[Congressional Record Volume 143, Number 68 (Wednesday, May 21, 1997)]
[Extensions of Remarks]
[Page E1007]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          SECURITIES LITIGATION UNIFORM STANDARDS ACT OF 1997

                                 ______
                                 

                           HON. ANNA G. ESHOO

                             of california

                    in the house of representatives

                        Wednesday, May 21, 1997

  Ms. ESHOO. Mr. Speaker, I rise today to introduce the Securities 
Litigation Uniform Standards Act of 1997. This bipartisan bill will 
finally guarantee a single set of standards for securities litigation 
for nationally traded securities.
  This legislation, introduced with Representative Rick White, is a 
narrowly focused bill that will address a specific problem created by a 
loophole in the 1995 Securities Litigation Reform Act. It does not in 
any way seek to limit the ability of States to enforce its laws. The 
bill is strictly limited to nationally traded securities traded on the 
American Stock Exchange, the New York Stock Exchange and NASDAQ.
  The legislation clarifies that nationally traded securities, whose 
regulation is a primary responsibility of the Federal Government, will 
be subject to Federal securities law, as amended by the 1995 Securities 
Litigation Reform Act. Among the major reforms instituted by that law 
were a safe harbor provision that protected forward looking statements, 
the creation of a single pleading standard that required plaintiffs 
present some evidence of securities fraud, and a stay of discovery when 
a motion to dismiss is pending. Unless these important reforms are 
applied across the board, they are meaningless.
  The need for these reforms was clear. Without an enforceable safe 
harbor provision, companies would continue to fear releasing any 
forward looking statements that could be grounds for a meritless suit. 
Without a single standard for pleading, there could be a different 
requirement, or no requirement, for a plaintiff presenting evidence of 
grounds for fraud. Finally, without a stay of discovery, companies 
could be forced to settle out of court to avoid huge legal fees.
  Unfortunately, in the last year, we have seen these reforms 
undermined by a shift to State courts where safe harbor, uniform 
pleading standards, and stay of discovery do not apply. Two studies, 
one done by the Securities and Exchange Commission and one by two 
Stanford professors, have indicated a significant move to file 
securities class action in State courts, and in some cases, filing 
parallel cases in both Federal and State courts.
  Professors Joseph Grundfest and Michael Perino of the Stanford Law 
School did extensive research into the nature of class actions suits 
filed after the 1995 securities litigation reform was implemented.
  They found that prior to passage of the 1995 reforms filings in State 
courts of securities class actions were de minimis. In the past year 26 
percent of class actions involving nationally traded securities were 
filed in State Courts. The shift to the State courts has undermined the 
safe harbor provisions to the extent that corporate heads still avoid 
forward looking statements according to a letter sent to me by 181 
presidents and CEO's of high technology companies.
  Sixty-one Democrats recognized the need to address this problem when 
earlier this year we sent a letter to President Clinton calling on him 
to support legislation to establish uniform standards.
  We have constructed a narrow bill that seeks to get at the specific 
problem that has been raised. The bill will require class action 
lawsuits that involve nationally traded securities to be heard in 
Federal court. It does not cover public class actions or State 
enforcement. It affects only class actions, not all private actions. 
Finally, it avoids needless litigation by making removal to Federal 
courts the procedure by which these cases will be heard.
  I thank Representative White and each of the original cosponsors of 
this legislation for their work and support, and I look forward to the 
passage of this needed, balanced legislation in the 105th Congress.

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