I

104TH CONGRESS

1ST SESSION H. R. 1058

To reform Federal securities litigation, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 27, 1995

Mr. BLILEY (for himself, Mr. FIELDS of Texas, Mr. COX of California, and

Mr. TAUZIN) introduced the following bill; which was referred to the

Committee on Commerce and, in addition, to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each

case for consideration of such provisions as fall within the jurisdiction of

the committee concerned

A BILL

To reform Federal securities litigation, and for other

purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Securities Litigation Reform Act’’.

6 (b) TABLE OF CONTENTS.—The table of contents for

7 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Prevention of lawyer-driven litigation.

(a) Plaintiff steering committees to ensure client control of lawsuits.

‘‘Sec. 36. Class action steering committees.
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‘‘(a) Class action steering committee.

‘‘(b) Membership of plaintiff steering committee.

‘‘(c) Functions of plaintiff steering committee.

‘‘(d) Immunity from civil liability; removal.

‘‘(e) Effect on other law.’’

(b) Prohibition on attorneys’ fees paid from Commission disgorgement

funds.

Sec. 3. Prevention of abusive practices that foment litigation.

(a) Additional provisions applicable to private actions.

‘‘Sec. 20B. Procedures applicable to private actions.

‘‘(a) Elimination of bonus payments to named plaintiffs in class

actions.

‘‘(b) Restrictions on professional plaintiffs.

‘‘(c) Awards of fees and expenses.

‘‘(d) Prevention of abusive conflicts of interest.

‘‘(e) Disclosure of settlement terms to class members.

‘‘(f) Encouragement of finality in settlement discharges.

‘‘(g) Contribution from non-parties in interests of fairness.

‘‘(h) Defendant’s right to written interrogatories establishing

scienter.’’

(b) Prohibition of referral fees that foment litigation.

Sec. 4. Prevention of ‘‘fishing expedition’’ lawsuits.

‘‘Sec. 10A. Requirements for securities fraud actions.

‘‘(a) Scienter.

‘‘(b) Requirement for explicit pleading of scienter.

‘‘(c) Dismissal for failure to meet pleading requirements; stay of

discovery; summary judgment.

‘‘(d) Reliance and causation.

‘‘(e) Allocation of liability.

‘‘(f) Damages.’’

Sec. 5. Establishment of ‘‘safe harbor’’ for predictive Statements.

‘‘Sec. 37. Application of safe harbor for forward-looking Statements.

‘‘(a) Safe harbor defined.

‘‘(b) Automatic protective order staying discovery; expedited procedure.

‘‘(c) Regulatory authority.’’

Sec. 6. Rule of construction.

Sec. 7. Effective date.

1 SEC. 2. PREVENTION OF LAWYER-DRIVEN LITIGATION.

2 (a) PLAINTIFF STEERING COMMITTEES TO ENSURE

3 CLIENT CONTROL OF LAWSUITS.—The Securities Ex4 change Act of 1934 (15 U.S.C. 78a et seq.) is amended

5 by adding at the end the following new section:

6 ‘‘SEC. 36. CLASS ACTION STEERING COMMITTEES.

7 ‘‘(a) CLASS ACTION STEERING COMMITTEE.—In any

8 private action arising under this title seeking to recover
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1 damages on behalf of a class, the court shall, at the earli2 est practicable time, appoint a committee of class members

3 to direct counsel for the class (hereafter in this section

4 referred to as the ‘plaintiff steering committee’) and to

5 perform such other functions as the court may specify.

6 Court appointment of a plaintiff steering committee shall

7 not be subject to interlocutory review.

8 ‘‘(b) MEMBERSHIP OF PLAINTIFF STEERING COM9 MITTEE.—

10 ‘‘(1) QUALIFICATIONS.—

11 ‘‘(A) NUMBER.—A plaintiff steering com12 mittee shall consist of not fewer than 5 class

13 members, willing to serve, who the court be14 lieves will fairly represent the class.

15 ‘‘(B) OWNERSHIP INTERESTS.—Members

16 of the plaintiff steering committee shall have

17 cumulatively held during the class period not

18 less than—

19 ‘‘(i) the lesser of 5 percent of the se20 curities which are the subject matter of the

21 litigation or $10,000,000 in market value

22 of the securities which are the subject mat23 ter of the litigation; or
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1 ‘‘(ii) such smaller percentage or dollar

2 amount as the court finds appropriate

3 under the circumstances.

4 ‘‘(2) NAMED PLAINTIFFS.—Class plaintiffs

5 serving as the representative parties in the litigation

6 may serve on the plaintiff steering committee, but

7 shall not comprise a majority of the committee.

8 ‘‘(3) NONCOMPENSATION OF MEMBERS.—Mem9 bers of the plaintiff steering committee shall serve

10 without compensation, except that any member may

11 apply to the court for reimbursement of reasonable

12 out-of-pocket expenses from any common fund es13 tablished for the class.

14 ‘‘(4) MEETINGS.—The plaintiff steering com15 mittee shall conduct its business at one or more pre16 viously scheduled meetings of the committee, of

17 which prior notice shall have been given and at

18 which a majority of its members are present in per19 son or by electronic communication. The plaintiff

20 steering committee shall decide all matters within its

21 authority by a majority vote of all members, except

22 that the committee may determine that decisions

23 other than to accept or reject a settlement offer or

24 to employ or dismiss counsel for the class may be

25 delegated to one or more members of the committee,
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1 or may be voted upon by committee members seria2 tim, without a meeting.

3 ‘‘(5) RIGHT OF NONMEMBERS TO BE HEARD.—

4 A class member who is not a member of the plaintiff

5 steering committee may appear and be heard by the

6 court on any issue relating to the organization or ac7 tions of the plaintiff steering committee.

8 ‘‘(c) FUNCTIONS OF PLAINTIFF STEERING COMMIT9 TEE.—The authority of the plaintiff steering committee

10 to direct counsel for the class shall include all powers nor11 mally permitted to an attorney’s client in litigation, includ12 ing the authority to retain or dismiss counsel and to reject

13 offers of settlement, and the authority to accept an offer

14 of settlement subject to final approval by the court. Dis15 missal of counsel other than for cause shall not limit the

16 ability of counsel to enforce any contractual fee agreement

17 or to apply to the court for a fee award from any common

18 fund established for the class.

19 ‘‘(d) IMMUNITY FROM CIVIL LIABILITY; REMOVAL.—

20 Any person serving as a member of a plaintiff steering

21 committee shall be immune from any civil liability for any

22 negligence in performing such service, but shall not be im23 mune from liability for intentional misconduct or from the

24 assessment of costs pursuant to section 20B(c). The court
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1 may remove a member of a plaintiff steering committee

2 for good cause shown.

3 ‘‘(e) EFFECT ON OTHER LAW.—This section does not

4 affect any other provision of law concerning class actions

5 or the authority of the court to give final approval to any

6 offer of settlement.’’.

7 (b) PROHIBITION ON ATTORNEYS’ FEES PAID FROM

8 COMMISSION DISGORGEMENT FUNDS.—Section 21(d) of

9 the Securities Exchange Act of 1934 (15 U.S.C. 78u(d))

10 is amended by adding at the end the following new para11 graph:

12 ‘‘(4) PROHIBITION ON ATTORNEYS’ FEES PAID

13 FROM COMMISSION DISGORGEMENT FUNDS.—Except as

14 otherwise ordered by the court, funds disgorged as the re15 sult of an action brought by the Commission, or of any

16 Commission proceeding, shall not be distributed as pay17 ment for attorneys’ fees or expenses incurred by private

18 parties seeking distribution of the disgorged funds.’’.

19 SEC. 3. PREVENTION OF ABUSIVE PRACTICES THAT FO20 MENT LITIGATION.

21 (a) ADDITIONAL PROVISIONS APPLICABLE TO PRI22 VATE ACTIONS.—The Securities Exchange Act of 1934 is

23 amended by inserting after section 20A (15 U.S.C. 78t–

24 1) the following new section:
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1 ‘‘PROCEDURES APPLICABLE TO PRIVATE ACTIONS

2 ‘‘SEC. 20B. (a) ELIMINATION OF BONUS PAYMENTS

3 TO NAMED PLAINTIFFS IN CLASS ACTIONS.—In any pri4 vate action under this title that is certified as a class ac5 tion pursuant to the Federal Rules of Civil Procedure, the

6 portion of any final judgment or of any settlement that

7 is awarded to class plaintiffs serving as the representative

8 parties shall be equal, on a per share basis, to the portion

9 of the final judgment or settlement awarded to all other

10 members of the class. Nothing in this subsection shall be

11 construed to limit the award to any representative parties

12 of actual expenses (including lost wages) relating to the

13 representation of the class.

14 ‘‘(b) RESTRICTIONS ON PROFESSIONAL PLAIN15 TIFFS.—Except as the court may otherwise permit for

16 good cause, a person may be a named plaintiff, or an offi17 cer, director, or fiduciary of a named plaintiff, in no more

18 than 5 class actions filed during any 3-year period.

19 ‘‘(c) AWARDS OF FEES AND EXPENSES.—

20 ‘‘(1) AUTHORITY TO AWARD FEES AND EX21 PENSES.—If the court in any private action arising

22 under this title enters a final judgment against a

23 party litigant on the basis of a motion to dismiss,

24 motion for summary judgment, or a trial on the

25 merits, the court shall, upon motion by the prevail-
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1 ing party, determine whether (A) the position of the

2 losing party was not substantially justified, (B) im3 posing fees and expenses on the losing party or the

4 losing party’s attorney would be just, and (C) the

5 cost of such fees and expenses to the prevailing

6 party is substantially burdensome or unjust. If the

7 court makes the determinations described in clauses

8 (A), (B), and (C), the court shall award the prevail9 ing party reasonable fees and other expenses in10 curred by that party. The determination of whether

11 the position of the losing party was substantially

12 justified shall be made on the basis of the record in

13 the action for which fees and other expenses are

14 sought, but the burden of persuasion shall be on the

15 prevailing party.

16 ‘‘(2) SECURITY FOR PAYMENT OF COSTS IN

17 CLASS ACTIONS.—In any private action arising

18 under this title that is certified as a class action pur19 suant to the Federal Rules of Civil Procedure, the

20 court shall require an undertaking from the attor21 neys for the plaintiff class, the plaintiff class, or

22 both, in such proportions and at such times as the

23 court determines are just and equitable, for the pay24 ment of the fees and expenses that may be awarded

25 under paragraph (1).
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1 ‘‘(3) APPLICATION FOR FEES.—A party seeking

2 an award of fees and other expenses shall, within 30

3 days of a final, nonappealable judgment in the ac4 tion, submit to the court an application for fees and

5 other expenses that verifies that the party is entitled

6 to such an award under paragraph (1) and the

7 amount sought, including an itemized statement

8 from any attorney or expert witness representing or

9 appearing on behalf of the party stating the actual

10 time expended and the rate at which fees and other

11 expenses are computed.

12 ‘‘(4) ALLOCATION AND SIZE OF AWARD.—The

13 court, in its discretion, may—

14 ‘‘(A) determine whether the amount to be

15 awarded pursuant to this section shall be

16 awarded against the losing party, its attorney,

17 or both; and

18 ‘‘(B) reduce the amount to be awarded

19 pursuant to this section, or deny an award, to

20 the extent that the prevailing party during the

21 course of the proceedings engaged in conduct

22 that unduly and unreasonably protracted the

23 final resolution of the action.

24 ‘‘(5) AWARDS IN DISCOVERY PROCEEDINGS.—

25 In adjudicating any motion for an order compelling
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1 discovery or any motion for a protective order made

2 in any private action arising under this title, the

3 court shall award the prevailing party reasonable

4 fees and other expenses incurred by the party in

5 bringing or defending against the motion, including

6 reasonable attorneys’ fees, unless the court finds

7 that special circumstances make an award unjust.

8 ‘‘(6) RULE OF CONSTRUCTION.—Nothing in

9 this subsection shall be construed to limit or impair

10 the discretion of the court to award costs pursuant

11 to other provisions of law.

12 ‘‘(7) PROTECTION AGAINST ABUSE OF PROC13 ESS.—In any action to which this subsection applies,

14 a court shall not permit a plaintiff to withdraw from

15 or voluntarily dismiss such action if the court deter16 mines that such withdrawal or dismissal is taken for

17 purposes of evasion of the requirements of this sub18 section.

19 ‘‘(8) DEFINITIONS.—For purposes of this sub20 section—

21 ‘‘(A) The term ‘fees and other expenses’

22 includes the reasonable expenses of expert wit23 nesses, the reasonable cost of any study, analy24 sis, report, test, or project which is found by

25 the court to be necessary for the preparation of
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1 the party’s case, and reasonable attorneys’ fees

2 and expenses. The amount of fees awarded

3 under this section shall be based upon prevail4 ing market rates for the kind and quality of

5 services furnished.

6 ‘‘(B) The term ‘substantially justified’

7 shall have the same meaning as in section

8 2412(d)(1) of title 28, United States Code.

9 ‘‘(d) PREVENTION OF ABUSIVE CONFLICTS OF IN10 TEREST.—In any private action under this title pursuant

11 to a complaint seeking damages on behalf of a class, if

12 the class is represented by an attorney who directly owns

13 or otherwise has a beneficial interest in the securities that

14 are the subject of the litigation, the court shall, on motion

15 by any party, make a determination of whether such inter16 est constitutes a conflict of interest sufficient to disqualify

17 the attorney from representing the class.

18 ‘‘(e) DISCLOSURE OF SETTLEMENT TERMS TO CLASS

19 MEMBERS.—In any private action under this title that is

20 certified as a class action pursuant to the Federal Rules

21 of Civil Procedure, any settlement agreement that is pub22 lished or otherwise disseminated to the class shall include

23 the following statements:

24 ‘‘(1) STATEMENT OF POTENTIAL OUTCOME OF

25 CASE.—
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1 ‘‘(A) AGREEMENT ON AMOUNT OF DAM2 AGES AND LIKELIHOOD OF PREVAILING.—If the

3 settling parties agree on the amount of dam4 ages per share that would be recoverable if the

5 plaintiff prevailed on each claim alleged under

6 this title and the likelihood that the plaintiff

7 would prevail—

8 ‘‘(i) a statement concerning the

9 amount of such potential damages; and

10 ‘‘(ii) a statement concerning the likeli11 hood that the plaintiff would prevail on the

12 claims alleged under this title and a brief

13 explanation of the reasons for that conclu14 sion.

15 ‘‘(B) DISAGREEMENT ON AMOUNT OF

16 DAMAGES OR LIKELIHOOD OF PREVAILING.—If

17 the parties do not agree on the amount of dam18 ages per share that would be recoverable if the

19 plaintiff prevailed on each claim alleged under

20 this title or on the likelihood that the plaintiff

21 would prevail on those claims, or both, a state22 ment from each settling party concerning the

23 issue or issues on which the parties disagree.

24 ‘‘(C) INADMISSIBILITY FOR CERTAIN PUR25 POSES.—Statements made in accordance with
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1 subparagraphs (A) and (B) concerning the

2 amount of damages and the likelihood of pre3 vailing shall not be admissible for purposes of

4 any Federal or State judicial action or adminis5 trative proceeding.

6 ‘‘(2) STATEMENT OF ATTORNEYS’ FEES OR

7 COSTS SOUGHT.—If any of the settling parties or

8 their counsel intend to apply to the court for an

9 award of attorneys’ fees or costs from any fund es10 tablished as part of the settlement, a statement indi11 cating which parties or counsel intend to make such

12 an application, the amount of fees and costs that

13 will be sought (including the amount of such fees

14 and costs determined on a per-share basis, together

15 with the amount of the settlement proposed to be

16 distributed to the parties to suit, determined on a

17 per-share basis), and a brief explanation of the basis

18 for the application. Such information shall be clearly

19 summarized on the cover page of any notice to a

20 party of any settlement agreement.

21 ‘‘(3) IDENTIFICATION OF LAWYERS’ REP22 RESENTATIVES.—The name and address of one or

23 more representatives of counsel for the class who

24 will be reasonably available to answer written ques25 tions from class members concerning any matter
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1 contained in any notice of settlement published or

2 otherwise disseminated to the class.

3 ‘‘(4) OTHER INFORMATION.—Such other infor4 mation as may be required by the court, or by any

5 plaintiff steering committee appointed by the court

6 pursuant to section 36.

7 ‘‘(f) ENCOURAGEMENT OF FINALITY IN SETTLE8 MENT DISCHARGES.—

9 ‘‘(1) DISCHARGE.—A defendant who settles any

10 private action arising under this title at any time be11 fore verdict or judgment shall be discharged from all

12 claims for contribution brought by other persons

13 with respect to the matters that are the subject of

14 such action. Upon entry of the settlement by the

15 court, the court shall enter a bar order constituting

16 the final discharge of all obligations to the plaintiff

17 of the settling defendant arising out of the action.

18 The order shall bar all future claims for contribution

19 or indemnity arising out of the action—

20 ‘‘(A) by nonsettling persons against the

21 settling defendant; and

22 ‘‘(B) by the settling defendant against any

23 nonsettling defendants.

24 ‘‘(2) REDUCTION.—If a person enters into a

25 settlement with the plaintiff prior to verdict or judg-
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1 ment, the verdict or judgment shall be reduced by

2 the greater of—

3 ‘‘(A) an amount that corresponds to the

4 percentage of responsibility of that person; or

5 ‘‘(B) the amount paid to the plaintiff by

6 that person.

7 ‘‘(g) CONTRIBUTION FROM NON-PARTIES IN INTER8 ESTS OF FAIRNESS.—

9 ‘‘(1) RIGHT OF CONTRIBUTION.—A person who

10 becomes liable for damages in any private action

11 under this title (other than an action under section

12 9(e) or 18(a)) may recover contribution from any

13 other person who, if joined in the original suit,

14 would have been liable for the same damages.

15 ‘‘(2) STATUTE OF LIMITATIONS FOR CONTRIBU16 TION.—Once judgment has been entered in any such

17 private action determining liability, an action for

18 contribution must be brought not later than 6

19 months after the entry of a final, nonappealable

20 judgment in the action.

21 ‘‘(h) DEFENDANT’S RIGHT TO WRITTEN INTERROG22 ATORIES ESTABLISHING SCIENTER.—In any private ac23 tion under this title in which the plaintiff may recover

24 money damages, the court shall, when requested by a de25 fendant, submit to the jury a written interrogatory on the
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1 issue of each such defendant’s state of mind at the time

2 the alleged violation occurred.’’.

3 (b) PROHIBITION OF REFERRAL FEES THAT FO4 MENT LITIGATION.—Section 15(c) of the Securities Ex5 change Act of 1934 (15 U.S.C. 78o(c)) is amended by add6 ing at the end the following new paragraph:

7 ‘‘(8) RECEIPT OF REFERRAL FEES.—No broker or

8 dealer, or person associated with a broker or dealer, may

9 solicit or accept remuneration for assisting an attorney in

10 obtaining the representation of any customer in any pri11 vate action under this title.’’.

12 SEC. 4. PREVENTION OF ‘‘FISHING EXPEDITION’’ LAWSUITS.

13 The Securities Exchange Act of 1934 (15 U.S.C. 78a

14 et seq.) is amended by inserting after section 10 the fol15 lowing new section:

16 ‘‘SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD AC17 TIONS.

18 ‘‘(a) SCIENTER.—

19 ‘‘(1) IN GENERAL.—In any private action aris20 ing under this title based on a fraudulent statement,

21 liability may be established only on proof that—

22 ‘‘(A) the defendant directly or indirectly

23 made a fraudulent statement;

24 ‘‘(B) the defendant possessed the intention

25 to deceive, manipulate, or defraud; and
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1 ‘‘(C) the defendant made such fraudulent

2 statement knowingly or recklessly.

3 ‘‘(2) FRAUDULENT STATEMENT.—For purposes

4 of this section, a fraudulent statement is a state5 ment that contains an untrue statement of a mate6 rial fact, or omits a material fact necessary in order

7 to make the statements made, in the light of the cir8 cumstances in which they were made, not mislead9 ing.

10 ‘‘(3) KNOWINGLY.—For purposes of paragraph

11 (1), a defendant makes a fraudulent statement

12 knowingly if the defendant knew that the statement

13 of a material fact was untrue at the time it was

14 made, or knew that an omitted fact was necessary

15 in order to make the statements made, in the light

16 of the circumstances in which they were made, not

17 misleading.

18 ‘‘(4) RECKLESSNESS.—For purposes of para19 graph (1), a defendant makes a fraudulent state20 ment recklessly if the defendant, in making such

21 statement, is guilty of highly unreasonable conduct

22 that (A) involves not merely simple or even gross

23 negligence, but an extreme departure from standards

24 of ordinary care, and (B) presents a danger of mis25 leading buyers or sellers that was either known to
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1 the defendant or so obvious that the defendant must

2 have been consciously aware of it. For example, a

3 defendant who genuinely forgot to disclose, or to

4 whom disclosure did not come to mind, is not reck5 less.

6 ‘‘(b) REQUIREMENT FOR EXPLICIT PLEADING OF

7 SCIENTER.—In any private action to which subsection (a)

8 applies, the complaint shall specify each statement or

9 omission alleged to have been misleading, and the reasons

10 the statement or omission was misleading. The complaint

11 shall also make specific allegations which, if true, would

12 be sufficient to establish scienter as to each defendant at

13 the time the alleged violation occurred. It shall not be suf14 ficient for this purpose to plead the mere presence of facts

15 inconsistent with a statement or omission alleged to have

16 been misleading. If an allegation is made on information

17 and belief, the complaint shall set forth with specificity

18 all information on which that belief is formed.

19 ‘‘(c) DISMISSAL FOR FAILURE TO MEET PLEADING

20 REQUIREMENTS; STAY OF DISCOVERY; SUMMARY JUDG21 MENT.—In any private action to which subsection (a) ap22 plies, the court shall, on the motion of any defendant, dis23 miss the complaint if the requirements of subsection (b)

24 are not met, except that the court may, in its discretion,

25 permit a single amended complaint to be filed. During the
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1 pendency of any such motion to dismiss, all discovery and

2 other proceedings shall be stayed unless the court finds

3 upon the motion of any party that particularized discovery

4 is necessary to preserve evidence or to prevent undue prej5 udice to that party. If a complaint satisfies the require6 ments of subsection (b), the plaintiff shall be entitled to

7 conduct discovery limited to the facts concerning the alleg8 edly misleading statement or omission. Upon completion

9 of such discovery, the parties may move for summary

10 judgment.

11 ‘‘(d) RELIANCE AND CAUSATION.—

12 ‘‘(1) IN GENERAL.—In any private action to

13 which subsection (a) applies, the plaintiff shall prove

14 that—

15 ‘‘(A) he or she had knowledge of, and re16 lied (in connection with the purchase or sale of

17 a security) on, the statement that contained the

18 misstatement or omission described in sub19 section (a)(1); and

20 ‘‘(B) that the statement containing such

21 misstatement or omission proximately caused

22 (through both transaction causation and loss

23 causation) any loss incurred by the plaintiff.

24 ‘‘(2) FRAUD ON THE MARKET.—For purposes

25 of paragraph (1), reliance may be proven by estab-
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1 lishing that the market as a whole considered the

2 fraudulent statement, that the price at which the se3 curity was purchased or sold reflected the market’s

4 estimation of the fraudulent statement, and that the

5 plaintiff relied on that market price. Proof that the

6 market as a whole considered the fraudulent state7 ment may consist of evidence that the statement—

8 ‘‘(A) was published in publicly available re9 search reports by analysts of such security;

10 ‘‘(B) was the subject of news articles;

11 ‘‘(C) was delivered orally at public meet12 ings by officers of the issuer, or its agents;

13 ‘‘(D) was specifically considered by rating

14 agencies in their published reports; or

15 ‘‘(E) was otherwise made publicly available

16 to the market in a manner that was likely to

17 bring it to the attention of, and to be consid18 ered as credible by, other active participants in

19 the market for such security.

20 Nonpublic information may not be used as proof

21 that the market as a whole considered the fraudu22 lent statement.

23 ‘‘(3) PRESUMPTION OF RELIANCE.—Upon proof

24 that the market as a whole considered the fraudu25 lent statement pursuant to paragraph (2), the plain-
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1 tiff is entitled to a rebuttable presumption that the

2 price at which the security was purchased or sold re3 flected the market’s estimation of the fraudulent

4 statement and that the plaintiff relied on such mar5 ket price. This presumption may be rebutted by evi6 dence that—

7 ‘‘(A) the market as a whole considered

8 other information that corrected the allegedly

9 fraudulent statement; or

10 ‘‘(B) the plaintiff possessed such corrective

11 information prior to the purchase or sale of the

12 security.

13 ‘‘(4) REASONABLE EXPECTATION OF INTEGRITY

14 OF MARKET PRICE.—A plaintiff who buys or sells a

15 security for which it is unreasonable to rely on mar16 ket price to reflect all current information may not

17 establish reliance pursuant to paragraph (2). For

18 purposes of paragraph (2), the following factors

19 shall be considered in determining whether it was

20 reasonable for a party to expect the market price of

21 the security to reflect substantially all publicly avail22 able information regarding the issuer of the security:

23 ‘‘(A) The weekly trading volume of any

24 class of securities of the issuer of the security.
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1 ‘‘(B) The existence of public reports by se2 curities analysts concerning any class of securi3 ties of the issuer of the security.

4 ‘‘(C) The eligibility of the issuer of the se5 curity, under the rules and regulations of the

6 Commission, to incorporate by reference its re7 ports made pursuant to section 13 of this title

8 in a registration statement filed under the Se9 curities Act of 1933 in connection with the sale

10 of equity securities.

11 ‘‘(D) A history of immediate movement of

12 the price of any class of securities of the issuer

13 of the security caused by the public dissemina14 tion of information regarding unexpected cor15 porate events or financial releases.

16 In no event shall it be considered reasonable for a

17 party to expect the market price of the security to

18 reflect substantially all publicly available information

19 regarding the issuer of the security unless the issuer

20 of the security has a class of securities listed and

21 registered on a national securities exchange or

22 quoted on the automated quotation system of a na23 tional securities association.

24 ‘‘(e) ALLOCATION OF LIABILITY.—
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1 ‘‘(1) JOINT AND SEVERAL LIABILITY FOR

2 KNOWING FRAUD.—A defendant who is found liable

3 for damages in a private action to which subsection

4 (a) applies may be liable jointly and severally only

5 if the trier of fact specifically determines that the

6 defendant acted knowingly (as defined in subsection

7 (a)(3)).

8 ‘‘(2) PROPORTIONATE LIABILITY FOR RECK9 LESSNESS.—If the trier of fact does not make the

10 findings required by paragraph (1) for joint and sev11 eral liability, a defendant’s liability in a private ac12 tion to which subsection (a) applies shall be deter13 mined under paragraph (3) of this subsection only

14 if the trier of fact specifically determines that the

15 defendant acted recklessly (as defined in subsection

16 (a)(4)).

17 ‘‘(3) DETERMINATION OF PROPORTIONATE LI18 ABILITY.—If the trier of fact makes the findings re19 quired by paragraph (2), the defendant’s liability

20 shall be determined as follows:

21 ‘‘(A) The trier of fact shall determine the

22 percentage of responsibility of the plaintiff, of

23 each of the defendants, and of each of the other

24 persons or entities alleged by the parties to

25 have caused or contributed to the harm alleged
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1 by the plaintiff. In determining the percentages

2 of responsibility, the trier of fact shall consider

3 both the nature of the conduct of each person

4 and the nature and extent of the causal rela5 tionship between that conduct and the damage

6 claimed by the plaintiff.

7 ‘‘(B) For each defendant, the trier of fact

8 shall then multiply the defendant’s percentage

9 of responsibility by the total amount of damage

10 suffered by the plaintiff that was caused in

11 whole or in part by that defendant and the

12 court shall enter a verdict or judgment against

13 the defendant in that amount. No defendant

14 whose liability is determined under this sub15 section shall be jointly liable on any judgment

16 entered against any other party to the action.

17 ‘‘(C) Except where contractual relationship

18 permits, no defendant whose liability is deter19 mined under this paragraph shall have a right

20 to recover any portion of the judgment entered

21 against such defendant from another defendant.

22 ‘‘(4) EFFECT OF PROVISION.—This subsection

23 relates only to the allocation of damages among de24 fendants. Nothing in this subsection shall affect the
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1 standards for liability under any private action aris2 ing under this title.

3 ‘‘(f) DAMAGES.—In any private action to which sub4 section (a) applies, and in which the plaintiff claims to

5 have bought or sold the security based on a reasonable

6 belief that the market value of the security reflected all

7 publicly available information, the plaintiff’s damages

8 shall not exceed the lesser of—

9 ‘‘(1) the difference between the price paid by

10 the plaintiff for the security and the market value of

11 the security immediately after dissemination to the

12 market of information which corrects the fraudulent

13 statement; and

14 ‘‘(2) the difference between the price paid by

15 the plaintiff for the security and the price at which

16 the plaintiff sold the security after dissemination of

17 information correcting the fraudulent statement.’’.

18 SEC. 5. ESTABLISHMENT OF ‘‘SAFE HARBOR’’ FOR PRE19 DICTIVE STATEMENTS.

20 The Securities Exchange Act of 1934 (15 U.S.C. 78a

21 et seq.) is amended by adding at the end the following

22 new section:
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1 ‘‘SEC. 37. APPLICATION OF SAFE HARBOR FOR FORWARD2 LOOKING STATEMENTS.

3 ‘‘(a) SAFE HARBOR DEFINED.—In any action arising

4 under this title based on a fraudulent statement (within

5 the meaning of section 10A), a person shall not be liable

6 for the publication of any projection if—

7 ‘‘(1) the basis for such projection is briefly de8 scribed therein, with citations (which may be gen9 eral) to representative sources or authority, and a

10 disclaimer is made to alert persons for whom such

11 information is intended that the projections should

12 not be given any more weight than the described

13 basis therefor would reasonably justify; and

14 ‘‘(2) the basis for such projection is not inac15 curate as of the date of publication, determined

16 without benefit of subsequently available information

17 or information not known to such person at such

18 date.

19 ‘‘(b) AUTOMATIC PROTECTIVE ORDER STAYING DIS20 COVERY; EXPEDITED PROCEDURE.—In any action arising

21 under this title based on a fraudulent statement (within

22 the meaning of section 10A) by any person, such person

23 may, at any time beginning after the filing of the com24 plaint and ending 10 days after the filing of such person’s

25 answer to the complaint, move to obtain an automatic pro26 tective order under the safe harbor procedures of this sec-
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1 tion. Upon such motion, the protective order shall issue

2 forthwith to stay all discovery as to the moving party, ex3 cept that which is directed to the specific issue of the ap4 plicability of the safe harbor. A hearing on the applicabil5 ity of the safe harbor shall be conducted within 45 days

6 of the issuance of such protective order. At the conclusion

7 of the hearing, the court shall either (1) dismiss the por8 tion of the action based upon the use of a projection to

9 which the safe harbor applies, or (2) determine that the

10 safe harbor is unavailable in the circumstances.

11 ‘‘(c) REGULATORY AUTHORITY.—In consultation

12 with investors and issuers of securities, the Commission

13 shall adopt rules and regulations to facilitate the safe har14 bor provisions of this section. Such rules and regulations

15 shall—

16 ‘‘(1) include clear and objective guidance that

17 the Commission finds sufficient for the protection of

18 investors,

19 ‘‘(2) prescribe such guidance with sufficient

20 particularity that compliance shall be readily ascer21 tainable by issuers prior to issuance of securities,

22 and

23 ‘‘(3) provide that projections that are in compli24 ance with such guidance and that concern the future

25 economic performance of an issuer of securities reg-
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1 istered under section 12 of this title will be deemed

2 not to be in violation of section 10(b) of this title.’’.

3 SEC. 6. RULE OF CONSTRUCTION.

4 Nothing in the amendments made by this Act shall

5 be deemed to create or ratify any implied private right

6 of action, or to prevent the Commission by rule from re7 stricting or otherwise regulating private actions under the

8 Securities Exchange Act of 1934.

9 SEC. 7. EFFECTIVE DATE.

10 This Act and the amendments made by this Act are

11 effective on the date of enactment of this Act and shall

12 apply to cases commenced after such date of enactment.

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