[Congressional Record Volume 144, Number 141 (Friday, October 9, 1998)]
[House]
[Pages H10266-H10270]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 CONFERENCE REPORT ON S. 1260, SECURITIES LITIGATION UNIFORM STANDARDS 
                              ACT OF 1998

  Mr. BLILEY submitted the following conference report and statement on 
the Senate bill (S. 1260) 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;

                  Conference Report (H. Rept. 105-803)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the House to the bill (S. 
     1260), 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, having met, 
     after full and free conference, have agreed to recommend and 
     do recommend to their respective Houses as follows:
       That the Senate recede from its disagreement to the 
     amendment of the House and agree to the same with an 
     amendment as follows:
       In lieu of the matter proposed to be inserted by the House 
     amendment, insert the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Securities Litigation 
     Uniform Standards Act of 1998''.

     SEC. 2. FINDINGS.

       The Congress finds that--
       (1) the Private Securities Litigation Reform Act of 1995 
     sought to prevent abuses in private securities fraud 
     lawsuits;
       (2) since enactment of that legislation, considerable 
     evidence has been presented to Congress

[[Page H10267]]

     that a number of securities class action lawsuits have 
     shifted from Federal to State courts;
       (3) this shift has prevented that Act from fully achieving 
     its objectives;
       (4) State securities regulation is of continuing 
     importance, together with Federal regulation of securities, 
     to protect investors and promote strong financial markets; 
     and
       (5) in order to prevent certain State private securities 
     class action lawsuits alleging fraud from being used to 
     frustrate the objectives of the Private Securities Litigation 
     Reform Act of 1995, it is appropriate to enact national 
     standards for securities class action lawsuits involving 
     nationally traded securities, while preserving the 
     appropriate enforcement powers of State securities regulators 
     and not changing the current treatment of individual 
     lawsuits.
            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
       ``(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 
     one 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) one 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 one 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 one 
     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 paragraph (1) or (2) of section 18(b) 
     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).''.
       (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

[[Page H10268]]

     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 
     one 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) one 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.

       ``(C) Exception for derivative actions.--Notwithstanding 
     subparagraph (B), the term `covered class action' does not 
     include an exclusively derivative action brought by one 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 one 
     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 paragraph (1) or (2) of section 18(b) 
     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 that 
     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 adding at the end 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 
     (or any agencies or offices performing like functions), 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.--Not later than 24 months after the date of 
     enactment of this Act, the Securities and Exchange Commission 
     (hereafter in this section referred to as 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 that the Commission 
     recommends for such purposes.
  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 ``(d)'';
       (B) in paragraph (2), by striking ``; and'' at the end and 
     inserting a period; and
       (C) by striking paragraph (3).

     SEC. 203. COMMISSION PROFESSIONAL ECONOMISTS.

       Section 4(b) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78d(b)) is amended--
       (1) by redesignating paragraph (2) as paragraph (3); and
       (2) by inserting after paragraph (1) the following:
       ``(2) Economists.--
       ``(A) Commission authority.--Notwithstanding the provisions 
     of chapter 51 of title 5, United States Code, the Commission 
     is authorized--
       ``(i) to establish its own criteria for the selection of 
     such professional economists as the Commission deems 
     necessary to carry out the work of the Commission;
       ``(ii) to appoint directly such professional economists as 
     the Commission deems qualified; and
       ``(iii) to fix and adjust the compensation of any 
     professional economist appointed under this paragraph, 
     without regard to the provisions of chapter 54 of title 5, 
     United States Code, or subchapters II, III, or VIII of 
     chapter 53, of title 5, United States Code.
       ``(B) Limitation on compensation.--No base compensation 
     fixed for an economist under this paragraph may exceed the 
     pay for Level IV of the Executive Schedule, and no payments 
     to an economist appointed under this paragraph shall exceed 
     the limitation on certain payments in section 5307 of title 
     5, United States Code.
       ``(C) Other benefits.--All professional economists 
     appointed under this paragraph shall remain within the 
     existing civil service system with respect to employee 
     benefits.''.
              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--
       (A) by striking ``3(a)(2) of the Act'' and inserting 
     ``3(a)(2)''; and
       (B) 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

[[Page H10269]]

       (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, in that order.
       (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)(vi) (15 U.S.C. 78c(a)(12)(A)(vi)) 
     is amended by moving the margin 2 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 ``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)(8), by moving the margin 2 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 or persons'' and inserting 
     ``any person or class of persons''.
       (11) Section 19(c)(5) (15 U.S.C. 78s(c)(5)) is amended by 
     moving the margin 2 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) in subsection (g)(2)(B)(i), by striking ``paragraph 
     (1)'' and inserting ``subparagraph (A)''.
       (B) by redesignating subsection (g) as subsection (f); and
       (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)) is amended 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) (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)''.
       And the House agree to the same.
     Tom Bliley,
     M.G. Oxley,
     Billy Tauzin,
     Chris Cox,
     Rick White,
     Anna G. Eshoo,
                                Managers on the Part of the House.

     Alfonse D'Amato,
     Phil Gramm,
     Chris Dodd,
                               Managers on the Part of the Senate.

       Joint Explanatory Statement of the Committee of Conference

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the House to the bill (S. 1260) 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, submit the following joint 
     statement to the House and the Senate in explanation of the 
     effect of the action agreed upon by the managers and 
     recommended in the accompanying conference report:

        The Securities Litigation Uniform Standards Act of 1998


                           Uniform Standards

       Title 1 of S. 1260, the Securities Litigation Uniform 
     Standards Act of 1998, makes Federal court the exclusive 
     venue for most securities class action lawsuits. The purpose 
     of this title is to prevent plaintiffs from seeking to evade 
     the protections that Federal law provides against abusive 
     litigation by filing suit in State, rather than in Federal, 
     court. The legislation is designed to protect the interests 
     of shareholders and employees of public companies that are 
     the target of meritless ``strike'' suits. The purpose of 
     these strike suits is to extract a sizeable settlement from 
     companies that are forced to settle, regardless of the lack 
     of merits of the suit, simply to avoid the potentially 
     bankrupting expense of litigating.
       Additionally, consistent with the determination that 
     Congress made in the National Securities Markets Improvement 
     Act \1\ (NSMIA), this legislation establishes uniform 
     national rules for securities class action litigation 
     involving our national capital markets. Under the 
     legislation, class actions relating to a ``covered security'' 
     (as defined by section 18(b) of the Securities Act of 1933, 
     which was added to that Act by NSMIA) alleging fraud or 
     manipulation must be maintained pursuant to the provisions of 
     Federal securities law, in Federal court (subject to certain 
     exceptions).
---------------------------------------------------------------------------
      \1\Public law 104-290 (October 11, 1996).
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       ``Class actions'' that the legislation bars from State 
     court include actions brought on behalf of more than 50 
     persons, actions brought on behalf of one or more unnamed 
     parties, and so-called ``mass actions,'' in which a group of 
     lawsuits filed in the same court are joined or otherwise 
     proceed as a single action.
       The legislation provides for certain exceptions for 
     specific types of actions. The legislation preserves State 
     jurisdiction over: (1) certain actions that are based upon 
     the law of the State in which the issuer of the security in 
     question is incorporated,\2\ (2) actions brought by States 
     and political subdivisions, and State pension plans, so 
     long as the plaintiffs are named and have authorized 
     participation in the action; and (3) actions by a party to 
     a contractual agreement (such as an indenture trustee) 
     seeking to enforce provisions of the indenture.
---------------------------------------------------------------------------
     \2\ It is the intention of the managers that the suits under 
     this exception be limited to the state in which issuer of the 
     security is incorporated, in the case of a corporation, or 
     state of organization, in the case of any other entity.
---------------------------------------------------------------------------
       Additionally, the legislation provides for an exception 
     from the definition of ``class action'' for certain 
     shareholder derivative actions.
       Title II of the legislation reauthorizes the Securities and 
     Exchange Commission (SEC or Commission) for Fiscal Year 1999. 
     This title also includes authority for the SEC to pay 
     economists above the general services scale.
       Title III of the legislation provides for corrections to 
     certain clerical and technical errors in the Federal 
     securities laws arising from changes made by the Private 
     Securities Litigation Reform Act of 1995 \3\ (the ``Reform 
     Act'') and NSMIA.
---------------------------------------------------------------------------
     \3\ Public Law 104-67 (December 22, 1995).
---------------------------------------------------------------------------
       The managers note that a report and statistical analysis of 
     securities class actions lawsuits authored by Joseph A. 
     Grundfest and Michael A. Perino reached the following 
     conclusion:

       The evidence presented in this report suggests that the 
     level of class action securities fraud litigation has 
     declined by about a third in federal courts, but that there 
     has been an almost equal increase in the level of state court 
     activity, largely as a result of a ``substition effect'' 
     whereby plaintiffs resort to state court to avoid the new, 
     more stringent requirements of federal cases. There has also 
     been an increase in parallel litigation between state and 
     federal courts in an apparent effort to avoid the federal 
     discovery stay or other provisions of the Act. This increase 
     in state activity has the potential not only

[[Page H10270]]

     to undermine the intent of the Act, but to increase the 
     overall cost of litigation to the extent that the Act 
     encourages the filing of parallel claims.\4\

     \4\ Grundfest, Joseph A. & Perino, Michael A., Securities 
     Litigation Reform: The First Year's Experience: A Statistical 
     and Legal Analysis of Class Action Securities Fraud 
     Litigation under the Private Securities Litigation Reform Act 
     of 1995, Stanford Law School (February 27, 1997).
---------------------------------------------------------------------------
       Prior to the passage of the Reform Act, there was 
     essentially no significant securities class action litigation 
     brought in State court.\5\ In its Report to the President and 
     the Congress on the First Year of Practice Under the Private 
     Securities Litigation Reform Act of 1995, the SEC called the 
     shift of securities fraud cases from Federal to State court 
     ``potentially the most significant development in securities 
     litigation'' since passage of the Reform Act.\6\
---------------------------------------------------------------------------
     \5\ Id. n. 18.
     \6\ Report to the President and the Congress on the First 
     Year of Practice Under the Private Securities Litigation 
     Reform Act of 1995, U.S. Securities and Exchange Commission, 
     Office of the General Counsel, April 1997 at 61.
---------------------------------------------------------------------------
       The managers also determined that, since passage of the 
     Reform Act, plaintiffs' lawyers have sought to circumvent the 
     Act's provisions by exploiting differences between Federal 
     and State laws by filing frivolous and speculative lawsuits 
     in State court, where essentially none of the Reform Act's 
     procedural or substantive protections against abusive suits 
     are available.\7\ In California, State securities class 
     action filings in the first six months of 1996 went up 
     roughly five-fold compared to the first six months of 1995, 
     prior to passage of the Reform Act.\8\ Furthermore, as a 
     state securities commissioner has observed:

     \7\ Testimony of Mr. Jack G. Levin before the Subcommittee on 
     Finance and Hazardous Materials of the Committee on Commerce, 
     House of Representatives, Serial No. 105-85, at 41-45 (May 
     19, 1998).
     \8\ Id. at 4.
---------------------------------------------------------------------------
       It is important to note that companies can not control 
     where their securities are traded after an initial public 
     offering. * * * As a result, companies with publicly-traded 
     securities can not choose to avoid jurisdictions which 
     present unreasonable litigation costs. Thus, a single state 
     can impose the risks and costs of its pecular litigation 
     system on all national issuers.\9\

     \9\ Written statement of Hon. Keith Paul Bishop, 
     Commissioner, California Department of Corporations, 
     submitted to the Senate Committee on Banking, Housing and 
     Urban Affairs' Subcommittee on Securities'' ``Oversight 
     Hearing on the Private Securities Litigation Reform Act of 
     1995,'' Serial No. 105-182, at 3 (July 27, 1998).
---------------------------------------------------------------------------
       The solution to this problem is to make Federal court the 
     exclusive venue for most securities fraud class action 
     litigation involving nationally traded securities.


                                Scienter

       It is the clear understanding of the managers that Congress 
     did not, in adopting the Reform Act, intend to alter the 
     standards of liability under the Exchange Act.
     Tom Bliley,
     M.G. Oxley,
     Billy Tauzin,
     Chris Cox,
     Rick White,
     Anna G. Eshoo,
                                Managers on the Part of the House.

     Alfonse D'Amato,
     Phil Gramm,
     Chris Dodd,
     Managers on the Part of the Senate.

                          ____________________