[Congressional Record Volume 144, Number 150 (Tuesday, October 20, 1998)]
[Extensions of Remarks]
[Page E2246]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            MISPRINT ON THE STATEMENT OF MANAGERS ON S. 1260

                                 ______
                                 

                          HON. JOHN D. DINGELL

                              of michigan

                    in the house of representatives

                       Tuesday, October 20, 1998

  Mr. DINGELL. Mr. Speaker, as Ranking Member of the Committee on 
Commerce and one of the conferees appointed on behalf of the House 
(September 16, 1998, Congressional Record at H7888), I rise to bring to 
the attention of the House a matter involving the conference report on 
S. 1260, the Securities Litigation Uniform Standards Act of 1998, and 
to correct the record.
  The circumstances surrounding the publication--first of an incomplete 
conference report, and then of a conference report appending extraneous 
material--may be just another mix-up by the gang that couldn't shoot 
straight. On the other hand, worse.
  To wit, the joint explanatory statement of the committee of 
conference on S. 1260, both as printed by the Government Printing 
Office (GPO) in Report No. 105-803 and as it appeared in the 
Congressional Record for Friday, October 9, 1998 at H10270, was 
incomplete. The final page mysteriously disappeared. Curiously, this 
page contained important language regarding scienter, recklessness, and 
the pleading standard applied by the Second Circuit Court of Appeals, 
language essential to the conference agreement. Even more mysterious, 
the official papers filed in the Senate on October 9th were complete 
and did contain the final page.
  In order to clarify this situation, a star print of the complete 
conference report has been ordered from GPO. Also, during House 
consideration on October 13th, Commerce Committee Chairman Bliley asked 
unanimous consent to include in the Record ``a complete copy of the 
conference report on S. 1260'' and made the following remarks:

       When the conference report was filed in the House, a page 
     from the statement of managers was inadvertently omitted. 
     That page was included in the copy filed in the Senate, 
     reflecting the agreement of the managers. We are considering 
     today the entire report and statement of managers as agreed 
     to by conferees and inserted in the Record.

  Therefore, the complete joint explanatory statement of the committee 
of conference begins on page H10774 of the Congressional Record for 
October 13, 1998 and concludes on page H10775 where the names of the 
House and Senate Managers appear. The unidentified material that 
follows the names of the Managers, although erroneously printed in the 
same typeface as the conference report, an error that has been 
corrected by reprinting the material in the appropriate typeface and 
identifying its source in the October 15, 1998 Congressional Record at 
H11021-22, is not part of the conference report's joint explanatory 
statement and does not represent the views of the Managers. In point of 
fact, the phantom language directly contradicts the joint explanatory 
statement (the Statement of Managers).

  In any event, it is the conference report itself, in particular the 
Statement of Managers, and not the dissenting views expressed by one or 
more Members, that reflects the agreement of both Senate and House 
conferees as to the bill's intended operation and consequences. The 
language of the Statement of Managers could not have been more clear 
and direct as to the bill's ratification of uniform pleading and 
liability standards:

       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 . . .  
     Additionally, it was the intent of Congress, as was expressly 
     stated during the legislative debate on the Reform Act, and 
     particularly during the debate on overriding the President's 
     veto, that the Reform Act establish a heightened uniform 
     Federal standard on pleading requirements based upon the 
     pleading standard applied by the Second Circuit Court of 
     Appeals.

  The Statement of Managers on S. 1260 clarified confusion arising from 
the Statement of Managers on the 1995 Securities Litigation Reform Act. 
The 1995 Statement of Managers noted that the language of the pleading 
standard was ``based in part on the pleading standard of the Second 
Circuit.'' However, the 1995 Statement of Managers also contained some 
murky language which, as the gentleman from Massachusetts, Mr. Markey, 
has correctly noted was slipped into a footnote by a staffer at the 
last minute without our knowledge or concurrence (October 13, 1998 
Congressional Record at H 10782), to the effect that the conferees 
``chose not to include in the pleading standard certain language 
relating to motive, opportunity, and recklessness.'' Largely, as a 
result of this language, the President vetoed the 1995 Reform Act for 
fear that it might be construed to mean that Congress was adopting a 
pleading standard even higher than that of the Second Circuit. Congress 
overrode the President's veto. As is apparent from the post-veto debate 
in both the House and the Senate, Congress did so, not because Congress 
wanted a pleading standard higher than the Second Circuit's, but 
because the pleading standard adopted in the Reform Act was, in fact, 
the Second Circuit standard.
  Nevertheless, uncertainty and confusion quickly emerged in various 
District Court cases, to the delight of those who sought to undermine 
what the majority of Congress had concluded the pleading standard 
should be, but to the grave disadvantage of investors. Because of this 
uncertainty, the Administration and the SEC insisted that Congress 
restate the applicable liability and pleading standards of the 1995 
Reform Act in the legislative history of this bill. That restatement 
was necessary to the legislative history of this bill because the 
liability and pleading standards from the 1995 Reform Act will apply to 
the class actions that are covered by S. 1260. The White House wrote to 
Senators D'Amato, Gramm, and Dodd on April 28, 1998 that the 
Administration would support enactment of S. 1260 only ``so long as 
amendments designed to address the SEC's concern are added to the 
legislation and the appropriate legislative history and floor 
statements of legislative intent are included in the legislative 
record,'' noting that ``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.'' Only after the Managers clarified that the 1995 Reform 
Act had not altered the substantive liability standards that allow 
investors to recover for reckless misconduct and that the Reform Act 
had adopted the Second Circuit pleading standard did the SEC agree to 
support enactment of S. 1260. The SEC's letter of October 9, 1998 to 
Senators D'Amato and Sarbanes states:

       We support this bill based on important assurances in the 
     Statement of Managers that investors will be protected. . . . 
     The strong statement in the Statement of Mangers that neither 
     this bill nor the Reform Act was intended to alter existing 
     liability standards under the Securities Exchange Act of 1934 
     will provide important assurances for investors that the 
     uniform national standards created by this bill continue to 
     allow them to recover losses caused by reckless misconduct. 
     The additional statement clarifying that the uniform pleading 
     requirement in the Reform Act is the standard applied by the 
     Second Circuit Court of Appeals will likewise benefit 
     investors by helping to end confusion in the courts about the 
     proper interpretation of that Act. Together, these statements 
     will operate to assure that investors' rights will not be 
     compromised in the pursuit of uniformity.

  The Second Circuit standard allows plaintiffs to allege facts showing 
either (a) the defendant had a motive and opportunity to engage in the 
fraud, or (b) the defendant acted either recklessly or knowingly. 
Dissenters argue that Congress meant to eliminate allegations of 
motive, opportunity and recklessness. This is flat wrong. It is simply 
not logical or believable to argue that we adopted a pleading standard 
``based upon'' the Second Circuit standard, but yet rejected 
allegations of motive, opportunity, and recklessness--core elements of 
that standard. Allegations of recklessness or motive and opportunity 
continue to suffice as a basis to plead fraud. This is necessary and 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and honest securities markets.

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