[Congressional Record Volume 143, Number 112 (Friday, August 1, 1997)]
[Extensions of Remarks]
[Pages E1607-E1608]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   UNITED STATES INVESTORS IN LLOYD'S OF LONDON DESERVE THEIR DAY IN 
                          UNITED STATES COURT

                                 ______
                                 

                           HON. HENRY J. HYDE

                              of illinois

                    in the house of representatives

                        Thursday, July 31, 1997

  Mr. HYDE. Mr. Speaker, as chairman of the House Judiciary Committee, 
I am interested in matters concerning Federal court jurisdiction. For 
many years, citizens of Illinois and other States were solicited in 
their States to invest in Lloyd's of London insurance syndicates. In 
many instances, these investors have been denied access to the Federal 
courts where they attempted to assert their rights and remedies under 
the Federal securities statutes. Investors asserting securities claims 
against Lloyd's have seen their cases thrown out of court based on 
clauses in Lloyd's investment contracts which provide for the 
application of English law and the forum of the English courts. (Choice 
Clauses). I am heartened, however, by the recent appeals court ruling 
in Richards v. Lloyd's of London and strong pronouncements by the 
Securities and Exchange Commission in that appeal, which recognize the 
statutory bar against agreements which waive compliance with the 
Federal securities laws. The Richards decision, unless set aside by the 
full ninth circuit court of appeals or the Supreme Court, clears the 
way for the investors to have the chance to prove their case where it 
belongs--in U.S. district court.
  The plaintiffs in Richards--known as ``Names''--allege that Lloyd's 
defrauded them by concealing that the insurance syndicates to which 
they furnished capital were saddled with massive asbestos and toxic 
waste liabilities. They assert that, for two decades, Lloyd's undertook 
a major recruitment program in the United States by offering investment 
contracts by which residents of the United States could become 
``External Names'' at Lloyd's--passive investors who were prohibited 
from being involved with the operations and management of Lloyd's 
syndicates or business operations. Plaintiffs in Richards claim that 
Lloyd's alleged fraud cost them many million of dollars. They also seek 
rescission of their agreements with Lloyd's on the grounds that Lloyd's 
allegedly sold them unregistered, nonexempt securities and made 
material representatives or omitted material facts.
  Mr. Speaker, for over 60 years there has been a statutory bar against 
contracts with investors that waive compliance with the Federal 
securities laws. Section 14 of the Securities Act of 1933 provides:

       Any condition, stipulation, or provision binding any person 
     acquiring any security to waive compliance with any provision 
     of this title or of the rules and regulations of the 
     Commission [the SEC] shall be void.


15 U.S.C. Sec. 77 n. The bar of Section 29(a) of the 1934 Act is 
substantially the same. 15 U.S.C. Sec. 78cc(a).
  In Richards, a panel of the Ninth Circuit ruled, 2-1, that because of 
the Choice Clauses would strip plaintiffs of all their rights under the 
Federal securities laws, they violate the anti-waiver statutes and are 
thus void. The court remanded the case to the federal district court 
where the plaintiffs will have the opportunity to present a case that 
Lloyd's fraudulently sold them unregistered securities and that the 
court should order rescission of their investment contacts with Lloyd's 
and other relief.
  I would like to cite several portions of the Richards opinion which 
show the eminent logic of this result:

       The district court made an error of law in supposing that 
     the Choice Clauses were unenforceable only if unreasonable. 
     Congress had already determined that such clauses were void. 
     It was not for a court to weigh their reasonableness, not for 
     a court to say whether they offended any policy of the United 
     States. The policy decision had been made by the legislature.

                           *   *   *   *   *

       Is there a significant difference between a policy 
     objection to enforcement of the anti-waiver bars and a 
     statutory obstacle to such enforcement? We believe there is. 
     Where a statute exists, a policy has been given form and 
     focus and precise force. A statute represents a decision by 
     the elected representatives of the people as to what 
     particular policy should prevail, and how.

                           *   *   *   *   *

       There is no question that the Choice Clauses operate in 
     tandem as a prospective waiver of the plaintiffs' remedies 
     under the 1933 and 1934 Acts. If the Supreme Court would 
     condemn such clauses where they work against a public policy 
     embodied in statutes even through the statutes themselves do 
     not void the clauses, a fortiori the Supreme Court would 
     condemn similar clauses when the run in the teeth of two 
     precise statutory provisions making them void.

                           *   *   *   *   *

       Congress was no ignorant of the potential international 
     character of securities transactions. Congress specifically 
     modified the 1933 Act to cover transactions in foreign 
     commerce. S. Rep. No. 47, 73d Cong., 1st Sess. (1933) 
     (accompanying S. 875.) A court should not apply the 
     reasonableness test or say whether the clauses offended any 
     policy of the United States when Congress has expressly made 
     that determination. We do not believe that we should turn the 
     clock back to 1929 or introduce caveat emptor as a rule 
     governing the solicitation in the United States of 
     investments in securities by residents of the United States.


  In addition, the SEC filed two briefs, amicus curiae in Richards and 
participated in oral argument in favor of reversing the district 
court's enforcement of the Choice Clauses. The SEC's position is 
correct in my view, and I would like to share some of the SEC's 
compelling statements:

       The issue addressed is an important one to the enforcement 
     of the federal securities laws. The district court's 
     decision, if upheld, would allow foreign promoters of 
     securities undertaking large scale selling efforts in the 
     United States to avoid private liability under the securities 
     laws simply by requiring the American investors to agree to 
     resolve disputes in a foreign jurisdiction under foreign law, 
     even if the remedies available under the foreign law were far 
     less effective than those available under United States law. 
     Such a holding would seriously impair the ability of 
     defrauded investors to obtain compensation for their losses, 
     and would hamper the deterrent function of the federal 
     securities laws by discouraging private actions. The 
     Commission strongly urges this court to reverse the 
     district court's erroneous dismissal of this action.

                           *   *   *   *   *

       The fact that the investors agreed to these provision is 
     irrelevant, since the very objective of the antiwaiver 
     provisions is to invalidate such agreements. As the Supreme 
     Court held in Shearson/American Express Inc. v. McMahon, 482 
     U.S. 220, 230 (1987), ``[t]he voluntariness of the agreement 
     is irrelevant to this inquiry: if a stipulation waives 
     compliance with a statutory duty, it is void under [the 
     antiwaiver provisions], whether voluntary or not.

                           *   *   *   *   *

       In this case, in contrast, the requirement that investors 
     litigate in England, coupled with the requirement that they 
     do so under English law, not only ``weakens'' the investors' 
     ability to recover, but in fact precludes any possibility of 
     recovery under the federal securities laws. These clauses are 
     directly contrary to express statutory prohibitions in the 
     antiwaiver provisions and should be held void.

                           *   *   *   *   *

       The antiwaiver provisions, however, are not simply an 
     expression of public policy that favors United States 
     securities laws unless other comparable laws are available. 
     Rather, they are an express and unequivocal directive that 
     the rights and obligations under the securities laws cannot 
     be waived.

[[Page E1608]]

     This determination has been made by Congress, and the courts 
     are not free to substitute their own public policy 
     determinations.


  The Richards court is not alone in its interpretation of this 
statutory bar to waiver. In Leslie v. Lloyd's of London, a Federal 
district court, after hearing evidence, struck down the Choice Clauses, 
stating that they were procured by fraud and violated public policy. 
The case is currently on appeal to the Fifth Circuit, where the SEC has 
participated in oral argument, arguing that the Choice Clauses are 
void.
  Mr. Speaker, what is involved here is a very basic proposition. When 
foreign promoters come into Illinois and other States to raise capital, 
they cannot effectuate waivers of substantive rights under the 
securities laws that belong to those form whom they solicit capital. 
Congress has said no and that should be the end of the story.

                          ____________________