[Congressional Record Volume 141, Number 107 (Wednesday, June 28, 1995)]
[Senate]
[Pages S9199-S9226]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                PRIVATE SECURITIES LITIGATION REFORM ACT

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

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

  The Senate resumed consideration of the bill.

       Pending:
       Boxer amendment No. 1480, to exclude insider traders who 
     benefit from false or misleading forward looking statements 
     from safe harbor protection.
       Specter amendment No. 1483, to provide for sanctions for 
     abuse litigation.
       Specter amendment No. 1484, to provide for a stay of 
     discovery in certain circumstances.
       Specter amendment No. 1485, to clarify the standard 
     plaintiffs must meet in specifying the defendant's state of 
     mind in private securities litigation.

  Mr. D'AMATO. Mr. President, I suggest the absence of a quorum.
  The PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDENT pro tempore. Without objection, it is so ordered.


                       Vote on Amendment No. 1483

  Mr. D'AMATO. Mr. President, I move to table the Specter amendment, 
numbered 1483, and I ask for the yeas and nays.
  The PRESIDENT pro tempore. Is there a sufficient second? There is a 
sufficient second.
  The yeas and nays were ordered.
  The PRESIDENT pro tempore. The question is on agreeing to the motion 
to table the amendment.
  The yeas and nays have been ordered.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. BOND (when his name was called). Present.
  Mr. LOTT. I announce that the Senator from Mississippi [Mr. Cochran] 
and the Senator from Kansas [Mrs. Kassebaum] are necessarily absent.
  Mr. FORD. I announce that the Senator from Louisiana [Mr. Johnston] 
and the Senator from Arkansas [Mr. Pryor] are necessarily absent.
  The result was announced--yeas 57, nays 38, as follows:

                      [Rollcall Vote No. 291 Leg.]

                                YEAS--57

     Abraham
     Ashcroft
     Bennett
     Breaux
     Brown
     Burns
     Campbell
     Chafee
     Coats
     Cohen
     Conrad
     Coverdell
     Craig
     D'Amato
     Daschle
     Dodd
     Domenici
     Exon
     Faircloth
     Feinstein
     Ford
     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Hatfield
     Helms
     Hollings
     Hutchison
     Inhofe
     Kempthorne
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Mikulski
     Murkowski
     Murray
     Nickles
     Nunn
     Pressler
     Reid
     Robb
     Rockefeller
     Santorum
     Shelby
     Simpson
     Smith
     Thomas
     Thompson
     Thurmond
     Warner

                                NAYS--38

     Akaka
     Baucus
     Biden
     Bingaman
     Boxer
     Bradley
     Bryan
     Bumpers
     Byrd
     DeWine
     Dole
     Dorgan
     Feingold
     Glenn
     Graham
     Harkin
     Hatch
     Heflin
     Inouye
     Jeffords
     Kennedy
     Kerrey
     Kerry
     Kohl
     Lautenberg
     Leahy
     Levin
     Moseley-Braun
     Moynihan
     Packwood
     Pell
     Roth
     Sarbanes
     Simon
     Snowe
     Specter
     Stevens
     Wellstone

                        ANSWERED ``PRESENT''--1

       
      Bond
       

                             NOT VOTING--4

     Cochran
     Johnston
     Kassebaum
     Pryor

[[Page S9200]]

  So the motion to table the amendment (No. 1483) was agreed to.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote.
  Mr. BENNETT. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.


                           Amendment No. 1484

  The PRESIDING OFFICER. Under the previous order, there will now be 4 
minutes for debate equally divided on the second Specter amendment, 
1484, to be followed by a vote on the amendment. Who yields time?
  Mr. SPECTER. Mr. President, before my 2 minutes commence, may we have 
order in the Chamber.
  The PRESIDING OFFICER. The Senate will be in order.
  The Senator from Pennsylvania.
  Mr. SPECTER. Mr. President, this amendment would leave it to the 
discretion of the trial judge, as the Federal judges have discretion in 
all other cases, to decide whether there ought to be discovery after 
the defense files a motion to dismiss. The judges currently have the 
full authority to stop discovery if it is inappropriate.
  What is happening here, as with many of the other rules changes in 
the bill, is a wholesale revolution in the way securities cases are 
handled without having followed any of the usual procedures prescribed 
by law under which the Supreme Court of the United States establishes 
the rules after hearings and consideration by advisory committees and 
recommendation from the Judicial Conference, and without ever having 
had the Committee on the Judiciary consider these issues.
  It is true that there are some frivolous lawsuits which are filed in 
America today, but we are dealing here with an industry which in 1993 
had transactions on the stock exchanges of $3.663 trillion, new issues 
of $54 billion, and the savings of many small investors and the 
proverbial widows and orphans at risk.
  The Securities and Exchange Commission does not have the resources to 
handle all the potential violations as enforcement matters. That is why 
there are private actions. When you take a look at the lawyers' fees, 
they are a pittance compared to the over $3.6 trillion involved. What 
is happening here, Mr. President, is we are not throwing the baby out 
with the bath water. We are throwing out the entire family with the 
bath water.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. Mr. President, if we are going to talk about the 
securities industry we should talk about its role in capital formation, 
in fact the securities industry is an integral part of the American 
system--and that system is now being ripped off. As a matter of fact, 
one law firm does handle about 30 percent of all this litigation. They 
go out and hire plaintiffs, they have lists of plaintiffs to chose 
from, and then they race to the courthouse.
  Let me tell you, once they bring the suit, firms feel they have to 
surrender. In 93 percent of the cases brought, people give up. Do you 
know why? Because the average case costs you $6 million to defend; so 
even if you win you lose.
  So the defendants are forced to settle before costs get too high. The 
people, the small investors get nothing back. The law firm rakes in the 
settlement. No wonder the lawyers want to keep the system the same.
  Now, let me tell you something what this legislation says on staying 
discovery. When a person makes a motion to dismiss, ``discovery and 
other proceedings shall be stayed unless the Court finds, upon the 
motion of any other party, that particularized discovery is necessary 
to preserve evidence.''
  So you can stay discovery unless the court rules against that motion. 
If you cannot stay discover, however, then they are in there fishing, 
fishing, fishing, until they find any piece of evidence to force 
corporate America to give up, to surrender. The little guy is not 
protected by this process. The interest of a group of entrepreneurial 
lawyers is advanced. This amendment would continue that system and let 
those lawyers continue to go out fishing and keep corporate America 
held hostage. It is about time we freed them.
  Mr. President, if all time has been yielded back, I move to table, 
and I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The question is on agreeing to the motion to 
table the amendment No. 1484, offered by the Senator from Pennsylvania, 
[Mr. Specter]. 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
  The result was announced--yeas 52, nays 47, as follows:
                      [Rollcall Vote No. 292 Leg.]

                                YEAS--52

     Abraham
     Ashcroft
     Bennett
     Breaux
     Brown
     Burns
     Chafee
     Coats
     Coverdell
     Craig
     D'Amato
     Daschle
     Dodd
     Dole
     Domenici
     Faircloth
     Feinstein
     Ford
     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Johnston
     Kempthorne
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McConnell
     Mikulski
     Moseley-Braun
     Murkowski
     Murray
     Nickles
     Pressler
     Pryor
     Reid
     Simpson
     Smith
     Stevens
     Thomas
     Thurmond
     Warner

                                NAYS--47

     Akaka
     Baucus
     Biden
     Bingaman
     Boxer
     Bradley
     Bryan
     Bumpers
     Byrd
     Campbell
     Cochran
     Cohen
     Conrad
     DeWine
     Dorgan
     Exon
     Feingold
     Glenn
     Graham
     Heflin
     Hollings
     Inouye
     Jeffords
     Kassebaum
     Kennedy
     Kerrey
     Kerry
     Kohl
     Lautenberg
     Leahy
     Levin
     McCain
     Moynihan
     Nunn
     Packwood
     Pell
     Robb
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Shelby
     Simon
     Snowe
     Specter
     Thompson
     Wellstone

                        ANSWERED ``PRESENT''--1

       
     Bond
       
  So the motion to table the amendment (No. 1484) was agreed to.
  Mr. BENNETT. Mr. President, I move to reconsider the vote by which 
the motion was agreed to.
  Mr. BOND. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.


                           Amendment No. 1485

  The PRESIDING OFFICER. Under the previous order, there will now be 4 
minutes for debate equally divided for the third Specter amendment No. 
1485, to be followed by a vote on or in relation to the amendment.
  The Senator from Pennsylvania.
  Mr. SPECTER. Mr. President, I have asked my colleagues to listen to 
this amendment. In the well of the Senate, I won several votes, finally 
having received a hearing on the last amendment.
  What this amendment does is to accept the very stringent standard of 
the second circuit on pleading to show state of mind, and then it adds 
to the legislation the way the second circuit says you can allege the 
necessary state of mind.
  The bill, quite properly, tightens up the pleading standards by 
establishing the most stringent rule of any circuit. The committee 
report takes pride and says that the committee does not adopt a new and 
untested pleading standard but takes the second circuit standard. But 
then in four lengthy, well-reasoned opinions, the second circuit has 
said this is how you can allege the required state of mind. They set 
two ways down to prove it, which I would like to read to you but I do 
not have time.
  All this amendment does is says that when you take the second circuit 
standard, admittedly stringent, this is how you get it done--not the 
exclusive way--but the way you get it done. In asking the managers and 
the proponents of the bill, I have yet to hear any reason advanced why 
this is not sound, even after they conferred with their staffs.
  This is just basic fundamental fairness that if you take the second 
circuit standard, you ought to take the entire standard, which is very 
tough on plaintiffs to establish state of mind, which is hard to prove. 
How do you get into somebody else's head? But at least 

[[Page S9201]]
when the second circuit says this is the way it ought to be done and 
the bill says let us make it really tough, at least let the plaintiff 
know how they are going to be able to plead it by the way the second 
circuit itself permits.
  The PRESIDING OFFICER. The Senator's time has expired. The Senator 
from New York.
  Mr. D'AMATO. Mr. President, I know that the proponents of this 
legislation are attempting to stop the kind of litigation that has made 
securities cases a sham. This amendment goes too far, however, because 
it actually tells the court how to interpret S. 240's pleading 
standards. S. 240 codifies the second circuit pleading standard, but 
this amendment goes further, to say precisely what evidence a party may 
present to show a strong inference of fraudulent intent. I think this 
straitjackets the court.
  Having said that, I could accept referring to the courts 
interpretation, but I think we are going too far if we adopt the 
language that the court referred to because it would tie the courts 
hand by forcing it to ask that plaintiffs prove exactly the delineated 
facts; alleging facts to show the defendant had both the motive and 
opportunity to commit fraud and by alleging facts that constitute 
strong circumstantial evidence.
  To be quite candid with you, I think it places too great a burden on 
the plaintiffs, and I have a difficult time understanding how the 
Senator from Pennsylvania feels that this would add fairness to this 
process. We tried to be balanced in setting this standard, that is why 
we did not straitjacket the court with the language in this amendment.
  Mr. President, I am not going to move to table. I ask for the yeas 
and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The question is on agreeing to amendment No. 
1485, offered by the Senator from Pennsylvania [Mr. Specter]. 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.
  The result was announced--yeas 57, nays 42, as follows:
                      [Rollcall Vote No. 293 Leg.]

                                YEAS--57

     Abraham
     Akaka
     Baucus
     Biden
     Boxer
     Bradley
     Breaux
     Bryan
     Byrd
     Chafee
     Cochran
     Cohen
     Conrad
     Daschle
     Dodd
     Dorgan
     Exon
     Feingold
     Feinstein
     Ford
     Glenn
     Graham
     Heflin
     Hollings
     Inouye
     Jeffords
     Johnston
     Kassebaum
     Kennedy
     Kerrey
     Kerry
     Kohl
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lugar
     Mack
     McCain
     Mikulski
     Moseley-Braun
     Moynihan
     Murray
     Nunn
     Packwood
     Pell
     Pryor
     Robb
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Shelby
     Simon
     Snowe
     Specter
     Wellstone

                                NAYS--42

     Ashcroft
     Bennett
     Bingaman
     Brown
     Bumpers
     Burns
     Campbell
     Coats
     Coverdell
     Craig
     D'Amato
     DeWine
     Dole
     Domenici
     Faircloth
     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Kempthorne
     Kyl
     Lott
     McConnell
     Murkowski
     Nickles
     Pressler
     Reid
     Simpson
     Smith
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner

                        ANSWERED ``PRESENT''--1

       
     Bond
       
  So the amendment (No. 1485) was agreed to.
  Mr. SARBANES. Mr. President, I move to reconsider the vote.
  Mr. D'AMATO. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.


                           Amendment No. 1480

  The PRESIDING OFFICER. Under the previous order, there will be 7 
minutes of debate on the Boxer amendment, with 5 minutes under the 
control of Senator Boxer and 2 minutes under the control of the Senator 
from New York, to be followed by a vote on or in relation to the 
amendment.
  Mrs. BOXER. Thank you, Mr. President. My colleagues, I will make this 
very brief and, I hope, interesting, because I think it is an 
interesting issue that is raised by the Boxer amendment. This is the 
last Boxer amendment on this bill, I am happy to say.
  I think we have shown in this Chamber we can be very tough on crime. 
Today I am giving Members a chance to show we can be tough on white-
collar crime. I am afraid if we do not adopt this amendment, we are 
opening the door to insider trading, which could really hurt a lot of 
small investors.
  My amendment simply says that you do not get the benefit of the safe 
harbor in S. 240 if you are an insider trader who personally profits in 
connection with the issuance of a false and misleading statement.
  Let me show a couple of real examples. Here is the company called 
Crazy Eddie. Some may remember. What happened here? The insiders bought 
a lot of the stock, it went up, and at the peak, they started selling 
it after they made a false and misleading 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.'' They get out, and the top officer flees the country with 
millions of dollars. The CEO is convicted of fraud. Under this bill, 
the safe harbor would apply to these people.
  I will show another quick example. Here is another company, T2 
Medical. They said: ``T2 plans to lead the way through the 1990's. We 
expect steady revenue in earnings growth.'' Then there is a bad report 
about the company, which they obviously knew because they get out of 
the stock. It goes down and all the stockholders are left holding the 
bag.
  What we are basically saying is, if you are an insider and you 
benefit, you should not have the benefit of the safe harbor under this 
bill.
  I want to tell Members what the opponents of my amendment have said. 
First, they said my definition of insiders is too broad. Nothing could 
be farther from the truth. It is a boilerplate. It is the corporation, 
it is the officers, and the board of directors. That is what insiders 
are.
  Then they say, ``But, Senator, you include purchases as well as 
sales.'' Anyone who follows the stock market knows that insiders often 
purchase the stock of a company before the false and misleading 
statement so they can get in at a cheap price.
  The last thing they have said is that, ``Gee, this is covered by 
another statute.'' That is not true. Only if you happen to buy the 
specific shares that the insider sells you, are you covered in another 
statute. If you are an ordinary shareholder, a small investor, you get 
hit, because these guys run away with all the money, the stock, plus 
you are left holding the bag.
  I want to show one article here. If Members are wondering whether 
insider trading is common now--because we heard about it in the 
1980's--let me tell Members about it. Saturday, in the Los Angeles 
Times, ``Insider-Trading Probes Make a Comeback.'' ```We have more 
insider-trading investigations now than at any time since the takeover 
boom in the 1980's,' says Thomas Newkirk, Associate Director of 
Enforcement for the Securities and Exchange Commission.''
  Then I thought this statement by Gary Lynch, who, as chief of 
enforcement at the SEC in the 1980's, brought about the investigations 
of Boesky and Milken: ``What's happening now is exactly what everyone 
predicted back in the '80's: 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.''
  So, insider trading is back. We should not have a safe harbor for 
these people. Forty-eight Members voted for one of the Sarbanes 
amendments, which would have taken another look at this safe harbor. It 
did not pass.
  I say to my friends who voted against that, the least those Members 
can do is narrow the safe harbor for people who profit, who make false 
and misleading statements. I want to say that again: The only people 
who would not get the safe harbor in S. 240 under the Boxer amendment 
are those insiders who personally profit in connection with the 
issuance of a false and misleading statement. 

[[Page S9202]]

  I urge my colleagues, please stand up against white-collar crime. I 
think this is a very good amendment Members could be proud to support. 
I yield the floor.
  Mr. D'AMATO. Mr. President, I yield 1\1/2\ minutes to the Senator 
from Utah.
  Mr. BENNETT. Mr. President, I hesitate to challenge my friend from 
California. She has a background as a stockbroker. This is an area 
where she has great expertise.
  I must share with Members my own experience in trying to recruit 
directors for a company that would become a public company. They said, 
``The grief that goes with being a director under the present law is so 
overwhelming that I simply do not need it. I will not accept 
appointment as a director.'' The only way we could change their minds 
was to assure them that we had 20 million dollars' worth of officer and 
director insurance.
  I know from my own experience as a director of a public company that 
the present law is very stringent and, in my opinion, adequate. I am 
forbidden, as a director, to buy or sell any securities 30 days prior 
to a public announcement of our earnings, and, after the announcement 
has been made, for another 48 hours after that announcement, I cannot 
enter the market to either buy or sell under the present law.
  In my opinion, the present law is sufficient. The kind of people that 
are being talked about in the article that she offers from the Wall 
Street Journal are breaking the law now and we do not need the 
redundancy of the Boxer amendment.
  Mr. D'AMATO. Let me say, first of all, insider trading is prohibited 
by section 10(B) and rule 10b-5 of the Federal securities laws. What 
this amendment does is destroy the safe harbor, absolutely destroys it. 
Any small company that pays a director with stock options will be 
effectively excluded from the safe harbor. All the plaintiff would have 
to do is allege wrongdoing to bring a suit, which will open up this 
whole area to continued litigation. This is a carefully crafted 
amendment which would destroy what we are attempting to do, which is to 
free corporate America from a group of bandits.
  Mr. President, I move to table, and I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second? There is a 
sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The question is on agreeing to the motion to 
table the amendment.
  The yeas and nays have been ordered.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. BOND (when his name was called). Present.
  Mr. FORD. I announce that the Senator from Nevada [Mr. Reid] is 
necessarily absent.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 56, nays 42, as follows:

                      [Rollcall Vote No. 294 Leg.]

                                YEAS--56

     Abraham
     Ashcroft
     Baucus
     Bennett
     Bingaman
     Brown
     Burns
     Campbell
     Chafee
     Coats
     Cochran
     Coverdell
     Craig
     D'Amato
     DeWine
     Dodd
     Dole
     Domenici
     Faircloth
     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Jeffords
     Johnston
     Kassebaum
     Kempthorne
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McConnell
     Murkowski
     Nickles
     Packwood
     Pell
     Pressler
     Roth
     Santorum
     Shelby
     Simpson
     Smith
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner

                                NAYS--42

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

                        ANSWERED ``PRESENT''--1

       
     Bond
       

                             NOT VOTING--1

       
     Reid
       
  So the motion to table the amendment (No. 1480) was agreed to.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote by which 
the motion to lay on the table was agreed to.
  Mr. BENNETT. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. COHEN. Mr. President, I rise today to express some concerns I 
have regarding S. 240, the Securities Litigation Reform Act of 1995, as 
reported by the Banking Committee.
  The laudable goal of this legislation has been to reform the 
Securities Litigation System to curb frivolous lawsuits. I strongly 
support the goal of deterring meritless securities class action 
lawsuits and believe that there is room for constructive improvement in 
the current Federal securities litigation process. In some instances, 
meritless class action cases can be costly to defend against and may 
impose large and unnecessary costs on issuers and other participants in 
the market. In other cases, small investors themselves are taken 
advantage of by overzealous attorneys.
  Nevertheless, in our quest for reform, it is crucial that we do not 
undermine the right of investors, particularly small investors, to 
protect themselves against unscrupulous swindlers who use grossly 
exaggerated claims to lure investors. Private litigation under Federal 
securities laws is an important complement to the SEC's Enforcement 
Program. We must not curtail legitimate rights of the investor to 
litigate.
  Over the past several weeks, an intense battle has been waged over 
the airwaves on the merits and motives of this legislation. At times, 
these assaults have been aimed not only at the bill's provisions, but 
at its sponsors as well, with insinuations that supporters of S. 240 
are intentionally protecting securities fraud and are against senior 
citizens. Unfortunately, once again mass media lobbying campaigns have 
distilled a complex, and I believe earnest, reform effort into a white 
hat or black hat screenplay, casting any one who supports this branded 
bill an enemy of senior citizens. Somewhere in this heated debate, I 
believe that a balance must be achieved that protects the rights of 
defrauded investors while also providing relief to above board 
companies who might find themselves the target of meritless or 
frivolous lawsuits.
  Mr. President, as chairman of the Senate Special Committee on Aging, 
and as a strong advocate of consumer protections against the elderly, I 
suggest that there can and should be some middle ground. I am extremely 
concerned about issues that affect the welfare of our senior citizens 
and, in particular, about fraudulent and abusive practices that are 
directed against them. The Aging Committee has
 held a series of hearings on the special needs and issues facing the 
small, and often unsophisticated, investor. As interest rates declined 
over the last decade, the quest for higher yields has intensified, 
particularly among senior citizens who often rely on their investments 
as a principal means of support. Many of them are low- and middle-
income retirees who have worked hard for their pensions, and who must 
now make these pensions stretch over two or even three decades.

  Retirees and others know they can invest in CD's with long periods of 
maturity, but they are reluctant to tie up their money fearing that 
they may have to tap into their savings for a major operation, 
expensive drugs, or some other emergency. As a result, the lucrative 
securities market became a popular choice for the small, but often 
financially unsophisticated and inexperienced, investor.
  For the first time in American history, investment company assets 
have surpassed commercial bank deposits. The percentage of U.S. 
households that own mutual funds has more than quadrupled since 1980, 
with over 38 million Americans investing in those funds. One out of 
three American families now have investments in mutual funds or the 
stock market. While this mass movement into the securities market has 
provided new opportunities for investors, it has also increased risk, 
led to a great deal of confusion, and, unfortunately, created 
opportunities ripe for fraud by securities dealers who misrepresent 
risks to unsuspecting investors.

[[Page S9203]]

  Our Aging Committee hearings showed that low interest rates create an 
environment in which small investors are susceptible to outright 
investment fraud and abusive sales practices. Senior citizens are not 
the exclusive prey of these market manipulators, but one factor makes 
scamming the senior citizen small investor particularly odious: Younger 
Americans can restore some or all of their losses through new earnings, 
while seniors' savings are not a renewable resource. Accordingly, 
scammed seniors living on fixed incomes cannot write their losses off 
as a lesson learned for the future. Instead, their financial losses may 
be the loss of their entire future.
  Our Aging Committee investigation and hearings revealed a wide range 
of small investor frauds, from penny stock scams to large mutual fund 
companies deceptively peddling junk bonds. Our hearings also examined 
the questionable marketing practices of some banks that sell uninsured 
investments, such as mutual funds, annuities and stocks. While we 
should not close the door to banks wanting to sell securities, the 
hearing pointed out the special dangers and problems that this trend in 
banking presents, namely that there is tremendous potential for 
confusion by bank customers about the safety and nature of the 
investments they are buying. As bank customers are swayed more toward 
uninsured investments, we must ensure that they are fully informed of 
the risks inherent in some of these investments and have adequate 
opportunity to seek redress remedies if they are intentionally misled 
into these investments.
  I cosponsored S. 240 as introduced to indicate my support for 
securities litigation reform efforts. Frivolous lawsuits have become 
all too common. I have concerns, however, that the bill reported by the 
Banking Committee does not strike the appropriate balance between 
securities litigation reform and investor protection.
  First, I question whether the safe harbor provisions of the revised 
S. 240 may make it very difficult to sue when intentionally misleading 
information clauses investors to suffer losses. The original S. 240 
directed the SEC to develop regulatory safe harbor rules for forward-
looking statements. The new version of S. 240, however, establishes 
statutory safe harbor rules. I am concerned that these rules would 
unwisely protect even some fraudulent statements that were made 
knowingly.
  I have concerns that the revised version of S. 240 would leave 
defrauded investors with the nearly insurmountable task of establishing 
a corporate executive's actual intent, and that a few carefully placed 
disclaimers could provide a legal protection for misleading statements 
that were made knowingly.
  I believe that the SEC should be given an opportunity to fashion a 
safe harbor that strikes the proper balance.
  Finally, S. 240 as reported dropped the extension of the statute of 
limitations for private securities fraud actions contained in the 
original bill. I believe that the extension should have been retained 
in order to tip the balance of reform more toward investor protections.
  I believe that the Banking Committee deserves much credit for 
addressing some of the major concerns with the original S. 240. The 
bill before us, for instance, contains no loser-pays provision, a 
provision of the original bill which caused me concern.
  Mr. President, the challenge before us today is to identify ways to 
make the legal system more balanced and efficient. We must sift through 
the dueling advertisements and challenges of ``pro-Keating'' and 
``antisenior'' on one side and challenges of ``antibusiness'' and 
``antireform'' on the other. An appropriate balance between the rights 
of investors to hold companies responsible for wrongdoing and the need 
of the companies to be protected from costly, meritless litigation must 
be achieved.
  I believe that the safe harbor rules should be implemented by 
regulation rather than statute. The regulatory process allows for full 
and fair comment by all sides to determine appropriate safe harbor 
rules. Also, once established, regulatory safe harbor rules offer 
greater flexibility than would statutory ones. In the fast-changing 
world of investment finance, this flexibility is important.
  I wish that S. 240 retained the original safe harbor provision; 
because it does not, however, I regret that I can no longer support 
this bill.
  Mr. FEINGOLD. Mr. President, the legislation currently before this 
body, S. 240, the Private Securities Litigation Reform Act of 1995, is 
very important for two reasons. First, what it seeks to achieve and 
second, what in actuality it will achieve if passed in its current 
form.
  One of the stated purposes of this legislation is to curb abusive 
lawsuits--so-called strike suits where lawyers seek to get rich quick 
by preying on a company which suffers a loss in value. That is what 
this legislation seeks to do and no one can quarrel with this goal. The 
interests of the American people and the integrity of the American 
legal system are not served by meritless lawsuits which drain precious 
resources from our national economy. This is true not just in the 
context of securities fraud, but also in the areas of product 
liability, of medical malpractice, in short, in every field of American 
jurisprudence. Frivolous lawsuits should be discouraged.
  However, what this bill will actually do is limit the rights of 
investors to recover money they lose due to fraud. Unfortunately, as 
many of colleagues have already pointed out, this legislation fails to 
properly balance the goal of stopping frivolous lawsuits with the need 
to preserve the rights of legitimate investors to recover in cases of 
securities fraud.
  It is important to note that the laws this legislation amends, the 
Securities Act of 1933 and the Securities Exchange Act of 1934, were 
the direct result of the Great Depression. As the report to S. 240 
points out--the goal of these laws was to promote investor confidence 
in the securities markets. Unfortunately, the legislation we are now 
considering will erode, not enhance, investor confidence.
  I want to touch briefly upon a few areas that I find particularly 
problematic.


              safe harbors for forward looking statements

  The pending legislation contains a so-called safe harbor provision 
for forward looking statements. I support the notion that full and 
candid disclosure regarding the potential of a given company is 
beneficial, not only to the potential investors but also to the 
companies involved. Candor, however, should not be confused with fraud. 
The standard established by S. 240 makes only the most blatantly 
fraudulent statements subject to liability. The standard of proof is so 
high that the private plaintiff who actually prevails will be rare 
indeed.
  I might add that the Chairman of the Securities and Exchange 
Commission, Arthur Levitt, in a letter dated May 25 said in regard to 
this provision:

       . . . I cannot embrace proposals which allow willful fraud 
     to receive the benefit of safe harbor protection. The 
     scienter standard in the amendment is so high as to preclude 
     all but the most obvious fraud.

  It is one thing to protect statements that are made in good faith, 
without intent to defraud, it is another issue altogether to protect 
people based upon the standard contained in this legislation.
  The appropriate approach, ironically the approach contained in the 
original bill, is to allow the SEC to complete the rulemaking process--
to review comments and testimony--and determine the proper scope of the 
safe harbor. Unfortunately, this commonsense approach has given way to 
an expansive exemption for all but the most egregious statements. This 
is unfortunate. While we clearly want to protect companies from being 
dragged into court over every comment or remark they make, we do not 
and should not protect those who engage in fraud at the expense of 
innocent investors.
  This is not an either-or proposition. The language of S. 240 seems to 
suggest that the only way to truly protect the company is to also limit 
the rights of investors.
  I suggest this is far from the truth. The original S. 240 contained 
the proper approach. We should return this function to the SEC, let 
them do their work and adopt guidelines for a safe harbor which 
protects companies and investors, but not those who deal in fraud. The 
purpose of this legislation is to eliminate fraudulent behavior, not to 
protect it.

[[Page S9204]]



                         statute of limitations

  Another area of this legislation which does a disservice to the 
millions of Americans who invest in securities is the failure to extend 
the statute of limitations from bringing an action based upon 
securities fraud.
  Under existing law, as a result of a U.S. Supreme Court ruling in 
Lempf versus Gilbertson, the prevailing statute of limitations is 1 
year from discovery of the violation or no more than 3 years from the 
date of the violation. This period is far too short. The complexity of 
these cases necessitates an extension of this limitation.
  Once again, S. 240 had the proper solution when it was introduced, 
yet as reported, the bill sustains the woefully inadequate status quo. 
The original bill extended the statute of limitations to 2 years from 
the date of discovery and 5 years from the date of violation. The 
amendment of the Senator from Nevada, Senator Bryan, would have adopted 
this equitable standard.
  With the exception of criminal offenses, all causes of action in the 
American legal system are subject to a statute of limitations. The 
theory being that while we want to give plaintiffs an adequate 
opportunity to recover, people should not live forever under the threat 
of litigation. The Bryan amendment recognized this and would have 
achieved that important balance.
  The current statute of limitations goes beyond being fair to 
potential defendants. In fact, as Chairman Levitt pointed out in 
testimony, the current statute of limitations rewards those 
perpetrators who conceal their fraud for only 3 years.
  I might also note, that in regard to those handful of attorneys who 
thrive on frivolous litigation, the statute of limitations is of little 
concern.
  If, as we have heard during this debate, attorneys simply scan the 
newspapers looking for companies reporting bad news, then fill in the 
blanks on their boiler plate complaints and rush to the courthouse 
within days of the news reports, what difference does the statute of 
limitations make?
  But for the innocent investor, who is saving for retirement, or to 
put children through college, or maybe just trying to live a little 
better life, it may mean the loss of a lifetime of hard work and 
savings. The failure to extend the statute of limitations will result 
in legitimate plaintiffs, through no fault of their own, being 
foreclosed from any recovery. The statute of limitations does matter to 
the average American investor--it matters a great deal.


                          AIDING AND ABETTING

  One final area that I want to touch upon is the liability of aiders 
and abetters, those lawyers, accountants and other professionals who 
assist primary wrongdoers in committing securities fraud. The private 
cause of action against aider and abettors, is a necessary tool in 
deterring securities fraud.
  Until last year, this private cause of action was available in every 
circuit in America, provided that the assistance was substantial and 
had some element of deception or recklessness. However, the Supreme 
Court eliminated this private right.
  Why should aiders and abettors, those people who profit from the 
fraud, why should they escape culpability? The answer to this question, 
and it should be obvious to all, is that they should not escape 
responsibility.
  Critics argue that these other professionals work behind the scenes 
and do not communicate directly with investors--in essence critics 
argue they are simply doing their jobs on someone elses behalf. Well, 
in my view there is a vast distinction between vigorously representing 
your client and perpetuating that client's fraudulent actions.
  And that is what we are talking about here--instances where aiders 
and abettors act recklessly or knowingly in perpetrating fraud. The SEC 
has been very clear on this issue. Chairman Levitt came to the Senate 
and indicated that the conduct in question, aiding and abetting, should 
be deterred and that in light of the Supreme Court's holding, the only 
effective way to do this is for Congress to act.
  I have yet to hear a salient argument as to why a professional--and 
these are professionals, lawyers, accountants, bankers--who recklessly 
or knowingly perpetrates a fraud on any investor should escape 
liability simply because they are not the primary defendant.


                               conclusion

  Mr. President, we have heard from all sides of this debate a constant 
refrain that we must reign in frivolous lawsuits. I agree with that 
objective, but the legislation before us is not a balanced approach. It 
hurts the average American investor, by limiting access to the courts, 
and limiting the ability to recover money that others have fraudulently 
taken from them.
  I want to commend my colleagues from Maryland, Nevada, and 
California, as well as my colleague from Alabama for their efforts in 
improving this legislation. They have offered a number of amendments 
that could have improved this legislation. The amendments were 
uniformly rejected--that is regrettable.
  This bill is important, and I had hoped that we could end up with 
legislation which we could all support. However, unless the protection 
of the average American investor is given greater consideration, I 
cannot support this legislation.
  Mr. KERRY. Mr. President, the legislation the Senate has been 
considering these past few days has been the subject of intense debate. 
While the legislation would appear to be rather dry and technical, its 
effect extends to a wide range of interests. Fraudulent actions by 
management can destroy an individual investor's retirement nest egg; 
likewise, a frivolous suit filed against a start-up high-technology 
company can stop that business dead in its tracks.
  Most of us would agree that our goal here is to strike a balance. I 
have been mindful that there are investors on both sides of the 
equation, and I have listened carefully to their concerns. I have also 
spoken with SEC Chairman Arthur Levitt about his agency's concerns and 
recommendations about enforcing our securities laws.
  Me and my staff have met regularly with the high-technology community 
in Massachusetts on this issue. This sector, which has been the most 
frequent target of strike suits, is critical to our economic growth and 
the creation of highly skilled, family-wage jobs. I want this sector to 
continue to grow and prosper, but frivolous strike suits have a truly 
chilling effect on start-up high-technology, bio-technology, and other 
growth businesses. The committee report states: ``small, high-growth 
businesses--because of the volatility of their stock prices--are 
particularly vulnerable to securities fraud lawsuits when projections 
do not materialize.'' Companies in Massachusetts and elsewhere have 
been hurt, but more importantly the people in those companies--from the 
CEO's on down--have been hurt by such strike suits.
  I can also cite cases where companies in Massachusetts repeatedly 
misrepresented sales, senior executives had to resign, and some of the 
companies went bankrupt. In one case a company paid an analyst for a 
leading national business magazine to publish a favorable report about 
its projected sales and earnings. Cases remain pending against some of 
the auditors, so I will not mention names. These fraudulent actions 
resulted in hundreds if not thousands of investors losing significant 
amounts, if not all, of their investments. The point is: It is not 
difficult to find instances of abuse on both sides of the issue.
  There is no doubt that this is an extremely complex area of the law, 
where minor word changes can produce major consequences. For example, 
directing plaintiffs to plead particular facts demonstrating the state 
of mind of each defendant at the time the alleged violation occurred 
seems reasonable to defendants. But for plaintiffs, this standard is 
more like having to clear a pole vault bar than a high hurdle. I am 
pleased the committee adopted my amendment regarding the pleadings 
standard, and believe this example demonstrates the need for careful 
consideration of the effect of seemingly minor word changes in this 
area. That is why I believe it is of the utmost importance that we 
proceed cautiously in amending our Nation's securities laws.
  As the committee report notes: ``S. 240 is intended to encourage 
plaintiffs' lawyers to pursue valid claims for securities fraud and to 
encourage defendants to fight abusive claims.'' According to some 
securities litigators, the legislation as presently construed will make 
it more difficult to pursue 

[[Page S9205]]
frivolous cases, but not impossible to pursue valid ones, as some have 
argued during this debate. This legislation should also strengthen the 
hand of businesses in responding to suits they view as abusive by 
reducing the incentive they claim the present system imposes upon them 
for early settlement. If the committee's expectations prove true in 
practice, then I believe we will have achieved the balance we sought 
with regard to the initiation of so-called strike suits.
  My outstanding concerns with this legislation lie at the conclusion 
of the process, where it is unclear whether we have achieved a balance 
comparable to that established at the outset. In light of the 
limitations on joint and several liability and in aiding and abetting 
in private actions, I question whether the legislation assures that 
investors who are victims of fraudulent securities actions will be able 
to recover all of their losses. Certainly, some of the provisions in 
the bill will help investors recover a greater share of their losses 
vis-a-vis the attorneys; however, it is uncertain whether they will be 
able to recover all their losses, as proponents of the bill claim. 
Here, it would appear the legislation leans toward protecting 
proportionately liable defendants rather than toward assuring victims 
of fraud will recover fully their losses. Unfortunately, the amendments 
offered on the floor to provide such balance did not prevail.
  A title of the legislation that will directly serve investors' 
interests by requiring early detection and disclosure of fraud is 
``Title III--Auditor Disclosure of Corporate Fraud.'' I am proud to 
have coauthored this title with Representative Wyden originally as 
freestanding legislation, S. 630, the Financial Fraud Detection and 
Disclosure Act of 1993. It places on accountants and company auditors a 
clear responsibility for early detection and disclosure of illegal 
actions by management. The provision requires that if an accountant 
learns of an illegal act that may have a material effect on the 
company's financial statements, the accountant must inform management, 
and, if management fails take corrective action, the accountant must 
inform the board of directors. If the board fails to notify the SEC 
within 1 day of its notification, and accountant must notify the SEC 
the following day. Failure to provide this notification will subject 
the accountant to stiff civil penalties. I believe these clear 
procedures for early detection and disclosure of fraud by the 
accountants will serve the interests of both investors and business, 
and am pleased the committee incorporated this title into the 
legislation.
  The securities litigation reform bill we are about to vote upon is 
likely to make it more difficult to bring frivolous strike suits, but 
my preference also would have been to include stronger investor 
recovery provisions in the sections relating to joint and several 
liability and aiding and abetting. I was disappointed that amendments 
on these subjects did not prevail.
  On balance, however, this legislation should lead to the creation of 
a more favorable climate for investors and businesses. Investors should 
gain better information about the marketplace, more control over 
securities litigation should they choose to pursue class action suits, 
and, with the safeguards intended to weed out frivolous suits, 
investors should also find a climate more conducive to the fullest 
prosecution of securities fraud cases. A diminished threat of abusive 
strike suits should strengthen the ability of businesses to raise 
capital and to provide investors more information. Taken as a whole, 
therefore, I will support S. 240.
  Mr. BIDEN. Mr. President, our securities laws have served this 
country well for more than 60 years. Remember, the 1933 and 1934 
securities acts were borne out of the 1929 stock market crash. Yet, the 
bill we are debating would topple our well-founded securities laws.
  I oppose the so-called Securities Litigation Reform Act--not because 
I do not think we need some reforms--but, because by supposedly 
discouraging frivolous lawsuits, this legislation would discourage 
legitimate suits too.
  Let us be honest. Most corporate executives and plaintiff lawyers are 
responsible. What we should do is target and penalize those who abuse 
the system. But, we should not close the courthouse door to the many, 
in an attempt to reform the abuses of the few.
  In an effort to fix abuses, this legislation strips safeguards that 
protect millions of average Americans whose pensions are invested in 
security plans. The result of which will be to let white collar 
criminals go free.
  I fought for 7 long years in this Chamber to pass a tough, smart, 
balanced crime bill. And I stood on this floor with my colleagues on 
both sides of the aisle as we debated who could be tougher on crime.
  Yet, here we stand today, debating a bill to give white collar crooks 
in three-piece suits a free ride. This so-called Private Securities 
Litigation Reform Act is about white collar crime.
  This is about law and order. The financial losses victims suffer can 
wipe them out.
  I realize that securities laws are complex, but the devastating 
impact of this legislation is simple:
  It impacts our senior citizens--with 3 out of 4 seniors relying on 
investment income to meet some of their day-to-day living expenses.
  It impacts police, firefighters, teachers, and labor and automobile 
union members whose pensions are invested in securities.
  Whether you live in a small town or a big city, if you are a small or 
large investor, this legislation affects you.
  I have several major concerns with this legislation. First, investors 
would have to prove that a corporation made a falsehood with a clear 
intent to deceive. That's incredibly tough to prove. Under current law, 
investors must show that unreasonable or reckless predictions of a 
corporation's performance misled investors. If this bill becomes law, 
however, companies could get away with making misleading, even 
fraudulent, statements about their earnings.
  Second, accountants, auditors, lawyers, and underwriters are given a 
free ride--they can escape liability even if they go along with a 
fraudulent scheme. Some have compared that to giving the driver of a 
getaway car immunity from prosecution for an armed robbery.
  Third, the bill fails to modestly extend the statute of limitations 
for investment fraud suits, which currently is too short. Instead of a 
1- to 3-year statute of limitation, we should give defrauded investors 
2 to 5 years. That's reasonable--and it would give victims more time to 
file suit so that a guilty party does not dodge liability.
  Finally, this bill wipes out joint and several liability--leaving 
crime victims holding an empty bag and unable to get their money back.
  We hear a lot of rhetoric about the attack of the vulture lawyers--
preying on corporations, stockbrokers, and accountants. But what about 
vulnerable investors?
  Some unfounded lawsuits are filed. Some lawyers do make too much from 
a suit--leaving defrauded investors too little. But, this massive 
bill--pushed through with such little examination, without a proper 
hearing before the Senate Judiciary Committee to assess its impact on 
our judicial system--is not the answer.
  Let us protect the small investor--not let white collar criminals go 
unpunished. If we pass this bill, mark my words, we will be back here 
in 2, 3, 4 years undoing it. There will be another Orange County--
another huge insider trading scandal--millions of defrauded Americans, 
parents, hard-working men and women--who will have no recourse and no 
hope for reimbursement if we let this bill become law.
  There is a way to deal with the abuses in securities litigation. I am 
a cosponsor of a bill introduced by Senators Bryan and Shelby, S. 667, 
the Private Securities Enforcement and Improvements Act of 1995.
  In response to the criticism that securities litigation suits are 
initiated by professional plaintiffs, the Bryan-Shelby bill would 
require plaintiff class representatives to certify their complaints, 
outline their interest in the pending litigation, and list any 
securities suits they might have filed in the prior 12 months.
  The Bryan-Shelby bill also would require that multiple securities 
class actions brought against the same defendant be consolidated and 
that a lead counsel be agreed upon by the various 

[[Page S9206]]
plaintiffs, or appointed by the court if no such agreement can be 
reached.
  I believe these new requirements for certification of complaints and 
the new case management procedures would improve the securities 
litigation process, without resorting to the extreme measures in the 
Dodd-Domenici bill, which will shut the courthouse door to millions of 
valid claims.
  The Bryan-Shelby bill also includes a reasonable extension of the 
statute of limitations for securities liability actions and would 
restore liability for aiding and abetting if an accountant or lawyer 
knowingly or recklessly provided substantial assistance to another 
person in violation of the securities laws.
  Mr. President, I commend my colleagues, Senators Sarbanes, Bryan, and 
Boxer, for leading the effort to improve the Dodd-Domenici bill. 
Unfortunately, however, we were only able to get a couple amendments 
approved.
  I appreciate my colleagues support--on both sides of the aisle--for 
my amendment that will maintain a civil RICO action against anyone who 
has been criminally convicted of securities fraud, thereby tolling the 
statute of limitations for such a RICO action until the final 
disposition of the criminal case.
  I urge my colleagues to vote against S. 240. To supporters of this 
bill, I say, OK, you have the Nation's attention now. Let's go back to 
the drawing board and draft a more reasonable approach based upon the 
Bryan-Shelby bill to curb the relatively small number of frivolous 
securities lawsuits without dismantling the entire existing securities 
litigation process.
  Mr. MOYNIHAN. Mr. President, S. 240, the Securities Litigation Reform 
Act, is intended to deter frivolous securities litigation while 
protecting the rights of investors to bring legitimate lawsuits. The 
sponsors of this legislation, arguing that opportunistic attorneys 
often file these lawsuits after precipitous reductions in stock prices, 
attempted to strike a delicate balance between these two competing 
interests.
  Unfortunately, the bill fails to strike that balance. The bill would 
make it too difficult--if not impossible--for small investors to 
recover losses resulting from securities fraud. S. 240 would establish 
cumbersome case-filing procedures designed to discourage litigation; 
shield from liability those who knowingly aid or abet fraudulent 
schemes; and limit too strictly the liability of those who make 
misleading or false forward-looking projections of company performance.
  While these provisions will deter frivolous lawsuits, they will also 
discourage meritorious ones. If the amendments offered by Senators 
Sarbanes, Bryan, and Boxer had been accepted by the Senate, I perhaps 
could have supported this bill. As it stands, however, this legislation 
goes too far in protecting corporations and stockbrokers at the expense 
of small investors. I cannot support it.
  Mr. CONRAD. Mr. President, I have reluctantly decided that I cannot 
vote in support of the version of S. 240 that is in front of us today. 
As a cosponsor of S. 240, this was a difficult decision. But the 
changes that have been made in this legislation make this a completely 
different bill from the version I cosponsored. In my view, this version 
of S. 240 goes too far and will make it too difficult for innocent 
investors to recover in legitimate cases of securities fraud.
  Mr. President, there is no question that we need to reform the 
current securities litigation system. Too often when a stock drops 
suddenly for reasons completely beyond the control of a corporation, 
the corporation finds itself the subject of a so-called strike suit. 
These strike suits border on legal extortion: The cost of defending the 
suit and the risk of huge damages create a strong incentive to settle 
the case even when the corporation has done nothing wrong. Moreover, 
these suits have targeted not just the corporation whose stock has 
dropped, but also the accountants, lawyers and others who participated 
in the preparation of documents for the Securities and Exchange 
Commission and the public. These businesses, which often played only a 
marginal role in the alleged fraud, can nonetheless be held fully 
liable. Finally, the current system does not serve investors well. In 
too many cases, lawyers walk away with millions of dollars in legal 
fees while the plaintiffs whose interests the lawyers are supposed to 
be serving recover only a small portion of their losses.
  In short, the current system does not work. It imposes a burden on 
entrepreneurial activity and impedes the efficient functioning of our 
capital markets. As a result, all investors--and the economy as a 
whole--suffer. That is why I cosponsored S. 240. I wanted to send a 
strong signal that we need to reform the current system and put an end 
to frivolous, speculative lawsuits that serve little purpose but to 
enrich the lawyers who bring them.
  At the same time, however, I fully recognize that there are 
legitimate instances of securities fraud, and we must ensure that we 
preserve the rights of investors to seek redress in cases of true
 fraud. We should not protect Charles Keating, Ivan Boesky, or Michael 
Milken from the investors who lost their life savings as a result of 
sophisticated swindles. I believed, when I cosponsored S. 240, that it 
achieved this balance. And I was given assurances that--in a few areas 
where I thought the bill might go too far in curtailing the rights of 
investors--modifications would be made to ensure that legitimate suits 
were fully protected.

  Unfortunately, during the Banking Committee markup, S. 240 was 
significantly changed to the detriment of investors. As reported from 
the committee, the delicate balance in the original bill was destroyed. 
Instead of a relatively narrow set of changes targeted directly at 
frivolous strike suits, the bill that came to the Senate floor 
contained radical changes that will make it far more difficult to bring 
any suit, including a legitimate suit where real fraud has occurred.
  First, the new version of S. 240 contains a huge expansion of the 
safe harbor for forward looking statements. S. 240 as introduced 
directed the SEC to develop an expanded safe harbor to encourage 
companies to provide more information to the market on their expected 
future performance. Most observers expected this to result in a 
relatively modest expansion of the safe harbor. In committee, this 
provision was amended to provide a statutory safe harbor for forward 
looking statements unless they are ``knowingly made with the purpose 
and actual intent of misleading investors.'' SEC Chairman Levitt has 
expressed the view that this safe harbor will protect knowingly made 
false, misleading, and fraudulent statements. This will reduce 
confidence in information and impede the efficiency of capital markets. 
This is a significant, and potentially dangerous, change from the 
version of S. 240 I cosponsored. It would make it extremely difficult 
to prosecute even the most outrageous of statements about expected 
future performance.
  Second, the new version of S. 240 does not contain a necessary, 
modest expansion of the statute of limitations in securities fraud 
cases. Pursuant to the Supreme Court's Lampf decision, the statute of 
limitations in fraud cases is now 1 year from when the fraud was 
discovered but in no case longer than 3 years from the date the fraud 
occurred. S. 240 originally proposed to extend the statute of 
limitations to 2 and 5 years because in sophisticated swindles it may 
take longer than 1 and 3 years for a fraud to be sufficiently 
understood to bring suit. This was the most important unambiguously 
pro-investor provision in the bill. However, during mark-up this 
provision was deleted. This is a significant change; it will leave many 
plaintiffs with strong, legitimate complaints unable to bring suit if a 
fraud is uncovered too later for them to sue.
  Third, the new version of the bill gives control of fraud suits to 
the biggest investors, virtually excluding small investors from 
consideration. Under the original bill, the court was required to 
appoint a plaintiff steering committee that held in aggregate at least 
5 percent of the securities involved or securities with a market value 
of $10 million, whichever is smaller, unless the judge decided a lower 
threshold was appropriate. This formulation would have allowed a group 
of small investors to join together to control the lawsuit. But in 
committee this provision was dropped. In the new version, the court is 
required to appoint a single lead plaintiff, and there is a presumption 
that the most adequate plaintiff will be the 

[[Page S9207]]
class member with the largest financial interest in the case, unless he 
cannot adequately represent the interests of the class. Unfortunately, 
in many cases the member with the biggest financial interest will be an 
institutional investor with interests, for example, holdings of stock 
in the corporation that are not subject to the suit or strong ties to 
the board of directors, that may not mirror the interests of most other 
class members. This provision could lead to significant litigation on 
whether the presumed most adequate plaintiffs other interests 
disqualify him and/or to settlements that do not always best serve the 
interests of the majority of the class members.
  Fourth, the new version of the bill for the first time imposes a cap 
on the damages that an investor can recover. The provision limits 
damages to no more than the difference between the purchase price of 
the stock and the value of the security during the 90-day period after 
information correcting the fraudulent misstatement or omission is made 
public. Although this may appear reasonable, it creates a strong 
incentive for the issuer to use the safe harbor for forward-looking 
statements to puff the stock during this 90-day period and otherwise 
abuse the system by waiting to correct the misinformation until a 
stream of positive news can be released simultaneously.
  Finally, the new version of S. 240 does not contain a provision 
restoring liability for aiding and abetting a fraud. In 1994, the 
Supreme Court ruled that the securities statute does not cover private 
actions for aiding and abetting. The Chairman of the SEC has testified 
that aiding and abetting liability should be restored. Although the 
original version of S. 240 similarly failed to address this issue, when 
I cosponsored S. 240 it was my understanding that this issue would be 
addressed before the bill came to the floor. However, the new version 
of S. 240 restores aiding and abetting liability only for individuals 
who act knowingly. It does not fully restore liability for other 
participants in a fraud.
  During floor debate, a series of amendments was offered to restore 
the balance in the original bill. I voted for these amendments. 
Unfortunately, not one of these important changes was reversed. Thus, 
the bill that we now have before us remains significantly different 
from the bill that I cosponsored. In its attempt to root out frivolous 
lawsuits, this version of the bill will make it far too difficult for 
small investors to prevail when they have been defrauded by 
unscrupulous Wall Street dealmakers. I cannot support this unbalanced 
version of the bill.
  It is my hope that the conferees will revisit these issues. We need 
securities litigation reform, and I would like to vote for a balanced 
conference report that fixes the many problems in the current system 
without creating new problems for small investors who have been fleeced 
by crooks on Wall Street.
  Mr. WELLSTONE. Mr. President, today I address my comments once again 
to the reservations I have regarding an important piece of legislation 
that by my measuring is moving way too fast through this body, a piece 
of legislation that I believe may end up hurting legitimately aggrieved 
citizens; a piece of legislation that, although I believe it is 
necessary in some form and earnestly want to give it my support, I 
nonetheless find it difficult to support, given its present form. I am 
referring, Mr. President, to S. 240.
  Mr. President, I have heard the charges--about unethical lawyers 
looking for deep pockets and hunting for a fast buck, about the 
tremendous number of meritless suits--some 300--that are filed and 
settled each year regarding alleged securities fraud. I have had 
extensive discussions with Minnesota-based companies, many of them new 
high-technology firms, about the pressing need to plug the legal 
loopholes that allow companies to be intimidated by unethical 
attorneys. And I have heard the arguments of my respected colleagues 
that this bill, S. 240, is the best way to stop such baseless strike 
suits.
  First, with regard to this problem of strike suits, Mr. President, I 
do not think you will find anyone in this Chamber who believes in their 
heart that such lawsuits are in any way good for the country. Nobody is 
arguing on behalf of such behavior. My cautious opposition to this 
bill--in its present form--should not hide the fact that I consider 
such actions to be the equivalent of blackmail, and detestable in the 
extreme.
  But Mr. President, there are swindlers and fraudulent securities 
setups out in the markets, and there are people who are legitimately 
hurt by such schemes. I have one report that in my State of Minnesota 
alone over the past decade, more than 25,000 Minnesotans have recovered 
$28\1/2\ million in money that was cheated out of them in stock and 
securities fraud; $28\1/2\ million, Mr. President, and that is just the 
money that was reportedly recovered. So it certainly would appear to me 
that in addition to the real problem of the meritless strike suits, 
there is another real problem--that of ongoing investment fraud.
  The task of this bill in my view should be to balance these two 
needs: To create tighter protections for honest companies who are 
forced to pay the equivalent of extortion to unethical attorneys, while 
maintaining the protections that have existed for 60 years for 
legitimately aggrieved investors.
  Does this bill accomplish this delicate balancing act? In my view, 
no, it does not. It is in my view reckless, not because of how it 
handles the problem of strike suits, but how it knocks down existing 
protections for those who have had their savings cheated out of them. 
One of my colleagues has in fact characterized this bill as addressing 
``recklessness''--and I must say that I agree that this bill does deal 
with recklessness. But I must say that we part company on how and why 
we reach those conclusions. It is not just the subject of this bill 
that is recklessness--this bill itself is, by my measurement, reckless 
in how it turns back 60 years of protections that serve big and small 
investors alike.
  On the surface I admit this bill appears to have very little to do 
with the average American family. It appears to deal with high-rolling 
bond salespeople and securities attorneys and CPA's who live and die by 
the smallest twists and turns of the financial markets. But scratch the 
surface and who do you find under this bill? Hard-working honest 
American families, that is who, Mr. President. After all, is it not 
retirement plans that fuel the economy? Isn't it the typical American 
family that has provided the capital needed by so many innovative 
startup firms simply by investing their hard-earned savings in stocks 
and securities? Is it not this great majority of our country that with 
$1,000 here, $5,000 there, a pension fund over there, have built the 
mightiest success stories that make up the American landscape?
  Of course it is. But now we are presented with this bill--a complex 
piece of legislation by anyone's accounting--that will take away some 
of the protections that have served these
 millions and millions of investors so well and for so long. Mr. 
President, I liken this bill to using a sledgehammer to cut a slice of 
bread: if a little reform of the law is good, then an all out attack on 
the law must be better. I did not agree when we took a sledgehammer 
approach in the case of product liability reform, and I don't agree 
now.

  There are hundreds of strike suits filed each year--but there are 
also thousands of legitimate cases of fraud as well. This bill should 
balance the two; it should make necessary corrections it seems to me to 
plug up the legal loopholes that allow unethical lawyers to collect 
while retaining important, existing investor protections. But is this 
the approach my colleagues have chosen? Do they propose to discreetly 
close loopholes, or judiciously plug up the cracks that have allowed 
the unethical attorneys to target big dollars? No, Mr. President, No, 
they do not. Instead my colleagues would hammer away at time-tested 
protections, saying in effect: ``No more. No more lawsuits. Unless you 
have overwhelming evidence, unless you lost millions, unless you have a 
sophisticated understanding of securities law, unless you catch the 
misdeed within a certain limited period, you can no longer sue to 
recover the money from the swindlers and cheats who robbed it from 
you.''
  I am sure some of my colleagues would object to such a 
characterization of this bill--but, Mr. President, actions speak as 
loud as words. We have had many attempts on the floor to make this bill 
better, to more finely tailor 

[[Page S9208]]
its language and scope to address the problem of strike suits. For 
example, we had an amendment on the floor that would have extended the 
period in which wronged investors could file a suit against those who 
committed the fraud. That sounds like a good protection to me--and it 
was an amendment that I supported. But did it pass? The answer is no. 
And let me emphasize: we have had numerous opportunities to amend this 
bill, make it better, more closely tailor it to the problems that 
exist, and I have supported those amendments. But Mr. President, those 
amendments have been consistently rejected.
  Under this bill, investors who bring a legal challenge run the risk 
of facing a court order to pay the entire court costs, thus 
discouraging many people from bringing suit who have been defrauded. 
The bill also takes away the right to sue many of those who aid and 
abet in the fraud; effectively immunizing from private action lawyers, 
accountants, and countless others who may have assisted the primary 
wrongdoers who committee securities fraud.
  Another example: This bill provides for extended immunity from 
private fraud liability for those corporations that release overly 
optimistic information when they have their first sale of stocks. This 
extended immunity does not protect investors; rather it is all but an 
open invitation for crooked corporations and swindlers to promise the 
Sun, Moon, and stars in their forward-looking statements, only then to 
take the money and run once it becomes clear that the corporation will 
never deliver what it promised. And those individuals, or private 
pension funds, or counties that invested and lost money on such a 
basis-too bad. Under this bill they are simply out of luck.
  Individuals aren't the only ones who will be left with no protections 
under this bill; counties and municipal governments and public 
institutions will have fewer protections as well. I have heard several 
references to Orange County, CA, made on the floor during debate, but 
Orange County is not the only one hurt by losses from derivatives 
investments. In Minnesota alone: Dakota County, $2.5 million lost; in 
Chanhassen $4 million lost; the Minnesota Orchestral Association, $2 
million lost; the University of Minnesota, $13-million lost; and Mr. 
President this is only a partial list. It is no wonder that groups like 
the Municipal Treasurers Association, the National Association of 
County Treasurers and Finance Officers, and the National League of 
Cities are but a few of the organizations opposing this bill as it is 
currently written.
  Mr. President, we have heard the name of Charles Keating--perhaps one 
of the most famous of swindlers in recent memory--invoked many times on 
the floor during this debate. Some people say that under this bill, 
thousands of people would never have been able to recover one thin dime 
from Mr. Keating. I have also heard some people say that claim is not 
true, and that this bill will not affect individuals' rights to collect 
what has been taken from them.
  But Mr. President, the fact that we have so many great and respected 
legal minds disagreeing so harshly over what this bill will actually do 
should be the issue here. And until I, and the rest of my colleagues, 
can be convinced beyond reasonable doubt that this bill will not hurt 
middle America, and will not swindle them out of their chance to 
prosecute the swindlers, there can be question. I cannot and will not 
support any measure that hurts those good, honest people who have 
entrusted us with their best interests.
  Thank you, Mr. President, and I yield the floor.
  Mr. LAUTENBERG. Mr. President, I believe I bring a somewhat different 
perspective to the issue of securities than most other Members of this 
body. Prior to coming to the U.S. Senate, I worked in the private 
sector. I co-founded a company with two others that today employs over 
20,000. After the company went public in 1961, I filed countless 
statements with the SEC as its CEO. As the CEO, I believed it was 
important for investors to have as much information as possible.
  Each year, I made it a practice to project earnings for the following 
year. And if those projections needed modification due to changed 
circumstances, I quickly went to the public to alert them to any 
revision. This process had significant rewards because investor 
confidence in my former company caused our stock, which is traded on 
the New York Stock Exchange, to sell at among the highest price-
earnings ratios of all listed securities on any exchange.
  As I look back on that period, I know that I was in the forefront of 
CEO's who provided investors with forward-looking statements on my 
company's financial health. It made sense to me then. It makes sense to 
me now. I know many companies want to provide this information but do 
not because they are concerned about their potential liability should 
their forecasts turn out to be off the mark. It is not in the public 
interest for these companies to go out of business because of a lawsuit 
based on a financial forecast, which despite the company's best 
efforts, later turns out to be inaccurate.
  I remember how much the stock of biotech companies dropped when we 
were discussing health care last year. Should those companies be held 
accountable for this drop? Of course not. We want to protect such 
firms. But I believe this bill goes too far in the effort to do that; 
in fact, I believe the practical effect of this bill will be to 
immunize certain fraudulent statements. This is just one example of the 
many instances in which I believe the legislation is too extreme.
  This is unfortunate because S. 240, the Private Securities Litigation 
Reform Act of 1995, had the potential to be a good bill, perhaps a very 
good bill. In my judgement, if a few key amendments had been adopted, 
this legislation would have eliminated current abuses in existing law 
without sacrificing investor protections. But, those amendments were 
not. As a result, the bill that will pass the Senate today and go to 
conference with the House will, I predict, undermine investor 
confidence in our markets, chill meritorious suits, and leave investors 
exposed to fraud. I also predict that Congress will revisit this issue 
in the foreseeable future. I can only hope that the next Charles 
Keating, whose fraudulent conduct will be facilitated by this bill, 
will not cost the taxpayers as much as the original.
  Too often debate on this bill was reduced to accusations of special 
interest favoritism. It is a shame that the proponents of this bill 
believed anyone who opposed this legislation was merely siding with the 
trial lawyer bar. Likewise, the legitimate concerns of accountants and 
other deep pockets were downplayed by the opponents of this bill. Mr. 
President, I oppose S. 240, not because it might hurt trial lawyers and 
not because I do not believe certain groups are being unfairly targeted 
as deep pockets, but because it is unfair to investors and because I do 
not think it will serve as a deterrent to fraudulent behavior.
  The sponsors of this legislation cite compelling anecdotal evidence 
of abuse by the so-called professional plaintiffs and their 
unscrupulous attorneys. I agree there are abusive securities class 
actions suits filed every year. I also agree that we need to protect 
companies, and even other shareholders, from these people. But in our 
zeal to tackle this problem, we should take care not to stifle 
legitimate claims.
  Amendments were offered that would have tempered the Senate bill's 
overreaction to the purported securities litigation boom. There were 
amendments to: provide aiding-and-abetting liability in private implied 
actions; insert a safety net to ensure that small investors are able to 
fully recover their losses; extend the statute of limitations period on 
these claims, thus making it more difficult for bad actors to hide 
their fraud; and an amendment I cosponsored with Senator Sarbanes that 
would not have insulated fraudulent statements as a result of the 
overly broad safe harbor provision in the bill. All were defeated.
  In opposing these amendments, the sponsors of the bill cited some of 
the more egregious practices of professional plaintiffs and certain 
lawyers. What they do not mention is that this behavior would have been 
curbed by noncontroversial provisions contained in S. 240, provisions 
not affected by the amendments I mentioned above. These would include: 
prohibitions against referral fees and attorney conflicts of interest; 
requirements that the share of the settlement awarded to the name 
plaintiffs be calculated in the same 

[[Page S9209]]
manner as the shares awarded to all other members of the class and that 
the name plaintiff certify that he did not purchase the security at the 
direction of his attorney; a prohibition against excessive attorneys' 
fees; and an assurance that all members of the class have access to 
information held by counsel of the name plaintiff.
  I did not want to have to vote against a bill to curb frivolous 
securities lawsuits because I believe there are problems. I have met 
with accountants and executives of high-technology companies and have 
heard about their legal nightmares. But I have also heard from the 
director of my State's bureau of securities, the North American 
Securities Administrators Association, AARP, dozens of consumer groups, 
and some organizations with large pension funds.
  Mr. President, I cannot in good conscience vote for a bill I believe 
will insulate fraudulent conduct, prevent investors injured by fraud 
from fully recovering damages, and chill meritorious litigation. In our 
rush to reform the problems detailed by the sponsors of this bill, we 
have overreacted.
  Mr. CHAFEE. Mr. President, I am pleased to be a cosponsor of S. 240, 
the Private Securities Litigation Reform Act, which the Senate approved 
today. This proposal has been introduced by Senators Domenici and Dodd 
year after year without ever reaching the full Senate for 
consideration. Finally, this year, the Senate debated and approved 
securities reform without substantial changes to the Domenici-Dodd 
bill, as reported by the Banking Committee.
  Our's has become an increasingly litigious society. Opportunistic 
lawyers are prepared to spring into action with the least provocation. 
In the case of securities fraud suits, this class of attorneys claims 
to have the interests of small investors in mind, but the level of 
compensation they exact compared with the compensation received by 
their clients tells quite a different story.
  As many as 300 securities fraud suits are filed annually. An 
astonishing 93 percent of these suits are resolved out of court, with 
an average settlement of more than $8 million each.
  It is no accident that so many of these suits are settled out of 
court. That is one of the major problems addressed by S. 240. Under 
current law, every defendant can be found jointly and severally 
liable--or liable for the entire settlement cost--regardless of the 
extent of the defendant's involvement. It has become the practice of 
some lawyers to name as many deep pocket defendants as possible. 
Frequently, the fear of being held 100 percent responsible and the 
enormous cost of diverting substantial resources to defending against 
these suits leads these defendants to settle. S. 240 applies 
proportionate liability, enabling the court to determine the extent of 
a defendant's involvement and determining liability on the basis of 
that involvement.
  S. 240 seeks to reduce abusive practices by prohibiting brokers or 
dealers from receiving a referral fee from attorneys seeking clients 
for class action suits; giving the court authority to determine whether 
a conflict of interest exists if an attorney is also a shareholder; 
and, by prohibiting funds discharged by the SEC from being used for 
attorneys' fees.
  It seeks to limit frivolous lawsuits by eliminating professional 
plaintiffs, prohibiting attorneys' fees from exceeding a reasonable 
percentage of damages awarded, and giving courts the authority to 
appoint lead plaintiff on the basis of greatest financial loss rather 
than continuing the practice of naming lead attorneys based on who 
filed the suit first.
  I believe that we have approved a bill that will benefit shareholders 
and corporations alike. Shareholders will have more information on 
which to base their investments and corporations will be able to 
operate in an environment free of meritless lawsuits. I commend 
Senators Domenici and Dodd  for proposing this worthwhile legislation 
and Chairman D'Amato for moving it so swiftly through the legislative 
process.
  Mr. PELL. Mr. President, today as the Senate comes to the conclusion 
of the debate over the Securities Litigation Reform Act, I state my 
support for this legislation. It has been a long process to achieve 
reform in this area and the Senate has worked for several years to 
craft legislation which will adequately address the problems in the 
laws which govern our securities industry without creating others. I 
commend the efforts of those most directly involved, particularly my 
good friend and colleague Senator Dodd, for their commitment and hard 
work in bringing this bill to final passage.
  The need for some type of reform in this area is universally 
acknowledged, even by those who have most vociferously opposed the 
version of reform contained in the final bill. Indeed, the bill had 51 
cosponsors, an indication of overwhelming consensus that congressional 
action is necessary to correct a glaring problem. Simply put, the 
securities industry has been plagued by abusive and frivolous lawsuits 
for years. These lawsuits have been encouraged by a system that far too 
often does more to reward creative lawyers and undeserving plaintiffs 
than it does to protect the integrity of the securities markets and 
legitimate investors. The end result has been the unnecessary 
escalation of business costs as companies are forced to pay legal costs 
to defend against these meritless actions. In a growing number of 
cases, these escalated costs, combined with the chilling effect of the 
threat of groundless litigation, have resulted in bankruptcies, 
reluctance to release pertinent investment information, and in many 
cases, the decision to forego the formation of startup enterprises 
altogether. The latter has particularly been the case for fledgling 
high-technology companies, the next generation of American industry. As 
we strive to compete in the world marketplace, it becomes even more 
imperative that we work to discourage those aspects of our legal system 
which foster frivolous, costly, and unnecessary litigation.
  I do not claim that this bill is perfect in all aspects. Indeed, some 
17 amendments were offered to the legislation as we considered on the 
Senate floor and I supported many of them. I share the concerns 
expressed that as we rewrite our securities laws to eliminate abusive 
lawsuits, we must also protect the rights of legitimately wronged 
investors to have their day in court. Of particular concern are those 
small investors, many times senior citizens and those with stakes in 
pension funds, who face formidable odds in bringing actions against 
large corporations. Accordingly, I voted for stronger protection 
against fraudulent and misleading statements by corporate executives as 
well as for an alternative dispute mechanism which would have 
discouraged frivolous actions without the use of the courts. I also 
supported giving even the smallest investor a voice in choosing who 
would control suits brought on behalf of a large class of plaintiffs, 
an effort to ensure that everyone would be represented in legal 
actions, no matter how big or small. Unfortunately, these and other 
efforts to improve the bill were not supported by a majority of the 
Senate. However, even though these amendments did not succeed, the 
legislation as a whole merited support for its work to reform our legal 
system in a constructive way to curb unnecessary lawsuits in our 
securities industry without removing adequate protection for those 
legitimately harmed by fraud and wrongdoing.
  Again, I commend the good work done by all involved with this 
legislation. There are still significant differences with the House 
that need to be worked out so I fear that we still have a way to go 
before the process of securities law reform is completed. With passage 
today, however, the Senate has taken an important step toward achieving 
that goal.
  The PRESIDING OFFICER. Under the previous order, the committee 
amendment in the nature of a substitute, as amended, is agreed to, and 
the clerk will read S. 240 for the third time.
  The bill was ordered to be engrossed for a third reading, and was 
read for the third time.
  The PRESIDING OFFICER. Under the previous order, the Banking 
Committee is discharged from further consideration of H.R. 1058, and 
the Senate will proceed to its immediate consideration.
  The clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 1058) to reform Federal securities litigation, 
     and for other purposes.


[[Page S9210]]

  The Senate proceeded to consider the bill.
  The PRESIDING OFFICER. Under the previous order, all after the 
enacting clause of H.R. 1058 is stricken, and the text of S. 240, as 
amended, is inserted in lieu thereof.
  The clerk will read H.R. 1058 for the third time.
  The bill was read for the third time.
  The PRESIDING OFFICER. Under the previous order there will now be 30 
minutes of debate divided in the usual form.
  Mr. SARBANES. Mr. President, I yield 5 minutes to the distinguished 
Senator from Nevada.
  The PRESIDING OFFICER. The Senator from Nevada is recognized.
  Mr. BRYAN. Mr. President, I thank the Chair.
  Mr. President, at this stage of the debate I acknowledge that the die 
is cast and this bill will pass. I must say that I believe it is a 
terrible mistake.
  This has not been about whether you are for curtailing frivolous 
lawsuits or not. There is no disagreement on that. The provisions that 
deal with containing frivolous lawsuits I think enjoy a vast majority 
of our support, and certainly this Senator.
  I have asked myself. Why are we doing this? Why are we undergoing all 
of this exercise? For the last 6 decades we have enjoyed the world's 
safest securities markets. They are the envy of the world. Could it be 
because there is a litigation explosion? The facts belie that. In the 
past 20 years, the number of cases filed in class action lawsuits 
remain about between 290 and 315 a year. There are some 235,000 civil 
filings each year. So that cannot be the reason. There are some 14,000 
companies that have filings with the SEC. Each year only about 140 out 
of those 14,000 are brought in as party defendants in these class 
action cases.
  Is it because there has been an inability to raise capital in our 
markets? In the past 20 years, the amount of capital raised has 
increased by 58,000 percent. So it certainly cannot be that.
  Mr. President, this is clearly--as I observed at the beginning--a 
Trojan horse that brings us to the floor of the U.S. Senate to shield a 
large number of people from liability for their misconduct. Under 
securities action no one who is simply negligent or grossly negligent 
is liable. So it is extremely difficult. What this has all been about, 
in my view, is to emasculate the private individual, the private 
investor, from securing relief and recover from investment fraud.
  I have prepared a little chart here which I think indicates the 
number of hurdles that have to be surmounted in order to get to the 
finish line. It will be more difficult to get these cases brought 
because of the limitations imposed. The shorter statute of limitations. 
The surrender of control of the wealthiest plaintiff which in effect 
becomes the lead plaintiff presumptively under this. The automatic 
discovery stage prevents the plaintiff from ascertaining what the state 
of mind is of the defendants who have perpetrated the fraud. The safe 
harbor provisions, that the distinguished Senator from Maryland has 
talked about; aiders and abettors--they are home free. They do not have 
any liability at all. The RICO liability has been wiped out.
  Ultimately, if you are able to perform a feat that even Edwin Moses 
would have difficulty performing, and you get to the finish line, the 
prospect of recovery is greatly reduced because we have eliminated the 
concept as between those who are guilty of reckless misconduct or 
totally innocent. We are simply saying that those who are guilty of 
reckless misconduct only have proportionate liability, and the 
plaintiff, the investor who is damaged, does not recover the full 
amount.
  That overturns hundreds and hundreds of years of legal precedent. For 
a social and economic policy that I just cannot comprehend as between 
the innocent party and the wrongdoer whose conduct is at least 
reckless, we are saying give the reckless actor immunity from the suit. 
In the case of the aider and abettor and in the other case where he may 
be a primary violator, we simply say he or she is only liable for the 
proportionate share. That makes no sense.
  In the 1980's, Congress enacted the infamous Garn-St Germain. Within 
a decade, the savings and loan industry in America imploded and the 
American taxpayer was asked to write a bill which constitutes hundreds 
of billions of dollars.
  I forecast that, as a consequence of the enactment of this kind of 
legislation, we are going to see innocent investors by the thousands 
deprived of their day in court. Fifty major newspapers in America who 
have looked at this issue have concluded that what we are about to do 
is a tragic mistake.
  Mr. President, as I said at the outset, I acknowledge that this 
legislation will pass this Chamber, but I believe that we will rue the 
day and that our markets will be less secure and what the proponents 
may intend to accomplish will, indeed, have a countereffective result.
  The PRESIDING OFFICER. The Senator's time has expired.
  Who yields time?
  Mr. D'AMATO. Mr. President, I yield 5 minutes to the distinguished 
Senator from Utah.
  The PRESIDING OFFICER. The Senator from Utah is recognized for 5 
minutes.
  Mr. BENNETT. Mr. President, the debates have been made. I remember 
the comment by my colleague from Connecticut during the Whitewater 
hearings when he said everything that needs to be said has been said 
but not everybody has said it. So I will try not to say too much about 
this.
  Contrary to those who say, gee, everything has been wonderful up 
until now, the facts clearly demonstrate that there has been a serious 
problem. It has affected that portion of the stock market that most 
needs the entrepreneurial thrust of venture capital, and this bill will 
correct it.
  I made all of the arguments that I intend to make. I simply want to 
make one additional observation. This problem has generated action in 
the House of Representatives. Now it is generating action in the 
Senate. In my view, the Senate bill is more responsible than the House 
bill. I congratulate the authors of the bill, Senator Domenici and 
Senator Dodd, the chairman of the committee, Senator D'Amato, in seeing 
to it that the Senate version is more responsible than the House 
version. I look forward to working with them in a conference committee 
to see that the Senate approach be adopted in every possible 
circumstance as there are differences between the Senate and the House.
  These men have worked very hard, very responsibly and intelligently 
on this bill, and I for one have been delighted to have had the 
opportunity to work with them. I commend the work product to the entire 
Senate and, if you will, to the President himself when it gets to him 
for his ultimate signature.
  I thank the Chair.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO. Mr. President, I yield 5 minutes to the Senator from 
Connecticut.
  The PRESIDING OFFICER. The Senator from Connecticut is recognized for 
5 minutes.
  Mr. DODD. Mr. President, I thank the Chair. Let me begin by thanking 
my colleague from New Mexico, Senator Domenici, Senator D'Amato, 
Senator Bennett, and others who have been present in the Chamber here 
almost for a week now. We considered 17 amendments and one motion to 
commit on this bill.
  Let me also express my appreciation to my colleague from Maryland, my 
colleague from California, and my colleague from Nevada, all of whom 
have been actively involved in this legislation, along with the Senator 
from Pennsylvania, with a number of amendments that have been offered 
to this bill.
  We have spent several years on this legislation. We have crossed the 
threshold of whether or not this was an area of the law that needed 
repair and significant repair. I would say to my colleagues that we can 
put behind us the days that we have rued, in a sense, the days when you 
ended up with somewhere between 93 and 98 percent of these cases all 
being settled, never going to litigation because, frankly, the system 
was designed in a way to produce settlements even when cases lack merit 
because of the outrageous costs involved. This was an area of the law 
where, frankly, a number of people had turned a profession into a 
business, 

[[Page S9211]]
and we had lost the essence of the practice of law in the area of 
securities litigation.
  This is a piece of legislation that we think goes a long way to 
protecting investors on all sides. It leaves that door very wide open 
for legitimate plaintiffs to bring their cases. It also makes it 
possible for those legitimate defendants to make sure that they will 
end up paying the price that they are required to pay, where they do 
something wrong. But it also protects the innocent investor of those 
very same companies from not being charged the cost of frivolous 
lawsuits and meritless litigation.
  It is a technical area of the law but one that we think is going to 
do a great deal in terms of making it possible particularly for these 
smaller start-up companies, the bases of economic growth in the 21st 
century, the high-tech firms, the biotech firms, the ones that have the 
great volatility in the earliest stages of their development as 
industries and businesses from being preyed upon by meritless 
litigation.
  There is still in the views of many, including this Senator, some 
legitimate discussion about the area of safe harbor. I feel very 
strongly that we should have a true safe harbor. My view is that in 
conference we are going to have to revisit the issue. We had a very 
close vote on an amendment offered by the Senator from Maryland.
  I would love to be able to tell all of my colleagues that I am 
entirely satisfied everything we have done is absolutely going to work. 
I do not know that. I do know this, that we have corrected a 
significant problem and we have plugged up pleadings that were so loose 
that virtually almost any case that could be brought could lead to 
significant discovery, such as the situation where you had Peat Marwick 
on a $15,000 contract ending up at $7 million in legal fees. We stop 
the practice where you have Ratheon Corporation acquiring a firm and 
within 90 minutes of that announcement a lawsuit gets filed.
  Those are the kinds of situations that were occurring, that we will 
have cleaned up with this legislation that I hope we are about to pass.
  Is it perfect in every aspect? Anyone who will tell you that cannot 
say so with absolute certainty. This much we can say, that the previous 
situation, the situation that exists today, is a mess and it needs and 
demands to be cleaned up. And in this Senate bill we have moved great 
lengths toward achieving that goal.
  Let me also underscore the comment made by the Senator from Utah. The 
House bill, in my view, goes way too far, way too far, and it is my 
fervent hope that we will not support the House-passed legislation.
  Let me say here to my colleagues, as someone who has worked a long 
time along with my colleague from New Mexico on this--and I use this 
opportunity--that efforts to weaken this Senate bill by the House are 
going to cause this Senator serious reservations about recommending to 
his colleagues, if we come back with that, that it ought to be 
supported.
  We have a long way to go yet with this legislation before it is done, 
but this is an opportunity for us to go on record to say the present 
system does not work; it needs to be changed.
  We have made those changes here. For those reasons, I think the 
product we have produced is deserving of support. Again, it may not be 
perfect. We do not know that. Time will test that through the legal 
system of this country. But we think it does go a great way toward 
solving the kinds of problems where lawsuits were filed right and left 
without the kind of adequate protections for investors and innocent 
defendants.
  For those reasons, I ask my colleagues to support this bill.
  The PRESIDING OFFICER. The Senator's time has expired.
  Who yields time?
  The Senator from Maryland.
  Mr. SARBANES. Mr. President, what is the time situation?
  The PRESIDING OFFICER. The Senator from Maryland has 9 minutes and 55 
seconds; the Senator from New York has 7 minutes and 16 seconds.
  Mr. SARBANES. I yield myself 6 minutes.
  The PRESIDING OFFICER. The Senator is recognized for 6 minutes.
  Mr. SARBANES. Mr. President, I think perhaps the best analogy that 
was used was by the Senator from Nevada earlier in this debate when he 
said what we have here is a Trojan horse moving forward under the 
pennant of frivolous lawsuits, but hidden within the Trojan horse are a 
lot of problems. That is this legislation. This legislation goes too 
far. I listened to my colleagues, and they get up and they talk about 
horror stories. And I do not quarrel with those horror stories. I think 
we need to bring those under control. And those of us on this side have 
consistently made that point.
  But this bill goes too far. It overreaches. It is excessive. As one 
article said in U.S. News & World Report, ``Will Congress Condone 
Fraud?'' And then it concludes saying that, ``The pendulum is swinging 
much too far,'' and says, ``Unfortunately, some major investor frauds 
may have to take place before again it moves back toward the center.''
  I want to avoid those major investor frauds. And that was what the 
whole effort to try to amend this legislation was about over the last 
few days.
  Now, we are ignoring the advice of all of the regulators, Democrats 
and Republicans. The SEC, both under the former Chairman and under the 
current Chairman of the SEC, the 50 State securities regulators, the 
Government Finance Officers Association, they have all come in. They 
have all said, ``Yes, we want to get at the problem of frivolous 
lawsuits. Yes, there are reasonable ways to try to do it.'' Then they 
have made the point that this bill goes too far.
  Now, we tried to correct it. We tried to correct the safe harbor 
provision, which is potentially one of the most dangerous features in 
this legislation. We urged the Senate to leave that to the SEC. That is 
where it ought to be, with the experts. The Senate rejected that.
  We then said, ``Well, at least let us get a proper standard.'' We 
came very close on that issue, a vote of 48-50 with respect to getting 
a standard that was a more reasonable standard and that would not 
shield, as the Chairman of the SEC told us, not shield willful fraud.
  The distinguished Senator from Nevada has pointed out, under the 
proportionate liability provision, innocent investors who are defrauded 
are now going to bear the burden of their loss ahead of people who 
participated in the fraud. I want to repeat that. People who 
participated in the fraud will be shielded from bearing the full burden 
of the fraud, and that burden will be thrown upon the innocent 
investor.
  We sought to extend the statute of limitations from 1 to 3 years to 2 
to 5 years. There is a lot of concealment that goes on in these fraud 
cases. And if you talk to people who get caught up in it as victims, 
they will tell you that often they cannot discover the fraud within a 
3-year period. The SEC, once they know about a fraud, takes 2 years to 
bring the action. This bill requires people to act within 1 year.
  We tried to restore aiding and abetting. The aiders and abettors are 
dancing down the street right now with this legislation. They will go 
scot-free. It is not a question with aiders and abettors, whether it is 
going to be recklessness as a standard, or whether you are going to go 
to a higher standard than recklessness--actual knowledge, actual 
intent. There is no liability for aiders and abettors. None. It is 
gone. This bill will make it harder for defrauded investors to bring 
legitimate suits and to recover their losses.
  And I say to my colleagues, because a number have cosponsored this 
legislation at the outset, the legislation which they cosponsored had 
in it two very important provisions that we tried to add by amendment 
that are not in the bill before us. The original legislation extended 
the statute of limitations. The original legislation extended this 
statute of limitations so it took care of that particular provision. 
Now we have dropped that in this legislation that is before us.
  And the original legislation sent the safe harbor issue, one of the 
most difficult and complex issues to deal with, sent it to the SEC 
where, I submit to you, it ought to be. That is where that ought to be 
made. Now they are trying to write the standard right in this bill.
  So the original bill, which people cosponsored, took care of two of 
the issues that we have argued on the floor 

[[Page S9212]]
of the Senate over the last few days. Why would we want to make it more 
difficult for defrauded investors to bring legitimate suits and make it 
more difficult for them to recover their losses in an effort to get at 
frivolous suits, which we support? This bill has gone so far, has swung 
the pendulum so far over that it is going to penalize, in a significant 
way, legitimate investors.
  Now, this is bad not just for the individual investor, but it is bad 
for the country, it is bad for economic growth. Our markets, which are 
the marvel of the world, depend upon the confidence of the investors.
  The PRESIDING OFFICER. The time is expired.
  Mr. SARBANES. The confidence of the investor will be undermined by 
this legislation. I urge my colleagues to vote against it.
  Mr. President, I reserve the remainder of our time.
  The PRESIDING OFFICER. Who yields time?
  Mr. DOMENICI addressed the Chair.
  Mr. D'AMATO. Mr. President, I yield 4 minutes to the Senator from New 
Mexico.
  The PRESIDING OFFICER. The Senator from New Mexico is recognized for 
4 minutes.
  Mr. DOMENICI. Thank you very much, Mr. President.
  I would like to thank the Senator from Connecticut, Senator Dodd. Mr. 
President, I say to the Senator from Connecticut, Senator Dodd, let me 
stay here on the floor, even though I only have a few moments, it has 
been a pleasure working with him on this legislation. I first got 
interested after I read some articles that led me to think this part of 
the judicial system of America was not working. That is how I got 
involved. I read three or four articles. I could not believe what I was 
reading. I was naive enough to think since it was so patently wrong, 
all I had to do was work on the bill and get someone like Senator Dodd 
to help and it would all come through. I found that was not the case.
  And the reason it is not the case is because this bill is bad for 
about 90 lawyers in America. This bill is bad for about 90 lawyers in 
America, not the plaintiff's bar--about 90 lawyers. And let me tell 
you, Mr. President, they are rich lawyers, because look at this little 
chart. They file these kinds of lawsuits. And out of every dollar in 
judgments, verdicts or settlements--here is the dollar--the high side 
of what the investors get is 14 cents. In many cases it is not 14 cents 
it is half that.
  Now, let me tell you, if you start with a system that does that and 
is monopolized by a group of barristers who 20 years ago or 25 or 30, 
when I was in law school, would have been found guilty of champerty. We 
learned about two things you should never do, and one of them, my 
friend from Georgia will remember, is commit champerty, which said you 
should not promote unnecessary legislation that inures more to your 
benefit as a lawyer than to your client's. This is the epitome of that. 
They would not get through the door today.
  The judges of yesteryear would say, ``Get rid of this kind of 
lawyer.'' So they are out there with gobs of money running 
advertisements all over the country like they are for the investors. 
They are 14 cents for the investor. They are 14 cents for the investor 
and 86 cents for themselves, the investigators who work for them, and 
all the other experts that they use.
  Now, tell me you cannot fix that. If we could not fix it, I would 
give up on the U.S. Senate and say we are going to leave this up to 
lawyers and their entrepreneurial minds. And we are stopping that.
  Essentially, under this reform lawyers are going to represent a class 
of people, not a select plaintiff that they choose as pet plaintiffs. 
Lawyers are going to be more responsible to the courts. Lawyers are 
going to have less fun running around getting facts.
  And, Mr. President, clearly this bill is balanced.
  Reform is supported by more than 19 major associations, 10 of the 
biggest public pension funds, 12 State pension fund administrators and 
regulators, and hundreds of companies--the list reads like who is who 
in making America's economy great.
  The bill Senator Dodd and I introduced has 51 cosponsors.
  We heard a lot about Charles Keating. There is not a Senator in this 
body that would protect Keating. This bill has nothing to do with 
Keating. His name is well known. This bill has a lot to do with slowing 
down a group of entrepreneurial lawyers whose names are not well known.
  The current system needs reform. It is a system that has given us 
millions for lawyers and pennies for plaintiffs.
  When Congress enacted our securities laws, the 1933 and 1934, the 
basic foundation was disclosure of information and deterrence.
  Congress did not by statute create the class action securities law 
suit under 10b and rule 10b-5. The courts created them. However, in the 
last decade, every significant Supreme case on the topic has scaled 
down the scope of the 10b-5 class action cases. It shortened the 
statute of limitations. It abolished aiding and abetting liability. The 
Court also seemed to be inviting Congress to legislate in this area. 
Today we are taking that historic step.
  This bill gives investors a better system 12 ways:
  First, it puts investors with real financial interests, not lawyers 
in charge of the case.
  It puts investors with real financial interests, not professional 
plaintiffs with one or two shares of stock in charge of the case. It 
includes most adequate plaintiff; plaintiff certification; ban on bonus 
payments to pet plaintiffs; settlement term disclosure; attorney 
compensation reform; sanctions for lawyers filing frivolous cases; 
restrictions on secret settlements and attorneys' fees.
  Second, it provides for notification to investors that a lawsuit has 
been filed so that all investors can decide if they really want to 
bring a lawsuit. It is likely that people trusted to manage pension 
funds and mutual funds--institutional investors--will get more involved 
(most adequate plaintiff provision).
  Third, it puts the lawyers and their clients on the same side 
(reforms that change economics of cases, proportionate liability, 
settlement terms disclosure).
  Fourth, it prohibits special side-deals where pet plaintiffs get an 
extra $10,000 or $15,000. It protects all investors, not just the 
lawyers' pet plaintiffs, so that settlements will be fair for all 
investors.
  Fifth, it stops brokers from selling names of investors to lawyers.
  Sixth, it creates an environment where CEO's can, and will talk about 
their predictions about the future without being sued. It gives 
investors a system with better disclosure of important information 
(safe harbor).
  Seventh, it contains better disclosure of how much a shareholder 
might get under a settlement and how much the lawyers will get so that 
shareholders can challenge excessive lawyers' fees.
  Eighth, no more secret settlements where attorneys can keep their 
fees a secret (restrictions on settlements under seal).
  Ninth, it limits amounts that attorneys can take off the top. It 
limits attorneys' fees to a ``reasonable amount'' instead of confusing 
calculations (attorney compensation reform, banning lodestar method of 
calculating fees).
  Tenth, it provides a uniform rule about what constitutes a legitimate 
law suit so that it will no longer matter where a case is filed. 
Investors in Albuquerque will have the same rules as investors in New 
York (pleading reform). It stops fishing expeditions where lawyers 
demand thousands of company documents before the judge can decide if 
the complaint is so sloppy that it should be dismissed on its face 
(discovery stay).
  Eleventh, it will make merits matter so that strong cases recover 
more than weak cases. It will make sure people committing fraud 
compensate victims. It improves upon the current system so that victims 
will recover more than six cents on the dollar.
  Twelfth, by weeding out frivolous cases, it gives the lawyers and 
judges more time to do a good job in protecting investors in 
meritorious cases. High-technology companies' executives can focus on 
running their companies and growing their businesses. Investors will 
get higher stock prices and bigger dividends.
  S. 240 does exactly what Chairman Levitt said the system should do, 
protect all investors--not just a few.
 
[[Page S9213]]

  I ask unanimous consent to have inserted in the Record the numerous 
organizations that have real interests, like money managers who have 
handled our money, who say this bill is a good bill. I also ask 
unanimous consent that some letter of support from various pension fund 
groups be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

               Supporters of Securities Litigation Reform

       American Business Conference: Members of the American 
     Business Conference include 100 chief executive officers of 
     high-growth companies with revenues over $25 million. ABC 
     serves as a voice of the midsize, high-growth job creating 
     sector of the economy.
       American Electronics Association: The American Electronics 
     Association represents some 3,000 companies in 44 states that 
     span the breadth of the electronics industry, from silicon to 
     software, to all levels of computers and communication 
     networks, and systems integration.
       American Financial Services Association is a national trade 
     association for financial service firms and small business. 
     Its 360 members include consumer and auto finance companies, 
     credit card issuers, and diversified financial services 
     firms.
       American Institute of Certified Public Accountants: The 
     American Institute of Certified Public Accountants is the 
     national professional organization of over 310,000 CPAs in 
     public practice, industry, government, and academia.
       Association for Investment Management and Research: The 
     Association for Management and Research is an international 
     nonprofit membership organization of investment practioners 
     and educators with more than 40,000 members and candidates.
       Association of Private Pension and Welfare Plans: The 
     Association of Private Pension and Welfare Plans membership 
     represents the entire spectrum of the private pension and 
     employee benefits community: Fortune 500 companies, banks, 
     insurance companies, law, accounting, consulting, investment 
     and actuarial firms. APPWP members either sponsor directly or 
     administer employee benefit plans covering more than 100 
     million Americans.
       Association of Publicly Traded Companies: The Association 
     of Publicly Traded Companies has an active membership of over 
     500 corporations consisting of a broad cross section of 
     publicly traded companies, especially those traded on the 
     NASDAQ national market.
       BIOCOM/San Diego (Formerly the Biomedical Industry 
     Council): BIOCOM/San Diego is a business association 
     representing over 60 biotechnology and medical device 
     companies in San Diego, CA.
       Biotechnology Industry Organization: The Biotechnology 
     Industry Organization represents more than 525 companies, 
     academic institutions, state biotechnology centers and other 
     organizations involved in the research and development of 
     health care, agriculture and environmental biotechnology 
     products.
       Business Software Alliance: The Business Software Alliance 
     promotes the continued growth of the software industry 
     through its international public policy, education and 
     enforcement programs in more than 60 countries, including the 
     U.S., throughout North America, Asia, Europe and Latin 
     America. BSA represents leading publishers of software for 
     personal computers.
       Information Technology Association of America: The 
     Information Technology Association is a major trade 
     association representing over 5,700 direct and affiliated 
     member companies which provide worldwide computer software, 
     consulting and information processing services.
       National Association of Investors Corporation: The National 
     Association of Investors Corporation is the largest 
     individual shareowners organizations in the United States. 
     NAIC has a dues-paid membership of investment clubs and other 
     groups totalling more than 273,000 individual investors.
       National Association of Manufacturers: The National 
     Association of Manufacturers is the nations's oldest 
     voluntary business association, comprised of more than 13,000 
     member companies and subsidiaries, large and small, located 
     in every state. Its members range in size from the very large 
     to the more than 9,000 small members that have fewer than 500 
     employees each. NAM member companies employ 85% of all 
     workers in manufacturing and produce more than 80% of the 
     nation's manufactured goods.
       National Investor Relations Institute: The National 
     Investor Relations Institute, now in its 25th year, is a 
     professional association of 2,300 corporate officers and 
     investor relations consultants responsible for communication 
     between corporate management, shareholders, security analysts 
     and other financial publics.
       National Venture Capital Association: The National Venture 
     Capital Association is made up of 200 professional venture 
     capital organizations. NVCA's affiliate, the American 
     Entrepreneurs for Economic Growth, represents 6,600 CEOs who 
     run emerging growth companies that employ over 760,000 
     people.
       Public Securities Association: The Public Securities 
     Association is the international trade association of banks 
     and brokerage firms which deal in municipal securities, 
     mortgage and other asset-backed securities, U.S. government 
     and federal agency securities, and money market instruments.
       Securities Industry Association: The Securities Industry 
     Association is the securities industry's trade association 
     representing the business interests of more than 700 
     securities firms in North America which collectively account 
     for about 90% of securities firm revenue in the U.S.
       Semiconductor Industry Association: The Semiconductor 
     Industry Association represents the $43 billion U.S. 
     semiconductor industry on public policy and industry affairs. 
     The industry invests 11% of sales on R&D and 15% of sales on 
     new plant and equipment--more than a quarter of its revenue 
     reinvested in the future--and thus seeks to improve America's 
     equity capital markets.
       Software Publishers Association: The Software Publishers 
     Association is the principal trade association of the 
     personal computer software industry, with a membership of 
     over 1,000 companies, representing 90% of U.S. software 
     publishers. SPA members range from all of the well-known 
     industry leaders to hundreds of smaller companies; all of 
     which develop and market business, consumer, and education 
     software. SPA members sold more than $30 billion of software 
     in 1992, accounting for more than half of total worldwide 
     software sales.
              managers of private or public pension funds

       Champion International Pension Plan: Champion Internation 
     Pension Plan controls over $1.8 billion in total assets.
       Connecticut Retirement and Trust Fund: The Connecticut 
     Retirement and Trust Fund invests over $11 billion on behalf 
     of over 140,000 employees and beneficiaries.
       Eastman Kodak Retirement Plan: Eastman Kodak Retirement 
     Plan manages over $10.9 billion in total assets and is ranked 
     as one of the largest 60 pension plans in the U.S.
       Massachusetts Bay Transportation Association: With over 
     12,000 participants, the Massachusetts Bay Transportation 
     Association controls over $772 million in total assets.
       New York City Pension Funds: Over $49 billion have been 
     invested in the fund to insure the retirement security of 
     227,000 retirees and 138,000 vested employees.
       Oregon Public Employees' Retirement System: Assets 
     controlled by the fund total over $17.2 billion. The Oregon 
     Public Employees' Retirement System is ranked among the 
     largest 30 pension plans in the U.S.
       State of Wisconsin Investment Board: One of the 10 largest 
     pension funds in the United States, the State of Wisconsin 
     Investment Board manages over $33 billion contributed by the 
     State's public employees.
       State Universities Retirement System of Illinois: The State 
     Universities Retirement System is ranked as one of the 
     country's 100 largest pension funds with total assets of $5.3 
     billion.
       Teachers Retirement System of Texas: The Teachers 
     Retirement System of Texas controls over $36.5 billion in 
     total assets on behalf of its 700,000 members.
       Washington State Investment Board: With assets totaling 
     over $19.7 billion, the Washington State Investment Board is 
     ranked in the largest 25 pension funds.
                                                                    ____

                                           National Association of


                                        Investors Corporation,

                                     Royal Oak, MI, July 19, 1994.
     Hon. Christopher Dodd,
     Committee on Banking, Housing, and Urban Affairs, U.S. 
         Senate, Dirksen Senate Office Building, Washington, DC.
       Dear Senator Dodd: I am writing to you as Chairman of the 
     National Association of Investors to congratulate you on your 
     sponsorship of the Private Securities Litigation Reform Act 
     of 1994 (S. 1976) and to promise the support of the National 
     Association of Investors Corporation.
       NAIC is, we believe, the largest individual shareowners 
     organization in the United States. We currently have a dues 
     paid membership of investment clubs and other groups 
     totalling more than 273,000 individual investors. NAIC has 
     been in operation since 1951 and our members are the direct 
     owners of shares in our nation's industry. We are a cross-
     section of the nation's population including individuals from 
     every race, political persuasion and economic level.
       Our purpose as an organization, is to help individuals 
     learn the benefits provided by being an owner of a business 
     and to learn how to do so successfully. Since our founding, 
     nearly 4 million people have taken our training programs and 
     a high percentage of our members enjoy an earnings rate on 
     their securities equal to or exceeding that of the S&P 500 
     Index.
       The current situation in the law permits and even 
     encourages the filing of lawsuits with very little merit 
     against corporations. The benefits derived from these suits 
     are going primarily to attorneys.
       However, these payments are actually coming from the 
     pockets of serious, lifetime owners of the corporations like 
     our members.
       These unmerited suits take corporate executives away from 
     the main task of running the business and building it for 
     their shareowners.
       Even more importantly, the fear of these kinds of suits 
     causes executives to release less information about the 
     business to shareholders because of the fear that this could 
     lead to their being sued.
       Our members devote about 25% of their investments to 
     smaller companies and many of 

[[Page S9214]]
     these companies are high technology companies that have been a 
     particular target of attorneys filling these questionable 
     suits.
       Again let me say that our members appreciate your interest 
     in solving these problems and thus helping the great mass of 
     the nation's investors by reducing the threat of a large and 
     mischievous expense.
           Yours respectfully,
                                                 Thomas E. O'Hara,
     Chairman, Board of Trustees.
                                                                    ____

                                                    July 19, 1994.
     Hon. Christopher J. Dodd,
     U.S. Senate, Russell Senate Office Building, Washington, DC.
     Hon. Pete V. Domenici,
     U.S. Senate, Dirksen Senate Office Building, Washington, DC.

       Dear Senators Dodd and Domenici: As pension fund managers, 
     we are responsible for safeguarding the investments of 
     thousands of individuals in the securities markets. In making 
     investment decisions on behalf of these individuals our 
     success depends on both the integrity of the market and the 
     vitality of the American economy.
       For these reasons, we are writing to applaud your 
     initiative in addressing the fundamental problems of the 
     securities fraud litigation system. We agree that the current 
     system is not protecting investors and needs reform. Under 
     the current system, defrauded investors are receiving too 
     little compensation, while plaintiffs' lawyers take the 
     lion's share of any settlement. Moreover, meritless 
     litigation costs companies millions of dollars--money that 
     could be generating greater profit for the company and higher 
     returns for investors. Finally, the fear of such meritless 
     litigation has caused many companies to minimize the amount 
     of information that they disclose--the opposite of what we 
     need to do our job effectively.
       Thank you again for pursuing long overdue reforms on the 
     securities litigation system. We look forward to working with 
     you to make the system work for all investors.
           Sincerely,
         Mr. John J. Gallahue, Jr., Executive Director, 
           Massachusetts Bay Transportation Authority, Retirement 
           Fund; Dr. Wayne Blevins, Executive Director, Teachers 
           Retirement System of Texas; Mr. Alan G. Hevesi, 
           Comptroller, The City of New York, New York City 
           Pension Funds; Mr. John A. Ball, Senior Vice President, 
           Champion International Corp., Champion International 
           Pension Plan; Mr. Joseph M. Suggs Jr., Treasurer, State 
           of Connecticut, Connecticut Retirement and Trust Funds; 
           Mr. Jim Hill, Treasurer, State of Oregon, Oregon Public 
           Employees' Retirement System; Ms. Patricia Upton, 
           Executive Director, State of Wisconsin Investment 
           Board; Mr. Kenneth E. Codlin, Chief Investment Officer, 
           State Universities Retirement System of Illinois; Mr. 
           Gary P. Van Graafeiland, Senior Vice President, 
           Secretary and General Counsel, Eastman Kodak Co., 
           Eastman Kodak Retirement Plan; Mr. Basil J. Schwan, 
           Executive Director, Washington State Investment Board.
                                                                    ____

         The Commonwealth of Massachusetts, Office of the 
           Treasurer, State House,
                                       Boston, MA, March 22, 1995.
     Hon. Alfonse D'Amato,
     Chairman, Senate Hart Building, Washington, DC.
       Dear Senator D'Amato: I am writing you as Treasurer of the 
     Commonwealth of Massachusetts and, in that capacity, as sole 
     Trustee of the state's largest public pension fund for state 
     teachers and employees. I would like to join with those 
     elected officials around the country who are urging your 
     committee to enact legislation to curtail the epidemic of 
     meritless securities legislation which has begun to have a 
     negative impact on the effectiveness and productivity of our 
     nation's businesses and the capital formation process itself.
       The concern about, and the reaction to, meritless lawsuits 
     has caused industry, as well as accounting, law and insurance 
     companies, to increase their costs and price tags ultimately 
     paid by the consumer and the investing public, including a 
     large percentage of our retirees and pension holders. 
     Therefore, I urge your committee to enact legislation to 
     eliminate these well-known abuses to our legal system. In 
     doing so, I would urge the avoidance of ``lawyer bashing''. 
     Although there is a sizable portion of the bar that generates 
     and unduly profits from these meritless suits, the 
     overwhelming percentage of lawyers represent their profession 
     well and are constructive participants in our judicial 
     system. I also urge caution in establishing a ``losers pay'' 
     system to ensure that we do not preclude the middle class and 
     the poor from bringing meritorious causes of action before 
     our courts.
       I am confident your committee will find a way to overhaul 
     the current securities litigation system and pass meaningful 
     legislation which will enhance the capital formation process 
     in our country and enure to the economic benefit of millions 
     of individuals and retirees who invest in corporate America 
     for their own security.
           Sincerely yours,
                                                 Joseph D. Malone,
     Treasurer and Receiver General.
                                                                    ____

                                                    State of Ohio,


                                      Office of the Treasurer,

                                     Columbus, OH, March 10, 1995.
     Senator Alfonse D'Amato,
     Chairperson, Senate Hart Building, Washington, DC.
       Dear Senator D'Amato: As Treasurer of the State of Ohio, my 
     office regularly issues debt and purchases securities on 
     behalf of the people of the State of Ohio. In addition, my 
     office is designated by law as the custodian of the assets of 
     the State's pension funds. In the exercise of my 
     responsibilities, I have become concerned that securities 
     litigations, and the threat of securities litigation has 
     begun to negatively impact the capital formation process 
     essential to the economic growth for my state and the nation.
       Under present law, attorneys have an incentive to file 
     unsubstantiated claims, because there are no penalties for 
     the filing of a meritless claim. Attorneys will file first 
     and then use the discovery process to see if there is any 
     merit to continuing the claim. In many cases, defendants have 
     settled even unsubstantiated claims because it is more cost 
     efficient to settle an unsubstantiated claim rather than to 
     defend a lawsuit.
       Furthermore, the amount of damages that plaintiffs have 
     typically recovered represents only a percentage of their 
     initial claims; but the lawyers who bring the claim extract 
     substantial fees from any lawsuit filed. A system that was 
     intended to protect investors now primarily benefits their 
     lawyers.
       The fear of meritless lawsuits has also caused many 
     companies to minimize the amount of information they disclose 
     to the public which is the opposite intent of the federal 
     securities laws. Moreover, the fear of meritless lawsuits has 
     caused accounting, law, and insurance firms to increase their 
     costs to clients, discontinue service in some cases, and 
     cause outside executives to refuse to serve on company's 
     board of directors.
       Federal legislation is needed to restore the protections 
     that the 10B-5 action is supposed to provide and to eliminate 
     the abuses of the system. At a minimum, legislation should 
     address the liability scheme that rewards lawyers bringing 
     meritless lawsuits and reduce the costs that the system 
     imposes on the capital markets and business expansion.
       Pension fund participants and other investors depend on the 
     integrity of the market and the prospects of the economy. The 
     current securities litigation system undermines both. I urge 
     the Congress to pass meaningful reform legislation to protect 
     the economic security of millions of individuals who invest 
     in the securities markets.
           Sincerely,
                                             J. Kenneth Blackwell,
     Treasurer of State of Ohio.
                                                                    ____

                                                  Treasurer of the


                                            State of Illinois,

                                  Springfield, IL, March 16, 1995.
     Hon. Carol Moseley-Braun,
     Senator, Hart Senate Office Building, Washington, DC.
       Dear Senator Moseley-Braun: As the state official 
     responsible for safeguarding the investments of public 
     employees' pension funds, I am concerned about abuses in the 
     securities litigation system that threaten investors' 
     interests and impose unnecessary costs on the economy.
       Abusive securities lawsuits are frequently filed on the 
     basis of little more than a drop in a company's stock price. 
     Enormous liability exposure and the onerous cost of mounting 
     a defense leave companies with little choice but to settle, 
     regardless of their culpability. Typically, plaintiffs 
     recover only a small percentage of their damages, while 
     lawyers extract substantial fees from the transactions. A 
     system that was intended to protect investors now primarily 
     benefits their lawyers.
       Because shareholders are on both sides of this litigation, 
     it merely transfers wealth from one group of shareholders to 
     another. However, it wastes millions of dollars in company 
     resources for legal expenses and other transaction costs that 
     otherwise could be invested to yield higher returns for 
     company investors. In addition, the fear of meritless 
     litigation has caused many companies to minimize the amount 
     of information they disclose, precisely the opposite of what 
     investors need to invest safely and wisely.
       Federal legislation is needed to restore the protections 
     that the 10b-5 action is supposed to provide and to eliminate 
     the abuses that plague the system. At a minimum, legislation 
     should address the liability scheme that rewards lawyers for 
     bringing abusive suits and reduce the cost that the system 
     imposes on the capital markets and business expansion.
       Pension fund participants and other investors depend on the 
     integrity of the market and the prosperity of the economy. 
     The current securities litigation system undermines both. I 
     urge the Congress to pass meaningful reform legislation to 
     protect the economic security of the millions of individuals 
     who invest in the securities markets.
           Sincerely,
                                                Judy Baar Topinka,
     State Treasurer.
                                                                    ____

         State of California, Department of Corporations, Office 
           of the Commissioner,

[[Page S9215]]

                                Los Angeles, CA, February 9, 1995.
     Re H.R. 10--The Securities Litigation Reform Act.
     Hon. Jack Fields,
     Chairman, Telecommunications and Finance Subcommittee, 
         Committee on Commerce, U.S. House of Representatives, 
         Washington, DC.
       Dear Chairman Fields: As Commissioner of Corporations, I am 
     responsible for the administration of the securities laws of 
     the State of California. Before being appointed Commissioner 
     of Corporations, I was an attorney in private practice 
     specializing in corporate transactions, including securities 
     offerings. It is an honor and privilege to present to you the 
     following views concerning H.R. 10, the Securities Litigation 
     Reform Act currently before your subcommittee.
       I believe there is a compelling need to reform the current 
     system of securities litigation. The problem with the current 
     system is two-fold. First, the current system too often 
     promotes the filing of meritless claims. Perhaps more 
     importantly, the current system does not adequately serve the 
     interests it is designed to protect--the interests of 
     defrauded investors. Before I comment on particular 
     provisions of H.R. 10, I would like to provide some 
     background information with respect to this latter problem.
       Defrauded Investors--Class Action Victims. At the January 
     19 Telecommunications and Finance Subcommittee hearing, the 
     principal beneficiaries of the current system, class action 
     attorneys, were its strongest defenders. While it is not 
     surprising that the class action bar might put its interest 
     in the status quo ahead of the nation's interest in a dynamic 
     entrepreneurial economy, I have been concerned that, too 
     often, class action lawyers appear to put their interests 
     ahead of their clients'. The class action bar's handling of a 
     number of cases arising out of the Prudential limited 
     partnership scandal exemplifies this abuse of the current 
     system.
       In the 1980s, Prudential Securities engaged in a widespread 
     pattern of sales abuses in its marketing of limited 
     partnership investments. To settle charges stemming from 
     these abuses,
      Prudential pled guilty to criminal securities law violations 
     and entered into a comprehensive settlement with the 
     Securities and Exchange Commission and securities 
     regulators from 49 states. As part of this comprehensive 
     settlement, an independent arbitration process was 
     established to address aggrieved investors' claims. 
     According to the Independent Claims Administrator's 
     January 20, 1995 report, however, more than 100,000 claims 
     or parts of claims have been rejected because they had 
     been settled as part of a class action lawsuit. My office 
     has received letters from scores of investors in this 
     situation. Frequently, these investors didn't even know 
     that their claim was part of a class action settlement. 
     Now many feel they've been victimized twice--once by 
     Prudential and another time by the class action litigation 
     system ostensibly designed to protect their interests.
       In the VMS Realty Partnership case, limited partnership 
     interests were sold to thousands of unsuitable investors, 
     often on the basis of materially misleading statements. A 
     class action suit based upon these abuses was brought by 
     Milberg, Weiss, Bershad, Hynes & Lerach, the nation's largest 
     class action law firm. Despite the strong evidence of 
     securities law violations, this case was settled for less 
     than 8 cents on the dollar. While this may have represented a 
     significant recovery for the lawyers, it woefully undervalued 
     the investors' claims. Investors who opted out of the class 
     action settlement and are now participating in the 
     independent arbitration process are frequently receiving 100% 
     of their losses. In addition, these investors haven't had to 
     share their recovery with a lawyer ``representing their 
     interest.''
       The Energy Income Limited Partnership case provides another 
     example of this type of abuse. Again, this case involved a 
     pattern of securities law violations, which Prudential 
     acknowledged when it pled guilty to criminal securities 
     violations. After some discovery, the lead class action 
     lawyers recommended that the court approve a $37 million cash 
     settlement. After a number of state securities regulators 
     strenuously objected, the judge deferred ruling on the 
     proposed settlement.
       Because of the regulators' action, the total settlement 
     offer was ultimately increased more than three-fold to $120 
     million. At the point, the class action lawyers affirmatively 
     fought my office's efforts to require that they clearly 
     explain to their clients what the settlement offer meant to 
     them--for good reason. Those investors who did not accept the 
     settlement and are now participating in the independent 
     arbitration process are frequently recovering 100% of their 
     losses. Investors who accepted the recommendation of ``their 
     lawyers'' and participated in the class action settlement, 
     have had to accept roughly 25-30 cents for each dollar of 
     loss.
       These cases illustrate the flip-side of the abuses in the 
     current system of class action litigation; not only are bad 
     cases overvalued, but strong cases are too often undervalued.
      While quick settlement of these cases may serve the lawyers' 
     interests, it frequently does not serve the interests of 
     the defrauded investors.
       Provisions of H.R. 10. H.R. 10 effectively addresses many 
     of the current abuses of the securities class action 
     litigation system. As the following analysis of certain of 
     the provisions of H.R. 10 reflects, however, I would like to 
     respectfully submit several suggested changes for the 
     Subcommittee's consideration.


          section 202. prevention of lawyer-driven litigation

       Section 202 puts in place several much-needed safeguards 
     against certain abuses in the current system. It is important 
     that the prosecution of securities claims be directed by the 
     aggrieved investors, not by the lawyers. I would respectfully 
     suggest however, that Section 202(a) be revised to evidence a 
     strong preference for having a steering committee of 
     investors perform this function rather than an appointed 
     guardian ad litem. Those investors who are seeking to recover 
     their losses are, on balance, likely to have a more complete 
     commonality of views with the investor class than a court-
     appointed third party.
       Section 202(b) does address a particular problem associated 
     with class action settlements--woefully inadequate disclosure 
     of the settlement terms. The settlement notice that was sent 
     to investors in the Prudential Energy Income Limited 
     Partnership case illustrates this problem. While the notice 
     contained lengthy and complicated descriptions of the 
     procedural history of the case, the paragraph that described 
     the mechanism to determine what investors would receive in 
     the settlement was buried near the back of the notice. In 
     addition, the formula to calculate the settlement awards was 
     nearly incomprehensible to average investors. As I noted 
     earlier, the lead class action lawyers fought my office's 
     efforts to make the description of the settlement terms more 
     understandable to investors.
       While Section 202(b) does provide some improvement over the 
     current system of disclosure, I would respectfully suggest 
     that it be amended to provide, at a minimum, that the amount 
     that an investor could expect to receive in the settlement, 
     on a per share or per unit basis, be prominently disclosed in 
     the settlement notice. Section 202(b) might also be amended 
     to require that the settlement notice be understandable to an 
     average investor and focus more attention on the substance of 
     the class action settlement, including the information now 
     called for in Section 202(b), and less attention on the 
     procedural history of the case.


  section 203. prevention of abusive practices that foment litigation

       One of the most egregious abuses of the current system of 
     class action securities litigation,
      the professional plaintiff, is effectively addressed by the 
     elimination of bonus payments and limits on those 
     investors who can serve as class representatives. I do 
     have one suggested change, however. While it is important 
     that class action representatives have a meaningful 
     economic stake in the proceeding, I would respectfully 
     suggest that Section 21(k) of the Securities Exchange Act, 
     to be added by Section 203(a), be amended to reduce the 
     amount of required investment from $10,000 to $5,000. 
     While the amount of the minimum investment is admittedly a 
     judgment call, I encourage the Subcommittee to strike the 
     balance more in favor of the interests of small investors.
       Under the current system, litigants are responsible for 
     their own attorneys' fees. This can present two problems. 
     Defendants in class action cases may feel coerced to settle a 
     frivolous case to avoid the often high costs of litigation. 
     In addition, the amount received by defrauded investors is 
     reduced by the attorneys' fees, and, as a result, investors 
     can never fully recover their losses. H.R. 10 addresses these 
     problems by requiring the loser in a securities litigation 
     case to pay the opposing side's legal fees in all cases.
       While the solution offered by H.R. 10 should help weed out 
     frivolous claims and afford investors an opportunity to 
     receive full compensation for their losses, a strict loser-
     pays rule could put a significant and unwarranted barrier to 
     investors, particularly small investors, seeking to recover 
     losses allegedly associated with the defendant's fraudulent 
     conduct. Putting too high a barrier to investors' claims 
     could also undermine the important role that private 
     securities litigation serves as an adjunct to governmental 
     enforcement of the securities laws.
       To address this concern, I would respectfully recommend 
     that Section 21(m) be amended to require that the plaintiffs 
     be obligated to pay the defendant's legal fees in those cases 
     where (i) the case is dismissed on the pleadings or pursuant 
     to a defendant's motion for summary judgment or (ii) the 
     court otherwise finds at the end of the case that it was 
     substantially without merit.


       section 204. Prevention of ``Fishing Expedition'' Lawsuits

       One of the most problematic elements of class action 
     litigation is the prospect that a defendant who played a 
     small role in the alleged securities law violation could be 
     liable for the entire amount of investor losses. This 
     prospect can be among the most coercive elements of 
     securities litigation that compel so-called ``deep pocket'' 
     defendants to accept unfair settlement proposals. H.R. 10 
     responds to this concern by requiring that plaintiffs show 
     that the defendants were guilty of actual fraud.
       I am concerned, however, that this solution to the problem 
     associated with the rules of joint
      and several liability goes too far. Such a knowing fraud 
     standard may encourage participants in the securities 
     offering process to put a premium on remaining ignorant of 
     the facts and undermine their commitment to do appropriate 
     due diligence. To 

[[Page S9216]]
     avoid the unintended consequences associated with an absolute knowing 
     fraud standard, I would respectfully suggest that Section 
     204 be amended to entitle investors to hold defendants who 
     engaged in reckless conduct, not constituting knowing 
     fraud, proportionately liable for their losses. Defendants 
     who engaged in knowing fraud should remain jointly and 
     severally liable for all investor losses.
       While I respectfully recommend that certain changes be made 
     to H.R. 10, I believe that H.R. 10 represents a significant 
     step forward to correct certain of the problems in the 
     current class action litigation system, and I want to urge 
     the Subcommittee to continue to proceed with this important 
     piece of legislation.
           Very truly yours,
                                                  Gary S. Mendoza,
     Commissioner of Corporations.
                                                                    ____

                                          State of North Carolina,


                                  Department of the Treasurer,

                                         Raleigh, NC, May 3, 1995.
     Senator Alfonse D'Amato,
     Senate Hart Office Building,
     Washington, DC.
       Dear Senator D'Amato: As State Treasurer and fiduciary for 
     the North Carolina Retirement Systems and the State of North 
     Carolina, I am writing to add my support for securities 
     litigation reform legislation. I agree that the current 
     securities fraud litigation system is not protecting 
     investors and needs reform.
       It is my understanding that the legislation was passed by 
     the House of Representatives by an overwhelming bipartisan 
     vote on March 8, 1995. Your support for these long overdue 
     reforms would be greatly appreciated.
           Sincerely,
                                                 Harlan E. Boyles,
     State Treasurer.
                                                                    ____

                                          State of South Carolina,


                                Office of the State Treasurer,

                                     Columbia, SC, April 17, 1995.
     Hon. Ernest F. Hollings,
     Senate Office Building,
     Washington, DC.
       Dear Senator Hollings: As State Treasurer of South 
     Carolina, I am concerned that abusive and meritless 
     securities litigation inflicts tremendous harm on the capital 
     formation process that is vital to the economic growth of 
     South Carolina and the United States. Accordingly, I would 
     like to join with those elected officials nationwide who are 
     urging the Senate to pass meaningful reform legislation that 
     would discourage meritless litigation and thereby enhance the 
     capital formation process.
       Under present law, attorneys have no disincentive to file 
     unsubstantiated claims, because there are no penalties for 
     filing such claims. Similarly, defendants are often pressured 
     to settle meritless claims by the staggering costs of 
     defending lawsuits in our overburdened courts.
       Our nation's securities laws were enacted to protect 
     investors and to improve our capital markets. However, the 
     perverse incentive of attorneys to file meritless claims has 
     created the exact opposite of the intended effects of our 
     securities laws. Abusive lawsuits, triggered by a small group 
     of lawyers, inflict tremendous harm on our nation's financial 
     system and on the individuals and organizations drawn into 
     them.
       Our securities system was structured to provide broad 
     disclosure of information to investors so they could make 
     informed decisions. But there is overwhelming evidence that 
     issuers of corporate securities filings include only limited 
     disclosure, influenced largely by the threat of lawsuits. 
     Additionally, lawyers, not investors, control the litigation 
     system and reap the lion's share of financial rewards.
       Growth companies are the most critical sector of our 
     nation's economy as they provide the majority of new jobs. 
     Unfortunately, such companies are also the target of an 
     inordinate number of abusive lawsuits. These lawsuits 
     undermine the confidence of investors and produce a higher 
     cost of capital in the United States. This higher cost of 
     capital puts us at a disadvantage with foreign competitors 
     and harms workers, consumers, and investors.
       Once again, I urge the Senate to pass meaningful reform 
     legislation to enhance our economic future and to protect the 
     investments of the State of South Carolina and those of 
     individual investors.
           Very truly yours,
                                                 Richard Eckstrom,
     State Treasurer.
                                                                    ____

                                                State of Delaware,


                                    Office of State Treasurer,

                                        Dover, DE, March 21, 1995.
     Hon. Alfonse M. D'Amato,
     U.S. Senate,
     Washington, DC.
       Dear Senator D'Amato: As Treasurer of the State of 
     Delaware, I have become concerned that abusive securities 
     litigation is negatively affecting the capital formation 
     process essential to the economic growth of my state and the 
     nation.
       Problems with the current system have been well-documented 
     in Congressional hearings, academic studies, and by the 
     first-hand experiences of corporate executives and investors. 
     Abusive lawsuits--often triggered merely by a stock price 
     drop--and easy and inexpensive for plaintiffs' lawyers to 
     bring. Once a company is sued, they are forced to settle, 
     even if they are innocent, to avoid the high costs of 
     fighting a meritless lawsuit. Such abusive class action 
     litigation diverts corporate capital away from R&D, business 
     expansion and job creation. High-technology and other high-
     growth companies are prime targets to these lawsuits, simply 
     because of the inherent volatility of their stock prices.
       Investors are also being harmed by the current system as it 
     shortchanges people who have been victimized by real fraud. 
     Studies show that plaintiffs receive 14 cents for every 
     dollar of recoverable damages, at best, and a substantial 
     portion of the settlement fund usually goes to the 
     plaintiffs' attorneys. The plaintiffs' lawyers who specialize 
     in these cases profit from bringing as many cases as possible 
     and quickly settling them, regardless of the merits. Valid 
     claims are being undercompensated in the current system 
     because lawyers have less incentive to vigorously pursue 
     them.
       Investors lost out in another way. Studies show that 
     abusive 10b-5 lawsuits are chilling voluntary corporate 
     disclosure of information that would be useful to investors. 
     A recent survey by the American Stock Exchange revealed that 
     75% of the corporate CEOs surveyed limit the information 
     disclosed to investors out of fear of meritless lawsuits.
       Federal legislation is needed to restore the protection 
     that the 10b-5 action is supposed to provide while 
     eliminating the abuses in the current system. Meaningful 
     reform must include remedying the existing liability 
     structure that creates the incentive to bring and settle 
     meritless lawsuits. Legislation should also reduce the costs 
     that the system imposes on the capital markets and on 
     business and economic growth.
       I urge Congress to pass securities litigation reform 
     legislation to protect the investments of my state and of the 
     millions of individual Americans who invest in the securities 
     markets.
           Sincerely,
                                               Janet C. Rzewnicki,
     State Treasurer.
                                                                    ____

                                                State of Colorado,


                                   Department of the Treasury,

                                       Denver, CO, April 10, 1995.
     Hon. Alfonse D'Amato,
     Chairman, Senate Hart Building, Washington, DC.
       Dear Senator D'Amato: As the Treasurer of the State of 
     Colorado, my office issues debt and purchases securities on 
     behalf of the people of the State of Colorado. With such 
     responsibility, I am concerned that securities litigation and 
     the threat of securities litigation are beginning to 
     negatively impact our nation's business by hindering the 
     capital formation process essential to the economic growth of 
     Colorado and the nation.
       Under the present law, attorneys are given an incentive to 
     file unsubstantiated claims because there are no penalties 
     for filing meritless claims. Attorneys will file claims on 
     the basis of little more than a drop in a company's stock 
     prices and then, through discovery, will determine if there 
     is any merit to continuing the claim. Because of the 
     liability exposure and the tremendous cost of defending a 
     claim, companies are often left with no choice but to settle 
     the unsubstantiated suit.
       Additionally, the plaintiffs typically recover only a small 
     percentage of their claim, as the lawyers extract large fees 
     for bringing the suit. A system that was intended to protect 
     investors now seems to benefit the lawyers.
       The fear of meritless lawsuits has also caused many 
     companies to minimize the amount of information they disclose 
     to the public which is the exact opposite of the intent of 
     the federal securities laws. This fear has also caused 
     accounting and insurance firms to increase their costs to 
     clients, discontinue service in some cases, and cause outside 
     executives to refuse to serve on a company's board of 
     directors.
       Federal legislation is needed to restore the protections 
     that the 10B-5 action is supposed to provide and to eliminate 
     the abuse of the system. At a minimum, legislation should 
     address the liability scheme that rewards lawyers for filing 
     meritless suits and reduce the costs that the system imposes 
     on the capital markets and business expansion.
       Thank you for your consideration of this important issue.
           Sincerely,
                                                       Bill Owens,
     State Treasurer.
                                                                    ____

                                    Association of Private Pension


                                            and Welfare Plans,

                                   Washington, DC, March 17, 1995.
     Hon. Pete V. Domenici,
     U.S. Senate, Dirksen Senate Office Building, Washington, DC.

     Hon. Christopher J. Dodd,
     U.S. Senate, Russell Senate Office Building, Washington, DC.
       Dear Senators Domenici and Dodd: On behalf of the 
     membership of the Association of Private Pension and Welfare 
     Plans (APPWP), I am writing to commend your efforts in 
     pursuing reform of the securities litigation system. The 
     APPWP is a national trade association for companies and 
     individuals concerned about federal legislation affecting all 
     aspects of the employee benefits system. The APPWP's members 
     represent the entire spectrum of the private pension and 
     employee benefits community: Fortune 500 companies, banks, 
     insurance companies, 

[[Page S9217]]
     law, accounting, consulting, investment and actuarial firms. APPWP 
     members either sponsor directly or administer employee 
     benefit plans covering more than 100 million Americans.
       Your initiative is necessary to address the critical 
     problems with today's securities litigation system. As you 
     have correctly noted, investors are ill-served by the present 
     system. Because issuers fear abusive litigation, they have 
     sharply curtailed the amount of information they are willing 
     to disclose, leaving investors without information essential 
     for intelligent decision making. To the detriment of 
     shareholders, abusive securities litigation distracts 
     companies from their principal tasks, discourages the 
     development of new businesses and inhibits sound risk-taking. 
     Finally, the existing litigation system encourages suit 
     regardless of merit and the cost forces defendants to settle 
     regardless of merit.
       We support your efforts to change these skewed incentives, 
     to encourage voluntary disclosure by issuers of securities 
     and to transfer control of securities litigation from lawyers 
     to investors. We look forward to working with you to make 
     these reforms a reality.
           Sincerely,
                                                   Lynn D. Dudley,
     Director of Retirement Policy.
                                                                    ____

                 [From the Legal Times, February 1995]

                     Time To Wake the Sleeping Bear

                            (By Nell Minow)

       In January of this year, the U.S. District Court for the 
     Southern District of New York issued a decision dismissing a 
     group of shareholders class actions against the Philip Morris 
     Cos. The court noted that less than five hours after Philip 
     Morris announced that its 40-cents-per-package price 
     reduction on Marlboro cigarettes could reduce its operating 
     earnings by as much as 40 percent, the first class action was 
     filed.
       The court further noted:
       ``[The first action was filed] by a plaintiff who had 
     bought 60 shares of stock during the alleged class period. 
     Four more lawsuits were filed that day, and on the very next 
     business day . . . five additional lawsuits were commenced . 
     . .. I note that in the few hours counsel devoted to getting 
     the initial complaints to the courthouse, overlooked was the 
     fact that two of them contained identical allegations, 
     apparently lodged in counsel's computer memory of `fraud' 
     form complaints, that the defendants here engaged in conduct 
     `to create and prolong the illusion of [Philip Morris'] 
     success in the toy industry.'''
       In other words, in the race to the courthouse, the 
     plaintiffs' lawyers had not even taken the time to do a 
     ``global search and replace'' on a previous complaint, 
     apparently against some toy company, to reflect the fact that 
     the product Philip Morris was reporting on so 
     ``fraudulently'' was actually cigarettes.
       This demonstrates one-half of the problem in the current 
     system for shareholders litigation. Most shareholder lawsuits 
     are brought by people who care little, if at all, for 
     shareholders as a group. The plaintiffs and their lawyers 
     make grand statements about the integrity of the markets, but 
     the primary motivation--and the primary outcome--is their own 
     returns.
       Typically, plaintiffs get a small award, and their lawyers 
     get a large one. These merit less suits are filed whenever 
     the stock performance is worse--or better--than the company 
     predicted, and then settled by insurance companies for too 
     much money (because insurers don't want to risk sending a 
     complicated case to the jury).
       The other half of the problem is that cases with merit are 
     settled for too little or never brought at all. Because of 
     free-rider and collective-choice issues, along with conflicts 
     of interest, those shareholders with a meaningful stake have 
     not been heard from.
       The state of shareholder litigation is reminiscent of a 
     line by William Butler Yeats: ``The best lack all conviction 
     and the worst are full of passionate intensity.'' The system 
     falls to protect shareholders from genuine abuses, but still 
     deters managers from disseminating useful and legitimate 
     information. The current proposals for securities litigation 
     reform--a Senate bill, S. 240, that is similar to one 
     introduced last year and a House bill, H.R. 10, that is part 
     of the Contract With America--do a better job with the first 
     half of the problem than with the second.
       The current rules and procedures for securities class 
     actions and derivative actions were designed to overcome the 
     problem of collective choice. In certain cases, no one 
     shareholder can justify the time and expense necessary to 
     bring a lawsuit for only a pro rata share of the rewards. So 
     the procedures were established to create incentives for 
     participation in suits challenging fraudulent statements.
       But the system fails to take into account the unusual 
     makeup of the class of potential securities plaintiffs. The 
     shareholder community is too diffuse, too diverse, and 
     subject to change too frequently to be addressed meaningfully 
     as a group.
       More important, the disincentives for participation are 
     strong. Can we see the trustees of the IBM Corp.'s pension 
     fund joining, as plaintiffs, in a shareholder action against 
     the management of the General Motors Corp., no matter how 
     much is at stake?
       Having created a system for filing suits that does not 
     eliminate the powerful disincentives for legitimate 
     plaintiffs, we are left with the tiny but highly prosperous 
     community of ``Wilmington filers.'' The ambulance chasers of 
     securities law, these people have made an industry out of 
     nuisance suits. Anthony Bonden described them like this in 
     the December 1989 issue of The American Lawyer (``The 
     Shareholder Suit Charade''):
       ``Welcome to the plush and intimate confines of the 
     Delaware chancery court, home turf of the Wilmington filers, 
     the shareholder lawyers who sue any deal that moves. They are 
     the bottom scrapers of the M&A world, the Wall Street Journal 
     clippers with the mysterious professional plaintiffs. Racing 
     to the courthouse on the merest rumor of a deal, they file 
     triplicate copies of one another's suits--complaints that 
     themselves read like duplicates from every other case. They 
     are ``rapacious jackals,'' in the memorable words of Chicago 
     federal judge Charles Kocoras in 1982, ``whose declared 
     concern for the corporate well-being camouflages their 
     unwholesome appetite for corporate dollars.'' And they are 
     the ``pilgrams''--early settlers--litigators who never have 
     to prove their mettle in a trial.''
       What we want is for shareholders with a meaningful stake to 
     file suit to enforce limits on corporate directors and 
     managers who have neglected or abused their obligation to be 
     candid about the company's status and prospects. We do not 
     want shareholders with microscopic stakes to file dozens, 
     even hundreds, of nuisance suits and to settle on terms that 
     benefit the plaintiffs a little, their lawyers a lot, and 
     their fellow shareholders not at all. We want to encourage 
     corporate communication about the company and its prospects, 
     but we want to discourage communication that is misleading or 
     fraudulent.
       The proposals before Congress address these goals with the 
     following important and urgently needed reforms: The 
     Racketeer Influenced and Corrupt Organizations law should not 
     apply to ordinary securities cases. Forward-looking 
     statements, as defined by the Securities and Exchange 
     Commission, should have some ``safe harbor'' protection. 
     Plaintiffs should bear the burden of proving that the 
     defendant had ``actual knowledge'' that a statement was false 
     or that a relevant statement was omitted. And a stay of 
     discovery should be provided once a motion to dismiss, based 
     on the safe harbor for forward-looking information, has been 
     filed.
       These measures will reduce the number of sloppy, race-to-
     the-courthouse actions, like the ones filed against Philip 
     Morris, and put less pressure on insurers to settle. They 
     will also encourage use of alternate dispute resolution. 
     Indeed, the ADR provisions in the current bills should be 
     strengthened, perhaps even requiring referral to a certified 
     mediator with a background in securities law, who would 
     resolve as many issues as possible.
       To reduce the conflicts of interest between plaintiffs and 
     their fellow shareholders, the proposals provide for 
     appointment of a guardian ad litem or a plaintiff steering 
     committee. This makes other aspects of the bills--including a 
     minimum requirement for stock ownership and a limit on the 
     number of actions a plaintiff can bring--unnecessary and 
     possibly counterproductive. As long as there is an 
     independent mechanism for ensuring that the interests of all 
     shareholders are met, the identity and the holdings of the 
     name plaintiff are unimportant. Indeed, an individual 
     shareholder may be an excellent representative of the group.
       Litigation reform efforts in fields where corporations pay 
     big awards always raise the question of the English, or 
     ``loser pays,'' rule. The theory is that ``loser pays'' 
     discourages frivolous suits. But in this context, it is 
     unnecessary.
       There are already sufficient penalties available for 
     frivolous suits. Furthermore, judges can penalize litigants 
     by refusing to approve attorney fees, as the U.S. District 
     Court in Maine did in a 1992 case, Weinberger, et al. v. 
     Great Northern Nekoosa Corp., et al.
       Lawyers had filed suit on behalf of the shareholders of 
     Great Northern Nekoosa, a takeover target of the Georgia-
     Pacific Corp. Since the ultimate deal was better for 
     shareholders than the proposal on the table at the time that 
     the suit was filed, the attorneys argued that they had made 
     an important contribution for which they deserved to be paid. 
     Georgia-Pacific agreed to pay them $2 million, subject to 
     what was expected to be routine approval by the court.
       Instead, the court refused to allow any payment at all, 
     issuing a decision with detailed objections to almost every 
     item and calculation put forward to support the $2 million in 
     fees. The judge ruled that even had the law firms justified 
     their involvement, they had overbilled by 80 percent: 
     ``Exaggeration, rather than restraint, has been the watchword 
     of the plaintiff's counsel's entire exercise. . . . [Even a 
     Michelangelo should not charge Sistine Chapel rates for 
     painting a farmer's barn.''
       Since the plaintiffs bar normally takes these shareholders 
     cases on a contingency basis, a decision like the one in the 
     Georgia-Pacific case is a powerful deterrent to frivolous and 
     unnecessary suits.
       But just as we have to address the problem of too many bad 
     suits, we need to address the problem of too few good ones. 
     Institutional investors, including pension funds and money 
     managers, often ignore notices of shareholders suits. It is 
     almost unheard of for them to file one. The ``loser pay'' 
     rule will only make this problem worse.

[[Page S9218]]

       On the contrary, to encourage large shareholders to take on 
     the task--and the commercial risk--of filing suit against 
     major corporations, we may need to compensate them for the 
     time and resources they expend. A steering committee, as in 
     bankruptcy cases, could review such awards.
       The Department of Labor, which has jurisdiction over ERISA 
     and Taft-Hartley pension funds, has already raised the 
     consciousness of the pension-fund community about its 
     obligations with regard to proxy voting. The department could 
     do the same with regard to shareholder litigation. Along with 
     the other agencies that have jurisdiction over institutional 
     investors--the SEC, the Internal Revenue Service, and the 
     banking agencies--the Labor Department should establish a 
     standard for evaluating a potential suit as one would any 
     other asset.
       To produce real reform--by encouraging suits brought to 
     hold management's feet to the fire and discouraging suits 
     brought to line the pockets of plaintiffs and their lawyers--
     institutional investors must be persuaded to share the burden 
     of bringing shareholder litigation. When the system does not 
     provide adequate incentive for them to protect their own 
     interests and those of their fellow shareholders, it is 
     institutional investors and their beneficiaries whom the 
     system has failed the most.
   Testimony of Maryellen Andersen, Investor and Corporate Relations 
  Director, Connecticut Retirement & Trust Funds and Treasurer of the 
     Council of Institutional Investors, Before the Senate Banking 
                 Securities Subcommittee, July 21, 1993

       Good morning. My Washington advisor ordered me not to start 
     by telling you who I am and who I represent. She says you 
     already know, or you wouldn't have invited me. She also says 
     it is silly to read a string of titles and numbers, and it 
     puts everyone to sleep.
       So I won't read you a string of titles. But I think it is 
     critical to emphasize that if there is any constituency here 
     today that has every reason to get the securities litigation 
     system right, and no reason to want to skew the system to 
     favor anyone, it is the constituency I represent.
       This is the constituency. I am here representing the public 
     employees and retirees of the state of Connecticut. As some 
     of you know, the state pension system invests over $9.54 
     billion dollars on behalf of over 140,000 employees and 
     beneficiaries. I am also the Treasurer of the Council of 
     Institutional Investors, whose members invest over $600 
     billion on behalf of many more millions of union, public, and 
     other corporate employees and beneficiaries.
       Why do we care about this legislation? We care because we 
     are the largest shareholders in America. We are ones who are 
     hurt if a system allows someone to force us to spend huge 
     sums of money in legal costs by merely paying ten dollars and 
     filing a meritless cookie cutter complaint against a company 
     or its accountants when that plaintiff is disappointed in his 
     or her investment. Our pensions and our jobs depend on our 
     employment by and investment in our companies. If we saddle 
     our companies with big and unproductive costs that other 
     companies in other countries do not
      pay, we cannot be surprised if our jobs and raises begin to 
     disappear and our pensions come up short as the population 
     ages.
       But we are also the shareholders who want to preserve our 
     ability to sue when it is appropriate. We are the 
     shareholders who are benefitted if the SEC or private parties 
     bring appropriate law suits that police our markets and care 
     for millions of individual investors who might not otherwise 
     be able to protect themselves.
       Let me emphasize this point. As the largest shareholders in 
     most companies, we are the ones who have the most to gain 
     from meritorious securities litigation. The awards directly 
     and positively affect our returns. So, besides the general 
     value that meritorious lawsuits have for keeping our markets 
     clean, they have direct immediate financial value to us. We 
     certainly, therefore would be foolish to advocate any change 
     that would discourage the proper enforcement of our 
     securities laws.
       However, we are also both the employees and taxpayers who 
     depend on corporate employers and a corporate tax base, and 
     we are the millions of individual consumers of corporate 
     goods and services. In both of these roles we are the ones 
     who pay the cost of all corporate litigation, meritorious and 
     otherwise. We pay by not getting raises, we pay by higher 
     prices, we pay through lower shareholder returns. You must 
     remember, in other words, that whenever you see a deserving 
     plaintiff awarded, we are the ones paying the price. We are 
     also the ones paying the settlements when the lawsuits are 
     frivolous. And we are the ones paying the huge lawyers' fees. 
     Since the Council of Institutional Investors' average retiree 
     makes only $552 a month, we feel we are pretty needy and 
     deserving too.
       In short, we are the ones who are hurt if the system 
     doesn't work right or efficiently, and we are the ones who 
     stand to benefit most if it does.
       And, with all due respect to the other parties present, I 
     believe we are the ones with both the interest and the 
     expertise necessary to address these issues and come up with 
     solutions that are genuinely in the public interest.
       What, then, do we think? I think most of us feel that 
     despite all the strong language and political blood letting 
     that this legislation has produced; there is reason to 
     believe the system isn't yet working right.
       There is still major disagreement about whether there are a 
     huge number or a small number of frivolous securities strike 
     suits filed. There is disagreement about whether the recent 
     growth in the number of these suits is temporary or 
     permanent. But whether the number is large or small, and 
     whether the problem is temporarily worse than usual or not, 
     the problem is one to be addressed: it is in our collective 
     interest to look for ways to reduce or eliminate any 
     frivolous or inefficient efforts to use our legal system and 
     our private markets like a shareholder lottery.
       There are also still major disagreements about the size and 
     utility of the legal, administrative, settlement, and lost 
     opportunity costs generated by the present system. But we all 
     know that because of the tremendous number of these cases the 
     costs are very significant. It is in our collective interest 
     to look for ways to reduce these costs and insure that every 
     dollar spent is spent as efficiently as possible and is as 
     likely as possible to go to innocent victims, affected 
     shareholders, and public administrative costs, not on 
     individuals whose wealth depends on generating lawsuits more-
     or-less regardless of merit.
       So I am here to offer to work with those who have every 
     interest in getting this matter right--with labor, with the 
     business community, with other investors, and with you and 
     the SEC--to offer up our best effort at identifying and 
     addressing securities litigation reform to protect our jobs 
     and our pensions.
       I am not here to endorse this specific piece of legislation 
     or to pretend to be an expert on the intricacies of this bill 
     or this issue more generally. I am not an accountant or a 
     securities lawyer--my Washington advisor says this makes me 
     ``a civilian.'' But one needn't be an expert to realize the 
     importance of this issue and to conclude that this issue must 
     be addressed to ensure that the system protects us as 
     investors, employees, retirees, and citizens.
       I close by repeating my offer to have the Council work with 
     you, the SEC, labor, and business to try to reach 
     constructive solutions to this and other litigation-related 
     problems.

  Mr. DOMENICI. I thank the Senator from New York for yielding. And I 
yield the floor.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. I yield the remainder of our time to the distinguished 
Senator from California, who has been such a powerful advocate 
throughout this debate.
  Mrs. BOXER addressed the Chair.
  The PRESIDING OFFICER. The Senator is recognized for 3 minutes.
  Mrs. BOXER. Mr. President, I thank my ranking member so much. Since 
people are thanking people for working with them on this, I just have 
to say what an honor it has been to take this issue to the floor of the 
U.S. Senate with two of my role models, frankly, Senator Sarbanes and 
Senator Bryan. I have been so honored to be part of this team because 
when we started, we were really laughed at in some ways saying, ``Well 
you'll never get any votes for anything.'' By God, we actually won a 
couple of amendments.
  We came close to fixing the safe harbor provision. I think we have 
shown with tenacity that we can make our points, and I am going to try 
to do that in the last couple of minutes.
  Why do we need securities laws in the first place? Clearly, it is to 
protect the average investor. There are so many tears being shed here 
for corporate directors, and, by the way, most of them are wonderful, 
honorable, decent people in the community and they help the engine of 
economic growth, but I have not seen any tears shed on the other side 
for the victims of securities fraud.
  I hear bashing of lawyers, that is in. Sure, bash, bash, that is the 
politics of the nineties. Every time we put up an amendment, bash the 
lawyers, beat the amendment.
  But what we are about is saying get rid of the frivolous lawsuits, 
but do not give fast-moving insiders and others a chance to make a 
quick buck at the expense of the small investor.
  I am going to tell you what some of the press have said about this 
bill relating to S. 240. The St. Louis Post-Dispatch: ``Don't protect 
securities fraud.'' That is what they think this bill does.
  Contra Costa Times: ``Why would any Member of Congress vote to 
protect those involved in fraud at the expense of investors?'' 

[[Page S9219]]

  Seattle Post-Intelligencer: ``The legislation is opposed by the U.S. 
Conference of Mayors, the Government Finance Officers, the American 
Association of Retired Persons, and the North American Securities 
Administrators Association.''
  ``S. 240 is bad news for investors. It would tie victims in legal 
knots while immunizing white-collar crooks against having to pay for 
their misdeeds.'' The Raleigh, NC, News and Observer.
  The Philadelphia Inquirer: ``A crook is a crook, and S. 240 would 
relax penalties for many stock crooks.''
  And then we have Jane Bryant Quinn of Newsweek: ``S. 240 makes it 
easier for corporations and stockbrokers to mislead investors.''
  The Seattle Times: ``This legislation has proceeded almost unnoticed 
because it is hideously complicated.''
  It is so complicated it is bad for the average investor. I hope we 
will register a ``no'' vote on this final passage.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. D'AMATO. Mr. President, we have heard a lot said about this bill. 
I want to first commend Senators Domenici and Dodd for their 
stewardship. Senator Domenici outlined how he detected a system that 
was more interested in making huge profits for lawyers and not give a 
whit about the so-called victims. In many cases, there were no victims 
until the small investors, people who had invested in companies that 
these lawsuits were manufactured against, became the victims.
  Let me tell you about the people who brought these suits. About 30 
percent of these suits were brought by one law firm--by one law firm. 
They went out and they hired their plaintiffs. Sixty-five plaintiffs 
appeared in two cases, 12 plaintiffs appeared in three cases, 3 
plaintiffs appeared in four cases. They appeared to get their bonuses, 
$10,000, $15,000, $20,000--and by allowing their names to be used these 
plaintiffs allow the lawyers to race to the courthouse.
  Let me tell you what this bill does. It ends the use of professional 
plaintiffs. I have not heard anybody say anything about that. It forces 
lawyers to work for real clients. We say the pension funds, the little 
guys who have invested in them, they should select who the lawyers are.
  This bill will empower courts to weed out frivolous cases. It gives 
defendants the leverage to fight cases when they did nothing wrong. Now 
they cannot fight, they have to surrender, otherwise they are hit for 
millions of dollars in costs or damages, so even if you win you lose.
  S. 240 will require accountants to report fraud to authorities. 
Nobody says anything about that. It gives the SEC the ability to go 
after bad guys, a power which they do not have today.
  It will get more information to investors by making it so that people 
can make projections without being sued. It is a good bill, and it is 
long overdue. We would rectify a terrible situation that exists at the 
present time by passing this bill.
  Mr. President, I urge the adoption of S. 240. I yield back the 
remainder of my time.
  Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. Under the previous order, the bill having been 
read the third time, the question is, Shall the bill, H.R. 1058, as 
amended, pass? The yeas and nays have been ordered. The clerk will call 
the roll.
  The legislative clerk called the roll.
  Mr. BOND (when his name was called). Present.
  The PRESIDING OFFICER (Mr. Kyl). Are there any other Senators in the 
Chamber desiring to vote?
  The result was announced--yeas 70, nays 29, as follows:
                      [Rollcall Vote No. 295 Leg.]

                                YEAS--70

     Abraham
     Akaka
     Ashcroft
     Baucus
     Bennett
     Bradley
     Brown
     Burns
     Campbell
     Chafee
     Coats
     Cochran
     Coverdell
     Craig
     D'Amato
     DeWine
     Dodd
     Dole
     Domenici
     Exon
     Faircloth
     Feinstein
     Ford
     Frist
     Gorton
     Gramm
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Hatfield
     Helms
     Hutchison
     Inhofe
     Jeffords
     Johnston
     Kassebaum
     Kempthorne
     Kennedy
     Kerry
     Kohl
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McConnell
     Mikulski
     Moseley-Braun
     Murkowski
     Murray
     Nickles
     Nunn
     Packwood
     Pell
     Pressler
     Reid
     Robb
     Rockefeller
     Roth
     Santorum
     Simpson
     Smith
     Snowe
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner

                                NAYS--29

     Biden
     Bingaman
     Boxer
     Breaux
     Bryan
     Bumpers
     Byrd
     Cohen
     Conrad
     Daschle
     Dorgan
     Feingold
     Glenn
     Graham
     Heflin
     Hollings
     Inouye
     Kerrey
     Lautenberg
     Leahy
     Levin
     McCain
     Moynihan
     Pryor
     Sarbanes
     Shelby
     Simon
     Specter
     Wellstone

                        ANSWERED ``PRESENT''--1

       
     Bond
       
  So, the bill (H.R. 1058), as amended, was passed, as follows:

       Resolved, That the bill from the House of Representatives 
     (H.R. 1058) entitled ``An Act to reform Federal securities 
     litigation, and for other purposes'', do pass with the 
     following amendments:
       Strike out all after the enacting clause and insert:
     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Private 
     Securities Litigation Reform Act of 1995''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

Sec. 101. Elimination of certain abusive practices.
Sec. 102. Securities class action reform.
Sec. 103. Sanctions for abusive litigation.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Safe harbor for forward-looking statements.
Sec. 106. Written interrogatories.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations 
              Act.
Sec. 108. Authority of Commission to prosecute aiding and abetting.
Sec. 109. Loss causation.
Sec. 110. Study and report on protections for senior citizens and 
              qualified retirement plans.
Sec. 111. Amendment to Racketeer Influenced and Corrupt Organizations 
              Act.
Sec. 112. Applicability.

              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

Sec. 201. Limitation on damages.
Sec. 202. Proportionate liability.
Sec. 203. Applicability.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

Sec. 301. Fraud detection and disclosure.
                TITLE I--REDUCTION OF ABUSIVE LITIGATION

     SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

       (a) Prohibition of Referral Fees.--Section 15(c) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended 
     by adding at the end the following new paragraph:
       ``(8) Prohibition of referral fees.--No broker or dealer, 
     or person associated with a broker or dealer, may solicit or 
     accept, directly or indirectly, remuneration for assisting an 
     attorney in obtaining the representation of any person in any 
     private action arising under this title or under the 
     Securities Act of 1933.''.
       (b) Attorney Conflict of Interest.--
       (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:
       ``(f) Attorney Conflict of Interest.--In any private action 
     arising under this title, if a plaintiff is represented by an 
     attorney who directly owns or otherwise has a beneficial 
     interest in the securities that are the subject of the 
     litigation, the court shall make a determination of whether 
     such ownership or other interest constitutes a conflict of 
     interest sufficient to disqualify the attorney from 
     representing the party.''.
       (2) 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:
       ``(i) Attorney Conflict of Interest.--In any private action 
     arising under this title, in which a plaintiff is represented 
     by an attorney who directly owns or otherwise has a 
     beneficial interest in the securities that are the subject of 
     the litigation, the court shall make a determination of 
     whether such ownership or other interest constitutes a 
     conflict of interest sufficient to disqualify the attorney 
     from representing the party.''.
       (c) Prohibition of Attorneys' Fees Paid From Commission 
     Disgorgement Funds.--
       (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:
       ``(g) Prohibition of Attorneys' Fees Paid From Commission 
     Disgorgement Funds.--Except as otherwise ordered by the court 
     upon motion by the Commission, or, in the case of an 
     administrative action, as otherwise ordered by the 
     Commission, funds disgorged as the result of an action 
     brought by the Commission in Federal court, or as a result of 
     any Commission administrative action, shall not be 
     distributed as payment for attorneys' fees or expenses 
     incurred by 

[[Page S9220]]
     private parties seeking distribution of the disgorged funds.''.
       (2) Securities exchange act of 1934.--Section 21(d) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended 
     by adding at the end the following new paragraph:
       ``(4) Prohibition of attorneys' fees paid from commission 
     disgorgement funds.--Except as otherwise ordered by the court 
     upon motion by the Commission, or, in the case of an 
     administrative action, as otherwise ordered by the 
     Commission, funds disgorged as the result of an action 
     brought by the Commission in Federal court, or as a result of 
     any Commission administrative action, shall not be 
     distributed as payment for attorneys' fees or expenses 
     incurred by private parties seeking distribution of the 
     disgorged funds.''.

     SEC. 102. SECURITIES CLASS ACTION REFORM.

       (a) Recovery Rules.--
       (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:
       ``(h) Recovery Rules for Private Class Actions.--
       ``(1) In general.--The rules contained in this subsection 
     shall apply in each private action arising under this title 
     that is brought as a plaintiff class action pursuant to the 
     Federal Rules of Civil Procedure.
       ``(2) Certification filed with complaints.--
       ``(A) In general.--Each plaintiff seeking to serve as a 
     representative party on behalf of a class shall provide a 
     sworn certification, which shall be personally signed by such 
     plaintiff and filed with the complaint, that--
       ``(i) states that the plaintiff has reviewed the complaint 
     and authorized its filing;
       ``(ii) states that the plaintiff did not purchase the 
     security that is the subject of the complaint at the 
     direction of plaintiff's counsel or in order to participate 
     in any private action arising under this title;
       ``(iii) states that the plaintiff is willing to serve as a 
     representative party on behalf of a class, including 
     providing testimony at deposition and trial, if necessary;
       ``(iv) sets forth all of the transactions of the plaintiff 
     in the security that is the subject of the complaint during 
     the class period specified in the complaint;
       ``(v) identifies any action under this title, filed during 
     the 3-year period preceding the date on which the 
     certification is signed by the plaintiff, in which the 
     plaintiff has sought to serve as a representative party on 
     behalf of a class; and
       ``(vi) states that the plaintiff will not accept any 
     payment for serving as a representative party on behalf of a 
     class beyond the plaintiff's pro rata share of any recovery, 
     except as ordered or approved by the court in accordance with 
     paragraph (3).
       ``(B) Nonwaiver of attorney-client privilege.--The 
     certification filed pursuant to subparagraph (A) shall not be 
     construed to be a waiver of the attorney-client privilege.
       ``(3) Recovery by plaintiffs.--The share of any final 
     judgment or of any settlement that is awarded to a 
     representative party serving on behalf of a class shall be 
     calculated in the same manner as the shares of the final 
     judgment or settlement awarded to all other members of the 
     class. Nothing in this paragraph shall be construed to limit 
     the award of reasonable costs and expenses (including lost 
     wages) directly relating to the representation of the class 
     to any representative party serving on behalf of the class.
       ``(4) Restrictions on settlements under seal.--The terms 
     and provisions of any settlement agreement of a class action 
     shall not be filed under seal, except that on motion of any 
     party to the settlement, the court may order filing under 
     seal for those portions of a settlement agreement as to which 
     good cause is shown for such filing under seal. For purposes 
     of this paragraph, good cause shall exist only if publication 
     of a term or provision of a settlement agreement would cause 
     direct and substantial harm to any party.
       ``(5) Restrictions on payment of attorneys' fees and 
     expenses.--Total attorneys' fees and expenses awarded by the 
     court to counsel for the plaintiff class shall not exceed a 
     reasonable percentage of the amount of damages and 
     prejudgment interest awarded to the class.
       ``(6) Disclosure of settlement terms to class members.--Any 
     proposed or final settlement agreement that is published or 
     otherwise disseminated to the class shall include each of the 
     following statements, along with a cover page summarizing the 
     information contained in such statements:
       ``(A) Statement of plaintiff recovery.--The amount of the 
     settlement proposed to be distributed to the parties to the 
     action, determined in the aggregate and on an average per 
     share basis.
       ``(B) Statement of potential outcome of case.--
       ``(i) Agreement on amount of damages.--If the settling 
     parties agree on the average amount of damages per share that 
     would be recoverable if the plaintiff prevailed on each claim 
     alleged under this title, a statement concerning the average 
     amount of such potential damages per share.
       ``(ii) Disagreement on amount of damages.--If the parties 
     do not agree on the average amount of damages per share that 
     would be recoverable if the plaintiff prevailed on each claim 
     alleged under this title, a statement from each settling 
     party concerning the issue or issues on which the parties 
     disagree.
       ``(iii) Inadmissibility for certain purposes.--A statement 
     made in accordance with clause (i) or (ii) concerning the 
     amount of damages shall not be admissible in any Federal or 
     State judicial action or administrative proceeding, other 
     than an action or proceeding arising out of such statement.
       ``(C) Statement of attorneys' fees or costs sought.--If any 
     of the settling parties or their counsel intend to apply to 
     the court for an award of attorneys' fees or costs from any 
     fund established as part of the settlement, a statement 
     indicating which parties or counsel intend to make such an 
     application, the amount of fees and costs that will be sought 
     (including the amount of such fees and costs determined on an 
     average per share basis), and a brief explanation supporting 
     the fees and costs sought.
       ``(D) Identification of lawyers' representatives.--The 
     name, telephone number, and address of one or more 
     representatives of counsel for the plaintiff class who will 
     be reasonably available to answer questions from class 
     members concerning any matter contained in any notice of 
     settlement published or otherwise disseminated to the class.
       ``(E) Reasons for settlement.--A brief statement explaining 
     the reasons why the parties are proposing the settlement.
       ``(F) Other information.--Such other information as may be 
     required by the court.''.
       (2) 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:
       ``(j) Recovery Rules for Private Class Actions.--
       ``(1) In general.--The rules contained in this subsection 
     shall apply in each private action arising under this title 
     that is brought as a plaintiff class action pursuant to the 
     Federal Rules of Civil Procedure.
       ``(2) Certification filed with complaints.--
       ``(A) In general.--Each plaintiff seeking to serve as a 
     representative party on behalf of a class shall provide a 
     sworn certification, which shall be personally signed by such 
     plaintiff and filed with the complaint, that--
       ``(i) states that the plaintiff has reviewed the complaint 
     and authorized its filing;
       ``(ii) states that the plaintiff did not purchase the 
     security that is the subject of the complaint at the 
     direction of plaintiff's counsel or in order to participate 
     in any private action arising under this title;
       ``(iii) states that the plaintiff is willing to serve as a 
     representative party on behalf of a class, including 
     providing testimony at deposition and trial, if necessary;
       ``(iv) sets forth all of the transactions of the plaintiff 
     in the security that is the subject of the complaint during 
     the class period specified in the complaint;
       ``(v) identifies any action under this title, filed during 
     the 3-year period preceding the date on which the 
     certification is signed by the plaintiff, in which the 
     plaintiff has sought to serve as a representative party on 
     behalf of a class; and
       ``(vi) states that the plaintiff will not accept any 
     payment for serving as a representative party on behalf of a 
     class beyond the plaintiff's pro rata share of any recovery, 
     except as ordered or approved by the court in accordance with 
     paragraph (3).
       ``(B) Nonwaiver of attorney-client privilege.--The 
     certification filed pursuant to subparagraph (A) shall not be 
     construed to be a waiver of the attorney-client privilege.
       ``(3) Recovery by plaintiffs.--The share of any final 
     judgment or of any settlement that is awarded to a 
     representative party serving on behalf of a class shall be 
     calculated in the same manner as the shares of the final 
     judgment or settlement awarded to all other members of the 
     class. Nothing in this paragraph shall be construed to limit 
     the award to any representative party serving on behalf of a 
     class of reasonable costs and expenses (including lost wages) 
     directly relating to the representation of the class.
       ``(4) Restrictions on settlements under seal.--The terms 
     and provisions of any settlement agreement of a class action 
     shall not be filed under seal, except that on motion of any 
     party to the settlement, the court may order filing under 
     seal for those portions of a settlement agreement as to which 
     good cause is shown for such filing under seal. For purposes 
     of this paragraph, good cause shall exist only if publication 
     of a term or provision of a settlement agreement would cause 
     direct and substantial harm to any party.
       ``(5) Restrictions on payment of attorneys' fees and 
     expenses.--Total attorneys' fees and expenses awarded by the 
     court to counsel for the plaintiff class shall not exceed a 
     reasonable percentage of the amount of damages and 
     prejudgment interest awarded to the class.
       ``(6) Disclosure of settlement terms to class members.--Any 
     proposed or final settlement agreement that is published or 
     otherwise disseminated to the class shall include each of the 
     following statements, along with a cover page summarizing the 
     information contained in such statements:
       ``(A) Statement of plaintiff recovery.--The amount of the 
     settlement proposed to be distributed to the parties to the 
     action, determined in the aggregate and on an average per 
     share basis.
       ``(B) Statement of potential outcome of case.--
       ``(i) Agreement on amount of damages.--If the settling 
     parties agree on the average amount of damages per share that 
     would be recoverable if the plaintiff prevailed on each claim 
     alleged under this title, a statement concerning the average 
     amount of such potential damages per share.
       ``(ii) Disagreement on amount of damages.--If the parties 
     do not agree on the average amount of damages per share that 
     would be recoverable if the plaintiff prevailed on each claim 
     alleged under this title, a statement from each settling 
     party concerning the issue or issues on which the parties 
     disagree.
       ``(iii) Inadmissibility for certain purposes.--A statement 
     made in accordance with 

[[Page S9221]]
     clause (i) or (ii) concerning the amount of damages shall not be 
     admissible in any Federal or State judicial action or 
     administrative proceeding, other than an action or proceeding 
     arising out of such statement.
       ``(C) Statement of attorneys' fees or costs sought.--If any 
     of the settling parties or their counsel intend to apply to 
     the court for an award of attorneys' fees or costs from any 
     fund established as part of the settlement, a statement 
     indicating which parties or counsel intend to make such an 
     application, the amount of fees and costs that will be sought 
     (including the amount of such fees and costs determined on an 
     average per share basis), and a brief explanation supporting 
     the fees and costs sought.
       ``(D) Identification of lawyers' representatives.--The 
     name, telephone number, and address of one or more 
     representatives of counsel for the plaintiff class who will 
     be reasonably available to answer questions from class 
     members concerning any matter contained in any notice of 
     settlement published or otherwise disseminated to the class.
       ``(E) Reasons for settlement.--A brief statement explaining 
     the reasons why the parties are proposing the settlement.
       ``(F) Other information.--Such other information as may be 
     required by the court.''.
       (b) Appointment of Lead Plaintiff.--
       (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:
       ``(i) Procedures Governing Appointment of Lead Plaintiff in 
     Class Actions.--
       ``(1) Early notice to class members.--
       ``(A) In general.--In any private action arising under this 
     title that is brought on behalf of a class, not later than 20 
     days after the date on which the complaint is filed, the 
     plaintiff or plaintiffs shall cause to be published, in a 
     widely circulated national business-oriented publication or 
     wire service, a notice advising members of the purported 
     plaintiff class--
       ``(i) of the pendency of the action, the claims asserted 
     therein, and the purported class period; and
       ``(ii) that, not later than 60 days after the date on which 
     the notice is published, any member of the purported class 
     may move the court to serve as lead plaintiff of the 
     purported class.
       ``(B) Additional notices may be required under federal 
     rules.--Notice required under subparagraph (A) shall be in 
     addition to any notice required pursuant to the Federal Rules 
     of Civil Procedure.
       ``(2) Appointment of lead plaintiff.--
       ``(A) In general.--Not later than 90 days after the date on 
     which a notice is published under paragraph (1)(A), the court 
     shall consider any motion made by a purported class member in 
     response to the notice, and shall appoint as lead plaintiff 
     the member or members of the purported plaintiff class that 
     the court determines to be most capable of adequately 
     representing the interests of class members (hereafter in 
     this subsection referred to as the `most adequate plaintiff') 
     in accordance with this paragraph.
       ``(B) Consolidated actions.--If more than one action on 
     behalf of a class asserting substantially the same claim or 
     claims arising under this title has been filed, and any party 
     has sought to consolidate those actions for pretrial purposes 
     or for trial, the court shall not make the determination 
     required by subparagraph (A) until after the decision on the 
     motion to consolidate is rendered. As soon as practicable 
     after such decision is rendered, the court shall appoint the 
     most adequate plaintiff as lead plaintiff for the 
     consolidated actions in accordance with this paragraph.
       ``(C) Rebuttable presumption.--
       ``(i) In general.--Subject to clause (ii), for purposes of 
     subparagraph (A), the court shall adopt a presumption that 
     the most adequate plaintiff in any private action arising 
     under this title is the person or group of persons that--

       ``(I) has either filed the complaint or made a motion in 
     response to a notice under paragraph (1)(A);
       ``(II) in the determination of the court, has the largest 
     financial interest in the relief sought by the class; and
       ``(III) otherwise satisfies the requirements of Rule 23 of 
     the Federal Rules of Civil Procedure.

       ``(ii) Rebuttal evidence.--The presumption described in 
     clause (i) may be rebutted only upon proof by a member of the 
     purported plaintiff class that the presumptively most 
     adequate plaintiff--

       ``(I) will not fairly and adequately protect the interests 
     of the class; or
       ``(II) is subject to unique defenses that render such 
     plaintiff incapable of adequately representing the class.

       ``(iii) Discovery.--For purposes of clause (ii), discovery 
     relating to whether a member or members of the purported 
     plaintiff class is the most adequate plaintiff--

       ``(I) may not be conducted by any defendant; and
       ``(II) may be conducted by a plaintiff only if the 
     plaintiff first demonstrates a reasonable basis for a finding 
     that the presumptively most adequate plaintiff is incapable 
     of adequately representing the class.

       ``(D) Selection of lead counsel.--The most adequate 
     plaintiff shall, subject to the approval of the court, select 
     and retain counsel to represent the class.''.
       (2) Securities exchange act of 1934.--Section 21 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
     amended by adding at the end the following new subsection:
       ``(k) Procedures Governing Appointment of Lead Plaintiff in 
     Class Actions.--
       ``(1) Early notice to class members.--
       ``(A) In general.--In any private action arising under this 
     title that is brought on behalf of a class, not later than 20 
     days after the date on which the complaint is filed, the 
     plaintiff or plaintiffs shall cause to be published, in a 
     widely circulated national business-oriented publication or 
     wire service, a notice advising members of the purported 
     plaintiff class--
       ``(i) of the pendency of the action, the claims asserted 
     therein, and the purported class period; and
       ``(ii) that, not later than 60 days after the date on which 
     the notice is published, any member of the purported class 
     may move the court to serve as lead plaintiff of the 
     purported class.
       ``(B) Additional notices may be required under federal 
     rules.--Notice required under subparagraph (A) shall be in 
     addition to any notice required pursuant to the Federal Rules 
     of Civil Procedure.
       ``(2) Appointment of lead plaintiff.--
       ``(A) In general.--Not later than 90 days after the date on 
     which a notice is published under paragraph (1)(A), the court 
     shall consider any motion made by a purported class member in 
     response to the notice, and shall appoint as lead plaintiff 
     the member or members of the purported plaintiff class that 
     the court determines to be most capable of adequately 
     representing the interests of class members (hereafter in 
     this subsection referred to as the `most adequate plaintiff') 
     in accordance with this paragraph.
       ``(B) Consolidated actions.--If more than one action on 
     behalf of a class asserting substantially the same claim or 
     claims arising under this title has been filed, and any party 
     has sought to consolidate those actions for pretrial purposes 
     or for trial, the court shall not make the determination 
     required by subparagraph (A) until after the decision on the 
     motion to consolidate is rendered. As soon as practicable 
     after such decision is rendered, the court shall appoint the 
     most adequate plaintiff as lead plaintiff for the 
     consolidated actions in accordance with this paragraph.
       ``(C) Rebuttable presumption.--
       ``(i) In general.--Subject to clause (ii), for purposes of 
     subparagraph (A), the court shall adopt a presumption that 
     the most adequate plaintiff in any private action arising 
     under this title is the person or group of persons that--

       ``(I) has either filed the complaint or made a motion in 
     response to a notice under paragraph (1)(A);
       ``(II) in the determination of the court, has the largest 
     financial interest in the relief sought by the class; and
       ``(III) otherwise satisfies the requirements of Rule 23 of 
     the Federal Rules of Civil Procedure.

       ``(ii) Rebuttal evidence.--The presumption described in 
     clause (i) may be rebutted only upon proof by a member of the 
     purported plaintiff class that the presumptively most 
     adequate plaintiff--

       ``(I) will not fairly and adequately protect the interests 
     of the class; or
       ``(II) is subject to unique defenses that render such 
     plaintiff incapable of adequately representing the class.

       ``(iii) Discovery.--For purposes of clause (ii), discovery 
     relating to whether a member or members of the purported 
     plaintiff class is the most adequate plaintiff--

       ``(I) may not be conducted by any defendant; and
       ``(II) may be conducted by a plaintiff only if the 
     plaintiff first demonstrates a reasonable basis for a finding 
     that the presumptively most adequate plaintiff is incapable 
     of adequately representing the class.

       ``(D) Selection of lead counsel.--The most adequate 
     plaintiff shall, subject to the approval of the court, select 
     and retain counsel to represent the class.''.

     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.--
       ``(1) Mandatory review by court.--In any private action 
     arising under this title, 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.
       ``(2) Mandatory sanctions.--If the court makes a finding 
     under paragraph (1) 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.
       ``(3) Presumption in favor of attorneys' fees and costs.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), 
     for purposes of paragraph (2), the court shall adopt a 
     presumption that the appropriate sanction for failure of the 
     complaint or the responsive pleading or motion 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.
       ``(B) Rebuttal evidence.--The presumption described in 
     subparagraph (A) 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.
       ``(C) Sanctions.--If the party or attorney against whom 
     sanctions are to be imposed meets its burden under 
     subparagraph (B), the court shall award the sanctions that 
     the court deems appropriate pursuant to Rule 11 of the 
     Federal Rules of Civil Procedure.''.
       (b) Securities Exchange Act of 1934.--Section 21 of the 
     Securities Exchange Act of 1934 

[[Page S9222]]
     (15 U.S.C. 78u) is amended by adding at the end the following new 
     subsection:
       ``(l) Sanctions for Abusive Litigation.--
       ``(1) Mandatory review by court.--In any private action 
     arising under this title, 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.
       ``(2) Mandatory sanctions.--If the court makes a finding 
     under paragraph (1) that a party or attorney violated any 
     requirement of Rule 11(b) of the Federal Rules of Civil 
     Procedure, the court shall impose sanctions in accordance 
     with Rule 11 of the Federal Rules of Civil Procedure on such 
     party or attorney.
       ``(3) Presumption in favor of attorneys' fees and costs.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), 
     for purposes of paragraph (2), the court shall adopt a 
     presumption that the appropriate sanction for failure of the 
     complaint or the responsive pleading or motion 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.
       ``(B) Rebuttal evidence.--The presumption described in 
     subparagraph (A) 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.
       ``(C) Sanctions.--If the party or attorney against whom 
     sanctions are to be imposed meets its burden under 
     subparagraph (B), the court shall award the sanctions that 
     the court deems appropriate pursuant to Rule 11 of the 
     Federal Rules of Civil Procedure.''.

     SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

       (a) Securities Act of 1933.--
       (1) Stay of discovery.--Section 20 of the Securities Act of 
     1933 (15 U.S.C. 77t) is amended by adding at the end the 
     following new subsection:
       ``(k) Stay of Discovery.--In any private action arising 
     under this title, during the pendency of any motion to 
     dismiss, all discovery and other proceedings shall be stayed 
     unless the court finds, upon the motion of any party, that 
     particularized discovery is necessary to preserve evidence or 
     to prevent undue prejudice to that party.''.
       (2) Preservation of evidence.--Section 20 of the Securities 
     Act of 1933 (15 U.S.C. 77t) is amended by adding at the end 
     the following new subsection:
       ``(l) Preservation of Evidence.--It shall be unlawful for 
     any person, upon receiving actual notice that a complaint has 
     been filed in a private action arising under this title 
     naming that person as a defendant and that describes the 
     allegations contained in the complaint, to willfully destroy 
     or otherwise alter any document, data compilation (including 
     any electronically recorded or stored data), or tangible 
     object that is in the custody or control of that person and 
     that is relevant to the allegations.''.
       (b) Securities Exchange Act of 1934.--Title I of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
     amended by adding at the end the following new section:

     ``SEC. 36. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

       ``(a) Misleading Statements and Omissions.--In any private 
     action arising under this title in which the plaintiff 
     alleges that the defendant--
       ``(1) made an untrue statement of a material fact; or
       ``(2) omitted to state a material fact necessary in order 
     to make the statements made, in the light of the 
     circumstances in which they were made, not misleading;

     the complaint shall specify each statement alleged to have 
     been misleading, the reason or reasons why the statement is 
     misleading, and, if an allegation regarding the statement or 
     omission is made on information and belief, the plaintiff 
     shall set forth all information on which that belief is 
     formed.
       ``(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.
       ``(c) Motion To Dismiss; Stay of Discovery.--
       ``(1) Dismissal for failure to meet pleading 
     requirements.--In any private action arising under this 
     title, the court shall, on the motion of any defendant, 
     dismiss the complaint if the requirements of subsections (a) 
     and (b) are not met.
       ``(2) Stay of discovery.--In any private action arising 
     under this title, all discovery and other proceedings shall 
     be stayed during the pendency of any motion to dismiss, 
     unless the court finds upon the motion of any party that 
     particularized discovery is necessary to preserve evidence or 
     to prevent undue prejudice to that party.
       ``(3) Preservation of evidence.--It shall be unlawful for 
     any person, upon receiving actual notice that a complaint has 
     been filed in a private action arising under this title 
     naming that person as a defendant and that describes the 
     allegations contained in the complaint, to willfully destroy 
     or otherwise alter any document, data compilation (including 
     any electronically recorded or stored data), or tangible 
     object that is in the custody or control of that person and 
     that is relevant to the allegations.
       ``(d) Loss Causation.--In any private action arising under 
     this title, the plaintiff shall have the burden of proving 
     that the act or omission alleged to violate this title caused 
     any loss incurred by the plaintiff. Damages arising from such 
     loss may be mitigated upon a showing by the defendant that 
     factors unrelated to such act or omission contributed to the 
     loss.''.

     SEC. 105. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

       (a) Securities Act of 1933.--Title I of the Securities Act 
     of 1933 (15 U.S.C. 77a et seq.) is amended by inserting after 
     section 13 the following new section:

     ``SEC. 13A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING 
                   STATEMENTS.

       ``(a) Safe Harbor.--
       ``(1) In general.--In any private action arising under this 
     title that is based on a fraudulent statement, an issuer that 
     is subject to the reporting requirements of section 13(a) or 
     section 15(d) of the Securities Exchange Act of 1934, a 
     person acting on behalf of such issuer, or an outside 
     reviewer retained by such issuer, shall not be liable with 
     respect to any forward-looking statement, whether written or 
     oral, if and to the extent that the statement--
       ``(A) projects, estimates, or describes future events; and
       ``(B) refers clearly (and, except as otherwise provided by 
     rule or regulation, proximately) to--
       ``(i) such projections, estimates, or descriptions as 
     forward-looking statements; and
       ``(ii) the risk that actual results may differ materially 
     from such projections, estimates, or descriptions.
       ``(2) Effect on other safe harbors.--The exemption from 
     liability provided for in paragraph (1) shall be in addition 
     to any exemption that the Commission may establish by rule or 
     regulation under subsection (e).
       ``(b) Definition of Forward-Looking Statement.--For 
     purposes of this section, the term `forward-looking 
     statement' means--
       ``(1) a statement containing a projection of revenues, 
     income (including income loss), earnings (including earnings 
     loss) per share, capital expenditures, dividends, capital 
     structure, or other financial items;
       ``(2) a statement of the plans and objectives of management 
     for future operations;
       ``(3) a statement of future economic performance contained 
     in a discussion and analysis of financial condition by the 
     management or in the results of operations included pursuant 
     to the rules and regulations of the Commission;
       ``(4) any disclosed statement of the assumptions underlying 
     or relating to any statement described in paragraph (1), (2), 
     or (3); or
       ``(5) a statement containing a projection or estimate of 
     such other items as may be specified by rule or regulation of 
     the Commission.
       ``(c) Exclusions.--The exemption from liability provided 
     for in subsection (a) does not apply to a forward-looking 
     statement that is--
       ``(1) knowingly made with the purpose and actual intent of 
     misleading investors;
       ``(2) except to the extent otherwise specifically provided 
     by rule, regulation, or order of the Commission, made with 
     respect to the business or operations of the issuer, if the 
     issuer--
       ``(A) during the 3-year period preceding the date on which 
     the statement was first made--
       ``(i) was convicted of any felony or misdemeanor described 
     in clauses (i) through (iv) of section 15(b)(4)(B); or
       ``(ii) has been made the subject of a judicial or 
     administrative decree or order arising out of a governmental 
     action that--

       ``(I) prohibits future violations of the anti-fraud 
     provisions of the securities laws, as that term is defined in 
     section 3 of the Securities Exchange Act of 1934;
       ``(II) requires that the issuer cease and desist from 
     violating the anti-fraud provisions of the securities laws; 
     or
       ``(III) determines that the issuer violated the anti-fraud 
     provisions of the securities laws;

       ``(B) makes the forward-looking statement in connection 
     with an offering of securities by a blank check company, as 
     that term is defined under the rules or regulations of the 
     Commission;
       ``(C) issues penny stock, as that term is defined in 
     section 3(a)(51) of the Securities Exchange Act of 1934, and 
     the rules, regulations, or orders issued pursuant to that 
     section;
       ``(D) makes the forward-looking statement in connection 
     with a rollup transaction, as that term is defined under the 
     rules or regulations of the Commission; or
       ``(E) makes the forward-looking statement in connection 
     with a going private transaction, as that term is defined 
     under the rules or regulations of the Commission issued 
     pursuant to section 13(e) of the Securities Exchange Act of 
     1934; or
       ``(3) except to the extent otherwise specifically provided 
     by rule or regulation of the Commission--
       ``(A) included in a financial statement prepared in 
     accordance with generally accepted accounting principles;
       ``(B) contained in a registration statement of, or 
     otherwise issued by, an investment company, as that term is 
     defined in section 3(a) of the Investment Company Act of 
     1940;

[[Page S9223]]

       ``(C) made in connection with a tender offer;
       ``(D) made in connection with an initial public offering;
       ``(E) made by or in connection with an offering by a 
     partnership, limited liability corporation, or a direct 
     participation investment program, as those terms are defined 
     by rule or regulation of the Commission; or
       ``(F) made in a disclosure of beneficial ownership in a 
     report required to be filed with the Commission pursuant to 
     section 13(d) of the Securities Exchange Act of 1934.
       ``(d) Stay Pending Decision on Motion.--In any private 
     action arising under this title, the court shall stay 
     discovery during the pendency of any motion by a defendant 
     (other than discovery that is specifically directed to the 
     applicability of the exemption provided for in this section) 
     for summary judgment that is based on the grounds that--
       ``(1) the statement or omission upon which the complaint is 
     based is a forward-looking statement within the meaning of 
     this section; and
       ``(2) the exemption provided for in this section precludes 
     a claim for relief.
       ``(e) Authority.--In addition to the exemption provided for 
     in this section, the Commission may, by rule or regulation, 
     provide exemptions from liability under any provision of this 
     title, or of any rule or regulation issued under this title, 
     that is based on a statement that includes or that is based 
     on projections or other forward-looking information, if and 
     to the extent that any such exemption is, as determined by 
     the Commission, consistent with the public interest and the 
     protection of investors.
       ``(f) Commission Disgorgement Actions.--
       ``(1) In general.--If the Commission, in any proceeding, 
     orders or obtains (by settlement, court order, or otherwise) 
     a payment of funds from a person who has violated this title 
     through means that included the utilization of a forward-
     looking statement, and if any portion of such funds is set 
     aside or otherwise held for or available to persons who 
     suffered losses in connection with such violation, no person 
     shall be precluded from participating in the distribution of, 
     or otherwise receiving, a portion of such funds by reason of 
     the application of this section.
       ``(2) Judgment for losses suffered.--In any action by the 
     Commission alleging a violation of this title in which the 
     defendant or respondent is alleged to have utilized a 
     forward-looking statement in furtherance of such violation, 
     the Commission may, upon a sufficient showing, in addition to 
     all other remedies available to the Commission, obtain a 
     judgment for the payment of an amount equal to all losses 
     suffered by reason of the utilization of the forward-looking 
     statement that are not compensated through final adjudication 
     or settlement of a private action brought under this title 
     arising from the same violation.
       ``(g) Effect on Other Authority of Commission.--Nothing in 
     this section limits, either expressly or by implication, the 
     authority of the Commission to exercise similar authority or 
     to adopt similar rules and regulations with respect to 
     forward-looking statements under any other statute under 
     which the Commission exercises rulemaking authority.''.
       (b) Securities Exchange Act of 1934.--Title I of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
     amended by adding at the end the following new section:

     ``SEC. 37. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING 
                   STATEMENTS.

       ``(a) Safe Harbor.--
       ``(1) In general.--In any private action arising under this 
     title that is based on a fraudulent statement, an issuer that 
     is subject to the reporting requirements of section 13(a) or 
     section 15(d) of the Securities Exchange Act of 1934, a 
     person acting on behalf of such issuer, or an outside 
     reviewer retained by such issuer, shall not be liable with 
     respect to any forward-looking statement, whether written or 
     oral, if and to the extent that the statement--
       ``(A) projects, estimates, or describes future events; and
       ``(B) refers clearly (and, except as otherwise provided by 
     rule or regulation, proximately) to--
       ``(i) such projections, estimates, or descriptions as 
     forward-looking statements; and
       ``(ii) the risk that actual results may differ materially 
     from such projections, estimates, or descriptions.
       ``(2) Effect on other safe harbors.--The exemption from 
     liability provided for in paragraph (1) shall be in addition 
     to any exemption that the Commission may establish by rule or 
     regulation under subsection (e).
       ``(b) Definition of Forward-Looking Statement.--For 
     purposes of this section, the term `forward-looking 
     statement' means--
       ``(1) a statement containing a projection of revenues, 
     income (including income loss), earnings (including earnings 
     loss) per share, capital expenditures, dividends, capital 
     structure, or other financial items;
       ``(2) a statement of the plans and objectives of management 
     for future operations;
       ``(3) a statement of future economic performance contained 
     in a discussion and analysis of financial condition by the 
     management or in the results of operations included pursuant 
     to the rules and regulations of the Commission;
       ``(4) any disclosed statement of the assumptions underlying 
     or relating to any statement described in paragraph (1), (2), 
     or (3); or
       ``(5) a statement containing a projection or estimate of 
     such other items as may be specified by rule or regulation of 
     the Commission.
       ``(c) Exclusions.--The exemption from liability provided 
     for in subsection (a) does not apply to a forward-looking 
     statement that is--
       ``(1) knowingly made with the purpose and actual intent of 
     misleading investors;
       ``(2) except to the extent otherwise specifically provided 
     by rule, regulation, or order of the Commission, made with 
     respect to the business or operations of the issuer, if the 
     issuer--
       ``(A) during the 3-year period preceding the date on which 
     the statement was first made--
       ``(i) was convicted of any felony or misdemeanor described 
     in clauses (i) through (iv) of section 15(b)(4)(B); or
       ``(ii) has been made the subject of a judicial or 
     administrative decree or order arising out of a governmental 
     action that--

       ``(I) prohibits future violations of the anti-fraud 
     provisions of the securities laws;
       ``(II) requires that the issuer cease and desist from 
     violating the anti-fraud provisions of the securities laws; 
     or
       ``(III) determines that the issuer violated the anti-fraud 
     provisions of the securities laws;

       ``(B) makes the forward-looking statement in connection 
     with an offering of securities by a blank check company, as 
     that term is defined under the rules or regulations of the 
     Commission;
       ``(C) issues penny stock;
       ``(D) makes the forward-looking statement in connection 
     with a rollup transaction, as that term is defined under the 
     rules or regulations of the Commission; or
       ``(E) makes the forward-looking statement in connection 
     with a going private transaction, as that term is defined 
     under the rules or regulations of the Commission issued 
     pursuant to section 13(e); or
       ``(3) except to the extent otherwise specifically provided 
     by rule or regulation of the Commission--
       ``(A) included in financial statements prepared in 
     accordance with generally accepted accounting principles;
       ``(B) contained in a registration statement of, or 
     otherwise issued by, an investment company;
       ``(C) made in connection with a tender offer;
       ``(D) made in connection with an initial public offering;
       ``(E) made by or in connection with an offering by a 
     partnership, limited liability corporation, or a direct 
     participation investment program, as those terms are defined 
     by rule or regulation of the Commission; or
       ``(F) made in a disclosure of beneficial ownership in a 
     report required to be filed with the Commission pursuant to 
     section 13(d).
       ``(d) Stay Pending Decision on Motion.--In any private 
     action arising under this title, the court shall stay 
     discovery during the pendency of any motion by a defendant 
     (other than discovery that is specifically directed to the 
     applicability of the exemption provided for in this section) 
     for summary judgment that is based on the grounds that--
       ``(1) the statement or omission upon which the complaint is 
     based is a forward-looking statement within the meaning of 
     this section; and
       ``(2) the exemption provided for in this section precludes 
     a claim for relief.
       ``(e) Authority.--In addition to the exemption provided for 
     in this section, the Commission may, by rule or regulation, 
     provide exemptions from liability under any provision of this 
     title, or of any rule or regulation issued under this title, 
     that is based on a statement that includes or that is based 
     on projections or other forward-looking information, if and 
     to the extent that any such exemption is, as determined by 
     the Commission, consistent with the public interest and the 
     protection of investors.
       ``(f) Commission Disgorgement Actions.--
       ``(1) In general.--If the Commission, in any proceeding, 
     orders or obtains (by settlement, court order, or otherwise) 
     a payment of funds from a person who has violated this title 
     through means that included the utilization of a forward-
     looking statement, and if any portion of such funds is set 
     aside or otherwise held for or available to persons who 
     suffered losses in connection with such violation, no person 
     shall be precluded from participating in the distribution of, 
     or otherwise receiving, a portion of such funds by reason of 
     the application of this section.
       ``(2) Judgment for losses suffered.--In any action by the 
     Commission alleging a violation of this title in which the 
     defendant or respondent is alleged to have utilized a 
     forward-looking statement in furtherance of such violation, 
     the Commission may, upon a sufficient showing, in addition to 
     all other remedies available to the Commission, obtain a 
     judgment for the payment of an amount equal to all losses 
     suffered by reason of the utilization of the forward-looking 
     statement that are not compensated through final adjudication 
     or settlement of a private action brought under this title 
     arising from the same violation.
       ``(g) Effect on Other Authority of Commission.--Nothing in 
     this section limits, either expressly or by implication, the 
     authority of the Commission to exercise similar authority or 
     to adopt similar rules and regulations with respect to 
     forward-looking statements under any other statute under 
     which the Commission exercises rulemaking authority.''.
       (c) Investment Company Act of 1940.--Section 24 of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-24) is amended 
     by adding at the end the following new subsection:
       ``(g) Regulatory Authority for Forward-Looking 
     Statements.--
       ``(1) In general.--The Commission shall review and, if 
     necessary to carry out the purposes of this title, promulgate 
     such rules and regulations as may be necessary to describe 
     conduct with respect to the making of forward-looking 
     statements that the Commission deems does not provide a basis 
     for liability in any private action arising under this title.
       ``(2) Requirements.--A rule or regulation promulgated under 
     paragraph (1) shall--
       ``(A) include clear and objective guidance that the 
     Commission finds sufficient for the protection of investors;
       ``(B) prescribe such guidance with sufficient particularity 
     that compliance shall be readily ascertainable by issuers 
     prior to issuance of securities; and

[[Page S9224]]

       ``(C) provide that forward-looking statements that are in 
     compliance with such guidance and that concern the future 
     economic performance of an issuer of securities registered 
     under section 12 shall be deemed not to be in violation of 
     this title.
       ``(3) Effect on other authority of commission.--Nothing in 
     this subsection limits, either expressly or by implication, 
     the authority of the Commission to exercise similar authority 
     or to adopt similar rules and regulations with respect to 
     forward-looking statements under any other statute under 
     which the Commission exercises rulemaking authority.''.

     SEC. 106. WRITTEN INTERROGATORIES.

       (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:
       ``(m) Defendant's Right to Written Interrogatories.--In any 
     private action arising under this title in which the 
     plaintiff may recover money damages only on proof that a 
     defendant acted with a particular state of mind, the court 
     shall, when requested by a defendant, submit to the jury a 
     written interrogatory on the issue of each such defendant's 
     state of mind at the time the alleged violation occurred.''.
       (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:
       ``(m) Defendant's Right to Written Interrogatories.--In any 
     private action arising under this title in which the 
     plaintiff may recover money damages, the court shall, when 
     requested by a defendant, submit to the jury a written 
     interrogatory on the issue of each such defendant's state of 
     mind at the time the alleged violation occurred.''.

     SEC. 107. 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 or sale of securities to establish a violation 
     of section 1962''.

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

       Section 20 of the Securities Exchange Act of 1934 (15 
     U.S.C. 78t) is amended--
       (1) by striking the section heading and inserting the 
     following:


    ``liability of controlling persons and persons who aid and abet 
                           violations''; and

       (2) by adding at the end the following new subsection:
       ``(e) Prosecution of Persons Who Aid and Abet Violations.--
     For purposes of any action brought by the Commission under 
     paragraph (1) or (3) of section 21(d), any person that 
     knowingly provides substantial assistance to another person 
     in the violation of a provision of this title, or of any rule 
     or regulation issued under this title, shall be--
       ``(1) deemed to be in violation of such provision; and
       ``(2) liable to the same extent as the person to whom such 
     assistance is provided.''.

     SEC. 109. LOSS CAUSATION.

       Section 12 of the Securities Act of 1933 (15 U.S.C. 77l) is 
     amended--
       (1) by inserting ``(a) In General.--'' before ``Any 
     person'';
       (2) by inserting ``, subject to subsection (b),'' after 
     ``shall be liable''; and
       (3) by adding at the end the following:
       ``(b) Loss Causation.--In an action described in subsection 
     (a)(2), if the person who offered or sold such security 
     proves that any portion or all of the amount recoverable 
     under subsection (a)(2) represents other than the 
     depreciation in value of the subject security resulting from 
     such part of the prospectus or oral communication, with 
     respect to which the liability of that person is asserted, 
     not being true or omitting to state a material fact required 
     to be stated therein or necessary to make the statement not 
     misleading, then such portion or amount, as the case may be, 
     shall not be recoverable.''.

     SEC. 110. STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS 
                   AND QUALIFIED RETIREMENT PLANS.

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

     SEC. 111. 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.

     SEC. 112. APPLICABILITY.

       The amendments made by this title shall not affect or apply 
     to any private action arising under title I of the Securities 
     Exchange Act of 1934 or title I of the Securities Act of 1933 
     commenced before the date of enactment of this Act.
              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

     SEC. 201. LIMITATION ON DAMAGES.

       Section 36 of the Securities Exchange Act of 1934, as added 
     by section 104 of this Act, is amended by adding at the end 
     the following new subsection:
       ``(e) Limitation on Damages.--
       ``(1) In general.--Except as provided in paragraph (2), in 
     any private action arising under this title, the plaintiff's 
     damages shall not exceed the difference between the purchase 
     or sale price paid or received, as appropriate, by the 
     plaintiff for the subject security and the value of that 
     security, as measured by the median trading price of that 
     security, during the 90-day period beginning on the date on 
     which the information correcting the misstatement or omission 
     is disseminated to the market.
       ``(2) Exception.--In any private action arising under this 
     title in which damages are sought, if the plaintiff sells or 
     repurchases the subject security prior to the expiration of 
     the 90-day period described in paragraph (1), the plaintiff's 
     damages shall not exceed the difference between the purchase 
     or sale price paid or received, as appropriate, by the 
     plaintiff for the security and the median market value of the 
     security during the period beginning immediately after 
     dissemination of information correcting the misstatement or 
     omission and ending on the date on which the plaintiff sells 
     or repurchases the security.''.

     SEC. 202. PROPORTIONATE LIABILITY.

       Title I of the Securities and Exchange Act of 1934 (15 
     U.S.C. 78a et seq.) is amended by adding at the end the 
     following new section:

     ``SEC. 38. PROPORTIONATE LIABILITY.

       ``(a) Applicability.--This section shall apply only to the 
     allocation of damages among persons who are, or who may 
     become, liable for damages in any private action arising 
     under this title. Nothing in this section shall affect the 
     standards for liability associated with any private action 
     arising under this title.
       ``(b) Liability for Damages.--
       ``(1) Joint and several liability.--A person against whom a 
     judgment is entered in any private action arising under this 
     title shall be liable for damages jointly and severally only 
     if the trier of fact specifically determines that such person 
     committed knowing securities fraud.
       ``(2) Proportionate liability.--Except as provided in 
     paragraph (1), a person against whom a judgment is entered in 
     any private action arising under this title shall be liable 
     solely for the portion of the judgment that corresponds to 
     the percentage of responsibility of that person, as 
     determined under subsection (c).
       ``(3) Knowing securities fraud.--For purposes of this 
     section--
       ``(A) a defendant engages in `knowing securities fraud' if 
     that defendant--
       ``(i) makes a material representation with actual knowledge 
     that the representation is false, or omits to make a 
     statement with actual knowledge that, as a result of the 
     omission, one of the material representations of the 
     defendant is false; and
       ``(ii) actually knows that persons are likely to rely on 
     that misrepresentation or omission; and
       ``(B) reckless conduct by the defendant shall not be 
     construed to constitute knowing securities fraud.
       ``(c) Determination of Responsibility.--
       ``(1) In general.--In any private action arising under this 
     title in which more than 1 person is alleged to have violated 
     a provision of this title, the court shall instruct the jury 
     to answer special interrogatories, or if there is no jury, 
     shall make findings, concerning--
       ``(A) the percentage of responsibility of each of the 
     defendants and of each of the other persons alleged by any of 
     the parties to have caused or contributed to the violation, 
     including persons who have entered into settlements with the 
     plaintiff or plaintiffs, measured as a percentage of the 
     total fault of all persons who caused or contributed to the 
     violation; and
       ``(B) whether such defendant committed knowing securities 
     fraud.
       ``(2) Contents of special interrogatories or findings.--The 
     responses to interrogatories, or findings, as appropriate, 
     under paragraph (1) shall specify the total amount of damages 
     that the plaintiff is entitled to recover and the percentage 
     of responsibility of each person found to have caused or 
     contributed to the damages sustained by the plaintiff or 
     plaintiffs.
       ``(3) Factors for consideration.--In determining the 
     percentage of responsibility under this subsection, the trier 
     of fact shall consider--
       ``(A) the nature of the conduct of each person; and
       ``(B) the nature and extent of the causal relationship 
     between that conduct and the damages incurred by the 
     plaintiff or plaintiffs.
       ``(d) Uncollectible Share.--
       ``(1) In general.--Notwithstanding subsection (b)(2), in 
     any private action arising under this title, if, upon motion 
     made not later than 6 months after a final judgment is 
     entered, the court determines that all or part of a 
     defendant's share of the judgment is not collectible 

[[Page S9225]]
     against that defendant or against a defendant described in subsection 
     (b)(1), each defendant described in subsection (b)(2) shall 
     be liable for the uncollectible share as follows:
       ``(A) Percentage of net worth.--Each defendant shall be 
     jointly and severally liable for the uncollectible share if 
     the plaintiff establishes that--
       ``(i) the plaintiff is an individual whose recoverable 
     damages under the final judgment are equal to more than 10 
     percent of the net financial worth of the plaintiff; and
       ``(ii) the net financial worth of the plaintiff is equal to 
     less than $200,000.
       ``(B) Other plaintiffs.--With respect to any plaintiff not 
     described in subparagraph (A), each defendant shall be liable 
     for the uncollectible share in proportion to the percentage 
     of responsibility of that defendant, except that the total 
     liability under this subparagraph may not exceed 50 percent 
     of the proportionate share of that defendant, as determined 
     under subsection (c)(2).
       ``(2) Overall limit.--In no case shall the total payments 
     required pursuant to paragraph (1) exceed the amount of the 
     uncollectible share.
       ``(3) Defendants subject to contribution.--A defendant 
     against whom judgment is not collectible shall be subject to 
     contribution and to any continuing liability to the plaintiff 
     on the judgment.
       ``(e) Right of Contribution.--To the extent that a 
     defendant is required to make an additional payment pursuant 
     to subsection (d), that defendant may recover contribution--
       ``(1) from the defendant originally liable to make the 
     payment;
       ``(2) from any defendant liable jointly and severally 
     pursuant to subsection (b)(1);
       ``(3) from any defendant held proportionately liable 
     pursuant to this subsection who is liable to make the same 
     payment and has paid less than his or her proportionate share 
     of that payment; or
       ``(4) from any other person responsible for the conduct 
     giving rise to the payment that would have been liable to 
     make the same payment.
       ``(f) Nondisclosure to Jury.--The standard for allocation 
     of damages under subsections (b) and (c) and the procedure 
     for reallocation of uncollectible shares under subsection (d) 
     shall not be disclosed to members of the jury.
       ``(g) Settlement Discharge.--
       ``(1) In general.--A defendant who settles any private 
     action arising under this title at any time before final 
     verdict or judgment shall be discharged from all claims for 
     contribution brought by other persons. Upon entry of the 
     settlement by the court, the court shall enter a bar order 
     constituting the final discharge of all obligations to the 
     plaintiff of the settling defendant arising out of the 
     action. The order shall bar all future claims for 
     contribution arising out of the action--
       ``(A) by any person against the settling defendant; and
       ``(B) by the settling defendant against any person, other 
     than a person whose liability has been extinguished by the 
     settlement of the settling defendant.
       ``(2) Reduction.--If a person enters into a settlement with 
     the plaintiff prior to final verdict or judgment, the verdict 
     or judgment shall be reduced by the greater of--
       ``(A) an amount that corresponds to the percentage of 
     responsibility of that person; or
       ``(B) the amount paid to the plaintiff by that person.
       ``(h) Contribution.--A person who becomes liable for 
     damages in any private action arising under this title may 
     recover contribution from any other person who, if joined in 
     the original action, would have been liable for the same 
     damages. A claim for contribution shall be determined based 
     on the percentage of responsibility of the claimant and of 
     each person against whom a claim for contribution is made.
       ``(i) Statute of Limitations for Contribution.--Once 
     judgment has been entered in any private action arising under 
     this title determining liability, an action for contribution 
     shall be brought not later than 6 months after the entry of a 
     final, nonappealable judgment in the action, except that an 
     action for contribution brought by a defendant who was 
     required to make an additional payment pursuant to subsection 
     (d) may be brought not later than 6 months after the date on 
     which such payment was made.''.

     SEC. 203. APPLICABILITY.

       The amendments made by this title shall not affect or apply 
     to any private action arising under title I of the Securities 
     Exchange Act of 1934 commenced before the date of enactment 
     of this Act.
            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

     SEC. 301. FRAUD DETECTION AND DISCLOSURE.

       (a) In General.--The Securities Exchange Act of 1934 (15 
     U.S.C. 78a et seq.) is amended by inserting immediately after 
     section 10 the following new section:

     ``SEC. 10A. AUDIT REQUIREMENTS.

       ``(a) In General.--Each audit required pursuant to this 
     title of the financial statements of an issuer by an 
     independent public accountant shall include, in accordance 
     with generally accepted auditing standards, as may be 
     modified or supplemented from time to time by the 
     Commission--
       ``(1) procedures designed to provide reasonable assurance 
     of detecting illegal acts that would have a direct and 
     material effect on the determination of financial statement 
     amounts;
       ``(2) procedures designed to identify related party 
     transactions that are material to the financial statements or 
     otherwise require disclosure therein; and
       ``(3) an evaluation of whether there is substantial doubt 
     about the ability of the issuer to continue as a going 
     concern during the ensuing fiscal year.
       ``(b) Required Response To Audit Discoveries.--
       ``(1) Investigation and report to management.--If, in the 
     course of conducting an audit pursuant to this title to which 
     subsection (a) applies, the independent public accountant 
     detects or otherwise becomes aware of information indicating 
     that an illegal act (whether or not perceived to have a 
     material effect on the financial statements of the issuer) 
     has or may have occurred, the accountant shall, in accordance 
     with generally accepted auditing standards, as may be 
     modified or supplemented from time to time by the 
     Commission--
       ``(A)(i) determine whether it is likely that an illegal act 
     has occurred; and
       ``(ii) if so, determine and consider the possible effect of 
     the illegal act on the financial statements of the issuer, 
     including any contingent monetary effects, such as fines, 
     penalties, and damages; and
       ``(B) as soon as practicable, inform the appropriate level 
     of the management of the issuer and assure that the audit 
     committee of the issuer, or the board of directors of the 
     issuer in the absence of such a committee, is adequately 
     informed with respect to illegal acts that have been detected 
     or have otherwise come to the attention of such accountant in 
     the course of the audit, unless the illegal act is clearly 
     inconsequential.
       ``(2) Response to failure to take remedial action.--If, 
     after determining that the audit committee of the board of 
     directors of the issuer, or the board of directors of the 
     issuer in the absence of an audit committee, is adequately 
     informed with respect to illegal acts that have been detected 
     or have otherwise come to the attention of the accountant in 
     the course of the audit of such accountant, the independent 
     public accountant concludes that--
       ``(A) the illegal act has a material effect on the 
     financial statements of the issuer;
       ``(B) the senior management has not taken, and the board of 
     directors has not caused senior management to take, timely 
     and appropriate remedial actions with respect to the illegal 
     act; and
       ``(C) the failure to take remedial action is reasonably 
     expected to warrant departure from a standard report of the 
     auditor, when made, or warrant resignation from the audit 
     engagement;
     the independent public accountant shall, as soon as 
     practicable, directly report its conclusions to the board of 
     directors.
       ``(3) Notice to commission; response to failure to 
     notify.--An issuer whose board of directors receives a report 
     under paragraph (2) shall inform the Commission by notice not 
     later than 1 business day after the receipt of such report 
     and shall furnish the independent public accountant making 
     such report with a copy of the notice furnished to the 
     Commission. If the independent public accountant fails to 
     receive a copy of the notice before the expiration of the 
     required 1-business-day period, the independent public 
     accountant shall--
       ``(A) resign from the engagement; or
       ``(B) furnish to the Commission a copy of its report (or 
     the documentation of any oral report given) not later than 1 
     business day following such failure to receive notice.
       ``(4) Report after resignation.--If an independent public 
     accountant resigns from an engagement under paragraph (3)(A), 
     the accountant shall, not later than 1 business day following 
     the failure by the issuer to notify the Commission under 
     paragraph (3), furnish to the Commission a copy of the 
     accountant's report (or the documentation of any oral report 
     given).
       ``(c) Auditor Liability Limitation.--No independent public 
     accountant shall be liable in a private action for any 
     finding, conclusion, or statement expressed in a report made 
     pursuant to paragraph (3) or (4) of subsection (b), including 
     any rule promulgated pursuant thereto.
       ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If 
     the Commission finds, after notice and opportunity for 
     hearing in a proceeding instituted pursuant to section 21C, 
     that an independent public accountant has willfully violated 
     paragraph (3) or (4) of subsection (b), the Commission may, 
     in addition to entering an order under section 21C, impose a 
     civil penalty against the independent public accountant and 
     any other person that the Commission finds was a cause of 
     such violation. The determination to impose a civil penalty 
     and the amount of the penalty shall be governed by the 
     standards set forth in section 21B.
       ``(e) Preservation of Existing Authority.--Except as 
     provided in subsection (d), nothing in this section shall be 
     held to limit or otherwise affect the authority of the 
     Commission under this title.
       ``(f) Definition.--As used in this section, the term 
     `illegal act' means an act or omission that violates any law, 
     or any rule or regulation having the force of law.''.
       (b) Effective Dates.--The amendment made by subsection (a) 
     shall apply to each annual report--
       (1) for any period beginning on or after January 1, 1996, 
     with respect to any registrant that is required to file 
     selected quarterly financial data pursuant to the rules or 
     regulations of the Securities and Exchange Commission; and
       (2) for any period beginning on or after January 1, 1997, 
     with respect to any other registrant.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote.
  Mr. DOLE. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. D'AMATO. Mr. President, I send an amendment to the title to the 
desk and ask for its consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:


[[Page S9226]]

       Amend the title so as to read:
       ``An act to amend the Federal securities laws to curb 
     certain abusive practices in private securities litigation, 
     and for other purposes.''

  The PRESIDING OFFICER. The question is on agreeing to the amendment 
to amend the title.
  The amendment was agreed to.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote.
  Mr. DOLE. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that S. 240 be 
placed back on the calendar.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I would like to take just a few seconds 
to thank a very dedicated staff. Laura Unger, for the dedicated job she 
has done in a very complex bill--really, without her work, not only 
during the process on the floor but in committee, we would not have had 
this legislation. And our staff director, Howard Menell.
  Let me also say it was a pleasure working with the ranking member, 
Senator Sarbanes, handling a complex piece of legislation like this 
with a divergence of opinions. I think we demonstrated the process can 
work when people are willing to work at it in good will.
  Notwithstanding differences of opinion, I could not ask, I think, for 
fairer debate, et cetera, as we tried to keep this moving. So I thank 
my colleagues. And certainly Senator Domenici and Senator Dodd did an 
excellent job on this bill, bringing it to the point we could bring it 
to the floor.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, I would like to reciprocate to the 
chairman of the committee with respect to his sentiments. I point out, 
I think this legislation was considered in a way that I would hope all 
legislation can be considered. We had opening statements. Then we moved 
from opening statements to taking up amendments. We considered the 
amendments seriatim, we had good debate on the amendments, voted on the 
amendments, then we had closing statements, and then we went to final 
passage of the bill.
  So I hope Members will agree, I know a number of Members I talked to 
felt we had a good consideration of it. People had a chance to express 
their points of view. We resolved them and moved forward.
  I thank the chairman of the committee for his effort to construct a 
fair framework in which to address this legislation.
  I thank my colleagues, and I want to acknowledge in particular the 
staff work of Mitchell Feuer, Andy Vermilye, and Brian McTigue, all of 
whom worked indefatigably on this legislation.
  I yield the floor.
  The PRESIDING OFFICER. The majority leader.
  Mr. DOLE. Mr. President, I thank the managers of the bill. I think 
they did demonstrate we can have an orderly debate and not waste any 
time. I do not remember there being very many quorum calls. It took a 
while, but it is a very important piece of legislation, and I want to 
comment both the managers and also my good friend, the chairman of the 
committee, Senator D'Amato. I think this is probably his first major 
bill as chairman. I think he has done an outstanding job and I 
appreciate it very much.
  Everybody has had a chance to debate. Nobody was shut off. There were 
not any cloture motions filed. There was not any time wasted. In fact, 
I was home last night watching on C-SPAN when you were all up here--
watching you on C-SPAN, watching you debating until 9, 9:30, 10 
o'clock. I commend the managers.
  Mr. SARBANES. Will the majority leader yield for a question? Does it 
look better to watch it on C-SPAN than to watch it in person?
  Mr. DOLE. It is better because you are further away. It was very 
interesting. The Senator from Pennsylvania was speaking and the Senator 
from Utah was answering. It was fairly quiet up here. It was fairly 
quiet at home, too, at 10 o'clock at night.
  In any event, I thank the Democratic leader for his cooperation, too, 
and members of the staff on each side and others who participated in 
this bill.
  Mr. DASCHLE. Mr. President, I associate myself with the remarks of 
the majority leader and his compliments for both managers of the bill 
just passed.
  This is not an easy piece of legislation, both because of its 
complexity as well as its controversy. But I must say that our 
colleagues on both sides of the aisle have certainly acted in a very 
responsible manner. We have had a good debate. As the distinguished 
Senator from Maryland has said on a number of occasions, it is a debate 
that I think bears even closer watch and closer consideration as we go 
through the final stages of passage of this very important piece of 
legislation.
  I particularly want to single out the distinguished Senator from 
Maryland, the ranking member, for his extraordinary work in leading our 
caucus in this effort and in sharing, as he has, his very valuable 
insights on a number of the ramifications of the bill and the 
amendments pending. He did an outstanding job and I deeply appreciate 
his leadership in this regard.
  Let me also commend my colleague, the distinguished senior Senator 
from Connecticut, Senator Dodd, for his advocacy of the legislation. 
While we differed on many of the issues pertaining to the bill, he, 
too, ought to be commended for the way with which he conducted this 
debate.
  This has been a good debate. I appreciate very much the cooperation 
of the Republican leadership in ensuring that all Senators have the 
opportunity to present their amendments and to be heard as completely 
as they were heard, now, over the last several days.
  I hope, now, as we turn to the budget conference report, that 
colleagues will use the time available to us, beginning at noon, to 
present their views. We will have 10 hours of debate. It is very 
important that we utilize this time as efficiently and as appropriately 
as we can. So I encourage colleagues on this side of the aisle to come 
to the floor beginning at noon to make their remarks and to utilize the 
opportunities that we will have over the course of the next several 
hours to express ourselves on this budget resolution.
  So, again Mr. President, I commend our managers on the bill just 
passed, and hope we can have a good debate on the budget conference 
report beginning at noon.
  I yield the floor.

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