[Congressional Record Volume 141, Number 207 (Friday, December 22, 1995)]
[Senate]
[Pages S19146-S19154]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 SECURITIES LITIGATION REFORM ACT--VETO

  The PRESIDING OFFICER (Mr. Campbell). Under the previous order, the 
Senate will resume consideration of the veto message with respect to 
H.R. 1058, the securities litigation bill. The clerk will report.
  The legislative clerk read as follows:

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

  The Senate resumed the reconsideration of the bill.
  Mr. D'AMATO addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York [Mr. D'Amato] is 
recognized.
  Mr. D'AMATO. Mr. President, I urge my colleagues to see to it that 
the much-needed reform in the area of securities litigation is 
undertaken. By overriding the President's veto, that reform would be 
ensured.
  I have notes here, comprehensive notes that detail the reasons why we 
have to change this system--one reform the bill makes is to bar 
professional plaintiffs, people who have little interest in a 
corporation who might own 10 shares of stock who are literally hired by 
the lawyers to bring these suits. That is wrong, but that is what is 
going on.
  The legislation makes all kinds of improvements, but let me put my 
notes aside and refer to this morning's Washington Post. In its lead 
editorial, the Washington Post says quite clearly: ``Override the 
Securities Bill Veto.''
  Let me refer to just one part of it:

       This bill would correct important flaws in the securities 
     laws that are being systematically exploited by lawyers in 
     ways that have nothing to do with fairness.

  Mr. President, that is exactly what this legislation does. It 
corrects the law to protect investors. It gives to those people who are 
defrauded the opportunity, for the first time, to see to it that 
lawyers who will really represent their interests lead the case, as 
opposed to having a lawyer in charge who says, ``I have the best 
practice in the world because I have no clients.''
  Imagine this attorney who, by the way, has contributed millions of 
dollars to a political party and who is exerting incredible pressure, 
who has paid millions of dollars for people to take out ads, phony 
groups, little startup groups, groups that then say, ``Protect the 
investors, protect the investors''. He has spent millions of dollars to 
oppose this bill--millions of dollars, and he brags about the fact that 
he makes his living--a very comfortable one of millions of dollars--
because he has no clients. ``I have no clients. That's the best kind of 
practice to have.''
  We have to put those lawyers out of business. Let me say, when it 
comes to protecting the interests of attorneys and litigants and seeing 
to it that claims can and should be sustained where there is merit, 
this Senator has been there with his support every time. I am not 
suggesting to you that this bill is perfect. I am not suggesting to you 
that there may not be some areas in which we will have to reform this 
legislation, but to suggest that we are now going to permit fraud is as 
wrong as it is to suggest that what is taking place now is preferable 
to reform. It is not and this legislation is not going to permit fraud.
  This practice is wrong. This is bilking the system. This is bilking 
the small investor. This system as it stands is encouraging the kind of 
operation that hurts small investors and makes no sense; this 
legislation is long overdue.
  I ask unanimous consent that the full text of the Washington Post 
editorial that appeared today be printed in the Record.
  There being no objection, the editorial was ordered to be printed in 
the Record, as follows:

               [From the Washington Post, Dec. 22, 1995]

                   Override the Securities Bill Veto

       President Clinton was wrong to veto the securities bill. He 
     caved to the trial lawyers' lobby, big contributors to the 
     Democratic Party, in a dark-of-night action. Congress should 
     override him. The House of Representatives voted the other 
     day to do just that, with 89 Democrats joining the 
     Republicans. Now it's up to the Senate.
       This bill would correct important flaws in the securities 
     laws that are being systematically exploited by lawyers in 
     ways that have nothing to do with fairness. When the price of 
     a company's stock drops sharply, the present law invites 
     suits on the questionable grounds that the company's past 
     expressions of hope for its future misled innocent 
     stockholders.
       This kind of suit has turned out to be a special danger to 
     new companies, particularly high-technology ventures with 
     volatile stock prices. The country has a strong interest in 
     encouraging these companies and 

[[Page S19147]]
     shielding them from a style of legal assault that is not far from 
     extortion. The bill would protect companies' forecasts as 
     long as they did not omit significant facts.
       Under present law, the first lawyer to file one of these 
     strike suits controls the litigation regardless of who else 
     might sue on the same grounds later. Frequently the lawyers 
     who specialize in this work settle their suits on terms that 
     bring trivial benefits to the shareholders but fat fees to 
     the lawyers themselves. The bill that Mr. Clinton vetoed 
     would instead give the judge the authority to pick the lead 
     plaintiff--usually the plaintiff with the biggest stake in 
     the outcome. Plaintiffs would then choose their own lawyers 
     and make their own decisions on whether and how to settle. 
     That is clearly a desirable reform and a major improvement in 
     shareholders' rights.
       Mr. Clinton vetoed the bill because, he said, it would make 
     too many difficulties for shareholders with legitimate 
     grievances. There are two things to be said about that. This 
     bill has been under intense debate and negotiation between 
     the two parties for nearly a year, and if these defects are 
     as significant as the president suggests, it's strange that 
     the administration did not make an issue of them earlier.
       More broadly, Mr. Clinton speaks of future injustices that 
     he believes this bill might create but has little to say 
     about the real and substantial injustices that the present 
     law is creating. Overriding his veto will end an egregious 
     misuse of securities laws in ways that harm both companies 
     and shareholders.

  Mr. D'AMATO. I yield the floor.
  Mr. SARBANES. Mr. President, what is the time situation?
  The PRESIDING OFFICER. The Senator from Maryland has 9 minutes 4 
seconds. The Senator from New York has 8 minutes 20 seconds.
  Mr. SARBANES. Mr. President, I yield myself 3 minutes and ask the 
Chair to let me know when the 3 minutes have been used.
  The PRESIDING OFFICER. The Senator is recognized for 3 minutes.
  Mr. SARBANES. Mr. President, I rise to urge my colleagues to support 
the veto. We have a number of public interest groups that are in strong 
support of this veto. The North American Securities Administrators 
Association and the Association of the States Securities Regulators 
have written to Members of the Senate to urge us ``to sustain President 
Clinton's veto.''
  They go on to say--and this is a very important point that we have 
continually emphasized during the debate:

       While everyone agrees on the need for constructive 
     improvement in the Federal securities litigation process, the 
     reality is that the major provisions of H.R. 1058 go well 
     beyond curbing frivolous lawsuits and will work to shield 
     some of the most egregious wrongdoers from legitimate 
     lawsuits brought by defrauded investors.

  That is the whole point. This legislation goes well beyond the 
purpose of curbing frivolous lawsuits. The examples that are always 
cited on the other side are examples with which we do not take issue. 
We would like to curb those kinds of examples, but we do not want to go 
beyond that, as the North American Securities Administrators say, ``to 
shield some of the most egregious wrongdoers from legitimate lawsuits 
brought by defrauded investors.''
  I will ask unanimous consent that this letter be printed in the 
Record at the conclusion of my remarks, along with a letter from the 
National League of Cities, the National Association of Counties, the 
National Association of County Treasurers and Finance Officers, U.S. 
Conference of Mayors, Government Finance Officers Association, the 
Municipal Treasuries Association, which also states that those 
organizations support ending frivolous lawsuits, but pointing out that 
they are major investors of public pension funds and taxpayer moneys, 
who want to ensure that litigation reform is balanced and does not harm 
investors. They go on to say, unfortunately, H.R. 1058 is a bill that 
is special-interest excess masquerading as reform, and it makes a 
mockery of our world-renowned system of investor protection.
  I ask unanimous consent that they be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. SARBANES. This is not only State regulators and local government 
officials, whom I just cited, but consumer groups and legal experts.
  Money magazine has editorialized on this issue, and I ask unanimous 
consent that it be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                  [From Money magazine, December 1995]

 Now Only Clinton Can Stop Congress From Hurting Small Investors Like 
                                  You

                            (By Frank Lalli)

       The debate over Congress' reckless securities litigation 
     reform has come down to this question: Will President Clinton 
     decide to protect investors, or will he give companies a 
     license to defraud shareholders?
       Late in October, Republican congressional staffers agreed 
     on a so-called compromise version of the misguided House and 
     Senate bills. Unfortunately, the new bill jeopardizes small 
     investors in several ways. Yet it will likely soon be sent to 
     Clinton for his signature. The President should not sign it. 
     He should veto it. Here's why:
       The bill helps executives get away with lying. Essentially, 
     lying executives get two escape hatches. The bill protects 
     them if, say, they simply call their phony earnings forecast 
     a forward-looking statement and add some cautionary boiler-
     plate language. In addition, if they fail to do that and an 
     investor sues, the plaintiffs still have to prove the 
     executives actually knew the statement was untrue when they 
     issued it, an extremely difficult standard of proof. 
     Furthermore, if executives later learn that their original 
     forecast was false, the bill specifically says they have no 
     obligation to retract or correct it.
       High-tech executives, particularly those in California's 
     Silicon Valley, have lobbied relentlessly for this broad 
     protection. As one congressional source told Money's 
     Washington, D.C. bureau chief Teresa Tritch: ``High-tech 
     execs want immunity from liability when they lie.'' Keep that 
     point in mind the next time your broker calls pitching some 
     high-tech stock based on the corporation's optimistic 
     predictions.
       Investors who sue and lose could be forced to pay the 
     winner's court costs. The idea is to discourage frivolous 
     lawsuits. But this bill is overkill. For example, if a judge 
     ruled that just one of many counts in your complaint was 
     baseless, you could have to pay the defendant firm's entire 
     legal costs. In addition, the judge can require plaintiffs in 
     a class action to put up a bond at any time covering the 
     defendant's legal fees just in case they eventually lose. The 
     result: Legitimize lawsuits will not get filed.
       Even accountants who okay fraudulent books will get 
     protection. Accountants who are reckless, as opposed to being 
     co-conspirators, would face only limited liability. What's 
     more, new language opens the way for the U.S Supreme Court to 
     let such practitioners off the hook entirely. If such a lax 
     standard became the law of the land, the accounting 
     profession's fiduciary responsibility to investors and 
     clients alike would be reduced to a sick joke.
       Moreover, the bill fails to re-establish an investor's 
     right to sue hired guns, such as accountants, lawyers and 
     bankers, who assist dishonest companies. And it neglects to 
     lengthen the tight three-year time limit investors now have 
     to discover a fraud and sue.
       Knowledgeable sources say the White House is weighing the 
     bill's political consequences, and business interests are 
     pressing him hard to sign it. ``The President wants the good 
     will of Silicon Valley,'' says one source. ``Without 
     California, Clinton is nowhere.''
       We think the President should focus on a higher concern. 
     Our readers sent more than 1,500 letters in support of our 
     past three editorials denouncing this legislation. As that 
     mail attests, this bill will undermine the public's 
     confidence in our financial markets. And without that 
     confidence, this country is nowhere.

  Mr. SARBANES. They conclude by saying: ``This bill will undermine the 
public's confidence in our financial markets and, without that 
confidence, this country is nowhere.''
  I am fearful that that is the price we will pay for this legislation.
  Finally, I ask unanimous consent to have printed in the Record a 
letter from Prof. Arthur Miller at the Harvard Law School.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                           Harvard law school,

                                 Cambridge, MA, December 19, 1995.
     Hon. William J. Clinton,
     President of the United States, The White House, Washington, 
         DC. 20500.
       Dear Mr. President: On December 12 I wrote to you 
     concerning the so called ``securities reform'' legislation, 
     then embodied in Senate Bill 240. I urged you to oppose that 
     legislation because (1) it was based on a totally erroneous 
     assumption that there had been a sharp increase in securities 
     litigation in the recent past, which is completely belied by 
     every statistical measure available, (2) the federal courts, 
     exploiting a variety of procedural tools such as pretrial 
     management, summary judgment motions, sanctions, and enhanced 
     pleading requirements, were achieving many of the goals of 
     the so called reformists, most particularly the deterrence of 
     ``frivolous'' litigation; (3) recent history suggests that 
     the same vigilance is needed today to guard against market 
     fraud as was needed during the superheated activity in the 
     securities business in the mid-1900's; and (4) the SEC simply 
     is unable to perform the necessary prophylaxis to safeguard 
     the nation's investors, and private enforcement is an 
     absolutely integral part of policing the nation's 
     marketplaces.
     
[[Page S19148]]

       I am writing again because the latest version of the 
     legislation, H.R. 1058, contains provisions regarding 
     pleading in securities cases and sanction procedures that, if 
     anything, make the legislation even more draconian and 
     access-barring than Senate Bill 240. It simply is perverse to 
     consider it a ``reform'' measure.
       I have always taken great pride in the fact that the words 
     ``equal justice under law'' are engraved on the portico of 
     the United States Supreme Court. I fear, however, that if the 
     proposed legislation is signed into law, access to the 
     federal courts for those who have been victimized by illicit 
     practices in our securities markets will be foreclosed, 
     effectively discriminating against millions of Americans who 
     entrust their earnings to the securities markets. As 
     difficult as the existing Federal Rules of Civil 
     Procedure already make it to plead a claim for securities 
     fraud sufficient to survive a motion to dismiss, 
     especially given existing judicial attitudes toward these 
     cases, the passage in House Bill 1058 requiring that the 
     plaintiff ``state with particularity facts giving rise to 
     a strong inference'' that the defendant acted with 
     scienter, in conjunction with the automatic stay of 
     discovery pending adjudication of dismissal motions, 
     effectively will destroy the private enforcement 
     capacities that have been given to investors to police our 
     nation's marketplace. Despite misleading statements in the 
     Statement of Managers that this provision is designed to 
     make the legislation consistent with existing Federal Rule 
     9, the truth is diametrically the opposite, since the 
     existing Rule clearly provides that matters relating to 
     state of mind need not be pleaded with particularity. 
     Indeed, it would be more accurate to describe the proposal 
     as a reversion to Nineteenth Century notions of procedure. 
     The proposed legislation also does considerable damage to 
     notions of privilege and confidence by demanding that 
     allegations on information and belief must be accompanied 
     by a particularization of ``all facts on which that belief 
     is formed.''
       The situation is compounded by the proposed fee shifting 
     and bond provisions that relate to the enhanced sanction 
     language in the legislation. It is inconceivable that any 
     citizen, even one with considerable wealth and a strong case 
     on the merits, could undertake securities fraud litigation in 
     the face of the risks created by these provisions. As the 
     person who was the Reporter to the Federal Rules Advisory 
     Committee during the formulation and promulgation of the 1983 
     revision of Federal Rule 11, the primary sanction provision 
     in these Rules, I can assure you that no one on that 
     distinguished committee would have possibly supported what is 
     now so cavalierly inserted into the legislation.
       I use the word ``cavalierly'' intentionally, because, as I 
     indicated to you in my earlier letter, there is not one whit 
     of empiric research that justifies any of the procedural 
     aspects of this so called ``reform'' legislation. Not only 
     does every piece of statistical evidence available belie the 
     notion that there is any upsurge in securities fraud cases, 
     but these proposals, with their devastating impact on our 
     nation's investors, have completely bypassed the carefully 
     crafted structure established in the 1930's for procedural 
     revision that has enabled the Federal Rules to maintain their 
     stature as the model for procedural fairness and currency. 
     Thus, the proposed legislation represents a mortal blow both 
     to the policies that support the private enforcement of major 
     federal regulatory legislation and to the orderly 
     consideration and evaluation of all proposals for the 
     modification of the Federal Rules. From my perspective, which 
     is that of a practitioner in the federal courts, a teacher of 
     civil procedure for almost thirty-five years, and a co-author 
     of the standard work on federal practice and procedure, I 
     fear that all of that is extremely regrettable.
       I hope you will give serious consideration to vetoing the 
     legislation. If I can be of any further assistance to you or 
     your staff in considering these and related matters, please 
     do not hesitate to inquire. My telephone number is 617/495-
     4111.
       My very best to you and your family during this wonderful 
     holiday season.
       Sincerely yours,
                                                 Arthur R. Miller,
                                   Bruce Bromley Professor of Law.

  Mr. SARBANES. Professor Miller says in the course of this letter,

       I have always taken great pride in the fact that the words 
     `equal justice under law' are engraved on the portico of the 
     Supreme Court. I fear, however, that if the proposed 
     legislation is signed into law, access to the Federal courts 
     for those who have been victimized by illicit practices in 
     our securities markets will be foreclosed, effectively 
     discriminating against millions of Americans who entrust 
     their earnings to the securities markets.

  Do not make the mistake of exposing our investors to the pitfalls 
that the public officials, State security regulators, and these 
distinguished academics have pointed out. I urge sustaining the veto.

                               Exhibit 1

 [Letter from National League of Cities (NLC), National Association of 
Counties (NACo), National Association of County Treasurers and Finance 
   Officers (NACTFO), U.S. Conferences of Mayors (USCM), Government 
    Finance Officers Association (GFOA), and Municipal Treasurers' 
                   Association (MTA), Dec. 21, 1995]

     Hon. Bob Dole,
     U.S. Senate, Washington, DC.
       Dear Senator Dole: On behalf of the state and local 
     government officials we represent, we urge you to vote to 
     sustain President Clinton's veto of the Private Securities 
     Litigation Reform Act of 1995 (H.R. 1058) and support 
     legislation in Congress that truly accomplishes the goal of 
     reducing frivolous litigation. Our organizations all support 
     ending frivolous lawsuits because as issuers of municipal 
     securities, we too may be sued, especially in light of the 
     new Securities and Exchange Commission requirement for 
     issuers to disclose annual financial information. On the 
     other hand, we also are major investors of public pension 
     funds and taxpayer monies who want to ensure that litigation 
     reform is balanced and does not harm investors. 
     Unfortunately, H.R. 1058 is a bill that is special interest 
     excess masquerading as reform and it makes a mockery of our 
     world-renowned system of investor protection. The over 1,000 
     letters from state and local government officials from all 
     over the country that have been sent to Congress in the last 
     few weeks attest to our deep conviction that this bill should 
     not become law.
       The following are the major concerns state and local 
     governments have with the bill and the major reasons we 
     supported a veto:
       Safe Harbor for Forward-Looking Statements--The safe-harbor 
     provision relating to forward-looking statements would allow 
     false predictions to be made as long as they are accompanied 
     by cautionary language. Municipal bond issuers take great 
     care to provide full and accurate disclosure related to their 
     finances and operations and cannot countenance a lesser 
     standard for corporate issuers under any circumstances. No 
     issuer, whether governmental or corporate, should be able to 
     mislead potential investors. In addition, these provisions 
     will be particularly harmful to state and local government 
     pension funds, which rely on corporate information to assist 
     in their investment decisions and would be denied recovery 
     under this section.
       Aiding and Abetting Liability--There is no language in the 
     bill making aiders and abettors liable for fraud. If aiders 
     and abettors of fraud are immune from civil liability, state 
     and local governments, as issuers of securities, would become 
     the ``deep pockets'' in a lawsuit and, as investors, we would 
     be limited in our ability to recover losses. Our confidence 
     in consultants who assist us in complex municipal bond 
     transactions and in investing public funds is diminished by 
     this bill because these consulting professionals have been 
     granted immunity from responsibility. It is not reasonable to 
     hold out the hope that this important issue can be dealt with 
     in a subsequent bill. It must be dealt with as part of this 
     reform effort or the opportunity will have been lost.
       Statute of Limitations--It is equally important that the 
     statute of limitations be extended. Otherwise, investors will 
     be harmed by wrongdoers who are able to conceal fraud beyond 
     the allowable period. Again, we do not believe this important 
     change will be given serious consideration in the future if 
     H.R. 1058 is passed in its present form.
       Loser-Pays Provision--Finally, under the bill, fraud 
     victims would face a potential ``loser-pays'' sanction and 
     possible bond posting requirement at the beginning of a case. 
     We are sure you are aware of the difficulty public officials 
     would have in justifying proceeding with an investor lawsuit 
     if there was also the risk that the injured government 
     investor would have to pay the legal fees of a Wall Street 
     investment banking firm, which is a defendant in a securities 
     lawsuit. To us, this is an unacceptable and unfair approach 
     to investor protection.
       We urge you to support the President on this important 
     issue. We are not asking you to support frivolous litigation. 
     To the contrary, we want you to support legislation that 
     stops the deplorable strike suits that are the target of 
     securities litigation reform. However, a new law can be 
     fashioned that deals with lawsuit abuses without jeopardizing 
     our most basic and essential investor protections. Our groups 
     pledge to work with the President and members of Congress so 
     that a new law can be fashioned that deals with these 
     concerns.
                                                                    ____

                                         North American Securities


                             Administrators Association, Inc.,

                                Washington, DC, December 20, 1995.
     Re securities litigation reform.

     All Members,
     U.S. Senate, Washington, DC.
       Dear Senator: I am writing today on behalf of the North 
     American Securities Administrators Association (NASAA) to 
     urge you to sustain President Clinton's veto of H.R. 1058, 
     the ``Securities Litigation Reform Act.'' In the U.S., NASAA 
     is the national organization of the 50 state securities 
     agencies.
       While everyone agrees on the need for constructive 
     improvement in the federal securities litigation process, the 
     reality is that the major provisions of H.R. 1058 go well 
     beyond curbing frivolous lawsuits and will work to shield 
     some of the most egregious wrongdoers from legitimate 
     lawsuits brought by defrauded investors.
       NASAA supports reform measures that achieve a balance 
     between protecting the rights of defrauded investors and 
     providing relief to honest companies and professionals who 
     may unfairly find themselves the target of frivolous 
     lawsuits. Unfortunately, H.R. 1058 does not achieve this 
     balance. NASAA's 

[[Page S19149]]
     concerns with H.R. 1058 go beyond those articulated by President 
     Clinton in his veto message. In sum, NASAA has the following 
     concerns with H.R. 1058;
       The bill fails to incorporate a meaningful statute of 
     limitations. This single omission means that all but the most 
     obvious frauds likely will be shielded from civil liability.
       The bill's safe harbor lowers the standard for assuring the 
     truthfulness of predictive statements about future 
     performance. While we believe that information flow to the 
     marketplace is a vital component of strong markets, we also 
     believe that we should take prudent and reasonable steps to 
     ensure that the information is reasonably reliable. However, 
     rather than assuring the reliability of the forward-looking 
     statement, the bill instead focuses on cautionary 
     statements. Indeed, these cautionary statements likely 
     will become the vaccine to immunize a host of intentional 
     wrongdoing.
       The bill fails to include aiding and abetting liability for 
     those who participate in fraudulent activity. Failure to 
     include such a provision makes recovery for investors 
     doubtful in cases where the principal defendant is bankrupt, 
     as was true in the notorious Keating/Lincoln Savings and Loan 
     case. The result is that professionals who assisted, and 
     perhaps could have prevented the fraud, would be virtually 
     unreachable in civil actions. Since the bill proposes a 
     proportionate liability system, rather than joint liability, 
     it makes sense to require aiders and abettors of securities 
     fraud to pay their fair share.
       A provision of the bill's proportionate liability section 
     is unworkable and disfavors older Americans. Under current 
     law, a successful plaintiff may recover judgment from one or 
     more of the defendants responsible. Under H.R. 1058, each 
     defendant will be liable only for his or her proportionate 
     share of the harm. Congress did make an exception in cases 
     where a plaintiff can prove that his or her net worth is less 
     than $200,000. This presents two problems. First, the 
     provision is entirely unworkable in a class action involving 
     hundreds of plaintiffs; because each plaintiff must meet the 
     net worth test, proving individual net worth for hundreds of 
     plaintiffs would not justify the effort for the meager 
     rewards provided for in the bill. Second, the provision 
     specifies that the value of a personal residence must be 
     included in the net worth calculation. This provision will 
     work against older Americans who usually have paid for their 
     homes, although their annual income may be relatively modest. 
     Consequently, if personal residence is not removed from the 
     net worth calculation, these seniors likely will be unable to 
     avail themselves of this provision, even though seniors as a 
     group are more devastated by fraud because many live on fixed 
     incomes and what little they get from investment of their 
     savings.
       NASAA's view from the outset has been that it is possible 
     to curb frivolous lawsuits without making it equally 
     difficult to pursue rightful claims against those who commit 
     securities fraud. NASAA respectfully urges you to sustain the 
     President's veto and to draft a balanced reform measure that 
     does not harm our system of saving for retirement and 
     preserves the rights of defrauded investors to bring suit 
     under federal securities law.
           Sincerely,
                                                  Mark J. Griffin,
                                            NASAA President-elect.


    Why Support the Securities Litigation Reform Conference Report?

  Mr. BRADLEY. Mr. President, when the Senate considered its version of 
securities litigation reform, I supported a number of amendments to it 
and eventually voted for the bill. I did so because it is my belief 
that that the bill stuck the best available balance between protecting 
investors from fraud perpetuated by unscrupulous issuers and shielding 
growing businesses seeking investment capital from frivolous and costly 
lawsuits.
  Currently, frivolous lawsuits act as a damper on economic growth--
imposing additional costs to growth and expansion that are both 
unwarranted and unnecessary. Lawyers can now tie up businesses in years 
of seemingly endless discovery and litigation--thus creating incentives 
for innocent issuers to settle rather than go through a protracted 
legal battle. There is little doubt that these suits impose a burden on 
the economy and should be stopped.
  At the same time, individual investors need to be able to rely on the 
information that they receive about potential products and they need to 
know that the legal system is there to protect them in the case of an 
unscrupulous issuer.
  As it has emerged from conference, the bill has been modified in a 
number of ways. Much attention has been directed to the pleading 
standard, the safe harbor, and the fee shifting provisions among other 
issues. The President identified these three area of concern in his 
veto message.
  I have carefully reviewed the conference report and weighed the 
arguments on both sides. My conclusion is that the conference report 
would, on balance, achieve the goals of I sought when I voted for the 
Senate-passed bill--stemming the tide of meritless litigation while at 
the same time putting in place certain pro-investor measures. How does 
the bill do this?
  First, it ensures that lawsuit must have merit by setting forth 
pleading standards which require that plaintiffs must have a basis for 
their case before they are allowed to proceed. Many times, a case is 
brought with little evidence and legal fishing expedition ensues 
through the defendant's files. In some cases, firms will settle the 
suit in order to save themselves the long-run costs associated with 
discovery and litigation of the case.
  Now much has been made of the exact specifications surrounding the 
pleading standard in the bill. A number of critics contend that it goes 
beyond the already stringent standards of the second circuit--and would 
have the effect of closing the courthouse door for many small 
plaintiffs. Ambiguities in the statement of managers have served only 
to heighten these criticisms. In fact, the language of the bill does 
codify the second circuit standard in part--and the statement of 
managers says so.
  But even within the second circuit, there are varying interpretations 
of the standard. That is why the conference report deliberately rejects 
a complete codification of the second circuit and adopts language which 
is substantially similar to the language in the Senate-passed bill and 
its report language. The major change, the substitution of the words 
``state with particularity'' for ``specifically allege,'' was made at 
the request of the Judicial Conference and therefore does not 
substantially modify the language as passed by the Senate.
  For investors, the bill would also ensure much greater accuracy in 
the statements made by issuers of debt and, at the same time, encourage 
them to disclose more fully, relevant information. The bill achieves 
this end by creating a workable safe harbor for so-called forward-
looking statements--i.e. predictions about the future of a particular 
security. In essence, issuers are required to accompany their 
predictions by ``meaningful cautionary'' language--language that should 
serve as ample warning to potential investors about the risks that the 
particular security may entail. This safe harbor has been endorsed by 
the chairman of the SEC.
  But the SEC has a further role to play to ensure the fairness of the 
safe harbor. Many critics contend that it will create a ``license to 
lie'' and lead to the duping of unwary investors by unscrupulous 
issuers. There is a strong need for the SEC to add content to the 
regulations written to interpret this bill. Specifically, it will need 
to set out in a clear, rigorous and responsible manner, the facts that 
should be included in forward-looking statements so that they are truly 
``meaningful and cautionary''. In addition, the Commission needs to 
make clear which part of the second circuit pleading standard is to be 
enforced and how. The SEC has a role in making this bill work, and its 
involvement in the process will be critical to achieving the goals the 
underlie the conference report.
  The bill also creates incentives against filing meritless litigation 
by bolstering the use of rule 11--which provides sanctions for filing 
frivolous lawsuits. Though it exists in current law, rule 11 is rarely 
used. The conference report requires a judge to make a finding as to 
whether rule 11 has been violated and then to impose sanctions subject 
to the discretion of the court. In addition, the report sets forth 
circumstances under which the sanctions under rule 11 could be 
mitigated.
  The bill also contains a number of other provisions designed to first 
reduce the pressure to settle frivolous claims by reforming the 
liability system, second, produce meaningful information about the 
fairness of a settlement by requiring accurate disclosure of settlement 
terms, and third make it easier for participants in a class action to 
understand how lawyers are being compensated and to challenge 
attorney's fees by reforming the way in which attorney's fees may be 
calculated in these suits.
  Finally, some critics have contended that the bill will truly mean 
that the small investor will not have access to the judicial system. I 
believe that this 

[[Page S19150]]
is not the case. I have already discussed may of the major issues of 
concern above. There is one additional area that gives me pause. The 
conference report includes a discretionary bonding requirement that was 
not in the Senate bill. Opponents claim that the possibility of 
requiring a bond is yet another impediment to small investor access to 
the judicial system. In fact, the bonding provision is at the 
discretion of the judge. Similar bonding options exist in other parts 
of the securities law and have not proven to be particularly 
burdensome. Of course, should the bonding provision prove unworkable or 
a true bar to the courthouse, it should be revisited, as should any 
other portion of this bill which becomes problematic. I certainly stand 
ready to reconsider this bill should it not achieve the goals which I 
have set out, but on balance I think its advantages outweigh its 
disadvantages.
  Mr. DOMENICI. Mr. President, there is an old gypsy curse that goes 
like this: May you be the innocent defendant in a frivolous law suit.
  It is a curse stopping companies from creating good, high paying 
jobs. It is the curse of our economy, of Silicon Valley, our high tech 
biotech and high-growth companies.
  Frivolous law suits are the curse of our capital markets.
  These companies have volitile stock prices. But stock volitility is 
not stock fraud, yet it is the basis for multimillion lawsuits that 
yield investors pennies on the dollars for their losses and millions 
for a handful of strike suit lawyers.
  This legislation had 182 cosponsors in the House and 51 cosponsors in 
the Senate. It is legislation that was cosponsored by a bipartisan 
group of Senators spanning the ideological spectrum--Senator Helms and 
Senator Mikulski.
  We had 12 days of hearings, hundreds of submissions. Countless 
meetings and negotiating sessions.
  The major reforms--the safe harbor and the proportionate liability 
provisions were not mentioned in the President's veto message. The SEC 
supports the current safe harbor and its principle concerns have been 
met regarding the rest of the bill.
  The President objected to the pleading standard. Yet it is the Second 
Circuit's pleading standard. It is written to the specifications of SEC 
Chairman Arthur Levitt.
  The only difference between the Senate Banking Committee pleading 
standard and the standard the administration endorsed in June is three 
words.
  The Senate Banking Committee provision provided that the complaint 
must specifically allege facts giving rise to a strong inference.
  The conference report states that the complaint must ``state with 
particularity fact . . .''
  There is no difference between these two statements of the law. The 
change was made at the request of the Judicial Conference.
  The President objected to rule 11 attorney sanctions.
  The sanctions provide greater protections to plaintiffs than 
defendants.
  First, a complaint must have substantially violated rule 11 before 
the attorneys' fees sanctions would be imposed on plaintiffs. 
Defendants can be sanctioned for mere violations of rule 11.
  Also, the bill gives courts discretion not to award fees in cases 
where an award would be unjust or would impose an unreasonable burden 
on a party. Providing extraordinary protection to plaintiffs litigating 
against corporate defendants.
  It is one of the only bipartisan attempts at enacting legislation 
this Congress.
  I ask unanimous consent that today's Washington Post editorial be 
printed in the Record as well as the letter from the National 
Association of Investors Corporation representing 360,000 investors 
calling for veto override. I also ask that a summary of the bill also 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

               [From the Washington Post, Dec. 22, 1995]

                   Override the Securities Bill Veto

       President Clinton was wrong to veto the securities bill. He 
     caved to the trial lawyers lobby, big contributors to the 
     Democratic Party, in a dark-of-night action. Congress should 
     override him. The House of Representatives voted the other 
     day to do just that, with 89 Democrats joining the 
     Republicans. Now it's up to the Senate.
       This bill would correct important flaws in the securities 
     laws that are being systematically exploited by lawyers in 
     ways that have nothing to do with fairness. When the price of 
     a company's stock drops sharply, the present law invites 
     suits on the questionable grounds that the company's past 
     expressions of hope for its future misled innocent 
     stockholders.
       This kind of suit has turned out to be a special danger to 
     new companies, particularly high-technology ventures with 
     volatile stock prices. The country has a strong interest in 
     encouraging these companies and shielding them from a style 
     of legal assault that is not far from extortion. The bill 
     would protect companies' forecasts as long as they did not 
     omit significant facts.
       Under present law, the first lawyer to file one of these 
     strike suits controls the litigation regardless of who else 
     might sue on the same grounds later. Frequently the lawyers 
     who specialize in this work settle their suits on terms that 
     bring trivial benefits to the shareholders but fat fees to 
     the lawyers themselves. The bill that Mr. Clinton vetoed 
     would instead give the judge the authority to pick the lead 
     plaintiff--usually the plaintiff with the biggest stake in 
     the outcome. Plaintiffs would then choose their own lawyers 
     and make their own decisions on whether and how to settle. 
     That is clearly a desirable reform and a major improvement in 
     shareholders' rights.
       Mr. Clinton vetoed the bill because, he said, it would make 
     too many difficulties for shareholders with legitimate 
     grievances. There bill has been under intense debate and 
     negotiation between the two parties for nearly a year, and if 
     these defects are as significant as the president suggests, 
     it's strange that the administration did not make an issue of 
     them earlier.
       More broadly, Mr. Clinton speaks of future injustices that 
     he believes this bill might create but has little to say 
     about the real and substantial injustices that the present 
     law is creating. Overriding his veto will end an egregious 
     misuse of securities laws in ways that harm both companies 
     and shareholders.
                                                                    ____

                                           National Association of


                                              Investors Corp.,

                                 Royal Oak, MI, December 21, 1995.
     Hon. Christopher Dodd,
     U.S. Senate, Dirksen Senate Office Building,
     Washington, DC.
       Dear Senator Dodd: On behalf of the more than 360,000 
     individual members and 18,000 investment clubs belonging to 
     the National Association of Investors Corporation, I am 
     writing to commend your efforts to override the misguided 
     presidential veto of H.R. 1058, the Securities Litigation 
     Reform Bill of 1995. Founded in 1951, NAIC is by far the 
     largest membership organization of investors in the United 
     States.
       H.R. 1058 is an investor protection bill. It strengthens 
     the government's tools for fighting corporate securities 
     fraud, while it imposes long-awaited curbs on ``strike 
     suits''--fraudulent lawsuits that cheat investors while 
     pretending to help them. We urge you to work your hardest to 
     override the veto and give investors relief from meritless 
     litigation.
           Sincerely,
                                                 Kenneth S. Janke,
     President & CEO.
                                                                    ____


 Selected Bill Provisions of the Conference Report to H.R. 1058/S. 240

       The federal securities laws provide a comprehensive legal 
     framework designed to protect investors in the securities 
     markets, to provide ground rules for companies seeking to 
     raise money in our capital markets and to encourage 
     disclosure of more, and accurate information about publicly 
     traded companies. This bill updates our securities laws to 
     better achieve these objectives in a balanced way. It 
     restores integrity to securities class action litigation by 
     filtering out abusive, frivolous class action lawsuits that 
     harm investors and only benefit class action attorneys.
       Adequate plaintiff standard.--Same as Senate-passed bill, 
     with minor technical changes.
       The objective: To provide a mechanism for ``plaintiff 
     empowerment.'' To diminish the likelihood that these cases 
     will be class action attorney-driven in the future. To allow 
     real clients with real financial interests to be 
     appropriately in charge of the lawsuit. To restore to real 
     clients traditional control over their entrepreneurial 
     counsel.
       Under the private rights of action provisions of our 
     securities laws, investors may sue to recover damages they 
     incur as a result of the actions of corporations and other 
     firms who violate the federal securities laws. These private 
     lawsuits should serve a dual role. First, they should provide 
     a means for investors to obtain recovery for damages caused 
     by fraudulent activity. Second, they should serve as an 
     important adjunct to the SEC's enforcement efforts.
       Class actions should protect the public and compensate the 
     injured. Increasingly, however, private securities class 
     action litigation has become dominated by entrepreneurial 
     attorneys who decide which companies to sue, when to sue and 
     when and for how much to settle. Investors play an 
     insignificant role in these multi-million dollar lawsuits. 
     The situation is best illustrated by one prominent securities 
     class action lawyer declaring: ``I have the best practice of 
     law in the world: 

[[Page S19151]]
     I have no clients.'' This provision reasserts plaintiffs' role by: 
     allowing any party who receives notice of the suit to come 
     forward within 60 days of the filing of the suit to petition 
     the court to act as lead plaintiff; creating a presumption 
     that the ``most adequate plaintiff'' is the party with the 
     greatest financial interest in the outcome of the litigation; 
     allowing the ``most adequate plaintiff'' to exercise 
     traditional plaintiff functions, including selecting lead 
     counsel and negotiating counsel's fees; allowing ``most 
     adequate plaintiff'' to make decisions regarding settlements; 
     replacing the ``plaintiff steering committee'' and ``guardian 
     ad litem'' provisions in the original S. 240.
       Second circuit pleading standard becomes the uniform 
     rule.--Same as Senate-passed bill; Senator Specter's 
     amendment deleted from conference report.
       The objective: To provide a filter at the earliest stage 
     (the pleading stage) to screen out lawsuits that have no 
     factual basis. To provide a clearer statement of plaintiffs' 
     claims and scope of the case. To encourage attorneys to use 
     greater care in drafting their complaints. To make it easier 
     for innocent defendants to get cases against them dismissed 
     early in the process. To eliminate the split among circuits 
     dealing with pleading requirements for scienter. To codify 
     the requirements in the 2nd Circuit.
       A complaint should outline the facts supporting the 
     lawsuit. Too often, complaints consist of boilerplate 
     legalese and conclusions. An alleged Rule 10(b) or 10b-5 
     violation is a very serious charge. Asserting simply that 
     ``the defendant acted with intent to defraud'' is a 
     conclusion that should be insufficient to start a multi-
     million dollar lawsuit. Under the Conference Agreement, the 
     complaint must set forth the facts supporting each of the 
     alleged misstatements or omissions and must include facts 
     that give rise to a ``strong inference'' of scienter or 
     intent. If the complaint does not meet these requirements, 
     the lawsuit will be terminated. This is a codification of the 
     2nd Circuit rule.
       Too often, securities class action suits are characterized 
     by the ``sue them all and let the judge sort it out'' 
     mentality. But before the judge can sort it out, innocent 
     defendants are required to spend a great deal of time and 
     money to defend against specious claims. This bill corrects 
     that problem by requiring plaintiffs to specify the 
     statements alleged to have been misleading. This conforms 
     securities actions with Rule 9(b) of the Federal Rules of 
     Civil Procedure.
       Safe harbor for predictive statements.--New provision; 
     Changes address concerns raised by the SEC and during the 
     floor debate.
       The objective: To encourage disclosure of information by 
     companies. To provide a procedural mechanism for responsibly-
     acting companies who make predictive statements to be 
     protected from frivolous litigation if their prediction does 
     not materialize. To provide judges with additional procedural 
     tools to deal with frivolous cases involving predictive 
     statements.
       A central principle underlying our securities laws is that 
     investors should receive accurate and timely information 
     about publicly traded companies. By its definition, a 
     forward-looking statement is a prediction about the future. 
     Earnings projections, growth rate projections, dividend 
     projections, and expected order rates are examples of 
     forward-looking statements.
       Forward-looking information is of significant value to 
     investors in making informed investment decisions. It is this 
     forward-looking information that allows efficient allocation 
     of resources, ensuring that the market prices of publicly 
     traded securities best reflect their intrinsic value. The SEC 
     Rule 175 permits issuers to make forward looking statements 
     about certain categories of information provided that the 
     prediction is made in ``good faith'' with a ``reasonable 
     basis.'' Currently, this SEC ``safe harbor'' rule actually 
     discourages issuers from voluntary disclosing this 
     information. To quote the SEC:
       ``Some have suggested that companies that makes voluntary 
     disclosure of forward-looking information subject themselves 
     to a significantly increased risk of securities antifraud 
     class actions.'' As such, ``contrary to the Commission's 
     original intent, the safe harbor is currently invoked on a 
     very limited basis in the litigation context.'' Critics state 
     that the safe harbor is ineffective in ensuring quick and 
     inexpensive dismissal of frivolous private lawsuits.'' (SEC 
     Securities Act of 1993 Release No. 7101, October 1994)
       An American Stock Exchange survey supports that conclusion. 
     It found that 75 percent of corporate CEOs limit the 
     information disclosed to investors out of fear that greater 
     disclosure would lead to an abusive lawsuit.
       As the SEC has realized, forward-looking statements are 
     predictions--not promises. This Conference Report creates a 
     statutory ``safe harbor'' which:
       Provides a clear definition of ``forward looking 
     statement'' for both the `33 and `34 Acts.
       Permits greater flexibity by creating a bifurcated safe 
     harbor.
       The safe harbor's first prong expands upon the judicially 
     created ``bespeaks caution'' doctrine. This safe harbor:
       1. Protects a written or oral statement that is identified 
     as forward-looking.
       2. Requires that the predictive statement contain a 
     meaningful cautionary statement which identifies business 
     factors describing why the prediction may not come true.
       3. Focuses on the statement and how it was made.
       4. Does not allow an inquiry into the state of mind of the 
     speaker.
       The safe harbor's second prong provides an alternative 
     analysis if the statement is not made in a way consistent 
     with the warning requirements of the bespeaks caution test. 
     This prong:
       1. Applies to written and oral statements.
       2. Focuses on the speaker's state of mind.
       3. Protects companies from liability unless the prediction 
     was made with actual knowledge that it was false.
       4. Protects companies from liability unless the prediction 
     was made or ratified by an executive officer with actual 
     knowledge that it was false.
       5. Gives no safe harbor protection for ``knowingly false or 
     misleading'' statements. This addresses Senator Sarbanes 
     concern that the safe harbor would permit corporate 
     executives to mislead investors. There is no so-called 
     ``license to lie''.
       The Conference Report also creates a new safe harbor for 
     oral statements which requires that the oral statement warn 
     listeners that the statement is a prediction, that the 
     prediction may not come true, and tell investors where they 
     can find additional information about the prediction in SEC 
     filings or press releases.
       Both safe harbors protect statements made by issuers, 
     persons acting on their behalf such as officers, directors, 
     employees, outside reviewers retained by the issuer and 
     underwriters with respect to information they receive from 
     issuers. Accounting and law firms are eligible for the safe 
     harbor, brokers and dealers are not.
       The safe harbor provides no protection for certain 
     transactions and parties, like initial public offerings 
     (IPOs), penny stocks, roll-up transactions, going private 
     transactions, tender offers, partnerships, limited liability 
     corporations or direct participation investments and issuers 
     who have violated the securities laws. Also, the safe harbor 
     does not protect forward-looking statements included in 
     financial statements.
       Conference report drops the provision authorizing the SEC 
     to sue for damages on behalf of investors in predictive 
     statement cases. (Senate-passed bill provision).
       Encourages SEC to review the need for additional safe 
     harbors.
       Litigation cost containment provisions--Discovery Stay.--
     Same as Senate-passed bill.
       The objective: To limit the in terrorem nature of defending 
     a frivolous class action securities lawsuit. To require the 
     judge to determine whether the case has any merit prior to 
     subjecting the defendants to the time and expense of turning 
     over the company's records. To provide for a ``stay of 
     discovery'' pending a motion to dismiss. This ``stay'' 
     provides the defendants with the opportunity to have a motion 
     for a dismissal considered prior to the plaintiffs' lawyers 
     beginning ``discovery.'' This discovery usually consists of 
     requests for voluminous documents and time consuming 
     depositions of company CEOs and other key employees.
       A typical tactic of plaintiff lawyers is to request an 
     extensive list of documents and to schedule an ambitious 
     agenda of depositions that often distract the company CEO and 
     other key officers and directors. Discovery costs comprise 
     eighty percent of the expense of defending a securities class 
     action lawsuit. To minimize the in terroem impact of the 
     frivolous cases, the Conference Report:
       Requires the court to suspend discovery during the pendency 
     of any motion to dismiss unless discovery is needed to 
     preserve evidence or prevent undue prejudice. A stay of 
     discovery puts such requests for documents and deposition 
     schedules on hold until the judge rules on whether the case 
     should be kicked out of court.
       Prohibits parties in securities fraud cases to destroy or 
     alter documents.
       Attorney sanctions for filing frivolous securities fraud 
     suits--enhanced rule 11.--Same as Senate-passed bill, with 
     technical changes.
       The objective: To deter plaintiffs' attorneys from filing 
     meritless securities class actions. To make attorneys, not 
     investors, bear responsibility of filing frivolous cases. To 
     require judges to review the conduct of attorneys and to 
     discipline those who file frivolous law suits and abuse our 
     judicial system. To encourage attorneys to use greater care 
     in drafting complaints and create a speed bump to slow the 
     ``race to the courthouse.''
       Frivolous securities suits filed with little or no research 
     into their merits can cost companies hundreds of thousands of 
     dollars in legal fees and company time. According to a sample 
     of cases provided by the National Association of Securities 
     and Commercial Law Attorneys (NASCAT), 21 percent of the 
     class action securities cases were filed within 48 hours of a 
     triggering event such as a missed earnings projection 
     announcement.
       Innocent companies pay millions of dollars defending these 
     frivolous cases. Even when firms are exonerated they have 
     large defense attorney's bills to pay. Our current system is 
     a ``winner pays'' system.
       Attorneys should be required to exercise due diligence 
     before they file these expensive lawsuits and they should be 
     sanctioned if they fail to exercise proper care. Accordingly, 
     this Conference Agreement:
       Requires the judge, upon final disposition of the case, to 
     make specific findings regarding whether the complaint, 
     responsive pleadings and dispositive motions complied with 
     the requirements of Rule 11(b) of the Federal 

[[Page S19152]]
     Rules of Civil Procedures. Rule 11 provides sanctions for filing 
     frivolous lawsuits. (This differs from the Senate-passed 
     bill, which required judges to review the entire record; 
     judges felt that this was too burdensome given the voluminous 
     record in these class actions.)
       Requires the judge to discipline lawyers if the judge finds 
     that the lawyer violated the rule. Under the Conference 
     Agreement, the judge would require an offending attorney to 
     pay the reasonable attorneys' fees and costs of the innocent 
     party as the punishment for filing a frivolous lawsuit. This 
     is a rebuttable presumption.
       A party may rebut the presumption with proof that the award 
     of fees and costs will impose an undue burden on the 
     violator, provided that the failure to impose fees and costs 
     does not impose a greater burden on the victim of the 
     violation. Also, may rebut the presumption with proof that 
     the Rule 11 violation was de minimis.
       Does not create a ``loser pays'' rule. It merely adds teeth 
     to existing Rule 11.
       Attorney fee reform: Limits the use of the lodestar method 
     of calculating attorneys' fees, and replaces it with a more 
     easily understood disclosure of attorneys' fees.--Same as 
     Senate-passed bill.
       The objective: To closer align the interests of the 
     plaintiffs with their entrepreneurial lawyers. To make it 
     easier for the class to understand how the lawyers are being 
     compensated and to challenge attorneys' fees. To ensure that 
     attorneys' fees do not unnecessarily conflict with the 
     interests of the plaintiffs.
       Plaintiffs' attorneys fees are often calculate by the 
     ``lodestar method.'' Under this calculation, a lodestar 
     amount is determined by multiplying the attorney's hours 
     worked by a reasonable hourly fee, adjusted by a multiplier 
     to reflect the risk of litigation and other factors. It 
     encourages abuses, (like performance of unjustified work), 
     which protracts the litigation. From the judiciary's point of 
     view, lodestar adds inefficiency to the process. From the 
     investors' point of view, it is difficult to figure out what 
     the lawyer did and how much they are getting paid for doing 
     it.
       This Conference Report limits attorney's fees in a class 
     action to an easy to understand percentage of the amount 
     actually recovered as a result of the attorney's efforts--
     rather than allowing attorneys to recover their fees without 
     regard to how well the class does. This gives lawyers an 
     incentive to get higher recoveries for investors, not just 
     bill more hours. This is extremely important in ensuring that 
     the attorneys' incentives coincide with those of the class. 
     This bill also provides the class members with the 
     information they need to make an informed judgment on 
     attorneys' fees and settlement offers. The provision provides 
     better disclosure to the injured parties so they can 
     determined whether they may want to challenge their 
     attorneys' claim to the settlement fund.
       Disclosure of settlement terms.--Same as Senate-passed 
     bill.
       The objective: to replace meaningless legalese and 
     boilerplate conclusions with meaningful information about the 
     per share amount a proposed settlement would provide. To 
     provide information about the fairness of the settlement and 
     an evaluation of whether more could be obtained if the case 
     went to trial.
       The Conference Agreement would provide class members with 
     information about the proposed settlement, including the 
     total amount of the settlement, and the total amount of 
     attorneys' fees sought from the settlement fund. If the 
     parties cannot agree upon the amount of damages which would 
     be recoverable, the disclosure of the settlement offer must 
     state the reasons why the parties disagree.
       Proportionate liability.--Same as Senate-passed bill, with 
     technical changes.
       The objective: To reduce the pressure to settle frivolous 
     claims. To provide a two-tier liability system which retains 
     joint and several liability for those participants who 
     ``knowingly'' engage in a fraudulent scheme and proportionate 
     liability for those participants who are only incidentally 
     involved (those who are ``less than knowing in their 
     conduct.'')
       The Conference Agreement ensures that those primarily 
     responsible for the plaintiffs' loss bear the primary burden 
     in making the plaintiffs whole. Under current law, co-
     defendants each have ``joint and several'' liability for 100 
     percent of the damages--irrespective of their role in a 
     fraudulent scheme. This has caused ``deep pockets'' such as 
     law firms, accounting firms, and securities firms to be named 
     as defendants merely to extract a settlement from them.
       The Conference Report requires that each co-defendant pay 
     for his share of the damages caused. Provisions protect 
     investors in the event a co-defendant is insolvent. The 
     National Association of Securities and Commercial Law 
     Attorneys (NASCAT) submission suggested that of the 66 cases 
     they provided us with information on, 25 percent had an 
     insolvent co-defendant. The bill contains provisions to 
     ensure that investors are compensated in cases where there is 
     an insolvent co-defendant. Specifically, the Conference 
     Report--
       Requires the courts to determine who has committed a 
     ``knowing securities violation'', and holds them jointly and 
     severally liable for the plaintiff's damages. All others are 
     held proportionately liable.
       Protects plaintiffs from insolvent co-defendants. Provides 
     that when plaintiffs are unable to collect a portion of their 
     damages from an invovlent co-defendant, the proportionately 
     liable defendants would chip in additional funds. 
     Proportionally liable co-defandants could be required to pay 
     up to 150% of their share of the damages.
       Provides special protection for small investors by holdings 
     all defendants jointly and severally liable for the 
     uncollectible shares of insolvent co-defendants for certain 
     plaintiffs whose damages are more than 10% of their net 
     worth, and if their net worth is less than $200,000.
       Contribution reform.--Same as Senate-passed bill, with 
     minor change involving indemnification agreements.
       The objective: To provide uniformity among the circuits. To 
     ensure that defendants are not unfairly required to pay more 
     than their fair share of damages.
       If a plaintiff is unable to recover damages from a 
     defendant, the Conference Report requires the remaining 
     defendants to make up at least a portion of that difference. 
     Those co-defendants may then recover contributions from any 
     other person who would have been liable for the same damages. 
     Contribution claims will be based upon the percentage of 
     responsibility of the claimant and the parties against whom 
     contribution is sought. Further, the Conference Report:
       Encourages settlement by discharging from liability any 
     defendant who enters into a good faith settlement with the 
     plaintiff before a verdict or judgment.
       Allows parties to take advantage of indemnification 
     agreements with issuers and recover fees and costs associated 
     with the action as long as the defendant prevails at trial.
       Fraud detection and disclosure.--Same as Senate-passed 
     bill.
       The objective: To exposure fraud before investors lose 
     money.
       The Conference Agreement establishes a clear and immediate 
     duty on the part of auditors to inform company management of 
     any material illegal acts they uncover in their audit. If the 
     auditors fail to take appropriate action promptly they are 
     subject to a civil penalty.
       This is a Kerry-Wyden bill and the conferees believe it 
     belongs in the package or reforms. It is very important for 
     the accounting profession to be vigilant in their public 
     watchdog role.
       Other provisions retained in the conference agreement.--
     Same as Senate-passed bill, except for minor change to RICO 
     provision.
       Makes sure all shareholders are treated equally by greatly 
     restricting lawyers' ability to negotiate bonus payments for 
     their ``pet plaintiffs'' or ``professional plaintiffs'' who 
     let the lawyers use their names to file lawsuits.
       Prohibits brokers and dealers from receiving referral fees 
     for giving names of clients to class action attorneys.
       Requires a court to determine whether an attorney who own 
     stock in the company he is suing constitutes a conflict of 
     interest that should disqualify him from action as counsel.
       Prohibits the payment of SEC disgorgement funds to 
     plaintiffs' lawyers.
       Prohibits keeping settlement terms a secret by greatly 
     limiting the use of settlements under seal.
       Eliminates private actions for securities fraud under the 
     ``civil RICO'' (the Racketeer Influenced and Corrupt 
     Organization Act), except against those previously criminally 
     convicted of securities fraud. (this is the minor change).
       Requires the court to submit to the jury a written 
     interrogatory (question) on the issue of each defendant's 
     state of mind at the time of the alleged violation to make it 
     less likely that individuals only accidentally involved in 
     the scheme are held liable.

  Mr. DOLE. Mr. President, I was very surprised and disappointed 
yesterday when I heard that President Clinton had vetoed the Private 
Securities Litigation Reform Act of 1995. Two weeks ago the Senate 
passed this bill by a bipartisan vote of 65 to 30 and until 30 minutes 
before the deadline Tuesday night, President Clinton indicated that he 
would support this bill.
  As I pointed out when the Senate was debating the conference report 
to this bill, President Clinton had a clear choice. If he supported 
this bill, he supported creating jobs for Americans by reducing 
frivolous, costly lawsuits on businesses. If he opposed it, he only 
supported enriching the pockets of wealthy trial lawyers at the expense 
of consumers and investors. It's too bad he chose the latter.
  President Clinton talks a lot about being concerned about middle-
class Americans. It is my understanding that he invited some wealthy 
trial lawyers over for dinner the other night to thank them for a 
million dollar contribution. It's unfortunate that he decided to come 
down on their side, instead of the side of ordinary working Americans 
and small investors.
  These wealthy trial lawyers 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 settle 
quickly in order to avoid the expense of drawn-out litigation. 

[[Page S19153]]

  Of course, 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.
  The high-tech, high-growth companies of Silicon Valley, CA are 
particularly vulnerable to these fraudulent and abusive lawsuits 
because of the volatility of their stock prices. Over 50 percent of the 
top 100 businesses in Silicon Valley have been sued at least once. And 
the $500 million in so-called damages, the majority of which goes to 
the wealthy trial lawyers, is money that could have been used to create 
jobs and pay higher salaries to the working-class in the high-tech 
industry.
  Mr. President, the Senate has been working for years in a bipartisan 
manner to pass legislation on this issue. Yesterday, the House, in an 
overwhelmingly bipartisan fashion, voted 319 to 100 to override 
President Clinton's veto. This is a good and fair bill, and I urge my 
colleagues on both sides of the aisle to do likewise and support it.
  The PRESIDING OFFICER. Who yields time?
  Mr. D'AMATO. Mr. President, I yield 5 minutes to Senator Dodd.
  Mr. DODD. Mr. President, I thank my colleague from New York. Let me 
start where I did yesterday, Mr. President. It is no great pleasure 
that I stand here this morning urging my colleagues to override 
President Clinton's veto of this bill. This is not something that I 
sought or welcome at all. I regret that it has come to this, 
particularly since about 98 percent of this legislation the President 
endorsed. It is on about 2 percent, on technical points, over 11 
words--there are 12,000 words, roughly, in this legislation, and 11 
words out of the 12,000, we were informed after all the negotiations, 
would be a problem.
  Therefore, I regret deeply that we are in this situation, after 4 
years, 12 congressional hearings, over 100 witnesses, 5,000 pages of 
testimony, and committee reports, and truly a bipartisan effort, going 
back to 1991. It has come down to a pleading standards disappointment 
and a disagreement over rule 11. Consider all of the other things that 
have been accomplished with this legislation dealing with proportionate 
liability and safe harbor, the lead plaintiff issues--they were all 
major, major efforts that involved a tremendous amount of work.
  I will point out, as my colleague from New York has, this morning's 
lead editorial in the Washington Post. I ask unanimous consent that it 
be printed at this point in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

               [From the Washington Post, Dec. 22, 1995]

                   Override the Securities Bill Veto

       President Clinton was wrong to veto the securities bill. He 
     caved to the trial lawyers' lobby, big contributors to the 
     Democratic Party, in a dark-of-night action. Congress should 
     override him. The House of Representatives voted the other 
     day to do just that, with 89 Democrats joining the 
     Republicans. Now it's up to the Senate.
       This bill would correct important flaws in the securities 
     laws that are being systematically exploited by lawyers in 
     ways that have nothing to do with fairness. When the price of 
     a company's stock drops sharply, the present law invites 
     suits on the questionable grounds that the company's past 
     expressions of hope for its future misled innocent 
     stockholders.
       This kind of suit has turned out to be a special danger to 
     new companies, particularly high-technology ventures with 
     volatile stock prices. The country has a strong interest in 
     encouraging these companies and shielding them from a style 
     of legal assault that is not far from extortion. The bill 
     would protect companies' forecasts as long as they did not 
     omit significant facts.
       Under present law, the first lawyer to file one of these 
     strike suits controls the litigation regardless of who else 
     might sue on the same grounds later. Frequently the lawyers 
     who specialize in this work settle their suits on terms that 
     bring trivial benefits to the shareholders but fat fees to 
     the lawyers themselves. The bill that Mr. Clinton vetoed 
     would instead give the judge the authority to pick the lead 
     plaintiff--usually the plaintiff with the biggest stake in 
     the outcome. Plaintiffs would then choose their own lawyers 
     and make their own decisions on whether and how to settle. 
     That is clearly a desirable reform and a major improvement in 
     shareholders' rights.
       Mr. Clinton vetoed the bill because, he said, it would make 
     too many difficulties for shareholders with legitimate 
     grievances. There are two things to be said about that. This 
     bill has been under intense debate and negotiation between 
     the two parties for nearly a year, and if these defects are 
     as significant as the president suggests, it's strange that 
     the administration did not make an issue of them earlier.
       More broadly, Mr. Clinton speaks of future injustices that 
     he believes this bill might create but has little to say 
     about the real and substantial injustices that the present 
     law is creating. Overriding his veto will end an egregious 
     misuse of securities laws in ways that harm both companies 
     and shareholders.

  Mr. DODD. Mr. President, just reading the last paragraph:

       More broadly, Mr. Clinton speaks of future injustices that 
     he believes the bill might create but has little to say about 
     the real and substantial injustices that present law is 
     creating. Overriding his veto will end an egregious misuse of 
     securities laws in ways that harm both companies and 
     shareholders.

  That is the thrust of all of this. The present system is fatally 
flawed and broken. It is costing billions of dollars each year to 
maintain the present system. That we all know.
  As I said yesterday, if in the pleading standards--which we adopted, 
by the way, and the administration last June endorsed the language in 
the bill, calling them sensible and workable--we adopted the language 
as recommended by the Judicial Conference, not proponents or opponents 
of the legislation, but the Judicial Conference, who represents the 
Federal judiciary, the judges in this country. They recommended the 
language we included in the bill.
  Therefore, I am mystified why one would object to the language that 
the judges who sit and preside over these matters have recommended. 
Rule 11 is a very simple matter. Rule 11 exists in order to penalize 
the attorneys who bring frivolous lawsuits. We put some teeth in it. If 
you bring a frivolous lawsuit and you cause a defendant tremendous 
economic harm through attorney's fees, as we saw in one case where a 
$15,000 contract that one company entered into cost them $7 million in 
legal fees, that the case was thrown out of court. The people who pay 
that $7 million are usually not the chief executive officers of those 
companies, but the employees, shareholders, investors, and others who 
bear the financial burden. It is estimated that some $32 billion each 
year is put in play as a result of these strike suits. We hoped that we 
would be able to have a Presidential signature confirming the 
bipartisan effort in this area.
  Mr. President, it is with a deep sense of regret that I am on the 
opposite side of my President on this issue. But I believe that the 
override is the proper course to follow here. For those reasons, I urge 
my colleagues to continue to support this legislation, as many have 
over the last 4 years, in committee votes, votes here on the floor of 
the U.S. Senate and, of course, in the conference report, as well, that 
has come back from the House and the Senate after the negotiations.
  This is a very important issue, Mr. President. It sends a very 
important signal. We have these new startup, high-technology companies 
that represent, I think, the future of employment for this country for 
the 21st century. These companies where a stock fluctuates a few points 
and there is complaint filed against them, covering millions of dollars 
in settlement fees, is something that ought to be changed.

  We have put together a good, strong bill that I think addresses the 
major concerns that people raised over the years about this issue. I am 
pleased so many of my colleagues--almost 70 of them here, as well as in 
excess of 300 in the House--have supported this effort. I regret, 
again, that the President decided to veto the legislation. We can 
correct that this morning by overriding this veto, adopting this 
legislation, and getting about the other business of this body.
  Mr. President, I withhold the remainder of my time.
  Mr. SARBANES. I yield the remainder of our time to the distinguished 
Senator from Nevada.
  Mr. BRYAN. I thank the distinguished Senator from Maryland.
  Mr. President, this vote is on an important piece of legislation, but 
it also 

[[Page S19154]]
sends a message about what this Congress is all about and what its 
Members stand for. First, I would like to compliment the proponents of 
this legislation. They have done an artful and a masterful job in 
framing the issue in the context of the lawyers, and this is lawyer 
bashing. No one loves lawyers, and no would fails to acknowledge that 
there is clearly some abuse on the part of some lawyers, but if we 
listen to the arguments the proponents have advanced this morning, you 
would think that a relatively small group of lawyers, who specialize in 
representing consumers and small investors in class actions, who have 
been swindled as a result of investor fraud, would be responsible for 
all of the ills that confront modern civilization, from the Federal 
deficit that we wrestle with today, to the spread of communism in the 
1950's, 1960's, 1970's, and 1980's.
  At the same time, the proponents of this legislation have obscured 
the fact that troubles me most, and that is that this legislation will 
affect a lot of innocent people who have lost money as a result of 
investor fraud.
  Somehow, the voices of seniors and consumers, small investors, 
firefighters, policemen, attorneys general, mayors and securities 
regulators, State treasurers, local government treasurers, treasurers 
involved with universities and colleges, somehow their concerns which 
have been advanced and articulated have been ignored.
  If I impart nothing else to my colleagues today, I would like 
everyone who is listening to this debate to know that this bill will, 
in fact, adversely affect meritorious lawsuits and small investors who 
find it much more difficult to recover their savings. There is no doubt 
that this bill will address frivolous lawsuits. But that could have 
been done, Mr. President--nobody disagrees with the need to correct 
those abuses. We could have crafted a narrow piece of legislation that 
would have addressed that issue and yet, at the same time, protected 
small investors.
  What will the impact be of precluding countless meritorious suits 
being filed? Nobody knows, but it is safe to say crooks will be 
emboldened, investor confidence in our markets will go down, and 
defrauded investors will not be compensated. The integrity of America's 
security markets, the envy of the world, will suffer as a consequence.
  As some indication as to how overreaching this piece of legislation 
is, how one-sided it is, can anyone tell me what the logic is to say if 
a plaintiff's lawyer files a frivolous motion the attorney pays the 
cost of the entire lawsuit, but if a defense lawyer files a frivolous 
motion, he or she pays only the cost of that motion? It seems to me 
what is sauce for the goose is sauce for the gander. There ought to be 
equal sanctions both as to plaintiff's lawyers and defendant's lawyers 
who act in an irresponsible, frivolous fashion.
  I have yet to hear an argument advanced on the floor as to why we do 
not extend the statute of limitations as has been requested. Why should 
a crook who disguises his fraud for 3 years be able to avoid the class 
action penalty? I know of no reason why we should not correct a 
situation which currently exists that those who aid and abet fraud 
currently face no liability. What is the logic of that? What does that 
have to do with frivolous lawsuits?
  That, Mr. President, is why I am so deeply troubled by the message 
that we send today. President Clinton has said he is prepared to sign a 
good bill. Senator Sarbanes, Senator Boxer, and others who have taken 
the floor to express concerns, we are prepared to support legislation 
that deals with frivolous lawsuits. But what we have is a piece of 
legislation that moves to the floor and apparently will now move to be 
enacted that is not designed solely for frivolous lawsuits but goes 
much further.
  What happens if the President's veto is sustained? The sponsors can 
come back with a bill that fixes the excesses.
  We are going to have securities litigation reform legislation this 
Congress. President Clinton has said he is prepared to sign a good 
bill, and there is unanimity that measures to curb abuses should be 
enacted.
  What we are in disagreement over is will we enact balanced, 
reasonable reforms or will we go overboard in our zeal.
  What message are we sending by overrriding the President's veto 
today? We are saying forget about balance, forget about reasonableness. 
If you got the votes to crush small investors and consumers, go for it.
  I can honestly say this bill is the most one-sided, anticonsumer bill 
I have seen.
  This will be a sad day if we fail to sustain the President's veto. I 
urge my colleagues to vote ``no'' on this override and let us come back 
and send the President a balanced bill.
  Mr. D'AMATO. Mr. President, I think we have said everything that has 
to be said. I know we want to commence voting at 11:15, so I yield 
back. Unless any of my colleagues on the other side want to use the 
balance of the time, I yield back our time so we can take up the other 
matter.

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