to be corporate officers, directors, and their families, 
     friends and lovers, according to executives at the nation's 
     stock exchanges, and lawyers who represent defendants.
       But the game--and the potential profits--are the same: get 
     information about a proposed deal that might raise the shares 
     of a publicly traded company before it is announced, and buy 
     the stock ahead of the news. Better yet, buy the options, 
     which cost less and tend to attract less regulatory scrutiny.
       Then, after the public learns what the insiders knew ahead 
     of time, it's time to get out with a quick profit.
       The lure of profits from insider information regarding 
     deals is just too much to resist for some players, the 
     S.E.C.'s Mr. McLucas said. The potential rewards compared 
     with the risks look better ``when people look at the premiums 
     available in takeovers,'' he said. ``We're a few years 
     removed from the Boesky insider trading cases, and people 
     have short memories.'' Of the 1,400 unresolved cases in the 
     S.E.C.'s current inventory, Mr. McLucas said, 20 percent 
     involve insider trading.
       The initial rounds of suspect trading of the last year or 
     so differed from those of the 1980's in that they generally 
     did not focus on big names in the securities business. 
     ``While Wall Street learned some lessons of the 1980's, it's 
     not completely clear that Main Street learned all of the 
     lessons,'' said Harvey Pitt, the former S.E.C. lawyer who 
     defended Mr. Boesky.
       If Wall Street appears to be more honest, though, it is 
     largely a function of increased surveillance by brokerage 
     firms and by regulators, say defense lawyers and securities 
     cops. ``We have not returned to the environment of the 1980's 
     where so many defendants were investment bankers, brokerage 
     firm employees and young lawyers,'' Mr. McLucas said. Still, 
     he added, ``We're seeing people in those areas start to crop 
     up, and I wouldn't be surprised to see more of them.''
       Earlier this week, Frederick A. Moran, a money manager in 
     Greenwich, Conn., said that he was the focus of an S.E.C. 
     investigation. Regulators contend that he bought shares of 
     Tele-Communications Inc., the big cable operator, in advance 
     of the announcement that it planned to merge with Bell 
     Atlantic. The S.E.C. is looking at Mr. Moran's purchases 
     because his son is a securities analyst who was privy to 
     information about the pending deal. Mr. Moran has said he 
     will fight the charges.
       Despite the higher numbers, regulators undoubtedly miss 
     cases both big and small. But, in this newest round of 
     insider trading investigations, it appears that the chances 
     of being caught are higher than before. At the New York Stock 
     Exchange, 100 employees work in market surveillance today, up 
     from 76 in 1975. And white-collar criminals who are members 
     of the Big Board face stiffer fines if they get caught. In 
     1988, the New York exchange removed the previous limit of 
     $25,000 for each charge against a member, eliminating any cap 
     on potential fines. At the same time, Congress enacted the 
     Insider Trading Sanctions Act, which allows for triple 
     damages to be paid when a trader is convicted on insider 
     charges.
       Moreover, the New York Stock Exchange and the Chicago Board 
     Options Exchange, which routinely share information with each 
     other and with the S.E.C. about suspect action in the 
     markets, have beefed up their detection mechanisms 
     substantially.
       ``When I first came her in 1981, the analysts drew 
     genealogical trees of corporate officers and investment 
     bankers and hung them on the wall'' to analyze who had 
     privileged information about a pending deal, said Agnes 
     Gautier, a vice president in the Big Board's market 
     surveillance department. Today, by contrast, computer 
     software programs spit out the dates, times and names behind 
     the trades that look suspicious, she said, making what used 
     to be an onerous task a fairly simple exercise.
       Thus, the S.E.C. was able to quickly investigate and settle 
     a case against a lawyer for Lockheed only eight months after 
     the news that the military contractor and Martin Marietta 
     would merge. The lawyer made $42,000 in illegal profits by 
     buying Lockheed options, Mr. McLucas recalled.
       Considering all this renewed attention to insider trading, 
     shouldn't more people be wary of breaking the rules? ``We'd 
     like to think so,'' Ms. Gautier said. ``But, I guess, as the 
     defense lawyers say, `Greed will overcome.' ''
                                                                    ____

              [From the Los Angeles Times, June 24, 1995]

                Insider-Trading Probes Makes a Comeback


 wall street: sec official notes more investigations than at any time 
                 since the takeover boom of the 1980's

       New York.--A wave of mergers and acquisitions in the United 
     States is reviving an unwanted headache for regulators: 
     insider trading.
       ``We have more insider-trading investigations now than at 
     any time since the takeover boom in the 1980s,'' said Thomas 
     Newkirk, associate director of enforcement for the Securities 
     and Exchange Commission.
       Several of this year's largest merger announcements have 
     been preceded by unusual trading Thursday, shares of Scott 
     Paper Co. jumped $2.50 to $46.875. Friday morning, the Wall 
     Street Journal reported that Kimberly-Clark Corp. was 
     negotiating to buy the company.
       During the merger bonanza of the 1980s, insider trading was 
     equated with greed on Wall Street as prosecutors won 
     convictions against Ivan Boesky, Michael Milken and others. 
     The alleged culprits of the 1990s tend to be more ordinary 
     working folk.
       In February, the SEC charged 17 people with civil 
     violations of insider-trading laws 

[[Page S 9159]]
     related to trading in shares of AT&T Corp. acquisition targets, 
     including NCR Corp. and McCaw Cellular Communications Inc. 
     Two were former AT&T employees. Charles Brumfield, former 
     vice president in the human resources department, pleaded 
     guilty in connection with the case.
       Earlier this month, the SEC sued a Salomon Bros. Inc. 
     analyst, Frederick Moran, and his father, a
      money manager in Greenwich Conn., for alleged insider 
     trading in the failed merger of Tele-Communications Inc., 
     the nation's largest cable systems operator, and Bell 
     Atlantic Corp.
       ``We brought 45 cases in the last fiscal year and the 
     caseload is running about the same this year,'' the SEC's 
     Newkirk said.
       Opportuunities are increasing for people to use advance 
     knowledge of a merger to make illegal profits. About $178 
     billion in mergers have been announced since the beginning of 
     the year, putting 1995 on course to exceed last year's $368 
     billion, according to Securities Data Co.
       Regulators say they are looking at such transactions for 
     any sign of trading picking up before the agreements were 
     announced. That was the case for shares of Telular Corp., 
     which said June 22 that it might seek a buyer for the 
     company, and for Lotus Development Corp., which agreed to be 
     bought by International Business Machines Corps.
       On June 20, just before a New York state agency proposed a 
     buy-out of Long Island Lighting Co. for $17.50 a share, the 
     utility's stock jumped $1.50 to a seven-month high of $17.
       One person who isn't surprised by the recent rise in 
     insider-trading cases in Gary Lynch, who as chief of 
     enforcement at the SEC during the 1980s was one of the main 
     people responsible for bringing about the convictions of 
     Boesky and Milken.
       ``What's happening now is exactly what everyone predicted 
     back in the '80s: that with the number of high-profile cases 
     brought, the incidence of insider trading would decline for a 
     while, but as memories dulled, insider trading would pick up 
     again,'' said Lynch. ``The temptation is too great for people 
     to resist.''

  Mrs. BOXER. I yield such time as he desires to my friend from 
Maryland.
  Mr. SARBANES. How much time does the Senator have?
  The PRESIDING OFFICER. Nineteen minutes and 41 seconds.
  Mr. SARBANES. I will be very brief so the Senator can reserve the 
balance of her time.
  I want to say the distinguished Senator from California has made a 
very strong, effective statement on behalf of her amendment.
  Does the Senator agree with me that there are people who--corporate 
insiders--who would sometimes make fraudulent forward-looking 
statements, to run up the stock price so they can unload their stock 
price before it goes down? Is that not exactly what has been happening?
  Mrs. BOXER. Exactly. And we showed the same in two examples. Here is 
one of the charts.
  Mr. SARBANES. Could we see the other chart? That is Crazy Eddie's. 
The other chart, as I understand it, the Senator shows on the left 
where we begin, making the statements. That runs their stock price up. 
Then they start unloading their stock, having done that.
  Is that correct?
  Mrs. BOXER. That is exactly right.
  Mr. SARBANES. What happens further along there? They get news, then 
revealed, that the insurance for this medical company is falling off, 
is that it?
  Mrs. BOXER. That is correct. The clients say they are reducing their 
payments to the T2 Medical Inc. by 15 to 50 percent, and the company 
here discloses a grand jury investigation which they knew.
  Mr. SARBANES. What happens further along?
  Mrs. BOXER. It goes on down list.
  They have unloaded at this point, $31 million or 571,000 shares of 
the stock at the high price, and now as this bad news comes out, we see 
the stock plummet, and essentially, the company here reports the SEC is 
investigating them.
  That is as far as this chart goes. They are under investigation. 
These were bad apples. People got snookered in as this stock went up, 
left holding the bag as it goes down. Insiders knew all of this.
  And we are saying they should not have the ability to get the safe 
harbor.
  Mr. SARBANES. I want to commend the Senator for offering this 
amendment, for her very clear explanation of it.
  I want to underscore one other point the Senator had which I think is 
extremely important. Members have taken the floor in the sense of a 
constructive way, trying to propose and get adopted amendments which we 
think should straighten out some of the problems with this legislation.
  In fact, I am prepared to say if all of the amendments had been 
adopted I would have been prepared to be supportive of this 
legislation.
  But what is happening here is that the bill contains provisions that 
are far in excess of dealing with frivolous suits. The provisions in 
this bill are going to cut off meritorious suits, and they will make 
honest, legitimate investors suffer as a consequence, as the Senator 
has so carefully outlined. I simply want to thank the Senator for her 
very strong statement.
  Mr. President, we have had difficulty with respect to these 
amendments, although we have come increasingly close on some of these 
amendments. I think that is reflecting a growing sense within this body 
that there is something amiss with this legislation.
  All is not right with this legislation. I think that is increasingly 
becoming clear. There has been an effort to portray it by the 
proponents in terms of the competing economic interests. So they engage 
in long denunciations in that regard.
  The fact is, every, as it were, independent observer or outside 
group, has sounded warning bells about this legislation. Members need 
to understand that. The Securities and Exchange Commission, the North 
American Securities Administrators Association, the Government Finance 
Officers Association.
  The distinguished Senator from California put into the Record a long 
list of organizations that had difficulty with this legislation. We 
were sounding the warnings about this legislation. The consumer groups 
all have joined in doing that.
  I hope, as Members approach the end of the amendment process and 
consider the bill itself, they will come to realize that the burden of 
the consequences are going to fall on the supporters. If this 
legislation passes, those voting to support it will bear the heavy 
burden in terms of what the consequences are going to be.
  There is no doubt in my mind that honest people will end up being 
defrauded and not have a remedy as a consequence of this legislation. 
The regulators have warned Members of that fact. Groups that have no 
vested economic interest in this legislation have warned Members of 
that fact. I just want to sound that warning to my colleagues.
  Mr. D'AMATO. Mr. President, first of all, I want to thank the Senator 
from California for being so gracious and so accommodating in 
attempting to go forward in a manner--and I know she was not feeling up 
to par. Although she has made a brilliant case, and has presented her 
case with the eloquence of someone who believes in what they are 
saying, and she does believe very strongly, I am forced to oppose this 
amendment.
  Let me say, this is not easy to oppose.
   Let me explain why I oppose this amendment, because this is a very 
complex issue. The fact of the matter is that insider trading is not 
given safe harbor protection and is absolutely covered and will 
continue to be covered by section 10(b) and rule 10b-5 of the 
securities laws. It prohibits the kind of fraudulent conduct that we 
consider to be insider trading. Fraudulent conduct and insider trading? 
The conduct that Senator Boxer seeks to prohibit is already prohibited 
in the securities law.

  Let me tell you what the consequences this amendment would be. They 
would be devastating. For example, somebody who routinely takes stock 
options--officers, directors in the company--would lose safe harbor 
protection. This amendment would bring us back to the situation that 
lawyers could simply allege fraud to bring a lawsuit. This amendment 
opens the door for the same kinds of operations that this legislation 
seeks to stop. That is why I must oppose this bill, notwithstanding the 
fact this amendment seems to indicate that it prohibits insider 
trading. This amendment does not do that.
  What this amendment does is strip away, the opportunity for someone 
to make a forward looking statement that might at some point in time 
prove to be inaccurate. Why should a firm have the door to litigation 
opened just because an executive engaged in any trades or exercised an 
options and made $50,000? 

[[Page S 9160]]

  Tell me, if someone engages in legal insider trading should they be 
tarred and feathered? Should they be sued? However, should you have a 
right of action against illegal insider trading as prohibited by rule 
10b-5? Absolutely. And that right of action does exist.
  So I have to oppose the amendment. But again I commend my colleague 
for coming forward and certainly for the manner in which she has made 
this presentation tonight, in an attempt to accommodate so many of our 
colleagues.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, I am going to wait until my colleague from 
California is back at her desk, because I have some questions that the 
amendment raises, that I would legitimately like to get some answers 
to. I am trying to understand the implications of the amendment.
  On page 2 of the amendment, as I read this, now--part of the 
difficulty is under the previous amendment----
  The PRESIDING OFFICER. If the Senator will suspend, who controls the 
time?
  Mr. DODD. The Senator from New York.
  Mr. D'AMATO. Senator Dodd is speaking on the time of the Senator from 
New York.
  The PRESIDING OFFICER. I thank the Senator from New York.
  Mr. DODD. Mr. President, one of the difficulties is trying to read 
and understand. The previous amendment, offered by the Senator from 
Florida, was a 12-page amendment. Trying to read through it and 
understand the implications in the space of a short amount of time is 
difficult.
  Let me come to page 2 of this amendment. Starting on the bottom of 
page 1.

       Notwithstanding subsection (c), the exclusion from 
     liability provided for in subsection (a) does not apply to a 
     false or misleading forward-looking statement if, in 
     connection with the false or misleading forward-looking 
     statement, the issuer or any officer or director of the 
     issuer--
       (A) purchased or sold . . .

  And so forth.
  My concern is this, and correct me if I am wrong. It seems to me you 
would be confronted with a factual situation where you have a director 
who had nothing to do with the problems associated with the Crazy Eddie 
case or whatever else. I heard my colleague, and I agreed with her, 
give eloquent statements on the importance of stock options. It was on 
an issue not too many months ago involving the value of stock options. 
She talked about what a valuable tool this can be.
  The mere action on the part of a director to either purchase or sell 
a stock that may or may not--let us assume did not have anything to do 
with what an officer of the company was doing regarding statements. Am 
I correct in assuming that director, then, if in fact you are able to 
prove the first point, assuming they met the other qualifications of 
$50,000, would be penalized under your amendment, were it to be 
enacted?
  Mrs. BOXER. I say to my friend, we indicate in the amendment who 
insiders are. It is pretty boilerplate. Yes, it covers insiders, people 
who would have inside information. But only, and I underscore only, if 
in conjunction with the false or misleading statement they sold stock 
and made a profit, they would be covered.
  Mr. DODD. What about the directors themselves? Not an officer, the 
director. Directors--one of the compensations for directors is we offer 
them stock options.
  The members of the board of directors did not have anything to do 
with this; the officers of the companies did. Let us assume that is the 
situation, assuming everything else is the case and that director, who 
had no involvement whatsoever with the insider false statements, as I 
read this, that innocent director who then sold or bought stock 
innocently, outside of whatever else the officers may be doing, would 
then be subject to the penalties of this?
  Mrs. BOXER. That is right. I say to my friend, we are using a pretty 
boilerplate definition of what an insider is. The insider is the 
company itself or any officer or director. But only if they sold their 
securities in connection with a false and misleading statement, we do 
not give them the safe harbor. We did not go out of our way to reach 
them. We are just saying you have to be an officer or director----
  Mr. DODD. Even though the director had nothing to do with the false 
and misleading statements? We all know how important stock options are, 
and so forth. I want to know the implications.
  Mrs. BOXER. All it says is they cannot benefit from the safe harbor 
and the lawsuit can go forward. If, in the course of the lawsuit, it 
turns out that this director is senile and did not know anything about 
it, or whatever the defense is, that is different. But we are saying as 
reasonable people that insiders--and we define that as the company, any 
officer or director.
  I have to tell my colleague, if my friend from Connecticut does not 
view that as a fair definition of an insider, I want to know what is--
someone who sits on the board of directors, someone who knows all the 
good news and bad news.
  All we are saying is the case will have to go forward. But in fact, 
if there is insider trading in connection with a false or misleading 
statement, they do not get the safe harbor and the case goes forward. 
Does it mean they are convicted? Of course not.
  Mr. DODD. I am not trying to be argumentative here.
  Mr. D'AMATO. Will my colleague yield?
  Mrs. BOXER. I am trying to answer my friend's questions. I am not 
being argumentative. I am being strong in my response.
  The PRESIDING OFFICER. If the Senator will suspend, I will advise the 
Senators they may speak in third person through the Chair.
  Mr. D'AMATO. Mr. President, I would like to propound a unanimous-
consent request so we might give, to those of our colleagues who are 
off the Hill, an opportunity to get back and request that we vote up or 
down on the Graham amendment.
  Have the yeas and nays been ordered on the Graham amendment?
  The PRESIDING OFFICER. The Chair advises they have.
  Mr. D'AMATO. Mr. President, I ask unanimous consent we be permitted 
to vote on the Graham amendment at 8 o'clock. In this way we will give 
opportunity to all our Members to get back and they would get a little 
extra notice. That would not interfere with any of the time my 
colleagues have.
  The PRESIDING OFFICER. Is there objection?
  Mr. DODD. I am glad to yield to my colleague. Do I not still have the 
floor?
  The PRESIDING OFFICER. Is there objection to the unanimous consent?
  Mr. SARBANES. What is the time situation on the Boxer amendment?
  The PRESIDING OFFICER. Senator Boxer has 13 minutes and 14 seconds; 
the other side has 5 minutes and 41 seconds.
  Mr. SARBANES. The time would expire at 8 o'clock under the agreement 
and then vote at 8 on the Graham amendment.
  Mr. D'AMATO. Then maybe we might be able to dispose of the other 
amendment by consent.
  Mr. SARBANES. After the Graham amendment, the Bingaman amendment?
  Mr. D'AMATO. Possibly before, or after. Certainly.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I thank my colleagues.
  Mr. DODD. Mr. President, I yield to my colleague from California who 
wants to make a request.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. BOXER. Thank you, I say to my friend. Mr. President, I ask for 
the yeas and nays on the Boxer amendment.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  Mr. DODD. Mr. President, if I can, let me just come back. The point I 
am trying to make here, and I say this with all due respect, no one 
wants to protect insider trading--obviously insider trading is an 
abhorrent exercise and practice.
  My concern here is that the mere exercise of an option by, for the 
sake of discussion, an innocent director--there can be innocent 
directors here; not the assumption that they automatically then take 
away the safe harbor for the 

[[Page S 9161]]
entire company because there has been a sale or a purchase of an amount 
triggered by the amounts indicated in the amendment itself. I 
appreciate where my colleague from California wants to get. But my 
concern here is that she is reaching a legal conclusion about someone 
where the assertion has been made and the mere existence of that then 
takes away the safe harbor protections. I think that goes farther even 
for those who have strong reservations about safe harbor. I think that 
just strips away unnecessarily. That is just drawing a legal conclusion 
triggering a whole response to a safe harbor provision on the mere 
assumption that someone has engaged in an illegal activity.
  As I read the amendment, that is how I see it being triggered. When 
you talk about any officer or any director who purchased or sold a 
material amount of equities and who financially benefited from the 
forward-looking statement in it, that is, to me, trying to put too much 
in this with a lot of assumptions made that I do not think are 
necessarily borne out by the actions. To assume there is inherently 
something illegal, that it is an assumption of an illegal act for 
someone to exercise an option, and that action becomes a presumption of 
guilt in this context, then stripping away safe harbor, I think, goes 
too far. That is how I read it and understand it.
  I am going to yield the floor in a minute and give my colleague from 
California an opportunity to respond to how I read this. But that is my 
concern here. I think it is taking an abhorrent activity of insider 
trading and then using that vehicle as a way to try to jam it into the 
issue of the safe harbor.
  My colleague from California and others have real problems with safe 
harbor. I understand that. But it seems to me that again we are taking 
a set of actions where there is not necessarily anything wrong with 
them, making a presumption about that, and then taking that activity 
and immediately stripping away the veil that protects the statements 
made in the forward-looking statements that are made in the context of 
predictions by companies, their direction, and thus triggered the safe 
harbor provisions. I for the life of me do not understand why we want 
to necessarily do that when I do not think those actions necessarily 
should trigger that kind of response.
  So for those reasons, I object to the amendment. Again, I appreciate, 
I think, the direction they want to go in, but it seems to me to be 
overreaching in terms of how you deal with safe harbor. With that, I 
give my colleague a chance to respond to that.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. BOXER. Thank you, Mr. President.
  Mr. President, let me say to my friend, to say that I am overreaching 
in this amendment could not be farther off the mark, I have made this 
so narrow in scope. I have said, if Senator Sarbanes' safe harbor 
provisions had passed, I would not have gone with this. But what I am 
saying is, why should we give such a good, nice, warm, and cozy safe 
harbor to crooks? It does not mean automatically that anyone is guilty 
of anything, I say to my friend. All we are saying is this is about 
getting a case brought forward and move forward. All we are saying is 
if an insider--I defy my friends, seriously, I do not understand how I 
could have been more fair in defining who an insider is other than to 
say the company, an officer or director. I did not say the secretary or 
anybody else. I am just hitting the top people. If they sell securities 
in connection with a false or misleading forward-looking statement--
when my friend read my amendment, he left out the words ``false or 
misleading,''--then all we are saying is they do not get the benefit of 
the safe harbor. The case moves forward quicker. If they are innocent, 
this will take care of it.
  My goodness. Let us not make small investors leap through hurdles 
when you have a situation such as this where clearly the insiders--by 
the way, there were a lot of insiders here: $31 million worth of stock. 
I do not think that the small investor who got caught in this downward 
plummet should have to leap through all sorts of hoops to get into 
court in this case.
  I hope my friends who support S. 240 will support this. I think we 
drew it narrowly. I think we are fair. I just hope that we can get a 
good vote on this amendment.
  Mr. SARBANES. Mr. President, I say to the Senator from California, 
the Senator from Connecticut says we are for it. If I could say, I am 
for legitimate safe harbor, I am not for excessive or overreaching safe 
harbor. That is what the whole debate has been about today.
  I thought that the safe harbor issue should have been sent to the SEC 
the way the Senator from Connecticut proposed in his bill and that the 
SEC could then develop the safe harbor, taking into account all of 
these complications.
  This body decided not to do that. So we then tried to have a 
different standard governing safe harbor. Again, the regulators are 
telling us that the standard in this bill is going to permit abuse. 
Under the standard in this bill, there will be abuses. The Senator from 
California is offering yet an even more limited amendment addressed to 
the insider traders. She has demonstrated in very graphic form the kind 
of practices that took place in two instances which she is trying to 
preclude and she has offered a remedy. For the life of me, I do not 
understand why this amendment is being resisted.
  Mr. DODD. Will my colleague yield for the purpose of a question?
  Mr. SARBANES. It is on the time of the Senator from California.
  Mr. DODD. If you told me the officer or director who made the 
misleading statements, that would be one thing. You could have an 
outside director of a company that could live literally thousands of 
miles away who exercises an option, and it has nothing to do with the 
misleading statement. That is my point here. If the Senator said the 
director or officer makes the misleading statements, then I understand, 
I think, where the Senator is going. But I do not understand why you 
take an outsider----
  Mrs. BOXER. Let me ask my friend on my own time. It is true, the 
director could have been in Paris. He could have a call from someone. 
``Hey, Joe, tomorrow, the Wall Street Journal is giving us a bad 
report.''
  Mr. DODD. That is different though.
  Mrs. BOXER. Let me finish my point. We would not know that. The 
plaintiffs do not know that. If this man or woman is totally innocent, 
we are not taking away his or her right. We are just saying there is a 
smoking gun if a director unloads, by the way, a large amount, a 
material amount, makes a good profit, and, quess what, in conjunction 
with a forward-looking statement or a bad report coming out in the 
paper. It is worth it, we think, to allow that case to go forward. If 
the director is totally innocent, fine. All we are saying is they 
should not have the safe harbor of this particular bill as the good 
people should. And if, in fact, it turns out that they were far away, 
they are on their honeymoon, they did not take any calls, did not know 
anything about the fact that there was going to be a false statement, 
they are going to walk away. God, I hope we have faith.
  Mr. DODD. The Senator has triggered a whole legal activity on the 
mere financial transaction. The Senator has then triggered a whole 
level of activity on safe harbor merely because she is assuming 
something that she has not been able to prove yet. But the mere fact 
that some director exercises an option, that then the whole safe harbor 
process collapses, the Senator has connected a lot of dots here on the 
basis of some assumptions. That, to me, is exactly what we are trying 
to avoid.
  Mrs. BOXER. If this is what the Senator is trying to avoid, then this 
is, in my view, a terrible bill. In other words, if you are trying to 
avoid giving an insider a hard time if he dumps his stock and runs 
over----
  Mr. DODD. The Senator has drawn a legal conclusion.
  Mrs. BOXER. Not a bit. What we are saying is you will meet a certain 
threshold if these facts happen to come forward, a false and misleading 
statement in conjunction with insider sale. Look, I am not too naive 
about these insider trades because I have seen it happen. Business Week 
did a whole issue on insider trades. Let us bring that up. The Wall 
Street Journal has run stories on this. Everybody is saying it is 
coming back in vogue. That is not Barbara Boxer. Those are people who 
are experts in the field. ``Insider 

[[Page S 9162]]
trades.'' ``It's back, but with a new cast of characters.'' All we are 
saying with this amendment, and I think this is important, all we are 
saying is it is an insider, and we have narrowly defined that.
  I challenge anyone to write a better definition of an insider other 
than the company itself, the board of directors or the officers. If 
they pocket huge amounts of money in connection with a false and 
misleading statement, they should not benefit from the safe harbor. 
Now, the case goes forward. If they are away and they can prove it, 
fine. But we are changing the law radically here. We are going far 
beyond anything the Senator from Connecticut proposed doing in his 
original bill. We have a safe harbor that has caused 48 Senators in 
this Chamber to say we want to change it. We have a safe harbor in S. 
240 that has the SEC saying they are very worried that there will be 
increases in fraud.
  Now, I think as a Senator from the largest State in the Union, where 
a lot of this happens--we look to the Keating people, and a lot of it 
was California--I have an obligation to make this bill better.
  I would far prefer to have the safe harbor that my friend from 
Maryland proposed. Instead, we have this other safe harbor that my 
friend from Connecticut embraces. And we are saying you are opening it 
up for everybody. How about closing it for some obvious abuses.
  Mr. DODD. Will my colleague yield on that point?
  Mrs. BOXER. I will.
  Mr. DODD. Again, I am not arguing about the spirit of what the 
Senator is trying to do. And no one is here trying to defend insider 
trading. But at this juncture, when we have tried to get directors to 
buy stock--it is one of the things we have tried to do over the years 
in our committee, purchase stock and get involved--I would have to say 
today, if this amendment were adopted, the last thing you would want to 
do is become even a purchaser. Forget a seller; the amendment says even 
purchasing stock here. You are removed from the process. All of a 
sudden you are trying to buy. My advice to anyone in that category, if 
this amendment were to be adopted, would be to stay away from this. I 
would stay entirely away from this. It would have absolutely the 
countereffect as we try to get people to acquire this stock. You are 
subjecting yourself to some very dangerous situations.
  Mrs. BOXER. Let me take my time because my friend is distorting what 
this amendment does. He is distorting what this amendment does. No 
honest director, no honest person has to fear about this amendment. 
Only the crooks. Only the crooks. And all we are saying is this is a 
problem. ``Insider-Trading Probes Make a Comeback,'' Saturday's edition 
of the L.A. Times.
  I say to my friends in the Senate from both sides of the aisle, I 
think if you vote for this Boxer amendment, you will thank those of us 
who brought it forward because the handwriting is on the wall. They are 
saying it is back in vogue, insider trading is back in vogue. If it 
occurs in connection with a false or misleading statement, not a true 
statement but a false or misleading statement, we say why should we 
give the benefit of that safe harbor to those people? Let the case be 
brought forward. Let the officer or director make the point. But my 
goodness, to argue against this amendment, I just am rather stunned. I 
was hopeful that we could have an agreement on both sides. I thought we 
could from the beginning. I was hit with all kinds of arguments the 
first time I brought this up: well, it is covered in another section. 
If you bought the shares the insider sold, yes, you are covered in 
another section.
  What about the general public? They are not covered. And yet those 
directors, those officers, who pocketed that money are protected by the 
safe harbor.
  I have reiterated this on a number of occasions, and I do not feel 
the need to continue at this point; my energy level is running down. 
But I have to come back tomorrow and present this in 5 minutes. So I 
look forward to that conclusion tomorrow, and I hope a favorable vote. 
I know that my colleagues have been hanging on my every word and 
everything I read here. I know that they are sitting in their offices, 
and they are absolutely intrigued by this debate. I hope if they did 
watch all of it they will come down and vote yes on the Boxer amendment 
tomorrow after we reiterate this argument and get it down to 5 minutes 
tomorrow morning.
  Mr. President, how much time do I have remaining?
  The PRESIDING OFFICER. The Chair advises the Senator from California 
she has 2 minutes.
  Mrs. BOXER. I will save that time, Mr. President, in case something 
is stated here to which I feel I must retort. Otherwise, I will be 
happy to yield back.
  Mr. D'AMATO. Mr. President, do we have any time remaining?
  The PRESIDING OFFICER. The time remaining on the Senator's side of 
the aisle is 13 seconds.
  Mr. D'AMATO. Well, Mr. President, I am prepared to yield back the 
remainder of our time. I yield the floor.
  Mrs. BOXER. Mr. President, in the spirit of comity and good will 
across the party aisle, I will yield back my 2 minutes.
  The PRESIDING OFFICER. All time is yielded back.
  Mrs. BOXER. I note the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant 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.


                       Vote on Amendment No. 1479

  The PRESIDING OFFICER. The hour is 8 o'clock. The question now is on 
agreeing to the amendment No. 1479 offered by the Senator from Florida 
[Mr. Graham]. 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 Rhode Island [Mr. Chafee], 
the Senator from North Carolina [Mr. Helms], the Senator from Vermont 
[Mr. Jeffords], the Senator from Indiana [Mr. Lugar], and the Senator 
from Tennessee [Mr. Thompson] are necessarily absent.
  Mr. FORD. I announce that the Senator from Hawaii [Mr. Inouye] is 
necessarily absent.
  The PRESIDING OFFICER (Mr. Ashcroft). Are there any other Senators in 
the Chamber who desire to vote?
  The result was announced--yeas 32, nays 61, as follows:

                      [Rollcall Vote No. 290 Leg.]

                                YEAS--32

     Akaka
     Biden
     Bingaman
     Boxer
     Bradley
     Breaux
     Bryan
     Byrd
     Conrad
     Daschle
     Dorgan
     Feingold
     Graham
     Harkin
     Hatfield
     Heflin
     Hollings
     Johnston
     Kennedy
     Kerrey
     Kohl
     Lautenberg
     Levin
     McCain
     Moynihan
     Nunn
     Pell
     Rockefeller
     Sarbanes
     Shelby
     Simon
     Wellstone

                                NAYS--61

     Abraham
     Ashcroft
     Baucus
     Bennett
     Brown
     Bumpers
     Burns
     Campbell
     Coats
     Cochran
     Cohen
     Coverdell
     Craig
     D'Amato
     DeWine
     Dodd
     Dole
     Domenici
     Exon
     Faircloth
     Feinstein
     Ford
     Frist
     Glenn
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Kassebaum
     Kempthorne
     Kerry
     Kyl
     Leahy
     Lieberman
     Lott
     Mack
     McConnell
     Mikulski
     Moseley-Braun
     Murkowski
     Murray
     Nickles
     Packwood
     Pressler
     Pryor
     Reid
     Robb
     Roth
     Santorum
     Simpson
     Smith
     Snowe
     Specter
     Stevens
     Thomas
     Thurmond
     Warner
                        ANSWERED ``PRESENT''--1

       
     Bond
       

                             NOT VOTING--6

     Chafee
     Helms
     Inouye
     Jeffords
     Lugar
     Thompson
  So the amendment (No. 1479) was rejected.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote.
  Mr. BIDEN. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. D'AMATO. Mr. President, let me say that if we get this unanimous 
consent agreement, all those Members who have asked to have amendments 
considered will have them considered. All 

[[Page S 9163]]
of the votes on those amendments will take place tomorrow, or tonight 
by voice. So what I am saying is there will be no further rollcall 
votes. And all of the debate, with the exception of, I believe, 7 
minutes for one Member, and the intervening times, will take place this 
evening. I am going to propound that request.


                      Unanimous-Consent Agreement

  Mr. D'AMATO. Mr. President, I ask unanimous consent that the 
following amendments be the only remaining first degree amendments in 
order, other than the committee-reported substitute, that no second-
degree amendments be in order and that all amendments must be offered 
and debated this evening: The Biden amendment; the Bingaman amendment; 
the D'Amato-Sarbanes managers amendment; the Boxer amendment, re: 
insider trading; the Specter amendment, re: fraudulent intent; the 
Specter amendment, re: rule 11B; the Specter amendment, re: stay of 
discovery.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I further ask that when the Senate completes its 
business today, it stand in recess until 8:40 a.m., and at 8:45 a.m. 
the Senate proceed to vote on or in relation to the first Specter 
amendment, and that following the conclusion of that vote, there be 4 
minutes for debate, to be equally divided on the second Specter 
amendment, to be followed by a vote on or in relation to the second 
Specter amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I further ask that following the vote on the second 
Specter amendment, there be 4 minutes for debate, to be equally 
divided, on the third Specter amendment, to be followed by a vote on or 
in relation to the Specter amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I further ask that following the vote on the third 
Specter amendment, there be 7 minutes for debate, to be divided under 
the previous order, to be followed by a vote on or in relation to the 
Boxer amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I further ask that following the disposition of the 
Boxer amendment, the committee substitute, as amended, be agreed to and 
S. 240 be advanced to third reading, and the Banking Committee be 
discharged from further consideration of H.R. 1058, the House companion 
bill, and the Senate proceed to its immediate consideration; that all 
after the enacting clause be stricken and the text of S. 240, as 
amended, be inserted in lieu thereof, and H.R. 1058 be considered read 
the third time.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. I further ask unanimous consent that at that point there 
be 30 minutes for closing remarks, to be equally divided in the usual 
form, to be followed by a vote on H.R. 1058.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I further ask unanimous consent that all 
of the votes after the first vote in the voting sequence be limited to 
10 minutes each, except for final passage.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, there will be no further rollcall votes 
this evening, and the first vote tomorrow is at 8:45 a.m. The first 
amendment to be in order will be the Biden amendment, which will be 
kept under 5 minutes. Thereafter, the Bingaman amendment will follow, 
which will also be limited to 5 minutes, to be followed by Senator 
Specter's three amendments.
  Mr. SARBANES. The first vote in the morning will be at 8:45. I remind 
my colleagues, that is a vote at 8:45.
  The PRESIDING OFFICER. The first vote will be 8:45.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that the pending 
amendment be set aside so the Senator from Delaware can offer his 
amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered. The 
pending amendment is set aside.


                           Amendment No. 1481

  Mr. BIDEN. 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 Delaware [Mr. Biden] proposes an amendment 
     numbered 1481.

  Mr. BIDEN. 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:
       At the appropriate place insert:

     SEC.   . AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT 
                   ORGANIZATIONS ACT.
       Section 1964(c) of title 18, United States Code, is amended 
     by inserting before the period ``, except that no person may 
     rely upon conduct that would have been actionable as fraud in 
     the purchase of sale of securities to establish a violation 
     of section 1962'', provided however that this exception shall 
     not apply if any participant in the fraud is criminally 
     convicted in connection therewith, in which case the statute 
     of limitations shall start to run on the date that the 
     conviction becomes final.

  Mr. BIDEN. Mr. President, I have been here a while. When I first got 
here 23 years ago, I learned a lesson from Russell Long.
  I went up to him on a Finance Committee day and asked to have an 
amendment accepted, and he said yes. I proceeded to speak on it half an 
hour and say why it was a good amendment. And he said, ``I changed my 
mind. Rollcall vote.'' I lost. He came later and he said, ``When I 
accept an amendment, accept the amendment and sit down.''
  I will take 30 seconds to explain my amendment because it is about to 
be accepted. I thank my friend from Pennsylvania for allowing me to 
move ahead. He is always gracious to me and I appreciate it.
  There is a carve-out in this legislation, carving out securities 
fraud from the application of the civil RICO statutes. I think that is 
a bad idea. But I will not debate that issue tonight.
  I have an amendment that is before the body that says such a carve-
out exists, except that it shall not apply if any participant in fraud 
is criminally convicted; then RICO can apply, and the statute does not 
begin to toll until the day of the conviction becomes final.
  Keeping with the admonition of Russell Long, I have no further 
comment on the amendment.
  Mr. D'AMATO. Mr. President, we have no objection. We accept that 
amendment.
  The PRESIDING OFFICER. If there is no further debate, the question is 
on agreeing to the amendment.
  The amendment (No. 1481) was agreed to.
  Mr. BIDEN. I move to reconsider the vote.
  Mr. SARBANES. I move to table the motion.
  The motion to lay on the table was agreed to.


                           Amendment No. 1482

(Purpose: To clarify the application of sanctions under rule 11 of the 
   Federal Rules of Civil Procedure in private securities litigation)

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

       The Senator from New Mexico [Mr. Bingaman], for himself and 
     Mr. Bryan, proposes an amendment numbered 1482.

  Mr. BINGAMAN. Mr. President, I ask unanimous consent that further 
reading of the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:
       On page 105, line 25, insert ``, or the responsive pleading 
     or motion'' after ``complaint''.
       On page 107, line 20, insert ``, or the responsive pleading 
     or motion'' after ``complaint''.

  Mr. BINGAMAN. Mr. President, I send this amendment on behalf of 
myself and Mr. Bryan. It is a very simple amendment.
  The present bill, as it is pending before the Senate, calls for a 
mandatory review by the court in any private action arising under the 
legislation. It says that the court shall establish a record with 
specific findings regarding compliance by each party, and each attorney 
representing any party with the requirements of rule 11 of the Federal 
Rules of Civil Procedure, prohibiting frivolous pleading or frivolous 
activity by counsel.
  The difficulty is that later in the bill where it specifies 
presumption, that we call for on page 105 and 107 of the bill, 

[[Page S 9164]]
we only specify that the appropriate sanction apply to pleadings filed 
by the plaintiffs.
  Our amendment would change that and make it more balanced, in that it 
would specify that the sanctions could apply either to pleadings filed 
by the plaintiff or to responsive pleadings or motions filed by 
defense.
  I think this is acceptable to the managers of the bill. I think it is 
only reasonable that if we are going to have this provision in the 
bill--which is a provision, quite frankly, I do not agree with--I think 
that singling out these securities cases as the only cases in our court 
system where we require a mandatory review by the court, and the 
finding and imposition of specific findings, is a mistake. If we are 
going to have it, we should make it balanced between plaintiff and 
defendant.
  I know the Senator from Nevada wishes to speak. I yield the floor.
  Mr. BRYAN. Mr. President, first let me commend my colleague from New 
Mexico. I think his amendment is well-constructed. We have used the 
word often in the course of the debate--balanced. This is balanced. 
What is sauce for the goose is sauce for the gander.
  Those lawyers, whether they be plaintiff's lawyers or defendant's 
lawyers who are involved in frivolous conduct, now feel the full effect 
of sanctioned rule 11 under the Federal Rules of Civil Procedure.
  Much has been said about the frivolous nature of this lawsuit 
correction act. I must say this is one of the few amendments that 
actually deals with this issue. I am pleased to support my colleague 
and friend from New Mexico, and I am pleased that the managers have 
agreed to accept the amendment. I urge its adoption.
  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  The amendment (No. 1482) was agreed to.
  Mr. SARBANES. I move to reconsider the vote.
  Mr. D'AMATO. I move to table the motion.
  The motion to lay on the table was agreed to.
  Mr. SPECTER. Mr. President, I have sought recognition to offer three 
amendments which I think will provide some balance to the legislation 
that is now pending before the Senate.
  I believe that there is a need for some modification of our 
securities acts, but I think it has to be very, very carefully crafted.
  As I take a look at what is occurring in the courts, compared to what 
happens in our legislative process, I think that the very deliberative 
rule in the courts, case by case, with very, very careful analysis, has 
to take precedence over the procedures which we use in the Congress 
where hearings are attended, sometimes by only one or two Senators, and 
then provisions are added in markup very late in the process. 
Legislation does not receive the kind of very thoughtful encrustation 
that comes through common law development and interpretation of the 
securities acts.
  I have represented both sides in securities litigation before coming 
to the U.S. Senate in the private practice of law. I would remind my 
colleagues that before we proceed to make such enormous changes by this 
legislation, we need to recall the importance of protecting investors, 
especially small investors, small unsophisticated investors, in some 
cases, who put a substantial part of their savings, perhaps all of 
their life savings, into securities, and how much is involved in the 
accretion of capital through corporations, through common stock, 
compared to what is the thrust of this legislation, really looking to 
curb some lawsuits which should not be brought, some frivolous lawsuits 
which ought not to have been filed, and perhaps some of the excesses in 
the plaintiffs' bar, as there may be excesses in any group.
  What we are looking at is the value of shares traded in 1993 on the 
stock exchanges, the most recent year available for analysis. Mr. 
President, the $6.63 trillion traded on the stock exchanges in 1993 is 
more than half of the gross national product of the United States in 
1963. The value of initial public offerings in 1993, was $57.444 
billion.
  If we take a look at the comparison as to how much is spent on 
attorney's fees, according to a 1990 article in the Class Action 
Reports, a review of some 334 securities class action cases decided 
between 1980 and 1990, a group of cases in which there was a recovery 
of $4.281 billion, only some 15.2 percent of that recovery went to fees 
and costs, a total of some $630 million.
  In those cases, according to the court records, the attorneys for the 
plaintiffs spent 1,691,642 hours.
  Statistics have already been presented on the floor of the Senate 
which show a decrease in securities litigation. I submit that it is 
very important to be able to continue to protect investors--especially 
small investors--from stock fraud.
  We know that in the crash of the Depression, 1929 and thereafter, 
tremendous savings were lost at that time. These losses gave rise to 
the legislation in 1933 and 1934 to protect investors and the 
securities markets.
  Without speaking at length on the subject, I would point to a few 
cases where there were very substantial losses to the public and in 
which private actions were brought to enforce the securities laws. For 
example, the ongoing Prudential Securities litigation, with over $1 
billion in losses, perhaps as much as double that;
 the Michael Milken cases, where there were recoveries in the range of 
$1.3 billion, involving Drexel, Burnham & Lambert, recovered by the 
Federal Deposit Insurance Corporation under the securities laws; we all 
know the famous Charles Keating case, involving his former company, 
Lincoln Savings & Loan, involving some $262 million recovered and some 
$288 million lost; the $2 billion lost in the Washington Public Power 
Supply System case--mentioning only a few.

  The concern that I have on the legislation as it is currently pending 
is that there is an imbalance which will discourage this very important 
litigation to protect the shareholders. I have supported the managers 
of the bill on a number of the amendments which have been filed, but I 
am going to submit a series of three amendments which, I submit, will 
make the bill more balanced.
  The PRESIDING OFFICER. Without objection the pending amendment will 
be set aside.


                           Amendment No. 1483

       (Purpose: To provide for sanctions for abusive litigation)

  Mr. SPECTER. At this time, 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 Pennsylvania [Mr. Specter] proposes an 
     amendment numbered 1483.

  Mr. SPECTER. 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:

       Beginning on page 105, strike line 1 and all that follows 
     through page 108, line 17, and insert the following:

     SEC. 103. SANCTIONS FOR ABUSIVE LITIGATION.

       (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:
       ``(j) Sanctions for Abusive Litigation.--In any private 
     action arising under this title, if an abusive litigation 
     practice relating to the action is brought to the attention 
     of the court, by motion or otherwise, the court shall 
     promptly--
       ``(1) determine whether or not to impose sanctions under 
     rule 11 or rule 26(g)(3) of the Federal Rules of Civil 
     Procedure, section 1927 of title 28, United States Code, or 
     other authority of the court; and
       ``(2) include in the record findings of fact and 
     conclusions of law to support such determination.''.
       (b) Securities Exchange Act of 1934.--Section 21 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by 
     adding at the end the following new subsection:
       ``(l) Sanctions for Abusive Litigation.--In any private 
     action arising under this title, if an abusive litigation 
     practice relating to the action is brought to the attention 
     of the court, by motion or otherwise, the court shall 
     promptly--
       ``(1) determine whether or not to impose sanctions under 
     rule 11 or rule 26(g)(3) of the Federal Rules of Civil 
     Procedure, section 1927 of title 28, United States Code, or 
     other authority of the court; and
       ``(2) include in the record findings of fact and 
     conclusions of law to support such determination.''.

  Mr. SPECTER. Mr. President, this amendment is designed to leave 
discretion with the trial judge in place of the very onerous provisions 
of the pending 

[[Page S 9165]]
bill which require a mandatory review by the court after each 
securities case is concluded and then a requirement that the court 
impose sanctions on a party if the court finds that the party violated 
any requirement of rule 11(b) with the presumption being that 
attorney's fees will be awarded to the losing party.
  I submit that this is a very harsh rule which will have a profoundly 
chilling effect on litigation brought under the securities acts, and 
will in addition spawn an enormous amount of additional work for the 
Federal courts by causing what is called satellite litigation.
  That means that in any case where the litigation is concluded under 
the securities acts, the judge will be compelled, under the mandatory 
review provision, to review all the pleadings filed in the case to 
determine whether rule 11 was violated, whether or not either party 
chooses to have that review made, and then will be compelled to impose 
the sanction with the presumption being payment of attorney's fees, 
which is really the British system, not the United States' system, 
where we have had open courts. This provision risks causing a 
tremendous imbalance between plaintiffs and defendants in these cases 
because the defendants are characteristically major corporations with 
much greater resources to defend, contrasted with the plaintiffs who do 
not have those resources, or their lawyers who bring the suits on their 
behalf.
  I have surveyed the Federal bench, the judges in the U.S. district 
courts and in the courts of appeals, to see how the judges respond to 
changes in rule 11 to take away the discretion of the trial judges and 
have what is, in effect, micromanagement of the judiciary by the 
Congress of the United States. I have done this to try to get a sense 
as to what is going on in the courts. It has been some time since I 
practiced there.
  I submit that the views of a few Senators, the authors of this bill 
and the Senators who are voting on this legislation, are a great deal 
more limited than the insights of the Federal judges who preside in the 
administration of these cases day in and day out. The procedures which 
are being followed in this legislation are not those customarily 
followed where the rules of civil procedure are formulated by the 
Federal courts under the Rules Enabling Act--the Supreme Court which 
has the authority to do so, and the delegation of that authority to 
committees where the judges work with it all the time, and 
representatives of the bar, as opposed to the Members of Congress, who 
have very, very limited experience in this field and, in this 
particular case, had this provision added very late in the process, 
late in May, a few days before there was final markup of the bill in 
the Banking Committee, which does not normally deal with issues of the 
Federal Rules of Civil Procedure.
  Earlier in the consideration of this bill I made an effort to have 
these issues on procedure referred to the Judiciary Committee, on which 
I serve, which has the most experience of any committee in the 
Congress--certainly more than the Banking Committee, which has 
jurisdiction over this bill--because hearings were not held and 
consideration was not given to this rule 11 provision.
  Among the responses which I received, some 164 responses from Federal 
judges, there was a general sense that the trial judges ought to have 
the discretion and were in the best position to make a determination as 
to whether sanctions ought to be imposed without having a mandate from 
the Congress, the micromanagement from the Congress, saying you must 
make this determination. Even though the winning party did not ask for 
it, even though there are not procedures for one party to say to the 
other, ``You are undertaking something which our side considers 
frivolous and, if you do not cease and desist, we will bring an action 
to impose sanctions,'' to have a chance to correct it.
  A very lucid statement of the problem was made by a very 
distinguished judge for the Court of Appeals for the Third Circuit, 
Judge Edward R. Becker, who had this to say.

       The mandatory sanctions are a mistake and will only 
     generate satellite litigation.

  By satellite litigation, Judge Becker is referring to the situation 
where another lawsuit, another issue has to be litigated as to whether 
a rule 11 sanction should be instituted. Again, not at the request of 
the losing party. Judge Becker continues to this effect:

       The flexibility afforded by the current regime enables 
     judges to use the threat of sanctions to manage cases 
     effectively. Well-managed cases almost never result in 
     sanctions. Moreover, the provisions for mandatory review, 
     presumably without prompting by the parties, will impose a 
     substantial burden on the courts and prove completely useless 
     in the vast majority of cases. Requiring courts to impose 
     sanctions without a motion of a party also places the judge 
     in an inquisitorial role, which is foreign to our legal 
     culture, which is based on the judge as a neutral arbiter 
     model.

  A very cogent reply was made by Judge James A. Parker, of the United 
States District Court for the District of New Mexico, who had this to 
say:

       As a member of the judiciary, I implore members of the 
     legislative branch of government to follow the Rules Enabling 
     Act procedures for amending rules of evidence and procedure 
     that the courts must apply. Congress demonstrated great 
     wisdom in passing the Rules Enabling Act which defines the 
     appropriate roles of the legislative and judicial branches of 
     government in adopting new rules or amending existing rules. 
     Those who hold the strong and sincere belief that changes 
     should be made to the current formulation of Rule 11 should 
     present their views and proposals in accordance with the 
     procedures set forth in the Rules Enabling Act.

  Judge Parker further writes that ``Rule 11 * * * gives federal judges 
adequate authority to impose appropriate sanctions for conduct that 
violates Rule 11.''
  Mr. President, a number of the judicial comments which I am about to 
read apply to my second amendment as well. That second amendment 
relates to a provision in the bill which requires that the court not 
allow discovery after a motion to dismiss is filed. On that particular 
line, the rule is that discovery may proceed unless the judge 
eliminates discovery. Under the pending legislation, there would be no 
discovery as a matter of mandate unless under very extraordinary 
circumstances, but the mandatory rule applies. And the comments of 
Judge Parker would apply to the second amendment as well, the second 
amendment which I propose to bring.
  Mr. President, the statement by Judge Bill Wilson of the Eastern 
District of Arkansas, in a letter dated April 27, is to the same 
effect, as follows:

       Federal Rule . . . 11, as it now reads, gives a judge all 
     he or she needs to handle improper conduct. And I think we 
     should all keep in mind that we can't promulgate rules good 
     enough to make a good judge out of a bad one.

  On that point, Mr. President, I think it is fair and appropriate to 
note that we have a very able Federal judiciary which can administer 
justice if left to do so with appropriate discretion.
  Judge Prentice H. Marshall of the Northern District of Illinois said 
this in a May 5 letter:

       Rule 11 . . . gives the judge greater flexibility in the 
     imposition of sanctions; it affords the offending party the 
     opportunity to correct his or her misdeed.

  A letter from Martin F. Loughlin of the District of New Hampshire, 
dated May 2 reads:

       Federal Rule of Civil Procedure 11 is working well. It 
     gives the judge adequate discretion to deal with frivolous 
     litigation and untoward conduct by attorneys.

  A letter from Federal Judge Miriam Goldman Cedarbaum from the 
Southern District of New York, dated May 10, 1995, says in part:

       I have found the general supervisory power of the court as 
     well as 28 U.S.C., Section 1927, and Rule 11 adequate sources 
     of judicial authority to discourage frivolous litigation.

  A letter from Federal Judge J. Frederick Motz from the District of 
Maryland, dated May 9, 1995, referring to the mandatory rules said that 
they are:

       . . . counterproductive in that it increased judges' 
     workloads and contributed to litigation cost and delay by 
     requiring judges to impose sanctions whenever a Rule 11 
     violation was found. Satellite litigation in which one lawyer 
     or party sought fees from another became commonplace.

  Continuing to quote:

       I oppose any amendment to the Rule that would make 
     imposition of sanctions mandatory.

  A similar view was expressed by Judge Ilana Diamond Rovner of the 
Court of Appeals for the Seventh Circuit in a letter dated April 1995:


[[Page S 9166]]

       The current Rule 11 gives the District Court ample 
     discretion to address frivolous litigation.

  A letter from Senior Judge Floyd R. Gibson from the U.S. Court of 
Appeals for the Eighth Circuit, dated April 20, 1995:

       I believe more discretion should be given to the district 
     judge in the how and when to apply the sanctions under Rule 
     11(c) on sanctions.

  Similarly, Judge Avern Cohn from the Eastern District of Michigan, 
dated May 5, 1995, says, in part:

       I firmly believe that Congress involves itself too deeply 
     in the procedural aspects of the litigation process.

  A letter from Martin Feldman from the Eastern District of Louisiana, 
says, in part:

       I believe that giving district courts more discretion in 
     applying the Rule was good thinking.

  And Judge Jimm Larry Hendren of the Western District of Arkansas, 
writes, in part:

       I am not sure the Congress needs to pass any legislation. I 
     think the courts, themselves, can handle this matter with the 
     rules already in place and their inherent powers.

  And a letter from Judge Leonard I. Garth, a distinguished member of 
the Court of Appeals for the Third Circuit, says:

       In my opinion, abandoning mandatory sanctions and 
     permitting district court judges to exercise their judicial 
     discretion was a welcome measure.

  A good many of these comments apply to the change in rule 11, which 
had been mandatory from 1983 to 1993. It would apply equally well to 
the kind of a rule which is in effect here.
  The letter from Senior Judge William Schwarzer from San Francisco 
says that the sanctions ought to be discretionary.
  Mr. President, I ask unanimous consent that these letters, which 
represent only a small sample of the responses I received supporting 
discretionary imposition of sanctions, appear in the Record at the 
conclusion of my statement, with the exception of the letter from Judge 
Becker.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. SPECTER. Mr. President, I now refer again to the letter from 
Judge Becker citing the draft of a rule from Circuit Judge Patrick 
Higginbotham, who is chairman of the Judicial Conference Advisory 
Committee on Civil Rules, which sets out the amendment which I have 
submitted, and it is to this effect: that the sanction for abusive 
litigation would arise in any private action when the abusive 
litigation practice is brought to the district court's attention by 
motion or otherwise. The court shall promptly decide with written 
findings of fact and conclusions of law whether to impose sanctions 
under rule 11, and upon the adjudication, the district court shall 
include the conclusions and shall impose the sanctions which the court 
in the court's discretion finds appropriate.
  Mr. President, I submit to my colleagues that leaving the discretion 
to the judge really is the right way to handle these matters. These 
judges sit on these cases, know the cases, and have ample authority as 
a discretionary matter to impose the sanction. As one judge said, all 
these rules cannot make a bad judge do the right thing. But I think we 
can rely upon the discretion of the judges without tying their hands.
  Mr. President, I would be glad to yield the floor at this time to 
argument by the managers if they would care to do so. We can then 
proceed to conclude the argument on this amendment.
                               Exhibit 1

                                     United States District Court,


                                       District of New Mexico,

                             Albuquerque, New Mexico, May 2, 1995.
     Hon. Arlen Spector,
     U.S. Senate, Committee on the Judiciary,
     Wsshington, DC.
       Dear Senator Spector: Thank you for your letter of April 
     24, 1995 and the opportunity to express comments on issues 
     involving Rule 11 of the Federal Rules of Civil Procedure.
       For purposes of clarity, I have restated each question 
     posed in your April 24, 1995 letter followed by my response.
       (1) Is there a significant problem with frivolous 
     litigation in the Federal Courts such as to justify ``loser 
     pays'' and strengthening of FRCP 11?
       Response: Rule 11, as amended effective December 1, 1993, 
     gives federal judges adequate authority to impose appropriate 
     sanctions for conduct that violates Rule 11. Rule 11(c) 
     states that if Rule 11 has been violated ``the Court may, 
     subject to the conditions stated below, impose an appropriate 
     sanction upon the attorneys, law firms, or parties that have 
     violated subdivision (b) or are responsible for the 
     violation.'' Rule 11(c)(2) describes the sanctions that may 
     be imposed for a violation. These include directives of a 
     non-monetary nature, an order to pay a penalty into Court, or 
     an Order directing that an unsuccessful movant who has 
     violated Rule 11 pay ``some or all the reasonable attorneys' 
     fees and other expenses incurred as a direct result of the 
     violation.'' At this point there appears to be no need to 
     change Rule 11, or to pass legislation, to introduce a more 
     stringent ``loser pays'' sanction.
       (2) How well did FRCP 11 work after the 1983 Amendment, 
     which strengthened the rule, and since the 1993 Amendment, 
     which weakened the rule?
       Response: In this judicial district, considerable satellite 
     litigation developed under Rule 11 after the 1983 amendment. 
     This required judges to devote significant time to resolving 
     squabbles among counsel unrelated to the merits of the case. 
     The 1993 amendment of Rule 11 has dramatically reduced the 
     number of motions alleging Rule 11 violations. This I 
     attribute directly to the ``safe harbor'' provision found in 
     Rule 11(c)(1)(A). The ``safe harbor'' provision has forced 
     lawyers to communicate and to resolve their disputes in most 
     instances without the need for Court intervention. My 
     personal opinion is that this feature of the 1993 amendment 
     of Rule 11 strengthened instead of weakened Rule 11. It has 
     made the lawyers talk to each other about claims or defenses 
     perceived by their opponents to be frivolous and this has 
     resulted in most disputes being resolved without extensive 
     briefing and devotion of valuable court time. Removal of the 
     ``safe harbor'' provision from Rule 11 would be extremely 
     detrimental to the orderly functioning of the courts.
       (3) What suggestions, if any, do you have in relation to 
     this issue?
       Response: As a member of the judiciary I implore members of 
     the legislative branch of government to follow the Rules 
     Enabling Act procedures for amending rules of evidence and 
     procedure that the courts must apply. Congress demonstrated 
     great wisdom in passing the Rules Enabling Act which defines 
     the appropriate roles of the legislative and judicial 
     branches of government in adopting new rules or amending 
     existing rules. Those who hold a strong and sincere belief 
     that changes should be made to the current formulation of 
     Rule 11 should present their views and proposals in 
     accordance with the procedures set forth in the Rules 
     Enabling Act.
       If you wish, I will be happy to provide additional 
     information on this subject either orally or in writing.
           Sincerely,
     James A. Parker.
                                                                    ____

                                              U.S. District Court,


                                 Eastern District of Arkansas,

                                  Little Rock, AR, April 27, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary,
     Washington, DC.
       Dear Senator Specter: Thank you very much for your letter 
     of April 6, 1995.
       In the year and a half that I have been on the bench I have 
     had no problem with frivolous litigation. I have sanctioned 
     two lawyers for engaging in what I thought to be 
     inappropriate discovery procedures, but have had no 
     experience with FRCP 11 as a trial judge.
       I am strongly opposed to the ``loser pays'' proposal. I am 
     told by my scholarly friends that this is a British rule. 
     With all due respect for our kinfolks across the Atlantic, 
     many of our ancestors got on a ship and came to the United 
     States because they were not particularly fond of the justice 
     system in Britain. In all seriousness, I do have a lot of 
     respect for some aspects of the system in England, but, in my 
     opinion, ours is much superior.
       The ``loser pays'' will obviously slam the courthouse door 
     shut in the face of deserving citizens who are not well 
     heeled financially.
       It appears to me that the 1993 Amendment to FRCP 11 was 
     much needed. The rule, before these changes, tended to be too 
     rigid, at least on the surface. It encouraged satellite 
     litigation. FRCP 11, as it now reads, gives a judge all she 
     or he needs to handle improper conduct. And I think we should 
     all keep in mind that we can't promulgate rules good enough 
     to make a good judge out of a bad one.
       Finally, I would like to comment on the ``crisis'' claims 
     that are being made about the case load in federal district 
     courts. I quote from Judge G. Thomas Eisele: Differing 
     Visions--Differing Values: A Comment on Judge Parker's 
     Reformation Model for Federal District Courts, 46 SMU L. Rev. 
     1935 (1993):
       . . . In 1985 the total case filings in all U.S. District 
     Courts came to 299,164; in 1986, 282,074; in 1987, 268,023; 
     in 1988, 269,174; in 1989, 263,896; in 1990, 251,113; in 
     1991, 241,420; and in 1992, 261,698. So in a period of seven 
     years the total filings have fallen
      from 299,164 to 261,698. The number of civil filings per 
     judgeship fell from 476 in 1985 to 379 in 1990--a period 
     when the number of judgeships remained constant at 575. In 
     1991 the number of judgeships increased to 649 and the 
     number of civil cases per judgeship fell to 320. For 1992 
     the figure is 350.
       ``We are frequently told that our criminal dockets are 
     interfering with our civil dockets, and this has certainly 
     been true in a few 

[[Page S 9167]]
     of our federal districts. But the number of felony filings per 
     judgeship only increased from forty-four in 1985 to fifty-
     eight in 1990. In 1992, that number fell to fifty-three. The 
     total filings per judgeship, criminal and civil, have been 
     lower than they were in 1991 (372) in only two years since 
     1975. And the weighted filings per judgeship have likewise 
     fallen in the past five years from 461 in 1986 to 405 in 
     1992.
       ``So there is not much support for the oft-repeated 
     assertions that `federal court system has entered a period of 
     crisis;' that our courts are `on the verge of buckling under 
     the strain;' that `our courts are swamped and unmanageable'. 
     . . . The actual figures and trends simply do not support 
     such doomsday hyperbole.
       ``On the issue of delay we find, as always, that a few 
     district courts are having considerable trouble moving their 
     dockets, but overall we find the same median time from filing 
     to disposition in civil cases (nine months) for each year 
     from 1985 until 1992. And the period between issue and trial 
     in 1992 (fourteen months) is the same as it was in 1985. A 
     Rand Corporation study confirms that the rhetoric about 
     unconscionable and escalating delays in processing and trying 
     cases in the federal district court system is nothing more 
     than myth. . . .''
       In other words, the sky is not falling down.
       Again, thank you very much for permitting me to comment on 
     these questions.
           Cordially,
     Wm. R. Wilson, Jr.
                                                                    ____

                                              U.S. District Court,


                                Northern District of Illinois,

                                   Chicago, Illinois, May 5, 1995.
     Senator Arlen Specter,
     U.S. Senate, Committee on the Judiciary,
     Washington, DC.
       Dear Senator Specter: I respond to yours of April 19 
     inquiring about the need to strengthen Rule 11 of the Federal 
     Rules of Civil Procedure.
       1. In my 22 years on the federal trial bench I state 
     unequivocally that there is not a significant problem with 
     frivolous litigation in the federal courts warranting a 
     ``loser pays'' sanction. I have encountered two or three 
     repetitious/abusive plaintiffs. But their first complaints 
     were not frivolous. They just had difficulty taking ``No'' 
     for an answer.
       Of course, in all litigation which is tried, somebody wins 
     and somebody loses. But the losers are not frivolous 
     complainers.
       2. The 1993 amendment to Rule 11 of the Federal Rules of 
     Civil Procedure did not ``weaken'' it. Quite the contrary: it 
     made the Rule bilateral, i.e., it applies to unfounded 
     denials as well as unfounded contentions; it gives the judge 
     greater flexibility in the imposition of sanctions; it 
     affords the offending party the opportunity to correct his or 
     her misdeed. The rule should not revert to 1983.
       3. I suggest that Rule 11 be left just the way it is. It is 
     working well. The collateral litigation provoked by the 1983 
     version has diminished.
           Respectfully yours,
     Prentice H. Marshall.
                                                                    ____

                                     United States District Court,


                                    District of New Hampshire,

                                         Concord, NH, May 2, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary,
     Washington, DC.
       Dear Senator Specter: This is to acknowledge receipt of 
     your letter dated April 24, 1995 with respect to the recently 
     passed United States House of Representatives legislation 
     providing for a form of ``loser pays.''
       In response to question #1, I do not believe there is a 
     significant problem with frivolous litigation in the Federal 
     Courts to justify ``loser pays.''
       With respect to question #2 FRCP 11 is working well. It 
     gives the judge adequate discretion to deal with frivolous 
     litigation and untoward conduct by attorneys.
       Candidly, I hope that the Senate does not pass the ``loser 
     pays'' legislation. I have one comment related to 
     strengthening of FRCP 11. Although there may be and there is 
     some justification for losers pay, I do not believe it is 
     necessary. There are many cases where an indigent, well-
     intentioned litigant may be penalized by strict adherence to 
     a rule that losers pay. I have been a New Hampshire Superior 
     Court judge for sixteen years and a Federal Judge for an 
     equal amount of time. While not strictly restricted to the 
     Federal Courts, we are being inundated with paper, usually by 
     the party who is well-off financially. This unfortunately 
     sometimes puts pressure on the non-affluent litigant to 
     settle or withdraw his or her claim.
           Sincerely,
     Martin F. Loughlin.
                                                                    ____

                                              U.S. District Court,


                                Southern District of New York,

                                       New York, NY, May 10, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary,
     Washington, DC.
       Dear Senator Specter: Thank you for your letter dated April 
     24 inquiring about frivolous litigation in the federal 
     courts. I have been a federal trial judge for nine and one-
     half years in one of the busiest districts in the country. 
     During that period, Fed.R.Civ.P. 11 has been both 
     strengthened and weakened. I have not observed a significant 
     problem that requires a legislative remedy.
       The only noticeable effect of the weakening of FED.R.Civ.P. 
     11 has been a welcome diminution in the number of Rule 11 
     motions. With respect to ``loser pays,'' it is my strongly-
     held view that the founders of this Republic wisely chose to 
     eliminate certain aspects of the English legal system as 
     contrary to the egalitarian ideals of American democracy. Two 
     of the most important of these reforms were the abolition of 
     the distinction between barristers and solicitors and the 
     elimination of the British practice of requiring the losing 
     party in civil litigation to pay the lawyers fees of the 
     winning party. Indeed, the system of having each party bear 
     its own legal fees has come to be known as the American Rule. 
     It is based on the belief that people of limited means would 
     be deterred from suing on meritorious claims by the fear that 
     if they were not successful, the costs would ruin them.
       I have found the general supervisory power of the court as 
     well as 38 U.S.C. Sec. 1927 and Rule 11 adequate sources of 
     judicial authority to discourage frivolous litigation, and do 
     not believe that the American Rule should be abolished.
           Sincerely,
     Miriam Goldman Cederbaum.
                                                                    ____

                                     United States District Court,


                                         District of Maryland,

                                 Baltimore, Maryland, May 9, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary,
     Washington, DC.
       Dear Senator Specter: Thank you for your letter of April 
     19, 1995, in which you solicit my views on a ``loser pays'' 
     rule and the possible strengthening of FRCP 11.
       There is, of course, a fair amount of frivolous litigation 
     in the federal courts. However, the bulk of that litigation 
     is conducted by impecunious litigants as to whom a ``loser 
     pay'' rule would have no effect. Accordingly, I do not 
     support the adoption of such a rule. I particularly oppose 
     the rule in diversity cases since it would provide in such 
     cases a significant incentive for attorneys to forum shop.
       Similarly, I oppose any amendments to strengthen FRCP 11. I 
     believe that as a general matter, Rule 11 is a valuable tool 
     for judges to use, and I have occasionally imposed Rule 11 
     sanctions myself to punish or deter inappropriate behavior. 
     However, I further believe that Rule 11, as it existed prior 
     to the 1993 amendments, had a deleterious effect upon the 
     professional relationships of members of the bar. 
     Furthermore, I think that in its pre-1993 form the Rule was 
     counterproductive in that it increased judges' workloads and 
     contributed to litigation cost and delay by requiring judges 
     to impose sanctions whenever a Rule 11 violation was found. 
     Satellite litigation in which one lawyer or party sought fees 
     from another became commonplace.
       For these reasons I oppose any amendment to the Rule that 
     would make imposition of sanctions mandatory; to a somewhat 
     lesser extent, I also oppose elimination of the Rule's ``safe 
     harbor'' provision provided in the 1993 amendments.
       I hope that these comments are helpful to you. If I can be 
     of any further assistance, please do not hesitate to contact 
     me.
           Sincerely,
                                                J. Frederick Motz,
     United States District Judge.
                                                                    ____

                                             U.S. Court of Appeals


                                      for the Seventh Circuit,

                                      Chicago, IL, April 19, 1995.
     Senator Arlen Specter,
     U.S. Senate, Committee on the Judiciary,
     Washington, DC.
       Dear Senator Specter: Thank you for your letter requesting 
     my views on the ``loser pays'' and Rule 11 issues. I very 
     much appreciate being given an opportunity to comment. My 
     thoughts on the specific questions you pose are as follows:
       (1) In my judgment, there is no significant problem with 
     frivolous litigation in the federal courts such as would 
     justify ``loser pays'' legislation or strengthening FRCP 11. 
     The current Rule 11 gives the district court ample discretion 
     to address frivolous litigation. If a given case is 
     sufficiently frivolous, a court is not hampered from invoking 
     Rule 11 to shift the entire cost of the case to the loser. 
     Rule 11 also grants the district court discretion to impose 
     more modest penalties or to refrain from a penalty, depending 
     on what is appropriate in a given case.
       (2) After the 1983 amendment, FRCP 11 created a cottage 
     industry of satellite litigation which consumed an enormous 
     amount of court time and did not succeed in improving the 
     overall quality of litigation. The fact that penalties were 
     mandatory if a violation was found simply raised the stakes 
     of Rule 11 litigation and encouraged the filing of requests 
     for sanctions, even if the breach was slight and the damage 
     minimal. In many cases, it turned a dispute between the 
     litigants into a dispute between the lawyers, and hampered or 
     prevented altogether the pre-trial settlement of cases. The 
     1993 amendment has improved matters greatly by making 
     sanctions discretionary. This permits much greater 
     flexibility and has removed the incentive to file Rule 11 
     motions when the case for sanctions is weak.
       (3) I strongly recommend that Congress leave Rule 11 as is 
     and not adopt the ``loser pays'' rule. A ``loser pays'' 
     provision will not add anything substantive to the district 
     court's arsenal of tools to deal with frivolous litigation. 
     It is likely merely to discourage litigants with limited 
     resources to pursue their cases, particularly when the 
     litigant seeks a change in the law. The ability to pursue 
     such cases seems to me one of the fundamental protections of 
     individual rights in 

[[Page S 9168]]
     this country, and I believe if we want to reduce litigation, rather 
     than disincentives for pursuing novel theories we ought to 
     introduce incentives for settlement. ``Loser pays'' would act 
     as a disincentive to settlement by introducing the question 
     of fees and costs into settlement discussions. It would also 
     generate an enormous amount of fees litigation. The net 
     effect would thus be deleterious to individual liberties 
     without significantly reducing the amount of litigation, and 
     would in my judgment merely exacerbate the core problem--the 
     amount of time that judges are increasingly required to 
     devote to non-substantive matters.
       Thank you again for inviting me to comment. I hope that my 
     thoughts will be of aid to you in your deliberations, and I 
     send, as always, warmest good wishes and my thanks for your 
     many kindnesses through the years.
           With best regards,
     Ilana Diamond Rovner.
                                                                    ____

                                            U.S. Court of Appeals,


                                               Eighth Circuit,

                                  Kansas City, MO, April 20, 1995.
     Re FRCP 11.
     Hon. Arlen Specter,
     Committee on the Judiciary, U.S. Senate, Washington, DC.
       Dear Senator Specter: In reply to your letter of April 6, 
     positing inquiry on three issues related to FRCP 11, I would 
     like to respond as follows:
       1. There is a significant problem with frivolous litigation 
     in the Federal Courts. I think a trial run with ``loser 
     pays'' proposal would be in order provided the district judge 
     would have the discretion to apply or not to apply such 
     sanction in any given case.
       2. I think FRCP 11 worked better after the 1983 Amendment; 
     and, has some difficulty since the 1993 Amendment.
       3. I believe more discretion should be given to the 
     district judge in the how and when to apply the sanctions 
     authorized under FRCP 11(c) on sanction. Also, some revisions 
     of subsection (d) might be in order relating to discovery as 
     there has been many abuses reported of extensive, unnecessary 
     and costly discovery procedures which makes the whole legal 
     system too expensive for many citizens to handle or even 
     participate in the legal process.
       I have been sitting with the Ninth Circuit in San Francisco 
     since the receipt of your letter, hence my slight delay in 
     reply.
           Sincerely,
     Floyd R. Gibson.
                                                                    ____

                                              U.S. District Court,


                                 Eastern District of Michigan,

                                         Detroit, MI, May 5, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary, Washington, DC.
       Dear Senator Specter: Thank you for asking my views on 
     pending ``loser pays'' legislation.
       I firmly believe the Congress involves itself too deeply in 
     the procedural aspects of the litigation process. Federal 
     judges are capable of dealing with abusive lawyering. 
     Legislation is not needed. I handle my docket just fine. I 
     control abusive lawyering within the existing rules. Giving 
     me more authority to deal with abusive lawyering is likely to 
     make me more abusive.
       Specifically,
       1. There is no problem with frivolous litigation in the 
     federal courts. FRCP 11 does not need to be strengthened and 
     ``loser pays'' is not justified. We have gotten along very 
     well for 220 years without much fee shifting and there is no 
     need for it now.
       2. FRCP 11 worked less well after the 1983 Amendment than 
     it has since the 1993 Amendment. After the 1983 Amendment 
     there were frequent occasions of overuse. That overuse no 
     longer appears. Rarely is there a need for Rule 11 sanctions 
     of any significant amount.
       3. I suggest that Congress stay out of this area. What is 
     pushing the Congress now is the better heeled part of 
     society. More defendants win in court than plaintiffs. 
     ``Loser pays'' and a stricter FRCP 11 would discourage 
     otherwise potentially meritorious cases from coming to 
     federal courts.
       Lastly, published statistics show a 14% drop in the number 
     of civil filings in federal courts between 1985 and 1994. Why 
     all the excitement?
           Sincerely yours,
     Avern Cohn.
                                                                    ____

                                              U.S. District Court,


                                Eastern District of Louisiana,

                                     New Orleans, LA, May 1, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary, Washington, DC.
       Dear Senator Specter: This is in response to your letter of 
     April 19th, which I assume went to all members of the 
     judiciary (unless our mutual good friend, Ed Becker, 
     suggested that you write to me).
       Let me say at the outset that after having been a lawyer 
     who practiced principally in federal courts for some 26 years 
     and a United States District Judge for nearly 12 years, I 
     support some form of ``loser pay'' legislation.
       There is indeed a problem with frivolous litigation in the 
     Federal Courts which, in my view, justifies some form of 
     ``loser pay'' rule. ``Loser pay'' legislation would serve as 
     a deterrent to many lawsuits that ought not be filed, 
     including suits by lawyers and pro se litigants. Moreover, 
     ``loser pay'' legislation would also deter frivolous defenses 
     in the early stages of the litigation. That, to me, is the 
     main difference between ``loser pay'' and Rule 11.
       I believe Rule 11 has worked after the 1983 Amendment, but 
     its weakness is that Rule 11 addresses matters that might 
     have occurred at the outset of litigation but that usually 
     occur as an abuse of the adversary process in a later stage 
     of the litigation. On the other hand, ``loser pay'' would 
     serve as a deterrent from the very beginning of the 
     litigation. I haven't had much involvement with Rule 11 since 
     the 1993 Amendment, but I believe that giving district courts 
     more discretion in applying the Rule was a good thing and I 
     would not consider the 1993 Amendment to have been a 
     weakening of the Rule.
       As to specific suggestions, ``loser pay'' comes in many 
     forms as you no doubt are aware. I don't have a specific 
     model in mind, only a concept. I like the English rule but 
     they have a much more sophisticated Legal Aid system. The 
     question of whether or not pro se litigants should be dealt 
     with the same way as lawyers and other litigants is a close 
     call. I guess what I am saying is that there are several 
     models of ``loser pay'' and your Committee would no doubt 
     want to consider many of them and, perhaps, even a refinement 
     of them that would accommodate the Federal system. But some 
     form of ``loser pay'' is most appropriate now and I would be 
     pleased to work with any group who was interested in drafting 
     such legislation.
       Thank you very much for writing me. You may also be 
     interested to know that one of my present law clerks is Marc 
     DuBois, whose father I understand is also a close friend of 
     yours.
           Sincerely,
     Martin L.C. Feldman.
                                                                    ____

                                              U.S. District Court,


                                 Western District of Arkansas,

                                   Fort Smith, AR, April 20, 1995.
     Re: Your Letter of April 6, 1995.
     Senator Arlen Specter,
     U.S. Senate, Committee on the Judiciary, Washington, DC.
       Dear Senator Specter: With respect to your request for 
     comment, I would make the following observations:
       (1) Is there a significant problem with frivolous 
     litigation in the Federal Courts such as to justify ``loser 
     pays'' and strengthening of FRCP 11?
       Response: I cannot speak for all federal courts but, with 
     respect to those with which I am involved, the answer is 
     ``no.''
       (2) How well did FRCP 11 work after the 1983 Amendment, 
     which strengthened the rule, and since the 1993 Amendment, 
     which weakened the rule?
       Response: I did not commence my duties as a federal 
     district judge until April 15, 1992. Accordingly, I don't 
     feel qualified to make an appropriate comment on this issue.
       (3) What suggestions, if any, do you have in relation to 
     this issue?
       Response: I am not sure the Congress needs to pass any 
     legislation. I think courts, themselves, can handle this 
     matter with the rules already in place and their inherent 
     powers.
           Respectfully,
     Jimm Larry Hendren.
                                                                    ____

                                             U.S. Court of Appeals


                                        for the Third Circuit,

                                       Newark, NJ, April 24, 1995.
     Hon. Arlen Specter,
     U.S. Senator, Committee on the Judiciary, Washington, DC.
       Dear Senator Specter: Your letter of April 6th asks for my 
     comments respecting congressional proposals to strengthen 
     Rule 11 and to enact ``loser pays'' legislation. I am pleased 
     to respond to your inquiries as best I can.
       The 1983 amendment to Rule 11 generated a rash of Rule 11 
     motions, which themselves often generated responding Rule 11 
     motions. These motions were frequently groundless. According 
     to a 1989 Federal Judicial Center (FJC) survey, approximately 
     31 percent of judges believed that many or most Rule 11 
     motions for sanctions are themselves frivolous. Federal 
     Judicial Center, Rule 11: Final Report of the Advisory 
     Committee on Civil Rules Sec. 2A at 7 (1990). Indeed, the 
     post-1983 Rule 11 jurisprudence gave rise, in my opinion, to 
     tangential ``satellite'' proceedings which, in many 
     instances, not only delayed but appeared to dwarf the 
     controversy on the merits.
       I make special reference here to the practice of counsel 
     who file a Rule 11 motion in an attempt to recover fees, 
     which is met with a Rule 11 motion by adversary counsel, 
     claiming that the initial Rule 11 motion was itself 
     frivolous. According to the Judicial Center, the majority of 
     judges (and I count myself among them) believe that the 
     possibility of ``dueling'' Rule 11 motions can make 
     litigation even more contentious if the threat of cost 
     shifting materializes. Id. Sec. 2A at 10. Further, judicial 
     time spent defining what is ``frivolous'' and resolving 
     arguments over the appropriate fee award, allowable costs, 
     and the like deprives judges of time which they could 
     otherwise devote to the merits of other matters.
       Additionally, about 65 percent of judges believe that 
     frivolous litigation represents a small or very small 
     problem, accounting for only 1-10 cases per judge in a year. 
     Id. Sec. 2A at page 2-3. In combination, these statistics 
     suggest to me that the 1983 version of Rule 11 itself may 
     have contributed to needless proceedings in the courts.

[[Page S 9169]]

       The 1993 Amendment, of course, altered Rule 11 so that 
     district court judges may exercise their discretion over 
     whether to impose sanctions. Further, it explicitly provides 
     for the option of penalties (fines) paid to the court in lieu 
     of attorney's fees, and incorporates a 21 day ``safe harbor'' 
     provision. Each provision reduces the likelihood that 
     attorneys will fine Rule 11 motions to shift costs while 
     still permitting judges to target violators with appropriate 
     sanctions aimed at deterring future frivolous proceedings.
       In my opinion, abandoning mandatory sanctions and 
     permitting district court judges to exercises their judicial 
     discretion was a welcome measure. Some frivolous litigation 
     will always exist, and judges should have the power and 
     discretion to address such behavior. After experience on the 
     district court and more than twenty years examining district 
     court records on appeal, I am confident that district court 
     judges through the exercise of their discretion can control 
     the evil that Rule 11 was originally promulgated to cure. 
     This is the same power and discretion which we in the Courts 
     of Appeal exercise over litigants through Federal Rule of 
     Appellate Procedure 38.
       I am also of the opinion that there has not been sufficient 
     time since the 1993 Amendment has gone into effect to assess 
     the institutional and judicial problems that may have arisen. 
     I think that before further amendment to Rule 11 is sought, 
     or further legislation in this area is contemplated, there 
     should be a period for judicial maturation, study and 
     evaluation.
       In this regard, let me state a final concern that I have 
     with the proposed congressional changes to the Federal Rules. 
     The procedure for Rule amendments provided in the Rules 
     Enabling Act--consideration by committees, the Judicial 
     Conference, and the Supreme Court followed by submission to 
     Congress--represents a prudent and conservative allocation of 
     rulemaking authority between the judiciary and Congress. I am 
     concerned that the initiation of rule changes by Congress 
     without study and input from the judiciary, and without a 
     developmental
      process involving the bench and bar, risks overlooking 
     relevant considerations. Moreover, the ever-present 
     separation of powers problems which lurk in the background 
     of congressional attempts to fashion procedural rules for 
     the Federal Courts suggests that Rules such as Rule 11 
     should be processed through traditional judicial channels 
     before congressional action is taken.
       As for my thoughts on the ``loser pays'' aspect of the 
     Attorneys Accountability Act, I will be brief. It is clear to 
     me that the primary results of such legislation can only be 
     to (1) reduce the number of cases that go to trial, and (2) 
     spur plaintiffs to take lower settlements than they would 
     otherwise have accepted. However, this is just my opinion and 
     it is not based on empirical data.
       I note, for instance, that the Proposed Long Range Plan for 
     the Federal Courts, in its March 1995 publication, recognizes 
     that ``appropriate data are needed to assess the potential 
     impact of fee and cost shifting on users of the Federal 
     Courts.'' Id. at 61. The Plan rejects the ``English'' rule 
     but recommends continuing a study of the problem of fee 
     shifting to decrease frivolous or abusive litigational 
     conduct. I share those views.
       I am generally of the opinion that the American Rule is 
     consonant with our tradition of liberal access to the courts. 
     I have always taken great pride in the fact that in our 
     country, plaintiffs with legitimate claims may have their 
     ``day in court'' without fear of sanctions should their suits 
     prove unsuccessful. I am also concerned that public interest 
     groups and civil rights claimants may be discouraged from 
     filing meritorious complaints due to fears that they will be 
     assessed ``shifted'' fees in excess of their ability to pay.
       You have asked what suggestions I have with respect to 
     these issues. I would retain the 1993 Amendment to Rule 11 in 
     its present form and revisit the effect of the Amendment at 
     some future time, perhaps in another five years. Because 
     Federal Rule of Civil Procedure 11 and Federal Rule of 
     Appellate Procedure 38 give the courts power to sanction 
     frivolous actions when necessary, my inclination is not to 
     remove that discretion, but to encourage it.
       I am similarly conservative as to ``loser pays.'' I note 
     that even in Great Britain there has been recent criticism, 
     both in the press and among scholars, of the English Rule. My 
     experience tells me that ``each side pays'' has resulted in a 
     just balance of interests. I am also a firm believer in the 
     old adage. ``if it ain't broke, don't fix it.'' I therefore 
     recommend against abandoning our present system until such 
     time as studies of the two system reveal the desirability of 
     change.
       I am certain that you and your office have considered all 
     of the matters that I have written about before receiving 
     this note, but I did want to respond and explain to you why I 
     entertain the views that I have advanced with respect to Rule 
     11 and ``loser pays'' legislation. Certainly, I would be 
     pleased to respond to any inquires you may have.
       Thank you writing to me in this regard.
           Sincerely,
     Leonard I. Garth.
                                                                    ____

                                   San Francisco, CA, May 1, 1995.
     Hon. Arlen Specter,
     U.S. Senate, Committee on the Judiciary, Washington, DC.
       Dear Senator Specter: This letter responds to yours of 
     April 19 posing the following questions relating to 
     legislation that would amend Rule 11 of the Federal Rules of 
     Civil Procedure.
       (1) Is there a significant problem with frivolous 
     litigation in the Federal Courts such as to justify ``loser 
     pays'' and strengthening of FRCP 11?
       The short answer is that there is no significant problem 
     with frivolous litigation in the federal courts. To the 
     extent there is frivolous litigation, it consists mostly of 
     cases brought by prisoners. Existing law adequately enables 
     judges to dismiss those cases summarily with a minimum of 
     work. And neither Rule 11 nor fee shifting would have any 
     impact on prisoners filing cases.
       More generally, it is a misconception to look at Rule 11 or 
     fee shifting as a way to deter frivolous litigation. On the 
     whole, Rule 11 has had a beneficial impact in making lawyers 
     more careful about the pleadings they file, i.e. encouraging 
     them to take a closer look to see whether a particular 
     pleading is justified. Most frequently its application has 
     been to motions and other procedural activities rather than 
     to complaints or answers. But if it has been a deterrent at 
     all, its impact has been mostly on persons who are risk 
     averse-persons who may not want to take a chance that a 
     borderline case will be found to be in violation of Rule 11 
     leading to possible sanctions. In this way, it functions not 
     so much as a filter based on frivolity but as a gauge of risk 
     averseness. I believe that it has functioned in this way in 
     very few cases but the civil rights bar believes that it has 
     deterred filing of some civil rights cases.
       On the question of whether there is a justification for 
     what you call a ``loser pays'' rule, in my view fee shifting 
     has little to do with control of frivolous litigation. There 
     are of course various ways in which to approach fee shifting. 
     The so-called English rule is not practical for the
      United States for several reasons: (1) it impacts everyone, 
     plaintiff and defendant alike, on the basis of risk 
     averseness, not frivolity, i.e. perfectly non-frivolous 
     cases are lost every day and it makes no sense to punish 
     defendants or plaintiffs for losing a case; (2) a loser-
     pays rule, unless carefully drafted, would undermine 
     contingent fee practice and over 100 federal fee-shifting 
     statutes, and (3) to the extent it works in England, it is 
     made possible by legal aid which pays attorneys fees for 
     lower income litigants and exempts them from the rule.
       A more constructive approach is to amend FRCP 68 to provide 
     for fee-shifting offers of judgment but in a way that will 
     make the rule serve as an incentive, not as a sanction. If 
     you are interested in this, I refer you to the enclosed 
     copies of an article I published on the subject and of a 
     letter I wrote recently to Senator Hatch.
       (2) How well did FRCP 11 work after the 1983 Amendment, 
     which strengthened the rule, and since the 1993 Amendment, 
     which weakened the rule?
       The Federal Judicial Center undertook a study of the 
     operation of the 1983 amendment. It showed, among other 
     things, that Rule 11 activity occurred only rarely (in 2 
     percent of the cases) and that sanctions were imposed in only 
     about a quarter of the affected cases, that eighty percent of 
     the judges thought that its overall effect was positive but 
     also that it had a potential for causing satellite litigation 
     and exacerbating relations among lawyers, and that the rule 
     probably had a disparate impact on plaintiffs, particularly 
     in civil rights cases. This is discussed in some detail in 
     the enclosed article.
       While I believe that on the whole the 1983 rule worked 
     well, there is wide agreement among bench and bar that the 
     1993 amendment is an improvement and ought to be given a 
     chance to operate before further changes are considered. The 
     rule, as amended, will preserve the incentive for lawyers to 
     use care in filing pleadings while minimizing costly and 
     unproductive satellite litigation over sanctions by making 
     sanctions discretionary (which in practical effect they are 
     anyway), by providing a safe harbor, and by lessening the 
     emphasis on the rule as a fee shifting device. The amendment 
     will moderate what on occasion had become excessive reliance 
     on the rule. The amendment now pending in Congress will 
     inevitably result in more expense and delay by stimulating 
     Rule 11 litigation without giving any assurance that the 
     people who are prone to file frivolous cases will be deterred 
     from doing so. I believe that the amendment will be 
     counterproductive and self-defeating and therefore recommend 
     that Congress leave the rule alone and observe its operation 
     for a few years.
           Sincerely,
                                             William W. Schwarzer.

  Mr. BENNETT. Mr. President, as I have said earlier in this debate, I 
am unburdened with the blessing of having been to law school, and as a 
consequence feel myself inadequate to respond to the learned legal 
arguments of one of the Senate's best lawyers. As a consequence, Mr. 
President, I will leave that argument to be made by the chairman of the 
committee at some future point. I have no response at this time.
  Mr. SPECTER. Mr. President, I ask unanimous consent that the 
amendment be set aside so that I may proceed to offer my second 
amendment. 

[[Page S 9170]]

  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 1484

(Purpose: To provide for a stay of discovery in certain circumstances, 
                        and for other purposes)

  Mr. SPECTER. 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 Pennsylvania [Mr. Specter] proposes an 
     amendment numbered 1484.
       Beginning on page 108, strike line 24 and all that follows 
     through page 109, line 4, and insert the following:
       ``(k) Stay of Discovery.--
       ``(1) In general.--In any private action arising under this 
     title, the court may stay discovery upon motion of any party 
     only if the court determines that the stay of discovery--
       ``(A) would avoid waste, delay, duplication, or unnecessary 
     expense; and
       ``(B) would not prejudice any plaintiff.
       ``(2) Additional limitations on discovery.--In any private 
     action arising under this title--
       ``(A) prior to the filing of a responsive pleading to the 
     complaint, discovery shall be limited to materials directly 
     relevant to facts expressly pleaded in the complaint; and
       ``(B) except as provided in subparagraphs (A) and (B), or 
     otherwise expressly provided in this title, discovery shall 
     be conducted pursuant to the Federal Rules of Civil 
     Procedure.''.
       On page 111, strike lines 1 through 7, and insert the 
     following:
       ``(2) Stay of discovery.--
       ``(A) In general.--In any private action arising under this 
     title, the court may stay discovery upon motion of any party 
     only if the court determines that the stay of discovery--
       ``(i) would avoid waste, delay, duplication, or unnecessary 
     expense; and
       ``(ii) would not prejudice any plaintiff.
       ``(B) Additional limitations on discovery.--In any private 
     action arising under this title--
       ``(i) notwithstanding any stay of discovery issued in 
     accordance with subparagraph (A), the court may permit such 
     discovery as may be necessary to permit a plaintiff to 
     prepare an amended complaint in order to meet the pleading 
     requirements of this section;
       ``(ii) prior to the filing of a responsive pleading to the 
     complaint, discovery shall be limited to materials directly 
     relevant to facts expressly pleaded in the complaint; and
       ``(iii) except as provided in clauses (i) and (ii), or 
     otherwise expressly provided in this title, discovery shall 
     be conducted pursuant to the Federal Rules of Civil 
     Procedure.

  Mr. SPECTER. Mr. President, this is the amendment which I referred to 
earlier dealing with a provision of the bill in its current form which 
prohibits any discovery after a motion to dismiss has been filed, 
except under very limited circumstances.
  The general rule of Federal procedure is that discovery may proceed 
after a complaint has been filed and a motion to dismiss has been filed 
unless on application by the defendant the judge stays the discovery.
  The current bill provides as follows:

       In any private action arising under this title during the 
     pendency of any motion to dismiss, all discovery proceedings 
     shall be stayed unless the Court finds, upon the motion of 
     any party, that a particularized discovery is necessary to 
     preserve evidence or prevent undue prejudice to that party.

  It is more than a little surprising, Mr. President, to find 
securities litigation separated out from all of the other litigation in 
the Federal courts. And for those who may be watching this matter on C-
SPAN, while this may be viewed as somewhat esoteric, somewhat 
hypertechnical, it will not be hypertechnical if you are a stockholder 
and the stock goes down and you find you have been misled and defrauded 
by people who have made misrepresentations.
  What this means in common parlance, common English, is that a lawsuit 
is started. It is a class action started, and this private right of 
action has been developed in order to protect shareholders, especially 
small shareholders who band together in a class, and after the 
complaint is filed the plaintiffs' attorney seeks to find out the 
details as to what happened with the defendant; the plaintiff does not 
know all the details of the facts at the time of filing suit. The 
corporation or the officers may have made some very fine promises which 
sounded very good when the promises were made but no one can tell about 
the details of the facts unless you go into the records of that party 
because those facts are not generally known.
  In lawsuits, discovery is permitted where one party seeks to take the 
deposition, that is, to ask the other party questions, or propounds 
interrogatories, that is, submits written questions, or makes a motion 
for the discovery of documents to take a look at records.
  In discussing this issue with the proponents of the legislation, I 
was given a response--it is a little disappointing not to find somebody 
to argue against here. It is not easy to make an argument when there is 
nobody to disagree. Perhaps my distinguished colleague from Iowa wishes 
to disagree with me. My distinguished colleague from Utah chooses not 
to.
  The response I got was that it changes the mindset of the litigation, 
and I would say that the trial judge who is sitting on the spot has 
ample discretion, if it is inappropriate discovery, to say the 
discovery is not going to go on, instead of having a mandatory change 
singling out this legislation from all other legislation.
  Well, may I defer to my distinguished colleague from Utah, who I 
know, having warning in advance, now has had ample opportunity to 
muster the legal arguments, or am I to infer that the managers of the 
bill have fled the scene because there is nothing to be said in 
response to the overwhelming arguments I have presented?
  Mr. BENNETT. I would not concede that there is nothing to be said in 
response to the overwhelming arguments.
  Mr. SPECTER. Good. Will the Senator yield for a question or two?
  Mr. BENNETT. I will concede that this Senator is not prepared to 
mount that response. I suggest, Mr. President, that the Senator proceed 
in his scholarly and learned way.
  Mr. SPECTER. It is a little difficult to proceed, Mr. President, 
without opposition. But permit me at this time, Mr. President--and may 
I note ascension to power of my distinguished colleague from 
Pennsylvania, Senator Santorum.
  Mr. President, in the absence of a reply, I would ask unanimous 
consent to proceed with the third amendment which I propose to offer.
  The PRESIDING OFFICER (Mr. Santorum). Without objection, the pending 
amendment is set aside.


                           Amendment No. 1485

 (Purpose: To clarify the standard plaintiffs must meet in specifying 
    the defendant's state of mind in private securities litigation)

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

       The Senator from Pennsylvania [Mr. Specter] proposes an 
     amendment numbered 1485:
       On page 110, strike lines 12 through 19, and insert the 
     following:
       ``(b) Required State of Mind.--
       ``(1) In general.--In any private action arising under this 
     title in which the plaintiff may recover money damages only 
     on proof that the defendant acted with a particular state of 
     mind, the complaint shall, with respect to each act or 
     omission alleged to violate this title, specifically allege 
     facts giving rise to a strong inference that the defendant 
     acted with the required state of mind.
       ``(2) Strong inference of fraudulent intent.--For purposes 
     of paragraph (1), a strong inference that the defendant acted 
     with the required state of mind may be established either--
       ``(A) by alleging facts to show that the defendant had both 
     motive and opportunity to commit fraud; or
       ``(B) by alleging facts that constitute strong 
     circumstantial evidence of conscious misbehavior or 
     recklessness by the defendant.

  Mr. SPECTER. Mr. President, I thank the clerk. I sense that the clerk 
was surprised I had not asked unanimous consent and permitted the clerk 
to read the amendment. But I did so just for a change of scene on C-
SPAN2. Since there is nobody here to argue with me, at least let there 
be some break in the action. The formulation of the amendment by my 
distinguished chief counsel, Richard Hertling, was as clear and 
succinct as I could have articulated it.
  Mr. President, this again involves a question which might be viewed 
as being esoteric and legalistic unless you are someone who has lost 
money in the stock market and seek to make a recovery, unless you are 
one of the people who has participated in the stock transactions in 
excess of $3.5 trillion or have been among those who have bought stock 
in the market, more than 

[[Page S 9171]]
$54 billion worth in 1993, the most recent year available for 
statistical summary. And what this amendment seeks to do, Mr. 
President, is to amplify the language of the bill which imposes a very 
difficult pleading burden on the plaintiff. Let me take just a moment 
or two to say what goes on in a lawsuit.
  When somebody loses money because they bought stock where there has 
been a misrepresentation, and that person goes to a lawyer, they may 
have a relatively small amount of stock, say $1,000 worth, or $10,000 
worth, or even $100,000 worth. That is not a sufficient sum to be able 
to carry forward litigation which is very, very costly on all sides, so 
class actions are authorized under the rules of civil procedure where 
many plaintiffs can join together and there is a sufficient sum so that 
the lawsuit can be brought forward.
  Then the lawyer--and I have been on both sides, filing complaints and 
filing motions to dismiss--has to prepare a complaint, and the 
complaint involves allegations. An allegation is a statement of what 
the party represents happened. And then there is an answer filed by the 
defendant or the defendant may file what is called a motion to dismiss, 
if the defendant makes the representation that even assuming everything 
in the complaint is true, there is not a sufficient statement to 
constitute a claim for relief under the Federal rules, to warrant a 
recovery.
  When these rules of civil procedure were formulated back in the 
1930's, and I had the good fortune in law school to have the 
distinguished author of the Federal Rules of Civil Procedure, Charles 
E. Clark, the former dean of Yale Law School who was then a judge on 
the Court of Appeals for the Second Circuit and came to the law school 
to instruct us law students--there was done what was called notice 
pleading so that there did not have to be any elaborate statement as to 
what the case was about. It could be very simple. There was a case 
called Jabari versus Durning, if my recollection is correct,
 where a person just scribbled some notes on a piece of paper, went to 
the clerk's office and filed it.

  And the effort was made at that time to have a notice pleading, 
contrasted with a common law pleading under Chitty where the averments 
had to be very, very specific. If he did not say it exactly right, you 
were thrown out of court. It was very complicated. And I can recall the 
early days practicing, going to the prothonotary in the Philadelphia 
Court of Common Pleas, which draws a smile from my learned colleague 
who is also a lawyer. There was no way that I could draw the complaint 
with sufficient specificity to satisfy the clerks, who would take some 
delight in rejecting legal papers filed by young lawyers. So at any 
rate, this bill seeks to have a very tough standard for pleading. And I 
think that it is a good point.
  And what the draftsmen have done is gone to the Court of Appeals for 
the second circuit, and they have drafted a type of pleading 
requirement which was articulated by the chief judge of the court of 
appeals by the name of John Newman, who was a classmate of mine in law 
school and studied at the same one as the distinguished jurist, Charles 
Clark, the chief judge. And now Judge Newman is chief judge in his 
place. And this required state of mind provides that:

       In any private action arising under this title, the 
     plaintiff's complaint shall, with respect to each act or 
     omission alleged to violate this title, specifically allege 
     facts giving rise to a strong inference that the defendant 
     acted with the required state of mind.

  Now, that is the toughest standard around. And that is fine. We ought 
to move away from notice pleading and really make the plaintiff state 
with specificity the state of mind. But when the Court of Appeals for 
the second circuit handed down this very tough rule, they went just a 
little farther and said what would give rise to an inference so that 
there would not be guessing on the part of the plaintiffs. And this is 
what Judge John Newman, who established this standard in the case of 
Beck versus Manufacturers Hanover Trust Co., said:

       These factual allegations must give rise to a ``strong 
     inference'' that the defendants possessed the requisite 
     fraudulent intent.
       A common method for establishing a strong inference of 
     scienter is to allege facts showing a motive for committing 
     fraud and a clear opportunity for doing so. Where motive is 
     not apparent, it is still possible to plead scienter by 
     identifying circumstances indicating conscious behavior by 
     the defendant, though the strength of the circumstantial 
     allegations must be correspondingly greater.

  Now, what my amendment seeks to do, Mr. President, is to put into the 
statute the same things that Judge Newman was citing when he posed this 
very tough standard pleading. Judge Newman and the court said that the 
strong inference that the defendant acted with the required state of 
mind may be established either:

       (a) alleging facts to show the defendant had both motive 
     and opportunity to commit fraud, or (b) by alleging facts 
     that constitute strong circumstantial evidence of conscious 
     misbehavior or recklessness by the defendant.

  Now, in the committee report, which accompanies this bill, the 
committee says this:

       The Committee does not adopt a new and untested pleading 
     standard that would generate additional litigation. Instead, 
     the committee chose a uniform standard modeled upon the 
     pleading standard of the second circuit. Regarded as the most 
     stringent pleading standard, the second circuit requires that 
     the plaintiff plead facts that give rise to a ``strong 
     inference'' of the defendant's fraudulent intent. The 
     committee does not intend to codify the second circuit's 
     caselaw interpreting this pleading standard, although courts 
     may find this body of law instructive.

  Now, I am a little bit at a loss--and I know that the distinguished 
Senator from Utah will have a response at this time, or Senator 
Grassley will, or the Chair will--as to why the--I am just joking about 
that because there is nobody here to argue with me about this. And it 
may create some change in my agreeing to the unanimous consent for 2 
minutes tomorrow to discuss this with the managers of the bill.
  But the committee does say here that they are not adopting a new and 
untested pleading standard. They are correct. This is tested by the 
second circuit. But the second circuit in the whole series of cases has 
found that the way to make this determination is through these 
inferences which I have added in this amendment. And the committee does 
say accurately that this is the most stringent pleading standard 
around. And then the committee says that it does not intend to ``codify 
the second circuit's caselaw interpreting this pleading standard, 
although the courts may find this body of law instructive.''
  Well, if we do not have it the way the second circuit says you plead 
it, but only saying this is instructive, then this bill allows courts 
to interpret this tougher pleading standard anyway they choose, and 
courts may impose some standards which go far beyond what the second 
circuit and Judge Newman had in mind in imposing this tough pleading 
standard. And it is one thing for the committee to say that they are 
not adopting a new and untested pleading standard, but it is only 
halfway if it does not put into the statute but leaves open the 
question of how you meet this standard.
  I do wish I had the managers here to question them about precisely 
what they have in mind. And I am going to have to figure out some way, 
Mr. President, to raise this issue. Maybe I will offer this amendment 
in another form later so we can have some discussion and debate on it, 
because there is not really any explanation or any way to respond to or 
to understand what the committee has done here, because what they have 
done in essence is say the second circuit has a tough pleading 
standard; let us take it. But when the second circuit amplifies and 
says how you meet that standard, the committee says no, no, we are not 
going to adopt that.
  What I am trying the do in this amendment is simply complete the 
picture and have in the statute this standard so that people know what 
they are to do on the pleading. Now, I know my colleague from Utah will 
have a comprehensive reply on this substantive issue.
  Mr. BENNETT. Comprehensive is in the eye of the beholder, Mr. 
President.
  Mr. SPECTER. If the Senator will yield for a question?
  Can you give me in a beholder's eye what you are about to say is 
comprehensive?
  Mr. BENNETT. I would say--
  Mr. SPECTER. I think that question may be even understandable on C-
SPAN2.

[[Page S 9172]]

  Mr. BENNETT addressed the Chair.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. The issue did come up. We did discuss it in the 
committee at some length. And even though I am not a lawyer, I think I 
did follow the conversation on this one. My understanding --which I 
think is what the Senator has said, but I will repeat it so that we 
have a common basis here--my understanding is that there was concern 
about different standards and different circumstances. And the 
committee decided they wanted to codify the standard from the second 
circuit. Now, the committee intentionally did not provide language to 
give guidance on exactly what evidence would be sufficient to prove 
facts giving rise to a strong inference of fraud. They felt that 
adopting the standard would be sufficient.
  Obviously, the Senator from Pennsylvania disagrees with that 
decision. But the decision was intentional. This is not an inadvertent 
thing that the committee did. And they felt that with the second 
circuit standard being written into the bill, it was best to stop at 
that point and allow the courts then the latitude that would come 
beyond that point.
  Beyond assuring the Senator that this was a deliberate decision 
within the committee by the drafters of the bill, both staff and 
members, I probably cannot give him any further enlightened knowledge 
on this particular subject.
  Mr. SPECTER. Mr. President, I thank my distinguished colleague for 
that response.
  The PRESIDING OFFICER. The Senator from Pennsylvania.
  Mr. SPECTER. But I must say, I do not understand the logic of what 
the committee has done when they utilize the second circuit standard 
which they say is the most stringent standard, and the second circuit 
is given a road map as to how you meet it.
  The legislation might not say this is the only way to meet it, but 
this is one of the ways to meet it so that when somebody is drafting a 
pleading, a party has knowledge and notice as to how to go about it. 
When the committee takes credit here for not adopting a new and 
untested pleading standard, I give them credit, because it is something 
which has already been tested. It is not new, but is incomplete if it 
does not have the second part of what the second circuit said as to how 
you meet the standard. It simply to me does not follow.
  I shall not pursue it because I understand the distinguished Senator 
from Utah is not the draftsman.
  Mr. President, that concludes the argument, and I do not think there 
is any point at this late hour in keeping the staff here if we are not 
going to have any reply. So, Mr. President, I yield the floor. If my 
colleagues are here and intend to make some reply, if they are on the 
premises, I will wait a reasonable period of time, but only that, in 
view of the lateness of the hour.
  Mr. DORGAN. Mr. President, I rise today to discuss briefly my 
thoughts about the securities litigation reform bill, S. 240 sponsored 
by Senators Dodd and Domenici that is being considered on the Senate 
floor.
  No one disagrees with the goals of S. 240, which are to help pull the 
plug on frivolous and unmeritorious securities fraud lawsuits and to 
secure greater protections for those innocent victims in fraud 
litigation. But regrettably this bill, as it is currently drafted, will 
make it more difficult for innocent fraud victims to bring legitimate 
fraud cases. It also limits their ability to recover all of their 
losses from fraud perpetrators in those cases that they win. For these 
reasons, I intend to vote no.
  Some of the provisions in the bill are long overdue. The bill would 
limit unreasonable attorney's fees in securities fraud cases. It also 
prohibits bonus payments and referral fees which may create an 
incentive to file frivolous cases. Moreover, it requires lawyers to 
provide all plaintiffs with more information about the nature of a 
proposed settlement in class action cases--including a statement about 
the reasons for settlement, about an investor's average share of the 
award and the amount of the attorney's fees and costs. I support all of 
these provisions.
  But other provisions in the bill could effectively shield from 
liability those perpetrators who knowingly mislead or defraud 
investors. And if there is one thing that the investors of this country 
have a right to expect, it is that those who commit fraud or those who 
substantially assist in fraud get punished and that they are forced to 
return their ill-gotten gains to honest victims of their misdeeds.
  In the 1980's, a flood of S&L executives openly flouted the law and 
the trust of their investors and depositors. Some of them lived like 
maharajahs while building monuments of worthless paper. This charade 
perpetrated by these swindlers contributed to a bailout of the industry 
that is costing the taxpayers of America as much as $500 billion to 
clean up. Innocent investors were bilked out of tens of billions of 
dollars and their ability to recover their losses has been limited.
  Congress enacted tough legislation to ensure that this debacle will 
not happen again. I recall legislation that I offered, which passed 
Congress, prohibiting S&L's from investing in risky junk bonds and 
requiring them to divest the ones they already own. Some S&L's were 
actually selling worthless junk bonds to investors out of their 
lobbies. It never should have happened. But still many unwary investors 
lost a bundle on junk bonds offered by these deceptive fast-buck 
artists before Congress acted to stop this activity.
  We ought to pass tough, reformed-minded securities legislation that 
stops the abusive legal cases that are filed to simply line the 
financial pockets of unscrupulous lawyers and professional plaintiffs. 
The companies that are the targets of such lawsuits are rightfully 
concerned about frivolous lawsuits. Meritless cases unnecessarily 
divert the much-needed resources and attention of firm personnel to 
defending these cases rather than allowing the companies to focus on 
product improvement and on their global competitors.
  But I think that S. 240 as drafted goes too far toward immunizing 
those who are guilty of securities violations from liability. The 
provisions that shield these wrongdoers in securities fraud cases from 
liability are unfair to the innocent victims of fraud. And it sends the 
wrong message to our securities market that fraudulent behavior will be 
tolerated, if not sanctioned.
  We must not insulate the white collar crowd who would exploit unwary 
investors for their own personal gains. Those responsible for the S&L 
scandal and those responsible for fraud in the future should pay. 
That's why I will vote against S. 240, unless it is substantially 
improved before the Senate votes on final passage.
  Mr. HATFIELD. Mr. President, the Private Securities Litigation Reform 
Act of 1995, of which I am a cosponsor, is not about aiding 
perpetrators of fraud in the financial markets or hurting small 
investors. This legislation is about curtailing the abuses in this 
country's securities litigation system and empowering defrauded 
investors with greater control over the class action process. This 
legislation would restore fairness and integrity to our securities 
litigation system.
  This legislation assists small investors by requiring lawyers to 
provide greater disclosure of settlement terms, including reasons why 
plaintiffs should accept a settlement. This is a common sense approach 
which is often lacking under the current system. This legislation also 
incorporates public auditor disclosure language. S. 240 requires that 
independent public accountants report to their client's management any 
illegal act found during the course of an audit. If the management of 
the company or the board of directors fail to notify the Securities and 
Exchange Committee of the illegal act, the auditor is required to 
inform the SEC or face civil penalties. This is needed reform which 
assists all investors who rely on accountants to act in an independent 
manner on their behalf.
  I would like to close my statement on the Private Securities 
Litigation Reform Act of 1995 by highlighting some statistics from an 
article in today's issue of the Wall Street Journal. The article notes 
that the net legal costs of accounting firms has increased from 8 
percent of their total revenue in 1990 to 12 percent of revenue in 
1993. That is a 50 percent increase in net legal costs in just 3 years. 
In one of the cases cited in the article, it notes that an accounting 
firm spent $7 million defending itself in a case where the jury 

[[Page S 9173]]
ruled in the accounting firms favor. That is $7 million spent just to 
prove that the firm was innocent. As these statistics show, common 
sense should be reintroduced to our securities litigation system, and 
this legislation does just that. Common sense benefits all parties in 
the securities litigation system, especially investors, which is 
fundamental to this legislation.
  Ms. MIKULSKI. Mr. President, I rise today to speak in support of the 
Securities Litigation Reform Act. I like this bill for three reasons: 
It stops the bounty hunters, it puts people who have lost money in 
charge, and it penalizes people who commit fraud.
  Mr. President, we are finally moving on this issue. We've moved 
beyond discussing whether or not there is a problem--to discussing 
exactly what reforms are needed.
  Here is what I think. First, let us stop the bounty hunters. This 
bill says that lawyers can't shop around for clients. I mean--a lawyer 
will not be able to pay a commission to someone else to find them a 
client.
  I have heard of instances where lawyers seek out clients just so they 
can have cases to litigate.
  Second, I think the people who lose the most money should have the 
most to say. By that I mean--with this bill the court will be able to 
pick one person--who has lost a lot of money in a class action suit--to 
be the leader. This way the system works for investors instead of 
against them.
  Third, Mr. President, I am all for ending fraud and protecting 
businesses that are just trying to create jobs. This bill will not 
apply to people who knowingly cheat investors.
  I have talked to several investors and I have heard from the people 
of Maryland on this issue. Accountants tell me that some attorneys pay 
stockbrokers, and others, in return for information about possible 
lawsuits and possible clients. That is unacceptable. Courts are for 
protecting the rights of people and promoting fairness, not for 
frivolous lawsuits.
  Companies are hit with higher insurance costs, time in court and are 
generally distracted from the mission of creating jobs. Lawsuits mean 
that companies are reluctant to provide the kind of public information 
that can benefit investors.
  In Maryland, high-technology companies are hit the most by this 
problem. That means these unnecessary lawsuits are costing Maryland 
citizens--lost jobs and lost opportunities.
  Mr. President, this is not about protecting some ``savings and loan 
con artist'' as the ads say. This bill is about saving jobs and keeping 
the courthouse doors open to those who really need to get inside.
  I support this bill because I believe it will create jobs. We needs 
investors. We need new companies. We need new jobs. But we will not 
have any new jobs if companies cannot invest or ask people to invest in 
their future.
  Mr. President, this legislation is long overdue. I am pleased this 
day has come, and I am pleased that this reform has overwhelming 
bipartisan support.
  It is time we look at liability issues and liability reform not on a 
partisan basis but on an American basis. It is in the best interest of 
business and it is in the best interest of the consumers. We can do 
both, because this bill does both.
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent to speak for 6 
minutes as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. I thank the Chair.
  (The remarks of Mr. Grassley pertaining to the introduction of S. 974 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')
  Mr. GRASSLEY. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BENNETT. 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. BENNETT. Mr. President, I ask unanimous consent that the pending 
amendment be set aside.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 1486

(Purpose: To make certain technical amendments, and for other purposes)

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

       The Senator from Utah [Mr. Bennett], for Mr. D'Amato, for 
     himself and Mr. Sarbanes, proposes an amendment numbered 
     1486.

  Mr. BENNETT. 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 84, line 11, strike ``, if'' and insert ``in 
     which''.
       On page 111, beginning on line 2, strike ``during the 
     pendency of any motion to dismiss,''.
       On page 111, line 4, insert ``during the pendency of any 
     motion to dismiss,'' after ``stayed''.
       On page 114, line 13, strike ``has been,''.
       On page 114, strike line 15 and insert the following: 
     ``made--
       ``(i) was convicted of any felony or misdemeanor''.
       On page 114, strike line 17 and insert the following: 
     ``15(b)(4)(B); or
       ``(ii) has been made the subject of a ju-''.
       On page 114, line 20, strike ``(i) prohibits'' and insert 
     the following:
       ``(I) prohibits''.
       On page 115, line 1, strike ``(ii) requires'' and insert 
     the following:
       ``(II) requires''.
       On page 115, line 4, strike ``(iii) determines'' and insert 
     the following:
       ``(III) determines''.
       On page 116, between lines 11 and 12, insert the following:
       ``(D) made in connection with an initial public offering;
       On page 116, line 12, strike ``(D)'' and insert ``(E)''.
       On page 116, line 17, strike ``(E)'' and insert ``(F)''.
       On page 118, line 13, before the period insert ``that are 
     not compensated through final adjudication or settlement of a 
     private action brought under this title arising from the same 
     violation''.
       On page 121, line 7, strike ``has been,''.
       On page 121, strike line 9, and insert the following: 
     ``made--
       ``(i) was convicted of any felony or misdemeanor''.
       On page 121, strike line 11 and insert the following: 
     ``15(b)(4)(B); or
       ``(ii) has been made the subject of a ju-''.
       On page 121, line 14, strike ``(i) prohibits'' and insert 
     the following:
       ``(I) prohibits''.
       On page 121, line 16, strike ``(ii) requires'' and insert 
     the following:
       ``(II) requires''.
       On page 121, line 19, strike ``(iii) determines'' and 
     insert the following:
       ``(III) determines''.
       On page 122, between lines 20 and 21, insert the following:
       ``(D) made in connection with an initial public offering;
       On page 122, line 21, strike ``(D)'' and insert ``(E)''.
       On page 123, line 1, strike ``(E)'' and insert ``(F)''.
       On page 124, line 21, insert before the period ``that are 
     not compensated through final adjudication or settlement of a 
     private action brought under this title arising from the same 
     violation''.
       On page 128, line 25, strike ``the liability of'' and 
     insert ``if''.
       On page 128, line 25, strike ``offers or sells'' and insert 
     ``offered or sold''.
       On page 129, line 1, strike ``shall be limited to damages 
     if that person''.
       On page 129, line 9, strike ``and such portion or all of 
     such amount'' and insert ``then such portion or amount, as 
     the case may be,''.
       On page 131, lines 19 and 20, strike ``that person's 
     degree'' and insert ``the percentage''.
       On page 131, line 20, insert ``of that person'' before the 
     comma.

  Mr. BENNETT. Mr. President, I ask unanimous consent that the 
amendment be agreed to and that the motion to reconsider be laid upon 
the table.
  The PRESIDING OFFICER. Without objection, the amendment is agreed to.
  So the amendment (No. 1486) was agreed to.

                          ____________________