[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--

       ``(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

[[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.

                          ____________________