    [Public Papers of the Presidents of the United States: William J. Clinton (1995, Book II)]
    [December 19, 1995]
    [Pages 1912-1913]
    [From the U.S. Government Publishing Office www.gpo.gov]

    [[Page 1912]]

    Message to the House of Representatives Returning Without Approval the
    Private Securities Litigation Reform Act of 1995
    December 19, 1995

    To the House of Representatives:
        I am returning herewith without my approval H.R. 1058, the ``Private
    Securities Litigation Reform Act of 1995.'' This legislation is designed
    to reform portions of the Federal securities laws to end frivolous
    lawsuits and to ensure that investors receive the best possible
    information by reducing the litigation risk to companies that make
    forward-looking statements.
        I support those goals. Indeed, I made clear my willingness to
    support the bill passed by the Senate with appropriate ``safe harbor''
    language, even though it did not include certain provisions that I
    favor--such as enhanced provisions with respect to joint and several
    liability, aider and abettor liability, and statute of limitations.
        I am not, however, willing to sign legislation that will have the
    effect of closing the courthouse door on investors who have legitimate
    claims. Those who are the victims of fraud should have recourse in our
    courts. Unfortunately, changes made in this bill during conference could
    well prevent that.
        This country is blessed by strong and vibrant markets and I believe
    that they function best when corporations can raise capital by providing
    investors with their best good-faith assessment of future prospects,
    without fear of costly, unwarranted litigation. But I also know that our
    markets are as strong and effective as they are because they operate--
    and are seen to operate--with integrity. I believe that this bill, as
    modified in conference, could erode this crucial basis of our markets'
    strength.
        Specifically, I object to the following elements of this bill.
    First, I believe that the pleading requirements of the Conference Report
    with regard to a defendant's state of mind impose an unacceptable
    procedural hurdle to meritorious claims being heard in Federal courts. I
    am prepared to support the high pleading standard of the U.S. Court of
    Appeals for the Second Circuit--the highest pleading standard of any
    Federal circuit court. But the conferees make crystal clear in the
    Statement of Managers their intent to raise the standard even beyond
    that level. I am not prepared to accept that.
        The conferees deleted an amendment offered by Senator Specter and
    adopted by the Senate that specifically incorporated Second Circuit case
    law with respect to pleading a claim of fraud. Then they specifically
    indicated that they were not adopting Second Circuit case law but
    instead intended to ``strengthen'' the existing pleading requirements of
    the Second Circuit. All this shows that the conferees meant to erect a
    higher barrier to bringing suit than any now existing--one so high that
    even the most aggrieved investors with the most painful losses may get
    tossed out of court before they have a chance to prove their case.
        Second, while I support the language of the Conference Report
    providing a ``safe harbor'' for companies that include meaningful
    cautionary statements in their projections of earnings, the Statement of
    Managers--which will be used by courts as a guide to the intent of the
    Congress with regard to the meaning of the bill--attempts to weaken the
    cautionary language that the bill itself requires. Once again, the end
    result may be that investors find their legitimate claims unfairly
    dismissed.
        Third, the Conference Report's Rule 11 provision lacks balance,
    treating plaintiffs more harshly than defendants in a manner that comes
    too close to the ``loser pays'' standard I oppose.
        I want to sign a good bill and I am prepared to do exactly that if
    the Congress will make the following changes to this legislation: first,
    adopt the Second Circuit pleading standards and reinsert the Specter
    amendment into the bill. I will support a bill that submits all
    plaintiffs to the tough pleading standards of the Second Circuit, but I
    am not prepared to go beyond that. Second, remove the language in the
    Statement of Managers that waters down the nature of the cautionary
    language that must be included to make the safe harbor safe. Third,
    restore the Rule 11 language to that of the Senate bill.
        While it is true that innocent companies are hurt by frivolous
    lawsuits and that valuable information may be withheld from investors
    when companies fear the risk of such suits, it is also true that there
    are innocent investors who are defrauded and who are able to recover
    their

    [[Page 1913]]

    losses only because they can go to court. It is appropriate to change
    the law to ensure that companies can make reasonable statements and
    future projections without getting sued every time earnings turn out to
    be lower than expected or stock prices drop. But it is not appropriate
    to erect procedural barriers that will keep wrongly injured persons from
    having their day in court.
        I ask the Congress to send me a bill promptly that will put an end
    to litigation abuses while still protecting the legitimate rights of
    ordinary investors. I will sign such a bill as soon as it reaches my
    desk.

                                                          William J. Clinton

    The White House,

    December 19, 1995.

    Note: This message was released by the Office of the Press Secretary on
    December 20. H.R. 1058, passed December 22 over the President's veto,
    was assigned Public Law No. 104-67.