[Public Papers of the Presidents of the United States: William J. Clinton (1998, Book II)]
[November 3, 1998]
[Pages 1974-1976]
[From the U.S. Government Publishing Office www.gpo.gov]

Statement on Signing the Securities Litigation Uniform Standards Act of 
November 3, 1998

    Today I am pleased to sign into law S. 1260, the ``Securities 
Litigation Uniform Standards Act of 1998,'' (Uniform Standards Act).
    This country is blessed with strong and vibrant markets, and they 
function best when corporations can raise capital by providing investors 
with their best, good-faith future projections. This legislation will 
help stabilize the enforcement scheme of the Private Securities 
Litigation Reform Act of 1995 (the Reform Act) by ensuring that parties 
obtain the benefits of the protections that Federal law provides. The 
Uniform Standards Act reinforces our national capital markets by 
promoting uniform national standards for information generated for and 
used in national capital markets. If firms know that they can rely on 
the Reform Act's ``safe harbor'' for forward-looking information, they 
will provide

[[Page 1975]]

the public with valuable information about their prospects, thus 
benefiting investors by enabling them to make wiser decisions.

    The Reform Act substantially revised both substantive and procedural 
law governing private actions under Federal securities laws. It was 
designed to end litigation abuses and ensure that investors receive the 
best possible information by reducing the litigation risk to companies 
that make forward-looking statements. In addition to the safe harbor for 
forward-looking statements, the Reform Act created, among other things, 
a stay of discovery pending a defendant's motion to dismiss; limited the 
exposure of certain defendants by establishing proportionate liability, 
rather than joint and several liability, for parties not found to have 
``knowingly'' committed violations; and required courts to assess 
whether all parties complied with Rule 11 of the Federal Rules of Civil 
Procedure, prohibiting frivolous legal filings.

    Although I supported the Reform Act's goals, I vetoed the Act 
because I was concerned that it would erect procedural barriers and keep 
wrongly injured persons from having their day in court. In particular, I 
objected to certain statements in the 1995 Conference Report's Statement 
of Managers that created ambiguity with respect to whether the bill was 
adopting the pleading standard in private securities fraud cases of the 
U.S. Court of Appeals for the Second Circuit--the highest pleading 
standard of any Federal circuit court and a standard that I support. 
When the bill returned to the House and Senate floors after my veto, the 
bill's supporters made clear that they did in fact intend to codify the 
Second Circuit standard. After this important assurance, the bill passed 
over my veto.

    Since passage of the Reform Act, there has been considerable concern 
that the goals of the Reform Act have not been realized. In particular, 
there was testimony that firms are not using the Federal safe harbor for 
forward-looking statements because they fear State court litigation over 
the same representations that are protected under Federal law. In 
addition, concerns have been raised that State actions are being used to 
achieve an ``end run'' around the Reform Act's stay of discovery.

    In signing the Uniform Standards Act, I do so with the 
understanding, as reflected in the Statement of Managers for this 
legislation and numerous judicial decisions under the Reform Act 
adopting the pleading standard of the Second Circuit, that investors 
with legitimate complaints meeting the Second Circuit pleading standard 
will have access to our Nation's courts. This point was critical to my 
veto of the Reform Act in 1995; it was reaffirmed before ultimate 
passage of the 1995 Act over my veto; and its assurance was a 
prerequisite to my signing this legislation today, as indicated in the 
April 28, 1998, letter from my staff to Chairman D'Amato, Senator Gramm, 
and Senator Dodd. Since the uniform standards provided by this 
legislation state that class actions generally can be brought only in 
Federal court, where they will be governed by Federal law, clarity on 
the Federal law to be applied is particularly important. The Statement 
of Managers confirms that the Second Circuit pleading standard will be 
the uniform standard for pleading securities fraud. Thus, the uniform 
national standards contained in this bill will permit investors to 
continue to recover losses fairly attributable to reckless misconduct. I 
am aware of and agree with the expert views on this issue of the 
Securities and Exchange Commission (SEC), which, along with my staff, 
worked hard in shaping this legislation.

    With these assurances in the Statement of Managers that reckless 
conduct will continue to be actionable and that complaints meeting the 
Second Circuit pleading standard will permit investors access to our 
Nation's courts, I believe that the uniform national standards created 
by this bill will generate meaningful information for investors and 
further reduce frivolous litigation without jeopardizing the critically 
important right of defrauded investors to obtain relief.

    I do, however, object to one provision in this bill. Section 203 
provides separate authority for job classification and pay of SEC 
economists. This provision was added to the bill at the last minute 
without any time for review or comment. There is no justification to 
treat SEC economists differently from other Federal employees. With that 
one exception, I am pleased to sign the Securities Litigation Uniform 
Standards Act of 1998 into law.

                                                      William J. Clinton

[[Page 1976]]

The White House,

November 3, 1998.

Note: S. 1260, approved November 3, was assigned Public Law No. 105-353.