[Congressional Record Volume 141, Number 188 (Tuesday, November 28, 1995)]
[House]
[Pages H13691-H13705]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         CLINTON FOREIGN POLICY

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Indiana [Mr. Burton] is recognized for 5 minutes.
  Mr. BURTON of Indiana. Mr. Speaker, I would like to talk tonight 
about the Clinton foreign policy. The President has been asking us over 
the past couple of days to support him in sending troops to Bosnia. 
Before we start doing that, we ought to look at the record of the 
administration in dealing with foreign policy issues. So let us start 
with Haiti.
  Mr. Aristide down there said he was going to become a true lover of 
democracy. He said that he was going to privatize a lot of the 
Government agencies down there, Government functions. He said he was 
going to have free and fair elections and step down as President. We 
found out just recently that he is not going along with the 
privatization program that he promised.

[[Page H 13692]]

  There have been a lot of killings recently, and he has used some very 
harsh rhetoric when speaking to crowds, which has led to additional 
killings. He said that he may not step down as President, may try to 
keep an extra 3 years. We have been putting pressure on him, and now it 
appears as though he will put in a puppet to replace them to keep 
control for the next 6 years and, during this time that we have been 
giving him hundreds of millions of dollars and keeping American troops 
down there, he has spent $1.8 million of American taxpayers' money to 
lobby the Congress of the United States to get more money. He is using 
our taxpayers' dollars to get more money.
  This has been a total failure by the administration. It has not 
completely manifested itself yet, but it is getting there. Things are 
getting out of control. Mr. Aristide has paid one firm $48,000 a month. 
Ira Kurzban, a Miami attorney who has worked for Castro, who has worked 
for the Communist Sandinistas, who has worked for Mr. Aristide, in 
fact, his wife, Kurzban's wife, was so enamored with Castro, the 
Communist dictator in Cuba, she kissed him. And this is the man who is 
representing him in getting $48,000 of American taxpayers' money to 
represent him to lobby Congress.
  There is another firm getting $50,000 a month. Another getting 
$41,000 a month. Another getting $12,500 a month. Another getting 
$10,000, another getting $5,000. All United States taxpayer money to 
support a failed policy in Haiti.

  Then we talk about Somalia. In Somalia the President went over there 
and said he was going to nation build, to bring democracy to Somalia. 
He said he was going to bring the horrible Mr. Aideed, the tribal 
leader over there, to justice. Mr. Aideed used his forces to kill 18 
American military people. What happened? A year later, after spending 
hundreds of millions of dollars to stabilize the situation in Somalia, 
we pulled out. Aideed is still there. Another foreign policy failure. 
And it cost the taxpayers hundreds of millions of dollars and a lot of 
American lives for nothing.
  Now the President says he wants to send 25,000 troops into Bosnia to 
nation build, to stabilize the situation, to bring about peace and 
democracy there in a country that has a history of hundreds of years of 
war between religious factions and various ethnic groups.
  Our troops are going to be put right smack-dab in the middle. Sixty 
thousand of the Serbian, Bosnian Serbs around Sarajevo have said they 
do not like the agreement, they are not going to go along with the 
agreement, and they have guns and weapons. And our troops are going to 
be there to maintain the peace. This is a recipe for disaster, another 
in a series of failed foreign policy programs pushed by the Clinton 
administration.
  Do you know how many land mines there are in Bosnia? Six million. Six 
million. It is almost like you could not walk anyplace without stepping 
on a land mine. Do you know something even worse than that? We only 
have a map showing where between 100,000 and 1 million of them are. 
That means at least 5 million land mines are out there that we do not 
know about.
  Our troops are going to be put there in between warring factions who 
hate each other, and we are supposed to keep the peace. If they break 
across the 2\1/2\-mile-wide line that we are going to be patrolling, 
then we have, we will be able to defend ours, shoot to kill. But when 
we do that, there is going to be retaliation. There is going to be a 
lot of Americans killed.
  It is unfortunate that the President, time after time after time has 
had failed foreign policy, and we in the Congress of the United States 
have been unable to do anything about it. As Commander in Chief, he 
does not listen to the will of the Congress of the United States. We 
did not want him to send troops into Haiti, but he did it anyhow. We 
did not want him to nation build in Somalia, but he did it anyhow. We 
do not want him, by a vote of over 300 to less than 125, we did not 
want him to send troops into Bosnia, but he has said last night on 
American TV we are going to do it anyhow.

                              {time}  2000

  To heck with what the people in the Congress of the United States 
want; to heck with what the American people want. So I just like to say 
to my colleagues we ought to send the President a very strong message, 
try to stop him any way we can from sending troops over there. Once 
they get there, we have to support them because they are our young men 
and women. We cannot leave them in harm's way without proper military 
equipment.
  But the President bears the responsibility. He said last night he 
bears the full responsibility. You bet he does.


                    securities litigation reform act

  Mr. WHITE submitted the following conference report and statement on 
the bill (H.R. 1058) to reform Federal securities litigation, and for 
other purposes:

                  Conference Report (H. Rept. 104-369)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendments of the Senate to the bill (H.R. 
     1058), to reform Federal securities litigation, and for other 
     purposes, having met, after full and free conference, have 
     agreed to recommend and do recommend to their respective 
     Houses as follows:
       That the House recede from its disagreement to the 
     amendment of the Senate to the text of the bill and agree to 
     the same with an amendment as follows:
       In lieu of the matter proposed to be inserted by the Senate 
     amendment, insert the following:

     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. Private securities litigation reform.
Sec. 102. Safe harbor for forward-looking statements.
Sec. 103. Elimination of certain abusive practices.
Sec. 104. Authority of Commission to prosecute aiding and abetting.
Sec. 105. Loss causation.
Sec. 106. Study and report on protections for senior citizens and 
              qualified retirement plans.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations 
              Act.
Sec. 108. Applicability.

              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

Sec. 201. Proportionate liability.
Sec. 203. Applicability.
Sec. 204. Rule of construction.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

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

     SEC. 101. PRIVATE SECURITIES LITIGATION REFORM.

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

     ``SEC. 27. PRIVATE SECURITIES LITIGATION.

       ``(a) Private Class Actions.--
       ``(1) In general.--The provisions of this subsection shall 
     apply to 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 complaint.--
       ``(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 other 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, or served, 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 (4).
       ``(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) Appointment of lead plaintiff.--
       ``(A) Early notice to class members.--
       ``(i) In general.--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-

[[Page H 13693]]
     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.

       ``(ii) Multiple actions.--If more than one action on behalf 
     of a class asserting substantially the same claim or claims 
     arising under this title is filed, only the plaintiff or 
     plaintiffs in the first filed action shall be required to 
     cause notice to be published in accordance with clause (i).
       ``(iii) Additional notices may be required under federal 
     rules.--Notice required under clause (i) shall be in addition 
     to any notice required pursuant to the Federal Rules of Civil 
     Procedure.
       ``(B) Appointment of lead plaintiff.--
       ``(i) In general.--Not later than 90 days after the date on 
     which a notice is published under subparagraph (A)(i), the 
     court shall consider any motion made by a purported class 
     member in response to the notice, including any motion by a 
     class member who is not individually named as a plaintiff in 
     the complaint or complaints, 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 paragraph referred to as the `most 
     adequate plaintiff') in accordance with this subparagraph.
       ``(ii) 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 clause (i) 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 subparagraph.
       ``(iii) Rebuttable presumption.--

       ``(I) In general.--Subject to subclause (II), for purposes 
     of clause (i), 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--

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

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

       ``(aa) will not fairly and adequately protect the interests 
     of the class; or
       ``(bb) is subject to unique defenses that render such 
     plaintiff incapable of adequately representing the class.
       ``(iv) Discovery.--For purposes of this subparagraph, 
     discovery relating to whether a member or members of the 
     purported plaintiff class is the most adequate plaintiff 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.
       ``(v) Selection of lead counsel.--The most adequate 
     plaintiff shall, subject to the approval of the court, select 
     and retain counsel to represent the class.
       ``(vi) Restrictions on professional plaintiffs.--Except as 
     the court may otherwise permit, consistent with the purposes 
     of this section, a person may be a lead plaintiff, or an 
     officer, director, or fiduciary of a lead plaintiff, in no 
     more than 5 securities class actions brought as plaintiff 
     class actions pursuant to the Federal Rules of Civil 
     Procedure during any 3-year period.
       ``(4) 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 
     equal, on a per share basis, to the portion 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.
       ``(5) 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.
       ``(6) 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 any damages and 
     prejudgment interest actually paid to the class.
       ``(7) 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.
       ``(8) Attorney conflict of interest.--If a plaintiff class 
     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 plaintiff class.
       ``(b) Stay of Discovery; Preservation of Evidence.--
       ``(1) In general.--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.
       ``(2) Preservation of evidence.--During the pendency of any 
     stay of discovery pursuant to this subsection, unless 
     otherwise ordered by the court, any party to the action with 
     actual notice of the allegations contained in the complaint 
     shall treat all documents, data compilations (including 
     electronically recorded or stored data), and tangible objects 
     that are in the custody or control of such person and that 
     are relevant to the allegations, as if they were the subject 
     of a continuing request for production of documents from an 
     opposing party under the Federal Rules of Civil Procedure.
       ``(3) Sanction for willful violation.--A party aggrieved by 
     the willful failure of an opposing party to comply with 
     paragraph (2) may apply to the court for an order awarding 
     appropriate sanctions.
       ``(c) 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 as to any complaint, 
     responsive pleading, or dispositive motion.
       ``(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 as to any complaint, responsive pleading, or 
     dispositive motion, the court shall impose sanctions on such 
     party or attorney in accordance with Rule 11 of the Federal 
     Rules of Civil Procedure. Prior to making a finding that any 
     party or attorney has violated Rule 11 of the Federal Rules 
     of Civil Procedure, the court shall give such party or 
     attorney notice and an opportunity to respond.
       ``(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--
       ``(i) for failure of any responsive pleading or dispositive 
     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 the reasonable attorneys' fees and other expenses 
     incurred as a direct result of the violation; and
       ``(ii) for substantial failure of any complaint to comply 
     with any requirement of Rule 11(b) of the Federal Rules of 
     Civil Procedure is an award to the opposing party of the 
     reasonable attorneys' fees and other expenses incurred in the 
     action.
       ``(B) Rebuttal evidence.--The presumption described in 
     subparagraph (A) may be rebutted 

[[Page H 13694]]
     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 unreasonable burden on that party or attorney and 
     would be unjust, and the failure to make such an award would 
     not impose a greater burden on the party in whose favor 
     sanctions are to be imposed; 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.
       ``(d) 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.--Title I of the 
     Securities Exchange Act of 1934 (78a et seq.) is amended by 
     inserting after section 21C the following new section:

     ``SEC. 21D. PRIVATE SECURITIES LITIGATION.

       ``(a) Private Class Actions.--
       ``(1) In general.--The provisions of 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 complaint.--
       ``(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 other 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 (4).
       ``(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) Appointment of lead plaintiff.--
       ``(A) Early notice to class members.--
       ``(i) In general.--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.

       ``(ii) Multiple actions.--If more than one action on behalf 
     of a class asserting substantially the same claim or claims 
     arising under this title is filed, only the plaintiff or 
     plaintiffs in the first filed action shall be required to 
     cause notice to be published in accordance with clause (i).
       ``(iii) Additional notices may be required under federal 
     rules.--Notice required under clause (i) shall be in addition 
     to any notice required pursuant to the Federal Rules of Civil 
     Procedure.
       ``(B) Appointment of lead plaintiff.--
       ``(i) In general.--Not later than 90 days after the date on 
     which a notice is published under subparagraph (A)(i), the 
     court shall consider any motion made by a purported class 
     member in response to the notice, including any motion by a 
     class member who is not individually named as a plaintiff in 
     the complaint or complaints, 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 paragraph referred to as the `most 
     adequate plaintiff') in accordance with this subparagraph.
       ``(ii) 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 clause (i) 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.
       ``(iii) Rebuttable presumption.--

       ``(I) In general.--Subject to subclause (II), for purposes 
     of clause (i), 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--

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

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

       ``(aa) will not fairly and adequately protect the interests 
     of the class; or
       ``(bb) is subject to unique defenses that render such 
     plaintiff incapable of adequately representing the class.
       ``(iv) Discovery.--For purposes of this subparagraph, 
     discovery relating to whether a member or members of the 
     purported plaintiff class is the most adequate plaintiff 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.
       ``(v) Selection of lead counsel.--The most adequate 
     plaintiff shall, subject to the approval of the court, select 
     and retain counsel to represent the class.
       ``(vi) Restrictions on professional plaintiffs.--Except as 
     the court may otherwise permit, consistent with the purposes 
     of this section, a person may be a lead plaintiff, or an 
     officer, director, or fiduciary of a lead plaintiff, in no 
     more than 5 securities class actions brought as plaintiff 
     class actions pursuant to the Federal Rules of Civil 
     Procedure during any 3-year period.
       ``(4) 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 
     equal, on a per share basis, to the portion 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 a class.
       ``(5) 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.
       ``(6) 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 any damages and 
     prejudgment interest actually paid to the class.
       ``(7) 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. Such information shall be clearly 
     summarized on the cover page of any notice to a party of any 
     proposed or final settlement agreement.
       ``(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.

[[Page H 13695]]

       ``(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.
       ``(8) Security for payment of costs in class actions.--In 
     any private action arising under this title that is certified 
     as a class action pursuant to the Federal Rules of Civil 
     Procedure, the court may require an undertaking from the 
     attorneys for the plaintiff class, the plaintiff class, or 
     both, or from the attorneys for the defendant, the defendant, 
     or both, in such proportions and at such times as the court 
     determines are just and equitable, for the payment of fees 
     and expenses that may be awarded under this subsection.
       ``(9) Attorney conflict of interest.--If a plaintiff class 
     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 plaintiff class.
       ``(b) Requirements for Securities Fraud Actions.--
       ``(1) Misleading statements and omissions.--In any private 
     action arising under this title in which the plaintiff 
     alleges that the defendant--
       ``(A) made an untrue statement of a material fact; or
       ``(B) 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 complaint 
     shall state with particularity all facts on which that belief 
     is formed.
       ``(2) Required state of mind.--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, state 
     with particularity facts giving rise to a strong inference 
     that the defendant acted with the required state of mind.
       ``(3) Motion to dismiss; stay of discovery.--
       ``(A) 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 paragraphs (1) 
     and (2) are not met.
       ``(B) 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.
       ``(C) Preservation of evidence.--
       ``(i) In general.--During the pendency of any stay of 
     discovery pursuant to this paragraph, unless otherwise 
     ordered by the court, any party to the action with actual 
     notice of the allegations contained in the complaint shall 
     treat all documents, data compilations (including 
     electronically recorded or stored data), and tangible objects 
     that are in the custody or control of such person and that 
     are relevant to the allegations, as if they were the subject 
     of a continuing request for production of documents from an 
     opposing party under the Federal Rules of Civil Procedure.
       ``(ii) Sanction for willful violation.--A party aggrieved 
     by the willful failure of an opposing party to comply with 
     clause (i) may apply to the court for an order awarding 
     appropriate sanctions.
       ``(4) Loss causation.--In any private action arising under 
     this title, the plaintiff shall have the burden of proving 
     that the act or omission of the defendant alleged to violate 
     this title caused the loss for which the plaintiff seeks to 
     recover damages.
       ``(c) 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 as to any complaint, 
     responsive pleading, or dispositive motion.
       ``(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 as to any complaint, responsive pleading, or 
     dispositive motion, the court shall impose sanctions on such 
     party or attorney in accordance with Rule 11 of the Federal 
     Rules of Civil Procedure. Prior to making a finding that any 
     party or attorney has violated Rule 11 of the Federal Rules 
     of Civil Procedure, the court shall give such party or 
     attorney notice and an opportunity to respond.
       ``(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--
       ``(i) for failure of any responsive pleading or dispositive 
     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 the reasonable attorneys' fees and other expenses 
     incurred as a direct result of the violation; and
       ``(ii) for substantial failure of any complaint to comply 
     with any requirement of Rule 11(b) of the Federal Rules of 
     Civil Procedure is an award to the opposing party of the 
     reasonable attorneys' fees and other expenses incurred in the 
     action.
       ``(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 unreasonable burden on that party or attorney and 
     would be unjust, and the failure to make such an award would 
     not impose a greater burden on the party in whose favor 
     sanctions are to be imposed; 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.
       ``(d) 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.
       ``(e) Limitation on Damages.--
       ``(1) In general.--Except as provided in paragraph (2), in 
     any private action arising under this title in which the 
     plaintiff seeks to establish damages by reference to the 
     market price of a security, the award of damages to the 
     plaintiff 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 mean trading 
     price of that security during the 90-day period beginning on 
     the date on which the information correcting the misstatement 
     or omission that is the basis for the action is disseminated 
     to the market.
       ``(2) Exception.--In any private action arising under this 
     title in which the plaintiff seeks to establish damages by 
     reference to the market price of a security, 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 mean 
     trading price 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.
       ``(3) Definition.--For purposes of this subsection, the 
     `mean trading price' of a security shall be an average of the 
     daily trading price of that security, determined as of the 
     close of the market each day during the 90-day period 
     referred to in paragraph (1).''.

     SEC. 102. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

       (a) Amendment to the 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 27 (as added by this Act) the 
     following new section:

     ``SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING 
                   STATEMENTS.

       ``(a) Applicability.--This section shall apply only to a 
     forward-looking statement made by--
       ``(1) an issuer that, at the time that the statement is 
     made, is subject to the reporting requirements of section 
     13(a) or section 15(d) of the Securities Exchange Act of 
     1934;
       ``(2) a person acting on behalf of such issuer;
       ``(3) an outside reviewer retained by such issuer making a 
     statement on behalf of such issuer; or
       ``(4) an underwriter, with respect to information provided 
     by such issuer or information derived from information 
     provided by the issuer.
       ``(b) Exclusions.--Except to the extent otherwise 
     specifically provided by rule, regulation, or order of the 
     Commission, this section shall not apply to a forward-looking 
     statement--
       ``(1) that is 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) of the 
     Securities Exchange Act of 1934; 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 antifraud 
     provisions of the securities laws;
       ``(II) requires that the issuer cease and desist from 
     violating the antifraud provisions of the securities laws; or
       ``(III) determines that the issuer violated the antifraud 
     provisions of the securities laws;

       ``(B) makes the forward-looking statement in connection 
     with an offering of securities by a blank check company;
       ``(C) issues penny stock;
       ``(D) makes the forward-looking statement in connection 
     with a rollup transaction; or
       ``(E) makes the forward-looking statement in connection 
     with a going private transaction; or
       ``(2) that is--
       ``(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;
       ``(C) made in connection with a tender offer;
       ``(D) made in connection with an initial public offering;
       ``(E) made in connection with an offering by, or relating 
     to the operations of, a partnership, 

[[Page H 13696]]
     limited liability company, or a direct participation investment 
     program; 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.
       ``(c) Safe Harbor.--
       ``(1) In general.--Except as provided in subsection (b), in 
     any private action arising under this title that is based on 
     an untrue statement of a material fact or omission of a 
     material fact necessary to make the statement not misleading, 
     a person referred to in subsection (a) shall not be liable 
     with respect to any forward-looking statement, whether 
     written or oral, if and to the extent that--
       ``(A) the forward-looking statement is--
       ``(i) identified as a forward-looking statement, and is 
     accompanied by meaningful cautionary statements identifying 
     important factors that could cause actual results to differ 
     materially from those in the forward-looking statement; or
       ``(ii) immaterial; or
       ``(B) the plaintiff fails to prove that the forward-looking 
     statement--
       ``(i) if made by a natural person, was made with actual 
     knowledge by that person that the statement was false or 
     misleading; or
       ``(ii) if made by a business entity; was--

       ``(I) made by or with the approval of an executive officer 
     of that entity, and
       ``(II) made or approved by such officer with actual 
     knowledge by that officer that the statement was false or 
     misleading.

       ``(2) Oral forward-looking statements.--In the case of an 
     oral forward-looking statement made by an issuer that is 
     subject to the reporting requirements of section 13(a) or 
     section 15(d) of the Securities Exchange Act of 1934, or by a 
     person acting on behalf of such issuer, the requirement set 
     forth in paragraph (1)(A) shall be deemed to be satisfied--
       ``(A) if the oral forward-looking statement is accompanied 
     by a cautionary statement--
       ``(i) that the particular oral statement is a forward-
     looking statement; and
       ``(ii) that the actual results could differ materially from 
     those projected in the forward-looking statement; and
       ``(B) if--
       ``(i) the oral forward-looking statement is accompanied by 
     an oral statement that additional information concerning 
     factors that could cause actual results to differ materially 
     from those in the forward-looking statement is contained in a 
     readily available written document, or portion thereof;
       ``(ii) the accompanying oral statement referred to in 
     clause (i) identifies the document, or portion thereof, that 
     contains the additional information about those factors 
     relating to the forward-looking statement; and
       ``(iii) the information contained in that written document 
     is a cautionary statement that satisfies the standard 
     established in paragraph (1)(A).
       ``(3) Availability.--Any document filed with the Commission 
     or generally disseminated shall be deemed to be readily 
     available for purposes of paragraph (2).
       ``(4) Effect on other safe harbors.--The exemption provided 
     for in paragraph (1) shall be in addition to any exemption 
     that the Commission may establish by rule or regulation under 
     subsection (g).
       ``(d) Duty To Update.--Nothing in this section shall impose 
     upon any person a duty to update a forward-looking statement.
       ``(e) Dispositive Motion.--On any motion to dismiss based 
     upon subsection (c)(1), the court shall consider any 
     statement cited in the complaint and cautionary statement 
     accompanying the forward-looking statement, which are not 
     subject to material dispute, cited by the defendant.
       ``(f) Stay Pending Decision on Motion.--In any private 
     action arising under this title, the court shall stay 
     discovery (other than discovery that is specifically directed 
     to the applicability of the exemption provided for in this 
     section) during the pendency of any motion by a defendant 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.
       ``(g) Exemption Authority.--In addition to the exemptions 
     provided for in this section, the Commission may, by rule or 
     regulation, provide exemptions from or under any provision of 
     this title, including with respect to liability that is based 
     on a statement or that is based on projections or other 
     forward-looking information, if and to the extent that any 
     such exemption is consistent with the public interest and the 
     protection of investors, as determined by the Commission.
       ``(h) 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.
       ``(i) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       ``(1) Forward-looking statement.--The term `forward-looking 
     statement' means--
       ``(A) 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;
       ``(B) a statement of the plans and objectives of management 
     for future operations, including plans or objectives relating 
     to the products or services of the issuer;
       ``(C) a statement of future economic performance, including 
     any such statement 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;
       ``(D) any statement of the assumptions underlying or 
     relating to any statement described in subparagraph (A), (B), 
     or (C);
       ``(E) any report issued by an outside reviewer retained by 
     an issuer, to the extent that the report assesses a forward-
     looking statement made by the issuer; or
       ``(F) a statement containing a projection or estimate of 
     such other items as may be specified by rule or regulation of 
     the Commission.
       ``(2) Investment company.--The term `investment company' 
     has the same meaning as in section 3(a) of the Investment 
     Company Act of 1940.
       ``(3) Penny stock.--The term `penny stock' has the same 
     meaning as in section 3(a)(51) of the Securities Exchange Act 
     of 1934, and the rules and regulations, or orders issued 
     pursuant to that section.
       ``(4) Going private transaction.--The term `going private 
     transaction' has the meaning given that term under the rules 
     or regulations of the Commission issued pursuant to section 
     13(e) of the Securities Exchange Act of 1934.
       ``(5) Securities laws.--The term `securities laws' has the 
     same meaning as in section 3 of the Securities Exchange Act 
     of 1934.
       ``(6) Person acting on behalf of an issuer.--The term 
     `person acting on behalf of an issuer' means an officer, 
     director, or employee of the issuer.
       ``(7) Other terms.--The terms `blank check company', 
     `rollup transaction', `partnership', `limited liability 
     company', `executive officer of an entity' and `direct 
     participation investment program', have the meanings given 
     those terms by rule or regulation of the Commission.''.
       (b) Amendment to the Securities Exchange Act of 1934.--The 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
     amended by inserting after section 21D (as added by this Act) 
     the following new section:

     ``SEC. 21E. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING 
                   STATEMENTS.

       ``(a) Applicability.--This section shall apply only to a 
     forward-looking statement made by--
       ``(1) an issuer that, at the time that the statement is 
     made, is subject to the reporting requirements of section 
     13(a) or section 15(d);
       ``(2) a person acting on behalf of such issuer;
       ``(3) an outside reviewer retained by such issuer making a 
     statement on behalf of such issuer; or
       ``(4) an underwriter, with respect to information provided 
     by such issuer or information derived from information 
     provided by such issuer.
       ``(b) Exclusions.--Except to the extent otherwise 
     specifically provided by rule, regulation, or order of the 
     Commission, this section shall not apply to a forward-looking 
     statement--
       ``(1) that is 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 antifraud 
     provisions of the securities laws;
       ``(II) requires that the issuer cease and desist from 
     violating the antifraud provisions of the securities laws; or
       ``(III) determines that the issuer violated the antifraud 
     provisions of the securities laws;

       ``(B) makes the forward-looking statement in connection 
     with an offering of securities by a blank check company;
       ``(C) issues penny stock;
       ``(D) makes the forward-looking statement in connection 
     with a rollup transaction; or
       ``(E) makes the forward-looking statement in connection 
     with a going private transaction; or
       ``(2) that is--
       ``(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;
       ``(C) made in connection with a tender offer;
       ``(D) made in connection with an initial public offering;
       ``(E) made in connection with an offering by, or relating 
     to the operations of, a partnership, limited liability 
     company, or a direct participation investment program; or
       ``(F) made in a disclosure of beneficial ownership in a 
     report required to be filed with the Commission pursuant to 
     section 13(d).
       ``(c) Safe Harbor.--
       ``(1) In general.--Except as provided in subsection (b), in 
     any private action arising under this title that is based on 
     an untrue statement of a material fact or omission of a 
     material fact necessary to make the statement not misleading, 
     a person referred to in subsection (a) shall not be liable 
     with respect to any forward-looking statement, whether 
     written or oral, if and to the extent that--
       ``(A) the forward-looking statement is--
       ``(i) identified as a forward-looking statement, and is 
     accompanied by meaningful cautionary statements identifying 
     important factors that could cause actual results to differ 
     materially from those in the forward-looking statement; or
       ``(ii) immaterial; or
       ``(B) the plaintiff fails to prove that the forward-looking 
     statement--
       ``(i) if made by a natural person, was made with actual 
     knowledge by that person that the statement was false or 
     misleading; or
       ``(ii) if made by a business entity; was--

       ``(I) made by or with the approval of an executive officer 
     of that entity; and
       ``(II) made or approved by such officer with actual 
     knowledge by that officer that the statement was false or 
     misleading.

[[Page H 13697]]


       ``(2) Oral forward-looking statements.--In the case of an 
     oral forward-looking statement made by an issuer that is 
     subject to the reporting requirements of section 13(a) or 
     section 15(d), or by a person acting on behalf of such 
     issuer, the requirement set forth in paragraph (1)(A) shall 
     be deemed to be satisfied--
       ``(A) if the oral forward-looking statement is accompanied 
     by a cautionary statement--
       ``(i) that the particular oral statement is a forward-
     looking statement; and
       ``(ii) that the actual results might differ materially from 
     those projected in the forward-looking statement; and
       ``(B) if--
       ``(i) the oral forward-looking statement is accompanied by 
     an oral statement that additional information concerning 
     factors that could cause actual results to materially differ 
     from those in the forward-looking statement is contained in a 
     readily available written document, or portion thereof;
       ``(ii) the accompanying oral statement referred to in 
     clause (i) identifies the document, or portion thereof, that 
     contains the additional information about those factors 
     relating to the forward-looking statement; and
       ``(iii) the information contained in that written document 
     is a cautionary statement that satisfies the standard 
     established in paragraph (1)(A).
       ``(3) Availability.--Any document filed with the Commission 
     or generally disseminated shall be deemed to be readily 
     available for purposes of paragraph (2).
       ``(4) Effect on other safe harbors.--The exemption provided 
     for in paragraph (1) shall be in addition to any exemption 
     that the Commission may establish by rule or regulation under 
     subsection (g).
       ``(d) Duty To Update.--Nothing in this section shall impose 
     upon any person a duty to update a forward-looking statement.
       ``(e) Dispositive Motion.--On any motion to dismiss based 
     upon subsection (c)(1), the court shall consider any 
     statement cited in the complaint and any cautionary statement 
     accompanying the forward-looking statement, which are not 
     subject to material dispute, cited by the defendant.
       ``(f) Stay Pending Decision on Motion.--In any private 
     action arising under this title, the court shall stay 
     discovery (other than discovery that is specifically directed 
     to the applicability of the exemption provided for in this 
     section) during the pendency of any motion by a defendant 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.
       ``(g) Exemption Authority.--In addition to the exemptions 
     provided for in this section, the Commission may, by rule or 
     regulation, provide exemptions from or under any provision of 
     this title, including with respect to liability that is based 
     on a statement or that is based on projections or other 
     forward-looking information, if and to the extent that any 
     such exemption is consistent with the public interest and the 
     protection of investors, as determined by the Commission.
       ``(h) 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.
       ``(i) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       ``(1) Forward-looking statement.--The term `forward-looking 
     statement' means--
       ``(A) 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;
       ``(B) a statement of the plans and objectives of management 
     for future operations, including plans or objectives relating 
     to the products or services of the issuer;
       ``(C) a statement of future economic performance, including 
     any such statement 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;
       ``(D) any statement of the assumptions underlying or 
     relating to any statement described in subparagraph (A), (B), 
     or (C);
       ``(E) any report issued by an outside reviewer retained by 
     an issuer, to the extent that the report assesses a forward-
     looking statement made by the issuer; or
       ``(F) a statement containing a projection or estimate of 
     such other items as may be specified by rule or regulation of 
     the Commission.
       ``(2) Investment company.--The term `investment company' 
     has the same meaning as in section 3(a) of the Investment 
     Company Act of 1940.
       ``(3) Going private transaction.--The term `going private 
     transaction' has the meaning given that term under the rules 
     or regulations of the Commission issued pursuant to section 
     13(e).
       ``(4) Person acting on behalf of an issuer.--The term 
     `person acting on behalf of an issuer' means any officer, 
     director, or employee of such issuer.
       ``(5) Other terms.--The terms `blank check company', 
     `rollup transaction', `partnership', `limited liability 
     company', `executive officer of an entity' and `direct 
     participation investment program', have the meanings given 
     those terms by rule or regulation of the Commission.''.

     SEC. 103. 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) 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:
       ``(f) 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.''.
       (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. 104. 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:
       ``(f) 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 violation of a provision of this title, or of any rule or 
     regulation issued under this title, shall be deemed to be in 
     violation of such provision to the same extent as the person 
     to whom such assistance is provided.''.

     SEC. 105. 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. 106. STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS 
                   AND QUALIFIED RETIREMENT PLANS.

       (a) 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;
       (2) determine whether investors that are senior citizens or 
     qualified retirement plans have been adversely impacted by 
     abusive or unnecessary securities fraud litigation, and 
     whether the provisions in this Act or amendments made by this 
     Act are sufficient to protect their investments from such 
     litigation; and
       (3) if so, submit to the Congress a report containing 
     recommendations on protections from securities fraud and 
     abusive or unnecessary securities fraud litigation that the 
     Commission determines to be appropriate to thoroughly protect 
     such investors.
       (b) 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. 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 any conduct that would have been actionable as 
     fraud in the purchase or sale of securities to establish a 
     violation of section 1962. The exception contained in the 
     preceding sentence does not apply to an action against any 
     person that is criminally convicted in connection with the 
     fraud, in which case the statute of limitations shall start 

[[Page H 13698]]
     to run on the date on which the conviction becomes final''.

     SEC. 108. 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 and pending on the date of enactment 
     of this Act.
              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

     SEC. 201. PROPORTIONATE LIABILITY.

       (a) Amendment to Securities and Exchange Act of 1934.--
     Section 21D the Securities Exchange Act of 1934 (as added by 
     this Act) is amended by adding at the end the following new 
     subsection:
       ``(g) Proportionate Liability.--
       ``(1) Applicability.--Nothing in this subsection shall be 
     construed to create, affect, or in any manner modify, the 
     standard for liability associated with any action arising 
     under the securities laws.
       ``(2) Liability for damages.--
       ``(A) Joint and several liability.--Any covered person 
     against whom a final judgment is entered in a private action 
     shall be liable for damages jointly and severally only if the 
     trier of fact specifically determines that such covered 
     person knowingly committed a violation of the securities 
     laws.
       ``(B) Proportionate liability.--
       ``(i) In general.--Except as provided in paragraph (1), a 
     covered person against whom a final judgment is entered in a 
     private action shall be liable solely for the portion of the 
     judgment that corresponds to the percentage of responsibility 
     of that covered person, as determined under paragraph (3).
       ``(ii) Recovery by and costs of covered person.--In any 
     case in which a contractual relationship permits, a covered 
     person that prevails in any private action may recover the 
     attorney's fees and costs of that covered person in 
     connection with the action.
       ``(3) Determination of responsibility.--
       ``(A) In general.--In any private action, the court shall 
     instruct the jury to answer special interrogatories, or if 
     there is no jury, shall make findings, with respect to each 
     covered person and each of the other persons claimed by any 
     of the parties to have caused or contributed to the loss 
     incurred by the plaintiff, including persons who have entered 
     into settlements with the plaintiff or plaintiffs, 
     concerning--
       ``(i) whether such person violated the securities laws;
       ``(ii) the percentage of responsibility of such person, 
     measured as a percentage of the total fault of all persons 
     who caused or contributed to the loss incurred by the 
     plaintiff; and
       ``(iii) whether such person knowingly committed a violation 
     of the securities laws.
       ``(B) Contents of special interrogatories or findings.--The 
     responses to interrogatories, or findings, as appropriate, 
     under subparagraph (A) shall specify the total amount of 
     damages that the plaintiff is entitled to recover and the 
     percentage of responsibility of each covered person found to 
     have caused or contributed to the loss incurred by the 
     plaintiff or plaintiffs.
       ``(C) Factors for consideration.--In determining the 
     percentage of responsibility under this paragraph, the trier 
     of fact shall consider--
       ``(i) the nature of the conduct of each covered person 
     found to have caused or contributed to the loss incurred by 
     the plaintiff or plaintiffs; and
       ``(ii) the nature and extent of the causal relationship 
     between the conduct of each such person and the damages 
     incurred by the plaintiff or plaintiffs.
       ``(4) Uncollectible share.--
       ``(A) In general.--Notwithstanding paragraph (2)(B), upon 
     motion made not later than 6 months after a final judgment is 
     entered in any private action, the court determines that all 
     or part of the share of the judgment of the covered person is 
     not collectible against that covered person, and is also not 
     collectible against a covered person described in paragraph 
     (2)(A), each covered person described in paragraph (2)(B) 
     shall be liable for the uncollectible share as follows:
       ``(i) Percentage of net worth.--Each covered person 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 worth of the plaintiff; and
       ``(II) the net worth of the plaintiff is equal to less than 
     $200,000.

       ``(ii) Other plaintiffs.--With respect to any plaintiff not 
     described in subclauses (I) and (II) of clause (i), each 
     covered person shall be liable for the uncollectible share in 
     proportion to the percentage of responsibility of that 
     covered person, except that the total liability of a covered 
     person under this clause may not exceed 50 percent of the 
     proportionate share of that covered person, as determined 
     under paragraph (3)(B).
       ``(iii) Net worth.--For purposes of this subparagraph, net 
     worth shall be determined as of the date immediately 
     preceding the date of the purchase or sale (as applicable) by 
     the plaintiff of the security that is the subject of the 
     action, and shall be equal to the fair market value of 
     assets, minus liabilities, including the net value of the 
     investments of the plaintiff in real and personal property 
     (including personal residences).
       ``(B) Overall limit.--In no case shall the total payments 
     required pursuant to subparagraph (A) exceed the amount of 
     the uncollectible share.
       ``(C) Covered persons subject to contribution.--A covered 
     person against whom judgment is not collectible shall be 
     subject to contribution and to any continuing liability to 
     the plaintiff on the judgment.
       ``(5) Right of contribution.--To the extent that a covered 
     person is required to make an additional payment pursuant to 
     paragraph (4), that covered person may recover contribution--
       ``(A) from the covered person originally liable to make the 
     payment;
       ``(B) from any covered person liable jointly and severally 
     pursuant to paragraph (2)(A);
       ``(C) from any covered person held proportionately liable 
     pursuant to this paragraph who is liable to make the same 
     payment and has paid less than his or her proportionate share 
     of that payment; or
       ``(D) from any other person responsible for the conduct 
     giving rise to the payment that would have been liable to 
     make the same payment.
       ``(6) Nondisclosure to jury.--The standard for allocation 
     of damages under paragraphs (2) and (3) and the procedure for 
     reallocation of uncollectible shares under paragraph (4) 
     shall not be disclosed to members of the jury.
       ``(7) Settlement discharge.--
       ``(A) In general.--A covered person who settles any private 
     action 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 covered 
     person arising out of the action. The order shall bar all 
     future claims for contribution arising out of the action--
       ``(i) by any person against the settling covered person; 
     and
       ``(ii) by the settling covered person against any person, 
     other than a person whose liability has been extinguished by 
     the settlement of the settling covered person.
       ``(B) Reduction.--If a covered 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--
       ``(i) an amount that corresponds to the percentage of 
     responsibility of that covered person; or
       ``(ii) the amount paid to the plaintiff by that covered 
     person.
       ``(8) Contribution.--A covered person who becomes jointly 
     and severally liable for damages in any private action 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.
       ``(9) Statute of limitations for contribution.--In any 
     private action 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 covered 
     person who was required to make an additional payment 
     pursuant to paragraph (4) may be brought not later than 6 
     months after the date on which such payment was made.
       ``(10) Definitions.--For purposes of this subsection--
       ``(A) a covered person `knowingly commits a violation of 
     the securities laws'--
       ``(i) with respect to an action that is based on an untrue 
     statement of material fact or omission of a material fact 
     necessary to make the statement not misleading, if--

       ``(I) that covered person makes an untrue statement of a 
     material fact, with actual knowledge that the representation 
     is false, or omits to state a fact necessary in order to make 
     the statement made not misleading, with actual knowledge 
     that, as a result of the omission, one of the material 
     representations of the covered person is false; and
       ``(II) persons are likely to reasonably rely on that 
     misrepresentation or omission; and

       ``(ii) with respect to an action that is based on any 
     conduct that is not described in clause (i), if that covered 
     person engages in that conduct with actual knowledge of the 
     facts and circumstances that make the conduct of that covered 
     person a violation of the securities laws;
       ``(B) reckless conduct by a covered person shall not be 
     construed to constitute a knowing commission of a violation 
     of the securities laws by that covered person;
       ``(C) the term `covered person' means--
       ``(i) a defendant in any private action arising under this 
     title; or
       ``(ii) a defendant in any private action arising under 
     section 11 of the Securities Act of 1933, who is an outside 
     director of the issuer of the securities that are the subject 
     of the action; and
       ``(D) the term `outside director' shall have the meaning 
     given such term by rule or regulation of the Commission.''.
       (b) Amendments to the Securities Act of 1933.--Section 
     11(f) of the Securities Act of 1933 (12 U.S.C. 77k(f)) is 
     amended--
       (1) by striking ``All'' and inserting ``(1) Except as 
     provided in paragraph (2), all''; and
       (2) by adding at the end the following new paragraph:
       ``(2)(A) The liability of an outside director under 
     subsection (e) shall be determined in accordance with section 
     38 of the Securities Exchange Act of 1934.
       ``(B) For purposes of this paragraph, the term `outside 
     director' shall have the meaning given such term by rule or 
     regulation of the Commission .''.

     SEC. 202. APPLICABILITY.

       The amendments made by this title shall not affect or apply 
     to any private action arising under the securities laws 
     commenced before and pending on the date of enactment of this 
     Act.

     SEC. 203. RULE OF CONSTRUCTION.

       Nothing in this Act or the amendments made by this Act 
     shall be deemed to create or ratify any implied private right 
     of action, or to prevent the Commission, by rule or 
     regulation, from restricting or otherwise regulating private 
     actions under the Securities Exchange Act of 1934.

[[Page H 13699]]

            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.
       And the Senate agree to the same.
       That the House recede from its disagreement to the 
     amendment of the Senate to the title of the bill, and agree 
     to the same.

       From the Committee on Commerce, for consideration of the 
     House bill, and the Senate amendment, and modifications 
     committed to conference:
     Thomas Bliley,
     Billy Tauzin,
     Jack Fields,
     Chris Cox,
     Richard F. White,
     Anna G. Eshoo,
       As additional conferees from the Committee on the 
     Judiciary, for consideration of the House bill, and the 
     Senate amendment, and modifications committed to conference:
     Bill McCollum,
                                Managers on the Part of the House.

     Alfonse D'Amato,
     Phil Gramm,
     Robert F. Bennett,
     Rod Grams,
     Pete V. Domenici,
     Christopher Dodd,
     John F. Kerry,
                               Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendments of the Senate to the bill (H.R. 1058) to reform 
     Federal securities litigation, and for other purposes, submit 
     the following joint statement to the House and the Senate in 
     explanation of the effect of the action agreed upon by the 
     managers and recommended in the accompanying conference 
     report:

 Statement of Managers--The ``Private Securities Litigation Reform Act 
                               of 1995''

       The overriding purpose of our Nation's securities laws is 
     to protect investors and to maintain confidence in the 
     securities markets, so that our national savings, capital 
     formation and investment may grow for the benefit of all 
     Americans.
       The private securities litigation system is too important 
     to the integrity of American capital markets to allow this 
     system to be undermined by those who seek to line their own 
     pockets by bringing abusive and meritless suits. Private 
     securities litigation is an indispensable tool with which 
     defrauded investors can recover their losses without having 
     to rely upon government action. Such private lawsuits promote 
     public and global confidence in our capital markets and help 
     to deter wrongdoing and to guarantee that corporate officers, 
     auditors, directors, lawyers and others properly perform 
     their jobs. This legislation seeks to return the securities 
     litigation system to that high standard.
       Congress has been prompted by significant evidence of abuse 
     in private securities lawsuits to enact reforms to protect 
     investors and maintain confidence in our capital markets. The 
     House and Senate Committees heard evidence that abusive 
     practices committed in private securities litigation include: 
     (1) the routine filing of lawsuits against issuers of 
     securities and others whenever there is a significant change 
     in an issuer's stock price, without regard to any underlying 
     culpability of the issuer, and with only faint hope that the 
     discovery process might lead eventually to some plausible 
     cause of action; (2) the targeting of deep pocket defendants, 
     including accountants, underwriters, and individuals who may 
     be covered by insurance, without regard to their actual 
     culpability; (3) the abuse of the discovery process to impose 
     costs so burdensome that it is often economical for the 
     victimized party to settle; and (4) the manipulation by class 
     action lawyers of the clients whom they purportedly 
     represent. These serious injuries to innocent parties are 
     compounded by the reluctance of many judges to impose 
     sanctions under Federal Rule of Civil Procedure 11, except in 
     those cases involving truly outrageous misconduct. At the 
     same time, the investing public and the entire U.S. economy 
     have been injured by the unwillingness of the best qualified 
     persons to serve on boards of directors and of issuers to 
     discuss publicly their future prospects, because of fear of 
     baseless and extortionate securities lawsuits.
       In these and other examples of abusive and manipulative 
     securities litigation, innocent parties are often forced to 
     pay exorbitant ``settlements.'' When an insurer must pay 
     lawyers' fees, make settlement payments, and expend 
     management and employee resources in defending a meritless 
     suit, the issuers' own investors suffer. Investors always are 
     the ultimate losers when extortionate ``settlements'' are 
     extracted from issuers.
       This Conference Report seeks to protect investors, issuers, 
     and all who are associated with our capital markets from 
     abusive securities litigation. This legislation implements 

[[Page H 13700]]
     needed procedural protections to discourage frivolous litigation. It 
     protects outside directors, and others who may be sued for 
     non-knowing securities law violations, from liability for 
     damage actually caused by others. It reforms discovery rules 
     to minimize costs incurred during the pendency of a motion to 
     dismiss or a motion for summary judgment. It protects 
     investors who join class actions against lawyer-driven 
     lawsuits by giving control of the litigation to lead 
     plaintiffs with substantial holdings of the securities of the 
     issuer. It gives victims of abusive securities lawsuits the 
     opportunity to recover their attorneys' fees at the 
     conclusion of an action. And it establishes a safe harbor for 
     forward looking statements, to encourage issuers to 
     disseminate relevant information to the market without fear 
     of open-ended liability.


                  private securities litigation reform

       Section 101 contains provisions to reform abusive 
     securities class action litigation. It amends the Securities 
     Act of 1933 (the ``1933 Act'') by adding a new section 27 and 
     the Securities Exchange Act of 1934 (the ``1934 Act'') by 
     adding a new section 21D. These provisions are intended to 
     encourage the most capable representatives of the plaintiff 
     class to participate in class action litigation and to 
     exercise supervision and control of the lawyers for the 
     class. These provisions are intended to increase the 
     likelihood that parties with significant holdings in issuers, 
     whose interests are more strongly aligned with the class of 
     shareholders, will participate in the litigation and exercise 
     control over the selection and actions of plaintiff's 
     counsel. The legislation also provides that all discovery is 
     stayed during the pendency of any motion to dismiss or for 
     summary judgment. These stay of discovery provisions are 
     intended to prevent unnecessary imposition of discovery costs 
     on defendants.


         the professional plaintiff and lead plaintiff problems

       House and Senate Committee hearings on securities 
     litigation reform demonstrated the need to reform abuses 
     involving the use of ``professional plaintiffs'' and the race 
     to the courthouse to file the complaint.
       Professional plaintiffs who own a nominal number of shares 
     in a wide array of public companies permit lawyers readily to 
     file abusive securities class action lawsuits. Floor debate 
     in the Senate highlighted that many of the ``world's 
     unluckiest investors'' repeatedly appear as lead plaintiffs 
     in securities class action lawsuits. These lead plaintiffs 
     often receive compensation in the form of bounty payments or 
     bonuses.
       The Conference Committee believes these practices have 
     encouraged the filing of abusive cases. Lead plaintiffs are 
     not entitled to a bounty for their services. Individuals who 
     are motivated by the payment of a bounty or bonus should not 
     be permitted to serve as lead plaintiffs. These individuals 
     do not adequately represent other shareholders--in many cases 
     the ``lead plaintiff'' has not even read the complaint.
       The Conference Committee believes that several new rules 
     will effectively discourage the use of professional 
     plaintiffs.
     Plaintiff certification of the complaint
       This legislation requires, in new section 27(a)(2) of the 
     1933 Act and new section 21D(a)(2) of the 1934 Act, that the 
     lead plaintiff file a sworn certified statement with the 
     complaint. The statement must certify that the plaintiff: (a) 
     reviewed and authorized the filing of the complaint; (b) did 
     not purchase the securities at the direction of counsel or in 
     order to participate in a lawsuit; and (c) is willing to 
     serve as the lead plaintiff on behalf of the class. To 
     further deter the use of professional plaintiffs, the 
     plaintiff must also identify any transactions in the 
     securities covered by the class period, and any other 
     lawsuits in which the plaintiff has sought to serve as lead 
     plaintiff in the last three years.\1\
     Footnotes at end of article.
---------------------------------------------------------------------------
     Method for determining the ``most adequate plaintiff''
       The Conference Committee was also troubled by the 
     plaintiffs' lawyers ``race to the courthouse'' to be the 
     first to file a securities class action complaint. This race 
     has caused plaintiffs' attorneys to become fleet of foot and 
     sleight of hand. Most often speed has replaced diligence in 
     drafting complaints. The Conference Committee believes two 
     incentives have driven plaintiffs' lawyers to be the first to 
     file. First, courts traditionally appoint counsel in class 
     action lawsuits on a ``first come, first serve'' basis. 
     Courts often afford insufficient consideration to the most 
     thoroughly researched, but later filed, complaint. The second 
     incentive involves the court's decision as to who will become 
     lead plaintiff. Generally, the first lawsuit filed also 
     determines the lead plaintiff.
       The Conference Committee believes that the selection of the 
     lead plaintiff and lead counsel should rest on considerations 
     other than how quickly a plaintiff has filed its complaint. 
     As a result, this legislation establishes new procedures for 
     the appointment of the lead plaintiff and lead counsel in 
     securities class actions in new section 27(a)(3) of the 1933 
     Act and new section 21D(a)(3) of the 1934 Act.
       A plaintiff filing a securities class action must, within 
     20 days of filing a complaint, provide notice to members of 
     the purported class in a widely circulated business 
     publication. This notice must identify the claims alleged in 
     the lawsuit and the purported class period and inform 
     potential class members that, within 60 days, they may move 
     to serve as the lead plaintiff. Members of the purported 
     class who seek to serve as lead plaintiff do not have to file 
     the certification filing as part of this motion. 
     ``Publication'' includes a variety of media, including wire, 
     electronic or computer services.\2\
       Within 90 days of the published notice, the court must 
     consider motions made under this section and appoint the lead 
     plaintiff. If a motion has been filed to consolidate multiple 
     class actions brought on behalf of the same class, the court 
     will not appoint a lead plaintiff until after consideration 
     of the motion.
       The current system often works to prevent institutional 
     investors from selecting counsel or serving as lead plaintiff 
     in class actions.\3\ The Conference Committee seeks to 
     increase the likelihood that institutional investors will 
     serve as lead plaintiffs by requiring courts to presume that 
     the member of the purported class with the largest financial 
     stake in the relief sought is the ``most adequate 
     plaintiff.''
       The Conference Committee believes that increasing the role 
     of institutional investors in class actions will ultimately 
     benefit shareholders and assist courts by improving the 
     quality of representation in securities class actions. 
     Institutional investors are America's largest shareholders, 
     with about $9.5 trillion in assets, accounting for 51% of the 
     equity market. According to one representative of 
     institutional investors: ``As the largest shareholders in 
     most companies, we are the ones who have the most to gain 
     from meritorious securities litigation.'' \4\
       Several Senators expressed concern during floor 
     consideration of this legislation that preference would be 
     given to large investors, and that large investors might 
     conspire with the defendant company's management. The 
     Conference Committee believes, however, that with pension 
     funds accounting for $4.5 trillion \5\ or nearly half of the 
     institutional assets, in many cases the beneficiaries of 
     pension funds--small investors--ultimately have the greatest 
     stake in the outcome of the lawsuit. Cumulatively, these 
     small investors represent a single large investor interest. 
     Institutional investors and other class members with large 
     amounts at stake will represent the interests of the 
     plaintiff class more effectively than class members with 
     small amounts at stake. The claims of both types of class 
     members generally will be typical.
       The Conference Committee recognizes the potential conflicts 
     that could be caused by the shareholder with the ``largest 
     financial stake'' serving as lead plaintiff. As a result, 
     this presumption may be rebutted by evidence that the 
     plaintiff would not fairly and adequately represent the 
     interests of the class or is subject to unique defenses. 
     Members of the purported class may seek discovery on whether 
     the presumptively most adequate plaintiff would not 
     adequately represent the class. The provisions of the bill 
     relating to the appointment of a lead plaintiff are not 
     intended to affect current law with regard to challenges to 
     the adequacy of the class representative or typicality of the 
     claims among the class.
       Although the most adequate plaintiff provision does not 
     confer any new fiduciary duty on institutional investors--and 
     the courts should not impose such a duty--the Conference 
     Committee nevertheless intends that the lead plaintiff 
     provision will encourage institutional investors to take a 
     more active role in securities class action lawsuits. 
     Scholars predict that increasing the role of institutional 
     investors will benefit both injured shareholders and courts: 
     ``Institutions with large stakes in class actions have much 
     the same interests as the plaintiff class generally; thus, 
     courts could be more confident settlements negotiated under 
     the supervision of institutional plaintiffs were `fair and 
     reasonable' than is the case with settlements negotiated by 
     unsupervised plaintiffs' attorneys.'' \6\
       Finally, this lead plaintiff provision solves the dilemma 
     of who will serve as class counsel. Subject to court 
     approval, the most adequate plaintiff retains class counsel. 
     As a result, the Conference Committee expects that the 
     plaintiff will choose counsel rather than, as is true today, 
     counsel choosing the plaintiff. The Conference Committee does 
     not intend to disturb the court's discretion under existing 
     law to approve or disapprove the lead plaintiff's choice of 
     counsel when necessary to protect the interests of the 
     plaintiff class.
       The Conference Report seeks to restrict professional 
     plaintiffs from serving as lead plaintiff by limiting a 
     person from serving in that capacity more than five times in 
     three years. Institutional investors seeking to serve as lead 
     plaintiff may need to exceed this limitation and do not 
     represent the type of professional plaintiff this legislation 
     seeks to restrict. As a result, the Conference Committee 
     grants courts discretion to avoid the unintended consequence 
     of disqualifying institutional investors from serving more 
     than five times in three years. The Conference Committee does 
     not intend for this provision to operate at cross purposes 
     with the ``most adequate plaintiff'' provision. The 
     Conference Committee does expect, however, that it will be 
     used with vigor to limit the activities of professional 
     plaintiffs.
     Limitation on lead plaintiff's recovery
       This legislation also removes the financial incentive for 
     becoming a lead plaintiff. New 

[[Page H 13701]]
     section 27(a)(4) of the 1933 Act and section 21D(a)(4) of the 1934 Act 
     limits the class representative's recovery to his or her pro 
     rata share of the settlement or final judgment. The lead 
     plaintiff's share of the final judgment or settlement will be 
     calculated in the same manner as the shares of the other 
     class members. The Conference Committee recognizes that lead 
     plaintiffs should be reimbursed for reasonable costs and 
     expenses associated with service as lead plaintiff, including 
     lost wages, and grants the courts discretion to award fees 
     accordingly.


                 improvements to the settlement process

     Restriction on sealed settlement agreements
       New section 27(a)(5) of the 1933 Act and section 21D(a)(5) 
     of the 1934 Act generally bar the filing of settlement 
     agreements under seal. The Conference Committee recognizes 
     that legitimate reasons may exist for the court to permit the 
     entry of a settlement or portions of a settlement under seal. 
     A party must show ``good cause,'' i.e., that the publication 
     of a portion or portions of the settlement agreement would 
     result in direct and substantial harm to any party, whether 
     or not a party to the action. The Conference Committee 
     intends ``direct and substantial harm'' to include proof of 
     reputational injury to a party.
     Limitation on attorney's fees
       The House and Senate heard testimony that counsel in 
     securities class actions often receive a disproportionate 
     share of settlement awards.
       Under current practice, courts generally award attorney's 
     fees based on the so-called ``lodestar'' approach--i.e., the 
     court multiplies the attorney's hours by a reasonable hourly 
     fee, which may be increased by an additional amount based on 
     risk or other relevant factors.\7\ Under this approach, 
     attorney's fees can constitute 35% or more of the entire 
     settlement awarded to the class. The Conference Committee 
     limits the award of attorney's fees and costs to counsel for 
     a class in new section 27(a)(6) of the 1933 Act and new 
     section 21D(a)(6) of the 1934 Act to a reasonable percentage 
     of the amount of recovery awarded to the class. By not fixing 
     the percentage of fees and costs counsel may receive, the 
     Conference Committee intends to give the court flexibility in 
     determining what is reasonable on a case-by-case basis. The 
     Conference Committee does not intend to prohibit use of the 
     lodestar approach as a means of calculating attorney's fees. 
     The provision focuses on the final amount of fees awarded, 
     not the means by which such fees are calculated.
     Improved settlement notice to class members
       The House and Senate heard testimony that class members 
     frequently lack meaningful information about the terms of the 
     proposed settlement.\8\ Class members often receive 
     insufficient notice of the terms of a proposed settlement 
     and, thus, have no basis to evaluate the settlement. As one 
     bar association advised the Senate Securities Subcommittee, 
     ``settlement notices provided to class members are often 
     obtuse and confusing, and should be written in plain 
     English.'' \9\ The Senate received similar testimony from a 
     class member in two separate securities fraud lawsuits: 
     ``Nowhere in the settlement notices were the stockholders 
     told of how much they could expect to recover of their 
     losses. . . . I feel that the settlement offer should have 
     told the stockholders how little of their losses will be 
     recovered in the settlement, and that this is a material fact 
     to the shareholder's decision to approve or disapprove the 
     settlement.'' \10\
       In new section 27(a)(7) of the 1933 Act and new section 
     21D(a)(7) of the 1934 Act, the Conference Committee requires 
     that certain information be included in any proposed or final 
     settlement agreement disseminated to class members. To ensure 
     that critical information is readily available to class 
     members, the Conference Committee requires that such 
     information appear in summary form on the cover page of the 
     notice. The notice must contain a statement of the average 
     amount of damages per share that would be recoverable if the 
     settling parties can agree on a figure, or a statement from 
     each settling party on why there is disagreement. It must 
     also explain the attorney's fees and costs sought. The name, 
     telephone number and address of counsel for the class must be 
     provided. Most importantly, the notice must include a brief 
     statement explaining the reason for the proposed settlement.


                  major securities class action abuses

     Limits on abusive discovery to prevent ``fishing expedition'' 
         lawsuits
       The cost of discovery often forces innocent parties to 
     settle frivolous securities class actions. According to the 
     general counsel of an investment bank, ``discovery costs 
     account for roughly 80% of total litigation costs in 
     securities fraud cases.'' \11\ In addition, the threat that 
     the time of key employees will be spent responding to 
     discovery requests, including providing deposition testimony, 
     often forces coercive settlements.
       The House and Senate heard testimony that discovery in 
     securities class actions often resembles a fishing 
     expedition. As one witness noted, ``once the suit is filed, 
     the plaintiff's law firm proceeds to search through all of 
     the company's documents and take endless depositions for the 
     slightest positive comment which they can claim induced the 
     plaintiff to invest and any shred of evidence that the 
     company knew a downturn was coming.'' \12\
       The Conference Committee provides in new section 27(b) of 
     the 1933 Act and new section 21D(b)(3) of the 1934 Act that 
     courts must stay all discovery pending a ruling on a motion 
     to dismiss, unless exceptional circumstances exist where 
     particularized discovery is necessary to preserve evidence or 
     to prevent undue prejudice to a party. For example, the 
     terminal illness of an important witness might require the 
     deposition of the witness prior to the ruling on the motion 
     to dismiss.
       To ensure that relevant evidence will not be lost, new 
     section 27(b) of the 1933 Act and new section 21D(b)(3) of 
     the 1934 Act make it unlawful for any person, upon receiving 
     actual notice that names that person as a defendant, 
     willfully to destroy or otherwise alter relevant evidence. 
     The Conference Committee intends this provision to prohibit 
     only the willful alteration or destruction of evidence 
     relevant to the litigation. The provision does not impose 
     liability where parties inadvertently or unintentionally 
     destroy what turn out later to be relevant documents. 
     Although this prohibition expressly applies only to 
     defendants, the Conference Committee believes that the 
     willful destruction of evidence by a plaintiff would be 
     equally improper, and that courts have ample authority to 
     prevent such conduct or to apply sanctions as appropriate.
     ``Fair share'' rule of proportionate liability
       One of the most manifestly unfair aspects of the current 
     system of securities litigation is its imposition of 
     liability on one party for injury actually caused by another. 
     Under current law, a single defendant who has been found to 
     be 1% liable may be forced to pay 100% of the damages in the 
     case. The Conference Committee remedies this injustice by 
     providing a ``fair share'' system of proportionate liability. 
     As former SEC Chairman Richard Breeden testified, under the 
     current regime of joint and several liability, ``parties who 
     are central to perpetrating a fraud often pay little, if 
     anything. At the same time, those whose involvement might be 
     only peripheral and lacked any deliberate and knowing 
     participation in the fraud often pay the most in damages.'' 
     \13\
       The current system of joint and several liability creates 
     coercive pressure for entirely innocent parties to settle 
     meritless claims rather than risk exposing themselves to 
     liability for a grossly disproportionate share of the damages 
     in the case.
       In many cases, exposure to this kind of unlimited and 
     unfair risk has made it impossible for firms to attract 
     qualified persons to serve as outside directors. Both the 
     House and Senate Committees repeatedly heard testimony 
     concerning the chilling effect of unlimited exposure to 
     meritless securities litigation on the willingness of capable 
     people to serve on company boards. SEC Chairman Levitt 
     himself testified that ``there [were] the dozen or so 
     entrepreneurial firms whose invitations [to be an outside 
     director] I turned down because they could not adequately 
     insure their directors . . . . [C]ountless colleagues in 
     business have had the same experience, and the fact that so 
     many qualified people have been unable to serve is, to me, 
     one of the most lamentable problems of all.'' \14\ This 
     result has injured the entire U.S. economy.
       Accordingly, the Conference Committee has reformed the 
     traditional rule of joint and several liability. The 
     Conference Report specifically applies this reform to the 
     liability of outside directors under Section 11 of the 1933 
     Act,\15\ because the current imposition of joint and several 
     liability for non-knowing Section 11 violations by outside 
     directors presents a particularly glaring example of 
     unfairness. By relieving outside directors of the specter of 
     joint and several liability under Section 11 for non-knowing 
     conduct, Section 201 of the Conference Report will reduce the 
     pressure placed by meritless litigation on the willingesss of 
     capable outsiders to serve on corporate boards.
       In addition, Section 201 will provide the same ``fair 
     share'' rule of liability, rather than joint and several 
     liability, for all 1934 Act cases in which liability can be 
     predicated on non-knowing conduct.\16\
       In applying the ``fair share'' rule of proportionate 
     liability to cases involving non-knowing securities 
     violations, the Conference Committee explicitly determined 
     that the legislation should make no change to the state of 
     mind requirements of existing law. Accordingly, the 
     definition of ``knowing'' conduct in the Conference Report is 
     written to conform to existing statutory standards, and 
     Section 201 of the Conference Report makes clear that the 
     ``fair share'' rule of proportionate liability does not 
     create any new cause of action or expand, diminish, or 
     otherwise affect the substantive standard for liability in 
     any action under the 1933 Act or the 1934 Act. This section 
     of the Conference Report further provides that the standard 
     of liability in any such action should be determined by the 
     pre-existing, unamended statutory provision that creates the 
     cause of action, without regard to this provision, which 
     applies solely to the allocation of damages.
       The Conference Report imposes full joint and several 
     liability, as under current law, on defendants who engage in 
     knowing violations of the securities laws. Defendants who are 
     found liable but have not engaged in knowing violations are 
     responsible only for their share of the judgment (based upon 
     the fact finder's apportionment of responsibility), with two 
     key exceptions. First, all defendants are jointly and 
     severally liable with respect to the claims of certain 
     plaintiffs. 

[[Page H 13702]]
     Such plaintiffs are defined in the Conference Report as those who 
     establish that (i) they are entitled to damages exceeding 10% 
     of their net worth, and (ii) their net worth is less than 
     $200,000. The $200,000 net worth test does not reflect a 
     judgment by the Conference Committee that investors who fall 
     below this standard are ``small,'' unsophisticated, or in 
     need of or entitled to any special protection under the 
     securities laws. Second, if a defendant cannot pay their 
     allocable share of the damages due to insolvency, each of the 
     other defendants must make an additional payment--up to 50% 
     of their own liability--to make up the shortfall in the 
     plaintiff's recovery.
       The Conference Committee recognizes that private parties 
     may wish to allocate attorney's fees and costs according to a 
     formula negotiated previously by contract. Accordingly, the 
     Conference Report provides that where authorized by contract 
     a prevailing defendant may recover attorney's fees and costs. 
     The Conference Report does not change the enforceability of 
     indemnification contracts in the event of settlement.
     Attorneys' fees awarded to prevailing parties in abusive 
         litigation
       The Conference Committee recognizes the need to reduce 
     significantly the filing of meritless securities lawsuits 
     without hindering the ability of victims of fraud to pursue 
     legitimate claims. The Conference Committee seeks to solve 
     this problem by strengthening the application of Rule 11 of 
     the Federal Rules of Civil Procedure in private securities 
     actions.
       Existing Rule 11 has not deterred abusive securities 
     litigation.\17\ Courts often fail to impose Rule 11 sanctions 
     even where such sanctions are warranted. When sanctions are 
     awarded, they are generally insufficient to make whole the 
     victim of a Rule 11 violation: the amount of the sanction is 
     limited to an amount that the court deems sufficient to deter 
     repetition of the sanctioned conduct, rather than imposing a 
     sanction that equals the costs imposed on the victim by the 
     violation. Finally, courts have been unable to apply Rule 11 
     to the complaint in such a way that the victim of the ensuing 
     lawsuit is compensated for all attorneys' fees and costs 
     incurred in the entire action.
       The legislation gives teeth to Rule 11 in new section 27(c) 
     of the 1933 Act and new section 21D(c) of the 1934 Act by 
     requiring the court to include in the record specific 
     findings, at the conclusion of the action, as to whether all 
     parties and all attorneys have complied with each requirement 
     of Rule 11(b) of the Federal Rules of Civil Procedure.
       These provisions also establish the presumption that the 
     appropriate sanction for filing a complaint that violates 
     Rule 11(b) is an award to the prevailing party of all 
     attorney's fees and costs incurred in the entire action. The 
     Conference Report provides that, if the action is brought for 
     an improper purpose, is unwarranted by existing law or 
     legally frivolous, is not supported by facts, or otherwise 
     fails to satisfy the requirements set forth in Rule 11(b), 
     the prevailing party presumptively will be awarded its 
     attorneys' fees and costs for the entire action. This 
     provision does not mean that a party who is sanctioned for 
     only a partial failure of the complaint under Rule 11, such 
     as one count out of a 20-count complaint, must pay for all of 
     the attorney's fees and costs associated with the action. The 
     Conference Committee expects that courts will grant relief 
     from the presumption where a de minimis violation of the Rule 
     has occurred. Accordingly, the Conference Committee specifies 
     that the failure of the complaint must be ``substantial'' and 
     makes the presumption rebuttable.
       For Rule 11(b) violations involving responsive pleadings or 
     dispositive motions, the rebuttable presumption is an award 
     of attorneys' fees and costs incurred by the victim of the 
     violation as a result of that particular pleading or motion.
       A party may rebut the presumption of sanctions by providing 
     that: (i) the violation was de minimis; or (ii) the 
     imposition of fees and costs would impose an undue burden and 
     be unjust, and it would not impose a greater burden for the 
     prevailing party to have to pay those same fees and costs. 
     The premise of this test is that, when an abusive or 
     frivolous action is maintained, it is manifestly unjust for 
     the victim of the violation to bear substantial attorneys' 
     fees. The Conference Committee recognizes that little in the 
     way of justice can be achieved by attempting to compensate 
     the prevailing party for lost time and such other measures of 
     damages as injury to reputation; hence it has written into 
     law the presumption that a prevailing party should not have 
     the cost of attorney's fees added as insult to the underlying 
     injury. If a party successfully rebuts the presumption, the 
     court then impose sanctions consistent with Rule 
     11(c)(2).\18\ The Conference Committee intends this provision 
     to impose upon courts the affirmative duty to scrutinize 
     filings closely and to sanction attorneys or parties whenever 
     their conduct violates Rule 11(b).
     Limitation on attorney's conflict of interest
       The Conference Committee believes that, in the context of 
     class action lawsuits, it is a conflict of interest for a 
     class action lawyer to benefit from the outcome of the case 
     where the lawyer owns stock in the company being sued. 
     Accordingly, new section 27(a)(8) of the 1933 Act and new 
     section 21D(a)(9) requires the court to determine whether a 
     lawyer who owns securities in the defendant company and who 
     seeks to represent the plaintiff class in a securities class 
     action should be disqualified from representing the class.
     Bonding for payment of fees and expenses
       The house hearings on securities litigation reform revealed 
     the need for explicit authority for courts to require 
     undertakings for attorney's fees and costs from parties, or 
     their counsel, or both, in order to ensure the viability of 
     potential sanctions as a deterrent to meritless 
     litigation.\19\ Congress long ago authorized similar 
     undertakings in the express private right of action in 
     Section 11 of the 1933 Act and in Sections 9 and 18 of the 
     1934 Act. The availability of such undertakings in private 
     securities actions will be an important means of ensuring 
     that the provision of the Conference Report authorizing the 
     award of attorneys' fees and costs under Rule 11 will not 
     become, in practice, a one-way mechanism only usable to 
     sanction parties with deep pockets.\20\
       The legislation expressly provides that such undertakings 
     may be required of parties' attorneys in lieu of, or in 
     addition to, the parties themselves. In this regard, the 
     Conference Committee intends to preempt any contrary state 
     bar restrictions that much inhibit attorneys' provision of 
     such undertakings in behalf of their clients The Conference 
     Committee anticipates, for example, that where a judge 
     determines to require an undertaking in a class action, such 
     an undertaking would ordinarily be imposed on plaintiffs' 
     counsel rather than upon the plaintiff class, both because 
     the financial resources of counsel would ordinarily be more 
     extensive than those of an individual class member and 
     because counsel are better situated than class members to 
     evaluate the merits of cases and individual motions. This 
     provision is intended to effectuate the remedial purposes of 
     the bill's Rule 11 provision.


               requirements for securities fraud actions

     Heightened pleading standard
       Naming a party in a civil suit for fraud is a serious 
     matter. Unwarranted fraud claims can lead to serious injury 
     to reputation for which our legal system effectively offers 
     no redress. For this reason, among others, Rule 9(b) of the 
     Federal Rules of Civil Procedure requires that plaintiffs 
     plead allegations of fraud with ``particularity.'' The Rule 
     has not prevented abuse of the securities laws by private 
     litigants.\21\ Moreover, the courts of appeals have 
     interpreted Rule 9(b)'s requirement in conflicting ways, 
     creating distinctly different standards among the 
     circuits.\22\ The House and Senate hearings on securities 
     litigation reform included testimony on the need to establish 
     uniform and more stringent pleading requirements to curtail 
     the filing of meritless lawsuits.
       The Conference Committee language is based in part on the 
     pleading standard of the Second Circuit. The standard also is 
     specifically written to conform the language to Rule 9(b)'s 
     notion of pleading with ``particularity.''
       Regarded as the most stringent pleading standard, the 
     Second Circuit requirement is that the plaintiff state facts 
     with particularity, and that these facts, in turn, must give 
     rise to a ``strong inference'' of the defendant's fraudulent 
     intent. Because the Conference Committee intends to 
     strengthen existing pleading requirements, it does not intend 
     to codify the Second Circuit's case law interpreting this 
     pleading standard.\23\ The plaintiff must also specifically 
     plead with particularity each statement alleged to have been 
     misleading. The reason or reasons why the statement is 
     misleading must also be set forth in the compliant in detail. 
     If an allegation is made on information and belief, the 
     plaintiff must state with particularity all facts in the 
     plaintiff's possession on which the belief is formed.
     Loss causation
       The Conference Committee also requires the plaintiff to 
     plead and then to prove that the misstatement or omission 
     alleged in the complaint actually caused the loss incurred by 
     the plaintiff in new Section 21D(b)(4) of the 1934 Act. For 
     example, the plaintiff would have to prove that the price at 
     which the plaintiff bought the stock was artificially 
     inflated as the result of the misstatement or omission.


                                damages

     Written interrogatories
       In an action to recover money damages, the Conference 
     Committee requires the court to submit written 
     interrogatories to the jury on the issue of defendant's state 
     of mind at the time of the violation. In expressly providing 
     for certain interrogatories, the Committee does not intend to 
     otherwise prohibit or discourage the submission of 
     interrogatories concerning the mental state or relative fault 
     of the plaintiff and of persons who could have been joined as 
     defendants. For example, interrogatories may be appropriate 
     in contribution proceedings among defendants or in computing 
     liability when some of the defendants have entered into 
     settlement with the plaintiff prior to verdict or judgment.
     Limitation on ``windfall'' damages
       The current method of calculating damages in 1934 Act 
     securities fraud cases is complex and uncertain. As a result, 
     there are often substantial variations in the damages 
     calculated by the defendants and the plaintiffs. Typically, 
     in an action involving a fraudulent misstatement or omission, 
     the investor's damages are presumed to be the difference 
     between the price the investor paid 

[[Page H 13703]]
     for the security and the price of the security on the day the 
     corrective information gets disseminated to the market.
       Between the time a misrepresentation is made and the time 
     the market receives corrected information, however, the price 
     of the security may rise or fall for reasons unrelated to the 
     alleged fraud. According to an analysis provided to the 
     Senate Securities Subcommittee, on average, damages in 
     securities litigation comprise approximately 27.7% \24\ of 
     market loss. Calculating damages based on the date corrective 
     information is disclosed may end up substantially 
     overestimating plaintiff's damages.\25\ The Conference 
     Committee intends to rectify the uncertainty in calculating 
     damages in new section 21D(e) of the 1934 Act by providing a 
     ``look back'' period, thereby limiting damages to those 
     losses caused by the fraud and not by other market 
     conditions.
       This provision requires that plaintiff's damages be 
     calculated based on the ``mean trading price'' of the 
     security. This calculation takes into account the value of 
     the security on the date plaintiff originally bought or sold 
     the security and the value of the security during the 90-day 
     period after dissemination of any information correcting the 
     misleading statement or omission. If the plaintiff sells 
     those securities or repurchases the subject securities during 
     the 90-day period, damages will be calculated based on the 
     price of that transaction and the value of the security 
     immediately after the dissemination of corrective 
     information.


               safe harbor for forward-looking statements

     The muzzling effect of abusive securities litigation
       Abusive litigation severely affects the willingness of 
     corporate managers to disclose information to the 
     marketplace. Former SEC Chairman Richard Breeden testified in 
     a Senate Securities Subcommittee hearing on this subject: 
     ``Shareholders are also damaged due to the chilling effect of 
     the current system on the robust and candor of disclosure. . 
     . . Understanding a company's own assessment of its future 
     potential would be among the most valuable information 
     shareholders and potential investors could have about a 
     firm.'' \26\
       Fear that inaccurate projections will trigger the filing of 
     securities class action lawsuit has muzzled corporate 
     management. One study found that over two-thirds of venture 
     capital firms were reluctant to discuss their performance 
     with analysts or the public because of the threat of 
     litigation.\27\ Anecdotal evidence similarly indicates 
     corporate counsel advise clients to say as little as 
     possible, because ``legions of lawyers scrub required filings 
     to ensure that disclosures are as milquetoast as possible, so 
     as to provide no grist for the litigation mill.'' \28\
       Technology companies--because of the volatility of their 
     stock prices--are particularly vulnerable to securities fraud 
     lawsuits when projections do not materialize. If a company 
     fails to satisfy its announced earnings projections--perhaps 
     because of changes in the economy or the timing of an order 
     or new product--the company is likely to face a lawsuit.
     A statutory safe harbor for forward-looking statements
       The Conference Committee has adopted a statutory ``safe 
     harbor'' to enhance market efficiency by encouraging 
     companies to disclose forward-looking information. This 
     provision adds a new section 27A to the 1933 Act and a new 
     section 21E of the 1934 Act which protects from liability in 
     private lawsuits certain ``forward-looking'' statements made 
     by persons specified in the legislation.\29\
       The Conference Committee has crafted a safe harbor that 
     differs from the safe harbor provisions in the House and 
     Senate passed bills. The Conference Committee safe harbor, 
     like the Senate safe harbor, is based on aspects of SEC Rule 
     175 and the judicial created ``bespeaks caution'' doctrine. 
     It is a bifurcated safe harbor that permits greater 
     flexibility to those who may avail themselves of safe harbor 
     protection. There is also a special safe harbor for issuers 
     who make oral forward-looking statements.
       The first prong of the safe harbor protects a written or 
     oral forward-looking statement that is: (i) identified as 
     forward-looking, and (ii) accompanied by meaningful 
     cautionary statements identifying important factors that 
     could cause actual results to differ materially from those 
     projected in the statement.
       Under this first prong of the safe harbor, boilerplate 
     warnings will not suffice as meaningful cautionary statements 
     identifying important factors that could cause actual results 
     to differ materially from those projected in the statement. 
     The cautionary statements must convey substantive information 
     about factors that realistically could cause results to 
     differ materially from those projected in the forward-looking 
     statement, such as, for example, information about the 
     issuer's business.
       As part of the analysis of what constitutes a meaningful 
     cautionary statement, courts should consider the factors 
     identified in the statements. ``Important'' factors means the 
     stated factors identified in the cautionary statement must be 
     relevant to the projection and must be of a nature that the 
     factor or factors could actually affect whether the forward-
     looking statement is realized.
       The Conference Committee expects that the cautionary 
     statements identify important factors that could cause 
     results to differ materially--but not all factors. Failure to 
     include the particular factor that ultimately causes the 
     forward-looking statement not to come true will not mean that 
     the statement is not protected by the safe harbor. The 
     Conference Committee specifies that the cautionary statements 
     identify ``important'' factors to provide guidance to issuers 
     and not to provide an opportunity for plaintiff counsel to 
     conduct discovery on what factors were known to the issuer at 
     the time the forward-looking statement was made.
       The use of the words ``meaningful'' and ``important 
     factors'' are intended to provide a standard for the types of 
     cautionary statements upon which a court may, where 
     appropriate, decide a motion to dismiss, without examining 
     the state of mind of the defendant. The first prong of the 
     safe harbor requires courts to examine only the cautionary 
     statement accompanying the forward-looking statement. Courts 
     should not examine the state of mind of the person making the 
     statement.
       Courts may continue to find a forward-looking statement 
     immaterial--and thus not actionable under the 1933 Act and 
     the 1934 Act--on other grounds. To clarify this point, the 
     Conference Committee includes language in the safe harbor 
     provision that no liability attaches to forward-looking 
     statements that are ``immaterial.''
       The safe harbor seeks to provide certainty that forward-
     looking statements will not be actionable by private parties 
     under certain circumstances. Forward--looking statements will 
     have safe harbor protection if they are accompanied by a 
     meaningful cautionary statement. A cautionary statement that 
     misstates historical facts is not covered by the Safe harbor, 
     it is not sufficient, however, in a civil action to allege 
     merely that a cautionary statement misstates historical 
     facts. The plaintiff must plead with particularity all facts 
     giving rise to a strong inference of a material misstatement 
     in the cautionary statement to survive a motion to dismiss.
       The second prong of the safe harbor provides an alternative 
     analysis. This safe harbor also applies to both written and 
     oral forward looking statements. Instead of examining the 
     forward-looking and cautionary statements, this prong of the 
     safe harbor focuses on the state of mind of the person making 
     the forward-looking statement. A person or business entity 
     will not be liable in a private lawsuit for a forward-looking 
     statement unless a plaintiff proves that person or business 
     entity made a false or misleading forward-looking statement 
     with actual knowledge that it was false or misleading. The 
     Conference Committee intends for this alternative prong of 
     the safe harbor to apply if the plaintiff fails to prove the 
     forward-looking statement (1) if made by a natural person, 
     was made with the actual knowledge by that person that the 
     statement was false or misleading; or (2) if made by a 
     business entity, was made by or with the approval of an 
     executive officer of the entity with actual knowledge by that 
     officer that the statement was false or misleading.
       The Conference Committee recognizes that, under certain 
     circumstances, it may be unwieldy to make oral forward-
     looking statements relying on the first prong of the safe 
     harbor. Companies who want to make a brief announcement of 
     earnings or a new product would first have to identify the 
     statement as forward-looking and then provide cautionary 
     statements identifying important factors that could cause 
     results to differ materially from those projected in the 
     statement. As a result, the Conference Committee has provided 
     for an optional more flexible rule for oral forward-looking 
     statements that will facilitate these types of oral 
     communications by an issuer while still providing to the 
     public information it would have received if the forward-
     looking statement was written. The Conference Committee 
     intends to limit this oral safe harbor to issuers or the 
     officers, directors, or employees of the issuer acting on the 
     issuer's behalf.
       This legislation permits covered issuers, or persons acting 
     on the issuer's behalf, to make oral forward-looking 
     statements within the safe harbor. The person making the 
     forward-looking statement must identify the statement as a 
     forward-looking statement and state that results may differ 
     materially from those projected in the statement. The person 
     must also identify a ``readily available'' written document 
     that contains factors that could cause results to differ 
     materially. The written information identified by the person 
     making the forward-looking statement must qualify as a 
     ``cautionary statement'' under the first prong of the safe 
     harbor (i.e., it must be a meaningful cautionary statement or 
     statements that identify important factors that could cause 
     actual results to differ materially from those projected in 
     the forward-looking statement.) For purposes of this 
     provision, ``readily available'' information refers to SEC 
     filed documents, annual reports and other widely disseminated 
     materials, such as press releases.
     Who and what receives safe harbor protection
       The safe harbor provision protects written and oral 
     forward-looking statements made by issuers and certain 
     persons retained or acting on behalf of the issuer. The 
     Conference Committee intends the statutory safe harbor 
     protection to make more information about a company's future 
     plans available to investors and the public. The safe harbor 
     covers underwriters, but only insofar as the underwriters 
     provide forward 

[[Page H 13704]]
     looking information that is based on or ``derived from'' information 
     provided by the issuer. Because underwriters have what is 
     effectively an adversarial relationship with issuers in 
     performing due diligence, the use of the term ``derived 
     from'' affords underwriters some latitude so that they may 
     disclose adverse information that the issuer did not 
     necessarily ``provide.'' The Conference Committee does not 
     intend the safe harbor to cover forward-looking information 
     made in connection with a broker's sales practices.
       The Conference Committee adopts the SEC's present 
     definition, as set forth in Rule 175, of forward-looking 
     information, with certain additions and clarifying changes. 
     The definition covers: (i) certain financial items, including 
     projections of revenues, income and earnings, capital 
     expenditures, dividends, and capital structure; (ii) 
     management's statement of future business plans and 
     objectives, including with respect to its products or 
     services; and (iii) certain statements made in SEC required 
     disclosures, including management's discussion and analysis 
     and results of operations; and (iv) any statement disclosing 
     the assumptions underlying the forward-looking statement.
       The Conference Committee has determined that the statutory 
     safe harbor should not apply to certain forward-looking 
     statements. Thus, the statutory safe harbor does not protect 
     forward-looking statements: (1) included in financial 
     statements prepared in accordance with generally accepted 
     accounting principles; (2) contained in an initial public 
     offering registration statement; (3) made in connection with 
     a tender offer; (4) made in connection with a partnership, 
     limited liability company or direct participation program 
     offering; or (5) made in beneficial ownership disclosure 
     statements filed with the SEC under Section 13(d) of the 1934 
     Act.
       At this time, the Conference Committee recognizes that 
     certain types of transactions and issuers may not be suitable 
     for inclusion in a statutory safe harbor absent some 
     experience with the statute. Although this legislation 
     restricts partnerships, limited liability companies and 
     direct participation programs from safe harbor protection, 
     the Conference Committee expects the SEC to consider 
     expanding the safe harbor to cover these entities where 
     appropriate. The legislation authorizes the SEC to adopt 
     exemptive rules or grant exemptive orders to those entities 
     for whom a safe harbor should be available. The SEC should 
     consider granting exemptive orders for established and 
     reputable entities who are excluded from the safe harbor.
       Moreover, the Committee has determined to extend the 
     statutory safe harbor only to forward-looking information of 
     certain established issuers subject to the reporting 
     requirements of section 13(a) or section 15(d) of the 1934 
     Act. Except as provided by SEC rule or regulation, the safe 
     harbor does not extend to an issuer who: (a) during the three 
     year period preceding the date on which the statement was 
     first made, has been convicted of a felony or misdemeanor 
     described in clauses (i) through (iv) of Section 15(b)(4) or 
     is the subject of a decree or order involving a violation of 
     the securities laws; (b) makes the statement in connection 
     with a ``blank check'' securities offering, ``rollup 
     transaction,'' or ``going private'' transaction; or (c) 
     issues penny stock.
       The Committee intends for its statutory safe harbor 
     provisions to serve as a starting point and fully expects the 
     SEC to continue its rulemaking proceedings in this area. The 
     SEC should, as appropriate, promulgate rules or regulations 
     to expand the statutory safe harbor by providing additional 
     exemptions from liability or extending its coverage to 
     additional types of information.
       This legislation also makes clear that nothing in the safe 
     harbor provision imposes any duty to update forward-looking 
     statements.
       The Conference Committee does not intend for the safe 
     harbor provisions to replace the judicial ``bespeaks 
     caution'' doctrine or to foreclose further development of 
     that doctrine by the courts.
     The safe harbor and stay of discovery
       The legislation provides that, on any motion to dismiss the 
     compliant based on the application of the safe harbor, the 
     court shall consider the statements cited in the complaint 
     and statements identified by the defendant in its moving 
     papers, including any cautionary statements accompanying the 
     forward-looking statement that are not subject to material 
     dispute. The applicability of the safe harbor provisions 
     under subsection (c)(1)(B) shall be based on the ``actual 
     knowledge'' of the defendant and does not depend on the use 
     of cautionary language. The applicability of the safe harbor 
     provisions under subsections (c)(1)(A)(I) and (c)(2) shall be 
     based upon the sufficiency of the cautionary language under 
     those provisions and does not depend on the state of mind of 
     the defendant. In the case of a compliant based on an oral 
     forward-looking statement in which information concerning 
     factors that could cause actual results to differ materially 
     is contained in a ``readily available'' written document, the 
     court shall consider statements in the readily available 
     written documents.


 inapplicability of racketeer influenced and corrupt organizations act 
                 (rico) to private securities actions.

       The SEC has supported removing securities fraud as a 
     predicate offense in a civil action under the Racketeer 
     Influenced and Corrupt Organizations Act (``RICO''). SEC 
     Chairman Arthur Levitt testified: ``Because the securities 
     laws generally provide adequate remedies for those injured by 
     securities fraud, it is both necessary and unfair to expose 
     defendants in securities cases to the threat of treble 
     damages and other extraordinary remedies provided by RICO.'' 
     \30\
       The Conference Committee amends section 1964(c) of title 18 
     of the U.S. Code to remove any conduct that would have been 
     actionable as fraud in the purchase or sale of securities as 
     racketeering activity under civil RICO. The Committee intends 
     this amendment to eliminate securities fraud as a predicate 
     offense in a civil RICO action. In addition, the Conference 
     Committee intends that a plaintiff may not plead other 
     specified offenses, such as mail or wire fraud, as predicate 
     acts under civil RICO if such offenses are based on conduct 
     that would have been actionable as securities fraud.


                 auditor disclosure of corporate fraud

       The Conference Report requires independent public 
     accountants to adopt certain procedures in connection with 
     their audits and to inform the SEC of illegal acts. These 
     requirements would be carried out in accordance with 
     generally accepted auditing standards for audits of SEC 
     registrants--as modified from time to time by the 
     Commission--on the detection of illegal acts, related party 
     transactions and relationships, and evaluation of an issuer's 
     ability to continue as a going concern.
       The Conference Committee does not intend to affect the 
     Commission's authority in areas not specifically addressed by 
     this provisions. The Conference Committee expects that the 
     SEC will continue its longstanding practice of looking to the 
     private sector to set and to improve auditing standards. The 
     SEC should not act to ``modify'' or ``supplement'' generally 
     accepted auditing standards for SEC registrants until after 
     it has determined that the private sector is unable or 
     unwilling to do so on a timely basis. The Conference 
     Committee intends for the SEC to have discretion, however, to 
     determine the appropriateness and timeliness of the private 
     sector response. The SEC should act promptly if required by 
     the public interest or for the protection of investors.


                               footnotes

     \1\ This certification should not be construed to waive the 
     attorney-client privilege.
     \2\ The notice provisions in this subsection do not replace 
     or supersede other notice provisions provided in the Federal 
     Rules of Civil Procedure.
     \3\ See Elliott J. Weiss and John S. Beckerman, ``Let the 
     Money Do the Monitoring: How Institutional Investors Can 
     Reduce Agency Costs in Securities Class Actions,'' 104 Yale 
     L.J. 2053 (1995).
     \4\ See testimony of Maryellen Anderson, Investor and 
     Corporate Relations Director of the Connecticut Retirement & 
     Trust Funds and Treasurer of the Council of Institutional 
     Investors before the Securities Subcommittee of the Senate 
     Committee on Banking, Housing, and Urban Affairs, July 21, 
     1993.
     \5\ See The Brancato Report on Institutional Investment, 
     ``Total Assets and Equity Holdings,'' Vol. 2, Ed. 1.
     \6\ See ``Let the Money do the Monitoring,'' note 3, supra.
     \7\ See generally Majority Staff Report, May 17, 1994 at page 
     81 et seq.
     \8\ See testimony of Patricia Reilly before the Securities 
     Subcommittee of the Senate Committee on Banking, Housing, and 
     Urban Affairs, June 17, 1993.
     \9\ See NASCAT Analysis of Pending Legislation on Securities 
     Fraud Litigation, Hearing on Securities Litigation Reform 
     Proposals: Subcommittee on Securities, Senate Committee on 
     Banking, Housing, and Urban Affairs, March 2, 1995.
     \10\ See testimony of Patricia Reilly, note 8 supra.
     \11\ See testimony of former SEC Commissioner J. Carter 
     Beese, Jr., Chairman of the Capital Markets Regulatory Reform 
     Project Center for Strategic and International Studies, 
     before the Securities Subcommittee of the Senate Committee on 
     Banking, Housing, and Urban Affairs, March 2, 1995 (citing 
     testimony of Philip A. Lacavara before the Telecommunications 
     and Finance Subcommittee of the House Committee on Energy and 
     Commerce, hearing on H.R. 3185.)
     \12\ See testimony of Richard J. Egan, Chairman of the Board 
     of EMC Corporation before the Securities Subcommittee of the 
     Senate Committee on Banking, Housing, and Urban Affairs, June 
     17, 1993. See also testimony of Dennis Bakke, President and 
     CEO, AES Corporation, before the Telecommunications and 
     Finance Subcommittee of the House Committee on Commerce, 
     January 19, 1995.
     \13\ See testimony of Hon. Richard Breeden, former Chairman, 
     Securities and Exchange Commission, before the Subcommittee 
     on Telecommunications and Finance, House Commerce Committee, 
     February 10, 1995. See also testimony of Daniel Gelzer, id at 
     274.
     \14\ See testimony of Hon. Arthur Levitt, Chairman, 
     Securities and Exchange Commission, before the Subcommittee 
     on Telecommunications and Finance of the House Commerce 
     Committee, February 10, 1995, at 192. See also id at 116, 126 
     (testimony of Dennis W. Bakke, Chairman and CEO, AES 
     Corporation); id. at 137-8 (testimony of James Kimsey, 
     Chairman, America Online).
     \15\ The Conference Report makes no change in the law with 
     respect to Section 11 claims against other types of 
     defendants. Section 11 expressly provides for a right of 
     contribution, see Section 11(f), and this right has been 
     construed to establish contribution and settlement standards 
     like those set forth in the Conference Report. This section 
     has no effect on the interpretation of Section 11(f) with 
     respect to defendants other than outside directors.
     \16\ See Section 16(b) (short-swing transactions) and Section 
     18 (liability for misleading statements).
     \17\ See, e.g., testimony of Saul S. Cohen, Rosenman & Colin, 
     before the Telecommunications and Finance Subcommittee of the 
     House Committee on Commerce, February 10, 1995. (``In our 
     experience, Rule 11 has been largely ineffective in deterring 
     strike suits. As a general matter, courts rarely grant Rule 
     11 sanctions in all but the most egregious circumstances''.)
     \18\ Rule 11(c)(2) limits sanctions to ``what is sufficient 
     to deter the repetition of such conduct or comparable conduct 
     by others similarly situated''.
     \19\ See testimony of John Olson, Chairman, American Bar 
     Association Business Law Section, before the Subcommittee on 
     Telecommunications and Finance, House Commerce Committee, 
     February 10, 1995.

[[Page H 13705]]

     \20\ See id.
     \21\ See, e.g., testimony of Saul S. Cohen, Rosenman & Colin, 
     before the Telecommunications and Finance Subcommittee of the 
     House Committee on Commerce at 234-35 (February 10, 1995).
     \22\ See id.
     \23\ For this reason, the Conference Report chose not to 
     include in the pleading standard certain language relating to 
     motive, opportunity, or recklessness.
     \24\ The percentages of damages as market losses in the 
     analysis ranged from 7.9% to 100% See Princeton Venture 
     Research, Inc., ``PVR Analysis, Securities Law Class Actions, 
     Damages as a Percent of Market Losses,'' June 15, 1993.
     \25\ See Lev and de Villiers, ``Stock Price Crashes and 10b-5 
     Damages: A Legal, Economic and Policy Analysis,'' Standford 
     Law Review, 7,9-11 (1994).
     \26\ See testimony of Hon. Richard C. Breeden, former 
     Chairman, SEC, before the Securities Subcommittee of the 
     Senate Committee on Banking, Housing, and Urban Affairs, 
     April 6, 1995.
     \27\ See testimony of the National Venture Capital 
     Association before the Securities Subcommittee on the Senate 
     Committee on Banking, Housing, and Urban Affairs, March 2, 
     1995.
     \28\ See testimony of Hon. J. Carter Beese, former SEC 
     Commissioner, at id.
     \29\ The concept of a safe harbor for forward-looking 
     statements made under certain conditions is not new. In 1979, 
     the SEC promulgated Rule 175 to provide a safe harbor for 
     certain forward looking statements made with a ``reasonable 
     basis'' and in ``good faith.'' This safe harbor has not 
     provided companies meaningful protection from litigation. In 
     a February 1995 letter to the SEC, a major pension fund 
     stated: ``A major failing of the existing safe harbor is that 
     while it may provide theoretical protection to issuers from 
     liability when disclosing projections, it fails to prevent 
     the threat of frivolous lawsuits that arises every time a 
     legitimate projection is not realized.'' See February 14, 
     1995 letter from the California Public Employees' Retirement 
     System to the SEC Courts have also crafted a safe harbor for 
     forward-looking statements or projections accompanied by 
     sufficient cautionary language. The First, Second, Third, 
     Sixth and Ninth Circuits have adopted a version of the 
     ``bespeake caution'' doctrine. See, e.g., In re Worlds of 
     Wonder Securities Litigation, 35 F. 3d 1407 (9th Cir. 1994); 
     Rubinstein v. Collins, 20 F.3d 169 (5th Cir. 1994), Kline v. 
     First Western Government Securities, Inc., 24 F. 3d 480 3d 
     Cir. 1994); Sinay v. Lamson & Sessions Company, 948 F.2d 1037 
     (6th Cir. 1991); I. Meyer Pincus & Associates v. Oppenheimer 
     & Co., Inc., 936 F.2d 759 (2d Cir. 1991); Romani v. Shearson 
     Lehman Hutton, 929 F.2d 875 (1st Cir. 1991); Luce v. 
     Edelstein, 802 F.2d 49 (2d Cir. 1986); In re Donald J. Trump 
     Casino, 7 F.3d 357 (3d Cir. 1993).
     \30\ See testimony of Hon. Arthur Levitt, Chairman, SEC, 
     before the Telecommunications and Finance Subcommittee of the 
     House Commerce Committee, February 10, 1995.
       From the Committee on Commerce, for consideration of the 
     House bill, and the Senate amendment, and modifications 
     committed to conference:
     Thomas Bliley,
     Billy Tauzin,
     Jack Fields,
     Chris Cox,
     Richard F. White,
     Anna G. Eshoo,
       As additional conferees from the Committee on the 
     Judiciary, for consideration of the House bill, and the 
     Senate amendment, and modifications committed to conference:
     Bill McCollum,
                                Managers on the Part of the House.

     Alfonse D'amato,
     Phil Gramm,
     Robert F. Bennett,
     Rod Grams,
     Pete V. Domenici.
     Christopher Dodd,
     John F. Kerry,
     Managers on the Part of the Senate.

                          ____________________