[Congressional Record Volume 141, Number 192 (Tuesday, December 5, 1995)]
[Senate]
[Pages S17965-S17991]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      PRIVATE SECURITIES LITIGATION REFORM ACT--CONFERENCE REPORT

  The Senate continued with the consideration of the conference report. 


[[Page S 17966]]

  Mr. HATCH. Mr. President, I rise today to speak in favor of the 
conference report to H.R. 1058, the Private Securities Litigation 
Reform Act of 1995. I was an original cosponsor of the Senate bill, S. 
240, and am a strong supporter of the conference report.
  This legislation will protect investors and consumers, while 
remedying abuses that have plagued securities issuers and companies--
particularly in cases in which attorneys have used class action 
lawsuits to force settlements on parties that have done no wrong.
  It is my hope that President Clinton will defend the interests of the 
American people by signing this legislation, rather than favor the 
trial lawyers who would benefit from his veto.
  In my view, this conference report represents a significant step 
towards addressing some of the egregious litigation abuses seen in the 
legal system today. On a related front, the Senate's product liability 
bill is going to conference, and it is my hope that in the future 
Congress will pass more broad-ranging litigation reforms that will 
affect the entire civil justice system.
  I would like to extend my gratitude to Senator D'Amato, Senator Dodd, 
and Senator Domenici for their hard work in bringing this significant 
and well-drafted legislation to fruition. This bill has been perfected 
over several congresses and is the result of a strong bipartisan 
effort.
  Abusive securities litigation lawsuits have imposed a high and 
harmful tax on American businesses. Because of the fear of being sued--
and the high costs associated with securities lawsuits--many companies 
have declined to go public. Other companies have declined to make 
innovations or disseminate certain information.
  The unfortunate irony is that, while securities litigation laws were 
designed to safeguard investors, in reality the current system ends up 
hurting investors.
  The current system hurts investors who could have invested 
successfully in those companies that decided not to go public due to 
fears of litigation.
  It also harms investors who could have earned greater profits on 
their shares had the companies they invested in been more profitable--
for example, if those companies had been able to invest more money in 
research and development rather than wasting it on securities 
litigation costs. Not only have investors gotten hurt, but certain 
lawyers have raked in exorbitant fees.
  Companies have all too often been reluctant to disclose information 
for fear that doing so will provoke a lawsuit. That goes completely 
against the grain of the securities laws, which are designed to 
encourage openness and full information in the securities markets.
  The conference report addresses some of the worst abuses that have 
been seen in securities litigation. At the same time, the Report 
preserves and reinforces the core values of the American stock market--
integrity, openness, and the free exchange of information.
  The conference report does so through a number of specific measures.
  The legislation provides that discovery is stayed whenever a motion 
to dismiss is pending in a securities action.
  Discovery costs have been estimated to account for 80 percent of the 
costs of defending a lawsuit in a securities action. The burden of this 
time-consuming and expensive discovery process will accordingly be 
significantly reduced. That should remove some of the skewed incentives 
that have frequently forced companies to settle securities lawsuits 
even when they have done no wrong.
  The conference report specifically addresses abuses involving the use 
of so-called professional plaintiffs as lead plaintiffs in securities 
action lawsuits. Many plaintiffs have been motivated to file suit to 
receive a bounty payment or bonus.
  There has also all too often been a race to the courthouse by 
plaintiffs' lawyers seeking to be the first to file a complaint in a 
securities action. Lawyers representing a class are often appointed by 
the court on a first come, first serve basis: the first lawsuit filed 
determines who will serve as lead plaintiff and who will be the lead 
attorney.
  In many cases, the professional plaintiff has not even reviewed the 
complaint filed against the defendant. This legislation will require 
the lead plaintiff to file a sworn certified statement along with the 
complaint, stating: First that the plaintiff has reviewed and 
authorized the filing of the complaint; second that the plaintiff did 
not purchase the security involved at the request of an attorney or to 
be a party to the securities action; and third that the plaintiff is 
willing to serve as the lead plaintiff for the class.
  A lead plaintiff may not serve as a lead plaintiff in a securities 
action more than five times in 3 years. The legislation also limits the 
class representative's recovery to the lead plaintiff's pro rata share 
of the settlement or final judgment. These provisions limit some of the 
skewed incentives that have led to the rise of professional plaintiffs.
  Once a securities litigation class action lawsuit has been filed, the 
court will then determine separately which plaintiff is the most 
adequate plaintiff. Any party who has received notice of the suit may 
petition the court to serve as lead plaintiff within 60 days of when 
the suit was filed. In determining which plaintiff is the most adequate 
plaintiff, the court determines which party has the greatest financial 
interest in the lawsuit.
  The most adequate plaintiff selects the lead attorney and negotiates 
attorneys' fees. That plaintiff also weighs in on settlement decisions 
and other significant decisions pertaining to the lawsuit.
  The legislation also provides improved settlement notice to class 
members. Class members will have to be provided notice of a proposed 
settlement and specified information. That information would include, 
if the parties agree on a figure, the average amount of damages per 
share that would be recoverable or, if the parties do not agree an a 
particular amount, a statement from each party as to why there is 
disagreement.
  Notice must also include an explanation of the attorneys' fees and 
costs involved; the name, telephone number, and address of the class 
lawyer; and a brief statement explaining the reasons for the proposed 
settlement. Those provisions will improve the information provided to 
individual shareholders and increase the involvement of individual 
class members in litigation decisions.
  The conference report also limits attorneys' fees to a reasonable 
percentage of the amount of recovery awarded to the class.
  On a separate note, this legislation creates a modified system of 
proportionate liability, under which each co-defendant is generally 
responsible for only the share of damages that that defendant caused to 
the plaintiff.
  To balance plaintiffs' needs, however, there is a provision to 
protect plaintiffs from insolvent codefendants. Where defendants have 
committed a knowing securities violation, those defendants will be 
jointly and severally liable for damages. Also, in the case of an 
insolvent codefendant, a proportionately liable codefendant would 
provide additional damages to up to 150 percent of its share of the 
damages.
  There is even an additional, special protection for small investors: 
all defendants will be jointly and severally liable for uncollectible 
shares of insolvent codefendants for plaintiffs whose damages are more 
than 10 percent of their net worth, and whose net worth is less than 
$200,000.
  This legislation is proconsumer and protects small investors.
  In a separate measure, the legislation adopts the second circuit 
pleading standard so that, in a securities action, plaintiffs must 
state facts with particularity, and those facts must give rise to a 
strong inference of scienter or intent. This should help weed out at an 
early stage lawsuits filed against innocent defendants.
  The bill also includes a cocalled safe harbor provision to protect 
forward-looking, predictive statements.
  It structures damages so that they will reflect real losses rather 
than fortuitous market fluctuations.
  Finally, the proposed legislation would establish new civil penalties 
against independent public accountants who fail to inform corporate 
officers of any illegal acts they discover while performing audits. 
That further protects investors.
  In short, this legislation should protect individuals and free up 
resources that have imposed substantial and needless litigation costs 
on American businesses in Utah and all across this country. 

[[Page S 17967]]

  As I noted, I would like to see Congress take a more comprehensive 
look at litigation abuses across the civil justice system. This 
legislation is certainly a significant step in that direction. I look 
forward to working with my colleagues to achieve broader reforms.
  The PRESIDING OFFICER. Under the previous order, as modified, the 
Senator from New Mexico is recognized for up to 10 minutes, to be 
followed by the Senator from California for up to 30 minutes, to then 
be followed by the Senator from Nevada for up to 15 minutes.
  The Senator from New Mexico is now recognized.
  Mr. DOMENICI. Mr. President, I thank my friend from Utah, the floor 
manager, for arranging the time and for his diligent work.
  Let me, right up front, indicate that there are many Senators and 
many Members of the House who deserve credit for getting this bill 
before us in this conference report. I personally want to thank the 
chairman of the Banking Committee, Senator D'Amato, because without his 
guidance and total commitment we would not be here.
  I want to thank my original cosponsor, Senator Chris Dodd. Actually, 
the two of us fought a lonesome battle until this year. It looked like 
this would never happen. But with the change in the Congress, and the 
White House making some changes in the way they thought about this, we 
are here today with a bill that I understand the President may very 
well sign.
  What are we doing here and why are we here? First of all, let me talk 
a little bit about an industry in America. In recent days there has 
been much conversation about the executive officer of Microsoft Corp. 
That is a high-technology industry, an industry that is involved in 
computers and everything that goes with it and the entire high-
technology community of interest.
  The high-technology, high-growth companies are the backbone of the 
America's economy and are vital to our ability to compete in a growing 
global market. We can no longer allow abusive lawsuits to stifle these 
companies' abilities to pursue new technologies and create new jobs.
  The high-technology companies contribute about $400 billion in goods 
and services in the United States. They employ 2\1/2\ million people, 
which is 14 percent of the total manufacturing jobs in America. High-
technology jobs are some of the best jobs also. The average salary is 
$42,000 per worker, and high technology is a larger segment of our 
economy than transportation, aviation, and the auto industry combined. 
It is a rapidly growing part of our economy and it is our future.
  In my small State alone, there are 305 electronics firms with 16,000 
high technology, high-paying jobs with a total payroll of $609 million, 
and they produce approximately $2.5 billion in goods and services.
  From my standpoint, this bill will make their jobs more secure. It 
will make those companies that I have just described as a backbone of a 
new kind of industrial revolution in America more successful rather 
than less, and no one will be hurt in the process.
  Let me right up front refer to four letters. It does not look like 
several letters because it is enormously thick, but there are four 
letters signed by about 1,000 chief executive officers and presidents 
of electronics and high-technology firms. The letters are not directed 
to the Senator from New Mexico or to the Senator from Utah or to the 
Senator from Nevada. They are directed to the President of the United 
States. In short, these letters are urging the President to sign this 
bill because it is good for their growth and the jobs and the well-
being of the thousands of workers they represent.
  Mr. President, Federal securities law that we are considering here 
today provides a comprehensive legal framework designed to do three 
things:
  First, protect investors in the securities market. Let me repeat 
that. First, protect investors in the securities market.
  Second, provide ground rules for companies seeking to raise money in 
our capital markets.
  And, third, to encourage disclosure of more accurate information 
about publicly traded companies.
  The trend is opposite to that third point because of the lawsuits 
that follow when information is disseminated.
  This bill updates our securities laws to better achieve these 
objectives and in a better, balanced way. When the U.S. Supreme Court 
created the implied right of action--the class action--it noted that 
``litigation under rule 10(b)(5) presents a danger of vexatiousness 
different in degree and kind from that which accompanies litigation in 
general,'' citation of the case, close quote.
  ``Vexatiousness'' is not a word that I use very often, nor do I hear 
it used very often. It comes from the verb ``to vex,'' which means to 
harass, to torment, to annoy, to irritate, and to worry. As a noun, it 
is synonymous with troublesome. In the legal context, it means a case 
without sufficient grounds in order to cause annoyance to the defendant 
or proceedings instituted maliciously and without probable cause.
  In these frivolous securities class action cases, the lawyer hires 
the client instead of the other way around. It sounds a lot like 
modern-day champerty. In law school we studied about this thing called 
champerty. That is another word that is not heard very often. But it 
existed where a person assisted another with money to carry out his 
lawsuit. In times past, someone who would pay for, in whole or in part, 
the cost of litigation was engaged in champerty, including doing things 
that tend to obstruct the course of justice or to promote unnecessary 
litigation. It was such a serious offense that not too many years ago 
it was against the law.
  This bill will hopefully curb this modern-day champerty, stop the 
vexatiousness and restore integrity to our security laws by filtering 
out abusive, frivolous class action lawsuits that harm investors and 
only benefit the class action attorneys. Senator Bennett made a very 
good point earlier today: The company is the investors. We can no 
longer allow entrepreneurial lawyers to squeeze the research and 
development budgets, to depress dividend yields to all investors for 
the benefit of a few professional plaintiffs. We can no longer allow 
lawyers to muzzle the chief executive officers from making predictions 
and statements about the future of their companies.
  Professional advisers, like accountants and outside directors, should 
not be held 100 percent liable just because they are deep pockets. This 
bill will force lawyers to be good lawyers and lawsuits to have merit.
  This bill recognizes that stock volatility is not stock fraud. Let me 
repeat that. This bill recognizes that stock prices go up and down--
that is stock volatility--it is not stock fraud. It recognizes that all 
investors benefit when there is more disclosure of information. It 
recognizes that predictions about the future are valuable information 
to investors. It recognizes that predictions may not come true. Such 
statements are predictions, not promises.
  In the safe harbor provision that is currently in the bill before us, 
there are really three safe harbors. I will not go through all of them, 
but I will refer to the third one which has received most of the 
attention. It is a variation of the ``bespeaks caution'' doctrine. We 
tried to make it workable and not too cumbersome. The chief executive 
officer needs to identify the statement as a forward-looking statement, 
needs to provide meaningful cautionary statements and needs to identify 
some important factors that tell the audience why the prediction may 
not come true.
  This bill retains the two-tiered liability. We wanted to change the 
economics of these cases so that the merits will once again matter. 
People should not be sued because they have deep pockets or a lot of 
insurance. We created special rules so that small investors will be 
made whole in the event of an insolvent codefendant who cannot pay 
investors for their losses.
  We required disclosure of settlement terms and lawyers fees in plain 
English so that investors will know what they might recover and how 
much of the settlement fund the lawyers are asking for. And, in a 
sense, this makes the system much better in 12 ways:
  First, it puts investors with real financial interests, not lawyers 
in charge of the case. It puts investors with real financial interests, 
not professional plaintiffs with one or two shares of stock in charge 
of the case. 

[[Page S 17968]]

  The provisions that accomplish this include most adequate plaintiff; 
plaintiff certification; ban on bonus payments to pet plaintiffs; 
settlement term disclosure; attorney compensation reform; sanctions for 
lawyers filing frivolous cases; restrictions on secret settlements and 
attorneys fees.
  Second, it provides for notification to investors that a lawsuit has 
been filed so that all investors can decide if they really want to 
bring a lawsuit.
  It is likely that the people trusted to manage pension funds and 
mutual funds [the institutional investors] will get more involved. 
(Most adequate plaintiff provision).
  Third, it puts the lawyers and his clients on the same side. This is 
accomplished by reforms that change economics of cases, in particular, 
proportionate liability, settlement terms disclosure.
  Fourth, it prohibits special side-deals where pet plaintiffs get an 
extra $10,000 or $15,000.
  It protects all investors, not just the lawyers' pet plaintiffs, so 
that settlements will be fair for all investors.
  Fifth, it stops brokers from selling names of investors to lawyers.
  Sixth, it creates environment where CEO's can, and will talk about 
their predictions about the future without being sued.
  It gives investors a system with better disclosure of important 
information. (Safe harbor).
  Seventh, better disclosure of how much a shareholder might get under 
a settlement and how much the lawyers will get so that shareholders can 
challenge excessive lawyers fees.
  Eighth, no more secret settlements where attorneys can keep their 
fees a secret. (Restrictions on settlements under seal).
  Ninth, it limits amounts that attorneys can take off the top. Limits 
attorneys' fees to reasonable amount instead of confusing calculations. 
(Attorney compensation reform, limiting lodestar method of calculating 
fees).
  Tenth, it provides a uniform rule about what constitutes a legitimate 
lawsuit so that it will no longer matter where a case is filed. 
Investors in Albuquerque will have the same rules as investors in New 
York. (Pleading reform).
  It stops fishing expeditions where lawyers demand thousands of 
company documents before the judge can decide if the complaint is so 
sloppy that it should be dismissed on its face. (Discovery stay).
  Eleventh, it makes merits matter so that strong cases recover more 
than weak cases. Makes sure people committing fraud compensate victims. 
Improves upon the current system so that victims will recover more than 
6 cents on the dollar.
  Twelfth, by weeding out frivolous cases, it gives the lawyers and 
judges more time to do a good job in protecting investors in 
meritorious cases. High-technology companies' executives can focus on 
running their companies and growing their businesses. Investors will 
get higher stock prices and bigger dividends.
  America needs securities litigation reform for many reasons. One 
reason we need this legislation is because the system as it currently 
operates encourages a race to the courthouse to file poorly researched, 
kitchen sink complaints by entrepreneurial class action lawyers 
unconcerned with the merits of their cases. These lawyers know that it 
is very easy to allege securities fraud, and they often use the current 
system's liberal pleading rules to extort settlements from innocent 
companies.
  Entrepreneurial plaintiffs' lawyers favorite targets are usually 
high-technology, start-up firms which cannot bear the costs of fighting 
even the most frivolous lawsuit. Over the past 4 years a total of $2.5 
billion has been paid in settlements in securites class action cases. 
This is money that could have been better spent on enhanced research 
and development, product development and high paying job creation.
  Even when small, high-technology companies are forced to surrender 
and settle abusive suits without much of a fight, they still must 
divert important scarce resources toward the lawsuit and away from job 
creation and product development. Testimony at congressional hearings 
on securities litigation reform indicated that the typical frivolous 
securities lawsuit costs $8.6 million and 1,000 hours of management 
time just to settle the case.
  John Adler, president and CEO of Adaptec, Inc. told the Senate 
Banking Committee that the money his company spent fighting a frivolous 
securities lawsuit would have paid for 20 additional engineers. Intel 
spent $500,000 in 1991 just to have two abusive cases withdrawn. That 
money would have paid for 10 production workers or 5 engineers at its 
facility in my home State. Legent Computer Corp. spent nearly $2 
million in legal fees and several million dollars to comply with the 
plaintiffs' lawyers request for 290,000 pages of documents, even though 
a judge eventually dismissed the lawyers' complaint. Numbers like these 
make me realize that we need to change the current winner pays system, 
where innocent companies must expend vast amounts of time and resources 
just to get an abusive suit dismissed.
  High-technology and high growth companies form the backbone of our 
economy and the foundation of our ability to compete in the growing 
global marketplace. They create jobs and grow the economy. We can no 
longer allow these abusive lawsuits to stifle our companies' ability to 
pursue new technologies and create new jobs. The general counsel of 
Intel Corp. told us during a hearing that had Intel been sued when it 
was a startup company, the lawsuit likely would have decimated its 
research and development budget and prevented it from inventing the 
semiconductor. Thousands of jobs would be in Japan instead of America.
  Entrepreneurial lawyers also like to sue deep-pocketed professional 
advisers, like accountants and lawyers, even if they are only 
marginally involved in the alleged fraud. Under the current law rule of 
joint and several liability, these advisers can be made to pay the 
entire multimillion dollar judgment, even if they were unaware of any 
wrongdoing. That is because the current law says that if you conduct an 
audit or sign an opinion letter for a client who violates the 
securities laws, then you should have known of the wrongdoing. Because 
they face potentially massive liability for their relatively innocent 
conduct, auditors and lawyers often settle rather than fight the 
abusive lawsuit. Studies show that naming an accountant in a lawsuit 
adds 30 percent to its settlement value. Rather than continue to face 
unfair joint and several liability, auditors and lawyers have begun to 
refuse to advise startup firms most susceptible to abusive lawsuits. 
This hurts the companies and ultimately their shareholders.
  Part of the problem is the race to the courthouse by entrepreneurial 
class action lawyers, who file lawsuits within hours of news that a 
company came up short on an earnings projection or will be forced to 
delay the introduction of a new product. Information provided to the 
Senate Banking Committee by the National Association of Securities and 
Commercial Law Attorneys [NASCAT] reveals that 21 percent of the cases 
are filed within 48 hours of the triggering event. The stock price 
drops after the company makes an announcement, and the lawyers quickly 
file lawsuits with little or no due diligence done to investigate 
whether the suits have any merit. In fact, I would guess that the 
lawyers do not really care whether the suits possess much merit. This 
is because courts rarely exercise their authority to impose sanctions 
on attorneys who file frivolous securities suits.
  Abusive lawsuits not only drain scarce resources away from important 
company activities, but they also have a profound impact on the 
willingness of corporate executives to speak freely about their 
company's plans and expected future performance. Several corporate 
executives and general counsels told the Banking Committee that they 
had adopted a policy of not making public forward-looking statements 
out of fear that they would be sued for securities fraud if their 
predictions did not materialize. We should encourage companies to make 
forward-looking statements, because they contain precisely the type of 
information investors most desire--information about where the company 
is headed in the future. But we must remember, predictions are not 
promises of future performance, and executives who make forward-looking 
statements should be protected from lawsuits unless they intended to 
deceive investors.
  I have spoken a great deal about how abusive lawsuits affect 
companies and 

[[Page S 17969]]
their professional advisers. Even more egregious than the way the 
current securities class action system treats them is the way it treats 
investors. When attorneys file frivolous cases, investors eventually 
bear the costs of the lawsuit. When lawyers pursue meritorious cases, 
they often seek settlements that benefit them and leave investors with 
pennies on the dollar of their losses.

  Often lost in the debate over securities litigation reform is the 
fact that not just companies, but investors are harmed by frivolous 
securities lawsuits. Former SEC Chairman Richard Breeden testified that 
``the people who are most badly hurt--by abusive securities lawsuits--
are the company's shareholders, who indirectly pay all the costs'' of 
the lawsuit. Current SEC Chairman Arthur Levitt also has correctly 
noted that investors are being hurt by litigation excesses.
  When plaintiffs' lawyers engage in the predatory practice of filing 
an abusive securities lawsuit, shareholders eventually must bear the 
costs of the suit. When companies are forced to divert resources from 
research and development budgets to litigation budgets, stock prices 
drop and shareholders suffer. When companies must make a charge to 
earnings to pay the costs of settling an abusive lawsuit, dividends are 
lower and shareholders suffer. When corporate executives refuse to 
discuss the company's future plans out of fear that they will be sued, 
markets are denied access to the information investors need most to 
make informed investment decisions, and shareholders suffer.
  During the 12 congressional hearings held on securities class action 
litigation, the most shocking thing I learned was the way plaintiffs' 
lawyers treat investors in cases of real fraud. According to studies 
and testimony presented at the hearings, in the typical settlement of a 
securities fraud lawsuit, investors receive around 6 cents on the 
dollar of their claimed losses, while plaintiffs' lawyers take the 
lion's share of the settlement fund as their fee award. This is because 
the current system allows attorneys to negotiate their settlement with 
little or no input from their purported clients, the injured investors. 
One of the most prominent securities class action lawyers claims to 
have the best practice in the world because he has no clients.
  This same attorney once settled a class action for $12 million and 
asked for the entire amount as his fee award. This would have left his 
clients with nothing. When asked whether he had a duty to his clients 
to justify his fee request, this lawyer responded that his only 
responsibility was to justify his fee request to the court. A system 
which allows this sort of abuse needs to be changed. Investors deserve 
better.


                              The Solution

  While I have spent some time talking about the problem, I would like 
to spend the remainder of my time discussing the solution we have 
developed. Our goal in crafting this legislation was to balance the 
interests of defrauded investors with those of the companies and 
professional advisors who are often the subject of abusive, meritless 
lawsuits. I believe that we have developed a balanced bill that 
provides relief from abusive suits while giving investors greater 
control and a larger recovery in cases of real fraud.
  It contains provisions which place investors, not lawyers, in control 
of the lawsuit. Unlike the current lawyer-driven system, under this new 
law the investors with the greatest stake in the outcome of the 
litigation will control the case. Usually this will mean that pension 
funds and mutual funds, which represent thousands of small investors, 
will determine whether to pursue a lawsuit, who will be their lawyers, 
and when and for how much to settle the case. Because they have an 
interest in protecting their small investors by discouraging frivolous 
suits and pursuing cases of real fraud, institutional investors are in 
the best position to decide whether to go forward with a lawsuit.
  Unlike the current system where the first lawyer to file the lawsuit 
controls the case, this legislation also will allow the investors to 
pick their lawyers and negotiate up front what their fee will be. This 
will result in reduced attorneys' fees and will leave more money in the 
settlement fund for defrauded shareholders. It will eliminate 
situations where the attorneys request significant portions of 
settlement fund as their fee and leave investors with pennies on the 
dollar of their claimed losses.
  The conference report also requires that settlement notices to class 
members contain clear and concise disclosures of the terms of the class 
action settlement. Under the current system, investors often receive 
settlement notices shrouded in legalese, which give them little or no 
idea what the lawyers have agreed to do. Only after they have consented 
to be part of the class and accept the settlement do they realize that 
the lawyers have taken most of it and left them with next to nothing. 
Under the new law, lawyers will be required to explain to shareholders 
in clear terms the total amount of the settlement, the amount of 
attorneys' fees and costs sought, and the amount per share class 
members will receive. With this new information, investors will better 
be able to determine whether to accept the terms of the settlement.
  The new system also will be good for investors because it eliminates 
many of the unfair practices currently associated with generating a 
securities class action. Lawyers will no longer be able to pay bonuses 
out of the settlement fund to individuals who lend their name to the 
lawsuit and act as the named plaintiff. Nor will they be allowed to pay 
bonuses to brokers or dealers for referring potential clients. These 
practices are unfair to the shareholders not afforded the luxury of 
acting as named plaintiff and should be eliminated. Their elimination 
will keep more money in the settlement fund for all investors, not a 
select few.

  The conference report also will benefit companies, as well as 
investors by utilizing reasonable means to eliminate abusive frivolous 
lawsuits. Despite what opponents say about this bill, it will not 
protect the Charles Keatings of the world or prevent victims of 
egregious fraud from obtaining relief. No Senator would vote for a bill 
which allowed that to happen. Instead, the conference report contains 
provisions which will weed out frivolous cases early in the litigation 
process and impose fair liability standards on companies and their 
professional advisors to reduce the tremendous pressure on them to 
settle even the most abusive cases.
  To weed out frivolous cases early in the process, the conference 
report adopts the pleading standard utilized by the second circuit 
court of appeals, where a large number of securities fraud lawsuits are 
brought. This court-tested standard requires plaintiffs to plead facts 
in their complaint which give rise to a strong inference of securities 
fraud.
  The conference report also adopts the State-law trend of 
proportionate liability--liability based upon the degree of 
responsibility of each defendant. It retains joint and several 
liability for the really bad actors, those who knowingly defraud 
investors. It holds all others proportionately liable for the harm that 
they have caused. This will reduce the pressure to settle on 
professional advisors who may not even have been aware of the fraud, 
but who under the current system could be held responsible for the 
entire amount of damages.
  Proportionate liability is not a novel concept--it's one many States 
concerned with a fair application of liability have used for years.
  There are three provisions in this bill which provide additional 
investor protection, particularly for the most vulnerable small 
investors. First, the bill contains a provision specifically designed 
to improve fraud detection in the areas of auditing and financial 
reporting. Auditors will now be required to report instances of 
corporate fraud and this reporting often will take place before the 
fraudulent information makes its way into financial disclosure 
documents disseminated to investors.
  The bill also contains language which will ensure that investors get 
compensated if the main perpetrator of the fraud is bankrupt. The 
conference report requires proportionately liable defendants to pay up 
to an additional 50 percent of their liability into the settlement fund 
in cases where the primary, knowing violator is insolvent. It also 
requires that small investors be fully compensated in all cases by 
holding all defendants jointly and severally liable for their entire 
losses. 

[[Page S 17970]]

  The bill also contains a fair safe harbor for predictive statements 
which will allow companies to provide the forward-looking information 
investors desire without the fear of a lawsuit if the projections do 
not materialize. Under the current system, if one person in a company 
is aware of information which might contradict the company's 
projection, the company can be held liable for fraud. This forces 
companies to adopt a policy of not making predictive statements.
  The new safe harbor, endorsed by the Securities and Exchange 
Commission, protects predictive statements in two ways. First, 
projections are protected from lawsuits as long as they are accompanied 
by meaningful warnings which identify important business factors which 
could cause the prediction to fail. This provision is based on the 
bespeaks caution doctrine, a concept in the securities laws which says 
that if a predictive statement is surrounded by sufficiently cautionary 
language discussing some of the reasons why the prediction may not come 
true, then the statement cannot form the basis of a lawsuit. Under this 
new rule, companies which desire the protection of the safe harbor will 
be required to disclose certain information to investors about the 
factors which might undermine their predictions. Companies need not 
disclose every factor, nor must they disclose the factor which 
eventually causes the prediction to fail. They simply must discuss some 
of the important business factors which could affect their prediction.
  There has been much discussion about this first part of the safe 
harbor. Early drafts said that companies must disclose substantive 
factors, rather than important factors. In this Senator's opinion, 
these words are interchangeable and impose the same requirement on 
companies: discuss some of the important business factors which could 
affect your prediction. It imposes no hindsight state of mind 
requirement on companies regarding which factors they believed were 
most important. Nor should this provision be used by courts in a way 
which allows the current system's abusive discovery practices to 
continue. Courts should not read the word important to mean that 
plaintiffs are entitled to large-scale discovery on the issue of which 
factors the company believed were important. Courts should simply look 
at the four corners of the predictive statement, as well as the 
information about the company already in the market, and determine 
whether investors should have relied on the predictive statement.
  Under this safe harbor, courts also may continue their practice under 
current law and find forward-looking statements immaterial on other 
grounds. There is an abundance of case law which says that soft 
forward-looking statements containing optimistic opinions without any 
factual representations cannot serve as the basis for one of these 
lawsuits. The conference committee wisely chose to leave this law 
intact. This sort of sales talk or puffing has no effect on a company's 
share price and courts should continue to quickly dismiss cases based 
on these types of statements. As well, courts also should continue to 
consider public information provided by sources other than the company 
or public information from the company not contained in the forward-
looking statement when determining whether a predictive statement meets 
the securities laws' test of materiality. These concepts also are found 
in the cases, and the conference committee certainly did not intend to 
have any effect on this area of the law.
  Should a predictive statement not contain sufficient cautionary 
language to fall into the first safe harbor, then a second safe harbor 
is available. Under the second safe harbor, the statement is protected 
unless it was made with actual knowledge that it was false. If a 
business entity made the statement, then the plaintiff must prove that 
the statement was made or approved by an executive officer with the 
actual knowledge that it was false. This will prevent the situation 
under current law which permits lawsuits to go forward based upon the 
existence of a memo or electronic mail by a low-level employee who 
disagrees with management's projection. This provision is based upon 
the standard Senator Sarbanes proposed on the floor during the Senate 
debate, and I believe that this is an effective compromise.
  Investors should have increased access to the company's thoughts 
about where it is headed in the future, and the current lawsuit-driven 
system discourages executives from talking about the future. The 
conference report's balanced safe harbor provision encourages companies 
to speak by recognizing that predictions are not promises, while 
prohibiting outright lies by corporate executives. Again, this is a 
provision supported by the Securities and Exchange Commission. Let me 
read into the record what the Commission says about the safe harbor in 
the conference report:

       While we could not support earlier attempts at a safe 
     harbor compromise, the current version represents a workable 
     balance that we can support since it should encourage 
     companies to provide valuable forward-looking information to 
     investors while, at the same time, it limits the opportunity 
     for abuse.

  Finally, this bill addresses the fact that attorneys and courts are 
unwilling to pursue sanctions against entrepreneurial lawyers who file 
abusive suits. This legislation requires courts to review the record at 
the end of each case to determine whether any of the attorneys violated 
rule 11 of the Federal rules. If the court finds a violation, then it 
must impose sanctions. Requiring courts to impose sanctions against 
attorneys who file frivolous cases will reduce the number of abusive 
lawsuits without discouraging individual plaintiffs from seeking 
redress in the courts.
  Mr. President, I hope my colleagues will vote for this conference 
report. This legislation is substantially similar to the legislation we 
passed in July by a wide margin. I believe that the Senators who 
supported the bill in July should have every reason to vote for this 
conference report today. It is a well-balanced bill that protects 
investors from intentional fraud, gives them greater control of their 
cases and addresses many of the abuses inherent in our currently broken 
securities class action system.
  I ask unanimous consent to have printed in the Record following my 
remarks a list of those from my home State of New Mexico who support 
securities litigation reform. The list includes several State senators 
and representatives, as well as Gary Johnson, the distinguished 
Governor of New Mexico.
  I also ask unanimous consent that a copy of a series of letters from 
a group of high-technology and high-growth company CEO's, and venture 
capitalists to President Bill Clinton also be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibits 1 and 2.)
  Mr. DOMENICI. Mr. President, I want to especially recognize the 
extraordinary commitment Senator Dodd has made to this legislation. 
When he was chairman we started the hearings, compiled a thorough 
report and together we developed legislation. He has steadfastly worked 
to make the bill a better bill for small investors, for all investors, 
for our capital markets and the companies using our capital markets. 
This knowledge of the securities laws helped craft the answers to the 
problem that we all saw.
  I thank my colleagues Senators Dodd and D'Amato, as well as the rest 
of the conferees for all of their hard work on this important 
legislation. This is comprehensive reform, and companies as well as our 
legal system will work more efficiently because of it. Senator Gramm 
pioneered the most-adequate-plaintiff provision and I thank him for his 
input.
  I must thank several members of the House who have worked so hard to 
help bring about securities litigation reform. The chairman of the 
Commerce Committee, Mr. Bliley and his distinguished subcommittee 
chairman, Mr. Fields, have worked tirelessly to ensure that this 
legislation is effective and actually works in the real world. I 
realize how difficult it can be to craft a complicated piece of 
legislation like this, and I appreciate their help. I also would like 
to thank Representative Chris Cox from California, who practiced in 
this area prior to coming to Congress. His practical experience and 
expertise has helped make this a better bill. Finally, I thank 
Representative Billy Tauzin, a new member of the Republican Party who 
fought for many 

[[Page S 17971]]
years as a Democrat to bring this legislation to the floor of the 
House. Mr. Tauzin's hard work attracted over 200 cosponsors to his 
original bill at a time when there was very little interest by the 
House leadership in even bringing up the issue of securities class 
action reform. Mr. Tauzin has worked on this issue since the beginning, 
and his dedication to this issue is to be commended.
  SEC Chairman Levitt and Commissioner Wallman made constructive 
suggestions throughout the process. I am very pleased that they support 
the safe harbor provisions that have been worked out and that we were 
able to address their principle concerns about the entire bill.
  Mr. President, I urge that Senators adopt this bill today and I urge 
the President to sign it. As we look back at this year, this will be 
one of the most significant pieces of legislation that attempts to rid 
the American economy and the entrepreneurial system from unneeded drag 
and unneeded cost so that it retains more of its vibrancy and growth 
potential.
  I yield the floor.

                               Exhibit 1

                     New Mexico Support for S. 240


                               government

       New Mexico Governor Gary Johnson.
       State Senator Patrick Lyons.
       State Senator Virgil Rhodes.
       State Senator E.M. Jennings.
       State Representative Robert Wallach.
       State Representative Ted Hobbs.
       State Representative Anna Marie Crook.
       Santa Fe City Manager Isaac Pino.
       Lovington City Manager Bob Carter.
       State Secretary of Finance and Revenue David Harris.


                         business and industry

       Santa Fe Chamber of Commerce.
       Greater Albuquerque Chamber of Commerce.
       Roswell Chamber of Commerce.
       New Mexico Association of Commerce and Industry.
       Intel Corp.,--Rio Rancho.
       Motorola--Albuquerque.
       Specialty Constructors, Inc.--Cedar Crest.
       Neff & Co.--Albuquerque.
       Correa Enterprises Inc.,--Albuquerque.
       Larribas & Associates, P.A.--Albuquerque.
       We also have received many letters from private citizens, 
     including many retirees who support securities litigation 
     reform.
                                                                    ____


                   The CEASS Coalition in New Mexico


                                summary

       The Coalition to Eliminate Abusive Securities Suits 
     (CEASS), an alliance of over 1,450 U.S. companies, 
     professional firms and organizations representing high-
     technology, financial services, basic manufacturing sectors 
     and others, is seeking federal legislative remedies to the 
     rising threat of unwarranted securities litigation. CEASS 
     member companies rank among the nation's fastest-growing and 
     most innovative companies. CEASS supports the reform measures 
     embodied in S. 240, the Private Securities Litigation Reform 
     Act of 1995, introduced in the U.S. Senate by Senators Pete 
     Domenici (R-NM) and Chris Dodd (D-CT).
       In New Mexico, there are 24 CEASS members that are either 
     headquartered or have facilities in the state. Together, 
     these organizations employ over 11,000 residents. Included 
     are many of the state's largest private sector employers--
     Intel Corporation, Motorola Inc., US West Communications and 
     many more. Below is a detailed breakdown of CEASS members in 
     New Mexico.


     ceass members among largest new mexico employers (500 or more 
                               employees)

       Chevron Corporation.
       Intel Corporation.
       Johnson & Johnson.
       MCI Communications, Inc.
       Motorola Inc.
       Phelps Dodge Corp.
       US West Communications.


               ceass members headquartered in new mexico

       Diagnostek, Inc., Albuquerque.
       Indian Motorcycle Manufacturing Inc., Albuquerque.
       Mesa Airlines, Inc., Farmington.
       Neff & Company, Albuquerque.
       Specialty Teleconstructors, Inc., Cedar Crest.
       Sunsoft Corporation, Albuquerque.


         all other ceass members with facilities in new mexico

       AlliedSignal Inc., Las Cruces.
       Arthur Andersen LLP, Albuquerque.
       Baxter International, Albuquerque.
       Borg-Warner Security Corp., Albuquerque.
       Chevron Corporation, Gallup.
       Chevron Corporation, Raton.
       Eagle Industries, Inc., Albuquerque.
       FHP International, Inc., Albuquerque.
       Intel Corporation, Rio Rancho.
       Johnson & Johnson, Albuquerque.
       KPMG Peat Marwick LLP, Albuquerque.
       MCI Communications, Inc., Albuquerque.
       Motorola Inc., Albuquerque.
       The Olsten Corporation, Albuquerque.
       Phelps Dodge Corp., Lordsburg.
       Phelps Dodge Corp., Tyrone.
       Smith's Food & Drug Centers, Inc., Albuquerque.
       Smith's Food & Drug Centers, Inc., Farmington.
       Sun Microsystems, Inc., Albuquerque.
       The May Department Stores Co., Albuquerque.
       US West Communications, Albuquerque.


    members of new mexico house delegation who voted for securities 
                     litigation reform (h.r. 1058)

       Steven Schiff.
       Joe Skeen.
       Bill Richardson.

                               Exhibit 2


                             American Electronics Association,

                                Santa Clara, CA, October 17, 1995.
     Hon. William J. Clinton,
     The White House,
     Washington, DC.
       Dear Mr. President: As California members of the American 
     Electronics Association, we are writing to strongly urge your 
     support for securities litigation reform legislation which we 
     expect to emerge from Conference Committee early this fall.
       For nearly four years the California High Technology 
     community has been pursuing meaningful reform of the 
     securities litigation system. We have worked closely with the 
     White House, the Securities and Exchange Commission, and the 
     U.S. Congress. As a result of these efforts, both the House 
     of Representatives and the U.S. Senate overwhelmingly passed 
     securities litigation reform, by votes of 325-99 and 70-29, 
     respectively. We believe these margins clearly demonstrate 
     the consensus for reform and now we need your affirmative 
     support to bring this effort to a successful close.
       We want to stress our belief that U.S. capital markets 
     function efficiently and effectively because of a strong and 
     balanced enforcement system. We also want you to understand 
     that the current system is no longer functional, promoting 
     inefficient markets, costing jobs, and harming investors.
       In Silicon Valley, California, nearly 53% of technology 
     companies have been sued under Section 10(b)(5) of the 
     Securities Act of 1934. Every single one of the top ten 
     Silicon Valley Corporations--world class multinational 
     competitors--have been accused of violating the anti-fraud 
     provisions of the U.S. Securities laws. The current state of 
     affairs was described best by a prominent Silicon Valley CEO 
     who stated: ``There are only two kinds of California 
     technology companies--those that have been sued, and those 
     that are about to be sued.''
       We want to emphasize that the provision most critical for 
     technology companies is a strong, effective safe harbor for 
     forward-looking statements--statements made by companies and 
     others about the future prospects of earnings, products, 
     technologies or the like. But the key to a safe harbor is 
     that it must be safe. Properly constructed, a true safe 
     harbor will promote maximum disclosure by corporate 
     executives and provide investor protection. Under current 
     law, if a company fails to meet management's projections or 
     analysts' expectations it often finds itself faced with a 
     lawsuit. Frequently, these lawsuits are based on changes 
     of fraud, allegedly for false and misleading past 
     statements of future expectations. And because of our 
     inherent stock volatility, rapid product development, and 
     economic and technological uncertainties facing technology 
     companies, high technology firms are easy prey for these 
     merit less lawsuits.
       The California Public Employees Retirement System 
     (CalPERS), which provides retirement benefits to nearly 1 
     million beneficiaries fully understands the ramifications of 
     the current system. CalPERS argues that ``the current safe 
     harbor has failed to encourage sufficient disclosure of 
     forward-looking information, principally because the rule is 
     unable to assure issuers that they will not be subject to 
     shareholder suits upon disclosing projections.''
       Unfortunately, as with many issues in Washington, the safe 
     harbor has been the subject of a smear campaign designed to 
     preserve the status quo for those that are profiting from the 
     current system. Some have characterized the safe harbor as 
     providing issuers with a ``license to lie.'' This is either a 
     misrepresentation or a misunderstanding of the proposals. 
     Providing safe harbor protection--that is, a greater degree 
     of protection than provided for in law--has been the 
     established policy of the Securities and Exchange Commission 
     for 15 years.
       Others have suggested that the safe harbor would protect 
     fraudulent wrongdoers. Again, this is simply not correct. 
     Truly fraudulent activity would still be fully actionable by 
     private parties under any safe harbor construction. It is 
     simply not possible to confine fraudulent activity to forward 
     looking statements without also, at some point, mis-stating 
     present fact. Moreover, nothing in any proposal would prevent 
     the Securities and Exchange Commission from bringing an 
     enforcement action against any person on the basis of a 
     forward-looking statement. The safe harbor would only curb 
     abusive lawsuits based on a revisionist view of future 
     events.
       Mr. President, by giving companies the comfort they need to 
     talk about plans for the future--without risking a lawsuit 
     when they simply miss the mark--the safe harbor will maximize 
     disclosure of forward-looking information, improve the 
     efficiency of the market, and permit investors to make sound 
     decisions based on maximum information.

[[Page S 17972]]

       Once again, we want to stress the need for litigation 
     reform, including for a strong safe harbor.
           Sincerely,
       Wind River Systems, Tekelec Corporation, Venture Management 
     Associates, Information Storage Devices, Inc., HiTech 
     Equipment Corporation, Poly-Optical Products, Inc., VALOR 
     Electronics Inc., Fidelity Palewater, Inc., Sage Management 
     Group, Radio Therapeutics Corporation, Elpac Electronics, 
     Inc., Uptime Computer Solutions, Inc., ShareData Inc., TEAL 
     Electronics Corporation, Aurum Software Inc., Magnetic 
     Circuit Elements, Inc., Aurora Electronics, Inc., Weitek 
     Corporation, BEI Electronics, Inc., Shelly Associates, Inc.
       Data Instruments, Inc., TAU Corporation, Nextwave Design 
     Automation, ACCEL Technologies, Inc., Emuiex Corporation, 
     Optimum Optical Systems, Inc., VertiCom Inc., Comdisco 
     Electronics Group, TeleSensory Corporation, Physical Optics 
     Corporation, Endgate Corporation, Wells Fargo Bank, Catapult 
     Communications Corporation, Orthodyne Electronics, Alzeta 
     Corporation, Printonix, Inc., Leasing Solutions RNC (LSSI), 
     Embedded Performance, Inc., Escalade Corporation, Autek 
     Services Corporation.
       Presence Information Design, INTA, TTM Inc., Graham-Patten 
     Systems, Inc., Oxigraf, Frequency Products, Inc., Paragon 
     Environmental Systems, Inc., Radian Technology, Illustra 
     Information Technologies, Dynamic Network Solutions, Inc., 
     Data/Ware Development, Subscriber Computing, Inc., Paragraph 
     International, El Dorado Ventures, Petillon & Hansen, NFT 
     Ventures, Inc., Pioneer Magnetics, Platinum Software, 
     BioMagnetic Technologies, Inc., Lexical Technology.
       ACT Networks, Inc., 3D Systems Corporation, WEMS 
     Electronics, The Automatic Answer, Inc., Transport Solutions/
     RTC, Lumonics Corporation, Silicon Valley Group, Inc., The 
     Cerplex Group Inc., Interlink Electronics, Baan Company, 
     Nanometrics, Viasat, Inc., HSQ Technology, Qlogic 
     Corporation, Silicon Systems, Inc., Giga-Tronics 
     Incorporated, HNC Software Inc., ParcPlace Digitalk, Inc., 
     DCP Technology Inc., Vitesse Semiconductor Corporation.
       Canro Scientific Instruments, Router Wave, Xircom, Inc., 
     Level One Communications, Inc., International Lottery & 
     Totalizator, Onstream Networks, Inc., Wiz Technology Inc., 
     Tandem Computers, Inc., ProBusiness, Inc., Innocal, InCirt 
     Technology, Logical Services Incorporated, Com 21, 
     Microsource, Inc., Scientific Technologies, Inc., Pacific 
     Recorders & Engineering, Kofax Image Products, Allied Telesyn 
     International Corp., Molecular Dynamics, Motion Engineering, 
     Inc.
       Trillium Consumer Electronics, Inc., ATG Cygnet, Inc., 
     Semiconductor Systems, Inc., Reset Inc., Triconex, StrataCom, 
     Inc., Quantic Industries Inc., Advanced Matrix Technology, 
     Inc., Netsoft, Motion Engineering Inc., Inhale Therapeutic 
     Systems, Continuous Software Corporation, Xilinx, Inc., RJS, 
     Inc., Measurex Corp., Sonatech, Inc., MasPar Computer 
     Corporation, Paracel, Inc., Fisher Research Laboratory, Inc., 
     Network General Corp.
       Gamma-Metrics, Expersoft, D.S. Technologies Inc., Liconix, 
     Creative Computer Solutions, Inc., 3Com Corporation, Condor 
     Systems, Inc., Atmel Corp., Proxim, Inc., Network Equipment 
     Technology, Inc., American Telecorp, Inc., InfoSeek, DiviCom 
     Inc., Remedy Corporation, Harmonic Lightwaves, Inc., 
     TopoMetrix Corporation, Dionex Corporation, Orbit 
     Semiconductor, Inc., Opti, Inc., MicroSim Corporation.
       Kavlico Corporation, Absolute Time Corporation, DJC Data 
     Technology Corporation, WireLess Data Corporation, California 
     Amplifier, Inc., Dynamic Instruments, Inc., Savi Technology, 
     Inc., Komag Incorporated, Megapower Corporation, Spatializer 
     Avoid Laboratories, Inc., Newpoint Corporation, Redwood 
     MicroSystems, Inc., Harmonic Lightwaves, Inc., Unisen, Inc., 
     California Microwave, Inc., SEEQ Technology, Inc., Quantum 
     Materials, Inc., Sierra Semiconductor Corporation, Alpharel, 
     Inc., Titan Electronics, Uniax Corporation, De La Rue Giori 
     of America, Liikkuva Systems, Brooktree Corporation, 
     GammaLink, Calimetrics, Inc., Tyecin Systems, Inc., AccSys 
     Technology.
                                                                    ____



                                           Silicon Valley, CA,

                                                 November 3, 1995.
     Hon. William J. Clinton,
     The White House, Washington, DC.
       Dear Mr. President: We wish to state unequivocally that 
     securities litigation reform legislation is of critical 
     importance and interest to our companies. We understand from 
     numerous sources within the White House that this 
     Administration believes that Silicon Valley companies do not 
     consider securities reform a pivotal issue.
       By delivery of this letter to you. Mr. President, we wish 
     to underscore the degree of our intensity in support of 
     meaningful reform.
       For almost four years we have devoted substantial energy 
     and efforts toward making common sense changes in the nations 
     securities laws, thereby hoping to end the relentless 
     onslaught of frivolous lawsuits against our companies. As a 
     result of discussions with your staff we have acted in good 
     faith and have moderated our position to meet your concerns.
       The high technology companies are united on this issue. The 
     signatories of this letter represent the leading companies of 
     Silicon Valley, and speak with confidence that we reflect the 
     views of thousands of technology companies nationwide.
       Mr. President, believe us, this is a definitive issue for 
     our industry.
           Sincerely,
       National Semiconductor Corporation, Quantum, 3COM, DSV 
     Partners, Institutional Venture Partners, LSI Logic 
     Corporation, Cadence Design Systems, Symantec Corporation, 
     Oracle Corporation, Sybase, Inc., New Enterprise 
     Associates, Silicon Graphics Inc.
       Sun Microsystems, Inc., Intel Corporation, Applied 
     Materials, Inc., Varian Associates Inc., Kleiner Perkins 
     Caufield & Byers, Hewlett-Packard Company, Raychem 
     Corporation, Advanced Micro Devices Inc., Adaptec, Inc., 
     Centigram Communications Corporation, Apple Computer, Inc., 
     Tandem Computers, Trimble Navigation Limited, Xilinx, Inc., 
     Adobe Systems Inc.
                                                                    ____



                             American Electronics Association,

                                Santa Clara, CA, October 13, 1995.
     The President,
     The White House, Washington, DC.
       Dear Mr. President: We are writing to urge your support for 
     securities litigation reform legislation which we expect to 
     emerge from Conference Committee early this fall.
       For nearly four years the U.S. high technology community 
     has been pursuing meaningful reform of the securities 
     litigation system. As a result of these efforts, both the 
     House of Representatives and the Senate overwhelmingly passed 
     securities litigation reform, by votes of 325-99 and 70-29, 
     respectively. We believe these margins clearly demonstrate 
     the consensus for reform. We need your affirmative support to 
     bring this effort to a successful close.
       We were pleased to read the report during your recent 
     Silicon Valley visit that you would ``gladly sign'' 
     legislation to eliminate frivolous lawsuits. At the same 
     time, we gather you do not fully support the legislation 
     passed by the Senate, the legislation most likely to reach 
     your desk.
       In Silicon Valley, more than half the technology companies 
     have been sued under Section 10(b)(5) of the Securities Act 
     of 1934. Inherent stock volatility, rapid new product 
     development, and economic and technological uncertainties 
     make high technology firms easy prey for these meritless and 
     costly lawsuits. According to the American Electronics 
     Association (AEA) every one of the top ten Silicon Valley 
     companies--world-class, multinational competitors--has been 
     accused of violating the anti-fraud provisions of the U.S. 
     securities laws.
       The provision most critical for technology companies, like 
     ours, is a strong safe harbor for forward-looking 
     statements--projections made about the company's future 
     prospects. Failing to meet the expectations of analysts who 
     follow the technology industry is inevitable. However, it is 
     hardly intentional and it is certainly not fraudulent. Yet 
     plaintiffs' lawyers seize upon the inherent volatility in our 
     industry to create a false picture of ``fraud'' where none in 
     fact exists.
       The proliferation of class action lawsuits has prompted 
     companies to conclude that the legal risks of providing 
     projected earnings, revenue and market information to Wall 
     Street analysts or the investing public are too high. As 
     such, many companies no longer release future oriented 
     information and refuse to comment directly on analysts' 
     projections, resulting in less public information, less 
     efficient markets, fewer jobs, and in the end less informed 
     investors.
       Except for those who profit from the current system, there 
     is nearly universal agreement that the current regulatory 
     safe harbor is no longer functional. Nonetheless, the 
     beneficiaries of the status quo have launched an aggressive 
     campaign to kill the safe harbor. They have suggested that 
     the proposed safe harbor would be a ``license to lie,'' or 
     that it would ``protect'' fraudulent wrongdoers. The fact is 
     that fraudulent activity would continue to be fully 
     actionable by private parties under either bills' safe harbor 
     construction. Moreover, nothing in any proposal would prevent 
     the Securities and Exchange Commission from bringing an 
     enforcement action against any person on the basis of a 
     forward-looking statement. The purpose and goal of the safe 
     harbor is not to provide a ``license to lie'' but to provide 
     a forum in which companies can safely provide valuable 
     information to the investing public.
       Mr. President, it is important for us to have you 
     understand our position. Without strong, clear safe harbor 
     protection--similar to that enacted by either the Senate or 
     the House--reform efforts will be virtually meaningless. We 
     need your active support to ensure that the legislation 
     enables corporate executives to speak candidly about the 
     future and to ensure that investors receive the information 
     they need. In so doing, businesses will win, investors will 
     win, and the marketplace will win.
           Sincerely,
       Adaptec, Inc., National Semiconductor Corporation, Quantum, 
     3COM, LS Logic Corporation, Oracle Corporation, Raster 
     Graphics, Silicon Graphics Inc., Sun Microsystems, Inc., 
     Intel Corporation, Applied Materials, Inc., Varian 
     Associates Inc., Hewlett-Packard Company, Cypress 
     Semiconductor, Raychem Corporation, Advanced Micro Devices 
     Inc., Centigram Communications Corporation, Apple 
     Computer, Inc., Tandem Computers, Trimble Navigation 
     Limited, Xilinx, Inc.
                                                                    ____


[[Page S 17973]]



                                 American Business Conference,

                                 Washington, DC, November 1, 1995.
     The President,
     The White House,
     Washington, DC.
       Dear Mr. President: Shortly, you are likely to receive from 
     Congress legislation designed to reform our nation's system 
     of securities-related litigation. We are writing to urge you 
     to sign that legislation when it reaches your desk.
       As you know, bills designed to curtail speculative 
     securities litigation--so called strike suits--passed the 
     House and Senate by wide, bipartisan margins earlier this 
     year. The House and Senate conferees will be meeting 
     presently and a draft conference report has already been 
     written. That draft report has been warmly endorsed by 
     Senator Dodd, who called it a ``balanced, moderate bill that 
     addresses the needs of legitimately defrauded investors, 
     while protecting our nation's businesses from frivolous 
     lawsuits.''
       We, and the organization we co-chair, the American Business 
     Conference (ABC) agree with Senator Dodd's assessment. For 
     far too long, America's entrepreneurial, growth companies 
     have been harassed by speculative lawsuits brought by a small 
     coterie of lawyers in the name of investors who often are 
     unaware that a suit has been filed. These suits are initiated 
     for the purpose of securing a settlement; they amount to 
     little more than perverse transfer payments from one group of 
     investors to another with a large slice going to the 
     plaintiffs' lawyers.
       Those companies that manage to escape being sued suffer as 
     well. They know that the promulgation of so-called forward-
     looking information is an open invitation to a lawsuit 
     because statements about future prospects are uncertain and 
     therefore vulnerable to legal assault after the fact.
       This means less communication of forward-looking 
     information to investors, a less efficient securities market, 
     and, ultimately, a higher cost of capital for entrepreneurial 
     firms unable to explain fully why investors should seek them 
     out. Our economy cannot afford this absurd situation to 
     continue; it is costing jobs, it is hampering new business 
     development, and, ultimately, it is a tax on our future 
     standard of living.
       Having spoken at length with our colleagues in ABC and with 
     other business leaders from California to Massachusetts, we 
     can assure you that no business-related issue is being more 
     closely watched by America's entrepreneurs than is the fate 
     of this reform legislation. It deserves your wholehearted 
     support.
           Sincerely yours,
     George N. Hatsopoulos,
       Chairman and President, Thermo Electron Corp. Waltham, MA.
       Co-Chairman, American Business Conference.
     Clark A. Johnson,
       Chairman and C.E.O., Pier 1 Imports, Inc., Fort Worth, TX.
       Co-Chairman, American Business Conference.
                                                                    ____



              Coalition to Eliminate Abusive Securities Suits,

                                 Washington, DC, November 1, 1995.
     Hon. Christopher Dodd,
     U.S. Senate,
     Washington, DC.
       Dear Senator Dodd: Earlier this year, overwhelming 
     majorities in both Houses of Congress (325-99 in the House 
     and 69-30 in the Senate) passed legislation that would reform 
     our nation's securities litigation system. The overwhelming 
     margins of support attained in these votes clearly reflect a 
     bi-partisan consensus that the current securities litigation 
     system needs to be fixed, and fixed quickly.
       In short, the status quo is stifling our nation's growth 
     companies while padding the pockets of plaintiffs' attorneys. 
     Over the past four years, a total of $2.5 billion has been 
     paid in settlements in securities class action cases analyzed 
     by National Economic Research Associates, Inc.--a 
     ``disproportionately large number'' of which involve suits 
     against high-technology companies--with plaintiffs' attorney 
     fees averaging 32% of the settlement.
       As concerned leaders of the American business community, we 
     urge you to capitalize on this display of legislative 
     solidarity and move this important legislation swiftly 
     through conference committee and to President Clinton's desk.
           Sincerely,
         Abbott Laboratories; Banc One Corp.; American Greetings 
           Corp.; The Carlyle Group; Ceridian Corp.; Chrysler 
           Corp.; Household International, Inc.; Beneficial Corp.; 
           Carolina Power & Light Co.; Chevron Corp.; Eastman 
           Kodak Co.; Nashua Corp.
         Gilbert Amelio, National Semiconductor Corp.; James A. 
           Unruh, Unisys Corp.; John East, Actel; Allen Weintraub, 
           The Advest Group, Inc.; Robert N. Pratt, Alta Gold Co.; 
           Eric Benhamou, 3Com Corp.; Edward Abrams, Abrams 
           Industries, Inc.; John G. Adler, ADAPTEC, Inc.; Randall 
           Wagner, Agatheas & Wagner, P.A.; Kurt Wiedenhaupt, 
           American Precision Industries, Inc.; Wayne G. Vosik, 
           American Travellers Corp.; James C. Beardall, Anderson 
           Lumber Co.; Pier C. Borra, Arbor Health Care Co.; Safi 
           Qureshey, AST Research, Inc.; Lawrence Lefkowitz, 
           Ampal-American Israel Corp.; Lawrence J. Young, 
           Angelica Corp.; Frank Christianson, Arctic Circle 
           Restaurants; George F. Pickett, Jr., Atlantic Southeast 
           Airlines, Inc.
         David K. Chan, Auravision Corp.; Robert Spies, Berol 
           Corp.; Michael P. Bick, Biopool International; James A. 
           Bixby, Brooktree Corp.; Larry J. Weber, Bauer Built, 
           Inc.; Kenneth A. Olson, Berry Petroleum Co.; William W. 
           Neal, Broadway & Seymour Inc.; Michael B. Crutcher, 
           Brown-Forman Corp.; David H. Gunning, Capitol American 
           Financial Corp.; John E. Jones, CBI Industries Inc.; 
           David Thiels, Century Telephone Enterprises, Inc.; John 
           West, CIMLINC Inc.; Robert Bogin, Capitol Multimedia, 
           Inc.; D. Tad Lowrey, CenFed Bank, A Federal Savings 
           Bank; John Stevens, CIMCO Inc.; Thomas H. Lowder, 
           Colonial Properties Trust.
         Van B. Honeycutt, Computer Sciences Corp.; Robert J. 
           Paluek, Convex Computer Corp.; J.J. Finkelstein, 
           Crymedical Sciences, Inc.; J. Bruce Baily, Cyclopss 
           Medical; S. Duane Southerland, Conso Products Co.; 
           Denny Callahan, Crowley's; Roy A. Myers, Curtice Burns 
           Food, Inc.; Gerald D. Rogers, Cyrix Corp.; Michael W. 
           Pope, Dionex Corp.; David H. Wiggs, Jr., El Paso 
           Electric Co.; Michael C. Ruettgers, EMC Corp.; Donald 
           M. Vuchetich, Detroit & Canada Tunnel Corp.; Robert J. 
           Dickson, Dynamet Inc.; Thomas E. Sharon, 
           Electromagnetic Sciences, Inc.; Steve Sarich, Jr., 321 
           Investment Co. Quentin J. Kennedy, Sr., Federal Paper 
           Board Co., Inc; Dan Queremoen, Fluoroware, Inc.; Joseph 
           Franklin, Frequency Electronics, Inc.; Mark A. Hofer, 
           Genzyme Corp.; Michael E. McKee, First Federal Savings 
           & Loan Association of Montana; Darrell G. Knudson, 
           Fourth Financial Corp.; James E. Herring, Friona 
           Industries, L.P.; Tony Tako, Gerrad & Co.; John T. 
           Williams, Gray Communications Systems, Inc.; Melvin J. 
           Melle, The Hallwood Group Inc.; Anthony Graffia, 
           Hartford Computer Group. Inc.; Hans Helmerich, 
           Helmerich & Payne Inc.; Umang Gupta, Gupta Corp.; Derek 
           C. Hathaway, Harsco Corp.; Robert J. Purger, Health 
           Care REIT, Inc.; John Herzog, Herzog Surgical Inc.
         Tracey T. Powell, Home Access Health Corp., Richard L. 
           Molen, Huffy Corp. David W. Scar, Integrated Circuit 
           Systems, Inc.; Frank Deverse, International 
           Microcircuits; Robert W. Hampton, Hornbeck Offshore 
           Services, Inc.; Gerald S. Casilli, IKOS Systems, Inc.; 
           E. Michael Thobew III, Interlink Electronics; Peter H. 
           Van Oppen, Interpoint Corp.; James H. Morgan, 
           Interstate/Johnson Lane; David L. Angel, ISD; Vince 
           Martin, Jason Inc.; Robert Johnston, Johnston 
           Associates Inc.; W. Richard Ulmer, Invitro 
           International; Ivey Jackson, Jackson Insurance Agency, 
           Inc.; Gerald M. Gifford, John G. Kinnard & Co., Inc.; 
           Lawrence J. Cawley, Kaydon Corp.
         Dale Gonzalez, KIT Manufacturing Co.; Michael J. Koss, 
           Koss Corp.; Carl R. Wiley, Lane Plywood, Inc.; Frank H. 
           Menaker, Jr., Lockheed Martin Corp.; Richard M. Ferry, 
           Korn/Ferry International; C. Scott Kulicke, Kulicke and 
           Soffa Industries, Inc.; Ronald B. Cushey, Live 
           Entertainment, Inc.; Thomas E. Sharon, LXE, Inc.; 
           Robert Watson, The Managers Funds L.P.; Michael Ricci, 
           Marco Mfg., Inc.; Debra Coleman, Merix Corp.; Thomas 
           Hiatt, Middlewest Ventures; Diane R. Torney, Marcam 
           Corp.; William N. Alexander, McGladrey & Pullen; Greg 
           C. Zakarian, MicroCarb Inc.; Clair G. Budke, Minnesota 
           Society of CPAs.
         Kerry Budry, Qual-Effic Services Inc.; Allen Becker, 
           Reflection Technology, Inc.; Robert L. Montgomery, 
           Reliv International, Inc.; Ronald H. Kullick, Ribi 
           Immuno Chem Research, Inc.; Gary Conradi, Raven 
           Industries; Robert M. Steinberg, Reliance Group 
           Holdings Inc.; Gary L. Crocker, Research Industries; 
           Shan Padda, Sabratek Corp.; Jack Masters, Modagrafics, 
           Inc.; John M. Nash, National Association of Corporate 
           Directors; William F. Coyro, Jr., National TechTeam 
           Inc.; Brian D. McAuley, Nextel Communications, Inc.; S. 
           Jay Stewart, Morton International, Inc.; E. Michael 
           Ingram, National Data Corp.; George A. Needham, Needham 
           & Company, Inc.; J. Clarke Price, Ohio Society of CPAs.
         John Schlosser, St. Francis Bank; Robert W. Philip, 
           Schnitzer Steel Industries, Inc.; William G. Malloy, 
           Scientific Games, Inc.; Charles F. Valentine, Security 
           Federal Savings & Loan Assoc.; Peter Nisselson, SBM 
           Industries Inc.; Lyndon A. Keele, Science Dynamics 
           Corp.; Don R. Scifres, SDL, Inc.; Anthony M. Marlon, 
           Sierra Health Services, Inc.; Maxell Fox, Silent Radio 
           Inc.; John J. Gillway, Jr., Sizeler Property Investors, 
           Inc.; James C. Bly, Jr., Source Capital, Ltd.; Paul 
           Richman, Standard Microsystems Corp.; Terry L. Kirch, 
           Resource Information Management Systems, Inc. (RIMS); 
           Grady R. 

[[Page S 17974]]
           Hazel, Society of Louisiana CPAs; Michael Budagher, Specialty 
           Constructors, Inc.; Douglas R. Starrett, L.S. Starrett 
           Co.; Thomas Goldrick, Jr., State Bank of Long Island; 
           Thomas L. Elliott, The Sunbelt Companies, Inc.; 
           Lawrence J. Fox, Symix Systems, Inc.; David F. Simon, 
           U.S. Healthcare, Inc.; Ryal R. Poppa, Storage 
           Technology Corp.; Patrick L. Swisher, Swicher 
           International, Inc.; M.A. Self, Tioga International, 
           Inc.; Daniel Ogita, Unibright Foods, Inc.; Gene Koonee, 
           United Cities Gas Co.; Thomas P. Stagnaro, Univax 
           Biologics, Inc.; Steven J. Appel, Value Merchants, 
           Inc.; Bruce S. Chelberg, Whitman Corp.; C. Edward 
           Mordy, United Wisconsin Services, Inc.; MacRay A. 
           Curtis, Utah Association of CPAs; Frank Fischer, 
           Ventritex, Inc.; James E. Wilf, Wilf & Henderson, P.C., 
           CPAS.
         Edward W. O'Connell, Wiss & Co.; J. Oliver McGonigle, The 
           YES Group Inc.; Addison Piper, Piper Jaffray Companies, 
           Inc.; William A. Valerian, Home Bank, F.S.B.; C. 
           William Thaxton, YES Financial Inc.; Frederick A. 
           Stampone, Pep Boys; DeLight E. Breidegam, Jr, East Penn 
           Manufacturings Co.; Raymond V. Glynn, TELCORP; Jean C. 
           Tempel, TL Ventures; J.W. Bernard, Univar Corp.

  The PRESIDING OFFICER. Under the previous order, the Senator from 
California is now recognized for up to 30 minutes.
  Mr. BRYAN. Mr. President, my distinguished colleague needs another 
minute or two. I thought perhaps, with the acquiescence of the 
distinguished floor manager, we might get some additional unanimous 
consent--I know he has several colleagues who asked to speak, or at 
least I saw his list. I am perfectly agreeable that we might do that 
now. If he is not prepared to do so, we would----
  Mr. BENNETT. I do not wish to interrupt the Senator from California. 
I do not have the list in front of me, so why does she not go ahead.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mrs. BOXER. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. BOXER. Mr. President, I rise to speak against the conference 
report. This legislation claims to reform private litigation under the 
Federal securities laws. I believe there is a clear need for reforms in 
the securities laws. For example, we need to ban the payment of bonuses 
by a small minority of unscrupulous lawyers to professional plaintiffs. 
We need to prevent lawyers from dipping into Securities and Exchange 
Commission disgorgement funds. These are funds created by Government 
agency litigation, not by the private lawyers' litigation, and private 
lawyers should not be paid from those funds.
  We should also ban the payment of referral fees to stockbrokers who 
drum up plaintiffs and litigation for plaintiffs' attorneys. Securities 
lawsuits should redress real wrongs and not promote strike suits to 
shake down innocent defendants.
  This conference report prohibits those three practices I just 
described. I support those provisions. But the legislation goes much, 
much further. It uses, in my view, legitimate problems as an excuse to 
gut securities protections for the average American. I cannot be a 
party to that. I feel it is very important that this debate be as 
inclusive as it can be of all aspects of this because I believe 
someday, as Senator Bryan has said, this vote is going to come back to 
haunt people. And I want the Record to be clear as to where this 
Senator from California stood.

  The real effect of this legislation, absent those three good parts 
that deal with frivolous lawsuits, the real effect of this legislation 
is to unleash con artists and swindlers to prey on the investing public 
and bilk them out of hundreds of millions, perhaps even billions of 
dollars. Because of this, I call on my colleagues to vote no. And I 
call on the President, if this legislation passes, to veto it. If you 
are fighting for the average American, you have to veto this bill 
because it is going to hurt the average American.
  Mr. President, we are in a time when the middle class, especially the 
elderly middle class, is being asked by the majority in this Congress 
to give up, in my opinion, basic old-age protections. This Republican 
Congress wants to deeply cut Medicare, to give a tax break to the rich, 
and they even repeal Federal nursing home standards.
  So the middle class, the elderly middle class are getting hit. We 
must remember that securities fraud is aimed at the elderly--there are 
many studies that show this--aimed at the elderly. So this is a double 
whammy. In other words, what we are doing here today cannot be divorced 
from the budget battle we are waging. On the Democratic side of the 
aisle, we are fighting to protect the middle-class elderly. But we do 
not control the votes. They are going to get hurt somewhat. Why offer 
them this double whammy?
  I tried to get special safe harbor protections for the elderly in 
this bill, but I could not. I could not win that fight. So the elderly 
are at risk here. As a matter of fact, all of us who invest, all of us 
are at risk here. But who will get hurt the most? Not the wealthiest of 
the investors, because if you are worth millions and millions of 
dollars you can take a hit and wind up on your feet. Not the poorest of 
the poor, because if you are the poorest of the poor, you do not 
invest. So the wealthiest and the poorest are probably going to be all 
right.
  But it is the middle class that is going to get hit. This bill is 
antimiddle class and it is antisenior citizen. It would jeopardize the 
retirement funds and old age security of millions of our citizens, and 
for that reason, I hope colleagues will vote no.
  The conference report is named, or I should say misnamed, 
``securities reform.'' But the conference report does not reform the 
Federal securities laws, nor does it reform litigation under those 
laws. It does exactly the opposite, in my view. It encourages 
securities fraud, fraud on the most innocent and vulnerable investors.
  I remember being visited by the victims of fraud, the victims of 
Charles Keating, and they said, ``Senator, you have to stand on that 
floor, and you have to tell your colleagues to prevent that from 
happening to anybody else.'' Those victims of Keating were able to 
recover $200 million plus because of the laws we have in place today. 
Not after this bill. Not after this bill.
  This legislation would even hurt business. Why do I say that? If you 
make the securities laws less protective of the vast majority of 
investors, what will happen is people will have doubts about the safety 
of securities. So they are going to wind up not investing in 
securities, not lending their money to start up, holding their capital 
back, maybe just buying Government bonds, a safe investment, and, 
therefore, these honest companies, because of the fraudulent ones, will 
have to pay a premium when they sell their securities. It will wind up 
being kind of like a fraud tax because people will say, ``I'm very 
worried, I'm not going to give you my money. There has just been a 
scandal.'' And they say, ``OK, we'll pay more interest.'' So in the 
end, the honest companies will get hurt.
  I am a former stockbroker, and I have had the experience and honor of 
helping people with their investments. For the most part, they happened 
to be elderly people who entrusted me at that time many, many years 
ago. I know how they hung on every price change, because they relied on 
their dividends and they knew some day if they had a family emergency, 
they would have to sell those securities. They also relied on the 
honesty of the companies. If we ever ran into a situation where there 
was a company that was not being honest when they made projections or 
they talked about their company, we saw those stock prices go down.
  It seems to me we owe it to the investors and to the good companies 
and to the good stockbrokers to keep a very strong and very powerful 
securities law, because I really believe after the first scandal--and 
there will be such a scandal, in my view, if this goes through--people 
will just be afraid, afraid to invest their money.
  Mr. President, this conference report would make losers of millions 
of people, particularly small investors with IRA's--that is individual 
retirement accounts--pension plans, mutual funds. It is these average 
Americans who will be the first victims of the fraud which will be 
unleashed by this legislation. The legislation effectively repeals much 
of the Nation's antifraud laws passed in the thirties in response to 
the 

[[Page S 17975]]
rampant fraud that contributed to the stock market collapse of 1929. My 
goodness, can we not learn from history around this place? Do we have 
to see it happen again?
  This legislation really could be called a roadmap to swindlers and 
con artists who will use it to defraud the public and undermine the 
public's faith in the markets. That is why organizations representing 
millions of average investors oppose the legislation.

  Let me name a few. In my own home State of California, the California 
Congress of Seniors is opposed. ``We feel,'' they say, ``this 
legislation puts all elderly Americans who save their money in jeopardy 
because it would make it practically impossible to sue a swindler for 
securities fraud.''
  State and local governments would lose under the legislation.
  The California Association of County Treasurers and Tax Collectors is 
opposed. This is a conservative group of Americans entrusted with 
making sure that county funds are invested wisely. What did they say 
about this? ``We strongly urge you to oppose the Securities Litigation 
Reform Act. In recent years, local California governments have lost 
more than $2 billion in the securities markets, partly due to 
derivative investments. Some of these governments have pending 
securities fraud cases. Others are still deciding whether to use the 
courts to pursue the recovery. Now is not the time to weaken defrauded 
investors' rights,'' they say, and this comes from the local people.
  I thought this crowd in Congress respects the local people. I thought 
they respect the people at the county level, the State treasurers, the 
States attorneys general. I guess they only respect them when they 
finally agree with them, but if they do not agree with them, they do 
not respect them.
  This is dangerous legislation, and that is what it is called by the 
California State organization.
  As the city and county treasurers and tax collectors point out, State 
and local governments, as investors of public funds, bring many 
securities fraud suits. We know about Orange County where they are 
trying to recover from unscrupulous brokers. The city of San Jose in 
1984 nearly went bankrupt because it unknowingly purchased risky 
securities. Now they were able to sue. Their city attorney who pursued 
that case came before the Banking Committee on which I serve, and I am 
proud to serve on it, and she said, ``Don't change the laws. We had a 
very hard time under current law recovering our money, but we were able 
to do it. Don't weaken those laws.''
  That fell on deaf ears.
  Government agencies that have been defrauded and forced to use the 
Federal antifraud laws are not confined to California. There are many 
examples: Ohio and Florida where local government agencies lost 
millions through securities frauds.
  Taxpayers are the ultimate losers, so not only are you putting 
individual investors at risk, I say to my colleagues, but you are 
putting taxpayers at risk who pay local taxes because local governments 
buy securities, too.
  (Mr. SANTORUM assumed the chair.)
  Mrs. BOXER. Mr. President, I talked about the fact that one of my 
major concerns is the impact of this legislation on senior citizens who 
are the clear targets of fraud. Why is that? They count on their 
pension plans. They have little ability to replace their lost 
investments other than to sue for fraud, and they need protections that 
this bill would take away.
  Senior citizens save for a lifetime. They often invest, as I say, a 
significant part of those savings in securities. Their pension plans 
are usually full of securities. These invested savings must carry them 
through old age and retirement, and this bill makes it easier to get 
away with securities fraud. So it is going to be, among others, senior 
citizens and their pension plans that will be the major victims.
  Many of our seniors are old, they are frail. They cannot return to 
work like some of us who can come back if somebody perpetrates a fraud 
on us. We have years ahead that we can work, although I am getting 
older every day and have fewer years myself.
  The fact is, the seniors cannot go back to the workplace, so if they 
are bilked of their money, they have to take it on the chin, they have 
to lose their dignity as they go to their children or really live in 
abject poverty.
  That is why the American Association of Retired Persons is against 
this bill--AARP. They sent a letter to the Banking Committee and said:

       For many older people, the money at stake represents a 
     lifetime of savings, a lump sum pension payout, or proceeds 
     from the sale of a home. Private lawsuits brought by victims 
     of fraud often represent the only legal recourse available to 
     redress the wrongs committed by unscrupulous financial 
     practitioners.

  The AARP is not alone. The National Association of Public Employee 
Retirement Systems is also opposed. If you start listening to the 
people who oppose this bill, what you will realize is that it is most 
people. It is the special interests who favor the thing. Those are the 
people who are being protected. The aiders and abettors of fraud are 
being protected and the perpetrators of fraud are being protected, but 
the people who are responsible for protecting other people's money, 
such as county treasurers and attorneys general of various States, 
these people--the AARP, who protect seniors--are opposed. The AARP says 
that the President should veto this bill.
  Newspaper editorials. I think it is important to take a look at these 
newspaper editorials, Mr. President, because they do not have an ax to 
grind. They are looking at the legislation. As a matter of fact, 
newspapers are considered, in many cases, to be more conservative than 
the average person. Let us hear what the Chronicle in the bay area has 
to say about this. It is called Opening the Door to Fraud.
  ``Securities fraud lawsuits are the primary means for individuals, 
local governments and other investors to recover losses from investment 
fraud--whether that fraud is related to money invested in stocks, 
bonds,'' et cetera. And they say, under the conference report, 
investors would be the losers.
  Dozens of other newspapers and magazines have editorialized against 
this legislation, calling for it to be defeated or vetoed.
  Let us look at the largest paper in my State, the Los Angeles Times. 
The Los Angeles Times had this to say about the legislation: ``This 
isn't reform--it's a steamroller.''
  It is a steamroller. They are very, very critical.
  The Oakland Tribune summarized the conference report this way. They 
say:

       President Clinton should veto the measure because it leaves 
     individual investors and an array of institutional investors 
     like pension funds, municipalities, and other government 
     units without enough protection from manipulators like 
     Charles Keating, Ivan Boesky, and Michael Milken. . . .

  Where are the people here in this institution? Do they not remember 
these names from the 1980's? Do they not remember reading about the 
Great Depression? Do they not remember the S&L scandal, which was 
caused by the deregulation that was so wild that there was rampant 
fraud?
  Let me say this. According to the Oakland Tribune:

       If this law had been if in effect when thousands of 
     investors, many of them Californians, had sued Charles 
     Keating over the Lincoln Savings and Loan scandal, the 
     plaintiffs would have recovered only $16 million. Under 
     current securities-fraud laws, they were able to recover $262 
     million.

  I ask, do you think the people who were bilked by Charles Keating had 
a right to recover their losses? If you say yes--and I would be 
surprised if you did not--how on Earth can you vote for this bill which 
would have made it impossible for them to recover any more than $16 
million when the losses were in the $200 million range?

  The Muskegon, MI, Chronicle had this to say:

       How come GOP's contract allows ripoffs of investors?
       . . .Let the bill's backers explain to the rest of us why 
     stock swindlers need to be ``protected'' from lawsuits.

  In the Republican GOP Contract With America, there is a very specific 
reference to changing the securities laws. As a matter of fact, I had a 
huge debate with the author of the original bill, who then backed off 
some of the provisions, like making it retroactive, when he realized it 
might hurt his own district. But I am glad that the Muskegon Chronicle 
in Michigan--and I have never been there and I do not know anyone who 
writes this--caught on. This is directly coming from the Republican 
contract. ``Let the bill's backers explain to the rest of us why stock 

[[Page S 17976]]
swindlers need to be `protected' from lawsuits.''
  I do not think anybody has answered that. They talk about frivolous 
lawsuits, but they neglect to talk about these basic problems with the 
bill, which is that it strips away important protections that investors 
rely on.
  Money magazine has run four editorials calling for the defeat of this 
legislation. Money magazine. Here it is. Could you ever write a more 
apt title? It is, ``Congress Aims at Lawyers and Ends up Shooting Small 
Investors in the Back.'' That is exactly what happened with this bill. 
A laudable purpose, where you get a 100-to-0 vote on the three 
provisions that deal with cutting back on frivolous lawsuits. But they 
use that as an excuse to open up all the securities laws, undo the 
protections and ``end up shooting investors in the back.''
  They say:

       At a time when massive securities fraud has become one of 
     this country's growth industries, this law would cheat 
     victims out of whatever chance they may have of getting their 
     money back. . . . In the final analysis, this legislation . . 
     . would actually be a grand slam for the sleaziest elements 
     of the financial industry at the expense of ordinary 
     investors.

  My colleagues, if you are watching this in the comfort of your 
offices, if you are not tied up in a meeting or a committee, just look 
at this. Money magazine. What is their purpose? To help investors. They 
say, ``Congress Aims at Lawyers and Ends up Shooting Small Investors in 
the Back.'' The next scandal that we have, you will all be on the floor 
saying, ``My God, I did not think that, and I did not know that, and I 
did not read the fine print, and so on and so forth.'' You have a 
chance today to stick with the Senator from Nevada and stick with the 
Senator from Maryland and stick with this Senator from California and 
vote with us against this conference report. It is hurtful to the 
average investor.
  USA Today editorialized:

       The bill's sponsors claim this step is needed to rein in an 
     explosion of frivolous litigation. But the facts don't back 
     them up. . . . These bills are a blatant payoff to the 
     corporations, brokers, accountants, and others who give 
     millions to congressional campaigns.

  That is a pretty tough indictment of what they view--USA Today--as 
special interest legislation.
  The Miami Herald goes so far as to call this bill ``a license to 
steal.'' They say: ``. . . Senate bill bars lawsuits against many who 
bilk investors. How does this help the economy?'', the Miami Herald 
asks. ``This is licensed larceny, and it's unconscionable.''

  Then we have an interesting letter I want to share. The Fraternal 
Order of Police have written a very good letter to President Clinton. 
They call on him to veto this bill. They drew an interesting parallel 
to the war on crime.
  They say:

       On behalf of the National Fraternal Order of Police, I urge 
     you to veto the ``Securities Litigation Reform Act''. . . . 
     The single most significant result of this legislation would 
     be to create a privileged class of criminals. . . . Our 
     270,000 members stand with you in your commitment to a war on 
     crime. . . . I urge you to reject a bill which would make it 
     less risky for white collar criminals to steal with police 
     pension funds while the police are risking their lives 
     against violent criminals.

  There are a lot of different kinds of crime. White collar crime. You 
look at the guy and he looks terrific, but he is stealing your 
money because he does not tell you the truth about investment, and this 
bill would take away your protection. I think it is very interesting 
that the Fraternal Order of Police felt it important to talk about this 
kind of crime--white-collar crime.

  The National Council of Individual Investors is also opposed. They 
wrote the President:

       We are writing to express our strong opposition to the 
     recent draft conference report on securities litigation 
     reform. The conference report fails to treat the American 
     investor fairly. For example, as currently drafted, the bill 
     would have cost the victims of the Keating savings and loan 
     fraud over $200 million more than they otherwise lost. In the 
     interests of protecting individual investors from fraud, we 
     strongly urge you to oppose, and if necessary, veto this 
     legislation.

  Now, I have to say if Barbara Boxer stands on the floor of the Senate 
and gives her views, because I usually line up with consumer groups you 
might say Barbara Boxer always lines up with the consumers. But my 
goodness, you have got every respected investor advocacy organization, 
senior citizen organization, consumer organization, local elected 
people, States attorney generals, it goes on and on and on. They are 
all telling us ``Don't fall for this bill.''
  There is a lot of discussion about a safe harbor. The SEC was right 
in the middle of developing a new safe harbor provision. But, no, we 
could not wait. It reminds me of when Congress got in the middle of 
deregulating the S&L's and said, ``We know better.'' Look what 
happened.
  We are doing the same thing here. Why not let the professionals deal 
with this. They say, well, the SEC now likes this safe harbor. I read 
the letter. I think, frankly, there was a lot of pressure put on people 
over there. That story will come out another day.
  When you read the fine print of this legislation, any swindler can 
cover himself, make some cautionary statement about a forward-looking 
prediction, and find cover in this new safe harbor.
  Mr. President, the Senate should not be a party to this kind of 
lawmaking. It should not be a party to this kind of lawmaking.
  This bill even says that the lawyer in a securities fraud case has to 
be picked by the wealthiest investor--the wealthiest.
  Now, it is one thing to go after professional plaintiffs, and I am 
ready to do that any day of the week. Sign me on. It is another thing 
to say in each and every case the wealthiest investor is the one who 
will be involved and be responsible, and choose the attorneys and all 
the rest. Talk about wealth being power--maybe that wealthy individual 
could care less about the circumstance. And other smaller investors 
care more because proportionately they are more hurt. The wealthy one 
gets the opportunity to control the lawsuit.

  I ask, what are we doing here? I think this bill is much worse than 
when it left here. It went to conference and it got much worse. I hope 
some people who voted for it, sent it off to conference, will 
reconsider.
  This conference report stacks the deck against the investor--anyone 
and everyone who has respect and objectivity in this Nation has come 
out against this bill.
  Even an excellent amendment by Senator Specter was dropped, a very 
important amendment. It applies to complaints filed at the initiation 
of a securities lawsuit. It had to do with the burden of proof 
necessary to file a case dealing with motive and opportunity to 
defraud. It was dropped in the conference. Close the door, you drop the 
progressive provision that would have protected investors. That was a 
very bad change in this bill. This bill is worse, much worse now, than 
when it left here.
  Mr. President, in conclusion, this legislation will hurt the public. 
Everyone says in America that we have the safest securities markets in 
the world. Everyone is so proud, so proud. Yet they are cutting the 
heart out of these protections.
  It will do the public great harm. It is not reform. It is repeal. It 
is repeal--repeal of protections that have made our securities markets 
the safest in the world. This bill will hurt investors and ultimately 
honest companies that sell securities.
  The only winners, in my view, will be those crooks who get away with 
it. Before we come back here and say, ``My God, what have we wrought,'' 
we should go back. In the end, this legislation will erode the 
confidence and efficiency of the Nation's securities markets. Our 
Nation will be the loser.
  What the conference committee did is they took legitimate problems 
and they used them as an excuse to destroy the very protections that 
small investors need.
  I hope that people will vote ``no'' on this. Barring that, I hope 
that the President will veto it. I yield the floor.
  The PRESIDING OFFICER. Under the previous order, the Senator from 
Nevada is recognized for 15 minutes.
  Mr. REID. Mr. President, I received a call from a reporter from 
Nevada, and the big news in Nevada is the two Senators in Nevada 
disagree on something. We normally agree on almost everything. This is 
one of the rare issues where the two Senators from Nevada disagree. 

[[Page S 17977]]


  Mr. President, I was 1 of the 69 Senators that voted for this bill 
when it came the first time. I am going to be one of those Senators 
that will vote to confirm the conference report that we just received. 
I think this is an important piece of legislation.
  Mr. President, in my legal career, I have had about 100 jury trials. 
I understand the trial practice. I think this is an area of the law 
that has been abused by trial lawyers. I think the small group of 
lawyers has abused the license they received to protect the consumers 
of this country. They have become more concerned about protecting 
themselves and not the consumers to which they allege they protect.
  This legislation, Mr. President, should pass. It is important, I 
believe, to the integrity of this aspect of the law.
  It is often said that the truth is the first casualty in a war. I 
believe this adage to be particularly appropriate to the debate over 
the bill now before this body. I realize that there is a great deal of 
money at stake with this legislation. I am aware that a small but 
shrewd group of plaintiffs' lawyers stands to lose a lot of money 
because of the reforms brought through this legislation.
  That does not, however, excuse the frightening fictions that I 
believe are being paraded in some aspects by this bill--by the people 
trying to kill this conference report.
  I first became suspicious about the opposition to this legislation 
when I met with a group of people who were attempting to defeat it. In 
my conference room, in my office here in Washington, I met with a group 
of people, most of whom were from Nevada but some from other parts of 
the country, and they were in here to tell me how bad this legislation 
was. I proceeded to listen to them. Everything they talked about was 
not in the Senate bill but was in the House bill.
  I listened to them and, trying to shake the fact that sometimes I 
like to cross-examine people that come to visit me, I could not 
overcome the temptation on this occasion. I said to the group, ``Who 
paid your way here?''
  A number of faces turned very red and they said the name of one of 
the lawyers, plaintiffs' lawyer, who has made a fortune in this 
litigation.
  I asked the next question, ``Where are you staying?''
  And they said, ``The Willard Hotel.''
  And I said, ``Who pays for that?''
  The same red faces, the same affirmative answer, ``The plaintiffs' 
lawyers were paying for this.''
  They have every right, but I think the record should be very clear. 
There is a small group of plaintiffs' lawyers attempting to maintain a 
lock they have on part of the litigation world that I think has gone 
too far.
  Mr. President, I am sorry my friend from California has left the 
floor, but the same is true about the Money magazine that was referred 
to. Money magazine has previously editorialized on the bill without 
considering the legislation as a whole. Indeed, there seemed to be an 
almost exclusive focus on the House bill. They were writing about 
something that was fictionalized as being here.
  It is the House bill that was part of the Contract With America. 
Today, we have a bill almost identical to that which this body passed 
earlier this year.
  Some of their editorials claimed that the legislation would 
potentially force investors and the lawyers who lose a case to pay the 
winner's entire legal fees. Of course, the facts are totally different 
from that. The compromise agreement drops the fee-shifting agreement of 
the bill.
  Money magazine's claim is that the legislation would ``allow 
executives to deliberately lie about their firm's prospects.'' Facts: 
Executives who deliberately lie about their company's prospects would 
be liable under the compromise.
  Another claim they made is that the legislation will ``prohibit the 
investors from suing the hired guns who assist a fraudulent company, 
the so-called aiders and abettors, including accountants, brokers, 
lawyers and bankers.'' That is not true.
  They go on to say the legislation ``would ratify a court ruling that 
throws out any suit that isn't filed within 3 years after the fraud 
took place, even if no one discovers the crime until after the 
deadline.'' The compromise, as I understand it, does not address the 
statute of limitations. It merely leaves current law generally as it 
now is.
  Money magazine's claim is that in order to bring a lawsuit, 
plaintiffs may be ``forced to post a prohibitive, multimillion-dollar 
bond to cover the defendant's legal fees just in case the suit is later 
thrown out of court.'' The provision in the House bill requiring the 
posting of a security bond prior to bringing the suit has been dropped.
  Mr. President, I ask unanimous consent that the entire text of the 
refutation of one of Money magazine's editorials be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                 Response to Money Magazine Editorials

       Recent Money magazine editorials object to securities 
     litigation reform legislation on the bases of provisions that 
     have been amended in the compromise agreement, or because of 
     grossly distorted characterizations of the effect of the 
     provisions. Stripped of their rhetorical excesses, the 
     complaints in the editorials have little substance and even 
     less relevance to the current compromise agreement. In fact, 
     the compromise is good for America's investors--which is why 
     both individual investors and institutional investor 
     organizations are strongly backing the bill. Below are 
     responses to every one of Money's claims in both the 
     September and November editorials.
       Money's claim: The legislation would ``potentially force 
     investors and their lawyers who lose a case to pay the 
     winner's entire legal fees, if the judge later rules the suit 
     was not justified.''
       The facts: The compromise agreement drops the fee-shifting 
     provision of the House bill. The compromise makes evenhanded 
     procedural revisions to the Federal Rule of Civil Procedure 
     11. Rule 11 requires that attorneys and unrepresented parties 
     have some factual and legal basis for filing any claim or 
     defense. It already authorizes (but does not require) 
     sanctions against those who violate its mandates. The 
     compromise requires courts to make a finding after a case is 
     adjudicated as to whether either side--either the plaintiff 
     or defendant--violated the Rule. The same substantive rule 
     applies to every other action brought in federal court. If 
     the court finds a violation, and it is not de minimis, then 
     the court must impose sanctions. The court has the discretion 
     not to award attorneys fees and costs if it determines that 
     such a sanction would impose an undue burden on the party 
     that violated Rule 11. The compromise does not sanction a 
     party merely because they lost their case. Every case that is 
     not settled has a loser, but courts rarely find Rule 11 
     violations. Opponents of this provision apparently do not 
     support Rule 11 or do not trust federal judges to 
     appropriately exercise discretion in awarding sanctions.
       Money's claim: The legislation would ``allow executives to 
     deliberately lie about their firm's prospects.''
       The facts: Executives who deliberately lie about their 
     company's prospects would be liable under the compromise. The 
     new safe harbor in the compromise has been carefully drafted 
     to ensure that there is no ``license to lie.'' Thus, 
     projections made without adequate risk disclosure are not 
     protected by the safe harbor if they are made with ``actual 
     knowledge'' that the statements are false or misleading--a 
     standard proposed by Senator Sarbanes during floor debate 
     over the Senate bill to ensure that corporate executives who 
     lie to investors would be covered by the save harbor. 
     Forward-looking statements made with sufficient, specific 
     non-boilerplate risk disclosure are protected by the safe 
     harbor. This is a codification of the ``bespeaks caution'' 
     doctrine already being applied by the courts. In addition, 
     the compromise retains the limitations on the scope of the 
     safe harbor contained in the Senate bill, such as the 
     exclusion of any issuer who has been convicted of a 
     securities law violation in the past three years. In 
     addition, there is no safe harbor protection for projections 
     made in connection with blank check companies, penny stock 
     offerings, initial public offerings, partnership offerings, 
     roll-ups, tender offers, and going private transactions.
       This compromise safe harbor language balances two important 
     public policy objectives: encouraging increased voluntary 
     corporate disclosure to investors, and ensuring the liars are 
     not protected. Money magazine and others that take an extreme 
     position simply ignore half of the objectives of the safe 
     harbor.
       Money's claim: The legislation would ``prohibit investors 
     from suing the fired guns who assist a fraudulent company, 
     the so-called aiders and abettors, including the accountants, 
     brokers, lawyers and bankers.''
       The facts: Aiders and abettors are not immune from 
     liability. The compromise agreement authorizes the SEC to 
     bring enforcement actions against those who aid and abet a 
     securities fraud, thus reversing the Supreme Court's Central 
     Bank decision as it applies to the SEC. For private actions, 
     where there has been significant abuse of aiding and abetting 
     liability by ``strike suit'' lawyers seeking to increase the 
     settlement value of a case, the bill leaves current law as 

[[Page S 17978]]
     it is. However, nothing prohibits investors from suing so-called 
     ``aiders and abettors'' as primary violators, and in fact, 
     many cases were simply refiled after Central Bank alleging a 
     primary violation of the securities laws. This balanced 
     provision ensures that no wrongdoer will escape liability, 
     but prevents aiding and abetting liability to be used as a 
     dragnet to sweep in ``deep pocket'' defendants to 10b-5 
     claims, regardless of their culpability, merely to coerce 
     settlements.
       Money's claim: The legislation ``would ratify a court 
     ruling that throws out any suit that isn't filed within three 
     years after the fraud took place, even if no one discovers 
     the crime until after that deadline.''
       The facts: The compromise agreement does not address the 
     statute of limitations in current law. It merely leaves 
     current law as it is. Despite dire predictions that the 
     Supreme Court's one and three year statute of limitations 
     would end all private 10b-5 actions, these actions have 
     flourished since the 1991 decision.
       The current statute of limitations has governed express 
     causes of action under the securities laws for more than 60 
     years, and 10b-5 actions for more than four years. There is 
     absolutely no evidence that legitimate 10b-5 cases have been 
     frustrated.
       As one court has observed, ``[p]rudent investors almost 
     always can smoke out fraud (or enough smoke to justify 
     litigation) within three years. [The three-year statute of 
     repose] cuts off only the claims of the most trusting or 
     somnolent--or the most wily, those who wanted to wait as long 
     as possible.'' Short v. Belleville Shoe Mfg., 908 F.2d 1385, 
     1392 (7th Cir. 1990). A longer period would allow speculators 
     too much time to wait and see how their decisions to buy or 
     sell securities turned out, permitting them to use lawsuits 
     to cover their losses in the market. The current law curtails 
     their ability to institute fraud claims ``based on wisdom 
     granted by hindsight.'' Short, 908 F.2d at 1392.
       Money's claim: In order to bring a lawsuit, plaintiffs may 
     be ``forced to post a prohibitive multimillion dollar bond to 
     cover the defendants' legal fees just in case the suit is 
     later thrown out of court.''
       The facts: The provision in the House bill requiring the 
     posting of a security bond prior to bringing suit has been 
     dropped. The new provision gives the court discretion to 
     require an undertaking from the plaintiffs or defendants in a 
     class action, and/or their attorneys. The court may decide 
     that no undertaking is warranted. This is not a novel or 
     unprecedented provision. Other sections of the securities 
     laws already have similar undertaking provisions. Plaintiffs 
     have not been deterred from bringing lawsuits under those 
     sections.

  Mr. REID. Mr. President, we are here today considering the compromise 
legislation agreed to by the conferees yet the bill's opponents are 
still running ads in opposition to the House bill. The House bill is 
gone, history. We have never given it any credence here. But they are 
doing this in an effort to slant and improperly cite what this bill 
really stands for. These ads are replete with half truths, hyperbole, 
and outright distortions. Indeed, it is as if the opponents have failed 
to read the compromise agreement and have chosen instead to repeat the 
earlier criticisms of a different bill, the House bill.
  Interestingly, this is not unlike their actions in the class action 
suits they file alledging meritless claims. I believe the status quo 
makes a mockery of the judicial system.
  The much-debated safe harbor provision of the conference report 
provides investors with protection. It increases corporate disclosure 
on forward-looking information and ensures that investors are protected 
against fraud.
  I ask the bill's opponents how the compromise can be so pernicious if 
it received support from Arthur Levitt, Chairman of the Securities and 
Exchange Commission. In a recent letter, Mr. Levitt said, ``The current 
version represents a workable balance that we can support since it 
should encourage companies to provide valuable forward-looking 
information to investors while, at the same time, it limits the 
opportunity for abuse.''
  It seems pretty clear. These words are from a man charged with 
protecting the rights of all investors--big investors, small investors, 
medium-size investors.
  Another red herring commonly referred to and flouted by some 
opponents of this legislation is it will allow for another Charles 
Keating. They add this to their Parade of Horribles, but it is without 
foundation. Most of the losses from the Keating case did not involve 
securities fraud and would not be affected by this legislation. But 
even for those losses caused by securities fraud, a number of the fully 
solvent defendants would be jointly and severally liable under the 
compromise because they committed a knowing fraud.
  There are also provisions that everyone on this floor understands 
that protect small investors. If you have $200,000 or less, you lose 10 
percent of it. The same rules apply. Small investors are protected in 
the legislation in this compromise, in this conference report.
  So the Charles Keating talk that we hear so much about is a red 
herring.
  Importantly, this bill includes a provision that requires auditors to 
take additional steps to detect fraud and report illegal acts directly 
to the Securities and Exchange Commission.
  Mr. SPECTER. Will the distinguished Senator yield for a moment for a 
unanimous-consent request?
  Mr. REID. I am happy to.


                      Unanimous-Consent Agreement

  Mr. SPECTER. Mr. President, I make this request on behalf of Senator 
Dole, so all Senators may be advised as to what the schedule will be.

  I ask unanimous consent that the vote on the conference report occur 
at 4:45 p.m., with the time between now and then divided as follows: 
Senator Heflin, 7 minutes; Senator Graham, 7 minutes, Senator Graham of 
Florida; Senator Shelby, 7 minutes; Senator Biden, 7 minutes; Senator 
Wellstone, 7 minutes; Senator Cohen, 5 minutes; Senator Sarbanes, 5 
minutes; Senator Bryan, 10 minutes; Senator Dodd or his designee, the 
remainder of the time which, who knows, may be zero, like this morning.
  The PRESIDING OFFICER. Is there objection? Without objection, it is 
so ordered.
  Mr. REID. Mr. President, this provision will help prevent fraud 
before investors' assets are lost, thereby eliminating the need for 
litigation.
  Another myth commonly put forth by the opponents is that it includes 
a loser-pays provision. We have talked about that before regarding the 
Money magazine assertion. That was simply without foundation. The truth 
is that no one will be required to pay the other side's fees because 
they simply lose a case. What it does, is tighten rule 11 sanctions 
against attorneys who file frivolous lawsuits. Rule 11 merely requires 
that attorneys have some factual and legal basis for filing any claim. 
This does not seem unreasonable. It already authorizes rule 11 
sanctions against those who violate its mandates.
  This conference report is a balanced and a fair representation of 
what this Senate said that it wanted. I, like my friend from 
Connecticut and others, said we are not going to support legislation 
that is more in keeping with the House than the Senate. We will vote 
against it. But I think the 69 Members of the Senate who voted for this 
legislation the first go-around should vote for it again.
  This is good legislation. It is fair. It is balanced. It may hurt the 
small minority of attorneys reaping a windfall--and that is an 
understatement, under the current laws--but it provides much-needed 
protection to investors and restores some sanity to our already 
overburdened courts.
  Mr. President, I ask unanimous consent any time I have remaining be 
delegated to the Senator from Connecticut.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Utah.
  Mr. BENNETT. Mr. President, I yield the Senator from North Carolina 1 
minute.
  The PRESIDING OFFICER. Without objection, it is so ordered. The 
Senator is recognized for 1 minute.
  Mr. FAIRCLOTH. Mr. President, I rise in strong support of the 
conference report on H.R. 1058. I was pleased to be an original 
cosponsor of this bill in the Senate.
  Mr. President, securities litigation reform is a rather ominous title 
for a bill. It certainly is not an issue well known to many Americans. 
But the fact is, this legislation is very important for our economy, 
and very important for job creation in our country.
  This legislation is really part of a larger issue--legal reform. Too 
many lawsuits are crowding our court system and they are sapping the 
productivity of many companies. Last year, over 220,000 civil lawsuits 
were filed in Federal court.
  Since 1980, there has been a 73-percent increase in the number of 
civil suits filed in Federal court.
  It is estimated that securities class action suits have increased 
threefold in just the last 5 years. Yet, a small number of lawyers are 
pushing these suits. 

[[Page S 17979]]
In fact, every 4 working days, one particular law firm files a 
securities class action lawsuit.
  The cost of these suits is no small matter. At the end of 1993, over 
700 class action suits were seeking $28 billion in damages.
  Very simply, this bill will attempt to put an end to frivolous class 
action lawsuits that are filed against America's publicly traded 
companies.
  These strike suites often have little merit, but they are filed for 
the sole purpose of blackmailing companies into settling rather than 
going to court.
  Everyone of us knows that it is less expensive to settle a lawsuit up 
front than it is to go all the way to trial. Of course, once the suits 
are settled, the attorneys that brought them, keep most of the money.
  The impact of these suits is having a detrimental effect on our 
economy. Many companies are afraid to go public and sell stock.
  By remaining private, they can avoid these kinds of suits, but they 
also sacrifice an increase in growth and jobs that can come from going 
public. This is costing America jobs.
  Some have even suggested that companies from overseas are afraid to 
establish businesses in America out of fear that they too will fall 
victim to these suits.
  Money that would otherwise be spent on new job growth, or on research 
and development is being paid to lawyers to settle these suits or--
worse yet, money is wasted fighting them.
  The cost to U.S. companies is not caught in a vacuum. As is always 
the case, excessive litigation costs are passed along to consumers in 
the form of higher prices. All of this has a ripple affect on our 
economy. Mr. President, it is making America less competitive.
  In my home State of North Carolina--116 companies have contacted me 
and asked for my help in passing this bill. They are united in their 
effort to end these abusive lawsuits.
  Together these companies employ 118,000 in North Carolina. This is 
why this bill is so important for jobs in my State and in this country.
  These suits are often targeted at emerging high-technology companies. 
This is a particularly disturbing development.
  America is the undisputed world leader in technology. Germany, Japan, 
France, England, none of these countries or other countries even comes 
close to what this country is doing in terms of technology and 
innovation. Eighteen of the thirty largest high-technology firms in 
Silicon Valley have been sued since 1988. It has cost them $500 million 
to settle these suits.
  Yet, this small pool of lawyers, like sharks in the ocean are just 
circling--waiting for the stock prices to fall--then they move in with 
the strike suite. They are waiting to attack these companies and 
transfer the wealth to themselves.
  We cannot let this happen. America's leadership role in technology is 
too important to have it fall prey to disreputable attorneys.
  Mr. President, let me give a few examples of just how bad the 
situation has gotten with these suits.
  One individual has filed lawsuits against 80 companies in which he 
held stock. One Federal judge suggested that maybe his investment 
results were a matter of design to pursue a lawsuit. The investor 
wanted us to believe that he was just the world's most unlucky 
investor. I have my doubts.
  Another individual has filed 38 lawsuits, 14 of them with the same 
law firm.
  Another man--a retiree--since 1990 has filed 92 lawsuits--one for 
every one of his 92 years of age.
  Further, these lawsuits have so little merit, they are often filed 
within hours after a stock price drops. Many times the drop is due to 
simple movement in the markets, yet, the lawyers only have to file a 
preprinted complaint alleging fraud and race to the courthouse.
  The trick is that this allows them to become the lead attorney on the 
class action case. And by this--they make the most money.
  The National Law Journal reported that of 46 cases studied, 12 were 
filed within 1 day, and another 30 within a week of publication of 
unfavorable news about a company.
  A good example is the Philip Morris case. This case has been 
discussed often, but it bears repeating.
  After Philip Morris announced that it would reduce the price of its 
Marlboro cigarette by 40 cents a pack--a lawsuit was filed within 5 
hours--by a plaintiff who held just 60 shares.
  Four more suits were filed the same day, and five the next day. Two 
of the lawsuits contained identical complaints.
  In fact, one suit came so fast from a computer generated legal form--
that the attorney forgot to change the form in parts--so he 
misidentified Philip Morris as a toy company.
  This is kind of frivolity that America's companies are fighting--and, 
regrettably, having to pay for.
  Mr. President, the conference report is an attempt to put an end to 
these outrageous legal practices.
  Mr. President, let me assure you that nothing in this bill will 
prevent anyone from filing a legitimate fraud case against any company.
  If it did, I do not think 50 Members of the Senate would have 
cosponsored the bill. I don't think 69 Senators would have voted for it 
when it passed the Senate.
  For those that oppose this bill in the name of the consumer, I think 
are not fairly representing the consumers of this country.
  Mr. President, a point that is not often made is that consumers, and 
the plaintiffs in the class action suits rarely benefit from these 
lawsuits. Study after study shows that lawyers get the lions share of 
the settlements.
  We had testimony that the average investor receives 6 or 7 cents for 
every dollar lost in the market because of these suits--and this is 
before the lawyers are paid.
  Mr. President, in my opinion, consumers and investors will be helped 
by this bill. Any consumer that has a job--or wants a job--or wants to 
keep a job will be helped by this bill.
  With this conference report, more of America's capital will be put to 
job creation and not wasted on one sector of the legal profession. That 
is really the principle issue here.
  Mr. President, the conference report will do a number of things to 
curtail the abuses in our legal system.
  First, the bill allows the courts to determine who the lead plaintiff 
will be. The conference report will also put some teeth behind the rule 
that attorneys cannot file frivolous lawsuits.
  Mr. President, the conference report will also help investors by 
allowing companies to dispense more information to the public without 
the fear of being sued. This is the ``safe harbor'' provision.
  This is critically important to the flow of information for 
investors.
  It is a shame that due to the actions of a small cadre of lawyers--
that the free flow of information has been cut off. Now investors can 
only get carefully written legal gibberish that is meaningless. This is 
wrong, and this bill changes that.
  Mr. President, let me conclude by saying that I would strongly urge 
my colleagues to support the conference report. This is the beginning 
of meaningful legal reform. I think this bill is a good, fair, and 
balanced bill, protecting the rights of investors as well as companies.
  Mr. HEFLIN. Mr. President, I rise today to discuss the conference 
report on H.R. 1058, the Securities Litigation Reform Act. After months 
of secret negotiations from which supporters of small investors, 
consumers, senior citizens, and public officials who invest taxpayer 
money were excluded, the proponents of the bill have agreed upon the 
conference report.
  Now that the light of day has been shed on the results of the 
negotiations it is clear that the conference report is far more 
devastating for investors than the bill which the Senate passed earlier 
this year. The conference report fails to fix the glaring inequities 
between investors and unscrupulous corporate insiders. It has taken 
some of the worst provisions from both the House and the Senate bill 
and combined them to form this unacceptable report.
  Unlike the Senate bill, the conference report now broadly immunizes 
oral or written forward-looking statements by corporate insiders with 
only a requirement that there be ``cautionary'' language to accompany 
the statement. The determination of what is ``cautionary'' invites 
litigation, but for 

[[Page S 17980]]
those who have already lost their life savings based on this safe 
harbor this litigation is too late.
  Pursuant to the conference report the individual investors who have 
been victimized by an unscrupulous broker, or fraudulent statement will 
probably never have their day in court. This is due to the inclusion of 
a House provision which allows the court to impose a bond requirement 
to cover the payment of fees and expenses, with no limitation on the 
amount of the bond. If an individual investor attempts to seek justice 
from a large corporate defendant, such a bond would probably be 
unattainable.
  Another change from the bill passed by the Senate is the financial 
risk imposed on investors of having to pay the full legal fees of big 
corporate defendants if they lose. The new penalty for a plaintiff for 
a violation of the Federal rules requires that he or she pay all of the 
corporate defendant's legal fees and expenses for the entire case. This 
full fee-shifting sanction would be calculated after the case has been 
completed, when the court must make findings. By the way, if the 
defendant is found at fault, he is fined only the fees and expenses 
that are a direct result of a frivolous filing. This English rule, fee 
shifting, could virtually eliminate all securities claims, the 
meritless along with the meritorious.
  In another move away from the Senate bill the conferees dropped 
proinvestor language which clarified the burdensome pleading 
requirements of the bill. In a blow to investors, the proponents have 
retained an extremely difficult pleading requirement. The report will 
require plaintiffs to allege facts giving rise to a strong inference 
that the defendant acted with the required state of mind. This state of 
mind or intent requirement must be obtained before any discovery or 
testimony has even taken place. Most courts have rejected this high 
standard as being in conflict with the purposes and express language of 
the Federal rules. The report not only adopts this language but raises 
the requirement even more.
  Furthermore, the conference report fails to correct some of the major 
problems in the Senate bill. These problems include the extremely short 
statute of limitations and the abrogation of joint and several 
liability in all but a very limited number of circumstances. The report 
retains the immunity for aiders and abettors which would have been a 
boon to the defendants in the Lincoln Savings failure case. The report 
also retains the requirement that the court appoint a most adequate 
plaintiff, thus eliminating the issues of concern to smaller investors 
and inserting the concerns of the wealthiest investor.
  I have recently received letters from organizations expressing their 
concern with this report and legislation. The Fraternal Order of Police 
state that this legislation would create a privileged class of 
criminals, by immunizing many of those involved with the markets from 
civil liability in cases of securities fraud. The UAW describes the 
legislation as one-sided and contends that it will allow for limited 
remedies to be available for the investor and pension funds which lose 
money due to fraudulent investment schemes. I believe that if a more 
balanced approach to securities law reform could be reached, the 
proponents could gain the support of these groups and hundreds of 
others.
  The stock market recently broke 5000 and is as robust and active as 
at any time in our Nation's history. Small investors driven away from 
the markets due to the crash in the early eighties are starting to 
return to the markets. This is not the time to pass legislation which 
will erode public confidence in the integrity of the markets. I 
strongly urge my colleagues to vote against this report and send it 
back to the conferees, demanding a more balanced approach to securities 
law reform.
  Mrs. MURRAY. Madam President, I am pleased to come to the Senate 
floor today to express my support for a bill I cosponsored, the Private 
Securities Litigation Reform Act of 1995. I commend Chairman D'Amato 
and Senators Dodd and Domenici for their work on this bill. They have 
done a fine job of crafting a strong bipartisan measure and then 
guiding it successfully through conference--and I have been pleased to 
work with them on this issue over the past 3 years.
  Madam President, this is an important day for many of the small 
investors in Washington State and throughout the country. This bill 
takes the power out of the hands of a few lawyers and puts the power 
back in the hands of the investors. We all know that in many of these 
class action lawsuits, the investor often recovers as little as 10 
percent of the damages caused by fraudulent activity while their lawyer 
takes millions.
  Madam President, I recently heard from a constituent who received a 
settlement in a suit against a high technology firm in Washington 
State. This particular investor received a prorata share of the damages 
amounting to 3 cents per share, or just $30, while the lawyer in that 
suit walked away with the rest. The individual in this suit told me, 
``my investment was hurt much more by my lawyer's actions, and his 
extortion of $1 million from the firm, than by any alleged actions on 
the part of the company's management.''
  Madam President, this is neither what our investors want nor expect. 
It is outrageous and needs to be corrected.
  The legislation before us will reform our securities law so that 
investors will have more of a say in the outcome of their suit. It will 
restore the plaintiff's role and enable them to exercise traditional 
plaintiff functions--including the selection of lead counsel, 
negotiating fees, and determining the distribution of settlements. 
Quite simply, it puts some common sense back into our legal system.
  Madam President, I've seen the ads denouncing this legislation, and 
I've heard the arguments opposing this legislation. This bill has 
inspired some very intense, focused, and well-funded opposition.
  The bill's opponents claim this legislation will harm small and 
elderly investors. Well, I believe that assertion is completely false. 
In no way does this bill take away one's ability to file suit. Nor does 
it undermine the Securities and Exchange Commission's ability to sue 
for damages in securities fraud. In fact, the legislation enhances the 
SEC's ability to do so.
  Madam President, Americans have a right to know their investments are 
secure--that our money has been invested in good faith. Today, 
investors are denied valuable information because companies are 
reluctant to disclose forecasts in fear of litigation. This serves 
nobody well; and it especially hurts investors that are trying to make 
sound, well-educated investments.

  I am pleased to note that the SEC has endorsed the safe harbor 
provision in this bill. SEC Chairman Arthur Levitt has written, ``the 
current version represents a workable balance that we can support since 
it should encourage companies to provide valuable forward-looking 
information to investors while, at the same time, it limits the 
opportunity for abuse.'' I agree with Chairman Levitt and I value his 
opinion. This safe harbor provision will be good for both investors and 
corporations.
  Ultimately, if an investor has been the victim of fraud--no matter 
how big or how little--they have a right to equal treatment under the 
law. This legislation ensures that will happen, better than under 
today's laws.
  And, Madam President, Congress has a unique role in promoting 
investor confidence. We must encourage investments; investments that 
are needed for capital formation, economic growth, and job creation.
  This is especially true in Washington State--which is home to many 
high technology and biotech companies. And investors in Washington 
State like to invest in these companies.
  Unfortunately, Washington State's investors are well aware of the 
damage that is caused by unwarranted court cases. They know these cases 
inhibit job creation and slow economic growth.
  They know how companies are forced to waste resources and settle 
suits with capital that could have been used for the research and 
development of a new product.
  I have heard from many of these companies in my home State. Companies 
such as these--new, growing, forward-looking--are a point of pride in 
the Pacific Northwest. They reflect the high technology, high wage 
economy of the future.

[[Page S 17981]]

  Nobody likes to see these companies attacked by a few overzealous 
lawyers. These companies lose millions of dollars each year fighting 
the allegations of fraud--while the actual investor receives just 
pennies on the dollar when a settlement is finally reached.
  Madam President, this system needs reform, and Congress is obligated 
to correct the situation. And, I want to make it very clear--this bill 
retains an investor's right to bring suit if they are victims of 
securities fraud.
  At the same time, it will clamp down on the abusive suits they prey 
on investors and small business owners. It is honest effort to reduce 
the excessive costs that burden our investors and our economy.
  Madam President, let me conclude by recalling the first Senate vote 
on this bill. When I voted for this bill in June, I said I would not 
support a conference report if it contained some of the more onerous 
provisions in the House bill. Well, not only is this conference report 
almost identical to the Senate bill, it is even stronger in some 
respects. It is a good compromise and it restores some common sense to 
our legal system. I urge my colleagues to support this legislation.


                              SAFE HARBOR

  Mr. FRIST. Mr. President, I would like to briefly discuss with 
Senator Domenici one important issue concerning the section 102 ``Safe 
harbor for forward looking statements.'' It is the clear intention of 
the conference committee that reckless conduct cannot constitute actual 
knowledge for purposes of the safe harbor, isn't it?
  Mr. DOMENICI. Yes. It is the clear intention of the conference 
committee that reckless conduct will not constitute either actual 
knowledge or be construed to constitute a knowing commission of a 
violation of the securities laws for purposes of section 102 safe 
harbor provisions of the Private Securities Litigation Reform Act of 
1995.
  Mr. KYL. Mr. President, I rise to support the Securities Litigation 
Reform Act of 1995. I thank Senators Domenici, Dodd, and D'Amato for 
their sponsorship of this bill, and their leadership in reforming 
securities class actions. I am pleased to support this bill, which will 
reform the legal process by which injured parties can recover damages 
for securities fraud and negligence. It reduces abusive litigation that 
clogs our judicial system and results in reduced recoveries to the 
plaintiffs. Too often the attorneys, not the investors, are the primary 
beneficiaries of these securities suits.
  The Senate Banking Committee passed a version of H.R. 1058 by a vote 
of 11 to 4 this spring. The full Senate passed this version on June 28 
by a vote of 70 to 29. Clearly there is a bipartisan consensus for 
change. I supported this bill because I believe it modernizes our 
securities class action litigation system by reducing the potential for 
frivolous securities lawsuits, while assuring that defrauded securities 
investors receive a greater share of the settlements or awards in their 
cases.
  H.R. 1058 contains several important reform provisions. It eliminates 
referral fees currently paid by some attorneys to plaintiffs who 
successfully recommend them to represent all the plaintiffs in a class 
action. It requires the courts to appoint, as lead plaintiff, the party 
willing to serve who has the greatest financial interest, thus doing 
away with the so-called professional plaintiff who shops for cases to 
file--frequently as the agent for a lawyer--with little financially at 
stake. The bill would allow the small investor to recover completely 
through joint and several liability. And it imposes an affirmative duty 
on auditors to disclose financial fraud to the Securities and Exchange 
Commission [SEC], unless the fraud is properly addressed by management.
  In many cases it is the attorneys, not the investors, who are the 
primary beneficiaries of these securities suits. For example, National 
Economic Research Associates, Inc. reported that, in a 12-month period 
ending July 1993, the average settlement in securities class actions 
amounted to $7.36 million. Attorneys earned an average of $2.12 million 
per settlement, roughly 30 percent of the total. Investors recovered 
only about 7 cents on the dollar when compared with the amount of 
losses alleged.
  Some argue that the small investor will not be able to find relief 
under this legislation; that, for example, the victims of the Lincoln 
Savings & Loan bond fraud would not have recovered their losses. This 
is incorrect. First, the final bill includes a provision that requires 
the SEC to determine whether investors who are senior citizens, or 
those groups with qualified retirement plans, require greater 
protection against securities fraud. If so, the SEC must submit a 
report to Congress containing recommendations on protections that the 
Commission determines to be appropriate to thoroughly protect such 
investors.
  Second, H.R. 1058 retains joint and several liability recovery for 
small investors with securities claims. Even if the Lincoln S&L 
investors had sued only for those claims covered under H.R. 1058, many 
of them would have been fully compensated. H.R. 1058 specifically 
provides that, if one defendant is insolvent, the remaining 
codefendants will remain both jointly and severally liable to investors 
whose net worth is under $200,000, and who lost more than 10 percent of 
their net worth. All of the Lincoln investors who met this standard 
would have been fully protected had H.R. 1058 been law. In fact, those 
investors may have been able to recover more under H.R. 1058. This bill 
imposes statutory restrictions on the size of lawyers' fees in 
securities actions. Perhaps, had the plaintiffs' lawyers been prevented 
from taking more than the $65 million in fees off the top of the 
settlement fund, the Lincoln S&L investors would have received full 
compensation for their losses.
  H.R. 1058 provides investors who have been injured as a result of the 
negligence of another the opportunity to file suit. At the same time, 
it reduces abusive litigation, which clogs our judicial system and 
hurts those plaintiffs with meritorious claims. It is important that 
recoveries go to the plaintiffs and not to cover court costs, 
attorneys' fees, and other transaction expenses.
  Mr. President, the Securities Litigation Reform Act will eliminate 
frivolous securities class actions. I urge my colleagues to support 
this bill.
  Mr. FRIST. Mr. President, I speak today in support of the conference 
report to H.R. 1058, the Private Securities Litigation Reform Act of 
1995. The conference report is a moderate and carefully balanced 
compromise bill that permits investors in securities to continue to 
file and win legitimate lawsuits. However, the bill does something that 
is much needed at this time: It gives issuers of securities the ability 
to quickly dismiss meritless and abusive lawsuits.
  The current system of securities litigation is clearly broken. Why? 
Because it makes millionaires out of attorneys who repeatedly file 
frivolous lawsuits. As a matter of fact, securities litigation costs 
American industry $2.4 billion a year, with one-third of this amount 
being paid to plaintiffs' attorneys. This results in companies being 
forced to lay off worker and consumers paying higher prices for goods 
and services.
  The bottom line is that the current system of securities litigation 
does not benefit investors or consumers: it benefits a handful of 
attorneys.
  Here is how the perverse system of securities litigation currently 
works: There are a handful of plaintiffs law firms in this country that 
specialize in filing securities class action lawsuits. This is shown by 
the fact that seven plaintiff law firms in this country receive 63 
percent of the legal fees generated by securities class action cases. 
These law firms monitor the stock prices of businesses with computers. 
When a corporation's stock price suffers a major drop, the plaintiff's 
law firm immediately files a lawsuit. Some 20 percent of securities 
lawsuits are filed within 48 hours of a major drop in the stock price.
  The reason that these law firms are able to file their lawsuits so 
quickly is that they are suing on behalf of professional plaintiffs, 
who receive a fee for permitting themselves to be named in the 
lawsuits. The Securities Subcommittee of the Senate Banking Committee 
found that there were plaintiffs who had as much as 14 securities 
action lawsuits filed on their behalf.
  These law firms justify the filing of these lawsuits by generally 
alleging that the drop in the stock price was 

[[Page S 17982]]
caused by the corporation or its management acting fraudulently or 
recklessly. The lawsuits seek for the corporation to pay to its 
shareholders damages in the amount of the difference between the stock 
price before and after the stock's drop in value.
  Even if the lawsuit is meritless, the corporation is forced to 
settle. Why? First, litigating a lawsuit is costly, even if your only 
goal is to get the lawsuit dismissed for failing to state a cause of 
action. This is because it is very difficult to dismiss such lawsuits, 
and defense expenses for complex securities class action lawsuits can 
total between $20,000 and $100,000 a month. Second, the depositions and 
extensive document review associated with these lawsuits are so time 
consuming that they disrupt the management of the business. On average, 
companies that are sued devote 1,000 management and employee hours per 
case.
  The end result is that it is worthwhile for a business to settle a 
frivolous securities lawsuit, because there is rarely ever any cheap 
way of dismissing it.
  Now, opponents to securities litigation reform are going to tell you 
that, notwithstanding all of the foregoing, investors still benefit 
from the current system of securities litigation. But I'd submit that 
this system actually harms investors.
  The first problem, as stated by former SEC Commissioner Carter Beese, 
is that the current system encourages ``counsel to settle for amounts 
that are too low or fees that are too high.'' The plaintiffs in a 
securities class action have a conflict of interest with their lawyers. 
The lawyers' incentive is for an uncomplicated settlement and an 
avoidance of trial. This is because the difficult and time-consuming 
work for the plaintiffs' lawyers comes at the trial phase; if it can be 
avoided by a settlement, the lawyers still get their percentage for 
relatively little effort. Thus, the lawyers-driven nature of these 
lawsuits tends to short-change investors who have truly been defrauded 
and would benefit from litigating the lawsuit to conclusion.
  The second problem is that in securities class action lawsuits, when 
a corporation makes a settlement payment to a class of shareholders, 
the shareholders who still own the corporation's stock are not really 
getting any tangible benefit in return. If the settlement amount is 
coming from the corporation's money, then it is no more than a quasi-
dividend, with a law firm taking an average of 33-percent cut for 
giving the shareholder the privilege of having the quasi-dividend 
occur. This will generally cause the corporation's stock price to drip, 
which nullifies the benefit of the settlement. If the settlement amount 
comes from the corporation's directors' and officers' liability 
insurance, the corporation will be faced with partly paying it back 
through a staggeringly high premium the very next year. Either way, an 
investor who continues to own a share of stock in a sued corporation 
does not gain much from settlement of the lawsuit.
  The third and final problem is that investors can no longer get 
useful forward-looking information about corporations. As former SEC 
Commissioner Carter Beese testified before the Securities Subcommittee 
of the Senate Banking Committee, ``companies go out of their way to 
disclose every conceivable bit of innocuous information, but very 
little useful forward-looking information. At the same time, legion of 
lawyers scrub required filings to ensure that disclosures are as 
milquetoast as possible, so as to provide no grist for the litigation 
mill.''
  With all of the problems that we have with our current system of 
securities litigation, the moderate relief offered by the conference 
report is necessary to protect investors, in necessary to protect 
consumers, and is necessary to protect jobs. I urge all of my 
colleagues to support it.
  I thank the Chair, and yield the floor.
  Mr. BURNS. Mr. President, I rise today in support of the Private 
Securities Litigation Reform Act of 1995. The conference report is a 
big win for all America's investors, our Nation's businesses, and our 
overall economy.
  The conference report offers a balanced bipartisan bill that restores 
fairness and integrity to our securities litigation system by 
protecting innocent companies as well as the rights of the legitimately 
defrauded investors. The filtering out of the abusive, frivolous class 
action lawsuits that harm investors and only benefit class action 
attorneys will restore integrity to securities lawsuits. We will 
protect investors and at the same time emerging companies will be able 
to grow and create jobs without the financial burden of abusive 
litigation.
  The legislation we have before us today will go a long way toward 
curbing abuses in securities litigation. It will provide a filter at 
the earliest stage of a lawsuit to screen out those that have no 
factual basis. A complaint needs to outline the facts supporting the 
lawsuit and not just the simple conclusion that the defendant acted 
with the intent to defraud. If the complaint does not outline and 
present all the facts supporting each of the alleged misstatements or 
omissions, the lawsuit will be terminated.
  Many times, securities class action suits are characterized by the 
``sue them all and let the judge sort it out'' mentality. In order for 
a judge to sort it out, the defendants are required to spend numerous 
hours and expense to defend against a securities class action lawsuit. 
This bill corrects that problem by requiring plaintiffs to specify the 
statements alleged to have been misleading.
  Securities laws are intended to help investors by ensuring a flow of 
accurate and pertinent information regarding public traded companies. 
However, the present system reduces the amount of information required 
and companies limit their public statements to avoid allegations of 
fraud. In fact, an American Stock Exchange survey found that 75 percent 
of corporate CEO's limit the information disclosed to investors out of 
fear that greater disclosure would lead to an abusive lawsuit. To 
encourage disclosure of information by companies, the conference report 
will create a safe harbor. It will provide a procedural mechanism for 
companies who make predictive statements to be protected from frivolous 
litigation if their prediction does not materialize.
  Mr. President, we have heard a lot of speculation that this 
legislation would adversely impact small investors. Nothing could be 
further from the truth because this comprehensive measure will protect 
the rights of investors who have been legitimately defrauded, while 
providing new protections for the millions of Americans investors who 
have been harmed by the recent explosion of abusive and frivolous 
litigation. While there are many provisions in the measure to deter 
meritless suits, the bill also requires that the auditors inform the 
SEC of any suspicions of fraudulent activity and restores the authority 
of the SEC to bring aiding and abetting cases for knowing violations of 
securities laws. The measure includes a system of proportionate 
liability to reduce the pressure to settle frivolous claims and so that 
companies pay only their fair share of a settlement, while retaining 
full joint and several liability for small investors and for all 
defendants who knowingly participate in securities fraud.
  In conclusion, Mr. President, this securities legislation reform is 
fair, balanced and passed with strong bipartisan support. I encourage 
my colleagues to support the conference report and I once again want to 
commend Senator Domenici and Senator Dodd for their work on this bill.
  Mr. BOND. Mr. President, the conference report to H.R. 1058 addresses 
an issue of great concern to many Americans--securities litigation 
reform. While this is a subject that I believe needs to be addressed 
and one I have some personal views and experiences in, I will not be 
participating in the debate or votes on the floor.
  I have previously informed the Senate that I am engaged in securities 
litigation of the kind this legislation seeks to reform. Given the 
status of this suit and the pending legislation, I will again recuse 
myself from the proceedings on the matter.
  I thank the President and fellow Senators for their understanding of 
my personal situation.
  Mr. DOLE. Mr. President, I am pleased that we are able to consider 
the conference report to the Private Securities Litigation Reform Act 
today. I want to commend my colleagues, the chairman of the Banking 
Committee, Senator D'Amato, and the chairman of 

[[Page S 17983]]
the Budget Committee, Senator Domenici, for their leadership in working 
out the necessary compromise allowing us to bring this bill to the 
floor. I also want to commend my colleague from Connecticut, Senator 
Dodd, whose involvement in this issue is proof that there is nothing 
partisan about securities litigation reform.
  Our securities markets provide the fuel that drives our economy. When 
these markets run efficiently, allocating capital to established 
companies and to newer, emerging businesses, we all win with more 
economic growth, more jobs, and a stronger economy.
  Unfortunately, a handful of lawyers today devote their professional 
lives to gaming the system by filing strike suits alleging violations 
of the Federal securities laws--all in the hope that the defendant will 
quickly settle in order to avoid the expense of prolonged litigation. 
The lawyers who file these suits often rely on professional plaintiffs, 
shareholders with only a small stake in the company, but who are 
nonetheless willing to stand on the sidelines ready to lend their names 
to the litigation.
  Needless to say, these strike suits are often baseless. If a stock 
price falls, these lawyers will file a class action suit claiming that 
the company was too optimistic in their projections. If the stock price 
soars, these same lawyers will file suit saying that the company 
withheld information that caused shareholders to sell too early. In 
effect, the lawsuits act as a litigation tax that raises the cost of 
capital and chills disclosure of important corporate information to 
shareholders. High-tech, high-growth companies are particularly 
vulnerable to these baseless strike suits because of the volatility of 
their stock prices.
  This bill will reduce the number of meritless securities fraud cases, 
while protecting investors, by proposing several commonsense reforms:
  First, it diminishes the likelihood that these cases will be driven 
by lawyers, instead of real plaintiffs by allowing the most adequate 
plaintiff to be the party with the greatest financial interest.
  Second, it clamps down on skyrocketing attorney's fees by requiring 
that fees be awarded as a percentage of the actual recovery based on 
the efforts of the attorney.
  Third, it retains joint and several liability for those who knowingly 
commit fraud, but establishes a system of proportionate liability for 
other, less culpable defendants.
  Fourth, it adopts the second circuit's pleading standard. This 
requires plaintiffs to point out specific statements that are supposed 
to be misleading, and removes the ``sue them all and let the judge sort 
it out'' mentality.
  Fifth, it encourages companies to disclose information to their 
shareholders by granting limited protection to predictive statements 
made in good faith. Statements that are knowingly false, however, are 
not protected by this safe harbor.
  Mr. President, with this bill the Republican-led Congress sends a 
clear message. We have fulfilled our responsibility to provide 
companies and investors protection from frivolous lawsuits, ensuring 
that America will be able to compete in the global marketplace.
  President Clinton has not indicated whether or not he will support 
this bill. But the choice is clear. In my view, if he supports this 
bill, he supports creating jobs for Americans. If he opposes it, he 
only supports enriching the pockets of wealthy trial lawyers at the 
expense of consumers and investors.
  In closing, I again commend Chairmen D'Amato and Domenici, and 
Senator Dodd for their work on this critical legislation and I urge my 
colleagues to support it.
  Mr. KERRY. Mr. President, one of my priorities is to foster a 
competitive business environment in Massachusetts and throughout the 
Nation that will lead to the creation of skilled, family-wage jobs. A 
significant factor in creating a favorable business environment is the 
ability to generate capital. The conference report before us today 
addresses the question of the so-called securities strike suits that 
have had a chilling effect on both the business climate and the 
generation of capital for Massachusetts' vanguard technology 
industries.
  This legislation has been the subject of intense debate. Some argue 
that in its attempt to end frivolous strike suits, it will deny 
investors the opportunity to recover losses from companies that engaged 
in fraudulent securities actions. This is a legitimate concern in view 
of some of the cases in Massachusetts in which companies repeatedly 
misrepresented sales, senior officers had to resign and some companies 
had to declare bankruptcy.
  Others have countered that the legislation does not go far enough to 
prevent frivolous strike suits based solely on stock fluctuations or 
missed earnings projections and that the attorneys who bring such suits 
should face the threat of a loser pays provision.
  As the Senate has considered various proposals to reform our Nation's 
securities laws in this area, I have been mindful of the fact that, 
indeed, there are investors on both sides of this issue. My principal 
goal--and the yardstick I have used to measure this legislation--is 
whether it achieves a balance between discouraging truly frivolous 
strike suits while ensuring companies and individuals are liable for 
actual fraud. Though not prefect, I do believe this legislation has 
struck a reasonable balance between protecting investors' rights and 
reducing the possibility that companies will be subject to frivolous 
strike suits.
  One factor that was extremely important in helping me reach a 
decision on this legislation was the Securities and Exchange 
Commission's evaluation of the conference report. The SEC, throughout 
the legislative process, had withheld its endorsement of the 
legislation. I am pleased that the SEC stated in a letter of November 
15, 1995, that: ``We believe the draft conference report responds to 
our principal concerns.''
  Of particular importance to me is the safe harbor language that is 
the product of months of consultation with the Securities and Exchange 
Commission. In my view this provision is the crux of the entire matter. 
The safe harbor affects a potential investor's decision of whether to 
purchase securities and it affects a company's ability to paint a rosy 
scenario to attract investors. It also directly affects the value of 
the benefits packages of the company's officers and employees. The 
conference report codifies the judicial ``bespeaks caution'' doctrine 
and will not allow a company simply to use boilerplate cautionary 
language.
  I am also pleased that the conference report adopts as title III 
legislation I sponsored originally with Representative Wyden to require 
audits of public companies designed to detect illegal acts. It places 
on accountants and company auditors a clear responsibility for early 
detection and disclosure of illegal actions by management. This title 
requires auditors to inform immediately the management and/or the SEC 
of illegal acts having a material impact on the issuer's financial 
statements. I believe these procedures for early detection and 
disclosure of fraud by the accountants and auditors will serve the 
interests of both investors and businesses.
  The conference report should lead to the creation of a more favorable 
climate for investors and businesses. Investors should gain better 
information about the marketplace, more control over securities strike 
suits and more leverage in recovering a larger share of their losses in 
strike suits. Businesses should gain the freedom to provide statements 
about the business outlook that investors and the SEC have encouraged 
and a more favorable climate for raising capital.
  I especially want to commend Senator Dodd, who has worked tirelessly 
on this tough issue, and Senator Domenici for their effort in achieving 
a reasonable and balanced bill.
  Ms. MOSELEY-BRAUN. Mr. President, I support the conference report on 
H.R. 1058, the Securities Litigation Reform Act. It is a reasonable 
bill, one that deserves prompt enactment into law, and it provides the 
right kind of reform to help create jobs and the economic growth our 
country needs.
  The need for reform is clear. The Russian roulette of securities 
strike suits adds a cost to job creation and a chilling effect on 
investment. Every single one of the top 10 Silicon Valley high-
technology firms has been sued for securities fraud--every single one. 
And 27 of the top 40 high-technology firms have been sued. These firms, 
and 

[[Page S 17984]]
many others like them, have to spend hundreds of thousands of dollars--
and even more--to defend frivolous suits, an additional cost no startup 
company should have to bear. And, while it cannot be quantified, there 
is no doubt that a number of companies never get born in the first 
place because of the incalculable litigation threat.
  There are 2,536 electronics companies in my own State of Illinois, 
companies that employ 112,000 people, and have an annual payroll of 
$4.9 billion, that are also among the beneficiaries. These companies 
provide 12 percent of the total manufacturing jobs in Illinois, and the 
value of their annual production is over $17 billion.
  Of course, it is not just high-technology firms in Illinois and 
elsewhere that need this bill. I have concentrated on high-technology 
firms because they are so important to the future of our economy and 
because their stocks tend to be volatile, which makes them prime 
targets for these kinds of securities lawsuits. The fact that so many 
leading high-technology firms have been sued in an indication of the 
scope and extent of the frivolous litigation problem, a problem this 
bill will correct.
  The fact is that investors need reform, too. The current system does 
not benefit them. The damages investors receive in a successful case 
amount to as little as 10 to 14 cents on the dollar of alleged losses. 
Clearly, the litigation explosion has not helped investors a whole lot.
  Much more important than damages, however, is information. Most 
investors have not been part of any securities litigation class action 
lawsuit, at least not directly, but every investor that is active in 
our capital markets depends on information--and the more information an 
investor has, the better the information an investor has, the better 
off that investor is.
  Enactment of this conference report will reverse the current trend of 
companies providing less and less information to investors. Instead, 
because of greater confidence that they will not be subject to 
frivolous suits, companies will be providing more information to the 
market. That, in part, is why small investors like the Beardstown 
Ladies, and the National Association of Investors Corp. an organization 
representing over 340,000 investors and investment clubs, supports this 
legislation.
  Many investors also support this bill because it gives them, rather 
than the lawyers who are supposed to be working for them, control of 
any class action suits filed. It is the client, rather than the 
attorney, that is supposed to control a lawsuit, and part of the reason 
this bill is so necessary is that this simple principle has somehow 
gotten lost in recent years.

  However, more is at stake than just the interests of companies and 
investors, as important as those interests are. The interests of our 
overall economy, and of our country at large, are also very much at 
issue. The interests of every person who works, or is looking for a 
job, is at stake.
  The world economy is more and more competitive. Our future prosperity 
depends on our ability to meet and beat that international competition. 
That means we need a continuing supply of new ideas, new products, and 
new companies that can produce the jobs of tomorrow. And that also 
means that our capital markets must work efficiently to provide capital 
in the amounts needed to the companies that will provide the jobs and 
the economic growth that will make the future brighter and more 
prosperous for all of us.
  These global concerns may seem a long way from the securities law 
issues that are the subject of the bill now before the Senate, but the 
connection is both strong and direct.
  American corporations are all too often intensely focused on the 
short-term price of their stock, instead of the long-term growth and 
prosperity of the business. This short-term focus, which the current 
state of our securities laws helps foster, distracts senior management, 
makes too many of our businesses less creative, and undermines the 
ability of American businesses to make the investments that have the 
long-term payoff. By addressing the frivolous lawsuit problem, this 
conference report will free managers to focus on managing their 
businesses for the long term, rather than managing to minimize their 
short term legal exposure. It will give entrepreneurs more time to 
innovate, and to focus on the future, rather than concentrating on 
their legal defense. Companies will be able to concentrate on creating 
new products and new jobs, because they won't have to devote so much 
time and attention to lawsuits, and the threat of lawsuits.
  Moreover, because frivolous lawsuits, and even the threat of 
frivolous lawsuits, are an impediment to the smooth functioning of our 
capital markets, removing that impediment will make our capital markets 
more efficient. And that will also help produce more economic growth 
and more new jobs.
  I cosponsored S. 240, the original bill that passed the Senate in 
modified form last June, because that bill was based on a recognition 
of all of these facts. S. 240 was designed to maintain strong investor 
protection, while making it more difficult to file frivolous or abusive 
lawsuits. It was designed to help ensure that new businesses that 
create new jobs and new products have a better chance to get the 
capital they need, while ensuring that defrauded investors have the 
right to recover their damages. The bill attempted to reduce 
transaction costs, so that investors who are harmed see a smaller 
portion of their recoveries consumed by attorney's fees and other 
costs. And it was designed to help our capital markets create more jobs 
and greater long-term economic growth--something that is good for every 
American.
  I am pleased that the conference report now before the Senate very 
strongly resembles the bill the Senate sent to conference, rather than 
the original unbalanced House bill that I do not and could not support. 
In one key issue area after another, the conference bill follows the 
Senate bill, rather than the House bill. For example, in the area of 
liability standards, the original House bill abolished liability for 
reckless conduct; the Senate bill did not, and the Senate position 
prevailed in conference.

  The House bill abolished liability for fraud on the market. The 
Senate bill left that doctrine unchanged, and the conference bill 
adopts the Senate approach.
  In the area of pleading, the House bill adopted a standard that was 
significantly higher than the second circuit standard, which was the 
standard adopted in the Senate bill. The Senate position prevailed at 
conference.
  In the area of fee shifting, the original House bill included a pure 
English rule approach; the Senate bill adopted a rule 11-based 
approach, and the conference bill adopts the Senate position.
  The House bill included a $10,000 named plaintiff provision; the 
Senate-passed bill did not, and the conference adopted the Senate 
position.
  In the area of aiding and abetting, the original House bill did not 
reverse the Central Bank case; the Senate bill restored the ability of 
the Securities and Exchange Commission to institute enforcement actions 
against a person or persons who ``knowingly provides substantial 
assistance to another person in violation of this title.'' The 
conference bill includes the Senate provision.
  I do not contend, Mr. President, that the bill before us is perfect. 
It is a compromise. If I had controlled the conference, there would be 
some issues that would have been resolved somewhat differently. It is 
clear, however, that the bill is a good faith attempt to protect the 
public interest, investors' interests, and companies' interests, and 
looking at the overall bill, I think it does a reasonable job of 
meeting the interests of all three.
  It is worth keeping in mind what the bill does--and does not--do, and 
what this area of law is all about. What we are here talking about is 
``private rights of action'' for fraud under Section 10(b) of the 
Securities Exchange Act and rule 10b-5 of the Securities and Exchange 
Commission. That statute did not expressly provide private parties with 
a right to sue corporations or other parties involved in the issuance 
and sale of securities; this right evolved out of a long series of 
judicial decisions, not Congressional actions.
  Some argue that the conference report is somehow unbalanced because 
it does not fully overturn the Central Bank case involving aiding and 
abetting, or the Lampf case relating to the statute of limitations in 
private 10(b) cases. However, it is worth keeping in 

[[Page S 17985]]
mind that defeating the bill would do absolutely nothing to overturn 
either of these cases, that it would in fact leave the SEC with less, 
rather than more, authority than the bill provides, and that it would 
leave investors and the public in a situation where the courts, rather 
than the Congress and the President, are making the law in this area.
  The bill has also been controversial because, in some situations, 
some defendants are only proportionately liable, rather than jointly 
and severally liable. The conference report however, holds everyone who 
commits knowing securities fraud jointly and severally liable. Other 
defendants who are less culpable are proportionately liable, that is, 
they are responsible for the share of harm they cause. That ensures 
that parties who may be only 1 percent or 2 percent responsible for the 
fraud are added as defendants to cases simply because they have deep 
pockets.
  Proportionate liability is far from a new concept. We have had it in 
the tort area in my own State of Illinois for a number of years. It is 
an important and necessary change. Without it, many people will not 
deal with the small, entrepreneurial, startup companies that are most 
likely to be sued, because the potential liability is so much greater 
than the profit they can earn from doing business with these companies. 
Many companies are increasingly unable to find accounting firms and law 
firms willing to do business with them, and are having increasing 
difficulty in attracting the best people to sit on their boards of 
directors. And the result of that is less information and less 
protection for investors, and greater hurdles for the new companies on 
which our economic future depends. And the result of that is less of 
the new, good, well-paying manufacturing jobs our economy and our 
country needs.
  Of course, in some cases, the parties most responsible for the fraud 
are judgment proof; they have no assets that can be found. In that 
situation, the conference report provides additional protections for 
small investors. First, it says that defendants that are 
proportionately liable have their share of responsibility increased by 
up to 50 percent of their proportionate share, so that all investors 
are better compensated for the losses they suffered. Second, for small 
investors, those with a net worth of under $200,000 who suffer a loss 
of at least 10 percent of their net worth, every defendant is jointly 
and severally responsible for paying those damages.
  Some object to the rule 11 provisions of the conference report. 
However, the conference report simply requires the judge to look at 
rule 11 of the Federal Rules of Civil Procedure--which calls for 
sanctions for frivolous lawsuits, to determine whether any party 
violated Rule 11 in the complaint, responsive pleadings, or dispositive 
motions relating to the case, and if so, to impose sanctions. That 
simply puts some teeth into the application of rule 11, and it is teeth 
that are needed, because frivolous suits filed with little thought as 
to their merit can cost the defending companies hundreds of thousands 
of dollars in legal fees, and in the time of the companies' executives. 
And even those fees are not a good investment for the company, even 
when they win, because they divert money that should be going into 
creating more jobs and growth.

  Finally, the most controversial part of the bill involves the so-
called safe harbor. This provision in the conference report has the 
support of the SEC and, in some ways, offers more protection for 
investors--and less for issuers of securities--than do some leading 
court decisions in this area. The heart of what is at issue here is 
what are known as forward looking statements: statements that describe 
future events or that estimate the likelihood of selected future events 
occurring. Rule 175 of the SEC, which currently partially governs this 
area, states that forward looking statements made with a reasonable 
basis and in good faith cannot be used for as a basis for a fraud 
action. However, as a practical matter, the safe harbor it provides 
turns out not to be very safe.
  What added real protection was a third circuit case that recognized 
the ``bespeaks caution'' doctrine, a doctrine that is now law in at 
least five circuits. Under this doctrine, forward looking statements 
accompanied by meaningful cautionary statements--that is, statements 
that indicate the specific risks that the forward looking statements 
will not come true--are, as a matter of law, immaterial and therefore 
cannot be used as a basis for a fraud action.
  The conference report essentially codifies the bespeaks caution 
doctrine. Moreover, in response to concerns raised by the distinguished 
ranking Democratic member of the Banking Committee, Senator Sarbanes, 
the conference report does not provide protection for statements not 
covered under the bespeaks caution provisions made with the actual 
knowledge that they are false.
  I am pleased to be able to say that the SEC supports the safe harbor 
language in the conference report. Chairman Levitt, in a November 15 
letter, said that the provision ``represents a workable balance that we 
can support since it should encourage companies to provide valuable 
forward-looking information to investors while, at the same time, it 
limits the opportunity for abuse.''
  The SEC, in endorsing this part of the conference report, 
demonstrated an understanding that action is necessary in the safe 
harbor area, and that the current state of the law results in companies 
providing less information to investors than they would like to. A 
recent report by the American Stock Exchange documented the 
Commission's concern. It found that 75 percent of corporate CEO's limit 
the information disclosed to investors out of fear that greater 
disclosure would make them more vulnerable to abusive securities 
lawsuits.
  Mr. President, there is a lot more in this bill, and there is a lot 
more I could say about it. I will conclude, however, by simply 
repeating what I said at the outset of my remarks. This is a good bill. 
It does not fully satisfy me, and it probably does not fully satisfy 
any other Senator. But it does provide the kind of reforms that are 
badly needed and that are long overdue. And the bill accomplishes its 
reform objectives in a way that protects investor interests, including 
the interests of small investors like the Beardstown Ladies.
  I want to congratulate the distinguished chairman of the Banking 
Committee, Senator D'Amato; my good friend from Connecticut, Senator 
Dodd; and the distinguished Senator from New Mexico, Senator Domenici-- 
who has now rejoined the Banking Committee--for their leadership and 
for all of their hard work. This bill would not be possible without the 
contributions that each of them have made. I also want to commend the 
distinguished Senator from Maryland, Senator Sarbanes, the ranking 
Democratic member of the Banking Committee, for improving the bill, 
even though he opposes it.
  In my view, this legislation addresses a set of issues that need to 
be addressed. It is good for investors, companies, our capital markets, 
our economy, and for the American people generally. It will help 
generate additional economic growth and new jobs. I therefore urge my 
colleagues to join me in voting for the conference report on H.R 1058, 
the Securities Litigation Reform Act.
  Mr. LAUTENBERG. Mr. President, I am going to vote against this 
conference report.
  Mr. President, the legislation before us is described as a bill to 
protect investors and to maintain confidence in our capital markets. In 
my view, however, it does neither. Instead, the legislation would 
shield too many wrongdoers from being held accountable for their 
misdeeds, and it could ultimately reduce investor confidence in our 
markets.
  When this bill was before the Senate, Mr. President, I expressed 
special concern about the so-called safe harbor provision of the bill. 
This provision has been improved in the conference report, but it is 
still problematic. For example, it eliminates any duty to update 
forward-looking statements. This means that if a business projects 
earnings of a certain amount and 1 month after making this statement, 
it becomes apparent that the projected earnings will be significantly 
less, or perhaps the company will even lose money, the company is not 
obligated to correct those statements. I do not understand why we would 
want to encourage this behavior.

[[Page S 17986]]

  As some of my colleagues know, prior to coming to the U.S. Senate, I 
worked in the private sector. I co-founded a company with two others 
that today employs over 20,000 people. After the company went public in 
1961, I filed countless statements with the SEC as its CEO. As the CEO, 
I believe it was important for investors to have as much information as 
possible.
  Each year, I made it a practice to project earnings for the following 
year. And if those projections needed modification due to a changed 
circumstances, I quickly went to the public to alert them to any 
revision. This process had significant rewards because investor 
confidence in my former company caused our stock, which is traded on 
the New York Stock Exchange, to sell at among the highest price-
earnings ratios of all listed securities on any exchange.
  Mr. President, I recognize that there are abuses in securities 
litigation, and I believe those abuses should be addressed. That is why 
I supported amendments to improve the legislation when it was before 
the Senate. Among other things, these amendments would have provided 
aiding and abetting liability in private implied actions; inserted a 
safety net to ensure that small investors are able to fully recover 
their losses; and extended the status of limitations period on these 
claims, thus making it more difficult for bad actors to hide their 
fraud.
  In opposing these amendments, the sponsors of the bill cited some of 
the more egregious practices of professional plaintiffs and certain 
lawyers. What they do not mention is that this behavior would have been 
curbed by less controversial provisions contained in this bill, such as 
prohibitions against referral fees and attorney conflicts of interest; 
requirements that the share of the settlement awarded to the name 
plaintiffs be calculated in the same manner as the shares awarded to 
all other members of the class and that the name plaintiff certify that 
he did not purchase the security at the direction of his attorney; a 
prohibition against excessive attorney's fees; and an assurance that 
all members of the class have access to information held by counsel of 
the name plaintiff.
  The sponsors of this legislation cite compelling anecdotal evidence 
of abuse by the so-called professional plaintiffs and their 
unscrupulous attorneys. I agree there are abusive securities class 
actions suits filed every year. I also agree that we need to protect 
companies, and even other shareholders, from these people. But in our 
zeal to tackle this problem, we should take care not to stifle 
legitimate claims and to harm our markets, which are the strongest they 
have ever been in our history.
  Mr. President, I would like to support legislation to curb frivolous 
securities lawsuits because I believe there are problems. However, I 
cannot in good conscience vote for a bill that I believe will insulate 
fraudulent conduct, prevent investors injured by fraud from fully 
recovering damages, and chill meritorious litigation.
  Ms. MIKULSKI. Mr. President, I rise today in support of the 
securities litigation reform legislation that has now returned from 
conference.
  Legal reform is complex. We have to protect the interests and rights 
of consumers while ensuring the law does not allow frivolous lawsuits. 
I believe this conference report achieves that balance. I originally 
cosponsored the bill because I concluded there has been a problem in 
the area of securities law. In Maryland, my constituents have told me 
there is a race to the courthouse door to file a lawsuit. The victims 
of these practices include high-technology companies, their accountants 
and others.
  We cannot afford this race to the courthouse because it ultimately 
means a loss of jobs, a loss of opportunity. Money spent on liability 
insurance premiums and expensive litigation is money that cannot be 
spent on investments and jobs.
  While I want to end abuses in the system, I also want to keep the 
courthouse door open for the little guy, for the consumer. I am not 
interested in protecting crooks or swindlers. That is why I support 
this legislation. It protects both consumers and honest companies while 
allowing the law to go after fraud and abuse.
  I am pleased that, with the enactment of this legislation, we will 
have safe harbor rules endorsed by the Securities and Exchange 
Commission. I commend the conference committee for working with the SEC 
on this matter. These rules will allow companies to provide valuable 
information about their future plans. I am pleased investors will have 
the information they need to make important financial decisions. At the 
same time, this provision does not cover company projections that 
defraud investors. Judges will be able to make sure that a company 
qualifies for safe harbor protection.
  This debate is about the U.S. economy in the 21st century. Much of 
our economic future is in new and developing industries such as high 
technology and bio-technology. These emerging jobs are created only 
when companies generate capital to allow them to move into new fields. 
Without a balanced legal system these companies will spend too much on 
litigation costs, and not enough on investments to generate jobs.
  I am pleased that this legislation has moved forward with bipartisan 
support. The bill that passed the Senate received overwhelming votes 
from both parties. In conference it would have been easy to steer this 
bill toward extremism, but the conferees worked toward a bill that we 
can all continue to support. I especially commend the efforts of long 
time supporters Senator Dodd and Senator Domenici.
  Mr. President, I hope any future legal reforms will meet the same 
test of balance and moderation that this reform does.
  Mr. ABRAHAM. Mr. President, in June 1995, I addressed the Senate to 
offer my support for securities-litigation reform as embodied in H.R. 
1058. Today, I am pleased to support the bill that the House-Senate 
conference committee has produced. Today's bill draws on the key 
provisions of S. 240 to make many important reforms to prevent abusive 
litigation connected with the issuance of securities. These changes 
will be made without in any way undermining protection for investors 
against genuine fraud or other misconduct by issuers. To the contrary, 
they will improve the investment climate in this country, which will 
make it easier to start businesses which create jobs.
  Today I would like to focus on one set of reforms the bill will make. 
The bill will require courts to sanction attorneys who file frivolous 
pleadings. This reform will apply both to lawyers who file frivolous 
pleadings on behalf of plaintiffs and those who file frivolous 
pleadings on behalf of defendants. This is a sound proposal which 
should command strong support from both sides of the aisle.
  Under current law, Federal Rule of Civil Procedure 11 requires all 
attorneys to have some factual and legal basis for filing any claim or 
defense. If attorneys violate this requirement, courts may impose 
sanctions against the violator. Right now, however, the courts do not 
have to consider sanctions.
  Today's bill makes three changes.
  First, it requires courts to find at the end of all securities 
actions whether any attorney violated rule 11 in filing any complaint, 
responsive pleading, or dispositive motion.
  Second, the court would have to impose sanctions if it found such a 
violation.
  Third, the presumption is that the district court will sanction 
attorneys violating rule 11 by requiring them to pay the other side's 
attorneys' fees. Under the bill, it will be a little harder for a 
district court to impose this sanction on those who file complaints 
than on those who file responsive pleadings or dispositive motions. 
Those who file responsive pleadings or dispositive motions will be 
subject to this sanction if the responsive pleading or dispositive 
motion fails to comply with rule 11(b). By contrast, those who file 
complaints will be subject to this sanction only for substantial 
failure to comply with rule 11(b).
  Regardless of the party affected, the court may select another 
sanction if First, the presumptive sanction imposes an unreasonable 
burden on the sanctioned party, second, that sanction is unjust; and 
third, declining to impose such a sanction would not impose a greater 
burden on the party in whose favor sanctions would be imposed. In the 
alternative, the party against whom sanctions would be imposed may 

[[Page S 17987]]
rebut the presumption of sanctions by demonstrating that the rule 11 
violation was de minimis.
  We should particularly note two important features of this reform. 
First, the district court will have to impose a sanction only on 
someone who filed a frivolous pleading--that is, a pleading wholly 
lacking a legal or factual basis. Thus, this reform will not deter 
legitimate litigation. Second, the sanction is paid by the person 
signing the frivolous pleading--that is to say, as a general matter, by 
the attorney responsible for it--not by the party the attorney is 
representing.
  It was suggested, Mr. President, that S. 240's changes to rule 11 
were really a back-door means of shifting fees. That was incorrect. It 
is equally incorrect as to the rule 11 provisions in the conference 
report. These are not loser-pays provisions. They will not sanction all 
those who come up short in court. They will sanction only those who 
violate the minimal requirement of having some factual and legal basis 
for arguments in complaints, responsive pleadings, and dispositive 
motions. Such frivolous behavior clogs our courts, drains economic 
resources from parties, kills current jobs, and hinders the creation of 
new ones.
  Moreover, the substantive rule of attorney conduct in this provision 
is the one which exists under rule 11 now. The change from the current 
rule 11 is procedural, not substantive. Today's bill simply requires 
the district court to determine whether that rule, which already 
applies, has been violated, and to impose sanctions if it has.
  The Supreme Court itself has observed that securities litigation has 
been especially prone to misuse as a tool to extort settlements. It is 
Congress's responsibility to do something to put an end to this abuse. 
The rule 11 provisions are one mechanism this legislation puts in place 
to do just that.
  Some on the floor have expressed concern that the Federal judiciary 
may abuse its power to impose sanctions pursant to this provision. I 
simply do not believe that is going to happen. From my position on the 
Judiciary Committee, I have the occasion to talk to many judges and 
judicial nominees. I have questioned judicial nominees on many topics, 
including their ability to exercise their powers impartially toward 
both plaintiffs and defendants. I firmly believe that the individuals 
this Senate is confirming, and those that have been confirmed in the 
past, will exercise this power wisely and prudently for the betterment 
of our legal system. Mr. President, the bill we are voting on today is 
an outstanding piece of legislation. Its sponsors, proponents, and the 
conferees deserve all of our thanks for producing something that will 
strengthen our economy and it will benefit all Americans. I offer my 
wholehearted support to the bill before this Senate and urge my 
colleagues to vote for it.
  Mr. BENNETT. Mr. President, I understand the opponents of the bill 
are gathering their forces, and as we are waiting for that to happen, 
rather than spend the time in a quorum call, I would simply make an 
observation that I have made previously in response to the Senator from 
California which is, first, that none of the losses that occurred as a 
result of the Keating S&L circumstance to which she referred so often 
would be affected by this legislation. All of the remedies that were 
available to those people in the Keating circumstance would still stay 
in the law. The newspaper editorials which she quoted that implied to 
the contrary are incorrect. This has nothing to do with the Keating S&L 
circumstance.
  The other point that I would make again is that when we are talking 
about protecting investors, we are talking about the owners of the 
company--that is what investors are--and anything that damages the 
company, or damages the investors. So it is unfair to try to pit 
companies against investors as has been implied in some of the articles 
which she quoted.
  I say to my friend from Nevada that I am prepared to yield at any 
point that an opponent to the bill might arrive.
  Mr. BRYAN. Mr. President, I appreciate, as always, the accommodation 
of my friend, the distinguished Senator from Utah. We have worked to 
accommodate leadership I think on both sides of the aisle by these time 
agreements that we previously entered into. I do not see anybody from 
our side.
  If I might respond very briefly to the distinguished Senator's 
comment, there is in my view a fundamental disagreement here. The 
Keating case is highly relevant, relevant in the sense that its $262 
million recovery was based upon a violation of the very act that we 
seek to amend here, which is the Securities Exchange Act of 1934.
  I ask unanimous consent that a caption of the lawsuit filed in the 
U.S. District Court, District of Arizona, which is the Keating lawsuit, 
be printed in the Record. So that the recovery of some $262 million in 
the Keating case was based upon a securities violation.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  [United States District Court, District of Arizona, In re American 
 Continental Corporation/Lincoln Savings & Loan Securities Litigation, 
MDL Docket No. 834, This Document Relates To: Civ-90-0566 PHX RMB, Civ-
90-0567 PHX RMB, Civ-90-0568 PHX RMB, Civ-90-0569 PHX RMB, Civ-90-0570 
                     PHX RMB, Civ-90-0574 PHX RMB]

  Sarah B. Shields, et al., Plaintiffs, vs. Charles H. Keating, Jr., 
           Lincoln Savings and Loan Association, First . . .

       [Caption continued on following page.]
       Sixth consolidated amended class action complaint for 
     violations of the Securities Exchange Act of 1934, the 
     Securities Act of 1933, and the Racketeer Influenced and 
     Corrupt Organizations Act.
  Mr. BRYAN. Mr. President, very briefly by way of comment I say it is 
my view--and I think the view of those who have analyzed the bill--that 
of the $262 million that was recovered in the Keating case, $121 
million was recovered against aiders and abettors; that is, accounting 
firms, law firms, and other professionals.
  The conference report fails to restore that liability. So that at 
least for private causes of action--that is the thrust of the 
curtailments that this legislation imposes--there would be an inability 
for the 23,000 plaintiffs in the Keating case that recovered $121 
million. That would not be possible under the status of the law today 
because this legislation does not restore the aider and abettor. It may 
very well be true that the SEC can move against aiders and abettors. 
But even that has been somewhat obfuscated. I believe that those who 
are far more expert than I would tell you that it is not clear even if 
the SEC would be able to seek recovery against the Keating situation of 
which there are aiders and abettors. But clearly those who bring 
private causes of action would not.
  Again, we have this informal colloquy with my friend from Utah. He 
is, I think, suffering from the same disability as I. We have tried to 
protect time for those who wanted to speak. But they are not on the 
floor. I would certainly be delighted to engage him in a colloquy or 
discussion or let him continue to speak until someone returns to the 
floor.
  Mr. BENNETT. Mr. President, as I look at the time allocated under the 
unanimous-consent agreement, the Senator from Nevada [Mr. Bryan] has 10 
minutes. If he wishes to take that 10 minutes now, that could get us at 
least that much farther down the road.
  Mr. BRYAN. The suggestion of my friend from Utah is always compelling 
and intriguing and tempting. May I graciously decline his kind offer, 
which I know is offered in the spirit of trying to accommodate and move 
this process forward as is his want and intent in every case. But I 
think I will respectfully decline that. We are not going to be able to 
protect all of the 7 minutes we have for each of the speakers. We will 
have to make those adjustments because the time continues to run. I 
understand that we have more time on this side, those of us in 
opposition, than he does in support. That time is going to continue to 
run.
  Mr. BENNETT. Under those circumstances, Mr. President, I would 
suggest the absence of a quorum, and ask unanimous consent that it be 
charged to the opponents--I withhold.
  Mr. DODD. Mr. President, I realize the time is running with a vote at 
4:45. I have time reserved. I know our colleague from Nevada, our other 
colleague, Senator Harry Reid, yielded whatever time he had remaining 
to me.

  Let me underscore a point here, Mr. President, while we are waiting. 
I will yield the floor the minute I see a colleague arrive.
  Let me get back to the bottom line, if I can. We are talking about a 
group 

[[Page S 17988]]
of attorneys on one side who are vehemently opposed to this bill. They 
are doing everything to stop it. I point out categorically what we are 
looking at here for every dollar is 14 cents that goes to the investors 
and about 33 cents going to the attorneys in these matters. You do not 
need to know much more than that. It is a system that is out of control 
and out of whack. It needs to be brought back into line of the original 
intent.
  That is really what this is all about. We have included provisions 
that require auditors to check for fraud and to report fraud; set up a 
system that protects small investors for proportionate liability 
matters.
  The suggestion has been made--I say this with all due respect--that 
this is somehow a Keating matter. Nothing could be further from the 
truth; or trying to suggest that somehow Dillinger may have been 
involved. This is ridiculous. The Keating matter had little or nothing 
to do with securities. It was mostly to do with S&L's. And this bill 
will not change the outcome one iota because it was out-and-out fraud 
and lies. It was not about some future statements but about present 
facts. Mr. Keating was suggesting that the Federal Government was going 
to back all of the investments that were made by people. That, of 
course, was a complete falsehood. There is no comparison here.
  That is really I would say sort of an effort to try to desperately 
convince people that somehow this legislation is harmful to the 
interests of investors. What it does is strengthen the hand of 
investors tremendously by giving them the right to choose the 
attorneys, giving them the right to decide what the settlement will be, 
if there is going to be any settlement, and giving them the right to 
determine what the attorney's fees would be. That is what we are trying 
to do here.
  These investors have been taken to the cleaners by hired 
professionals. Plaintiffs who own one or two shares of stock in many 
cases are brought in and given big bonuses for the outcome and set up 
as the plaintiffs in these cases. This is really a scam. One lawyer 
said, ``I have the best practice in the world when it comes to 
securities litigation. I have no clients.'' In fact, he was the 
attorney and the plaintiff in these matters.
  That is what we trying to go correct here. We spent 4 years at it 
with a strong bipartisan approach that has drawn us to the point where 
we are about to adopt a conference report and send it to the President. 
I am hopeful he will sign it. I think it is right, it is balanced 
fairly, and it is moderate. It attempts to deal with a situation that 
most people today agree needs to be corrected, including even the 
opponents of the legislation.
  As someone who has been involved in this for almost 5 years, when we 
first brought up the legislation we were told that there was no need 
for my bill at all.
  At least the opponents are admitting there is a need. They just do 
not like all the provisions of the bill. So I am hopeful that our 
colleagues, the 69 who supported this legislation back several months 
ago--we have improved this bill. We improved the safe harbor provisions 
to such an extent that the SEC, which was reluctant to support the bill 
when it first came out of the Senate, today says those safe harbor 
provisions are provisions which do provide the kind of balance we are 
talking about. That is their analysis and not mine. There are enough 
editorial comments here that indicate that this bill makes sense.
  So, again, given the strong vote in the House, which was a totally 
different bill, by the way--and Senator Reid of Nevada is absolutely 
correct. The ads are running, paid for by these affluent lawyers 
frightened to death they may lose a little business. You are talking 
about a House bill. That bill is gone. This is now the Senate version 
that was basically adopted by the conference.
  So I am hopeful at 4:45, less than an hour from now, the Senate will 
give us a good, strong, bipartisan vote reflecting the work that has 
been done--hundreds and hundreds of hours, 5,000 pages of testimony, 
almost 100 witnesses, 12 sets of hearings through three Congresses. 
That is the way a bill ought to be adopted here, where you bring people 
together, Democrats and Republicans, fashioning a good piece of 
legislation and endorsed by the major regulatory agency of the country 
that believes we have done a good job here.
  I think on balance this is a piece of legislation which is going to 
improve the quality of life in this country, and particularly for those 
industries and businesses that have been the primary targets. One-half 
of all the firms in Silicone Valley have been subjected to securities 
fraud suits in the last 4 or 5 years. That just gives you an indication 
of what is going on here. These new startup, high-tech firms, they are 
the ones who are victimized by this. Those are the firms of the future.
  Mr. President, I see our distinguished colleague from Florida has 
arrived here. We were trying to fill in a little time until someone 
arrived.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. DODD. I will yield the floor.
  If my friend from Florida is prepared to go----
  Mr. GRAHAM. Would you like----
  Mr. DODD. I am going to reserve a couple minutes at the end. I was 
just trying to fill in a little gap here while we waited for the 
opponents of the bill to come on over and express their views.

  Mr. BRYAN. Mr. President, if I may, in the spirit of comity, 
accommodation, fairness, and respect, even though the distinguished 
Senator from Connecticut has exhausted his time, and if we were trying 
to adhere to the rules rigidly, he would not have an opportunity to 
comment further, I would yield from our side of the aisle 2 minutes of 
the time heretofore allocated to the distinguished senior Senator from 
Florida, Senator Graham, to my friend, the senior Senator from 
Connecticut.
  Mr. DODD. Well, I am always appreciative of my colleague.
  The PRESIDING OFFICER. The Senator from Connecticut is recognized for 
2 minutes.
  Mr. DODD. Mr. President, no. I will reserve the 2 minutes. In the 
meantime, our colleague from Florida has arrived. I know the opponents 
want to be heard on this. I appreciate the gracious allocation, at the 
appropriate time, of 2 minutes. And I will make particular reference 
then of the fine job that the Senator from Nevada has done on this 
legislation.
  Mr. BRYAN. In the interest of fair and full disclosure, the Senator 
has not 2 minutes to reserve. He has exhausted his. If he needs it, I 
will tender it to him.
  I yield the full 7 minutes to the distinguished Senator from Florida. 
He can yield any part of that he feels he does not need.
  Mr. GRAHAM. Mr. President, it is ironic that we are having this 
debate today. This debate coincides with the last month of the 
existence of the Resolution Trust Corporation. The Resolution Trust 
Corporation was a congressionally created corporation to deal with the 
second largest financial crisis in the history of the United States of 
America, second only to the Great Depression.
  That crisis, of course, was the savings and loan debacle. That 
debacle was not an accident. It had very specific origins. It had 
identifiable causes. And, sad to say, Mr. President, many of those 
origins, many of those causes emanated from this Chamber.
  It was this Chamber which in early 1980 passed ill-considered 
legislation that, among other things, dramatically increased the level 
of Federal guarantee of savings and loans accounts, without making 
appropriate adjustments to the premiums we paid to support those 
guarantees, and made other changes which facilitated the ability of 
those who wished to gain by plundering these institutions of trust the 
opportunity to do so.
  As a consequence of those actions, which started here, we had one of 
the great financial crises and one of the most expensive financial 
crises in our Nation's history. As I say, Mr. President, it is ironic 
that we recognize this month, December 1995, as the last month of the 
Resolution Trust Corporation's efforts to try to extricate ourselves 
from that crisis, and in this month we now take up legislation which I 
believe has the potential of laying the groundwork for another great 
financial crisis in America.
  Another irony, Mr. President, is that there has been no time in our 
Nation's history when our stockmarkets were more in public favor. 
Recently, for the 

[[Page S 17989]]
first time in their history, the Dow Jones passed the 5000 mark and 
continues to grow beyond that. The reason for the strength of our stock 
market is fundamentally the confidence that the investing American has 
in our stockmarkets. That is an asset of our free enterprise system, 
Mr. President, that we need to guard zealously.

  Mr. President, I am afraid that the action that we are being asked to 
take today moves away from that close guarding of the confidence of the 
American investor in the American stock market.
  Let me just mention a few areas of particular concern to me. I am 
concerned about the provision that will make it easier, will almost 
provide immunization for oral and written statements of expectation as 
to corporate activity. The whole purpose of this legislation--and I 
think a legitimate purpose, Mr. President--was to eliminate frivolous 
lawsuits, to eliminate a practice in which firms were subjected to 
litigation, not with the expectation of a jury or other judicial 
verdict indicating that the company had behaved in an inappropriate 
way, but in order to be able to negotiate a settlement based on that 
settlement being less expensive than the cost of defense and the 
adverse effect which the litigation would have on the image of the 
corporation.
  But this legislation goes far beyond what is required in order to 
sort out the frivolous from the serious. And one of the best examples 
of that is what has happened in this so-called safe harbor provision. 
When this left the Senate it contained some protections. It contained a 
protection that stated that statements which were knowingly made with 
the expectation, purpose, and actual intent of misleading investors 
would not secure the benefits of the safe harbor. As hard as it is to 
believe, Mr. President, that provision has been eliminated from the 
legislation as it now comes back from the conference committee.
  Mr. President, there are other examples of where the conference 
committee has taken action that has made this bill less protective of 
investors without adding to the benefit of sorting out the frivolous 
from the serious litigation. I am concerned, Mr. President, about the 
fact that we have continued to have the unreasonably short statute of 
limitations of 3 years, a period of time in which for many of these 
real cases of fraud and abuse they would not even be known, much less 
be known in time to do the necessary investigation prior to the 
bringing of litigation.
  Mr. President, we have made it extremely difficult, after an award is 
granted, after it has been determined that, in fact, there was 
fraudulent activity and a judgment is entered on behalf of the 
plaintiff, we made it very difficult for the plaintiff to be able to 
recover, particularly, as is frequently the case, when one or more of 
the major parties turns out to be insolvent.

  So, Mr. President, in the spirit of attempting to achieve one very 
focused objective, we have engaged in broad-scale amputation of the 
ability of private litigants to maintain the integrity of our 
securities law. And we do this, Mr. President, at the same time we are 
about to take up a conference report which will freeze the budget of 
the Securities and Exchange Commission. So both of the arms which are 
used in order to contain fraudulent activities in the securities 
sector, private litigation and the Securities Exchange Commission, are 
about to be severely restrained.
  So, Mr. President, for those reasons, I urge my colleagues to defeat 
this conference report in hopes that we will then focus on legislation 
that will accomplish this narrow objective.
  The PRESIDING OFFICER. The time of the Senator has expired.
  Mr. GRAHAM. Mr. President, I ask unanimous consent to have printed in 
the Record statements made by one of my constituents, Mr. F.K. 
Glasbrenner of Longwood, FL, a resolution by the Florida Association of 
Counties, and an editorial from the Miami Herald, all of which bemoan 
the inadequacies of this legislation to achieve the purpose stated.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                 Longwood, FL,

                                                 October 23, 1995.
     Senator Bob Graham,
     Hart Senate Office Bldg,
     Washington, DC.

     Senator Connie Mack,
     Hart Senate Office Bldg,
     Washington, DC.

     Representative John Mica,
     Cannon Bldg,
     Washington, DC.

     Representative Bill McCollum,
     Rayburn Bldg,
     Washington, DC.
       Gentlemen: The managing editor, Frank Lalli, of MONEY 
     magazine has informed his readers, and I am one, that the 
     securities litigation reform bills, H.R. 1058 and S. 240, are 
     certainly not in the bests interests of the investor in the 
     United States.
       The original intention of the bills were to discourage 
     frivolous securities suits but in the end they really did 
     something different. In their present form they legalize 
     securities fraud. The bills protect company executives who 
     deliberately misrepresent their firm's prospects. If an 
     invester sues to right a wrong and he loses, the judge can 
     force him to pay the winners legal fees. In addition both 
     bills failed to reinstate fundamental investor protections 
     stripped away by recent Supreme Court decisions which were:
       Defrauded investors can be longer sue hired guns who assist 
     a dishonest company officer. This would include accountants, 
     brokers, lawyers and bankers.
       Investors cannot sue at all if they fail to file within 
     three years after the fraud occurs, even when the crime is 
     not discovered until after the deadline.
       I implore all of you to have the House-Senate conference 
     committee correct the final bill to vastly improve the United 
     States investor's rights. Don't allow white collar crime to 
     the legalized, there is too much of it already.
           Sincerely,
     F.K. Glasbrenner.
                                                                    ____



                              Florida Association of Counties,

                                Tallahassee, FL, October 24, 1995.
     Re H.R. 1058/S. 240, Securities Litigation Reform Act.

     Hon. Bob Graham.
     U.S. Senate, Washington, DC.
       Dear Senator Graham: On Behalf of Florida's 67 counties, I 
     would like to thank you for voting against final passage of 
     H.R. 1058/S. 240, the Securities Litigation Reform Act. While 
     the Florida Association of Counties favor efforts to deter 
     frivolous securities lawsuits, I strongly believe that 
     legislation to accomplish this worthy goal must also ensure 
     rights of investors to seek recovery against those who engage 
     in securities market fraud. H.R. 1058/S. 240 not only fails 
     to protect investors' rights, but seriously limits investors' 
     ability to seek recovery from those who help to commit fraud.
       Since the provisions of the House bill, H.R. 1058, go even 
     further than the Senate bill in undermining the ability of 
     investors to seek recovery in securities fraud cases, it 
     appears that there is virtually no chance for a final bill 
     that protects the rights of investors and that it is likely 
     the House & Senate conference report will be worse than the 
     original Senate bill. I urge you, therefore, to vote against 
     the conference report on H.R. 1058 when it comes before the 
     Senate for a vote.
           Respectfully,
                                                 John Wayne Smith,
     Governmental Liaison.
                                                                    ____


                 [From the Miami Herald, Nov. 14, 1995]

                         Liars' Bill of Rights?

       While most of the country is paying attention to the feud 
     over the federal budget, a sinister piece of legislation is 
     making its way through Congress unnoticed. This bill lets 
     companies report false information to investors. That's 
     right, it essentially licenses fraud. It has passed both 
     houses in slightly different forms. A compromise bill will be 
     written soon. If it passes, President Clinton ought to slay 
     it in its tracks.
       This bill is a story of good intentions. Some companies 
     have been plagued by frivolous lawsuits from investors who 
     aren't happy with the company's performance. The investors 
     allege, in essence, that the company had forecast good 
     results and then didn't deliver. That, say the plaintiffs, 
     constitutes fraud.
       Well, often it doesn't. Investing has risks, including 
     market downturns. When investors sue over mere bad luck, they 
     cost companies money, clog courts, and drain profits from 
     other investors.
       Trouble is, by trying to stop this abuse, Congress mistook 
     a simple answer for the right answer. Its solution, in plain 
     terms, was to declare virtually all promises by all companies 
     to be safe from legal challenge. Under this ``remedy,'' 
     company executives now can promise investors anything they 
     like, with not so much as a nod to reality.
       They can't legally lie, about the past, but if their claims 
     are ``forward-looking,'' they can promise you the moon to get 
     you to invest, and no one can sue them later for being 
     misleading.
       Well, almost no one. The bill would allow legal action in 
     the case of egregious, deliberate fraud, but you'd have to 
     prove that it was intentional. And you'd have just three 
     years to discover the fraud and furnish your proof.
       It's rare enough to prove outright intent under the best 
     circumstances, but under this bill, if executives can 
     stiffarm you for just 36 months (not a big challenge), they'd 
     be home free. And then--in another hair-raising provision of 
     the bill--you'd be stuck for the company's entire legal bill. 
     Facing such a risk, no small investor, no matter how badly 
     cheated, would ever dare sue.

[[Page S 17990]]

       This bill evidently struck many members of Congress as a 
     simple answer to a nagging problem. It's nothing of the kind. 
     The problem is real enough, but its solution isn't simple. 
     And it certainly doesn't reside in a law authorizing phony 
     statements to investors.
       President Clinton should veto this blunder. Then, when the 
     fight over the budget is over, Congress can take time to 
     think up a more rational solution to the problem.

  Mr. GRAHAM. Thank you.
  Mr. BRYAN addressed the Chair.
  The PRESIDING OFFICER (Mr. Thompson). The Senator from Nevada is 
recognized.
  Mr. BRYAN. I thank the Chair.
  Mr. President, I suspect not many opinions are going to be changed at 
this late hour in the debate, but let me make an observation about what 
this debate is not about.
  It is not about frivolous lawsuits. If this legislation dealt only 
with frivolous lawsuits, we would be acting by voice vote, and this 
Senator's voice would be among the loudest of the chorus of votes in 
support. Indeed, the provisions in this legislation that deal with the 
frivolous lawsuit issue are essentially provisions that this Senator 
has previously offered in a piece of legislation, so I am fully 
supportive of that.
  What this legislation does, in my opinion, is systematically and 
pervasively dismantles the system of investor protection against 
securities fraud and undermines the confidence in the world's safest 
securities market: the United States of America. It does so for several 
reasons. Everyone who is involved in the regulatory process, whether 
the SEC, the States securities administrators and others, all 
acknowledge that the statute of limitations is too short--too short. 
They have urged this Congress to change the current law from 1 year 
from point of discovery to a 3-year date of occurrence cutoff to 2 
years and 5 years. The reason for that is, the SEC says, because of the 
complexity of securities investigations. It requires more than 2 years 
when they do it with all of the resources of the Federal Government 
available.
  Aiders and abettors: Aiders and abettors are not, under the current 
interpretation of the Supreme Court's ruling in private causes of 
action, are not subject to liability for reckless misconduct--not 
subject to liability. We have urged our colleagues to make them subject 
to liability, and they have declined to do so. In point of fact, there 
is substantial question as to whether the SEC itself as the enforcer 
has the power to recover against aiders and abettors.
  So by failing to take that action, we immunize an entire class of 
wrongdoers. The accountants, the lawyers, the people who aided and 
abetted some of the great securities frauds in America would not be 
liable under the current state of the law.
  Unlike the earlier Senate version of this bill, we do great damage to 
the fairness of imposing upon attorneys, whether they be plaintiffs' 
lawyers or defense lawyers, the full sanction of rule 11. As this bill 
left the Senate, the sanctions applied equally to plaintiffs' lawyers 
and to defense lawyers.
  Let the planets, let the stars, let everything in God's universe fall 
upon those who continue to pursue frivolous lawsuits. I am with my 
colleague from Utah on that. But in terms of revealing the bias that is 
reflected throughout this legislative process, those sanctions only 
apply now to the plaintiffs' lawyers, and the defendants' lawyers who 
are guilty of frivolous actions have a much lesser sanction.

  The issue is frequently framed, are you with Silicon Valley or are 
you with the trial lawyers? That is a false premise. Let me just read 
some of the opinions that have been expressed on this.
  The Akron Beacon Journal, December 1, 1995:

       The legislation would close virtually all avenues available 
     to investors who reasonably seek to recover money lost in 
     securities fraud cases. President Clinton can begin the 
     effort to improve this bill by using his veto.

  The San Francisco Chronicle, November 27 of this year:

       Despite the worthwhile aim, the provisions of a draft 
     conference report--

  The one that we are dealing with.

     go far beyond curbing trivial court action and instead would 
     wipe out important protections against hustlers of fraudulent 
     securities.

  Mr. President, can I ask you to give me an indication when I have 4 
minutes left of the time allocated to me?
  I thank the Chair.
  The Miami Herald, November 14 of this year:

       A sinister piece of legislation. It essentially licenses 
     fraud. President Clinton should veto this blunder.

  The Wisconsin State Journal:

       The bill allows deceitful corporate executives, securities 
     brokers, accountants and lawyers out there to thumb their 
     nose at the justice system.

  The Chattanooga Times, October 30, the home State of the 
distinguished occupant of the chair:

       The bill would immunize most stock and bond fraud from 
     civil liability. This fraudulent reform could not have come 
     at a worse time. Securities fraud enforcement actions have 
     increased 118 percent and criminal convictions for such fraud 
     leaped 176 percent.

  The Daily Times Call:

       Charles Keating could wish this were the law when he 
     squandered millions of dollars from the savings and loan 
     industry.

  The St. Louis Post Dispatch:

       Those protected by this legislation would not only be 
     companies free to make reckless predictions about their 
     future, the accountants who detect fraud and keep quiet about 
     it also would be helped.

  I could read on and on and on.
  I do want to say something about the editorial that appeared in Money 
magazine.
  The PRESIDING OFFICER. The Senator has 4 minutes left.
  Mr. BRYAN. I thank the Chair.
  It has been suggested that Money magazine editorials were issued 
prior to the conference report. It is true for the first time in their 
history, in September, October, and November of this year, they 
editorialized strongly against it. Mr. President, they reaffirmed their 
opposition in December of this year after the conference report, 
indicating that this legislation, in their view, would do great harm to 
private investors.
  Let me also point out that among the groups that oppose this are the 
Associations of Municipal Financial Officers, State Financial Officers, 
County Financial Officers, and others.

  I want to read the excerpt of a letter that was sent to the Las Vegas 
Sun by the treasurer of Clark County, NV, which includes Las Vegas.

       As Clark County's treasurer, I am responsible for taxpayer 
     funds collected and invested on behalf of three-quarters of 
     Nevada's population.
       I am writing because legislation passed by Congress could 
     effectively eliminate Clark County's ability to file private 
     securities fraud lawsuits--the primary method for governments 
     and individuals to recover losses from investment fraud.

  He speaks for hundreds of county officials throughout America, 
irrespective of political party. That is why the National Association 
of Securities Administrators, and others, have strongly condemned this 
legislation as going far, far too far.
  Mr. President, let me say that in 1982, the Congress ill-advisedly, 
in my judgment, passed Garn-St. Germain that opened up a wave of fraud 
that cost the American taxpayers, in terms of the savings and loan 
industry, $450 billion when those costs are amortized.
  What Garn-St. Germain did for the savings and loan industry in 1982, 
it is my view this legislation will do for the securities industry. 
Those who support this legislation, if enacted and signed by the 
President, will rue the day. We have not seen the last of fraud. 
Indeed, the evidence is to the contrary that fraud is growing.
  This legislation goes far beyond what is needed to address the 
legitimate issue of frivolous lawsuits, which I fully associate myself 
with those efforts. This legislation effectively emasculates the right 
of private investors to bring causes of action against those who 
perpetrate fraud that results in losses throughout the country.
  In the Keating Five, and I know that people do not like the reference 
to the Keating case, but it was a securities action filed under the 
1934 law. This is a classic case in which $171 million were recovered 
against aiders and abettors, those attorneys and brokers and advisers 
who were responsible.
  Because of our failure to correct the current interpretation of the 
Court's opinion, we immunize and give those folks a clean bill of 
health, a pass to continue. For those who voted for the Senate version 
earlier, let me indicate that this piece of legislation emerging from 
the conference is far worse. It 

[[Page S 17991]]
eliminates the provisions Senator Specter offered with respect to RICO. 
It heavily imbalances the sanctions that are imposed against lawyers 
who file frivolous lawsuits by making the burden whole and entire on 
plaintiffs but not so with defendants. It enhances the pleading 
requirements, which makes it much more difficult to bring. It fails to 
address the statute of limitations issue. It fails to correct the 
deficiency in the law which allows aiders and abettors to go home free. 
It reverses hundreds of years of judicial precedent in common law in 
limiting the right of recovery balance between an innocent investor and 
those whose conduct was reckless. It says under the proportionate 
liability that only the proportionate responsibility shall be made 
payable to that innocent investor, when the actual perpetrator is 
judgment proof or without money to respond.
  Finally, let me say that the conference report even diminishes that 
ability to recover even further. I thank the Chair.
  Mr. President, I am just informed that the distinguished Senator from 
Illinois wants to speak as in morning business for 2 minutes. I do not 
have any objection.
  I ask unanimous consent that she may speak for 2 minutes as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________