[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.