[House Report 105-640]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-640
_______________________________________________________________________
SECURITIES LITIGATION UNIFORM STANDARDS ACT OF 1998
_______
July 21, 1998.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Bliley, from the Committee on Commerce, submitted the following
R E P O R T
together with
DISSENTING AND ADDITIONAL DISSENTING VIEWS
[To accompany H.R. 1689]
[Including cost estimate of the Congressional Budget Office]
The Committee on Commerce, to whom was referred 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, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
CONTENTS
Page
Amendment........................................................ 2
Purpose and Summary.............................................. 8
Background and Need for Legislation.............................. 9
Hearings......................................................... 11
Committee Consideration.......................................... 12
Rollcall Votes................................................... 12
Committee Oversight Findings..................................... 12
Committee on Government Reform and Oversight..................... 12
New Budget Authority, Entitlement Authority, and Tax Expenditures 13
Committee Cost Estimate.......................................... 13
Congressional Budget Office Estimate............................. 13
Federal Mandates Statement....................................... 15
Advisory Committee Statement..................................... 15
Constitutional Authority Statement............................... 15
Applicability to Legislative Branch.............................. 15
Section-by-Section Analysis of the Legislation................... 16
Changes in Existing Law Made by the Bill, as Reported............ 19
Dissenting and Additional Dissenting Views....................... 45
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
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 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 Class Actions.--Any 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 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 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 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) Class action.--
``(A) In general.--The term `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 `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 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 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 class actions.--Any 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 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 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 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) Class action.--The term `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.
``(C) Exception for derivative actions.--
Notwithstanding subparagraph (B), the term `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. ISSUANCE OF SUBPOENAS IN JUDICIAL ACTIONS.
(a) Securities Act.--Section 22(a) of the Securities Act of 1933 (15
U.S.C. 77v(a)) is amended by inserting after the second sentence the
following: ``In any action or proceeding instituted by the Commission
under this title in the district court of the United States for any
judicial district, subpoenas issued by such court to compel the
attendance of witnesses may be served in any other district.''.
(b) Securities Exchange Act.--Section 27 of the Securities Act of
1934 (15 U.S.C. 78aa) is amended by inserting after the third sentence
the following: ``In any action or proceeding instituted by the
Commission under this title in the district court of the United States
for any judicial district, subpoenas issued by such court to compel the
attendance of witnesses may be served in any other district.''.
(c) Investment Company Act.--Section 44 of the Investment Company Act
of 1940 (15 U.S.C. 80a-43) is amended by inserting after the fourth
sentence the following: ``In any action or proceeding instituted by the
Commission under this title in the district court of the United States
for any judicial district, subpoenas issued by such court to compel the
attendance of witnesses may be served in any other district.''.
(d) Investment Advisers Act.--Section 214 of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-14) is amended by inserting after the third
sentence the following: ``In any action or proceeding instituted by the
Commission under this title in the district court of the United States
for any judicial district, subpoenas issued by such court to compel the
attendance of witnesses may be served in any other district.''.
(e) Public Utility Holding Company Act.--Section 25 of the Public
Utility Holding Company Act of 1935 (15 U.S.C. 79y) is amended by
inserting after the third sentence the following: ``In any action or
proceeding instituted by the Commission under this title in the
district court of the United States for any judicial district,
subpoenas issued by such court to compel the attendance of witnesses
may be served in any other district.''.
SEC. 103. 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 24months 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. 104. 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.''.
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 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)''.
Purpose and Summary
Title I of H.R. 1689, 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 which is
to extract a sizeable settlement from companies that are
economically 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)(1) 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).
---------------------------------------------------------------------------
``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) 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.
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 is substantially consistent with H.R. 1262, the
Securities and Exchange Commission Reauthorization Act of 1997,
which passed the House on November 13, 1997.
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 \2\ (the ``Reform Act'') and
NSMIA.
---------------------------------------------------------------------------
\2\ Public Law 104-67 (December 22, 1995).
---------------------------------------------------------------------------
Background and Need for Legislation
The 104th Congress passed, over President Clinton's veto,
the Reform Act, which was designed to put an end to vexatious
litigation that was draining value from the shareholders and
employees of public companies. The Subcommittee on Finance and
Hazardous Materials held an oversight hearing to review the
implementation of the Reform Act on October 21, 1997. During
this hearing, witnesses testified that there had been a
noticeable shift in class action litigation from Federal to
State courts.\3\
---------------------------------------------------------------------------
\3\ Testimony of Mr. David L. Anderson before the Subcommittee on
Finance and Hazardous Materials of the Committee on Commerce, Serial
No. 105-85, at 47 (May 19, 1998). ``It is the conclusion of many of us
practicing in this area that many state court lawsuits are being
brought for improper purposes. . . . The plaintiffs' bar largely
ignored the state courts until the passage of the Reform Act. . . .
[W]hat they are trying to do is end-run the Reform Act in the state
courts. Directing securities class actions cases back to the Federal
courts is the only way to eliminate that end run.''
---------------------------------------------------------------------------
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
``substitution 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 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 Subcommittee also heard testimony during a legislative
hearing on H.R. 1689, 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\
---------------------------------------------------------------------------
\7\ Testimony of Mr. Jack G. Levin before the Subcommittee on
Finance and Hazardous Materials of the Committee on Commerce, Serial
No. 105-85, at 41-45 (May 19, 1998).
\8\ Id. at 4.
---------------------------------------------------------------------------
The solution to this problem is to make Federal court the
exclusive venue for securities fraud class action litigation.
The Subcommittee heard testimony that the migration to
State court was fueled by a desire to circumvent the more
stringent requirements of the heightened pleading standard
adopted under the Reform Act.\9\ The Committee addresses this
problem in two ways. First, it preempts securities fraud class
actions brought under State law. Second, it grants power to
Federal judges to quash discovery in State actions if that
discovery conflicts with an order of the Federal court. The
purpose of this grant of authority is to give Federal judges
tools to combat abuse of discovery proceedings in individual
actions that may be brought in State court.
---------------------------------------------------------------------------
\9\ Testimony of Mr. David L. Anderson before the Subcommittee on
Finance and Hazardous Materials of the Committee on Commerce, Serial
No. 105-85, at 46-50 (May 19, 1998). Additionally, one study, by Price
Waterhouse LLP, found that the average number of parallel and ``federal
equivalent'' securities class actions filed in state court 1996 grew
355% over the 1991-1995 average. Although there was a drop in the
number of these state court filings in 1997, the number of state cases
that year nonetheless was 150% higher than the 1991-1995 average.
Letter to The Honorable Michael G. Oxley and The Honorable Thomas J.
Manton from Daniel V. Dooley, Partner, Price Waterhouse LLP, Regarding
the Price Waterhouse LLP Securities Litigation Study and Addendum on
State ``Parallel'' and State ``Federal-Equivalent'' Securities
Litigation Cases at 6 (June 2, 1998).
---------------------------------------------------------------------------
The Committee notes that since the passage of the Reform
Act, a data base containing many of the complaints, responses
and judicial decisions on securities class actions since
enactment of the Reform Act has been established on the
Internet. This data base, the Securities Class Action
Clearinghouse, is an extremely useful source of information on
securities class actions. It can be accessed on the world wide
web at http://securities.stanford.edu. The Committee urges
other Federal courts to adopt rules, similar to those in effect
in the Northern District of California, to facilitate
maintenance of this and similar data bases.
The Committee heard testimony from opponents of the
legislation, such as Ms. Mary Rouleau of the Consumer
Federation of America (CFA), who testified that the bill was
premature, unwarranted based on available evidence, harmful to
investors, and overly broad in its proposed preemption of State
law. The Committee believes that the overwhelming weight of the
evidence available to it supports going forward with this bill
at this time for the reasons previously noted. Moreover, the
Committee adopted a number of changes to the introduced bill to
address the substantive concerns raised in some of the
dissenting testimony. These changes reflect and improve upon
the companion Senate-passed bill that was approved by that body
on May 13, 1998 by a vote of 79 yeas to 21 nays.
Hearings
On October 21, 1997, the Subcommittee on Finance and
Hazardous Material held an oversight hearing on the
Implementation of the Private Securities Litigation Reform Act
of 1995. The Committee received testimony from the following
witnesses: the Honorable Arthur Levitt, Jr., Chairman,
Securities and Exchange Commission, accompanied by Mr. Richard
H. Walker, General Counsel, Securities and Exchange Commission;
Mr. Michael A. Perino, Stanford University School of Law; Mr.
Bruce G. Vanyo, Wilson, Sonsini, Goodrich, and Rosati; Mr.
Robert V. Stout, Controller, City of Stamford, Connecticut, on
behalf of the Government Finance Officers Association; and Mr.
Leonard B. Simon, Milberg Weiss Bershad Hynes & Lerach, L.L.P.
The Subcommittee held a legislative hearing on H.R. 1689,
the Securities Litigation Uniform Standards Act, on May 19,
1998. The Subcommittee received testimony from: the Honorable
Tom Campbell, U.S. Representative, Fifteenth District, State of
California; the Honorable Anna G. Eshoo, U.S. Representative,
Fourteenth District, State of California; the Honorable Arthur
Levitt, Jr., Chairman, Securities and Exchange Commission; Mr.
Jack G. Levin, Director of Legal and Regulatory Affairs,
NationsBanc Montgomery Securities; Mr. David L. Anderson,
Senior Counsel, Pillsbury, Madison & Sutro; Mr. Jack Coffee,
Professor, Columbia University Law School; Mr. Robert C.
Hinkley, General Counsel, Xilinx, Inc.; Mr. Richard W. Painter,
Professor, Cornell University Law School; Mr. John F. Olson,
Gibson, Dunn & Crutcher, LLP; Mr. Blake Campbell, Assistant
Commissioner, Securities Regulation Division, Department of
Corporations, State of California accompanied by Mr. Peter
Kezirian, General Counsel; and Ms. Mary Rouleau, Legislative
Director, Consumer Federation of America.
Committee Consideration
On June 10, 1998, the Subcommittee on Finance and Hazardous
Materials met in open markup session and approved H.R. 1689,
the Securities Litigation Uniform Standards Act of 1998, for
Full Committee consideration, amended, by a rollcall vote of 21
yeas to 4 nays. On June 24, 1998, the Committee on Commerce met
in open markup session and ordered H.R. 1689 reported to the
House, amended, by a voice vote, a quorum being present.
Rollcall Votes
Clause 2(l)(2)(B) of Rule XI of the Rules of the House
requires the Committee to list the recorded votes on the motion
to report legislation and amendments thereto. There were no
recorded votes taken in connection with ordering H.R. 1689
reported. An Amendment in the Nature of a Substitute by Mr.
Bliley was agreed to, amended, by a voice vote. An amendment to
the Bliley Amendment in the Nature of a Substitute by Ms.
DeGette to add a new section requiring the Securities and
Exchange Commission to include an analysis of the impact and
consequences of this legislation in each of its first three
annual reports submitted after the date of enactment was agreed
to by a voice vote. A motion by Mr. Bliley to order H.R. 1689
reported to the House, amended, was agreed to by a voice vote,
a quorum being present.
Committee Oversight Findings
Pursuant to clause 2(l)(3)(A) of Rule XI of the Rules of
the House of Representatives, the Committee held legislative
and oversight hearings and made findings that are reflected in
this report.
Committee on Government Reform and Oversight
Pursuant to clause 2(l)(3)(D) of Rule XI of the Rules of
the House of Representatives, no oversight findings have been
submitted to the Committee by the Committee on Government
Reform and Oversight.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 2(l)(3)(B) of Rule XI of the
Rules of the House of Representatives, the Committee finds that
H.R. 1689, the Securities Litigation Uniform Standards Act of
1998, would result in no new or increased budget authority,
entitlement authority, or tax expenditures or revenues.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 2(l)(3)(C) of Rule XI of the Rules of
the House of Representatives, the following is the cost
estimate provided by the Congressional Budget Office pursuant
to section 402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 6, 1998.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1689, the
Securities Litigation Uniform Standards Act of 1998.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark Hadley.
Sincerely,
James L. Blum
(For June E. O'Neill, Director).
Enclosure.
H.R. 1689--Securities Litigation Uniform Standards Act of 1998
Summary: H.R. 1689 would amend existing law related to
class actions involving most types of securities fraud,
reauthorize appropriations for the Securities and Exchange
Commission (SEC), and require the SEC to study class actions
involving securities fraud and state laws related to reciprocal
enforcement of subpoenas. Under this bill, certain class
actions could not be based on state law and could only be
maintained in federal courts. H.R. 1689 would authorize the
appropriation of $351 million for the Securities and Exchange
Commission in fiscal year 1999. Assuming appropriation of the
authorized amounts, CBO estimates that implementing H.R. 1689
would result in additional SEC spending of $347 million over
fiscal years 1999 and 2000, but that the agency would collect
$375 million in fees in 1999 to more than offset that new
spending.
H.R. 1689 would not affect direct spending or receipts;
therefore, pay-as-you go procedures would not apply. H.R. 1689
contains an intergovernmental mandate as defined in the
Unfunded Mandates Reform Act (UMRA), because it would preempt
state securities laws in order to prohibit most securities-
related class-action suits from being adjudicated in state
courts. The bill would allow state and local government pension
plans to continue to sue at the state level, however. CBO
estimates that the budgetary impact on states to comply with
this mandate would not be significant. The bill would impose no
new private-sector mandates as defined in UMRA.
Estimated cost to the Federal Government: For the purposes
of this estimate, CBO assumes that H.R. 1689 will be enacted by
the end of fiscal year 1998, and that the authorized amount
will be appropriated by the start of fiscal year 1999. The
estimated budgetary impact of H.R. 1689 is shown in the
following table. Outlays have been estimated on the basis of
historical spending patterns for SEC. The costs of this
legislation fall within budget function 370 (commerce and
housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal years, in millions of dollars--
--------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Net SEC Spending Under Current Law:
Estimated Budget Authority \1\..................... -62 4 0 0 0 0 0
Estimated Outlays.................................. -20 -72 79 0 0 0 0
Proposed Changes:
SEC Spending:
Authorization Level............................ 0 0 351 0 0 0 0
Estimated Outlays.............................. 0 0 270 77 0 0 0
Offsetting Collections:
Estimated Authorization Level.................. 0 0 -375 0 0 0 0
Estimated Outlays.............................. 0 0 -375 0 0 0 0
Net SEC Spending Under H.R. 1689:
Estimated Authorization Level \1\.................. -62 4 -24 0 0 0 0
Estimated Outlays.................................. -20 -72 -26 77 0 0 0
----------------------------------------------------------------------------------------------------------------
\1\ The 1997 and 1998 levels are the net amounts appropriated for those years (gross appropriations less
offsetting collections).
Basis of estimate: Title I of H.R. 1689 would amend
existing law so that class actions involving most types of
securities fraud could not be based on state law and could only
be maintained in federal courts. CBO estimates that
implementing Title I would have no significant impact on the
federal budget. Recent data on the number of securities-related
class actions brought under state law suggest that fewer than
100 cases per year might shift to federal courts as a result of
this bill. Although class actions often involve complex and
time-consuming issues, CBO estimates that the federal court
system would not incur significant costs to process that number
of new cases.
Title II would authorize the appropriation of $351 million
for the SEC to carry out its functions, powers, and duties in
fiscal year 1999. Assuming appropriation of the authorized
amount, CBO estimates that the SEC would spend an additional
$347 million over the next two years. The agency's
appropriations are offset by collections of fees on certain
securities transactions. CBO estimates that the amount of fees
to be credited to appropriations will total $375 million in
1999. H.R. 1689 also would require the SEC to submit a report
within two years after the date of enactment, describing its
efforts to promote state laws related to reciprocal enforcement
of subpoenas. Finally, the bill would require SEC to report
annually the nature of the cases affected by H.R. 1689, the
extent to which H.R. 1689 adversely affects the protection of
investors or the public interest, and the alternatives to
maintaining class actions involving most types of securities
fraud only in federal courts. CBO assumes that the costs for
both reports would be covered by the authorized funding level
for 1999.
Pay-as-you-go considerations: None.
Estimated impact on State, local, and tribal governments:
H.R. 1689 contains an intergovernmental mandate as defined in
UMRA, because it would preempt state securities laws in order
to prohibit most securities-related class-action suits from
being adjudicated in state courts. The bill would allow state
and local government pension plans to continue to sue at the
state level, however. CBO estimates that the impact of this
mandate on state budgets would not be significant.
Estimated impact on the private sector: The bill would
impose no new private-sector mandates as defined in UMRA.
Previous CBO estimate: On May 1, 1998, CBO transmitted an
estimate of S. 1260, the Securities Litigation Uniform
Standards Act of 1998, as ordered reported by the Senate
Committee on Banking, Housing, and Urban Affairs on April 29,
1998. The Senate bill included neither the reauthorization for
SEC nor the required reports, so CBO estimated that it would
have no significant impact on the federal budget.
Estimate prepared by: Federal Costs: Mark Hadley. Impact on
State, Local, and Tribal Governments: Pepper Santalucia.
Estimate approved by: Robert A. Sunshine, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 2(l)(4) of Rule XI of the Rules of the
House of Representatives, the Committee finds that the
Constitutional authority for this legislation is provided in
Article I, section 8, clause 3, which grants Congress the power
to regulate commerce with foreign nations, among the several
States, and with the Indian tribes.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title
Section 1 states that the short title of the bill is the
Securities Litigation Uniform Standards Act of 1998.
TITLE I--SECURITIES LITIGATION UNIFORM STANDARDS
Section 101. Limitation on remedies
Subsection 101(a)(1) amends Section 16 of the Securities
Act of 1933 as follows:
Subsection 16(a) is a savings clause, providing that except
as provided in subsection (b), the rights and remedies provided
by this title are in addition to other rights and remedies
existing at law or equity.
Subsection 16(b) provides that no class action based on
State law alleging fraud in connection with the purchase or
sale of covered securities may be maintained in State or
Federal court.
Subsection 16(c) provides that any class action described
in subsection (b) that is brought in a State court shall be
removable to a Federal district court, and may be dismissed
pursuant to the provisions of subsection (b). This provision is
designed to prevent a State court from inadvertently,
improperly, or otherwise maintaining jurisdiction over an
action that is preempted pursuant to subsection (b).
Subsection 16(d) provides for the preservation of certain
lawsuits brought under State law. Subparagraph (1) of
subsection 16(d) preserves State court jurisdiction over suits
affecting conduct of corporate officers with respect to certain
corporate actions, including tender offers, exchange offers and
the exercise of dissenter's or appraisal rights.
Subparagraph (2) of subsection 16(d) preserves State court
jurisdiction over suits brought by States, their political
subdivisions, and State pension plans, so long as each such
plaintiff is named and has authorized participation in the
action. The requirement that each plaintiff be named and
authorize participation in the action is designed to preserve
the ability of municipalities and State pension plans to
protect their investors and taxpayers by filing legitimate
class actions, while preventing the provision from serving as a
loophole through which abusive suits could be brought on behalf
of pension funds and municipalities that have no interest in
bringing suit, simply in order to extort a large settlement out
of the defendant. The requirement that municipalities and these
government-related pension plans affirmatively approve the
litigation and be named plaintiffs is consistent with the
fiduciary duty of these entities to their beneficiaries. The
Committee has included these requirements so that these
entities will become parties to a lawsuit only after
deliberation and their affirmative consent. The Subparagraph
includes a definition of the term ``State pension plan.''
Subparagraph (3) of Subsection 16(d) preserves State court
jurisdiction over certain contractual actions, providing that
an action seeking to enforce a contractual agreement may be
maintained in State or Federal court, but only by a party to
the agreement (or a successor to such a party). This provision
is designed to make it clear that the legislation does not
affect contractual rights under bond indentures.
Subparagraph (4) of subsection 16(d) mandates that a
Federal court remand to State court an action that has been
removed from State court if the Federal court determines that
the action may be maintained in State court. This is intended
as a savings clause, so that in the event of improper removal
of the limited universe of cases over which State court
jurisdiction has been preserved pursuant to this subsection,
the Federal court would remand such action back to State court.
Subsection 16(e) is a savings clause, clarifying that State
securities commissions retain their jurisdiction to investigate
and bring enforcement actions.
Subsection 16(f) provides for definitions under the
section, including definitions of ``affiliate of the issuer,''
``class action,'' and ``covered security.''
Subsection 16(f) defines ``class action'' to include
actions brought on behalf of more than 50 persons,
representative actions brought on behalf of unnamed parties,
and so-called ``mass actions,'' which are groups of lawsuits in
which damages are sought on behalf of more than 50 persons and
the suits are joined or consolidated.
The definition of ``class action'' provides an exception to
preserve State court jurisdiction over derivative actions. The
definition also provides that for purposes of counting the
number of members of a class, a corporation, investment
company, pension plan, partnership, or other entity is treated
as one person (provided that the entity was not established for
the purpose of participating in the action). The definition
also includes a savings clause that emphasizes that a State
court retains full discretion to decide whether or not to join
or consolidate actions filed in that court. For example, in the
event a State court found that joinder of a case would cause an
action to be extinguished because the case had been brought
pursuant to a longer statute of limitations than exists under
Federal law, the State court would retain full discretion to
decide not to join that particular case to a group of other
cases. The State court might find, however, that joinder of the
action was appropriate, regardless of the fact that the case
would not fall within the applicable Federal statute of
limitations, and the legislation explicitly preserves the
authority of the State court to make that determination.
Separation or joinder should serve the needs of justice.
Subsection 16(f) defines ``covered security'' to include a
security that qualifies as a ``covered security'' under
subsection 18(b)(1) of the Securities Act of 1933, except that
the term does not include certain debt securities issued in
private placements. The exclusion of privately placed debt
securities is designed to prevent the legislation from
inadvertently limiting contractual remedies for breach of
express representations or covenants under the note purchase
agreements pursuant to which such securities are issued.
Subsection 101(a)(2) amends Section 27(b) of the Securities
Act of 1933 to include a provision to prevent plaintiffs from
circumventing the stay of discovery under the Reform Act by
using State court discovery, which may not be subject to those
limitations, in an action filed in State court. This provision
expressly permits a Federal court to 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.
This provision authorizes a court to stay such proceedings in
State court, regardless of whether: (1) there exists a parallel
action in Federal court; or (2) the State proceedings were
brought prior to, subsequent to, or concurrently with, a
Federal filing. Because circumvention of the stay of discovery
of the Reform Act is a key abuse that thislegislation is
designed to prevent, the Committee intends that courts use this
provision liberally, so that the preservation of State court
jurisdiction of limited individual securities fraud claims does not
become a loophole through which the trial bar can engage in discovery
not subject to the stay of the Reform Act.
Subsection 101(a)(3) provides for conforming amendments to
Section 22(a) of the Securities Act of 1933.
Subsection 101(b) amends Section 28 of the Securities
Exchange Act of 1934 so as to effect changes to that section
that are substantially similar to, and consistent with, the
amendments that subsection 101(a) makes to the Securities Act
of 1933.
Section 102. Issuance of subpoenas in judicial actions
Section 102 amends the Securities Act of 1933, the
Securities Exchange Act of 1934, the Investment Company Act of
1940, the Investment Advisers Act of 1940, and the Public
Utility Holding Company Act of 1935 to permit subpoenas issued
by any United States district court pursuant to a proceeding
instituted by the Securities and Exchange Commission (SEC or
Commission) under any of those Acts to be served to witnesses
in any other district. This section thus provides the
Commission, as well as defendants in enforcement actions
brought by the Commission, with nationwide service of process
to compel the attendance of witnesses. This express
authorization of nationwide service of process excepts the SEC
from Rule 45(b)(2) of the Federal Rules of Civil Procedure
(FRCP).
The other provisions of FRCP Rule 45 would remain
applicable to actions by the Commission, including subparagraph
(c) of the Rule, which directs a person responsible for the
issuance of a subpoena to take steps to avoid imposing undue
burden or expense on a person subject to the subpoena, and
directs courts to enforce this obligation by imposing sanctions
upon persons who breach this duty. The Committee expects that
the SEC will use this authority with great care and will not
impose costs on defendants or third parties on the basis of
convenience to the Commission.
Section 103. Promotion of reciprocal subpoena enforcement
Paragraph (a) of section 103 directs the SEC to consult
with State securities commissions and encourage the adoption of
State laws that provide for reciprocal enforcement of State-
issued subpoenas by States other than the issuing State.
Paragraph (b) of section 103 directs the Commission to submit a
report to the Congress regarding its actions pursuant to
paragraph (a), the status of the extent to which States have
adopted such reciprocal enforcement measures, and any
recommendations regarding further actions to be taken to
encourage further adoption of such measures.
Section 104. Analysis of consequences
Section 104 directs the SEC to include in its first three
annual reports following the date of enactment of the Act an
analysis of the nature and extent of class actions that are
preempted or removed pursuant to the Act's provisions, the
beneficial or adverse effects of such preemption or removal,
and, if adverse effects are found, alternatives that would
avoid such adverse effects but would still substantially reduce
the risk of abusive securities litigation and further promote
the protection of investors and the public interest. The public
interest should, consistent with NSMIA, be read to include
efficiency, competition and capital formation.
TITLE II--REAUTHORIZATION OF THE SECURITIES AND EXCHANGE COMMISSION
Section 201. Authorization of appropriations
Section 201 amends Section 35 of the Securities Exchange
Act of 1934 to authorize certain appropriations and
expenditures. The section authorizes the appropriation to the
Commission of $351,280,000 for Fiscal Year 1999. The section
also authorizes the Commission to use funds so appropriated for
certain miscellaneous expenses, subject to specified expense
limitations. The increase in the amount authorized over H.R.
1262 is intended to provide authorization for modernization of
EDGAR consistent with the exchange of letters among Chairman
Bliley, Chairman Rogers of the Subcommittee on Commerce,
Justice, State, and Judiciary of the House Committee on
Appropriations, and SEC Chairman Levitt, dated April 24, 1998,
and June 5, 1998, respectively. This additional authorization
should not be used for purposes other than EDGAR modernization.
TITLE III--CLERICAL AND TECHNICAL AMENDMENTS
Section 301. Clerical and technical amendments
Section 301 amends the Securities Act of 1933, the
Securities Exchange Act of 1934, the Investment Company Act of
1940, the Investment Advisers Act of 1940, and the Trust
Indenture Act of 1939 to correct certain clerical and technical
errors in those Acts.
Section 302. Exemption of securities issued in connection with certain
State hearings
Section 302 restores the applicability of the exemption
from Federal registration requirements under the Securities Act
of 1933 for securities that have been subject to certain State
hearings pursuant to paragraph (10) of Section 3 of that Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SECURITIES ACT OF 1933
* * * * * * *
TITLE I
short title
Section 1. This title may be cited as the ``Securities Act of
1933''.
definitions
Sec. 2. (a) Definitions.--When used in this title, unless the
context otherwise requires--
(1) * * *
* * * * * * *
(15) The term ``accredited investor'' shall mean--
(i) a bank as defined in section 3(a)(2) of
the Act whether acting in its individual or
fiduciary capacity; an insurance company as
defined in [section 2(13) of the Act] paragraph
(13) of this subsection; an investment company
registered under the Investment Company Act of
1940 or a business development company as
defined in section 2(a)(48) of that Act; a
Small Business Investment Company licensed by
the Small Business Administration; or an
employee benefit plan, including an individual
retirement account, which is subject to the
provisions of the Employee Retirement Income
Security Act of 1974, if the investment
decision is made by a plan fiduciary, as
defined in section 3(21) of such Act, which is
either a bank, insurance company, or registered
investment adviser; or
* * * * * * *
civil liabilities on account of false registration statement
Sec. 11. (a) * * *
* * * * * * *
(f)(1) * * *
(2)(A) The liability of an outside director under subsection
(e) shall be determined in accordance with [section 38] section
21D(f) of the Securities Exchange Act of 1934.
* * * * * * *
limitation of actions
Sec. 13. No action shall be maintained to enforce any
liability created under section 11 or section [12(2)] 12(a)(2)
unless brought within one year after the discovery of the
untrue statement or the omission, or after such discovery
should have been made by the exercise of reasonable diligence,
or, if the action is to enforce a liability created under
section [12(1)] 12(a)(1), unless brought within one year after
the violation upon which it is based. In no event shall any
such action be brought to enforce a liability created under
section 11 or section [12(1)] 12(a)(1) more than three years
after the security was bona fide offered to the public, or
under section [12(2)] 12(a)(2) more than three years after the
sale.
* * * * * * *
[additional remedies
[Sec. 16. 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.]
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 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 Class Actions.--Any 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 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 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 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) Class action.--
(A) In general.--The term ``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
``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.
* * * * * * *
SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.
(a) * * *
(b) Covered Securities.--For purposes of this section, the
following are covered securities:
(1) Exclusive federal registration of nationally
traded securities.--A security is a covered security if
such security is--
(A) listed, or authorized for listing, on the
New York Stock Exchange or the American Stock
Exchange, or listed, or authorized for listing,
on the National Market Systemof the Nasdaq
Stock Market (or any successor to such entities);
* * * * * * *
(4) Exemption in connection with certain exempt
offerings.--A security is a covered security with
respect to a transaction that is exempt from
registration under this title pursuant to--
(A) * * *
* * * * * * *
(C) section 3(a), other than the offer or
sale of a security that is exempt from such
registration pursuant to [paragraph (4) or
(11)] paragraph (4), (10), or (11) of such
section, except that a municipal security that
is exempt from such registration pursuant to
paragraph (2) of such section is not a covered
security with respect to the offer or sale of
such security in the State in which the issuer
of such security is located; or
* * * * * * *
(c) Preservation of Authority.--
(1) * * *
(2) Preservation of filing requirements.--
(A) * * *
(B) Preservation of fees.--
(i) In general.--Until otherwise
provided by law, rule, regulation, or
order, or other administrative action
of any State, or any political
subdivision thereof, adopted after the
date of enactment of the [Capital
Markets Efficiency Act of 1996]
National Securities Markets Improvement
Act of 1996, filing or registration
fees with respect to securities or
securities transactions shall continue
to be collected in amounts determined
pursuant to State law as in effect on
the day before such date.
* * * * * * *
(C) Availability of preemption contingent on
payment of fees.--
(i) In general.--During the period
beginning on the date of enactment of
the National Securities [Market]
Markets Improvement Act of 1996 and
ending 3 years after that date of
enactment, the securities commission
(or any agency or office performing
like functions) of any State may
require the registration of securities
issued by any issuer who refuses to pay
the fees required by subparagraph (B).
* * * * * * *
(d) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Offering document.--The term ``offering
document''--
(A) has the meaning given the term
``prospectus'' in section [2(10)] 2(a)(10), but
without regard to the provisions of
subparagraphs [(A) and (B)] (a) and (b) of that
section; and
(2) Prepared by or on behalf of the issuer.--Not
later than 6 months after the date of enactment of the
[Securities Amendments Act of 1996] National Securities
Markets Improvement Act of 1996, the Commission shall,
by rule, define the term ``prepared by or on behalf of
the issuer'' for purposes of this section.
* * * * * * *
(4) Senior security.--[For purposes of this
paragraph, the] The term ``senior security'' means any
bond, debenture, note, or similar obligation or
instrument constituting a security and evidencing
indebtedness, and any stock of a class having priority
over any other class as to distribution of assets or
payment of dividends.
* * * * * * *
jurisdiction of offenses and suits
Sec. 22. (a) The district courts of the United States and
United States courts of any Territory shall have jurisdiction
of offenses and violations under this title and under the rules
and regulations promulgated by the Commission in respect
thereto, and, concurrent with State and Territorial courts,
except as provided in section 16 with respect to class actions,
of all suits in equity and actions at law brought to enforce
any liability or duty created by this title. Any such suit or
action may be brought in the district wherein the defendant is
found or is an inhabitant or transacts business, or in the
district where the offer or sale took place, if the defendant
participated therein, and process in such cases may be served
in any other district of which the defendant is an inhabitant
or wherever the defendant may be found. In any action or
proceeding instituted by the Commission under this title in the
district court of the United States for any judicial district,
subpoenas issued by such court to compel the attendance of
witnesses may be served in any other district. Judgments and
decrees so rendered shall be subject to review as provided in
sections 1254, 1291, 1292, and 1294 of title 28, United States
Code. [No case] Except as provided in section 16(c), no case
arising under this title and brought in any State court of
competent jurisdiction shall be removed to any court of the
United States. No costs shall be assessed for or against the
Commission in any proceeding under this title brought by or
against it in the Supreme Court or such other courts.
* * * * * * *
SEC. 27. PRIVATE SECURITIES LITIGATION.
(a) * * *
(b) Stay of Discovery; Preservation of Evidence.--
(1) * * *
* * * * * * *
(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.
* * * * * * *
SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
(a) Applicability.--This section shall apply only to a
forward-looking statement made by--
(1) an issuer that, at the time that the statement is
made, is subject to the reporting requirements of
section 13(a) or section 15(d) of the Securities
Exchange Act of 1934;
* * * * * * *
SEC. 28. GENERAL EXEMPTIVE AUTHORITY.
The Commission, by rule or regulation, may conditionally or
unconditionally exempt any person, security, or transaction, or
any class or classes of persons, securities, or transactions,
from any provision or provisions of this title or of any rule
or regulation issued under this title, to the extent that such
exemption is necessary or appropriate in the public interest,
and is consistent with the protection of investors.
schedule a
(1) * * *
* * * * * * *
(28) a copy of any agreement or agreements (or, if [identic]
identical agreements are used, the forms thereof) made with any
underwriter, including all contracts and agreements referred to
in paragraph (17) of this schedule;
* * * * * * *
----------
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
short title
Section 1. This Act may be cited as the ``Securities Exchange
Act of 1934''.
* * * * * * *
definitions and application of title
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(10) The term ``security'' means any note, stock,
treasury stock, bond, debenture, certificate of
interest or participation in any profit-sharing
agreement or in any oil, gas, or other mineral royalty
or lease, any collateral-trust certificate,
preorganization certificate or subscription,
transferable share,investment contract, voting-trust
certificate, certificate of deposit[,] for a security, any put, call,
straddle, option, or privilege on any security, certificate of deposit,
or group or index of securities (including any interest therein or
based on the value thereof), or any put, call, straddle, option, or
privilege entered into on a national securities exchange relating to
foreign currency, or in general, any instrument commonly known as a
``security''; or any certificate of interest or participation in,
temporary or interim certificate for, receipt for, or warrant or right
to subscribe to or purchase, any of the foregoing; but shall not
include currency or any note, draft, bill of exchange, or banker's
acceptance which has a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
* * * * * * *
(12)(A) The term ``exempted security'' or ``exempted
securities'' includes--
(i) * * *
* * * * * * *
(vi) solely for purposes of sections 12, 13,
14, and 16 of this title, any security issued
by or any interest or participation in any
church plan, company, or account that is
excluded from the definition of an investment
company under section 3(c)(14) of the
Investment Company Act of 1940; and
* * * * * * *
(22)(A) The term ``securities information processor''
means any person engaged in the business of (i)
collecting, processing, or preparing for distribution
or publication, or assisting, participating in, or
coordinating the distribution or publication of,
information with respect to transactions in or
quotations for any security (other than an exempted
security) or (ii) distributing or publishing (whether
by means of a ticker tape, a communications network, a
terminal display device, or otherwise) on a current and
continuing basis, information with respect to such
transactions or quotations. The term ``securities
information processor'' does not include any bona fide
newspaper, news magazine, or business or financial
publication of general and regular circulation, any
self-regulatory organization, any bank, broker, dealer,
building and loan, savings and loan, or homestead
association, or cooperative bank, if such bank, broker,
dealer, association, or cooperative bank would be
deemed to be a securities information processor solely
by reason of functions performed by such institutions
as part of customary banking, brokerage, dealing,
association, or cooperative bank activities, or any
common carrier, as defined in section [3(h)] 3 of the
Communications Act of 1934, subject to the jurisdiction
of the Federal Communications Commission or a State
commission, as defined in [section 3(t)] such section 3
of that Act, unless the Commission determines that such
carrier is engaged in the business of collecting,
processing, or preparing for distribution or
publication, information with respect to transactions
in or quotations for any security.
* * * * * * *
(39) A person is subject to a ``statutory
disqualification'' with respect to membership or
participation in, or association with a member of, a
self-regulatory organization, if such person--
(A) * * *
(B) is subject to--
(i) [an order to the Commission] an order of
the Commission, other appropriate regulatory
agency, or foreign financial regulatory
authority--
(I) * * *
* * * * * * *
margin requirements
Sec. 7. (a) For the purpose of preventing the excessive use
of credit for the purchase or carrying of securities, the
[Federal Reserve Board] Board of Governors of the Federal
Reserve System shall, prior to the effective date of this
section and from time to time thereafter, prescribe rules and
regulations with respect to the amount of credit that may be
initially extended and subsequently maintained on any security
(other than an exempted security). For the initial extension of
credit, such rules and regulations shall be based upon the
following standard: An amount not greater than whichever is the
higher of--
(1) * * *
* * * * * * *
(b) Notwithstanding the provisions of subsection (a) of this
section, the [Federal Reserve Board] Board of Governors of the
Federal Reserve System, may, from time to time, with respect to
all or specified securities or transactions, or classes of
securities, or classes of transactions, by such rules and
regulations (1) prescribe such lower margin requirements for
the initial extension or maintenance of credit as it deems
necessary or appropriate for the accommodation of commerce and
industry, having due regard to the general credit situation of
the country, and (2) prescribe such higher margin requirements
for the initial extension or maintenance of credit as it may
deem necessary or appropriate to prevent the excessive use of
credit to finance transactions in securities.
* * * * * * *
(d) Unlawful Credit Extension in Violation of Rules and
Regulations; [Exception] Exceptions to Application of Rules,
Etc.--
(1) * * *
* * * * * * *
proxies
Sec. 14. (a) * * *
* * * * * * *
(g)(1) * * *
* * * * * * *
(4) Notwithstanding any other provision of law, the
Commission may impose fees, charges, or prices for matters not
involving any acquisition, merger, [consolidation sale,]
consolidation, sale, or other disposition of assets described
in this subsection, as authorized by section 9701 of title 31,
United States Code, or otherwise.
* * * * * * *
registration and regulation of brokers and dealers
Sec. 15. (a) * * *
* * * * * * *
(c)(1) * * *
* * * * * * *
(8) Prohibition of referral fees.--No broker or dealer, or
person associated with a broker or dealer, may solicit or
accept, directly or indirectly, remuneration for assisting an
attorney in obtaining the representation of any person in any
private action arising under this title or under the Securities
Act of 1933.
* * * * * * *
(h) Limitations on State Law.--
(1) * * *
(2) De minimis transactions by associated persons.--
No law, rule, regulation, or order, or other
administrative action of any State or political
subdivision thereof may prohibit an associated person
of a broker or dealer from [affecting] effecting a
transaction described in paragraph (3) for a customer
in such State if--
(A) * * *
* * * * * * *
(3) Described transactions.--
(A) In general.--A transaction is described
in this paragraph if--
(i) such transaction is effected--
(I) on behalf of a customer
that, for 30 days prior to the
day of the transaction,
maintained an account with the
broker or dealer; and
(II) by an associated person
of the broker or dealer--
(aa) to which the
customer was assigned
for 14 days prior to
the day of the
transaction; and
(bb) who is
registered with a State
in which the customer
was a resident or was
present for at least 30
consecutive days during
the 1-year period prior
to the day of the
transaction; or
(ii) the transaction is effected--
(I) on behalf of a customer
that, for 30 days prior to the
day of the transaction,
[maintains] maintained an
account with the broker or
dealer; and
* * * * * * *
(B) Rules of construction.--For purposes of
subparagraph (A)(i)(II)--
(i) * * *
(ii) if the customer is present in
another State for 30 or more
consecutive days or has permanently
changed his or her residence to another
State, a transaction is not described
in this paragraph, unless the
[association] associated person of the
broker or dealer files an application
for registration with such State not
later than 10 business days after the
later of the date of the transaction,
or the date of the discovery of the
presence of the customer in the other
State for 30 or more consecutive days
or the change in the customer's
residence.
* * * * * * *
municipal securities
Sec. 15B. (a) * * *
* * * * * * *
(c)(1) * * *
* * * * * * *
(4) The Commission, by order, shall censure or place
limitations on the activities or functions of any person
associated, seeking to become associated, or, at the time of
the alleged misconduct, associated or seeking to become
associated with a municipal securities dealer, or suspend for a
period not exceeding twelve months or bar any such person from
being associated with a municipal securities dealer, if the
Commission finds, on the record after notice and opportunity
for hearing, that such censure, placing of limitations,
suspension, or bar is in the public interest and that such
person has committed any act or omission enumerated in
subparagraph (A), (D), (E), or (G) of paragraph (4) of section
15(b) of this title, has been [convicted by any offense]
convicted of any offense specified in subparagraph (B) of such
paragraph (4) within 10 years of the commencement of the
proceedings under this paragraph, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
such paragraph (4). It shall be unlawful for any person as to
whom an order entered pursuant to this paragraph or paragraph
(5) of this subsection suspending or barring him from being
associated with a municipal securities dealer is in effect
willfully to become, or to be, associated with a municipal
securities dealer without the consent of the Commission, and it
shall be unlawful for any municipal securities dealer to permit
such a person to become, or remain, a person associated with
him without the consent of the Commission, if such municipal
securities dealer knew, or, in the exercise of reasonable care
should have known, of such order.
* * * * * * *
government securities brokers and dealers
Sec. 15C. (a) * * *
* * * * * * *
(f) Large Position Reporting.--
(1) * * *
* * * * * * *
(5) Exemptions.--Consistent with the public interest
and the protection of investors, the Secretary by rule
or order may exempt in whole or in part, conditionally
or unconditionally, [any person or class or persons]
any person or class of persons, or any transaction or
class of transactions, from the requirements of this
subsection.
* * * * * * *
accounts and records, examinations of exchanges, members, and others
Sec. 17. (a) * * *
* * * * * * *
(g) Any broker, dealer, or other person extending credit who
is subject to the rules and regulations prescribed by the Board
of Governors of the [Federal Reserve Board] Board of Governors
of the Federal Reserve System pursuant to this title shall make
such reports to the Board as it may require as necessary or
appropriate to enable it to perform the functions conferred
upon it by this title. If any such broker, dealer, or other
person shall fail to make any such report or fail to furnish
full information therein, or, if in the judgment of the Board
it is otherwise necessary, such broker, dealer, or other person
shall permit such inspections to be made by the Board with
respect to the business operations of such broker, dealer, or
other person as the Board may deem necessary to enable it to
obtain the required information.
* * * * * * *
registration, responsibilities, and oversight of self-regulatory
organizations
Sec. 19. (a) * * *
* * * * * * *
(c) The Commission, by rule, may abrogate, add to, and delete
from (hereinafter in this subsection collectively referred to
as ``amend'') the rules of a self-regulatory organization
(other than a registered clearing agency) as the Commission
deems necessary or appropriate to insure the fair
administration of the self-regulatory organization, to conform
its rules to requirements of this title and the rules and
regulations thereunder applicable to such organization, or
otherwise in furtherance of the purposes of this title, in the
following manner:
(1) * * *
* * * * * * *
(5) With respect to rules described in subsection
(b)(5), the Commission shall consult with and consider
the views of the Secretary of the Treasury before
abrogating, adding to, and deleting from such rules,
except where the Commission determines that an
emergency exists requiring expeditious or summary
action and publishes its reasons therefor.
* * * * * * *
liability of controlling persons and persons who aid and abet
violations
Sec. 20. (a) * * *
* * * * * * *
[(f)] (e) Prosecution of Persons Who Aid and Abet
Violations.--For purposes of any action brought by the
Commission under paragraph (1) or (3) of section 21(d), any
person that knowingly provides substantial assistance to
another person in violation of a provision of this title, or of
any rule or regulation issued under this title, shall be deemed
to be in violation of such provision to the same extent as the
person to whom such assistance is provided.
* * * * * * *
SEC. 21D. PRIVATE SECURITIES LITIGATION.
(a) * * *
(b) Requirements for Securities Fraud Actions.--
(1) * * *
* * * * * * *
(3) Motion to dismiss; stay of discovery.--
(A) * * *
* * * * * * *
(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.
* * * * * * *
[(g)] (f) Proportionate Liability.--
(1) Applicability.--Nothing in this subsection shall
be construed to create, affect, or in any manner
modify, the standard for liability associated with any
action arising under the securities laws.
(2) Liability for damages.--
(A) Joint and several liability.--Any covered
person against whom a final judgment is entered
in a private action shall be liable for damages
jointly and severally only if the trier of fact
specifically determines that such covered
person knowingly committed a violation of the
securities laws.
(B) Proportionate liability.--
(i) In general.--Except as provided
in [paragraph (1)] subparagraph (A), a
covered person againstwhom a final
judgment is entered in a private action shall be liable solely for the
portion of the judgment that corresponds to the percentage of
responsibility of that covered person, as determined under paragraph
(3).
* * * * * * *
unlawful representations
Sec. 26. No action or failure to act by the Commission or the
[Federal Reserve Board] Board of Governors of the Federal
Reserve System, in the administration of this title shall be
construed to mean that the particular authority has in any way
passed upon the merits of, or given approval to, any security
or any transaction or transactions therein, nor shall such
action or failure to act with regard to any statement or report
filed with or examined by such authority pursuant to this title
or rules and regulations thereunder, be deemed a finding by
such authority that such statement or report is true and
accurate on its face or that it is not false or misleading. It
shall be unlawful to make, or cause to be made, to any
prospective purchaser or seller of a security any
representation that any such action or failure to act by any
such authority is to be so construed or has such effect.
jurisdiction of offenses and suits
Sec. 27. The district courts of the United States and the
United States courts of any Territory or other place subject to
the jurisdiction of the United States shall have exclusive
jurisdiction of violations of this title or the rules and
regulations thereunder, and of all suits in equity and actions
at law brought to enforce any liability or duty created by this
title or the rules and regulations thereunder. Any criminal
proceeding may be brought in the district wherein any act or
transaction constituting the violation occurred. Any suit or
action to enforce any liability or duty created by this title
or rules and regulations thereunder, or to enjoin any violation
of such title or rules and regulations, may be brought in any
such district or in the district wherein the defendant is found
or is an inhabitant or transacts business, and process in such
cases may be served in any other district of which the
defendant is an inhabitant or wherever the defendant may be
found. In any action or proceeding instituted by the Commission
under this title in the district court of the United States for
any judicial district, subpoenas issued by such court to compel
the attendance of witnesses may be served in any other
district. Judgments and decrees so rendered shall be subject to
review as provided in sections 1254, 1291, 1292, and 1294 of
title 28, United States Code. No costs shall be assessed for or
against the Commission in any proceeding under this title
brought by or against it in the Supreme Court or such other
courts.
effect on existing law
Sec. 28. (a) [The rights and remedies] Except as provided in
subsection (f), 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; but no person permitted to
maintain a suit for damages under the provisions of this title
shall recover, through satisfaction of judgment in one or more
actions, a total amount in excess of his actual damages on
account of the act complained of. Except as otherwise
specifically provided in this title, nothing in this title
shall affect the jurisdiction of the securities commission (or
any agency or officer performing like functions) of any State
over any security or any person insofar as it does not conflict
with the provisions of this title or the rules and regulations
thereunder. No State law which prohibits or regulates the
making or promoting of wagering or gaming contracts, or the
operation of `bucket shops' or other similar or related
activities, shall invalidate any put, call, straddle, option,
privilege, or other security, or apply to any activity which is
incidental or related to the offer, purchase, sale, exercise,
settlement, or closeout of any such instrument, if such
instrument is traded pursuant to rules and regulations of a
self-regulatory organization that are filed with the Commission
pursuant to section 19(b) of this Act.
* * * * * * *
(f) Limitations on Remedies.--
(1) Class action limitations.--No 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 class actions.--Any 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
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 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 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) Class action.--The term ``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.
(C) Exception for derivative actions.--
Notwithstanding subparagraph (B), the term
``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.
* * * * * * *
SEC. 31. TRANSACTION FEES.
(a) Recovery of Cost of Services.--The Commission shall, in
accordance with this [subsection] section, collect transaction
fees that are designed to recover the costs to the Government
of the supervision and regulation of securities markets and
securities professionals, and costs related to such supervision
and regulation, including enforcement activities, policy and
rulemaking activities, administration, legal services, and
international regulatory activities.
* * * * * * *
[SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
[There are authorized to be appropriated to carry out the
functions, powers, and duties of the Commission $300,000,000
for fiscal year 1997, in addition to any other funds authorized
to be appropriated to the Commission.]
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.
* * * * * * *
----------
INVESTMENT COMPANY ACT OF 1940
TITLE I--INVESTMENT COMPANIES
* * * * * * *
general definitions
Sec. 2. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(8) ``Company'' means a corporation, a partnership,
an association, a joint-stock company, a trust, a fund,
or any organized group of persons whether incorporated
or not; or any receiver, trustee in a case under title
11 of the [Unitde] United States Code or similar
official or any liquidating agent for any of the
foregoing, in his capacity as such.
* * * * * * *
definition of investment company
Sec. 3. (a) * * *
(b) Notwithstanding [paragraph (3) of subsection (a)]
paragraph (1)(C) of subsection (a), none of the following
persons is an investment company within the meaning of this
title:
(1) * * *
* * * * * * *
functions and activities of investment companies
Sec. 12. (a) * * *
* * * * * * *
(d)(1)(A) * * *
* * * * * * *
(G)(i) This paragraph does not apply to securities of a
registered open-end investment company or a registered unit
investment trust (hereafter in this subparagraph referred to as
the ``acquired company'') purchased or otherwise acquired by a
registered open-end investment company or a registered unit
investment trust (hereafter in this subparagraph referred to as
the ``acquiring company'') if--
(I) * * *
* * * * * * *
(III) with respect to--
(aa) * * *
(bb) securities of the acquiring company, any
sales loads and other distribution-related fees
charged, when aggregated with any sales load
and distribution-related fees paid by the
acquiring company with respect to securities of
the acquired [fund] company, are not excessive
under rules adopted pursuant to section 22(b)
or section 22(c) by a securities association
registered under section 15A of the Securities
Exchange Act of 1934, or the Commission;
* * * * * * *
capital structure
Sec. 18. (a) * * *
* * * * * * *
(e) The provisions of this section 18 shall not apply to any
senior securities issued or sold by any registered closed-end
company--
(1) * * *
(2) pursuant to any plan of reorganization (other
than for refunding as referred to in [subsection
(e)(2)] paragraph (1) of this subsection), provided--
(A) * * *
* * * * * * *
periodic and other reports; reports of affiliated persons
Sec. 30. (a) * * *
(b) Every registered investment company shall file with the
Commission--
(1) such information, documents, and reports (other
than financial statements), as the Commission may
require to keep reasonably current the information and
documents contained in the registration statement of
such company filed under this title; and
* * * * * * *
(e) Every registered investment company shall transmit to its
stockholders, at least [semi-annually] semiannually, reports
containing such of the following information and financial
statements or their equivalent, as of a reasonably current
date, as the Commission may prescribe by rules and regulations
for the protection of investors, which reports shall not be
misleading in any material respect in the light of the reports
required to be filed pursuant to subsections (a) and (b):
(1) * * *
* * * * * * *
[(g)] (i) Disclosure to Church Plan Participants.--A person
that maintains a church plan that is excluded from the
definition of an investment company solely by reason of section
3(c)(14) shall provide disclosure to plan participants, in
writing, and not less frequently than annually, and for new
participants joining such a plan after May 31, 1996, as soon as
is practicable after joining such plan, that--
(1) the plan, or any company or account maintained to
manage or hold plan assets and interests in such plan,
company, or account, are not subject to registration,
regulation, or reporting under this title, the
Securities Act of 1933, the Securities Exchange Act of
1934, or State securities laws; and
(2) plan participants and beneficiaries therefore
will not be afforded the protections of those
provisions.
[(h)] (j) Notice to Commission.--The Commission may issue
rules and regulations to require any person that maintains a
church plan that is excluded from the definition of an
investment company solely by reason of section 3(c)(14) to file
a notice with the Commission containing such information and in
such form as the Commission may prescribe as necessary or
appropriate in the public interest or consistent with the
protection of investors.
accounts and records
Sec. 31. (a) * * *
* * * * * * *
(f) Exemption Authority.--The Commission, upon application
made by any registered investment company, may by order exempt
a specific transaction or transactions from the provisions of
any rule or regulation made pursuant to subsection [(c)] (e),
if the Commission finds that such rule or regulation should not
reasonably be applied to such transaction.
* * * * * * *
jurisdiction of offenses and suits
Sec. 44. The district courts of the United States and the
United States courts of any Territory or other place subject to
the jurisdiction of the United States shall have jurisdiction
of violations of this title or the rules, regulations, or
orders thereunder, and, concurrently with State and Territorial
courts, of all suits in equity and actions at law brought to
enforce any liability or duty created by, or to enjoin any
violation of, this title or the rules, regulations, or orders
thereunder. Any criminal proceeding may be brought in the
district wherein any act or transaction constituting the
violation occurred. A criminal proceeding based upon a
violation of section 34, or upon a failure to file a report or
other document required to be filed under this title, may be
brought in the district wherein the defendant is an inhabitant
or maintains his principal office or place of business. Any
suit or action to enforce any liability or duty created by, or
to enjoin any violation of, this title or rules, regulations,
or orders thereunder, may be brought in any such district or in
the district wherein the defendant is an inhabitant or
transacts business, and process in such cases may be served in
any district of which the defendant is an inhabitant or
transacts business or wherever the defendant may be found. In
any action or proceeding instituted by the Commission under
this title in the district court of the United States for any
judicial district, subpoenas issued by such court to compel the
attendance of witnesses may be served in any other district.
Judgments and decrees so rendered shall be subject to review as
provided in sections 1254, 1291, 1292, and 1294 of title 28,
United States Code. No costs shall be assesssed for or against
the Commission in any proceeding under this title brought by or
against the Commission in any court. The Commission may
intervene as a party in any action or suit to enforce any
liability or duty created by, or to enjoin any noncompliance
with, section 36(b) of this title at any stage of such action
or suit prior to final judgment therein.
* * * * * * *
----------
INVESTMENT ADVISORS ACT OF 1940
* * * * * * *
TITLE II--INVESTMENT ADVISERS
* * * * * * *
registration of investment advisers
Sec. 203. (a) * * *
* * * * * * *
(e) The Commission, by order, shall censure, place
limitations on the activities, functions, or operations of,
suspend for a period not exceeding twelve months, or revoke the
registration of any investment adviser if it finds, on the
record after notice and opportunity for hearing, that such
censure, placing of limitations, suspension, or revocation is
in the public interest and that such investment adviser, or any
person associated with such investment adviser, whether prior
to or subsequent to becoming so associated--
(1) * * *
* * * * * * *
(8) has been found by a foreign financial regulatory
authority to have--
(A) * * *
(B) violated any foreign statute or
regulation regarding transactions in securities
or contracts of sale of a commodity for future
delivery traded on or subject to the rules of a
contract market or any board of trade; or
* * * * * * *
jurisdiction of offenses and suits
Sec. 214. The district courts of the United States and the
United States courts of any Territory or other place subject to
the jurisdiction of the United States shall have jurisdiction
of violations of this title or the rules, regulations, or
orders thereunder, and, concurrently with State and Territorial
courts, of all suits in equity and actions at law brought to
enforce any liability or duty created by, or to enjoin any
violation of this title or the rules, regulations, or orders
thereunder. Any criminal proceeding may be brought in the
district wherein any act or transaction constituting the
violation occurred. Any suit or action to enforce any liability
or duty created by, or to enjoin any violation of this title or
rules, regulations, or orders thereunder, may be brought in any
such district or in the district wherein the defendant is an
inhabitant or transacts business, and process in such cases may
be served in any district of which the defendant is an
inhabitant or transacts business or wherever the defendant may
be found. In any action or proceeding instituted by the
Commission under this title in the district court of the United
States for any judicial district, subpoenas issued by such
court to compel the attendance of witnesses may be served in
any other district. Judgments and decrees so rendered shall be
subject to review as provided in sections 1254, 1291, 1292, and
1294 of title 28, United States Code. No costs shall be
assessed for or against the Commission in any proceeding under
this title brought by or against the Commission in any court.
* * * * * * *
SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.
(a) * * *
(b) Dual Compliance Purposes.--No State may enforce any law
or regulation that would require an investment adviser to
maintain any books or records in addition to those required
under the laws of the State in which it maintains its principal
place of business, if the investment adviser--
(1) is registered or licensed as such in the State in
which it maintains its principal place of business; and
(2) is in compliance with the applicable books and
records requirements of the State in which it maintains
its [principle] principal place of business.
* * * * * * *
----------
SECTION 25 OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
jurisdiction of offenses and suits
Sec. 25. The District Courts of the United States and the
United States courts of any Territory or other place subject to
the jurisdiction of the United States shall have jurisdiction
of violations of this title or the rules, regulations, or
orders thereunder, and, concurrently with State and Territorial
courts, of all suits in equity and actions at law brought to
enforce any liability or duty created by, or to enjoin any
violation of, this title or the rules, regulations, or orders
thereunder. Any criminal proceeding may be brought in the
district wherein any act or transaction constituting the
violation occurred. Any suit or action to enforce any liability
or duty created by, or to enjoin any violation of, this title
or rules, regulations, or orders thereunder, may be brought in
any such district or in the district wherein the defendant is
an inhabitant or transacts business, and process in such cases
may be served in any district of which the defendant is an
inhabitant or transacts business or wherever the defendant may
be found. In any action or proceeding instituted by the
Commission under this title in the district court of the United
States for any judicial district, subpoenas issued by such
court to compel the attendance of witnesses may be served in
any other district. Judgments and decrees so rendered shall be
subject to review as provided in sections 1254, 1291, 1292, and
1294 of title 28, United States Code. No costs shall be
assessed for or against the Commission in any proceeding under
this title brought by or against the Commission in any court.
----------
TRUST INDENTURE ACT OF 1939
TITLE III
short title
Sec. 301. This title, divided into sections as follows, may
be cited as the ``Trust Indenture Act of 1939'':
* * * * * * *
definitions
Sec. 303. When used in this title, unless the context
otherwise requires--
(1) Any term defined in section 2 of the Securities
Act of 1933, and not otherwise defined in this section,
shall have the meaning assigned to such term in such
section 2.
(2) The terms ``sale'', ``sell'', ``offer to sell'',
``offer for sale'', and ``offer'' shall include all
transactions included in such terms as provided in
paragraph (3) of section 2(a) of the Securities Act of
1933, except that an offer or sale of a certificate of
interest or participation shall be deemed an offer or
sale of the security or securities in which such
certificate evidences an interest or participation if
and only if such certificate gives the holder thereof
the right to convert the same into such security or
securities.
(3) The term ``prospectus'' shall have the meaning
assigned to such term in paragraph (10) of section 2(a)
of the Securities Act of 1933, except that in the case
of securities which are not registered under the
Securities Act of 1933, such term shall not include any
communication (A) if it is proved that prior to or at
the same time with such communication a written
statement if any required by section 306 was sent or
given to the persons to whom the communication was
made, or (B) if such communication states from whom
such statement may be obtained (if such statement is
required by rules or regulations under paragraphs (1)
or (2) of subsection (b) of section 306) and, in
addition, does no more than identify the security,
state the price thereof, state by whom orders will be
executed and contain such other information as the
Commission, by rules or regulations deemed necessary or
appropriate in the public interest or for the
protection of investors, and subject to such terms and
conditions as may be prescribed therein, may permit.
* * * * * * *
exempted securities and transactions
Sec. 304. (a) The provisions of this title shall not apply to
any of the following securities:
(1) * * *
* * * * * * *
(4)(A) any security exempted from the provisions of
the Securities Act of 1933 by paragraph (2), (3), (4),
(5), (6), (7), (8), (11), or [(14) of subsection] (13)
of section 3(a) thereof;
* * * * * * *
reports by indenture trustee
* * * * * * *
Sec. 313. (a) The indenture trustee shall transmit to the
indenture security holders as hereinafter provided, at stated
intervals of not more than 12 months, a brief report with
respect to any of the following events which may have occurred
within the previous 12 months (but if no such event has
occurred within such period no report need be transmitted):--
(1) * * *
* * * * * * *
(4) any change to the amount, interest rate, and
maturity date of all other indebtedness owing to it in
its individual capacity, on the date of such report, by
the obligor upon the indenture securities, with a brief
description of any property held as collateral security
therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in
paragraphs (2), (3), (4), or (6) of subsection 311;
(5) any change to the property and funds physically
in its possession as indenture trustee on the date of
such report;
(6) [any change to] any release, or release and
substitution, of property subject to the lien of the
indenture (and the consideration therefor, if any)
which it has not previously reported;
* * * * * * *
rules, regulations, and orders
Sec. 319. (a) * * *
(b) Subject to the provisions of [the Federal Register Act]
chapter 15 of title 44, United States Code, and regulations
prescribed under the authority thereof, the rules and
regulations of the Commission under this title shall be
effective upon publication in the manner which the Commission
shall prescribe, or upon such later date as may be provided in
such rules and regulations.
* * * * * * *
DISSENTING VIEWS
We abhor strike suits and frivolous litigation of any
stripe. We would enthusiastically support responsible and
balanced legislation narrowly targeted at ameliorating those
abuses. H.R. 1689 does not meet that standard. We dissent from
this bill.
As introduced, H.R. 1689 was an industry wish list devoid
of proper safeguards to protect the essential rights of injured
investors to pursue meritorious claims. The sponsors and
proponents of H.R. 1689 adopted several amendments during
Subcommittee and Full Committee markup to temper some of the
bill's harshest elements. We commend our colleagues. The bill,
nonetheless, is still flawed.
H.R. 1689 creates a national standard governing securities
fraud class actions involving ``covered securities'' which are
nationally traded securities and some that are not. The bill
requires these class actions to be brought in federal court
pursuant to federal law, where they would be subject to the
more stringent terms of the Private Securities Litigation
Reform Act of 1995. These terms include the double whammy of
heightened pleading standards along with a stay of discovery
pending a motion to dismiss, blocking the ability of defrauded
investors to gain the special facts needed to meet the
heightened pleading standards.
First, the bill is premature. The Securities and Exchange
Commission (SEC) concluded in its April 1997 report to the
President and Congress that: ``it is too early to assess with
confidence many important effects of the Reform Act and
therefore, on this basis, it is premature to propose
legislative changes. The one-year time frame has not allowed
for sufficient practical experience with the Reform Act's key
provisions, or for many court decisions (particularly appellate
court decisions) interpreting those provisions.'' The Chairman
of the SEC testified before our finance subcommittee on October
21, 1997, that his agency had ``not had enough practical
experience with the Act to produce the data necessary for us to
measure its success.'' That is still the case.
Second, there is no national problem in need of a national
solution. Data compiled by unbiased sources shows that the
number of state securities class actions has declined during
the last year to pre-Reform Act levels. In 1997, there were a
total of 44 state class action securities cases, out of a total
of 15 million civil filings. By comparison, 67 state class
actions were filed in 1994, the year before the Reform Act
became law, and 66 cases were filed in 1996, the year after the
Reform Act was enacted. We note in passing that we have been
shown no convincing proof that any of these lawsuits was
without merit and was allowed to proceed notwithstanding its
lack of merit. Moreover, as the attached map shows, the
overwhelming majority of those cases were filed in California,
with most states having zero filings. That being the case,
shouldn't this ``problem'' be solved in the California
legislature? We believe that state legislatures should be given
time to consider laws of their own to address the issues raised
in this debate.
We find it curious indeed that the Republican-led Congress
that campaigns on returning power to the states and protecting
individual choice, would champion a federal mandate abolishing
important state prerogatives along with protections and rights.
Forty-nine states, as well as the District of Columbia, allow
for some form of aiding-and-abetting liability. There is no
aiding-and-abetting liability in private actions for most
federal securities fraud claims. In addition, private actions
under the federal securities laws are subject to a short
statute of limitations. Specifically, private actions under
Section 10(b) of the Exchange Act must be brought within one
year after discovery of the alleged violation, and no more than
three years after the violation occurred. In contrast, 33
states allow for longer limitation periods. These investor
protection laws available at the state level, as the attached
list shows, will no longer be available to class action
plaintiffs upon passage of H.R. 1689. The public should clearly
understand the investor protections being wiped out by the
elected representatives who vote yes on this bill.
Moreover, under H.R. 1689's unusual ``grouping'' provision,
any time more than 50 individuals file state court complaints
``in the same court and involving common questions of law or
fact,'' they will be deemed to be part of a ``class action''
subject to this bill, if ``the lawsuits are joined,
consolidated, or otherwise proceed as a single action for any
purpose.'' Individuals who bring suits in state court in their
own name may find, if others have brought similar suits, that
their claims are preempted. For instance, if an investment
adviser churns the accounts of or recommends unsuitable
securities to clients in a single state and more than 50 of
them seek to recover in the same court, each filing their own
individual action, they may be forced to constitute a class
action and have to pursue their claims--if possible--in federal
court. These investors may be left without a remedy. This is
broader preemption than we believe is necessary or appropriate.
There has been no showing that these kinds of suits, either
individually or in the aggregate, present the kinds of
potential abuses that have been attributed to traditional class
actions and strike suites.
The debate on this legislation has been polar. It has
tarred all private securities fraud litigation as meritless
strike suites, and all defendant companies, accountants, and
broker-dealers as innocent victims of large-sum-settlement
hijackings. Through this lens, unintended harm to legitimate
lawsuits is viewed as a reasonable tradeoff. We disagree on
both counts.
The record shows that securities fraud is up. Many of those
cases involve accounting frauds. The SEC has always taken the
view that private lawsuits are a crucial adjunct to the SEC's
own enforcement program. They are the principle means by which
investors have recovered losses caused by fraud. Proponents of
H.R. 1689 argue that investors recover only ``10 cents on the
dollar'' in these cases. We agree that we need to put investors
first. But nothing in this bill addresses the recovery issue in
any way.
For these reasons, we oppose this bill and urge the House
to do the same.
John D. Dingell.
Edward J. Markey.
Bart Stupak.
Diana DeGette.
ADDITIONAL DISSENTING VIEWS OF CONGRESSMAN RON KLINK
H.R. 1689 is a solution in search of a problem.
In 1995, the Commerce Committee developed and Congress
approved, over a presidential veto, the Private Securities
Litigation Reform Act, which put strict limits on federal
investor class action lawsuits. I opposed that legislation
because I was concerned about preventing defrauded investors
from being made whole again. But my side lost, and we all moved
on.
One of the arguments when we debated the 1995 Act was that
truly victimized investors could still seek redress in state
court. So there was some comfort in that; retirees who lost
their life savings to securities fraud could still pursue legal
action.
Now, however, I fear that the Committee is moving to cut
off the state avenue for class action securities suits. That
could mean that investors would have no ability to seek relief
from securities wrongdoers, and that is unacceptable to me.
There appears to be no explosion of state securities class
actions, so I see no real need for this bill. Last year there
were only 44 throughout the entire country, the lowest number
in five years.
Furthermore, at a time when there are more investors than
at any time in history, many of them unsophisticated investors,
we should not be making it easier to get away with securities
fraud. We owe that to our investor constituents and we owe that
to the capital markets in this country, which remain the
strongest in the world.
Additionally, though the bill contains a provision similar
to the Sarbanes amendment in the Senate bill, which provides
for an exemption from the bill for state and local entities,
this provision goes beyond Sarbanes to require those entities
to be named plaintiffs in and authorize participation in state
securities class actions. This assumes a level of
sophistication that may be lacking in these investors.
I will provide an example. Last year, the SEC alleged that
Devon Capital Management had defrauded 100 municipal clients in
Pennsylvania and elsewhere. Those clients included 75 school
districts, mostly in Western and Central Pennsylvania. Devon
and the SEC reached a settlement, and those school districts
are expected to recover a little over half of the $71 million
that Devon lost.
Now, how can we say that these same school districts and
local governments that were unsophisticated enough to have
invested with Devon in the first place and lost all this money,
are, at the same time, sophisticated enough to recognize the
steps they need to take to preserve their rights to bring a
state securities class action under this bill?
I would prefer that, at the very least, the Sarbanes
amendment exempting state and local governments and pension
plans be maintained as it passed the Senate.
Finally, I am disturbed by the trend I am seeing in the
Committee and Congress as a whole in our attitude toward
investors, especially the mom and pop investors we all
represent. As I said, I opposed the 1995 Securities Litigation
Reform Act. That was followed closely by the Fields Securities
Reform bill, which threatened to severely limit the ability of
state securities regulators, the local cops on the beat in the
securities world, to protect investors. In Committee and in
conference, we were able to temper this legislation so that
investors would not be left vulnerable.
We are at a point in time when Members of Congress and
others are talking about privatizing Social Security. That will
lead to even more unsophisticated investors and hundreds of
billions of dollars going into the marketplace. And yet we
continue to talk about reducing investor protections.
Another question I have is, are we now saying to the states
that we in Washington, DC, know better than the states what
cases should go through state courts and which should not? Are
we next going to tell the states that they can't hear real
estate cases? Are we going to tell them they can't hear tobacco
cases? What comes next?
I never thought I would see the day when my Republican
colleagues would want to dictate from on high in Washington,
DC, what state law should be.
Ron Klink.