Congressional Record, Volume 144 Issue 98 (Tuesday, July 21, 1998)

[Congressional Record Volume 144, Number 98 (Tuesday, July 21, 1998)]
[House]
[Pages H6052-H6064]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

SECURITIES LITIGATION UNIFORM STANDARDS ACT OF 1998

Mr. BLILEY. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 1689) to amend the Securities Act of 1933 and the Securities
Exchange Act of 1934 to limit the conduct of securities class actions
under State law, and for other purposes, as amended.
The Clerk read as follows:

H.R. 1689

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Securities Litigation
Uniform Standards Act of 1998''.
TITLE I--SECURITIES LITIGATION UNIFORM STANDARDS

SEC. 101. LIMITATION ON REMEDIES.

(a) Amendments to the Securities Act of 1933.--
(1) Amendment.--Section 16 of the Securities Act of 1933
(15 U.S.C. 77p) is amended to read as follows:

``SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON REMEDIES.

``(a) Remedies Additional.--Except as provided in
subsection (b), the rights and remedies provided by this
title shall be in addition to any and all other rights and
remedies that may exist at law or in equity.
``(b) Class Action Limitations.--No covered class action
based upon the statutory or common law of any State or
subdivision thereof may be maintained in any State or Federal
court by any private party alleging--
``(1) an untrue statement or omission of a material fact in
connection with the purchase or sale of a covered security;
or
``(2) that the defendant used or employed any manipulative
or deceptive device or contrivance in connection with the
purchase or sale of a covered security.
``(c) Removal of Covered Class Actions.--Any covered class
action brought in any State court involving a covered
security, as set forth in subsection (b), shall be removable
to the Federal district court for the district in which the
action is pending, and shall be subject to subsection (b).
``(d) Preservation of Certain Actions.--
``(1) Actions under state law of state of incorporation.--
``(A) Actions preserved.--Notwithstanding subsection (b) or
(c), a covered class action described in subparagraph (B) of
this paragraph that is based upon the statutory or common law
of the State in which the issuer is incorporated (in the case
of a corporation) or organized (in the case of any other
entity) may be maintained in a State or Federal court by a
private party.
``(B) Permissible actions.--A covered class action is
described in this subparagraph if it involves--
``(i) the purchase or sale of securities by the issuer or
an affiliate of the issuer exclusively from or to holders of
equity securities of the issuer; or

[[Page H6053]]

``(ii) any recommendation, position, or other communication
with respect to the sale of securities of the issuer that--

``(I) is made by or on behalf of the issuer or an affiliate
of the issuer to holders of equity securities of the issuer;
and
``(II) concerns decisions of those equity holders with
respect to voting their securities, acting in response to a
tender or exchange offer, or exercising dissenters' or
appraisal rights.

``(2) State actions.--
``(A) In general.--Notwithstanding any other provision of
this section, nothing in this section may be construed to
preclude a State or political subdivision thereof or a State
pension plan from bringing an action involving a covered
security on its own behalf, or as a member of a class
comprised solely of other States, political subdivisions, or
State pension plans that are named plaintiffs, and that have
authorized participation, in such action.
``(B) State pension plan defined.--For purposes of this
paragraph, the term `State pension plan' means a pension plan
established and maintained for its employees by the
government of the State or political subdivision thereof, or
by any agency or instrumentality thereof.
``(3) Actions under contractual agreements between issuers
and indenture trustees.--Notwithstanding subsection (b) or
(c), a covered class action that seeks to enforce a
contractual agreement between an issuer and an indenture
trustee may be maintained in a State or Federal court by a
party to the agreement or a successor to such party.
``(4) Remand of removed actions.--In an action that has
been removed from a State court pursuant to subsection (c),
if the Federal court determines that the action may be
maintained in State court pursuant to this subsection, the
Federal court shall remand such action to such State court.
``(e) Preservation of State Jurisdiction.--The securities
commission (or any agency or office performing like
functions) of any State shall retain jurisdiction under the
laws of such State to investigate and bring enforcement
actions.
``(f) Definitions.--For purposes of this section, the
following definitions shall apply:
``(1) Affiliate of the issuer.--The term `affiliate of the
issuer' means a person that directly or indirectly, through 1
or more intermediaries, controls or is controlled by or is
under common control with, the issuer.
``(2) Covered class action.--
``(A) In general.--The term `covered class action' means--
``(i) any single lawsuit in which--

``(I) damages are sought on behalf of more than 50 persons
or prospective class members, and questions of law or fact
common to those persons or members of the prospective class,
without reference to issues of individualized reliance on an
alleged misstatement or omission, predominate over any
questions affecting only individual persons or members; or
``(II) 1 or more named parties seek to recover damages on a
representative basis on behalf of themselves and other
unnamed parties similarly situated, and questions of law or
fact common to those persons or members of the prospective
class predominate over any questions affecting only
individual persons or members; or

``(ii) any group of lawsuits filed in or pending in the
same court and involving common questions of law or fact, in
which--

``(I) damages are sought on behalf of more than 50 persons;
and
``(II) the lawsuits are joined, consolidated, or otherwise
proceed as a single action for any purpose.

``(B) Exception for derivative actions.--Notwithstanding
subparagraph (A), the term `covered class action' does not
include an exclusively derivative action brought by 1 or more
shareholders on behalf of a corporation.
``(C) Counting of certain class members.--For purposes of
this paragraph, a corporation, investment company, pension
plan, partnership, or other entity, shall be treated as 1
person or prospective class member, but only if the entity is
not established for the purpose of participating in the
action.
``(D) Rule of construction.--Nothing in this paragraph
shall be construed to affect the discretion of a State court
in determining whether actions filed in such court should be
joined, consolidated, or otherwise allowed to proceed as a
single action.
``(3) Covered security.--The term `covered security' means
a security that satisfies the standards for a covered
security specified in section 18(b)(1) at the time during
which it is alleged that the misrepresentation, omission, or
manipulative or deceptive conduct occurred, except that such
term shall not include any debt security that is exempt from
registration under this title pursuant to rules issued by the
Commission under section 4(2) of this title.''.
(2) Circumvention of stay of discovery.--Section 27(b) of
the Securities Act of 1933 (15 U.S.C. 77z-1(b)) is amended by
inserting after paragraph (3) the following new paragraph:
``(4) Circumvention of stay of discovery.--Upon a proper
showing, a court may stay discovery proceedings in any
private action in a State court as necessary in aid of its
jurisdiction, or to protect or effectuate its judgments, in
an action subject to a stay of discovery pursuant to this
subsection.''.
(3) Conforming amendments.--Section 22(a) of the Securities
Act of 1933 (15 U.S.C. 77v(a)) is amended--
(A) by inserting ``except as provided in section 16 with
respect to covered class actions,'' after ``Territorial
courts,''; and
(B) by striking ``No case'' and inserting ``Except as
provided in section 16(c), no case''.
(b) Amendments to the Securities Exchange Act of 1934.--
(1) Amendment.--Section 28 of the Securities Exchange Act
of 1934 (15 U.S.C. 78bb) is amended--
(A) in subsection (a), by striking ``The rights and
remedies'' and inserting ``Except as provided in subsection
(f), the rights and remedies''; and
(B) by adding at the end the following new subsection:
``(f) Limitations on Remedies.--
``(1) Class action limitations.--No covered class action
based upon the statutory or common law of any State or
subdivision thereof may be maintained in any State or Federal
court by any private party alleging--
``(A) a misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered security;
or
``(B) that the defendant used or employed any manipulative
or deceptive device or contrivance in connection with the
purchase or sale of a covered security.
``(2) Removal of covered class actions.--Any covered class
action brought in any State court involving a covered
security, as set forth in paragraph (1), shall be removable
to the Federal district court for the district in which the
action is pending, and shall be subject to paragraph (1).
``(3) Preservation of certain actions.--
``(A) Actions under state law of state of incorporation.--
``(i) Actions preserved.--Notwithstanding paragraph (1) or
(2), a covered class action described in clause (ii) of this
subparagraph that is based upon the statutory or common law
of the State in which the issuer is incorporated (in the case
of a corporation) or organized (in the case of any other
entity) may be maintained in a State or Federal court by a
private party.
``(ii) Permissible actions.--A covered class action is
described in this clause if it involves--

``(I) the purchase or sale of securities by the issuer or
an affiliate of the issuer exclusively from or to holders of
equity securities of the issuer; or
``(II) any recommendation, position, or other communication
with respect to the sale of securities of an issuer that--

``(aa) is made by or on behalf of the issuer or an
affiliate of the issuer to holders of equity securities of
the issuer; and
``(bb) concerns decisions of such equity holders with
respect to voting their securities, acting in response to a
tender or exchange offer, or exercising dissenters' or
appraisal rights.
``(B) State actions.--
``(i) In general.--Notwithstanding any other provision of
this subsection, nothing in this subsection may be construed
to preclude a State or political subdivision thereof or a
State pension plan from bringing an action involving a
covered security on its own behalf, or as a member of a class
comprised solely of other States, political subdivisions, or
State pension plans that are named plaintiffs, and that have
authorized participation, in such action.
``(ii) State pension plan defined.--For purposes of this
subparagraph, the term `State pension plan' means a pension
plan established and maintained for its employees by the
government of a State or political subdivision thereof, or by
any agency or instrumentality thereof.
``(C) Actions under contractual agreements between issuers
and indenture trustees.--Notwithstanding paragraph (1) or
(2), a covered class action that seeks to enforce a
contractual agreement between an issuer and an indenture
trustee may be maintained in a State or Federal court by a
party to the agreement or a successor to such party.
``(D) Remand of removed actions.--In an action that has
been removed from a State court pursuant to paragraph (2), if
the Federal court determines that the action may be
maintained in State court pursuant to this subsection, the
Federal court shall remand such action to such State court.
``(4) Preservation of state jurisdiction.--The securities
commission (or any agency or office performing like
functions) of any State shall retain jurisdiction under the
laws of such State to investigate and bring enforcement
actions.
``(5) Definitions.--For purposes of this subsection, the
following definitions shall apply:
``(A) Affiliate of the issuer.--The term `affiliate of the
issuer' means a person that directly or indirectly, through 1
or more intermediaries, controls or is controlled by or is
under common control with, the issuer.
``(B) Covered class action.--The term `covered class
action' means--
``(i) any single lawsuit in which--

[[Page H6054]]

or fact common to those persons or members of the prospective
class predominate over any questions affecting only
individual persons or members; or

``(ii) any group of lawsuits filed in or pending in the
same court and involving common questions of law or fact, in
which--

``(I) damages are sought on behalf of more than 50 persons;
and
``(II) the lawsuits are joined, consolidated, or otherwise
proceed as a single action for any purpose.

``(C) Exception for derivative actions.--Notwithstanding
subparagraph (B), the term `covered class action' does not
include an exclusively derivative action brought by 1 or more
shareholders on behalf of a corporation.
``(D) Counting of certain class members.--For purposes of
this paragraph, a corporation, investment company, pension
plan, partnership, or other entity, shall be treated as 1
person or prospective class member, but only if the entity is
not established for the purpose of participating in the
action.
``(E) Covered security.--The term `covered security' means
a security that satisfies the standards for a covered
security specified in section 18(b)(1) of the Securities Act
of 1933, at the time during which it is alleged that the
misrepresentation, omission, or manipulative or deceptive
conduct occurred, except that such term shall not include any
debt security that is exempt from registration under the
Securities Act of 1933 pursuant to rules issued by the
Commission under section 4(2) of such Act.
``(F) Rule of construction.--Nothing in this paragraph
shall be construed to affect the discretion of a State court
in determining whether actions filed in such court should be
joined, consolidated, or otherwise allowed to proceed as a
single action.''.
(2) Circumvention of stay of discovery.--Section 21D(b)(3)
of the Securities Exchange Act of 1934 (15 U.S.C. 78u-
4(b)(3)) is amended by inserting after subparagraph (C) the
following new subparagraph:
``(D) Circumvention of stay of discovery.--Upon a proper
showing, a court may stay discovery proceedings in any
private action in a State court as necessary in aid of its
jurisdiction, or to protect or effectuate its judgments, in
an action subject to a stay of discovery pursuant to this
paragraph.''.
(c) Applicability.--The amendments made by this section
shall not affect or apply to any action commenced before and
pending on the date of enactment of this Act.

SEC. 102. PROMOTION OF RECIPROCAL SUBPOENA ENFORCEMENT.

(a) Commission Action.--The Securities and Exchange
Commission, in consultation with State securities
commissions, shall seek to encourage the adoption of State
laws providing for reciprocal enforcement by State securities
commissions of subpoenas issued by another State securities
commission seeking to compel persons to attend, testify in,
or produce documents or records in connection with an action
or investigation by a State securities commission of an
alleged violation of State securities laws.
(b) Report.--Within 24 months after the date of enactment
of this Act, the Commission shall submit a report to the
Congress--
(1) identifying the States that have adopted laws described
in subsection (a);
(2) describing the actions undertaken by the Commission and
State securities commissions to promote the adoption of such
laws; and
(3) identifying any further actions the Commission
recommends for such purposes.

SEC. 103. REPORT ON CONSEQUENCES.

The Securities and Exchange Commission shall include in
each of its first 3 annual reports submitted after the date
of enactment of this Act a report regarding--
(1) the nature and the extent of the class action cases
that are preempted by, or removed pursuant to, the amendments
made by section 101 of this title;
(2) the extent to which that preemption or removal either
promotes or adversely affects the protection of securities
investors or the public interest; and
(3) if adverse effects are found, alternatives to, or
revisions of, such preemption or removal that--
(A) would not have such adverse effects;
(B) would further promote the protection of investors and
the public interest; and
(C) would still substantially reduce the risk of abusive
securities litigation.
TITLE II--REAUTHORIZATION OF THE SECURITIES AND EXCHANGE COMMISSION

SEC. 201. AUTHORIZATION OF APPROPRIATIONS.

Section 35 of the Securities Exchange Act of 1934 (15
U.S.C. 78kk) is amended to read as follows:

``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

``(a) In General.--In addition to any other funds
authorized to be appropriated to the Commission, there are
authorized to be appropriated to carry out the functions,
powers, and duties of the Commission $351,280,000 for fiscal
year 1999.
``(b) Miscellaneous Expenses.--Funds appropriated pursuant
to this section are authorized to be expended--
``(1) not to exceed $3,000 per fiscal year, for official
reception and representation expenses;
``(2) not to exceed $10,000 per fiscal year, for funding a
permanent secretariat for the International Organization of
Securities Commissions; and
``(3) not to exceed $100,000 per fiscal year, for expenses
for consultations and meetings hosted by the Commission with
foreign governmental and other regulatory officials, members
of their delegations, appropriate representatives, and staff
to exchange views concerning developments relating to
securities matters, for development and implementation of
cooperation agreements concerning securities matters and
provision of technical assistance for the development of
foreign securities markets, such expenses to include
necessary logistic and administrative expenses and the
expenses of Commission staff and foreign invitees in
attendance at such consultations and meetings, including--
``(A) such incidental expenses as meals taken in the course
of such attendance;
``(B) any travel or transportation to or from such
meetings; and
``(C) any other related lodging or subsistence.''.

SEC. 202. REQUIREMENTS FOR THE EDGAR SYSTEM.

Section 35A of the Securities Exchange Act of 1934 (15
U.S.C. 78ll) is amended--
(1) by striking subsections (a), (b), (c), and (e); and
(2) in subsection (d)--
(A) by striking the subsection designation;
(B) by striking ``; and'' at the end of paragraph (2) and
inserting a period; and
(C) by striking paragraph (3).
TITLE III--CLERICAL AND TECHNICAL AMENDMENTS

SEC. 301. CLERICAL AND TECHNICAL AMENDMENTS.

(a) Securities Act of 1933.--The Securities Act of 1933 (15
U.S.C. 77 et seq.) is amended as follows:
(1) Section 2(a)(15)(i) (15 U.S.C. 77b(a)(15)(i)) is
amended by striking ``section 2(13) of the Act'' and
inserting ``paragraph (13) of this subsection''.
(2) Section 11(f)(2)(A) (15 U.S.C. 77k(f)(2)(A)) is amended
by striking ``section 38'' and inserting ``section 21D(f)''.
(3) Section 13 (15 U.S.C. 77m) is amended--
(A) by striking ``section 12(2)'' each place it appears and
inserting ``section 12(a)(2)''; and
(B) by striking ``section 12(1)'' each place it appears and
inserting ``section 12(a)(1)''.
(4) Section 18 (15 U.S.C. 77r) is amended--
(A) in subsection (b)(1)(A), by inserting ``, or authorized
for listing,'' after ``Exchange, or listed'';
(B) in subsection (c)(2)(B)(i), by striking ``Capital
Markets Efficiency Act of 1996'' and inserting ``National
Securities Markets Improvement Act of 1996'';
(C) in subsection (c)(2)(C)(i), by striking ``Market'' and
inserting ``Markets'';
(D) in subsection (d)(1)(A)--
(i) by striking ``section 2(10)'' and inserting ``section
2(a)(10)''; and
(ii) by striking ``subparagraphs (A) and (B)'' and
inserting ``subparagraphs (a) and (b)'';
(E) in subsection (d)(2), by striking ``Securities
Amendments Act of 1996'' and inserting ``National Securities
Markets Improvement Act of 1996''; and
(F) in subsection (d)(4), by striking ``For purposes of
this paragraph, the'' and inserting ``The''.
(5) Sections 27, 27A, and 28 (15 U.S.C. 77z-1, 77z-2, 77z-
3) are transferred to appear after section 26.
(6) Paragraph (28) of schedule A of such Act (15 U.S.C.
77aa(28)) is amended by striking ``identic'' and inserting
``identical''.
(b) Securities Exchange Act of 1934.--The Securities
Exchange Act of 1934 (15 U.S.C. 78 et seq.) is amended as
follows:
(1) Section 3(a)(10) (15 U.S.C. 78c(a)(10)) is amended by
striking ``deposit, for'' and inserting ``deposit for''.
(2) Section 3(a)(12)(A) (15 U.S.C. 78c(a)(12)(A)) is
amended by moving clause (vi) two em spaces to the left.
(3) Section 3(a)(22)(A) (15 U.S.C. 78c(a)(22)(A)) is
amended--
(A) by striking ``section 3(h)'' and inserting ``section
3''; and
(B) by striking ``section 3(t)'' and inserting ``such
section 3''.
(4) Section 3(a)(39)(B)(i) (15 U.S.C. 78c(a)(39)(B)(i)) is
amended by striking ``an order to the Commission'' and
inserting ``an order of the Commission''.
(5) The following sections are each amended by striking
``Federal Reserve Board'' and inserting ``Board of Governors
of the Federal Reserve System'': subsections (a) and (b) of
section 7 (15 U.S.C. 78g(a), (b)); section 17(g) (15 U.S.C.
78q(g)); and section 26 (15 U.S.C. 78z).
(6) The heading of subsection (d) of section 7 (15 U.S.C.
78g(d)) is amended by striking ``Exception'' and inserting
``Exceptions''.
(7) Section 14(g)(4) (15 U.S.C. 78n(g)(4)) is amended by
striking ``consolidation sale,'' and inserting
``consolidation, sale,''.
(8) Section 15 (15 U.S.C. 78o) is amended--
(A) in subsection (c), by moving paragraph (8) two em
spaces to the left;
(B) in subsection (h)(2), by striking ``affecting'' and
inserting ``effecting'';
(C) in subsection (h)(3)(A)(i)(II)(bb), by inserting ``or''
after the semicolon;
(D) in subsection (h)(3)(A)(ii)(I), by striking
``maintains'' and inserting ``maintained'';
(E) in subsection (h)(3)(B)(ii), by striking
``association'' and inserting ``associated''.
(9) Section 15B(c)(4) (15 U.S.C. 78o-4(c)(4)) is amended by
striking ``convicted by any offense'' and inserting
``convicted of any offense''.
(10) Section 15C(f)(5) (15 U.S.C. 78o-5(f)(5)) is amended
by striking ``any person or class

[[Page H6055]]

or persons'' and inserting ``any person or class of
persons''.
(11) Section 19(c) (15 U.S.C. 78s(c)) is amended by moving
paragraph (5) two em spaces to the right.
(12) Section 20 (15 U.S.C. 78t) is amended by redesignating
subsection (f) as subsection (e).
(13) Section 21D (15 U.S.C. 78u-4) is amended--
(A) by redesignating subsection (g) as subsection (f); and
(B) in paragraph (2)(B)(i) of such subsection, by striking
``paragraph (1)'' and inserting ``subparagraph (A)''.
(14) Section 31(a) (15 U.S.C. 78ee(a)) is amended by
striking ``this subsection'' and inserting ``this section''.
(c) Investment Company Act of 1940.--The Investment Company
Act of 1940 (15 U.S.C. 80a-1 et seq.) is amended as follows:
(1) Section 2(a)(8) (15 U.S.C. 80a-2(a)(8)) is amended by
striking ``Unitde'' and inserting ``United''.
(2) Section 3(b) (15 U.S.C. 80a-3(b)) is amended by
striking ``paragraph (3) of subsection (a)'' and inserting
``paragraph (1)(C) of subsection (a)''.
(3) Section 12(d)(1)(G)(i)(III)(bb) (15 U.S.C. 80a-
12(d)(1)(G)(i)(III)(bb)), by striking ``the acquired fund''
and inserting ``the acquired company''.
(4) Section 18(e)(2) (15 U.S.C. 80a-18(e)(2)) is amended by
striking ``subsection (e)(2)'' and inserting ``paragraph (1)
of this subsection''.
(5) Section 30 (15 U.S.C. 80a-29) is amended--
(A) by inserting ``and'' after the semicolon at the end of
subsection (b)(1);
(B) in subsection (e), by striking ``semi-annually'' and
inserting ``semiannually''; and
(C) by redesignating subsections (g) and (h) as added by
section 508(g) of the National Securities Markets Improvement
Act of 1996 as subsections (i) and (j), respectively.
(6) Section 31(f) (15 U.S.C. 80a-30(f)) is amended by
striking ``subsection (c)'' and inserting ``subsection (e)''.
(d) Investment Advisers Act of 1940.--The Investment
Advisers Act of 1940 (15 U.S.C. 80b et seq.) is amended as
follows:
(1) Section 203(e)(8)(B) (15 U.S.C. 80b-3(e)(8)(B)) is
amended by inserting ``or'' after the semicolon.
(2) Section 222(b)(2) of (15 U.S.C. 80b-18a(b)(2)) is
amended by striking ``principle'' and inserting
``principal''.
(e) Trust Indenture Act of 1939.--The Trust Indenture Act
of 1939 (15 U.S.C. 77aaa et seq.) is amended as follows:
(1) Section 303 (15 U.S.C. 77ccc) is amended by striking
``section 2'' each place it appears in paragraphs (2) and (3)
and inserting ``section 2(a)''.
(2) Section 304(a)(4)(A) (15 U.S.C. 77ddd(a)(4)(A)) is
amended by striking ``(14) of subsection'' and inserting
``(13) of section''.
(3) Section 313(a) (15 U.S.C. 77mmm(a)) is amended--
(A) by inserting ``any change to'' after the paragraph
designation at the beginning of paragraph (4); and
(B) by striking ``any change to'' in paragraph (6).
(4) Section 319(b) (15 U.S.C. 77sss(b)) is amended by
striking ``the Federal Register Act'' and inserting ``chapter
15 of title 44, United States Code,''.

SEC. 302. EXEMPTION OF SECURITIES ISSUED IN CONNECTION WITH
CERTAIN STATE HEARINGS.

Section 18(b)(4)(C) of the Securities Act of 1933 (15
U.S.C. 77r(b)(4)(C)) is amended by striking ``paragraph (4)
or (11)'' and inserting ``paragraph (4), (10), or (11)''.

The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Virginia (Mr. Bliley) and the gentleman from Michigan (Mr. Stupak) each
will control 20 minutes.
The Chair recognizes the gentleman from Virginia (Mr. Bliley).
(Mr. BLILEY asked and was given permission to revise and extend his
remarks.)

General Leave

Mr. BLILEY. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
on H.R. 1689 and to insert extraneous material on the bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Virginia?
There was no objection.
Mr. BLILEY. Mr. Speaker, I yield myself 5 minutes.
Mr. Speaker, I rise in strong support of H.R. 1689, the Securities
Litigation Uniform Standards Act of 1998. This legislation has been
carefully constructed and refined throughout the legislative process on
a bipartisan basis. We now have a bill that is ready to be considered
by this Congress that will protect our Nation's investors and
shareholders from needless expenses companies incur from meritless
lawsuits.
Congress thought we would stop the flow of frivolous securities
lawsuits with the enactment of the Private Securities Litigation Reform
Act of 1995. The number of cases in Federal court has declined, but the
explosion of cases being brought in state courts since the Reform Act
demonstrates that the problem has not been eliminated, it has just
changed venue.
It is unfortunate that additional legislation is needed to plug a
loophole that undermines the intentions of Congress. Nevertheless, it
is our job to ensure that the laws we pass work in the manner we
intended. Based on the number of cosponsors of this legislation, I
think it is safe to say that the law is not working the way it was
intended.
The Uniform Standards Act will permit meritorious claims to continue
to be filed while preventing the migration of baseless class actions to
state courts. The standard provided in this legislation builds on the
simple nature of our capital markets. If the alleged violation is
national and it is filed on behalf of a class, then the case should be
brought in Federal court. If the case is of a local nature, then it is
more appropriately handled at the state level.
This legislation will put a stop to the inappropriate use of state
courts to circumvent the protections that Congress deemed appropriate
in 1995. H.R. 1689 will not prevent individual claims from being filed
in state courts but will simply set a standard to determine when the
Reform Act of 1995 is applied.
The legislation also includes a title to reauthorize the Securities
and Exchange Commission for Fiscal 1999. This language is substantially
similar to H.R. 1262, the SEC Reauthorization Act of 1997, which passed
the House unanimously last session.
At the suggestion of the gentleman from New York (Mr. Lazio),
technical changes were included to this title to eliminate provisions
in the Securities Exchange Act that have been identified as an
impediment to the possibility of future privatization of the EDGAR
system. I commend the gentleman for his efforts and suggestions in the
pursuit of good government and a more efficient, more cost-effective
EDGAR system.
I would also like to commend the original author of the legislation
the gentleman from Washington (Mr. White). His tireless work and
pursuit of good public policy has improved this legislation from day
one. I also would like to commend the gentlewoman from California (Ms.
Eshoo) for all of her efforts as a leading proponent of this
legislation.
Many of the changes that have improved this legislation so
significantly are a result of the work and compromise of the gentleman
from Ohio (Mr. Oxley) the chairman of the Subcommittee on Financial and
Hazardous Materials. I commend him for his leadership and skill in
developing these important refinements.
Some of the changes included were at the suggestion of the ranking
member the gentleman from Michigan (Mr. Dingell) of the Committee on
Commerce. Notwithstanding his opposition to the legislation, his
continued pursuant of good public policy has improved the bill.
I would also commend the gentleman from New York (Mr. Manton) the
ranking member of the Subcommittee on Finance and Hazardous Material,
whom I am very distressed to see has announced his retirement from this
body, for his cooperation and support. At his suggestion, the Committee
on Commerce included a provision to provide the SEC with nationwide
enforceability of subpoenas served in our districts. Unfortunately, the
concerns by the Committee on the Judiciary about this provision have
not been worked out and it is not included in H.R. 1689. I would tell
the gentleman from New York that I will work with him to see that the
provision makes it into the final legislation.
Mr. Speaker, I urge my colleagues to join me in support of H.R. 1689.
Mr. Speaker, I reserve the balance of my time.
Mr. STUPAK. Mr. Speaker, I yield myself such time as I may consume.
(Mr. STUPAK asked and was given permission to revise and extend his
remarks.)
Mr. STUPAK. Mr. Speaker, I yield myself such time as I may cosume.
Mr. Speaker, I rise in opposition to the bill before us tonight.
Mr. Speaker, 2 years ago, Congress passed the Private Securities
Litigation Reform Act, that changed all the rules for the investors
like people who invest in today's stock market. Now

[[Page H6056]]

proponents of this legislation want to extend an untested federal
system upon all the states.
If we pass this bill, Congress will place all investors into a
largely untested, untried new federal system that will make it very
difficult for investors to prove fraud. Many of the proponents of this
bill claim that it corrects an oversight from the Private Securities
Litigation Act of the last Congress. This claim is disingenuous and
false. These same Members claim that during the debate over the Private
Securities Litigation Reform Act that investors would continue and
would always have available to them the protection afforded by the
state courts.
The prime sponsor of the previous legislation explicitly stated that
state courts would continue to be an avenue for defrauded investors to
recoup their losses. Now these Members are seeking to preempt these
state laws.
If this legislation passes, it will overrule, do away, with the
aiding and abetting statutes in 49 states. It will do away with 33
statute of limitations provisions that we are now telling states that
forget about their own statute of limitations to protect their
investors, they will now have to protect their citizens with an
untried, untested federal system. The Federal Government will now tell
them what protections states can afford their citizens.
It is important to remember throughout this debate tonight that the
blue sky laws predated the existence of federal securities law. When
Congress wrote the Securities Act of 1933 and the Securities Exchange
Act of 1934, they did not impose liability on aiders and abettors or
insert an adequate statute of limitation. They declined to take these
steps because Congress felt that it was necessary to allow states to
decide these issues at the state level. But yet, tonight, if we vote
for this bill, we will take away from these investors protections they
have enjoyed for over 60 years under state law.
Chairman Arthur Levitt of the Securities Exchange Commission,
consumer groups, municipal officers all supported maintaining these two
simple provisions, extending the statute of limitations and maintaining
the states' aiding and abetting statutes, but they were denied that
request by the supporters of this bill.

As we look at the market today, we see record numbers of small
investors are entrusting their life savings to the stock market. There
are a number of proposals to allow the Social Security Trust Fund to be
invested in the stock market. Now more than ever, these small investors
need to be protected from fraudulent securities transactions. 28
million Americans over the age of 65 depend on investment income to
meet part of their expenses.
The proponents of this bill claim its passage will actually benefit
these investors. I am flabbergasted by this statement because consumer
groups, institutional investors, state pension boards, retirement plan
administrators, county officials and many other groups oppose this
legislation.
This federal preemption is not necessary. Proponents argue that this
bill is necessary because there has been an increase in the number of
suits in state courts since the passage of the Private Securities
Litigation Reform Act 2 years ago. Yet in 1997 there was a decrease in
private securities as compared to levels before the passage of the
Private Securities Litigation Reform Act in 1995.
Nationwide, private security litigation state filings account for
less than 100th of 1 percent of state filings nationwide. I believe
that it is irresponsible and unnecessary to supersede the law of all 50
states. The joint system of state and federal causes of action have
existed for over 60 years. At a time when a market has joined its
bullish run, I do not believe that we need now to preempt the 50 state
laws with an untried, untested federal system.
Mr. Speaker, I believe this bill will make it easier for charlatans
and rip-off artists to defraud investors, especially senior citizens. I
truly hope that I am wrong. But before we pass this bill, I ask all
Members to contemplate whether or not they want to make it easier for
their constituents to become victims of fraud. I urge them to vote
against this bill and protect our investors.
Mr. Speaker, I include for the Record letters from the Consumer
Federation of America and the Government Finance Officers Association
in opposition to this bill.

Consumer Federation of America,

July 20, 1998.
Hon. Bart Stupak,
House of Representatives,
Washington, DC.

Oppose H.R. 1689, Securities Litigation Reform Bill

Dear Representative Stupak: It is our understanding that
the full House of Representatives will vote as early as today
or tomorrow on H.R. 1689, the ``Securities Litigation Uniform
Standards Act.'' I am writing on behalf of the Consumer
Federation of America (CFA) to express our strong opposition
to this legislation and to urge you to oppose it.
CFA shares the view expressed by state and federal
securities regulators that the current federal law, as
articulated in the Private Securities Litigation Reform Act
(PSLRA), tilts the balance too far in favor of securities
fraud defendants and threatens the ability of defrauded
investors to recover their losses. For this reason, we
strongly oppose extending that standard to lawsuits currently
being brought in state court. Even those who are more
optimistic about the effects of the federal law, however,
must acknowledge that this preemption legislation would
deprive investors of important protections, such as aiding
and abetting liability and longer statutes of limitation,
that are available only under state law.
Because it is fundamentally unjustified, would further
undermine defrauded investors' access to justice, and could
leave defrauded investors with no effective means of
recovering their losses, CFA strongly opposes H.R. 1689 and
urges you to vote against it.
Sincerely,

Barbara L.N. Roper,

Director of Investor Protection,
Consumer Federation of America.
____

July 20, 1998.
Re H.R. 1689, Securities Litigation Uniform Standards Act of
1998.

Member of Congress,
House of Representatives,
Washington, DC.
Dear Representative: The state and local government
organizations listed above write in opposition to H.R. 1689,
the Securities Litigation Uniform Standards Act of 1998, as
reported by the House Committee on Commerce, which is
scheduled to be considered by the full House early this week.
Our most significant concerns are the following:
Despite the preservation of the right of state and local
governments and their pension plans to pursue class actions
in state courts which is included in H.R. 1689, the
limitation on this right that those in the class must be
named plaintiffs and authorize such participation will
severely limit the ability of the most vulnerable public
entities to recover their losses. State and local governments
support the underlying provision to preserve the fundamental
right of a state or local government or public pension plan
to bring a class action in state court. However, we believe
that the limitation placed on that right in H.R. 1689 will
effectively exclude the most vulnerable public entities, such
as small pension plans. These fraud victims are the least
likely to be aware of a pending class action and may be
unable to initiate a suit on their own. These parties
potentially have the most to lose in case of fraud, yet this
provision virtually eliminates their ability to recover their
losses.
H.R. 1689 fails to reinstate liability for secondary
wrongdoers who aid and abet securities fraud. Despite two
opportunities to do so since the Supreme Court struck down
for private actions aiding and abetting liability for
wrongdoers who assist in perpetrating securities fraud,
Congress appears to be on the verge of not only failing to
reinstate such liability but extending it to the states.
H.R. 1689 fails to reinstate more a reasonable statute of
limitations for defrauded investors to file a claim. As in
the case of aiding and abetting, Congress has now had two
opportunities to reinstate a longer, more reasonable statute
of limitations for defrauded investors to bring suit. Many
frauds are not discovered within this shortened time
period, but this bill misses the opportunity to make
wronged investors whole by not including this provision in
H.R. 1689 and by extending the existing unreasonably
narrow time period in which suits may be brought to the
states.
The definition of ``class action'' contained in H.R. 1689
is overly broad. We believe that the definition of class
action in H.R. 1689 would allow single suits filed by
individual plaintiffs to be rolled into a larger class action
that was never contemplated or desired by individual
plaintiffs and have it removed to federal court. Claims by
the bill's proponents that individual plaintiffs would still
be able to bring suit in federal court are undercut by this
provision. We believe that no showing has been made of the
need for a securities law definition of class action which
differs from that of other types of class actions under the
Federal Rules of Civil Procedure.
There have been few state securities class actions filed
since the Private Securities Litigation Reform Act of 1995
(PSLRA) was passed. Despite the claims of the bill's
proponents, tracking by the Price Waterhouse

[[Page H6057]]

accounting firm shows that only 44 securities class actions
were filed in state court for all of 1997, compared with 67
in 1994 and 52 in 1995. Most of these cases were filed in
California, indicating that, if there is a problem in that
state, it is one which should be dealt with at the state
level. Citizens of the other 49 states should not be
penalized as a result of a unique situation in a single
state.
The PSLRA was opposed by state and local governments
because the legislation did not strike an appropriate
balance, and this legislation extends that mistake to state
courts. As both issuers of debt and investors of public
funds, state and local governments seek to not only reduce
frivolous lawsuits but to protect their investors who are
defrauded in securities transactions. The full impact of that
statute on investor rights and remedies remains unsettled
because even now many parts of the PSLRA have not been fully
litigated; however, this untested law would now be extended
to state courts.
The above organizations believe that states must be able to
protect state and local government funds and their taxpayers
and that H.R. 1689 inhibits these protections. We urge you to
oppose preemption efforts which interfere with the ability of
states to protect their public investors and to maintain
investor protections for both public investors and their
citizens.

Government Finance Officers Association; Municipal
Treasurers' Association; National Association of
Counties; National Association of County Treasurers and
Finance Officers; National Association of State
Retirement Administrators; National Conference on
Public Employee Retirement Systems; National League of
Cities.

Mr. Speaker, I reserve the balance of my time.
Mr. BLILEY. Mr. Speaker, I am happy to yield 3 minutes to the
gentleman from Washington (Mr. White) an instrumental force in bringing
this bill to the floor.
Mr. WHITE. Mr. Speaker, I thank the chairman very much for yielding
me the time and also for his patience and wonderful leadership in
bringing this bill to the point where it is today. It is a real
testament to his leadership in our committee.
Mr. Speaker, we spend a lot of time in this House complaining about
lawyers. And as a former lawyer, I would have to say that sometimes our
complaints are justified. But when we pass a bill that intelligent
lawyers can use to a purpose other than what we intended, it is not the
lawyers' fault; it is our fault.

{time} 2030

Frankly that is what this bill, H.R. 1689, is all about. In 1995,
two-thirds of this House, in fact more than two-thirds of this House
voted for the Private Securities Litigation Reform Act of 1995. We
passed it over President Clinton's veto. The whole idea of this
legislation was to let good suits go forward but to try to slow down
frivolous lawsuits so they did not cause too much harm in our economy,
especially to the smaller companies that are the provider of so many
jobs and so many innovations in our economy. But as luck would have it,
we left a few loopholes in that bill. One thing we discovered is that
suits that were formerly brought in Federal court under the old days
were now being brought in State court as a way of getting around the
statute that we passed. Not only were these suits being brought in
State court, it was clear from the testimony of lawyers who testified
in our committee that they had to advise their clients to bring these
suits in State court because it was a more favorable environment.
H.R. 1689 is simply designed to fix that particular problem. Now, we
will hear some things today as some potential problems that people have
with H.R. 1689. Frankly, Mr. Speaker, it is quite logical that people
who did not support the law that we passed in 1995 are not going to
support this law, either. This law is designed to perfect what we did
in 1995, to make it work right. But this is a limited bill designed to
accomplish a very good purpose.
Make no mistake about it, Mr. Speaker, this bill only applies to
national lawsuits. It only applies to securities that are traded on the
three national exchanges in our country. It only applies to class
actions. State lawsuits will still be permitted under this bill.
Mr. Speaker, I urge my colleagues in the House to vote for this bill
and finish the job that we started in 1995 so that we can bring some
order and responsibility to shareholder lawsuits in our country.
Mr. STUPAK. Mr. Speaker, I yield 2 minutes to the gentleman from
Pennsylvania (Mr. Klink).
Mr. KLINK. Mr. Speaker, back in 1995 the Committee on Commerce
developed and this Congress passed and approved over a presidential
veto the Private Securities Litigation Reform Act which put strict
limits on Federal investor class action lawsuits. At the time we were
being told by our friends who argued in favor of that that these
victims would still have State redress. They could go to the State
courts. Well, here we go again. From on high in Washington, D.C.,
dictating back to the States, ``You can't do this.''
I did not dream that my Republican colleagues would ever want to
start telling the State courts what they could and could not do. My
question is, what next do we tell them? That you cannot hear tobacco
suits? That you cannot hear real estate suits? This comes at a time
when an increased number of unsophisticated investors are getting into
the stock market. An increased number of unsophisticated investors are
getting into all marketplaces. We fear that these unsophisticated
investors, many of them our constituents, might be victimized and not
have redress at the Federal level and now being told by this Congress
they would not have redress at the State level.
Now, there appears to be no explosion of State securities class
actions. I do not see any need for this bill. I would point to last
year when there were only 44 cases throughout this entire Nation, the
lowest number in 5 years. We have a situation back in Pennsylvania
where not exactly unsophisticated investors, many school districts,
were taken for a ride by a company called Devon Capital Management.
They defrauded 100 municipal clients in Pennsylvania and elsewhere.
Those clients included 75 school districts, mostly in western and
central Pennsylvania. Are these unsophisticated investors? I do not
think so. Many of these municipal governments, school districts
included, will be lucky if they can get 10 cents on the dollar. A few
may get lucky enough to get 50 cents on the dollar.
Mr. Speaker, this is a bad bill and I would suggest that the Members
of this Congress vote against it.
Mr. BLILEY. Mr. Speaker, I yield 3\1/2\ minutes to the gentleman from
Louisiana (Mr. Tauzin).
Mr. TAUZIN. Mr. Speaker, let me first thank the gentleman from
Virginia (Mr. Bliley) and those that worked with him to bring this bill
to the floor. As many of my colleagues know, the securities litigation
reform bill was first filed way back in 1992. It was a bill that we
crafted, in fact I was the lead sponsor of it then, to put an end to
strike lawsuits in this country of which 94 percent were settled out of
court at 10 cents on the dollar. When lawsuits are filed and settled at
that rate, 94 percent of them, at 10 cents on the dollar, it paints the
picture that I think in a bipartisan way this Congress responded to in
1995. It paints a picture of strike lawsuits, frivolous lawsuits that
do not have value except to force the people who have been sued to
divvy up, to pay up 10 cents on the dollar just to end the lawsuit, to
end the abusive lawsuits.
When were they filed? They were filed immediately when any stock
prices changed up or down. They were filed in cookie cutter fashion,
very often with the same plaintiffs on the front of the class action
lawsuits, very often by the same set of lawyers in America, a unique
set of lawyers who constantly brought these strike lawsuits aimed at
the directors of corporations, aimed at the corporations themselves,
aimed at the accountants and the law firms that represented those
corporations, aimed at as many people as they could gather in a lawsuit
so at 10 cents on the dollar the lawyers can make a killing.
Did the shareholders who supposedly were defrauded do well in these
lawsuits? Absolutely not. We found out that the shareholders got as
little as four cents of the claims, four cents of the supposedly
defrauded amounts. The truth was that the law before 1995 existed for
the benefit of a few lawyers who literally were abusing the system with
these strike suits. And abusing who? The corporations, their investors,
their pension fund investors, all of us who invested in these
corporations thinking that we were making a legitimate investment in a
corporation that

[[Page H6058]]

was going to go out and try to earn a profit for their American
stockholders. Instead these corporations were having to pay tribute
time after time at 10 cents on the dollar for these strike suits aimed
at the heart of corporate America and aimed at the heart of all of us
who invest, from the poorest American who invests through their pension
funds to the richest who invest in Wall Street directly.
The bottom line was that in 1995, this Congress in a bipartisan
fashion not only passed that bill but overrode a presidential veto, a
bill that had the support then of the chairman of the Securities and
Exchange Commission. But what did we find out after passing the bill
even over a presidential veto with such a huge bipartisan majority of
over two-thirds? We found out that the same lawyers attempted in the
State of California to overcome that Federal law and set up a regime in
California to file all the same lawsuits simply in State court in
California. We found that time and again the same lawyers were filing
the same cookie cutter lawsuits in State courts around America. In
short, they were avoiding the reforms we passed over a presidential
veto in Congress by using other jurisdictions to accomplish it.
So we are here tonight to perfect that law, to say you cannot use the
State courts to do the same illicit, abusive strike suits that you were
formerly doing in Federal court.
Have we taken away any legitimate rights of people who have been
harmed? No. Lawsuits brought on fraud charges both in State and Federal
courts can go forward. They simply go forward under the reforms we
passed both on the Federal law and now conforming that Federal law to
the 50 States. In short, this bill perfects the work of the 104th
Congress in 1995. I urge the passage of this bill and the end of these
abusive lawsuits.
Mr. STUPAK. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I include for the Record a letter from the Government
Finance Officers Association, Municipal Treasurers' Association,
National Association of Counties, National Association of County
Treasurers and Finance Officers, National Association of State
Retirement Administrators, National Conference of Public Employee
Retirement Systems, and National League of Cities, all signed this
letter in opposition to this legislation.
The text of the letter is as follows:

Government Finance Officers Association, Municipal
Treasurers' Association, National Association of
Counties, National Association of County Treasurers and
Finance Officers, National Association of State
Retirement Administrators, National Conference on
Public Employee Retirement Systems, National League of
Cities
July 20, 1998.
Member of Congress,
House of Representatives, Washington, DC.

RE: H.R. 1689, Securities Litigation Uniform Standards Act of
1998

Dear Representative: The state and local government
organizations listed above write in opposition to H.R. 1689,
the Securities Litigation Uniform Standards Act of 1998, as
reported by the House Committee on Commerce, which is
scheduled to be considered by the full House early this week.
Our most significant concerns are the following:
Despite the preservation of the right of state and local
governments to their pension plans to pursue class actions in
state courts which is included in H.R. 1689, the limitation
on this right that those in the class must be named
plaintiffs and authorize such participation will severely
limit the ability of the most vulnerable public entities to
recover their losses. State and local governments support the
underlying provision to preserve the fundamental right of a
state or local government or public pension plan to bring a
class action in state court. However, we believe that the
limitation placed on that right in H.R. 1689 will effectively
exclude the most vulnerable public entities, such as small
pension plans. These fraud victims are the least likely to be
aware of a pending class action and may be unable to initiate
a suit on their own. These parties potentially have the most
to lose in case of fraud, yet this provision virtually
eliminates their ability to recover their losses.
H.R. 1689 fails to reinstate liability for secondary
wrongdoers who aid and abet securities fraud. Despite two
opportunities to do so since the Supreme Court struck down
for private actions aiding and abetting liability for
wrongdoers who assist in perpetrating securities fraud,
Congress appears to be on the verge of not only failing to
reinstate such liability but extending it to the states.
H.R. 1689 fails to reinstate more a reasonable statute of
limitations for defrauded investors to file a claim. As in
the case of aiding and abetting, Congress has now had two
opportunities to reinstate a longer, more reasonable statute
of limitations for defrauded investors to bring suit. Many
frauds are not discovered within this shortened time
period, but this bill misses the opportunity to make
wronged investors whole by not including this provision in
H.R. 1689 and by extending the existing unreasonably
narrow time period in which suits may be brought to the
states.
The definition of ``class action'' contained in H.R. 1689
is overly broad. We believe that the definition of class
action in H.R. 1689 would allow single suits filed by
individual plaintiffs to be rolled into a larger class action
that was never contemplated or desired by individual
plaintiffs and have it removed to federal court. Claims by
the bill's proponents that individual plaintiffs would still
be able to bring suit in federal court are undercut by this
provision. We believe that no showing has been made of the
need for a securities law definition of class action which
differs from that of other types of class actions under the
Federal Rules of Civil Procedure.
There have been few state securities class actions filed
since the Private Securities Litigation Reform Act of 1995
(PSLRA) was passed. Despite the claims of the bill's
proponents, tracking by the Price Waterhouse accounting firm
shows that only 44 securities class actions were filed in
state court for all of 1997, compared with 67 in 1994 and 52
in 1995. Most of these cases were filed in California,
indicating that, if there is a problem in that state, it is
one which should be dealt with at the state level. Citizens
of the other 49 states should not be penalized as a result of
a unique situation in a single state.
The PSLRA was opposed by state and local governments
because the legislation did not strike an appropriate
balance, and this legislation extends that mistake to state
courts. As both issuers of debt and investors of public
funds, state and local governments seek to not only reduce
frivolous lawsuits but to protect their investors who are
defrauded in securities transactions. The full impact of that
statute on investor rights and remedies remains unsettled
because even now many parts of the PSLRA have not been fully
litigated; however, this untested law would now be extended
to state courts.
The above organizations believe that states must be able to
protect state and local government funds and their taxpayers
and that H.R. 1689 inhibits these protections. We urge you to
oppose preemption efforts which interfere with the ability of
states to protect their public investors and to maintain
investor protections for both public investors and their
citizens.

Mr. STUPAK. Mr. Speaker, I yield 2 minutes to the gentlewoman from
Colorado (Ms. DeGette).
Ms. DeGETTE. Mr. Speaker, I rise in opposition to H.R. 1689, the
Securities Litigation Uniform Standards Act. I too believe that strike
suits can be a problem, but I believe more importantly that defrauded
investors who cannot recover their losses is a greater problem, and
furthermore the way we are superseding long established State laws is a
problem as well.
I am concerned like everyone else that many of these lawsuits are
being pursued by a very small number of attorneys who are only looking
to make money for themselves at the expense of newly emerging high tech
firms. These lawsuits can cost a company millions. The issue needs to
be addressed. But frankly the issue to this date has been quite
limited.
Both proponents and opponents of the bill agree that the number of
suits have actually declined in the last year. I believe we would be
setting a dangerous precedent by going in and blatantly preempting
State securities laws, many of which were passed before the Federal
Securities Act of 1933, and many of these States which have long
established bodies of blue sky laws and securities cases in their own
States.
I have significant federalism concerns about this bill. I think
anybody on either side of the aisle who cares about States rights ought
to have significant federalism concerns. This is an issue which is
important but it is also an issue that is limited in its impact to date
and it is an issue where if we pass legislation today, we will severely
restrict State laws that protect investors and protect small investors
most importantly. For that reason, I urge rejection of this bill. It is
premature, and

[[Page H6059]]

we need to find out a way that States can pass appropriate laws without
having them be preempted by Federal law.
Mr. BLILEY. Mr. Speaker, I yield 1 minute to the gentlewoman from
California (Ms. Eshoo) who has been most helpful in this legislation.
Ms. ESHOO. Mr. Speaker, I rise today in support of this legislation
which I am very proud to have been the chief Democratic sponsor of,
H.R. 1689. This is a narrowly focused bipartisan bill that closes a
loophole in the 1995 Private Securities Litigation Reform Act that
allowed for, or created really, a circumvention to State courts.
The migration to State courts is not a minor problem. It represents
an undermining of the core reforms that this Congress implemented in
1995 because the reform act relied on uniform application and
enforcement of the law in order to be effective. The bill is needed
because as long as frivolous strike suits are threatening high growth
companies, they will be held hostage. Consumers are hurt because the
companies will not use the safe harbor provision in the 1995 law.
Mr. Speaker, I have a very limited amount of time, one minute, to try
to summarize a year and a half's work, and so I want to spend the
remaining seconds to thank the gentleman from Virginia (Mr. Bliley),
the gentleman from Michigan (Mr. Dingell), the gentleman from Ohio (Mr.
Oxley), the gentleman from New York (Mr. Manton), the gentleman from
Louisiana (Mr. Tauzin) and the gentleman from Massachusetts (Mr.
Markey). I also want to thank my very effective partner the gentleman
from Washington (Mr. White). It has been a pleasure to work with him
and all that have been a part of this. I urge adoption of this
legislation. I think the 105th Congress will distinguish itself by
doing so.
Mr. STUPAK. Mr. Speaker, I yield 4 minutes to the gentleman from
Massachusetts (Mr. Markey).
Mr. MARKEY. Mr. Speaker, this is a terrible bill. I mean really a bad
one, a stinker. Write it down, top 10 this year, Bad Bills.
When I was reviewing the legislation, I was reminded of a poem that I
once learned as a child:

As I was going up the stair
I met a man who wasn't there.
He wasn't there again today;
Oh, how I wish that he'd stay away.

{time} 2045

The proponents of this bill would have you believe that a man has
appeared on the stair in the form of investors flocking from Federal to
State courts pursuing frivolous class action suits against honest
corporate chieftains.
But the fact is that the number of class actions filed in the States
is lower this year than it was last year. In fact, it is lower this
year than it was in the year before this Congress passed their Federal
Securities Litigation Reform Act in 1995. Fewer State class actions,
this year. So there is no increase in State class action suits. People
are not looking for that as a loophole around the Federal class action
law. It is just not happening.
In fact, what is happening is the loophole that is being closed is
the one that the authors of this bill in 1995 told us would still be
open, which is that they were not going to touch the State securities
laws, that we should not complain, because people can still go to their
own home States.
That is the loophole. The loophole is that people who do not want
ordinary citizens to be able to ban together in order to protect
themselves against fraud are going to have that final door shut in
their face with a much-heightened standard, making it much more
difficult than ever before for individuals banding together to go in if
they have been defrauded.
And believe me, when the market goes up 4,000 or 5,000 points in 3 or
4 years, the bad stocks and the fraudulent stocks go up with the good
stocks. You do not find out which ones were the fraudulent ones until
the market goes down. Believe me, Newton's law of gravity will take
hold here, working in combination with Adam Smith in the future. We
will find out that that is the case.
But what do they do? They say, if you find out that you have been
defrauded, you cannot any longer rely upon your State's laws for how
much time you have. In Massachusetts right now, my home State, by the
way, there have only been three class action suits brought in
Massachusetts in the last 3 years. Three in 3 years, none of them
against high-tech companies. What an epidemic. Three in 3 years. None
against high-tech companies.
There are 65 in California. If they have got a problem in California,
go to Sacramento. That is why we have State legislatures. Devolution,
have you heard about it? It is a big movement in the 1990s. Go to the
State legislatures. If you have got a problem, go there.
We should be voting on this. The assembly? The Senate? California?
Big debate? Have you heard about it? No, I have not. They come to
Washington. I do not get it.
We do not have a problem in Massachusetts. By the way, none in
Pennsylvania, Virginia, Louisiana, across most of the country, no
suits. What are we doing here? We should be in Sacramento. It is
cooler. It is 95 degrees here in Washington. We should be watching the
California State legislature in California debating this great crisis.
No, there is no man on the stair except for those who are trying to
cut away those rights and privileges that for 60 years have been given
to all investors across this country.
Mr. Speaker, I include the following comparison for the Record:

STATE BY STATE COMPARISON OF STATUTE OF LIMITATIONS AND AIDING AND
ABETTING LIABILITY
------------------------------------------------------------------------
Statute of Aiding and
Locality Limitations Abetting
------------------------------------------------------------------------
Federal......................... 1 year after No.
discovery/3 years
from sale.
Alabama......................... 2 years after Yes.
discovery of the
facts.
Alaska.......................... 3 years from the Yes.
contract for sale.
Arizona......................... 2 years after Yes.
discovery of the
facts.
Arkansas........................ 5 years after Yes.
discovery.
California...................... 1 year after Yes.
discovery/4 years
from sale.
Colorado........................ 3 years after Yes.
discovery/5 years
from sale.
Connecticut..................... 1 year after Yes.
discovery/3 years
from sale.
Delaware........................ 3 years from the Yes.
contract for sale.
D.C............................. 2 years from the Yes.
transaction upon
which it is based.
Florida......................... 2 years after Yes.
discovery/5 years
from sale.
Georgia......................... 2 years from the Yes.
transaction upon
which it is based.
Hawaii.......................... 2 years after Yes.
discovery/5 years
from sale.
Idaho........................... 3 years from the Yes.
contract of sale.
Illinois........................ 3 years after Yes.
discovery/5 years
from sale.
Indiana......................... 3 years after Yes.
discovery of the
facts.
Iowa............................ 2 years after Yes.
discovery/5 years
from sale.
Kansas.......................... 3 years after Yes.
discovery of the
facts.
Kentucky........................ 3 years from the Yes.
contract for sale.
Louisiana....................... 2 years from the Yes.
transaction upon
which it is based.
Maine........................... 2 years after Yes.
discovery of the
facts.
Maryland........................ 1 year after Yes.
discovery/3 years
from sale.
Massachusetts................... 4 years after Yes.
discovery.
Michigan........................ 2 years after Yes.
discovery/4 years
from sale.
Minnesota....................... 3 years from the Yes.
contract for sale.
Mississippi..................... 2 years after Yes.
discovery of the
facts.
Missouri........................ 3 years from the Yes.
contract for sale.
Montana......................... 2 years after Yes.
discovery/5 years
from sale.
Nebraska........................ 3 years from the Yes.
contract for sale.
Nevada.......................... 1 year after Yes.
discovery/5 years
from sale.
New Hampshire................... 6 years from the Yes.
contract for sale.
New Jersey...................... 2 years after Yes.
discovery of the
facts.
New Mexico...................... 2 years after Yes.
discovery/5 years
from sale.
New York........................ 6 years after sale. Yes.
North Carolina.................. 2 years after Yes.
discovery of the
facts.
North Dakota.................... 5 years after Yes.
discovery of the
facts.
Ohio............................ 2 years after Yes.
discovery/4 years
from sale.
Oklahoma........................ 2 years after Yes.
discovery/3 years
from sale.
Oregon.......................... 2 years after Yes.
discovery/3 years
from sale.
Pennsylvania.................... 1 year after Yes.
discovery/4 years
from sale.
Rhode Island.................... 1 year after Yes.
discovery/3 years
from sale.
South Carolina.................. 3 years from the Yes.
contract for sale.
South Dakota.................... 2 years after Yes.
discovery/3 years
from sale.
Tennessee....................... 1 year after Yes.
discovery/2 years
from sale.
Texas........................... 3 years from Yes.
discovery/5 years
from sale.
Utah............................ 2 years after Yes.
discovery/4 years
from sale.
Vermont......................... 6 years from the Yes.
contract for sale.
Virginia........................ 2 years from the Yes.
transaction upon
which it is based.
Washington...................... 3 years after Yes.
discovery of the
facts.
West Virginia................... 3 years from the Yes.
contract for sale.
Wisconsin....................... 3 years after Yes.
discovery of the
facts.
Wyoming......................... 2 years from the Yes.
transaction.
------------------------------------------------------------------------

Mr. BLILEY. Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore (Mr. Dickey). The gentleman from Virginia
(Mr. Bliley) has 7\3/4\ minutes remaining.
Mr. BLILEY. Mr. Speaker, I yield 2 minutes to the gentleman from
California (Mr. Cox).
Mr. COX of California. Mr. Speaker, I appreciate, too, my colleague's
remarks. I have not heard that poem for a while, even though I have
little kids age 5 and 4. But I do think of Little Red Riding Hood. Do
you remember when the wolf is licking his chops and so on? Here, it is
not the investors that the wolf is worried about. The wolf wants to eat
the investors.
The stockholders here are being taken advantage of by lawyers who

[[Page H6060]]

bring lawsuits for their own benefit, and that is what the 1995 Private
Securities Litigation Reform Act was all about.
There are a lot of these suits. There have been a lot of these suits.
Over half of the top 150 companies in Silicon Valley alone were hit by
such suits that were regulated by the 1995 Private Securities
Regulation Reform Act.
The enormous price that investors had to pay in these suits,
according to one study, amounted on average to $9 million for each
settlement. That comes out of the company, out of the investors' hides.
But it goes to the lawyers. The plaintiffs, the supposed beneficiaries
of this system, on average, received from these $9 million, on average,
settlements between 6 cents and 14 cents on the dollar.
That is why such a strong bipartisan majority of the House and the
Senate have acted first to bring us the 1995 Private Securities
Litigation Reform Act and now to bring us this very, very worthy
legislation, the White-Eshoo Securities Litigation Uniform Standards
Act of 1998.
I want to join in congratulating my colleagues, the gentleman from
Washington (Mr. White) and the gentleman from California (Ms. Eshoo)
for their tireless efforts on behalf of this legislation as well as the
gentleman from Virginia (Mr. Bliley) and the gentleman from Ohio (Mr.
Oxley) for their leadership in bringing to us this point.
In addition, finally, I want to highlight a provision added in the
committee by the gentleman from Virginia (Mr. Bliley) that gets
directly to the point raised by my colleague, the gentleman from
Massachusetts (Mr. Markey), and that is giving States the opportunity
themselves to handle the implementation of their own laws.
The continued viability of the section 3(a)(10) of the Securities Act
of 1933 is unwritten in this legislation, as well as it should be, and
I thank my colleagues for doing such good and worthy work.
A strong bipartisan majority of the House and Senate acted in 1995 to
reorient federal securities litigation to encourage investors to bring
meritorious claims while protecting innocent employers from meritless
extortion suits. We acted to protect the millions of innocent investors
who were bearing the cost of meritless lawsuits while gaining little or
no recompense for genuine fraud.
In 1996, strong bipartisan majorities of the House and Senate again
turned to the issue of securities law, this time addressing the
appropriate division of labor between state and federal securities
regulators. In that historic bill we determined that ``covered
securities''--basically, those traded on national exchanges--would be
subject to federal regulation, while non-covered securities would be
regulated by the states.
Today we are going to continue our work in this field of law by
protecting the gains we made in the 1995 Reform Act from circumvention
by entrepreneurial trial lawyers, and by harmonizing the 1995 Reform
Act and the 1996 National Markets legislation.
Trial lawyers have sought to get around our 1995 reforms by bringing
their suits in state courts, where those reforms do not apply. Yet as
our capital markets are national, and thus investors may live in any of
the 50 states, bringing a suit in one state unfairly imposes a
financial burden on residents of another state. To address this
inequity and assert that national markets require nationally applied
rules, this legislation will make federal courts the exclusive venue
for large-scale securities fraud lawsuits involving securities subject
to federal regulation under the 1996 National Markets Act.
Because questions have been raised about the 1995 Reform Act both in
Committee and in the other body, I would like to take this
opportunity--as a principal proponent of the Act--to discuss what
Congress did, and did not, do in 1995.
First, with respect to scienter under the 1934 Act: In Ernst & Ernst
v. Hochfelder, the Supreme Court made clear that, as a necessary
element of a cause of action under Rule 10b-5, a plaintiff must show
that the defendant acted with ``scienter,'' which the Court described
as ``a mental state embracing intent to deceive, manipulate, or
defraud.'' [425 U.S. 185 (1976)] The Court in Hochfelder expressly left
open the question whether extreme recklessness could ever supply this
necessary intent element, although subsequent judicial decisions have
noted that the language and structure of the Act ``evidenced a purpose
to proscribe knowing or intentional misconduct.'' [Aaron v. SEC, 680,
691 (1980)]
Many Members of Congress and of the Conference Committee that
considered the Reform Act believed then, and believe today, that
recklessness--the oxymoronic ``unintentional fraud''--is not an
appropriate or workable basis for Rule 10b-5 liability. In practice, it
has proven difficult to distinguish from certain forms of negligence,
and has resulted in little uniformity of treatment among even courts
that purport to follow the same standard of scienter.
However, other House and Senate Members felt differently, and the Act
as enacted left to the courts the determination of the
scienter standard on the basis of the pre-existing, unamended 1934 Act.
I, for one, believe that the Supreme Court will ultimately determine
that the text, structure, and legislative history of the 1934 Act
clearly require intentional conduct to impose liability.

With respect to the pleading standard in the 1995 Act, here again the
legislative intent is quite clear that we intended to codify a pleading
standard higher than that of the Second Circuit, and that we did not
intend to codify or incorporate by reference the Second Circuit's
caselaw interpreting that caselaw. As explained in the Statement of
Managers, ``The Conference Committee language is based in part on the
pleading standard of the Second Circuit . . . Because the Conference
Committee intends to strengthen existing pleading requirements, it does
not intend the codify the Second Circuit's caselaw interpreting this
pleading standard.'' And we went on to specifically explain that this
was the reason why we dropped the so-called Specter Amendment on
motive, opportunity, and recklessness--because we wanted a standard
higher than the Second Circuit's, not because the Specter language was
implicit in our own Act's language.
The President was certainly quite clear about our Conference Report
language: In his December 20, 1995 veto message, he wrote, and I am
quoting:

I am prepared to support the high pleading standard of the
U.S. Court of Appeals for the Second Circuit--the highest
pleading standard of any Federal circuit court. But the
conferees make crystal clear in the Statement of Managers
their intent to raise the standard even beyond that level. I
am not prepared to accept that. The conferees deleted an
amendment offered by Senator Specter and adopted by the
Senate that specifically incorporated Second Circuit case law
with respect to pleading a claim of fraud. Then they
specifically indicated that they were not adopting Second
Circuit case law but instead intended to ``strengthen'' the
existing pleading requirements of the Second Circuit. All
this shows that the conferees meant to erect a higher barrier
to bringing suit than any now existing . . .

The President correctly described the 1995 Reform Act's intent though
not its effect. It's ironic that he and other Members of his party,
having failed to kill reform openly in 1995, now seek to rewrite the
history of the battle they lost.
In addition, I want to again highlight a provision added in the
Committee by Chairman Bliley that makes a technical correction to the
1996 Fields bill. This correction restores the viability of Section
3(a)(10) of the Securities Act of 1933, which provides a voluntary
state-law alternative to federal securities registration. This
provision--which has been an unamended part of the 1933 Act since the
enactment of that legislation, exempts from federal registration
securities issued in exchange for other securities, claims, or property
interests, if the terms and conditions of the issuance and exchange
have been approved as fair by state authorities. It is purely
voluntary; issuers may still seek federal registration if they wish.
Although the 1996 Act does not amend Section 3(a)(10), it inadvertently
impeded its operation. I appreciate the Chairman's consideration in
including a curative technical amendment endorsed by the California
securities regulatory authority in the manager's amendment.
I look forward to the House's passage of this legislation, and I
thank the Chairman and my colleagues for their tireless efforts on
behalf of this legislation. Together we have protected investors from
frivolous lawsuits in the past, and today we shall ensure that this
stands in the future.
Mr. STUPAK. Mr. Speaker, I yield 1\1/2\ minutes to the gentleman from
Mississippi (Mr. Taylor).
Mr. TAYLOR of Mississippi. Mr. Speaker, 1995 is a part of Speaker
Gingrich's Contract With America as Congress passed a bill that was
called the Private Securities Litigation Reform Act.
The net result of it was that the only way that a person who
intentionally defrauded hard working Americans or retirees of their
pension funds can be convicted of doing so would be to walk into a
courtroom and say ``I stole from you.'' Just a handful of us voted
against it. The President vetoed it. Then a handful of us voted against
it again.
Some people who care about working people who do not hang out at the
Republican National Committee fund-raising headquarters or the
Democratic

[[Page H6061]]

National Committee fund-raising headquarters but actually care about
working people have discovered there is still one chance to keep these
people from defrauding working people; and that is if we take them to
State court.
Now they want to take even that away because they do not want to
protect them because there is no big money in it. The big money is in
defrauding people. Ask Michael Milliken. This is a horrible bill. It
hurts people that live in my district. It hurts people that live in
your district.
They count on us to protect them. They count on us to protect them.
They do not have any money. They cannot write us $1,000 checks for our
campaign. But they count on us to pass laws that are going to look out
for them because they are too busy making a living to do it themselves.
So if you want to defraud them of their pension, vote for it. But if
you do not, vote against it.
Mr. BLILEY. Mr. Speaker, I yield 1 minute to the gentleman from
California (Mr. Cox).
Mr. COX of California. Mr. Speaker, I rise for a colloquy with the
gentlewoman from California, the principal Democratic sponsor of H.R.
1689.
I note that some question was raised during consideration of her
legislation about the 1995 Reform Act's effect on standards of
liability under the Exchange Act.
Is it the gentlewoman's understanding that, in adopting her
legislation today, Congress does not intend to alter standards of
liability under the Exchange Act?
Mr. Speaker, I yield to the gentlewoman from California.
Ms. ESHOO. Mr. Speaker, it is my clear understanding that, adopting
this legislation, Congress does not intend to alter standards of
liability under the Exchange Act.
I would further like to ask the gentleman from California, who was
author of the '95 Reform Act, whether it is his understanding that
Congress did not, in adopting the Reform Act, intend to alter standards
of liability under the Exchange Act?
Mr. COX of California. The gentlewoman is correct. It is my clear
understanding that Congress did not, in adopting the Reform Act, intend
to alter standards of liability under the Exchange Act.
Mr. STUPAK. Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore. The gentleman from Michigan has 5\1/2\
minutes remaining.
Mr. STUPAK. Mr. Speaker, I yield 5 minutes to the gentleman from
Michigan (Mr. Dingell), the ranking member of the Committee on
Commerce.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Mr. Speaker, as Yogi Berra said, this is deja vu all
over again. In 1995, my Republican colleagues came up with a splendid
idea that we should close the courthouse door to innocent investors who
had been wronged by scoundrels, rogues and rascals. They found that
there was a loophole, however. That loophole is that, guess what, could
investors still go to the State courts. But that was exactly what the
citizens were told they could do when we passed that earlier
legislation.
Now we are closing that loophole and we are going to nail shut the
courthouse doors of the State courts so a citizen wronged cannot now go
to a State court.
The 1995 act imposed extraordinary pleading standards, a stay of
discovery so that special facts necessary to meet those heightened
pleading standards could not be reached, and an unreasonably short time
limit or statute of limitations for filing a fraud claim, and no
ability existed under that law to fully recover from professionals such
as accountants and lawyers who aided and abetted in stealing funds from
innocent investors.
Those same standards are now extended to State courts by fiat of the
Federal Government.
I am curious why it is my colleagues on the Republican side, who talk
about States rights, are so diligently imposing this kind of mandate on
investors and upon the States.
There may be no real ability now, if this passes, for innocent
investors to procure the relief that they are entitled to, and. The
Chairman of the SEC wrote that: ``it is too early to assess with any
confidence the important effects of the Reform Act and, therefore, on
this basis, it is premature to propose legislative changes.''
The assessment of what we did in 1995 is going to take a long time,
but it is very clear that now Federal courts are ruling so
restrictively that they threaten almost all private enforcement.
The SEC has filed complaints with the courts pointing out in amicus
curiae briefs the evils of this situation. What are we doing today?
Nailing shut the State court doors, and we are fixing it so that no
little investor can expect much relief in State courts any more than he
can in Federal courts.
We do this at a time when the market is at an all time high. We also
do it at a time when securities fraud is up, way up. The New York
Attorney General has reported that investor complaints have risen 40
percent per year in the last 2 years. The U.S. Attorney in New York
City has stated that she has witnessed an explosion of securities
fraud; and organized crime has now infiltrated Wall Street.
Why then are we passing legislation to give immunity baths to
wrongdoers and also to aiders and abetters?
Finally, I note that Members have not had adequate time to review the
committee report. I want to commend my good friend the gentleman from
Virginia (Mr. Bliley) and the distinguished gentlewoman from California
(Ms. Eshoo) for their part in this. We narrowly avoided a train wreck
over the last 2 days because there was an effort made to insert
language into the committee report that would have made the plight of
investors totally hopeless, and I do commend my friend, the chairman of
the committee and of the subcommittee, and the bill's sponsors for
blocking that effort.
During the hearing before the subcommittee, the SEC expressed clear
concern about District Court cases interpreting the 1995 pleading
standards. All 10 Courts of Appeals have considered that question and
held that recklessness gives rise to liability.
I note that the legislative history for H.R. 1689 will not seek to
alter the standard of liability under the Exchange Act.
Mr. Speaker, I include copies of important letters from the White
House, the SEC, the leadership of the Senate Banking Committee on this
matter, as follows:

The White House,

Washington, April 28, 1998.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing & Urban Affairs, U.S.
Senate, Senate Hart Office Building, Washington, DC.

Hon. Phil Gramm,
Chairman, Subcommittee on Securities, U.S. Senate, Senate
Russell Office Building, Washington, DC.

Hon. Christopher J. Dodd,
Ranking Member, Subcommittee on Securities, U.S. Senate,
Senate Russell Office Building, Washington, DC.
Dear Chairman D'Amato, Chairman Gramm, and Senator Dodd: We
understand that you have had productive discussions with the
Securities and Exchange Commission (SEC) about S. 1260, the
Securities Litigation Uniform Standards Act of 1997. The
Administration applauds the constructive approach that you
have taken to resolve the SEC's concerns.
We support the amendments to clarify that the bill will not
preempt certain corporate governance claims and to narrow the
definition of class action. More importantly, we are pleased
to see your commitment, by letter dated March 24, 1998, to
Chairman Levitt and members of the Commission, to restate in
S. 1260's legislative history, and in the expected debate on
the Senate floor, that the Private Securities Litigation
Reform Act of 1995 did not, and was not intended to, alter
the scienter standard for securities fraud actions.
As you know, uncertainty about the impact of the Reform Act
on the scienter standard was one of the President's greatest
concerns. The legislative history and floor statements that
you have promised the SEC and will accompany S. 1260 should
reduce confusion in the courts about the proper
interpretation of the Reform Act. Since the uniform standards
provided by S. 1260 will provide that class actions generally
can be brought only in federal court, where they will be
governed by federal law, it is particularly important to the
President that you be clear that the federal law to be
applied includes recklessness as a basis for pleading and
liability in securities fraud class actions.
So long as the amendments designed to address the SEC's
concerns are added to the legislation and the appropriate
legislative history and floor statements on the subject

[[Page H6062]]

of legislative intent are included in the legislative record,
the Administration would support enactment of S. 1260.
Sincerely,

Bruce Lindsey,

Assistant to the President
and Deputy Counsel.

Gene Sperling,

Assistant to the President
for Economic Policy.
____

U.S. Senate,

Washington, DC, March 24, 1998.
Hon. Arthur Levitt,
Chairman, Securities & Exchange Commission, Washington, DC.
Dear Chairman Levitt and Members of the Commission: We are
writing to request your views on S. 1260, the Securities
Litigation Uniform Standards Act of 1997. As you know, our
staff has been working closely with the Commission to resolve
a number of technical issues that more properly focus the
scope of the legislation as introduced. We attach for your
review the amendments to the legislation that we intend to
incorporate into the bill at the Banking Committee mark-up.
On a separate but related issue, we are aware of the
Commission's long-standing concern with respect to the
potential scienter requirements under a national standard for
litigation. We understand that this concern arises out of
certain district courts' interpretation of the Private
Securities Litigation Reform Act of 1995. In that regard, we
emphasize that our clear intent in 1995--and our
understanding today--was that the PSLRA did not in any way
alter the scienter standard in federal securities fraud
suits. It was our intent, as we expressly stated during the
legislative debate in 1995, particularly during the debate on
overriding the President's veto, that the PSLRA adopt the
pleading standard applied in the Second Circuit. Indeed, the
express language of the statute itself carefully provides
that plaintiffs must ``state with particularity facts giving
rise to a strong inference that the defendant acted with the
required state of mind''; the law makes no attempt to define
the state of mind. We intend to restate these facts about the
'95 Act in both the legislative history and the floor debate
that will accompany S. 1260, should it be favorably reported
by the Banking Committee.
Sincerely,

Alfonse M. D'Amato,

Chairman, Committee on Banking,
Housing & Urban Affairs.
Phil Gramm,
Chairman, Subcommittee on Securities.

Christopher J. Dodd,

Ranking Member,
Subcommittee on Securities.
____

U.S. Securities

and Exchange Commission

Washington, DC, March 24, 1998.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing & Urban Affairs, U.S.
Senate, Senate Hart Office Building Washington, DC.

Hon. Phil Gramm,
Chairman, Subcommittee on Securities, U.S. Senate, Senate
Russell Office Building, Washington, DC.

Hon. Christopher J. Dodd,
Ranking Member, Subcommittee on Securities, United States
Senate, Senate Russell Office Building, Washington, DC.
Dear Chairman D'Amato, Chairman Gramm, and Senator Dodd:
You have requested our views on S. 1260, the Securities
Litigation Uniform Standards Act of 1997, and amendments to
the legislation which you intend to offer when the bill is
marked-up by the Banking Committee. This letter will present
the Commission's position on the bill and proposed
amendments. (We understand that Commissioner Johnson will
write separately to express his differing views. Commissioner
Carey is not participating.)
The purpose of the bill is to help ensure that securities
fraud class actions involving certain securities traded on
national markets are governed by a single set of uniform
standards. While preserving the right of individual investors
to bring securities lawsuits wherever they choose, the bill
generally provides that class actions can be brought only in
federal court where they will be governed by federal law.
As you know, when the Commission testified before the
Securities Subcommittee of the Senate Banking Committee in
October 1997, we identified several concerns about S. 1260.
In particular, we stated that a uniform standard for
securities fraud class actions that did not permit investors
to recover losses attributable to reckless misconduct would
jeopardize the integrity of the securities markets. In light
of this profound concern, we were gratified by the language
in your letter of today agreeing to restate in S. 1260's
legislative history, and in the expected debate on the Senate
floor, that the Private Securities Litigation Reform Act of
1995 did not, and was not intended to, alter the well-
recognized and critically important scienter standard.
Our October 1997 testimony also pointed out that S. 1260
could be interpreted to preempt certain state corporate
governance claims, a consequence that we believed was neither
intended nor desirable. In addition, we expressed concern
that S. 1260's definition of class action appeared to be
unnecessarily broad. We are grateful for your responsiveness
to these concerns and believe that the amendments you propose
to offer at the Banking Committee mark-up, as attached to
your letter, will successfully resolve these issues.
The ongoing dialogue between our staffs has been
constructive. The result of this dialogue, we believe, is an
improved bill with legislative history that makes clear, by
reference to the legislative debate in 1995, that Congress
did not alter in any way the recklessness standard when it
enacted the Reform Act. This will help to diminish confusion
in the courts about the proper interpretation of that Act and
add important assurances that the uniform standards provided
by S. 1260 will contain this vital investor protection.
We support enactment of S. 1260 with these changes and with
this important legislative history.
We appreciate the opportunity to comment on the
legislation, and of course remain committed to working with
the Committee as S. 1260 moves through the legislative
process.
Sincerely,
Arthur Levitt,
Chairman.
Issac C. Hunt, Jr.,
Commissioner.
Laura S. Unger,
Commissioner.
____

U.S. Securities

and Exchange Commission,

Washington, DC, March 24, 1998.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing & Urban Affairs, U.S.
Senate, Senate Hart Office Building, Washington, DC.

Hon. Phil Gramm,
Chairman, Subcommittee on Securities, U.S. Senate, Senate
Russell Office Building, Washington, DC.

Hon. Christopher J. Dodd,
Ranking Member, Subcommittee on Securities, U.S. Senate,
Senate Russell Office Building, Washington, DC.
Dear Chairman D'Amato, Chairman Gramm, and Senator Dodd: It
is with regret that I find myself unable to join in the views
expressed by my esteemed colleagues in their letter of
today's date. For that reason I feel compelled to write
separately to express my own differing views.
Consistent with the opinion the Commission and its staff
have repeatedly taken, I believe that there has been
inadequate time to determine the overall effects of the
Private Securities Litigation Reform Act of 1995, and that
the proponents of further litigation reform have not
demonstrated the need for preemption of state remedies or
causes of action at this time.
In the last few years, we have experienced a sustained bull
market virtually unmatched at any time during this nation's
history. I therefore question the necessity of the
displacement of state law in favor of a single set of uniform
federal standards for securities class action litigation. The
Commission is the federal agency charged with protecting the
rights of investors. In my opinion, S. 1260, the Securities
Litigation Uniform Standards Act of 1997, does not promote
investors' rights. I share in the views of 27 of this
country's most respected securities and corporate law
scholars who have urged you and your colleagues not to
support S. 1260 or any other legislation that would deny
investors their right to sue for securities fraud under state
law.
In addition, data amassed by the Commission's staff,
compiled in unbiased external studies, indicate that the
number of state securities class actions has declined during
the last year to pre-Reform Act levels. Indeed, a report by
the National Economic Research Associates concluded that the
number of state court filings in 1996 was ``transient.''
Under these circumstances, S. 1260 seems premature at the
least.
This country has a distinguished history of concurrent
federal and state securities regulation that dates back well
over 60 years. Given that history, as well as the strong
federalism concerns that S. 1260 raises, I believe that much
more conclusive evidence than currently exists should be
required before state courthouse doors are closed to small
investors through the preclusion of state class actions for
securities fraud.
Sincerely,
Norman S. Johnson,
Commissioner.
Mr. Speaker, in closing, this is an outrageously bad bill. The Wall
Street and our financial markets do not run on money. They run on
public confidence. When you take away the public confidence, no one
makes money. If you allow the people of this country to have confidence
in their investments and in the marketplace, the market will produce a
lot of money for everyone.
This bill strikes at one of the most fundamental rights that the
people of this country have, the ability to sue to

[[Page H6063]]

protect themselves from wrongdoing and to collect damages from
wrongdoing and from wrongdoers. I would observe that this bill takes
away that right.
It also attacks public confidence in the securities market, something
which is going to cost this country dearly. I urge a no vote on the
outrageous legislation.

{time} 2100

Mr. BLILEY. Mr. Speaker, I yield one minute to the gentleman from New
York (Mr. Manton), the ranking member of the subcommittee.
Mr. STUPAK. Mr. Speaker, I yield the balance of my time, 30 seconds,
to the gentleman from New York, in appreciation for the time the
gentleman has served in this House.
The SPEAKER pro tempore (Mr. Dickey). The gentleman from New York
(Mr. Manton) is recognized for 1\1/2\ minutes.
(Mr. MANTON asked and was given permission to revise and extend his
remarks.)
Mr. MANTON. Mr. Speaker, I thank the gentlemen for yielding me time.
Mr. Speaker, I rise in reluctant support for the legislation before
the House. While I support the underlying goals of the measure to bring
greater uniformity to the rules governing securities fraud class action
suits, I am concerned that in our rush to bring this bill to the floor
for consideration, we are not following the normal legislative process.
Mr. Speaker, this is an important and complicated piece of
legislation which will have far-reaching effects. The bill requires and
deserves appropriate review by the House. However, both proponents and
opponents of this legislation are being denied this opportunity because
we are considering the legislation under suspension of the rules.
I am especially disappointed in the process we are following, because
it will result in a provision I strongly support and believe brought
much-needed balance to this measure being stripped from the bill as
part of the motion to suspend. This provision would have granted
nationwide service of process authority to the SEC, thus providing the
Commission a greater ability to prosecute cases involving securities
fraud.
Mr. Speaker, while we look at ways to create national uniform
standards for securities fraud litigation, we should also certainly
look at ways to give State and Federal securities regulators the means
necessary to seek out and stop dishonest operators that perpetuate
securities fraud across State lines. My language, a provision which was
part of an overall agreement, a compromise, if you will, to move this
legislation forward, would have addressed this very issue.
Mr. Speaker, I understand that the decision to strike this provision
rests primarily on jurisdictional grounds, not necessarily substantive
ones. I hope we can work this out with our colleagues as the process
moves along.
Mr. BLILEY. Mr. Speaker, I yield 1 minute to the gentleman from
Florida (Mr. Deutsch), a member of the committee.
Mr. DEUTSCH. Mr. Speaker, I want to focus in on two issues that my
colleagues raised. The first is that frivolous lawsuits have a cost.
They have a cost for all Americans. They have a cost in access to
capital, they have a cost in lack of job creation.
That is what this issue is really about. We have seen it, we have
seen an actual cost. The strike lawsuits that still exist in this
country that found a loophole that this legislation is trying to
correct have a terrible effect on the country, and the only way to
prevent it is through this legislation.
The second thing I want to respond to is really some of the comments
about the number of lawsuits, that it is a problem that does not exist.
Let me be very clear about this, how you can use numbers and sort of
play around with numbers.
In 1992, there were only four State cases that were brought on this
issue. In 1993 there was one. In 1994 there was one. After we passed
the legislation, there were 59 in 1995. In 1996, there were 40. So,
yes, there was a decrease between 1995 and 1996, but the only reason we
saw a 6,000 percent increase over 1995 levels and 4,000 percent
increase over 1995 levels was because of the loophole that this
legislation needs to be able to solve.
Mr. Speaker, I urge its support.
Mr. BLILEY. Mr. Speaker, I yield the balance of my time to the
gentleman from Ohio (Mr. Oxley), the chairman of the subcommittee, to
close debate on our side.
(Mr. OXLEY asked and was given permission to revise and extend his
remarks.)
Mr. OXLEY. Mr. Speaker, I rise in support of this legislation to
close the loophole that enables plaintiff's lawyers to continue to sue
for what Judge Friendly called ``blackmail settlements.'' Blackmail
settlements occur, of course, when trial lawyers attempt to hold up
very effective companies who have had particular problems with their
stock and end up spending a great deal of money that could be used for
more useful purposes, like research and development and creating jobs,
aiding economic expansion. And who pays for that? Really investors do.
The company's shareholders and employees lose every time that the
company has to pay off a passel of lawyers just to settle a case based
on nothing other than one fact, that the company's stock dropped in
value, along with some vague nonspecific and baseless allegations of
fraud.
The Private Securities Litigation Reform Act put into place
protections against these types of claims, and, indeed, what we have
seen over the last several months has been a deterioration of that,
and, indeed, the loophole that the gentleman from Michigan pointed out
has been widening as the days go by.
Since passage of that Reform Act, however, we have seen a dramatic
change in that securities litigation. But like a teenager who cleans
his room by putting everything under the bed, we have not really
eliminated the problem, it just moved. In this case it moved to the
State court.
The shift to State court means that investors, employees and the
companies seeking capital are wasting valuable resources paying off
lawyers, who continue to be successful in extracting blackmail
settlements from companies who cannot afford to fight even baseless
securities fraud claims.
This legislation before us today eliminates the State court loophole
by creating a set of uniform standards for class action lawsuits and
eliminates a lot of these fishing expeditions that take place as a
result. It does this by granting Federal judges the power to quash
discovery in State actions if that discovery conflicts with the order
of the Federal court.
I want to thank particularly my good friend, the gentleman from
Washington (Mr. White), as well as the gentlewoman from California (Ms.
Eshoo), the lead Democrat sponsor, for their indefatigable efforts on
the part of this legislation.
I want to thank the chairman of the committee, the gentleman from
Virginia (Mr. Bliley), for leading the committee to develop and improve
this legislation.
Mr. Chairman, I want to pay particular thanks to the gentleman from
New York (Mr. Manton), the ranking member of my subcommittee, who has
been very helpful in this area. Let me first of all say that we will
all miss the gentleman from New York (Mr. Manton) and his good work
here, and we hope to have words later for him in honoring him. But let
me say to my friend from New York that I pledge to work with him as we
go to conference on the provision that the gentleman had inserted into
this legislation. It is important, not only for the State of New York,
but for the SEC and for states in general. We want to make certain. It
is unfortunate because of a jurisdictional dispute that we had this.
This is good legislation that closes a major loophole. I am proud of
the bipartisan support that this bill has engendered.
Ms. ESHOO. Mr. Speaker, I ask unanimous consent to extend the debate
by 2 minutes.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from California?
Mr. DINGELL. Mr. Speaker, reserving the right to object, how is the
time to be divided and why we are doing this?
The SPEAKER pro tempore. The Chair recognizes that there is an equal
division of the time, 1 minute on either

[[Page H6064]]

side. The gentlewoman from California (Ms. Eshoo) will control 1
minute, and the gentleman from California (Mr. Cox) will control 1
minute.

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